An American Diplomat in China

by Paul S. Reinsch

In this same month the affairs relating to the Standard Oil Company's exploration were finally wound up. The geological experts they sent over had not "struck" oil enough to pay. Drilling expeditions had come over, which by the spring of 1915 had found traces of oil, and the Chinese were considering giving them further areas for investigation. But as they wished to modify their contract relating to production and refining activities, Mr. E.W. Bemis, vice-president of the company, came on and negotiated for a whole summer with the officials. He left without concluding an agreement. Not only had he received the support of the Legation at Peking and of the American Government, but the Chinese were anxious to extend the privileges of exploration; his decision to abandon the negotiations must therefore have been based on a total change of policy. The company had apparently decided not to develop production in China, but to continue merely its marketing business. It was to be expected that competitors would be discouraged from undertaking similar explorations. Mr. Hsiung Hsi-ling, ex-Premier and chief of the National Oil Administration, called on me at this time and gave me an account of his final negotiations with the company. He had offered to establish a joint Chinese and American enterprise if more extensive search should reveal oil deposits of great value.

The mineral situation in China was being surveyed during this time by representatives of the New York Orient Mines Company, Mr. John W. Finch, Dr. F. Bain, and Mr. Joseph E. Johnson, Jr. The attitude of these men, whose training as observers and clean-cut scientific methods gave their conclusions a particular cogency and definiteness, interested me. They had found that the iron deposits of China were not so extensive as is usually supposed. They believed, also, that the market for iron products could only gradually be developed with the growth of the general industry. They had analyzed the organization of the Hanyehping Iron Works, and learned that its lack of success was due to faulty planning, which necessitated the bringing of both the coal and iron ore from a distance to the central point of manufacture. They believed that for the time there was room for only one first-class iron and steel enterprise in China. As smaller enterprises would hardly pay, they favoured a national industrial plant, to be equipped on a scale to assure every advantage of short transport and economic production. The Premier gave them permission to investigate China's ore deposits, with a view to suggesting a basis upon which a national industry could be founded with temporary American financial assistance.

The Chinese Government had fully decided to adhere to its policy of nationalizing the iron deposits, and the decree already issued by Yuan Shih-kai was to be reënacted by parliament. The Chinese were eager to establish a national steel industry. It should help supply the national needs for iron products, with the aid, if necessary, of foreign capital. They would not take the sole assistance of the Japanese, because they knew that in that case the Chinese industry would be confined to the production of pig-iron and would become the slave of the steel industry of Japan. China would furnish raw materials; Japan, the finished products.

Another secret agreement, this time with Japan, came to light. A loan of 3,000,000 yen had been concluded with Japanese banks in the latter part of 1916, and the secret agreement attached thereto gave Japanese interests the right to meet the lowest price of any competitor in bidding on any materials for the Chinese telephone and telegraph service. Of course, this would have destroyed the equal opportunity for other nationals in this business. The contract had been signed by a notoriously corrupt official, who was completely under Japanese influence and had since fled to escape prosecution for corruption.

I protested strongly. I told the Minister of Communications that the provision was monopolistic, therefore in conflict with the treaties. His answer disavowed the existence of the provision. But I knew it did exist among the original agreements; nevertheless, the awards actually made at this time, after my protest, were in accordance with the bids submitted, and with the recommendations of the experts.

In a talk I had with the Premier during the spring of 1917 I advised him to take up quickly the offer of the American International Corporation to float the first bond issue of $6,000,000 on the railway to be constructed by the Siems-Carey Company. The Ministry of Communications was obstructing it, acting under Japanese influences. I told the Premier that Mr. Carey's authority to conclude the loan might be revoked at any time, whereupon he promised to instruct the acting Vice-Minister of Communications to complete the transaction forthwith.

The Ministry of Communications was then in charge of one Chuan Liang, who had, in fact, long been considered as representing the Japanese element. He had married a Japanese woman. Chuan refused obstinately, first, to take up the negotiations, then, to advance them when they were begun. The rate of interest and terms of issue offered were fair, considering existing market values; but the American company agreed to make a concession and raise the issue price.

Chuan continued to be stubborn. I spoke to the Premier, General Tuan, about it; President Li himself gave his support, and the orders to make the loan were thus reënforced. Still delay. After General Tuan's retirement, Dr. Wu Ting-fang as acting Premier again issued orders, which were repeated for the third time by General Chiang when he, in turn, displaced Doctor Wu. All these high officials concurred. Yet, in an astounding manner, the acting vice-minister, together with a ring of petty officials in his ministry and in the cabinet office, blocked the carrying out of the orders issued by the President, the Premier, and the whole cabinet.

But Dr. Wu Ting-fang was anxious to see the contract carried out. He suggested that I write a note demanding its execution, which I did on June 6th. Wu intended to have the successive orders published in the Government Gazette, and, thus published, to be communicated to me officially by the Foreign Office in response to my note. But the petty ring delayed the publication. Meanwhile, the answer of the acting vice-minister was prepared and inserted in the Government Gazette on the 27th, before the Foreign Office could communicate it to me. It presented unfairly the proposals of the American company, its language was almost insulting.