From the President I went to the Premier. By this time he was not so friendly. Time had elapsed; the glitter of Japanese money had been made to catch his eye. I inquired concerning the Japanese loan of 20,000,000 yen, and incidental arrangements connected therewith. "Does not China need to keep a credit balance in a foreign country," he asked; "and would not the same arrangements be made with the United States if a loan were made there?" Curiously, he added, "There is no need, yet, of convoking parliament; no time has been set for it." A militarist leader, he was being comforted by hopes of Japanese backing. But he was quite willing to send a big army to Europe.
The Japanese were alive to this situation. Professor Hori was sent to lecture on finance before an association which Liang Chi-chao had helped form. The theme of his opening lecture was the bankruptcy of the Western powers. China must rely on Japan for money. Following Hori came a commission of ten officials from Tokyo to study Chinese financial administration. Then came Doctor Kobayashi to act as Japan's expert in China. Prominent posts, it was freely said, were to be created for "currency reform," posts which would be held by Japanese. Later on Baron Sakatani came, to study Chinese finance.
From Japan came loans and offers of loans. They lent 10,000,000 yen through the Yokohama Specie Bank. This was merely an advance on a future reorganization loan. Then a loan, labelled "Industrial," of 20,000,000 yen, was made through the Bank of Communications. Two Japanese financial cliques sprang up and flourished. Liang sat at the receipt of customs at the Ministry of Finance, dealing with the Yokohama Specie Bank; the other clique, headed by Tsao Ju-lin and Lu Tsung-yu, played in with the tri-fold group of the Industrial Bank of Japan, the Bank of Chosen, and the Bank of Taiwan (Formosa). With the loan dubbed "Industrial"—this to evade the provisions of the reorganization loan—came Japanese advisorships in the Chinese Bank of Communications. Not by the remotest chance would the loan be used by the bank to strengthen its depreciated notes. It went for politics and the military.
The Japanese financiers coolly calculated that the British and French banks would fail to take up their option on the currency reform loan, which they had held since 1911. That would leave the field clear for Japan. The French and British legations got busy about this, and so did we. As a consequence the American Government resumed its interest in currency reform in China, and the sigh of relief was almost audible. I called on Minister Liang. Did he not remember the Treaty of 1903 and America's long-continued interest in Chinese currency betterment? There was the Jenks-Conant Monetary Commission; there were the long negotiations conducted by Willard Straight, and the resultant Currency Loan Agreement of 1911. "I remember all these things," Liang responded; "America should lead in this matter. Our banknote issues are being shot to pieces by local issuance of worthless paper. The Tuchuns have bent the national banks to their purposes. The books of the banks must be kept and made public. I suggest appointing three principal foreign experts on a reform of the entire currency. Let them be an American, a European, and a Japanese."
The currency loan option was extended until the following April.
But Japan had other shots in her locker. Suddenly the Japanese press bristled with news of a projected "arms alliance" with China. It sounded almost menacing. The Tai Hei Company, originally organized by the Japanese Government to supply arms to Russia, was going to furnish China with her armament. General Tuan said that he had long been urged to buy a "limited amount" of war material from Japan. The Japanese minister chimed in with the statement that, inasmuch as the United States refused to sell steel to Japan—under the war trade restriction—the time was come for Japan to control China's ore deposits. "Japan is to sell China arms. Why may she not have the raw materials for them?" he asked.
The disproportion involved in this demand served to amuse the Chinese. The deposits on which Japan's eyes were fixed amounted to from forty to fifty million tons of ore—enough to make several guns.
Along with these negotiations came proposals to establish Japanese military and arsenal advisorships.
I asked the Premier about these reports. I told him we could not object to the purchase of arms by China from any source whatever. But in negotiations for loans and concessions the United States had held unswervingly to the principle of the "open door" and no special privileges. As it sought no control of this kind, it was equally interested that none should be given to any other power.
"Have you not," the Premier asked me, "found me always candid and true?" Most sincerely I assured him I had.