CHAPTER XXIII
THE CONSORTIUM FOR FINANCING CHINA

1

If all goes well, the open shop in international finance is a thing of the past; at least so far as China goes. On May 11, 1920, exactly eighteen months after the signing of the armistice, Japan formally declared her willingness to enter the new consortium for lending money to China, and on October 15, following, representatives of the British, French, Japanese, and American banking-groups met in New York and there signed the provisions by which they are for the next five years going to finance China under what is known as the Consortium Agreement.

For a full year after the signing of the armistice, Great Britain, France, and America had been ready to act in consort in the matter of future loans to China, but Japan insisted on excluding from the terms of the agreement international activity in Manchuria and Eastern Inner Mongolia. These two provinces have virtually become Japanese territory. Into these she has extended her railroads or added to those built by Russia, and over these she watched as a hen over ducklings. And because she strenuously sought to manœuver the Allies into admitting her prior rights to these regions, the consummation of the Consortium Agreement was delayed and delayed. Japan finally yielded, at the same time claiming that the powers conceded her special interests; while they, through their chief representative, Mr. Thomas W. Lamont, claimed that Japan waived these interests. We shall presently see what happened, but in the meantime it is obvious that both yielded and both won out,—and that no nation is to-day sufficiently powerful and self-contained to be able to stand apart from the rest of the world. The closed shop in international finance has been ushered in, and the union of world bankers is now known as the Consortium.

In a chapter it is hardly possible to make more than a hasty survey of so intricate a stretch of history. China before the war with Japan was free from debt, but in order to meet the indemnity demanded by Japan she was compelled to raise money abroad. The scramble among the foreign powers to advance this money gave China certain advantages. Her own capitalists had money enough to pay off this indemnity immediately, but they did not trust their government and hoarded their funds. They knew that with the Oriental system of "squeeze" only a fraction of it would succeed in freeing their country.

Another factor conspired to introduce alien domination over China,—her lack of railroads and modern industries. She had wealth, man-power, everything that an isolated nation could possibly desire, but she was no longer an isolated nation, and she had nothing that an active nation among nations needed for its very existence. Instantly, along with the loans, came concessions for railroad-building, and the development of China began. So deeply was China getting embroiled in alien machinations that five years later, seeing that the young emperor himself, Huang-Hsu, was head-over-heels in love with Western ways, the reactionaries precipitated the Boxer Uprising in 1900. This only resulted in another overwhelming indemnity, which China has not yet succeeded in paying off. Consequently, more loans had to be made, and more urgent still became the necessity for means of transportation and for the modernization of industry.

The Russo-Japanese War, which ordinarily might have meant a modicum of relief to China, only succeeded in entrenching her enemy much more securely at her very door, and another period of alien scrambling over Chinese loans set in. Coöperation among various groups of foreign bankers regardless of nationality was not unknown, for absolute competition would most likely have been fatal. But thoroughly thought-out getting together was, in view of the existing jealousy among nations, inconceivable. Still, to such a pass had this suicidal competition come that by 1909 a consortium was proposed which aimed to include Russia, Japan, Germany, France, England, and America. It began to work, but Secretary of State Knox made a proposal for the neutralization and internationalization of the Manchurian railway system which met with a cold no from Japan. Shortly afterward Japan made an agreement with Russia which completely frustrated Knox's proposals, and the thing virtually fell through.

In 1913, President Wilson took the matter in hand. He refused to become a party to a scheme which, in his estimation, instead of working for the rehabilitation of China and the Open Door bound her helplessly. And ever since China has been getting "the crumby side" of every deal. For the plan as it then existed had no provisions against the pernicious practice of marrying China to one power after another with concessions, without giving any guaranty of the preservation of her dower rights,—freedom in her industrial and political affairs.