FOOTNOTES:

CHAPTER VII

PROMPT PROPOSALS FOR AMERICAN ACTION

The Chinese were not slow in showing what conclusions they deduced from the withdrawal of the American Government from the Six-Power Consortium. On November 27th, two cabinet ministers called on me for a private conversation. Following this interview Mr. Chang Chien, recognized master of antique Chinese learning, but also Minister of Industries and Commerce, came to me. I will relate the substance of what passed on these two occasions, beginning with Mr. Chang.

Chang Chien carried off first honours in the great metropolitan examinations of Peking under the old régime in 1899. He is a scholar par excellence of the Chinese classics, and his chirography is so famous that he has been able to support a college out of the proceeds of a sale of examples of his writing. But he has not rested satisfied with the ancient learning. In the region of his home, Nan Tung-chow, on the banks of the Yangtse, he has established schools, factories, and experiment stations for the improvement of agriculture and industry. He had financial reverses. People at this time still doubted whether he would be permanently successful, although they admitted that he had given impetus to many improvements. Since then his enterprises have flourished and multiplied. He has become a great national figure, whose words, spoken from an honest desire for right public action, have decisive weight with the nation. While he still represents the old belief that the superior man of perfect literary training should be able successfully to undertake any enterprise and to solve any practical difficulty—which belief is contrary to the demands of our complex modern life for specialization—yet he has succeeded in bending his intelligence to thoroughly modern tasks.

As would be expected from his high culture as a Chinese scholar, Mr. Chang Chien is a man of refinement and distinction of manners, than which nothing could be more considerate and more dignified. The Chinese are exceedingly sensitive to the thought and feeling of any one in whose company they happen to be; if their host is busy or preoccupied, no matter how politely he may receive them, they will nevertheless sense his difficulty and will cut their visit short. They also have great tact in turning a conversation or avoiding discussions they are not ready for, and they can do this in a manner which makes it impossible to force a discussion without impolite insistence. The smoothness and velvetiness of Chinese manners, together with the absence of all servile assent and the maintenance of complete independence of discussion, are marvellous and bear evidence to thousands of years of social training.

Mr. Chang Chien was particularly interested in river and harbour development, and in plans for the drainage of those regions of China which are subject to periodical floods. It was contemplated to establish a special conservancy bureau under whose care surveys for important projects were to be undertaken. I questioned Mr. Chang concerning the status of the Hwai River conservancy scheme for the prevention of floods in the northern portion of the provinces of Kiangsu and Anhui, the region from which he came.

"I have already established a special engineering school," he replied, "in order to train men for this work. A large part of the survey has been made, and it can be entirely completed by a further expenditure of 35,000 taels.

"Besides the enormous benefit of such a work to all the adjoining agricultural lands," he continued, "there would be reclaimed nearly 3,000,000 acres which could now not be used at all, although their soil is inexhaustibly fertile. The land thus reclaimed would be salable immediately for at least $40 an acre. Would not this alone be ample security for a large conservancy loan? $25,000,000 would do the work."

Mr. Chang was also interested in the establishment of a commercial and industrial bank, in copartnership with American capitalists. "Such a bank," he said, "would assist in furnishing the capital for the works of internal improvement."

It was quite plain that Mr. Chang looked upon a bank as an institution which would invest its capital in such enterprises—a conception which was then quite current among the Chinese. They had not yet fully realized that in the modern organization of credit a bank may act as a depository and may make temporary loans, but more permanent investments must ultimately be placed with individual capitalists, with banks acting only as underwriting and selling agencies.

As we talked about the execution of these large and useful projects, Mr. Chang repeatedly made expressions such as this: "I prefer American coöperation. I am ready to employ American experts to work out the plans and to act as supervisors. But please to bear in mind, these works may not be undertaken without raising a large part of the needed funds in the United States or in other countries."

When the two cabinet ministers called they brought no interpreter. "The matters about which we wish to talk," they said, "are so important that we wish to keep the discussion confined to as few persons as possible. We bring the ideas of President Yuan Shih-kai and his government with respect to what Americans might do in China."

They first gave me a review of the recent development of the Russo-Japanese entente with respect to Manchuria and Mongolia. They expressed their belief that an understanding existed between these powers to treat outer Mongolia as a region within which Russian control should not be obstructed, and, vice versa, to allow a free hand to Japan, not only in southern Manchuria, but also in eastern Mongolia. Continuous activity of the Japanese in south China, in stirring up opposition to the Central Government, indicated a desire to weaken China, and, if possible, to divide it against itself. The extraordinary efforts made by Japan to increase her naval establishment were also particularly mentioned. The impression their discourse conveyed was that Japan was engaged in a strong forward policy in China, and that in this she had the countenance and support of Russia.

My visitors then passed on to the reasons why the Chinese entertained the hope that America would give them its moral support to the extent of opposing the inroads made by Japan and Russia, and of coöperating with Great Britain and other powers favourable to the Open Door policy in preventing attempts to break up the Chinese Republic. They fully realized the improbability of an alliance between China and the United States, but laid stress on the parallel interests of the two countries, and particularly on the sympathy engendered through following the principles of democratic government. Having become a republic, the Chinese Government is brought into peculiarly close relationship to the United States; it sees in the United States its most sincere and unselfish friend, and realizes the importance of American moral support.

Descending to particulars, the ministers pointed out that while China appreciated and valued the friendly interest and counsel of the United States, it was disappointing that so very little had been done by America, while the European Powers and Japan should have taken such a very important part in the development of the resources of China. They said that the Chinese Government and people were desirous of affording the Americans unusual opportunities, should they be ready to coöperate.

Taking up specific enterprises, they stated that the Government was quite willing to ratify and carry out the contract made in 1910 by the Imperial Government with the Bethlehem Steel Corporation. Under this contract they intended to build vessels adapted for commercial purposes, but convertible into warships somewhat like the vessels of the Russian Volunteer Fleet. The establishment of a steamship line to the United States, directly or by way of the Panama Canal, was greatly desired by the Government.

It was recalled that at the time the naval mission of Prince Tsao visited the United States, the matter of lending American experts as instructors for the Chinese navy came up for discussion, and such assistance was promised by the American Administration under President Taft. The assistance contemplated was to be instructional and technical, not involving matters of policy or suggesting a political alliance, and of a nature such as had been in the past given by other nations, particularly Great Britain. The ministers stated that the Chinese Government still intended to avail itself of this assistance should the need for it arise, and that American coöperation in a matter like this was preferred because of the political disinterestedness of the American Government.

The ministers then took up more purely industrial enterprises, and dwelt particularly on plans for river and harbour improvement, mentioning the Hwai River region and other districts where agricultural pursuits are interrupted by destructive floods. As the Central Government contemplated the establishment of a national bureau to provide for these matters, the ministers suggested that the American Government would be invited to give its assistance by lending experts to plan and conduct the proposed works. They expressed their belief that the experience of Americans in such enterprises had qualified them above any other nation for coping with these problems of China.

Other matters were taken up, such as the possible creation of a tobacco monopoly, from which the ministers expected both increased revenue and a more effective organization of tobacco production throughout China. It was not their desire to oust the British-American Tobacco Company, but they suggested that an arrangement would be made whereby this company might act as the selling agent of the Chinese Government.

Another subject was the exploration of China for petroleum. They stated that the Government wished that the development of oil fields should be undertaken. On account of the manner in which some other nations were wont to extend the scope of any concessions of this kind so as to establish general claims of preference, particularly as to railway rights, the Government much preferred to take up this matter with Americans.

It was apparent that these men entertained high hopes of American activity in China, and that they were ready to do their part in making the conditions favourable. Their minds were alive with plans of development. Both because of American experience with similar problems and of the American spirit of fairness, they believed that great benefit would result if Americans were to become prominently active in the vast industrial transformation which they anticipated in the immediate future.

As this conversation passed from topic to topic, touching on proposals of moment, I could not but feel that a new spirit had surely arisen in China. It would have been inconceivable under the old régime for high officials, trained in the traditional formalism and reticent with inherited distrust of the foreigner, to approach a foreign representative thus frankly, laying before him concrete proposals for joint action. In the past, as we know, it was the foreigners who had desired changes and new enterprises and who had in and out of season pressed them upon the reluctant and inert Chinese officials. But here were men who realized that it is the function of the Government to plan and to initiate; and they were ready to go to any length in making advances to a country in whose motives they had full confidence.

It was impossible not to be fascinated by the prospects that were here unfolded. A country of vast resources in natural wealth, labour, power, and even in capital, was turning toward a new form of organization in which all these forces were to be made to work in larger units, over greater areas and with more intensive methods than ever before. The merely local point of view was giving way to the national outlook. National resources and industries were looked at not from the point of view alone of any local group interested but of the unity of national life and effort. To know that in this great task of reorganization, Americans would be most welcome as associates and directors; that they were spontaneously and sincerely desired in order that all these materials and resources might the more readily be built into a great and effective unity of national life—that, indeed, could not fail to be a cause for pride and gratification to an American. The only disturbing thought was the question whether Americans were ready to appreciate the importance of the opportunity here offered. Yet there could be no doubt that every energy must be applied in order to make them realize the unprecedented nature of the opportunities and the importance to America herself of the manner in which these materials were to be organized so as to promote general human welfare rather than selfish exploitation and political ambition.

The Russian efforts to strengthen their position in Mongolia, to which these two visitors had alluded, had at this time brought fruit in the form of an agreement with China to have the "autonomy" of Mongolia recognized. A result and byplay of these negotiations came to the notice of the foreign representatives in Peking at a meeting of the diplomatic corps on December 11th. The meeting was at the British Legation, to which Sir John Jordan had by this time returned.

The head of the large establishment of the Russian Legation was a young man, Mr. Krupenski. Trained under some of the ablest diplomats of Russia and having spent many years in Peking as secretary, he had manifestly not been selected by chance. With his English secretary he occupied his vast house alone, being unmarried. He entertained brilliantly, ably seconded therein by the Russo-Asiatic Bank across the way. Besides his thorough understanding of the Chinese, Mr. Krupenski had a valuable quality in his ability to shed all the odium that might attach to the policy of his government, as a duck sheds water. He appeared at times greatly to enjoy mystifying his colleagues, to judge by his amused and unconcerned expression when he knew they were guessing as to what his last move might mean. Mr. Krupenski is tall, florid, unmistakably Russian. During my first visit with him he plunged in medias res concerning China. Though he probably wondered what move I might contemplate after the Manchurian proposals of Mr. Knox and America's withdrawal from the Six-Power Group, he gave no hint of his feelings, which undoubtedly did not contemplate me as likely to become an intimate associate in policies. When I left him I knew that here was a man, surrounded by competent experts in finance, language, and law, who could play with the intricacies of Chinese affairs and take advantage of opportunities and situations of which others would not even have an inkling.

At the meeting of December 11th the Russian minister stated that he desired to make an announcement, and proceeded to tell his colleagues quite blandly that his government had decided to withdraw the legation guards and other Russian troops from north China, and that they suggested to the other governments to take similar action.

This announcement caused surprise all around the table. Questions came from all directions: "Is this action to be immediate?" "What is the purpose of your government?" "What substitute for this protection do you suggest?" These and many more. The Russian minister seemed amused by the excitement he had caused. He allowed none of the questioners to worry him in the least, or to draw him out. With a quizzical and non-committal smile he let the anxious surmises of his colleagues run off his back. He shrugged his shoulders and said: "These are the instructions of my government. Their purpose—I do not know." When the meeting adjourned, small groups walked off in different directions, all still intently discussing the meaning of this move. So, the legation guards were really very important! The first question put to me in Shanghai had related to them, and here I found the diplomatic corps thrown into excitement by the announcement that Russia was withdrawing her guard.

When I arrived at the Legation, where Mrs. Reinsch was receiving and where visitors in large numbers were taking tea and dancing to the music of the marine band, the news had evidently already preceded me, for several people asked me what had happened; and Putnam Weale and W.C. Donald, the British press representatives, were full of surmises. The interpretation generally accepted was that the Russians, and possibly the Japanese, were trying to put the other powers in a hole; if they did not withdraw their legation guards they might displease the Chinese Government, after what Russia had done; if they did withdraw them, they would give an advantage to Russia and Japan, powers who, on account of their proximity to China, could send large bodies of troops upon short notice.

From the attitude of the diplomats it had been apparent that the proposal of the Russians would not prove acceptable. For weeks the press was filled with attempts to gauge the true bearing of the Russian proposal. Looked at from this distance after the Great War, it is hard to imagine how so relatively unimportant a matter could cause excitement. Of course, the removal of the legation guard was not considered so important in itself, but it was of moment as an indication of what Russia might plan with respect to the further advance of her influence in China.

Probably Russia's action did not really contemplate any far-reaching consequences. The Russians were urging the Chinese Government to make an arrangement for Mongolian "autonomy," which could not but be intensely distasteful to the Chinese. The Russians had to offer something in return; with thorough knowledge of the old type of the Chinese official mind, they selected something which would not cost them anything, but which would be most gratifying to the Chinese Government. The Government looked upon the presence of foreign troops in Peking and in Chihli Province as incompatible with its dignity. Therefore, the Russian Government knew that through withdrawing its troops and calling upon the other governments to do likewise, an opportunity would be given the Chinese Government to claim an important victory, and the bitterness of renunciation with respect to Mongolia would thus be somewhat tempered. Yuan Shih-kai and the Government as such would probably take that view; but the Chinese as individuals were not likely thus to consider the presence of foreign troops an unmixed evil. These guards tended to stabilize the situation, also to prevent unconscionable acts or high-handed inroads by any individual powers. So far as the people of China were concerned, Russia might not gather much credit through this move.

CHAPTER VIII

A LITTLE VISION FOR CHINA

I have said that a little vision and the application of American scientific methods would transform China. Chang Chien had instanced the Hwai River valley, and the ease with which it might be made to bloom as the most fertile tract on the globe. China boasts the most skilled horticulturists and truck-farmers of any nation, and they breed its thousands of species of vegetables and flowering plants and shrubs. It is said of the Chinese gardener, that if there is a sick or weakened plant, he "listens and hears its cry," and nurses it into health like a mother. But now the multitudes in the flood-ridden districts must periodically expect the scarification of their gorgeous acres, the bearing away of their dwellings and loved ones on the remorseless floods.

Americans had for some time been aware of the possibilities of delivering from their curse these garden spots of earth. The American Red Cross, after giving $400,000 for relief of the severe famine in 1911, was advised by its representatives how such calamities might be prevented, and it set an American engineer at making surveys in the Hwai regions and suggesting suitable engineering works. Chang Chien, with his native school of engineers, was also investigating the flood conditions, just about the time the American group of financiers left the Six-Power Consortium. It might be expected that this American group would be reluctant immediately to start further enterprises in China; indeed, that it might even discourage others from starting. Hence I thought it essential to propose only such undertakings as would come naturally from past relationships or would help develop some American interest already established in China. I was attracted by this plan, sound, useful, and meritorious, to redeem the Hwai River region.

I found that the Chinese did not wish to take up this matter with any other nation than the United States, for they feared the territorial ambitions of the other powers and their desire to establish "spheres of influence" in China. To send in engineers, to drain and irrigate, meant close contacts; it might mean control over internal resources within the regions affected, for by way of security the foreign creditor would demand a mortgage upon the lands to be improved. Then there was the Grand Canal, a navigable watercourse, which would come within the scope of such works, and would give the foreign engineers and capitalists a direct means of penetrating the interior. Jealous of foreign political control in their domestic affairs, the Chinese were guarding their rights. But the American policy was traditionally non-aggressive, and I found that to fair-minded Americans the Chinese would grant concessions which no other nation might hope to secure.

I therefore asked through the Department of State what the American Red Cross might continue to do. Would it take steps toward the choosing of a reputable and efficient American engineering firm and have this firm supported by American capitalists, who might lend the Chinese Government the funds needed to reclaim the rich Hwai River region? The Red Cross responded favourably. I thereupon sought out Mr. Chang Chien, the scholar and minister, and got from him a definite agreement to entrust to the American Red Cross the selection of engineers and capitalists to carry out this great reform upon conditions laid down.

The minister and I had frequent conferences. We discussed carefully the engineering contracts, the conditions of the loan, the security. Every sentence in the proposed agreement had been weighed, every word carefully chosen; finally, on January 27, 1914, it was signed by Chang Chien as minister, and by myself in behalf of the American Red Cross. The J.G. White Corporation was chosen to finance the preliminary survey. Thus there were sent to China during the next summer three experts: Colonel (later Major General) Sibert, of the Panama Canal Commission; Mr. Arthur P. Davis, director of the United States Reclamation Service; and Prof. D.W. Mead, of the University of Wisconsin, an expert in hydraulic engineering.

Here was a beginning of great promise, and in a new direction.

But American enterprise had already affected the daily life of the Chinese in the field opened up by the Standard Oil Company. In fact, the lamp of Standard Oil had lighted China.

Now enter Mr. Yamaza, the Japanese minister. Japan, who had no oil in her lamp, wished to explore for it in China; so did other nations. But the American oil company, in a way which I shall detail, had gotten the concession. Moreover, the Bethlehem Steel Corporation had agreed for $20,000,000 to build a merchant fleet for China, convertible into cruisers—this to take the place of an old imperial contract for warships. At China's express request, and not at all because they were in that business, the Bethlehem people also consented to apply three millions of the whole sum to improve a Chinese port. Together with the Hwai River enterprise these American activities had put Japan on the alert. The Japanese press had distorted their significance, and now in the small Bethlehem contract Mr. Yamaza began to see things—a future Chinese mistress of the Asian seas, perhaps, and the Chinese littoral all besprinkled with naval ports. One evening Mr. Yamaza spoke to me about it, and at length; it was plain that his government meant some move.

Now Mr. Yamaza and his first secretary, Mr. Midzuno, were both unusually clever men. They drank a great deal. The minister explained that he did this for reasons of health, because, unless there were something he could give up if he should be taken sick, it might be very bad for him. I recall how Mr. Midzuno entertained a party at dinner by detailing his notable collection of expressions in various languages, of equivalents to the German term "Katzenjammer." Both of these men had previous Chinese experience and were intimately familiar with Chinese affairs. Yamaza was a man of great shrewdness; being under the influence of liquor seemed rather to sharpen his understanding. Taciturn and speaking in hesitating sentences, he would never commit himself to anything, but would deploy the conversation with great skill, in order to give his interlocutor every chance to do that very thing.

On the evening of this conversation we were guests of the manager of the Russo-Asiatic Bank. An amateur theatrical performance was in progress—three French "one-acters," the chief being "The Man Who Married a Dumb Wife," by Anatole France. Peking foreign society was there in force; the majority were gathered in the large salon where the stage was set, others promenading or conversing in small groups. In the intermission between two plays I encountered the Japanese minister, and, finding that he desired to talk, wandered with him to the smoking room, where we pre-empted a corner, whence during a long conversation we would catch now and then the echoes from the salon as the action on the stage rose to a more excited pitch.

Mr. Yamaza was more talkative than I had ever seen him. As was his custom, he had consumed ardent waters quite freely, but, as always, his mind was clear and alert. "In Shensi and Chihli provinces," he opened up, "the exertions of Japanese nationals in the matter of the concession to the Standard Oil Company have given them a right to be considered. I have been contending to the Chinese that Japan has a prior interest in the oil field of Shensi Province. Do you not know that Japanese engineers were formerly employed there?"

On my part, I expressed surprise that the Japanese papers should make so much noise about the American oil concession, whereas it was quite natural that Americans, who had done business in China for over a century, should occasionally go into new lines of enterprise.

But it soon became manifest that Mr. Yamaza was thinking of the Bethlehem Steel contract. "I must tell you," he said, "of the strategical importance of Fukien Province to my country." Then followed a long exposition. "China," he concluded, "has promised not to alienate this province to any other power, and Japan has repeatedly asserted an interest in that region."

He then repeated various surmises and reports concerning the nature of the Bethlehem contract. I told him quite specifically the nature of the agreement and about its long previous existence. Mr. Johnston, vice-president of the Bethlehem company, at the request of the Chinese Government had viewed various naval ports with the purpose of making an estimate of improvements which were most needed. I could not admit any sinister significance in this visit nor concede that Americans were not free to engage in port construction in any part of China.

While I had not been unguarded in my statements, I had assuredly not looked upon a conversation in such circumstances as a formal one. Yet I soon found out that a memorandum upon it was presented to the Department of State by the Japanese Ambassador in Washington, during an interview with Secretary Bryan on the question of harbour works in Fukien. I shall revert to this matter later.

A peculiarity of Chinese psychology was evinced after the Standard Oil contract had been signed. One year was given to select specific areas within which oil production was to be carried on as a joint enterprise of the Chinese Government and the American company, the ratio of property interest of the two partners being 45 to 55. The contract undoubtedly offered an opportunity for securing the major share in the development of any petroleum resources which might be discovered in China; for, once such a partnership has been established and the work under it carried out in an acceptable manner, an extension of the privileges obtained may confidently be looked for. But in itself the contract signed in February, 1914, was only a beginning. It denoted the securing of a bare legal right; and in China a government decree or concession is not in itself all-powerful. If its motives are suspected, if it has been obtained by pressure or in secrecy, if its terms are not understood or are believed to imply unjust burdens to certain provinces or to the people at large, then popular opposition will arise. This may not affect the legal character of the grant or the responsibility of the Government, but it will seriously obstruct the ready and profitable carrying out of the business. The obverse of this situation—the getting of a contract "on the square" and the demonstration that it is fair and just—finds every influence willing to coöperate.

But when the Standard Oil Company's contract had been signed, not much was publicly known about it save in general terms. Rival interests began to portray it as involving inroads upon the rights of the Chinese people, especially of the provinces of Shensi and Chihli. Stories of bribery were circulated in the papers. In the negotiations concluded at Peking no particular attention had been paid to local opinion, the suspicions of provincials were stirred, and an outcry speedily arose.

The representatives of the Standard Oil Company had left Peking. I informed the company that its interests were endangered. Its response was to send to Peking Mr. Roy S. Anderson, the American whose intimate knowledge of Chinese affairs has been referred to. Mr. Anderson held sessions with those who had objected, especially with the provincials of Shensi who were resident in Peking. He discussed with them the terms of the contract, pointing out the benefit to the provinces through the development of a large industry there. The Chinese always respond to reasonable discussion, and not many days later the very associations which had protested most vigorously against the agreement waited upon the Minister of Agriculture and Commerce with their congratulations. They promised the aid of the province in carrying out the contract. Had the contract not been straightforward and fair in its terms and free of undue influence in its making, such active support could not have been had.

It was then that the Chinese Government created an Oil Development Bureau, together with a River Conservancy Bureau for drainage works, including those projected in the Hwai River region. Of the new Oil Development Bureau the Prime Minister, Mr. Hsiung Hsi-ling, on his resignation from the cabinet in March, accepted the position as chief. He had been both Premier and concurrently Minister of Finance. Tall, good-looking, with full face and shining black hair, Mr. Hsiung speaks with great fluency in a high-pitched voice. Though he was a member of the Chin Pu Tang, or progressive party, he had been selected Premier by Yuan Shih-kai, who was fighting the democratic party (Kuo Min Tang), probably because he believed that parliament would reject him and he could then blame that body for obstructive tactics. It accepted him, and Yuan took another path to overthrow parliament. In his career Mr. Hsiung had been aided by the counsel and coöperation of his wife, who is exceptionally capable. Well-intentioned, broad-minded, given to Western methods, the Premier was handicapped during his term through relative inexperience in administrative and financial matters. He was pitted against men of shrewdness as politicians and of deep immersion in financial manipulations.

As chief of the Oil Development Bureau, Mr. Hsiung's first task was that of pointing out to the Japanese minister, Mr. Yamaza, whom the Japanese interests immediately pressed forward, that no monopoly of exploitation had been granted to the Standard Oil Company, for within a year the company would have to select specific and limited areas within the two provinces where production was to be carried on.

"The grant to Americans," the Japanese minister thereupon remarked, "seems to indicate that China does not care much about the international friendship of Japan."

Mr. Hsiung's reply was that this was a business arrangement, and the nationals of other countries as well—Great Britain, France, and Germany—had sought such concessions in the recent past. To the inquiry whether a similar agreement would be concluded with Japan for other provinces, the director replied that it would not at this time be convenient.

"Then I hereby notify you," Mr. Yamaza rejoined, "that in all likelihood I shall take up this matter with the Minister for Foreign Affairs."

Mr. Yamaza referred to the Japanese engineers who at one time worked in the oil fields of Shensi Province; whereupon Mr. Hsiung recalled that American and German engineers had formerly been employed in the Hanyehping iron enterprise; yet when that company made a loan agreement with Japanese interests, no objections had been made either by America or Germany.

This conversation illustrates the manner in which attempts are often made to establish prior claims with regard to enterprises in China by alleging a prior desire or the prior employment of individuals—considerations which would nowhere else be considered as establishing a preference or inchoate option. It is as much as to say that by merely expressing a wish for a thing one has already established a prior right to it should it be given out.

The making of two important contracts with the Chinese Government naturally attracted attention. Of the British press the North China Daily News repeated the judgment of its Peking correspondent: "The Americans deserve their success, for they have worked for it steadily and consistently."

The Daily News attributed this success primarily to the fact that since the days of Secretary Hay, American enterprise in China had been consistently pacific and benevolent. "In no country in the world," it declared, "can more be done through friendship and for friendship's sake than in China."

The German press, while inclined to be critical, still admitted the fairness of the contracts and the probable benefit to be derived therefrom by China, and spoke in disapproval of the Japanese attitude assumed toward the new oil enterprise. Later a long article appeared in the chief German paper in China (Ostasiatische Lloyd), in which the existence of a very far-reaching policy of economic penetration by America was surmised. The writer imagined that all the factors—educational, financial, and industrial—were being guided according to a complicated but harmonious plan to achieve the actual predominance of American interests in China.

The German minister, Von Haxthausen, spoke to me about this article. "I hope," he said, "that you will not conclude that its views are those of myself and my legation."

I assured him that I felt highly flattered that anybody should have conceived that American action proceeded with such careful planning and such cunning grasp of all details.

The Franco-Russian semi-official sheet, the Journal de Pekin, continued its carping attitude against all American enterprise. It lumped together the Y.M.C.A., missionaries, Standard Oil, and the British-American Tobacco Company as engaged in a nefarious effort to gain ascendency for American influence in China. It failed, however, to surmise the subtle plan suggested in the German paper, but presupposed an instinctive coöperation of all these American agencies. This paper was occasionally stirred to great waves of indignation, as when it discovered that the Y.M.C.A. was undermining Chinese religious morale and destroying the sanctity of holy places by establishing a bathing pool in one of the temples. This deplorable desecration, which wrung from the breast of the Belgian editor of the Franco-Russian sheet moans of outraged virtue, had for its substance the fact that in the large monastery of Wo Fu Ssu—in the foothills fifteen miles from Peking, where the Y.M.C.A. had summer quarters—a large pool in the residential part of the enclosures was actually used for a dip on hot mornings. But no Chinese had ever hinted that his feelings were lacerated.

The American papers and Americans generally were somewhat encouraged by this constructive action. In the Chinese Press the veteran American lawyer, T.R. Jernigan, said: "It is clear that the Wilson Administration will use its influence to further the extension of the business of American merchants whether they act in a corporate capacity or otherwise."

On the side of finance as well as industry the Chinese courted American interest. The Minister of Finance and Mr. Liang Shih-yi were frequently my guests; and we conversed particularly on the financial situation. Both took a view quite different from the traditional Chinese official attitude. They desired to have the Government make itself useful and take the lead in organizing both national credit and industry. They considered it possible to develop Chinese domestic credit to an extent that would materially supply the financial needs of the Government. Unfortunately, the great system of banking which had been built up by the Shansi Bankers' Guild was very inadequate to modern needs. Banking had rested wholly on personal knowledge of the character and credit of borrowers; no collateral was used, there was no dealing in corporate securities.

When China came into contact with the business methods of Western nations, this system could not help in developing new enterprises. That task fell largely to the foreign banks established in the treaty ports, who had no vision of the possibilities of internal development in China. The Shansi bankers, on their part, unable to adapt themselves to new conditions, saw their field of action gradually limited, their business falling off. These banks lost their grip on affairs. They felt themselves in need of financial assistance from the Government. The Minister of Finance was considering whether these old institutions might not be transformed into modern and adequate agencies of Chinese domestic credit. He and other native financiers became interested in the national banking system through which, in the United States, quantities of public debentures had been absorbed to furnish a sound basis for a currency.

It seemed impossible to utilize the Shansi banks as the main prop of a modern system. A new organization, such as the Bank of China, planned on modern lines, might be strengthened by American financial support and technical assistance. Mr. Liang Shih-yi was willing to give to American interests an important share in the management of the Bank of China in return for a strengthening loan. A New York contractor, Mr. G.M. Gest, was at this time in Peking on a pleasure tour with his family. Impressed with the need for the launching of new financial and industrial enterprises in China, his first thought had been to secure a concession to build a system of tramways in Peking. Chinese officials had previously told me of an existing Chinese contract which might be turned over to Americans. I was not very enthusiastic about this particular enterprise, because I feared it might destroy the unique character of Peking street life, without great business success or much benefit to anybody.

On inquiring further we found that French interests had just signed a loan contract which covered, among other things, the Peking tramways.

The financing was curious; the proceeds were presumably to be used to complete the port works at Pukow, on the Yangtse River, and to establish the tramways of Peking. However, it was plain that the loan had been made really for administrative or political purposes, its industrial character being secondary, as the work was indefinitely postponed. This subterfuge of so-called "industrial loans," of which the proceeds were to be used for politics, was later very extensively resorted to, particularly in the Japanese loans of 1918.

Learning of this state of affairs, Mr. Gest turned his attention to the problem of Chinese domestic financing, and at the close of his short residence in Peking he had obtained an option for the Bank of China loan contract, which he followed up with energy upon his return to the United States.

American attention had been drawn to the contracts for the Hwai River conservancy and for petroleum exploration, and American commercial journals and bankers were again giving thought to the financing of projects in China. To show the attitude of New York bankers at this time, of their difficulties, doubts, and inclinations, I shall cite portions of a letter written me by Mr. Willard Straight, dated April 29, 1914. While I did not agree with Mr. Straight on several matters of detail, especially the withdrawal from the Consortium, we were both agreed as to the importance of continued American participation in Chinese finance and industry. The letter follows:

As regards the Hwai River conservancy, you have doubtless already been advised that the Red Cross has made an arrangement with J.G. White & Company, whereby an engineering board will be despatched to China to make a detailed survey. The matter of financing was brought to the Group, who felt it impossible satisfactorily to discuss this question without more definite information regarding actual conditions and the probable cost of the work contemplated.

When, upon receipt of the report of the engineering board, we take up the discussion of the financial problem, the suggestions contained in your letter of the 24th of March will be very valuable. It might, as you say, be comparatively easy to issue a loan of ten million dollars at almost any time. That would depend, however, not on the size but on the nature of the loan. There is no market for Chinese securities in this country at this time, and it would be difficult if not impossible for the bankers to create one within any reasonable time without the active and intelligent support or at least the declared approval of the Government....

When the American Group first entered upon negotiations for the Hukuang loan, conditions in this country were good. Business men were looking abroad for new trade openings, the Taft Administration was anxious to encourage the extension of foreign trade and the Chinese Governmental Bubble had not been pricked. During our four years of experience a not inconsiderable public interest in China and her development was aroused, and had we issued the Reorganization Loan, as we had hoped to do, in February, 1913, we probably could have sold our twenty-million-dollar share to investors throughout the country. This we would have been able to do despite the revolution and uncertain governmental conditions in China, because of public confidence due to the support of our own and the other interested governments.

Neither Mr. Taft nor Mr. Knox ever promised to send American battleships to threaten China, or to land marines to occupy Chinese territory, in case of default in interest payments. The public was misled by no false statements, but there was, nevertheless, a general belief that our Government was actively interested in the preservation of China's credit and in the development of that country.

This, as I told you in our conversation at the Century Club, was changed by the President's declaration of March 19, 1913. The fact that the President and the State Department felt that China, as a young republic, was entitled to extraordinary consideration and sympathy; the fact that our Government recognized Yuan Shih-kai's political machine, and the fact that the Administration subsequently gave out some general expressions regarding the Government's interest in the development of American trade, did not in any way restore in the mind of the investor the confidence which had been destroyed by the specific condemnation of the activities of the only American banking group which had had the enterprise, the courage, and the patience to enter and remain in the Chinese field and which, despite its unpopularity among certain yellow journals and a number of Western Congressmen, stood for integrity, fair dealing, and sound business in the minds of the bond-purchasing public, upon whose readiness to buy the success of any bond issue must depend.

This confidence which would have enabled us to sell Chinese bonds had been created by four years of hard work on the part of the bankers and the Government. Once destroyed, it can be restored only by general governmental declarations, which will probably have to be stronger than any of those made by the Taft Administration, or, in the absence thereof, by effective, consistent, and repeated specific proof of the Government's willingness to assist and encourage our merchants, contractors, and bankers. As you know, it is more difficult to correct a bad impression than it is originally to create a good one.

I quite appreciate that it will be difficult for the President to take any action which would seem to be a reversal of his former position, but I hope that the last paragraph of his declaration of last March, in which he stated that he would urge "all the legislative measures necessary to assure to contractors, engineers, etc., the banking and other financial facilities which they now lack" may be interpreted and developed along lines which will permit him actively to support the Red Cross plan.

If the Administration will publicly evidence its interest in and its support of this project during the next few months, so that when the matter is finally brought up to the bankers for decision they may be able to feel that the public has become interested and assured that our Government is behind the plan, it may prove to be the means by which we can again enter China. This I have pointed out to Miss Boardman who, I feel sure, fully understands the situation.

I sincerely trust that your great interest and your energy in endeavouring to extend our interests in China may have an effect upon our own Administration. I believe the bankers will always be willing to help if they are able to do so, but we are not, like our Continental friends, anxiously looking for chances to invest abroad, especially at the present time when we have so many troubles of our own, and instead of being merely shown the opportunity, we must be persuaded in the first place that it is sound business and in the second place that it is our patriotic duty to undertake it. And we must feel, in addition, that if we should undertake it our enterprise and energy will not serve merely to rouse a storm of jealousy on the part of those who will not assume any risks themselves, but who cry "monopoly" as soon as an interest capable of handling foreign business is given the active support of our Government.

I am sorry that it is impossible to give a more optimistic picture, but I assure you that I shall do all in my power to support you and your efforts, which I sincerely trust may be attended with the success they deserve.

The intelligent support promised in this letter continued until the untimely death of Mr. Straight in Paris, while he was with the American Peace Commission.

CHAPTER IX

"SLOW AMERICANS"

"The Americans are altogether too slow!"

This exclamation from a Chinese seemed amusing. It came on the evening of the red dust-storm that enveloped Peking, during one of the long after-dinner conversations with Liang Shih-yi and Chow Tsu-chi; and it was the latter who thus gave vent to his impatience.

Liang Shih-yi, the "Pierpont Morgan of China," Chief Secretary to the President, was credited as being, next to Yuan Shih-kai, the ablest and most influential man in Peking. Mr. Liang is highly educated according to Chinese literary standards, and while he has not studied Western science, he has a keen, incisive mind which enables him readily to understand Western conditions and methods. His outstanding quality is a faculty for organization. He built up the Chinese Communications Service on the administrative and financial side. He declined taking office as a minister, but usually controlled the action of the cabinet through his influence over important subordinates, and managed all financial affairs for Yuan Shih-kai. Cantonese, short of stature and thickset, with a massive Napoleonic head, he speaks little, but his side remarks indicate that he is always ahead of the discussion, which is also shown by his searching questions. When directly questioned himself, he will always give a lucid and consecutive account of any matter. He did not rise above the level of Chinese official practice in the matter of using money to obtain political ends. To some he was the father of deceit and corruption, to others the god of wealth, while still others revered in him his great genius for organization. While by no means a romantic figure, he thoroughly stimulated a romantic interest among others, who attributed to him almost superhuman cunning and ability.

When the noted Sheng Hsuan-huai became Minister of Communications in 1911, he used his influence and cunning to thwart Liang and throw him out of the mastery of the Board of Communications, known as the fattest organ of the Government. Mr. Liang stood his ground, and his influence greatly increased because of his ability to withstand so strong an attack. During the revolution Liang Shih-yi was also very influential in the Grand Council, attaching himself more and more strongly to Yuan Shih-kai. Always satisfied with the substance of power without its outward show, he steadfastly declined to become a responsible minister, and worked from the vantage ground of the Secretariat of the President. His life has frequently been endangered. He gained the hatred of the democratic party, with which he was once associated, because he aided Yuan in playing his complicated game of first confusing, then destroying, parliament. Nor were the Progressives (Chin Pu Tang) enamoured of him. Of great personal courage, he was indifferent to the blame and ridicule which for a while almost all newspapers heaped upon him. As he was still in a comparatively inferior position when these attacks began, they rather helped him by calling attention to his abilities and his personal importance. Thus his opponents advertised him. In possession of all the intricacies of the situation, when the parliamentarians first came to Peking, he sat back inconspicuously, and, supplied with influence and money, moulded the political situation as if it had been wax.

Of all the cabinet, Mr. Chow Tsu-chi, Minister of Communications, was personally most familiar with American affairs, having lived for several years in Washington and New York in an official capacity. He speaks English fluently and prefers American methods. He hates unnecessary ceremony. Whenever he called upon me I had almost to engage in personal combat with him to be permitted to accompany him to the outer door, as is due to a high dignitary in China. He believes in learning improved methods from reliable foreigners, and will go as far as any Chinese in giving foreigners whom he trusts a free hand, though he would not yield to any one a power of supreme control. On this occasion he talked about the reorganization of the Bank of China, and the possibility of floating domestic bonds among Chinese capitalists. Mr. Chow was chanting a jeremiad about how the Chinese had been led to give valuable concessions to Americans, which had not been developed, and how this had brought only embarrassment and trouble to China.

We spoke, also, of the original Hankow-Canton railway concession which the Americans tried to sell to King Leopold; of the Knox neutralization plan, and of the Chinchow-Aigun railway concession, the only effect of which had been to strengthen the grip of Russia and Japan on Manchuria. When the Americans, as a mark of special confidence and trust, had received the option on a currency loan with the chance to reorganize Chinese currency, they had straight-way invited Great Britain, Germany, and France into the game. "Thus they saddled China with the International Consortium," Chow Tsu-chi moaned. And so on went the recital, through many lesser and larger enterprises that had proved abortive.

One had to confess that in China we certainly had not taken Fortune by the forelock, nor even had we clung to her skirts. Mr. Chow Tsu-chi was especially grieved at the circuitous and dilatory methods of the Four-Power Group which held the contract to build the Hukuang railways. "The thirty millions of dollars originally provided has been almost entirely spent," he complained, "without producing more than two hundred miles of actual construction; and there is constant wrangling among the partners concerning engineering standards. Moreover, everything has to be referred from Peking to London, thence to New York, Paris, Berlin, and back and forth among them all, until it is necessary to look up reams of files to know what it is all about. And it may all have been about the purchase of a flat car."

I knew well enough that Americans, too, were much discouraged at the cumbersome progress of the Hukuang railway enterprise. The engineering rights on the section west from Ichang up into Szechuan Province had been assigned to America, and Mr. W. Randolph was at this time making a survey. He had great energy and unlimited belief in the future importance and profitableness of this line. But beyond the initial survey the available funds would not go, and no new financing could be obtained—this for a railway to gain access to an inland empire of forty millions of people!

In the American enterprises which had been launched recently, however, there was no little activity. The Standard Oil Company with commendable expedition, if perhaps with undue lavishness of men and supplies, sent to China geological experts of the first order, together with large staffs of engineers, drilling experts, and all needed machinery. The geologists were soon off toward the prospective oil regions in Chihli and Shensi provinces. In Mr. Hsiung Hsi-ling's bureau and in the Standard Oil offices the outfitting of expeditions, the purchase of supplies, and the selection of a large Chinese personnel proceeded apace. Everyone was hopeful.

With the Hwai River conservancy matter, also, negotiations had gone rapidly in the United States. The American National Red Cross and the engineering firm of J.G. White & Company had agreed to finance the preliminary survey. The American Congress in May passed an act lending the services of an army engineer for the preliminary survey. Colonel Sibert of the Panama Canal Commission was designated as chairman of the engineering board. The outlook was favourable, action had been taken promptly.

The excitement stirred up among the Japanese by the sojourn in China of the Bethlehem Steel Company's vice-president, Mr. Archibald Johnston, now had a further sequel. The text of an alleged contract between the Chinese Government and the Bethlehem Steel Company was circulated early in May—by interested persons—which included among other provisions arrangements for construction of a naval base in Fukien Province. The bogus quality of the report was at once manifest. Through some influence, however, it was assiduously pushed forward in the press; it became the basis of a legend, which even got into the books of otherwise well-informed writers as authentic. It was on the subject of this spurious paper that the Japanese ambassador at Washington called on Secretary Bryan for information. Thus the matter of the possible building of a naval base in Fukien for the Chinese Government by American contractors became a matter of State Department note. I was informed that the Japanese ambassador at Washington had left a summary of the conversation, of March 12th, between the Japanese minister at Peking and myself. Apparently the Japanese were attempting to get around my refusal to acknowledge that American enterprise in China could in any way be limited by the declarations or agreements of other powers than the United States.

The State Department inquired whether the newly reported contract for a loan of $30,000,000 was identical with the older contract of the Bethlehem Steel Company. I was informed that the Japanese Government did not object to the loan, but to the construction of any new naval base in Fukien, and that the Department had been told that the Chinese Government itself did not wish to construct there because of the Japanese objection. It was intimated to me that I might encourage the Chinese in the idea that such building, while legitimate, would be unwise.

I reported to the Department that the original Bethlehem contract had no connection with the spurious document recently circulated; that only a very small sum was to be devoted to harbour work in China, the location of which had not been fixed; and that the execution of the entire contract had been postponed because of financial conditions. While the Chinese Government was not contemplating any construction at this time, I stated that the attempt of any other government to establish a claim of special rights of supervision must be considered derogatory to Chinese sovereignty and to American rights of equal opportunity; I urged, therefore, that we avoid any action or statement which would admit such a claim, or which would in any way encourage the making of it. The Chinese Government has never admitted that its right to plan the defence of its coastline is subject to veto by any other government. Such admission on our part that Japan has the right to claim special interests in Fukien would shake the confidence of the Chinese in our seriousness and consistency, and in our determination to protect our legitimate interests in an undivided China, freely open to the commerce of all nations, where Americans can do business without asking permission of any other outsiders.

Dr. Chen Chin-tao was then acting as Financial Commissioner of the Chinese Government in Europe and America. The danger of a further growth of the idea of spheres of influence in China had been accentuated. Railway concessions had been allocated to different nations according to territorial areas where the respective countries claimed certain priorities; if concessions were made otherwise, the combined influence of the powers seeking special spheres was used to defeat them. To meet this danger a plan was developed for granting a large construction contract to an international syndicate made up of British, American, French, and German companies, who would divide the construction on some basis other than localized national spheres of influence. Doctor Chen, with an American assistant, was charged to take up this proposal with various companies. On the part of France and Germany, contractors and governments seemed favourable to the idea. In Great Britain the firm approached was Paulding & Company, who had already in the preceding year received a railway concession in China extending through the Province of Hunan and to the south thereof. This firm would readily coöperate, but the British Government objected. It would accept the principle of the international company only on condition that all lines traversing the Yangtse Valley should be constructed by the British participant in the syndicate.

This suggests the extent to which the sphere-of-influence doctrine dominated at this time the thought and action of the British Foreign Office.

The American Government, on its part, took exception to the size and duration of the concession, which it feared might gain a monopolistic character. Probably the difficulty would have been cleared up, since, after all, a specific and limited, though considerable grant, was intended. But the preliminary discussion had not resulted in agreement before the Great War supervened.

When Mr. Gest returned to the United States, he took up the matter of a loan to China with American financial interests, but they hesitated to act until the American Government expressed its approval and willingness to give support. Mr. Gest thereupon laid siege to the Department of State. He succeeded on the 3rd of June in securing from the Secretary a letter to the effect that the Department would be gratified to have China receive any substantial assistance from Americans in the nature of a loan upon terms similar to the present agreement. "This Government," the letter stated, "will, in accordance with its usual policy, give all proper diplomatic support to any legitimate enterprise of that character."

There had been much talk about the supposed determination of the Department of State to let American interests abroad shift for themselves, quite without encouragement or special protection. The letter, though moderate in language, nevertheless attracted great attention and was taken to indicate a change of heart in the Administration. I may say at this point that the Department of State never at any time failed to back me in efforts to develop and protect American interests in China. But it was not always able, especially later on, when overburdened with the work of the war, to follow up matters which it had approved, when the opposition or indifference of other departments put other claims in the forefront.

I had for a season observed and worked with American commercial interests in China. I had definite conclusions as to what was needed in the way of organization to encourage American trade. The great defect lay in the absence of financial institutions for handling foreign loans, and for assisting in foreign industrial development, helpful to American commerce. The only American bank in China, the International Banking Corporation, then confined itself strictly to exchange business and to dealing in commercial paper; it had developed no policy of responding to local industrial needs and helping in the inner development of China. All the foreign banks had wholly the treaty-port point of view. They thought not at all of developing the interior regions upon which the commerce of the treaty ports after all depends. They were satisfied with scooping off the cream of international commercial transactions and exchange operations.

I strongly favoured creating banking institutions which would broadly represent American capital from various regions of our country, and would respond to the urgent need of China for a modern organization of local credit.

There were but few American commission houses. In most cases American-manufactured goods were handled by houses of other nationality, who often gave scant attention to promoting American trade and used American products only when those of their own nation could not be obtained. It seemed worth while to establish additional trading companies, especially coöperative organizations among exporters, after the fashion of the "Representation for British Manufacturers, Ltd." Further, I strongly urged the American Government to station a commercial attaché in China. I was gratified by the appointment during the year of a commercial attaché in the person of Consul-General Julean Arnold, an official of great intelligence, wide knowledge, and untiring energy.

The Chinese cabinet, which had been under a provisional premier for several months, was finally reorganized in June, 1914. The chief change in the cabinet was the appointment of Mr. Liang Tun-yen as Minister of Communications, and the shifting of Mr. Chow Tsu-chi from that position to the Ministry of Finance. With these new ministers American contractors and financiers had much to do. Premier Hsiung Hsi-ling had withdrawn in February, and with him the two other members of the Chin Pu Tang or progressive party. These political leaders had served Yuan's purpose by aiding him to dissolve parliament; they could now be spared. But a new premier was not immediately found. Yuan at length prevailed on Mr. Hsu Shi-chang to take the premiership in June. The title of premier was changed to secretary of state.

I met Mr. Liang Tun-yen for the first time on June 2nd, at a luncheon given by Mr. B. Lenox Simpson, whose landlord he was. Mr. Liang is tall, aristocratic-looking, with a fine, intellectual face. He speaks English perfectly, as he received his earlier education in the United States. Then, as on frequent occasions in subsequent years, he expressed himself in a deeply pessimistic strain. He complained of recent inroads attempted by the French in Yunnan, and of the methods they employed to strengthen their hold. But this was only one cause for pessimism. In the future of his country he saw "no prospect of strong national action," or of "any sort of effective help from the outside." He considered the upper classes "incapable of sacrifices and vigorous action." He had recommended in 1901, he told me, that, instead of paying an indemnity, the Chinese should be allowed to spend an equal amount of public funds in sending abroad young men to be educated. All young Chinese, he said, should be sent abroad quite early, "before they have become corrupted."

When Mr. Liang Tun-yen assumed office, it was announced that he would subject the Ministry of Communications to a thorough cleansing. This implied that the ministry had been corrupt and systematically so, under the control of Mr. Liang Shih-yi. Outsiders watched for indications of how that astute manager would handle the new opposition.

Mr. Yeh Kung-cho, able and expert, had been chief of the Railway Bureau; he became a vice minister, but as he was a lieutenant of Liang Shih-yi's, it was understood that this position would probably be an empty dignity. A friend of Mr. Liang Tun-yen's, a highly respected engineer of American education, was appointed as the other vice minister. With no formal or open breach between the different factions, manœuvring and counter-manœuvring there undoubtedly was. The influence of Mr. Liang Shih-yi, however, seemed not seriously shaken. He had organized the Chinese railway experts and engineers in a railway association, keeping in touch with them through Mr. Yeh Kung-cho. Thus he held in his hands the main lines of influence. Also, he continued to head the Bank of Communications, which is the fiscal agency for the Railway Board. So again it seemed that the opposition could not get at the source of this unusual man's power.

Mr. Chow Tsu-chi, as Minister of Finance, warmly urged the idea that the Americans, to whom the Government had shown itself so friendly, reciprocate by making a loan to the Chinese Government. He planned a loan of $40,000,000 for the purpose of refunding the entire floating indebtedness of his government. Hopes had been entertained that the Standard Oil Company would use its influence in bringing about such a loan, but that company was not willing to go outside of the special business of its contract with China. The option which had been given to Mr. Gest had not yet resulted in any completed transaction in the United States. So accustomed were the Chinese to the readiness of any nationality which held important concessions, in turn to support the Chinese Government financially, that they could not understand how America, with professions of great friendship and just now substantially favoured by the Chinese, should not be ready to reciprocate. The soundness of the desire of the Americans to have every transaction stand on its own bottom and not to use financial support as a bait to obtain concessions, could, of course, be appreciated by the Chinese. But at times their urgent needs made them impatient.

The news of the assassination at Sarajevo reached us on July 1st. As this happened to be, though we did not then suspect it, the eve of a terrible convulsion in which all accepted conditions of life, national and international, were shattered and unsettled, I shall here insert parts of the memorandum which I drew up for my guidance at this time:

It is evident that China finds herself in a critical situation, in the sense that the fundamental character of her political life and the direction of her political development are now being decided. While a vast community living under a complicated social system, which embodies the experience of thousands of years, cannot change its methods of a sudden and will undoubtedly for a long time continue to differ radically from Western political societies, yet it admits of no doubt that a new era of development has begun and that certain essential alternatives are being faced. Such alternatives are the continued unity of the nation or its division; its continued independence or the direct dominance of one or more foreign suzerains; its commercial unity or its division into spheres of influence; the tendency of its institutions of government, whether in the direction of the absolutism of Russia and Japan, or the republicanism of the United States; and the character of its educational and legal system, either dominated by the ideas of America and England or of continental Europe or Japan. From these, there also follow important alternatives in industrial and commercial policy.

Under these circumstances, it is of great moment whether the Chinese Government will remain free, with the assistance of influences friendly to the development of China's nationality, to preserve the unity of the Chinese State and to develop its institutions; or whether its financial distress, combined with the plottings of a revolutionary opposition, will deliver it into the hands of those who are not favourable to the growth of China's national life.

The United States of America enjoys a position of great advantage for assisting the Chinese Government and influencing its development in the direction of free national life. The lack of a desire for political interference, the real sympathy felt in America with the strivings of the Chinese people, and cultural, educational, and charitable work unselfishly performed, have given the United States the undivided confidence of China. It is certainly true that the Chinese people are anxious to follow in the footsteps of the United States if they may only be permitted to do so.

Any development of enterprise which increases American commercial interest in China is incidentally favourable to Chinese independence; because, through the enlistment of neutral interests, the desire of outsiders for political control can be counterbalanced. The organizing of an American investment bank and similar agencies for the development of American commerce in China, participation of American capital in railway building, and the development of mines and oil fields through American companies and under American business methods would all be welcomed by China as the strengthening of a favourable influence. Different Chinese ministers have repeatedly said to me that at this time China is in need of the active assistance of those who are amicably disposed and that China is willing to do her part in coöperating, and in extending advantages, if only such active support is forthcoming. If American capital, industry, and commerce are not ready at this time to give that comparatively slight assistance to China which the situation calls for, it is likely that American action in China in the future will be on a far more modest basis than present possibilities promise.

The war, of course, brought many changes in China. Much of the good work which had been started was either destroyed or long delayed. It marked the end of one phase of China's development.

CHAPTER X

FOLK WAYS AND OFFICIALS

Several voices whispered: "It's Prince Pu Lun."

It was at President Yuan Shih-kai's reception, New Year's Day, 1914; the diplomatic corps and high officials were there. The Empress Dowager's residence, now occupied by the President, was the scene. From the side rooms, whither we had withdrawn for refreshments after exchanging greetings with the President, we looked out into the main hall and saw that its floor had been entirely cleared, and a solitary figure in a general's uniform was proceeding across the floor toward the President. Walking alone and unattended, the representative of the Chinese Imperial Family had come to bring its felicitations to the President of the Republic. For the first time since the abdication, the Imperial Family was publicly taking notice of him who had displaced it in power.

When the guests began to depart I gathered up my party and left the hall, together with Admiral Tsai Ting-kan. Outside was Prince Pu Lun, still solitary, walking with sad and pensive regard. We overtook him. I talked pleasantly with him on such non-committal matters as the Imperial collection of art, which was at this time being brought from Mukden. He seemed quite appreciative of this attention. I took him with me to the outer palace gate where his own carriage met him.

Except the automobiles used inside of the palace enclosure, few were then to be found in Peking; soon, with improved roads, many hundreds came. The Empress Dowager before her death had acquired a large collection of these foreign vehicles, which interested her greatly; but up to the time of her death the Board of Ceremonies had not succeeded in solving the problem how she might ride in an automobile in which there would also be, in sitting posture, one of her servants, the chauffeur. If they had had more time, I imagine that they might have found some way by which the chauffeur could kneel in driving the Imperial car, but, as it was, the poor Empress Dowager never had the pleasure of the swift rides she so much coveted.

Many popular superstitions still prevailed in parts of the provinces. The military attaché of the American Legation, Major Bowley, who later did distinguished service in the Great War as general of artillery, was active in visiting the military commanders in different parts of China and in observing their actions and getting their views. He had just returned from such a trip to Kiangsi Province, and related how one of the generals there strove to improve his morale by drinking the blood of enemies who had been killed. He spared Major Bowley a cupful of this precious liquid, which was to be taken before breakfast. It is startling to discover among the people so highly civilized as are the Chinese occasional remnants of barbarous doctrines and practices. There is an inverted homœopathy in Chinese popular belief—to the effect that "equals strengthen equals"; thus, to eat muscle develops strength, to eat tripe aids the digestion, to eat heart or drink blood develops courage, and so on.

One evening, at a dinner at Mr. Liang Shih-yi's house a spirited discussion developed between the host and Mr. Anderson. The latter had related a local custom of the Soochow region according to which it was permissible for a community or a crowd of people to bite to death any person who was thoroughly disapproved of by all. Apparently the method of execution was in itself a guaranty of universal condemnation, as a great many people would have to coöperate to effect the desired result by this method. Mr. Liang protested that the expression "bite to death" was in this case used only metaphorically, and there followed a long debate on Chinese folk customs.

A dinner with General Kiang, Commander of the Peking Gendarmerie, afforded another sidelight on Chinese character. We had already been seated, when an unusually tall Chinese entered, wearing Chinese civilian dress. He was introduced as Tutuh Yin (General Yin Chang-heng), and I learned that he had just returned from Szechuan, where he had become governor during the revolution, after putting to death the Imperial Governor-General, Chao Er-feng. General Yin was of striking appearance, with strong features, and vigorous in gesture. Now, it is the custom at Chinese dinners, particularly when military are present, to engage in extensive drinkings of health. The Chinese, who are usually very abstemious, drink wine that resembles sherry, and also a liqueur-like rice wine, which latter is potent. The proposer of the toast raises his little cup and drains it in one draught; the guest to whom he addresses himself is expected to do likewise; both say "Gambey" (a challenge to empty the cup). General Yin, who seemed in high spirits, was on his legs half the time "gambeying" to the other guests, especially to myself and the other Americans, the military attaché, the Chinese secretary, the commandant of the guard, and other officers. General Yin must have performed this courtesy at least forty times in the course of the evening, which with the attentions paid us by the other members of the table round, amounted to a considerable challenge of one's capacity. It must, however, be confessed that I largely shirked this test, in company with the amiable General Yin Chang, my Manchu neighbour, by irrigating a large plant in front of us with the liquid dedicated to friendship.

I saw General Yin Chang next morning. He asked whether I knew what had been the matter with Tutuh Yin the night before. I said that he seemed very animated and carried his liquor very well. General Yin then told me that after I had left, the Tutuh Yin had sat down with him and talked seriously and intently, revealing his deep worry lest Yuan Shih-kai should have him executed. He stated that Chao Er-hsun, the brother of the murdered Viceroy, was in Peking, and with other men using every influence to destroy him. "So," the Manchu general said, "his bravado was just a cover for his worries."

Next day Yin Tutuh called on me at my residence. He expressed deep regret for having taken so much wine on the evening of the dinner. He said: "It is not my custom, but I was excited and worried because of the uncertainty of my affairs." He then launched forth into a literary discussion of Confucianism in its bearing upon modern thought. Not knowing that he was a student of the classics, I was surprised when he revealed this side of his nature. As a matter of fact, he greatly resembled the men of the Renaissance who combined harsh and cruel qualities with a deep love of literature. The last time I saw the Tutuh Yin, more than five years later, he presented me with his written works. There were gathered about twenty members of the Confucian Society, and the conversation again turned around the permanent qualities of Confucianism. When the concept of the "unknowable" was referred to, General Yin cited at length Herbert Spencer's views thereon. He said: "The greatness of Confucius lies in the fact that he centred his attention on those things which we know and can control, and that he aimed at the highest development of human action on this common-sense basis. He leaves the dreams about the unknowable to others."

Among our guests at a dinner was Dr. King Ya-mei, a Chinese lady noted for her wide information and cleverness. We spoke about the recent advance of Russia in Mongolia. "Who can resist Russia!" she exclaimed. Like all thinking Chinese, she was deeply worried about the difficulties confronting her nation on all sides. Dr. C.C. Wang, who was also present, spoke of the lack of continuity in developing expert knowledge, because of the frequent shifts which are made in the public service.

Dr. King Ya-mei then told an amusing incident, which shows how natural community action and passive resistance are to the Chinese. In an orphan asylum at Tientsin a new set of regulations had been issued, but the orphans had paid no attention to them. After a good many children had been called to order without result, a meeting was convoked by the principal. When the orphans were asked why they did not obey the regulations, their spokesman said: "We are perfectly satisfied with the old regulations, and have no desire to change them."—"But the new regulations have been made by your teachers," rejoined the superintendent, "and they must be obeyed."—"We do not think," the spokesman replied, "that they are an improvement, and we propose to obey the old rules."—"But, then you shall be punished severely."—"If you try to punish us, we shall all go away; and then what will become of the orphan asylum?"

They had reasoned it out that they were an important part of the institution. That orphans should conceive the idea to go on strike shows how normal and self-evident that mode of social action seems in China.

I was visited by the newly appointed Chinese minister to Japan, Mr. Lu Tsung-yu, who later became quite notorious in China in connection with the loans of 1918. He was accompanied by Doctor Tsur, the president of Tsing Hua College and a leading American-returned student. Mr. Lu is a slight man of suave manners, keen intelligence, and a love of manipulation. On this occasion he developed the idea that coöperation between the United States, China, and Japan was possible and desirable, as these three countries had many parallel interests. It was his opinion that Japan could not create an extensive settlement in Manchuria. He had been stationed in that region several years when Hsu Hsi-chang was viceroy; and he told me that he had observed that the Japanese came as officials, soldiers, or railway employees, or in connection with mining enterprises: but they did not seem to have any impulse to settle in the country as farmers, and as small merchants they could scarcely compete with the Chinese. Mr. Lu had been educated in Japan, being one of the first batch of Chinese students at Waseda University; together with Tsao Ju-lin, at this time Vice Minister of Foreign Affairs, who also later played an important part in Chino-Japanese affairs; and Chang Chung-hsiang, the Chief Justice of China at that time, a man who exercised considerable influence in introducing into China the Japanese idea of judicial procedure and organization and who became Chinese minister in Tokyo in 1916. This trio of associates was popularly known as "the Three Diamonds."

An important meeting of the diplomatic corps dealt with the procedure in the matter of claims against the Chinese Government on account of damage suffered during the revolution. The Japanese, French, and German representatives were inclined to insist that the Chinese Government be held responsible for all losses which could in any way be said to have been caused, directly or indirectly, by the revolution. In line with the traditional policy of fairness and moderation followed by the United States I strongly urged that only losses directly and physically traceable to violent action should be paid, eliminating such uncertain and contingent matters as anticipated profits. The British minister gave support to this view; his legation, too, had not encouraged the filing of indirect claims. After much discussion, the suggestion was accepted in the form proposed. By this action were ruled out indirect claims to the amount of nearly four million dollars, which had already been listed and included by some of the legations in their totals.

The British Legation, in which diplomatic meetings are held, is an old palace, formerly the residence of a Manchu prince, which was purchased by the British Government at the time when legations were first established at Peking. Fortunately, the fine architectural forms of the old structure had been retained sufficiently to leave this group of buildings justly proportioned, beautifully decorated, and free from jarring foreign notes. One passes to the minister's residence through two lofty, open halls, with tiled roofs and richly coloured eaves. The residential buildings are Chinese without and semi-European within, Chinese decorative elements having been allowed to remain in the inner spaces. The diplomatic meetings always took place in the dining room, where a huge portrait of Queen Victoria, from the middle period of her reign, impassively—not without symbolic significance—looked down upon the company.

There were at this time about sixteen legations in Peking, so that the meetings were not too large for intimate conversation. The proceedings were usually carried on in the English language, partly out of deference to the Dean, and partly because English has come quite naturally to be the international language of the Far East.

The diplomatic corps in Peking meets frequently, and it has more comprehensive and complicated business than falls to such a body in any other capital. Matters of diplomatic routine occupy only a subsidiary place. Because of the system of extra-territoriality under which foreign residents remain exempt from Chinese law and subject only to that of their own respective nation, the foreign representatives in China are constantly concerned with the internal affairs of that country. The effects of any legislation by the Chinese Government upon foreign residents have to be considered by the diplomatic corps: if the most punctilious minister discovers that the measure in question in any way transgresses that absolute immunity from local law which is claimed, then objection will be made, and the unanimous consent, which is necessary to approve of such matters, is difficult or impossible to obtain.

Questions of taxation are constantly before the diplomatic corps, as the Chinese local officials quite naturally attempt to find some way to make the foreigners bear at least part of the taxation of a government whose general protection they demand. The methods of proving claims and collecting indemnities give rise to much discussion, whenever there has been some outbreak of revolutionary activity. As certain revenues have been pledged for international loans, the diplomatic corps will object to the Chinese Government using these revenues at all before they have been released as not needed for defraying the debt charges. One of the most fruitful causes of irritation comes from attempts frequently made by one or the other minister to "hold up" the funds belonging to the Chinese until they have fulfilled some particular demand which he had made. The fact that it may be an entirely extraneous and irrelevant matter, such as the appointment of a national of the minister to a Chinese government job, does not seem to disturb the man who thinks he has found a clever way to achieve his purpose. The international settlement at Shanghai and the régime of foreign troops in Peking and along the Mukden Railway also give rise to a great many problems which are referred to the diplomatic corps. From questions involving the recognition of the Government itself to such matters as the advisability of bambooing prisoners at Shanghai, no question seems to be too big or little to come before this body.

The discussions tend rather to avoid general issues and to confine themselves to a statement and explanation of the position taken by each government. Occasionally the stubborn and unreasonable adherence of one or two representatives to what is considered by others as an unduly severe and exacting position, leads to joint efforts in an attempt to make a more fair and liberal policy prevail. The discussions are not infrequently longer than is necessary; the main points are lost sight of, and discussion becomes entangled, because one side may be talking of one thing, whereas the other has quite a different matter in view. Until it is discovered that there is no real difference or only a difference in form, much valuable time may be consumed. At times, these conferences remind one of a university faculty meeting.

Weeks were filled with innumerable conferences on matters of business. In China it rarely happens that the decision lies with only one official. In order to have a proposal accepted, a great many men have to be consulted and won over. Impatient representatives, backed by strong national force, have frequently tried to cut short this procedure, and, planting themselves before the official whose assent they needed, have "pounded the table" until a promise was obtained. They sometimes succeeded by so powerfully getting on the nerves of the Chinese official that he saw no way to save his peace of mind but by giving in. At one time I expressed great surprise to the Minister of Finance, because, instead of insisting that reasonable arrangements for the renewal of a certain short-term loan should be made, he had given the representative in question—the agent of a munition company—a large order for additional materials which were not needed, only to secure an extension of time. He said, in self-defence: "The manners of the man were so abominable that I could not stand it any longer."

However, the method of the strong arm and mailed fist, while it has produced results in China, has also carried in itself the elements of its own defeat. The Chinese may make a concession under such circumstances, but they will thereafter have no interest whatsoever in facilitating the business in question; on the contrary, it is likely to be delayed and obstructed at every point, so that it can be carried out only through constant pressure and show of force. The people of China have a strong and widespread sense of equity. He who proposes a reasonable arrangement and gives himself the trouble to talk it over with officials and other men concerned, in the spirit of arriving at a solution fair to all, will build on a sound foundation. Whenever foreign interests have acted on this principle, the results have been far more fruitful of good than where things have been carried through with a high hand by demand and threat, without reasoning or give and take. But to sit in conference with various people on all the phases of any proposal is a great consumer of time. One is kept busy day and night in following the roads and trails that lead to the final meeting of minds from which action is to result.

I had a visit from the Tuchun Tien, of Kalgan, after my return from America in the fall of 1918. I found that the Tuchun was in very bad grace at the American Legation. He had interfered with an automobile service which an American had tried to establish between Kalgan and Urga, in Mongolia, and had in other ways shown an apparent hostility to legitimate American enterprise. As the writing of notes had not secured any satisfactory results, I began to probe into the situation to find what lay back of the attitude of the general.

I found that he was "blood-brother" of Mr. Pan Fu, whom in turn I numbered among my friends. I therefore consulted Mr. Pan Fu about the situation. He said that there must be some misunderstanding, as the General was certainly not animated by any feeling of hostility to America; but that it was possible that the particular American in Kalgan had rubbed him the wrong way. So he promised to write the General a long letter.

A short time later he called on me and reported that General Tien had written him that he was soon coming to Peking and would be very glad to meet me. The Tuchun soon called on me, with Mr. Chow Tsu-chi, and we had a most friendly talk. Very little was said about any past difficulties in Kalgan, but a great deal about future prospects of goodwill and mutual help. In fact, our friendship was quite firmly established, and there was no further room for misunderstanding.

Tuchun Tien was an open-faced, friendly looking person who, though he had straggling side whiskers unusual with the Chinese, had nothing of the berserker in his bearing. Our conversation was long and cordial. When it had already lasted more than an hour, Mr. Chow looked at me apologetically and said, in English: "We had better let him talk, it does him good." As for myself, I was glad to hear his views.

Mrs. Reinsch and I gave a dinner to Mr. Robert Gailey of the Y.M.C.A. on the eve of his departure for America. About thirty guests were present, all members of the American mission societies in Peking. I had just entered the reception room to be ready to welcome our guests when much to my surprise Prince Pu Lun was ushered in. It was evident that there had been some mistake about invitations, but as there appeared to be no other dinner given at the Legation, I made no effort to clear up the error and tried to make him thoroughly welcome. I had the table rearranged so as to seat the Prince between two ladies both of whom spoke Chinese very well. He appeared to be surprised at the composition of the company and the absence of wines, but was apparently well entertained by his neighbours. When the dinner was about half through, Kao, the head boy, came to the back of my chair and whispered to me: "Mrs. Lee's boy outside. Say Prince belong Mrs. Lee dinner." So after dinner I felt in duty bound to tell the Prince that Mrs. Lee had sent word that she would be very happy if he could come to her house in the course of the evening.

After a short conversation, in which he told me about his children of whom he is very fond, the Prince departed, to recoup himself at the house of the navy doctor for the abstinences laid upon him at the minister's dinner.

PART II

THE PASSING OF YUAN SHIH-KAI

CHAPTER XI

THE WAR: JAPAN IN SHANTUNG

On August 8, 1914, Japanese war vessels appeared near Tsingtau. Japan suggested on August 10th that the British Government might call for the coöperation of Japan under the terms of the Alliance. In view of possible consequences the British Government hesitated to make the call; the British in China considered it important that independent action by Japan in that country should be precluded.

Acting on its own account on August 15th, the Japanese Government sent the Shantung ultimatum to Germany. The British Government was then informed of the action taken. The German representative at Peking had discussed informally with the Foreign Office the possibility of immediately returning Kiaochow directly to China; but the Chinese Government was now pointedly warned by the Japanese that no such action would be permitted.

The Chinese Government then also seriously considered the policy of declaring war on Germany. It would have been as easy for the Chinese, as for any one else, to take Kiaochow from the Germans, but Japan was ready and anticipated them. In fact, the Japanese minister stated to the Chinese Foreign Office on August 20th that the Kiaochow matter no longer concerned the Chinese Government, which, he trusted, would remain absolutely passive in regard to it. The ultimatum to Germany, limited to August 23rd, demanded the delivery, at a date not later than September 15th of the leased territory of Kiaochow to the Japanese Government, "with a view to the eventual restoration of the same to China."

Basing its action upon the language of this ultimatum, the American Government on August 19th made a communication to the Japanese Foreign Office, noting with satisfaction that Japan demanded the surrender of Kiaochow with the purpose of restoring that tract to China, and that it was seeking no territorial aggrandizement in China.

On my return to Peking on September 30th, I found the Chinese in a state of natural excitement over the action taken by Japan. By this time the Japanese had invested Tsingtau; the British, who had also sent a contingent of troops, were kept by the Japanese in a very subsidiary position. The scope of Japan's plans was more fully revealed on September 29th, when the Chinese Government was informed that "military necessity" required the Japanese Government to place troops along the entire railway in Shantung Province. As this railway had never had German military guards, and as the portion near Tsingtau was already held by Japanese troops, the military necessity of such further occupation was by no means apparent.

Mr. Liang Tun-yen, Minister of Communications, called on me on October 1st, expressing deep concern over the action of the Japanese in Shantung. He stated his conviction that, in departing from the necessary military operations around Tsingtau, it was Japan's plan to stir up trouble in the interior of China with a view to more extensive occupation of Chinese territory. From Japanese sources he had information to the effect that the Japanese militarists were not satisfied with the reduction of Tsingtau, but wished to take advantage of this opportunity to secure a solid footing—political and military—within the interior of China. He was further informed that they were ready to let loose large numbers of bandits and other irresponsible persons to coöperate with revolutionary elements in an attempt to create widespread uprisings, in order to furnish a pretext for military interference. When I called attention to the declarations regarding Kiaochow in Japan's ultimatum to Germany, the minister shook his head and said: "Unfortunately, Japanese policy cannot be judged by such professions, but only by the acts of the last twenty years, which make up a series of broken pledges and attacks upon the rights of China."