Foreign Relations of the United States, 1901, Appendix, Affairs in China, Report of William W. Rockhill, Late Commissioner to China, with Accompanying Documents
Mr. Rockhill to Mr. Hay.
Peking, March 28, 1901.
Sir: I have the honor to transmit herewith, for your information, two memoranda, one prepared by Sir Ernest Satow, British minister to China, the other by-Sir Robert Hart, and both bearing on the question of the available revenue from which China could pay the indemnity which will shortly be asked of it by the powers.
Some of the foreign representatives here are advocating in the strongest manner that China should contract a foreign loan for the payment of the indemnity. Though this would be the most rapid way of paying it off, it would also be the most expensive. It would inevitably result in establishing some form of foreign international financial control, affect thereby the administrative entity of China, and consequently conflict with the declared policy of the United States. Though Russia is, I am given to understand, strongly opposed to China making a loan which would result, according to Russia’s views, in further strengthening British influence in China, the powers are so anxious to be promptly paid for their military expenses, that I fear great pressure will be brought to force this country to follow this method in paying off her new indebtedness.
The suggestions of Sir Ernest Satow and Sir Robert Hart’s memoranda, by which existing revenue only would be used to pay off by installments the indemnity, would be much better for China and the adoption of most of the measures they propose would contribute to bring about much needed administrative reforms, and ultimately constitute for the sole benefit of China, let it be hoped, valuable sources of revenue. For these reasons the measures herein advocated strongly commend themselves to me, and I have no doubt they will do so also to you.
It has been rumored here of late that some American capitalists were willing to supply China with all the money she might need in her present embarrassment, on condition that the administration of certain of China’s present revenues be farmed out to them for an extended term of years. Any such attempt to secure control over [Page 114] the larger part of China’s revenues, and thereby over the Government of China, would be strongly opposed by all the other powers out here, and I think not unnaturally. So strong I think would be the opposition that it seems to me it would be quite impossible to carry out this plan. The development of China’s resources and improvement in her methods of administration will tend more than anything else to increase her commerce, and will, therefore, be ultimately much more beneficial to us and the world at large than any other plan which can be thought of for the settlement of its new financial obligations.
I have the honor to be, sir, your obedient servant,
Memorandum.
We are without any indications as to the probable total amount of the indemnities which will be claimed from China, except such estimates as have been brought forward in the legislature of certain powers, but it seems reasonable to assume that the sum will not fall far short of £50,000,000 and may possibly exceed those figures.
Assuming, however, for the moment that this round sum represents the total, the next question is how can this be provided for.
Immediate payment or payment spread over a short period would meet the convenience of the powers, but it is obvious that this is impossible without having resort to a foreign loan.
It has been recently estimated that in order to provide only £40,000,000 in cash, China would, in the present state of her credit, have to contract for a loan of £55,000,000, and at the same rate for £50,000,000 in cash she would have to contract for £68,750,000. The amount she would have to provide for the first fifteen years (assuming the terms to be the same as those of the loan effected after the war with Japan) would be somewhat over £5,500,000. For the next succeeding fifteen years it would be about one-third less, after which there would be a still further diminution.
This seems to be considerably in excess of what she could afford to pay without increasing taxation to a burdensome amount or taking such a proportion of the total revenue of China as would drive the Government into bankruptcy.
Mr. George Jamieson, at page 33 of his report (1897), estimates the total revenue at 88,000,000 taels, from which must be deducted nearly 22,000,000, being the foreign customs revenue, the whole of which is hypothecated for the payment of the existing debt. This leaves 66,000,000 or £11,000,000, and according to the hypothesis of this one-half must be devoted during the first fifteen years to the payment of debt. To state this is to demonstrate its impossibility.
Whether for the credit of China that of the powers can be substituted by some means or other I will not now stop to inquire, but confine myself to the question of what resources are available, which by improved methods of collecting might be made to yield more than at present without increasing the burden on the taxpayer.
In Mr. Jamieson’s report above referred to (p. 33), the revenue from the native customs is set down at 1,000,000, which (p. 30) he considers an absolutely insignificant amount, and the inference is that if the returns were honestly made it would yield a much larger sum. Mr. Hippisley, in an address delivered before the Johns Hopkins University, in November last, put the actual revenue from this source at 3,000,000 taels, and as he is a member of the Imperial maritime customs service it may be assumed with a fair show of probability that his estimate is more likely to be Correct than that of Mr. Jamieson, who had not the same means of access to official sources of information. The same remark, however, applies to this larger estimate, namely, that an honest system of collection would produce a considerably larger amount. It seems consequently that to estimate the yield obtainable at 4,000,000 taels would not be excessive.
The next item of revenue which by common consent seems to be regarded as the most easily available is the salt excise. Mr. Jamieson puts this at 13,659,000 taels (p. 33 of his report), while Mr. Hippisley estimates it at only 12,000,000. It is, as is [Page 115] well known, capable of producing a much larger sum, which at the very lowest estimate may be put at 50 per cent higher, say 16,000,000 taels. But from two other sources of information, independent of each other, it appears that a surplus of 12,000,000 taels is an equally plausible estimate of the gain to be expected from an honest administration.
Thirdly, there is the item of the tribute rice sent to Peking from the south (p. 6 of Mr. Jamieson’s report). The amount sent forward he estimates at 1,200,000 to 1,400,000 piculs; the charges and allowance for transport cost the provinces a very large sum, which he estimates at 1,500,000 taels.
According to another estimate the tribute rice amounts to 800,000 piculs, value, 4 taels a picul. Forty per cent of this is transported by the Grand Canal, the charges being so high as to make the laid-down cost in Peking about 15 taels, while the freight on the remaining 60 per cent carried in the steamers of the China Merchant Company is only 1½ taels a picul. If the whole were transported by sea the resulting economy would amount to 9½ taels or 40 per cent on 800,000 piculs, or 3,040,000 taels. Another estimate gives 300,000 piculs carried by steamer and laid down at 6 taels, and 400,000 piculs transported by the Grand Canal at 15 taels, the economy effected by carrying the whole by sea would then be 3,600,000. The viceroys who dispatch the rice pay the freight in the first instance and deduct it from the proportion of the land tax which they remit to Peking.
It should be explained that the “tribute rice” is rice purchased by the officials with money received in commutation of taxes in kind. The funds employed in this way reach from 3,360,000 to 3,920,000 taels according to Mr. Jamieson’s estimate of the amount of tribute rice. The rice is eventually doled out to the Manchu banner men, who sell it for consumption by the poorer classes in Peking, realizing about 1½ taels a picul. No more wasteful proceeding than the foregoing could be imagined.
If the money expended in the purchase of the “tribute rice” were kept in hand, and if to that were added the saving on transport, we should obtain a sum of about 6,562,000 taels, according to Mr. Jamieson, or if the other estimates were taken, the result will be as follows:
| Taels. | |
| 800,000 piculs, at 4 taels | 3,200,000 |
| Saving on 480,000 piculs transported by sea | 720,000 |
| Saving on 320,000 piculs transported by Grand Canal | 3,520,000 |
| Total | 7,440,000 |
| 700,000 piculs, at 4 taels | 2,800,000 |
| Saving on 300,000 piculs transported by sea | 600,000 |
| Saving on 400,000 piculs transported by Grand Canal | 4,400,000 |
| Total | 7,800,000 |
A further economy might be effected by capitalizing the pensions to Manchu soldiers and banner men and issuing to them bonds bearing interest at 5 per cent. The official return for Peking alone is 5,760,000 taels, without taking into account the cost of the Manchu garrisons in the provinces. It must be remembered that these men are not of any use as soldiers. If the bonds issued to the recipients of these pensions were to the amount of half the capitalized value, this would for Peking alone effect a saving of 2,830,000 taels. The prohibition to engage in trade which affects them should at the same time be removed.
To sum up, the minimum estimate gives—
| Taels. | |
| Native customs | 4,000,000 |
| Tribute rice | 6,562,000 |
| Salt | 6,000,000 |
| Manchu pensions | 2,830,000 |
| Total | 19,392,000 |
| Maximum estimate: | |
| Native customs | 4,000,000 |
| Tribute rice | 7,800,000 |
| Salt | 12,000,000 |
| Manchu pensions | 2,830,000 |
| Total | 26,630,000 |
As to the administration of these sources of revenue, it seems obvious that the native customs should be placed under the Imperial maritime customs. As to the others, the question of how they should be collected and paid over is a matter for future consideration.
It may possibly seem that the foregoing estimates of available sources of revenue is too sanguine. What may be regarded as a rather pessimistic estimate is as follows:
| Taels. | |
| Native customs | 1,800,000 |
| Tribute rice | 960,000 |
| Salt | 2,400,000 |
| Total | 5,160,000 |
Its framer proposes, therefore, that the present import duties should be raised to an effective 5 per cent, being at present only 3.17 per cent effective, and estimates the yield from this to be about 2,700,000 taels, while from duty-free goods, excepting foreign cereals or rice, 420,000 taels might be obtained. This gives altogether 8,280,000, or say, in round numbers, 9,000,000 taels.
This would suffice, it is evident, for the service of a loan of £30,000,000 nominal, producing, say, £23,000,000 cash.
If the present specific tariff is to be brought up to 5 per cent actual ad valorem, it seems just and reasonable that a similar provision should be made with regard to land frontier customs duties.
Memorandum concerning indemnity to be paid by China.
- 1.
- What amount can China pay?
- 2.
- What method of payment is most suitable?
- 3.
- What revenues can most easily be taken?
- 4.
- What control is advisable?
1. What amount can China pay?
(a) China has no reserve and can not pay ready money.
(b) The amount required must therefore be taken either from the savings of the people or from the current revenues of the Government.
(c) No statistics show the wealth of the people, but even admitting the possibility of finding the required sum in their hands and clearing off the entire indemnity by one payment, the attempt to collect it would unsettle every province and end in failure.
(d) It is therefore from revenues payment must be made.
(e) The latest statement of revenue and expenditure, compiled from what remains of the records of the Hu Pu board of revenue, makes revenue amount to about 88,000,000 taels, while expenditure was said to require 101,000,000. More than a quarter of the revenue was paid out for the service of existing loans, and as for the deficit or difference between requirements and receipts, it is still a debt; there are no funds to meet it. The appropriation of so much revenue for existing loans is in fact the cause of the deficit, for all such loan payments are deductions from the fund the Government relied on to meet the expenses of provincial and metropolitan administration. New revenues were not created to meet new expenditure. Accordingly, any further withdrawal of funds from revenue means an additional deficit, and the total deficit must then either become an increasing debt ending in national bankruptcy or be made up for either by additional taxation or by a mixture of that and economy in the use of funds. Economics are not easily effected, and as for new taxes, they are difficult to impose and do not at once pay for the cost of collection. Officials, official establishments, and governmental work generally will be embarrassed by hasty or ill-considered attempts to economize; new taxes are never popular and give underlings opportunities for extortion; an official economy which would impair the efficiency of national administration and a taxation which would weaken either the productive or the consumptive power of the people are alike to be condemned. These considerations can not be set aside when attempting to answer the question, What amount can China pay? For, seeing that the present revenue does not suffice for the ordinary work of Government, fresh taxes must be imposed to make up for whatever revenue a new indemnity will withdraw.
[Page 117](f) The items of annual expenditure may be classified in round numbers as follows:
| Taels. | Taels. | ||
| Provincial | 20,000,000 | Legations | 1,000,000 |
| Military | 30,000,000 | River works | 940,000 |
| Naval | 5,000,000 | Railways | 800,000 |
| Metropolitan | 10,000,000 | Loans | 24,000,000 |
| Banner men | 1,380,000 | Contingent reserve | 3,300,000 |
| Palace | 1,100,000 | ||
| Customs | 3,600,000 | Total | 101,120,000 |
(g) Revenue receipts may be arranged as follows:
| Taels. | Taels. | ||
| Land tax | 24,000,000 | Likin | 16,000,000 |
| Do | 2,500,000 | Native customs | 2,700,000 |
| Provincial miscellaneous duties | 1,600,000 | Maritime customs: General cargo | 17,000,000 |
| Provincial miscellaneous receipts | 1,000,000 | Foreign opium | 5,000,000 |
| Grain commutation | 1,300,000 | Native opium | 1,800,000 |
| Do | 1,800,000 | Total | 88,200,000 |
| Salt Gabelle | 13,500,000 |
(h) Taking the population of China at 400,000,000 and the revenue collected and expended at 100,000,000, the Government may be said to cost the people annually 25 tael cents each. If these figures are to be considered net results, and a similar amount allowed for cost of collection and extortion—an allowance which is probably excessive—the result would still be a taxation of only 50 tael cents apiece. Japanese pay 7 silver dollars and Americans 15 gold dollars. It may therefore be said that whatever abuses exist, no people are more lightly taxed and no government more economically conducted than the Chinese; but this is what Confucian teaching requires. On the other hand, it must be remembered that while living is cheap, wages are low; and that while, accidents apart, people every where have enough, and just enough, to live on, the national currency—copper cash—at the rate of 1,000 cash to the silver dollar, is so well suited to Chinese environment that in every market place a single cash can buy something. Therefore, although living is cheap and taxation light, it would be a mistake to suppose that new taxation would meet with no objection and cause no suffering, while it is also a fact that to the ordinary Chinese mind relatively heavy taxation is distasteful as being, first of all, opposed to the moral sentiment of the country and also affording unscrupulous collectors opportunities to harass productive industries.
(i) With these considerations in view, and bearing in mind the fact that experience now shows that the Government, although in difficulties, is just able to support the deficit existing loans cause, it may be inferred that additional indemnity payments, to be made up for by additional taxation, ought not to exceed present charges—that is, ought to be as much below 20,000,000 taels a year as possible, and ought not to exceed that amount; and this is my answer to the first question, What amount can China pay?
2. What method of payment is most suitable?
(a) Under the circumstances there is apparently a choice between only two, viz, for China to borrow the amount, or for foreign Governments to accept payment in annual installments.
(b) If China appears in the market as a borrower, the banks will charge heavy commissions—the rate of issue will require to be low to tempt investors—and the public will be hard to satisfy in respect of guarantees and conditions. This method would prove a very costly one for China, and initial difficulties connected with guarantees and considerations would only increase with the delay discussion must entail.
(c) If, on the other hand, foreign Governments would consent to accept the undertaking of the Chinese Government to make payment in so many annual installments, the transaction would be cheaper for China and the details could be more speedily settled. For instance, supposing the total of the indemnity principal to be £50,000,000, and China to undertake to pay 5 per cent on that amount for, say, thirty years, or £2,500,000 (17,500,000 taels) annually, the Governments concerned could either collectively or individually float an indemnity loan on their own account, and with its proceeds at once pay off the indemnities of Governments, corporations, and individuals. In this way foreign Governments and China would be mutually creditor and [Page 118] debtor; monthly payments would be made to the banks as designated at Shanghai, and the banks could then surrender the Chinese bonds for monthly payments to the Chinese Government through the legations concerned.
(d) Of the two methods, the second is the more acceptable from the Chinese point of view.
3. What revenues can most easily be taken?
(a) The maritime customs revenue is at once the simplest and the best known Chinese guarantee, but as it is already pledged for existing loans it is not on this occasion available as a collateral security.
(b) The choice is therefore between the land tax, the likin, and the salt gabelle.
(c) The land tax, although a staple asset, is remitted from time to time, when crops are damaged by locusts, droughts, inundations, or earthquakes, and, being thus variable, can not be relied on to produce the same amount every year.
(d) Likin is a temporary tax which both the Chinese people and foreign commerce would gladly see abolished, and it would therefore be better not to pledge the Government to continue it.
(e) The remaining tax, the salt gabelle, is an unobjectionable item of revenue, and nothing more reliable exists. The net collection of 1899, according to the board of revenue’s figures, was under 14,000,000 taels, but various inquiries go to show that 15,000,000 might be expected, and that careful handling might even raise it to 20,000,000. But it would be best to supplement this gabelle by the native customs revenue—that is, the dues and duties paid by Chinese junks, etc. The board’s figures give the total net collection as something under 3,000,000 taels, but inquiry affords reason to suppose that at the treaty ports alone it could be increased to 5,000,000, while some think it might grow even to 10,000,000. Lest the salt gabelle and the native customs should fail to produce the full annual total required, it might be well to specify some other convenient items. For example, the Peking octroi could be relied on for almost 500,000 taels annually; metropolitan expenditure might contribute 3,000,000 taels from the Manchu allowances, and from 2,000,000 to 3,000,000 more might be realized by abolishing the Peking grain tribute in kind. Thus salt gabelle, native customs, Peking octroi, metropolitan expenditure, and grain tribute could be relied upon to produce the first year a clear total of 20,000,000, and in a few years perhaps 30,000,000, and this is my answer to the question, What revenues can most easily be taken?
(f) But before leaving this point it should be remarked that the revenue thus proposed to be set apart would be revenue deducted from funds the Government absolutely requires the use of for the current expenditure of the administration, and must be made up for by new or additional taxation in other directions. How could this be done? The matter has already formed the subject of several consultations between myself and Chinese officials, and the additional taxes proposed which find favor so far are a house tax, a stamp duty, and rearrangement of native opium duties. A house tax, to produce 20,000,000 taels a year, would be a charge of only 5 tael cents annually on each of the population, but it is likely that such a tax would yield several times that amount; that it would not be too heavy if fixed at a half month’s rent, and that if made payable by all occupants direct to the yamen of the district magistrate the dishonesty or extortion of visiting collectors could be successfully combated. A stamp duty would also in time produce a considerable revenue. There are about 2,000 districts in the eighteen provinces, and it is estimated that each of these would use at least 1,000 stamps daily for bills, receipts, deeds, bank notes, pawn tickets, etc.; if each stamp were sold for 10 copper cash, or one dollar-cent, the yield at that rate would be about 5,000,000 taels a year. As regards native opium, it is calculated that there are at least 150,000 piculs, or three times the quantity of foreign opium, produced and disposed of every year; were the district magistrates charged with the collection of the duty, and duty fixed at 60 taels a picul, the collection, under improved regulations, ought to amount to some 10,000,000 taels a year. These three taxes, properly managed, should yield a very large revenue and quite suffice to make up for the withdrawal of the salt gabelle, etc., from administrative expenditure for indemnity purposes; but although they would not fall heavily on any body, the very fact of their being newly imposed would make them unwelcome, and under the circumstances their unpopularity would connect itself with their foreign origin, and in that way cause some ill feeling it might be wiser to avoid.
(g) There is, however, an alternative method which would give some relief, and which, therefore, under present circumstances seems worthy of consideration. When the foreign tariff came into operation forty years ago the haikwan or customs tael, in which duties were and are payable, was worth 6 shillings 8 pence English money—that is, 3 haikwan taels were equal to £1. Since that date silver has declined in value, and instead of 3 about 7 haikwan taels must now be given for the pound sterling. The principle on which the tariff was drawn up was to fix duties at the rate of 5 per [Page 119] cent on values, but the result of the fall in silver is that instead of paying 5 per cent on value most goods now pay only from 2 to 3 per cent, while many even pay but 1 or 2 per cent, and a further result has been that both the Chinese revenue has been a loser arid the Chinese Government a sufferer. All this could be set right at a stroke simply by returning to the tariff value of the customs tael, and such a step would require neither revision, change, nor negotiation, a declaration by the treaty powers to the effect that the tael of the tariff means 6 shillings 8 pence English money, or its equivalent in any other national coin, and that duties must be paid accordingly, would suffice. The effect of this on the revenue of the Maritime Customs would be to increase the collection by from 10,000,000 to 15,000,000 taels, almost enough to provide for the new indemnities, and merchandise would not be taxed beyond the 5 per cent rate on values. Such additional collection would be maritime customs revenue; it would not require any new machinery for its management, while it would be a simpler and more easily handled security than the others designated.
4. What control is advisable?
(a) The discussion of this point is, of course, outside my province.
(b) But I may remark that the plan adopted under the Tientsin treaties for controlling indemnity payments was simply for the consuls concerned to repair to the custom-house at the end of each quarter and inspect the revenue statements. This was a useful formality at the start, but it soon became a mere formality and had no special effect on either the accuracy of revenue statements or the payment of indemnity money.
(c) If the salt gabelle, etc., are specified as the guarantees for payment of new indemnities, I may point out that the simplest solution would be the extension of the present likin control under the 4½ per cent loan agreements to the salt gabelle generally and the incorporation of the native customs at the treaty ports with the maritime customs there established. The existence of two custom-houses at the same port occasions mistakes and causes friction, and the maritime customs staff could easily assume charge of the work now in the hands of the chang shui or native customs. As regards the salt gabelle, it should be explained that the Chinese practice is to collect the tax at the place of consumption, and procedure is arranged accordingly. Any change would dislocate existing machinery, cause loss of revenue, and inconvenience both traders and public. Supervision of the kind already initiated would suffice, for the results of a four years’ experiment prove that it works smoothly and adequately. The revenue pledged has been regularly forthcoming and there has been no default, and whenever any local delay has occurred orders from Pekin have at once rectified it. The amounts collected for payment of new indemnities ought to be sent to the banks monthly, but as collections vary from day to day the annual quota is the only one to be rigidly adhered to.
Inspector-General.