# Popular Science Monthly/Volume 81/November 1912/China's Great Problem

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* CHINA'S GREAT PROBLEM
By Professor THOMAS T. READ
SAN FRANCISCO, CAL.
NEITHER the institution of republican forms of government, nor the creation of a spirit of natural unity, not even the inculcation of republican ideals constitutes China's great and imminent problem. It is not inappropriate that a nation whose people are best known for their skill and probity in business affairs, at the close of revolution engendered in large part by financial considerations and brought to a speedy termination by that modern arbiter of warring factions and nations, the international money lender, should find her most imminent and pressing problem a plain one of business. The average man finds it necessary to give constant consideration to the relation between his income and expenditures and to possible sources of increase of the one and diminution of the other. Nations are no more fortunate and China is unusual only in that her monetary affairs, through her international loans, have become matters of cosmopolitan importance.
At the beginning of last year China had a total foreign indebtedness, secured by Imperial revenue, of approximately $700,000,000 corresponding to an annual interest charge of approximately $35,000,000. During the year a budget was prepared, the first in the history of the nation, which showed that the estimated annual income of the empire was some $180,000,000. The budget made evident to all what many had long known, that China was unable to make both ends meet, and like a spendthrift was using her capital to pay her debts. The fundamental causes of the revolution of 1911 have been much obscured by the natural human desire to weave adventure and romance into war, but it is true, nevertheless, that just as the "embattled farmers" were irritated beyond bearing by a tax on tea, so were the "sons of Han" roused to arms by burdening them with a foreign loan of which they did not approve.
It will be remembered that after the American financiers who had acquired a concession to build a railway from Hankow to Canton perfidiously sold it to the Belgian interests, whom the Chinese especially wished not to secure it, the concession was bought back by China and the people of the provinces through which the road passed attempted to ​raise the funds for its construction. Considerable sums were raised, but were neither wisely managed nor well spent, and as time passed the funds gradually melted away without any material return in the form of roadbed and rolling-stock. Meanwhile, centralization of power in the Peking government was increasing with rapid strides, and finally the Peking authorities began to negotiate with England, France and Germany a loan for the construction of this and other railways. The means by which the United States claimed and secured the right of participation in this loan, while of importance to China as well as the banker powers, is outside the present question. It was evident from the first that there was great popular opposition to the loan, and foreigners, who knew the popular temper, prophesied that it could never be consummated. Finally the negotiations were concluded, however, and the terms were announced. Among other provisions it was announced that for the sum already spent by the people of the provinces, stock in the railway enterprises to half its par value would be allotted. The pot of revolution, which is always seething in southern China, at once boiled over. The Chinese people had suffered an incompetent government by alien officials as long as it did not greatly trouble them. When it began to waste their money they promptly revolted.
It is generally agreed that war is hell. It is also expensive. Bombardments, bloody combats, fire and looting figure in the head-lines of the daily journals, but the real work of the revolution was done in the financial council chamber. At the beginning of the outbreak neither side was provided with adequate funds, for the revolutionists were unable to secure any considerable sums, though able to cut off a large part of the normal income of the Peking government, and the imperial household with business caution refused to give up their store of private treasure for what bade fair to be a losing contest. The struggle at once resolved itself, therefore, into a competition to secure foreign financial assistance.
Perhaps some day the true history of the negotiations at Peking and Nanking will be made known. But from a business standpoint it was at once evident that the Peking government had immensely the more advantageous position. It had for some time been in negotiation with representatives of the banker nations in regard to loans, and was easily able to continue its negotiations. Bankers seek for stability and naturally preferred to deal with a government whose peculiarities had been learned through years of experience, rather than to take a chance with an oriental republic, of which it would be safe only to prophesy that it would do the unexpected. The revolutionists were out of touch with the financiers, many of them were young and inexperienced, and they were unable to make any impression except upon the Japanese and Russians, who hoped that after a new deal in China they might hold a better hand.
​The Chinese are an eminently reasonable people; their natural motto is to suit themselves to circumstances. When it became clear that the revolutionists could not secure funds to put themselves in control of the country, and that the Peking government, while it could secure funds upon evidencing an ability to tranquillize the country, could not do so as long as the Manchus remained in nominal control, the inevitable followed. The Manchu emperor and his associates gracefully abdicated, announcing that the will of Heaven, speaking through the voice of the people, desired the institution of a republican form of government, and the revolution was fait accompli.
In the months which have since elapsed China has been crowded from the stage of international attention by other affairs, yet the negotiations which have been going on are of even greater importance than the more spectacular events of the war. The banker powers are good business men, and, having an opportunity to make China "pay through the nose," were not unlikely to underestimate it. The Chinese are business men, too, and struggled to secure as favorable terms as possible. The difficulty was a complex one—China wished to avoid Egyptianization, while the powers wished to be sure that their money would be well spent, and reasonably secure, while inextricably interwoven were the political aspects of the loan. The Chinese played their ancient game of pitting one interest against another. Many loans were proposed, a loan of $30,000,000 from Baron Cottu was seriously considered, and part of an Anglo-Belgian loan was paid over. The four powers which had been in negotiation for the past two years were increased to six by the addition of Russia and Japan, and finally to seven by the addition of Austria before it was agreed that all other loans should be abandoned and $300,000,000 advanced to China by this septuple syndicate in a series of instalments.
The problem has not been solved, however; only expanded. Soon China will be indebted to foreign nations by nearly $1,100,000,000, a greater sum than the national debt of the United States. This calls for an annual interest payment of over $50,000,000, over and above the expenses of government. Her total annual income has so far apparently been about $180,000,000 or about one fourth that of the United States. In other words, to an already large annual deficit she has added an annual interest charge of over $15,000,000. Can she increase her income to meet it? A corporation in such a precarious situation would procure the services of the ablest business manager whom money could secure. China's problems are fit tasks for supermen; will the supermen be forthcoming?
​A brief survey of China's economic condition will be of service. In former times China was like a "balance-tank" in an aquarium, self-supporting. As Boss has recently accurately remarked, the nation is an exemplification of the law of Malthus, the balance between population and means of existence. To us of America a true mental picture of the economic status of the Chinese is almost an impossibility. A comparison may serve, and by pointing out that the present degree of comfort and convenience enjoyed by the average Chinese demands a coal production 1/175 of that in the United States, and until recently an iron and steel production only 1/1,200 that of the United States, it may be more clear that the Chinese nation as a whole is close to the margin of mere existence. The problem with the average Chinese is an elemental one; enough food to preserve life and enough clothes to keep warm and subserve modesty. China's present unenviable position is not unlikely largely due to the fact that when international trade developed and the export of tea began to meet the import of the ubiquitious blue cotton cloth that forms the Chinese national dress, the acreage formerly devoted to the cultivation of cotton was sown to the opium poppy and the national wealth vanished in curls of smoke that wafted away at once the substance and virility of the people.
Now the use of opium is almost suppressed, soon will be completely so, and the land devoted to its cultivation, will be sown to grain, sugar beets and other crops of real value. The problem is still an elemental one, however. It is idle to simply point out that by opening mines, building railways and developing manufacturing industries, the scale of living of the Chinese citizen can be raised to approximately as luxurious a plane as in the United States. The real question is—will the increase in the wage of the average citizen bring him increased comfort and convenience, or will it bring a few more mouths to feed and another approximation to the margin of existence? If the latter, the Chinese expression for the management of a household—"Kuo jih-tze" to get over the day—will remain always, as now, the index of national economy. Upon the answer to this question hangs China's future.
The further elaboration of this topic would take me into a field in which I scarcely dare venture. It is still a subject of discussion in this country whether the restriction of the size of families is compatible with good morals and good economics. Apparently the pragmatic answer is in the affirmative. The great desire of the Chinese parent for offspring to maintain the rites of ancestral worship further complicates an already complex problem and I will leave it in abeyance, in order to discuss the problem of securing national prosperity from the standpoint of the scanty facts available.
Of China's present foreign indebtedness nearly $350,000,000 represents indemnities, largely the outcome of the outbreak of 1900. The ​remainder has partly been invested in railway and other industrial enterprises, and partly used in a variety of minor ways. To meet the interest and principal upon this debt the returns of the Maritime Customs has been the security, and the service has for years been under foreign direction. Besides being a source of income the custom service has been an object lesson and a training school for the Chinese. Out of it has grown the excellent postal, telegraph, and telephone service which China enjoys. In 1905 35,110,000 taels were collected from the import and export tax on merchandise. In the budget recently published in the Chinese press, following the address given by President Yuan before the National Assembly, the expected receipts from the Maritime Customs this year is given as 35,140,000 taels. The growth is inconsiderable while the fluctuations in exchange during the past year correspond to a difference of about 5,000,000 taels in the conversion of this sum into gold.
Consideration of this budget as a whole offers an interesting study and I therefore give the estimated revenues and expenditures under the new government, as printed in Chinese journals, and translated by the well-informed National Review of Shanghai.
Estimated Revenue
Ordinary
| Land Taxes | 46,164,709 |
| Salt and Sea | 46,312,355 |
| Maritime Customs | 35,139,917 |
| Native | 6,990,845 |
| Sundry Duties | 36,136,842 |
| Likin | 43,187,907 |
| Income from Official property | 36,600,899 |
| Sundry Receipts | 19,194,101 |
| Total | Tls. 269,754,579 |
Provisional
| Land Taxes | 1,936,636 |
| Native Customs | 8,524 |
| Contributions | 5,652,333 |
| Government Credit Notes | 3,560,000 |
| Sundry Receipts | 16,050,648 |
| Total | Tls. 27,208,142 |
| Grand Total | Tls. 296,862,721 |
Estimated Expenditure
Ordinary Expenditure
| Executive Affairs | 26,069,666 |
| Foreign Affairs | 3,375,130 |
| Interior Affairs | 19,735,787 |
| Financial | 17,703,545 |
| Maritime Customs | 5,748,237 |
| Native Customs | 1,460,332 |
| Commercial Affairs | 745,759 |
| Educational Affairs | 12,801,468 |
| Judicial Affairs | 6,616,579 |
| Naval and Military Affairs | 83,498,811 |
| Industrial Affairs | 5,315,606 |
| Communications | 48,898,355 |
| Works | 2,511,257 |
| Official property | 7,696,361 |
| Provincial Indemnities | 39,120,732 |
| I. M. Customs Indemnities | 11,263,547 |
| Native Customs Indemnities | 1,256,491 |
| Territorial | 1,239,908 |
| Total | Tls.295,256,882 |
Provisional Expenditure
| Executive Affairs | 1,258,184 |
| Foreign | 626,177 |
| Financial | 2,877,904 |
| I. M. Customs | 9,163 |
| Native Customs | 40,576 |
| Civil Affairs | 2,724,974 |
| Commercial | 54,037 |
| Educational | 3,348,061 |
| Judicial | 218,746 |
| Naval and Military | 14,000,540 |
| Industrial | 667,154 |
| Communications | 7,804,908 |
| Works | 2,576,137 |
| National Credit Notes | 4,772,613 |
| Total | Tls.40,979,180 |
| Grand Total | Tls. 336,236,062 |
Lest the reader be unduly impressed by the appearance of accuracy given by carrying out these sums to the nearest unit, let me add that the probability of error in them is very great and other published estimates put the expenditure as high as 576,000,000 taels, while the Board of Revenue in 1910 prophesied a deficit of 80,000,000 taels in 1911. The indicated deficit of 40,000,000 taels may therefore be regarded as a fairly optimistic view of the financial situation.
As to expenditure, it is seen that over 50,000,000 taels is required to pay interest on indemnities. Communications (railways, post-office ​and telegraphs) consume nearly an equal sum and return only about two thirds as much in the form of revenue, the difference being partly due to expansion and partly to a present lack of profits from many enterprises. Naval and military affairs consume a large sum, but the present temper of the Chinese public is strongly contrary to a reduction of the effort to make China self-protecting. Educational expenditures should be increased, rather than curtailed, and it may similarly be said of most of the other items that though the moneys might perhaps be more wisely and efficiently expended they can not very well be decreased if the country is to prosper. China's hope lies, not in decreasing her expenses, but in increasing her income.
To greatly increase the income from the Maritime Customs scarcely seems feasible. The present rate of 5 per cent., imposed equally on imports and exports, is certainly low, but the commercial treaties existing with the principal countries only provide for a moderate increase, and it scarcely seems possible that the banker nations would look with favor upon a proposal to tax foreign trade in order to secure income to meet the interest upon their loans. The likin (internal transit tax) should be abolished; like the ridiculous prohibition of the export of grain from one province to another, it hangs like a vampire on the industrial body of the nation, sucking out its life. The conception that certain parts of the country are best suited to the production of certain commodities, while others can best produce something else, and that the best interests of the whole are secured by offering every facility for the free exchange of products, is so elementary that it is strange that even such pronounced individualists as the Chinese have not earlier perceived it. The salt gabelle, similarly, is a financial anachronism. The income from the government-owned enterprises can be greatly increased by better, more intelligent, more careful, and more honest management. In fairness it should be said that the lack of profits from these is not all to be laid at the door of the Chinese; foreign engineers have built $40,000,000 railroads where the probable trade only justified a $10,000,000 road, and foreign supervision of enterprises has often brought with it fat contracts for the foreign merchant.
The land tax might be increased, but the farming class, the large landowners, are already barely above the margin of subsistence, as a whole. But by development of agriculture, as in the United States, the income of the farming class could be greatly increased, with a corresponding taxable margin. Agriculture is the fundamental industry of any country, and the new government will be stupidly negligent if it does not make provision for its scientific development. Progress has already been made in this regard in Manchuria. The improvement of yield and of product by the judicious selection of seed is an idea which has never occurred to the Chinese; indeed, it may be broadly said that ​the improvement of anything by the elimination of its bad features and increasing of its excellences has never characterized Chinese industrial activity in recent times. I think it unquestionable that the people of China can be better fed and made correspondingly more vigorous simply by government aid to agriculture and the allowing of the free transit of the products of one part of the empire to any other part. The productive energy of the nation as a whole can thus be immensely increased. The human body is an engine for the conversion of food into useful work. Like any other engine, if it is supplied with only enough power to keep it going the useful output is small, since nearly all is used up in driving the machine. But give it all the power it can economically use and the useful output is many-fold greater. The simile is a crude one, but none the less accurate.
It will be noticed that no provision is made for the taxing of incomes, or of industrial enterprises. Under the old system either the tax on land or the tax on trade reached nearly all of these. This is no longer the case and such companies as Standard Oil, British-American Tobacco, Singer Sewing Machine, and numerous native enterprises carry on a large trade without being subject to any tax. This will constantly increase, and by the imposition of a just tax on these new forms of industry considerable sums can be derived. Every means should be taken to encourage the development of such enterprises. The mineral resources of China should be studied and mapped by qualified engineers, the country should be mapped topographically as an aid to the development of railway, irrigation and industrial enterprises, and every effort should be made to increase the agricultural and mineral productivity. A well-fed people with material to work with can upbuild China into a nation of solid wealth and substance. But if the proceeds of the new loan are expended unwisely and unprofitably then China must inevitably within a few years become another Persia. Business principles, rather than political considerations, must be preeminent in the conduct of the new government.
* ↑ Only approximate figures can be given, for the varying rates of exchange and diverse rates of interest make exact figures impossible.
* ↑ Since this article was written the republican government has refused to accept this loan on the terms proposed. The fundamental problem means essentially the same.
* ↑ The tael is a Chinese ounce of silver, and has different values at different places. The customs tael = 1.0164 Kuping tael. The latter is 575.8 grains of pure silver, and is doubtless the tael used in the budget. Naturally, its value in gold varies according to the rate of exchange.