# Twentieth Century Impressions of Hongkong, Shanghai, and other Treaty Ports of China/Cotton

COTTON.
By James Kerfoot, M.I.M.E., Manager of Ewo Cotton Mills, Shanghai.
HE spinning of cotton into yarn, and the weaving of that yarn into cloth, are industries which have existed in China for over a thousand years. Weaving is carried on, practically, throughout the Empire, but the great centre for spinning has been the country where cotton is grown under the most favourable conditions. The seaboard round the mouth of the Yangtsze, the Hangchow Bay, and the plains of the Hupeh Province. It is in the last-named districts that the mills have been erected for treating the raw material by means of steam-driven machinery.
One of the earliest ventures in this direction was the Chinese-owned mill, built in 1891, near the point on the Yangtsze Poo Road, Shanghai. This has always been regarded, more or less, as a Government venture. Financially, it has never been successful. The management has been entirely in Chinese hands, and "squeezing"—a colloquial expression describing the pernicious system of securing illicit personal commissions from every kind of business transaction has been notorious. One example of this will serve to illustrate the difficulties of producing a sound balance sheet. The mill had not been built long before there was a fire. No provision had been made by the management for grappling with such an emergency, and as the municipal fire brigade was not allowed to render assistance, the employés were helpless. As a result, the premises were gutted. It was then found that the official who had been entrusted with the insurance premiums had considered himself entitled to a considerable portion of the money. Consequently the policies had been allowed to lapse, and the shareholders suffered heavy loss.
Subsequently a larger mill was built on the same site. The originators claimed for themselves a quasi monopoly, and prohibited those who were not prepared to pay a fixed royalty for the privilege from engaging in any similar undertaking. Although certain Chinese accepted this onerous condition, foreigners resented it as an undue infringement of their Treaty rights, and Messrs. Jardine, Matheson & Co. imported certain machines, in 1893, to obtain a test case. It was, however, only when Japan, after her war with China, had inserted in the Treaty of Shimoneseki, in 1895, an article conceding to Japanese subjects the right to engage in all kinds of manufacturing industries in the open ports of China, and to import the necessary machinery, that foreigners were afforded an opportunity of exploiting these fields, rich in their possibilities for modern commercial enterprise. No time was lost in turning this particular clause in the Japanese Treaty to account. No fewer than eleven mills, Chinese and foreign, were erected between 1896 and 1898. In 1896 the mills owned by the Chinese were working some 120,000 spindles and 850 power-looms. Before the end of 1908 there will be 732,500 spindles, and 2,500 power-looms in operation.
Weaving has not expanded at the same rate as spinning. The reason for this is a simple one. Nearly every homestead in the country districts contains one hand-loom or more operated by the female members of the household in their spare moments. The cost of production is therefore exceedingly low. Large quantities of coarse cloth are placed on the market by this means at a price at which it is impossible for power-looms to compete. If it were possible to spin yarns of, say, from 20's to 24's from native cotton, a tremendous expansion would take place in the weaving industry, because this would allow Chinese mills to compete against Japanese and American cloths, made from American and better-class Indian cottons. At the present time best Chinese cotton cannot be spun successfully into higher counts than 16's yarn owing to its short staple.
The capital invested in the cotton industry does not fall far short of £3,000,000, taking into consideration land, buildings, and machinery. But from a foreign point of view, when due allowance has been made for depreciation, the 700,000 spindles taken at a fair market price would not be worth much more than half this sum, or 15 taels per spindle. It is doubtful whether the shareholders have received 2½ per cent. per annum on their capital. In the foreign-managed mills, however, the machinery and plant have been maintained in good condition, and it may only be a question of waiting a few years before the cotton industry comes to be looked upon as a safe investment yielding from 7 to 10 per cent. So far there have been many factors militating against the profitable working of the mills. Foremost among these has been a lack of working capital. The mills have to cover their yarn sales immediately they are made, as it would be unsafe to risk the fluctuations of the cotton market, which are due to the large exports of raw cotton to Japan, amounting to between six and eight hundred thousand piculs per annum. Owing, also, to the seasonable character of the market, the yarn had to be stocked for months. If such a precaution were unnecessary, the interest on working capital would go a long way towards paying a return of 3 or 4 per cent. on the money invested. Another factor adversely affecting the fortunes of the Chinese mills has been their failure to obtain supplies of raw cotton at reasonable prices. The estimates, made at the time when foreign capital was about to embark on the new enterprise, were based on the belief that cotton would never go beyond 11·50 taels per picul, as for years its price had remained stationary at 11·00 taels. Japan's increased requirements, and the demands made by the increasing number of spindles in China, had not been anticipated. In 1903 and 1904 the price of Chinese cotton was 90 per cent. above the figure on which the original calculations were founded. The mills, too, have to contend against the "dumping" of surplus stocks of yarn by Japan and India, and the high price of the commonest coal also increases the cost of working to a large extent. At the beginning, the labour question presented some difficulty, but the women, having worked cotton and yarn in their homes, make apt pupils, and, unless the foreign mills start working during the night, there are now sufficient hands obtainable, except for a few months in the summer. When the quality of cotton used is taken into consideration, the Chinese operative, under foreign supervision, is quite as cheap and as expert as operatives in Japan and India. The foreign mills are worked during the day only, from 6 a.m. to 7.30 p.m., and unless the margin of profit is at least 10 taels per bale, it is far better not to have night work, for this not only means an increase of more than 100 per cent. in depreciation, but, also, the production of a poorer quality of yarn.