It has been frequently asserted that the American government could not lend its support to any banking group or any contractor in collecting debts-that is, could not collect debts by force. That criticism was very largely directed against the so-called policy of "dollar diplomacy." Many people said it meant a "gun-boat policy," and it was widely asserted and believed that our government proposed to send out the American fleet to collect interest due bankers in case of default. As a matter of fact, the function of the government is not, and cannot be, that of a collecting agency. It is true that from time to time it may be necessary to invoke official assistance in inducing some foreign government to live up to a contract with an American firm or corporation, but in the main, and as regards the Far East-and in the Far East, China is really the only country concerned-it should be the function of our government to assure to American enterprise an equality of opportunity. That equality of opportunity in China can be obtained, no matter what the government may do, only if it is possible to induce American bankers to finance Chinese enterprises.

The modern conception of the banker is very different from that which was generally held a few years ago. Opinion even in this country is rapidly changing. We have recently seen an issue of five hundreds of millions of bonds by the English and French governments, not to secure money which those governments could use for their own purposes in England or in France, but to finance the purchases which they had made in this country.

It is exactly that function which it is necessary that the bankers should perform for American industry if American industry is to have its share of the Chinese trade. It is not essential, as so many people have asserted, that our governments should guarantee the bonds that our bankers are to take, but it is essential that the governments should co-operate with our banking and commercial interests in order to see that they secure an equality of opportunity and are not hampered by the political activity of their commercial rivals.

The situation in China is somewhat different from that which

The relation as between commerce

exists in South America. and finance is the same, but the function of the government in China is more important than in South America. In South and Central America, with one or two exceptions, the governments are stable and are not subject to or driven by outside influences. In China, on the other hand, the government is, and has been, weak. There is constant pressure on all sides. One legation insists that a certain contract should be concluded with this person, another demands that the contract should be concluded with that firm. In many cases the contract is awarded to the people whose diplomatic representatives have brought the strongest influences to bear. The situation is unfortunate. It would be much beter for all concerned if the Chinese government were not so weak, if it could withstand demands of this sort and consider proposals submitted on their commercial merit alone. But facts are facts, and must be taken into consideration if progress is to be made.

It was the aim of Mr. Hay's "open door" policy, and it was the aim of Secretary Knox in furthering negotiations which resulted in the establishment of the "Six-Power" group, to create international co-operation in China as distinct from conflicting national interests. It was believed that such co-operation would be beneficial to China, that it would give China an opportunity to work out her own salvation, and that it would assist in the development of China's foreign trade.

In the long run, it might be as well for the Chinese people if their government were subordinated to some other, but as the world develops it becomes more and more unlikely that any people will be willing to live permanently under alien control, and for that reason I feel that it is necessary, if China is to progress, to revive that idea of international co-operation. which has for the time being been abandoned. It may be impossible to do anything, to take any steps along this line, until the war in Europe is over. But it seems to me that the time is not far distant when the American government may have a great opportunity to reassert the policy enunciated by Secretary Hay, and continued by Secretary Knox in an effort to bring this about.

The developments of the past year have brought to people in this country a more intelligent appreciation of the necessity for the co-operation between government and commerce and finance. The manufacturers and the bankers must work hand in hand. The manufacturers cannot sell their goods unless the bankers are able to sell their loans, and the bankers will not be able to sell their loans because there will be no public to buy the loans unless the manufacturers in turn are prosperous.

It is impossible to divide public and private credit into water-tight compartments. It is impossible to regard the problem of the manufacturers without considering the problem of finance. It is impossible to regard the problem of finance without considering the problems created by industry. As the government is the representative of all interests, as it is only through the government that all interests can really co-operate, the general prosperity of the country and the strength of the government depend upon the development of commerce and industry and finance. It is essential, if we are to develop our commercial relations with the Far East, that we should have a just appreciation of the important bearing of American diplomacy on those commercial relations.

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1

INVESTMENT AND TRADE IN CHINA 1

EUGENE P. THOMAS

President, United States Steel Products Company

COMPREHENSIVE discussion of governmental

policy in respect to trade relations with the Far East is impracticable here if it requires a lengthy presentation as respects each country separately. It is, therefore, assumed that the term "The Far East" has especial reference to China. Our relations with Japan, Russia, Siam, the Straits Settlements, and India present entirely different problems.

The important problem in our trade relations with the East today concerns China. Have we neglected or improved the opportunities presented after the nations of the world agreed to the doctrine of the open door as enunciated by Secretary Hay? The answer is a trade decline with America of some 25%, while Germany's trade has increased 70% and Japan's 83%. Our exports to China decreased from $53,000,000 in 1905 to $21,000,000 in 1913, while our imports from China increased from $28,000,000 to $39,000,000. Thus notwithstanding increased imports our total trade fell off 25% in the last eight years of record. With more intelligent appreciation and exploitation of our natural advantages and position, our trade should have greatly increased. Our traditional friendship for China has thus failed to develop to practical advantage, and the lapse of fifteen years finds our commercial position with that country impaired; and the Chinese, suspicious of a policy barren of desirable results, attribute some inexplicable motive to the policy of the " open door." They complain, with some degree of correctness, that we have allowed the "open door" to be shut in our face without protest or even mild opposition. They point out that without any form of aggression, and with studied indifference to the supposed

1 Read at the meeting of the Academy of Political Science, November 12, 1915.

superior influence or equal rights of the United States, China is being divided into commercial zones of special influence, whose limitations are practically defined by railway concessions.

It is observed that in the past several years Great Britain has acquired rights to build a railroad of 760 miles from Shanghai to Singyifu and of 1000 miles from Nanking to Changsha; that France has acquired rights to build 720 miles from Kweichow to Chengtu and 1100 from Pakhoi to Chunching; that equally valuable concessions have been secured by Germany and Belgium. To what extent, if any, long continuance of the European war may impair the integrity of these concessions remains to be seen, but it may readily be assumed, in view of the indifference of the United States, not only that these concessions will be carried out ultimately, but that they will form the bases of additional grants in the same and contiguous territory.

The intent of all these concessions is so simple and frank that diplomatic subterfuge is dispensed with; all orders and contracts for material for the building of these railways will be placed in the country supplying the loans. It follows that all collateral industries induced by the building of railways, by the improvement of cities and the surrounding country, telegraph and telephone lines, manufactories and mills, electric light plants, street railways, and the thousand other ramifications of commerce, will each yield their quota of orders to those supplying the funds for development.

Diplomatic representatives of other powers have actively assisted in the negotiations for these loans. Even in the isolated case of American participation, when the policy of equal treatment to all bidders for supplies was reached by mutual agreement, efforts have been made successfully by the engineers in charge of contracts to defeat the intention of the covenant by so drawing their specifications that none but their own nationals might compete. It is a matter of satisfaction that the State Department, under such circumstances, called the attention of the Chinese government to the facts in order that fair and equal treatment might be assured to American