1921 will hardly reach $25,000,000. This amounts to only one-fourth the annual deficit of the Government. From next year, China will have to resume payment of the Boxer indemnity. How she will pay it is beyond our comprehension. To make the situation more difficult, even the surplus of the customs receipts has been offered as security for various internal loans amounting to some $182,000,000.

All this goes to show the great financial plight of the Chinese Government. Is it any wonder that China has defaulted on the $5,000,000 loan from the Continental and Commercial Bank of Chicago? Is it any wonder that even the bank notes issued by the Bank of China and the Bank of Communications, the two strongest government banks, have depreciated to such an extent that the natives have lost confidence in them? At this writing news comes from China to the effect that these two banks in Peking have surrounded their premises with forces of police and gendarmes to guard against the possible onslaught of the crowds gathered in front of the banks and clamoring for the redemption of the paper money in their possession.

CHAPTER XVI

THE TARIFF AND LIKIN

Washington, November 24, 1921: Preceding the adoption of Senator Underwood's motion for the increase of the maritime customs of China, Dr. Wellington Koo, on behalf of the Chinese delegation, presented a lengthy statement, arguing for the recovery of tariff autonomy by China. The Chinese delegates are not satisfied with Senator Underwood's proposal seeking an increase in customs receipts for the purpose of alleviating the financial strain of the Chinese Government. They want something more fundamental. They want the right to fix the rates of duties according to the discretion of their Government.

Tariff autonomy has two distinct aspects. The first is administrative, and the second concerns the fixing of the rates of duties.

First as to customs administration. How China lost the administrative autonomy of the customs is a pathetic but interesting story. Up to 1840, the local Viceroys and Intendants of Circuits collected customs duties. But the arbitrary, irresponsible, and corrupt methods. usually employed by these functionaries called forth storms of protests from European merchants. Consequently, by the Nanking Treaty of 1842, it was agreed that foreign consuls should act as agents for the Chinese Government in the collection of duties. But the rapid increase of trade soon made it impossible for the consuls to discharge this duty efficiently. To meet

this condition, a board, consisting of the Intendant of the Circuit and three foreign representatives, was organized in Shanghai to relieve the consuls of their responsibility. This plan proved as unworkable as it was short-lived.

In 1854 the Chinese Government created the office of Inspector General of Maritime Customs and appointed a Britisher to it. But the real beginning of the present tariff administration dates from 1863 when the Englishman Mr. (later Sir) Robert Hart assumed charge of the office. In 1889, the Chinese Government agreed that the post of inspector-general be held by a British subject as long as British trade predominated in China. The staff of the maritime customs includes all nationalities whose countries have trade interests in China. Roughly speaking, the relative number of foreign employees is fixed according to the relative amount of trade of their respective countries. At present the customs service has a staff of 7,500 members, of whom 2,000 are foreigners and the rest Chinese.

All receipts from the customs tariff are deposited in foreign banks designated for the purpose by the bankers' commission. This commission allots the deposited sum to the payment of annual installments of the Boxer indemnity and of interest on various foreign loans secured on the custom.

This arrangement is not made for the benefit of the foreign banks, but for the protection of the Chinese Government. It clearly shows that the Customs Administration has not enough confidence in the Chinese Government authorities or Chinese banks to entrust them with the custody of customs receipts. That the Chinese Government itself recognizes the wisdom and safety of this arrangement was well proved when, in April, 1921, it asked Sir Francis Aglen, the Inspector

General of Customs, to assume the management of the Internal Loans Consolidated Debt Services, a new office organized for the purpose of protecting the interests of the bondholders. This measure was necessary because native investors had little confidence in the probity or efficiency of the Government.

As Dr. Koo explained before the Committee on Far Eastern and Pacific Problems, China does not propose to disturb the present status of customs administration at least for some years to come. For the present she is willing to forego the autonomy of management. As a Chinese writer, Mr. S. G. Cheng, frankly confesses, "So long as the loans and indemnities mortgaged on customs receipts are not redeemed by China, it will be difficult to get the foreign powers, who are distrustful of the Chinese on money matters, to consent to a restoration of the customs administration to the Chinese."

What Dr. Koo means by tariff autonomy is China's right to fix the rates of duties so as to give her a reasonable amount of revenue. The present rate is five per cent ad valorem, first fixed in the Nanking Treaty concluded with England in 1842 at the end of the opium war. When this treaty was revised in 1858, a tariff schedule, that is, a schedule of prices of imports, was annexed thereto. This schedule was revisable every ten years if requested by either country, so as to bring it up to the current market prices. Until 1902, neither China nor Britain proposed a revision, probably because there had been no substantial increase in the prices of merchandise. In that year, however, a revision was made, the prices adopted as the basis of revision being those prevailing in the three years 1897-99. The schedule thus adopted remained effective until 1918. In the meantime the prices of imports increased phenomenally, and yet China levied duties according to the schedule of

1902. When, in 1918, China entered the World War, one of the considerations she secured from the powers was the revision of the tariff schedule so as to bring it up to date. Thus a new schedule was adopted, which is still in effect.

This was a step towards equity, but the step was not long enough, for the old low tariff of five per cent ad valorem remained unchanged. "It should be observed," writes Mr. S. G. Cheng in his admirable Modern China, "that the revision of the schedule is a quite different thing from the revision of the tariff. The tariff of China is fixed for an indefinite period and is subject to no alteration so long as the treaty of 1858 remains in force. In any Western State which adopts a Conventional tariff the treaty, fixing the rates to be imposed on imports from another country, is only valid for a definite number of years and is terminable on due notice given by either side, but China is refused the right to alter her tariff so long as she has not the sanction of Great Britain. Moreover, the tariff, which was primarily enacted in favor of British trade has been made applicable to all the treaty States entitled to the mostfavored-nation treatment in China, and the consequence is that it cannot be altered without the unanimous consent of thirteen States. The difference in temperament, in policy, and in interest has so far made it impossible for them to arrive at any unanimous conclusion, and China can do nothing but content herself with the fulfilment of her treaty obligations and with the loss of her fiscal independence."

The Chinese delegation contends that the rate of customs duties should be increased to 12.5 per cent after January, 1922, to give immediate relief to China's financial straits. It also asks the Powers to agree upon a maximum rate for China's import tariff, allowing her