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The Oppression Argument on Foreign Investment in China, 1895–1937

  • Chi-Ming Hou

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Few would deny that one of the most important factors shaping the Chinese economy in the past hundred years or so was the economic contact between China and the West. This external economic confrontation has been widely held by the Chinese as a factor detrimental to the development of the Chinese economy. First, it is argued that foreign trade and foreign investment in China upset the Chinese economy by ruining handicraft industries and disrupting agriculture. Secondly, foreign trade and investment in China are alleged to have drained the Chinese economy of its wealth because of the secular unfavorable balance of trade of China and the large amount of income made or remitted to their home countries by Western enterprises in China. Thirdly, it is maintained that foreign enterprises in China were so effective in their competitive power or enjoyed so many advantages secured on their behalf by their respective governments that the Chinese-owned modern enterprises were hopelessly oppressed and had little chance, if any, to grow.

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1 It is not easy to establish which of the above arguments was more prevalent than the others, or to identify the most influential advocates of each argument at any particular time or period. It seems that all these arguments have gained wide acceptance in China throughout her modern history, and almost every critic of foreign economic influence has noted all these arguments, though with varying degrees of emphasis. The critics have included people from all walks of life, with officials and scholars particularly active. See Tse-tung, Mao, The Chinese Revolution and the Chinese Communist Party, 1939, as translated in Selected Worlds of Mao Tse-tung, III (Bombay, 1954), 7779; Kai-shek, Chiang, China's Destiny, translated by Chung-hui, Wang (New York, 1947), pp. 63, 64, 66, 75; Yat-sen, Sun, San Min Chu I, translated into English by Price, Frank W. (Shanghai, 1928), pp. 37, 54; Yu-kwei, Cheng, Foreign Trade and Industrial development of China (Washington, 1956), p. 41.

For an understanding of the reactions of high Chinese officials to the West in the latter part of the nineteenth century see Ssu-yu, Teng and Fairbank, John K., China's Response to the West, A Documentary Survey, 1839–1923 (Cambridge, 1954); Biggerstaff, Knight, “The Secret Correspondence of 1867–1868: views of Leading Chinese Statesmen Regarding the Further Opening of China to Western Influence,” Journal of Modern History, June 1950; also, Feng-t'ien, Chao, Wan-Ch'ing wu-shih-nien ching-chi ssu-hsiang shih [Economic Thought During the Last Fifty Years of the Ch'ing Period] (Peiping, 1939).

2 For the share of foreign capital in various modern industries in China and the rates of growth of these industries, see the author's forthcoming article, “External Trade, Foreign Investment and Domestic Development: The Chinese Experience, 1840–1937,” to be published in Economic Development and Cultural Change.

3 This does not necessarily mean that the rates of growh of the established firms were the same. The Chinese (as well as the foreign) share in an industry includes not only the existing but also the newly-founded enterprises. In general, available data do not permit a separation between the existing and the newly-established firms.

4 Fong, H. D. (Fang Hsien-t'ing), Chung-kuo chi mien-fang-chih-yeh [The Chinese Cotton Textile Industry] (Shanghai, 1934).

5 The forthcoming book by Liu Kwang-ching, Anglo-American Steamship Rivalry in China, 1862–1874.

6 Recently a great effort has been made by scholars in the Chinese mainland to calculate the rates of profit for both the Chinese and foreign enterprises in pre-1937 China. But great care should be exercised in interpreting these rates. For example, the rate of profit of the Shanghai Gas Company has been given to be 23.4 per cent in 1879 (see Yu-tang, Sun, ed., Chung-kuo chin-tai kung-yeh-shih tzu-lao [Source Materials on the Modern Industrial History of China, 1840–1895] 2 vols., (Peking, 1957), I, 181). But if depreciation is considered as expense, as it should be, and total net worth (instead of paid-up capital) is used as the denominator, the profit rate is only 13 per cent. (For the financial statements of this firm in 1879, see North China Herald, April 1, 1880, p. 290.)

7 In the matter of efficiency, insofar as available evidence permits, the only field where we may have reasonable confidence in stating that foreign concerns were more profitable than their Chinese counterparts was the field of railway transportation. Calculations based on the official statistics of the Chinese National Railways show that the ratio of net profit to the cost of roads and equipment, the largest asset item of the railways, averaged only 3–3 per cent for the period 1917 to 1936, and the ratio of net operating revenue to the cost of road and equipment averaged 7.4 per cent for the years from 1915 to 1936. These rates may be compared with the profit made by the railways of the Japanese-controlled South Manchuria Railway which averaged 25.5 per cent of the capital investment for the period 1907–1937. The calculations are based on: China Ministry of Railways, Statistics of Chinese National Railways, various years; Report on Progress in Manchuria, various years, prepared by the South Manchuria Railway Company.

8 For the rate of reinvestment, see the author's forthcoming article, cited above.

9 See Sun Yu-tang, ed., op. cit., I, 248; Ching-yu, Wang, ed., Chung-kuo chin-tai kung-yeh-shih tzu-lao [Source Materials on the Modern Industrial History of China, 1895–1914] (Peking, 1957), I, 355, 357, and 372; also Ch'en, Chen, Lo, Yao, and Hsien-chih, Pang, ed., Chung-kuo chin-tai kung-yeh-shih tzu-lao [Source Materials on the Modern Industrial History of China, 1914–1949] (Peking, 1958), pp. 854935.

10 That is, the Japanese nationals should not be treated less favorably than the Chinese regarding taxes on machine-made articles.

11 The best treatment on likin is provided by Yu-tung, Lo, Chung-kuo li-chin shih [The History of likin in China] (Shanghai, 1936).

12 China Year Book, 1925 PP. 777, 778.

13 This was not carried out until 1891. See Teng Ssu-yu and J. K. Fairbank, op. cit., p. III.

14 For the texts of the regulations see the following: for 1898 and 1902, Cheng-chih, Sung, ed., Huang-ch'ao chang-ku hui-pien [A Compilation of Important Events of the Ch'ing Dynasty], section on Foreign Affairs, XXIV, 4144, 64–67; for 1904, Tsou-ting kuang-wu chang-cheng [Mining Regulations, 1904]; for 1903, Ta-ching fa-kui ta-ch'uan [Complete Laws and Ordinances of the Ch'ing Dynasty, 1901–1910], section on industries, II; for 1914, Fa-ling ta-chuan [Complete Laws and Ordinances of the Republic of China] (Shanghai, 1924); and for 1930, Tsui-hsin kuo-min cheng-fu fa-ling ta-ch'uan [Newest Comprehensive Compendium of Laws and Ordinances of the National Government] (Shanghai, 1932).

For the English translations of the mining regulations of various years, see: for 1898, 1899, and 1902; Rockhill, W. W., Treaties and Conventions with or Concerning China and Korea, 1894–1904 (Washington, 1904), pp. 338344, 373, and 380–382. (Rockhill omits a few key words with regard to the tax on “net profit” which was to be computed after a deduction for interest and amortization on capital.) For 1904, Williams, E. T., Recent Chinese Legislation Relating to Commercial Railway and Mining Enterprises (Shanghai, 1904), pp. 79101; for 1914, China Year Book., 1921–1922, pp. 181–192.

15 The terms of some agreements or contracts may be found in Rockhill, op. cit.; MacMurray, John V. A., Treaties and Agreements with and Concerning China, 1894–1919 (New York, 1921).

16 Keng-sheng, Hsu, Chung-wai ho-pan mei-t'ieh-kuang-yeh shih-hua [Histories of Sino-Foreign Joint-Managed Coal and Iron Mines] (Shanghai, 1946).

17 Ch'i, Chu, Chung-kuo tsu-shui wen-t'i [The Problem of Taxation in China] (Shanghai, 1936), pp. 484488.

18 Yen Chung-p'ing, Chung-kuo mein-fang-chih shih-kao, p. 220.

19 Chen Ch'en, ed., op. cit., p. 148.

20 A calculation on the percentage distribution of capital of the modern enterprises founded in the nineteenth century will show that the bureaucrats (together with the compradores) had the largest share among all investors.

21 Chiao-t'ung-shih [History of Communications]. Compiled by the Ministries of Communications and Railroads, Republic of China, 37 vols. (Nanking, 1930–36), section on shipping.

22 For a fuller discussion on this point, see the author's forthcoming article, cited above.

23 Remer, C. F., A Study of Chinese Boycotts (Baltimore, 1933), p. 245.

24 Ibid., p. 230.

25 Nan-yang hsiung-ti yan-tsao kung-ssu shih-lao [Source Materials on the History of the Nanyang Brothers Tobacco Company] (Shanghai, 1958).

26 Ibid., pp. 254, 255.

27 Bureau of Social Affairs, The City Government of Greater Shanghai, Chin shih-wu-nien lai Shanghai chih pa-kung t'ing-yeh [Strides and Lockouts in Shanghai Since 1918] (Shanghai, 1933), pp. 41, 42.

28 The formation of the Fuchung Corporation was another case of eliminating competition between a British and some Chinese mining concerns.

The Oppression Argument on Foreign Investment in China, 1895–1937

  • Chi-Ming Hou

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