Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong

Another Bite at the "Infant Industry" Apple...

J. Bradford DeLong (2008 Draft), "April 25: Long-Run Growth Revisited: Endogenous Growth" http://www.j-bradford-delong.net/2008_pdf/20080424_industrial_policy.pdf

Econ 101b: April 23: The Chinese Economy

April 23: The Chinese Economy

Notes: Slides: http://delong.typepad.com/delongslides/2008/04/econ-101b-april.html; Lecture Audio: http://www.j-bradford-delong.net/2008_mov/20080423_091349.mp3

Readings:

• Barry Eichengreen,"China's Exchange Rate Regime: The Long and Short of It" http://www.econ.berkeley.edu/~eichengr/research/short.pdf
• C. Fred Bergsten, "The Dollar and the Renminbi" http://www.iie.com/publications/papers/paper.cfm?ResearchID=747
• Institute for International Economics, "China: The Balance Sheet" http://www.petersoninstitute.org/publications/chapters_preview/04648/01pa04648.pdf

The European Seaborne Empires I: "To Serve God, to Win Glory for the King, and to Become Rich"

The European Seaborne Empires I: "To Serve God, to Win Glory for the King, and to Become Rich"

From David Abernethy (2000), The Dynamics of Global Dominance: European Overseas Empires 1415-19890 (New Haven: Yale), p. 242 ff:

The multifaceted nature of Europe's assaults is highlighted when contrasted with the overseas activities of the Chinese and the Arabs. The ideal site for comparison would be a place distant from Europe, China, and Arabia, hence unlikely to be controlled by any of them, where people arriving by sea from all three areas were present at about the same time. That such stringent conditions could be met seems highly unlikely. But in fact they do apply to one case: Malacca during roughly the first century of [European imperalism] phase 1. This city, located on the Malayan side of the narrow strait named after it, was founded in the late fourteenth century and rapidly became the principal center for maritime trade among Indian Ocean emporia, the Spice Islands, and China. Malacca benefited from the weather as well as from its location. Because of monsoonal winds, vessels sailing from the Indian Ocean to China (and vice versa) had to lay over for a few months before continuing the journey. An alternative was for ships to unload their wares in Malacca, returning to their respective home ports with goods from the others' ships as well as gold, spices, and precious woods from the offshore islands.

The city and strait of Malacca were extraordinarily cosmopolitan places several centuries ago. A well-placed Portuguese observer wrote in the 1570s: "One may well and truly say that Malacca, in point of fact, and merchant trade, is the most extensive place in the world." The city was visited by Cheng Ho [pinyin Zheng He] on at least two of his voyages and thereafter by many Chinese sailors and traders. The great Arab traveler Ibn Battuta passed through the strait in 1345-6, and several thousand Muslims, including some from Arabia, resided in the city in the early 1500s. Ibn Battuta's Italian conterpart, Marco Polo, passed through the Malacca Strait in 1292 on his return to Europe from China. As noted in chaptert 3, the Portuguese captured Malacca in 1511, holding it until the Dutch replaced them in 1641. Thus people from all three regions converged around the start of [European imperalism] phase 1 on the same small area.

By studying Malacca in 1511 one comes as close as possible to a historical laboratory experiment. Are sectoral features of European countries present as well in China nad in Arab (and, more generally, Muslim) societies? If so, for reasons given in chapter 2 my argument about the importance of sectors is weakened. If not, the argument is strengthened.

The Chinese government's impact on Malacca was far more limited in scope and duration than might be expected given the country's wealth and size. Cheng Ho's armada of hugh junks, with thousands of well-armed soldiers aboard, was designed to ensure attention and respectful deference to China's rulers from elites elsewhere. Presumably Admiral Ho was instructed to urge monarchs to establish symbolic tributary relaions with the Celestial Court. But the admiral was unwilling to use the military might at his disposal to conquer Malacca, there being no plans to administer distant lands as integral parts of the emperor's domains. Moreover, as noted earlier, the impressive voyages undertaken by Cheng Ho ended abruptly in 1433. The emperor politely received the king of Malacca when the king later journeyed to Beijing, bearing tribute. But assertion of China's superior political status was made by the inferior party visiting the Celestial Court, not by the latter reaching out aggressively beyond its borders. The contrast with the European pattern is obvious.

China's private sector had a more substantial and long-lasting impact on Malacca. One indicator was the existence, as of the early 1500s, of a separate section of the city reserved for Chinese merchants. These traders were on their own when residing overseas. This was manifestly the case after 1433 when they could not count on even an intermittent visit of ships to demonstrate the home government's power. If anything, Malacca's Chinese merchants carried on their business despite the imperial court, which launched periodic efforts to restrict economic ties with the outside world. The court controlled government-to-government trade, expressed through the tributary system. Nonofficial trade, which it was unable to regulate, was perceived as an unwelcome challenge to its power and authority. That many Chinese merchants in Malacca were long-term residents did not signify that they were overseas agents of Chinese power. On the contrary, it reflected recognition of obstacles that bureaucrats would have placed in theiur way had they based their international operations on the Chinese mainland. A common pattern for th Chinese in sixteenth-century Malacca and elsewhere in southeast Asia was to conduct clandestine commerce with the home country. Alternatively, they concentrated on trade among ports scattered about the Nanyang (Southern Seas). In both cases they tried to avoid contact with Chinese officials rather than to work with them.

The imperial court disapproved of Chinese settling elsewhere because this meant abandoning the graves of their ancestors. The court took this view to its logical conclusion in 1712 with an edict forbidding its subjects to live or trade in Southeast Asia. Though poorly and inconsistently enforced, the edict nonetheless expressed an attitude toward overseas settlers diametrically opposed to that of western Europe's rulers.

China's public and private profit sectors thus had minimal contact with each other in dealing with Malacca. When cross-sectoral contact did occur it tended to be competitive and conflictual rather than cooperative. The profit-sharing and chartered-company options were ruled out. This stands in sharp contrast to the European pattern of linking the two sectors in mutually beneficial ways.

The Chinese did not carry a missionary religion to Malacca because they had none. As noted in chapter 8, the imperial court's Confucian creed was a civil religion, not available for export or readily separable institutionally from the public sector. Cheng Ho was dispatched as a diplomatic emissary of the court. But he could not have served as a Confucian missionary, had this unlikely possibility ever been considered, because he was Muslim. Chinese merchants in Malacca practiced their own religious faiths but kept to themselves when oing so. No basis existed for an outeward-looking coalition between leading practitioners of China's religions and its rulers or merchants.

Arabs visited Malacca as long-distance merchants, staying in a quarter of the town set aside for Muslims. Unlike the Chinese they did bring a missionary religion. They used their wealth and their external connections to persuade Southeast Asia's political elites to let them build mosques and invite mullahs to lead the Islamic community's religious life. In many instances Muslim merchants pressured local rulers to convert. Malacca's rulers had been Muslim for about a century before the Portuguese arrived. One may thus speak of an alliance between Arab mercantile and religious interests resembling the European pattern.

But Arabs in teh Indian Ocean basin were not like Europeans. First, they were not agents of a polity eager to assert itself overseas. Home bases for the Arab seafareres were port cities--Jiddah, Adan, Muscat--along the periphery of a vast, thinly-populated desert peninsula not effectively governed by anyone. These cities faced outward to the sea. But they were not linked to a densely-populated, economically-productive, politically-controlled hinterland in the way that western Europe's port cities were. They were urban areas on their own, not urban areas embedded in states. Their prospects for profitable trade were most favorable if none of them advanced political calims beyond its immediate domain. Traders and sailors moved on monsoonal winds from one trading center to another, intermediaries among several autonomous units rather than agents of any particular one.

Second, Arabs were not the only--or even the principal--propagators of Islam in southeast Asia. The central role they played in the religion's formation and explosive early spread into the Fertile Crescent and across North Africa was diluted in later centuries. Islam's steady advance eastward by land and sea was due mainly to initiatives by non-Arabs. Its increasingly cosmopolitan character can be seen in Malacca. The Portuguese chronicler Tome Pires reports that shortly aftert the city was founded "some rich Moorish merchants moved from Pase [in Sumatra] to Malacca, Parees, as well as Bengalese and Arabian Moors, for at that time there were a large number of merchants belonging to these three nations.

The successes of traders as proselytizers meant that diffusion of Islam in southeast Asia did not depend on soldiers and administrators brought in from outside. If public-sector support was deemed necessary it was provided on site: once Malacca's ruler converted, Islam become in effect the kingdom's official faith. Further, the spread of Islam did not depend on full-time specialists in conversion recruited, dispatched, and reporting to an institution headquartered in Arabia or any other Muslim country. Islam indigenized itself as it expanded, rather than serving the ambitious designs of a distant state or missionary agency.

To summarize, the Chinese public sector had only a fleeting interst in reaching out to Malacca, no interest in conquering the city, and competitive rather than cooperative relations between itself and private profit sectors; the religious sector had no will or autonomous institutional capacity to assert itself overseas. China's impact on Malacca as of the early sixteenth century was confined to the activities of a single sector functioning on its own. Arabs had two sectors interested in influencing the outside world, hence the potential for a sectoral coalition. But Islam's spread to Malacca and elsewhere in Southeast Asia was not essentially an Arab activity. Neither was it directed by religous agents accountable to their own sectoral institutions, as in the European pattern. Most importantly, the Arabs' mercantile and religious interests were not backed by a state able or anxious to expand overseas. What initially appears as a two-sector alliance turns out to be a phantom alliance because it lacked institutions stretching outward from a territorial base.

The limited, functionally diffuse character of Chinese and Arab/Muslim relations with Malacca posed an isoluble dilemma for the city's sultan when he encountered Europeans. Teh first ship sent out in 1509 from Goa, capital of Portugal's Estada da India, consisted of traders. But Muslim merchants resident in Malacca who came from Gujarat and other Indian ports knew from experience that the Portugese flag accompanied trade and that the Portuguese were Christians implacably hostile to Islam. Warned in effect that the Portuguese constituted a triple threat to his regime, the sultan imprisoned and mistreated serveral members of the trade mission. His actions precipitated the very attack by Portuguese soldiers two years later than he hoped to forestall. But the Muslim merchants could offer only warnings. None of the cities from which they came was in any position to supply military aid, even to coreligionists threatened by Christian infidels.

The only powerful polity to which the sultan could turn was China. But if he was able to contact the Chinese emperor his efforts were in vain. The tributary system binding Malacca to the Celestial Kingdom symbolized superior/inferior relations and did not contain a mutual defense clause. Help was not forthcoming. At a critical moment in world historoyk wehn Europeans first intervened in Southeast Asian affairs, the Chinese court was unwilling to assert its stake in a nearby region. The sultan faced toward Mecca when praying and toward Beijing when oferring tribute. But for quite different reasons he could count on neither to help counter the new foe.

Beijing, in other words, was the capital city of a powerful state lacking both an expansionist foreign policy and an expansionist religion. Mecca was the central city of an expansionist religion but not of a state. Lisbon was the capital city of a state with an expansionist foreign policy and a strong commitment to spread an expansionist religion.

As Muslim merchants predicted, the Portuguese launched a tripole assault on Malacca. The city was captured in 1511 by an armada of ships carrying fifteen hundred soldiers whose commander, Vicery Afonso d'Albuquerque, saw himself as an extension agent of the Portuguese state. That the invaders intended to assert permanent political control soon became cleear. Albuquereue allegedly cried out to his men in the heat of battle that "We [should] build fortress iin this city... and sustain it, and... this land [should] be brought udner the dominion of the Portuguese, and the King D[om] Manuel be styled true king thereof." Construction of a stone fortress was begun as soon as the battle was won, and it was kept well supplied with soldiers and cannon. The city was a Portuguese possession until the Dutch took it in the seventeenth century. Once secured, Malacca became a vital outpost used to establish other Portuguese enclaves in the Moluccas and on the China coast...

This is a sophisticated and powerful rendition of the argument that what mattered most from 1500-1850 was the triple-threat reinforcing nature of European imperialism--the importance of all three parts of the Spanish hidalgo's explanation of why they had left Iberia: "to serve God, to win glory for the king, and to become rich..."

Smog Out of China

Jim Hamilton sends us to a NASA picture of China's smog:

Slouching Towards Utopia: The Economic World of the Twentieth Century: Pre-WWI China §§

I have a problem. Any history of the world economy in the twentieth century needs a section on China at the start of the century to balance the section on China at the end. Yet I am not well-qualified to write such a section. And I don't think the section I have is particularly good.

Any suggestions?

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DRAFT: PRELIMINARY AND INCOMPLETE

When in the second half of the nineteenth century the iron-hulled ocean-going steamships began to call at China's ports of Hong Kong, Canton, Tientsin, and Shanghai, China's government and its more than 300 million people of China were in crisis.

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China's Relative Apogee

In the Tang Dynasty years before and the Sung Dynasty years after the year 1000, China had been the most progressive and innovative civilization in the world: innovative technologically, organizationally, and militarily. Its population--60 million? 80 million? 100 million?--was one of the most rapidly growing and best-fed populations in the world, thanks to the development of strains of rice that could be wet-planted, irrigated, and produce three crops a year in the fertile soil of China from the Yangtze basin south. China then led the world in non-agricultural technologies as well. At the start of the seventeenth century the British savant, politician, and bureaucrat Francis Bacon had marvelled at three inventions that he said had utterly transformed Europe: gunpowder, printing, and the compass. China had developed all three, and had developed all three before 1000.

China had long had the capability of launching its own "voyages of discovery"--and its governments had chosen not to. The one exception came under the early Ming dynasty: the fifteenth-century imperial court funded its own series of voyages of discovery commanded by the politically-powerful eunuch admiral Zeng He. The fleet reached Zanzibar, and touched Africa. Annoyed at their treatment by a Sri Lankan king, they captured him and brought him back to China to make his apology to the emperor. But the political balance in the Ming court changed, the follow-up expeditions were cancelled, and the exploration program abandoned.

China led the world in political organization as well. No other ruler's writ ran a third as far or has even a third as large a chance of being obeyed as that of China's emperor. Tang Dynasty cavalry has skirmished with Persians on the shores of the Aral Sea. The Sung Dynasty river navy was the only military force to even temporarily stymie Ghengis Khan's Mongols before his descendants took to fighting each other rather than expanding the empire. No pre-industrial central government anywhere ever managed to match the reach, extent, and power of the landlord-scholar-bureaucracy mode of domination invented under the Tang and developed under the Sung.

China in the twelfth century at its pre-industrial apogee produced more iron and saw a greater share of agricultural production sold on markets than Britain would produce and market in the eighteenth. Zheng He's mid-fifteenth century voyages of exploration sailed four times as far with twenty times as many sailors as Columbus, and could land ten times as many soldiers at Dar es Salaam and Trincomalee as Cortez would land at Vera Cruz. The Sung Dynasty capital, Hangzhou, was before the Mongol conquest the largest city in the world--larger than Baghdad or Constantinople or Cordova or Delhi--with perhaps half a million inhabitants: the closest thing to an economic, cultural, and political capital the twelfth-century world had.

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China's Relative Stagnation

But by the second half of the nineteenth century China's relative apogee was three-quarters of a millennium past, and the government and the people were in crisis. The people were in crisis because they were more than three times as numerous as their predecessors at the pre-industrial apogee, because they were ruled by a rapacious landed aristocracy, and because progress in agriculture and industry to counterbalance rising population had been nearly absent for most of the second millennium. In 1100 the Chinese people were rich, or at least as rich as pre-industrial peasant societies get. At the start of the second millennium development of new types of crops and new strains of rice had greatly boosted agricultural productivity and triggered the centuries-long spread of China's heartland from the Yellow River to the Yangtze and further south, to Hunan and Guangzhou. But by the second half of the nineteenth century Malthus was having his revenge. China had filled up, with more than 300 million people, which left average farm size less than third of what they had been three quarters of a millennium before, the bulk of peasant families were close to the edge. It is virtually certain that the average Chinese peasant family in the second half of the nineteenth century had less food than its predecessors in the twelfth: think of 1300 calories per person per day as a rough guess.

The technological dynamism and organizational relative edge that China had possessed in the twelfth century was gone as well. Chinese producers still had substantial technological edges in limited industrial segments: high end silk textiles, high-end porcelain, tea. But there had been little internally-driven technological progress in any industry for more than half a millennium. And the bureaucracy that in 1150 had looked efficient and powerful compared to a Europe--a place where no king would even think of asking an Earl of Pembroke to explain anything--by 1870 looked corrupt and incapable.

Why this 750 year relative stagnation is a great mystery. There are many potential suspects to take the blame as the root cause of China's long, long relative stagnation.

Perhaps the root problem was that emperors, grand secretaries, and landlords feared their own generals more than they feared their neighbors' soldiers. European kings, ministers, and landlords sought a strong military to protect them and theirs against the next William the Conqueror or Friedrich II or Francois I or Napoleon. In China there was little to fear from outside the empire as long as the Mongols were kept divided, but a great deal to be feared inside the empire from your own generals--men like the ninth-century An Lu-Shan or the seventeenth-century Three Feudatories. Thus the military-industrial-metallurgy-innovation complex that drove so much of pre-industrial and early-industrial European technological progress was absent.

Perhaps the root problem was that with triple-cropping rice strains the wet-rice fields were too fertile, the governmental bureaucracy too effective, and the avenues of establishment-oriented upward mobility to the striving and aggressive too open. After making a little money the logical next step was to buy some land. Because the land was rich, because labor was plentiful and cheap, and because the empire was (most of the time) strong internally, one could live well after turning one's wealth into land. One could also easily make the important social contacts to pave the way for one's children to advance further. And one's children could do the most important thing needed for upward mobility: study the Confucian classics and do well on the examinations: first the local shengyan, then the regional juren, and then the national jinshi.

Those who had successfully written their eight-legged essays and made proper allusions to and use of the Confucian classics would then join the landlord-scholar-bureaucrat aristocracy that ruled China and profited from the empire. In the process of preparing for the examinations and mastering the material needed to do well on them, they would acquire the habits of thought and values of a Confucian aristocrat landlord-scholar-bureaucrat. Entrepreneurial drive and talent was thus molded into an orthodox Confucian-aristocratic pattern and harnessed to the service of the regime and of the landlord class: good for the rents of the landlords, good for the stability of the government, but possibly very bad indeed for the long-run development of technology and organization. Carlson (1957) quotes an imperial edict of 1724 condemning mining as a potential source of disorder and treason:

[M]iners are easy to recruit but hard to disband. If mining is left to the initiative of merchants there wil be danger of crowds assembling and harboring treachery...

Perhaps the root problem was the absence of a new world rich in resources to exploit and helpless because of technological backwardness, or the lesser weight attached to instrumental rationality as a mode of thought, or the absence of dissenting hidey-holes for ideological unconformity, or the fact that the merchants and hand-manufacturers of China's cities were governed by landlords appointed by the central government rather than governing themselves, or that large muscled animals like oxen and horses turned out to be powerful productive multipliers for temperate rain-irrigated wheat-based agricultural but not for sub-tropical paddy-irrigated rice-based agriculture, or some combination of these, or any of a host of other possibilities over which historians will struggle inconclusively (but thoughtfully and fruitfully) for the rest of time.

Perhaps there were many root problems.

Whatever the cause, the result was China's extraordinary relative stagnation through much of the second millennium. The country and region that had been the world's leader--culturally, economically, organizationally--in 1200 was poor, economically backward, and organizationally decrepit.

The poverty struck eighteenth-century British moral philosopher Adam Smith hard, for in his view China had been for a long time "the richest... most fertile, best cultivated, most industrious, and most populous" country in which even landless peasants were relatively rich: "the wages of labour had ever been more than sufficient to... enable him to bring up a family." Smith had a theory as to why the China he saw in his day--the late eighteenth century--had become poor. Because China would not trade with outsiders and so learn and adapt their ideas, it was bound to stagnate: "a country which neglects or despises foreign commerce... cannot transact the... business which it might do with different laws and institutions." A stagnant economy, Smith thought, was headed for desperate poverty through a Malthusian population crisis. Population would continue to grow while the economy did not. Without technological progress and with increasing population "competition... would soon reduce [wages] to this lowest rate which is consistent with common humanity." At that lowest rate of wages, children would be so malnourished as to be easy prey to disease and women's body fat levels would be so low that ovulation was hit-or-miss.

By the beginning of the twentieth century it looked like that Malthusian crisis had arrived. The more than 300 million people of late nineteenth-century China had no mechanized farm machinery and no industry-produced nitrogen fertilizers. They were crowded into the wet, arable eastern slice of what is "China" on today's maps, with the median family of 6 farming perhaps 4 acres at a time when the Radical Republicans were still hoping to somehow find 40 acres plus a mule for each family of American ex-slaves. Average adult height was, we think, significantly under five feet. There were enough landless and other desperate peasants that perhaps ten million joined the Taiping Rebellion of Hong Xiuquan--who declared himself the younger brother of Jesus Christ after repeatedly failing the shengyan exam--which burned through the Yangtze valley for nearly fifteen years. Perhaps ten million, 3% of China's population, died in that war alone.

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China's Crisis

Thus the era when the iron-hulled ocean-going steamships began to call on China was in era in which the government and the economy were in crisis for four reasons:

The first reason is that China's government in the late nineteenth century was the ethnically Manchurian Qing Dynasty, and the Qing Dynasty was weak because it had always been weak. It had seized power in the mid-seventeenth century. An ethnic clan of non-proper-Chinese military adventurers from beyond the Great Wall, from Manchuria, struck at the moment when the previous Ming Dynasty was paralyzed by peasant revolts and hamstrung by a run of bad emperors and more-than-usually-corrupt bureaucrats. The Manchu were unified because they were not Han Chinese: what Manchu prince or mercenary could expect to long survive a victory by any alternative faction? The Manchu were weak because they were not Han Chinese: how many of the 300 million Chinese would give how much loyalty to a ruling dynasty in which the top places were reserved for others?

It was the classic problem of colonial rule. The Manchus tried to solve it by (a) presenting themselves as ideal Confucian sage-kings (presenting themselves as more righteous Confucian rulers than Kung-Fu-Tze himself), (b) giving the landlords through which they ruled free rein throughout central and southern China (curbing rapacious landlords in the interest of protecting the Old Hundred names of China was not on the Qing Dynasty agenda, ever), and (c) opposing all change for change threatened to cause instability and the Qing Dynasty knew that it was unstable already.

This worked as a political strategy: the Qing Dynasty had a run of 250 years, and the last Qing emperor still sat a throne--albeit as a puppet of the Japanese army--in 1945. But it meant that the kind of national and nationalist appeals that those who in Japan spoke for the Emperor Meiji or that Mongkut and Chulalongkorn used to try to preserve the independence of Thailand were impossible for China's late nineteenth-century government. You cannot rally a people against foreign colonialists with the slogan "revere the emperor and expel the barbarians!" when for more than 200 years the emperor has defined himself as a barbarian.

Even in the days of its peak strength, the Qing Dynasty found it wise to tolerate dominant currents of thought that viewed its coming to power as a tragedy and its rule as profoundly illegitimate. Jonathan Spence's In Search of Modern China notes the performances at the court of the Kangxi emperor, the first strong and long-lived Qing dynasty emperor, of "The Peach-Blossom Fan" by Kong Shangren--an author still loyal to the previous Ming Dynasty, and hostile to the idea that a scholar-official could win honor by helping the Manchu conquerors rule China: "[A]t the play's end, with the Ming resistance in ruins, the lovers agree to take monastic vows... the surviving virtuous officials retreat deep into the mountains to escape a summons from the Qing that they take up office."

The second reason that China in the late nineteenth century was that Confucian landlord-bureaucrat-scholar aristocracy through which the Qing Dynasty ruled was not only potentially disloyal but trained to be incapable. As long as the Mongols were kept divided through bribes and the ruling dynasty uncorrupt, no Chinese emperor faced any outside existential military threat. Internal disorder was the main worry. So the central government had discouraged military skill among its bureaucrats and notables since the Tang dynasty rebellion of An Lushan, and discouraged any liking for change--a potential cause of disorder--since the first Ming dynasty emperor had expelled the Mongol descendants of Genghis Khan in the fourteenth century.

As Jonathan Spence also points out, seventeenth-century landlord-scholar-bureaucratic notables like Ming loyalist Kong Shangren were well aware of growing European technological developments:

White glass from across the Western Seas
Is imported through Macao:
Fashioned into lenses big as coins,
They encompass the eyes in a double frame.
I put them on--it suddenly becomes clear;
I can see the very tips of things!
And read fine print by the dim-lit window
Just like in my youth.

Yet neither Kong Shangren nor any of his relatives and descendants ever thought that the optical glass business was worth studying or researching or entering or even financing. It was simply not the kind of thing that a Confucian gentleman would do. One consequence of this lamentable uncuriosity was extraordinary ignorance about the outside world. During the first Opium War of 1840 the staff of High Commissioner Lin, the Qing plenipotentiary on the spot in Canton, appears to have debated whether an embargo of ginseng rhubarb exports might be enough all on its own to win the war for China--the British, they had heard somewhere, needed ginseng as a dietary supplement to have regular bowel movements, and would die without it.

The third reason China's government was in crisis was that the people were in crisis. As I noted above, China's population was on the downswing of a Malthusian population cycle. Compared to the aftermath of the great wave of agricultural technological development nearly a millennium before, the threefold growth in population meant that yields per person low, farms small, and peasants poor--hence malnourished, and with relatively little energy. Population growth also meant larger clans of landlords to be fed off the rents. Combined with an alien ruling dynasty that feels weak and threatened by its own upper class and tells its bureaucrats that it is justice when the landlords win, this means that the peasants have very little to lose. Thus peasant revolts--like those that everyone remembered had brought down dynasties before--burned through China in the mid-nineteenth century.

The greatest was the Taiping Rebellion. The Manchu banner-armies proved useless when Hong Xiuquan proclaimed the "Heavenly Kingdom of Great Peace" and promised his followers not only the Kingdom of Heaven in the hereafter (where he would reign alongside his elder brother Jesus Christ) but that land would be equally divided after all the landlords were killed down here--meaning a roughly fifty percent increase in median peasant standards of living. And Hong Xiuquan supplemented his brand of theocratic landlord-free authoritarian communism with anti-Manchu nationalism: "Ever since the Manchus poisoned China... the poison of corruption has defiled the emperor's throne..." 1300 calories per day versus 2000 plus God on your side plus revenge against the oppressive landlords plus the expulsion of the barbarian Manchus.

The fifteen-year march of the Taiping through south-central China and reign from Nanjing had echoes not just of previous peasant rebellions (like the one that had given the Manchus their opening in the 1640s at the end of the Ming dynasty) but of what Mao Zedong and company would do from 1925 to 1945. Move into a village, get the peasants' hands dirty by having them kill a couple of landlords, divide up the land so all the small peasants are much richer, point out that if the landlord-backed authorities return they will all be in big trouble, and ask for volunteers to join the army and come along to the next village.

The Taiping prohibited opium, foot-binding, prostitution, and female servitude. They instituted equal shares for all, vaccination, low taxes, and encouraged tea and silk exports. Hugh Deane quotes American missionary E.C. Bridgeman's report that the Taiping "appear[ed] like a new race of warriors... well-clad, well-fed, and well-provided for... content and in high spirits, as if sure of success," and asserts that twentieth century Communist leaders like Mao Zedong, Zhu Te, and Peng Dehaui drew inspiration from the stories of the Taiping heroes that they had grown up with in Hunan, Sichuan, and Nanjing.

Outside observers like Karl Marx were impressed enough that they thought that the World Revolution was starting in the late 1850s in China, and that the last moments of the Chinese empire had come. But competent local landlords organized pickup militias, some of which grew into competent--but non-Manchu--battalions and brigades. The merchants and bankers of Shanghai and other ports in contact with and profiting from European trade were desperate for help and knew how to draw on European military-technological competence. The thirty year-old Frederick Ward Townsend--with, Deane reports, two years' experience as a military cadet in Norwich, Vermont followed by service as a Texas Ranger, a Mexican army drill instructor, and in the Crimean War--organized an army on the British Indian sepoy model: officers from Europe and America, rifles and carbines and cannon supplied by the British government, high pay, and river mobility through steampower. The Qing court heard such good things about his army from Li Hongzhang, their commander on the spot, that they named Ward's army "The Undefeatables." Ward was killed at Ningbo in 1862, but his successor the British General Charles "Chinese" Gordon's army proved equally capable. The Taiping were crushed in 1864. China's political revolution was postponed for half a century, and the Qing Dynasty continued to rule until 1911.

The fourth reason China's government was in crisis was that it was so weak relative to the forces that first Britain and later other European powers began to project into the western Pacific.

After 1800 British merchants discovered one commodity besides silver that Indian producers could supply and that Chinese consumers were eager to buy: opium. By the end of the 1830s the Chinese government was beginning to worry about the consequences of opium addiction on the country, and the exchange of European silver for Chinese goods had turned around: the bulk of the China trade was the exchange of Chinese silver for Indian-grown opium. The Chinese government attempted to suppress the opium trade and opium smuggling. The result was the 1839-1842 "Opium War," in which the British fleet intervened on the side of free trade, the sale of opium, and drug addiction. The British Empire acquired the then nearly barren island of Hong Kong as a base, European influence was established in a substantial number of "treaty ports" along the Chinese coast, and the division of China not into European colonies but into regions in the "spheres of influence" of different European powers began.

In the mid-1880s the Qing Dynasty, having bought foreign metal-working machinery and built a navy, arsenals, and docks, thought it was strong enough to oppose the French conquest of Vietnam. The fleet was destroyed in an hour. Jonathan Spence reports that the Chinese navy lost 572 dead, while the French lost five. In 1895 the Qing Dynasty thought it was strong enough to oppose the Japanese extension of their sphere of influence to Korea. It was wrong. The Treaty of Shimonoseki added Taiwan, Korea, and southern Manchuria to Japan's sphere of influence. European and American mercenaries, concessionaires, merchants and manufacturers went where they wanted, did what they wanted, and enforced whatever laws they thought were good.

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The Failure of "Self-Strengthening" in China

In the late nineteenth and early twentieth centuries, in the last years of the Qing empire and the first years of the Republic of China, economic growth and development took place around China's coastal fringes in and near foreign enclaves, but not elsewhere. In 1910 China had only a million cotton spindles--one for every 400 people. Contrast that to Britain, that had two spindles per person in 1910. In 1910 China mined 10M tons of coal--that's 40 pounds per person per year. In 1929 China produced 20K tons of steel--less than two ounces per person per year. It produced 400K tons of iron--that's 1.6 pounds per person per year. It mined 27M tons of coal--that's 100 pounds per person per year. Compare this to America's 700 pounds of steel per capita in 1929 or 200 pounds in 1900, or to America's 8000 pounds of coal per capita in 1929 or 5000 pounds of coal per capita in 1900.

China specialists see and can almost touch an alternative history in which late-nineteenth century China managed to match the political and economic achievements of Meiji Japan. They see an alternative in which China stood up economically, politically, and organizationally. Japan, after all, won its short victorious war against Russia in 1905, negotiated as an equal with Britain and the U.S. over warship construction in 1921, and was perhaps the eighth industrial power in the world by 1929. Why couldn't China have done the same?

Jonathan Spence, for example, praises the nineteenth century:

Confucian statesmen [like Li Hongzhang] whose skill, integrity, and tenacity helped suppress the [Taiping and other] rebellions... showed how imaginatively the Chinese could respond to new challenges... managed to develop new structures to handle foreign relations and collect customs dues, to build modern ships and weapons, and to start teaching international law and the rudiments of modern science.... It was true that there remained complex problems... rural militarization... local autonomy over taxation... landlord abuses... bureaucratic corruption... bellicose foreign powers.... But with forceful imperial leadership and a resolute Grand Council, it appeared that the Qing Dynasty might regain some of its former strength...

And laments that:

forceful leadership was not forthcoming... the empress dowager Cixi... coregent for her son Tongzhi from 1861-73... coregent for her nephew Guangxu from 1875-89.... [A]bsolute political authority... while Guangxu [was imprisoned in the palace]... on her orders from 1898-1908.... Cixi had clashed badly in 1869 with Prince Gong.... Zeng Guofan died in 1872... Wenxiang died in 1876... Zuo Zongtang remained preoccupied with the pacification of the Muslims in [Xinjiang].... The grand councilors... worthy... with distinguished careers... lacked the skill or initiative to direct China on a new course. Although self-strengthening programs continued to be implemented... a disproportionate number of them were initiated by one man, Li Hongzhang... governor-general of Hebei... commissioner of trade for the northern ports...

We economists are more skeptical. We note that the "new structures to... collect customs dues" consisted of things like the Qing Imperial Maritime Customs Service build up in the 1860s under Robert Hart--no Chinese officials allowed. We note that the enormous bureaucracies that allegedly managed the Yellow River dike works and the Grand Canal had grown corrupt and incompetent. We note that the Qing could not get their local officials to collect the salt tax. We do not find it satisfactory to attribute China's stagnation through the first decade of the twentieth century to poor choice of ministers by the dowager empress Cixi--even though Spence is following in a long tradition that treats her as the original mold for the figure of the Dragon Lady.

Let's go back to Jonathan Spence's observation that "a disproportionate number" of self-strengthening attempts to adapt and use modern technologies were due to "Li Hongzhang... governor-general of Hebei... commissioner of trade for the northern ports..." Li Hongzhang's achievements were indeed impressive: the 1877 Kaiping coal mine, in 1878 cotton mills in Shanghai, the Tianjin arsenal, the telegraph between Tianjin and Peking, a seven-mile railroad to ship from Kaiping to the river and then downriver to Tianjin, and so forth. And what wasn't undertaken by Li Hongzhang appears likely to have been undertaken by Zhang Zhidong, governor-general of Hunan-Hubei for two decades: the railroad from Hankou to Beijing, the Wuhan Han-Ye-Ping heavy industrial complex. In the last generation of the Qing empire, individual governors-general who made economic development a top priority could make some things happen--elsewhere it didn't, save to some degree in and next to the foreign concessions and treaty ports: Qingdao, Tientsin, Shanghai, Guangdong, Hong Kong.

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Manufacturing Location at the Start of the Twentieth Century

It is understandable that China, India, and the other non-European and non-settler-colony regions of the world did not in the years before World War I produce and export the relatively high-value commodities like wheat and wool exported by temperate settler economies: agricultural productivity was too low, and climate was unfavorable. It is understandable why--with heavy downward pressure put on wages in Malaysia, Kenya, and Colombia by migration and threatened migration from very low-wage China and India--the prices of the export commodities that they did produce were and remained relatively low.

What is more puzzling is why industrialization did not spread much more rapidly in the years before World War I. After all, the example of the industrial core seemed easy to follow. Inventing the technologies of the original industrial revolution--steam power, spinning mills, automatic looms, iron- and steel-making, and railroad-building--had required many independent strokes of genius. But copying the technologies did not, especially when you could buy and cheaply ship industrial capital goods made in the same New and Old England machine shops that supplied the industries of England and of America.

As industries in the industrial core became more and more mechanized--more and more characterized by what would be called "mass production"--they should have become more and more vulnerable to foreign competition from other, lower wage countries. Even at the start of the twentieth century, the U.S. had the highest wage level in the world; inside the U.S., firms devoted immense time, energy, and thought to redesigning their production processes so that lower-skilled, and lower paid, workers could replace highly-skilled craftsmen. One would think that manufacturing would have fled the United States even in the late nineteenth century. If Ford could redesign production immediately after World war I so that semi-skilled assembly line workers could do what highly-skilled craftsmen used to do, why couldn't Ford also--or someone else--redesign production before World War I so that it could be carried out by low wage Peruvians or Poles or Kenyans rather than by Americans, who were extraordinarily expensive labor by world standards eve back then?

Industries do migrate, but they have done so surprisingly slowly in the twentieth century. One reason is added risk: political risk of all kinds tends to make investors wary of committing their money in places where it is easy to imagine political disruptions from the left or the right. Moreover, there are substantial advantages for a firm in keeping production in the industrial core, near to other machines and near other factories making similar products. It is much easier to keep the machines running. A reliable infrastructure is much more likely to be found in the industrial core. And so are the services of specialists needed to fix the many things that can go wrong: minimum efficient scale for an industrial civilization can be far larger than the apparent minimum efficient scale for a plant.

Arthur Lewis hypothesized that barriers to starting up an export-oriented industry were large, that infant industries on the periphery of the world economy had to rely on domestic demand, and that where domestic demand was low because of mass poverty modern industry could not flourish. Thus only a small share of output in what was to become the third world came from the industries of the industrial revolution. But we still understand far too little about why the pace of technological diffusion out of the industrial core was so slow back before World War I: why "peripheral" economies did such a good job at specializing in plantation agriculture for export, and such a bad job at creating modern manufacturing industries.

Gregory Clark at the University of California at Davis has counted the staffing levels--how many operatives for each machine--at textile firms worldwide early in the twentieth cenury, and found enormous differences in how many workers watch, operate, and maintain the same machine across countries and continents. It is not that places where labor is abundant use the same machines more efficiently: it is that it appears to take many times the workforce to achieve the same level of machine performance. Clark argues that in 1910 typical labor productivity in English-speaking countries in cotton spinning was fifteen times that of China, ten times that of Japan, three times that of Mexico or Russia, and twice that of continental northern Europe. Workforces in the industrial core appear to have had an acquaintance with machines and how they work, which was very, very hard to duplicate.

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The Kaiping Coal Mines

Let's take a look at one of these in detail: the first one, the Kaiping coal mine. We are lucky in that we can draw on Ellsworth Carlson's 1957 Harvard east asian monograph to understand how and to what extent Li Hongzhang could midwife modern coal-mining technology in late-nineteenth century China.

In 1877 Li Hongzhang--a senior scholar-landlord-bureaucrat high in the confidence of the Qing court--joined forces with Tang Tingshu--a prominent, experienced, and wealthy treaty port comprador-merchant who had managed Jardine, Matheson's interests along the Yangtze--to establish a modern, industrial, large-scale coal mine in Kaiping, in Chihli. Li Hongzhang and Tang Tingshu faced unusual forms of opposition to their mining plans. Carlson quotes a British cable of 1882 stating that mining work had been stopped because Chi Shihchang, a vice-president of the Board of Civil Offices, had declared that "foreign mining methods angered the earth dragon... [and so] the late empress could not rest quietly in her grave" sixty miles away from Kaiping:

The Governor-General [Li Hongzhang] has been ordered to make inquiry and report... work has partially ceased.... Either he must throw over a company... formed with his direct sanction... [and] a very large quantity of capital, or he must... declare the mines harmless with the knowledge that he will then be considered responsible for any bodily ailment or other ill which may befall the Emperor or his family...

Tang Tingshu had originally proposed to build a steam railway to get the coal from the mines to the port of Tientsin, but dropped that idea and replace it with a proposal for a seven mile mule-drawn tramway to be connected to a twenty-one mile canal. Shen Pao-chen had in 1877 dismantled China's first railway--the Shanghai-Woosung. According to David Pong, Li Hongzhang was furious, blaming the destruction on Shen's narrow-mindedness and his desire to curry favor with anti-foreign elements. Moreover, the Manchu court had just rejected Liu Mingchuan's request for permission to build railways. When the mining began and the tramway started up, however, there were no mules: there was a locomotive--the "Rocket of China" with, engineer Claude Kinder reported, a boiler from "a portable winding engine, the wheels had been purchased as scrap castings, the frames... made of cast iron." Ellsworth Carlson believes that Li Hongzhang and Tang Tingshu were able to get their steam railroad going because of three reasons. First, it was built in a remote and sparsely populated area with no Confucian scholar-landlord-bureaucrats around. Second, Li Hongzhang used all his political skills to keep the existence of the steam railroad. Third, Carlson believes that Li had the blessing of the empress dowager Cixi to proceed--and thus her protection from his superiors on the Grand Council and elsewhere.

Tang Tingshu and Li Hongzhang persevered. Production began with modern machinery in 1881 excavating coal seams about ten feet in diameter 200, 300 and 500 feet down. 200 tons of coal a day were excavated by 1883. By 1889, 3000 workers in three shifts were producing was 700 tons of coal a day, nearly 500 pounds per worker per day, using steam lifts underground coal cars on rails, and pneumatic drills--but still only two pounds a year for every person in China. At the end of 1888 a railway to carry the coal from Kaiping down to Taku was finally opened. But it could not be extended to Tientsin. As chief engineer Claude Kinder wrote:

high officials who detested the railway... foster[ed] trouble with the junk people.... So great was the clamor... that the Viceroy... gave the order for the nearly completed bridge [over the Peiho to Tientsin] to be destroyed, although hundreds of the largest junks had already safely passed through...

Starting in 1889 the company began paying dividends: annual dividends amounted to 10 to 12% on the company's equity capital of 1.5M taels--about £150,000 pounds, or $750,000 dollars of the time. The mine had 3000 workers in 1889, and 9000 in 1900, paid about $6 a month (with the highest-paid Chinese-born technical employees earning some $60). About four miners died each year. As Herbert Hoover reported to his bosses at Bewick, Moreing: "The disregard for human life permits cheap mining by economy in timber [supports].... The aggrieved relatives are amply compensated by... $30 per man.... cases have been proved of suicide for that amount..." Hoover's judgment was that the miners were producing 1/4 to 1/8 of what was expected of miners in America or Australia. By 1912 Kaiping was producing 1.4M tons of coal a year--seven pounds for each person in China--and accounted for perhaps 20% of China's total coal production.

Without the aegis of Li Hongzhang and his position as governor, the enterprise is unlikely to have survived. Ellsworth Carswell quotes Tang Shouchien on the difficulties that merchants and entrepreneurs had outside the coastal foreign concessions: "The officials have rights; the merchants have no rights; their influence does not go beyond the bringing together of capital; and naturally the profits of the merchants are lost to the officials ceaselessly..." Even with his aegis, not everything went smoothly. Carswell quotes the North China Herald of June 24, 2007 as pessimistic about the future of Kaiping as a capitalist economic enterprise: "if a mine is at a promising state, Kaiping to wit, the kinsmen of the Director, Managers, and officials, come in shoals, and without the slightest regard to competence are provided with posts and fatten..." But as long as Li Hongzhang was in control and his attention was focused on making the mine a successful economic enterprise, Tang Tingshu, his team, and his specialist foreign engineers could do their work. Their position, however, was shaky, for the mine was both a public governmental project and a private capitalist enterprise: shang-pan kuan-tu: official supervision and merchant management. This meant that each manager of the mine wore two hats: on the one hand, they were intendants in the Qing administrative bureaucracy with jurisdiction not over a town and its villages but over a mining enterprise, and on the other hand they were employees of the shareholders. Should push come to shove, it would turn out that they worked for the governor of Chihli rather than the shareholders of the company.

Mine director-general Tang Tingshu died in 1892. His successor was a very different man. Tang Tingshu was a merchant. Chang Yenmao was a bannerman--a hereditary retainer of Prince Qun. Tang Tingshu was a merchant who had worked extensively for British bosses. Chang Yenmao was a retainer and fixer. He had little education. In spite of his lack of literary attainment, he somehow acquired official rank, played on his connections with the empress dowager Cixi, and was slotted to become an intendant in Kaingsu when the director-generalship of Kaiping fell vacant. In The Making of Herbert Hoover, Rose Wilder Lane, claims that Chang Yenmao played a key role in Cixi's coup of 1885 when she placed the Gwangxu emperor on the throne.

By 1900 Chang Yenmao--once a poor bannerman and retainer--was one of the wealthiest men in Tientsin. When Herbert Hoover looked at the books of Taiping in 1901, he reported that the 9000-worker payroll had been padded by 6000 names, and that the director of personnel doing the padding and collecting the wages had paid Chang Yenmao $50,000 for the post. Chang Yenmao's company paid £20000--$100000--a year in dividends. After Herbert Hoover took over as director-general in 1901, he was able to pay out £150,000--$750,000--a year.

Herbert Hoover? you say. Yes, Herbert Hoover: at the time a 26 year old mining engineer on the make, later to become the architect of food relief to Europe after World War I to prevent mass starvation, the wonder-working Commerce Secretary during the Roaring Twenties, and president during the slide into the Great Depression.

What happened was this: Herbert Hoover, mining expert, arrived in Tientsin in 1900 just in time to be besieged in the city by the Boxers (a better translation for this grassroots uprising influenced and encouraged but not controlled by the Forbidden City would have been "Fighters United for Justice"). In Tientsin Hoover met Gustav Detring of the China Maritime Customs Service, a friend of Chang Yenmao's. He also met Chang Yenmao. Chang had fled to Tientsin as well, fearing that the Boxers would execute him as a corrupt puppet of the Europeans; in Tientsin, however, the Europeans arrested Chang--fearing, probably correctly, that he was passing intelligence to the besieging Boxer armies as a way of hedging his bets. The British charge d'affaires on the scene later said that Chang "ought to have been shot in 1900."

Somehow Detring and Hoover, probably, got Chang released from prison. Somehow Chang decided to reincorporate the Kaiping mines as a British-flag enterprise incorporated in London in order, he said, to make it easier to raise capital to expand the mines and to provide some political cover: Russian or Japanese proconsuls would love to confiscate a working Chinese-flag industrial property as reparations or indemnities, but would not dare touch a British-flag industrial property. Chang commissioned Detring and then Detring and Chang commissioned Hoover and then Hoover commissioned his boss C. Algernon Moreing back in London to do the deal.

The old company had owned the mine works, had little spare cash, and had owed £250,000--$1.25M--in bonds that paid 12% per year interest. When the dust cleared, the new company owned the mine works, had about £250,000 in free cash, and owed £500,000 in bonds that paid 6% per year interest. When the dust cleared, the shareholders of the old company found that they owned 37.5% of the new company, and that C. Algernon Moreing and his friends owned 62.5% of the new company without having contributed more than a few cents to the enterprise. The old company had been controlled completely by Chang Yenmao in his dual status as director-general both elected by the shareholders and appointed by the governor of Chihli. The new company was controlled completely by Herbert Hoover as the representative on the spot of the London majority shareholders. The old company had a management and advanced technical staff of 620 Chinese managers and 10 foreign-born engineers and foremen. The new company had a management and advanced technical staff of 170: 120 from china and 50 from abroad. The new company also had a Europeans-only club.

Charge d'affaires Townley was disgusted. He wrote to Britain's foreign secretary, Lord Salisbury, recommending against the British government's "giv[ing] its countenance to a financial transaction which had fleeced Chinese shareholders and lined the pockets of an Anglo-Belgian gang.... Moreing and others have made a pretty pile at the expense of the Chinese.... legally the Board of Directors were unassailable... but... morally they were in the wrong." Others were upset as well--especially Detring and Chang Yenmao. Townley's interpretation was that they were "wild... [because] they thought themselves rather smarter... and got themselves fairly had by a Yankee man of straw [Hoover] acting for Moreing..."

We have a pretty good idea of what Algernon Moreing and Herbert Hoover would have said if they could have been gotten to speak truthfully about the transaction. First, they would have said, if we had not done the deal then the Russians would have confiscated the mine in 1901 as reparations: we brought the British flag's protection to the table, and that is easily worth 62.5% of the company. We gave the original-company shareholders 37.5%, while the Russians would have given them zero. Second, they would have said, Chang Yenmao was a corrupt thief stealing from the company and untouchable because of the protection of the governor of Chihli. 6000 extra workers at $50 a year is $300,000 a year, at least, stolen from the company. Third, they would have said, Chang Yenmao is neither a mining engineer nor a merchant. Herbert Hoover is both, and can make the mine run. 37.5% of the $750,000 a year in dividends that the new company paid is about $270,000--almost three times the $100,000 the old company paid. We did the original shareholders three big favors, they would have said, and 62.5% of the company is a bargain for all we have done.

Chang Yenmao was displeased. He had to explain to the new governor of Chihli, the formidable Yuan Shihkai, why the Imperial flag was not being flown over the mine, which meant that he had to admit that he had conspired or western sharpies had tricked him or something had happened by which the Kaiping mines were now the property of a British-Belgian investors' syndicate. Yuan Shihkai was then displeased:

Although Kaiping had sold commercial shares, it was not a private property that could be bought or sold by people like Chang and Hoover. The mines had not been started... [until] Li Hongzhang had... obtained imperial approval... they could not be alienated without imperial approval.... Chang, said Yuan, was a person of humble origins to whom the country had given great favors, but he had not been properly grateful... [had sold] mining land [to foreigners] without authority... deceived the throne... about Chinese-foreign joint management.... If unpunished, Chang's action might become a precedent... losses of the country's mines, the merchant's capital, and the dynasty's ports...

It turned out that in the process of browbeating Chang Yenmao, Herbert Hoover had signed a "Memorandum of Understanding" that the change of corporate form would not alter Chang Yenmao's status: that he would remain director-general of the mine "as before." Chang Yenmao, ordered to recover the mines, went to London and sued. One British judge was shocked at the deception and dishonor, and ruled that the "Memorandum" was a valid instrument that had to be followed by the new company. Other British judges in London ruled that the "Memorandum" was a valid instrument only insofar as the powers granted Chang by the memorandum were legal according to British corporate law, but that those powers weren't. In the end Yuan Shihkai started up another coal company with rights to much more extensive deposits in the area, and the two were amicably merged. Later on, Herbert Hoover scrambled as he launched his political career to buy up and destroy all copies of the trial record containing his testimony--missing the one in Oxford's Bodleian Library.

As Albert Feuerworker summed up the story of Kaiping in the 1959 Journal of Asian Studies:

Despite its pioneering achievements, Kaiping faltered... [like] other kuan-tu shang-pan enterprises in the late nineteenth century. The first was the lack of sufficient capital and the inability to raise more from domestic sources. The second was the unpropitious political environment into which it was born. Little aid could be expected from the tottering Manchu regime either in the form of financial assistance to compensate for the reluctance of private investors, or protection from foreign encroachment such as eventuated in British domination of this enterprise.... [T]he contrast with the history of early industrial efforts in Meiji Japan is a striking one...

Feuerworker sees three things going wrong: no private capital, a poor cash-strapped government that could not contribute public capital, and a weak government that could not protect incipient enterprises against rapacious foreigners. These three were certainly important, yes, but I see three others that were even more important:

• a social-economic structure that could not find and promote executives, but instead replaced Tang Tingshu with a corrupt political fixer like Chang Yenmao
• a political-ritual culture that required that a modernizing governor focus his attention constantly on the enterprise and run interference to protect it from anti-modernizers
• an educational system that continued to turn out literati instead of engineers and thus required foreign technical personnel for everything

The fact is that, outside the charmed circles created by the extraterritorial foreign concessions, and to a slight degree the immediate span of control of the few modernizing governors, modern industries did not develop and modern technologies were simply not applied in late imperial China. The typical Qing bureaucrat was hostile. But the typical Qing bureaucrat was also interested. There was rough equilibrium in how much money Qing bureaucrats were expected to squeeze from landlords (not that much), merchants and traders (significant but limited), and others who needed government action (as much as they could grab). New people doing new things had no customary, social, or countervailing power protections against their overlords. And overlords with limited intelligence, limited types of experience, and limited official tenure could not be expected to nurture economic growth when there were loose assets to be stripped. And, as the shareholders of Kaiping and Chang Yenmao discovered, to flee into the arms of foreign legal systems was to flee from Scylla to Charybdis.

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China's First Revolution: 1911

The loss of the Japanese-Chinese War in 1895 brought matters to a head: was the government going to make a more serious effort to mobilize the country for modernization and progress or not? The Guangxu emperor said yes: he allied himself with reformer Kang Youwei and launched the "hundred days of reform" of 1898. The dowager empress Cixi--who we have seen before as patron and protector of modernizer Li Hongzhang--said no. she imprisoned the emperor inside the palace and encouraged the grassroots "Fighters United for Justice" to see what would happen. The attempt to mobilize anti-European sentiment to support the conservative regime failed, as an all-European expeditionary force relieved the beseiged European embassies in Beijing, exacted indemnities, and wreaked destruction. A tack back to the left was not possible. Kang Youwei's memoranda on such things as the partition of weak-government poland by Russia, Prussia, and Austria and on the successful Meiji reforms in Japan could still be read, but Cixi had executed Kang Youwei's younger brother and other reformers in 1898. And when Sun Yatsen had offered his services to Li Hongzhang in 1894, Li had sent him away.

Sun Yatsen built up a financial and propaganda network among Chinese emigrants beyond the reach of the government. Military politicians like Yuan Shihkai came to the conclusion that working with the Manchu court was useless. And at the beginning of 1912 the last Chinese imperial dynasty fell, as Yuan Shihkai and his peers refused to suppress Sun Yatsen's rebellions. The six-year-old emperor abdicated. But the new Chinese republic's president was military politician Yuan Shihkai. And his authority over his peers and near peers--army commanders, provincial governors, and other would-be warlords--was nil. China descended into near-anarchy. On a provincial scale, order was maintained by "warlords": military politicians with soldiers at their command who chose local gentry notables to maintain order in the countryside and chose mayors and councillors in the cities. They taxed and plundered what they could, and their soldiers taxed and plundered and fought. It would take until the end of the 1920s before China had anything that could be called a functioning government again.

Hoover in China: Yet Another Note

Hugh Deane (1990), Good Deeds and Gunboats: Two Centuries of American-Chinese Encounters (San Francisco/Beijing: China Books and Periodicals/New World Press: 0835123782), pp. 75-6:

In 1920, having gained an international reputation through relief work, and thinking of public office, Hoover began an extraordinary and costly effort to blur and falsify the record of the trial... instructed his London solicitor to "spare no expense or effort" to purchase all existing copies of the trial transcript. Burner's biography indicates that Hoover thought he had succeeded, but in fact his agents were unable to obtain the copy in the Bodleian Library at Oxford. In the early 1930s [John Hamill]... observed... that, trying to check on certain accusation, "At many sources we came only to find that somebody had been there before us, going over the hard-beaten track of Mr. Hoover's past, and taking up, buying up, and otherwise obliterating important records"....

[T]he reality was expressed at the time of the swindle by Britain's charge d'affaires in Beijing, Arthur Townley. With the help of a Yankee [Hoover], he said, an Anglo-Belgian gang had "fleeced" the Chinese, and Moreing and associates had "made pretty pile at their expense"...

A Historical Document: The Kaiping Mines: The Times of London, March 2, 1905, p. 9

The Kaiping Mines: The Times of London, March 2, 1905, p. 9

The remarkable action brought by Chang-Yen-Mao and tried for many days before Mr. Justice Joyce has ended in favor of the plaintiff on all important points. The proceedings were unique and important in several respects. It is rare that a Chinese mandarin seeks justice in our courts; and involved in the dispute between him and the defendants were issues of far-reaching consequence. Had Chang-Yen-Mao lost his action he would probably have fared very badly at the hands of his Government, which had charged him with "fattening" on teh rpoceeds of a fraudulent sale of the property which was the subject-matter in dispute. He has been deprived of the office of Director-General of Mines; his ruin and disgrace, if not worse still, would have followed an adverse decision. It is not too much to add that his failure would have been a misfortune to British interests, and injurious to our good name in the Far East. Chang-Yen-Mao is a representative of the more enlightened of his countrymen, who see that, not hostility to western civilization, but frank recognition of its value is their best policy. With proper guarantees against evils and abuses too common in Oriental countries, European capital might now develop the resources of China in many ways. There are railways to be made, mines to be opened or worked with modern appliances, and all this is to be done only with the cooperation of the better class of officials who have put aside ancient prejudices against the foreigner. Chang-Yen-Mao, who is, as he showed in the witness-box, shrewd and intelligent, seems to have aided not a little the industrial development of his country. He has believed that true patriotism is consistent with the employment of skilled European advisers and the encouragement of European capital. He has suffered not a little for having, in the opinion of the narrow minded, sacrificed Chinese interests to the foreign capitalist. His success in an English court of law will have effects going much beyond the decision of the controversy before Mr. Justice Joyce. His countryment who are suspicious of western finance will know that redress can be had if they are wronged. News of his success will gradually percolate into even remote parts of China, and will inspire confidence in the impartiality of our tribunals. The judgment of yesterday will, perhaps, smooth the way for the entrance of British capital into a country where, given an honest administration, it might be largely employed to the profit of native and western investors.

Stripped of details, the point at issue in the action was simple. Chang-Yen-Mao was director-general of a Chinese company formed in 1882 to work certain mines in the provinces of Chi-li and Johol. Fresh capital was required for the undertaking, and Mr. Detring, a German, who was a Commissioner of Customs in China and also a director of the company, was authorized to take measures to raise the necessary capital. He put himself in communication with the defendants, Moreing and Co., and the result was that by a conveyance of February 19, 1901, all the property of the plaintiff company was transferred to the defendent company. The contention of the plaintiff was that this transfer was executed upon the express condition that a memorandum of even date whould be executed, and should be binding upon the new company. One of the conditions was that the shareholders, Chinese and foreign alike, should have equal votes; that the company should be managed by two boards, English and Chinese; that Chang-Yen-Mao should continue to be director-general; and that the Chinese board should manage the property in China. These provisions, it was said, had not been carried out. The new company refused to recognize them. The Chinese board was powerless; a manager was sent out who said he knew nothing of the memorandum, and the official business of the company was not transacted at Tien-tsin. The plaintiff sought a declaration that the terms of the memorandum were binding upon th ecompany, or that the deed of transfer should be set aside. The defendants did not say that the memorandum was of no effect. Mr. Moreing, in his cross-examination, said that:

some of the directors took the view that the memorandum was not vital, but they still endeavoured to carry it out. It was true that the majority of the board took the view that the memorandum had no legal effect, but witness always dissociated himself from that.

The main point upon which the counsel for the defendants relied was that the memorandum had, according to its reasonable construction, been acted upon, and that the proviso about making Chang director-general "as before" was in direct violation of English law. After a patient hearing the Judge has, in regard to the principal points of the case, decided in favour of the plaintiff. Unless within a reasonable time the terms and conditions of the memorandum are complied with, the Court will do what it can to restore the property, and will take measures by injunction to restrain the defendants from parting with it. What is scarcely less important is the expression of opinion by the Judge that Chang-Yen-Mao had been guilty of no bad faith, whil ethe conduct of some of those concerned in the matter was open to criticism.

Chang-Yen-Mao will go back to China with the esteem of all who heard him give his evidence. He will be able to assure the retrograde party at home that relations with astute British financiers do not necessarily turn out badly. There is no doubt that the events which he disclosed in Court profoundly affected the better class of Chinese, and shook their confidence in British good faith. Justly open to censure, the action of the English company was represented by enemies of this country in the worst colours, and if it had been uncorrected, it would have stood seriously in the way of British enterprise.

Many other lessons are to be deduced from a singularly interesting case. One is the inexpediency of the participation in the affairs of any company by officials at all connected with the Customs administration and the public service which has, under Sir Robert Hart's supervision, gained the confidence of the people of China. Englishmen are jealous of anything that might affect the reputation that he has created for the Imperial Maritme Customs. But the chief reflection which the case suggests is that the victory of Chang-Yen-Mao is also of public importance, and that it will be useful to British capital and enterprise in the struggle now going on against formidable commercial rivals. In restoring his own good name he benefits the credit of this country.

See also:

• Herbert Hoover in China http://delong.typepad.com/sdj/2007/07/herbert-hoover-.html
• A Historical Document: Kaiping Mines Memorandum of Agreement http://delong.typepad.com/sdj/2007/07/kaiping-mines-m.html
• A Historical Document: The Pall Mall Gazette on the Kaiping Mines http://delong.typepad.com/delong_economics_only/2007/07/the-pall-mall-g.html

New Graduate Student Orientation: Li Hungchang and "Self-Strengthening", and Other Topics

Few things are more mortifying than going to the new graduate student orientation, talking to three students fresh from China, and trying to say the name of the late nineteenth-century Qing statesman "Li Hungchang." There was animated discussion as to what I was trying to say--I suppose I sounded as though I was speaking half-Cantonese, half-duck.

And Chiang Kai-Shek--Jieng Jieshi--don't try to go there. Just don't.

The most interesting thing I learned is that there is as much horror inside as outside the Brookings building that Ken Pollack is still the public face of Brookings Institution foreign policy studies.

Herbert Hoover's Story on the Kaiping Mines

Herbert Hoover's story on the Kaiping mines appears to have been that he was lied to by his bosses--with whom he remained on excellent terms, however.

From Walter Liggett (1932), The Rise of Herbert Hoover (New York: H.K. Fly), p. 111 ff.:

The action between Chang Yen-mao and the Chinese Engineering and Mining Company of Tientsin, plaintiffs, versus Charles Algernon Moreing, Bewick, Moreing, and Company, and the Chinese Engineering and Mining Company, Limited, of London, defendants, was brought to trial on January 18, 1905, before Justice Joyce in the Chancery Division.... On March 1, 1905, Justice Joyce delivered from the bench a long verbal decision in favor of the plaintiffs....

[...]

Chang [Yen-mao] described the circumstances under which he signed the deed.... He said he repeatedly refused to sign... its terms did not agree... with his agreement with [Herbert] Hoover. Upon being told by Hoover that the deed was merely meant for the purpose of registration in England, and that the memorandum would be the ruling instrument, he eventually signed... with reluctance....

Chang told in detail of... threats... by Hoover... that the mines would be confiscated by the [European] Allied governments and that he and the Chinese stockholders would get nothing [if he did not agree to the terms]....

[...]

In opening the defense, Counsellor Hughes made a long speech in which he protested against charges of fraud or misrepresentation.... Hughes defended the issuance of 625,000 shares of promoters' stock and added, "Mr. Moreing did not profess to go to China as a philanthropist."...

Mr. Hoover took the stand.... He said that Detring told him that the deed of July 30, 1900, had been approved by Chang. (Both Detring and Chang denied this.)... Hoover declared he had always considered the memorandum binding, and always had insisted that it be carried out. On cross-examination he said that he did not know... that the memorandum's provisions had not been incorporated into the articles of association. He also disclaimed knowledge of the financing.... Under cross-examination he said that he had told Chang and Detring that the provisions of the memorandum were incorporated in the articles of association, and that he had not known differently until he returned to London. He admitted the whole of his negotiations with Chang and Detring when he returned to China had been on an "incorrect basis."...

Counsellor Levitt produced a letter written by Hoover... [in which] he had said that "the China board would have in itself the entire management of the company's property in China, and that H[is] E[xcellency] Chang would be director-general [of the mines] for life." Hoover admitted the statements were not true, but explained that when he wrote the letter he thought them true. Hoover said he... had tried to carry out the terms of the memorandum and as long as he was in China thought he had succeeded. Then he was shown a letter... by himself.. which stated that the changes which he had inaugurated... [were to give] the new manager "complete control immediately upon arrival" in order that "the future administration [of the mine] might be preserved from any interference by the Chinese board."...

[Hoover] admitted reading a letter which de Wouters had written to the board of directors in London.... Hoover admitted that he had not asked de Wouters to alter the letter, or not to send it, but insisted nevertheless tht he was not in accord with de Wouters on this point and that the letter did not correctly represent the situation...

The Memorandum. The Pall Mall Gazette, February 2, 1903

Kaiping Mines: Memorandum of Agreement Between Chang Yen-Mao and Herbert Hoover

A historical document:

February 19, 1901: Memorandum Relating to the Reorganization of the Chinese Engineering and Mining Company:

In consequence of the disturbances of last summer [1900] and the state of hostilities thereby created, serious danger arose... [the possibility of] the confiscation of the [company's] property on account of the company's semi-official character in connection with the Chinese government... [or] the cession by compulsion of the company's property.... [I]t was thought in the interest of the Imperial government and the company's shareholders to convert the company into an Anglo-Chinese company registered under English laws and protection[s].

Another motive was... [to raise] additional capital by gaining foreign shareholders for the undertaking....

H[is] E[xcellency] Chang [Yen-Mao], Director General of the company, accordingly appointed Mr. Gustav Detring to make the necessary arrangements... with Mr. H.C. Hoover, acting on behalf of Mr. C.A. Moreing... [to draw up] a deed of sale... [so] Mr. Moreing... [could] take the necessary steps with regard to the raising of capital in Europe and registering the company under British laws....

[I]t has today been settled and decided that the company shall in the future be constituted and managed as follows:

(1) The share capital of the company to be one million pounds sterling.
(2) The Chinese shareholders [of the old company] to receive twenty-five shares of one pound each for each original share of one hundred taels each [i.e., total par value of £375,000].
(3) The bona-fide liabilities of the Chinese Engineering and Mining Company... shall be taken over by the new company....
(4) It is especially agreed to honor and repay the loans obtained from the Imperial government. 200,000 taels is to be paid out of the first funds and balance as quickly as possible [i.e., £35,000].
(5) The stockholders whether Chinese or foreign shall have equal votes at all meetings of the shareholders....
(6) The management of the company shall be conducted by two boards of directors, one in China and one in London.
(7) H[is] E[xcellency] Chang [Yen-Mao] will be Director General resident in China as before in general charge of affairs, and as such will have equal powers with foreign directors in China.
(8) The management of the property of the company in China will be in the China Board.
(9) The London Board will be elected by all the shareholders, Chinese and foreign.
(10) ... "limited" means that the shareholders are in no case responsible for more than the nominal amount of their shares.
(11) ... all the legal taxes and duties payable to the Chinese government will be paid by the company as before.
(12) ... the Director General will be the channel of all communication between the Imperial Authorities and the company.
(13) ... the company will be managed... to make Chinese and foreign interests harmonize on a fair basis of equality... [to] enrich the government and the people.
(14) All the unsettled accounts of the company and questions relating to land tenure will be adjusted equitably by mutual consultation.

Herbert C. Hoover
Chev. de Wouters
Chang Yen-Mao
Gustav Detring

The Pall Mall Gazette on the Kaiping Mines in 1903

A historical document: From the Pall Mall Gazette, February 2, 1903:

Chinese Engineering and Mining Company: An Interesting Story from Tientsin: Some Facts that Await Explanation:

The report of the meeting of Chinese shareholders in the great Chinese Engineering and Mining Company... is very interesting reading indeed. To all appearances, the European directors owe the Chinese shareholders... a tardy explanation of their apparent failure to comply with the terms of the memorandum....

Excellency Chang Yen-Mao sketched the events of 1900... thought advisable to register the company under British laws for the dual purpose of protecting the property and opening the doors for... European capital....

The next speaker was Mr. Detring... consulted [in 1900] by his Excellency... as to the best means of securing the property from aggression. It was ultimately decided to admit foreign capital and register the concern as an English company.... Mr. Hoover, as representative and adviser of Messrs. Bewick, Moreing, and Co... undertook a mission to London, where he formed a company of £1,000,000, out of which the Chinese script should rank as £375,000; of the balance, £100,000 was to be called up at once, and the remainder as required....

[N]ow a crowd of employees arrived from Europe without the slightest knowledge of the China board that they were coming.... Two months previously news had casually come to Mr. Detring's notice of a [London company] debenture issue of £500,000 at 6 percent. The debentures carried a bonus of £250,000 in shares standing at 70 to 100 percent premium at the date of issue. "So the reason for the issue," as Mr. Detring truly goes on to say, "was not apparent."

Nothing satisfactory by way of explanation of these strange happenings could be gained....

The Chinese board contend that the £625,000 [in par value of stock] allotted to the promoters is excessive.... [O]n the face of it, a very strong indictment indeed is made out against the European heads of this remarkable company...

If I understand the transaction correctly, the old shareholders of the company received 37.5% of the stock, the promoters--Bewick, Moreing, and Company--took 37.5% of the stock for themselves in return for a capital contribution of £100,000, and a bunch of bond buyers not otherwise identified received 25% of the stock and bonds of £500,000 principal value with coupons of £30,000 per year in exchange for their contribution of £500,000. At the moment of the bond issue, Detring claims, 25% of the stock had a then-current market value of between £425,000 and £500,000.

As I said, Herbert Hoover's testimon at the London Chancery trial appears to have been that he negotiated with Chang Yen-Mao in good faith but that his bosses at Bewick, Moreing misinformed him--but Hoover appears to have remained on excellent terms with them even so.

More on the Kaiping Mines: Jonathan Spence's Asides, and Albert Feuerwerker's Review of Ellsworth Carlson

China specialists see and can almost touch an alternative history in which late-nineteenth century China managed to match the political and economic achievements of Meiji Japan, and in which China stood up economically, politically, and organizationally at the same pace of the Japan that won its short victorious war against Russia in 1905, negotiated as an equal with Britain and the U.S. over warship construction in 1921, and was perhaps the eighth industrial power in the world by 1929. In his In Search of Modern China, for example, Jonathan Spence praises the nineteenth century:

Confucian statesmen whose skill, integrity, and tenacity helped suppress the rebellions... showed how imaginatively the Chinese could respond to new challenges... managed to develop new structures to handle foreign relations and collect customs dues, to build modern ships and weapons, and to start teaching international law and the rudiments of modern science.... It was true that there remained complex problems... rural militarization... local autonomy over taxation... landlord abuses... bureaucratic corruption... bellicose foreign powers.... But with forceful imperial leadership and a resolute Grand Council, it appeared that the Qing Dynasty might regain some of its former strength...

And Spence laments that:

forceful leadership was not forthcoming... the empress dowager Cixi... coregent for her son Tongzhi from 1861-73... coregent for her nephew Guangxu from 1875-89.... [A]bsolute political authority... while Guangxu [was imprisoned in the palace]... on her orders from 1898-1908.... Cixi had clashed badly in 1869 with Prince Gong.... Zeng Guofan died in 1872... Wenxiang died in 1876... Zuo Zongtang remained preoccupied with the pacification of the Muslims in [Xinjiang].... The grand councilors... worthy... with distinguished careers... lacked the skill or initiative to direct China on a new course. Although self-strengthening programs continued to be implemented... a disproportionate number of them were initiated by one man, Li Hongzhang... governor-general of Hebei... commissioner of trade for the northern ports...

Li Hongzhang's achievements were indeed impressive: the 1872 China Merchant Steamship Navigation Company, the 1877 Kaiping coals mines, in 1878 cotton mills in Shanghai, the Tianjin arsenal, the telegraph between Tianjin and Peking, a seven-mile railroad to ship from Kaiping to the river and then downriver to Tianjin, and so forth. What was not undertaken by Li Hongzhang appears likely to have been undertaken by Zhang Zhidong, eighteen years governor-general of Hunan-Hubei: the railroad from Hankou to Beijing, the Han-Ye-Ping heavy industrial complex, and so forth. But what impresses me most is how little even the most active, energetic, and skillful of statesmen could accomplish in the prevailing institutional and political climate--how those attempting to modernize China in the late nineteenth century were trying to roll boulders uphill.

And so I find it interesting to note:

Albert Feuerwerker, Review of Ellsworth Carlson (1957), The Kaiping Mines 1877-1912 (Cambridge: Harvard University Press), in the 1959 Journal of Asian Studies: Professor Carlson's monograph is a welcome addition to the all too sparse literature on the problem of China's economic development. His subject, China's first modern coal-mining enterprise, is a particularly good one for the study of the format in which Western-style enterprises were introduced into China at the end of the Ch'ing dynasty. Thus the discussion of the characteristics of the system of "official supervision and merchant management" (kuan-tu shang-pan) in Chapter 2, while necessarily brief, is to the point and illuminating.

The Kaiping Mines, like a good many others of China's first modern industries, were inaugurated under the aegis of the Chihli governor-general, Li Hung-chang. The enterprise formed a part of Li's satrapy, and probably owed its origin to a desire to furnish bunker coal and return cargo from Tientsin for the steamers of the China Merchants' Steam Navigation Company, which Li also controlled. Its first manager, T'ang Ching-hsing (Tong King-sing), was also until 1884 an official of the shipping company. Under T'ang's direction, capital was raised from Chinese sources including the C.M.S.N Co., and digging begun: production averaged approximately 250,000 tons annually in the early 1890's. But under Chang Yen-mao, who headed the company from 1892 to 1900, heavy borrowing in order to expand production gradually brought Kaiping under the control of its foreign creditors--interestingly enough, a process in which Herbert Hoover, then a young mining engineer, played an important role. Carlson describes these developments in detail and concludes with an account of Chinese efforts to recover the mines, which resulted in the formation of the Sino-British Kailan Mining Administration in 1912.

Despite its pioneering achievements, Kaiping faltered in the face of two obstacles which it confronted in common with other kuan-tu shang-pan enterprises in the late nineteenth century. The first was the lack of sufficient capital and the inability to raise more from domestic sources. The second was the unpropitious political environment into which it was born. Little aid could be expected from the tottering Manchu regime either in the form of financial assistance to compensate for the reluctance of private investors, or protection from foreign encroachment such as eventuated in British domination of this enterprise. While Carlson does not explicitly make the comparison, the contrast with the history of early industrial efforts in Meiji Japan is a striking one, and invites us to examine more closely the bases of the widely differing experiences of China and Japan in the process of economic modernization.

This is not business history, strictly speaking, although some attention is given to the technical achievements of the Kaiping Mines. It is unfortunate that the available source materials did not permit the author to examine Kaiping more closely as a business enterprise per se. But this is not a shortcoming peculiar to Carlson's study alone; it is a problem that everyone dealing with China's economic history faces.

Herbert Hoover in China: A Story I Had Never Heard Before

Now to figure out how much of it is true:

China Matters: Herbert Hoover: Made in China: China Matters jumps into the wayback machine, sets the controls for Tianjin 1900—-the Boxer Rebellion--and revisits one of the great political coverups in 20th century US political history: Herbert Hoover’s suppression of his pivotal and deplorable role in the alienation of China’s Kaiping Coal Mines from Chinese ownership.... To the general public, Hoover is a punchline in jokes about the Great Depression. But for serious students of Hoover, the emphasis has always been on taking the moral measure of the financier and humanitarian who achieved remarkable wealth, power, and worldwide recognition long before he ascended to the Presidency. Was he a ruthless, unscrupulous profiteer or a misunderstood apostle of rational business administration, economic efficiency, and benevolent progressivism?

Remarkably, the best documented and most accurate picture of Hoover can be found at the beginning of his career, in China, in the case of the alienation of the vast Kaiping Coal Mines from Chinese control. Thanks to a notorious court case-—and Hoover’s determined attempts to obscure and distort revelations that reflected badly upon him-—we can form a relatively unambiguous judgment of the man and his methods. The story, briefly, is this:

Herbert Hoover came to China in 1899, a young man of 24, with a reputation earned in the Australian gold fields as a shrewd, capable, and energetic mine manager—-and as an ambitious, Machiavellian manipulator who had schemed unsuccessfully to supplant his boss. He was sent to China by the London mine management firm of Bewick, Moreing & Company, to expand a relationship it had developed with the Kaiping Coal Mines and their manager, Chang Yan-mao. Kaiping was one of the crown jewels of Li Hung-chang’s self-strengthening movement. Located above an immense coal reserve near the present-day city of Tangshan, the mines had flourished under the administration and financial management of Tang Ting-shu, an able comprador, and were producing almost 500,000 tons per annum by the turn of the century.

However, the general manager position passed to an apparently less capable individual: Manchu bannerman and court insider Chang Yan-mao, who was unable to introduce needed capital for the mine from either domestic private or government sources....[After] 1895... Chang began an awkward flirtation with Bewick, Moreing to gain capital and some measure of security for the enterprise.... Hoover was dispatched to China in furtherance of this strategy.... [T]he Boxer Rebellion in 1900. Chang Yan-mao and Hoover were both in Tianjin during the siege.... Russian troops occupied the Kaiping fields, creating anxiety in Chang’s mind that the mines might be confiscated without compensation as a war reparation.

Chang decided that the enterprise had to be placed under the protection of a benign foreign power, namely Great Britain... Bewick, Moreing & Co.... would ensure that the interests of the existing stockholders and, not least of all, Chang Yan-mao himself, would be protected. Therefore, Chang hurriedly deeded over the entire enterprise to Hoover as trustee, contingent that the enterprise be recapitalized with an additional 1,000,000 pounds and reconstituted as a joint Sino-British enterprise.

If the story ended here, Hoover would have probably received a well-earned attaboy from history for realizing this once-in-a-lifetime opportunity so perspicaciously and resolutely.... The agreement that Hoover took to London defined him as trustee for a Kaiping enterprise whose assets and ownership should be converted directly into the new Sino-British company. This left no provision for “promotional fees”, the distribution of shares without compensation to middlemen such as the Bewick, Moreing partners, their friends, and associates in return for their efforts in midwifing the new corporation.

Hoover was thereupon sent back to obtain a revised agreement which listed Hoover as the agent of Bewick, Moreing lead principal C.A. Moreing, thereby freeing Hoover from sole and explicit duty as trustee to protect the interests of Kaiping, and allowing the transaction to be structured to include benefits for Moreing and other promoters. To obtain Chang’s agreement to this significant revision, Hoover concluded a side agreement with Chang defining the new company as a joint Sino-British enterprise with equal say in management, a China board and a London board. Again, this could be regarded as an understandable, if awkward measure to ensure that Bewick, Moreing (or at least its partners) received the incentive and reward necessary for lining up the financing for this new venture.

However, Hoover spent the next seven months in China... placing his people in key positions inside the enterprise and... consolidating foreign control of Kaiping in violation of the agreement. The fatal piece of overreach by Bewick, Moreing, however, was its disregard of the requirement that the enterprise be recapitalized.... Bewick, Moreing did not arrange any significant new equity for Kaiping. Instead, it burdened the new enterprise with new debt, in the form of 500,000 pounds of debentures bearing 6% interest. By 1902, widespread dissatisfaction among the original shareholders of Kaiping (who now included many foreigners) was reported.

Then... in November 1902, local Chinese managers raised the dragon flag... to honor the empress dowager’s birthday... foreign management... took down the Chinese flag.... This incident concentrated the baleful attention of Yuan Shih-kai, the major power not only in North China but in the empire by virtue of his command of the Beiyang Army and his position as commissioner for Chihli and Jehol.... Chang Yan-mao had tardily and incompletely memorialized the throne on the deal, the details of which, when they became known to Yuan Shih-kai, incensed him. Yuan demanded that Chang recover the properties for the empire. Remarkably, the throne accepted that the case be argued in the British courts.

The case went to trial in London in 1905 and apparently caused quite a sensation.... The trial revealed that the reconstitution of the company had left it gutted. Only 375,000 shares remained in the hands of the original shareholders. Most if not all of the balance of 625,000 shares had been distributed without compensation as promotional fees or as bonuses for the buyers of the new debentures.... The corporation, instead of being recapitalized, was encumbered with new debt. Little if any of the money from the debenture issue had actually reached Kaiping. On top of this, Hoover’s activities in violation of the joint management agreement he had concluded were fully aired, inc