668 FRANK H.H.KING and,finally,in 1911 after Hart's death,and with the collapse of the Customs Banks,the Foreign Inspectorate actually collected the revenue itself,depositing it initially with the Hongkong Bank, in accordance with recommendations from the Chinese Finance Minister.Earlier,and given the pressure to ensure debt repayment, the Chinese Government instructed Hart to take responsibility for the supervision of the native customs service in several ports.The creation of a Salt Gabelle with foreign direction seemed but a further development of an Imperialist plot.Certainly,as stated before, the Customs remained a department of the Chinese government, most obviously so after the 1905 edict,but parallel with its role in debt collection was the increase in foreign influence both on Hart's successors and on the Chinese government.The routine operations and their attendant benefits continued much as before,but at higher levels there were changes in relationships which reflected the strains resulting from the demands of the Boxer indemnity. Defining the Indemnity Amounts and interpretations The Boxer Indemnity was embodied in a Protocol agreed on 7 September 1901,following months of heated negotiations among the representatives of the Powers.That a unified demand was in the end found acceptable to all the Powers was a positive factor.The actual amount,Haikwan [Customs]Taels 450 million was at least twice that considered a maximum by Hart,who was caught by surprise.They were totals which,except for the British submission,seem not to have been verified as legitimate claims.And as China could neither pay the sum from its Treasury nor hope to raise a silver loan for this amount,their need to face the international loan market or to obtain an advance from each of the Powers would involve an exchange risk which China would have to bear and what would in turn result in a statement of this tael amount in gold at a fixed exchange rate.Since the Powers acknowledged China's inability to borrow in the market,they indeed, as Hart had advocated,advanced the sum required against Chinese 8 For the text of this and any agreement (through 1919)referred to in this paper,see Treaties and Agreements with and concerning China,1894-1919,ed.John V.A. MacMurray (New York,1921),2 vols
668 FRANK H. H. KING and, finally, in 1911 after Hart’s death, and with the collapse of the Customs Banks, the Foreign Inspectorate actually collected the revenue itself, depositing it initially with the Hongkong Bank, in accordance with recommendations from the Chinese Finance Minister. Earlier, and given the pressure to ensure debt repayment, the Chinese Government instructed Hart to take responsibility for the supervision of the native customs service in several ports. The creation of a Salt Gabelle with foreign direction seemed but a further development of an Imperialist plot. Certainly, as stated before, the Customs remained a department of the Chinese government, most obviously so after the 1905 edict, but parallel with its role in debt collection was the increase in foreign influence both on Hart’s successors and on the Chinese government. The routine operations and their attendant benefits continued much as before, but at higher levels there were changes in relationships which reflected the strains resulting from the demands of the Boxer indemnity. Defining the Indemnity Amounts and interpretations The Boxer Indemnity was embodied in a Protocol agreed on 7 September 1901, following months of heated negotiations among the representatives of the Powers.8 That a unified demand was in the end found acceptable to all the Powers was a positive factor. The actual amount, Haikwan [Customs] Taels 450 million was at least twice that considered a maximum by Hart, who was caught by surprise. They were totals which, except for the British submission, seem not to have been verified as legitimate claims. And as China could neither pay the sum from its Treasury nor hope to raise a silver loan for this amount, their need to face the international loan market or to obtain an advance from each of the Powers would involve an exchange risk which China would have to bear and what would in turn result in a statement of this tael amount in gold at a fixed exchange rate. Since the Powers acknowledged China’s inability to borrow in the market, they indeed, as Hart had advocated, advanced the sum required against Chinese 8 For the text of this and any agreement (through 1919) referred to in this paper, see Treaties and Agreements with and concerning China, 1894–1919, ed. John V. A. MacMurray (New York, 1921), 2 vols
THE BOXER INDEMNITY 669 government bonds at the rate of three shillings sterling for each tael or f67.5 million,thus confirming that the Indemnity advance was a gold obligation.Each Power was to determine the allocation of their particular share,taking into account the claims of their own nationals.The total sum,however,would prove to be in excess of actual proven claims and expenses,thus providing an argument for subsequent remission. This essay,therefore,is not so much about the Boxer Indemnity, which was met immediately by an advance from the Allies to China, as it is about the Boxer Indemnity advance by which the Indemnity was initially paid.Thus the question of whether China could pay the Indemnity is extended to determine whether China could in fact repay the advance on the terms stipulated.One might argue that China was never put fully to the test.The first payments were for interest only;secondly before the level of annual payments could reach their maximum,the question of remission was under consideration;thirdly, with war and revolution German and Russian portions,constituting some 50%of the total,were cancelled,while payments to the Allied Powers were in temporary suspense.But the remainder created problems enough. And one should note that,whatever criticism might be made of the Indemnity advance and its terms,this mode of disposing of the Indemnity was infinitely more satisfactory to China than the suggested alternatives of a public loan guaranteed by China with its necessarily higher real interest rate,or yet advances by governments negotiated separately,which would have subjected China to pressures from particular powers with particular although unrelated demands, as the course of negotiations for the 1904 MacKay treaty was to prove. The open market method had been used in the case of the Japanese Indemnity;payment was made with the proceeds of public loans issued by banks which,in most cases,had national political support and hence, in the event of default,political danger for China. Once the question of China's borrowing on the open market had been resolved in the negative,there followed a brief discussion as to whether,as Hart implied,the indemnity should be accepted as payable in instalments or whether the delay in payment could only be explained as a loan.Acceptance of the former concept might have led to the conclusion that as no loan were involved there was no question of interest.If,however,the 'delayed'payments were seen as repayment of an indemnity advance or loan from the Powers to China,then it was very likely that interest would be charged-as was indeed to be the
THE BOXER INDEMNITY 669 government bonds at the rate of three shillings sterling for each tael or £67.5 million, thus confirming that the Indemnity advance was a gold obligation. Each Power was to determine the allocation of their particular share, taking into account the claims of their own nationals. The total sum, however, would prove to be in excess of actual proven claims and expenses, thus providing an argument for subsequent remission. This essay, therefore, is not so much about the Boxer Indemnity, which was met immediately by an advance from the Allies to China, as it is about the Boxer Indemnity advance by which the Indemnity was initially paid. Thus the question of whether China could pay the Indemnity is extended to determine whether China could in fact repay the advance on the terms stipulated. One might argue that China was never put fully to the test. The first payments were for interest only; secondly before the level of annual payments could reach their maximum, the question of remission was under consideration; thirdly, with war and revolution German and Russian portions, constituting some 50% of the total, were cancelled, while payments to the Allied Powers were in temporary suspense. But the remainder created problems enough. And one should note that, whatever criticism might be made of the Indemnity advance and its terms, this mode of disposing of the Indemnity was infinitely more satisfactory to China than the suggested alternatives of a public loan guaranteed by China with its necessarily higher real interest rate, or yet advances by governments negotiated separately, which would have subjected China to pressures from particular powers with particular although unrelated demands, as the course of negotiations for the 1904 MacKay treaty was to prove. The open market method had been used in the case of the Japanese Indemnity; payment was made with the proceeds of public loans issued by banks which, in most cases, had national political support and hence, in the event of default, political danger for China. Once the question of China’s borrowing on the open market had been resolved in the negative, there followed a brief discussion as to whether, as Hart implied, the indemnity should be accepted as payable in instalments or whether the delay in payment could only be explained as a loan. Acceptance of the former concept might have led to the conclusion that as no loan were involved there was no question of interest. If, however, the ‘delayed’ payments were seen as repayment of an indemnity advance or loan from the Powers to China, then it was very likely that interest would be charged—as was indeed to be the
670 FRANK H.H.KING case.[Indemnity advance is quite reasonably referred to simply as the Boxer Indemnity and the term'Indemnity'in this paper should be so understood.] The Powers actually recognized that indeed China could not repay, certainly not from available revenues of the Imperial Maritime Customs.Therefore they agreed that administration of certain native customs would be undertaken by the IMC and,more importantly, that China's import duties,over which China itself had lost autonomy (another point of irritation),should be increased some 5%ad valorem, thus increasing revenue sufficiently-even before other sources of revenue developed with the hoped for improvement of the economy- for payments to be made as scheduled.In this sense part of the Indemnity was apparently paid by the Allies themselves,a judgement which depends on determination of the incidence of the import duties and the possibility that the Powers would in any case have eventually agreed to an increase in duties,that is,a recalculation permitting duties to rise to a level which would offset the depreciation of silver. This 'tariff reform'has a history separate from that of the indemnity; 'tariff autonomy,China's ultimate objective,was not being officially considered.9 The Allies further arranged that the advance should be repaid in five series,with the first requiring repayment of principal immediately,the others phasing in so that annual payments increased gradually from Protocol Taels'18.8 million in the years 1902 to 1910, reaching a maximum of Protocol Taels'35 million for the years 1932- 40.This was designed to take into account China's expected increased ability to pay,both through an increased revenue and through a pay- down of already existing government-guaranteed loans and Japanese indemnity payments.The day of heavy capital repayment had thus been delayed until,it was hoped,the Chinese economy would be better able to bear the burden.10 In this way,however,the Allies damaged their own economic plans for China and opened the way for a series of alternative arrangements which were to cause endless negotiations and eventual defaults. 9 The British actually vetoed a 10%increase on the grounds that British importers would be financing indemnity payments to other powers,including key trade rivals This argument is based on the predominance of British trade and the relatively low percentage (11.25%)of the Indemnity payable to Britain.The Chinese proposed a 33-3%increase.See British Parliamentary Papers,China No r(19o2). 10 To illustrate the complexity of the detail,interest was calculated from the date of the Protocol but not payable until 1 January 1go2;the arrears could be paid off over a period of 3 years but at 4%interest
670 FRANK H. H. KING case. [Indemnity advance is quite reasonably referred to simply as the Boxer Indemnity and the term ‘Indemnity’ in this paper should be so understood.] The Powers actually recognized that indeed China could not repay, certainly not from available revenues of the Imperial Maritime Customs. Therefore they agreed that administration of certain native customs would be undertaken by the IMC and, more importantly, that China’s import duties, over which China itself had lost autonomy (another point of irritation), should be increased some 5% ad valorem, thus increasing revenue sufficiently—even before other sources of revenue developed with the hoped for improvement of the economy— for payments to be made as scheduled. In this sense part of the Indemnity was apparently paid by the Allies themselves, a judgement which depends on determination of the incidence of the import duties and the possibility that the Powers would in any case have eventually agreed to an increase in duties, that is, a recalculation permitting duties to rise to a level which would offset the depreciation of silver. This ‘tariff reform’ has a history separate from that of the indemnity; ‘tariff autonomy’, China’s ultimate objective, was not being officially considered.9 The Allies further arranged that the advance should be repaid in five series, with the first requiring repayment of principal immediately, the others phasing in so that annual payments increased gradually from ‘Protocol Taels’ 18.8 million in the years 1902 to 1910, reaching a maximum of ‘Protocol Taels’ 35 million for the years 1932– 40. This was designed to take into account China’s expected increased ability to pay, both through an increased revenue and through a paydown of already existing government-guaranteed loans and Japanese indemnity payments. The day of heavy capital repayment had thus been delayed until, it was hoped, the Chinese economy would be better able to bear the burden.10 In this way, however, the Allies damaged their own economic plans for China and opened the way for a series of alternative arrangements which were to cause endless negotiations and eventual defaults. 9 The British actually vetoed a 10% increase on the grounds that British importers would be financing indemnity payments to other powers, including key trade rivals. This argument is based on the predominance of British trade and the relatively low percentage (11.25%) of the Indemnity payable to Britain. The Chinese proposed a 33.3% increase. See British Parliamentary Papers, China No 1 (1902). 10 To illustrate the complexity of the detail, interest was calculated from the date of the Protocol but not payable until 1 January 1902; the arrears could be paid off over a period of 3 years but at 4% interest
THE BOXER INDEMNITY 671 The fact is that indemnities,including the Japanese indemnity of Tls230 million,all of which were being paid by international loans, virtually exhausted China's credit-worthiness at just the time the Western powers had expected their citizens to make significant capital investment in China,including railways,based on recently acquired Treaty rights.China's early foreign loans had,for the most part,been secured nominally on the Customs revenue,but this security was now largely committed.Nevertheless the IMC revenues,less those already pledged but plus the proceeds from the additional 5%in the rate of duty,would be hypothecated;this amount was supplemented by a sort of miscellaneous shopping list including the revenues of the native customs under IMC control plus the revenues of the salt gabelle less sums already committed.I1 There were three consequences:first,new 'gold'project loans,where appropriate,were seen as having to be secured on the expected income of the project;secondly,alternative security followed the pattern of ad hoc collection of miscellaneous revenues less certain than those derived from the foreign supervised Imperial Maritime Customs;and,thirdly,pressure consequently mounted for further foreign control of revenue sources.Depending on revenues from the project naturally led foreigners to seek control,in a meaningful sense,of the entire project,thus aggravating the extra-territoriality problem and leading to opposition during the Rights Recovery movement. Problems ofcalculation and payment But how much was the Indemnity? The focus of the Protocol,and by focus'we mean quantity of detail,was on its Tael value.This was reasonable because the claims would be originally expressed in taels;the indemnity would be the sum of those tael values,in the event Haikwan [Customs]Taels Inominally'because the early loans,when authorized by the Tsungli Yamen,were sovereign risk loans and thus secured by the assets of the Empire;the reference to the Maritime Customs was a specific and measurable assurance to the lenders that at least this revenue existed and,since foreign administered,might actually be available for debt servicing.A rough modern credit card parallel:secure a hotel reservation on your credit card but,when paying the bill,pay cash or use a different credit card,a procedure which is not possible if the hotel has already deducted the sum from the original card
THE BOXER INDEMNITY 671 The fact is that indemnities, including the Japanese indemnity of Tls230 million, all of which were being paid by international loans, virtually exhausted China’s credit-worthiness at just the time the Western powers had expected their citizens to make significant capital investment in China, including railways, based on recently acquired Treaty rights. China’s early foreign loans had, for the most part, been secured nominally on the Customs revenue, but this security was now largely committed. Nevertheless the IMC revenues, less those already pledged but plus the proceeds from the additional 5% in the rate of duty, would be hypothecated; this amount was supplemented by a sort of miscellaneous shopping list including the revenues of the native customs under IMC control plus the revenues of the salt gabelle less sums already committed.11 There were three consequences: first, new ‘gold’ project loans, where appropriate, were seen as having to be secured on the expected income of the project; secondly, alternative security followed the pattern of ad hoc collection of miscellaneous revenues less certain than those derived from the foreign supervised Imperial Maritime Customs; and, thirdly, pressure consequently mounted for further foreign control of revenue sources. Depending on revenues from the project naturally led foreigners to seek control, in a meaningful sense, of the entire project, thus aggravating the extra-territoriality problem and leading to opposition during the Rights Recovery movement. Problems of calculation and payment But how much was the Indemnity? The focus of the Protocol, and by ‘focus’ we mean quantity of detail, was on its Tael value. This was reasonable because the claims would be originally expressed in taels; the indemnity would be the sum of those tael values, in the event Haikwan [Customs] Taels 11 ‘nominally’ because the early loans, when authorized by the Tsungli Yamen, were sovereign risk loans and thus secured by the assets of the Empire; the reference to the Maritime Customs was a specific and measurable assurance to the lenders that at least this revenue existed and, since foreign administered, might actually be available for debt servicing. A rough modern credit card parallel: secure a hotel reservation on your credit card but, when paying the bill, pay cash or use a different credit card, a procedure which is not possible if the hotel has already deducted the sum from the original card