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One of the two Presidents of China—it is unnecessary to specify which—recently stated that a renewal of the Anglo-Japanese alliance meant a partition of China. In this division, Japan would take the north and Great Britain the south. Probably the remark was not meant to be taken literally in the sense of formal conquest or annexation, but rather symbolically with reference to the tendency of policies and events. Even so, the statement will appear exaggerated or wild to persons outside of China, who either believe that the Open Door policy is now irrevocably established or that Japan is the only foreign Power which China has to fear. But a recent visit to the south revealed that in that section, especially in Canton, the British occupy much the same position of suspicion and dread which is held by the Japanese in the north.

Upon the negative side, the Japanese menace is negligible in the province of Kwantung, in which Canton is situated. There are said to be more Americans in Canton than Japanese, and the American colony is not extensive. Upon the positive side the history of the Cassell collieries contract is instructive. It illustrates the cause of the popular attitude toward the British, and quite possibly explains the bitterness in the remark quoted. The contract is noteworthy from whatever standpoint it is viewed, whether that of time, of the conditions it contains or of the circumstances which accompany it.

Premising that the contract delivers to a British company a monopoly of the rich coal deposits of the province for a period of ninety years and—quite incidentally of course—the right to use all means of transportation, water or rail, wharves and ports now in existence, and also to “construct, manage, superintend and work other roads, railways waterways as may be deemed advisable”—which reads like a monopoly of all further transportation facilities of the province—first take up the time of the making of the contract. It was drawn in April, 1920 and confirmed a few months later. It was made, of course, with the authorities of the Kwantung province, subject to confirmation at Peking. During this period, Kwantung province was governed by military carpet-baggers from the neighboring province of Kwangsei, which was practically alone of the southern provinces allied with the northern government, then under the control of the Anfu party. It was matter of common knowledge that the people of Canton and of the province were bitterly hostile to this outside control and submitted to it only because of military coercion. Civil strife for the expulsion of the outsiders was already going on, continually gaining headway, and a few months later the Kwangsei troops were defeated and expelled from the province by the forces of General Chen, now the civil governor of Kwantung, who received a triumphal ovation upon his entrance into Canton. At this time the present native government was established, a change which made possible the return of Sun Yat Sen and his followers from their exile in Shanghai. It is evident, then, that the collieries contract giving away the natural resources of the people of the province, was knowingly made by a British company with a government which no more represented the people of the province than the military government of Germany represented the people of Belgium during the war.

As to the terms of the contract, the statement that it gave the British company a monopoly of all the coal mines in the province, was not literally accurate. Verbally, twenty-two districts are enumerated. But these are the districts along the lines of the only railways in the province and the only ones soon to be built, including the as yet uncompleted Hankow-Canton railway. Possibly this fact accounts for the anxiety of the British partners in the Consortium that the completion of this line be the first undertaking financed by the Consortium. The document also includes what is perhaps a novelty in legal documents having such a momentous economic importance, namely, the words “etc.” after the districts enumerated by name.

For this concession, the British syndicate agreed to pay the provincial government the sum of $1,000,000 (silver of course). This million dollars is to bear six per cent interest to the company, and capital and interest are to be paid back to the company by the provincial government out of the dividends (if any) it is to receive. The nature of these “dividends” is set forth in an article which should receive the careful attention of promoters elsewhere as a model of the possibilities of exploiting contracts. The ten million capital is divided equally into “A” shares and “B” shares. The “A” shares go unreservedly to the directors of the company, and three millions of the “B” shares are to be allotted by the directors of the company at their discretion. The other two million are again divided into equal portions, one portion representing the sum advanced by the company to the province and to be paid back as just specified, while the other million—one-tenth of the capitalization—is to be a trust fund the dividends of which are to go for the “benefit of the poor people of the province” and for an educational fund for the province. But before any dividends are paid upon the “B” shares, eight per cent dividends are to be paid upon the “A” shares and a dollar a ton royalty upon all coal mined. Those having any familiarity with the coal business with its usual royalty of about ten cents a ton can easily calculate the splendid prospects of the “poor people” and the schools, prospects which represent the total return to the provinces of a concession of untold worth. The contract also guarantees to the company the assistance of the provincial government in expropriating the owners of all coal mines which have been granted to other companies but not yet worked. These technical details make dry reading, but they throw light upon the spirit with which the British company undertook its predatory negotiations with a government renounced by the people it professed to govern. In comparison with the relatively crude methods of Japan in Shantung, they show the advantages of wide business experience.

As for the circumstances and context which give added menace to the contract, the following facts are significant. Hong Kong, a British crown colony, lies directly opposite the river upon which Canton is situated. It is the port of export and import for the vast districts served by the mines and railways of the province. It is unnecessary to point out the hold upon all economic development which is given through a monopolistic control of coal. It is hardly too much to say that the enforcement of the contract would enable British interests in Hong Kong to control the entire industrial development of the most flourishing of the provinces of China. It would be a comparatively easy and inexpensive matter to provide the main land with a first class modern harbor and port near Canton. But such a port would tend to reduce the assets of Hong Kong to the possession of the most beautiful scenery in the world. There is already fear that a new harbor will be built. Many persons think that the concession of building such railways etc., “as are deemed advisable for the purpose of the business of the company and to improve those now existing” is the object of the contract, even more than the coal monopoly. For the British already own a considerable part of the mainland, including part of the railway connecting the littoral with Canton. By building a cross-cut from the British owned portion of this railway to the Hankow-Canton line, the latter would become virtually the Hankow-Hong Kong line, and Canton would be a way-station. With the advantages thus secured, the project for building a new port could be indefinitely blocked.

During the period in which the contract was being secured, a congress of British Chambers of Commerce was held in Shanghai. Resolutions were passed in favor of abolishing henceforth the whole principle of special nationalistic concessions, and of cooperating with the Chinese for the upbuilding of China. At the close of the meeting the Chairman announced that a new era for China had finally dawned. All of the British newspapers in China lauded the wise action of the Chambers. At the same time, Mr. Lamont was in Peking, and was setting forth that the object of the Consortium was the abolition of further concessions, and the uniting of the financial resources of the banks in the Consortium for the economic development of China itself. By an ironical coincidence, the Hong Kong-Shanghai Bank, which is the financial power behind the contract and the new company, is the leading British partner in the Consortium. It is difficult to see how the British can henceforth accuse the Japanese of bad faith if any of the banking interests of that country should enter upon independent negotiations with any government in China.

By the time the scene of action was transferred to Peking in order to secure the confirmation of the central government, the Anfu regime was no more, and as yet no confirmation has been secured. The new government at Canton has declined to recognize the contract as having any validity. An official of the Hong Kong government has told an official of the Canton government that the Hong Kong government stands behind the enforcement of the contract, and that Kwantung province is a British Hinterland. Within the last few weeks the Governor of Hong Kong and a leading Chinese banker of Hong Kong who is a British subject have visited Peking. Rumors were rife in the south as to the object of the visit. British sources published the report that one object was to return Weihaiwei to China—in case Peking agreed to turn over more of the Kwantung mainland to Hong Kong as a quid pro quo. Chinese opinion in the south was that one main object was to secure the Peking confirmation of the Cassell contract, in which case $900,000 more would be forthcoming, $100,000 having been paid down when the contract was signed with the provincial government. Peking does not recognize the present Canton government but regards it as an outlaw. The crowd that signed the contract is still in control of the neighboring province of Kwangsei and they are relied upon by the north to effect the military subjugation of the seceded province. Fighting has already, indeed, begun, but the Kwangsei militarists are badly in need of money; if Peking ratifies the contract, a large part of the funds will be paid over to them—all that isn’t lost by the wayside to the northern militarists.1 Meantime British news agencies keep up a constant circulation of reports tending to discredit the Kwantung government, although all impartial observers on the spot regard it as altogether the most promising one in China.

These considerations not only throw light on some of the difficulties of the functioning of the Consortium, but they give an indispensable background for judging the actual effect of the renewal of the Anglo-Japanese alliance. By force of circumstances each government, even against its own wish, will be compelled to wink at the predatory policies of the other; and the tendency will be to create a division of spheres of influence between the north and south in order to avoid more direct conflicts. The English liberals who stand for the renewal of the alliance on the ground that it will enable England to exercise a check on Japanese policies, are more naïve than was Mr. Wilson with his belief in the separation of the economic and political control of Shantung.

It cannot be too often repeated that the real point of friction between the United States and Japan is not in California but in China. It is silly—unless it is calculated—for English authorities to keep repeating that under no circumstances does the alliance mean that Great Britain would support Japan in a war with the United States. The day the alliance is renewed, the hands of the militarists in Japan will be strengthened and the hands of the liberals—already weak enough—be still further weakened. In consequence, all the sources of friction in China between the United States and Japan will be intensified. I do not believe in the predicted war. But should it come, the first act of Japan—so everyone in China believes—will be to seize the ports of northern China and its railways in order to make sure of an uninterrupted supply of food and raw materials. The act would be justified as necessary to national existence. Great Britain in alliance with Japan would be in no position to protest in anything but the most perfunctory way. The guarantee of such abstinence would be for Japan the next best thing to open naval and financial support. Without the guarantee they would not dare the seizure of Chinese ports. In recent years diplomatists have shown themselves capable of unlimited stupidity. But it is not possible that the men in the British Foreign Office are not aware of these elementary facts. If they renew the alliance they knowingly take the responsibility for the consequences.

May 24, 1921.