Modern Asian Studies 40,3(2006)pp.663-689.2006 Cambridge University Press doi:10.1017/S0026749X06002071 Printed in the United Kingdom The Boxer Indemnity-Nothing but Bad FRANK H.H.KING University of Hong Kong There was nothing unusual in an indemnity perse.Indeed,an indemnity could be seen as a forward step in European civilization,replacing the regime of indiscriminate plunder which preceded it-although it could equally be argued that in their pacification of north China following the razing of the Siege of the Legations in 1goo the Allies,through their looting of the Tientsin and Peking areas in disregard of recently agreed definitions,had acquired both indemnity and plunder.2 Indeed the chaos was such that among the first financial and contradictory consequences of the post-Boxer period was Sir Robert Hart's successful arrangement with the Hongkong and Shanghai Banking Corporation of a loan of Ts1o,ooo a month for the chief Chinese negotiator, Prince Ch'ing [I-K'uang],on the one hand,while in Shansi the Protestant Church refused to accept any indemnity for the Christian lives lost;consequently the authorities voluntarily agreed to establish a University on Western lines,to be maintained by the authorities, and to operate under joint control for ten years at the annual cost of Ts50,000.3 1 Sir Robert Hart,Inspector-General of the Chinese Imperial Maritime Customs, to James Duncan Campbell(1833-1907),Hart's London manager,referring to both the gold nature of the indemnity and to its size:The future looks very dark indeed and I fear nothing but bad will result.'Postscript to letter 3068,dated 17.July 19o2, in Confidential Correspondence between Robert Hart and James Duncan Campbell,1874-1907, Chen Xiafei and Han Rongfang,chief eds(Beijing:Foreign Languages Press,1993), IIL.This paper was originally designed for the conference on the Boxer Uprising,held in SOAS in 2001,and rightly considered the indemnity as a heritage of the Boxer Uprising'. 2 E.g.,James L.Hevia,Plundering Beijing,1900-1',or as Robert Collins,cor- respondent for the Associated Press,who witnessed the events,cabled New York,'the forces of civilized Powers were engaged in an unbelievable plundering of the region.' This essay is written with memories of an old man wasting away in a Southampton nursing home and of a little boy who sat with him. 3 Prince Ch'ing (I-K'uang or Yi Kuang)referred to in Sir Robert Hart to J.C. Campbell,letter 2897 dated 12 September 1goo,in Confidential Correspondence,III, 502.The loan was arranged,on the recommendation of Hart,with J.K.Tweed of the 0026-749X/o6/87-50+$0.10 663
Modern Asian Studies 40, 3 (2006) pp. 663–689. C 2006 Cambridge University Press doi:10.1017/S0026749X06002071 Printed in the United Kingdom The Boxer Indemnity—‘Nothing but Bad’1 FRANK H. H. KING University of Hong Kong There was nothing unusual in an indemnity per se. Indeed, an indemnity could be seen as a forward step in European civilization, replacing the regime of indiscriminate plunder which preceded it—although it could equally be argued that in their pacification of north China following the razing of the Siege of the Legations in 1900 the Allies, through their looting of the Tientsin and Peking areas in disregard of recently agreed definitions, had acquired both indemnity and plunder.2 Indeed the chaos was such that among the first financial and contradictory consequences of the post-Boxer period was Sir Robert Hart’s successful arrangement with the Hongkong and Shanghai Banking Corporation of a loan of Ts10,000 a month for the chief Chinese negotiator, Prince Ch’ing [I-K’uang], on the one hand, while in Shansi the Protestant Church refused to accept any indemnity for the Christian lives lost; consequently the authorities voluntarily agreed to establish a University on Western lines, to be maintained by the authorities, and to operate under joint control for ten years at the annual cost of Ts 50,000. 3 1 Sir Robert Hart, Inspector-General of the Chinese Imperial Maritime Customs, to James Duncan Campbell (1833–1907), Hart’s London manager, referring to both the gold nature of the indemnity and to its size: ‘The future looks very dark indeed and I fear nothing but bad will result.’ Postscript to letter 3068, dated 17 July 1902, in Confidential Correspondence between Robert Hart and James Duncan Campbell, 1874–1907, Chen Xiafei and Han Rongfang, chief eds (Beijing: Foreign Languages Press, 1993), III. This paper was originally designed for the conference on the Boxer Uprising, held in SOAS in 2001, and rightly considered the indemnity as a ‘heritage of the Boxer Uprising’. 2 E.g., James L. Hevia, ‘Plundering Beijing, 1900–1’, or as Robert Collins, correspondent for the Associated Press, who witnessed the events, cabled New York, ‘the forces of civilized Powers were engaged in an unbelievable plundering of the region.’ This essay is written with memories of an old man wasting away in a Southampton nursing home and of a little boy who sat with him. 3 Prince Ch’ing (I-K’uang or Yi Kuang) referred to in Sir Robert Hart to J. C. Campbell, letter 2897 dated 12 September 1900, in Confidential Correspondence, III, 502. The loan was arranged, on the recommendation of Hart, with J. K. Tweed of the 0026–749X/06/$7.50+$0.10 663
664 FRANK H.H.KING The indemnity set by the victors following the Boxer Uprising and the relief of the Peking legations had peculiar features,including complexity,a self-defeating economic impact,a continuing diplomatic and political nuisance value,and unexpected innovations which would create confusion and paradox.Negotiations relative to the Indemnity continued into the immediate post World War II period and ended only with the establishment of the People's Republic in 1949. The specifics of indemnity payment problems have been authoritatively covered by Wright and Cubbon in their official study of customs revenues.This paper provides examples of these specifics in order to rationalize and categorize their history.Not all Hart's determination could prevent the almost fifty-year history of arcane negotiations and abrasive diplomatic annoyances which affected so many aspects of relations between the several Powers and China. Payments consequent to an indemnity set in anger had still to be managed when memories of atrocities had faded and other priorities should have taken precedence,noting especially China's policy of rights recovery with which the Powers were nominally and from time to time in sympathy. Sir Robert Hart played a role throughout the initial stages.Before there could be consideration of an indemnity as recompense for the outrages'during the Boxer Uprising,the Powers had to agree that China would not be divided between them and that its imperial Ch'ing [Qing]government should be considered sovereign.From this it followed that retribution would take the usual form of an indemnity, with this peculiar feature:China was obviously unable to pay any sum likely to be demanded or even to service any open market loan taken in consequence.On the sovereignty decision,Hart's immediate initial contacts with all parties and his influential essays collected as These from the land of Sinim were key to a temperate conclusion;his efforts to minimize China's economic burden,that is,the amount of the indemnity,were unsuccessful,although he was able to assist China Hongkong Bank,see Frank H.H.King,The History of The Hongkong and Shanghai Banking Corporation(Cambridge:Cambridge University Press,1988),II,317;for the Shansi story,see Boxerism,retribution',in Samuel Couling,Encyclopaedia Sinica (Shanghai: Kelly and Walsh,1917),p.63.The Hongkong Bank is today a wholly owned subsidiary of the London-based HSBC Holdings,plc.All companies of this holding company or group now trade under the name HSBC'. +Stanley F.Wright,China's Customs Revenue since the Revolution of 19I1.Revised and enlarged with the assistance of John H.Cubbon,China:Maritime Customs,II Special Series No.41,Shanghai 1935.See esp.pp.169-230
664 FRANK H. H. KING The indemnity set by the victors following the Boxer Uprising and the relief of the Peking legations had peculiar features, including complexity, a self-defeating economic impact, a continuing diplomatic and political nuisance value, and unexpected innovations which would create confusion and paradox. Negotiations relative to the Indemnity continued into the immediate post World War II period and ended only with the establishment of the People’s Republic in 1949. The specifics of indemnity payment problems have been authoritatively covered by Wright and Cubbon in their official study of customs revenues.4 This paper provides examples of these specifics in order to rationalize and categorize their history. Not all Hart’s determination could prevent the almost fifty-year history of arcane negotiations and abrasive diplomatic annoyances which affected so many aspects of relations between the several Powers and China. Payments consequent to an indemnity set in anger had still to be managed when memories of atrocities had faded and other priorities should have taken precedence, noting especially China’s policy of rights recovery with which the Powers were nominally and from time to time in sympathy. Sir Robert Hart played a role throughout the initial stages. Before there could be consideration of an indemnity as recompense for the ‘outrages’ during the Boxer Uprising, the Powers had to agree that China would not be divided between them and that its imperial Ch’ing [Qing] government should be considered sovereign. From this it followed that retribution would take the usual form of an indemnity, with this peculiar feature: China was obviously unable to pay any sum likely to be demanded or even to service any open market loan taken in consequence. On the sovereignty decision, Hart’s immediate initial contacts with all parties and his influential essays collected as These from the land of Sinim were key to a temperate conclusion; his efforts to minimize China’s economic burden, that is, the amount of the indemnity, were unsuccessful, although he was able to assist China Hongkong Bank, see Frank H. H. King, The History of The Hongkong and Shanghai Banking Corporation (Cambridge: Cambridge University Press, 1988), II, 317; for the Shansi story, see ‘Boxerism, retribution’, in Samuel Couling, Encyclopaedia Sinica (Shanghai: Kelly and Walsh, 1917), p. 63. The Hongkong Bank is today a wholly owned subsidiary of the London-based HSBC Holdings, plc. All companies of this holding company or group now trade under the name ‘HSBC’. 4 Stanley F. Wright, China’s Customs Revenue since the Revolution of 1911. Revised and enlarged with the assistance of John H. Cubbon, China: Maritime Customs, II Special Series No. 41, Shanghai 1935. See esp. pp. 169–230
THE BOXER INDEMNITY 665 even in this extremity by his continued advocacy of tariff reform and through the role played by the Maritime Customs in the collection of duties. Although the history of the Indemnity is best told in a roughly chronological sequence,the types of problem created can be categorized:first,as noted,the undue size determined in anger and mitigated at leisure over the next thirty-five years;secondly, the method of payment including discussion of the very meaning of the unit in which the Indemnity was denominated;thirdly, the uses and control of the remitted portions;and,fourthly,the capitalization of expected income flows through new loans for doubtful purposes and the consequent by-passing of the international controls through which China's credit-worthiness was to be preserved.Each of these dominated,with overlaps,particular periods in China's post-Boxer history,thus enabling a return to the chronological approach. The Indemnity,the Customs,and Hart's heritage6 An observer in,say,1911 surveying the role of the Maritime Customs could claim,not without reasons,it had become primarily a debt collection agency for foreign creditors. The Foreign Inspectorate of the Chinese Maritime Customs was and remained a department of the Chinese Government,but after the imposition of the Boxer Indemnity Chinese perception of that body quite naturally changed.The Inspectorate itself had changed. The hopes that Hart entertained for its role in the modernization of China had virtually ended.Unfairly,Hart's role as disinterested adviser became tainted in retrospect. A change had indeed occurred.How this came about could not have been foreseen.How a service which did so much to regularize at least one major aspect of imperial China's muddled tax system could become de facto the collector of funds to pay international loans arising from war indemnities is an unhappy story.Although many factors and events were involved,it was the Boxer Indemnity which tipped the 5 These from the Land of Sinim,Essays on the Chinese Question (London,and 2nd impression with additional chapter 1gos).For an account of Hart's role in the early post-Boxer negotiations,see my essay Sealing the mouth ofoutrage'in this collection. 6 This section is taken from my paper Robert Hart and China',presented at the Hart Workshop,The Queen's University,Belfast,27 September 2003
THE BOXER INDEMNITY 665 even in this extremity by his continued advocacy of tariff reform and through the role played by the Maritime Customs in the collection of duties.5 Although the history of the Indemnity is best told in a roughly chronological sequence, the types of problem created can be categorized: first, as noted, the undue size determined in anger and mitigated at leisure over the next thirty-five years; secondly, the method of payment including discussion of the very meaning of the unit in which the Indemnity was denominated; thirdly, the uses and control of the remitted portions; and, fourthly, the capitalization of expected income flows through new loans for doubtful purposes and the consequent by-passing of the international controls through which China’s credit-worthiness was to be preserved. Each of these dominated, with overlaps, particular periods in China’s post-Boxer history, thus enabling a return to the chronological approach. The Indemnity, the Customs, and Hart’s heritage6 An observer in, say, 1911 surveying the role of the Maritime Customs could claim, not without reasons, it had become primarily a debt collection agency for foreign creditors. The Foreign Inspectorate of the Chinese Maritime Customs was and remained a department of the Chinese Government, but after the imposition of the Boxer Indemnity Chinese perception of that body quite naturally changed. The Inspectorate itself had changed. The hopes that Hart entertained for its role in the modernization of China had virtually ended. Unfairly, Hart’s role as disinterested adviser became tainted in retrospect. A change had indeed occurred. How this came about could not have been foreseen. How a service which did so much to regularize at least one major aspect of imperial China’s muddled tax system could become de facto the collector of funds to pay international loans arising from war indemnities is an unhappy story. Although many factors and events were involved, it was the Boxer Indemnity which tipped the 5 These from the Land of Sinim, Essays on the Chinese Question (London, 1901 and 2nd impression with additional chapter 1903). For an account of Hart’s role in the early post-Boxer negotiations, see my essay ‘Sealing the mouth of outrage’ in this collection. 6 This section is taken from my paper ‘Robert Hart and China’, presented at the Hart Workshop, The Queen’s University, Belfast, 27 September 2003
666 FRANK H.H.KING balance.While this does not touch Hart's intentions or integrity,the change and the role of the indemnity need to be studied if criticism of Hart's customs service and indeed of Hart himself is to be under- stood. Certainly in the mid-nineteenth century provincial officials were in need of temporary funding,usually for non-productive purposes,and they learned that borrowing domestically was not always possible.But borrowing from foreigners could involve the provincial governor in the complexities of the Treaty System,thus drawing the attention of the imperial government in Peking.The financial demands of major internal disturbances and the Sino-French conflict of 1874 were sufficient to force the Chinese to consider issuing public loans through the agency of foreign banks,primarily the Hongkong and Shanghai Banking Corporation.Potential subscribers to such loans either knew nothing of China's resources or,on the other hand,knew too much.In both cases the question of security arose,and the Customs revenues appeared an obvious answer.Since Hart did not allow his local commissioners on their own authority to pledge local port revenues as security in foreign loan agreements,his approval had to be obtained. But Hart acted only on instructions from the Tsungli Yamen,the imperial government's foreign affairs bureau.Consequently,Chinese provincial authorities had first to obtain imperial approval in Peking. Then,with the appropriate edict issued and communicated to Hart through the Chinese authorities,the foreign inspectorate could take note of and act upon the security arrangements. This relatively protracted procedure would enable the merits of the loan to be more carefully examined.In this way China could preserve its credit-worthiness while confirming that Customs revenues would be offered as security only with central government approval.Hart indeed hoped for more.At the least he wished for the Inspectorate-General to become a clearing house for China's foreign borrowing;beyond that he hoped to be in charge of negotiations.Neither expectation was fulfilled;only in 1894 were the negotiations in his hands,and then but briefly. That the customs revenues were to play such a key role in foreign borrowing was at first glance surprising.As Hart argued,an imperial edict made the loan a sovereign risk loan,the resources of the Empire were pledged.However,foreigners did not know what those resources were or how to obtain them in case of default.The revenue from the Maritime Customs on the other hand was clearly defined and accurately reported by the foreign inspectorate
666 FRANK H. H. KING balance. While this does not touch Hart’s intentions or integrity, the change and the role of the indemnity need to be studied if criticism of Hart’s customs service and indeed of Hart himself is to be understood. Certainly in the mid-nineteenth century provincial officials were in need of temporary funding, usually for non-productive purposes, and they learned that borrowing domestically was not always possible. But borrowing from foreigners could involve the provincial governor in the complexities of the Treaty System, thus drawing the attention of the imperial government in Peking. The financial demands of major internal disturbances and the Sino-French conflict of 1874 were sufficient to force the Chinese to consider issuing public loans through the agency of foreign banks, primarily the Hongkong and Shanghai Banking Corporation. Potential subscribers to such loans either knew nothing of China’s resources or, on the other hand, knew too much. In both cases the question of security arose, and the Customs revenues appeared an obvious answer. Since Hart did not allow his local commissioners on their own authority to pledge local port revenues as security in foreign loan agreements, his approval had to be obtained. But Hart acted only on instructions from the Tsungli Yamen, the imperial government’s foreign affairs bureau. Consequently, Chinese provincial authorities had first to obtain imperial approval in Peking. Then, with the appropriate edict issued and communicated to Hart through the Chinese authorities, the foreign inspectorate could take note of and act upon the security arrangements. This relatively protracted procedure would enable the merits of the loan to be more carefully examined. In this way China could preserve its credit-worthiness while confirming that Customs revenues would be offered as security only with central government approval. Hart indeed hoped for more. At the least he wished for the Inspectorate-General to become a clearing house for China’s foreign borrowing; beyond that he hoped to be in charge of negotiations. Neither expectation was fulfilled; only in 1894 were the negotiations in his hands, and then but briefly. That the customs revenues were to play such a key role in foreign borrowing was at first glance surprising. As Hart argued, an imperial edict made the loan a sovereign risk loan, the resources of the Empire were pledged. However, foreigners did not know what those resources were or how to obtain them in case of default. The revenue from the Maritime Customs on the other hand was clearly defined and accurately reported by the foreign inspectorate
THE BOXER INDEMNITY 667 Logical as all this may seem,there was a flaw.The foreign inspectorate did not actually handle the revenues,not at least in Hart's lifetime.Nor were loans secured on the customs revenues necessarily repaid from customs revenues.The foreign inspectorate's and Hart's actual interference in the process of debt servicing was minimal and politically tolerable. Until China faced the need to finance the first Sino-Japanese War and the subsequent Indemnity,the fact that customs revenues were not limitless did not seem relevant.For the Indemnity China faced borrowings of f32 million;the largest previous loan had been some E3 million.This was at a time when silver,the standard for China's currency,was depreciating (16%between 1896 and 1898).When the smaller loans were totalled and the potential burden of the new borrowing considered,security for the loans had to be formalized.The first step was to list the loans in order of priority of payment,an obvious necessity but one which focused international attention on the foreign inspectorate. In 1895 Russia,Germany,and,of course,France not only demanded the right to become agents for a major indemnity loan(in view of their role in convincing Japan to retrocede China's Liaotung Peninsula)but also insisted on international control of the Maritime Customs.Britain successfully intervened.The service remained Chinese. But Hart was,over his strong objections,undermined by the British Government,which,firstly,insisted that Hart's successor should also be British so long as British trade with China predominated,and, secondly,that the structure and management of the Customs service should remain unchanged during the 36-year life of a particularly large,projected loan,to be issued and subscribed to in London.These provisions,accepted by China,made it impossible for the Powers to force the internationalization of the Customs without Britain's agreement.On the other hand,the provisions prevented China from exercising sovereign control,although when in 1905 an Imperial Edict did make a potentially significant change in the status of the service, the foreigners questioned and argued,but they were,in any practical sense,powerless.7 The Customs,through its role in providing security for foreign loans,was becoming in stages,a debt collection agency.First,the revenue liabilities were formalized,secondly they were hypothecated 7See Frank H.H.King,The Hongkong Bank in the Period of Imperialism and War1895- 1918,The History of the Hongkong and Shanghai Banking Corporation,II,349-50
THE BOXER INDEMNITY 667 Logical as all this may seem, there was a flaw. The foreign inspectorate did not actually handle the revenues, not at least in Hart’s lifetime. Nor were loans secured on the customs revenues necessarily repaid from customs revenues. The foreign inspectorate’s and Hart’s actual interference in the process of debt servicing was minimal and politically tolerable. Until China faced the need to finance the first Sino-Japanese War and the subsequent Indemnity, the fact that customs revenues were not limitless did not seem relevant. For the Indemnity China faced borrowings of £32 million; the largest previous loan had been some £3 million. This was at a time when silver, the standard for China’s currency, was depreciating (16% between 1896 and 1898). When the smaller loans were totalled and the potential burden of the new borrowing considered, security for the loans had to be formalized. The first step was to list the loans in order of priority of payment, an obvious necessity but one which focused international attention on the foreign inspectorate. In 1895 Russia, Germany, and, of course, France not only demanded the right to become agents for a major indemnity loan (in view of their role in convincing Japan to retrocede China’s Liaotung Peninsula) but also insisted on international control of the Maritime Customs. Britain successfully intervened. The service remained Chinese. But Hart was, over his strong objections, undermined by the British Government, which, firstly, insisted that Hart’s successor should also be British so long as British trade with China predominated, and, secondly, that the structure and management of the Customs service should remain unchanged during the 36-year life of a particularly large, projected loan, to be issued and subscribed to in London. These provisions, accepted by China, made it impossible for the Powers to force the internationalization of the Customs without Britain’s agreement. On the other hand, the provisions prevented China from exercising sovereign control, although when in 1905 an Imperial Edict did make a potentially significant change in the status of the service, the foreigners questioned and argued, but they were, in any practical sense, powerless.7 The Customs, through its role in providing security for foreign loans, was becoming in stages, a debt collection agency. First, the revenue liabilities were formalized, secondly they were hypothecated 7 See Frank H. H. King, The Hongkong Bank in the Period of Imperialism and War1895– 1918, The History of the Hongkong and Shanghai Banking Corporation, II, 349–50
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
672 FRANK H.H.KING 450 million.This imaginary unit ofaccount could be translated at the fixed rate of HKTs100.00=ShTs111.4 into Shanghai taels for which rates of exchange were readily available,either directly or through the use of cross-rates.The stress on the tael,a silver unit of account, deceived some,including US Secretary of State John Hay and the Chinese authorities in Shanghai,into interpreting the Indemnity as a silver debt,thereby ignoring completely the clearly but briefly stated provision that the Indemnity was a gold debt;the tael value,based on a rate of three shillings sterling,had been provided for internal purposes only.13 Hart himself,when first writing on China's ability to pay,assumed that payment would be expressed in a silver unit of account,but he subsequently acknowledged that the Powers had determined otherwise.14Indeed,to avoid confusion the term Protocol Tael',defined as a gold unit of account equivalent to a Haikwan Tael at the fixed rate of three shillings per tael,came into use.15 Thus Protocol Taels 450 million were equivalent to f67.5 million,the real value of the Indemnity.16 Or was it? One could argue that,as the interest rate,set at 4%,was below mar- ket rate (especially since the advance would be made at 1o0),the real value to the Powers was slightly lower.Alternatively,one could argue that the Ts450 million constituted only the principal,contending that one had to add total interest payments to this sum to determine the real amount of the indemnity.Indeed,if local indemnities were also 12 For an explanation of the Chinese monetary system and the terms employed, see my summary in The Hongkong Bank in Late Imperial China,1864-19o2,The History of the Hongkong and Shanghai Banking Corporation,I,35-40. 13 John Hay to Ambassador Conger,U.S.Minister to China,cited in Confidential Correspondence,IV,461,note to letter 3122 (1903). 1+Hart to J.D.Campbell,letter 3068 dated 13 July 1902,in Confidential Correspondence,III,658-9. 15 The rate was not arbitrary'on the date of the Protocol;it was the effective market rate.However,the Protocol Tael/sterling rate remained fixed as the market fluctuated,which is why the Protocol Tael is a gold unit of account.This may be compared conceptually with the later Customs Gold Unit.Sir Robert Hart proposed a rate of exchange equivalent to that before the depreciation of silver,say 6s8d,but this would have been difficult to justify on any rational basis-except,perhaps,the economic health of China. 16 In perhaps his earliest estimate,Hart considered 5o million(but at the higher exchange rate)to be a practical maximum.Hart to Campbell,letter 2912,dated November 19oo,in Confidential Correspondence,I,513
672 FRANK H. H. KING 450 million.12 This imaginary unit of account could be translated at the fixed rate of HKTs100.00 = ShTs111.4 into Shanghai taels for which rates of exchange were readily available, either directly or through the use of cross-rates. The stress on the tael, a silver unit of account, deceived some, including US Secretary of State John Hay and the Chinese authorities in Shanghai, into interpreting the Indemnity as a silver debt, thereby ignoring completely the clearly but briefly stated provision that the Indemnity was a gold debt; the tael value, based on a rate of three shillings sterling, had been provided for internal purposes only.13 Hart himself, when first writing on China’s ability to pay, assumed that payment would be expressed in a silver unit of account, but he subsequently acknowledged that the Powers had determined otherwise.14 Indeed, to avoid confusion the term ‘Protocol Tael’, defined as a gold unit of account equivalent to a Haikwan Tael at the fixed rate of three shillings per tael, came into use.15 Thus Protocol Taels 450 million were equivalent to £67.5 million, the real value of the Indemnity.16 Or was it? One could argue that, as the interest rate, set at 4%, was below market rate (especially since the advance would be made at 100), the real value to the Powers was slightly lower. Alternatively, one could argue that the Ts450 million constituted only the principal, contending that one had to add total interest payments to this sum to determine the real amount of the indemnity. Indeed, if local indemnities were also 12 For an explanation of the Chinese monetary system and the terms employed, see my summary in The Hongkong Bank in Late Imperial China, 1864–1902, The History of the Hongkong and Shanghai Banking Corporation, I, 35–40. 13 John Hay to Ambassador Conger, U. S. Minister to China, cited in Confidential Correspondence, IV, 461, note to letter 3122 (1903). 14 Hart to J. D. Campbell, letter 3068 dated 13 July 1902, in Confidential Correspondence, III, 658–9. 15 The rate was not ‘arbitrary’ on the date of the Protocol; it was the effective market rate. However, the Protocol Tael/sterling rate remained fixed as the market fluctuated, which is why the Protocol Tael is a gold unit of account. This may be compared conceptually with the later Customs Gold Unit. Sir Robert Hart proposed a rate of exchange equivalent to that before the depreciation of silver, say 6s8d, but this would have been difficult to justify on any rational basis—except, perhaps, the economic health of China. 16 In perhaps his earliest estimate, Hart considered £50 million (but at the higher exchange rate) to be a practical maximum. Hart to Campbell, letter 2912, dated 1 November 1900, in Confidential Correspondence, III, 513