The degree of foreign control of a given industry was slightly from Ch.$271.8 million to $293.4 million),holdings determined above all by the relationship of the industry to of foreign banks fell from Ch.$275.7 million to $42.7 foreign trade.A mercantile mentality dominated the treaty million-less than 1/6 their original level.As one author put it, ports of China,so that foreigners invested in areas which served "Financiers and speculators in China found it more profitable to increase the trade of China with their home country.Thus to export silver as a commodity than to use it in China as in 1936,16.8%of all foreign investment was directly in the capital."39 In the credit contraction which resulted,24 of 92 import-export trade,20.5%in the banking and finance Chinese textile mills suspended operations,40 and many firms institutions which served that trade,25.0%in transport,9.0% were forced to sell out to Japanese business interests.4 in treaty port real estate,5.1%in communications(telephone In general,foreign financial interests loaned substantial and telegraph)and public utilities,all largely for the benefit of sums to Chinese business enterprises only when their object the treaty port population,and only 19.6% in was to gain control of the enterprise.Such was the case with manufacturing. Even within that manufacturing total,some Japanese loans to the Hanyehping Coal and Iron Company in of the most important enterprises were closely linked to the early twentieth century.By 1915 and the Twenty One foreign trade.Cigarette production,for example,was 63.3% Demands,Japan was in a sufficiently strong position to foreign,and led to substantial imports of American tobacco. demand control of the company,which ultimately produced As one American commercial attache boasted:"With exclusively for the use of Japan's domestic steel industry.42 American salesmanship and American initiative it became The experience of the Kaiping coal mines was not so very possible to convert a tobacco producing and exporting nation different,except that even after substantial foreign loans in into one of the leading importers and consumers of American the 1890s,Herbert Hoover and his British employers were still tobacco products."33 obliged to engage in a great deal of legal finagling to capture Foreign investment's ancillary role to foreign trade led control of the Chinese company during the Boxer to a degree of geographic concentration which was clearly disturbance.43 inimical to the best interests of China's balanced economic Though much evidence has recently been marshalled in development.In 1931,76.6%of all foreign capital in China support of the proposition that foreign capitalism never was invested in cither Shanghai or Manchuria. Chinese "oppressed"native Chinese enterprises,and that it in fact industries then concentrated where foreigners had developed fostered the "coexistence"of the two forms of enterprise and public utilities and transport facilities,so that in 1930 61.5%, a rational division of the market,there is coniderablroom in 1931,53.7%and in 1932,61.0%of all newly registered left for doubt.Certainly it would be difficult to persuade the Chinese firms were located in the one province of Kiangsu.35 Chinese stockholders of either the Hanyehping or Kaiping Similarly,the foreign-built Chinese railway network was mines that imperialism had aided their native industries.In the notorious for its service to the political and commercial 1911 period,British diplomatic pressure was crucial in interests of the foreign powers,and its irrationality from the realizing the victory of the British Green Island Cement standpoint of China's own development.36 Perhaps the most Company over a local Chinese rival for the South China striking illustration of this was the Russia-built market.4s But diplomatic intervention was usually not Chinese-Eastern Railway and its connecting branch to Port necessary for foreign firms to crush their Chinese competitors. Arthur,which were built on the Russian guage to link with the In most cases their larger size,greater capitalization,longer trans-Siberian Railway,and conversely to prevent convenient experience,better access to raw materials and the ever-present linkage with the rest of China's railways.37 protection of extraterritoriality were sufficient to allow Banking and finance absorbed more direct foreign foreign firms to overwhelm Chinese competitors.Thus by investment than any other sector of the economy (investment 1905,two of three Chinese steamship companies organized in in transport being largely indirect,in the form of loans),and 1899-1900 to run between.Hankow and Changsha had folded foreign banks were notably disinterested in the economic after British and Japanese firms put ships on the route.46 development of China.Early in the twentieth century,the Perhaps foreign financiers demonstrated their power most American Minister to China,Paul S.Reinsch,complained that convincingly in their struggle during the last years of the Ch'ing to persuade the imperial government to take railway Tbe only American bank in Cbina,the International contracts away from the provincial Chinese companies and Banking Corporation,tben confined itself strictly to give them to a foreign consortium.The comparative"surplus" exchange business and to dealing in commercial paper;it of capital in the industrialized nations allowed them to offer bad developed no policy of responding to local industrial loans at far lower rates than those prevailing in China needs and belping in tbe inner development of China.All Therefore,from the Manchu government's point of view,it was the foreign banks bad wholly the treaty-port point of view. "cheaper"to have foreigners build the railways than Chinese. They thougbt not at all of developing interior regions upon As a result,the provincial railway companies were quashed and wbich the commerce of the treaty ports after all depends. the foreigners built China's railways. They were satisfied with scooping off the cream of The crucial proof of the depressing effects of foreign international commercial transactions and excbange capitalism on native Chinese industrial growth is unguestionably operations.3 to be found in China's experience during and immediately after World War I,when foreign competitors The foreign banks in Shanghai demonstrated the accuracy of diverted their attention from China to the war and then to the Reinsch's analysis by their behavior after the U.S.Silver reconstruction of Europe.Native Chinese industry and Purchase Act of 1934,which greatly inflated the gold value of handicrafts experienced their greatest growth in precisely this China's silver currency.Between December 1933 and period,when China was spared the impact of Western September 1935(while the silver stocks of Chinese banks rose economic intervention,and suffered its steepest decline in 12The degre~ of foreign control of a given industry was determined above all by the relationship of the industry to foreign trade. A mercantile mentality dominated the treaty ports of China, so that foreigners invested in areas which served to increase the trade of China with their home country. Thus in 1936, 16.8% of all foreign investment was directly in the import-export trade, 20.5% in the banking and finance institutions which served that trade, 25.0% in transport, 9.0% in treaty port real estate, 5.1 % in communications (telephone and telegraph) and public utilities, all largely for the benefit of the treaty fort population, and only 19.6% in manufacturing. 2 Even within that manufacturing total, some of the most important enterprises were closely linked to foreign trade. Cigarette production, for example, was 63.3% foreign, and led to substantial imports of American tobacco. As one American commercial attache boasted: "With American salesmanship and American initiative it became possible to convert a tobacco producing and exporting nation into one of the leading importers and consumers of American tobacco products." 33 Foreign investment's ancillary role to foreign trade led to a degree of geographic concentration which was clearly inimical to the best interests of China's balanced economic development. In 1931, 76.6% of all foreign capital in China was invested in either Shanghai or Manchuria. 34 Chinese industries then concentrated where foreigners had developed public utilities and transport facilities, so that in 193061.5%, in 1931, 53.7% and in 1932, 61.0% of all newly registered Chinese firms were located in the one province of Kiangsu. 3S Similarly, the foreign-built Chinese railway network was notorious for its service to the political and commercial interests of the foreign powers, and its irrationality from the standpoint of China's own development. 36 Perhaps the most striking illustration of this was the Russia-built Chinese-Eastern Railway and its connecting branch to Port Arthur, which were built on the Russian guage to link with the trans-Siberian Railway, and conversely to prevent convenient linkage with the rest of China's railways. 37 Banking and finance absorbed more direct foreign investment than any other sector of the economy (investment in transport being largely indirect, in the form of loans), and foreign banks were notably disinterested in the economic development of China. Early in the twentieth century, the American Minister to China, Paul S. Reinsch, complained that Tbe only American bank in China, tbe International Banking Corporation, .tben confined itself strictly to exchange business and to dealing in commercial paper; it had developed no policy of responding to local industrial needs and belping in the inner development of Cbina. All tbe foreign hanks had wbolly tbe treaty-port point of view. They thought not at all ofdeveloping interior regions upon which the commerce of the treaty ports after all depends. They were satisfied with scooping off tbe cream of international commercial transactions and exchange operations. 38 The foreign banks in Shanghai demonstrated the accuracy of Reinsch's analysis by their behavior after the U.S. Silver Purchase Act of 1934, which greatly inflated the gold value of China's silver currency. Between December 1933 and September 1935 (while the silver stocks of Chinese banks rose 1Z slightly from Ch.$Z71.8 million to $Z93.4 million), holdings of foreign banks fell from Ch.$Z75.7 million to $42.7 million-less than 116 their original level. As one author put it, "Financiers and speculators in China found it more profitable to export silver as a commodity than to use it in China as capital." 39 In the credit contraction which resulted, 24 of 92 Chinese textile mills suspended operations,4O and many firms were forced to sell out to Japanese business interests. 41 In general, foreign financial interests loaned substantial sums to Chinese business enterprises only when their object was to gain control of the enterprise. Such was the case with Japanese loans to the Hanyehping Coal and Iron Company in the early twentieth century. By 1915 and the Twenty One Demands, Japan was in a sufficiently strong position to demand control of the company, which ultimately produced exclusively for the use of Japan's domestic steel industry. 42 The experience of the Kaiping coal mines was not so very different, except that even after substantial foreign loans in the 1890s, Herbert Hoover and his British employers were still obliged to engage in a great deal of legal finagling to capture control of the Chinese company during the Boxer disturbance. 43 Though much evidence has recently been marshalled in support of the proposition that foreign capitalism never "oppressed" native Chinese enterprises, and that it in fact fostered the "coexistence" of the two forms of enterprise and a rational division of the market,44 there is considerable room left for doubt. Certainly it would be difficult to persuade the Chinese stockholders of either the Hanyehping or Kaiping mines that imperialism had aided their native industries. In the 1911 period, British diplomatic pressure was crucial in realizing the victory of the British Green Island Cement Companls over a local Chinese rival for the South China market. S But diplomatic intervention was usually not necessary for foreign firms to crush their Chinese competitors. In most cases their larger size, greater capitalization, longer experience, better access to raw materials and the ever-present protection of extraterritoriality were sufficient to allow foreign firms to overwhelm Chinese competitors. Thus by 1905, two of three Chinese steamship companies organized in 1899-1900 to run between Hankow and Changsha had folded after British and Japanese firms put ships on the route. 46 Perhaps foreign financiers demonstrated their power most convincingly in their struggle during the last years of the Ch'ing to persuade the imperial government to take railway contracts away from the provincial Chinese companies and give them to a foreign consortium. The comparative "surplus" of capital in the industrialized nations allowed them to offer loans at far lower rates than those prevailing in China. Therefore, from the Manchu government's point of view, it was "cheaper" to have foreigners build the railways than Chinese. As a result, the provincial railway companies were quashed and the foreigners built China's railways. The crucial proof of the depressing effects of foreign capitalism on native Chinese industrial growth is unquestionably to be found in China's experience during and immediately after World War I, when foreign competitors diverted their attention from China to the war and then to the reconstruction of Europe. Native Chinese industry and handicrafts experienced their greatest growth in precisely this period, when China was spared the impact of Western economic intervention, and suffered its steepest decline in