1920-22 when the foreigners returned.47 these banks were not involved in promoting local industry,this Another argument often advanced by the apologists is capital was removed from the local economy to finance that foreign businesses induce a positive "imitation effect"in international trade or foreign exchange speculation.56 The the native economy:they teach by example and train the resources of these banks were further enhanced by their cadre for economic development.48 Unfortunately,the "right"to issue currency for domestic circulation in China-a foreigners-whose enterprises and attitudes were largely right claimed on the basis of extraterritoriality.Since these mercantile and often speculative4 -provided a very poor notes were issued with less than 100%reserves,"they were the model for a national bourgeoisie interested in development. equivalent to an interest-free loan from the Chinese public to Franz Fanon has commented with characteristic the foreign banks."57 perceptiveness on the weakness of a national bourgeoisie The gunboat-backed protection which extraterritoriality which imitates the Westerners with whom it comes in contact: provided for foreign enterprises often gave them a decisive It follows the Western bourgeoisie along its patb of advantage over Chinese competitors.Foreign insurance negation and decadence without even baving emulated it in companies,recognizing this fact,became an integral part of the system which virtually guaranteed foreign domination of its first stages of exploration and invention....In its China's internal steamship navigation.As one study put it: beginning,tbe national bourgeoisie of tbe colonial countries identifies with the decadence of the bourgeoisie of the ..it was the unwillingness of tbe foreign [insurance] West.so companies to insure junks wbicb frequently persuaded the Cbinese to sbip their goods by foreign vessels.Tbus tbe Finally,if one is to weigh the net effect of foreign investments advance of foreign sbipping in Cbina waters and foreign in China,it is essential to note that the net capital flow was not to but from China.Far more was repatriated in profits than insurance companies went band in band.In 1863 the British consul in Tiensin remarked tbat tbe 'principle of was ever invested or reinvested in China.The average marine insurance annibilates the native craft."Can you annual outpayment in the years 1902-1913 was U.S.$31.8 million,and in 1914-1930,U.S.$72.3 million.51 In the entire insure?"is a question wbich the Cbinese merchants period 1902-1930,the inflow/outflow ration was 0.57.52 invariably put.'58 This,of course,does not include the staggering cost of the At this point,the apologetic school will reply:this is Boxer and Japanese indemnities which China was forced to only one side of the coin,and the wrong side at that.The pay in the early years of the twentieth century.Feuerwerker critical issue is not the security which extraterritoriality has calculated that the cost,between 1895-1911,of provided for foreign enterprises,but the failure of the Chinese 476,982,000 taels for the Boxer indemnity and the loans to government to provide similar security for Chinese enterprises. pay the Japanese indemnity amount to "more than twice the The advantages enjoyed by the foreign banks are not as size of the total initial capitalization of all foreign, important as China's failure to develop a banking system Sino-foreign and Chinese owned manufacturing enterprises which would support her own economic development.The tax established between 1895 and 1913."53 advantages of foreign companies protected by exterritoriality are less worthy of attention than the excessive burden which To this point I have concentrated almost exclusively on the Chinese government placed on the modern sector of its economics.It is necessary,however,to realize that imperialism own economy.In short,"the idea that the unequal treaties was a total system-economic,political, social and prevented China's industrialization...is oversimple and cultural-and that its component parts were intimately inadequate to explain what happened.Decision lay first with interrelated.A key example is the institution of the Chinese government;only the government's default gave extraterritoriality,which in its basic sense was a political or the treaty port its later dominant role. juridical limitation of China's sovereignty-a removal of This is a serious,though fatally flawed argument,and it foreigners from the jurisdiction of the Chinese system of must be answered with some logical precision.In the first justice.Obviously,though,it had key economic consequences. place,concepts of economic security,economic advantage,or By exempting treaty port industries from most Chinese even tax advantage are clearly relative,and China's deficiency in taxation it gave them a considerable advantage. One these regards was significant only in comparison to Western calculation of the cost per bale of cotton yarn for Chinese enterprises protected by extraterritoriality-that is,she was and Japanese factories in China shows that taxes represented deficient only given the fact of imperialism.0 In the absence of 13.2%of the cost of production in the Japanese mill,and the network of foreign banks,insurance companies,steamship 34.3%in the Chinese. Beyond these tax advantages of companies and treaty port enterprises,Chinese capital,trade foreign industries was the considerable advantage of and entrepreneurial personnel would not have been absorbed exemption from arbitrary exactions by the Chinese by the treaty port economy which imperialism had created. government.It was these factors as much as any others which The "opportunity cost"-i.e.the cost in lost opportunities attracted a substantial amount of Chinese capital into foreign for healthy indigenous economic growth in China-was real enterprises.Thus extraterritoriality and treaty ports created and was directly attributable to the foreign presence.61 the conditions for an indirect attack on native Chinese Secondly,while it might be argued that the political and industries by channeling elsewhere the developmental capital military weakness of China allowed the foreign powers to needed by those Chinese enterprises.It has been estimated make their initial inroads in China during the nineteenth that in the 1890s 400 million taels in Chinese capital were century,once the foreigners were established,their very invested in foreign enterprises.ss The search for security under presence guaranteed the perpetuation of political weakness.A extraterritoriality also attracted substantial funds from strong China,capable of providing a political and economic Chinese depositors in foreign banks.Since,as we have noted, "environment conducive to domestic capital formation'62 13• • • i 1920-22 when the foreigners returned. 47 these banks were not involved in promoting local industry, this Another argument often advanced by the apologists is capital was removed from the local economy to finance t that foreign businesses induce a positive "imitation effect" in international trade or foreign exchange speculation. 56 The the native economy: they teach by example and train the cadre for economic development. 48 Unfortunately, the foreigners-whose enterprises and attitudes were largely mercantile and often speculative 49 -provided a very poor model for a national bourgeoisie interested in development. Franz Fanon has commented with characteristic perceptiveness on the weakness of a national bourgeoisie which imitates the Westerners with whom it comes in contact: It follows tbe Western bourgeoisie along its patb of negation and decadence witbout even having emulated it in its first stages of exploration and invention.... In its beginning, tbe national bourgeoisie oftbe colonial countries Ulentifies witb tbe decadence of the bourgeoisie of the West. 50 Finally, if one is to weigh the net effect of foreign investments in China, it is essential to note that the net capital flow was not to but from China. Far more was repatriated in profits than was ever invested or reinvested in China. The average annual outpayment in the years 1902-1913 was U.S. $31.8 million, and in 1914-1930, U.S. $72.3 million. 51 In the entire period 1902-1930, the inflow/outflow ration was 0.57. 52 This, of course, does not include the staggering cost of the Boxer and Japanese indemnities which China was forced to pay in the early years of the twentieth century. Feuerwerker has calculated that the cost, between 1895-1911, of 476,982,000 taels for the Boxer indemnity and the loans to pay the Japanese indemnity amount to "more than twice the size of the total initial capitalization of all foreign, Sino-foreign and Chinese owned manufacturing enterprises established between 1895 and 1913."53 To this point I have concentrated almost exclusively on economics. It is necessary, however, to realize that imperialism was a total system-economic, political, social and cultural-and that its component parts were intimately interrelated. A key example is the institution of extraterritoriality, which in its basic sense was a political or juridical limitation of China's sovereignty-a removal of foreigners from the jurisdiction of the Chinese system of justice. Obviously, though, it had key economic consequences. By exempting treaty port industries from most Chinese taxation it gave them a considerable advantage. One calculation of the cost per bale of cotton yarn for Chinese and Japanese factories in China shows that taxes represented 13.2% of the cost of production in the Japanese mill, and 34.3% in the Chinese. S4 Beyond these tax advantages of foreign industries was the considerable advantage of exemption from arbitrary exactions by the Chinese government. It was these factors as much as any others which attracted a substantial amount of Chinese capital into foreign enterprises. Thus extraterritoriality and treaty ports created the conditions for an indirect attack on native Chinese industries by channeling elsewhere the developmental capital needed by those Chinese enterprises. It has been estimated that in the 1890s 400 million taels in Chinese capital were invested in foreign enterprises. S5 The search for security under extraterritoriality also attracted substantial funds from Chinese depositors in foreign banks. Since, as we have noted, resources of these banks were further enhanced by their "right" to issue currency for domestic circulation in China-a right claimed on the basis of extraterritoriality. Since these I notes were issued with less than 100% reserves, "they were the equivalent to an interest-free loan from the Chinese public to the foreign banks." 57 1 The gunboat-backed protection which extraterritoriality provided for foreign enterprises often gave them a decisive advantage over Chinese competitors. Foreign insurance companies, recognizing this fact, became an integral part of the system which virtually guaranteed foreign domination of China's internal steamship navigation. As one study put it: ... it was the umDiIlingness of the foreign [insurance] companies to insure junks which frequently persuaded the Cbinese to ship their goods by foreign vessels. Thus the advance of foreign shipping in China waters and foreign insurance companies went hand in hand. In 1863 the British consul in Tiensin remarked that the 'principle of marine insurance annihilates the native craft. "Can you insure?" is a 1uestion which the Chinese merchants invariably put.• 5 At this point, the apologetic school will reply: this is only one side of the coin, and the wrong side at that. The critical issue is not the security which extraterritoriality provided for foreign enterprises, but the failure of the Chinese government to provide similar security for Chinese enterprises. The advantages enjoyed by the foreign banks are not as important as China's failure to develop a banking system which would support her own economic development. The tax advantages of foreign companies protected by exterritoriality are less worthy of attention than the excessive burden which the Chinese government placed on the modern sector of its own economy. In short, "the idea that the unequal treaties prevented China's industrialization ... is oversimple and inadequate to explain what happened. Decision lay first with the Chinese government; only the government's default gave the treaty port its later dominant role." 59 This is a serious, though fatally flawed argument, and it must be answered with some logical precision. In the first place, concepts of economic security: economic advantage, or even tax advantage are clearly relative, and China's deficiency in these regards was significant only in comparison to Western enterprises protected by extraterritoriality - that is, she was deficient only given the fact of imperialism. 60 In the absence of the network of foreign banks, insurance companies, steamship companies and treaty port enterprises, Chinese capital, trade and entrepreneurial personnel would not have been absorbed by the treaty port economy which imperialism had created. The "opportunity cost" - i.e. the cost in lost opportunities for healthy indigenous economic growth in China - was real and was directly attributable to the foreign presence. 61 Secondly, while it might be argued that the political and military weakness of China allowed the foreign powers to make their initial inroads in China during the nineteenth century, once the foreigners were established, their very presence guaranteed the perpetuation of political weakness. A strong China, capable of providing a political and economic "environment conducive to domestic capital formation" 62 13