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8710001
Gillam, James Thomas, Jr.
THE STANDARD OIL COMPANY IN CHINA (1863-1930)
The Ohio Stats University Ph.D. 1987
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Copyright 1986 by Gillam, James Thomas, Jr. All Rights Reserved
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University Microfilms International
THE STANDARD OIL COMP AN'/' IN CHINA (1863-1930)
DISSERTATION
Presented in Partial Ful-filiment of
the Requirements for the Degree Doctor of Philosophy in the Graduate School of
the Ohio State University
By
James Tliomas Gillam, Jr. A.B., M.A.
t t t t t
The Ohio State University
1987
Dissertation Committee: Approved by
James Bartholomew Samuel C. Chu
Hao Chang
Marvin Zahnizer Advi sor Department of History Copyright by James Thomas Gillam Jr. 1986 To My Father
Those Who Knew Him Will Know Why
11 ACKNOWLEDGEMENTS
I would like to express appreciation to Or. Samuel
C. Chu for his guidance throughout this project.
Thanks also goes to the other members of my committee, Drs. Chang Hao, James Bartholomew, and
Marvin Zahnizer. Their insights have been helpful in the completion of this study. Special thanks also
goes to Dr. John C. Burnham. His support and
encouragement was beyond the call of committee or
even faculty demands. I also owe a debt of gratitude
to Mssrs. Howard Schlereth and William Coltman.
Their weeks of interviews have brought this project
beyond the realm of dry research and into that of
living history.
Finally, I offer my most heartfelt appreciation to
my wife, Constance, for her constant encouragement
and willingness to endure graduate school with me.
To my children, Damon, Jessica, and Whitney, I thank
you for understanding my frequent aberrations from
the duties of fatherhood. i i i VITA
February 18, 1947..Born—Detroit, Michigan 1971...... A.B. Ohio University Athens, Ohio
1971—1975 Director, Veterans Education and Training Service, Cleveland, Ohio, Associate Director, Student Services, Case Western Reserve University, Cleveland, Ohio
1985 to Present.--. Assistant Professor, Spslman College Atlanta, Georgia
PUBLICATIONS "Standard Oil in China, 1863-1910", Essays in Economic and Business History, Vol. IV, 1986.
FIELDS OF STUDY
Major Field: Modern Chinese History
Studies in Traditional China, Chang Hao
Modern Japan, James Bartholomew
American Foreign Policy Marvin Zahnizer
IV TABLE OF CONTENTS
DEDICATION...... ii
ACKNOWLEDGEMENTS...... iii
, IV
INTRODUCTION 1
CHAPTER I STANDARD OIL, PAGE DOMESTIC HISTORY...... 10 Start of the Company...... 10 Standard's Methods...... 1 2 Integration...... 14 "Our Plan"...... 23 Opposition to Trusts...... 30 State Cases 1891—1905...... 32 Federal Cases 1905—1911...... 37 The Push to China...... 41 Summary...... 44 Notes...... 51
CHAPTER II STANDARD'S EARLY YEARS IN CHINA 1863-1911...... 56 The Treaty System as a Basis...... 56 Standard Enters China...... 66 Expansion, Duplication, Reaction...... 76 Volume of Trade...... 95 Economic Nationalism...... 104 Si^mmary...... 117 Notes...... 121
CHAPTER III THE RISE OF CHINESE NATIONALISM...... 130 Treaties 1918-1925...... 130 Nationalism 1860-1895...... 133 Rights Recovery...... 144 Pol itical National ism...... 154 Intel iigentsia...... 159 May 4th Movement...... 170 PAGE The Treaty System...... 173 Summary...... 180 Notes...... 185
CHAPTER IV THE ASSERTION OF CHIESE NATIONALISM: PREPATORY PHASE...... 191 Prs Washington Diplomacy...... 191 China's Soviet Ally...... 196 Washington Conference...... 205 Yuan V. Standard...... 224 Special Conferences...... 231 Summary...... 234 Notes...... 235
CHAPTER V NATIONALISM AND ANTI- IMPERIALISM 1923-1925...... 240 Effective f^ationalism Before 1925...... 242 Imperialist Friction & Sun Yat—sen ...... 245 China's Impatience...... 257 Confrontations...... 272 Notes. ..'...... 273
CHAPTER VI STANDARD OIL AND ANTI IMPERIALISM 1925-1930...... 279 Violent Anti—Imperialism...... 280 KMT and Control of Petroleum Trade...... 292 Standard-KMT Cooperation...... 298 Standard & The Northern E x p e d i t i o n . 321 Notes...... 343
CHAPTER VII SUMMARY AND CONCLUSIONS...... 356 Sources and Approach...... 356 The Treaty System...... 360 Value of Kerosene...... 361 Accommodati on...... 364 The End of Standard ' s Status...... 366 Notes...... 369
APPENDICES...... 370 A. American Kerosene Exports to China...... 370 B. Standard Oil Refineries...... 371 C. Translation of Advertisement...... 372 D. Plate One, Chinese Advertisement...... 373 E. Plate Two, William Coltman and Staff...... 374
BIBLIOGRAPHY...... 375
VI During the last decade of the 19th century, American businessmen, and their supporters in government attempted to expand the market far American goods into the Western
Pacific and China. The reasons for this attempt at commercial expansion during the 1890’s were related primarily to the domestic economy. The depression of 1893,
the continued pattern of layoffs, shutdowns, and labor
violence at that time led many people to believe that the
best way to resume full production was to find new markets
in the Pacific. It was with that goal in mind that
Secretary of the Treasury John Carlisle urged the
exploitation of foreign markets and the attainment of a
favorable balance of trade. In his opinion, the nation’s
economy would not survive long without these
innovations.^
Why were the Pacific and China chosen for the new
markets of America? Part of the answer lies in the fact
that Europe was in the process of industrialization, and
therefore, also involved in the search for markets.
Moreover, the high tariff of the McKinley administration
was already being used to protect American manufacturers; we could not realistically expect to -flood Europe with
American g_x3ds. On the other hand, the acquisition of the
Phillipines Islands at the end of the Spanish—American War focused American attention on the Pacific and the potential markets there. The extent of American hopes for Pacific markets is seen clearly in the words of Representative
William Suizer of New York: "Let me say this to the businessmen of America, look to the Pacific ! There are teeming millions there who will ere long want to be fed and clothed...the volume of trade, as far as this nation is concerned. . . will be across the Pacific.
Although America’s search for new customers was initially focused on the islands o-= the Western Pacific, events transpired in China from 1894—1900 which drew the searchers there. China was exposed as a weak nation when
îihe was soundly defeated by Japan in the Si no-Japanese War of 1894—95. Japan demanded the island of Taiwan as a protectorate and obtained valuable economic concessions in
China’s Liaotung Peninsula. The impending partition of
China into a Japanese market place was forstalled by the
Triple Intervention of Russia, Germany, and
France.= The intervention saved China for a moment, but the die was cast. The industrialized nations of the world all began to see China as a new market, and only America failed to participate in the immediate scramble for a part of China. In 1895, the Russians and the French gave China a loan to pay her war indemnities to
Japan. In return, the Russians received permission to
establish the Russo—Chinese Bank which financed projects
like the Chinese Eastern Railway. The European involvement
intensified. After a German missionary was killed by the
Chinese, Germany seized a naval base and long time lease at
Kiaochûw Bay in 1S97. Russia took a warm weather harbor at
Port Arthur, and part of the Liaotung Peninsula in 1S9S.
France moved into Kwangchou in Southeast China in the same
year. Not to be outdone, the British leased Weihaiwei for
twenty five—years and Kowloon for ninety nine—years. They
also secured a Chinese promise to make the entire Yangtze
River Valley a British economic preserve.'*
With these incursions into China came the financial and
investment institutions of the Russians, Germans, French,
and British- Their agents spread through China, linking
markets to production, and providing the keys to commercial
success in China; financing, exchange facilities, and long
term credit. While all this was going on, America waited
until 1900 to enter the fray officialy. The structure of
the American approach-the Open Door Policy- at once set
America apart from the other concession hunters and
hindered the real attainment of the markets sought in
China.
American businessmen were fearful of losing the chance
at high volume sales among China's millions and organizations like the American Asiatic Association were vocal about opportunities being lost. The American government’s response was the Open Door Notes of 1900. The
Open Door Notes sought to limit the importance of the
Powe's spheres of economic interest by obtaining vague promises from them to grant equal commercial opportunities within their spheres.® In a sense, this American appeal for equal opportunity in business in China was an extension of the sentiment that had brougnt the trusts into the courts because they had inhibited trade. However, in the international arena, the lack of financial backing and
American unwillingness to exercise the type of force used by the other Powers prevented the enforcement of the new proposal. The lack of American commitment, the low per capita income of the Chinese, and their commitment to their own culture combined to keep American dreams of a market in
China an unfulfilled reality with very few exceptions.
Examples of the problems Americans had in the search for customers in China are abundant in the correspondence of our Consuls at that time. James Rodgers, the Consul at
Shanghai, the major port in China at the turn of the century, wrote that "the Chinese are poor...five to seven and a half cents form the average daily wage of the...working man"^ Rodgers concluded that without adequate financing, and an understanding of the desires cf the Chinese as customers, expensive American machinery like pumps and windmills would not sell because
they would cost the Chinese too many years of
crops-^
Within this restricted market for American goods, there
were several notable exceptions. They were kerosene,
cotton goods, flour, and lumber. In the monographs written
about the China trade, these items and their market success
are constantly mentioned, but few reasons are given for
these successes in the face of so many failures. For
example, Paul Varg mentions them in The Making of a Myth:
The United States and China, 1897—1912. Michael Hunt also
mentions the same articles in Americans in the China
Market: Economic Opportunities and Economic Nationalism,
lS90’’s-1931. Hunt suggests some reasons for the success of
these articles in China, but he does not concentrate on any
one of them. Neither does he fully explain the effect of
events in China or American policy toward China during that
period. An exception to this pattern in monographs that
investigate the success of several kinds of merchandise in
China is Sherman Cochran's Big Business in China:
Sino—American Rivalry in the Tobacco Industry, 1890—1930.
It provides an enlightening view of how the
British-American Tobacco Company won great profits in China
while competing with the Chinese as well as the West for
customers. However, tobacco is not often mentioned as a
leading product in China, and the British-American company was not a wholly American company.
The most successful American products in the China market were kerosene and other petroleum products which were sold primarily by the Standard Oil Company. The purpose of this study is to provide the detailed study of the Standard Oil Company in China which has been omitted in these earlier studies. That Standard Oil succeeded in
China in the face of competition from other industrialized nations is important. How and why it did so are even more important, especially in the present era of intense competition for markets and resources abroad. Standard’s efforts in China were shaped by the presence of many
factors. Perhaps the most important one was nationalism, a
force which is often more economic than political in
nature.
There were also other forces to be contended with in
China, especially during the 1920’s, a time when
nationalism, competing ideologies, politics, and virulent
anti—imperialism were all major concerns for foreign
companies in China. This is certainly not the early
twentieth century, but many American companies face one or
more of these same factors in today’s international market.
It is hoped that this study of how Standard Oil
accommodated itself to these forces in China may provide a
pertincMit example that can be adapted to the realities of
the present era. To provide details and examples of Standard’s success in
China is no easy task. The company’s main office in New
York has long since destroyed the records of the period which form the center of this study. However, through the assistance of Mr. George Birrel, it has been possible to contact and interview two of the men who worked for the company in China during the 1920’s. By combining the inormation they have provided with a search of the Consular reports from the national archives, and where possible, some relevant Chinese sources, it has been possible to produce a history of the Standard Oil Company in China that improves on the previous works of this nature in several ways. For example, this study transcends a basic understanding of the company’s domestic history. It also examines the forces which shaped Standard Oil in America, the Chinese perception of Standard, and the effect of
America’s treaty relations and policies in China.
Including these factors allows important questions can be answered. For example, was Standard Oil part of the general drive for foreign markets, or was it already in
China before the government decided to go to China? Was
Standard Oil, a well known overproducer in the lS90’s, pulled to China by the lure of profits, or was it in fact driven there by domestic competition and government regulation? Was Standard’s success in China responsible in any way for the persistence of the myth that great fortunes 8 could be made in China?
In addition to answering these questions, this study will respond to several questions from the Chinese point of view. For example, of what value, if any, were Standard's technology and tariff duties to the struggling governments of China? Was the firm's impact different during the last of the Ch'ing dynasty from its impact during the early
Republican or Nationalist periods? How did Standard's sales record reflect the acceptability of their foreign product once nationalism spread from a few advanced thinkers in the 1890's to the major urban centers in the
1920's? It is hoped that answers to these questions will provide models of how markets abroad may be maintained, even in the face of protective tariffs and the emerging industrialization of many third world nations. In search of the foregoing details, responses, and models we begin our study of Standard Oil with the following account and analysis of its domestic history. Introduction Notes
^Walter LaFebre, The New Empire. An Intrpretation gf American Expansion_____ 1360— 1898. (Ithaca:1965), p.176.
=Paul Varg, The Making of a Myth: The United States and China. 1897—1912. (East Lansing:1968), p. 15.
^Akira Iriye, “Japanese Imperialism", Essays in Modern East Asia. James B. Crowley, ed., (New York:1970). p.138.
•*Varg, The Making o * a Myth, p. 19, and Benson Lee Grayson, The American Image of China, (New York:1979), pp.15— 16.
^A. Whitney Griswold, The Far Eastern Policy of the United States. (New York:1938), pp.72-78, and Grayson, The American Image of China, pp.44—45.
*Varg, The Making of a Myth, p.38.
^The Bureau of Foreign Commerce, Department of State, "Special Consular Reports", (Washington:1898), p.35. CHAPTER I
STANDARD OIL,
DOMESTIC HISTORY
On January 10, 1870, five men, John D. Rockefeller,
Henry Flagler, Willi am Andrews, William Rockefeller, and
Daniel Harkness, associated themselves under the laws of the state of Ohio to form the Standard Oil
Company.1 By that time, John Rockefeller, the company’s founder, had been peripherally involved in the oil industry since 1863, but before 1863, he had some initial doubts about the profit to be made from oil. When he was approached with an offer to join William Andrews and
James and Richard Clark in the firm of Clark, Andrews and
Company, Rockefeller agreed to put up half the capital.
However, at that time. Rockefeller felt that the oil business was a side issue in his fortunes and that he would make his greatest profit as a produce commission merchant.=
Two important reasons for the change in Rockefeller’s attitude about the oil industry were the result of
Cleveland’s favorable position as a lake-port and its
10 11
connection to the East coast by the Erie Canal. He also saw that there were potential profits to be reaized from the newly compleated Atlantic and Great Western Railroad.
This last railroad was almost as important as Rockefeller's familiarity with the intricacies of railroad transport, because it gave the Atlantic and Great Western Railroad direct connections to Titusville, Meadvilie, and Franklin,
Pennsylvania. Those cities were the heart of the nation’s oil industry at that time.=
By 1865, two years after Rockefeller had entered the oil business, it was apparent that there was a fortune to be made. The Clark brothers had been bought out because of a dispute over reinvestment of profits and personal disagreements with Rockefeller."* The reorganized firm of Rockefeller, Andrews and Company did a total of
$1,200,000 in business, and things were getting better.= By 1870, oil imports into Cleveland Ohio had overtaken and surpassed those of Pittsburgh, the nation’s other refining center. Rockefeller’s company was the fourth largest refining company of a total of twenty-eight operating in Cleveland at that time. A
reporter for the Cleveland Leader, a local newspaper, said
that by September of 1869, Rockefeller’s company had estimated gross receipts of $2,433,669.* Daniel
Ells, President of Cleveland Commercial National Bank, said 12 that Rockefeller's transactions amounted to millions and that on some occasions, the bank had loaned Rockefeller
*250,000 at one time. Ells went on to say that
Rockefeller-s firm was capitalized at *1,000,000, of which
$360,000 was invested in his refinery and real estate, and the rest was used for the conduct of business.^
By 1SS2, the Standard Gil Company had overcome a number of industry related difficulties and controversies and formed the Standard Oil Trust. The trust form of organization was a significant step in trie company's history as well as in American business history. It will be fully discussed after the examination of the obstacles and controversies that confronted Standard Oil during its first twelve years as a corporation.
The first major difficulty for Standard was the inherent instability of the oil industry. It was plagued by a boom—and-bust cycle which resulted from the =s-iodic over production of crude oil and the consequent drop in prices for both crude and refined oil. Between 1865 and 1870, for example, the profit margin for refined oil, which was
Standard Oil's specialty, dropped from 19.5 cents to only
7.9 cents per gallon."
There were four methods used by the Standard Oil Company to survive the uncertain market conditions of those years: productive efficiency, allocative efficiency, economy of scale, and longer production runs.*' Productive 13 efficiency is the reduction of cost while maintaining quality. Rockefeller found many ways to achieve it. His company began to manufatcure its own barrels, tin cans, boxes for enclosing cans, paint, and glue. Even the sulphuric acid used for refining was made by Standard while the profit margin for its previous suppliers of these items was eliminated.
Allocative efficiency is the maximization of . consumer welfôL-e through high volume sales at low cost. Standard
Oil has always been known for the moderation of its prices and wide availability of its products. In fact, in 1913, after forty years of controversy in the press and in historical literature about Standard Oil, it was still possible to say the company always provided a high quality product at a reasonable price.
Standard Oil also benefitted greatly from economies of scale and the fact that the oil industry ie one of several that naturally lend themselves to this advantage. An example of such an approach can be seen in the company's use of rebates from the railroads that shipped its products to market. In 1872, Standard Oil received a rebate of 25 cents per barrel from the Lake Shore Railroad in return for the promise to ship 4,000 barrels of oil per day. Under the terms of that agreement, Standard Oil saved $1,000 per day or, in annual terms, $365,000 per year.^i
Standard Oil survived and grew during the uncertain 14 market years of the early 1870’s mainly because it was more efficient than its competitors. It used the profits from its various kinds of efficiency to absorb rivals in the area of Cleveland, Ohio, and later overtook the other refining centers on the East coast and in Pennysylvania-
The speed and scale of Standard's expansion began to draw
who were less efficient in their operations. Thus,
Standard’s purchase of eighteen refineries during February of 1872 was called the "Cleveland Massacre," and
Rockefeller was labelled as the Mephistopholes of Cleveland by the Cleveland Leader.
It is understandable that those competing with Standard
Oil would feel at least some envy or dismay at its success compared to their bankruptcy. Perhaps these feelings, coupled with the lack of understanding of efficiency by the reporters of the day, led to the charges against Standard
Oil’s business practices. Since these groups knew little of the intricacies of Standard’s operation, they fastened onto the mcst public and obvious of its efficiencies, rebates.
The granting of rebates was a common practice of railroads until the 1880’s because it guaranteed a steady traffic and full usage of all the rolling stock. These measures minimized travel time as well as maintenance costs. For example, in the previously mentioned rebate 15 agreement between Standard Oil and the Lake Shore Railroad,
Lake Shore was able to cut its -freight runs from Cleveland to New York from thirty days to only ten. This was possible because the train was full when it left Cleveland and needed no more stops to gather freight. Also, the railroad used only 600 cars when 1,800 had been used before. The remaining 1,200 cars were free for other traffic. Finally, Lake Shore's maintenance costs were reduced from $900 to $300 per car.
The use of rebates by oil companies was by no means limited to Standard Oil. In fact. Jay Gould, President of the Erie Railroad, had rebate agreements with Standard's
Clevelend corapetetitors, Clark and Payne as well as the
Westlake and Hutchins Company.However,
Standard Oil's competitors were not as adept at other measures for efficiency, so, even with the grant of rebates, they fell further behind Standard in the quest for pr fit as well as available railroad cars. The complaints of Standard's competitors incorrectly blamed the rebate system for their continued losses and Standard's gains.
One of the results of this misplaced emphasis was an investigation of railroad rate practices in the state of
New York conducted by the Hepburn Committe.
In its final report, the Hepburn Committee magnified the misconceptions about Standard's growth by pointing to
Standard's rebate contracts as the primary reason for the 16 company's growth. The report said that Standard's rebates were "the most shameless perversion of the duties of a common carrier to private ends... in the history of the world.Thus the true reason for Standard's success at that time, efficiency, was obscured, and periodicals of the day such as the Oil Paint and Drug
Reporter perpetuated the misconception. They continued to confuse efficiency with favoritism amd characterized
Standard Oil as the most soulless and grasping corportation in the nation's history.
While the misconceptions about rebates continued.
Standard Oil underwent a structural change, converting itself from a corporation into a trust in 1379. According to Samuel C.T. Dodd, who was Rockefeller's chief legal consul at that time, the Standard OilTrust combined the ownership of forty—one corporations under a common ownership- According to Dodd, the Trust agreement placed all the stocks of these various companies owned by Standard
Oil into the hands of trustees, declaring the terms on which they were held and providing for the issuance of certificates showing the amount of each owner's interest in the stock held in trust. This arrangement meant that the eleven major oil companies in the United States, along with the companies known informally as the Standard Alliance, were controlled by Rockefeller and eight of his associates.^^ 17
From Rockefeller's perspective in 1879, the Trust could be explained as an attempt to coordinate Standard's efficient participation in the three areas of the oil industry with which they were most heavily involved— refining, transportation and marketing. In that way, overcapacity in any of the three areas could be predicted and controlled, thus avoiding the wild fluctuations in the prices and profits which characterized the oil industry. From the perspective of Rockefeller's contemporaries and competitors, the Trust was another controversial means which allowed Standard Oil to absorb most of the oil, and its profits, in the United States.
That the Standard Oil Trust controlled the lion's share of the nation's refining industry cannot easily be disputed. For example, the 1907 Report of the United
States Commissioner of Corporations says that Standard Oil and its affiliated companies took in 84.2% of the
66,168,000 barrels of crude oil produced, and refined it into various products.Moreover, Standard Oil also controlled a very large percentage of the sale of refined oil and related products. The same report goes on to say that "of the 5,397 dealers" in refined oil products,
"4,829 (89.5%) bought all or part of their oil directly from concerns owned or controlled by the Standard Oil
Company." If purchases from bogus independent concerns, and from jobbers handling Standard's product were counted. 18 the proportion of Standard's control in refining went up to
93.8% of the nation's refineries.
Such impressive figures as these only added fuel to the fires of suspicion and mistrust that surrounded Standard
Oil. Also, the fact that Standard Oil was the first major
American company to adopt the trust form of organization increased questions about the legality of trusts. After all, it is human nature to view new things with suspicion.
That producers of sugar, steel and railroad companies quickly resorted to the trust to protect their growth from market fluctuations did little to allay the general
American opposition to trusts.
What the American public, the Commissioner of
Corporations, and Standard's contemporaries failed to take into account was the international and historical perspective on the development of trusts. From a later and broader point of view, we find that for "businessmen in every industrialized nation, the response to overcapacity, especially in periods of recession...was to combine with each other to limit the total output of plants, maintain price levels of their goods, and to discourage the entry of
li new firms.Such responses by large businesses have been "more or less universal. They are discoverable in all industries, all countries, and all periods of time.
SI except of course, in socialist countries where 19 the government’s control replaces that of the businessman-
Notwithstanding this later view of the trusts, the
American public continued to view them as a contradiction of the American values of individual freedom and equality of opportunity. Their views came into print in the so-called "muckraker" literature. Ida Tarbell’s History of the Standard Oil Company and Henry Demarest Lloyd’s Wealth
Against Commonwealth are well known examples. These books, and others, stressed the personal and political convictions which had been built up since the 1880’s when trusts were first challenged by the American legal system. What was overlooked in the 1880’s and up until the 1920’s, was the fact that America had undergone a change of values regarding what acceptable business practices were. Thus, the Standard Oil Trust was seen as an aberration from
American principles instead of a logical response to the economic climate in which it was created.
The Standard Oil Trust was founded on business values of the mid—19th century and the personal values of its founder. Rockefeller. These values allowed for many forms of competition which were no longer acceptable in the half decade before 1890 when the Sherman Anti—Trust Act was passed. The fact that congress passed this law as a non-partisan action exhibits the majority acceptance of the values implicit in its regulations.== However,
Rockefeller and his associates were not aligned with the 2 0 majority. Instead, they clung to their older, outmoded values, placing themselves and their company squarely at variance with America's dominant value system and legal institutions.
For Rockefeller and his associates, “the typical corporation...was the instrument of its owners and a projection of their personalities!So, for men of Rockefeller's era, the conduct of business was a reflection of society and its order. Rockefeller and his contemporaries were men who believed that the social contract was the basis of human society, that manhood was a state of social responsibility that transcended adult virility. A man had to be credited by a community with being honest in his ongoing dealings. Therefore, to the members o-F the Standard Oil Trust, the contract principle of society and the practice of business on their own terms, however outdated, were at once an ego ideal and a theory of social organization.==
When Rockefeller entered the oil industry in 1863, the
business values of the 1850's were still operative. The
sanctity of property, the obligation of an owner to manage
his operations for the benefit of his company and his
clients, and the idea of continual growth were commonly
accepted.-^ These were the values of the small
businessman, but they were used to create the large
companies which later became trusts. Standard Oil's 21 leadership in the evolution of trusts emerged from a combination of factors such as the oil industry's instability and Rockefeller's personal value system which drove him to a nearly obsessive quest for order and efficiency. Examples of the interaction of these two kinds of factors include Rockefeller's involvement in the South
Improvement Company and his implementation of "our plan".
As we shall see, both of these plans are manifestations of
Rockefeller's attempt to inject his personal values of order and efficiency into the oil industry. They are also examples of the universal response to instability in which large companies have grouped together to regulate production, maintain prices, and prevent the emergence of competitors. These two plans are also examples of the controversy that began to surround Standaird Oil in the
1870's and overwhelmed it in the anti—trust suit of 1911
The purpose of the S . ith Improvement Company was to end the ruinous competition among railroads over oil shipments and to coordinate crude oil production with refining and marketing capacity. It was the idea of William Warden, a
Philadelphia refiner. Warden proposed that the nation's major oil refiners join the South Improvement Company and give guarranteed percentages of their shipping to the Erie,
Pennsylvania and New York Central Railroads. In return, the railroads would grant a rebate of $1.80 per barrel to members of the company, plus a $1.80 drawback to be shared 2 2 equally by members of the company if the oil of outsiders was hauled.
Although the South Improvement Company's contracts were never executed, the mere rumor of their existence and the potential power of its members was enough to wreck the company. For Standard Oil, the furor over the South
Improvement Company was second only to the 1911 Supreme
Court decision which dissolved its trust. When news of the contracts leaked to the press, there was an immediate uproar in which the producers threatened to boycott members of the South Improvement Company. The producers didn't have all the details, but they suspected, and were correct, that somehow. Rockefeller and Standard Oil planned to gain control of SIC.
If the producers and refiners excluded from the SIC had had full access to the details of the contracts, they would have realized that Rockefeller and his associates had control of it from the start. Among the stockholders in
SIC were thirteen of the most influential men in the oil industry, and the second largest block of shares —720 of
2,500— was owned openly by John and William Rockefeller,
Henry FIagie:, and Oliver Payne. So, Standard openly controlled 28.8% of the stock issued. In addition, Jabez
Bostwick, a major refiner in New York, was secretly in league with Standard and had pledged his 840 shares in support of Standard Oil. Thus Standard actually controlled 2 3
1,560 shares, or 62.4% of the South Improvement Company.
Thus, even though O.T. Waring of Pittsburgh and William
Warden each held 475 shares, their interest was short of the 1,251 shares needed for a bare majority ownership of the company.="
At that time, America had eighty refineries of noteworthy size, but only thirteen of them were invited to join the South Improvemet Company. Those that were left out joined the producers in the threatened boycott and campaign of public pressure against SIC. In the end,
Thomas Scott, the President of the Pennsylvania Railroad, yielded to this pressure and backed out of the agreement.
With the loss of one of its crucial transport elements, SIC was doomed. One by one, the other members of the company annulled their contracts, and not one barrel of oil was ever hauled by that company. Finally, the oil industry was still plagued by overproduction and a lack of coordination between producing, refining and marketing ability.
Therefore, Rockefeller began to implement a program which was known as “our plan."
"Our plan" was a daring, complicated attempt to unite the four separate parts of the oil industry — production, transport, refining and marketing— into one coordinated unit. In modern terms, the process is known as vertical integration. In the press and the oil industry at that time, the process was seen as the monopolization of an 2 4 entire industry by Standard Oil. To accomplish its goal.
Standard borrowed heavily to buy out its competitors, pressed the railroads for more rebates, and expanded its marketing ability through William Rockefel1er's company which was called Standard Oil of New York.=*
The integration of all four parts of the oil industry by
Standard Oil took years. It began in 1872 with "our plan" and progressed in a step and start fashion while Standard absorbed as many competing refineries as possible in
Pennsylvania. This single phase lasted until 1877. In
1878, Standard moved against the single largest transport competitor, the Tidewater Pipeline Company. That phase of integration took five years. When Tidewater refused outright purchase and the offer to fill its lines with a continuous flow of Standard Oil, a more circuitous approach was used. Standard bought up many of the smaller refineries that used Tidewater's pipelines. Their traffic was diverted to the United Pipeline Company, in which
Stcindard Oil owned a majority share. The resulting rate war between United and Tidewater drove the latter into financial difficulty. In 1883, Tidewater settled for a guarantee of 11.5% of the oil region's traffic. Standard took the remaining 88.5% and consolidated all its pipelines in the National Transit Company which extended to most of the new production fields that opened.
Standard Oil's integration of refining was primarily 2 5 based on efficiency. Its integration of pipeline transport was at best hard fought and merciless. Its integration of marketing was still more controversial because of its deliberately misleading and secretive tactics. As -che profits of Stamdard's efficient refineries mounted, they were used to purchase others. Once these companies were in the fold, their control was supposedly left in a semi-autonomous state, which was more a fiction thain fact.
Seemingly independent companies like Waters—Pierce and
Jabez Bostwick were active participants in Standard’s campaign to integrate the marketing phase of the oil industry. Waters—Pierce, like many other of Standard’s affiliates, maintained the fiction of autonomy but in reality worked for Standaird Oil. They resorted to clandestine information gathering by bribing clerks, and price wars to force bankruptcy; moreover, they gathered considerable business by pretending to oppose Standard
Oil.=i
This kind of competition, which continued into the early
190O’s, made few friends for Standard in the oil industry.
However, it was efficient. In 1882, Standard owned 130
retail and wholesale outlets. By 1886, it owned 313. By
1906, Standard controlled 3,573 marketing
outlets.Once the competitive marketers had
been crowded out. Standard sought to insure its dominance
by preventing the reemergence of independent jobbers and 26 wholesalers. Thus, for a time, tank wagons brought
Standard Oil to the very doorstep of its consumers.
The Standard Oil integration of the production phase ef the oil industry was no less arduous than that of marketing. To be sure. Standard owned oil wells in the
lS70’s, but its consistent efforts to expand its control in this area began in 1S86. When new oil fields were opened,
in Lima, Ohio and Whiting, Illinois, Standard bought them as insurance against depletion of the older Pennsylvania fields. It was of little import that the Lima—Whiting fields were high in sulphur content because Standard quickly developed the Frash Process in its Whiting
laboritories to remove most of the sulphur. These
purchases were augmented by the construction of refineries
in the area, and by 1890, Standard refined 56% of the crude
oil from these mid continent fields.
At the same time Standard Oil was establishig its
dominance over the mid continent oil fields, it was engaged
with the Pennsylvania producers in a struggle that was less
successful for Standard. In 1886 and 1887, the independent
producers in Pennsylvania had been hurt by overproduction
and the resultant drop in prices. They signed a series of
cooperative agreements to limit production and share
refining and transport facilities under the name of the 2 7
Producer’s Protective Association. In 1888, they were frustrated by Standard Oil which acquired four producing companies and 300,000 acres of production land. This land produced 7,600 barrels of crude a day and made Standard the largest producer in the area. ==
In 1891, the independent producers marshalled their resources and formed the Producers Oil Company Ltd. Their goals were to compete with Standard in marketing and to cause Standard to stretch its resources. Pursuit of their strategy brought the Producer’s Oil Company some pipelines and shipping facilities in Bayonne, New Jersey. They did compete with Standard for European markets, but Standard had more outlets, tank cars, and pipelines. The contest was at best a stalemate.
In 1893, fifteen refiners and 1,000 small well owners put their resources into a new company, the Producer’s and
Refiner’s Oil Company. They lacked the pipeline and storage facilities to handle the crude oil production they controlled, so they sought to build a pipeline for crude and refined oil to New York. Their ultimate goal was competition with Standard in the markets of Europe. As the
Producer’s and Refiner’s lines moved East, Standard reacted first by purchasing blocks of land in the right of way.
Eventually, violence erupted when pipes were torn up and explosions wrecked several sections of new pipelines. By early 1894, the Producer’s and Refiner’s Company had linked 2 8 their Wi1kes—Barre, Pennsylvania producing area to New York by pipeline and railroad. Their success was short lived.
The depression of 1893, which was the worst the nation had
seen up to that time, forced the closing of many wells.
Also Standard purchased most of those companies as well as
a near majority of the stock in Producer's and Refiner's
through the use of intermediaries and front
companies.
By the middle of the 1890's, Rockefeller's "our plan"
was largely complete. Although his hold over production
was not as strong as it was in the other phases of the
industry, it was still a majority position. As Rockefeller
and his company moved through the phases of integration,
they began with the areas in which they were the strongest
— refining and marketing— then went on to the areas of
transport and producing. In the terminology of modern
business. Standard effected forward integration toward the
consumers, then backward integration to the source of the
raw product.
A review of this process reveals that a pattern of
growing aggressiveness had emerged. The integration of
refining, although relentless, was at least characterized
by a certain amount of fairness in the prices paid for the
refineries purchased. However, with the start of marketing
integration, there began a downward spiral from practices
of dubious legality, such as spying and false competition 2 9 to gather more business, toward the use of violence in the struggle against the Producer’s and Refiner’s Company.
The testimony of James A. Goldsborough, an independent producer in Pennsylvania and stalwart in the struggle
against Standard, sheds much light on the frustrations and
bewilderment of those who opposed Standard. Goldsborough
testified to the U.S. Commissioner of Corporations that he
was never sure how the next attack would come. The
ownership of companies, and their friendliness was often in
doubt. The land purchases blocking their pipelines were
attributable to Standard through deed title research. The
explosions were another matter. They were never fully
proved to be caused by Standard.
Part of Standard’s refutation of the charges of ruinous
price cutting and misrepresentation was based on the claim
that many of its affiliates were autonomous and that they
often became over zealous, like the Waters-Pierce Company.
What was not stressed in this defense was the amendment in
New Jersey state law in 1839 which allowed one company.
Standard Oil in this case, to hold a controlling interest
in other companies such as Waters-Pierce. This change of
law facilitiated the continued centralization of control in
the Standard Oil Trust after 1SS9. Moreover, it created
the situation in which Standard’s subsidiaries were legally
subservient to its desires.
The New Jersey trust laws not only aided the continued 3 0 evolution of business from the corporate to the trust phase, it was also the legal foundation for Standard's integration of the oil industry in America. While it is true that large combinations had existed before in many industries, their control was decentralized as long as individual companies set their own production levels and prices. However, once the trust laws allowed the majority ownership of many companies by a small group of men
— Standard's original trustees numbered only nine men— it became possible to set prices and production levels in a more centralized fashion.=" Seen in this light, it is difficult to believe that the activities of all the constituent parts of the Standard empire were not known to the nine men who controlled the Trust from New York.
As a trust, the intended results of Standard's
integration of the oil industry were the control of production, maintenance of price levels, and the prevention
of the emergence of new competitors who could destabilize
the industry. It was growing dissatisfaction with this
last goal that brought the nation to a réévaluation of its
business ethics during the late 1880's and 1890's.
Evidence of the accelerated pace of the réévaluation was
present in many sectors of America, in the political
system, the press, and most importantly for Standard, in
the judicial system.
In the realm of politics. Senator John Sherman of Ohio, 31 who authored the Sherman Antitrust Act of 1890, is an example of this réévaluation, but there are others. One of them was Senator John Morgan of Alabama who authored a bill in 1888 that would have made "every conspiracy, trust, agreement or contract" ...in support of a trust a violation of public policy.
In addition to the growing political opposition to trusts, there is evidence that the American press leadership began to take on an activist role against them.
One notable example is the offer of W.H. Merrill, Editor of the New York World, to put his legal and investigatory staff at the disposal of the federal government to build a successful case against a trust,Another example of the anti—trust attitude in the press is represented by the New York Times which expressed the opinion that Sentator Sherman's Anti-Trust Act was so weak that even supporters of trusts voted for it because it had no real power.As events turned out, Sherman's
Act was strong enough to break up Standard's Trust, but the press couldn't know that in 1890, and they wanted to be sure that the trusts would be ended.
At the same time the politicians and journalists were hardening their anti—trust sentiment, they were joined by important members of the judicial system. In July of 1890,
Attorney General William Miller declared a general crusade against trusts. In his instructions to the various United 3 2
States District Attorneys, Miller instructed them to do everything within the limits of the law to suppress trusts.*^ Miller was joined in his campaign by no less a personage than Chief Justice Louis J. Brandeis of the Surperne Court of the United States. On the subject of trusts. Justice Brandeic wrote that "the proposition that mere bigness [could not] be an offense against society
[was] false, because our own society rests upon democracy...and that democracy [could] not long endure under the domination of the trusts.*^
With the existence of such strong anti—trust sentiment in so many important sectors of American society, it is not surprising that anti-trust litigation began in 1891 against two of the largest trusts: the North River Sugar Refining
Company and Standard Oil. The North River case was tried in the state of New York where the court held the partnership of corporations, the heart of the trust, illegal. However, it stopped short of declaring a trust to be in restraint of trade.** That significant step was left to the state of Ohio.
The Attorney General's Office in Ohio brought suit against Standard Oil in 1891. It was charged that Standard
"was in violation of laws and in abuse of its corporate powers, and the exercise of priveliges, rights and franchise not conferred upon it" because it had become a party to the trust agreement of 1889 without attaching its State of Ohio corporate seal.**
Behind this seemingly innocuous charge was the conviction that in America, the old business ethics had somehow created a monster called the trust which was seen as a generic term for monopoly. Instead of considering trusts the means to gain economic stability, their critics saw them as mutated offspring of basic American ethics, threatening not only our economy, but also our social and moral systems.** Two years later, this idea was stated succinctly by President Grover Cleveland when he said that trusts were conspiracies against the interests of the people and a danger to the American sense of fair play.
President Cleveland's 1893 statement was partially based on the groundswell of public approval of the 1892 Ohio
Supreme Court decision that Standard's trust agreements tended to create conditions of monopoly, and that they also limited prices and production. The Ohio court's decision of 1892 was a bold advance against the idea of trusts.
Whereas the New York case against the North River Sugar
Company stopped short of labelling trusts in restraint of trade, the Ohio court did not. It found Standard Oil's trust not only to be in restraint of trade, but also against public policy.*“
On the surface, this decision implied that public policy had finally brought the court to enforce the legal end of trusts as a business organization. That the public, press, legislative and finally the judicial systems of America disliked trusts hardly needs restatement here. However, the subsequent emergence of smaller trusts after 1392 and the State of New Jersey's legal assistance in their formation indicate that there must have been some vacillation still left in the public mind about trusts. It is this author's opinion that size and perceived aggressi vness were crucial in the creation of such i nconsistency.
One example of a trust that emerged after 1S92 is the
Pure Oil Company. It was a refining and marketing company that began in New Jersey in 1897. Pure's original capitalization was a modest $1,000,000, but its structure was strikingly similar to the Standard Trust which was found to be against public policy and a restraint of trade.
For example, a small group of men, fifteen in all, held a majority of its stock and directed production, price levels, etc., much as the Standard Trustees had done.*^ Then, after 1899 when New Jersey amended its law to allow holding companies to control shares in subsidiaries. Pure Oil maintained its trust form and
increased its capitalization to $10,000,000 by
1900.=c
The only significant difference between the Pure and 0=1 standard Oil Companies was their size. In 1892, when
Standard Trust was disbanded, it was capitalized at
£121,631,312.=^ It was over a dozen times as large as Pure was at that time, and it was controlled by only nine men. Therefore, Pure's creation and survival as a trust after 1892 can only be explained in one way: a trust could exist, but not a large one. Americans appreciated the stability and the control of the trusts, but they feared the size of the largest ones. As trusts reached the size of North River Sugar, Armour Meat or
Standard Oil, they were called before the twin bars of the courts and America's value system. The courts removed the restraint of trade for new competitors, and the American value of opportunity for all was reaffirmed.
Between 1892 and 1899, the leaders of Standard Oil modified the trust's structure, but as the account of
Standard's integration process indicates, they rejected the subtle qualifications about trusts that the courts and public had made. Since they owned majc- ity shares in all the companies in the trust, its reorganization and continued pursuit of "our plan" was easily effected. The
Trust certificates were surrendered and replaced by shares in the companies of the trust. The only difference in
Standard's activities from 1892-1899 was that the former trustees met as majority shareholders in forty companies instead of trustees of one large one. The record of their 3 6 accomplishments during this period indicates that there was little real effect made by the court in Ohio on their activities and none at all in their view of big business.
By 1905, Standard Oil had come to the end of the first phase of confrontations over its methods and growth. Part of this phase was characterized by action in state courts and legislatures to restrict the power of Standard Oil.
The other part of this phase was defined by literary attacks that were basically sensationalist in nature.
Examples of the kind of legal and legislative action taken are abundant. In the Eastern oil fields of Pennsylvania,
West Virginia, and Ohio, small producers had always been plagued by the problem of transportation of crude oil to refineries. The use of mule drawn tank wagons was too slow and expensive. Railroad tank cars were scarce due to the volume of Standard's shipments. So, as early as 1870, producers in these areas had sought state legislation to define pipelines as common carriers. By 1906, these states as well as the federal government had passed laws requiring pipeline owners to end the practice of refusing their facilities to producers- The same kind of law was also passed in California where Standard Oil's subsidiary, the
Pacific Coast Oil Company, had either refused the use of its pipelines to small producers or granted their use at unprofitable rates.==
Another example of legislative action against Standard 3 7
□il came in Kansas, where the roots of its famous 1911 dissolution case sprouted. In that state, too, producers found themselves with full tanks and no transportation.
Standard Gil claimed it had transported and stored all the crude it could, so the producers petitioned the state legislature for assistance. A • $200,000 bond issue was passed to finance construction of a state owned refinery to compete with Standard Oil's Neodesha refinery. Then Kansas also passed a common carrier act to regulate the usage and charges of pipelines in the state because Standard Oil owned or controlled almost all of them.==
It was during the final years of the first phase of confrontations with Standard (1870-1905) that the federal government began its active interest in anti—trust activities. This initial interest by the federal authorities had already produced the Sherman Anti-Trust Act in 1890. By 1904, the broad focus of the federal anti—trust sentiment was narrowed considerably, and centered in its sights was Standard Oil. This attention intensified in 1904 when the Office of the United States
Commissioner of Corporations began to issue a series of reports which dealt specifically with Standard. The letter of submittal for the Commissioner's report clearly shows the influence of the popular press and the actions of the
Kansas and California legislatures. In that letter.
Commissioner James R. Garfield chose to ignore Standard 3 8
Oil's documentât!on about the ending of its practice of rebates in favor of the Tarbell and other popular versions on the subject. In fact, Garfield claimed that in Kansas alone. Standard had made an estimated $750,000 on rebates. =■*
For two years after the Garfield report was issued, state level confrontations with Standard Oil increased dramatically. Between April 1904 and November 1906, twenty—one cases were started in either state circuit courts or federal district courts. It was during this period that the initiative of confrontation passed from the state to the federal level courts. Part of it may have been related to the impact of the Garfield report, but one thing was certain in mid—November of 1906; the second phase of confrontation with Standard was firmly in the hands of the federal government.
The second phase of confrontation with Standard Oil was
opened in the Eastern District Court of Missouri in St.
Louis. It was there that the federal government filed a
bill of equity against Standard Oil of New Jersey which had
been the parent company of Standard's operations since
1899. Also named in the bill were Rockefeller, six of the
company's other directors, and the various corporations and
partnerships in the organization. In that suit, the Office
of the Attorney General asked the court to adjudge Standard
Oil to be a monopoly and a conspiracy in restraint of trade 3 9 under provisions of the Sherman Anti-Trust Act.==
The federal suit against Standard was argued for fifteen months. It was the largest one of its kind, with over
12,000 pages of testimony. While this case was in progress at the federal level, there was a resurgence of state level confrontation, and there, the tide turned decisively against Standard. In December of 1908, the Missouri
Supreme Court found that Standard Oil of Indiana, the
Republic Oil Company, and the Waters-Pierce Oil Company were in violation of that state's anti—trust laws, and that they should forfeit their charters.®** Standard
Oil of Indiana appealed the decision to the United States
Supreme Court, and Waters-Pierce ended its affiliation with
Standard Oil companies in order to keep its charter. Even so, Waters-Pierce was barred from the state of Texas in
1909 because the majority of its stock was owned by members of Standard Oil of New Jersey. Such ownership was ruled to be a violation of the anti-trust laws of Texas.
In November of 1909, the United States Supreme Court rendered its decision against Standard Oil of New Jersey.
All members of the bench agreed that the facts of the case indicated both intent and the actual achievement of monopoly and restraint of trade. The court went on to say that no "disinterested mind"could survey the acts of the
Standard Oil Company from the 1870's onward "without being irresistably drawn to the conclusion that the very genius 40 for commercial development and organization...begat an intent and purpose...to drive others from the field and to exclude them from their right to trade and thus accomplish the mastery which was the end in view.=^
At the heart of the court's decision lay two facts that were damaging to Standard's cause. First, the Standard Oil companies were undoubtedly able to retard, if not prevent competition by nineteen other major oil companies. This power was attained through the expedient of outright purchase of stock in the potential rivals. The fact that purchase was often preceeded by rate wars and regional price cutting to effect desperation sales also did little for Standard. In the end, the fact that many of these potential competitors were involved in interstate commerce was the most decisive factor against Standard. Its impediment of interstate commerce meant that Standard had violated sections one and two of the Sherman Anti—Trust
Act. ="»
Standard was allowed thirty days to file an appeal, and it did so. In that appeal. Standard's lawyers complained of the undue influence of public sentiment and the various reports of the United States Commissioner of Corporations.
They drew heavily on information prior to 1899 when
Standard of New Jersey became the parent company of the organization.These arguments failed to sway the court. It enjoined the directors, officers, and agents 41 of Standard Oil of New Jersey from exercising or attempting to exercise control of the thirty-three affiliates of the organization. The affiliates were enjoined from paying any dividends to Standard Oil of New Jersey, or allowing it to vote any of their stock. Finally, Standard was given six months, beginning in June of 1911, to comply with the order to dismember its trust.
The dissolution decree of 1911 was a serious threat to
Standard's position in America, but it was accompanied by others. Challenges also came from the emergence of more competitors whose numbers and share of the domestic market grew faster than Standard could snuff them out. Two examples of this process are the Texas Oil Company and the
Pure Oil Company which were begun in 1901 and 1902, respectively. Pure Oil, initially capitalized at
$1,000,000, merged its interests with the Producer's Oil
Company and the United States Pipeline Company, increasing its assets to $10,000,000. This merger brought six refineries in Oklahoma and Texas under Pure's control.The Texas Oil Company, capitalized at
$6,000,000, remained an independent company, chartered in
Texas. Its ownership of a refinery in Port Arthur, Texas exempted it from dependence on Standard to refine and market its crude oil.*=
The emergence of domestic competition for Standard spread Westward as new oil fields opened in California, and 4 2
this expansion of successful competitors was linked to the heavy crude oil they produced. There was a growing demand
for that product by railroads, public utilities and factories. By 1912, California oil companies led the
nation in fuel oil production for railroads.
So, as the new oil fields in Texas, Oklahoma and California
opened, new companies, combinations and associations to
control prices and production proliferated. By 1915, the
Independent Petroleum Marketers' Association was formed by
the merger of the Union Oil Company with other growing
companies. They excluded Standard Oil from membership and
established profitable marketing of their own on the West
coast.
In addition to the challenge of domestic competition for
markets. Standard Oil also faced the twin challenges of
regulation and foreign competition for the European market.
Standard had entered Europe in 1870 through the facilities
of Standard Oil of New York. By 1882, 94% of Standard's
export trade left for Europe from New York and
Philadelphia, and it was in those ports as well as in
Europe that a list of increasingly complex, troublesome and
costly regulations began.
Prices on refined oil and other petroleum products were
set by the New York Produce Exchange. Then, after shipment
to Europe, almost every city, county and province in
Western Europe and England had a separate set of 4 3 regulations for the sale and shipment of petroleum products. Refined oil was to be of standard white quality or better. Its flash point was to be 110 degrees farenheit, as measured on the Saybolt Instrument, and it was to have a specific gravity of not less than 45 degrees on the Baume Scale of Viscosity. Some ports required wooden barrels. Others required wooden ones with a specific number of hoops of precise dimension. Still others required all barrels to be a uniform blue in color.
The list of regulations goes on, but the point is that they required multiple loading and constant repackaging before final sale.
When Standard’s products finally reached their points of consignment, they were faced by an ever increasing amount of competition for European customers- As early as 1883, the Baku oil fields in Southern Russia had become major producers of crude oil. This oil was-brought to the Black
Sea by the Trans-Caucasian Railroad which was financed by the Rothchild brothers of France. From there, ships
brought a flood of Franco-Russian oil through the
Mediterranean Sea to the ports of Europe.**
In addition to regulation and competition in Europe,
Standard and the entire the oil industry faced a noticeable change in the world market for kerosene, which had been its
most lucrative product. According to T.C. Bushnell, the 44 former head of Standard’s Export Trade Committee, the age of kerosene was also the age of invention. The use of electricity and natural gas for lighting began to cut into
Standard’s markets around the world. Moreover, the
Standard officials noted a significant increase in the use of gasoline for internal combustion engines in factory machines, tractors and automobiles. In 1898, there were only four working automobiles in America. There were more than 6,000 in 1911, the first year that Standard’s gasoline sales exceeded those of kerosene.
These changes in the market for Standard’s major product came on the heels of a major expansion of the company’s largest refinery at Bayonne, New Jersey. In 1883, 75% of that refinery’s 2.3 million barrels of kerosene had been sold in Europe every year. By 1911, when the dissolution case was ended, Bayonne was producing 14.6 million barrels of kerosene per year for an increasingly smaller market in
America and Europe. From 1906 to 1911, challenges to Standard’s dominant position in the oil
industry appeared at an ever increasing pace, and 1911 was
indeed a watershed year for the company. The dissolution case was the most spectacular of these challenges, but other significant problems demand review. These other problems shaped the company’s decision to enter the China
trade in large volume.
Foremost among the problems for Standard was the rise of 4 5 domestic and international competition. Standard had been brought before the courts and public as a "monopoly," but in the precise sense of the word, the term was misused. A monopoly, by definition, excludes all competitors. If this condition had been obtained, there would have been no independent companies to bring suits against Standard.
Moreover, the financial power of Standard's competitors grew steadily from the 1870's to 1911. For example, many of the independents who were opposed to the South
Improvement Company were wildcat drillers who owned one or two wells. They cost, at most, $300 to drill. By the early 1900's, companies like the Texas Oil Company, which had $10,000,000 in capital, were not at all unusual. To be sure. Standard was still the nation's largest oil company, but the existence of new oil fields and available capital made competition inevitable.
Although the nation's resources and the availability of financing helped to create competition for Standard, the values of late 19th and early 20th century must also be counted as significant factors. Standard was founded on, and initially prospered on the business and personal values of Rockefeller, but those values, and hence, the manner of the company's operation gradually became unacceptable to many Americans. This anachronistic mode of operation in the face of a subtle, but important changes in the publicview of business formed the basis for many of 4 6
Standard’s problems with law and image. For example, when
Rockefeller first became acquainted with the intricacies of railroad transport, he found that posted rates, which were supposedly fixed, could usually be negotiated downward.^® This fact underlay his involvement
in the temporarily acceptable rebate system in 1859. That
rebates were no longer acceptable in 1872 was amply
demonstrated in the furor over the South Improvement
Company.
That state and local governments were also changing
their attitudes toward rebates is demonstrated in the
formation of the Hepburn Committee of New York as well as
the testimony given before it. In fact, complaints about
favoring large volume shippers over small ones was not
limited to the oil industry. The testimony of A.T. Stewart
on similar inequities in the cattle industry is a good
example of the expansion of this idea.^^ Given
the increasing disaffection with rebates, it is not
surprising that Standard’s continued reliance on them made
it a prime target for litigation. It is surprising is the
fact that Standard’s leadership continued to operate in
opposition to the accepted rules of business behavior. The
motive of profit may have been strong, but the group of men
who were able to plan and execute the integration of nearly
an entire industry seem to have given little consideration
to the long term results of their methods. 4 7
The passage of the Interstate Commerce Act ended the practice of rebating. It also signaled the institutionalization of the idea of equal access to commercial benefits for large and small concerns. Yet,
Rockefeller's comments on the outcry over his favored position with the railroads is indicative of his inability or unwillingness to change with the times. He wrote to his wife saying that it was not the business of the public to change his private contracts.
From 1890 to 1911, the public's attitude toward trusts evolved subtly, but Standard's leadership paid little attention- The Sherman Anti—Trust Act and the creation of the Office of the Commissioner of Corporations were clear indications of the public distrust of the largest of the trusts and a determination to regulate them. Still,
Standard Oil opted for the minority view by incorporating itself in New Jersey as a holding company. To be sure.
Standard was not alone in this move, as the existence of the Pure Oil Company and the combinations in California after 1900 indicate. Also,their organization and operation were similar to Standard's with two important exceptions:
Their size in relation to Standard and their relative inability to inhibit trade.
That these smaller companies with their structures that closely resembling Standard's were allowed to exist and multiply was yet another indication of the subtleties of 4 8 the values at work. Combination was valued for its stabilizing effect in the oil industry. However, once a corporation reached a size that allowed inhibition of trade and competition, it was invariably challenged. Standard's refusal to acknowledge this fact is reflected in the rapid increase of legal challenges to its size, especially after
1906.
The next most serious problem for Standard Oil by 1911 was the growth of competition and regulation of its trade in Western Europe. From 1882 until 1911, Standard of New
York handled most of the trust’s exports to Europe. It sent 72% of the organization’s kerosene there in 1882.
Then, in 1388, the Anglo-American Oil Company, Ltd. was chartered for sales in England and Europe. However, their success declined with the emergence of Russian competition and increased regulation of the petroleum trade.
This problem was no doubt, exacerbated by the fact that
more and more of the previous market was turning to gas and
electricity for power and light. The seriousness of this
problem is well illustrated by the problems of Standard’s
Bayonne refinery, the world’s largest in 1911. It was
built as part of a capital expansion program at a cost of
$2,195,205.The essence of the problem with
Bayonne was that its owners were not sure where they would
sell the 21.3 million barrels of kerosene it produced every
year if Europe ^nd America kept reducing their dependence 4 9 on kerosene.
For a variety of reasons, the answer to this problem and those related to American values and the growth of regulation was to increase the volume of kerosene sales to
Asia, particularly China. Most of China's estimated
400,000,000 people used candles and vegetable oil for light. Kerosene burned more brightly, and in large volume sales it could be sold more cheaply than those more traditional fuels. Perhaps just as important was the fact that the system of treaties which governed China’s commercial relations with the West at that time made it profitable to sell goods there. Finally, there was no strong government to regulate trade in China at that time.
China’s imperial form of government was overthrown in 1911, and before that, its powers had been restricted by the treaty system which aided Western trade.
Of all the factors that affected Standard’s operation
in China before and after 1911, the treaty system is second
only to the emergence of Chinese nationalism and
anti-imperialism. The treaty system shaped the commercial
atmosphere at the time Standard entered the China trade.
Then, as the ideologies of nationalism and anti-imperialism
appealed to more and more Chinese, Standard’s ability to
function with relative impunity was frequently challenged,
especially from 1925 to 1930 when the Chinese struggle to
build a modern nation and strong government was most 50 intense. Standard’s survival during this era was unique,
■for it cace at a time when the imperialst interests of all the foreign Powers in China was under constant and violent attack.
If Standard’s survival of this era is to be clearly understood, the reader must understand some of the basic relationships involved in the creation of the treaty system that facilitated Standard’s initial sales in China. It is also important to determine the Chinese view of Standard
Oil, both from the viewpoint of the government and the customer. As these things are done, important patterns of continuity between Standard’s practices in America and
China will be brought into focus. Taken together, these factors will do much to explain Standard’s entrance into the China market as well as its survival during the years
1925-1930. 51
Chapter One Notes
^Allan Nevins, A Studv in Power. John D . Rockefeller,_____ I ndustri al i st_____ and______Philanthropist, (London:1953), 2 Vols., Vol.I, p.23. (Hereafter cited as Nevins, A Study in Power).
“David F. Hawke, John D.:The Founding Father of the Rockefellers, (New York:1980), p.29. (Hereafter cited as Hawke, John D.).
^Nevins, A Studv in Power, p.24.
*See Hawke, John D. pp.46-51 for the nature of Rockefeller's dispute with the Clarks.
=Hawke, John D .. p.62, and The Report of the Cleveland Board of Trade, (Cleveland:1886), p.28.
*The Cleveland Leader, September 30, 1869.
^Nevins, A Studv in Power, p.75
®Nevins, A Studv in Power, p.81, and Ralph and Muriel Hidy, Pioneering in Big Business 1882—1911, (New York:1955), p.9. (Hereafter cited as Hidy, Pioneering in Big Business)
''Thomas McCraw, "Rethinking the Trust Question", in Thomas McCraw, ed. Regulation in Perspective, (Boston:1981), pp.7-9 (Hereafter cited as McCraw, "Rethinking the Trust Question").
^^McCraw, "Rethiking the Trust Question", pp.7—12, and Gilbert H. Montague, The Rise and Progress of the Standard Oil Company, (New York:1913), p.lO. (Hereafter cited as Montague, The Rise and Progress of the Standard Oil Company).
^ ^"The Standard Oil Company, Child of the Erie Ring 1868—1872", Mississippi Valley Historical Review, XXXIII, 1946, pp.89-114.
^^The Cleveland Leader, March 21, 1872, and Hawke, John ~DT p. 75.
i^Nevins, A Study in Power, p.89, and Grace Soulder, John D. Rockefeller. The Cleveland Years, (Cleveland:1972), p.109. (Hereafter cited as Goulder, the Cleveland Years). 52
^•^Hawke, John D., p. 72, Nevins, A Study in Power, p.105, and Goulder, The Cleveland Years, pp.Ill—112.
i=Report of the New York Commission on Railroads, (Albany:1879), p.1059. (Hereafter cited as Report of the Hepburn Commitee).
i^Nevins, A Study in Power, p.105, Hawke, John D-, p.172, and Goulder, The Cleveland Years, p.105
^^Investigation of Trusts, (Washington:1907), p.307, shows the Trust Agreement in full. The eleven oil companies owned by Standard were: The Standard Oil Company of Ohio; The Standard Oil Company of Pittsburgh; The Acme Oil Company of New York, (located in Titusville, Pennsylvania); The Imperial Oil Company of Oil City Pennsylvania; The Atlantic Oil Company of Philadelphia; The Camden Company of Maryland; Sone & Flemming Company of Baltimore; The Baltimore United Oil Company; and Jabez A. Bostwick Company of New York. (Hereafter cited as Investigation of Trusts).
^^Investigation of Trusts, "Report of the Commissioner", Part I, p.16.
i^Tbid.■ p.17.
Alfred Chandler, “The Emergence of the Visible Hand: Implications for Industrial Organization", Alfred Chandler, ed.. Managerial Hierarchies: A Comparative Perspective on the Rise of the Modern Industrial Enterprise, (Cambridge:1980), p.198, and p.202.
=^Ibid., p.198
==John K. Galbreath, The New Industrial State, (Boston:1978), p.68.
^^Stephen Mixter, “Political Parties and American Business During the Guilded Age", Senior Honors Thesis, The Ohio State University, (Columbus:1983), p.66.
=*Hawke, John D.. p.13.
“”Hidy, Pioneering in Big Business, p.32.
=»Ibid.. p.32
=^The Report of The Commissioner of Cororations on the Petroleum Industry, "Part I, The Position of The 53
Standard Oil Company in the Petroleum Industry," (Washington:1907), pp.295—296, shows the original corporate charter of the South Improvemet Company, pp.357-361 shows the individual contracts between the oil and railroad companies, as does Ida Tarbell’s The History of the Standard Oil Company, (New York:1925), pp.281-288.
=*Hawke, John P ., pp.85—86, and Nevins, A Studv in Power, pp.123-124.
®‘^Nevans- A Studv in Power. pp. 149— 151, 659—660. Also see John G. MeClean and Robert W. Haigh, The Growth of Integrated Oil Companies. (Boston:1954), p.60—65, 67—70. (Hereafter cited as McClean and Haigh, the Growth of Integrated Oil Companies).
-•^McClean and Haigh, The Growth of Integrated Oil Companies, pp.62-65.
McClean and Haigh, the Growth of Integrated Oil Companies, pp.66-67.
==Report of the Commissioner,"Part I, The Position of the Standard Oil Company in the Petroleum Industry", pp. 9-10.(Hereafter cited as "Report of the Commissioner").
^^Report of the Commissioner, "Part I, The Position of the Standard Oil Company in the Petroleum Industry", p. 11, and McClean and Haigh, The Growth of Integrated Oil Companies, pp.67-70
^^Report of The Commissioner of Corporations on the Petroleum Industry, "Part I, The Position of the Standard Oil Company in the Petroleum Industry, pp.65-69.
==Ibid.. pp.65-69.
=^Tbid., pp.65—69
=^Report of the Commissioner. "Part I, The Position of the Standard Oil Company in the Petroleum Industry", pp.70-75
=°Alfred Chandler, Strategy and Structure: Chapters in the History of the Industrial Entrorise. (Cambridge: 1962) , pp.30-31, and see Hidy, Pioneerig""in Big Business, p.56 for the list of Standard’s Trustees.
^'^Mixter, "Political Parties and American Business", p.62 54
•**^New York World, April 1, 1890
^^Mixter, "Political Parties and American Business", p.59.
■^“McCraw, "Rethinkig the Trust Question", p. 37.
*=Tbid.. p.37
■""^Chandler, "The Emergence of the Visible Hand",pp.198-202. ■•“"State "ex—rel.v. Standard Oil Company, Vol. 49, Ohio State", p.189.
■••"Chandler, "The Emergence of the Visible Hand", pp.198-202.
•’'Mixter, "Political Parties and American Business", p.62. •®"State "ex—rel. v. Standard Oil Company, Vol. 49, Ohio State", p.189.
•^Report of the Commissioner, Vol. I, (Washington:1900), pp.466—470 for the entire Pure Oil agreement.
=*Ibid.. p.470.
“^Report of the Industrial Commission, (Washington:1900), Vol. I, p.799.
““Mansel G. Blackford, The Politics of Business in California, 1390-1920. (Columbus:1977), pp.49-50, (Hereafter cited as Blackford, The Politics of Business in California), and Arthur Johnson, Pipelines and Public Policy 1906-1959. (Cambridge:1967). Ch.l.
““Hidy, Pioneerinqin Big Business, pp.673-674, and Gerald P. Nash, United States Oil Policy, 1890— 1964. (Pittsburgh;1968), pp.11-13.
“•Report of the Commissioner. "Part I, The Position of the Standard Oil Company in the Petroleum Industry", p.iii.
^"Standard Oil v. the United States, Pleadings, Opinions, etc., (Washington:1911), pp.1—55, (Hereafter cited as Standard Oil v. the United States), and Hidy, Pioneering in Big Business, p.684. 55
“^Hidy, Pioneerno in Bin Business, pp.690—696.
^^Standard Oil v. the United States, p. 75, and Hidy, Pioneering in Big Business, pp.697—698.
^°Standard Oil v. the United States, pp. 80-82, and Hidy, Pioneering in Bio Business, pp.697—698.
^^Standard Oil v.the United States, pp. 93-105, Hidy, Pioneering in Big Business, p.685, and The Oil Paint and Drug Reporter. LXXVII, (1910), p.16.
^°Standard Oil v. the United States, p. 105, Hidy, Pioneering in Big Business. p. 698, and The Oi1 Paint and Drug Reporter, LXXVII, (1910), p.17.
^ ’•Hidy, Pioneering in Big Business, p. 123.
“^-John Moody, ed.. Moody's Manual of Corporate Securities. (New York:1903), p.1665, and p.1732.
^=Ibid., p.1665, and p.1732.
'^''Blackford, The Politics of Business in California. p.41.
^^Blackford, The Politics of Business in California, p.45.
^^Irvine Anderson, The Standard Vacuum Oil Company and United States East Asian Policy. 1933—1941, (Princeton:1975) , pp.18— 19. (Hereafter cited as Anderson, The Standard Vacuum Oil Company).
*^Roger Butterfield, "The Age of Kerosene", The Lamp, (September, 1957), pp.9— 19, Hidy, Pioneering in Bio Business, pp.545—547, and Gibb and Knowlton, The Resurgent Years, p.11.
‘^“Hawke, John D ., p. 23=
^^Report of the Hepburn Committee. p.452, p.808, and 1957, also see Hawke, John D.. p.144, and Nevins, A Studv in Power, pp.130-131.
■'■"Hawke, John D., p. 86.
■'■^Hidy, Pioneering i Big Business, p. 124.
^^Gibb and Knowlton, The Resurgent Years, p.11. CHAPTER II
STANDARD’S EARLY YEARS IN CHINA
1863-1918
The Standard Oil Company began shipping small amounts of kerosene to China in 1863. However, this market remained a secondary one to America and Europe until the iSSO’s. It was not until the early part of that decade that T.C.
Bushnell, the Chairman of Standard’s Export Trade
Committee, decided to attempt large volume trade there.1 Bushnell’s decision to move large amounts of kerosene to China was partially motivated by business considerations in America and Europe, and it was also facilitated by previous events in China and the
Sino—American relations that were formalized as a result of those events. Therefore, the study of Standard’s early years in China must logically begin with a brief account of those events, and then proceed to an analysis of how they directly benefitted Standard Oil.
The historical events that facilitated Standard Oil’s sale of kerosene in China began in 1842 when China was defeated by England in the Opium War of 1839-42. After its 56 57
deafeat, China was forced to sign the treaty of Nanking and its supplimentary articles which were known as the Treaty of Hoomun Chai.= These two treaties were important precedents for later Sino—Western treaties, and they also shaped the commercial atmosphere in which
Standard Oil operatedafter 1863. According to the provisions of these treaties, the Chinese were required to open five ports to the trade and residence of the British.
The ports were Amoy, Foochow, Ningpo, Canton, and Shanghai.
England appointed consuls to these ports to manage trade relations on a government to government basis.^
This was a drastic change from the era before the Opium
War. During that era, trade with Western nations was
conducted primarily at the port city of Canton and
structured to accommodate the Chinese ideas of a universal
empire in which China and its emperor were assumed to hold
a universially superior position. This system of trade
brought the forces of mercantilism and Western culture into
direct conflict with China's political system and notions
of cultural superiority. The result was a situation in
which the Westerners demanded government to government
relations, and the systematic application of tariff rates
and contracts.
The Chinese refused these demands until they were
defeated by the British in 1842. In fact, all 58 communication with China's officials, whether local, or those of the central government, were forbidden to foreigners. Instead, all matters of foreign trade and residence were handled by a group of influential Chinese merchants known collectively as the Cohong.*
Several missions were sent to China to formalize
Sino-British relations between 1793 and 1839, but none of them were successful. Their falure, plus the Chinese destruction of opium stored at Canton brought Sino-British relations to the confrontation stage. The British traders demanded their government’s intercession for the recovery of their goods, and the Chinese refused to allow it. The result was the Opium War.=
Another important part of the treaties which were signed at the end of the Opium War was the application of the principle of extraterritoriality. This principle allowed
British consuls to act as judges, applying British law in
China in the event of legal or commercial conflict. This
arrangement was not new to China. Its origins preceeded
the Ch’ing dynasty to the time when the heads of Arab and
Central Asian tributary missions were allowed to apply
their customs to their people who conducted trade in
China-* The British demanded this privilege as a
further guarantee for the safety of their nationals and
property in China. The Chinese, who were in no position to
refuse in 1842,granted it, and justified it to themselves 59 as merely a matter of custom. During the next eighty years, this old Chinese custom became a major factor in the creation of autonomous foreign enclaves in many of China’s major cities, but in 1342, it is likely that neither side foresaw this result.
Among the causes for the Opium War, foreign difficulties
with tariff collection were also important. This was because changes in the tariff rates were often large and unpredictble. So, in 1842, the British took steps to
correct this problem too. They forced China to accept a
fixed tariff on British imports into China which was not to
exceed a maximum of five percent ad—valorem. For
the British, this was the solution to a problem which had
existed for well over a century. It introduced rationality
and predictability where there had been none before.
The fixed tariff of 1842 was an immediate solution to
the problems of the British, but they were unaware of the
basic reasons for China’s unpredictable tariff system
stemmed from the indirect manner in which they were
collected. China had first established custom houses for
tariff collections on coastal trade in 1703. The first
ones were in the provinces of Kiangsu, Chekiang, Fukien and
Kwangtung. Because custom and the ideology of
neo-Confucianism precluded the Emperor’s officials from
direct involvement in mercantile matters, an influential
merchant was given the title of Hoppo and charged with the 60 duty of organizing other merchants for the collection of tariffs. In this way, the Hoppo and his associates in the
Cohong became ex-officio agents for the management of
China's coastal trade.® Moreover, they acted as a shield between China's imperial officials and mercantile activities which they were required to eschew.
The Cohong set the prices for goods exchanged and most importantly, they set and collected the tariff for the government. As the British saw it, the problem with this system was the graft, unpredictability, and secrecy of the system. There was always a fixed rate of tariff for the government, but depending on the needs or avarice of the
Cohong, extra charges of up to 40% were levied. Ten percent of the overcharge went to the Hoppo and the remainder was divided among the Cohong's other members.* The British and other foreigners had never been officially informed of the standard rate of tariff, and the indirect nature of the Canton system kept their inquiries and protests from reaching official notice in China.
That situation, and much more was changed with the treaties of Nanking. China was now forced to open her ports to an orderly and predictable system of tariff collection, regardless of previous practice or desire. The irregular tariff collections were replaced by a fixed maximum of five percent ad—valorem. Also, the British were 61
allowed to reside year round in the treaty ports instead of the customary confinement to their "factories" for the six
month trading season.
In retrospect, it appears that the Chinese badly
misjudged the long term consequences of the treaties of
Nanking. It was clear in 1842 that they had been defeated
militarily, but they considered the treaties that resulted
from that situation as merely minor variations in their
customary arrangements for foreign trade. For example, the
increase in residential areas for traders appeared as mere
expansions of the old Canton system's geographical and time
limitations. They were not particularly troubled by the
existence cf the provision for extraterritoriality in the
treaties either. There was ample precedent in China’s
relations with Central Asia to justify the grant of this
privilege to the newest group of foreigners in China.
Finally, the relatively undeveloped state of Chinese
industry as well as the traditionally low estimation of the
value of trade by the Chinese led the government to look
askance at the fixed low rate for the tariff.
While Britain proceeded to wring commercial benefits
from China, American policy was one of passivity. This
policy created the impression among the Chinese that
Americans could become both friends and allies instead of
the belligerent antagonist that England had become. One of
the results of this policy was the treaty of Wang Chia in 62 which Americans received essentially the same rights as
Britain without the expense and trouble of a military campaign in China. The treaty of Wang Chia was the first formal Sino—American agreement, but for many reasons, its significance goes well beyond that fact. For example, the conclusion of this treaty appeared to indicate the immediate practical value of America’s passive policy toward China. In fact, once this pattern of behavior was rewarded by the Chinese, it came to be one of the essential characteristics of American policy in China throughout the ninteenth and much of the twentieth centuries.
In addition to forming an important precedent for
America’s China policy, the treaty of Wang Chia was also the start of a much larger process in Sino—Western relations. This is because it began by duplicating the priveleges given to the British, and went on to extend the grant of similar privileges to all the nations who came to trade in China. Seen from this perspective, the treaty of
Wang Chia did more than create a favorable atmosphere for
Standard Oil to function in. It also marked the beginning point for the multinational extraction of commercial and
political priveleges by other Western nations.
Therefore, a study of certain portions of this treaty is
not only warranted for the purposes of clarifying
Standard’s legal position. It will also help clarify the
reasons why China’s sovereignty continued to deteriorate 63 for the next eighty years.
The first part of the treaty of Wang Chia that later proved to be a detriment to China’s sovereignty was the grant of most favored nation status in Article II. That portion of the treaty specifically provided that if any additional advantages of any kind were conceeded by China to any other nation, the United States and its citizens would automatically be accorded equal benefits.
This special status was given to America for two reasons.
First, America had not participated in the hostilities against China. Therefore, China decided that some form of
Imperial favor was due. Also, the Chinese felt that the grant of most favored nation status to America would help them to regain their prestige and the diplomatic initiative after their military defeat.
The Chinese desire to regain some sort of initiative was increased by information that came to the attention of their two primary negotiators, I Li—po, the Commissioner of
Trade at Canton, and Ch’i—Ying, the Manchu Minister who bore the brunt of responsiblility for negotiations with
America. On January 12, 1843, I Li—po memorialized the court, saying that it appeared that England had secretly agreed with other foreign nations to trade in China. As he saw it, this situation would create the illusion that trade with China was a benefit conferred by England.^*
Since China had granted equal trading privileges to 64 foreigners before, it was hoped that this new grant could be interpreted by them as a continuation of the court's benificence. If America and Britain were the only nations to come to China this strategy might have worked well.
However, there were many more, and China was basically ignorant of the numbers and power of the nations with which it would be forced to trade with. It was that ignorance that turned the temporary Chinese advantages of the court's appeasement policy into a long term liability. The basis for that liability lay in the fact that the nations who followed England and America into the China trade made most favored nation status a common feature of their treaties.
In that way, if any country got a benefit, all the others did too, without negotiation or force. Then, once the privileges were granted, none of them could be removed without the consent of all the foreign countries. Because none of these nations was willing to put themselves at a disadvantage with its competetitors, the end result of this policy was to put the control of trade in China beyond the ability of its government.
If many nations's special position in China can be traced to the treaty of Wang Chia, the same may be said for the Standard Oil Company. Article III gave American citizens the right to reside in the same ports as the
British. Article IV provided for the appointment of 65
American Consuls to manage trade relations. And, Article
XXI provided for the American exercise of extraterritoriality in China. It was essentially these three clauses that gave Standard Oil its legal basis to enter China. The company not only had the right to trade there, it was afforded the legal protection of the American government, and it had the promise of extended privileges whenever any other country could extract them from China. The advantages for Standard were clear; its benefits in China were substantial, and they were not solely dependent on America and its non-aggressive posture. Any time a more aggressive nation improved its position in China, Standard's was automatically improved too.
The American, and thus Standard Oil position in regard to the matter of tariff rates was similarly protected.
Article II of the treaty stated that if the Chinese government desired to modify the tariff in any way, such modification could only be made with the consent of the
Consuls or other functionaries who were duly authorized to represent America and the other Powers in China.
In this manner, Americans trading in China were guarranteed a situation in which China could not protect its economy from a flood of foreign goods. Also, the tariff could not be unilaterally changed by China because the most favored nation clause in other nation's treaties 6 6 extended the requirement of consent for tariff changes to all the trading nations. This situation eventually proved to be a major obstacle to China's later economic development. It was only after the development of Chinese nationalism and arduous negotiations that China regained her tariff autonomy. That process and its implications for
Standard Oil and other companies will be discussed in a later chapter. For now, it is sufficient to note that
China's ninteenth century treaty system provided Standard with a strong legal basis for the export of large amounts of kerosene to China at a guaranteeed minimum tariff.
The treaty based advantages that facilitated Standard's sales of kerosene in China lay largely unused until 1382.
It is true that Standard sold kerosene in China from 1863,
but the trade was only sporadic. This was because Standard
was involved for most of this time the with various
concerns covered in the preceeding chapter of this study.
The credit for organizing the commercial structure to take
advantage of the treaty system with China belongs to two
men; J.J. Bandinel, the American Vice Consul in the port of
Newchuang, and William H. Libby, a marketing specialist for
Standard Oil.
For many reasons, there is much significance to be
attached to the cooperation of these two men. One reason
is that it shows that the beginning of Standard's large
scale exports to China preceedes the general American 67 attempt in that direction by almost two decades. Another reason is that Standard's commercial structure in China was begun without the -financial and institutional advantages shared by other foreigners in China. Among those advantages for the other companies were government support of combination at home, as it was done in Germany.
Standard was a leading company in the American movement toward combination, but as it has already been shown in this study, its size was interpeted as a threat even before
1882. By 1890, American government at the state and national level was moving to reduce the size of Standard.
Other advantages that Standard Oil did without in China in
1882 were American banks to support large investments, and an active Consular service to facilitate trade. In fact,
America did not attempt to duplicate the concerted governmental and institutional support of trade in China that Germany and England had until the period
1900—1 9 2 0 . And, even when it did, it was never really successful-
Although it is true that Bandinel wasa U.S. Consul in
China and helped Standard Oil’s representative plan a commercial structure there, it should not be inferred that he was in any way representative of the general calibre of our consular service at that time. In fact, he appears to have been an exception in a service that was generally ineffective. For example, in major ports like Shanghai, 6 8
American Consuls were outnumbered by the British by a ratio of four to one throughout the 1880’s and 90’s. They often worked in dilapidated offices, and in some cases, they worked in their hotel rooms. The quality of their work before the service was reorganized in 1909 is indicated in a report by Burlingame Johnson, another of the exceptions of that time. Johnson was posted to Amoy in
1897, and he reported that his predecessor had given no attention at all to openings for American products. In fact, Johnson noted that for three years, there were no reports at al 1 to the Department of State about opportunities or conditions of trade in China.
So, for these reasons, the cooperation of Consul Bandinel and William Libby appears to be an exceptional example of detailed work and advanced planning.
The start of Bandinel and Libby’s cooperation began when
Bandinel wrote a report advising the large scale import of kerosene to China. As he saw it, kerosene was the most profitable export for the oil industry at that time. This was due to the absence of American industry in China, and the fact that the limited number of Chinese industries at that time would not support the sale of fuel oil and lubricants on a large scale. Bandinel did notice, however, that most of the Chinese used a variety of vegetable oils for lighting which he considered to be smokey and inefficient at best. It was obvious to him that a market 69 of over four hundred million people were waiting for an inexpensive and efficient source of light. It was
Bandinel’s opinion that vegetable oil and kerosene were similar" ,and therefore, would present no real challenge to
Chinese custom. Also, if the kerosene could be sold cheaply, he saw no reason why American refiners could not quickly realize the myth of the China market.
To support his opinion, Bandinel conducted a survey of kerosene imports into China for the period 1878-1881. He found that they varied from a highpoint of 12,000 gallons in 1881 to a low point of only 1,590 gallons in
1879.== (See Appendix 1 for yearly imports and value in dollars). It was Bandinel’s opinion that the sporadic sale of kerosene in China was due to the absence of marketing organization and an instability in the supply of kerosene. Therefore, he concluded his report with specific recommendations to remedy the situation.
Bandinel's first recommendation was that a direct shipment of twelve to twenty thousand cases of kerosene be made and that each case should contain two five gallon cans. He also recommended that the ships carrying the kerosene should draw only sixteen to eighteen feet of water so that they could travel up the Yangtze River to China's inland ports. Failing this, he was confident that he could arrange for transshipment onto Japanese charter boats which made regular trips up river. Finally, he suggested that 70 advance advertising and bi-monthly auctions be held for the benefit of bulk rate consignees in the ports.
The next American to seriously take up the idea of kerosene sales in China was William Libby. During the lS70’s, Rockefeller had put together a formidable team of businessmen whose backgrounds and achievements are now well known. However, little is known of Libby other than the fact that he travelled extensively in Europe and Asia to erect marketing structures for Standard Oil. In fact,
Ralph and Muriel Hidy, who devoted much time to gathering information on Standard’s leading figures before 1911, make no mention of Libby’s personal background. However, their work as well as that of others like Irvine Anderson and
Paul Varg do give Libby credit for influencing Standard’s
Export Trade Committee to seriously consider high volume sales in China.=*
Libby and his assistant, Robert J. Bolles, toured China and India in 1882, the same year that Bandinel wrote his report and recommendations. Libby’s apparent knowledge of
Bandinel’s work as well as the obvious help he got from
Bandinel in preparing his own report for Standard bore cut
U.S. Minister Congers’s opinion in 1897 that enterprise, initiative, and energy were essential for America’s success in China.==
Libby conducted a tour of all the major ports of China, conferred with several American Consuls there, and even 71 paid a visit to Sir Robert Hart, Inspector General of the
Chinese Imperial Maritime Customs Service. Upon his return to New York, he issued his report to the company. There are no longer complete copies of this report, but its important parts are often cited in the secondary literature about Standard Oil in China. Also, parts of it were translated into Chinese as part of an advertising campaign.=* It was this report that convinced
T.C. Bushnell, the head of Standard's Export Trade
Committee, to step up the volume of kerosene to China.
Libby's report began with a recognition of the growth of competition for Standard's European markets by Russian oil which was mentioned in the first chapter of this study.
From that point, Libby's work borrowed much information from Bandinel's report. The fact that he did so is yet another example of the advantages for Standard within the treaty system. Without that system, which placed Bandinel in China, Libby would have been without specific information on market conditions or packaging and shipment arrangements. It will be shown in later chapters that this was the start of a long relationship between American government and Standard Oil in China. These kinds of relationships may be taken as common in some cases, but
Standard's position as the largest American company in
China until 1949 was the cause for a much closer relationship with the Department of State than is 72 considered normal.
The points on which Libby and Bandinel cooperated are clear. Both men agreed that China's lifestyle and its population presented a ready market. Bandinel suggested
importing kerosene, and Libby added the idea of importing
lamps and wicks of the cheapest possible price consistant with safety standards. They also shared information on the
details of sales and methods of exchange. Libby
recommended that kerosene be rarely sold for cash to
individuals. Instead, he proposed the reliance on
in—country agents who were already established importers.
Fror. these persons. Standard would accept a note,
exhcangeable at the end of fifteen days in a Chinese bank
in Shanghai. At that bank, an exchange fee of five percent
would be paid. Then, the proceeds of sale would be
remitted to one of the foreign banks in Shanghai which
would forward credit to Standard Oil in New York. From
thes~ prcfits, there would be a deduction of five per cent
ad—valorem for custom's duties, and a small landing and
storage fee. Fire insurance of one and one half per cent
for the local agent completed the arrangements.
The marketing structure outlined above provided a
partial answer to the problem of Standard's lack of
governmental and institutional support in China. Where
possible. Standard provided its own financing facilities 73 and information on markets. Also, the company availed itself of assistance from already established foreign concerns. Examples of this process are found in Standard’s use of the British firms of Butterfield and Swire, and
Jardine and Matheson as its first major in—country agents.
Standard relied heavily on these two firms until 1894 when the Anglo-American firm of British—American Tobacco became another outlet and brought more Americans into Standard’s structure in China.
By the end of 1883, Standard Oil had made significant progress in its sales in China. Whereas the previous peak of kerosene sales had been only 12,000 gallons in 1881, W.
Jamieson, the American Consul in Shanghai, was able to report that a total of 153,000 barrels had passed through the Maritime Customs facilities in Shanghai and Hongkong, which were the major ports of China at that time.=^ Allowing for the then standard content of forty two gallons per barrel, the total amount of kerosene shipped through these two ports was 6,426,000 gallons in one year. J.L. Stephens, the Vice Consul in Shanghai, wrote a suppliment to Jamieson’s report. It indicates that
Libby and Bandinel were correct in their assumption that kerosene would sell easily in China if it was not too expensive. He wrote that kerosene sales were four times what they had been in 1876. Moreover, he found that due to its cheapness, and excellent quality, kerosene had become 74 established as a valuable household commodity. According to Stephens, there was hardly a village within 100 miles of
Shanghai where it was not sold.=°
The indirect method of kerosene sales through established importers worked well for Standard. That practice was relied upon until 1894. It was in that year that Standard began to elaborate upon its operation in
China. This process of elaboration lasted until about the start of the first World War, and it is interesting to note that in many ways, what the company did in China resembled its growth pattern in America.
After its initial success in China during 1882, the
Standard Oil Company continued to expand its sales through the gradual duplication of its domestic structure. The process was long, and there were some differences. They will be explained as this process of duplication is recreated in this chapter. As Standard's expansion in
China is explained, it should be remembered that its timing coincides with the period in which the company faced major challenges at home which increased in number, seriousness, and frequency.
Chapter one of this study has shown that those domestic challenges culminated in the landmark case of 1911, an event which has also been well covered by other historians.
What has not been done before is to note the coincidence in timing between Standard's period of challenges at home and 75 in Europe with its expansion in China. Many authors have explained the Pacific expansion of American commercial interests in different ways, but the issue of challenges of the variety and frequency which beset Standard has not been mentioned as a motivation for the company's move to China.
The Wisconsin School, represented by Thomas McCormick, says that Americans spread into the Pacific because of the rhetoric of four hundred million potential customers. In that view China would absorb America’s excess production.The Realist School, represented by
Paul Varg and George F. Kennan, make an interesting revision of the Wisconsin idea. They accept the idea of
China as a market being the motivation for expansion in
Asia. However, they deny that it was really possible to realize the goal of capturing China as a market. These authors expand on the earlier opinions of A. Whitney
Griswold’s The Far Eastern Diplomacy of the United States which was published in 1933.-=
Although these two schools express different ideas about
American business in China, they do share the common ground of the timing of the move to corner China as a market.
They place its start between 1890 and 1900, around the time of the proclamation of the Open Door Policy. Standard’s move to large volume sales in China preceedes these dates by almost a decade. So, it must be that Standard was in some way an exception to the general pattern of American 76 business in China.
Recent scholarship on possible exceptions to the
Wisconsin and Realist ideas about the China market are represented by Michael Hunt and Sherman Cochran. Hunt assumes the middle ground beteen these two schools. He
■feels that given the passive nature of the Open Door Policy and the ineffectiveness of the American Consular Service and financial institutions, business success in China was a function of business skill. Hunt used the three examples of kerosene, textiles, and tobacco to prove his point.
Cochran helped prove Hunt’s point by focusing on one of these exports in his study of the American success with the
tobacco industry in China from 1890—1930.==
What remains of this chapter will be an elaboration of
Hunt’s thesis and Cochran’s method, using the Standard Oil
Company as the primary example. This has not been done
before in great detail. Also, the timing of Standard’s
domestic challenges has never been included as a motivation
for it move to China. It is hoped that the inclusion of
these two factors will make this study an acceptable and
important refinement in the historiography of American
business in China.
The easiest way to explain Standard’s growth in China is
to list the basic elements of its domestic structure which
made it a success in America. Then, the development of
those same elements will be traced in China, taking care to 77 note the timing of their appearance there as well as their relative reception in America and China. In this way, two things will be shown. First, that Standard Oil duplicated its structure and operation in China with few significant changes from what it did in America. Second, that the duplication of this structure coincides with the challenges
Standard faced in America and Europe, and that those challenges may well explain why Standard moved to China well before any other large American company did.
In an interview with staff members of the United States
Commissioner of Corporations Office, Samuel C.T. Dodd,
Standard’s long time chief legal officer, briefly outlined what he felt were the key factors in Standard’s success in
America. According to Dodd, those factors were direct sales from refineries to retailers, the construction or purchase of refineries and canning plants, control of pipelines, ownership of fleets of tankers, and the use of tank wagons for direct sales to customers. =■* Mr.
Dodd failed to mention the factors of efficiency which led to rebates as noted in chapter one of this study. Also,
his bias as a company représentâtive is shown in the fact
that he made no mention of the espionage and regional price
cutting that were integral parts of Standard’s domestic
structure. Therefore, as Standard’s growth in China is
traced, one must be mindful of the kind of practices it was
based on in America. Also, where possible, observations of 73 the reception, rejection, or modification of Standard's business practices in China should be made.
When Standard first began large scale shipments of
kerosene to China, it was packaged in cases as Vice Consul
Bandinel recommended. It was shipped to Hongkong and
Shanghai where previously established firms bought it and
sold it for retail distribution. This initial indirect method of sales was caused by the fact that at that time.
Standard had no experienced people in China. This
situation began to change in 1894. It was in that year
that Howard Cole, the newly appointed head of Standard's
Export Trade Committee, made a direct linkage from
Standard's refineries to retailers in China. He did this
by appointing the company's own agents to all the treaty
port cities of China's coast and the Yangtze River ports as
far upstream as Chungking.== In this way, the
first one of Standard's American characteristics was
duplicated in China.
This information was provided in an interview with Mr.
Howard Schlereth, an employee of Standard in China and the
Phillipine Islands from 1929 to 1965. His information on
this subject varies from that of published sources. Paul
Varg, for example, says that Standard's direct sales agents
went to China about 1910. Irvine Anderson places them in
China during the lS90's but mentions no specific year.
Given the steady flow of kerosene to China shown in 79 appendix two to this chapter during the 1890's, this author
is inclined to accept the information of Mr. Schlereth,
with the qualification that even he may be a bit late on
this subject. Records of Standard's sales in China during
the ISSO’s are incomplete, but they are much more
consistent for the oeried beginning with 1890. It seems
obvious that a steady flow such as the one which began in
that year would have required the presence of company
representatives to accept shipments and arrange for retail
sales.Moreover, the years around the turn of
the century were the ones in which Standard made a
concerted effort at direct sales from its refineries in
America.
The years in which Standard concentrated heavily on
direct sales in America were 1886 to 1906. During that
time, its ownership of direct marketing outlets rose from
313 to 3,573.—^ In the first chapter of this
study, it was shown that this was one of the most
controversial stages of Standard's integration of the
American oil industry. However, that was not quite the
case in China. One reason for the difference was that when
Standard began to open retail outlets in China, there were
no major American competitors in China to protest this
action or the way in which it was done. To he sure.
Jardine and Matheson and Butterfield and Swire were
probably not pleased about the price cutting that went so along with the establishment of Standard's new outlets.
However, there is no record of those companies ever bringing Standard before a Consular Court for such activities in China.
In an interview with Mr. William Coltman, an employee of
Standard in China from 1919—1949, it was indicated that price cutting in China was just as much a part of
Standard's operations in China as it was in America. He recalled that Standard's agents in China were often pointedly reminded by headquarters in New York that prices had to be "periodically adjusted" to maintain an acceptable share of the market.==
Mr. Coltman's intimation that price cutting was used by
Standard in China is supported by a portion of a Consular report from Amoy in 1896. In that report. Standard complained that its trademark was being pirated by Russian bulk dealers and Chinese retail sellers of kerosene. The
Russians installed a storage tank at Amoy which was used to
store low cost bulk shipments from the Baku oil fields.
Their Chinese agents bought empty Standard Oil cans, filled
them with inferior Russian kerosene, and sold them at a
slightly cheaper price. The effect on Standard's sales in
Amoy was dramatic. In 1894, Standard sold 255,039 cases of
kerosene. In 1895, after the Russian tank was built.
Standard's sales dropped to 57,000 cases. 8 1
This report indicates the competetive nature of trade in
China and something of the atmosphere in which Standard Oil operated. Given the existence of this kind of competition, and Standard's well documented practice of not only surviving, but initiating cut—throat competition in
America, it is hard to believe that their prices were not
"adjusted" long before Mr. Coltman began to work for the company. The fact that there were no American companies to complain about Standard's practices only adds weight to this conclusion. The company was known for price wars in
America where rivals could and did complain. To expect them not to cut prices in China where there were no legal barriers seems illogical.
In summary. Standard's rapid expansion of marketing outlets and use of price cutting in China seemed to create little if any of the negative results that they occasioned in America. Standard's former consignees imported many goods besides kerosene, and it may well be that they were content to recoup their losses elsewhere. The Chinese had no oil industry at the time, so the only Chinese threatened by the spread of Standard's kerosene were the vegetable oil sellers. Because China's treaty system limited its ability to protect these people from competitive imports, there was
little opposition to Standard from tnat quarter. In
America, expansion in marketing and price cutting during the years 1886-1906 were significant factors in Standard's 82 dissolution because those practices were considered to be restraints of trade. In China, similar methods were used during a corresponding period and there was no effective opposition at all. In fact, it appears that this phase of
Standard's expansion in China was at least abetted by the lack of opposition. It may have also been a reaction to strength of the opposition in America that drew Standard to
China. To be sure of that conclusion, other aspects of the company's operation in China and the reaction to them must be made.
Another of the factors that led to Standard’s domestic success was its widespread ownership of refineries and facilities like canning plants and warehouses. In America, the acquisition of these properties began in earnest with the Cleveland Massacre in 1872. It continued across the
country whenever new production fields opened, or a competitor lost out to Standard or one of its affiliates.
In 1907 when the United States Commissioner of Corporations
published his investigation of Standard, it was discovered
that Standard or its affiliates owned eighteen refineries,
located in all parts of the United States. The Sugar
Creek, Missouri refinery was the smallest; it produced only
74,478 barrels of refined oil per year. The largest one,
at Bayonne, New Jersey, produced over five million barrels
per year, and was soon to be expanded. Altogether,
Standard's refineries produced 21,341,179 barrels of S3 kerosene in 1907.*^ (See appendix 2 for the location and production of all these refineries).
The construction of this large network of refining plants and support facilities in America was the initial reason for complaints about Standard. The emphasis was on the refineries because they were more easily linked to
Standard’s immense profits. In China, the opposition that emerged was directed at Standard’s support facilities.
One reason for this was the fact that Standard’s products
reached China already refined. Also, Standard had no production fields in China, so there was no need for refineries there. Instead, the company needed canning plants and other kinds of facilities related to the
shipping and storage of kerosene. In addition to wharves
and warehouse. Standard needed canning factories in China.
This was because prior to 1914, Standard shipped kerosene
to China in f^rty two gallon wooden barrels.It
was only after the kerosene arrived in China that it was
placed into the more convenient five gallon cans. As the
volume of sales grew in China after 1882, the company’s
need for land to erect its facilities grew, and so did the
Chinese resistance to giving them the land. However, that
resistance was ineffective, and eventually disappeared.
From 1842 to 1903, Americans were able to lease land
through Chinese agents in the original five treaty ports.
The Commissioner of Corporations’ report of 1907 noted 84
Standard's success in acquiring the land for canning plants which were essential to its sales in China. According to that report, the shipment of case goods cost an average of
6.5 cents more per gallon than barrel shipments, but
Standard Oil made its own cases in China. The report went on to say that in the foreign trade in China. no other
American company could approach Standard in efficiency.The Commissioner’s office was clear about this part of Standard’s success in China, but it knew or cared little about the opposition that was put up by the
Chinese to the erection of these facilities. Examples of this opposition and its motivation are extant in the monographic and Consular records of the time.
The initial opposition by the Chinese to Standard Gil first took the form of local prohibitions on the sale and storage of kerosene. The American Consul at Shanghai reported as early as 1883 that in that city and others, restrictions of this kind had resulted in representations to Peking to rescind these local proclamations because they inhibited trade that was allowed by treaties with
America.*= In the 1890’s, as Standard sought to expand its facilities in China, the Chinese resorted to other kinds of obstructions. For example, Chinese who agreed to lease land to Standard for canning plants or warehouses were required to sign the lease at the local
Yamen, or government office. Upon arrival, the lessors 85 were squeezed for large sums of money, and sometimes, they were beaten for cooperating with foreigners.**
If the import statistics for kerosene are an indication of the effectiveness of these kinds of obstacles to
Standard, we may be sure that they had little effect on the company at all. For example, in 1890, 1,743,872 cases of kerosene were sold in Shanghai. In 1897, 4,699,733 cases were sold.*= If Chinese resistance to Standard was ineffective in the 1890’s, it all but disappeared in
1903 when China and America signed the Treaty for the
Extension of Commerical Privilege. Article III of this treaty removed the chance for local interference with
Standard’s land leases. It made it possible for foreign companies to lease or purchase land directly from the government in Peking.** The ease with which
Standard acquired its facilities in China after that is clearly seen in the Consular despatches of that period.
Consul Gracey, in Tsingtao, reported that all American companies would do better in China if they established personal agencies under the superintendence of
Americans.*^ Standard, of course, had begun to make such changes in the early 1890’s, and the results were impressive. They were singled out by Consul Gracey as an example of the kind of commercial accomplished that could be made in China.
Gracey wrote that in Tsingtao, the main import article 8 6 was kerosene, and that it had doubled in volume during the period 1905—1906. He attributed this increase to the arrangements made by Standard Oil for tanks, a special harbor, wharves, and a carming factory. In Gracey's opinion, the efficiency of Standard's operation was primarily due to the personal représentât!ves of the company. He concluded his report by stating that kerosene imports for Tsingtao in 1905 were 1,238,905 gallons, but that due to the erection of Standard's facilities, they had risen during 1906 to 3,368,956 gallons.**
The expansion of Standard Oil facilities in other ports during the period 1882—1906 was similar to that of
Tsingtao, and Standard's value as a local employer and a supplier of cheap lighting was noted. A.C. Jones, the
Consul at Chinkiang reported in 1887 that kerosene sales in that city had advanced by 377,000 gallons over the previous year's total. In 1387, 1.5 million gallons were sold, whereas five years before, only 384,000 gallons had reached the port.**' During 1906, Standard's steamers were the only American ships calling at the port of Chinkiang.
It was in that year that the company became an important
local employer. This was because the making of crates and tin cans for packaging of Standard’s kerosene had become the chief form of non-agricultural employment in Chinkiang.
In the area North of the Yangtze River, Standard also
established five agencies with large stocks and credit 87 sales. Along the Yangtze itself, the company built storage tanks at Shanghai, Chinkiang, and Hankow, and during 1906, it completed negotiations for the construction of another facility at Wuhu.
From the records cited here, it appears that the initial opposition of the Chinese to Standard Oil's expansion of facilities was no more successful than that of its competitors in America. Once again, we see simultaneous action in America and China by Standard, but the results of that action were different in important ways. In America,
Standard's continued acquisition of facilities drew negative attention from the general public and the
sensationalist press. This lasted from the 1870's until
1899 when Standard was taken to court in the State of Ohio.
By the early 1890’s. Standard also began to draw the
attention of the American political and federal judiciary
systems on an increasingly frequent basis. Then, in 1905,
the pace of litigation gained momentum. From April of
1904 to November of 1906, twenty-one cases were initiated
against the company in state and federal circuit courts.
By 1909, Standard was in the Supreme Court arguing for its
legal existence as a trust.
While these events were happening in America, things
appeared more encouraging for Standard in China. As the
company expanded there, it encountered no insurmountable
obstacles. The same may be said for America until the 8 8
1890’s. After that time in China, a definite improvement in the company’s China operations can be seen. The crucial elements in this process seem to be Standard’s field staff in China before 1903 and the additional treaty rights that the company could avail itself of that year. It was these two factors that enabled the company to overcome the hindrances of America’s domestic policies by using the country’s foreign policy of the Open Door in China.
As Standard continued to recreate varous parts of its domestic structure in China, the pattern of success with little effective or continued opposition continued. This was especially so in the construction of a transportation system for the China trade. For that trade, oil transport required a fleet of transport ships and a pipeline system from storage areas to canning plants. Standard’s initial shipments to China were carried in barrels on clipper ships, with only one steam powerded vessel in the fleet.=1 This method cf shipment lasted until
1910 when the demand in China for kerosene brought about a substantial outlay of capital for the creation of a specific subsidiary to coordinate the flow of goods. In
1910, Standard founded the Standard Transportation Company which commissioned the construction of the first three tankers for exclusive use in the China trade. By 1914, these three tankers, the Mei An. Mei Shan, and Mei P’an. were making regular calls at the ports of China. Their 89 route took them from the company's East coast refineries, around South America, and across the Pacific Ocean to
China. Then, depending on river conditions and sales requirements, they unloaded at China's coastal ports, or went upriver on the Yangtze to ports like Hankow and
Changsha.==
This part of Standard’s transport system seems to have been constructed without confrontation in America or China.
New York was the major port of exit. It was responsible for seventy—two percent of the company's exports as early as 1882. Philadelphia was the second largest export point.
It's Point Breeze refinery and the Atlantic refinery wharves controlled twenty—two percent of Standard’s exports.== The facility of operations in China were primarily the result of the weakness of China’s central government at that time and the restrictions on its sovereignty which were built into its treaty system.
This fact is clearly presented by Albert Feurerwerker, the noted authority on Chinese economic affairs. According to him, from 1842 until the late 1920's the Chinese suffered an increasing inability to restrict, regulate, liscence or tax any foreign individuals or firms of the treaty powers.=* All that was really required of
Standard in its shipping to China was payment of the customs duties of five percent ad—valorem as set forth in 90 the treaty of Wang Chia and its later additions. This situation contrasts markedly with the increased regulation of the kerosene shipments to Europe mentioned in chapter one of this study.
The other part of Standard's oil transport system was its pipeline, and compared to the difficulties encountered by the company in America, China was a much more amenable place for the construction of such a system. It was around the turn of the century that Standard began to duplicate this feature of its domestic structure in China. It never owned the extensive network there that it had in America.
This too, was primarily the result of the lack of production fields for crude oil in China. So, Standard had only one pipeline system in China. It ran from P'u K'ow,
North to P'eng P'u, the site of one of the company's candle factories and storage tanks. It was built primarily to speed service to customers in the heavily populated Huai
River Valley.==
Information on the existence of this pipeline comes from
Howard Schlereth and William Coltman, both of whom were long time employees of Standard in China. - To this author's knowledge, these are the only sources available about the company's pipeline there- This is partially explained by the relative smallness of the system. Also, the lack of published accounts of it may be due to the fact that it was not the cause of the level of controversey and shady 91 competition that accompanied the creation of Standard's domestic pipeline system.
These men date the construction of this pipeline at about 1900, but perhaps 1904 would be more precise and also explain the apparent lack of opposition to its construction. It was in 1903 that China and America signed the Treaty for the Extension of Commercial Privilege which facilitated the acquisition of land for this system. Under the provisions of that treaty. Standard was spared the frustration of its plans at the level of local government.
Instead, it could make land purchases directly from the central government in Peking.In this way, the company could deal with only one agency, and in 1903, the
Peking government was in no position to resist America's or
Standard's requests. It was, after all, the period in which China was being carved into spheres of economic influence by the Western treaty powers. The fact that the requests of the Americans were less intrusive on China's sovereignty than those of the 'ermans and the Russians probably eased Standard's negotiations greatly. So, it
appears that Standard was able to take timely advantage of
China's treaty system once again as it was modified to
accommodate America's Open Door Policy.
The final element in Standard's domestic structure which
was duplicated in China was a personnel system for the
direct sale of kerosene to its customers. The decision to 92 use the direct sales method was in part prompted by the refusal of the Jardine and Matheson Company to become permanent agents for Standard after 1894. From that time onward. Standard appointed its own resident managers at major ports. These men sought out suitable Chinese merchants who became bonded consignees for the sale of goods at China’s inland ports along the Yangtze River.
They also supervised the unloading of ships, filling of storage tanks and the work done in the various facilities in China. Within this system. Standard relied heavily on the Chinese to sell their product while most of their resident managers confined their roles to that of supplier and supervisor. They didn’t really change the Chinese sales structure, they merely appended their men to it in certain key positions.
Before 1900, the reliance on Chinese agents by the company solved many problems. They were of obvious value because of their linguistic ability, but also, they solved some very practical problems of transport. For example, in
1886, E.J. Smithers, the American Consul in Tientsin, reported that two of Standard’s ships were unable to cross the bar at the port’s entrance. Its Chinese agents easily arranged for lighters and junks to unload the goods and transport them to the interior.=® After 1903, when it became possible for Standard to expand its holdings
in China, the practice of functioning within a basically 93
Chinese sales structure was often noted in the consular correspondence. An example of the success of this system for direct sales is seen in the report of J. Mitchell, the
American Consul in Chungking in 1906.
According to Mitchell, during 1906, which was the first year for Standard in that port, 85,000 gallons of kerosene were sold. In his opinion, the success of the company was due to its policy of reliance on, and cooperation with local merchants, using Americans who spoke local dialects, and the fact that Standard advertised in
Chinese. (See appendices 3 and 3A for sample and translation).
Although the consular reports from this period do indicate that Standard's direct sales and personnel were factors in its success in China, they tell us little of the men who accomplished these sales or the daily details of how the work was done. For this information, we are fortunate to have a general description of the process in
Feuerwerkers’s book called The Foreign Establishment in
China in the Early 20th Century. This information can be expanded upon for even more detail by the recollections of
Mssrs. Coltman and Schlereth. According to Feuerwerker,
Standard’s American agents came to China as Griffins on three year assignments. This is the position Mr. Schlereth held when he went to China for the company. Mr. Coltman, the son a a missionary doctor, was born in Peking and 94 followed his father into the company's service in 1919.
This system, which was Standard’s personnel policy for its
China staff, required determination and dedication.
Marriage and leaves were not allowed for three years, and each Griffin was expected to learn at least enough Mandarin to conduct business. They were trained by local Chinese and eventually replaced the compradore like system which was begun in 1894.
Mr. Coltman was an exception to the Griffin pattern. He and his father both spoke passable Mandarin. According to
Mr. Coltman, advertising in Chinese, speaking the language, and the sale of kerosene in even the small quantity needed to fill a brass dipper were all features of Standard’s direct sales methods.
There is no real way to prove that Standard’s agents sold kerosene by the dipperful to people who couldn’t afford a five gallon can. Yet, there is evidence of the widespread reliance on Chinese merchants to whom such sales would have been common. For example, Michael Hunt’s article called "Americans in the China Market" shows that from 1899—1905, Standard opened thirteen new offices in
China. Also, in the diplomatic records of that time, we find a sample contract, purportedly used by Standard to engage Chinese merchants.Also, the picture in
Appendix 4 to this chapter shows Mr. Coltman and his
Chinese staff. The Appendix also includes an 95
advertisement5 written in Chinese, for Standard’s kerosene and lamps. Therefore, it is possible to corraborate many of the recollections of Mssrs. Coltman and Schlereth with tangible evidence.
By 1906, Standard had established its personnel structure in China, and the records of its volume of sales indicates the success of this system. Albert Feuerwerker has estimated that fifteen percent of China’s kerosene came from Standard’s East coast refineries during the 1880’s and
1890’s. Consular reports from various ports indicate that the company’s share of the market may have been considerably larger. This is indicated in a report prepared by Charles Denby, the American Minister in Peking.
According to Denby, kerosene imports to China in 1889 were
20,655,413 gallons. Cf that amount, only 5,655,471 gallons were imported by Russians who were Standard’s main competitors in China at that time.^=
The information cited here lends some clarity to
Feuerwerker’s estimate although it does not really tell how many other companies besides Standard sold kerosene in
China at that time. Until the 1920’s. Standard Gil is the only American company mentioned by name in the consular reports as an exporter of kerosene to China, and complete records of what that company, or any other did in the trade from 1882 to 1890 are incomplete. These records only approach a useful level of consistency from 1890 to 1900. 96
Therefore, one must rely on the extant information for those years to make a more reliable, although still
imprecise, estimate of Standard's sales in China.
The total amount of kerosene shipped to China from
America from 1890 to 1900 was 49,109,679 ten—gallon
cases.In its investigation of the Standard Oil
Company, the Office of the United States Commissioner of
Corporations indicated that Standard's share of that trade
should have been conservatively estimated at 39,237,743
cases, or 87% of America's total exports of kerosene to
China. The Co nmi ssi oner's report on production and
marketing of kerosene in America also attributed 87% of the
nation's productive capacity to Standard Oil, with an equal
amount marketed abroad by that company.
Moreover, the Commissioner's report went on to say that
Standard held approximately the same share of the domestic
and export market for thirty years prior to the year
1904. ■^=
At this point some caution is warranted in the complete
acceptance of the Commissioner's report. Thirty years
before 1904 was 1874, and at that time. Standard Oil was
still integrating the refining industry. However, after
1882 when that process was largely complete, it is likely
that Standard Oil could have built a dominance in the China
trade that approximates the Commissioner's findings. This
conclusion is supported by three facts. First, a survey of 97 the Consular Despatches of United States Consuls From
Shanghai for the years 1880 to 1900 mentions no other
American exporter of kerosene except Standard. They mention Standard of New York, or they simply refer to it as the company.^* Shanghai was the major port of entry for all American exports to China at that time.
Second, the Pure Oil Company and the Texas Oil Company, which eventually competed with Standard for the China market, were not founded until 1901 and 1902.^^
Finally, the resources and the quality of crude oil that these companies had access to prevented their becoming serious competitors to Standard in China before 1900. A comparison of the capital, access to crude oil, and shipping capabilities makes this quite clear.
The Pure Oil Company was initially capitalized in 1901 at 51,000,000. A year later, it merged with the Producer’s
Oil Company and the United States Pipeline Company. The combined assets of this merger were worth 510,000,000, and it brought six refineries in Oklahoma and Texas under the control of Pure Oil. The Texas Oil Company, capitalized in
1902 at 56,000,000 remained an independent company, chartered in Texas. It had one refinery in Port Arthur,
Texas.
At that time, the Standard Oil Company was ten times larger. It was capitalized at 5100,000,000, owned 98 twenty—three refineries , and was well on the way to augmenting its clipper fleet for China with the addition of the three tankers already mentioned.*^ In addition to these advantages for Standard in finance and shipping capabilities, the other two companies had access to only heavy, sulphurous crude oil which was refined only into fuel oil. This fact alone would have prevented their participation in the kerosene trade in China. So, it seems reasonable to conclude that a conservative estimate of
Standard’s share of the China trade in kerosene was about eighty percent; a figure slightly lower than the
Commissioner’s estimate, and significantly higher than
Feuerwerker’s fifteen percent.
So far, we have seen the duplication of almost all of
Standard’s domestic structure in China. We have also seen that in some cases, parts of that structure were modified by the conditions of the China market. It has also been suggested that the appearance of this duplicate structure in China was the result of conditions in America as well as
China. To claim a direct correlation between conditions in
America and the expansion of Standard’s business in China might seem to stretch the available sources beyond credulity. Yet there are the facts of nearly simultaneous duplication in time and form of all but one of the company’s basic structures in both countries. There is also the fact that Standard’s growth in America drew 99 increasingly organized and effective opposition while this was not true for China. Therefore, we are faced with a weighty inference that Standard moved to China and duplicated most of its domestic structure there because it was not only profitable, but also because it was the path of least resistance to the way the company operated.
The only exception to this pattern for Standard in China was the failure of the company to gain possession of crude oil production fields in or near China. The fact that
Standard lacked oil wells in China is not relevant. What is relevant is that the company made strenuous efforts to acquire them ^rom 1894 to 1914. The attempt presents another piece of evidence that the company was in fact trying to duplicate another piece of its domestic structure in China.
The reason for the attempt to gain crude oil sources in or near China are similar to the reasons Standard acquired them in America; the rationality of integration, and a response to competition. The only difference is that in
China, Standard competed primarily against the Dutch,
French and Russians instead of Americans.
Standard's competition for crude oil sources for the
China market began in 1894 when Aeilko J. Zykler, a
Dutchman, discovered oil in Sumatra while working for the
Sumatra Tobacco Company. This discovery gave the Dutch an advantage over Standard because their fields were much 1 0 0 closer to China than the Indiana and Pennsylvania fields which Standard relied on.^° During the next thirteen years, the Dutch converted this initial advantage into a competitive structure for the China market. It is interesting to see that this structure was nearly a mirror reflection of Standard's. What follows is a brief summary of how the Dutch built their structure, but more importantly, the success of their work is one more piece of evidence that China was fertile ground for such structures.
In 1900, Sumatra Tobacco sold its production lands to
Marcus Samuel, the founder of the Shell Transport and
Trading Company which had operated in China and Japan for sixty years. In 1903, Samuels merged his company with the
Royal Dutch Oil Company which was owned by Sir Henri
Dieterding to form the Asiatic Petroleum
Company.Between 1903 and 1907, Samuels and
Dieterding converted their original companies into holding companies which enabled them to absorb smaller Dutch competitors. It was a process that was reminiscent of
Standard’s integration of refineries which began in 1872.
As the new Dutch competition took form, Asiatic Petroleum became the marketing company, and functioned just as
Standard of new York did in America. The Shell Transport and Trading Company handled the shipment of oil from the fields to refineries, just as Standard of New Jersey did for Standard’s domestic interests.At this 1 0 1 point, the Dutch companies added a slight deviation from the Standard pattern. They added the interests of the N.V.
DeBaatschafe Petroleum Maatschappy, (BPM), to expand production in their recently acquired oil fields. By 1907, these three corporations became the heart of the Royal
Dutch Shell Oil Company which controlled the largest oil fields within several thousand miles of China.
Standard Oil also tried to secure crude oil sources in the East Indies, but it was hindered greatly by the Dutch government's protective policy for its own companies. That policy restricted the sale of oil concessions in the Dutch
East Indies to only Dutch companies. Therefore, Standard arranged for its Holland based subsidiary, the American
Petroleum Company, to charter a new Dutch corporation. It was called the Netherlandsche Koloniale Petroleum
Maatschappy, (NKPM). In 1911, NKPM acquired leases and struck oil at Talaang Akor. However, this source did not produce commercially profitable amounts of oil until
1 9 2 6.^*
The frustrations of Standard’s search for crude oil in the Dutch East Indies led it to use its treaty related advantages to extend its search directly into China. Since
1903, Americans had been permitted to lease or purchase lard directly from China’s central government, so, the company began negotiations with China’s new Republican government in December of 1913 to lease fields in China. 1 0 2
The early negotiations were between Henry Everall and Dr.
Robert Coltman, two of Standard's représentât!ves in China, and Hsiung Hsi-ling, China's Minister of Communications.
By February of 1914, Standard and the Chinese completed their negotiations and signed a contract which gave the company the potential to solve its crude oil shortage for the China trade.
According to the terms of the contract Standard received exclusive exploration rights in the provinces of Shensi,
Jehol, and Chihli. If commercially profitable sources of oil were found. Standard would receive refining and marketing rights for petroleum products in those provinces for the next sixty years which would only be shared with the Chinese government through the formation of a
Sino-American corporation. Standard agreed to provide 55% of the funds for the corporation, and all of the money for the exploration. The Chinese government agreed to provide
37 1/2% of the money for the corporation. The remaining 37
1/2% of the funds was to be derived from stock sales to
Chinese and American investors.
The fulfillment of this contract would have allowed
Standard to duplicate the last part of its domestic structure in China. That was not to be. The contract was abrogated by mutual consent in 1917. For the purpose of this study, the attempt to acquire crude oil fields in
China is more important than the failure. This is because 103
the attempt and the contract that resulted from it, are two more pieces of evidence that Standard attempted to expand
its interests in China while it was hard pressed in
America. This is very clear when Standard’s access to
crude oil after the dissolution of 1911 and its overall
strategy for crude oil acquisition are studied.
The effect of the dissolution on Standard’s access to
crude oil was felt most directly by Standard of New Jersey.
In 1911, it was left with four producing companies. Among
the disafilliated companies were those which brought 43% of
the Trust’s crude oil to domestic refineries. To repair
this functional dislocation. Standard expanded its foreign
production holdings in Canada, South America, and Central,
and Western Europe. This was all done between 1911 and
1913. The fact that all these attempts occurred within the
same time span clearly links them together as part of the
same overall strategy. In this context, the search for oil
in China becomes one more part of the company’s overall
strategy to react to domestic regulation and foreign
competition at the time of the dissolution of its Trust
form of organization.^^
When Standard’s contract with the Republic of China was
cancelled in 1917, it signalled the eno of the company’s
building process in China. There were no more domestic
structures to be transferred there, and the structure
remained as it was from about 1910 until it was caught in 104 the successive waves of nationalism that began to sweep
China after World War I. After that time. Standard and all
the other foreigners in China assumed an increasingly
defensive posture in China as they sought to protect the
advantages that had been wrung from China since the
treaties of Nanking in 1842.
The origins of China's nationalism, its effect on the
treaty system, and its potential effect on Standard's
position will be addressed in the next chapter. What is
needed here is to determine how the Chinese felt about
Standard by the time nationalism began to impinge upon the
position of foreigners in China. This will help explain
why the company survived virtually intact while the other
foreign companies and their government représentâti ves
experienced a continued dimunition of their once preferred
position. The separation of time and the scarcity of
reliable documentation present formidable obstacles to the
determination of exactly how individual Chinese felt about
Standard. However, if attention is focused on the sales
record of the company, some form of correlation between
that record and a positive perception by the Chinese may be
drawn. If the idea that Chinese customers bought from
Standard on the basis of trust and reliability is at least
partially accepted, then an important part of the Chinese
perception of the company can be suggested. After all, to
a certain degree, people everywhere purchase goods from 105 suppliers they have a positive feeling for. This often remains true regardless of price and other considerations.
This investigation of Standard's sales in China will include only a partial aattempt to place it in perspective with other foreign companies there. The primary reason for this is the limitation of information on those other companies in China. The records of the American Consuls there at that time are scattered and incomplete. However, a representative sample of their information has been recorded in the multi—volume series entitled Foreign
Commerce of the United States With Foreign Countries.
These reports, athough scattered and discontinuous, provide two sources of information that are valuable here. First, they often mention Standard Oil by name, and second, they
report what share of the petroleum trade in China was held
by Standard. Therefore, the following survey of these
sources from China's major ports from 1900 to 1910 should
provide an adequate though incomplete picture of the
company's sales in China. By combining this data with
other considerations, it should be possibe to provide a
reasonably clear picture of the company's position in China
before World War I.
In 1900 and 1901 the amount of kerosene sent by Standard
to Hongkong dropped slightly from 21,718,210 gallons to
21,654,860 gallons. However, in those same years. Standard 106 made significant shipments of other petroleum products to
China. For example, lubricating oil went up from 82,480 pounds to 143,178 pounds in this period, and parafin wax for candles increased from 403,178 pounds to 592,096 pounds.^™ This change in the kinds of goods sold by Standard indicates an important development since the time when Consul Bandinel noted that the lack of foreign and native industry precluded the sale of lubricants and fuel oil. Industrialization had begun to spread into
China’s ports and foreign concessions during the late 19th and early 20th centuries, and Standard began to supply the needs of these industries.
The spread of industry to China was primarily the result of the treaty of Shimonoseki which concluded the
Si no—Japanese War of 1894—1895. It gave Japan the right to open factories in China, and the cumulative effect of the most favored nation clauses in China’s other treaties opened the way for a multinational expansion of foreign factories in China. Many examples of the Chinese resopnse to this situation and the beginning of their industries that used fuel oil and lubricants are to be found in monographs by Albert Feuerwerker, and Samuel
Chu.^*’
Among those attempts at industrialization by the Chinese
in the post Shimonoseki era are the Yu Chin and Ta Shun
textile mills which were founded in 1895. There was also 107 the Yu T ’ing Mill, which began in 1898, and the Hupeh
Spinning Bureau, which also opened in that year. Many of these attempts failed, but they were succeeded by later efforts in the 1900's. Among these later attempts we find the Kwan Sun Cotton Seed Oil Plant, Dah Sun Flour Mill,
Dah Sun Cotton Milland the Dah Sun Steamship
Company.®® These industries provided employment and outlets for raw materials of the Chinese. They enabled the Chinese to begin competing with foreigners in their economy, and thus, they became an important expression of economic nationalism for the Chinese. In that context, foreigners sought to protect their commercial and industrial interests by refusing to sell fuel and lubricants to these companies, but a report from Consul
Roger Greene in Harbin indicates that Standard made no such distinction in its sales in China.
According to Greene, the Russians, who controlled the
Chinese Eastern Railroad, purchased fuel oil from their own company in China, and it seems logical to conclude that other foreign commercial interests would do the same although available sources do not specifically say this.®i If this was true, the inclusion of fuel and lubricants in Standard's sales in China may be an indication that the company was a supplier of these goods to early Chinese industrialists. This idea is supported by a report from Consul Percival Heintzleman in Shanghai at 108 about that time. His report says that Standard imported large amounts of lubricating oil to accommodate the increase of steam shipping and other industrial undertakings by the Chinese.Heintzleman included the following table which shows the variety of
Standard's products, as well as the number of "Mei Foo" lamps brought into Shanghai.
1907 1908
Benzine 40,062 45,435 gallons
Kerosene 15,935,170 761,900 gallons
Lubricating Cil
176,000 248,000 pounds
Lamps 592,611 no report*=
This information indicates the possibility that Standard became linked to the economic expression of China's nationalism from its early stages. This would make the company a vital part of China's attempt to regain control of its economy. It also suggests that the company was accepted by the Chinese because of its usefulness in that process.
Another indication of Standard’s positive reception by its Chinese customers can be seen through a comparison of its sales against those of the Russians. The Russians were one of Standard's primary competitors in the pre—World War
I era in China, and the following table shows that they were far behind Standard in the sale of kerosene, which was 109 by far the most lucrative petroleum product sold in China at that time.
American Oil Standard’s Russian Oil Sold in 60% of the Sold in China Market China
1900 2,202,280 1,321,365 216,710 1901 3,125,700 1,875,420 169,450 1902 2,616,140 1,569,684 36,5 00 1903 2,975,560 1,785,336 62,200 1904 2,700,920 1,620,552 292,100 (all figures stated in gallons) «Michael Hunt has estimated Standard’s share of the China market at 52% at this time. Reports of the U.S. Consuls in Shanghai place it at 60%°^
In 1905, Consul Thornwell Haynes reported from Nanking that there was a continued high volume of sales for
Standard, and he also indicated some of the reasons for the popularity of Standard Oil in China. He wrote that in
1905,
"1,088,800 gallons of Standard’s kerosene were sold in Nanking. No part of the native city can be visited without seeing evidence of the success of the Standard Oil Company. Many shanties are erected from their cases and the tin cans are used everywhere as buckets...The lamps imported by the company greatly increase the sal e of oi l".
From this report, it is clear that the value of
Standard’s commerce went beyond the sale of petroleum
products. The packaging —cases and cans- provided housing
and common utensils for many of the company’s customers.
Moreover, Standard’s canning plants were primarily staffed 1 1 0 by Chinese. That indicates that Standard also provided some level of employment in China. In addition to these benefits, the lamps sold by Standard were inexpensive, of simple construction and advertised as an aid for scholarship, which has traditionally played a major part of
Chinese culture. (See appendix 3 and 3A for a copy of this
advertisement and the author’s translation).
The overall effect of these kinds of benefits to
Standard’s Chinese customers is reflected in the
comprehensive trade report from Shanghai after the close of
the 1905 business year. That report stated in part that
Standard’s total sales in China for that year were the
highest in the company’s history in China. This was
despite the anti— foreign boycott, which was begun partially
as a result of America’s exclusionist policy in California.
Standard’s sales record for 1906 was also encouraging. It
sold 128,687,690 gallons of kerosene in China that
year.
Standard’s pattern of increasing sales in the period
1900— 1910 continued despite competition from the Asiatic
Petroleum Company and increases in Standard’s prices. For
example, in 1908, Consul General Leo Bergholz reported from
Canton that
"American kerosene made good gains in spite of the advanatge of the nearness of Sumatra which is enjoyed by the Dutch competition. American kerosene to the amount of 7,119,267 Ill
gallons in tins, and 7,413,799 gallons in bulk was imported, making a total of 14,535,066 gallons in 1908 as compared to 9,482,734 gallons in 1907. This is an increase of over 100% since the Standard Oil Company established a branch here five years ago. They also have a three million gallon storage tank, a warehouse for five million gallons in cases, and a manufacturing plant for cans and cases!
In Hankow, Consul William Martin reported an increase in
prices by Standard in 1908. In 1907, Standard raised the
price of a case of oil from 2.25 taels to 2.35 taels, and bulk oil went up from 1.57 taels per gallon to 1.75 taels.
However, the total amount of kerosene sold by the company
continued to rise. Martin reported that in 1908, its sales
amounted to 18,606,118 gallons, an increase of 2,313,857
gallons over the 1907 total-®®
In other ports. Standard's sales also continued to rise
despite the aforementioned advantages of the Dutch. An
example of Standard’s success is seen in the following
exerpt from the report of consul Julean Arnold in Amoy.
Arnold wrote that the
"American kerosene has never had a monopoly here, but the progressive methods of the Standard Oil Company in South China are rapidly winning the market for America. Since that company placed its own men in the field, the sales uf American oil have increased 1,000%, and during 1908, the American product made up 65% of the port’s entire purchases of kerosene. 3,618,146 gallons were imported from America, 789,170 gallons from Borneo, and 1, 057,290 gal 1 ons from Sumatra". 1 1 2
In the autumn of 1908, Asiatic Petroleum attempted to increase its share of kerosene sales in China by copying part of Standard’s facilities structure. It opened a canning plant in the port of Newchuang. Consul Thomas
Heenan reported that Standard also had a canning plant there and that it was well placed to meet Asiatic’s competetition. He made no mention of Asiatic’s sales in
Newchuang for that year, but he did report that Standard sold 5,773,651 gallons more than in 1907, and was well above the company’s sales of 343,700 gallons in
1 9 0 6 . ^ 0
From the foregoing survey of reports from the major ports of China, it seems reasonable to conclude that by
1910, the Standard Oil Company was well received by its
Chinese customers. The advantage of the Russian control of the Chinese Eastern Railroad as an outlet for Russian fuel oil seems to have moved Standard into the position of supplying Chinese industries with that product. Also, the shorter supply lines of the Dutch, which lowered the price of their goods,did nothing to hurt Standard’s sales. In fact. Standard raised its prices, and still managed to outsell Asiatic Petroleum. This shows that the Chinese preferred Standard’s goods to others, even though they cost a little more.
There is also some evidence that the leadership of China was aware of Standard Oil’s position in the world’s 113 petroleum industry. In 1914, when China’s Republican government sought to invite foreign investment into China on its own terms, the Standard Oil Company was one of the companies that it turned to. Undoubtedly, some of the
Chinese government’s information about the company was provided by Paul Reinsch, the American Minister to China in
1914. Reinsch held the opinion that overall. Standard
tended to avoid political complications abroad, and warned
the Chinese that the Japanese would surely take greater
advantage of them than Standard. So, part of Standard’s
reputation with China’s government was due to increased
support from the Department of State as it tried to make
the Open Door Policy work in China.
The Chinese government’s opinion of Standard, shaped as
it was by Reinsch, was expressed in the opening paragraph of an agreement it made with the company in 1914. It said
that in the view of the government.
"the Standard Oil Company of New York [was] one of the most experienced corporations in the petroleum trade, and Chad] facilities at its disposal superior to any existing organization for exploiting, preparing for consumption, and marketing"... petroleum products.
Reinsch continued to promote Standard’s interests with
the Chinese government from 1915 to 1917 when an attempt
was made to extend this agreement while the search
continued for oil in China. Reinsch promised Hsiung 114
Hsi—ling that Standard would cooperate with China's new
National Oil Administration and send William E. Bemis, the inventor of the "Mei Foo" lamp, to China as a liason between the company and the government. Roy Anderson, one of Standard's agents in China, informed Reinsch of the company's plans to use its Chinese merchants to assure the members of China's fledgling oil industry that the company would help them establish provincial companies outside the area affected by the contract.
The attempt to extend the duration of Standard's contract, which would have given it a monopoly on production, refining, and marketing in three provinces failed. Noel Pugach has concluded that it failed because of Chinese duplicity and the search for a large loan for the Bank of China.However true that may be,
Pugach discounts the fact that Standard benefitted greatly from the support of the Department of State during the negotiations, and that its widespread reputation with the average Chinese customer, and its potential for furthering
China's indigenous industry were also helpful. Moreover,
Pugach lays great emphasis on the facts that Hsiung
Hsi—ling conducted simultaneous negotiations with Japan,
and the abrasive personality of William Bemis, Standard's
representative from New York. He seemed to discount the
fact that the Chinese, like any other customer, were
seeking the best deal possible in their attempt to develop 115 their economy on their own terms. He mentioned the Chinese desire to start their own national company, but he -failed to see it as an expression of China's nationalism.
Instead, he called it duplicity and misunderstanding.
Finally, Pugach lays too little emphasis on the kinds of accomplishments that were made by Standard’s employees in
China before the situation became clouded by Bemis’ arrival. The team of Everall, Anderson, and Coltman concluded the original contract in three months. Bemis went to China several times from 1915 to 1917 and in a fit of frustration told the Chinese that he would "queer" their attempt to get a loan in the American money market.
Clearly, his attitude ended any real hope of concluding any further agreement at that time, and it indicates that the earlier team of negotiators for Standard had a much better ability for, and understanding of how things were done in
Chi na.
Interviews with Dr. Coltman’s son and diplomatic
correspondence indicate that there was a long standing
relationship between Standard’s China hands which was
somehow upset by the arrival of Bemis. For example, Mr.
Coltman recalled that his father and Anderson were invited
to a Peking duck hunt where China’s 1903 treaty with
America was discussed, and during the hunt. Dr. Coltman
acted as translator for Standard’s negotiation of leases
for a new office in Tientsin. *’= Whatever weight 1 1 6 one may wish to give to these recollections, one thing is clear: Those men who worked for Standard in China must have been better at the job of negotiation with the Chinese than their associates from New York. This is substantiated by the written complaint of Chow Tsu—li, one of the men responsible for Standard’s original contract, that Bemis ignored him in favor of Hsiung Hsi-ling.^^ In fact, the resignation of Anderson and his replacement in the negotiations by Bemis was cited by William Libby in a letter to Secretary of State Bryan as a cause for some concern.
By 1917, it was clear that for the time being. Standard would not get any crude oil from the Chinese. But, they did have a firm hold on the petroleum trade in China, and that hold was based on many diverse factors. The legal basis -^or the trade was the result of China’s treaty relations with the United States. Those treaties guaranteed Standard’s entrance into China with many of the benefits, both commercial and diplomatic, that the most powerful of the imperialist nations took for their companies. All that was needed from Standard’s point of view was to build a smoothly functioning commercial apparatus in China. As it has been shown here, that process was initiated with the assistance of some exceptional help from the United States Consular officials in China, and quite probably motivated by conditions in 117
America and Europe. This is strongly intimated, if not conclusively proven, by the coincidence in timing of the competition and regulation in America and Europe with the duplication of the various parts of Standard's domestic structure in China.
This conclusion is also supported by the fact that
Standard's expansion in China was at first ineffectively opposed, and then finally accepted by the Chinese. This was a tendency that was shown by the customers, the local and provincial governments, and even the central government after 1911. The suitability of Standard's structure for
China rather than America or Europe is also supported by the fact that the Asiatic Petroleum Company, Standard's largest competitor in China, built a structure there that was almost a mirror reflection of Standard’s.
Although Standard had gotten off to a good start in
China, events were afoot there that would eventually test its ability to adapt. As early as the 1860’s, the Chinese had begun to take the first steps toward changing the treaty system which allowed Standard to operate in China.
They translated books on international law into Chinese, and used that law against the Prussians when they detained
Danish ships in Chinese waters. China also sent its first diplomatic mission abroad in 1868 to learn more ways to modify the treaty system it had been forced into without resorting to the impracticality of force. lis
The limited initiation of Western style diplomacy by the
Chinese failed to produce any real change in China’s diplomatic situation during the 19th century. This was primarily due to the fact that the Chinese maintained an essentially conservative, culturally oriented approach to dealing with the West for a long time. An example of this approach is seen in the adoption of Western military technology in the 1850’s and 1860’s by men like Tso
Tsung—fang, and Tseng Kuo—fan. Their goal was to use the technology to preserve the cultural entity of China rather than to ensure China’s survival as a nation in the Western sense of the word. It was not until 1895, when the Self
Strengthening Movement failed that the Chinese attempts at reform were transformed into nationalism.
The transformation from reform to nationalism carried the Chinese away from the reliance on Confucianism, which in many ways, was responsible for China’s diplomatic weakness in the 20th century. Confucianism lacked the dynamism necessary for China’s modernization, and it was an ideology that was hostile to the development of trade, industry, and economic development which China needed to successfully confront the West. To replace Confucianism, a stronger government, supported by a diversified economy that was capable of innovation and competition was needed?
As the 19th century gave way to the 20th, John Vincent 119
Carter, a long time diplomat in China, saw important changes coming to China. The Chinese were accepting more and more of the ideology of nationalism, and the West was reacting by placing more restrictions in the treaty system to inhibit the economic growth which was an outgrowth of
China's emerging nationalism. It was this situation that caused the expansion of the original treaty system into a network of inhibitions on China's ambitions. Consular jurisdiction and the fixed tariffs evolved to the point that China's customs were collected by foreigners, inland navigation of China by foreign gunboats and the posting of troops there to enforce foreign laws were all parts of this process.They were helpful for foreign commercial interests like Standard Oil, but eventually, they caused much resentment among the Chinese.
The Chinese dissatisfaction with foreign control of their economy and the use of the treaty system to continue that control began to have observable consequences in 1911.
For example, provincial anger over foreign investments in
China's railroad system helped to create some of the violence and political opposition which eventually brought
down the Ch'ing dynasty.In 1915, when Japan
presented its Twenty-One Demands to China which would have
made Manchuria a Japanese proctectorats and economic
preserve, the Chinese reacted vigorously and negatively.
Instead of the xenophobic and disastrous reaction of the 1 2 0
Boxers in 1900, the Chinese were led in this new struggle by a politically concious merchant-entrepreneur and labor spearhead which organized boycotts against Japan. They were joined by members of China's intellectual community, foreign students and large numbers of the general population. Together they set out to Chiu Kuo, or save the country.
The Chinese nationalism that came to the forefront during World War I was the motivation for the Chinese diplomatic effort to present a broad challenge to the treaty system that had hindered China for so long.
Although they failed to achieve the degree of success they wanted, they made a start. Within that process was beginning of the end of the protected position in China for foreigners and their companies. To understand why this was so, it is neccessary to review China's Post World War I diplomacy. In that way, the threats it presented for foreigners in general and for Standard Oil especially, will be more easily understood. 1 2 1
Chapter Two Notes
^Hidy, Pioneering in Big Business. 13B2—1911. p.80, and Anderson, The Standard Vacuum Oil Company, p.SO
^Standard textbooks like Immanuel Hsu's The» Rise of Modern China. (New York:1975), p.243, and pp.251—253, refer to these treaties as the Bogue Treaties. However, Treaties. Conventions. Etc. Between China and Foreign States. (2 vols.. Vol. I), (Shanghai : 1917), refers to these agreements as the Treaties of Hoomun Chai. This earlier name is used here in lieu of later references which are based on the place of signing rather than the original title of the documents. (Hereafter, this collection of treaties to be cited as Inspector General, Treaties. Contentions. Etc.).
“ Inspector General, - Treaties. Conventions. Etc.. Vol. I, pp.509-512.
■*Hsu, The Rise of modern China. pp.201-202, shows a complete list of the regulations for foreign trade at Canton before 1842. For an explanation of the purposes behind these regulations, see Ssu-yu Teng and John K. Fairbank, China's Response to the West. A Documentary Survey. 1839-1923. (New York:1975), pp.17-23. (Hereafter cited as Teng and Fairbank, China's Response to the West).
^John K. Fairbank, Trade and Diplomacy on the China Coast. The Opening of the Treatv Ports. (Cambridge:1953), pp.75—82, and Johnathan Goldstein, Philadelphia and the China Trade. 1682— 1846. Commercial, Cultural and Attitudinal Effects. (University Park:1978), pp.61-62 for the American participation in the opium trade. (Hereafter cited as Goldstein, Philadelphia and the China Trade).
“^John Vincent Carter, The Extraterritorial System in China, the Final Phase. (Cambridge:1970), pp.1-4. (Hereafter cited as Carter, The Extraterritorial System in Chi na). Also, Hsu, The Rise of Modern China, p.245, which dates this practice back to medieval times when Arab chieftans were allowed to govern their traders in Canton.
^Inspector General. Treaties. Conventions. Etc.. Vol. I, p.513-517.
‘^Wu Ta—Chun, "Duties and Taxes on Imports and Exports From China", Chinese Social and Political Science Review. (1927), p.228. (Hereafter cited as Wu, "Duties and Taxes"). 1 2 2
■’Wu, "Duties and Taxes", pp.229-230.
^^T.F. Tsiang, "The Extension of Commercial Privilege After the Treaty of Nanking", The Journal of Modern History, Vol. XV, No.3, (October, 1931), pp.440—444.
i^Hosea Morse and Harley F. McNair, Far Eastern International Relations, (Boston:1931), p.134, and Goldstein, Philadelphia and the China Trade, pp.61—62.
^“Inspector General, Treaties. Conventions. Etc. . Vol. I, p.678.
^^John K. Fairbank, "The Manchu Appeasement Policy of 1843", Journal of the American Oriental Society, Vol. 59, No.4, (December, 1939), pp.469-484.
^•*Ibid., pp.469-484, and Tsiang, "The Extension of Commercial Privilege After the Treaty of Nanking", pp.440-444.
i^Thomas Kearney, "The Tsiang Document, Elipo, Keying, Poutinger, and Kearney and the Most Favored Nation and the Open Door Policy in China, 1842— 1844, an American View", Chinese Social and Political Science Review. Vol. 16, No.1, (April 1932), pp.75-102, and T.F. Tsiang, "The Difficulties of Reconstruction After the Treaties of Nanking", Chinese Social and Political Science Review, Vol. 16, No.2, (September, 1931), pp.326-327.
^ ■^Inspector General, Treaties. Conventions, Etc., p.677, p.678, and p.685.
Ibid., p.517, and p.678.
i^William Becker, "American Manufacturers and Foreign Markets, 1870—1890, Business Historians and the New Economic Determinists", Business History Review, (Winter, 1973), pp.466-482.
^■’Burton Kaufman, "The Organizational Dimension of United States Economic Foreign Policy, 1900— 1920", Business History Review, (September, 1972), pp.17-45.
“®Varg, The Making of a Myth. pp.44-46. For additional information on the weakness of the American Consular Service and financial agencies, see Michael Hunt, "Americans in the China Market: Economic Opportunities and Economic Nationalism, 1890's—1931", Business History Review, (Autumn, 1977), pp.297-300, and Mira Wilkens, The 123
Emergence of Multinational Enterprise: American Business Abroad From the Colonial Era to 1914, (Cambridge:1970), p.107.
=-J.J. Bandinel, "Kerosene in China", Miscellaneous Documents of the House of Representatives for the Second Session of the 47th Congress, 1882—83, (Washington:1883), p.7.
==Ibid.. p.7.
"—Ibid., p.S.
='‘Hidy, Pioneering in Bio Business, 1882— 1911, p.80, Anderson, The Standard Vacuum Oil Company, p.18, and Varg, The Making of a Mvth. p.41. ==Varg, The Making of a Mvth, p.44.
^^Hidy, Pioneering in Big Business, 1882— 1911, p.80, and Anderson, The Standard Vacuum Oil Company, p.18.
-■^Bandinel, "Kerosene in China", pp.S-9, and "Petroleum and Kerosene Oil in Foreign Countries, Part I, Petroleum in the Orient", United States Consular Reports, (Washington:1884), No.37, pp.399-406.
^“Interview with William Coltman, New London, New Hampshire, June 21—25, 1983. Mr. Coltman is the son of Dr. Robert Coltman who served as a translator and sales agent for Standard Oil in Tientsin, China from 1903-1919. William Coltman was born in Peking, China in 1898. He and his family survivedthe Boxer's seige of Peking in 1900, and after an education in China and at Yale University, Mr. Coltman also worked for Standard Oil in China from 1919—1949. The information provided here by him is corroborated by Albert Feuerwerker’s, "Extraterritoriality in China: The Final Phase", Michigan Papers on East Asia, Vol. I, pp.27—32.
=^W. Jamieson, Consul, Shanghai, Commercial Relations of the United States and Foreign Countries, 1842— 1906, (62 vois.), Vol. 41, (Washington:1947), p.92. (Hereafter cited as Commercial Relations of the U.S.).
-•^J.L. Stephens, Vice-Consul, Shanghai, Commercial Relations of the U.S.. Vol. 41, p.644.
^^Thomas McCormick, China Market: America's Quest for Informal Empire. 1893-1901. (Chicago:1967), p.16, and McCormick, "American Expansion in China", American Historical Review, (June, 1970), No.85, pp.1393-1396. 124
^“Varg, the Making of a Mvth. Ch.3, and George F. Kennan, American Diplomacy. 190Ô— 1950, (Chicago:1951), Ch.2-3. These monographs amplify the earlier work of A. Whitney Griswold's The Far Eastern Policy of the Uniced States, pp.137— 138, p.146, and pp.467—470. -^Hunt, "Americans in the China Market: Economic Opportunities and Economic Nationalism, 1890's-1931", pp.277-307, and Sherman Cochran, Big Business in China: Sino—American Rivalry in the Tobacco Industry, 1890-1930. (New York:1980).
~**Reoort ofthe Commissioner. Vol. I, "Part II, The Management and Operation of the Standard Oil Company", p. 86.
-’^Albert Feuerwerker, The Foreign Establishment in China in the Early Twentieth Century, (Ann Arbor: 1976), p.84. (Hereafter cited as Feuerwerker, The Foreign Establishment in China). Also, interview with Howard Schlereth, Mt. Holly, Virginia, September 1—8, 1981. After a tour of duty as a signalman on the U.S.S. Blackhawk. and the U.S.S. Peary on the Yangtze patrol, Mr. Schlereth joined Standard Oil in 1929. He retired as Treasurer of the Exxon Corporation in 1965.
“‘^Varg, The Making of a Myth. p. 38, and Anderson, The Standard Vacuum Oil Company. Ch.l.
“"^McClean and Haigh, The Growth of Integrated Oil Companies, pp.66-67.
““Interview with William Coltman, June 21-25, 1983. His information here is substantiated by Feuerwerker, "Extraterritoriality: the Final Phase", pp.27—32, and The Lamp, p.16.
Kemper, Consul Amoy, "The Decline of the American kerosene Trade at Amoy", Commercial Relations of the U.S.. Vol. 26, p.265.
^“Report of the Commissioner, Vol. I, "Part I, the Position of the Standard Gil Company Within the Oil Industry", p.265.
*^The Lamp, p.36.
*=Report of the Commissioner. Vol. I, “Part I, The Position of the Standard OiÎ Company Within the Oil Industry", p.115, and p.656. 125
•*^Comn>ercial Relations o-f the U.S.. 1882 and 1883, p. 664
**Vatg, The Making of a Myth, p. 43.
•*°Journal o-f Commerce and Commercial Bulletin. Vol. Ill, p. 235.
"*^J.V.A. MacMurray, ed.. Treat--es and conventions, (Shanghai : 1925), p. 746. (Hereafter cited as MacMurray, Treaties, Conventions. Etc.).
"*^Commercial Relations of the U.S. 1885— 1886, p. 275.
*=H2ld., p. 317.
^^Commercial Relations of the U.S. 1885— 1886. p. 922.
°°Commercial Relations of the U.S. 1906, p. 287.
^‘^Exxon Corporation, A Century of Discovery: An Exxon Album, (October, 1982), p.18, and John Moody, ed., Moody's Industrial Manual, (New York:1925), p.2115. The information about the route was provided by Mr. Coltman in the interview of June 21—25, 1983.
==The Lamp, p .36.
^^Report of the Commissioner. Vol. I, "Part I, The Position of the Standard Oil Company Within the Oil Industry", p.265, and Hidy, Pioneering in Bio Business, 1882-1911. p.124.
^"•Feuerwerker, The Foreign Establishment in China, p.19.
=== Interviews with Howard Schlereth, September 1-5, 1981, and William Coltman, June 21-25, 1983.
^^MacMurray, Treaties. Conventions. Etc., Vol. II, p.746.
“■^Feuerwerker, The Foreign Establishment in China, pp.84—35. “°E.J. Smithers, Consul, Tientsin, "Kerosene Imports Into Tientsin, 1885-86", Commercial Relations of the U.S.1886-1887, p.940. 1 2 6
Mitchell, Consul Chungking, "Trade Report for Chungking, 1906", Commercial Relations of the U.S. 1906-1907. p.275.
^^feuerwerker. The Foreign Establishment in China, pp.84—85- ^^Hunt, "Americans in the China Market", p.283, and Records Relating to the Internal Affairs of China, 1910— 1929. Industrial Matters. National Archives and Records Service Microfilms,(Washington:1960), file number 393.115 St. 2/60), (Hereafter, cited as SDF with appropriate file number), and interview with William Coltman, June 21-25, 1933.
^“Telegram, Charles Denby to the Secretary of State, Executive Documents of the House of Representatives, Second Session, 51st Congress, (38 vol.s). Vol. 29, (Washington:1891), p.313.
^^Compiled from theJournal of Commerce and Commercial Bulletin, Vol. I, 1896, p.309, Vol. II, 1897, p.486, Vol. Ill, 1898, p.325, and Vol. VI, 1901, p.461.
‘^■“Report of the Commissioner, Vol. I, "Part I, The Position of the Standard Oil Company Within the Oil Industry", pp.16-17, p.280, and p.283.
^=Ibid., p.286.
**^Desoatches From united States Consuls in Shanghai. 1342— 1906. (58 vols.), (Washington:1960), Vol.s 38-58.
*^John Moody, ed., Moodv's Manual Corporate Securities, (New York:1903), p.1665, and p.1732.
^°Ibid.. p. 1665, and p. 1772, Report of the Commissioner. Vol. I, "Part I, The Position of th e Standard Oil Company Within the Oil Industry", p.12, and p.131.
*^Tbid., p.15.
^^Anderson, The Standard Vacuum oil Comoanv. pp.22-25, and Sir Henri Dieterding, Reminiscences of an International Oil Man. (London:1934), pp.64—75. (Hereafter cited as Dieterding, Reminiscences).
^^Dieterding, Remi n i scences. pp.2 2 - 2 5 , and P P 6 4 - 7 5 . 127
^“Anderson, The Standard Vacuum Oil comoanv. p.25, and Kendal Beaton, Enterprise in Oil. A History of Shell in the United States. (New York: 1957), pp.38-42, (Hereafter cited as Beaton, Enterprise in Oil). and interview with Howard Schlereth. Mr. Schlereth was responsible for the construction of the Exxon refinery at Taiaang Akor in the Phillipine Islands after World War II. It was during this assignment that he became familiar with the prior activities of the Dutch through his investigation of their interests and the Standard subsidiary of Netherlandsche Koloniale Petroleum Maatschappy which provided crude oil for the Exxon refinery.
■^^Anderson, The Standard Vacuum Oil Comoanv. pp.28-30, and Interview with Howard Schlereth.
^^Anderson, the Standard Vacuum Oil Comoanv, p.30.
^^SDP. 893.6363/1, Telegram, Minister Paul Reinsch to Secretary of State, February 16,1914.
^^'MacMurray, Treaties, conventions. Etc. Vol. II, pp.1109—1111 shows the entire contract. Also see Peking Daily News. February 24, 1914 for a discussion of the contract’s implications as seen by the provincial representatives of Shensi.
■^^Noel Pugach, "Standard Oil and Petroleum Development in Early Republican China", Business History Review. (Winter, 1971), pp.452-475.
^^Commercial Relations of the U.S. 1901— 1902. p.923.
'^''Albert Feuerwerker, China’s Industrialization: Shena Hsuan—huai (1844— 1916). and Mandarin Enterprise. (Cambridge:1952), pp.9— 10, and Samuel Chu, Chang Chien. Reformer in China. (Columbia:1965),p.17. (Hereafter cited as Chu, Reformer in China).
°^3hu. Reformer in China, pp.22-44.
Commercial Relations of the U.S. 1909. p.751.
*=Ibid., p.752.
==Tbid.. p.752.
^•^Commercial Relations of the U.S. 1901 — 1902. Vol. I, pp.689—690, and Hunt, "Americans in the China 128
Market", p.284. For an estimate of Standard’s share of the market, see the report of Consul-General Rogers, Commercial Relations of the U.S.. 1906-1907. p.261, and p.265.
°°Commercial Relations of the U.S.. 1907—1908. pp.404—405.
°^Commercial Relations of the U.S.. 1906-1907, p.285.
G^Ibid.. p.265.
°^Commercial Relations of the U.S.. 1909. p.439.
^•’Commercial Relations of the U.S. 1°07-1903. p.439.
•”^Ibid. . p.417.
’’^Pugach, "Standard Oil and Petroleum Development in Early Republican China", p.458, and Pugach, "Making the Open Door Work: Paul S. Reinsch in China, 1913-1919", Pacific Historical Review. (May, 1969), Vol. 38, pp.157-175, and New York Times. February 14,1914.
•’"MacMurray, Treaties. Conventions. Etc.. Vol. II, p.1111.
•’"Pugach, "Standard Oil and Petroleum Development in Early Republican China", p.461.
""-Ibid., p.462.
*’~Ibid■ , pp.462-475, and interview with William Coltman.
•’'^SDF, 893.6363/4, Memorandum of Paul Reinsch, Minister to China, "Suggestions on the Standard Oil Contract", June 14, 1914, and Pugach, "Standard Oil and Petroleum Development in Early Republican China", pp.462-475.
•’"’Ibid., p.463, and SDF, 893.6363/2, letter, William Libby to Secretary of State Bryan, April 6, 1915.
*’® Immanuel Hsu, China’s Entrance Into the Family of nations: The Diplomatic Phase. 1358— 1380. (Cambridge: 1960), pp. 109-137, and Mary C. Wright, The I a«st Stand of Chinese Conservatism, the T’una-Chih Restoration!. 1862-1874. (Stanford:1957), p.3. 129
^^Ishwer C. Ojha, Chinese Foreign Policy in an Age of Transition: The Diplomacy of Cultural Despair, (Boston:1972), p.10.
i°°Carter, The Extraterritorial Svstem in Ch^na^ p.o .
The Rise of Modern China, pp.564—567.
ie=Ibid. pp.596-600. CHAPTER III
THE RISE OF CHINESE NATIONALISM
By 1910 the Standard Oil Company had become a well established feature of American trade with China. From
1910 to 1914 that trend continued anc it also became clear that Standard Oil was moving into a position of significance within the China's economy. For example. in
1914, Standard's exports of petroleum products to China
accounted for 50% of the total value of all American exports to China.% The continued expansion of
Standard's interests there solidified the company's position as the years went by. This is indicated by the
fact that Standard's sales in China totaled 7% of the total
value of China's imports in 1914.= If the
importation of 7% of one country's goods from one single
country indicates a significant achievement in foreign
trade, then the fact that 7% of China's trade came from
just one company surely indicates that Standard Oil had
become an important element in the Chinese economy.
130 131
At first glance, the future prospects for Standard Oil in China in 1914 looked extremely good. Its flow of goods to China was counted in the millions of gallons. The
Consular reports were full of information on the opening new offices and the expansion of sales in the ones already established. Yet below the surface of the company's expansion and the optimistic reports for the future, there was a force which would present a clear and potentially dangerous challenge to the continued existence of all foreign business in China. That force was Chinese nationalism.
By 1925, Chinese nationalism reached the point in its development and expression that challenges to the preferential position of foreigners were frequent and often violent. These confrontations did not simply spring into being. They were the result of a long historical process through which the Chinese began to resist the treaty system and Westernized trade relations which were initiated in
1842. One of the purposes of this chapter is to point out the significant developments and successes of that resistance. Another purpose is to explain the development of Chinese nationalism up to the post World War I era, and to indicate its general effect on Sino—foreign relations.
The final purpose of this chapter is to measure the effect of China's resistance to the treaty system on foreign business in general, and the Standard Oil Company in 132 particular. In this way, the atmosphere in which Standard operated during the 1920’s will be made clear. Also, some of the reasons why Standard survived the initial challenges of Chinese nationalism will also be brought to light.
During the 1920’s, and especially from 1925 to 1930, a significant part of Chinese nationalism was directed toward the alteration or eradication of the treaty system which limited China’s sovereignty. Part of the reason for the success of the Chinese at that time is to be found in events that occurred from the 1890’s onward. It was during the 1890’s that growing numbers of Chinese became politically aware of China’s position with regard to
Western nations and Japan, and they became more determined to improve that position.
During the 1920’s, Chinese challenges to the treaty system increased in frequency, the numbers of people involved, and effectiveness. These changes in the nature of
Chinese nationalism were in large part related to the emergence of a new generation of leaders who became prominent at that time. These leaders were Western educated and intensly nationalistic, and as the decade of the 1920’s progressed, they played an active role in the conduct of China’s foreign relations.= These new nationalistic leaders made their presence felt in 1919 at the Versailles Peace Conference. They were also present at the Washington Conference on Arms Limitation in 1922. At Versailles, they began to make cracks in the
Sino— foreign treaty system. By 1922, these nationalists were experienced in the conduct of Western style foreign relations, and they gave every indication that they intended to widen those cracks into fissures.
After 1925, the diplomatic efforts of the Chinese to alter or end the inequalities of the treaty system were aided by, and often times secured by the emergence of the
Chinese Nationalist Army. Like their counterparts in the
Foreign Office, many of these military leaders were educated in the Western style, and they too were intensly nationalistic. They were also well trained and equipped by their Russian advisors at the Whampoa Military Academy, or they joined the Nationalist Army after training in
Japan’s Shikkan Gakko Military Academy.*
There is little doubt that China’s increasingly politicized population, diplomatic corp, and military were able to steadily increase the tempo of challenge and change in Sino— Foreign relations. Their success was based upon the experiences and the limited victories of a small but important group of Chinese merchants; the economic nationalists. From about 1860 until the first decade of the 20th century, the Chinese economic nationalists worked within the established treaty system. They worked without the advantages of mass support, extensive formal Western education, and modern technology which their successors 134 had. Yet despite those liabilities, these men challenged foreign businessmen in China, and in many instances, they defeated them. These victories were won despite the fact that the foreigners enjoyed the substantial legal and military protection of the treaty system. In many ways, the success of Chinese nationalism in the 1920's was predicated on the activities of these men.
One of the early Chinese economic nationalists was Wang
T’ao, a native of Kiangsu province. Wang was a contemporary of Li Hung—chang, but in several important ways, Wang and others like him were distinctly different from Li. In fact, the characteristics shared by Wang T'ao and the men who eventually accepted his ideas and methods are so similar that he has been considered to be an important model of incipient nationalism in China.
Wang T'ao was born near the city of Soochow in Kiangsu province in 1827. He was an adult by the time the British and other nations forced their trade on China in the wake of the Opium War. That he aspired to social and political leadership is evident. He studied for the all important
Civil Service examination and received his first degree in
1845. Wang's father died in 1849, and this event may have
influenced him to discontinue his classical education at
that time. He became an editor and translator for the
London Missionary Society Press in Shanghai. He remained
in that position from 1849 until 1862. In that year, Wang 135 was accused of aiding the Taiping Rebels and he fled to the
British colony of Hong Kong. While there, he edited his own newspaper which advocated various reforms, and in 1868, he left for a two year stay in London. In London, Wang collaborated with James Legge on the translation of several
Chinese classics. He was eventually cleared of the Taiping charges and returned to Shanghai in 1884. Wang remained there until his death in 1897.=
Wang spent most of his adult life in close proximity to, or in actual contact with the treaty port commercial centers of China. He also spent much of his life in the
company of the intellectual elite of the Westerners in
those centers. It was his interaction with men like Young
J. Allen, James Legge, and Walter Henry Medhurst that led
him to the conclusion that the West’s power over China was
primarily due to its economic strength. They helped Wang
to understand that the Chinese attempts at cultural and
institutional rejuvenation represented in the T’ung-Chih
Restoration, and the Self Strengthening Movement would not
help China. Wang and his associates knew that these efforts
would fail primarily because China lacked detailed
information about the West. Therefore, from 1860-1880,
Wang advocated the ideas that China should learn more about
the West, and redirect its efforts to resist the West
toward economic development and competition.
As early as 1865, Wang wrote to Li Hung—chang that the 136 way to control the West was to reestablish control of the
Chinese economy.^ Li, who directed much of
China's attempt to strengthen itself and expel the
Westerners, ignored him. The fact that Wang's ideas were not readily accepted at the policy making level of government indicated a major liability for men like him.
Tl~«a ' wore on the periphery of acceptable society in China, and they functioned in near isolation from each other.
They were not a unified, self concious group. Moreover, they also operated on the basis of subtle, but significantly different ideas on how to save China. For example. Yen Fu, one of Wang's contemporaries, emphasized the enrichment of the state a~d the strengthening of the military as a means of preserving China from the West.
Yen—Fu, who was less astute in his knowledge of the West than Wang, perceived its power in terms of wealth and technology, thus he reasoned that China's acquisition of those attributes would enable it to successfully confront and expel Westerners from China. The failure of the Self
Strenghthening Movement proved him wrong.
The difference between Wang and Yen Fu's approach was in their perception of the root of Western strength. Wang saw state wealth and a strong military as manifestations of strong economies. This difference in the perceived root of
Western power led Wang to promote the development of the
Chinese economy in order to compete with, rather than 137 confront the West. It was his belief that a wealthy state and strong military would then evolve in China as they had in England. In the 1920*s, Wang's idea that China's place in the world would be determined by its accumulation of wealth and that its government should be a catalyst in that process was taken up by Sun Yat—sen.^
Wang's observations and methods for controlling
Westerners in China were not immediately accepted at the policy making level of government. However, there is evidence that his long term pi am to use Chinese competition to make it increasingly less profitable for Westerners to stay in China was seized upon by several Chinese merchants during the 19th century. It is important to note that during the 1860's when Chinese merchants began to use
Wang's ideas, they did so without a centrally directed plan, and they began with an important disadvantage- They lacked the total unity of purpose and continuous support of the government that Wang felt was crucial to their total success. Yet despite this problem, they scored some significant victories over their Western competitors.
A good example of the application of Wang T'ao's ideas by Chinese merchant nationalists can be seen in the development of the steamship carrying trade in China.
Edwin Cunningham, an employee of the American firm, Russel and Compw.y, started the steamship trade in China. The legal basis for this trade was provided for in the 138 settlement of the Arrow War which required China to open three Yangtze River ports, and three additional coastal ports to foreign trade. Cunningham knew that there was money to be made carrying Chinese cotton and tea to Hong
Kong, and British manufactured goods into China’s interior.
This was especially so during the Taiping Rebellion when most of China’s ships could not count on the protection of their government on the Yangtze River.®
Because Chinese merchants lacked unity of purpose with their government as well as its protection, several of them joined Russel and Company to found the Shanghai Steam
Navigation Company. Like Wang, these men had spent many years in the treaty port cities of China in close contact with the leading men in their field. They were all former compradores who had worked with Cunningham before. From him, they learned the intricacies of foreign trade.
Cunningham offered the protection of foreign status, and a
predictable carrying trade to nine of his former
compradores. In return, they raised a million taels in
financing, and placed Chinese warehouses near Russel and
Company’s wharves. It was a cooperative effort that had
something for everyone. The Chinese investments and trade
were safe from Taiping pirates and official "squeeze" by
the Chinese government. Cunningham made an early start
over his British competitors, Butterfield and 139
Swire.^
Sino— foreign cooperation in the carrying trade lasted only ten years. It peaked between 1862 and 1872. In 1872, the Butterfield and Swire, and Jardine and Matheson companies entered the field. They copied the example of
Cunningham fay enlisting the aid of the Chefoo Merchants
Association. The Chinese in that association bought large numbers of shares in these ventures, and then went into competition with them. In fact, they bought two ships, the
Dragon and Nan sing, from Jardine and Matheson to start competing.
The primary Chinese figure in the Jardine and Matheson shipping company was T ’ang King—sing, one of their former compradores. T'ang invested 15,000 taels of his own money, and sold one third of the shares of Jardine's North China
Steamship Company to other Chinese merchants. Then, Li
Hung—chang, the Governor—General of Chihli province, started the China Merchants Steamship Company. This company was part of the Chinese attempt at reform known as kuan-tu shanq-oan. In English, this term may be translated as government supervised merchant management. In regard to the shipping industry, it meant that China's government was moving toward unity in purpose with its merchants and was willing to share in the financing and operation of the
China Merchants Company. T'ang was persuaded to head the company, and with his government's support, he scored quick 140 and decisive victories over the foreign companies.
After the Taiping menace to shipping was ended, Russel and Company and Butterfield and Swire, and Jardine and
Matheson companies all entered an intense competition for
the carrying trade on the Yangtze River. However, it was
the Chinese who scored the most significant victories in
the quest for customers, and in the process, they often
times reduced foreign profits.
Edwin Cunningham wrote that "if there is any struggle at
all...for the steam carrying trade in China,...it is
between the foreigners and the Chinese!
Cunningham’s view was seconded by the manager of the
Butterfield company who wrote that “The Chinese company are
giving us a great deal of trouble...We reduce our rates to
one half on the days when their steamers are despatched,
and our earnings are kept very lowlIn one
year, the Chinese lorcha captains took 330,000 taels worth
of business from Russel and Company. Admittedly, these
were limited victories for Chinese economic nationalism,
but they soon spread from the shipping trade to other
enterprises. They were also seen in the reduction of the
profits of foreigners in the lucrative fields of mining and
railroad development.
By 1904, the Ch’ing court abandoned the idea that it
could forcibly expel the foreigners from China. Instead,
it concentrated on the defense of the rights which were not 141 hindered by the treaty system, and the recovery of those that were. This was another example of the court using
Wang T*ao*s ideas of unity of purpose between the government and merchants as well as working within the limits of the treaty system to reduce foreign profits.
With those goals in mind, the court issued an edict in 1904 that directed the country’s chambers of commerce to cooperate in city and province wide actions to raise exports, reduce imports, and otherwise limit the effect of the foreign economic presence in China.
The passage of this edict shows the belated recognition by China’s government of the value of the approach used in isolation and sporadically by men like T’ang and Wang.
However, the autonomy and responsibility granted to the chambers of commerce reveals an important flaw in the court’s application of those principles. They show that much of the court’s conservatism and lack of decisive initiative still persisted in 1904. It was often the merchants, rather than the government, who took the initial risks and the lead in the battle against foreign companies.
The case of railroad development is an example of this hesitancy on the part of the government as well as the problems that resulted when the government belatedly tried to move into a position of control and leadership.
As part of its program to recover its rights, the Court announced that China would build its own railroads, and 142 regain control of the railroads in Hunan and Hupeh provinces from the four power investment consortium of
England, France, Germany, and America. Peking announced plans for the construction of several railroads in South
China, but true to form, it left the details of financing and construction in the hands of provincial merchants and gentry. The most notable gain made by these groups was the recovery of control over the Canton—Hankow Railway in 1905.
However, from that time until 1911, further plans for railway development by China were hindered by management and financial problems as well as the contest between the
Court and the local merchants for ultimate control of the projects. The struggle for the ultimate control of these projects figured prominently in the political events which preceeded the downfall of the Ch'ing dynasty.
Another field in which China sought to recover its economic rights was in the development of mines. The best success of the Chinese in this direction was made by the
Lanchow Mining Company which was established in 1902. This company was founded two years before the Court’s 1904 edict, and it is another example of the government following the lead of the merchant nationalists. The company existed two years before the 1904 edict, but the edict did spur investments in the Lanchow company. From
1905 to 1908, the Lanchow Mining Company provided stiff, but temporary, competition to Britain’s Kaiping Coal Mine 143 and Japan's Han—Yeh P'ing Coal Mine.
The -foreigners who were damaged the most by the Chinese drive to recover mining rights were the Americans. They did not begin to invest in mines in China until after 1898.
This late srart put American investments under the restriction of an 1898 law which required mines to be
Sino— Foreign in their operation. It also set up a schedule for the increased control of funding and administration by
Chinese. This meant that American investors began their ventures with 30% Chinese financing. By 1914, they were required to have 50% Chinese financing and an increasingly larger number of Chinese involved in the administration of their ventures. The effect of this plan on American mining investments was decisive. By 1914, their investments in the potentially lucrative iron and coal mines in North
China and Manchuria completely disappeared.^*
During 1910 and 1911, the Lanchow Mining Company was also caught in a struggle for control between the local merchants and the Peking government. The struggle in the mining field centered around the Peking government's plan to nationalize mines in China. From the viewpoint of the mine owners, the government's action was threatening rather than supportive. They interpeted the government's action as one in which the government avoided all the risks and showed up only in time to reap the profits of their work.
This local versus national contention over control of 144 mining projects was another part of the political tensions that presaged the downfall of the Ch'ing government in
1911.
Within a year of the Court's 1904 edict, chambers of commerce all over China began to add a political aspect to their competition with foreigners. It was another sign that they had moved ahead more rapidly than• their government in these matters. For example, after 1904, the merchants of China began to lead demonstrations against foreigners and to finance the publication of nationalistic articles in newspapers. These activities were done in support of the government's effort to improve China's international status, but the merchants soon went beyond that goal. They took advantage of the anti— Foreign sentiment they had helped create to start more businesses to compete with foreigners. If the government had been consistent in its unity of purpose with the merchants, it would have been the government, and not the merchants which sponsored these demonstrations and newspapers. It would have known, as Wang T'ao did, that strong nations are built on strong economies, and that the status of such nations is much better than that of those with weak economies.
One example of the Chinese merchants combination of economic and political support for their government can be
seen in the controverse/ over the extension of the 1894
Sino-American treaty which restricted the rights of Chinese 145 to emigrate to America, The treaty was to expire in 1904, but in response to the anti-Chinese sentiment of labor and agricultural interests in California, America opened negotiations to extend it. Peking rejected the attempt to extend the treaty, and pointed out that due to arbritrary enforcement of its provisions, up to 25% of the non-laboring Chinese who were allowed to go to America had been rejected. In April of 1903, negotiations were moved from Washington, D.C. to Peking, and directed by W.W.
Rockhill, the new American Minister to China. Rockhiil was instructed to inform Peking of President Roosevelt's intention to use more care in the exclusionary policy at
San Francisco, and to use this offer to bargain for the improvement of trading conditions for American businessmen in China.
The linkage of the attempt to extend the exclusion of
Chinese from America with the attempt to increase American business interests in China galvanized the merchant nationalists of China in two ways. On one level, their nationalism was aroused by the fear that their government would give in to American pressure. On another more personal level, they moved to protect their recently gained economic status. The result was of the combination of their nationalistic and personal motivations was the organization of the Anti-American boycott of 1905 by the
Shanghai Chamber of Commerce. ^ 146
The basic plan of the Shanghai merchants was to disrupt
American business in China until their countrymen were admitted to America on the same basis as the citizens of other countries, and to prevent the Americans in China from
expanding their business interests in areas where Chinese
had made gains. In terms of its diplomatic goals, the
boycott failed. However, there were several positive gains
for China's merchant nationlism. First, Wang T'ao's idea
of reducing foreign profit through the expansion of
domestic competition received new impetus. this was begun
in Shanghai where Tseng Chu, the head of the Fukien Chamber
of Commerce began to promote the practice of cancelling
orders for American goods and replacing them with those
made by Chinese or foreign companies other than American
ones.
In terms of its diplomatic goal, the boycott failed.
However, there were several positive gains for China's
merchant nationalists. First, Wang T'ao's idea of reducing
foreign profit through the expansion of domestic
competition received new impetus. This was begun in
Shanghai where Tseng Chu, the head of the Fukien Chamber of
Commerce began to promote the practice of cancelling orders
for American goods and replacing them with those made by
Chinese or foreign companies other than American ones.
A well known example of the results of Tseng's policy is 147
■found in the case o-f the Kwangtung Tobacco Company, which was founded by Chien Chao—nan and his brother Yu—chieh.
After a reorganization, the company later came to be known as the Nanyang Brothers' Tobacco Company, ana it provided stiff competition to the Anglo-American firm of
British-American Tobcco for many years. This pattern of using diplomatic disagreements to gain support for indigenous Chinese business was not limited to use against Americans. As a result of the controversy which attended Chinese anger over Japanese arrogance in the Tatsu
Maru incident in 1908, eight Chinese owned match factories were started in Canton and Fushan.=^
America's largest firm in China at that time was the
Standard Oil Company, and it was almost inevitable that it would draw the attention of the boycott. This was especially so in the area around Canton, where most of the people affected by the America's exclusionist policy came from. There, the merchants formed the Society to Oppose the Treaty, (Chu Yueh hui)■ which secured pledges from merchants and customers to boycott Standard's kerosene.
Since there was no Chinese company to challenge Standard, they placed their orders with the Shell Transport and
Trading Company which was shipping kerosene into China from
Sumatra.The merchants were also aided by city and provincial officials who devised a special tax burden for Standard's sales. It amounted to a 2-3% ad valnrom 148 destination and landing tax. The justification given to the company was that once its goods left a treaty port, it was clearly free of any treaty based restrictions on tariff rates. For the Chinese, the tax was more of a penalty for conducting business with Standard than the illegal tax that the company claimed that it was.
From 1905 to 1907- Chinese antipathy toward America was at its greatest, and Standard's profits in the Canton area were significantly reduced. However, the reports of
American Consuls reveal that the effect of the boycott of
Standard was regional, and that in areas removed from
Canton, these were years of continued growth for Standard in China. In 1907, Standard's sales in the Canton area were 9,482,734 gallons; a marked drop from the 1905 sales of 14,636,960 gallons.However, records from other areas of China show that the nationalistic sentiment around Canton was not as effective in Central and Northern
China. Also, while business was slow in the Canton area.
Standard remained confident that it would improve. It was
this optimism that underlay Standard's expansion of
facilities during the first year of the boycott. It built
storage tanks with a 3,000,000 gallon capacity and a
warehouse to hold 5,000,000 more gallons in cans. Also,
there was a sizeable expansion of the canning plant which
already existed in Canton during this same year.=®
Although Standard experienced a temporary drop in sales 149 in South China, its overall position in China improved during the boycott- By 1907, Consul General Rogers reported from Shanghai that "the Standard Oil Company, which has had about 60% of the kerosene trade in China since 1905, has enjoyed the most profitable year in its history"=^ According to Rogers, sales had fallen in 1906 by 24,784,941 gallons. However, he attributed this to a lack of supply rather than the boycott.
Rogers' opinions about the availability of supplies and the probability that the boycott was not strongly enforced in
Nanking and Tientsin are well supported by extant reports from those cities during 1906.
If the boycott was to have an observable effect on
Standard's sales in those cities, it should have been seen between July of 1905 and the end of 1906. This was not the case in Nanking during 1906. Part of the reason for this was that the use of Standard’s kerosene helped alleviate certain local problems. The Nanking Consulate reported that due to a local famine, the Chinese had stopped processing their vegetables into oil for fuel and begun to consume them. They turned to Standard kerosene for lighting and fuel. They purchased 1,088,800 gallons of
Standard's kerosene in 1906. That was five times the company's annual sales in 1903 when its agency first opened in Nanking.=“
Local famine conditions may have blunted the effect of 150 the boycott against Standard in Central China, but that was not the case in North China and Manchuria. Standard opened an agency in Tientsin in 1905, the same year in which the boycott began. By the end of 1906, it was doing a brisk business that extended beyond North China and into
Manchuria. The Tientsin Consulate reported that sales dropped 26% for the first half of 1906, but by the end of the year, a new market had been developed in Manchuria. In those three provinces, it was reported that the monthly value of kerosene imports had risen from $8,000 in
September to $28,340 in November of 1906.
These reports indicate that Standard survived the challenge of China's economic nationalism with significantly less damage than other foreign companies.
The foreign steamship companies continually lost money to their Chinese competitors, and American investments in mines and railroads completely disappeared between 1904 and
1914. Admittedly, there was no Chinese company to compete with Standard at that time. This absence of Chinese competition did spare Standard the trials endured by
British—American Tobacco and Japan's Han-Yeh P'ing coal mine, but there were also other reasons why it survived and grew during this period.
Standard's survival of economic nationalism in Cnina before the 1920's is in part related to the nature of
kerosene. Kerosene was the company's major product there 151 before the late 1920’s, and it had many benefits over other
American exports. Unlike machinery, or cotton cloth, kerosene was affordable to almost every person in China.
Also, kerosene was used in a manner that was similar to the use of vegetable and peanut oil, thus, it was not a challenge to the traditional or the developing sectors of the Chinese economy. In fact, it was beneficial to the developing sector in several ways. As we have seen, around
Nanking in 1906, the use of kerosene allowed the Chinese to use their vegetables for human consumption rather than use them for oil. Co at times. Standard’s kerosene was valuable in solving local economic problems which were not directly linked to China’s economic development.
In addition to providing an alternative between eating vegetables or using them for fuel and lighting. Standard’s kerosene abetted China’s economic nationalism in an important way. The imperial edict of 1904 urged the increase of exports from China. In areas where there was a surplus of vegetables and peanuts, the Chinese began to export these products to Japan where there was a ready market. The start of this export trade coincided with the expansion of Standard’s kerosene trade. That trade would not have been possible if the Chinese had not begun to use kerosene in large quantities.
From the early 1860’s, Chinese economic nationalism was expressed by both the government, and the merchants of 152
China. Both groups achieved some notable success, but it seems to be that the earliest start, and the most consistent progress in these affairs was made by the merchant nationalists of China. In many cases, such as the start of the Nanyang Brothers' Tobacco Company, or the
Lanchow Coal Mining Company, it was the merchants, not the government who took the initiative against the foreigners.
In other cases such as those of the China Merchant's
Steamship Company, or the various railway construction projects, the government relied on the expertise and initiative of the merchants, or it moved to support the merchants belatedly. It was this late assistance and movement toward nationalization of the railroads that was interpeted by the merchants as a force of interference in an established and profitable venture.
Despite the restrictions of the treaty system, China's merchant nationalists did achieve some notable successes.
They started companies in shipping, coal mining, cotton spinning, match making, and cigarette manufacturing. In each of these industries, they became serious competitors to the foreign companies.Yet these enterprises remained trapped within the limitations of the Sino—foreign treaty system. Their owners lacked the power to abrogate or amend that system because they were mostly non
governmental figures, and their actions did not have the
force of a self concious, centrally directed intellectual 153 movement. Also, the widespread consciousness of China's position as a nation, which would have given these men allies against the foreigners, was not well developed.
These neccessary elements, which eventually became basics parts of China's development of political nationalism were the result of the occurrence of two related phenomena. The first was the intensified imperialism to which China was subjecteed after 1890. The second was the continuous intellectual ferment which was brought on by that imperialism and the cultural exposure that also came with it.==
From 1894 to 1906, China was swept by four successive waves of imperialism. There emerged a pattern which could not fail to alarm the Chinese. Each of these conflicts began with a diplomatic or an armed conflict, and in none of them was China the victor. Each defeat cost China territorial concessions, indemnities, and humiliation. By
1906, Chinese sovereignty had reached its nadir. Japan and
Russia fought each other on Chinese soil over the commerce and resources of Manchuria. At the end of the war, Russia transferred its privileges in Manchuria to Japan, and in doing so, they confirmed the idea that China's land and resources were not her own.==
During this era of intense imperialism, Chinese contact with Western culture and ideas was expanded. It was that contact and the continued intellectual ferment it 154 stimulated which changed the Chinese attempt to use social and institutional reform to prevent imperialism.
Those reform efforts were transformed into a movement which resulted in the development and spread of political nationalism.== From the late 1880's, this transformatative effect of imperialism on Chinese reform
movements like the T'ung—Chih Restoration and the Hundred
Day Reform was manifest in three kinds of institutions:
study societies, schools, and newspapers.
The Society for the Diffusion of Knowledge Among the
Chinese (SDK) is a good example of how study societies were
transformed into agencies for the spread of political
nationalism. It was founded in the late 1880's by Timothy
Richard and Young J. Allen, two protestant missionaries.
Through voluntary meetings and the publication of its
periodical, the Globe Magazine (Wan—Kuo Kuno—oao), Chinese
intellectuals who favored social and institutional reform
were provided with a public forum and recruitment device.
For example, K'ang Yu—wei, the architect of the Hundred Day
Reform of 1898, credited his acceptance of the need for
reform to his association with Allen, who was the editor of
the Wan-Kuo Kuna—oao.== When China’s defeat in
the Si no-Japanese war started the intensification of
imperialism in China, K ’ang capitalized on the ensuing
atmosphere of crisis to spread the acceptance of his ideas 155 througn tne creation of other study societies.
K'ang and his associate Ch'en Chih, who was a minor official in the Ch’ing court, founded the Ch’iang hsueh—hui. Self Strengthening Society. K’ang and others, most notably Liang Ch’i—ch’ao, looked forward to the creation of a network of similar study societies which would foster the acceptance of democratic ideas and institutions like provincial assemblies ■ and a parliament for China. According to their plan, these societies would promote the intellectual consensus and organizational structure needed to create a modern nation state.
From 1895 to 1898, while imperialism in China reached a new highpoint, seventy six study societies were founded.
As democratic ideas were spread by these societies, they came to be seen as the means to curbing imperialism, and at the same time, these ideas became an integral part of
China’s emerging political nationalism. Out of the seventy six study societies founded during this period, the expressed purpose of twenty three of them was to raise political conciousness. The others were dedicated to the spread of Western technical knowledge or social reforms like the eradication of footbinding. The goals expressed for the National Protection Society (Pao-Kuo hui), which was founded by K’ang Yu—wei and Li Sheng—to, an imperial
Censor, clearly reflect the transformati ve effect of imperialism on the Chinese reform movement. This society 1 5 6 was formed for the preservation of China’s national rights, territory, and creed. The expression of these explicitly nationalistic goals was primarily the result of imperialism in China at that time.=^
Imperialism also had a transformative effect on China’s schools and academies. The changes brought to these institutions was manifest in their curriculae after the
1890’s. Before that time, these institutions were primarily training grounds for the civil service examinations, but with the intensification of imperialism, they began to teach more than Confucian philosophy and fine arts. For example, provincial authorities like Chang
Chih—t ’ung, Sheng Hsuan—li, and Liao Shou—feng, founded schools where the shih—hsueh. or substantive classes , included Western technology and languages. In the schools and academies founded by radical reformers like K’ang
Yu—wei and Liang Ch’i—ch’ao, shih-hsueh came to include the fusion of Confucian social responsibility with Western political philosophy. The goal in those schools was to
promote widespread political conciousness.
In 1896, the Chinese government began a concerted effort
to modernize the curriculum in all its schools. Li
Tuan-fen, a court official encouraged the court to allow
the study of Western political systems in all the schools.
The highpoint of this effort came in 1898 during K’ang
Yu-wei’s Hundred Day Reform. K’ang’s reform was abruptly 157 ended, but its effect on China's educational system went on.
The Empress Dowager continued to allow the study of
Western political systems, and in 1905, the civil service
examination, which had been the basic method for recruiting
government officials in China for two millenia, was
ended.The end of a system which perpetuated
the philosopy of the government of China, and justified its
existence in a centralized bureaucratic form, is a clear
indication of the growing acceptance of the Western
political ideas which were conducive to the spread of
nationalism.
The study societies and schools in China were important
agents for spreading nationlism, but they were not as
effective as the newspapers and magazines which appeared
after 1890. From 1895 to 1898, when China entered a decade
of imperialistic crises, and it was also at that time that
about sixty nationalist oriented newspapers were founded.
Their distribution pattern, volume of circulation, and
subject matter all indicate that they had great influence
on the spread of nationalism outside the treaty ports where
they were printed. The Shih-wu oao. or Chinese Progress,
which was edited by Liang Ch’i-ch’ao, is a prime example of
the influence of these nationalist oriented periodicals.
Its circulation peaked at 10,000 copies. It was
distributed from sixty seven agencies in nineteen cities 158 and fifteen provinces of China. The Shih-wu oao was complimented by other papers like the Hsiang oao, (Hunan
Daily), and the Kuo—wen pao. (Globe Maqazine).=*
By 1900, K’ang Yu—wei, and Liang Ch’i—ch’ao were in exile in Japan, but the literary efforts to develop and spread nationalism in China continued. In 1900, Liang founded a bi-monthly newspaper called the Hsin—min t ’sunq—pao.(New People’s Miscellany), in Yokohama, Japan.
The Hsin—min t’sunq—pao was widely read among Chinese students who were in Yokohama for foreign study, and through this paper, the students were continually reminded that nationalism, political evolution, and constitutional
monarchy, were the only methods which would allow China to
survive as a nation.*^
By 1902, the effect of Liang’s literary work, as well as
his teaching in the Great Harmony Secondary School, was
evident. In Yokohama, at the school, Liang taught that
nationalism must induce a realization that there is a
nation, and that its citizens must adopt measures to ensure
its survival. Liang was promoting the adoption of a
constitutional monarchy; a form of government which would
shift the loyalty of the Chinese from the imperial form of
government, to the idea of a nation. Tsai Chun, the
Chinese Minister to Japan, advised the Empress Dowager to
suspend student travel to Japan in 1902, but it was already
too late. Liang’s students who returned to China formed 159 their own study society to promote nationalism. Their efforts were matched by his students in Japan. From there, nationalistic treatises like the Cheng—wen hsuan-yen,
\Declarations of the political Culture Association), was published and smuggled into China. In this way, Liang's encouragement of political reform and nationalism were widely dissemanated among China's educated youth. •*=
The overall effect of the study societies, educational reforms and nationalist oriented newspapers in China was to create a phenomenon known as elite nationalism. The papers announced the opening of new schools and study societies.
At those institutions, the papers were principal items of study and discussion. These activities in turn created more study societies and newspapers. The result of this interaction was the creation of a new class of people in
China; the intelligentsia.
As a group, the intelligentsia were distinct from the gentry—1 itérâti who preceeded them. They demanded changes in their government, were more politically conscious, and they were more active in political—organizational activities than the gentry-1iterati had been.*=
It was these characteristics of the intelligentsia and the continued imperialism of Japan from 1906 to 1919, that transformed Chinese elite nationalism into an mass urban movement. As that movement grew, it absorbed the interests 160 and participation of other groups. These other groups were
merchants whose concerns were shifting beyond profit and
self interest, and the urban workers of China.
Between 1902 and 1919, Japan achieved the status of a
world power, and became China’s primary imperialist threat.
Japan’s world power status was assured by the signing of
the first Anglo—Japanese Alliance in 1902. Then, when
Japan went to war with Russia from 1904 to 1906, and
emerged as the victor, it received control of Russia’s
commercial, mineral and railroad concessions ir Manchuria
through the conclusion of the Treaty of Portsmouth. China
gave its unwilling, but formal acknowledgement of Japan’s
position Manchuria in a Sino—Japanese treaty which was also
signed in 1906.*=
The Treaty of Portsmouth gave Japan the status an
imperialist power with interests in Manchuria, and North
China. During World War I, Japan moved to consolidate its
diplomatic and economic hold on those areas. According to
C.H. Betnick, the Asian specialist to Britain’s Foreing
Minister, this was accomplished in three stages. Stage one
was the Japanese seizure of Germany’s leaseholds in Kiachow
in August of 1914. Japan justified its actions by virtue
of its status as an Ally, but the spread of its troops
throughout the Shantung peninsula gave a hollow ring to the
promises to return the area to Chinese sovereignty after
the war. 1 6 1
Chinese suspicions of aggression were confirmed in May of 1915 when Japan initiated the second stage of the consolidation of its position in Manchuria and North China.
This took the form of a list of twenty one demands which were presented to China. Their object was to convert Outer
Mongolia, Manchuria, and Shantung into Japanese protectorates. During 1917 and 1918, Japan negotiated a series of treaties with China, England, France, and Italy.
This was the third stage of its consolidation in China.
The objects of that stage were to bind the politically unstable and financially weak government of China to Japan through loans, and to win international recognition of
Japan's position in China after the war.**
While all this was happening to China, America maintained a position which avoided confrontation with
Japan. It signed no treaty with Japan to support its gains in China, but it also took no action to slew Japan's expansion there. Therefore, Japan devoted little, if any, concern to the American reaction to its policy in China.
This was in large part due to President Roosevelt's 1907 statement that the Open Door Policy was not worth a war, and the conclusion of the Root-Takahira Agreement in 1908.
This agreement was so vaguely worded that America took it as a promise by Japan to respect China's territorial and administrative integrity as well as the Open Door Policy. 162
However, Japan interpreted it as American acquiescence to
its expansive China policy.*=
As the Japanese applied their imperialist policy in
China, the government there continued to lag behind its
citizens and reformers in the attempt to oppose Japan. A
large part of the Chinese opposition to Japan at that time
was expressed through the medium of boycotts against Japan.
There were four boycotts in China between 1906 and 1918,
and three of them were in response to Japanese
imperialism.** The fourth one was against America
in response to its exclusionist policy. The anti—American
boycott had little effect on Standard Oil, but the ones
against large Japanese concerns were more effective. Also,
as the year 1918 approached, the nationalistic expressions
of the Chinese outside the government became more political
in nature.
Japan’s Han—Yeh P ’ing coal mine faced stiff competition
from the Lanchow Mining Company from 1905 to 1903. This
was partially the result of the Ch’ing court’s 1904 edict,
but the fact that Japanese troops were fighting Russian
ones over Chinese resources at this time must not be
overlooked. Chinese merchant’s policy of buying only
Chinese coal at that time was just as much an indication of
their anger at Japan as it was an attempt to reduce Japan’s
profits in China.The same anger and reaction
was also evident in the wake of the Tatsu Maru arms 163 smuggling incident. The result was the drastic reduction in the sale of Japanese made matches while the Chinese opened eight new factories to make their own matches.*" So, when these events are seen in this light, they reveal an equal mix of economic and political nationalism.
The expression of Chinese nationalism in a more political form was in part the result of the continued social and political reform which was inspired by the imperialist pressure of Japan. This politicization of the expression of nationalism in China was accompanied by a shift in the leadership of the nationalist movement from merchants to other groups in China. The groups that came to take a more active role in the development and spread of political nationalism in China were the educated youth, the intel1ignetsia, the merchant-industrialists, whose concerns were moving beyond the mere quest for profit, and toward nationalism, and the urban workers who worked for them.
The reform movement at that time produced social reforms
such as societies to end footbinding and arranged marriages. It also opened the door to the politicization
of many of China’s youth. For example, schools for young men and women were opened, and through them, the Confucian
style multi-generation family, which had made the youth of
China powerless, was brought under attack. One of the
results of this reform was the spread of the ideas of 164 competition, individuality, and self expression among
China’s youth. These changes in turn led to the rapid development of a highly politicized youth movement in China which would have been impossible in before 1900. In fact,
it was during the period 1900— 1910 that the intensely
political attitudes of the youth who participated in the
May Fourth Movement was developed.
Two other groups that became active in China’s
nationalist movement by 191S, were the
merchant-industrialists and the urban laborers who worked
for them. Like the students, these two groups were also
part of the result of the combination of imperialism and
the reform it inspired. After China’s defeat in the
Sino-Japanese War, it’s government created the Ministry of
Commerce. In 1903, this ministry was reorganized into the
Ministry of Agriculture, Commerce, and Industry. Then in
1904, the government promulgated a new "company" law which
directed investment capital away from the traditional area
of real estate and into manufacturing. The pre-World War I
growth of Chi na’s merchant—industrialist class peaked
between 1905 and 1908, and those new agencies were
instrumental in that growth.
In that period, China had 549 factories, capitalized at
$120,288,OOOch. This process of industrial growth was
accompanied by the the merchant-gentry drive in the
provinces to recover China’s mining and railroad rights. 165
18.35% of the capital invested during this period went into the purchase of these foreign concessions.
There was also an acceleration of large scale investments in factories by the Chinese after 1910. By 1920, Chinese investors owned 698 factories, capitalized at
$330,824,OOOch., which employed 270,717 Chinese workers.=i This appreciable growth in China's merchant-industrial and working class was partially the result of the end of the slow moving, conservative Ch'ing dynasty, but the diversion of foreign investment to Europe during World War I was also a significant factor.==
By the end of World War I, the youths, merchant—industrialists, and urban workers of China had achieved progress that would not have been possible before.
The youths came of age in an era when the traditional respect for a scholar and his secure position in the civil bureaucracy were gone. They came to realize that their futures were inextricably bound to that of China. So, they turned in large numbers to political activism in orderto secure China's rights and future as well as their own.== The situation of the merchant-industrialists and urban workers, as well as the intelligentsia was much the as that of the youth in
China. The industrialists and workers had indeed made gains during World War I, but their continued prosperity 1 6 6 and livelihood was tied to the struggle to end the economic and political controls of the treaty system. For all of these groups, Japanese imperialism was an immediate problem, but it was also part of a larger one presented by the continued existence of a system that gave foreigners a preferred economic and political position in
China.=*
Because China's intelligentsia was more aware of China’s position in the world, and because they were more aware of world events than any of these other groups, they looked to the positive aspects of Western diplomacy for help. As they sought for ways to improve their position, and that of their nation, their attention was drawn to the widely publicized plans for the conduct of post war diplomacy known as Woodrow Wilson’s fourteen points. Although
Wilson’s focus was primarily on Europe, there were parts of his plan that appealed to the spectrum of nationalists groups in China. His first point, for example, called for the end of the kind of diplomacy which had allowed Japan to consolidate its hold on China during World War I. Also,
Wilson’s fifth point called for a general readjustment of colonial claims after the war which would accommodate the desires and welfare of the world’s colonial populations.==
When the Versailles Peace Conference began at the end of
World War I, the various nationalistic elements in China 167 were imbued with optimism, and the social reforms of China had brought many modernizations to Chinese society and
government. Its schools educated women, arranged marriages
and footbinding were declining, and the Chinese had
rejected Yuan Shih-k’ai’s attempt to revive the imperial
form of government. The merchant—industrialists and their
workers were more numerous than ever before, and China’s
intelligentsia, which had representatives in Versailles,
were preparing plans to retrieve China’s full sovereignty.
In addition to these positive factors, the Chinese were in
a diplomatic position which they had not enjoyed since the
years before the Opium War began in 1S39. They were
victors in a war.
The combination of social, economic, political, and
diplomatic progress in China channeled the nationalistic
expectations of the Chinese in two directions. First, they
expected that the immediate spectre of Japanese imperialism
would be ended. They believed that the German leaseholds
seized by Japan in 1914 would be returned to China. They
also expected that the Sino—Japanese treaties, especially
the treaty of May 1915, in which China had agreed to most
of Japan’s twenty one demands would be rescinded. The
other direction of Chinese nationalistic expectations was
more long term in nature. These hopes were expressed in
their confidence that Wilson’s plans for post war diplomacy
would be put into effect in China. If this were done, then 168 much progress would have been made toward their ultimate goal of ending the unequal treaty system in
China.=»
The Chinese hopes of regaining control of the German leaseholds from Japan were not realized at Versailles. The best they could manage was to sit by in frustration as control of the area shifted from one imperialist country to another. The frustration of this short term goal of the
Chinese nationalist movement was doubly galling because it was partially accomplished through the complicity of the
Chinese government.
When Baron Makino Nobuaki announced the conclusion of the secret treaties which had formed the third stage of
Japan's consolidation in North China, the Chinese delegation objected on the grounds that China had not been consulted. Because America was the only major nation at
Versailles without territorial interests in China, and because of the wide publicity that Wilson's fourteen points had received there, the Chinese delegation looked to
America for support of its position. ='=’ America failed to live up to its promises in Wilson's program.
Part of the responsibility for this failure was surely
American. However, the loss of Shantung to Japan at that time was also due in large part to prior actions of the
Chinese government during the war. this was made clear
when Baron Goto Shimpei, Japan's Foreign Minister, made a 169 second shocking announcement in the plenary session of the
Great Powers.
In that announcement. Goto revealed that the government of Tuan Ch”i—jui had "gladly agreed" to the terms of a loan for 20 million yen from Japan in September of 1918.
According to those terms, Japan would build one railroad from Tsinan to Snur.teh, and another one from Kaomi to
Hsuchow, in Shantung province. In return, China agreed to pledge the income of the railroads to the repayment of the loan. Tuan also agreed to allow Japanese troops, which were concentrated in Tsingtao and Tsinan, to remain there to protect those Japanese investments. The revelation of this information, which was not given to all the members of the Chinese delegation before they arrived at the conference, greatly strengthened Japan's position on the legality of its control of Shantung.=“
At that point, the strategy of the Chinese delegation was to undermine the validity of the Sino—Japanese treaty of May 1915 which formed the legal basis for all of Japan’s expansion in China during the war. The Chinese hoped that its validity could be challenged on the grounds that it was made under duress. If they succeeded along that line, then the subsequent claims of Japan could also be challenged.
The Japanese stood by their claim that the 1915 treaty was not made under duress, and they also pointed out that in 170
191S, when the loan agreement was made, China was an ally, and as such, was not subject to pressure. This last point made by Japan was decisive. It formed the justification for America's refusal to come to China's aid on the disposal of Shantung. England, France, and Italy, had already signed secret treaties to support Japan's claims in
China before the war ended. Under those circumstances, the decision to leave Japan in control of Shantung was formalized in Articles 156—158 of Section VII of the
Versailles Peace Treaty.
The news of these events reached China on May 2, 1919.
There, one of the results was the spread of the attitude that the government of China had betrayed the nation when it sent Chang Tsung-hsiang to Tokyo to negotiate the loan of 1918. Chang's home was sacked and burned. This happened on May 4, 1919. This date should be considered to be the confirmation of an important shift in the politicization of the nationalist movement in China. It signaled the crystalization of the displeasure of the various nationalistic groups in China with their government's lagging position on the issue of nationalism.
It was more than just a temprorary outburst of nationalistic fervor. It was the continuation of the social, intellectual and cultural reform of China which has come to be called the May Fourth Movement. It was through the continuation of this movement that the intelligentsia 171 and youth of China emerged as the leaders of its nationalist movement.
For two years, this new leadership in the growth of
Chinese nationalism had been moving toward a leading position inthe struggle for nationalism. As early as May of 1917, Eugene Ch'en, China’s Foreign Minister, and also one of China’s intelligentsia, spread word of President
Tuan’s docility before the Japanese in the Peking Gazette.
In response, 3,000 students left Japan, and their homecoming coincided with the creation of patriotic societies like the Young China Association in Peking.
Also, more patriotic periodicals, edited by students, such as the Chiu-Kuo -iih-oao. (Save the Nation Daily) , appeared on the streets of China. As leading Chinese intellectuals like Li Ta-chao, and Ch’en Tu-hsiu began to support these activities, the strength of the political side of nationalism, and the control of the movement by the intelligentsia and youth grew. They held numerous rallies and public demonstrations, especially after May of 1919.
The merchant—industrialists and workers in the major cities were drawn to support them by the promises in periodicals
like the Chiu—Kuo -iih—oao to support China’s continued
economic growth and competition with foreigners.^^
In terms of their numbers, geographic location, and
access to news of world events, the intelligentsia and
students were well placed to take the lead in the spread of 1 7 2 political nationalism in China. In addition to the 3,000 students who left Japan in 1917, there were also large numbers of students in Europe during the war. Many of them also returned to China in protest of Japan's actions. But more important, there were also large concentrations of nationalistic students in China's major cities. There, they had daily contact with the other members of the nationalist movement. By 1919, Shanghai had 10% of the total of China’s colleges, and an equal proportion of its students. Peking had 30% of China's colleges and 41% of its students. Most of the other urban centers of China had an average student population of 200,000. Their numbers were fairly equally divided between college, middle school, and primary students. The average age of Chinese middle school students was several years older than what is expected in America. Therefore, their participation in politically oriented activities was much greater than one
would expect in an American style educational
system.
By mid May of 1918, the student-intelligentsia
leadership of China's nationalist movement was easily seen.
When President Feng Kuo—chang announced the signing of the
Sino-Japanese Military Mutual Assistance Pact, he was
confronted with a demonstration by 2,000 students in
Peking. They came from Peking National University, The
National Normal College, the National College of Law, and 173 the National Industrial College. Similar protests were held in Tientsin, Shanghai, and Foochow. Telegrams of supprot from merchant—industrialists flooded in from all over China, and the Student Society for the Salvation of
China was formed. All these events were merely a dress rehearsal for the wave of nationalism that swept China on
May 4, 1919.»=
The actual events of the May Fourth demonstration need not be covered here. That has already been done in Chow
T’se—tsung’s excellent study of the entire May Fourth
Movement. What is important here is to note that the May
Fourth demonstration, and the political activism it inspired, represented the determination of the citizens of
China to end the foreign domination of China. From May 4,
1919 onward, these groups were not only responding to the immediate problem of Japanese imperialism. They were also functioning as an extension of the of the Chinese delegation in Paris to end the entire treaty system of which Japan was only a part.
At Versailles, the Chinese delegation presented a seven point memorandum which outlined their program for ending the treaty system in China.»= It represented the aspirations of all the nationalistic groups of China. Had it been accepted, it would have been tantamount to a voluntary end of the treaty system as well as the political and economic benefits that went with it. Those aspirations 174 were also doomed to failure. This was because none of the powers was willing to voluntarily surrender those benefits, and the Chinese government lacked the international alliances, or the military strength to force them to give
them up. However, it should be noted that after
Versailles, the nature of Sino-foreign relations changed.
Instead of the previous pattern in which the powers
continually extracted benefits from China, Sino—foreign
relations came to be increasingly characterized by the
attempt of the powers to hold on to what they had gained in
the face of China's increasing ability to resist their
demands.
The program of the Chinese delegation at Versailles, and
the actions of the nationalistic groups in China were more
assertive about China’s sovereignty than their government
was. In this respect, the position of China’s government
was similar to its position during the development and
spread of economic nationalism. In both cases, the
government failed to provide effective and consistent
leadership. This tendency of the government to allow its
citizens to lead it only serves to highlight the importance
of an assertive central government in the protection of a
nation’s rights. It was not until 1925 that a claimant for
the government of China which was willing, and to some
extent, capable of taking the initiative in the struggle to
regain China’s sovereignty appeared. In the next chapter. 175 the events which made this possible, and the progress made by the Chinese toward that goal will be addressed. For now, attention must be focused on the progress that was made toward regaining China's sovereignty without the leadership of its central government.
In the literature pertaining to the treatment of China at the Versailles Conference, there has been a great emphasis on China's failure to recover control of Shantung from Japan. Those studies include W.W. Willoughby's Chi na at the Conference, Chow T'se-tsung's The Mav Fourth
Movement. Intellectual Revolution in Modern China, and John
Vincent Carter's The Extraterritorial System in China. The
Final Phase. In those books, the loss of Shantung is presented as a disappointment of Chinese nationalistic aspirations. As long as one focuses on this single issue,
Versailles does appear to be another defeat for China.
However, if the long terra goal of the Chinese nationalists to end the treaty system is considered, as these works also do, then Versailles becomes the place where visible cracks
in the eighty year old treaty system appear. A brief summary of how those cracks began is needed here for two reasons. First, it will demonstrate the gains made by
China in spite of its government's unassertive posture, and second, it will provide a background for the attempts of the Chinese government to catch up with the lead of its citizen's nationalism from 1918 to 1920. 176
China did not sign the treaty of Versailles, but the other Allies did. Through their actions, certain articles of the treaty were enacted for the benefit of China.
Article 289 of the treaty abrogated all prior Chinese agreements with Germany, except in cases where such action conflicted with Japan's assumption of German privileges in
Shantung. A narrow view of the effect of this article emphasizes the fact that China had merely changed masters in Shantung. This view does not account for the enabling effect that this article had on other portions of the treaty which worked to the benefit of China. For example.
Article 128 of the treaty ended German claims for the benefits of the Boxer Protocol of 1901 as well as its claims for indemnities for property lost after March 14,
1917 when China joined the Allies. Articles 131— 134 cancelled German tariff advantages which had been negotiated in 1902, and returned the German concessions in
Tientsin and Hankow to China’s control. Finally, Article
260 of the treaty transferred Germany’s public utilities
and communications systems in China to the control of the
Allied Reparations Committee of which China was a
member.^* These were all gains that must be
counted as progress toward tne long term goal of ending the
treaty system in China.
Although the position of the Chinese government at the 177 time of the Versailles Conference was not characterized by the assertion of its rights, the delegates representing it were assertive. Through their actions, they managed to gain important victories against Austrian and Russian privileges in China. Austria, which had been Germany's ally during the war, wanted to resume relations with China in a manner that failed to recognize China's position as one of the vicotorious Allies. Austria desired the continuation if its claim to a share of the Boxer
Indemnity, compensation for property lost in Tientsin, the continuation of its most favored nation status, and the limitation of China's tariff on Austrian goods to a five per cent maximum. The Chinese delegation refused on all points. They resumed Sino—Austrian relations under the terms of the Treay of St. Germain. This treaty was the first Sino—Western treaty since 1842 which recognized
China's full sovereign rights and diplomatic equality.= This treaty must also be considered as progress toward the end of the treaty system.
In 1917, the antipathy of the allies toward the
Bolshevik revolution led to the start of the reduction of
Russian privileges in China. This action appears to have encouraged China's national government to make one of its rare pre—1925 assertions of sovereignty. On Christmas day of 1917, the British, French, Japanese, and American
Consuls presented Peking with identical requests of their 178 governments to disarm and remove the Bolshevik troops from the Manchurian—Siberian border. The Peking government complied, and then took several more actions on its own to reduce Russian political and economic privileges in
Manchuria and Outer Mongolia. In January of 1918, Kuo
Hsian—hsi, the Civil Governor of Kirin Province, was
unilaterally appointed to the Presidency of the Russian
owned Chinese Eastern Railway. The Chinese government also
asserted its own control of passport distribution in that
area, and placed an embargo on all exports to
Russia.
Beginning in the autumn of 1919, the Peking government
took more steps to assert itself against Russia. The fact
that it took care to publicize its actions in the press
indicates that the goverment was beginning to move toward
the position of its citizens in matters of nationalism. In
November of 1919, Prince Koudacheff, the Czarist Minister
to Peking, was informed by the Wai Chiao—Pu that the
Russo—Mongolian treaty of 1912 and the
Sino-Russian-Mongolian treaty of 1915 were unilaterally
abrogated by China. These actions were accompanied by the
Chinese government's instructions to evict Russian troops
and civilians from Outer Mongolia.Koudacheff
lodged a formal protest jgainst all these assertions of the
Chinese against Russian commercial and political rights.
The answer he received left no doubt about Peking's 179 intentions- He was told that the Chinese government recognized the advantages of trade with Russia only insofar as they did not conflict with Chinese sovereignty.
In January of 1920, Peking even assisted the warlord,
Chang Tso—lin, who was also the Inspector General of the
Three Eastern Provinces, in the assertion of Chinese nationalism against the Russians in Manchuria. Chang transmitted a memorandum supposedly authored by Manchurian chieftans, asking Peking to abrogate the status of
Heilungchiang as a special territory of Russian economic
influence. On January 2, 1920, Peking published a
Presidential mandate which stated that the government would
"condescend to sanction their request in accordance with
popular desire'l*’*'
Undoubtedly, the warlord Chang saw personal advantages
in the rise of Chinese nationalism, thus the dubiously
authored memorandum is explained. But why did the
government in Peking join him in this venture? Part of the
answer lies in the fact that Peking was more than the seat of China's government; it was also one of the hotbeds of
student and intelligentsia led nationalism. Peking was
under fire from these groups for its inconsistent policy
which confronted the turmoil ridden Russians but bowed
before the Japanese. Under these circumstances, it was
decided that it was more politically expedient for 180
Manchuria to be controlled by anyone even nominally loyal
to China's government. Even a warlord's control of the
area would be preferable to leaving it in Russian hands.
That Chang was a sincere nationalist at that time is
doubtful. Yet the fact that he used the idea of
nationalism to strengthen his hold on China's Northeast,
and the government cooperated with him are both indications
of the spread of that idea during the immediate post war
era.
In this chapter, the development of Chinese nationalism
has been traced from the mid nineteenth century until the
early 1920's. One of the purposes of this has been to
point out the some of the significant developments in the
growth and spread of that idea, and also to indicate some
of the ways in which it was successfully applied against
foreigners. Another purpose of this chapter has been to
make a general assessment of the effect of Chinese
nationalism on foreign businesses in general, and the
Standard Oil Company in particular. This has been done to
clarify the reasons why Standard survived the initial
challenges of nationalism in China. Now, a summary of
these points and the effect they had on the general
character of Sino—foreign relations is required. This is
naccessary because it will clarify the nature of those
relations during the 1920's, and it will also shed more
light on the intensly nationalistic atmosphere in which 1 8 1
Standard operated during that decade.
As it has been presented here, Chinese nationalism evolved in two overlapping stages. The first stage lasted from the 1860's until the middle of the first decade in the twentieth century. During this time, an important, but certainly not the only réponse of Chinese nationalism to the West was its economic one. The primary function of this response was its attempt to disrupt the profits of the foreigners in China. The success of the Chinese during this phase was limited. This was largely due to the fact that they were unable to directly challenge the treaty system or to frustrate its tendency to structure trade relations to the benefit of foreigners.
The second stage of Chinese nationalism overlapped the first. It began in the early 1890's as a reform movement
in which China's intellectual elite played an important role. Then, after 1895, this reform movement was
transformed into a widening mass urban movement which took
on increasingly political overtones. The imperialism to
which China was subjected at this time became a two part
catalytic agent in this process. First, it was the
multi-national imperialism which began at the end of the
sino—Japanese War, and then it was the imperialism of Japan
^ r - n m 1 O n s ■I-~ < 0 1 0
The second stage in the development of Chinese
nationalism lasted until about 1915 when important changes 182 in the leadership and goals of the movement occured. It was during this time that China's intelligentsia and students emerged as the leaders of the movement. The merchant nationalists who preceeded them had concentrated on limiting the foreign profits in China, but the new leadership concentrated on what the merchants had not done; they began to directly attack the treaty system in which the merchant nationalists had been trapped. Because the new leadership challenged not only the economic perquisites of foreigners in China as well as their political ones, the economic nationalism of the past became a peirt of the political nationalism of the 1920's.
During the course of both these stages of Chinese nationalism, the actions of the Chinese government have been characterized as ineffective and inconsistent. There
were many reasons for this. One was that during the 19th
century, China lacked the knowledge and technology to
confront imperialism. Also, its government and
intellectuals were divided about the nature of the problem
of imperialism, not to mention the best way to solve it.
While these issues were debated, China was defeated in the
Sino—Japanese War and exposed as a weak nation. During the
the decade that followed the war, China was divided into
spheres of economic interest by the imperialist powers.
After the fall of the Ch'ing dynasty in 1911, China was
beset by the problem of the claims of Yuan Shih—k'ai and Sun Yat—sen for the leadership of its new republic. When
Yuan died in the midst of the controversey he created by attempting to revive the dynastic form of government, China
was thrown into the chaos of the warlord era. For a nation
with a knowlegeable and stable government, the challenge of
imperialism might have been overcome. China did not have
such a government, and so, its ability to deal with this
problem was limited by the search for knowledge and
stability. It was this lack of knowledge and instability
that always kept the government of China a step behind the
lead of its citizens in the protection of the nation’s
rights.
By 1920, China had entered a third stage of nationalist
development. It lasted until the Shanghai Incident in May
of 1925. It was during this stage that the Chinese
Nationalist Party began to acquire the knowledge and
technology to confront the treaty system. More important,
this party began to present itself as a government which
was willing and increasingly able to challenge the treaty
system, and retrieve China’s soveregnty. Before that
happened, the effect of Chinese nationalism on the treaty
system, as well as the economic interests which were
protected by it, had been limited.
The record of Standard Oil in China from 1905 to 1915
when Chinese nationalism began to confront the treaty
system without the benefit of an assertive, effective 184 national government clearly illustrates the importance of the Nationalist Party in the conduct of trade in China.
Despite the Anti—American boycott from 1905 to 1907,
Standard expanded its business in China. By 1906, as the
boycott's effect dissipated. Standard sold 128,687,690
gallons of kerosene in China. By 1908, the company’s new
outlets in North China and Manchuria sold 6,572,340 gallons
of kerosene. That brought the year’s total sales for all of
China to 186,084,950galIons.From 1905 to 1915,
Standard maintained control of 50—60% of the kerosene
market in China. By 1914, it had plans for expansion. It
was in that year that it obtained a monopoly contract from
the government of China to produce, refine, and market oil
in three provinces of North China.So, these
were years in which Standard not only achieved growth in
China, it sometimes benefitted directly from the actions of
the government.
After 1925, the militancy of the Nationalist Party
threatened Standard’s position and that of the other
foreigners in China. The next chapter of this study will
show how the party gained the power to do so, and how
Standard was affected. 185 Chapter Three Notes
-Noel Pugach, "Petroleum Development in Early Republican China", p.472, and New York Journal of Commerce. (August,1915), p. 161.
~Chunq—Kuo Mao—I Nien—Chien. ) , Yearbook of Chinese Commerce. (Shanghai, 1947), p. 10.
^W.W. Willoughby, China at the Conference. (Princeton:1922), pp. 1-5.
*F.F. Liu, A Military History of Modern China. (Princeton:1965), pp. 8-15.
=Paul Cohen, "Wang T'ao and Incipient Chinese Nationalism", Journal of. Asian Studies. Vol. 26, NOc 4, (August, 1967), pp. 559-561.
*"Cohen, "Wang T’ao and Incipient Chinese Nationalism", pp. 561-563.
^Cohen,"Wang T'ao and Incipient Chinese Nationalism", p. 364, and Benjamin Schwartz, In Search of Wealth and Power,Ven-Fu and the West. (Princeton:1966), Ch. 2. !
°K.C. Liu, Anglo-American Steamship Rivalry in China, 1362— 1874. (Cambridge: 1972), pp. 13— 14. (Herea-fter cited as Liu, Steamship Rivalry in China).
*'Liu, Steamship Rivalry in China. pp. 25—26. The Chinese involved were Ahyune, Chongfat, Koo—Jien-sing, Chan Yueh-chang, Ah Kai, Hup Kee, Lyung Chong, Wong Yong-yee, and Ah Yee.
i^'Liu, Steamship Rivalry in China, pp. 135— 150.
'^Liu, Steamship Rivalry in China, pp. 151— 152.
i=Ibid. pp. 151-152.
i^Edward Rhoads, China's Republican Revolution. The Case of Kwanqtunq 1895— 1913. (Cambridge:1975), pp. 63. (Herea-fter cited as Rhoads, China's Republican Revolution).
i^Roads, China's Republican Revolution. pp. 61—62, and pp. 207—209.
^=En-han Lee, "China's Response to Foreign Investment in Her Mining Industry, 1902—1911", Journal of Asian Studies, No. 29, (Autumn, 1968), pp. 55—76. 1 8 6
-^Ibid. pp. 55-76., and Michael Hunt, The Making of a Special Relationship, The United States and China to 1914. (New York:1983), p. 281. (Hereafter cited as Hunt, The Making of a Special Relationship).
iT^bid., pp. 55-76, and p. 281.
i°Paul Varg,Open Door Diplomat. the Life of W.W. Rockhill. (Urbana:1952), pp. 60—62. (Hereafter cited as Varg, Open Door Diplomat). Also see Cohen, America's Response to China, pp. 70—71.
i^Rhoads, China's Republican Revolution, p. 85.
20Sheriaan Cochran and Y.C. Yang, "Free Enterprise in China: The Case of the Cigarrette Concern, 1905— 1953", Pacific Historical Review, No. 2, Vol. 160, pp. 395—414. For a monograph length study see Cochran, Si no-Amer i an Rivalry in the Cigarette Industry, (Ithaca:1981), and Chen Han-seng, Industrial Capital and Chinese Peasants: A Study of the Livelihood of Chinese Tobacco Cultivators, (Shanghai, 1939), Ch. 3.
=%Akira Iriye, Pacific Estrangement: Japanese and American Expansion, 1397— 1911. (Cambridge:1972), pp. 182-188. (Hereafter cited as Iriye, Pacific Estrangement). Also see Office of the Inspector General, Returns of Trade and Trade Reports, Canton. 1908, pp. 520-522.
--Anderson, The Standard Vacuum Oil Company, p. 25, and Kendall Beaton, Enterprise in Oil, pp. 33—42.
==Rhoads, China's Republican Revolution, p. 86, and Hunt, "Americans in the China Market", pp. 290-294.
“■“United States Government Printing Office, House Documents, First Session, 59th Congress, Vol. 1IS., (Washington, 1908), p. 331.
-=United States Government Printing Office, Commercial Relations of the U.S. 1906 and 1907. Vol. II, (Washington:1908), p. 426. (Hereafter cited as Commercial Relations of the United States).
“^Commercial Relations of the United States 1907, Vol. I, (Washington:1908), p. 261.
-^Commercial Relations of the United States 1907. Vol. II, p. 426.
-"Commercial Relations of the United States 187
1906 and 1907. Vol. II, p. 285.
=^*^Coa>mercial Relations of the United States 1906 and 1907. Vol. II., p. 315
"®C.F. Remer, The Foreign Trade of China, (Taipei:1967), p. 95.
=iCohen, "Wang T’ao and Incipient Chinese Nationalism", pp. 594—574.
“-Chang Hao, "Intellectual Change and the Reform Movement 1890-98", John K. Fairbank, and Kuang—ching Liu, ed., The Cambridge History of China 1800—1911, Vol. II, part 2, Late Ch'ing, 1800— 1911, (Cambridge:1980), p. 288. (Hereafter cited as Chang, "Intellectual Change").
^“Fairbank and Liu, The Cambridge History of China, pp. 112-141.
=*Chang, 'Intellectual Change", p. 274.
““Hsiu, The Rise of Modern China, p.436.
^^Chang, "Intellectual Change", pp. 278-282, 292—293, and 323—333.
“^Hao Chang, Liang Ch'i—ch'ao and Intellectual Transition in China 1890—1907. (Cambridge:1971), p. 40. (Hereaffter cited as Chang, Liang Ch'i-ch'ao and Intellectual Transition). Also see Fairbank and Liu, The Cambridge History of China, p. 331.
=°Chang, "Intellectual Change", pp. 330-331.
“''Chang, "Intellectual Change", pp.334-337, and Chang, Liang Ch'i—ch'ao and Intellectual Transition, p. 63. Also see Joseph R. Levinson, Liang Ch'i—ch'ao and the Mind of Modern China. (Cambridge:1953), p. 102.
'‘■‘^Levinson, Liang Ch'i—ch'ao and the Mind of Modern China, pp. 91-93.
^^Ibid. pp. 91-93, andpp. 113-114.
■*=Chang, "Intellectual Change", pp. 335-336.
*=Paul Clyde and Burton Beers, The Far East. A History of Western Impacts and Eastern Responses. 1830— 1975. (Englewood Cliffs:1975), pp. 248-253. (Hereafter cited as Clyde and Beers, The Far East). For details of 1 8 8
Japan's gains in Manchuria, and China's confirmation of same, see MacMurray, Treaties and Agreements With China, Vol. II, p. 1239, and p. 1242.
**E.L. Woodward and Rohan Butler, eds., Documents on British Foreign Policy 1919—1939, Vol. I, (London:1956), pp.1016—1022 for a concise summary of Japan's gains in China from 1900—1918. (Hereafter cited as Woodward and Butler, Documents on British Foreign Policy). Also see Macmurray, Treaties and Agreements With China, Vol. II, pp. 1216—1237 for the full text of the twenty one demands.
*=T. A. Bailey, "The Root Takahira Agreement of 1908", Pacific Historical Review, No. 9, (1940), pp. 19—35, and A. Whitney Griswold, The Far Eastern Policy of the United States, p.132.
■“■^C.F. Remer, A Study of Chinese Boycotts With Special Refernce to Their Economic Effectiveness, Baltimore, 1933), Ch. 5,6, and 7. Hereafter cited as Remer, A Study of Chinese Boycotts).
*^Hunt, The Making of a Special Relationship, p. 281, and Cohen, "Wang T'ao and Incipient Chinese Nationalism", p. 564.
‘*“'Iriye, Pacific Estrangement, pp. 182-188, and Office of the Inspector General, Returns of Trade and Trade Reports, Canton. 1908, pp. 520—522.
■^‘’Mary Wright, ed., China in Revolution. The First Phase 19Ô0— 1913, (New Haven:1968), pp. 20—35. (Hereafter cited as Wright, China in Revolution). Also see, Ssu-yu Teng, "A Decade of Challenge", p. 2, in Gilbert Chan and Thomas Etzold, eds., China in the 1920's. Nationalism and Revolution, (Oxford, 1976), for an explanation of change in china's social structure caused by Wu Yu's claim that the clan system was the basis of despotism and Fu Ssu-nien's claim that the family system was the cause of all China's problems.
®°Albert Feuerwerker, The Chinese Economy 1370-1911. (Ann Arbor:l969), pp. 36-42.
Albert Feuerwerker, Economic Trends in the Republic of China 1912—1949, (Ann Arbor:1979), pp. 16—17, and Feuerweker, The Chinese Economy 1870-1911,pp. 36-37.
®^Ka—Che yip, "Nationalism and Revolution, the Nature and Causes of Student Activism", in Chan and Etzold, 189 eds., China in the 1920's. Nationalism and Revolution. pp. 96-98.
“^Chow T'se—tsung. The May Fourth Movement. Intellectual Revolution in Modern China. (Cambridge:1974), pp.19—21. (Hereafter cited as Chow, the May Fourth Movement).
““Alexander DeConde, A History of American Foreign Policy, Vol. II, (New York:1978), p. 60, and Russel H. Fifield, Woodrow Wilson and the Far East, (New York:1952), p.194.
““Fifield, Woodrow Wilson and the Far East. Ch. 4, and Chow, the May Fourth Movement, p. 85.
“**Chow, The Mav Fourth Movement, pp. 85—87.
“^Chow, The May Fourth Movement, pp. 85—87
“®Chow, The May Fourth Movement, pp. 88-89, and MacMurray, Treaties and Agreements With China. Vol.II, p. 1488. =^Ibid. pp. 88-89, p. 1488.
^"°Chow, The Mav Fourth Movement, pp. 77—83, and pp. 151—153. Also see Remer, A Study of Chinese Boycotts, p. 156.
^^Ka-che Yip, “Natonalism and Revolution, the Nature and Causes of Student Activism", p. 99.
'^^Chow, The May Fourth Movement, pp. 80—88.
'^“The program had seven points. They were (1) The renunciation of spheres of influence. (2) The withdrawal of all foreign troops and police. (3) The withdrawal of foreign postal and communications systems. (4) The end of consular jurisdiction. (5) The Return of leased territories to China. (6) The return of foreign concessions to Chinese control. (7) the return of tariff autonomy to China. Frank Pollard, China's Foreign Relations 1917-1931, (New York, 1933), p. 82. (Hereafter cited as Pollard, China's Foreign Relations).
'^“Pollard, China's Foreign Relations, pp. 80-82.
*=Pollard, China's Foreign Relations, p. 86. 190
****Nor-th China Herald. CXXXIII, November 29, 1918, pp. 70-71.
*»^North China Herald. CXXXVI, November 29, 1919, p. 551, and Pollard, China's Foreign Relations. p. 120.
^°whina Yearbook,1921—22, (Shanghai, 1923), p. 578.
*^Ibid., p. 578, and Pollard, China's Foreign Relations, p. 121.
^^United States Government Printing Office, Commercial Relations of the United States 1908. Consul General Rogers to the Department of State, p. 265, and Commercial Relations of the United States 1909, "Review of Trade Conditions, What the Empire Buys", p. 717.
^^New York Journal of Commerce, August 16, 1915, p. 1, and MacMurray, Treaties and Agreements With China, Vol. II, pp. 1109-1111. CHAPTER IV
THE ASSERTION OF CHINESE NATIONALISM:
PREPARATORY PHASE
From the 1860's until 1919, the idea of Chinese nationalism spread from a few advanced intellectuals, officials and merchants to significant numbers of China’s urban population. As this idea spread, it became the impetus for a mass urban movement. During that time, the progress toward the Chinese goal of regaining China’s sovereignty was sporadic and limited by the failure to solve three problems. Those problems were China’s weakness in the international community, the absence of an assertively nationalistic government that was able and willing to confront the powers in China, and the absence of a military that could back China’s claims when diplomacy failed. From 1919 to 1924, China made rapid progress toward the solution of these problems. To the extent that they were solved, China also made progress toward the recovery of its sovereignty. One of the purposes of this chapter is to explain how China acquired the means to solve those problems.
191 192
It was also during the years from 1919 to 1924 that the
Chinese mounted another diplomatic challenge to the unequal
treaty system. This process actually began in 1917 and was
initially directed against the unstable Russian Czarist
government, and the defeated Axis Powers. Then, after
1919, diplomacy became an important part of the challenge
to the other Powers. One of the results of this action by
the Chinese was to place the Russians in the position of
trying to preserve, rather than expand their treaty
priviliges in China. After the Washington Conference on
Arms Limitation, the other Powers in China found themselves
in a position similar to that of the Russians. The treaty
based foundation of their priviliges in China had begun to
crumble. Their struggle to preserve those priviliges
became a central characteristic of Sino—foreign relations.
Another purpose of this chapter is to explain the key
points in the Chinese diplomatic attack on the treaty
system.
Since the position of Standard Oil in China was
intimately tied to the provisions for extraterritoriality
and tariff control in the treaties between China and
America, it was quite logical to conclude that as the
treaty sysrem went, so did the position of Standard Oil in
China. Until the post Washington Conference years of 1923
and 1924, this conclusion continued to be valid. Another 193 purpose of this chapter is to show how and why this situation changed after the Washington Conference. An understanding of these issues will make it readily apparent that from 1919 to 1925, the Chinese were gathering the means to assert their nationalism against the treaty system in general and against large foreign companies like
Standard Oil in particular.
At the Versailles Conference, China presented a futile challenge to the treaty system. A major cause of that futility was China's weakness and lack of international support for its claims. This was true with regard to its immediate goal of resecuring control of Shantung, and it was also true with regard to the broader goal of ending the unequal treaty system. It was not until a few weeks after the end of the Versailles Conference that the Chinese began to receive tangible foreign support for their nationalistic goals. It is interesting that the aid they received was primarily due to the success of the Bolshevik
Revolution in Russia and the antipathy to that event in
Japan, America, England, and France. It was actually the needs of Soviet Russia for recognition and allies which helped China gain useful support in the diplomatic arena.
The Russians also were largely responsible for helping the
Chinese form an assertive nationalistic alternative to the
Peking government. Finally, it was also the Russians who assisted China in the formation of an army whose presence 194 made the continuation of the treaty system much more difficult than before.
The Soviet government was plagued from the very start by the spectre of military intervention and a lack of
formal international recognition. The primary threat was
the military intervention of the Allied Expeditionary Force
that was launched Westward from the Siberian port of
Vladivostok in the summer of 1918. America, England, and
France each sent 7,000 troops. The expedition was
eventually headed by a 72,00 man contingent from
Japan.^ The number of troops sent by each of
these nations was reflective of their policy goals in Asia
and their committment toward their attainment.
England and France opposed the Soviet repudiation of the
former Czarist government's debts in Europe. For them, the
Soviet government was not only a long term ideological and
economic threat. Its failure to assume responsibility for
the Czar's debts was an immediate economic threat as well
as a dangerous diplomatic precedent. Therefore, even
though neither France nor England had come out of World War
I in a strong military or financial position, they each
felt strongly enough about these issues to send 7,000 men
to Vladivostok.
America's primary reasons for joining the expedition
were its ideological and long term economic goals in Asia.
Besides the logical antipathy of capitalist ideology toward 195 socialism, it was hoped that Woodrow Wilson's wartime proclamations of American support of national self determination would become a cardinal point of American foreign policy toward Russia, if not in China. Also,
America suspected that England, France, and Japan would carve Russia into mutually exclusive spheres of economic interest, just as they had done in China. If this happened, it was felt that the long term hopes of an open economic door in Asia for American investment would be
closed. Moreover, the possibility of a future war among
the Allies over the trade and resources of Russia was also
thought to be possible.=
It may be said that America's intention to protect
Russian territorial and administrative integrity led it to
participate in the Siberian expedition, but the fact that
it sent only 7,000 men in pursuit of those goals was
indicative of the lack of committment to achieve them which
characterised America's policy in Asia. America emerged
from World War I as the world’s most powerful economic and
military force. Yet, it continued to show an inability to
make a determined committment of funds and force to achieve
its goals in Asia. This was especially tru regarding the
American pursuit of an Open Door policy in Asia.=
This failure of America’s policy contrasted sharply with
Japan’s performance in Asia.
Japan’s policy in Asia was quite different, especially 196
■from 1894 until 1919. Investments, loans, diplomacy and military action were all used in their turn by Japan as it pursued the economic and political dominantion of Asia. By
1918, Japan not only had sizeable interests in Manchuria and North China, it also had plans for the long term development of Outer Mongolia and Siberia. The emergence of a strong Soviet government in Russia was seen as a threat to these plans. A strong Soviet government was also seen in Japan as the reemergence of a traditional enemy.
For these reasons, Japan resorted to the kind of committment that became a familiar part of its policy in
Asia. It sent 72,000 troops to Vladivostok in July of
1918.*
July of 1918 was a bad time for the security of the
Soviet Union’s Eastern flank. The start of the Allied
intervention from Vladivostok was accompanied by a revolt
of anti-Soviet Czeckoslovakian troops. The Soviets quickly
began to plan a strategy to deal with the problem. The
cardinal points of that strategy were to win international
recognition, and to slow or halt the intervention. The
Soviets also planned to turn China into a buffer zone on
its Eastern flank. The keys to this last plan were a
strong nationalistic Chinese government, and the continued
development of nationalism in China.= It was the
Russian pursuit of these last two goals that moved the
Chinese two steps closer to solving the problems of 197 diplomatie and military weakness that had obstructed their progress at Versailles.
The first step in the new Russian policy toward China was the announcement by G.V. Chicherin, the Soviet Foreign
Minister, that the Soviet Union was ready to renounce all the Czarist Russian government's privileges in China. This offer came on July 14, 1918. It was two days before the
Czeck uprising in Vladivostok, and just weeks after the
Chinese had failed to obtain similar voluntary responses to their nationalistic aspirations at Versailles. This announcement was a portent of a radical change in the character of Sino-Russian relations. It signalled the end of a situation in which Russian privileges were stubbornly and futilely defended, and the start of one in which there were important diplomatic, political and military advantages in Sino—Soviet cooperation. Because Chicherin's announcement left the future of the Chinese Eastern
Railroad, a major Russian investment, in doubt, the Peking government failed to capitalize on the benefits inherent in the Soviet proposal. The real beneficiaries of that policy were Sun Yat—sen and the Chinese Nationalist Party which was based in Canton.*
After a year of unfruitful negotiations between Moscow and Peking, Chicherin's assistant, Leo Karakhan, reissued the Soviet offer and despatched Adolph Joffe to China to continue negotiations. The future status of the Chinese 198
Eastern Railway continued to be an obstacle to a successful conclusion and negotiations dragged on until May of 1924.
Because Joffe had encountered this unexpected difficulty with the representatives of Tuan Chi—jui in Peking, he made a trip to Shanghai during early January of 1923 to place the Russian offer before Sun Yat-sen, the leader of the
Chinese Nationalist Party and rival claimant for the government of China. One of the results of Joffe' s trip to Shanghai was the signing of a Sino-Soviet agreement on the Chinese Eastern Railroad by C.T. Wang on behalf of the
Peking government.
Joffe also made an agreement with Sun and it was this agreement that proved to be more efficacious in the development and realization of Chinese nationalism. In
this Sun—Joffe agreement, the status of the Chinese Eastern
Railway became a secondary matter which would be resolved
later in a manner that would be satisfactory to both
parties. What was of primary importance to China's
nationalist aspirations was the agreement made to
reorganize Sun's party with the help of Russian advisors,
and to capitalize on the Chinese Communist Party's ties
with labor to support the Chinese Nationalist
Party.^
Michael Borodin, a Soviet agent was sent to China to
assist Sun in the reorganization of the Kuomintang's 1 9 9 administrative capabilities. Borodin had been in the
Communist Party since 1905. He had worked for the revolution in Spain, Scotland, and Mexico. His aliases included such names as Grusenberg, Berg, and
Kirill.® It was through Borodin's assistance that the Chinese Communist Party’s members joined the
Kuomintang. Sun’s anxiety that he would become a puppet of the Russians and the Chinese Communists was allayed by the part of the Sun—Joffe agreement in which both men agreed that the time was not yet right for a communist revolution in China.^ So, beginning in 1924 with the First
National Congress of the KMT, important changes were made in the platform and methods of the Nationalists.
At the insistence of Borodin, Sun shifted his claim to govern China from one of constitutional debate to one in which he and the Kuomintang claimed the right to govern
China because they were the protectors of China’s rights.
The virtual collaboration of Peking with Japan’s expansion in China during World War I, and its poor showing at
Versailles over the Shantung issue gave great weight to this strategy. The new position of Sun and his party were skillfully orchestrated and directed at the Chinese public by Borodin. It was also given wide circulation in the publication of a series of lectures given by Sun and printed under the title of San Min Chu-I (The Three
Principles of the People). 200
From January of 1924 when the First National Congress of the KMT announced the new direction of the party in a manifesto, and even after Sun's death in March of 1925, the
KMT campaigned to encourage other nationalistic groups to join their cause. Central parts of their appeal were nationalism and the idea that it was the imperialism of the
Powers in China and their treaty system which were the cause of China's problems. According to Sun, China's only hope for international justice and reclaiming her rights as a nation was to develop her nationalism and to protect
China by dismantling the imperialistic treaty system.
In addition to reorganizing the Kuomintang and redirecting its approach to the claim to govern China, the
Soviet Union was also instrumental in creating an army for the party. From the Soviet point of view, such an army fit well with their strategy of making military alliances in
China which would protect the Soviet Unions's Eastern
flank. From Sun's point of view, an army which would be
loyal to his party was also a good idea. The party had
been chased from its base in Canton on several occasions by
warlords. The problem of securing a base of operations
would be solved if an army was created. Also, if the
Kuomintang was to make- cjood on its intention to protect
China's rights and dismantle the treaty system, an
effective fighting force and the threat of its use was 201 imperative. It was primarily these considerations, and the party's success in appealing to the nationalist sentiment of many diverse groups around Canton that led to the decision to open the Whampoa Military Academy outside that city.The primary Soviet Advisor in this project was General Vasili Blyuker, a thirty five year old soldier who had already served in the Ural mountains and
Siberia before being posted to China in 1924. i =
The first class at Whampoa enrolled 499 cadets from
3,000 applicants. The cadets came from the educated youth
in China. In the period after the Academy was started, there was much disagreement among its founders and leaders about how its graduates could best serve China, but there was at least initial agreement about the importance of
their political indoctrination. For example, Chiang
K'ai—shek, the nationalist zealot who eventually led the
party army on its Northern Expedition against the
mili ta»-ists, agreed with the Leninist principle that
ideological indoctrination was a key to military success.
Liao Chung—k'ai, the Administrator of Whampoa was a man of
unquestioned nationalistic sentiment, and it was he who
became the non—military leader at the academy. Liao also
agreed with Sun, Borodin, and Blyuker that the ideological
foundation of the cadets had to be nationalism and loyalty
to China above all else. Even Chou En—lai, a young member
of the Chinese Communist Party who later rose to become 202
Premier in the post World War II government of Mao
T'se—tung, first made a name for himself as the Deputy Head of the Political Education Department at
Whampoa.A large part of his duties there were to impart the idea of nationalism to the cadets.
Except for their agreement on the value of nationalism, these men were often at odds with each other as well as with Borodin and General Galen,(Blyuker's alias). In March of 1926, Liao Chung—k’ai was assassinated. Borodin was recalled to Moscow for his failure to control the
Kuomintang, and many of Galen's advisors were held under house arrest by Chiang's troops. Chou En-lai was also arrested, only to escape on the way to the execution ground.^^ Yet in spite of the friction caused by the differing party loyalties of all these men, they worked together long enough to create an army which was motivated by nationalism, and capable of confronting the powers and the treaty system in China.
In October of 1924, the first class of officers and two training detachments of troops, a total of 3,000 men, graduated from Whampoa. Given the three way political split at Whampoa, this was a sizeable accomplishment. Sun and Chiang represented the KMT, Chou En-lai and Lin Piao represented the Chinese Communists, and the Soviets were represented by Borodin, Galen and the other Russian
advisors. Within a year, their differences would result 203 in violence, but for the time being, the Chinese nationalist movement had gained the military force that was crucial to its success. Sun Yat—sen, who was already ill at that time realized that there were serious divisions in his army, but he hoped that its devotion to the cause of nationalism would prevent serious conflict. After the initial graduation at Whampoa, the Kuomintang’s army grew rapidly: 1,500 men and officers in January of 1925, aui additional 9,000 in July of 1925, and 30,000 in November of that year. Thus Sun was at least partially correct when he said at the initial graduation ceremonies, "now that we have Wampoa, I may die peacefully^^
In October of 1924, the KMT Army received its first test. The Hongkong-Canton Merchant’s Volunteers staged an uprising against the KMT and its policy of taxing merchants heavily to support the party in the Canton area. They were quickly and effectively suppressed.!^ In April and May of 1925, the army conducted its first major campaign. In order to secure the party’s base in the province of Kwangtung, it moved against General Ch’en
Chiung—ming, the warlord who had driven Sun Yat-sen from
Canton on three previous occasions. At the battle of
Mien-hu, Ch’en’s army was routed. Then, in a campaign that lasted from February to April of 1925, the Kuomintang troops drove all the way to the Eastern limits of Kwangtung province. It returned to Canton only when the armies of 204 militarists in Yunnan and Kwangsi moved in behind it to
seize Canton.
The Kuomintang waged a six day battle during the second
week of June, 1925 to retrieve the city of Canton from the
troops of Generals Yang Hsi-min, and Liu Chen-huan. In
that battle, and in the three Eastern Campaigns that
followed, Chiang K'ai—shek, supported by the plans and
oversight of General Blyuker and twenty of his advisors,
proved his value as a leader in battle. By July
1, 1925, the Chinese Nationalist Party was able to formally
establish itself as a rival government to the Peking
government which was then headed by Feng Yu-Hsiang, the
latest warlord to seize Peking. From October of 1925 until
February of 1926, the Kuomintang conducted three Eastern
Campaigns to secure the province of Kwantung as its base of
operations.
The formal establishment of the Chinese Nationalist
government, and the securing of a safe base of operations
in Kwangtung represented two important steps toward solving
the problems that had frustrated China’s hopes in
Versailles. With the assistance of Borodin, the
Nationalist government had become a viable alternative to
the constantly changing heads of government in Peking. Its
formal establishment eventually provided a focal point for
a more consistent and assertive call to end the treaty
system in China. At the Washington Conference on 205
Disarmament, the men who represented China, and eventually the Nationalist government, made that event a forum for
Chinese nationalism.During the two years after the conference, the existence of the Nationalist army, and its record in battle during the three Eastern Campaigns of
1925 and 1926 meant that the Powers could no longer take
Chinese nationalism lightly. This new situation was just emerging in 1923 and 1924. By 1926 and 1927, when the
Nationalists conducted the Northern Expedition, the post
Washington Conference years were more clearly seen as an
era of aggressive assertion of Chinese
nationalism.=^
The course of the Northern Expedition, and its meaning
for the treaty system, and Standard Oil will be covered in
the next chapter. For now, attention must be focused on
the Washington Conference because it is there that the aims
of the Chinese for treaty revision were placed before the
Powers in a non-aggressive form for the last time. A basic
understanding of those aims and how the powers dealt with
them during and after the Washington Conference is
essential to the clarification of Standard’s position in
China from 1925—1930.
The Washington Conference on the Limitation of Armaments
was largely the product of important shifts in power after
World War I. This was especially so in regard to the nature
of power in the Pacific and Asia. There, the old hierarchy 206 of Asian power, dominated by Britain and the nations of
Western Europe was replaced. In its stead, Japan emerged as the aggressive leader. Britain still maintained substantial interests in the area, but in many ways, its power in the East was secured by Japan through the
Anglo—Japanese Alliance. The final new addition to power in this part of the world was America.
America's strength in Asia was qualitatively different
from that of the other Powers. It was partially based on
Naval power in the Phillipine Islands and Hawaii. But it
was not the product of territorial holdings in China. It
was more accurately defined in terms of potential
diplomatic leadership and the quest to realize the ever
elusive profits from the China market. During the
Washington Conference, America's leadership in Asia was
directed toward the end of the post World War I naval arms
race and the easing of Sino— Foreign tension. In the
opinion of Secretary of State Charles Evans Hughes, neither
a lasting peace, nor large profits from the China trade
would be possible until these formidable intermediate tasks
had been accomplished.==
If Hughes had any illusions about the difficulty of
accomplishing these tasks, they must certainly have
disappeared during the summer of 1921 when Britain convened
its Imperial Conference in London. It was there that the 207 post war Powers in Asia and the Pacific made their own concerns and policy goals known. In many ways, the
Imperial Conference brought the international ferment which the war time power shift in Asia started into high relief. Once exposed, these concerns were carried over into the Washington Conference.
When the Imperial Conference was held, America was a new naval power. It was also internally divided over the implications of that navy for its economy and world peace.
The announcement from London that Britain and Japan had extended the Anglo-Japanese Alliance for a year only served to exacerbate this political tension. On one side was
President Harding who favored the achievement of complete naval supremacy before considering disarmament. On the other side, there were the public and various members of the Senate, led by Senator Borah of Idaho. They favored the start of immediate negotiations with Britain and Japan to reduce naval armaments by 50%. In the middle were the
Congressmen and taxpayers who worried about the economy and sought a reduction of government spending, especially on large budget items such as the navy. These concerns spilled over into the diplomatic arena and were carried into the Washington Conference. This was primarily due to the suspicion of Japan's motives, especially since
Versailles, and the nagging anxiety that someday, the
Anglo-Japanese Alliance might become a threat to American 2 0 3 interests in the Pacific. The British announcement of the intention to call a Far Eastern Conference to settle current issues in Asia and the Pacific as well as to align the Anglo-Japanese Alliance with those issues did little to calm America's concerns.==
Although British policy during the Imperial Conference had an unsettling effect on American politics and diplomacy, the same can be said of the effect of
Anglo—American relations in Britain. Britain was heavily in debt after World War I. It also faced the end of the naval supremacy which had long been the mainstay of its power. In addition to these problems, Britain was attempting to accomodate itself to the internal strains of empire. Ireland and India were making strong bids for independence, and the Pacific dominions of Australia and
Malaysia were pressuring London to continue the
Anglo-Japanese Alliance as the surest means of restraining
Japanese expansion in their direction. For Britain, the alliance was at once an anchor for its Eastern empire and a means of preventing Japan's rapproachment and alliance with
Russia or Germany.
Given these concerns, the British were uneasy about
America's burgeoning navy, and still rankled by the pre—war disputes over "neutral trade". They were attempting to hold their diminished power and empire together while salvaging as much national pride as possible from imperial 209 decline and mounting debts. Thus, they were at a loss to understand America's challenging attitude in the post war period.=*
For its part, Japan also had serious internal and diplomatic concerns in the post World War I era. Economic strains created by Japans's modernization in the Western pattern had driven the Japanese onto the Asian mainland and into the Pacific Islands in search of markets and resources. The war had produced great gains for them in terms of these resources, as well as a sizeable increase in naval strength with which to protect these interests. In fact, Japan was the world's third leading naval power after
World War I. However, there was much concern in Japan about :ts international status and the potential threats in the growth of the American navy. They also worried about the direction of American diplomacy.
Hara Kei, the Japanese Prime Minister, was caught between his Army and Naval Chiefs of Staff and the reaction they had to the growth of American naval and diplomatic power. General Ugaki Kagushige, Chief of the Army General
Staff, opposed the reduction of Japan's navy because it might have led to the need to withdraw Japanese troops from
China, and especially Shantung. This opinion was upheld by
Admiral Kato, but for different reasons. Kato, a professional navy man had a vested interest in the Japanese navy. He opposed the reduction of its strength to a point 210 below seventy percent of American naval strength in the
Pacific. In his opinion, a smaller ratio would make the navy's support of Japan's Asian policy impossible.
During, and immediately after the war, America had been the only major world power to oppose Japanese expansion in
China. Despite his failure, Wilson's weak attempt at
Versailles to help China regain control of the Shantung peninsula was interpeted in Japan as interference. Even more galling to Japan was the failure of Wilson as the
Chairman of the League of Nation's Commission, to include
the Japanese sponsored clause on racial equality into that
organizations's charter. From the Japanese point of view,
this failure must have appeared as merely the continuation
of Californian racism which had been a problem throughout
the late 19th and early 20th century. These concerns as
well as the participation of American financiers in the
investment consortium of 1920 in China, which was seen as
an invasion of Japan's economic hunting grounds, tended to
shape the view in Japan that America was not to be trusted.
The post war assignment of most of America's fleet to the
Pacific and America’s obsession with breaking the
Anglo-Japanese Alliance, which assured Japan's great nation
status, did little to dispel this feeling.==
By July of 1921, it was apparent that the post war
powers in Asia-America, Britain, and Japan— were headed
toward an expensive arms race that was also disruptive of 211 their internal politics and international relations. For these reasons, and because Britain had already intended to call a Far Eastern Conference, to which China was also invited. President Harding announced that those nations as well as Italy, France and the Netherlands were invited to the Washington Conference. There, both naval armaments and
Asian issues would be discussed.
At the first meeting of the Committee on Far Eastern
Questions, Alfred Sao— ke Sze presented a ten point memorandum which outlined the principles that China hoped would be established at the conference. It '"as the intention of the Chinese delegation to establish their principles first, and at a later time to bring up specific issues. Even a cursory glance at Sze’s ten points indicates that they were evolved mainly in response to prior ill treatment of China by the Powers, or designed to prevent such treatment in the future. Point one, for example, called for the respect and observance of China's territorial integrity and political and administrative independence. Point eight called for respect of China's neutrality during future wars in which she was not involved.
Both of these points as well as the other eight were part of larger program by the Chinese delegation to correct past wrongs done to China and to see that none were done in the future. The quest for these two goals ranged far and 212 wide. This was because the infractions on China’s sovereignty had evolved well beyond the legal limits of the treaty system. In fact, when China listed its grievances before the committee, it separated them into treaty based
and non treaty based abuses. In this latter category were
such abuses as the maintenance of foreign wireless
communications systems, foreign control of the receipt and
disbursement of China’s customs duties, and the maintenance
of foreign troop and police in China without
consent.In the eyes of the Chinese, these
issues were not only manifestations of the derogation of
China’s sovereignty, they also were outgrowths of two major
infringements which were treaty based. Those two
infringements were China’s lack of tariff autonomy, and the
existence of extraterritorial privileges for the powers in
China. These two elements of the treaty system were the
very heart of all the abuses against China’s sovereignty,
and as it will be shown hers, they provided a legal
framework which protected much of the financial interests
of foreigners in China.
The Committee on Far Eastern Questions met thirty five
times before the Conference ended in February of 1922. As
China’s delegates left for home or other diplomatic duties,
they did so with a supreme sense of disappointment. The
Committee was convened after the issues of disarmament and
the general rearrangement of power in the Pacific had been 213
settled among the powers. Each of the powers had tried to purchase the maximum of security with the least expenditure or concessions to the others possible. None of the
solutions arrived at were ideal, but for them, they were
ones that could be lived with.
The Four Power Treaty replaced the Anglo-Japanese
Alliance with a multi-lateral consultative treaty. It kept
England as part of the peacekeeping force in the Pacific
and put America’s fear of the alliance to rest. The nineteenth article of this treaty, which prevented America from improving its fortifications in the Pacific was
crucial to overcoming Japan’s qualms about its inferior
ratio in ships. The Five Power Treaty removed the idea of
reliance on ratios of tonnage as the only means of arms
reduction. The more effective measure of combining tonnage
limits of ships and limiting their gun sizes was used.
Again, Japan protested but eventually went along with this
idea.
In the Nine Power Treaty, Secretary of State Hughes
moved forward with his intention to guarantee the future
for American investments in China. This was accomplished by
having the Open Door Policy elevated from a unilateral policy to a principle ingredient of the treaty.
To be sure, there was some grumbling in each of the domestic arenas of all the Powers about concessions, but overall, it seemed that security for their interests had 214 been purchased without force of arms.
From the perspective of tne Chinese delegation, it must have appeared that everyone's major problems except theirs had been attended to. They had only achieved one major advancement of their nationalistic hopes. With the aid of
American and British counsel, a Sino—Japanese agreement to return the Shantung Peninsula to Chinese sovereignty was reached. However, that agreement served the powers more than it did China. It temporarily reduced Japan's pretensions for economic dominance of the peninsula, but it also opened the possiblility of expansion of the interests of the other powers. The problem for China with this
agreement was that the arrangements for return of the
resources and railroads in Shantung left it with the empty
shell of sovereignty, a long term debt to Japan, and the
possibility that China's fiscal and political weakness
would draw Japan back into a position to reclaim what it
had given up.==^
After some protracted negotiation, China even managed to
achieve the return of Weihaiwei from England. As important
as this and the Shantung victory were, they meant little.
This was because the heart of China’s program, the
reclamation of tariff autonomy, and the end of
extraterritoriality were not achieved.
The Chinese position on tariff autonomy was presented to 215 the committee by V.K. Wellington Koo during its fifth meeting. In a careful review of foreign tariff control in
China Koo revealed that the tariff had been revised only four times between 1842 and 1922. Three of those revisions had been based on out of date market prices and the result was that China had averaged an effective duty collection of
3 1/2% instead of the 5% ad—valorem required by the treaties. The last revision had taken six years, involved seventeen nations and still, China had not received her due.==
Kow went on to propose that the Powers grant China tariff autonomy. He felt that his proposal was justified by the inequities in the system then in force. He also felt that the acceptance of the principle of reciprocity, which had been adopted by all the Washington Conference participants in their relations with China also supported his proposal.
His comments on the tariff relations then enforced by the powers against China made this a seemingly acceptable justification. For example, Koo noted that Chinese tea exported to England was charged 25% ad—valorem. Tobacco shipped to Japan was charged 350% ad valorem, and duties on silk exported to America varied from 35% to 60% ad—valnrem.
Finally, Koo justified tariff autonomy for China on the grounds that the system in force was unscientific. It failed to discriminate between luxury items like liquor and tobacco and the machinery that was essential to China’s 216 economic modernization.
As he ended his presentation, Koo outlined a proposal for
China's resumption of tariff autonomy. It was designed to lessen the anxiety of the Powers on this issue while it returned one of China's basic sovereign rights. The major points of his plan were as follows: China should receive an immediate increase of 7 1/2% over the tariff rate then in force. In return, China would agree to end the likin ta:<.
The likin tax was a provincial duty which had originated during the Taiping Rebellion in the raid-nineteenth century.
It was mutually agreed by China and the powers that this tax was a detriment to further economic development in China.
The loss of income at the provincial level was to be replaced by a surtax of 12 1/2% more than the increase in regular tariff duties.
Beyond these plans for an immediate increase in China's tariff collections, Koo also proposed that another tariff treaty be negotiated in five years. At that time, he proposed that China's tariff rate be increased to a maximum of 25% ad-valorem. Because the Powers were sensitive about the immediate end of the tariff system then in force, Koo did not press for its immediate abolition. Instead, he suggested that it end within a period of ten years. He also sought to allay the fears of the powers that the duties collected by the foreign dominated Maritime Customs Service would be used for the continuation of civil warfare in 217
China. He stated that there were no plans by the government
Q-f China at that time -for such action.==
After prolonged debate, the Committee issued a report on
Koo’s plans, and the nine resolutions that formed the heart of the report were adopted as part of the Nine Power
Treaty. The effect of those resolutions was to reduce Koo's plan significantly. In the process, the basic concerns of the Powers came through quite clearly. Rather than work from the tariff revision that was made in 1918, the Powers used the Sino—British tariff agreement of 1902 as a basis for reducing the tariff increase and surtax in Koo's plan to
5% effective and a 2 1/2% increase. =•*
It was clear that the powers were not ready to relinquish an important piece of their economic dominance over China in a hurry. Yet, they covered their selfishness with the mantle of paternalistic concern for China. It was explained in debate by Senator Oscar Underwood that the Powers wished to guarantee China an increase in the funds availeUsle to its government, but they did not wish to perpetuate a situation in which the military forces then opposing each other there would have access to funds to continue their disruptions.
For these reasons, explained Underwood, the Committee felt that the $110,167,000 in silver which would be raised by their plan was sufficient for China's needs at the time.
What was implied in this reduction, and baldly stated during related debate was that the powers did not relish the idea 218 of political unrest in the same area as their investments.
The Powers also worried that the the tariff duties collected by the Maritime Customs Service would fall to the
control of militarists in the various regions of China. If
that happened, the continued payments of the various
indemnities that China had been required to pay would end.
These were the main reasons why the amount of tariff duties
which Koo proposed were reduced significantly and written
into treaty form. A resolution which declared the hope of
the Powers that China would quickly reduce its military
forces was also added to the treaty. The message was clear;
China would not get tariff autonomy until the fighting
stopped. Until that time, the Powers would continue to
decide the amount of, and the conditions under which China
received it's tariff duties.
The final product of the Committee's hearings on tariff
autonomy for China was the Treaty Between the Nine Powers
Relating to the Chinese Customs Tariff. Among the ten
articles of the treaty. Articles one through five were the
most important for Chinese aspirations. Article I required
that a tariff commission meet in Shanghai as soon as
possible and that the new rates it set would go into effect
after two months. Article II called for a special
conference to devise a means to end the likin tax and to use
the Sino-British treaty of 1902 as a basis for increasing
the amount of duties to be collected as a replacement for 219 likin. This committee was to convene within three months of the effective starting date of the Nine Power Treaty.
Article III set China's surtax rate at 2 1/2,7. ad val orem and limited the luxury tax to no more than 5% ad valorem.
Article IV promised that a revision of valuations would be made in four years, and Article V required a uniform application of China's tariff to the goods of all nations.==
In this arrangement, the Powers managed to stall and deflect China's diplomatic attempt to reclaim this part of
its sovereignty. At the same time, they offered to meet in
Shanghai to determine which articles of trade would receive
higher rates within the limits set by the treaty. In this
way the Powers and the interests of their companies in China
were guaranteed the continued economic advantages they had
enjoyed since 1842 with very little appreciable change.
China's delegates to the Washington Conference signed the
treaty, but before doing so, Wellington Koo expressed his
disappointment. Within eighteen months, Koo's statement
seemed to be a prophecy of the assertive attitude of the
Chinese Nationalists on the subject of tariff autonomy. In
that statement, Koo informed the conference that it was not
China's intention to give up its hope for tariff autonomy,
and he also stated that it was the intention of the Chinese
to bring up the issue again on all appropriate
occasions. 2 2 0
The Nine Power Tariff Treaty gave the Powers a close approximation of the status quo. In return, it gave the
Chinese vague promises and frustration. The important question for this study is what did Standard Oil get out of this treaty? First of all, it avoided the threat inherent to its interests in Koo's proposal for China’s tariff autonomy. The treaty had given China approximately one third of what it wanted in duties and there was no definite promise of autonomy. For Standard, this meant that its customs duties on shipments would remain at the 5% maximum which had been established in 1844 and never changed. In monetary terms, the deflection of tariff autonomy for China meant millions in gross profits for Standard Oil. There are no extant statistics on Standard’s trade in China for 1923, the year following the Nine Power Tariff Treaty, but there are some scattered ones for 1924. They indicate the overall volume and price for kerosene sales in China in that year, and in some cases they provide similar information for some provinces. A careful i nterpetati on of these provincial statistics indicates the nature of the threat that Chinese
tariff autonomy held for Standard. They also provide an
incomplete, but useful view of the the gross profits of
Standard’s sales in China while the treaty system was
subjected to non—assertive diplomatic challenges.
In 1924, China imported 223.3 million gallons of
kerosene which was valued at $94 million dollars. 221
By dividing the volume of sales by its value, we find that a gallon of kerosene cost approximately $2.38. If $94 million is divided by 5%, we find that China's total customs
receipts from kerosene sales were $4.7 million dollars in
1924. That left $89.3 million dollars for gross profits to
the nations involved in the market at that time. Depending
on the province involved, America's share of China's
kerosene market for that year varied from 70—83%. In
Kwangtung province, 13%, of the national total, or 29.03
million gallons were sold. It is verifiable that there.
Standard sold 15 million gallons of kerosene.
This volume of sales in one province at $2.38 per gallon
meant a total value of $35.7 million for Standard. After
deducting 5% for tariff duties. Standard's gross profits for
one year in Kwangtung province was $33.92 million.
If China had been allowed to charge the 12 1/2%
ad-valorem proposed in Washington, Standard's tariff duties
in Kwangtung would have amounted to $4.46 million. Its
gross profits would have fallen to $29.46 million, a
reduction of $4.46 million dollars in one province. One is
left to wonder what the total picture on profits would have
been if extant statistics on all of China's provinces were
available. Despite their abs=:nce, one thing is clear: The
deflection of Chinese tariff autonomy saved Standard
millions of dollars in every province where it sold
products. 2 2 2
The other pillar of foreign privilege in China was the practice of extraterritoriality. The reasons why China originally granted this privilege have already been explained in chapter two of this study. It should be added that from the foreign point of view» this system was
initially used to protect the citizens and property
interests of foreigners from what they considered to be harsh and barbaric Chinese law. By 1900, the system of extraterritoriality had grown far beyond its original purpose. As the various Powers gained leaseholds and concessions in China, the privilege of extraterritoriality expanded to the point where foreigners exercised defacto
jurisdiction over major portions of China's territory and
citizens.
The foreign concession at Shanghai was a prime example of
the abuse of extraterritoriality. There, a Taipan
Oligarchy, . which was dominated by foreign mercantile
interests emerged. They formed a Municipal Council for the
International Settlement. It was through this council, that
foreign businessmen exercised defacto jurisdiction over much
of China's largest city and the Chinese citizens who lived
there.
In addition to the foreign concessions in Shanghai and
most of the other major cities of China, there were five
major leaseholds in China. In these areas, China's
sovereignty was explicitly denied by treaty for the duration 2 2 3 of the leases. By the end of World War I, the system of treaty ports and leased areas had expanded through the use of most favored nation clauses in China’s treaties, and there was no major city in China which was not ruled at least in part by a foreign power or its commercial interests. In those areas, these interests were totally immune to normal administrative controls such as commercial regulation and taxation beyond the 5% ad-valorem limit set in their treaties.
Between 1900 and 1921, China did attempt to challenge extraterritoriality. One attempt was diplomatic in nature.
It happened in 1902 and 1903 when America, England, and
Japan were renegotiating their commercial treaties with
China. Their goal at the time was to insure the equality of commercial benefits granted by China to them through the most favored nation status clauses in their treaties.
China wanted to limit or end extraterritoriality. It was easily deflected at that time by promises of future improvement. All three of these Powers did agree to give every possible assistance to China in the modernization of its judicial system in order to bring it into accord with those of Western nations. They declared that when that was accomplished, they would be prepared to relinquish their extraterritorial priveleges after they were satisfied that
China’s laws, and the arrangements for their administration 2 2 4 and other considerations warranted them in doing so.== So, until 1914, the treaty system and the interests of companies like Standard Oil remained secure for about another decade.
The next challenge to extraterritoriality came in 1914.
It was part of President Yuan Shih-k'ai's attempt to increase his tax revenues by requiring special stamps on various business forms and transactions of foreign companies. These new taxes were assessed primarily against
American companies. There were obvious advantages in this
tactic for Yuan. First, of all the Powers in China,
America was the least aggressive. Thus, the probability of
a strong reaction was lessened. Second, the volume of
business conducted by Standard Oil, America’s largest
company in China, could provide a sizeable increase in
revenues. This new policy , which was directed primarily
at Standard Oil, also had some political benefits for Yuan
Shih-k’ai. There had been some vocal discontent over the
grant of a three province wide monopoly for Standard to
produce, refine and market oil in China,and it
is likely that Yuan sought to reduce the criticism that he
had sold out China’s interests to foreigners by placing
these extra treaty restrictions on the company.
In May of 1914, Yuan’s officials began to collect a
variety of taxes from Standard which were in excess of the
treaty limit of 5% ad-valorem. There was a 2 1/2% 2 2 5 ad—valorem charge for bills of lading, a tax for licences to conduct business in the ports of China, and there were also landing and destination taxes. There was even a tax on royalties and another one for consumption.
The legality of these taxes was a subject of debate and maneuver by American consular .and diplomatic representatives until November of 1914. Because these taxes were not clearly called tariffs or likin, there was some doubt about the legality of Standard Oil’s objection to paying them. Then, in August of 1914, Standard’s
complaints to Consul Charles L. Williams in Nanking about
the manner in which these taxes were collected led him to
protest them as a violation of American extraterritorial
privileges.
Standard Oil had a warehouse, on Hsia Kuan Island at the
treaty port of Nanking. Shipments of its goods to that
warehouse were charged the regular treaty tariff rate.
However, when Standard attempted to move its goods to other
points within the boundaries of this treaty port,
additional taxes were assessed. For example, there were
extra duty stations at the city gates, on Hsi Min Creeek,
and on the Yangtze River, all of which were used as
transshipment points upstream to P’uk’ow. Williams advised
Standard’s agent at Nanking not to pay the taxes. His
justification was that all these places were within the
limits of the treaty port of Nanking and American 2 2 6 extraterritorial rights prohibited the levy of any tax on
American goods beyond 5% ad— orem.
For the time being, it appeared as if Standard's goods would retain their tax exempt status in China, at least while they were in a treaty port. Then, three days later.
Yuan Shih-k’ai initiated new methods of collection which were aimed at taxing Standard's goods while they were in transit between treaty ports. To achieve this end, barriers were established at the entrances to the company's facilities, and destination charges of 2 1/2% ad-valorem were levied. Standard's agent at Nanking promptly notified
Williams of the barriers as well as the fact that Asiatic
Petroleum, Standard's major competitor in China, was not required to pay these new taxes even though their facilities were in close proximity to Standard's. In this situation, Williams was able to protect Standard's interests by relying on American rights of extraterritoriality and most favored nation status.
It was Williams' opinion that the collections made at the barriers were a thinly disguised form of likin, or transit taxes. American goods were exempted from this tax through the use of transit passes. Transit passes were proof that tariff duties had been paid at a port of entry, and once this was done, the goods were exempt from further assessments while in transit. The effect of this tax exempt status was to extend the protection of 4:2 / extraterritoriality beyond the physical limits of China’s treaty ports. Furthermore, Williams observed that the officials at the "barriers issued no receipts, and that they were situated within the area set aside by China as foreign settlements and concessions.For these reasons, Williams felt justified in advising Standard to pay only the required 5% ad valorem tariff.
The fact that Asiatic Petroleum was not subjected to these barriers and other forms of taxation enabled Williams to go on the offensive and claim the same rights for
Standard Oil that Asiatic received. Williams passed
Standard’s complaint of unfair trade advantages for Asiatic on to J.V.A. MacMurray who was then serving as Charge’
de’Affairs at the American Legation in Peking.
MacMurray relayed the complaint to the Department of State.
The answer which was returned to Peking from Washington
indicated clearly that America would insist on full
exemption from such taxes as long as they were not
collected from the companies of the other powers in China.
In part, that answer stated that "the Department [was]
of the opinion that a stamp tax upon bills of lading,
shipping company receipts, consignees receipts and other
documents relating to...imported or exported goods [was]
technically a contravention of the letter of the treaties
since the stamp duty [would] slightly increase the tariff
duty... The American Government [was] therefore disposed to 22 8 consent to the collection of these taxes from American citizens, [only if] the other foreign governments assent Ced] to them’l
By bringing the other Powers into the dispute, the
American Department of State was taking advantage of its
most favored nation status. With that status, America was
due to receive the same treatment that the other powers
received in China. Since Yuan was in no position to
challenge the extraterritorial rights of all the powers at
one time, his plans to increase his revenues through the
taxation of American interests were finally put to rest in
November of 1914. It appeared that for the time being, the
best way to reduce extraterritoriality in China would be to
return to the diplomatic table. At Versailles, the subject
was raised as part of the Chinese delegation's seven point
program for reshaping Sino-foreign relations. It has been
shown in the proceeding chapter, that attempt foundered
because none of the Powers was willing to voluntarily give
up its benefits in China while the others retained theirs.
Also, China lacked the international alliances and military
power to force them to give them up. So,
extraterritoriality remained an integral and important part
of the treaty system until the Washington Conference was
convened.
In the meeting of the Committee on Far Eastern
Questions, China's objections to extraterritoriality were presented by Wang Ch'ung—hui. Wang was the Chief Justice of China’s Supreme Court, and the guiding force for China’s attempts to modernize its laws and courts. In his presentation, Wang stated that China had four basic objections to the continuance of this system. First, it represented a derogation of Chinese sovereignty, and was regarded as a continuing national humiliation. Second, over time, it had created a multiplicity of courts with overlapping jurisdictions. The result was a great deal of uncertainty about the laws and relationships of the various courts among laymen and lawyers alike. Third, Wang noted that even among judges and consuls, there was a great deal of uncertainty about which laws applied in which cases.
The rule that the law of the defendant should apply was no longer valid. It had been originally used to protect foreigners from the effect of Chinese law, but in more recent times it had become increasingly difficult to tell who sued whom first. Finally, Wang noted that the
inaccessibility of Consular Courts to the average Chinese
litigant or defendant was an inherent detriment to justice.
The distances and time involved in cases heard before these
courts meant that it was practically impossible for Chinese
litigants to obtain witnesses for their cases.
Wang also reminded the Committee that England, Japan,
and the United States had promised in 1902 and 1903 that
they would assist China in the modernization of its laws 2 3 0 and courts, and that they would consider the end of extraterritoriality after the task had been completed. He summarized the changes that had been made since that time.
There had been a special commission for this purpose in
China since 1904. Under its direction, there had been a
compilation and revision of laws in five major areas.
First, there was the Civil Code, which was still being
revised. There was also a Criminal Code which had been in
effect since 1912. There was a Code of Civil Procedure,
and also a Code of Criminal Procedure, both of which were
promulgated in 1921. Finally, there was the Commercial
code. It was only partially in effect at that time.
Wang noted that these new laws and procedures had all
been made with the assistance of foreign experts and that
they were based on the principles of modern Western
jurisprudence. He took special care to mention that in
1918, China had devised a new system for the application of
foreign laws. Under those rules, there was a means to
correct the overlapping of jurisdiction and conflict with
China's laws, and there was also a new court system which
had been established in 1910. The judges were all trained
lawyers who had received their appointments after intensive
examination.
As Wang concluded his presentation, he stressed the fact
that China had initially granted extraterrritoriality when
there were only five treaty ports. In 1921, there were 231 fifty of them and numerous leaseholds. After making these observations which pointed out the scope of the problem,
Wang made a request for the gradual dismantlement of the system. He asked that the powers concerned designate a date when they would enter into negotiations with China to devise a plan for a gradual modification and ultimate abolition of extraterritoriality in China.
The Committee met several more times to consider Wang's request and the best method of granting it. Its discussions were dominated by Senator Underwoood, the
Chairman, Lord Lee Balfour of England, and M. Hanihara of
Japan. During the discussion, the principle concern of these men, and the others who followed their lead, was to assure themselves that the interests of their nationals could be protected in China. Because the powers had already agreed in principle that China's administrative and political integrity was to be protected, there was no disagreement with the idea that the system would have to be ended. However, in the discussions about how that goal was to be achieved, the Powers intention to prolong the process as long as possible was made clear.
They were all satisfied with the content of the legal reforms in China, but they were still concerned that the administration of the laws would not protect the interests and rights of their citizens. Senator Underwoood proposed 2 3 2 that "a very definite notion...be [obtained] of the administration of justice in [China] before existing treaty rights [were] abolished. He advised that whatever steps were taken, they should be preceded by an inquiry into existing conditions and procedures for the administration of justice in China".
The other members of the Committee followed the lead of
Senator Underwood and on December 10, 1922, three resolutions on the issue of extraterritoriali ty were adopted. The first one stated that a Commission of the
Powers having extraterri torial privilege^ î n Chi.na would be formed and despatched there to make findings of fact on the administration of laws in China, and to make recommendations for improvements which would warrant the end of extraterritoriality. The Commission was to be constituted within three months after the Washington
Conference ended, and it was to submit its report within one year. The second resolution allowed nations not present at the Conference to join the Commission by
oroviding written notice of their intentions within three
months. The final resolution gave China a seat on the
Commission without binding it to accept its decisions.
The adoption of these resolutions and the signing of the
Nine Power Treaty Relating to the Chinese Customs Tariff meant that for the time being, the twin pillars of the unequal treaty system were still in tact. Actually, they remained officially unchanged for almost three years. The
Special Tariff Revision Commission was delayed until the summer of 1925. The cause for the delay was France's refusal to ratify the Nine Power Treaty because it wanted
China to continue payments of the Boxer Indemnity in gold rather than the devalued French franc. America applied continuous diplomatic pressure to bring this gold-franc dispute to a conclusion, but success was not to be had until August 25, 1925. The Commission on
Extraterritoriality also convened almost three years late.
It too was delayed by the gold—franc dispute as well as civil and political unrest in China. It was eventually convened on October 26, 1925.**’
The delay in convening these commissions and the stipulations under which they were to operate should have meant that the interests of foreign businessmen in China would continue to be relatively secure and basically unchallenged for some time. However, the apparently logical conclusion that as the treaty system went, so did the interests of foreign companies like the Standard Oil
Company did not apply. This became increasingly apparent as the KMT became assertive about the tariff in 1923. That was the year in which China began to make strong challenges to the treaty system. In each of these challenges there was a threat to the interests of foreign companies in 2 3 4 general; and in some instances, these challenges affected
Standard Oil directly.
If the treaty system remained officially unchanged, but the interests it was designed to protect were threatened, one is led to ask why and how this happened. There were several reasons for this apparently illogical situation.
First, a fixation on the treaty system ignores the development a broader base for Chinese nationalism during the intervening three years. Such a fixation also ignores the development of the Chinese Nationalist Party into a
more viable and nationalistic alternative spokesman for the
direction of that movement. And finally, to focus
attention only on the status of the treaty system neglects
the emergence of the Chinese Nationalist Army. It was
during the time between the end of the Washington
Conference and the summer of 1925 that this army emerged as
a force which was at least partially capable of forcing the
Powers to recognize China's nationalistic aspirations.
The reasons for these developments and the manner in
which they were begun have already been explained in this
chapter. There has also been an attempt to explain how the
Standard Oil Company's position in China was protected by
the treaty system before these developments were completed.
Now, attention must be directed to the ways in which the
treaty system and Standard Oil were affected by these
developments. 2 3 5
Chapter Four Notes
^Foreign Relations of the United States. 1918. Vol. II, pp. 301—302, Harley F. McNair, Modern Far Eastern International Relations. (New York:1950), p.208, and William S. Graves, America's Siberian Adventure 1918-1920. (New York:1931), p.64.
~L.I. Strakhorsky, "The Franco-British Plot to Dismember Russia", Current History. XIII, (March 1931), pp.839—842, Graves, America's Siberian Adventure. 1918-1920, p.x, and Joan Hoff—Wilson, Ideology and Economics. United States Relations With the Soviet Union, 1918-1933. (Columbia:1974), pp. 14-17.
=Joan Hoff-Wilson, American Business and Foreign Policy 1920—1933, (Lexington:1971),p.19. (Hereafter cited as Hoff-Wilson, American Business and Foreign Policy).
‘'James Morely, The Japanese Thrust Into Siberia, 1918, (New York:1957), pp. 30-37.
'^Jonathan Spence, To Change China. Western Advisors in China, 1620— 1960. (New York:1984), p. 85. (Hereafter cited as Spence, To Change China).
^China Yearbook. (Shanghai, 1925), pp. 860-861. • Also see Pollard.China's Foreign Relations. p.126, which points out that the Russian version of Chicherin's announcement made no offer to renounce the status of the Chinese Eastern Railroad. Instead, it offered to negotiate on this issue. The Chinese version announced the renunciation of Russian claims to this valuable investment.
^For the full text of the Sun—Joffe Agreement, see T.C. Wu, The Kuomintano and the Future of the Chinese Revolution. (London:1928), appendix c, or Conrad Brandt, Benjamin Schwartz, and John Fairbank, A Documentary History of Chinese Communism. (London:1952), pp. 70—71.
^Spence, To Change China, p. 185.
"'Brandt, Schwartz, and Fairbank, A Documentary History of Chinese Communism, pp. 70—71.
i^Bee Dorothy Borg, American Policy and the Chinese Revolution, 1925-1928. (New York, 1947), pp. 12-16 for the importance of the direction of the nationalist movement by the aspiring nationalist government. (Hereafter 2 3 6 cited as Borg, American Policy and the Chinese Revolution). For examples of the KMT emphasis on nationalism and anti—imperialism see United States Government Printing Office, Records relating to China. Roll 46, Vol. 48, Suns's lecture number 4. For the complete text of the San Min Chu— I, see L.T. Chen, trans., Frank W. Price, ed., Sap Min Chu— I. (Shanghai, 1928). For the continued emphasis of the KMT on anti—imperialism after Sun's death, see his will in China Yearbook. 1928. (Shanghai, 1929), p. 1328.
Chiang Yung-Aching, Pao Ls—t'ino vu Wu—han Cheng Chuan.f^i____ 't ^ 3/: ■ rr ), \ Borodin and the Wuhan Regime. (Taipei: 1963), pp. 2-3.
'John The Soviet High Command. (London:1962), pp. 225-230.
i^Liu, A Military History of Modern China, P- 15, and Richard B. Landis, "The Origins of the Whampoa Graduates Who Served in the Northern Expedition", Studies in Asia, pp. 199-201
i*Liu, A Military History of Modern China. pp. 20—23, Wu Tien—wei, "Chiang K'ai—shek's March Twentieth Coup D'tat of 1926", Journal of Asian Studies. (May, 1968), Vol. XXVII, No. 3, pp. 585—602, and Spence, Tq Change China, pp. 199-201.
^“C. Martin Wilbur, The Nationalist Revolution in China 1923— 1928. (Cambridge:1983), p. 20, (hereafter cited as Wilbur, The Nationalist Revolution in China). Liu, A Military History of Modern China, p. 15, and Spence, To Change China, p. 192.
^ ^‘^Lo Chia-lun, ed-. Ko Ming Wen Hsi en. ( ^ 4: A. 0 r ) , Documents on the Revolution. (Taipei : 1955), Vol. 9, p. 1278. (Hereafter cited as Lo, Ko Ming Wen Hsien).
i^Lo, Ko Ming Wen Hsien. pp. 1280-1285, Wilbur, The Nationalist Revolution in China, p. 20, Liu, À Military History of Modern China. p. 15, and Spence, To Change China, p. 192.
’•“For a summary account of the battle. se Lo, Ko Ming Wen Hsien. Vol. II, pp. 1704-1706.
’^C. Martin Wilbur, "Military Separatism and the Process of Reunification Under the Nationalist Regime, 1922— 1937", in Ho Ping-ti and- Tang Tso, eds., China in Crisis, vol. I, pp. 227—233. (Hereafter cited as Wilbur, "Military Separatism and Reunification Under the 2 3 7
Nationalist Regime").
=®The dominant -figure among these diplomats, known as the Anglo-American Group, was V.K. Wellington Koo. It also included Alfred Sao—ke Sz, C. T. Wang, Eugene Ch'en and Wang Ch'ung-wei. This group of men represented China diplomatically in the various Peking regimes as well that of the nationalist’s. The ones mentioned here were représentâtives at the Washington Conference and later represenetd the Nationalists. See Pao—chin Chu, "V.K. Wellington Koo, the Diplomacy of Nationalism", in Richard D. Burns & Edward M. Bennett, eds.. Diplomats in Crisis, United St at es—Ch i n ese—J ao an ese Relations,1919-1941,(Oxford:1974), pp. 125— 153, and fn. 17, p.148 which draws on the Table of Names and Titles of Successive Heads of the Organ of Foreign Affairs of China. (Taipei : 1967), pp. 53-64.
-^Wilbur, "Military Separatism and Reunification Under the Nationalist Regime", pp. 253-263.
--Hoff—Wilson, American Business and Foreign Policy, p. 45.
==L. Ethan Ellis, Republican Foreign Policy 1921-1933, (New Brunswick:1968), p. 80, and pp. 82-83. (Hereafter cited as Ellis, Republican Foreign Policy). Also see Roger Dingman, Power in the Pacific, the Origins of Naval Arms Limitation 1914— 1922, (Chicago:1976), p. 45, p. 91, and pp. 143-158.
=*Ellis, Republican Foreign Policy, p. 31, and p. 87. Also see Ira Klein, "Whitehall, Washington, and the Anglo-Japanese Alliance, 1919-1921", Pacific Historical Review. Vol. 41, (1972), pp. 460-483. Klein says the British were ready to break with Japan, but america, unaware of this made the process more difficult and aroused Japanese distrust unnecessarily.
==Ellis, Republican Foreign Policy, p. 81, and pp. 90-92. Also see Frank C. Langdon, "Japan’s Failure to Establish Friendly Relations With China, 1917-1918", Pacific Historical Review, Vol. 26, (1957), pp. 245-258, and Dingman, Power in the Pacific, pp.185-194.Also see Kell F. Mitchell, "Diplomacy of Prejudice:The Morris-Shidehara Negotians 1920-1921", Pacific Historical Review, Vol. 39, (1970), pp. 85-104 for examples of the subordination of Japan’s concerns over its international status to Wilson’s domestic and international politics. This viewpoint by Japan in regard to economic matters like the American Banking Consortiums of 1913, and 1920 is well explained in 2 3 8
Hoff—Wilson, American Business and Foreign Policy, p. 104, âno p*
~^Ellis, Republican Foreign Policy, pp. 96—97.
=^United States Government Printing Office, The Conference on the Limitation of Armaments. 67th Congress, 2nd Session, (Washington:1922), pp. 443—444. (Hereafter cited as Conference on Limitation of Armaments).
“®For a summary of China's objections to these infringements, see Conference on Limitation of Armaments, pp. 335—336, 837—844, and 833—834.
^'’Ellis, Republican Foreign Policy. pp. 107—121, and Conference on the Limitation of Armaments, pp. 824, and pp. 871—886.
“•^Ellis, Republican Foreign Policy, p. 126, and Conference on the Limitation of Armaments, pp. 893-897
-^Conference on the Limitation of Armaments, pp. 825-827.
—-Conference on the Limitation of Armaments, pp. 469—470, and Pollard, China at the Conference, p. 215.
--Conference on the Limitation of Armaments, pp. 470—473, and Willoughby, China at the Conference, pp. 60—61, and Pollard, China's Foreign Relations, pp. 213—215.
-~*Conference on the Limitation of Armaments. Resolutions II, and III, p. 592, and p. 598.
-^Conference on the Limitation of Armaments, p. 837 and Treaty Between the Nine Powers Relating to the Chinese Customs Tariff, pp. 897—901, and Pollard, China's Foreign Relations, pp. 215-217, and Willoughby, Chr na at the Conference, pp. 3/7—379.
-^Conference on the Limitation of Armaments, pp. 596-597, Pollard, China's Foreign Relations, p. 217, and Willoughby, China at the Conference, pp. 78-79.
-■^Feuerwerker, The Foreign Establishment in China, pp.4-19.
^“MacMurray, Treaties, Agreements, Etc., Vol. I, p. 425.
-■'Hunt, "Americans in the China market", pp. 2 3 9
290—292, and Pugach, "Standard Oil and Petroleum Development in Republican China", p. 456.
*^FRUS. 1914. Vol. I, p. 124, telegram from Kai Fu—shai, Chinese Minister to Washington to Secretary of State, May 12, 1914, and Hunt, "Americans in the China Market", pp. 293-295.
**^FRUS. 1914. Vol. I, pp. 126-127, Telegram from Charles Williams, Consul, Nanking, to Department of State, August 8, 1914, and p. 129, telegram from Department of State to Williams, August 23, 1914.
^~FRUS. 1914. Vol. I, p. 131, Telegram from Consul Williams to Department of State, November 23, 1914.
*=FRUS, 1914. Vol. I, p. 128, Telegram from Consul Williams to Charge’ MacMurray, and Department of State, November 23, 1914.
*'*FRUS. 1914, Vol. I, pp. 122— 123, Telegram from Department of State to Minister Paul Reinsch, August 14, 1914, and p. 131, telegram from Consul Williams to Department of State, November 23, 1914.
•*~Conference on the Limitation of Armaments, pp. 475-477.
**Tbid., pp. 475-477.
•*'^Conference on the Limitation of Armaments,pp. 477-480, p. 493, pp. 513—515, pp. 832-833, and pp. 903—905.
■*®Conference on the Limitation of Armaments, pp. 903-905.
"^FRUS. 1925. Vol. I, pp. 827-830, Policy statement of Secretary of State Kellogg, given in a speech before the American Bar Association in Detroit, Michigan, FRUS, 1924, Vol. I, p. 500, telegram from Jacob Schurman, American Minister to Peking to Department of State, February 16, 1924, and p.523, Memorandum from the Chinese Legation to the Department of State, March 27, 1924. CHAPTER V
NATIONALISM AND ANTI-IMPERIALISM
1923-1925
When the Washington Conference ended, the representatives of most of the participating nations left with a feeling of satisfaction. For them, many important issues had been settled. The expensive arms race had been at least temprorarily halted and the opportunity for further economic expansion in China and the Pacific had been guaranteed. This had been done by turning aside the challenges by the Chinese delegation to the treaty system.
For the time being, the basis of the preferred position of foreigners in China—tariff control and extraterri toriality-were still in tact. The Special
Conferences which were to be held on those matters were girded about with restrictions which gave strong possibilities that they could be delayed for some time. In fact, the Conferences were delayed for over three years because of the intransigence of France in the gold—franc
2 4 0 241 dispute.
That dispute was finally settled, and the Special
Conferences were convened in the summer and autumn of 1925, but by that time, the self assured control of events in
China by the Powers seemed to have evaporated. The people of Shanghai had risen in indignation over the treatment of protesters in the foreign concession, strikes were crippling trade at Hongkong, and the armies of the
Kuomintang had launched their Northern Expedition to unify the country and regain China's full sovereign rights. By the summer of 1925, it was clear to even the most obtuse foreigner that since the end of the Washington Conference,
Sino—foreign relations had moved into a new era in which
Chinese nationalistic aspirations had turned into anti—imperialism. What many of them did not realize was that the new era, in which the Chinese would begin to effectively oppose foreign financial expansion and treaty privileges was already upon them before 1925
Some scholars of China, both Chinese and American, cite the Shanghai Incident of May 30, 1925 as the point when the
Chinese became assertively ant—imperialistic. Nicholas
Clifford, for example, says it was then that China’s proletariate emerged as an organized leadership which awakened other groups in China to their position as part of a world wide struggle against imperialists. Clifford’s opinion agrees with that of Ch’en Tu-hsiu as expressed in 2 4 2
1925 as well as the opinion of Liang Hsiao-ming in
1976.1
One of the purposes of this chapter of this study is to point out the posibility that these scholars are a bit late in their timing. This will be done by noting the difficulties encountered by foreign business interests in general, and the Standard Oil Company in particular.
There are also several other important points to be noted here. For example, was there any warning that China would erupt into a hotbed of anti-imperialism before 1925? What were the warnings, and how seriously did the powers take them? Why were the Chinese more successful against imperialism during the 1920’s than they had been during the preceeding ninety years? To what extent was Standard Oil affected by this new era, and was it any better off than other foreign companies during this period?
When China’s rcsumpticr. of tariff autonomy was denied at the Washington Conference, Wellington Koo stated that it was not the intention of the Chinese to give up the quest for this right, and that they would bring up the issue again on all appropriate occasions.= During the years 1925 to 1930, it became increasingly apparent to the
Powers that the Chinese were unwilling to leave the resumption of this sovereign right to the timing of a foreign schedule. In fact, throughout these years, the
Chinese also extended this assertive attitude to 2 4 3 extraterritorial privileges. From 1925 to 1930, these two issues were prominent features of Sino—foreign relations, but even before then, there were indications that the
Chinese were beginning to seize the initiative on matters which were related to the extension of foreign economic privilege in their country.
An example of the Chinese initiative in these matters is seen in the repeated failure of the Standard Oil Company to acquire leases for oil production in China. Dominance of oil production fields in China was the one part of Standard
Oil's domestic structure that was not duplicated in China.
In 1914, the company had received a contract to produce,
refine, and market oil in Shensi, Jehol, and Chihli
provinces. By 1917, no real progress toward fulfillment of
the contract had been made. The contract was cancelled in
that year. The official reason given was that commercially
profitable sources of oil did not exist in thnse
provinces.-
In October of 1921, Jacob Schurman, the American
Minister to Peking, filed a report to the Department of
State on the status of Standard Oil's next attempt to
acquire control of oil production fields in China.
According to Schurman’s report, Chinese opposition to the
extension of foreign financial privilege in China had been
the primary obstacle to Standard's interests as well as
those of a Japanese syndicate. To support this opinion. 2 4 4
Schurman pointed out the fact that Hsiung Hsi—ling, the
Minister of Communications, and a major supporter of
Standard's 1914 contract, had been demoted to Director of
Flood Relief. The fact that Hsiung's demotion followed a series of public debates and official opposition by the provincial representatives of Shensi province lends credence to Schurman's opinion about Chinese opposition to the expansion of foreign financial interests.^
Schurman's 1921 report went on to say that during the preceeding four years, a Japanese investment syndicate had attempted to assume Standard's previous contractual benefits. A preliminary agreement was drawn up, but it was never ratified. According to Schurman, the primary obstacle was the prevalence of anti—Japanese sentiment which had been produced by Japan's aggressive imperialism in China during World War I.^ So, well before the
Washington Conference disappointed China on the iss«jes of tariff autonomy and extraterritoriality, there were signs that at the provincial level, the Chinese were able to fend off foreign economic expansion without recourse to diplomatic procedures.
In January of 1923, eleven months after the close of the
Washington Conference, Standard Oil made another attempt to acquire oil production fields in China. C.J. Spiker, the
American Consul in Chungking, the capitol of Szechuan province, reported that a Standard Oil representati ve 2 4 5 identified as Mr. Hussey had attempted to conclude an agreement betweem the Szechuan Provincial Assembly and the
Standard Oil Company. According to Spiker, the Chinese were to provide the land, titles, and political support.
Standard Oil was to provide all necessary operating funds and, the profits were to be shared equally.^ It was apparent that once the Washington Conference had assured the continuation of Standard’s protected status in
China, the company felt safe enough to make another attempt to expand its interests there. Spiker’s report ended with the observation that the contract had failed to be ratified
by the provincial assembly. It was his opinion that popular opposition to the expansion of foreign financial intrests in China was the basic reason for the failure of the plan.3
The Standard Oil Company was not the only foreign financial interest to be frustrated by the increasingly anti—imperialist mood of the Chinese. The Chinese also held off the attempts of the An g1o—Amer _ can Investment
Consortium to expand its interests in China. The
Consortium attempted to use the old 19th century pattern of imperialism which capitalized on diplomatic incidents to expand the interests of foreigners in China. Compared to those of Standard Oil, their efforts were more complex and extended, but they indicate the nature of the difficulties which foreigners were encountering in China between 1923 2 4 6 and 1925. Moreover, as we shall see, the problems the
Consortium encountered add to the evidence that the anti-imperialism which Standard and the other foreign companies were subjected to in 1925 was actually in existence two years before that time.
The diplomatic incident which the Consortium sought to exploit was the Lincheng Incident of May 6, 1923. In that incident, nineteen foreigners were kidnapped by bandits on an express train which was traveling along the Chinese
Eastern Railway. The railway had previously been policed by Japanese troops, but according to one of the agreements signed at the conclusion of the Washington Conference, the troops had been withdrawn.*’ Their absence provided the opportunity for the kidnapping and, what was thought to be an opportunity to expand American and British financial interests in China.
The Anglo-American Investment Consortium was composed of the British owned Shanghai Banking Corporation, and J.P.
Morgan’s investment company of Morgan, Grenfell & Company.
In late May, 1923, the Consortium members met in Paris to discuss how the Lincheng incident could be used to create a unified railway system under foreign management and financial control. The regime of Li Yuan—hung was in financial difficulty, and desired to keep its official recognition as a possible means to finance itself. The
Consortium planned to offer him substantial, though 2 4 7 unspecified cash advances in the form of a loan. The loan was to be secured by future profits from all of China's railroads. In return, they expected to receive control over the appointment of Chief Engineers, Traffic Managers,
Chief Accountants and Police on all of China’s railroads.
To insure American cooperation in this plan. Sir Victor
Wellesley, the Consortium’s Foreign Office Liaison, proposed a means to expand American financial control of funds in China beyond the unified railroad system they envisioned. He suggested to Charge’ J.V.A. MacMurray that he pressure Li’s government to place an American Inspector and staff of assistants in charge of the collection and administration of China’s wine and tobacco tax.i*
It is possible that the Consortium was unaware of the signs of Chinese anti-imperialism that Standard Oil had encountered. They also seemed to have forgotten the challenges to foreign economic control that had been encountered at the Washington Conference. Therefore, their
imperialist, business as usual attitude, ran head on into
strong opposition from Chinese outside the circles of
government as well as those within it.
The first non-governmental opposition to the
Consortium’s plans came from students in Peking. They
staged public demonstrations against what they called the 2 4 8
"Lincheng Proposals". The students were organized and led by the Chinese Students Union of Peking. The Union presented a letter to the diplomatic body at the legation quarter. In the letter they requested that the Powers withdraw their recognition of Li's government, and they stated their opposition to foreign loans of any kind to
China's provincial or central governments.
American Minister Schurman forwarded the students' letter to Secretary of State Hughes with the observation that they were well organized and exercized a great deal of influence in Chinese politics.^ =
The students were joined in their opposition to the
Lincheng proposals by K'ang Yu—wei. K'ang had been instrumental in spreading nationalism among the students of
China since before 1900. His nationalism had not dimmed in the intervening decades. Instead, it had progressed from a desire to reform and strengthen China to another level; the desire to protect it from further imperialist penetration.
On July 30, 1923, K'ang wrote a letter directly to
Secretary of State Hughes. He requested that Hughes be patient while China learned to handle the responsibilities of sovereignty, and refrain from aggravating its problems through any form of international intervention.
K'ang and the students' opposition to the Consortium was forcefully seconded by an important element of China's financial community; the Shanghai Bankers Association. The 2 4 9
Association issued a public statement that any attempt to extend -foreign -financial interests in China would encounter the firmest possible opposition from its members.*=
During the summer of 1923, Secretary of State Hughes considered withdrawal of recognition from Li’s government as a means of forcing his agreement to the Consortium’s plans.However, by the time he had communicated his thoughts to Schurman to seek his advice, Li’s government had fallen. On June 13, 1923, the troops of
General Feng Yu—hsiang ousted Li Yuan—hung, and he fled to
Tientsin. Governmental instability plagued Peking throughout that summer and the Powers were sometimes left without an object against which they could exert pressure.
For a time, Feng’s government seemed like it would fill the vacuum, but it quickly became apparent that he was using government subsidies to the Peking Daily News to further opposition to the Consortium’s plans.^^
In October of 1923, Ts’ao K’un replaced Feng by bribing his way into the Presidency. This added some stability to the
Peking political situation, but Ts’ao refused to agree to
the stationing of any more foreign police or troops in
China.
By the autumn of 1923, the Consortium’s plans to unify
and dominate China’s railroad system were effectively
ended. Not only were students and intellectuals opposed 2 5 0 to them, but the Consortium could not even buy the support of warlords like Feng and Ts'ao. Things had come far indeed from the era of Yuan Shih—k'ai and the reorganization loan of 1915. Despite these setbacks for
The Anglo-American Consortium's plans in North China, similar plans were being made by the government of Honkong and the British and Chinese Railway Company for South
China. Those plans would also founder on the rocks of anti-imperial ism.
The objective of these plans was to exploit the increased stature and power of Sun Vat-sen to expand the
Canton—Kowloon Railroad in a manner which would guarantee that the British and Chinese Railway Company would receive full payment for the construction loan it had made to
Peking to build that line. Sun had returned to Canton after escaping the troops of Ch’en Chiung-ming, the warlord who controlled the Canton area in 1922. Sun’s persistence had gained the attention, if not the support of the Powers,
as a potential force to be reconed with in South China.
For example, in August of 1922, Consul-General Jamieson reported from Canton that even though he had been driven from China on numerous occasions. Sun had become a prominent national character whose support was widely sought by prominent military and civil officials alike.
Sun returned to Canton in February of 1923, and was 251 subsequently invited to lunch by Sir Reginald Stubbs,
Governor General of Hongkong. The object of Sun's good treatment by Stubbs was to arrange for a meeting in March with S.F. Mayers, a representative of the British and
Chinese Railway Company. Mayers wanted to discuss the refinancing and consolidation of the railroad system in
South China.
In March of 1923, Sun met with Stubbs and S.F. Mayers.
They informed Sun that the British and Chinese Railway
Company controlled the Canton-Kowloon Railroad and that it had been built with a construction loan to the government in Peking. The payments for the loan were made from surplus revenue derived from the Peking-Mukden Railway and transferred to the British and Chinese Railway Company's account by the Ministry of Communications. However, this circuitous method of payment had been disrupted when Chang
Tso-lin, the Manchurian warlord, seized the Peki ng-Mukden
Railway. Stubbs and Mayers proposed an alternate plan which required Sun's support. They wished to build a loop line, which would link the Canton—Kowloon lines to the
Canton-Hankow Railway. If this could be done, the British and Chinese Railway Company could receive full payment for its previous loan and, the railroads in South China could be effectively linked to the British colony of
Hongkong-
The loop line was to be financed by another loan but. 2 5 2 this one would go to Sun to finance his reestablishment in
Canton. In short. Sun was asked to finance his reestablishment in Canton by abetting the expansion of foreign financial control. Sun, who desired recognition by the Powers as well as their financial support, gave the enigmatic reply that when he consolidated his position in
Canton, he would cooperate in solving all the railroad problems in China.==
Part of the reason for courting Sun was that it was feared that he would link up with either Chang Tso—lin, or with the agents of the Comintern. If that happened, both
Britain and America feared that he would turn that support
into the political and military means to challenge the
dominant position of foreigners in China-== So,
from March to May of 1923, their desire to protect their
position in China, especially their control of China's
finances, through the Maritime Customs Service, brought Sun
into circles of influence from which he had previously been
excluded.
For example, Consul-General Jamieson, who had referred
to Sun earlier as a swine, invited him to tea. Jamieson
arranged for Sun to meet with Minister Schurman. At that
meeting. Sun requested that the Powers make a joint
intervention in China on his behalf, and he was flatly
refused.== Sun also paid a visit to Sir Robert
Ho—tung, a Chinese millionaire in Hongkong. He also 2 5 3 visited Liang Shih— I, another wealthy Chinese. Both men were well known in the Hongkong government. Sun had hoped that they would either contribute to his cause, or support his request for aid from the British. They declined to help Sun. Instead, Liang suggested that Sun approach the
Anglo-American Consortium for a loan.=*
Consul-General Jenkins had suspected that Sun had been in contact with the Comintern agent Maring since he hao first returned to Canton in February of 1923.==
The repeated failure of Sun to get the support he desired from the Americans, British, or even native Chinese forced
Sun to confirm Jenkins' suspicions. In October of 1923,
Sun announced that he had lost hope that the Western powers would ever help him. He then announced the appointment of
Michael Borodin as an advisor who would assist him in the reorganization and strengthening of the
Kuomintang.=*
With that announcement. Sun began to reap the benefits of the Sun—Joffe Agreement, which was mentioned in the preceeding chapter of this study. As we have already seen, this agreement led to the development of Sun's Kuomintang
as an assertively nationalistic alternative to the warlord
governments in Peking. It was this assertive stance of the
Kuomintang that allowed it keep pace with the political
evolution of China's students, merchants and workers in the
transition from nationalism to anti-imperialism. As the 2 5 4
Kuomintang did this, it avoided one of the serious failings of the imperial and warlord governments; it did not hinder the political evolution of its citizens, it quickly caught up with them. It also used the Whampoa Military Academy to begin building an army. It was this army which allowed the
KMT to catch up with the evolution of anti—imperialism in
China and take the lead in its assertion.
Sun died in April of 1925, but before he did, the Powers in China came to see him as a potentially dangerous threat to the maintenance of their priveleges there. An example of Sun's growing threat to the Powers as well as his determination to end their tariff and extraterritorial privileges can be seen in the Canton Customs crisis. Sun first announced his intention to seize the Customs revenues in Canton during June of 1923.=^ For almost three months. Sun was not taken seriously. However.: ,4-hen he took over the collection of the foreign dominated Salt Gabelle and instituted a ten percent tax on wine and tobacco,
America and Britain began to realize that they may have underestimated Sun's ability to challenge the treaty system.==
From June to December of 1923, British and American representatives in China debated among themselves about the implications of Sun’s plans to seize the Canton Customs
House. They concluded that to allow him to do so would set a precedent that the warlords in China would follow. If 2 5 5 that happened, they -feared that the Maritime Customs
Service, a major agency of foreign loan collection and
financial control of China, would disintegrate.
To prevent this, London and Washington decided to send a
joint naval demonstration to the port of Canton as a show
of force.
The naval demonstration prevented the seizure of the
Customs revenues by Sun,but he had his victory anyway. For
a month, the city of Canton became the scene of large and
emotional demonstrations and the Department of State was
deluged with letters and telegrams from Chinese in America
and Canada.*^ Sun Yat—sen attended a
demonstration which was held at the Canton Christian
College. His angry reaction to the warships, and America's
participation was evident in the speech he gave
there.==
On January 9, 1924, Sun and C.C. Wu, his Foreign
Minister, met with Jacob Schurman and Edward Bell, the
American Consul in Peking. Sun's anger at the meeting
brought Ball to the conclusion that Sun was perhaps a
"pathological case." Schurman's opinion of Sun and the
whole affair was less pejorative. He cabled Secretary of
State Hughes that he felt Sun was willing to take on all
the Powers, be defeated and become a martyr. Perhaps that
was another over reaction. He closed his summary of the
meeting with the assessment that the naval demonstration 2 5 6 had catapulted Sun to the position of China's leading
opponent of imperialism. On this point. Bell agreed.
Schurman ended his summary with the opinion that in matters
concerning China against the Powers, regardless of whether
Sun was right or wrong, most of China would support
Sun.==
Throughout 1924, and up until the spring of 1925, Bell's
evaluation of Chinese nationalism and anti-imperial ism
would be proven at least partially correct. There were a
number of instances in which the Chinese began to support
Sun against the Powers. His intermittent efforts to seize
the Canton Customs in October and December of 1924 were
only two of many examples.What made Bell’s
estimation, and that of many other foreigners incorrect,
was that they either misjudged the motivations of the
Chinese, or they misread the implications for the foreign
presence in China. For example. Charge’ Bell,
Consul-General Jenkins, and Minister Schurman all concurred
that Sun’s challenges to the collection of Customs revenue
in Canton was inspired by Comintern agents. It was their
opinion that it was the Soviet Union, not the Chinese who
were out to set a precedent which would make the
maintenance of the treaty system impossible.
This assessment of the situation discounted the
difficulties that Standard Oil, the Anglo-American 2 5 7
Consortium, and the British and Chinese Railway Company had experienced in trying to extend their interests in China.
It also reflected the fixation of the Powers on the maintenance of the treaty system and extending their interests in China. These mistakes combined to deflect their attention from evidence that Sun, and many other
Chinese, could be opposed to the continuance of foreign
privilege without Soviet tutelage. This misjudgement and
fixation left them unprepared for the more serious and
violent expressions of Chinese anti-imperial ism which
erupted in 1925.
One example of Chinese impatience with the treaty system
before 1925 was the attempt by Wellington Koo, Tuan
Ch’i-jui's Foreign Minister, to arrange for a preliminary
meeting of the long delayed Special Conference on Customs.
The main purpose of the preliminary conference was to
arrange a 2 1/2% tax increase for the Peking government.
Koo also made an attempt to circumvent the obstruction of
the French to the convening of tne Special Conference on
Extraterritoriality. =■* In the first request, it
was maintained that foreign restriction of China's right to
levy a surtax of 2 1/2% was an inhibition of its ability to
meet its domestic fiscal responsibilities as well as the
servicing of China’s foreign debts like the Boxer
Indemnity. It was also seen as a violation of China’s
adminisrative sovereignty. Koo also noted that the long 2 5 8 delay in holding the conference might be interpeted by some of the Powers as an excuse for not living up to the obligations made at the Washington Conference. In the conclusion of his request, Koo pointed out that the
convening of the Conference on Extraterritoriality would
also be seen as a positive indication by the Chinese people
that the Powers were sincere about ending their
intervention in China's internal political
problems.—^
Koo's requests could have been interpeted as indications
that the Chinese people were moving, as Koo had implied in
Washington, toward the time when they would decide the
appropriate time to begin dismantling the treaties which
limited China's right to impose taxes and control its own
legal system. Such an interpetation would have reflected
at least some level of recognition that Tuan's government,
for whatever reason, also opposed foreign imperialism.
That did not happen. Instead, the Powers debated until
June of 1®24 about how to deal with Koo's requests, and in
the correspondence related to these matters, the Powers
pointed squarely at many signs of increased
anti—imperialism in China. That they used these signs as
excuses to continue their priviliges in China rather than
reasons to end them, indicates the extent to which they
were fixated on the maintenance of the treaty system. This
failure on the part of the Powers also shows the extent to 2 5 9
which they discounted the possibility that the Chinese could be motivated by anti—imperial ism without Comintern
tutelage.
One example of the attitude of the Powers was seen in
the identical note of their Ministers in China relating to
the request for the preliminary tariff conference. Before
they would agree to the preliminary conference, they felt
it was neccessary for the Chinese government to allow them
to examine the financial situation in China as well as the
purposes for which the 2 1/2% surtax would be used. Also,
they required a completed plan for the abolition of the
likin tax. The note concluded with the opinion that Koo's
request for the preliminary conference was motivated by the
need for money and that China's failure to meet the
conditions stated might be used as an argument against
holding the preliminary conference as well as the Special
Conference agreed to in Washington.
The request to hold the preliminary conference on
customs was finally put to rest by the Powers in early June
of 1924. At about the same time, agreement to expedite the
convening of the Special Conference on Extraterritoriality
was postponed. The correspondence related to this matter
clearly showed that America, England, and Japan all had
serious doubts about whether they should live up to their
committments to attend the Special Conference on
Extraterritoriality at all. It is of more than passing 2 6 0 interest that the justifications they gave for this opinion were indications that Tuan's government, as well as the various warlords, were making attempts to enforce their own administrative and judicial rights in China.
Secretary of State Hughes commented on the matter and drew the quick concurrence of his British and Japanese counterparts. Hughes' general opinion was that in the provinces controlled by Peking, or professing nominal allegiance to it, there was a general disregard of treaty rights for foreigners. Among the specific problems that the Secretary cited were the spread of the collection of a tax on cigarretes by officials from Kwangtung and Kiangsu provinces, the imposition of railway rates that discriminated against foreigners by the Peking government,
and Peking's refusal to give prompt satisfaction in cases
of outrages upon foreigners. China at that time
was still torn by civil and military strife, and each of
the factions used any means, even treaty violations, to
strengthen their power. It was in some ways, reminiscent
of America's Cival War. One is left to wonder what Hughes'
reaction would have been if China had complained during
that conflict about taxes levied by either side to finance
their efforts.
While the Powers were busy passing judgement on the
inability of Tuan's government to meet the obligations of
the trety system in North and Central China, they either 2 6 1 ignored or discounted the effect of the growth of anti-imperialist sentiment in South China. There, in the environs of Canton, the Kuomintang held its first National
Congress and issued a manifesto of its policies in January of 1924. In that document, special emphasis was given to the problem of imperialism. In fact, according to the
Manifesto, the end of imperialism, and the treaty system which supported it, was the most important task for the party.
The collection of consular and diplomatic reports entitled Foreign Relations of the United States, does not record that Consul-General Jenkins, who was in Canton during 1924, took any official notice of this document during that time. However, it is to be found, somewhat belatedly, in the microfilm series of similar documents for
June 4, 1925.*! By that time, most of the major cities in South China were scenes of strikes, demonstrations, and violence in opposition to imperialism.
It is unlikely that Jenkins would have attended the
Kuomintang’s first National Congress, but given the fact that reports of Sun Yat-sen’s activities were available through the office of the local Naval Attache’, this omission appears to be more than an editorial oversight by
the United States Government Printing Office. It is a
clear indication of the lack of seriousness with which Sun
was taken. 2 6 2
The adoption of the Kuomintang’s manifesto was followed by the publication of a series of lectures given by Sun from January to March of 1924. They were later bound and printed under the title of San Min Chu-I. the Three
People’s Principles, Gottfried-Karl Kinderman has called these lectures the start of a psychological mobilization by
Sun and his party which would prepare the Chinese to be even more assertive about their opposition to imperialism.
Dorothy Borg has said that the San Min Chu—I was only one of many indications that the leadership of the Kuomintang was motivated by nationalism and moving rapidly toward the formulation of policies which were intended to regulate foreign trade in China.
That Sun Yat—sen was bound for a confrontation with tne
Powers over their political and economic dominance in China was clear in the answers to the many rhetorical questions
in his lectures. For example, regarding the Canton Customs
crisis. Sun admitted that there was a struggle over the
issue, and he went on to say that the Customs surplus
rightfully belonged to China. In his opinion, there really
should have been no dispute. In answer to another of his
own questions. Sun listed the major disasters which had
befallen China. The first two that he mentioned were the
political and economic oppression of the Powers.*=
The confrontation with the Powers over their dominant
political position in China would have to wait. Sun needed 2 6 3 time to gather political support, and to train his army at the newly opened Whampoa Military Academy. He also needed money to support his plans. Despite the fact that he
received substantial amounts of aid from the Soviet Union,
domestic politics and the standard he had set for the party
in its Manifesto and the San Min Chu-I, required that the
money be taken from the imperialists. The domestic
political situation in Kwangtung province was complicated
by the presence of the warlords Ch’en Chiung—ming, Yang
Hsi-min and, Liu Chen—huan. Between the three of them,
they had monopolized the financial resources of the
province that were not claimed by the foreign interests.
So, what Sun needed was a convincing show of
anti—imperialism that would bring him the funds he needed.
However, he had to exercise some discretion. The Powers
had sent their naval squadrons to Canton once, and they had
let it be known in conversations that they would do so
again.
The solution to the Kuomintang's financial problem was
announced on March 24, 1924. According to that
announcement, beginning April first, a twenty cent tax
would be collected on each five gallon can of kerosene
imported into Kwangtung province. The new tax would bring
an estimated half million dollars per year to the
Kuomintang.*^ In addition to this financial
advantage, the new tax had two other distinct advantages. 2 6 4
First, Kwangtung province was Sun's home base, and therefore, a convincing show of anti—imperialism was essential. Second, the Standard Oil Company, which was the largest importer of kerosene in China, was protected by the least aggressive of all the Powers. Sun appears to have counted on America's hesitancy to use strong action in
China, or to limit its use, as it had done in the case of the intervention at Vladivostok.
The stakes for Standard Oil in Kwangtung province were high. It consistently sold 70-80% of the kerosene imported into China at that time. To expand its share of this market. Standard formed a subsidiary called SOCONY Burner
Company in January of 1924. Its purpose was to manufacture inexpensive kerosene lamps and oil burners.It appears that in early 1924, Standard Oil was also fixated on the maintenance and expansion of treaty privileges.
To protect its position. Standard lodged an immediate protest of the kerosene tax with Consul-General Jenkins.
Results from this action were slow in coming. This was primarily because from January of 1924 until May of 1925, there was a dramatic increase in the number of confrontations between Chinese and foreigners. Many of these incidents were ones of personal violence, or property destruction. Since it was the policy of the Department of
State to protect lives and property first. Standard's 2 6 5 attempt to guarantee continued profits held only a secondary priority. It was almost a year befor e Standard
Oil's case received the personal attention of Minister
Schurman. During the interim, it became increasingly clear that considerable opposition to the foreign presence in
China was building. However, there was little agreement about exactly what was happening, who was responsible, or what it really meant for foreign interests in China.
The clearest indication of what was happening was the resumption, in October of 1924, of Sun’s threat to seize the Customs House in Canton. The Powers decided that if neccessary, they would meet that threat with another show of force. That they decided to disregard the possibility of another series of public demonstrations was perhaps understandable. Sun had already moved forward on the construction of a clearly anti—imperialist political program, and he had also made progress toward the formation of an army to support it. October of 1924 was the time that the first group of 3,000 officers and men graduated from the Whampoa Military Academy. It was also during that month that these troops drove the Canton—Hongkong militia from Canton.*=
The fact that Sun had raised an army that was at least capable of defeating Chinese militia was noted by the
Powers, but their discussions about how to deal with the situation revealed that Sun, or any other Chinese leader. 2 6 6 was largely discounted as the true source of the increasingly frequent confrontations with foreigners. They continued to see the Comintern as the mastermind of a plan to dismantle the treaty system. They also continued to believe that the treaty system could be maintained, even if gunboat diplomacy was needed. The reports of
Consul-General Jenkins from Canton, and Edward Bell, the new Charge" in Peking are good examples of the assessments made the Powers at that time.
It was Jenkins" assessment that Sun and Chang Tso-lin were both instruments of the Soviet Union"s policy to repudiate all the treaties of anti—Soviet nations in China.
That the anti—imperialism they were encountering originated with the Chinese, and that they would be willing to carry on without Soviet prompting, seemed not to have occurred to
Jenkins or his colleagues. In their view. Sun’s action against the Canton Customs House was only a Soviet inspired attempt to set a precedent for similar actions by Chang in
Mukden, the capitol of Manchuria. Beil agreed with
Jenkins, and both men advised the Department of State that
the defense of the Canton Customs House was essential to
the defense of the entire treaty system. They pointed out
that if Canton fell, the long term benefits such as tariff
control, extraterritoriality, and future investment
opportunities would disappear. The opinions of
the other Powers were fairly consistent with those of 2 6 7
Jenkins and Bell. In the exchange of views about how to handle the situation at Canton, the French and British also expressed their concern about the continuation of their favorable position in China. Therefore, they seconded the assessments and recommendations of Jenkins and
Bell.*^
By January of 1925, the confrontations had reached the point in frequency and seriousness that English language newspapers made them the subject of editorials. For example, the North China Daily News editorialized on the subject on January 8, 1925. Minister Schurman included a copy of it and his view on the situation in a report to the
Department of State. He wrote that there was indeed a wave of anti—foreignism in China. He felt that it was primarily anti—missionary in nature. He also felt that the political leaders in China, under the influence of
"bolshevist poison", were using foreigners, especially missionaries, as scapegoats for their failure to improve
life in China.
On January 16, 1925, the China Recorder, a journal for
missionaries in China, editorialized on the same subject.
The missionaries agreed that there was a wave of
anti—foreignism in China, but they did not see themselves
as its special target. Instead, they felt the trouble was
politically motivated and that it posed no real threat to
them. In their opinion, "responsible Chinese" saw them as 2 6 8 valuable help in the modernization of China.
The editor overlooked or ignored the fact that during the period under discussion in the article two protestant missionaries had been murdered in Szechuan, two more had been killed in Honan and Hupeh provinces along with a
Catholic priest, and two female protestant missionaries had also been kidnapped.
In mid May of 1925, the Peking and Tientsin Times editorialized on the continuation of similar treaty violations. The content of this article was by then a familiar story of wrecked missions and physical assaults on foreigners and their property. In summary, the article was a complaint that the Chinese seemed determined not to respect any of the benefits that accrued to missionaries or
other foreigners through the treaty provisions for extraterritoriality, tariff control, or customs collection.
Charge' Ferdinand Mayer’s commentary on the situation was
also a familiar one. Mayer admitted that there had been a
rash of incidents of late. He went on to say that with the
gradual spread of nationalism in China during the past few
years, these things were to be expected. Maver did not,
however, advocate the end of the treaty system. He stated
that to do so, just because the Chinese objected to
extraterritoriality, would only provoke further
aggression.=i
Behind each of these editorials and the commentary that 2 6 9
came with them, there were certain assumptions that were
made. First, there was the assumption that ninety years of
imperialism by the Powers would be overlooked by the
Chinese; that their objections to tariff controls and
extraterritoriality were ideas planted by the Comintern.
Second, there was the assumption that the Chinese would concede to the general expectation of the Powers that they were bound to respect the privileges that foreigners enjoyed in China, regardless of the fact that they had been wrung from China when it was unable to resist. Finally, there was the general expectation of the Powers that the dismantlement of the treaty system would remain in their hands and continue to be subject to the preconditions and timing which they had established at the Washington
Conference.==
Harrassment of foreigners and their privileged positon in China was not limited to the Northern half of the country. There were also confrontations in South China, but there, there were significant differences. In the
North, the harrassment and treaty violations were either random acts by individuals, or they were perpetrated by the troops of the various warlords. As such, they made no real progress toward setting the precedent for the end of the treaty system that the Powers expected. Yet, they were important. They indicated that increasingly large numbers of Chinese objected to the treaty system and were no longer 2 7 0
willing to accept second class status in their own country.
In the South, a more centrally directed resistance to
the treaties was emerging, and the Standard Oil Company was
in the midst of the resultant confrontation. Standard had
waited in vain for a diplomatic solution to its taxation by
Kuoraintang throughout 1924. In February of 1925, Minister
Schurman presented a note of protest on behalf of Standard
to the Peking government. It had no effect.== In
March of 1925, the Standard Oil Company and the Asiatic
Petroleum Company decided, after consultation with
Consul-General Jenkins in Canton, to begin an embargo of
shipments of kerosene into Kwangtung province to protest
their taxation beyond the treaty limit of 5%
ad—val orem.
The boycott was begun even though Standard had sold a
large volume of Kerosene in the province and made quite a
profit. In 1924, it sold 15,000,000 gallons of kerosene.
However, the taxes taken by the Kuomintang had been
considerable. At the rate of 20 cents per five gallon can,
the tax reduced Standard's profit by $600,000. For
Standard, the implications of paying the tax in all of
China's 26 provinces would be enormous. If the Kuomintang expanded its control to all the provinces, or if the warlords like Chang Tso-lin decided to duplicate the action of the Kuomintang, the Powers would indeed be presented with a precedent that had dangerous implications for the 2 7 1 treaty system.
Standard Oil's officials were trying to preserve the status it had enjoyed since 1863, when it had first entered the China trade. The Department of State was trying to maintain similar benefits for all American interests in
China, so the cooperation between Standard Oil, and the
Department of State which had been so effective against
Yuan Shih-k'ai before the Washington Conference was resumed. In fact, it was improved upon. During Yuan's attempt to tax the company beyond the limits of the treaty system. Standard's officials in China took their case to the legation in Peking. In the 1925 controversey, Herbert
L. Pratt, Standard’s President since John Rockefeller's retirement, took the issue directly to Secretary of State
Kellogg.
Pratt's involvement at the upper levels of American government was a significant indication of the changes in the status of Standard Oil and other beneficiaries of the treaty system. It was also an indication of the effectiveness of Sun's challenge to the treaties. He had already taken $600,000 from the Powers, and there was every indication that he would be able to take more. To prevent this, and any other further encroachments on the treaties.
Standard Oil and the Department of State acted out of mutual concern, just as they had in the past. However,
China had entered a new stage as a nation. It had an army 2 7 2 that was growing almost monthly to back up its opposition to the Powers- Both the army and the Kuomintang, which was the prime mover in the anti—imperialist movement, had an increasingly large number of unaffiliated, if not official supporters in the general population.
What had happened from 1921 to 1925 was that the Chinese had crossed over the line from assertive nationalism to active and violent anti-imperialism. As we have seen here, the Powers continued to misjudge that progress. They continued to believe that the treaties could be maintained, or gradually reduced. The problems of foreign business interests and individual citizens which have been mentioned here seemed to have shaken that belief not at all.
While the powers held onto their outmoded view, the
Chinese moved on to another, more vigorous and effective stage of anti—imperialism. In that stage, they combined the effect of physical attack with fundamental opposition to the treaties. The results for the Powers and their interests were dramatic. What was also dramatic, as well as instructive, was the means that Standard Oil used to survive this stormy period. Those effects and Standard’s tactics will form the heart of the next and final chapter of this study. 2 7 3
Chapter Five Notes
^In Nicholas Clifford, Shanghai 1925;Urban Nationalism and the Defense of Foreign Privilege. (Ann Arbor: 1979), Intro.,p. x, agrees with the opinion of Ch’en Tu—hsiu ^which appeared in the Hsiang—Tao_ Chou—pao, ( ■FjL ), Guide Weekiv in 1925. Liang's work, Wu—san—shih Yun-tunq, ( 3- - T ) , Mav 30th Movement, (Shanghai; 1976), has the same thesis as Clifford's work.
=Conference on the Limitation of Armaments, pp. 596—597, Pollard, China's Foreign Relations. p. 217, and Willoughby, China at the Conference, pp. 78-79
=MacMurray, Treaties. Conventions. Etc., Vol. II., pp. 1109— 1111, and Pugach, "Standard Oil and Petroleum Development in Early Republican China", pp. 468-475
^Papers Relating to the Foreign Relations of the United States. 1917— 1925. Industrv. United States Government Printing Office, (Washington:1960), Microfilm, Roll 188, Volume 44, file number, 893.6363/39, telegram. Minister Schurman to Department of State, October 24, 1921. (Hereafter cited as SDF with appropriate file number and date).
^Peking Daily News. February 14, 1914.
=SDF. 893.6363/39, Telegram from Minister Schurman to Department of State, October 24, 1921
■^SDF, 893.6363/49, Telegram, Consul C.J. Spiker to Department of State, January 13, 1923.
°Ibid. 893.6363/49. “'See Conference on the Limitation of Armaments, p. 827, and p. 910 for the "Resolution Regarding the Chinese Eastern Railway, Approved by All the Powers Including China". For details of the kidnapping, see FRUS. 1923. Vol. I, telegram from Minister Schurman to Secretary of State Hughes, May 6, 1923, p. 361.
^®SDF, 893.61/4314, Minutes of Consortium meeting at Bank de L'Indochine, forwarded to Secretary of State Hughes and Minister Schurman in telegram of June 4, 1923. Also see SDF, 893.51/4314, telegram from Morgan, Grenfell & Company to J.P. Morgan, May 24, 1923.
^^Minutes of meeting held in the Hongkong office of the Shanghai & Hongkong Banking Corporation, July 16, 1923, included in SDF, 893.51/4425, telegram from J.P. 274
Morgan to Secretary of State Hughes, November 14, 1923.
^~SDF, 893.00/5188, Letter of Chinese Student’s Union, presented to the Peking Foreign Legation, July 3, 1923, and forwarded to Secretary of State Hughes by Minister Schurman in a telegram, August 7, 1923.
i=Ibid. 893.00/5188.
i*SDF. 893.00/5211, Letter from K ’ang Yu-wei to Secretary of State Hughes, July 30, 1923,
i=SDF, 893.00/5093, translation of clipping from the Shih Pao. China’s Progress, June 21, 1923, forwarded by Consul Cunningham to Secretary of State Hughes on June 23, 1923.
^^FRUS, 1923. Vol. I, Telegram from Secretary of State Hughes to Minister Schurman, June 23, 1923, p. 628.
’•■’’SDF, 893.00/5085, Telegram from Minister Schurman to Secretary of State Hughes, July 13, 1923, and Andrew J. Nathan, "Imperialism’s Effect on China", Bulletin of Concerned Asian Scholars, 1972, Vol. 5, no.6, pp. 3-6. Also see Nathan’s Peking Politics. 1918— 1923: Factionalism and the Failure of Constitutionalism, (Berkeley:1976), p. 6 o , n . 6.
^ °SDF, 393.00/5200, Telegram from Minister Schurman to Secretary of State Hughes, states that Ts’ao paid $5,000 for each vote he received. For his refusal of tife Lihcheng Proposal, see FRUS. 1923. Vol. I, Telegram, Minister Schurman to Secretary of State Hughes, October 9, 1923.
i^EDF. 893.00/4651, Telegram, Consul-General Cunningham to Secretary of State Hughes, August 22, 1922.
-*=*SDF. 893.00/49336, Telegram, Report of Lt. Commander Tenney, Naval Attache’, to Secretary of State Hughes on the movements of Sun in Canton and Hongkong, February and March, 1923, March 13, 1923.
Ibid., and C.Martin Wilbut, Sun Vat-sen, Frustrated Patriot, (Columbia:1976), pp. 143—147. (Hereafter cited as Wilbur, Sun Vat—sen).
^^Harold Isaacs, The Tragedy of the Chinese Revolution, (New York:1963), p. 62, and Wilbur, Sun Yat-sen, pp. 127-147. 275
==§2P? 893.00/5028, Telegram, Report of Lt. Commander Tenney, Naval Attache', to Secretary of State Hughes on the movements of Sun in Canton and Hongkong, February and March 1923, March 13, 1923.
=*Wilbur, Sun Yat—sen, pp. 143— 147.
^^SOF, 893.00/5291, Telegram, Consul General Jenkins to Secretary of State Hughes, October 23, 1923.
=*^C.Martin Wilbur and Julia How, eds., Documents on Communism, Nationalism & Soviet Advisors in China 1918-1927. (New York:1956), p. 144.
==^The first public announcement in English was made in the Canton Daily News, June 28, 1923. Naval Attache' Tenney reported it to Secretary of State Hughes in SDF, 893.00/4381, telegram from Tenney to Secretary of State Hughes, July 2, 1923, and C.C. Wu, Sun’s Foreign Minister, explained Sun's intentions in a letter to the diplomatic body in Peking which is found in FRUS, 1923. Vol. I, pp. 552-555.
=®SDF, 893.51/4419, Telegram, Minister Schurman to Secretary of State Hughes, September 22, 1923.
-^Ibid.893.51/4419, For exchange of views between British and American consular and diplomatic staff, see FRUS, 1923, Vol. I, pp 558-561.
~*^SSDF, 893.51/4432, Telegram, Charge' MacMurray to Secretary of State Hughes, December 4, 1923, Hughes to President Coolidge, December 4, 1923, and President Coolidge to Secretary of state Hughes, December 5, 1923. Also see FRUS, 1923, Vol. I, pp. 561-562.
=iSDF, 893.51/4477, Sample telegrams from chapters of the Chinese Nationalist League in Toronto and Ontario, Canada, and New York and San Francisco, December 1923.
==This was reported by R.S. Norman, who was Sun's American advisor, to Consul Douglas Jenkins. See SDF. 8993.51/4520, telegram. Consul Jenkins to Minister Schurman, December IS, 1923.
=^SDF, 893.00/5348, Telegram, Consul Bell to Secretary of State Hughes, January 9, 1924, and telegram. Minister Schurman to Secretary of State Hughes, January 9, 1924. 276
="*FRUS. 1924, Vol. I, Telegram, Charge' Bell to Department of State, October 20, 1924, p. 411 shows that Bell had heard rumors that Sun would try to seize the customs on the 21st. Bell informed the Department that he and the Commander of the South China Fleet had decided to resist by force, provided that Britain, France and Japan joined them again. Telegram from Secretary of State Hughes to Charge' Bell, October 22, 1924, p. 413, approves of Bell's decision. pp. 414-416 shows that between October 22, and November 8, 1924, Britain, and France agreed to participate, if necessary. Japan declined.
^=FRUS. 1924. Vol. I, Telegram, Charge' Bell to Secretary of State Hughes, October 20, 1924, p. 412, and SDF, 893.00/5945, Telegram, Minister Schurman to the Department of State, January 12, 1925.
-^FRUS. 1924. Vol. I, Telegram, Minister Schurman to Secretary of State Hughes, March 13, 1924, pp. 513-514, and Memorandum, from V.K. Wellington Koo, Chinese Minister to Washington, to Secretary of State Hughes, March 27, 1924, pp. 522-523.
=^FRUS, 1924, Vol. I, Telegram, Minister Schurman to Secretary of State Hughes, February 16, 1924, pp. 521-522.
-‘^FRUS. 1924, Vol. I, Telegram, Minister Schurman to Secretary of State Hughes, March 18, 1924, pp. 514-515.
~^FRUS. 1924, Vol. I, Telegram, Secretary of State Hughes to Minister Schurman, March 22, 1924, pp. 516-517. For the concurrence of the British Foreign Office, and the Japanese Consul-General, see Telegram of Secretary of State Hughes to Minister Schurman, March 31, 1924,p. 517.
■**^For the manifesto, see T.C. Woo, The Kuo Min Tang and the Future of the Chinese Revolution, (London; 1928), Appendix C.
*^Gottfried-Karl Kinderman, ed.. Sun Yat-sen: Founder and National Symbol of China's Revolutionarv Nation Building, (München:1982), Gottfried-Karl Kinderman, "Sunyatseni sm-Prototype of a Syncretistic Third World Ideology", p. 82, and Borg, American Policy and the Chinese Revolution, pp. 12-16.
'‘-Sun Yat-sen, San Min Chu— I. Frank W. Price, 277 trans., L-T. Chen, ed., (Chungking:1943), p. 39, and p. 103.
■“■^David Wilson, "Principles and Profits", pp. 625-630.
•*‘*Ibid., p. 630, United States Department of Commerce, Commerce Reports 1926, (Washington:1926), Vol. I, p.28, and Moody's Manual, 1926, p. 1309, which notes the establishment and purpose of the SOCONY Burner Corporation in January of 1924.
•=*Wilbur, The Nationalist Revolution in China, p. 20, and Lo, Ko Ming Wen Hsien, Vol. IX, p. 1279, and Liu, A Military History of Modern China, pp. 15 and 25.
•*‘=»FRUS, 1924, Vol. I, Telegram, Charge’ Bell to Department of State, October 20, 1924, pp. 411-412.
*^Ibid., pp.411-412 ~*°FRUS, 1925, Vol. I, Telegram, Minister Schurman to Department of State, January 12, 1925, p. 722, and SDF, 893.00/5945, Telegram, Minister Schurman to Department of State, Januaryl2, 1925.
890.00/5951, Editorial of China Recorder, January 16, 1925, enclosed with telegram. Minister Schurman to Department of State, January 16, 1925.
”®SDF, 693.11171/66, Report of the Annual Meeting of the Associated American Chambers of Commerce of China, at Shanghai, October 16-17, 1923, transmitted to the Department of State January 14, 1924, also found in FRUS. 1-924, Vol. I, pp. 580-604.
°^SDF. 893.00/6232, Telegram, Charge’ Mayer to Department of State, May 11, 1925.
^~SDF, 693.11171/66, Report of the American Chambers of Commerce of China, and FRUS. 1924. Vol. I, especially pp. 588-589 in which the Chambers of Commerce call for the maintenance of the status quo, even if that required an increase in American military forces.
==David Wilson, "Principles and Profit", p. 623, and SDF, 893.51/316, Telegram, Minister Schurman to Secretary of State Kellogg, February 23, 1925.
°*David Wilson, "Principles and Profits", p. 632, and SDF, 1093, Telegram, Consul-General Jenkins to 2 7 8
Charge' Mayer, enclosed in SDF. 1176/103/10, Telegram, Charge' Mayer to Secretary of State Kellogg, April 11, 1925.
“=’For volume of sales, see U.S. Department of Commerce, "Commerce Reports, 1926", (Washington:1926), Vol. I, p. 28, and China Yearbook, (Shanghai : 1926), pp. 228—237. For the amount of taxes paid, see SDF, 893.512/347, Telegram,Herbert 1_. Pratt, President, Stauidard Oil Company of New York, to Secretary of State Kellogg, October 27, 1925. CHAPTER VI
STANDARD OIL AND ANTI-IMPERIALISM
1925-1930
For the first five months of 1925, the Powers, and the various beneficiaries of the unequal treaty system continued to delude themselves that they could force the
Chinese to honor their treaties. Then, at the end of May, the Shanghai Incident occurred and it turned their dreams of continued profit and the return of stability into a nightmare. In Shanghai, China on May 30, 1925, a Chinese protest over the treatment of workers in a Japanese cotton mill resulted in a confrontation between three thousand demonstrators and students and the British Concession police. The demonstrators wanted to march through the foreign concession to the Japanese cotton mill, and the
British concession police refused to let them in. There was an altercation, the police overreacted and fired into the crowd. Nine Chinese were killed, and twenty more were wounded.^ This incident began a five year period in which the treaties that the Powers held so dear were reduced to practically meaningless paper. It was also the 2 7 9 2 8 0
era in which they were forced to abandon the delusions they had held about the nature and intent of Chinese anti—imperialism.
The Chinese reaction to the Shanghai Incident was both immediate and widespread. There was hardly a major city in
China that was not the scene of some kind of anti— foreign demonstration. Even the warlord government in Peking joined in the denunciation of the Powers. Shen Jui-lin,
Tuan Chi—jui's Foreign Minister delivered a formal protest to the foreign diplomatic body in Peking to support the
large, but peaceful demonstration that was held in the capitol on June third. In that protest, Shen stated that
the protestors who had been shot and jailed in Shanghai were patriots of good families, and that his government
objected to their treatment by the British as common
malefactors. He ended his note with a demand for the
immediate release of those who had been arrested and a
formal apology from the British government.=
Shen’s protest was perhaps the calmest reaction to the
Shanghai Incident that summer. Those in central and
Southern China were larger, and more violent. In
Chinkiang, for example, the British Consul was attacked by
a mob. He was saved only when British sailors fired into
the crowd and killed four Chinese. At Hankow, on June
eleventh, the British Concession and police station were 281 attacked. Japanese shops were also looted and burned.
Four more Chinese were shot and killed.= The situation was tense enough in North and central China, but
in the South, they were even worse.
After the incident at Hankow, a virtual state of war developed in Canton. Demonstrators approached the Sh^meen
bridge, which separated the foreign concession from the
Chinese section of the city. They were stopped by barbed
wire barricades and machine guns. By day's end, one
Frenchman was dead, and four British were wounded. Among
the demonstrators, which included one thousand members of
the Whampoa Military Academy, fifty were dead and over one
hundred were wounded.*
these events were only the start of a momentous period
in the history of modern China. During the next five
years, the Chinese would seek to rid themselves of the
problems of warlordism, political disunity and imperialism,
all at the same time. This period has been well covered in
■a number of monographs. For example, there are Dorothy
Borg's American Foreign Policv and the Chinese Revolution
1925—1930. Harold Isaac's The Traoedv of the Chinese
Revolution, and Donald Jordan's The Northern Expedition:
China's National Revolution of 1926—1928. The common
threads that bind these works together is their treatment
of the Chinese attempt to build a modern nation, and to end
the influence of the Powers in China. 2 8 2
Borg explains how the revolution moved American foreign policy frc-s its usual place of following the lead of the
British, toward one of moral leadership which championed the resumption of China's administrative and political sovereignty. Isaac's book gives much credit to the Chinese
Communist Party for the success, such as it was, of the
Northern Expedition. Finally, Jordon covers that event with a special emphasis on the military and political
events that enabled the Kuomintang to establish itself in
Nanking as the recognized government of China.
These are all fine works, and it is not the intention of
this author to take exception with any of them. Instead,
an attempt will be made here to fill in a small but
important void in their treatment of the period. These
works cover many the major events of the period, and in
broad strokes, they explain the shocks that foreign
interests absorbed during the period. What they lack is «
concentration on a single foreign commercial interest in
the context of these events. It is this author's intention
to fill that void by reviewing this important period in a
way that describes how the Standard Oil Company, America's
largest interest in China, survived this period. When the
period is viewed from this perspective, a number of
questions arise, which as of yet, have not been answered.
For example, what was the effect of Standard Oil’s
attempt to force the Kuomintang to rescind its kerosene tax 2 8 3 with an embargo on shipments to Kwangtung province?
Standard’s embargo was more than a demand for the continuation of the treaty system. It was also a challenge to the Kuomintang, the center of the anti—imperialist movement, on its home territory. Did Standard’s business disappear in that province when the Kuomintang established it’s control there? What happened to Standard Oil after the Kuomintang spread its control to other provinces? Was its property seized and its employees subjected to the violence that the other foreign interests in China faced at that time? The purpose of this chapter is to answer these kinds of questions about the Standard Oil Company, and to place those answers within the context of the years
1925-1930.
The summer of 1925 was a time of military action and vastly increased public support for the Kuomintang. During the second week of June, its newly created army drove the warlord troops of Yang Hsi-min and Liu Chen—huan out of
Kwangtung province. Those victories were followed by three campaigns to the eastern limits of the province, and the way was clear for the Kuomintang to declare itself as a formal government, in opposition to Peking’s government which was under severe pressure from both Feng Yu—hsiang and Chang Tso-lin.= It may have appeared at that time that the Kuomintang was merely another army, striving for political dominance of a limited area, but that was not 2 8 4 exactly the case. Although it did seek to dominate its political rivals, just as the Northern factions did, its aims were broader than that. It also sought to establish its control, undiminished and undivided by the claims of the Powers to exercise their jurisdiction within
China.
After the incident at the Shameen bridge, the Kuomintang became a focal point for anti-imperialism. It was joined in this effort by the Peking government and the Chinese
Communist party also gave its support for this purpose.
Together, the two Parties organized the Chinese who lived and worked in the British colony of Hongkong for a massive strike and boycott to retaliate for the deaths of Chinese at Shameen. The strike applied to all foreign firms and residents, including the British Consulate and the
Canton—Hongkong Steamship Company, which hauled goods and people between the two ports.^
The strike and boycott were announced formally on June
21, 1925, and two days later, Ferdinand Mayer, the American
Charge' in Peking, was informed by C.C. Wu, Acting Foreign
Minister for the Kuomintang, that since America had not been a party to the overreaction of the Powers, it would be exempted from the boycott. According to Wu, it was his government's intention to focus on British and Japanese interests." This may have been the Kuomintang's overall policy, but it did not include Standandard Oil. 2 8 5
The Standard Oil Company, %hich had been enforcing its embargo for some three months, began to receive the same treatment that was supposedly reserved for the British and
Japanese.
Two weeks before the strike and boycott were formally announced. Standard's Shanghai Office wired headquarters in
New York on the general situation in China. It reported that the shops of the British firm of Asiatic Petroleum had been destroyed in the city of Taiyuanfu in Shansi province.
The report went on to say that Hangchow, Ningpo, Soochow, and Nanking were all cites of riots and that communist agitators were trying to encourage a strike against
Standard’s agencies as far up the Yangtze River as
Chungking.^ This kind of information was similar to the reports that Charge’ Mayer received during the middle of June. For example, the Consuls in Foochow,
Swatow, Tsingtao, and Tsinan, all reported large demonstrations. There was even a small strike against four
American firms, including Standard Oil’s Swatow agency, and
the Consul there expressed concern that it might become
serious.
These situations in central and North China appear to
have been spontaneous and not directed specifically by the
Kuomintang. However, in the area around Canton, Standard
Gil was soon to be swept into the maelstrom of
anti—imperial ism. In order to keep Secretary of State 2 8 6
Kellogg informed of the situation, Consul-General Douglas
Jenkins despatched several translations of posters that had been put up in the city. The posters said "Strike Down the
Imperialists", "Demand Cancellation of the Unequal
Treaties", and "Demand Control of Maritime
Custom^. ^ In the broadest sense, the posters were a clear indication of the level of discontent with the treaty system. The results they produced were especially ominous for Standard Oil. On the same day that the posters appeared, the Compradore for Standard's agency in Canton disappeared.
The June kidnapping of one of Standard's employees was the second time such an event had happened. On April 25,
1925, another Compradore disappeared and several hundred cases of kerosene were stolen from the warehouse where he worked.This was one month before the Shanghai
Incident, but also, one month after Standard began its embargo to oppose the Kuomintang's anti—imperial ism. On
June 18, 1925, Secretary of State Kellogg paid a call on
Alfred Sze, the Chinese Minister to Washington. The purpose of the call was to make a general protest the
Kuomintang's violations of American treaty rights, and to imply that the public opinion and American policy would not support China's request for the Special Conference on the
Chinese Tariff if the depredations continued.
It was also quite likely, although it is unrecorded. 2 8 7
that the specific case of Standard Oil came up in the meeting between Sze and Kellogg. On May 25, 1925, Roland
Morris, one of Standard's lawyers, and Howard Cole, the company's Vice President, had paid a visit to the
Department of State. Morris and Cole had come to demand another naval demonstration at Canton. It was their opinion that if conditions there continued as they had during April, Standard would lose $800,000 by the end of the year.i= That Kellogg would be able to ignore a personal visit and request for support from a representative of the largest American commercial interest
in China is not likely. Whether Kellogg did mention
Standard Oil's position or not, both he and Cole got an indication of the direction of subsequent events on June’
29th. Another compradore disappeared. Also, posters appeared which indicated that the settlement of Chinese demands for the end of the treaty system, especially extraterritoriality and the foreign financial domination of
China were beyond the total control of the Powers and their negotiating process. It was now China's turn to decide when and how these issues would be handled.
In June and July of 1925, Charge' Mayer sent two analyses of the political situation related to the
Shanghai Incident to the Department of State. They were quite short, but they indicated a departure from his 2 8 8
attitude of May 11 that to end treaty rights, just because
the Chinese objected to them, would only invite more
aggression. Mayer admitted to some surprise at the
vehemence of the reaction to the Shanghai Incident. He
felt that it had awakened passions among the Chinese that
he had considered dormant among the more articulate, and
nonexistent among the rest. By the middle of June, Mayer
was beginning to drift even further from the smug sense of
security he had held in May. He wrote on the nineteenth of
June that there was a readjustment in process between China
and the Powers, and that it was the foreigners who must
make some concessions. He predicted that if that did not
happen, there would be grave consequences for the future.
Mayer closed his June summary with the opinion that the
situation was not yet cut of hand, but there were alarming
potentialities if there was no speedy settlement at
Shanghai.
In his July report, Mayer stated that the Chinese
continued to exhibit a sense of fanaticism. He went on, rather petulantly, to say that due to the evolution of
Chinese thought toward nationalism, they were less in awe and more determined to assert themselves about matters
related to foreign privileges in China. Finally, Mayer concluded with the admission that these developments were
not related to bolshevism, and therefore, he predicted that
it would probably be difficult, if not impossible to 2 8 9
maintain any treaty priveieges in China in the
future.
As events unfolded during the summer and autumn of 1925,
Mayer's predictions began to materialize. Interestingly,
Standard Oil’s impending loss of privileges figured
prominently in those events. In August of 1925, the
Kuomintang announced the formation of a Chinese monopoly
for the distribution of petroleum products in Kwangtung
province. The new major suppliers of these goods were to
be the Russian Naptha Syndicate, and Chinese exporters on
the West coast of America. There were three purposes for
the monopoly. First, it was an attempt to end Standard’s
longtime domination of kerosene sales in Kwangtung.
Second, it was a means of easier and increased taxation for the Kuomintang. Finally, it was an overt, and therefore
politically valuable, expression of economic nationalism for the party. In effect, they had chosen the time, place, and manner in which an important challenge to the treaty would occur.
When the monopoly began, the level of kerosene imported
into Kwangtung dropped to one fourth of what it had been before. This is because few companies, if any, had the
productive and distribution capacities of Standard Oil.
However, tax revenues from sales went up. Sales of
kerosene by Standard Oil had been taxed at the rate of forty cents for each ten gallon case. Under the new 2 9 0 arrangement, the government in Canton collected four, and sometimes, even eight dollars per case. This raised the cost of kerosene from Standard's previous price of four dollars per case to eight to twelve dollars.-•
That the consumers in the area purchased kerosene from the
Kuomintang at such highly inflated costs is yet another
indication of the level of economic nationalism that was
expressed at that time.
In October of 1925, J.V.A. MacMurray, the newly
appointed Minister to China, delivered another protest of
the Kuomintang's taxation of kerosene to Foreign Minister
Shen. MacMurray's note stated that the Kuomintang's tax
was a violation of the treaty based maximum collection of
5% ad—valorem, and it asked Shen to order the government in
Canton to end its taxation of kerosene. In retrospect,
MacMurray' s note appeared as a senseless attempt to
maintain the legal fiction that Tuan Ch'i—jui exercised any
control at all in China. Tuan's government existed only
with the sufferance of Chang Tso—lin and Feng Yu-hsiang. It
had no prestige or actual power in the
provinces. Yet despite its precarious internal
position, Tuan's government was taking a strong stand
against imperialism. In the negotiations to s&ttle the
Shanghai Incident, Foreign Minister Shen had presented
thirteen demands to the Powers. They included the payment
of indemnities to the families of those who had been slain 291 and the immediate end o-f the unequal treaty system.
The negotiations to settle the Shanghai Incident continued through the summer of 1925. While they went on, the Powers struggled to maintain their treaty status
through negotiation and diplomatic procedure. While this
process went on. Standard Oil received some temporary benefit from the effort. An important tool in the
protection of the position of foreign interests in China
was the Mixed Court in Shanghai. On August 21, Standard’s
station manager reported to Consul Edwin Cunningham that it
had received an informal memorandum from officials of the
court regarding a Russian named Zinovi Dosser. Dosser had
been arrested while in possession of the plans for the
Russian Naptha Syndicate to replace Standard and Asiatic
Petroleum as the suppliers of kerosene for Kwangtung
province. He was to be tried before that court on charges
of unlawful trade restriction and the violation of the
treaty rights of the Standard Oil and Asiatic Petroleum
Companies.=%
Dosser’s arrest was an obvious attempt by the British
dominated court to protect Asiatic Petroleum’s interests,
while supporting its participation in the embargo against
Kwangtung province. Since Standard too was enforcing its
embargo, it also stood to gain from this action. However,
the time when the combination of diplomatic procedure and 2 9 2 the unified opposition by these two companies to the
Kuomintang could produce results was drawing to an end.
One reason for this was because Standard was left to uphold the embargo by itself. Another reason was that the
Kuomintang began to take measures to separate Standard from its allegiance to the the Powers’ policy of demanding the observance of treaty rights.
In October of 1925, Asiatic Petroleum began to sell kerosene and fuel oil, disguised as a French product, to the Kuomintang general Wang Shiu-hung. Wang was situated just North of Kwangtung, in the city of Wuchow. There too, petroleum prices were highly inflated, and Asiatic came into a windfall of profits. For example, when Standard had shipped fuel oil into Wuchow, it charged forty—five dollars per ton. Asiatic, in an attempt to recoup its losses from
Kwangtung, charged $225.00 per ton.== This meant that Standard not only losing money to the Chinese monopoly in Kwangtung. It also meant that its largest competitor was making eight times the previous level of profits as it expanded its control in a second province.
In the face of this situation. Standard’s determination to demand its treaty priveleges in China began to slip.
Then, in mid November, T.V. Soong, the Kuomintang Minister of Finance gave Standard two more reasons to consider taking a more cooperative attitude instead of continuing demand its old treaty status. 2 9 3
First, Soong announced the detailed regulations for the
Canton monopoly. The monopoly would be named the China
Petroleum Company, and it was to be the only recognized agency for the sale of petroleum products in Kwangtung.
China Petroleum would actually become a controller of foreign companies through the sale of licences which were to be bought within ten days. Soong also stipulated that goods in warehouses or in transit must obtain a licence from China Petroleum within the ten day period. The alternative was to sell the goods cheaply to China
Petroleum for redistribution. Finally, in order to insure close supervision of the distribution of petroleum products in Kwangtung, it was stipulated that the sale or shipment of kerosene without a permit, or its sale without a licence would be heavily penalized. Such goods would be confiscated, and the offending company would be fined
$5,000.==
These regulations were actually the first part of a stick and carrot approach to separate the interests of
Standard Oil from those of the Department of State. The carrot was offered on the same day that the monopoly regulations were published. It came in the form of a potentially lucrative offer to M. 0. Clark, Standard's agency manager in Canton. In that offer, which was presented personally by T.V. Soong, Standard was given the chance to supply most, if not all of the kerosene required 2 9 4 by the China Petroleum Company.
In light of this new development. Standard Oil was presented with a problem that had both commercial and diplomatic implications. Regarding Stcindard's commerce, the offer presented the chance to resume the position as the leading supplier of kerosene in Kwangtung. Moreover, given its production and shipment capacities, it was v e r y likely that Standard Oil would be the only supplier in that province. It was a chance to recoup the losses that had resulted from the eight month long embargo, and also.
Standard could move ahead in the competition for profits with Asiatic Petroleum- On the other hand, there were larger issues of foreign policy at stake. If Standard accepted the offer, it would be a tacit admission of the
Kuomintang's right to regulate trade in the province despite the stipulations of the treaty system. At the time this offer was made, the treaty system was under another series of attacks in Shanghai. They were not the violent ones of the spring and summer, but they were more dangerous because they involved important principles and precedents.
A major part of Standard Oil's legal status in China was based in the privilege of extraterritoriality and the maintenance of that privilege was severely tested in the
effort to settle the Shanghai Incident. The incident was finally settled in November of 1925, and in the process of
settlement, the Powers made more of the concessions to the 2 9 5
Chinese that Mayer had predicted would be necessary. For example, on June sixth, a seven member committee, composed primarily of First Secretaries and Heads of Legations of the Powers was formed- At their first meeting, they agreed to travel to Shanghai to cooperate with the Chinese commission which was already investigating the incident.
In Shanghai, they took immediate steps to calm the situation before the trial of the Chinese who had been arrested began. First, they decided to withdraw the foreign troops that had been called in to protect the
Shanghai Concession. They were replaced by two battalions of cadet officers under the command of Chang Hsueh-liang, son of the Manchurian warlord. Both the cooperative attitude, and the troop withdrawal were given wide publicity.
The trial of the fifty—one men who had been arrested lasted three days; from June ninth to the twelfth. At the start of the trial, American Consul Edwin Cunningham advised leniency, and the appointment of an international commission composed of Chinese and foreigners to oversee the trial. When he was called upon by the Department of
State to explain this action, Cunningham stated that he
feared that the strict application of extraterritoriality
in the case would lead to a boycott and strike against
American interests in China. The Secretary of State
personally telegramed him that due to the important 2 9 6 principle involved, such a commission would be inadvisable.The message was clear; the appointment of such a commission to oversee the Mixed Court of Shanghai suggested that the court might function improperly, or with a lack of objectivity. This could not be allowed. This was especially so because the court's operation was one of the causes of the initial demonstration on May 30th. Moreover, it was hoped that this important part of the treaty system could be used to defuse the situation without causing undue harm to the treaty system.
On June twelfth, the court announced its verdict.
Thirty—three of the defendants forfeited their bail.
Eighteen were required to sign a personal bond to keep the peace, and none of them were fined or sent to
jail.-^ The verdict was indeed lenient, and
Cunningham's suggestions to Chief Assor Jacobs had little to do with it. It was the result of the demonstrations and
official representations of the Chinese themselves that
cause it. The diplomatic arrangements made by the commission from the legations for a settlement of the
diplomatic issues related to the Shanghai Incident support
this conclusion. Even though the Powers rejected many of
the thirteen points demanded by the Peking government for a
settlement, certain key concessions were made. For 2 9 7 example, it was agreed to pay an indemnity of $75,000 to the families of each of the Chinese who were killed. Also, the Chinese and British Chiefs of Police in Shanghai were suspended, pending investigation of the incident by a
Judicial Commission of the Powers, and finally, the heads of delegations agreed to publicize their willingness and plans to reorganize the government of the Shanghai
Concession to provide more Chinese representation.=*
On November twenty first, the Judicial Commission issued a report of its investigation of Commander McEwen, the
British Chief of the Shanghai Concession Police. The
Commission reported that it found him to be inexcusably absent from his duties at the time of crucial events on May
30th, and that his absence constituted a negligence which had resulted in the deaths of several persons. Therefore, the Commission recommended, and the Shanghai Municipal
Council agreed, to demand McEwen*s resignation.
If the diplomatic, and the judicial settlements of the
Shanghai Incident are considered together, it becomes clear that extraterritoriality was still alive in Shanghai, but it definitely was not well. The Powers had raced to the scene of the trouble, and made every effort accommodate the demands of the Chinese without doing irreparable damage to the Mixed Court, and the right to use troops there without permission. The court, and the use of force had long been 2 9 8 their primary means of dominating Shanghai, but the Powers were forced to limit their reliance on these tools. In the end, the court’s authority was used lightly against the
Chinese, and the peacekeeping duties were turned over to troops from Manchuria. These concessions were followed by the agreement of the Powers to rearrange the municipal government of Shanghai to better represent the Chinese, and to publicize those plans. Also, the British Chief of
Police was fired. The facts that his position was central to the practice of extraterritoriality in Shanghai, and that he was treated more harshly than the demonstrators also indicates the illness of the treaty system. There was one final sign of weakness in the practice of extraterritoriality; the Chinese were the recipients, not the givers, of sizeable indemnities that followed a major international incident. This was a break in a pattern that had lasted since the establishment of extraterritoriality in 1842.
It was only three days after these events took place that M.O. Clark was faced with his dilema. Should he continue to defend Standard Oil’s treaty rights and lose considerable amounts of profit? Or, should he accept T.V.
Soong’s offer to become the source for the Kuomintang’s petroleum monopoly? If he chose the latter, he would do more damage to the treaty systemwhich was already under duress. If he chose the former, he might be fired for 2 9 9 i ncumpetence. Fortunately for Clark, Howard Cole,
Standard's Vice President, was in Canton at that time to make a personal inspection of the situation. Clark passed the responsibility upward, and Cole initiated an eight month process of negotiation and deliberation between his company, the Department of State, and the Kuomintang. From
November of 1925 to April of 1926, Standard Oil tried to get the Department's support and approval on two issues.
The first issue was support and approval for the acceptance of Soong's offer, the second one was armed naval escorts for Standard's shipments up the West River to Wuchow.
The requests were initially made by Howard Cole to
Minister MacMurray. Macmurray turned th*»»" down. In doing so, MacMurray was echoing the policy of the Department of
State as well as important sectors of the American commercial sector. For example, on November 6, 1925,
MacMurray had received a copy of a report and recommendations which had been written by the New York
Chamber of Commerce and presented to President Coolidge.
The report advocated the support of any government in China which could command the allegiance of the provinces and protect the treaty rights of foreigners. The accompanying
letter of endorsement was signed by several American commercial leaders, and John D. Rockefeller Jr.'s name was among them.
The attitude of the New York Chamber of Commerce was 3 0 0 seconded by the American Chamber of Commerce of Shanghai.
In December of 1925, the Chamber cabled the Department of
State and published an editorial in the Peking Leader to
clarify its position on the issues of tariff revision and
the end of extraterritoriality- It opposed to the
convening of the Special Conference on the Chinese Tariff,
and it also opposed the discussion of, or even setting a
date for the end of extraterritoriality until a government
appeared in China which could guarantee the maintenance of
foreign treaty privileges.In light of these
opinions. Cole's request to MacMurray about accepting
Soong's offer was in opposition to not only American policy
in China, it was a minority view among the various
commercial interests in China at that time.
The only common ground between these interest groups,
especially the Chambers of Commerce, was the agreement that
the instability in China was a hindrance to the conduct of
trade. They had been trying to conduct that trade in a
country which had had eight Presidents, forty-two Cabinets
of continually changing membership, and twenty-five
Ministers of Justice between 1911 and 1925.=*=
This prolonged instability, as well as the eruption of
anti—imperil ism that followed the Shanghai Incident, were
the reasons that Standard, and the other commercial
interests wanted naval convoys for their shipments up the
West River to Wuchow. 301
MacMurray delayed approval of this action until April of
1926. In February of 1926, Standard got the support of
Consul Jenkins in Canton, but that was not sufficient.
MacMurray overrode him on the advice of Captain E.T.
Constien, his Naval Attache*, that convoys at that time would risk conflict with the Kuomintang forces of General
Wang Hsiu—hung. A month later, the friction between the
Kuomintang and the Chinese Communist Party produced the
Chung—shan Incident in Canton. The result of this incident was the March 20th Coup which brought Chiang K*ai—shek to the leadership of the Kuomintang. This new situation prompted MacMurray to wait and see if the Kuomintang could purge its communist and Comintern elements and lessen its anti-imperialism once their influence had been removed from the scene.== He must have been very disappointed to learn that on May seventeenth, officials of the China
Petroleum Company raided the warehouse of the Texas Oil
Company and seized $22,000 in kerosene. The reason for the raid was that Texas Oil had sold kerosene without a licence.At this point, MacMurray agreed that the ccnvoy was a treaty right allowed by Article IX of the
Sino-American Treaty of 1858, but he was forced to consider the interests of all American commerce in China, not just
Standard's. It was that wider view that led MacMurray to predict the expansion of the Kuomintang into Kwangsi province and the hope that under Chiang*s leadership, a 3 0 2 speedy end to the boycotts and strikes against all foreigners could be effected.==
From Jainuary to April of 1926, MacMurray used every argument at his disposal to convince Standard Oil that in the long run, the effort to maintain American treaty rights would be worth the effort. At the same time, the
Kuomintang convinced the company that the opposite was true. It was during these months that Standard was finally separated from American policy. A crucial point in this process came on January second during discussions between
M.O. Clark, Kwang Fook—on, his Chinese assistant, and T.V.
Soong. They met to discuss the possibility of Standard moving into Kwangsi province to compete with Asiatic
Petroleum in the sale of fuel oil. Clark and Kwang also wanted to end the continued taxation of petroleum products by the Kuomintang. Standard offered to sell the fuel oil at $43.00 per ton, well below the $225.00 that Asiatic charged, but Soong refused. He explained to Kwang that the
Kuomintang army was dependant on the taxes from the higher priced sales and that there were no plans to cancel the tax or the China Petroleum Company.
It was clear from this statement that the Kuomintang intended to use the sale of petroleum products to raise the money it needed, and consequently, the company that could supply the petroleum in sufficient quantity stood to make great profits. In effect, Soong was luring Standard away 3 0 3
from American policy with the promise of sizeable rewards.
His offer contrasted greatly with the position MacMurray
maintained at that time. For example, on January fifth,
MacMurray informed Clark that the Department of State could
net sanction Standard's participation in the monopoly
because its effect would be a restraint of
trade.
For a company that had incurred so much trouble in 1911
over the idea of restraint of trade, this was an
unfortunate choice of words. Their effect seemed to move
the company even further from American policy. From
February to April of 1926, Standard sent further requests
from Canton and the home office in New York for naval
protection of shipments to Wuchow. Also, it continued to
negotiate with Soong to lower the rate of taxation on
kerosene sales. MacMurray continued to delay approval for the protection and to remind Standard that cooperation with
Soong was perSî^s beneficial in the short run, but in the
long run, it would establish a damaging precedent to all
American interests in China.
While the Department of State delayed its response to
Standard's requests, the company decided that it was perhaps better after all to pay taxes to the Kuomintang than to let the monopoly, which set prices, continue any
longer. This decision led to a loose enforcement of the company's embargo and the start of negotiations with Soong 3 0 4 on a plan which would bring taxes to his party and allow
Standard to make a profit in Kwangtung and Kwangsi provinces. On February first. Standard gave Soong a plan which called for the end of all existing regulations on kerosene and oil sales in the two provinces. It meant the end of the Kuomintang monopoly. In return, the company would accept an internal tax which would be collected from the consumers, not the company. This was done to avoid violating the treaty limit of 5% ad—valorem. Soong agreed to this form of taxation, but he refused to end the monopoly. He also stated that a consumption tax of $4.00 per case of kerosene would be collected.
By early April, Standard began to reap the benefits of its months of requests to the Department of State and the negotiations with the Kuomintang. On the sixth. Secretary of State Kellogg wired MacMurray that the Department would allow Standard to make the best agreement it could. On the fifteenth, MacMurray approved the use of naval escorts to
Wuchow.No doubt. Standard appreciated the support of the Department of State at that time, but it came too late to keep the company bound to American policy.
The Department of State's change of policy was followed shortly by the news from Soong that the Kuomintang was willing to end its monopoly and limit taxation of kerosene sales to $2.00 per ten gallon case.*i This 3 0 5 proposal, which was immediately accepted by Standard Oil, confirmed the separation of the company from complete unity with American policy in China. It also marks the start of a more cooperative policy between Standard and the
Kuomintang. Finally, it raises important questions about why the change was made and what the benefits were for each side.
Part of the answer to these questions has already been given. They only need brief restatement here. By the summer of 1926, the Chinese had become assertive about the end of the treaty system, and that assertiveness had become increasingly effective. The government in Peking was demanding the end of the system, the citizens of China were attacking foreigners and their property with disturbing frequency and zeal. The Kuomintang had been in the forefront of this anti—imperialist movement, and it was the most effective of all these groups. In this situation, the
American government, as did all the Powers in China, found
their demands for the maintenance of treaty privileges
ignored with increasing frequency. The old tools of
treaties, institutions and force were no longer effective.
As these events unfolded. Standard Oil tried to maintain
the customary alignment with the Department of State that
had proved so effective in the past. However, as the
losses from the Kwangtung embargo mounted, and the
Department delayed effective protective measures for the 3 0 6 company, it became apparent that Standard's survival lay along the path of least resistance to the forces of nationalism and anti—imperialism. Once the company began to consider survival more important than American foreign policy, it was forced into actions that abetted the challenge of the treaties.
In this new situation, the justifications used by
Minister MacMurray to deny approval of Standard's cooperation with the Kuomintang became points of conflict between Standard and American policy makers. The first justification, which was based on America's policy of treaty maintenance, might have been proper in another time, but it was an unrealistic one in 1925 and 1926. The proceeding chapter of this study has already shown that effective opposition to the commercial interests of the
Powers had been a fact of life in China since 1921. After that time, it grew in size and effectiveness. To maintain the illusion that it had not happened, or that it was the result of Comintern propaganda, was self defeating; it left the Powers totally unprepared for the depth of the outrage that followed the Shanghai incident.
MacMurray's second reason for the disapproval of
Standard's cooperation with the Kuomintang was also inappropriate. The reason he gave was that Standard's proposed arrangement was a restriction of trade. As we have seen in the first chapter of this study, such 307 violations of American domestic and legal policies were enforceable in America. However, to make the assumption that American principles and values were valid in China was unrealistic- In fact, the reasoning here was not only unrealistic, it was inconsistent. The monopoly form of business had been the preferred form of organization when
Westerners first came to China. This was the reason for the Cohong. Moreover, the Department of State had been quite happy to support Standard's potentially monopolistic contract in 1914 which covered three of China's Northern provinces. Finally, to raise the specter of restraint of trade with a company that had been forced into a major reorganization because of that idea was not the best way to engender loyalty to American policy. It only served to push the company away from that policy and toward a mutuality of interest with the Kuomintang.
The development of similar interests between Standard
Oil and the Kuomintang was timely for both sides. For the
Kuomintang, this shift by the company allowed a redirection of diplomatic conflict with the Powers and a concentration on the Northern Expedition that began in the summer of
1926. Moreover, Soong's decisions to end the monopoly of the China Petroleum Company and to reduce the taxes on kerosene to $2.00 per case had useful political and fiscal benefits for the party. For example, under the monopoly, prices had been high, and taxes higher still. This 308 situation was remedied when it was decided that a steady
•flow o-f the goods at lower prices would increase the party's popular support. The fiscal benefits to the party were also considerable. Under the new arrangement, the
Kuomintang made $500,000 per year. Finally, the Party's array acquired the fuel it needed for transportation and kerosene for camp use in predictable quantities.*=
The most immediate benefit that Standard Oil received from cooperation with the Kuomintang was the chance to resume its business with less trouble than the companies that were slow to react to Soong's offer. This is easily seen by a comparison of the treatment that Standard received before the end of its opposition and shortly afterward. For example, one way that foreign business was hindered during 1926 was Chinese refusal to provide pilots for foreign ships entering the port of Canton. Another method was to use the Kuomintang army to collect forced tax levies from Chinese merchants who were sales agents for foreign companies. Often, the local Chamber of Commerce was approached for funds, and required to apportion the amount to be given by each merchant. Refusal to cooperate resulted in violence and looted shops.
Minister MacMurray was informed that Standard's shipments and agents were subjected to these kind of obstructions during the middle of May, 1926. According to his information, levies were made specifically against the 309
"Mei Foo Hong", which was the Chinese name for the Standard
Oil Company. MacMurray considered the forced contributions to be a tax on Standard’s business, and because Standard had agents in every major city in China, he felt the practice was ominous for the maintenance of treaty privileges.
Secretary of State Kellogg agreed with MacMurray, and ordered a formal protest to the governments of Peking and
Canton. On June 26, 1926, the Kuomintang signalled its acceptance of Standard’s cooperative policy with a formal announcement that the China Petroleum Company was
dissolved. Two days later. Standard resumed shipments of
kerosene with the assistance of Chinese pilots. The
impediments and forced levies on other foreign companies
continued. For example, on that same day, the British
Naval Commander at Canton threatened to blockade the port
unless pilots were also provided for British ships.
Standard’s Canton agent was informed privately by the
Kuomintang that conflict of this sort did not involve
them.** Two weeks later, on July third, the Texas
Oil and Asiatic Petroleum Companies also decided to
cooperate. On that same day, they were allowed to resume
uninterrupted kerosene shipments.*=
The resumption of business by Texas Oil and Asiatic
Petroleum was reported by Consul-General Jenkins in Canton,
but he neglected to mention that two important precedents 310 had been set. First, the agreement to the collection of the $2.00 per case tax on kerosene without a treaty revision was a step toward the resumption of Chinese administrative sovereignty. Also, since this collection was a function of government which was assumed by the
Kuomintcing, it also represented the first step toward its defacto recognition by Britain and America. This was the start of a two and one half year process in which the
Kuomintang pressed for the resumption of other parts of
Chinese sovereignty, and achieved some remarkable successes. During that time, its assertiveness touched on many parts of the treaty system, but the biggest successes were made in the areas of internal taxation and extraterritoriality. The remainder of this study will follow the development of those two issues, describe the level of success achieved, and explain how those successes affected the Standard Oil Company.
Finance Minister Soong intimated in January of 1926 how important the taxes from kerosene sales were to the support of the Kuomintang army, and from June to December of 1926, they became even more important. During those months, the
Northern Expedition moved toward the Yangtze River with great oposd. It arrived in Changsha in July, then went on to Nanchang and the industrial complex in central China called Wuhan in November. By December, it had also spread
Eastward into Kiangsi and Fukien provinces.** As 311 the area under its control spread, the costs of government and warfare increased greatly. Thus, the ability to tax a widely used product like kerosene was of great value. It provided evidence of a functioning government, strength in the face of imperialism, and most importantly, fuel and funds to continue the expedition.
These last two benefits were crucial. Imports of fuels and oil for transport and lubricants increased significantly during 1926. In 1925, gasoline and fuel oil imports amounted to 8,823,511 gallons. 7,080,593 pounds of lubricants were imported. In 1926, the importation of these products increased by 3,937,780 gallons and 1,125,205 pounds. Kerosene imports during this same period dropped from 258,570,591 gallons to 232,991,961 gallons.**
This was the first year since 1863 that kerosene did not lead the list of petroleum imports to China. These figures reflect the end of the Kwangtung embargo and the monopoly of the China Petroleum Company. They also show the increased use of petroleum products that would be more useful to the military than the civilian population. They are also an indication that the Kuomintang's army had become a major customer of the Standard Oil Company
The tax benefits from this increased trade in petroleum were important to the Kuomintang. At the posted rate of
$2.00 for every ten gallons of gasoline, they raised
$3,559,458 from this product alone. There are no extant 312 figures on how much tax was collected on lubricating oil, but there must have been some. Moreover, it is certain that the taxes from the sale of all these products was more lucrative and predictable than the voluntary contributions of 5% of the salaries of professionals that the Kuomintang began to solicit in September of 1926.**
At that time. Standard Oil was the company that was best able to supply the needs of the Kuomintang, and it had been the first of the companies to adopt a cooperative attitude toward the party. These two facts appear to have led the party to take special measures, whenever possible, to make sure that Standard's shipments, which comprised about 80% of imports, remained unobstructed. For example, on
September 13, 1926, a seven month long strike against
Standard's Swatow agency was ended with the assistance of the Kuomintang. This contrasted sharply with the treatment accorded to British shipping on the Yangtze River as well as the behavior of the troops of Chang Tso—lin during the same month. At Hankow, for example. Northern troops fired on the "Mei Yung", one of Standard's boats on the central
Yangtze River and killed its Chinese Quartermaster. Also, at Wanshien, British merchant ships refused the orders of a
Kuomintang patrol boat to stop and be searched. The result was a fight in which seven British sailors were killed.
This happened at the same time that Standard's steamship
Mei Chuan, which was filled with fuel oil, was allowed to 313 pass unmolested all the way to Chungking.
From early 1927 to the middle of 1928, the Kuomintang's need for taxes continued, but the collection of adequate finances was complicated by a combination of diplomatic, political, and military obstacles. The major diplomatic problem was that the Powers refused to allow the Kuomintang to have access to the taxes which were to be made available through the efforts of the Special Conference on the
Chinese Tariff. One reason for this was that it was the
Peking government, not the Kuomintang, that initiated the call for the Conference in August of 1925.=^ As soon as the Kuomintang realized that its rival in Peking would receive an increase in funds from the expected tariff increase, it initiated a diplomatic and public campaign to oppose the Conference. The initial purpose of the campaign was to that the Kuomintang, rather than the Peking government, receive the tariff payments. When that did not work, the Kuomi ntang began a diplomatic offensive to disavow the results of the Conference. In these protests,
Eugene Ch'en, the Kuomintang Foreign Minister, shed light on the political and military obstacles that the Conference posed for his government. Briefly put, he objected to the
Conference because it would make vast amounts of tariff collections available to Wu P'ei—fu, and Chang Tso—lin, the major opponents of the Kuomintang at that time. For this 314 reason. Ch'en demanded a fundamental change in the tariff situation; the end of all foreign interference in China's tax collections of any kind.==
This was the summer that the Kuomintang moved to the front of the sinti-imperialist movement in China by initiating the Canton—Hongkong strike. It was also during this time that Standard Oil and Asiatic Petroleum were being pried loose from their hold on treaty privileges. In the face of these developments and the fundamental opposition of the Kuomintang to any further foreign control of tariff matters in China, the Powers moved with considerable alacrity to meet with the relatively weaker government in Peking.
The Powers decided to deal with Peking rather than
Canton, and the change in their attitude showed that they considered negotiations with Peking to be a choice between
the lesser of two evils. For example, during September of
1925, even Minister MacMurray, the staunch advocate of
maintaing treaty privileges in China, admitted that the
situation over the past few months might force the
Conference to exceed the limits of the Washington treaties
on tariff rates. He also predicted that the Powers would
probably have to grant Peking at least a 2 1/2% increase in
the tariff without stipulations about its use.==
These were large concessions, but they were far short of
the total abandonment of the treaty system which the 315
Kuomintang demanded.
By the time the Conference was over, and the final
valuations for tariffs were set, the Peking government, at
the insistence of Dr. C.T. Wang, did win the right to
decide how the taxes would be spent.=• In April
of 1927, the Chinese Valuation Committee which decided the amounts to be charged for various imports, moved to
Shanghai, China’s largest port. It was also a city
controlled by the Kuomintang. In October of 1927, it moved
to Peking, along with the Kuomintang army, and finally, it
finished its work in July of 1928.*=
The Special Conference on the Customs Tariff, and the
Chinese directed Valuation Committee’s sessions did not
result in tariff autonomy for China. Also, during the last
two years of this period, the Kuomintang had no access to
the funds that were made available by the work of the
Conference. It was in response to this situation that the
Kuomintang initiated a variety of tax measures to finance
its government and army. Many companies were affected
severely by these taxes, but once again. Standard Oil
adopted a cooperative posture which allowed it to receive
relatively better treatment than many other companies.
The taxes initiated by the Kuomintang began in earnest
during the early part of 1927. In March of that year, the
party notified the Powers that a stamp tax of an
unspecified amount, on all documents relating to foreign 316
trade would be collected. Violators would be fined $200.
On June thirtieth, a 50% consumption tax on cigarettes of
domestic manufacture, and those that were imported was
initiated. This tax affected Kwangtung, Kwangsi, Chekiang and Fukien Provinces. This tax was a 37 1/2% increase ever previous levels for cigarettes. In January of 1928, the
Kuomintang issued orders from Nanking to collect the tax as far up the Yangtze River as Hankow. The increase in taxes made serious trouble for the British—American Tobacco
Company. Its inland factories were mostly closed, especially in Hankow. There were no sales at all in Hunan
Province, and where the company was still able to operate,
it did so only by laying off 50% of its staffs*
During this same period, the oil companies were also faced with impediments to their business. For example, in
July of 1927, a $2.00 tax on each case of kerosene sold by
Standard Oil in Ichang and Hankow was collected. It was also during that month that the Nanking government approached Standard Oil's manager at Shanghai with an offer to pay the company $500,000 to take over its administrative control of the distribution of kerosene in China. In this proposal. Standard's foreign and domestic staff would be limited to sales only. At Shanghai, a shipment of the
Texas Oil Company leaving for Wenchow was held for payment of a tax charge of $3.00 per case. This was followed in
January of 1928 by the attempt to collect an additional 317
$1.00 for every can of kerosene sold at the port of
Swatow.
These examples indicate that foreign companies » in general were severely hurt by the tax demands of the
Kuomintang, but the oil companies held a slightly better position. Consul Frank Lockhart, in Hankow, surmised that their better position was primarily due to the importance of their products and the money they could provide to the
Kuomintang. Lockhart’s opinion was verified by the fact that T.V. Soong issued a proclamation to end the collection of the $1.00 tax on individual sales of kerosene^*
This placed the oil companies in the position they were in when the China Petroleum Company was closed, but reports of the Standard Oil Company on business conditions during 1927 and 1928, when the tax pressure against foreign companies was greatest, indicate that it was able to do even better.
At almost the same time that the Nanking government began to initiate these new taxes, it also became involved in the violent purge of its Communist elements in Shanghai.
Chiang K’ai—shek had always been distrustful of the
Communists, and the movement of the Communist dominated
Left Wing of the Kuomintang in Wuhan during December of
1926 was the start of an irrevocable split in the party.
During April of 1927, the two wings of the party had further disputes over elective positions, the influence of
Michael Borodin, the Comintern agent, and the actions of 318 the Communist dominated General Labor Union. The result was the massacre of Communists in Shanghai that started on
April 11, 1927 under the direction of General Pai
Ch *ung—hsi .
While the two wings of the Kuomintang built their antagonism. Standard Oil's representatives began to ingratiate themselves with the conservative right wing.
For example, in February of 1927, the Shanghai office of the company arranged for the advance payment of $350,000 in taxes to the Kuomintang. This timely payment of funds to the party when it needed money was followed by actions in late April that reflected a mutuality of interest between
Standard Oil and the right wing of the party. Both were troubled by the General Labor Union: the party’s problems were political. Standard’s were the result of strikes like the one by the General Labor Union against its Hankow agency during April of 1927. A mutually beneficial solution to both problems was accomplished by A.C. Cornish,
Standard’s Hankow agent. He agreed to supply the names of
Communist labor organizers to the right wing of the
Kuomintang.
It is undocumented whether the actions of Cornish became a matter of policy for all of Standard’s agents in China.
Yet, there are several extant letters from Henry Everall, a long time agent for the company in North and central China, which indicate that something, either advance payments of 319 taxes, or cooperation in the elimination of Communists, which put Standard Oil in a position that was significantly better than other foreign companies at that time- In May and June of 1927, Everall wrote to Howard Cole in New York that in Shanghai, Ningpo, and Foochow, shipments and sales volume were normal, and prices were advanced. He also indicated that the execution of radical union leaders had done much for the stability of the situation in all these cities. This was during the same period that the American
Consul at Hankow was forced to take refuge on a ship in the
Yangtze River. The ship was the Mei Hsia, and it was owned by Standard Oil.^i
Everall also included news about business in Nanking,
P'uk'ow, and Wuhu in his May—June report. At Nanking, two foreign staff were living on the ship Mei Lu. Their house had been wrecked during the fighting between armies in the area, but they reported that business was good. At
P'uk'ow, the house of the agents had also been wrecked, but the storage tanks and pipelines there were still safe. The
agents there were charging $10.00 per case of kerosene. At
Wuhu, the local banks were closed, so the agents sold goods
for hard currency only, and kept the profits in their home
until shipment could be arranged to New York. Everall did
mention that Wuhu was being used by the Kuomintang army as
a staging point to attack Chang Tsung-chang, but he
expressed no concern over the possibility that his 320 ccmpanies agents or property might be in danger from the
Kuomintang. *=
From the end of June 1927, until July 1928, the
Kuomintang still needed taxes, and Standard Oil continued to pay them in advance. For example, it payed an unspecified amount for the period July to October. Then, in December of 1927, it struck a bargain with the
Kuomintang that was reminiscent of its 19th century rebates. In this agreement. Standard continued to make advance tax payments, and in return, the amount of its payments were reduced by 40%. *»=
During these months and for part of 1928, the conditions for Standard continued to be noticeably better than those of several other foreign commercial interests. For example, on June twenty—seventh. Minister MacMurray reported that the steamer Chilai. which belonged to the
Yangtze River Steamship Company, had been fired upon and one of its passengers killed. In Everall’s July 1927 report to New York, he noted that at Hankow, business for
British interests was totally closed down, and the foreign railroad companies and the Maritime Customs Office were near bankruptcy. By August of 1927, the Japanese businessmen at Nanking were also in trouble. Their shops had been looted and their homes occupied by the soldiers of the Kuomintang. It required the arrival of two Japanese gunboats to dislodge them. These events were accompanied 321 by the successful conclusion of an agreement between
Standard and the Kuomintang for the extension of its 40% tax reduction to all areas that the Party controlled.^* It was obvious from this agreement that the Kuomintang planned to allow Standard to continue its business unmolested.
During the spring of 1927, Standard Oil suffered the most serious challenge to its favored position in China since 1863. That challenge was the Nanking Incident of
March 24, 1927. As the Northern Expedition reached
Nanking, the canons and machinegun fire of the Kuomintang
Army made the city untennable for the troops of the
Fengtien Warlord Clique. As these troops began their hasty withdrawal from the city on March twenty-third, there was some disorder and looting, so the foreigners in the city began to evacuate women and children from the city to the
American gunboats Noa and Preston which were stationed nearby on the Yangtze River.
The evacuation was carried out by the American Central
Committee, which was composed of representatives of the largest American commercial interests in the city and the
American Consulate. According to the report of Consul
Davis, Earl Hobart, the Manager of Standard’s storage facility in Nanking, and Donald Sims, a représentât!ve of the Liggett & Myer’s Tobacco Company, collected Americans 322 in their cars, and drove them to the ships. The American ships were joined by the British gunship Emerald, which tried to land a forty man contingent of marines to guard civilians, but they were turned away by the troops of the
Nationalist's Fourth Division, commanded by General Cheng
Ch'ien- The Noa sent an eleven man group ashore without arms. They were allowed to pass, and Consul Davis, armed them with rifles and a Lewis machinegun from the Consulate arms room. It was his opinion that the arrival of these men, which included two signalmen, probably saved the lives of many foreigners who remained in Nanking the next day.
On the morning of the twenty-fourth, the Fourth Division troops began rounding up stragglers from the 10,000 man force of the Fengtien Array, and in the process, there were numerous incidences of violence and intimidation of all foreigners in the city. Consul Davis had a confrontation with a Kuomintang seargsr.t that morning. The sear gent told him that all foreigners were the same, and that as soon as the Fengtien troops had all been shot, they would turn their attention to killing all remaining foreigners, regardless of nationality or position in China. There were several attempts during the day to carry out this threat, but in the discussions that followed, there was much confusion about whose troops were actually responsible for what happened. However, one thing was clear; no foreigner 323 was safe in Nanking at that time, and Standard Oil's employees and property were just as much at risk as those of anyone else.
One of the scenes of violence was at the American
Mission Church. It was looted and set on fire. Dr. John
E. Williams, the Vice President of Nanking University, was robbed of his watch and shot dead. The Japanese Consul, who was ill in bed, was nearly killed when soldiers burst
into his room and fired several shots at him. There were
also repeated incidences of humiliation and attempted rape.
Many foreign women were stripped of their clothes and
forced to flee for their lives. One of them, identified
only as Miss Moffat, was shot in the abdomen and left for
dead in the street. She was later rescued and
survived.**^ After receiving reports of these
events, Americans began trying to reach the Consulate for
protection. 2y 11:00 A.M., seven missionaries from the
Seventh Day Adventist Mission, and Mr. McDonnell, another
employee of the Ligget & Myers's Tobacco Company had come
in. That made a total of twenty four, which included
Consul Davis, his wife and two children.
Because the legation was not easily defensible. Consul
Davis telephoned Earl Hobart on SOCONY Hill which was the
official residence for Standard's employees and the center
of its massive storage facilities in Nanking. Hobart told
Davis that he had just seen the British Consulate attacked 324 and that he had taken in two of its officers and several
citizens who had fled. Hobart said that foreigners were
coining to the hill and advised Davis to bring his party there because it could be observed by the foreign ships
that were gathering in the river. Davis left for SQCCNY
Hill with a police escort. The escort deserted them when
the first of 300 shots were fired at his group. During
their flight, a Chinese Gateman was killed, and a sailor
was wounded. The rest arrived frightened, but unharmed.
The Davis group brought the number of refugees on SOCONY
Hill to fifty—two. The diplomatic and commercial interests
of several nations were well represented. Besides Hobart
and his family, there were numerous Standard Oil employees.
There were also Mssrs. Jordon and Barnard, from the
British-American Tobacco Company, Mr. Ware of Liggett &
Myers Tobacco Company, Mr. Storrs, an Inspector of British
Customs, the entire British Consular Staff, a Russian
Chauffer, and seven private citizens.***
For the rest of the day, the situation continued to get
worse. First, at about noon, two wounded British sailors
were brought to SOCONY Hill and ransomed for $100 each.
From then until 3:25 P.M., other soldiers appeared. Some
demanded money. Others demanded to search the premises for
weapons. They threatened to kill everyone there if any
were found. On one occasion. Ensign Phelps, the senior
Signalman from the Noa. and his men fought the soldiers off 325 using fists and clubs. Finally, the increasing level of sniper fire caused Consul Davis to signal the • Noa for a naval barrage to drive off everyone in the area.*^
At 5:00 P.M., the shelling stopped. Captain Heathcoate, a British Marine led a rescue force to SOCONY Hill. Earl
Hobart broke his ankle on the way to the river, but the remainder of the SOCONY Hill group reached the foreign ships unscathed. There were between 150 and 200 other foreigners gathered in the Agricultural Science Building at
Nanking University. The foreign naval commanders sent word to General Cheng that if they did not appear unharmed on the docks by 10:00 the next morning, they would consider the city a military zone. They all appeared, frightened, but unharmed during the next day and one half. The appearance of this last group ended the Nanking Incident.
Inexplicably, Dr. Williams was the only American killed.
The damage to foreign property was considerable. All
American homes and missions in the city were looted, the
Nanking Theological Seminary, the Cressy School, and two private residences were burned down. Also, all of the
Consulates in the city sustained heavy damage ëind looting.
It was only the naval barrage that saved Standard Oil's property and its employees from similar treatment.
There was no diplomatic settlement to the Nanking
Incident until March of 1928. This was partially due to 326 the unstable political situation in China, which brought about the temporary resignation of Chiang K'ai-shek. His absence left the Powers with no one in real authority to negotiate with. Another reason was the difficulty of attaching responsibility for what had happened. General
Chang claimed that he and his subordinates had acted properly at all times. It was his opinion that the incident was carried out by Chinese Communists in an attempt to discredit the Kuomintang. Consul Davis wrote a report that directly contradicted Cheng. He claimed that he had been shot at by soldiers carrying the Kuomintang flag, and that he had heard officers in the Kuomintang uniform, giving orders to fire on SOCONY Hill. In the end, the Kuomintang apologized for the incident, and promised to try and prevent a reoccurence, but it refused to admit that
its policy or soldiers were in any way responsible.
While these negotiations were proceeding, two things of great importance to the Standard Oil Company in China happened. First, Earl Hobart and other members of the
American commericial interests in China met with Eugene
Ch'en, the Acting Foreign Minister of the Kuomintang, to protest the frequent violation of their extraterritorial
status and the numerous forms of taxation to which they were being subjected. Ch'en told them that it was not his
government’s policy to harm foreign commerce, and that it 327 would do what it could to protect them. He did not, however, retreat from the policy of his government, which was making an effort to include the abolition of foreign tariff control and extraterritoriality in the settlement of the Nanking Incident.It was this policy which was the second event that seriously affected Standard in
China.
Ch'en's policy statement forms a useful guide in t' e determination of what happened to the foreign commercial interests in China from the spring of 1927 until the end of
1930. As we shall soon see, his government began to levy many taxes on them, and it also moved toward the defacto unilateral abrogation of extraterritoriality. Also, it negotiated new tariff treaties with all the Powers except
Japan during the summer and fall of 1923. In effect, the
Kuomintang made an attempt to place what was done to these interests within a legal or diplomatic context. Cn the other hand, the remaining warlords and the Chinese
Communists continued to assault the persons and property of all foreigners, and Standard Oil found itself to be their prey on many occasions. Thus, in the many incidents that occurred during this period, the degree of violence and the lack of reference to any legal system, domestic or internstional, served as the means of determining who was responsible for most of these incidents. Some examples of these incidents will be presented shortly, but first, some 328 attention must be paid to the tariff treaties and negotiations on extraterritoriality. This is because the legal end of the former, and the defacto end of the latter removed the twin pillars of the unequal treaty system from
China. The result was that Standard Gil's employees, and all the other foreigners in China= were on their own for the first time since 1842.
The new Sino—American tariff treaty was only the first of many such agreements signed by the Nationalist government from July to December of 1928. Similar agreements were made with Belgium, Denmark, Portugal,
Spain, Italy, and France. Then, on December 20, 1928,
Britain also agreed to end its claims to tariff control in
China. The British agreement was based on most favored nation status, which meant that all the Powers would have to agree to end their tariff controls before China regained full control of this part of its sovereignty. The Japanese government was unwilling to do so. This refusal established Japan as the major impediment to the complete
destruction of one of the twin pillars of the unequal
treaty system.However, the Nationalists had
done better than any of the preceeding governments
regarding the issue of tariffs. This was because it
prevented the inclusion of any limitations or controls on
how the funds collected would be spent. 329
The new Sino—American tariff treaty went into effect on
January 1, 1929. When it was negotiated, America's major exports to China were accorded ad-valorem rates that were similar to the ones proposed at the Washington Conference.
Cigarettes were to be taxed at 27 1/2%, leaf tobacco was charged at the rate of 22 1/2%. Gasoline and kerosene, the most lucrative items, were to be charged only 12 1/2%.
However, on December thirteenth, the Nationalist government published a new schedule of tariff rates. The tariff on cigarettes went up to 40%, leaf tobacco dropped to only 10%, and kerosene and gasoline received valuations of 31% and 2 1 % . These last minute changes were a hindrance to major articles of Sino—American trade.
However, the assertive attitude of the Nationalists and the belated decision of the American government to assist China in the resumption of full sovereignty resulted in the decision to let the new rates go into force on January 1,
1929.
The Nationalists were unable to conclude any treaties to end extraterritoriality, the other pillar of the unequal treaty system. However, they did manage to assert themselves against this practice to such an extent that in the defacto sense, there was little that remained of this former treaty privilege. The remaining warlords, and the
Chinese Communist Party also held this privilege in low regard, but it appeared that the Nationalists were the 330 group most committed to the use of diplomatic and legal procedures to end extraterritoriality. For example, in
July of 1928, the Nationalist government notified all the
Powers of its new points of policy regarding treaties on extraterritoriality. First, all treaties which had expired were abrogated unilaterally. While new treaties were negotiated, interim regulations, written by the Nationalist government, were to govern the status of foreigners in
China- Second, unexpired treaties would be replaced by
"proper procedures". In discussions with American Consuls during the Autumn of 1928, it became clear that the
Nationalists were determined that they, rather than the
Powers would define what these words meant.
Throughout 1929 and 1930, the Nationalists continued to try diplomatic channels to end the practice, but no real dejure progress was made. For example, C.C. Wu, acting as a
Special Representative to Washington, left a memorandum with Stanley Hornbeck, Chief of the Department of State’s
Division for Far Eastern Affairs. Wu wanted a treaty that would end extraterritoriality definitely, conclusively, and promptly by July of 1930.'^*'
In subsequent discussions on extraterritoriality, the primary concerns of the Nationalists centered on four main points. They objected to the exemption of foreigners from
Chinese taxation. They also objected to Chinese citizens using foreign firms and treaty ports to evade taxation. 331
Third, they objected to Chinese citizens incorporation of
businesses under the laws of foreign nations, and finally,
they wanted to end the stationing of foreign police and
troops in China to enforce foreign laws.By
January of 1930, the Nationalists had tired of attempts by
the Powers to phase these practices out gradually, so they
took another assertive step. On January 1, 1930, they
rejected British and American proposals for the gradual end
of extraterritoriality and notified both governments that
the practice would end after a short period. The only
exceptions would be in the cities of Shanghai, Tientsin,
Hankow, and Harbin.^™
None of the Powers signed a treaty accepting these
conditions in 1930, but that had little effect on the
defacto situation in China. The uncontested application of
extraterritoriality in China was over. In fact, from 1928 onward, the Chinese Communists, the warlords, and the
Nationalists, ignored the principle of extraterritoriality
as much as possible. The only difference in the actions of these three groups was that the Nationalists tended to cover their actions with a veneer of legality and were primarily concerned with the collection c-f taxes to finance their government. The result was a situation in which the major activities of the Powers in China shifted from the defense or prolongation of treaty privileges -co a thinly
stretched effort to protect the lives and property of their 332
citizens there.
The new tariff treaties of 1928 and the defacto end of
extraterritoriality in China at about the same time,
stripped the foreigners in China of the privileges and
immunities they had held since 1842. Their lives and property were subject to the actions of the nearest Chinese
authority, and their businesses fell increasingly under the
taxation and regulation of the Nationalist government,
various warlords and the Chinese Communists. In this new
situation, the Standard Oil Company continued to make
favorable accomodations with the Nationalists, but outside
areas controlled by them, the lives of its employees and
its property was subject to the same kinds of treatment
that all other foreign companies received. The list of
incidents in which foreign lives and property were attacked
would fill many volumes, but a few representative samples
should make it clear that the era in which foreigners
enjoyed a special status in China ended in 1928, and that
Standard Oil was also among those who were hard pressed to
survive the new era.
In this new situation, different policies governed the
actions of the Nationalists, warlords and the Chinese
Communists in the ways they dealt with foreigners. Because
the Nationalists found it difficult to get the warlord
armies they had absorbed during the Northern Expedition to
remit taxes to them, they did what they could to preserve 333 foreign businesses as a source of revenue.®® This policy was initiated in the autumn of 1928, but because the
British had been most troublesome about the end of the unequal treaties, and the Japanese continued to refuse to end theirs, they were excepted from this policy. Because
America had been the first of the Powers to bow to the
initiative of tiie Nationalists on these matters, their
lives and property were somewhat better protected when
possible. However, in areas under the domination of the
warlords or Communists, Sino—foreign relations were
characterized by extortion disguised as tax collection ,
physical assaults, and the destruction or seizure of
property and goods.
For example, in Shanghai, a city controlled by the
Nationalist government, new regulations that challenged
extraterritoriality began to appear in the autumn of 1928.
Foreigners in the Concession were notified that they would
have to submit to a census, make room for a Nationalist
operated flour tax station, and take down recently
constructed watchtowers and barbed wire barricades. In
Nanking, the Nationalists were also in control, but the
peacekeeping duties there were still left to the troops of
the Fourth Division, which had figured prominently in the
Nanking Incident. In October of 1928, C.D. Johnston, the
recently arrived British Commissioner of Customs, was
robbed, beaten, and tossed from the top of the city wall by 334
Nationalist soldiers. It was reported by C.J. Spiker, the
American Consul in Nanking, that there was little effort to find and punish the soldiers until the story was published in local newspapers.®^.
The lack of regard for Japanese commerce fay the
Nationalists was clearly demonstrated in the city of
Foochow in December of 1928. The Foochow National
Salvation Association was conducting an anti—Japanese
Boycott, and their pickets kidnapped Tsau Hsing—kui, the
Chinese business agent for the Japanese firm of Kuan Kuan
Tang. They took him to Nantai Island, the chief foreign residential area, and shot him. The Japanese
Consul-General halted all Japanese commerce, and all the foreign Consuls filed protests with Admiral Yang
Shu—chuang, the Chairman of the Provincial Administrative
Council, but he claimed to be powerless to prevent further such incidents.
There were two other incidents, one of them in Foochow, which highlight the fact the Nationalists were willing to protect non—Japanese lives and property as far as possible, but that they also insisted on the right to collect taxes from them. In the first incident, a demonstration of 2,000 protestors carrying signs that said "drive out the foreigners", and "the unequal treaties are sharp instruments to kill Chinese" was prevented from storming the foreign concession by the Nationalist Commissioner of 335
Public Safety. This was during the same month and in the same city that the Nationalists claimed to be powerless to control anti—imperialst sentiment.In November, at Canton, the Nationalists made it clear to foreign commercial interests that they would be subject to their taxation and trade regulation even before the new tariff agreement went into effect. For example, a shipment of
Pritish and Danish goods destined for a mattress factory were confiscated by the Nationalist's Smuggling Prevention
Bureau. The reason given was that they lacked proper documentary proof of tariff duty payments. A shipment of
Standard Oil's goods was also seized, and the company was fined $26,000. The reason given was that the stamps required for proof of tariff payments were improperly placed on the cases.®*
As the year 1929 began, there was an immediate upsurge in the taxation of foreign commerce. It was also in that year that the distinction between the Nationalists preference for legality in their dealings with foreign commerce and the violent methods of the warlords and
Chinese Communists became much more clear. For example, in
Nanking, Consul Ernest Price was told by the Nationalist
Minister of Foreign Affairs that it must be taken for granted that the provinces and other local political divisions had reserved for themselves the right to
“consumption taxes", but that any such taxes would, of 3 3 6 course, receive the prior approval of the Minister of
Finance. Price considered this a warning that there would be no limits to the amount of taxes charged on foreign goods-His opinion was similar to that of
Consul Walter Adams who had reported a week earlier on commercial conditions in the Hankow Consular District.
According to Adams, the prior twelve months was a period in which there was a complete breakdown of the safeguards which had protected American interests from impositions and arbitrary treatment. It was his opinion that in any meaningful sense of the term, American business had lost its extraterritorial status. Adams included examples of what he felt were arbitrary actions on the part of local officials. He reported that during the past few dys, the
Ligget & Myers Tobacco and the British American companies had been ordered by the local Chinese executive authorities to subscribe to famine relief bonds in the amounts of
$15,000 and $100,000 respectively. Refusal was to be punished by the vague threat of having their business interferred with.**
The Standard Gil Company had made private arrangements for a 40% reduction of its taxes with the Nationalists in
1928. Consul Adams cited agreements of that nature as a prime cause for the defacto loss of extraterritoriality for
American commerce, and then went on to say that Standard’s 3 3 7 agreement did little to protect the company in Wuhan. He wrote that the Nationalists could not be relied upon to
limit taxation in that area and cited the insistence by the
Wuhan Finance Commission that Standard Oil contribute six cents for each can of kerosene sold to the famine relief
fund.
In Northwestern and parts Northeastern China, where Chang
Hsueh—liang had sworn nominal allegiance to the
Nationalists, and in_^the provinces of Hupeh and Szechuan,
where the control of the Chinese Communists was dominant,
conditions for trade were much more serious. For example.
Consul Edwin Gauss reported from Tientsin, that in the
provinces of Chihli, Chahar, Shansi, and Suiyuan, taxation
by the Fengtien Military Clique were high and involved
foreign businessmen in endless negotiations over new taxes
and increases in the old ones. He also noted that in the
Northeast, an anti-Japanese boycott, sponsored and
protected by the Nationalists, had led to serious losses
and violence against Japanese interests."^
From February to October of 1929, there was considerable
fighting between General Lu Ti—ping, a Hunanese militarist
and General Yen Chi, a Kwangsi militarist who had the
support of the Nationalist government. As a result of
their fighting, foreign interests along the Yangtze River,
especially those of missionaries and businesses, were
placed in a very precarious position. Consul Cunningham 3 3 8 and Minister MacMurray compiled a summary of the incidents for that period. It showed that missionaries were particularly victimized by these armies, but that commercial interests were also subject to great danger.
For example, for the month of February, their report includes telegrams from the Changsha Consulate Interpeter, the Standard Gil Office in Changsha, and the Liggett &
Myers Tobacco Company which requested the urgent despatch of the gunboat Palos for protection.®^
There were several foreign companies that tried to continue trade on the Yangtze River into China's central and Western regions. Among the most prominently mentioned were the Yangtze Rapids Steamship Line, the Norwegian
Steamship Company, and the Standard Oil Company. None of them fared well during the months April to October of 1929.
In April, the Yangtze Steamer I—ping left Ichang for
Hankow. It arrived with one passenger shot dead, and two more seriously wounded. The company filed protests directly to C.T. Wang, the Minister of Foreign Affairs, citing similar incidents. However, the response must have been less than sufficient. On September 30, 1929, Admiral
McVay, the Commander of the American Asiatic Fleet issued a public telegram authorizing the use of force by the Yangtze
River Patrol to protect American lives and property. *'*=*
It is most likely that what happened to the Norwegian 3 3 9 steamer Bostnia prompted Admiral McVay’s decision to resort to the use of force. In raid September, the Bostnia and her crew of five were held for $500,000 ransom at Haichow.
Three of them escaped, and the other two were released a month later after torture.^^ Six weeks after
McVays's warning, the Standard Oil Company became the object of serious attacks. On November seventeenth, its lighter Denver was commandeered at Woochow, and the company's storage facilities were also occupied there. The gunboat Mindanao appeared the next day to reclaim the lighter and cleared the property. Then, in December, things got worse. Standard's Mei Yun was fired on by
Communist troops forty miles above Ichang. Seven crewmen were seriously wounded.These events were portents of things to come during 1930.
For the first five months of 1930, there were several factors which affected trade in China. In the political arena, there was the continued conflict between the
Nationalist government and the surviving militarists. Yen
Hsi—Shan and Feng Yu—hsiang, in the area North of the
Yangtze River. South of the river, the major problems were banditry, random murder and the growing strength of the
Communists who controlled most of Kiangsi and Hupeh and most of Honan provinces. In order to raise money to handle these emergencies, the Nationalist government the level and number of taxes levied on foreigners. It was a move 3 4 0
designed to raise money for them, and prevent the
militarists from getting any. As this new policy was applied to the oil companies. Standard Gil, Texas Oil, and
Asiatic Petroleum were allowed to make one import tax payment and exempted from the plethora of other taxes like advertising taxes, dike taxes; and famine relief, which had beer, invented in 1929.^=
By mid-June, the political situation evolved into a
military standoff between several armies. Most of the fighting was centered around Changsha and Tsinan. General
Chang Fa—kui's troops rebelled and seized Changsha, then
they were chased out by Ho Chien from Hunan Province. This
success for the Nationalists was balanced by the loss of
Tsinan, in Shantung to Yen Hsi—shan. The prolonged standoff and the denial of funds to Yen’s army produced a number of conflicts between his troops and foreign businessmen in the area. For example, the Texas Oil
Company reported that Yen’s troops used the threat of confiscation to extort $25,000 in silver dollars on June fourteenth. Texas Oil refused to pay. Yen’s troops retaliated by seizing 5,800 gallons of kerosene from Texas
Oil.**
Standard Oil escaped exactions from Yen’s troops in July of 1930, but it was not able to avoid trouble from the
Communists in Changsha. General P’eng T’eh-huai took the
city at the end of July. His troops confiscated most of 341 the foreign property there, and burned what they could not carry off. In addition to about $750,000 losses in real estate which belonged to Yale in China and several missionary groups, American companies in Changsha lost a lot of goods. The Singer Sewing Machine Company and Ligget
& Myers Tobacco both lost $2,000 worth of goods. Standard
Oil, the largest company in Changsha, lost $1,500,000 in petroleum products. There were also a similar occurences in Chenglingki. There, both Standard and the Texas Oil
Companies stocks were looted and their offices burned.
Then, the Communists offered rewards of $200 for the whereabouts of the staff for these companies.
From August to October of 1930, Yen Hsi-shan’s fortunes declined To avert disaster. Yen tried to ally himself politically with the left wing of the Kuomintang. He called an enlarged plenary session of delegates to form a new government to rival the Nationalists. The defeat of his troops in Tsinan, and the announcement by Chang
Hueh—liang that he would move through Chihli province to attack Yen in Shansi ended Yen's political manuevering.
Yen began making preparations to retreat to the Yangtze
River and use it as a defensive line against the Kwangsi and Manchurian troops. To facilitate this action, his troops seized five Standard Oil ships in August and mounted their machineguns and small cannons on them.*'^
In September and October of 1930, Yen’s troops continued 3 4 2 to prey on Yangtze shipping, and they also tried to collect as much money from foreigners as possible. In early
October for example, no ships, not even American gunboats
“ere safe. The Oahu. escorting the Yangtze Rapids
Company’s steamer I—ping was fired on with machineguns.
Also, the Panay took heavy machinegun fire and several rounds of three inch cannon fire near Kiukiang. And finally, the Standard Oil Company’s offices throughout the areas held by Yen complained to Nelson Johnson, the new
Minister to Peking, that his troops taixes were driving them out of business. Johnson, who had adopted a policy of non—interference in the civil war, told Standard they would have to make the best arrangements possible through direct representations with Yen.*^
The civil war ended on October 27, 1930 when Sianfu fell to the combined forces of the Nationalists and Manchurian armies. It ended the situation in which there had been 107 attacks in one month against foreign commerce on the
Yangtze River, but it also led to other problems which affected the status of foreigners well into 1931. The elimination of Yen Hsi—shan meant that the attention of the
Nationalists fell full force on the Communists who had grown strong in central China, and the communists turned to seizure of foreign property and kidnapping of missionaries to raise money for the fight- At the same time, the
Nationalists were faced with the costs of administration 3 4 3 in the area taken from Yen, military costs for 280 divisions of troops which cost $50 million a month, and a national debt that was estimated at four billion dollars.
The effect of these new problems on foreign commerce meant that their situation remained essentially the same as it was during the civil war. The only difference was that the Communists increased their violence against foreign companies, and the Nationalists increased their taxes in order to try to meet their financial obligations. In mid
November, for example, the Panay was sent to escort the
Standard Oil steamer Mei Lung and the Yangtze Rapids steamer Chi—ta from Ichang to Chungking. Panay was forced to fire 21 rounds of cannon fire to keep the Communists from boarding the ships. The ships were saved, but in places like Tsing—shih, Honan, there was no way to prevent seizure of Standard's entire stocks. In that one city alone, 60,000 gallons of fuel was given away by Chu Teh’s troops to the local population.*^
As 1930 drew to a close, the Nationalists made their plans to deal with the Communists and their financial problems. The first of five Communist suppression campaigns was begun and the 1929 policy of relying on tariff payments, and taxation of petroleum, wheat and flour for 45% of the government’s income was continued into
1931.1°° It was these measures that eventually 3 4 4 brought some measure of safety for foreign commerce in
China. By 1934, the Communists were forced to the
Northwest where they lived in isolation in Yennan. As that was done, their depredations on foreigners decreased, and at the same time, the value of foreign commerce dictated a policy of restrained taxation and cultivation of foreign businessmen. Thus, the status of Standard Oil and other foreign companies in China received a gradually improved position in China until the start of the Si no-Japanese War in 1937. The events that led to that war, and its effect on Standard and other companies is beyond the scope of this study, so all that remains is to summarize the reasons why
Standard went to China in the 1890's and the nature of its business until 1930. 3 4 5
Chapter Six Notes
^FRUS, 1925. Vol. I, Telegram, Consul-General Cunningham to Secretary of State Kellogg, May 31, 1925, p.647, and SDF, 893.5045/56, telegram from Cunningham to Kellogg, May 31, 1925.
=FRUS. 1925. Vol. I, Formal Protest by Shen Jui-lin, Chinese Foreign Minister, delivered to M. Cerruti, Senior Minister of the Foreign Legation, June 1, 1925, p.645.
“Borg, American Foreign Policy and the Chinese Revolution. pp.38-42, and SDF. 893.00/6247, Telegram, Charge' Mayer to Department of State, June 7, 1925.
*Ibid.. p.42, FRUS. 1925. Vol. I, Telegram, Consul-General Jenkins to Secretary of State Kellogg, June 23, 1925, p.752, and South China Morning Post, July 15, 1925.
^Lo, Ko Ming Wen Hsien. Vol. II, pp.1704—1706. For the Peking political situation. See FRUS. 1925. Vol. I, telegram from Charge' Mayer to Secretry of State Kellogg, May 2, 1925, and SDF, 893.00/6355, telegram from Mayer to Kellogg, July 2, 1925.
^Thomas Etzold, "In Search of Sovereignty: The Unequal Treaties in Sino—American Relations", Chan &Etzold, China in the 1920's , p . 177.
^SDF, 893.00/6299, Telegram, Consul-General Jenkins to Charge' Mayer, and Mayer to Secretary of State Kellogg, June 21, 1925. Also sos Borg, American Foreign Policy and the Chinese Revolution, p.43, and Harold Isaacs, The Tragedy of the Chinese Revolution, (Stanford:1951), p.76.
“SDF, 893.00/6303, Telegram, Charge' Mayer to Secretary of State Kellogg, June 23, 1925.
"SDF, 893.01/6303, Telegram Standard Oil, Shanghai Agency, to Company Headquarters, New York, June 8, 1925.
i^FRUS, 1925, Vol. I, Telegram, Charge' Mayer to Secretary of State Kellogg, June 13, 1925-
i^SPF. 893.00/6223, Telegram, Consul-General Jenkins to Secretary of State Kellogg, June 29,1925. 346
i=Ibid. 893.00/6223. ^ ^SDF. 893.512/318, Telegram, Consul—General Jenkins to Secretary of State Kellogg, April 25, 1925, and Wilson, "Principles and Profits", p.633.
-•^FRUS. 1925. Vol. I, Telegram, Secretary of State Kellogg to Charge' Mayer, June 18, 1925, pp.733-744.
i=SDF, 393.512/330, Memorandum of Conversation with Frank Lockhart, May 25, 1925, and Wilson, "Principles and Profits", p.634.
^^FRHS; 1925, Vol. I, Telegram, Charge' Mayer to Department of State, June 19, 1925, pp.688-689.
i^SDF, 893.00/6453, Telegraun, Charge' Mayer to Secretary of State Kellogg, July 28, 1925.
i"SDF. 893.512/355, Telegram, W.B. Walker, Standard Company to Secretary of State Kellogg, .November 12, 1925, North China Herald, April 24, 192, and Wilson, "Principles and Profits", p.639.
^^SDF. 893.00/6806, Telegram, J.V.A. MacMurray to Secretary of State Kellogg summarizing the past six months of political events in China, November 3, 1925.
-°FRUS. 1925, Vol. I, Memorandum from M. Ceruti, Senior Minister to Charge’ Mayer, June 226, 1925, p.761. Shen'5 demands 1—8 were designed to protect the Chinese from immediate retaliation or further excesses from foreign police and courts. Demands 9-12 posed a categorical attack on extraterritorial privileges which infringed on rights like the right of assembly and freedom of speech. Demand 13 was a call for the immediate end of the entire unequal treaty system.
-^SDF, 893.512/347, Telegram from Herbert Pratt, Standard Oil Company to Secretary of State Kellogg. October 27, 1925, and Wilson, "Principles and Profits", pp.640—641.
--.SDF, 893.6363/51, Telegram, Consul-General Cunningham to Secretary of State Kelloga, November IS, 1925.
==FRUS, 1926, Vol. 1, Telegram, Consul-General Cunningham to Secretary of State Kellogg, December 21, 1925, pp.1092-1094, Minister MacMurray to Kellogg, December 21, 1925, p. 1095, and Wilson, "Principles and Profits", p.640. 347
^•*FRUS. 1925, Vol. I, Telegram, Charge' Mayer to Department of State, June 6, 1925, p.659, SDF, 893.5045/74, Telegram from Charge' Mayer to Department of State, June 6, 1925, records that the Committee was chaired by Mr. Tripier of France^ Other members were Green, for America, Shigemitsu for Japan, Vereker for England, Scadute for Italy, and Villiens for the Netherlands. See FRUS.1925, Vol. I, Telegram from Mayer to Department of State, June S, 1925, p.666, and SSDF. 893.5045/80 for troop withdrawal which was completed on June 14, 1925.
==FRUS, 1925% Vol. 1, Telogram, Consul-General Cunningham to Department of State, June 9, 1925, p.661, and p.663. Also see SDF, 893.5045/80, Telegram Secretary of State Kellogg to Consul-General Cunningham, June 9, 1925.
-^SDF. 5045/86, Telegram, Consul-General Cunningham to Department of State, June 12, 1923, and FRUS, 1925, Vol. I, Telegram, Cunningham to Department of State, June 12, 1925, pp.663-664.
=^FRUS- 1925, Vol. I, Telegram, Charge' Mayer to Department of State, June 19, 1925, pp.667-668, and December 21, 1925, p.721. Also in SDF. 893.5045/96, and 893.5045/278.
*®FRUS, Vol. I, Telegram, Minister MacMurray to Department of State, November 21, 1925, p.713. For the full report of the Commission, see SDF, 893.5045/253, Telegram from Minister MacMurray to Secretary of State Kellogg, November 21, 1925.
^“'FRUS. 1926. Vol. I, Telegram, Minister MacMurray to Department of State, December 21, 1925, pp.1092-1094, Wilson, "Principles and Profits", p.641, and SDF, 893.00/6746, Letter and Report of the New York Chamber of Commerce on Conditions of Trade in China, November 6, 1925.
^^Pekinq Leader, December 21, 1925, and Borg, American Foreign Policy and the Chinese Revolution, p.191.
^-Peking Leader December 21. 1925, and Borg, American Foreign Policy and the Chinese Revolution, p.191.
^^SDF, 893.5045/324, Telegram, Minister MacMurray to Secretary of State Kellogg, February 26, 1926, FRUS, 1926, Vol. I, Telegram, Minister MacMurray to Secretary of State Kellogg, March 8, 1926, pp.719-770; and Wilson, "Principles and Profits", p.642. 348
=^SDF. 893.6363/66, Telegram from Minister MacMurray to Department of State, May 17, 1926.
=*Ibid. 893.5045/324, Ibid. pp.719-720, and Ibid. p.642.
==>SDF, 893.6363/56, Telegram, Consul-General Jenkins to Department of State, January 2, 1926.
893.6363/57, Telegram, Minister MacMurray to Secretary of State Kellogg, and M.O. Clark, Standard Oil Company, January 5, 126.
=^SDF, 893.6363/57, Telegram, Minister MacMurray to Secretaary of State Kellogg, February 26, 1926, and H.B. Walker, Standard Oil Company to Secretary of State Kellogg, April 12, 1926, and FRUS. 1926, Vol. I, pp.1095-1096.
==Ibid.. 893.6363/57, and. Ibid. pp.1095-1096
=^FRUS. 1926. Vol. Î- Telegram, Secretary of State Kellogg to Minister MacMurray, April 6, 1926, p. 1096, and MacMurray to Kellogg, April 15, 1926, pp.1071-1072.
■*<=*SDF, 893.6363/71, Telegram, Consul —General Jenkins to Secretary of State Kellogg, June 26, 1926.
■*^Wu, “Chiang K'ai—shek's March Twentieth Coup de’tat", pp.585—602, Wilson, "Principles and Profits",p. 688, and SDF. 893.6363/71, Telegram, Consul-General Jenkins to Secretary of State Kellogg, June 26, 1926.
•^^FRUS. 1926. Vol. I, Telegram, Minister MacMurray to Department of State, June 14, 1926, pp.731—732, and SDF. 393.1152 St./, Secretary of State to Minister MacMurray, June 1 ^. 1926.
*=FRUS. 1926. Vol. I, Telegram, Secretry of State Kellogg to Minister Macmurray, July 23, 1926, p.73, Wilson, "Principles and Profits", p. 689, and SDF. 893.5045/7483, Consul-General Cunningham to Minister MacMurray, June 28, 1926.
**SDF. 893.6363/70, Telegram, Consul-General Jenkins to Minister MacMurray, July 3, 1926.
“•“Lo, Ko Ming Wen-hsien. Vol. 13, Telegram, Commander Chiang to the Central Newspaper on the march of 349 troops of the Northern Expedition, September 3, 1926,p.1, telegram- Chiang to Foreign Minister Ch'en Yu—jen, September 3, 1926, p.2003, and telegram, Chiang to the Kuomintang Standing Committee, September 6, 1926, p.2008. Reports on individual major battles are on pp.1904—1931.
■**In addition to kerosene for camp stoves and lanterns, the army needed lubricants for its weapons. Also, there was a growing need for fuel oil as various modes of transport were captured. In the battle for Wuhan, several gunboats, two steamships, and two seaplam es used for reconnaissance along the Yangtze River were captured. See Lo, Ko Ming Wen-hsien. Vol. 13, Report of Generl Li to Commander Chiang, September 5, 1926,p.2003.
*^United States Department of Commerce, "International Trade in Petroleum and its Products", (United States Government Printing Office:1929), p. 132. (Hereafter cited as Department of Commerce, "International Trade in Petroleum").
*®Lo, Ko Ming Wen-hsien. Vol. 13, p.2015 shows a poster requesting 5% of the salary from persons who earned 240 Yuan per year, and 3% of the salary for those who earned less than 240 Yuan.
"••^FRUS, 1926, Vol. I, Telegram, Charge' Mayer to Department of State, September 15, 1926, p.728, and SDF, 890.6363/7627, Telegram, Howard Cole, Vice President of Standard Oil to Secretary of State Kellogg, September 9, 1926. For the order to use force against foreign ships which refused to be searched, see Lo, Ko Ming Wen-hsien, Vol. 13, Telegram, Commander Chiang to Foreign Office, October 27, 1926, p.2170. This telegram was requested as an explanation for the events during September.
=*=>SDF, 500. A4e/76, Telegram, Chinese Foreign Minister Sze to the Washington Treaty Powers, August 19, 1925, and FRUS, 1925, Vol. I, telegram from Sze to the Powers, August 19, 1925, both record that the initiative in this matter was taken by Peking's government. The formal meetings ended on August 27, 1926, although a Valuation Committee worked to set final rates until July 28, 1928. See SDF, 693.003/829, Telegram, Commercial Attache’ Julean Arnold to Minister MacMurray, July 29, 1928.
^iPekino and Tientsin Times. July 21,1926, Hongkong Dailv Press. July 5, 1926. Also see SDF, 500.Ae4/644, 645j and 645, Telegrams, Consul-General Jenkins to Department of State, July 28, and 29, 1926 for 350 discussions and protests of the Special Conference with Eugene Ch’en, Foreign Minister for the Kuomintang. Jenkins also mentions that there were large demonstrations against the Conference in Hongkong, and Canton. ^^For example, British Ambassador Houghton and S.P.P. Waterlow telegramed Secretary of State Kellogg to say that the end of the unequal treaties was at hand and they shoud not worry about the gold—Franc dispute any longer. The change of heart was in large part due to the Canton—Hongkong strike and the zeal which the Chinese showed in attacking British all over China. SDF. 500.A4e/235, Ambassador Houghton to Secretary of State Kellogg, July 1, 1925, MacMurray's views, which reflected Secretau-y Kellog's instructions to the American delegation are in SDF, 500.A4e/226, Telegram, MacMurray to Ambassador Bancroft, and 500.A4e/325b, telegram, Kellogg to MacMurray, September 9, 1925 for Kellogg's instructions to Silas Straun, head of the American delegation.
=^SDF, 500.A4e/552, Telegram, Silas Straun, American Delegation to the Department of State, January 30, 1926, notes this demand at the 24th meeting. SDF. 693.00/800, telegram. Minister MacMurray to Department of State, December 29, 1927, records the acceptance of Wang's demands.
=*FRUS. 1927, Vol. II, Telegram, Minister MacMurray to Department of State, March 14, 1927, p.385, telegram, MacMurray to State, July 1, 1927, p.402, MacMurri./ to Department of State January 9, 1928, p.494, and SDF, 893.512/9256, letter of Henry Everall, Standard Oil, Shanghai Office, to Assistant Secretary of State Nelson T. Johnson, July 1, 1927.
°°Ibid., SDF, 893.512/9256, SDF, 893.512/9388, Letter, Henry Everall, Standard Oil Company to Assistant Secretary of State Johnson, July 20, 1927, SDF, 893.512/718, telegram. Charge' Mayer to Department of State, November 27, 1927, SDF. 893.6363/82, Telegram, Consul Berger to Minister MacMurray, January 20, 1928, and Min Kuo Jih Fao, ( S-âS-U, Chinese People's Dailv, January 20, 1928.
°*SDF. 893.6363/85, Telegram, Consul Lockhart to Minister MacMurray, April 24, 1928.
“■^Chiang, Pao Lu-tinq vu Wuhan Chenq-ch'uan, p.33, pp.45-52, Ko Ming Wen-hsien, Vol. 16, pp.2689-2695, Isaacs, The Tragedy of the Chinese Revolution, pp.175-177, and SDF. 890.00/8906, telegram. Consul Gauss to Minister MacMurray, April 21, 1927. 3 5 1
°°SDF. S93-512/572,Telegram, M. Treadwell, Standard Oil Company to Minister MacMurray, February 19,1927, SDF, 893.512/581, telegram. Consul Lockhart to Secretary of State Kellogg, April 27, 1927, SDF, 893.512/582, enclosure of memorandum from A.C. Cornish to Eugene Ch'en in telegram. Consul Lockhart to Secretary of State Kellogg, May 3, 1927.
=^5DF. 893.6363/9112, Enclosure with letter of Howard Cole, Vice President of Standard Oil to Assistant Secretary of State Johnson, June 10, 1927, and SDF, 893.6363/9114, telegram. Minister MacMurray to Secretary of State Kellogg, June 13, 1927.
<=»nSDF, 893.6363/9112, Enclosure with letter of Howard Cole, Vice President of Standard Oil Company to Assistant Secretary of State Johnson, June 10, 1927.
*^SDF. 893.512/705, Telegram, Charge" Mayer to Secretary of State Kellogg, November 7, 1927, FRUS, 1927, Vol. II., telegram. Charge" Mayer to Secretary of State Kellogg, December 3, 1927, pp.429—430, and Wilson, “Principles and Profits”, p.647.
*^=SDF, 893.6363/9114, Enclosure with letter of Howard Cole, Vice President of Standard Oil to Assistant Secretary of State Johnson, August 27, 1927. *^Ibid.. and FPUS. 1923. Vol. II, telegram. Charge" Mahlon Perkins to Consul Cunningham, August 28, 1928, pp.509-510.
•^•“FRUS. 1927, Vol. II, Telegram, Consul Davis to Department of State, March 28, 1927, pp. 151-162, contains a detailed account of the Nanking Incident. This report is also found in SDF. 893.00 Nanking/122.
^=FRUS. 1927, Vol. II, Telegram, Consul Davis to Department of State, March 28, 1927, pp.151-153, and SDF, 893.00 Nanking/122.
*'*Tbid., p.153, SDF, 893.00 Nanking/122, and FRUS, 1927, Vol. II, telegram summarizing naval action by Minister MacMurray to Department of State, March 26, 1927, p . 148.
^^FRUS, 1927, Vol. II, telegram. Consul Davis to Department of State, march 28, 1927, pp.154-156, and SDF. 893.00 Nanking/122.
^°FKUS. 1927, Vol. II, telegram. Consul Davis to Department of State, March 28, 1927, p.158, SDF, 893.00 3 5 2
Nanking/122, and FRUS, 1927. Vol. II, telegram summary of naval action reports by Minister MacMurray to Department of State, March 26, 1927, pp.149-150.
*^SDF, 893.00 Nanking/3, Report of Admiral Clarence S. Williams, Commander of U.S. Asiatic Fleet, enclosed with telegram. Minister MacMurray to Department of State, March 25, 1927, and FRUS. 1927. Vol. II, telegram summary of naval action by Minister MacMurray to Department of State, March 25, 1927, pp. 149-152.
^°Ko Ming Wen Hsien. Volume 14, "Report of General Cheng—ch'ien, Commander of the Right Bank on the Nanking Incident", pp.2378-2382, FRUS. 1927, Vol. II, enclosure with telegram from Minister MacMurray to the Department o* State, March 29, 1927, and SDF. 893.00 Nanking/9, telegram. Consul Davis to Minister MacMurray, March 29, 1927. For full details of the settlement signed by General Huang-fu and J.V.A. MacMurray, see FRUS, 1928, Vol. II, telegram. Minister Macmurray to Department of State, March 30, 1928, p. 409, or SDF, 893.00 Nanking/244, telegram. Minister MacMurray to Department of State, March 30, 1928.
^^Borg, American Foreign Policy and the Chinese Revolution, p. 307, and pp. 371—319, and FRUS. 1927, Vol. II, telegram. Minister MacMurray to Department of State, May 1, 1927.
’’“Borg, American Foreign Policy and the Chinese Revolution, pp.395—414, and Ming-chen Bau, "The Tariff Autonomy of China", Problems of the Pacific, (1929), pp.313—322.
’’^FRUS, 1928, Vol. II, telegram. Commercial Attache' Julian Arnold to Minister MacMurray, and the Department of State, July 29, 1928, p.392, SDF, 611.931/65, telegram. Minister MacMurray to Department of State, July 26, 1928, SDF, 693.003/829, telegram Minister MacMurray to Depart of State, July 29, 1928.
’’■‘For example, in September, Consul Lockhart reported from Hankow that "more and more firmness is being shown, and there is a growing indifference to foreign influence". SDF, 893.00/740, radio message, Consul Lockhart to Peking Legation, September 28, 1928. In November, Consul Jenkins had a meeting with Chu Chao—hsia, the Kwangtung Commissioner of Foreign Affairs. He was told that it was China's right to reform the courts, and publish new codes without restriant, and that all unfavorable conditions would be ended in due course. SDF, 893.00/752, Memorandum of 353 conversation between Douglas Jenkins and Chu Chao-hsia, November 30, 1928.
~^°FRUS. 1929. Vol. II, Memorandum of conversation between Stanley Hornbeck, Chief of the Division for Far Eastern Affairs and Chau—chen Wu, Special Representative to Washington, January 1, 1929, pp.543—545.
^*^FRUS, 1929, Vol. II, Telegram, Consul Cunningham to Minister MacMurray, March 15, 1929, pp.554-559, FRUS. 1930. Vol. II, memorandum of conversation between Secretary of State Stimson and C.C. Wu, Minister to Washington, January 2, 1930, pp.354—355, SDF, 711.933/225, which records the same conversation.
^^FRUS.1930. Vol. II, Note presented to Secretary cf State Stimson by Minister Wu, January 1, 1930, P .353.
^®3org, American Foreign Policy and the Chinese Revolution, p.366.
RRUS. 1928. Vol. II, "Report of Developments at the Fifth Plenary Conference of the Kuomintang", submitted by Consul J.H. Paxton to Peking Legation and the Department of State, October 28, 1923, p.61, and SDF. 893.00/752, memorandum of conversation between Consul Jenkins and Chu Chao—hsia, Kwangtung Commissioner of Foreign Affairs, November 30, 1928.
®'=*SpF, 893.00/91, Radio message, American Consulate, Shanghai, to Peking Legation, September 15, 1928, and SDF. 893^512/860, telegram. Consul Spiker to Peking Legation, October 9, 1928.
Records Relating to the United States Political Relations With China, Vol. 70, 1929, (Washington:I960), telegram. Consul George Atcheson to Minister MacMurray, December- 14, 1928, p.l, and pp.6-7. (Hereafter cited as Political Relations With China).
"^Political Relations With China. 1929. Vol. 70, telegram. Consul Atcheson to Minister MacMurray, January 4, 1929, p.4.
®*SDF, 893.512/872, telegram. Minister MacMurray to Department of State, November 11, 1928.
^-Political Relations With China. 1929, Vol. 70, Report of Consul Price to Minister MacMurray, January 31, 1929, p.16. 354
"^Political Relations With China, 1929, Vol. 70, Report of Consul Price to Minister MacMurray, January 24, 1929, pp.4-5.
"^Political Relations With China. 1929, Vol. 70, Report of Consul Price to Minister MacMurray, January 24, 1 9 ^ , p.5, and pp.8-12.
*^Political Relations With China. 1929. Vol. O, Report of Consul Gauss to Minister MacMurray, January 16, 1929, p.6.
^°FRUS. 1929, Vol. II, telegram. Minister MacMurray to Admiral Charles McVay, Commander of the U.S. Asiatic Fleet, February 22, 1929, p.30. °^FRUS. 1929. Vol. II, telegram. Minister MacMurray to Department of State, April 20, 1929, p.382, telegram. Minister MacMurray to Foreign Minister Wang, September 12, 1929, p. 512, and SDF. 811.30 Asiatic Fleet/47, Admiral McVay, Commander of the Asiatic Fleet to Yangtze Patrol Commanders, September 30, 1929.
^°FRUS.1929, Vol. II, telegram. Minister MacMurray to Department of State, October 12, 1929- p.4S2. ^^FRUS, 1929, Vol. II, telegram. Consul Jenkins to Minister MacMurray, November 21, 1929, p.487, and telegram. Consul Lockhart to Minister MacMurray, December 27, 1929, p.522. For unedited versions of these telegrams, see SDF, 893.00/10624 and 393.00/10723.
^-FRUS. 1930. Vol. II, telegram. Minister Nelson T. Johnson to Department of State, May 23, 1930, p.30, and Minister Johnson to Department of State, May 21, 1930, pp.278-279.
^^SDF, 893.00 Political Report/34, telegram. Minister Johnson to Department of State, June 14, 1930, and FRUS, 1930, Vol. II, telegram, American Legation to Yen Hsi-Shan’s Diplomatic Bureau, July 28, 1930, p.285.
'"*SDF, 893.00/11026, telegram. Consul Bitrick to Department of State, July 30, 1930, and 893.00/11029, Charge’ Perkins to Department of State, July 31, 1930.
*^^SDF, 893.00 Political Report/37, telegram. Minister Johnson to Department of State, September 12, 1930, and SDF, 893.00 Political Report/38, telegram. Minister Johnson to Department of State October 12, 1930. Also see SEE, 893.00/11098, 393.1154 Standard Oil, No.2/5 and 2/6 for Consul Jenkins’ telegams reporting seizure of 355
Standard's ships.
"*SDF, 893.00/11176, and 893.00/11194, telegrams. Consul Jenkins to Department of State, September 10, 1930, and 893.00/11280, telegram. Minister Johnson to Department of State, September 13, 1930.
*^FRUS, 1930. Vol. II, telegram. Minister Johnson to Department of State, October 30, 1930, pp.55—58, Minister Johnson to Department of State, November 30, 1930, pp.64—68, pp.70—71, and SDF. 893.00 Political Report/41, telegram. Minister Johnson to Department of State, January 12, 1931.
"'"FRUS, 1930. Vol. II, telegrams. Consul Lockhart to Department of State, November 14, and 18, 1930, and December 20, 1930, p.214, and p.223.
^"SDF,893.51/5118, telegram. Minister MacMurray to Department of State, January 19, 1929 indicates that these ta)( measures raised 40% of the Nationalist government's finances. SDF, 893.00 Political Report/41, telegram. Minister Johnson to Department of State, shows that at the Nationalist Plenary Session of November 12-18, 1930 it was decided to carry these measures into 1931 in order to raise an estimated one billion dollars in silver. CHAPTER VII
SUMMARY AND CONCLUSIONS
The original intent of this study was to write a history of the operation of the Standard Oil Company in China from
1925 to 1930. Once the project began to take shape, there were many factors which expanded it's scope well beyond those years. One of those factors was the desire to reach
several different audiences while using the Standard Oil
Company as a point of central reference. For example,
since the reopening of China to foreign commerce, American
interests in China have increased substantially, but
businessmen are not usually attuned to the dynamics of the
historical process. So, some portions of this study were
written to explain the context in which foreign business
was conducted in China as well as the way foreign companies
were perceived by the Chinese.
Two other factors which have affected the scope of this
study were the logic of the task and the information
available. For example, it seemed illogical to write a
study of Standard Cil in China without first presenting an
explanation of its domestic history. Also, it seemed
3 5 6 357
illogical to discuss Standard in China without an explanation of the treaty system that facilitated it’s trade in China and protected it for so many years- It was only after these subjects had been given some coverage that the two central issues of this study could be addressed-
Those issues were when and how did the Chinese begin to resist the unequal treaty system, and how did their resistance affect the foreign commercial community?
The attempt to present a logical and thorough study has been largely dictated by the sources of information available. Many of the primary sources of information about Standard's operation in Americ and China were destroyed in 1966. The justification was typical for businessmen: spacial limitations, rationality of the operation, and the concern with the present and future made the maintenance of such old records an unneccessary burden.
There were also obstacles regarding the availability of sources in Chinese. For example, the Republic of China is not guided by the American idea of easy access to documents about the past. Much of the information that might have been helpful at Academia Sinica, the major research
institute in the Republic of China, is only available to ranking members of the Kuomintang Party. This obstacle may have been overcome with a trip to the People’s Republic,
but the limitations of funding and personal obligations 359 have relegated such research to another time. Despite the cLbove mentioned limitations on sources, it has still been possible to conduct a logical and organized study of this subject, and what follows is a summary and evaluation of what was found.
This study begins with a domestic history of the
Standard Oil Company. Like other similar histories, it traces the development of the company from Cleveland, Ohio in 1870 to the dissolution of the Standard Oil Trust in
1911. The information presented there was not to take issue with previous works, but to answer two basic questions about Standard Oil. First, how did Standard get so large so quickly, and second, was there anything in that growth pattern which would have made China a more receptive area of operation than America? In pursuit of answers to these questions, a review of Standard's growth in all four phases of the oil industry was presented. Also, the increasing level of reaction to Standctrd's size, method of operation, and the values that motivated Standard and its opponents has been highlighted in this study. The result of this method of presentation has demonstrated that there were several reasons why Standard went to China.
The obvious reason was that domestic regulation and competition, both in America and Europe, forced the company to look for new markets. There were also some subtle but critical changes in America's business values during the 359 last decade of the nineteenthcentury that helped push
Standard Oil toward China. Simply put, the ways in which big business was perceived was changing while the leadership of Standard Oil continued to cling to the values and operational methods of an older era. This change in the way Standard Oil was perceived was quickly followed by the fact that tnere were important changes in the market for its products. Kerosene had been the mainstay of
Standard’s sales for years, but by the early twentieth century, that began to change. It was at that time that natural gas and electricity began to erode the demand in
America and Europe for kerosene, and this was quickly followed by the increased demand for gasoline for automobiles.
As these changes in the business climate and the demands of the market occured. Standard underwent a capital expansion program in which its Bayonne refinery played a prominent part. The Bayonne plant was the world’s largest, and its primary product was kerosene. Before that time.
Standard had already established a record of well planned long range activity, and the fact that it made such an investment to continue kerosene production indicated that the company’s leaders had already decided that there was an area where kerosene could still be sold in large volume.
That area was China. It is at this point that the focus of this study was shifted to China. There were two central 360 purposes for this shift in focus. One reason is that an explanation of Standard's expansion in the China market emphasizes the contrast between Chinese market conditions and those in America and Europe. The second reason for this shift in emphasis was that there was a need to explain who facilitated that expansion and to provide as many of the details of the company's structure and operation as possible.
For the uninitiated, this information is prefaced by background material on the start of the unequal treaty system in China. It's specific purpose is to explain the benefits for foreign companies that were the result of those treaties and to pinpoint exactly when and how
Standard captitalized on those advantages to duplicate most of its domestic structure in China. Regarding these last two points, there were several findings of importance.
First, Standard began shipping kerosene to China well before it became a powerful trust. Second, it appears that
Standard began its large volume trade in China with the assistance of an American Consul whose competence was far uLove that of his colleagues. The information provided by
Consul Bandinel was combined with the marketing expertise of William Libby, and major parts of the success of
Standard Oil in China were the result of their combined effort. Th.? invention of the now famous Standard Oil five gallon cans for shipping and the Mei Foo lamp were only the 361 beginning. It was also during this period that most of the effective parts of Standard's domestic structure were transplanted to China.
It is in the recreation of this domestic structure that some important facts appear. First, there was an obvious increase in sales in China. There is little doubt that the treaty system and the methods of Standard in China worked together to produce that record. It is quite possible that
Standard's success from the 1890*s until 1918 was a major reason for the continued belief thr»t American business would do well in China. There were many reasons why
Standard did well in China, and the enumeration of them also shows why most other American companies did not succeed there. For example, the products of other American compnies were either a cultural or an economic threat to the Chinese. They cost too much, and they were marketed indirectly by people who had little knowledge of the
Chinese and their country. Finally, this portion of the study links Standard's success in China to the treaty system. It shows that the treaties provided favorable tariff rates, protection from Chinese regulation or taxation, and also that they gave the company time to demonstrate the benefits of its products to its customers there. The Consular reports quoted in this portion of the
study, and the volume sales they record, clearly
demonstrate the extent to which Standard overcame the 362 reservations of the Chinese to its presence in China and the reasons that other American companies did not.
The fact that not all foreign companies were welcome in
China provided the basis for another shift of focus in chapter three. The purpose of that shift was to demonstrate the means by which the Chinese began to rid themselves of the domination of foreign companies. The first part of the chapter explains the development,
limitations, and successes of China's economic nationalism.
Then, it proceeds to explain how the late nineteenth
century upsurge of imperialism transformed China's reform
efforts into a form of rationalism that was more political
in nature. To be sure, both kinds of nationalism posed
certain kinds of threats to the interests of foreign
commerce in China, and therefore, there was also an effort
to demonstrate the nature of those threats and Standard's
relative immunity to the problems that the emergence of
these kinds of nationalism posed for foreign commerce in
China.
This study ends with a coverage of the years 1 9 2 3 to
1930. These were the years in which Chinese nationalism
matured into an increasingly assertive and effective force
against imperialism. In an attempt to be thorough, and
also to speak to audiences not familiar with these events,
it was neccessary to provide a clear background of
information for this period. That material has shown how. 363 when, and from whom the Chinese acquired the ideological and technological tools to effect their progress against imperialism. The study clearly shows that it was the antagonism of the Allies to the Soviet Union that enabled
China's Nationalist Party to acquire the means to challenge the imperialists.
The background information in chapter four also covers the major events of the Washington Conference on the
Limitation of Armaments and it’s effect in China. This was included for two reasons. The first one was because the
Washington Conference represented the last time that China presented its demands for the end of the treaty system without the threat or use of force. With the preceeding information on the development of the Nationalist’s assertive posture on imperialism, and the growth of its military capability, this section has become a neccessary link to the events of 1925 to 1930. Two of the major points to be seen there were the increased dissatisfaction of the Chinese with foreign tariff control and extraterritoriality. Moreover, the fundamental nature of the challenges to the treaties that were made before 1925 as well as their meaning for the Standard Oil Company have been explained. Finally, this part of the study has shown that the momentum of the nationalist movement in China was increasing from 1921 to 1924. It was that momentum which made the progress against the treaties from 1925 to 1930 364 possible.
Chapter five of the study overlaps the one on the
Washington Conference in its time frame, but its focus is different. It shows four important facts. First, it shos^s the extent to which the Powers in China miscalculated the depth and ability of the Chinese nationalist movement as well as the ability of the Chinese Nationalist Party.
Second, it shows that the era in which gunboat diplomacy and the continued domination of China’s economy by the
Powers actually began to decline well before the Shanghai
Incident of 1925. It also shows that in many ways, the
Chinese were more unified than is commonly recognized and that they were quite successful in opposing the expansion of foreign commercial interests. The fourth, and for this study, an important observation, is the placement of
Standard Oil within the context of this growing opposition to foreign dominance in China.
It was in this atmosphere of increasingly effective challenges to the treaties and the companies they protected that Standard Oil set itself against the efforts of the
Nationalist Party to enforce its policies of tariff collection and control of foreign commerce. The company began an embargo of sales in the area dominated by the
Nationalists. However, Standard’s loss of profits, and the inability of the Department of State to protect its 365 interests, eventually convinced Standard of the inappropriateness of this action. Standard then changed course and began to make importnt accommodations to the demands of the Nationalists. In doing so. Standard separated itself from the mainstream of American policy in
China and bought itself two more years of high profits and special treatment that was better than that accorded to other foreign companies.
The short term results of Standard's accommodations are highlighted through a comparison of its position with that of other companies that did not follow a similar strategy for survival. This comparison brings the reader to the years 1927 to 1930. It was during this period that the long term effects of Standard’s accommodation with the
Nationalist Party began to appear. In 1925, Standard linked itself to the Nationalist Party, and became useful as a provider of revenue, petroleum supplies, and also, it became a precedent for the control of other foreign companies. However, it was also during this period that
Standard’s special relationship with the Nationalists began to produce some longterm negative results. For example.
Standard had been instrumental in helping the Nationalists overcome their domestic rivals, and when the Nationlists failed to eliminate them all, the survivors preyed on
Standard Oil, just as they did many other foreign interests. The result was that outside areas where the 3 6 6
Nationalist:s were in firm control. Standard Oil’s position was very similar to that of any other foreign interest.
The Nanking Incident was the most spectacular incident in which the Nationalists inability to control events threatened Standard’s position. And more importantly, the facts that the refugees on SOCONY Hill were from various foreign commercial interests, and that they were all subjected to the same kind of treatment, shows that
Standard’s special position in China was beginning to erode. After the Nanking Incident, Standard continued to
try to do business in China, but in areas outside the firm
control of the Nationalists, the Chinese Communists and
surviving militarists treated Standard no differently than
any other foreign company. This was particularly true
along the Yangtze River, as well as Northern and Western
China where Nationalist power was still contested.
There was also a subtle change in Standard’s
relationship in areas controlled by the Nationalists after
the Nanking Incident. It was still the Nationalist’s
preferred supplier of petroleum goods, but its primary
function after Nanking was to provide taxes for the
increasingly burdensome costs of government in China.
During this post Nanking Incident period. Standard bore
less of a burden than other companies like British-American
Tobacco, and it was certainly safer than the interests of
the Japanese in China. Perhaps this was due to Stanr^-»rd’s 367 role as a precedent setter in the Nationalist’s process of ending foreign tariff autonomy and the defacto end of extraterritoriality. After all. Standard had surrendered its privilege? in these areas in mid—1925, while the other foreign companies were still trying to keep them. Yet, after 1927, Standard found itself increasingly subject to heavy taxation by the Nationalist government.
Standard survived the attacks of the Chinese Communists and militarists, and by 1932, its China operation was worth
$43 million dollars. However, it was also in that year that Standard made a subtle and important shift in its policy of accommodation with the Nationalists. The cause for the shift was the kerosene war of 1932-1934. The war was caused by attempt of the Southwest Political Council -a group opposed to the Nationalist government— to prevent companies that were not controlled by Chinese from operating in Kwangsi and Kwantung Provinces.^
The success of these Chiinese companies indicated that the situation that had existed in 1930 had changed in important ways. The Nationalists were the established government of China, but they could not always protect
Standard’s interests. That much remained the same as before. What had changed was that the Nationalists began to cooperate with the Department of State to protect
Standard’s interests. For the company, it was a return to a more customary arrangement of the past, except in 1932, 368 it relied on two governments that had often opposed each other over the position of commercial interests like
Standard. For the Nationalists, it was a totally new arrangement, entered into to preserve its domestic political position.
These new arrangements signalled the start of a new era in China. It was one in which the Nationalists were increasingly accepted as the government of China by all the
Powers except Japan. It was also the start of cooperation between the Nationalists and the Powers rather than the confrontations of the past. Therefore, this new policy provides a convenient end for this study. The continued confrontations with Japan and the incidents they produced are better placed within the context of the start of World
War II in China. 369
Chapter Seven Notes
^Sherman Cochran, “Big Business and War in China, 1931—1949", a paper presented at the University of Chicago Seminar on the History of East Asian-American Relations, 1931-1949, October 27, 1984, pp.17-24. 370
Appendix A American Kerosene Exports to China 1878-1881
1878 2,000 $1,950
1879 1,590 $420
1880 6,445 $1,700
1881 12,000 $2,960
Total Value $7,030
These figures are measured in gallons, and taken from Miscellaneous Documents of the House of Representatives for the Second Session of the 47th Cor.gr ess, 1882—1883. (Washington:1883), Document 19, p. 7. 371 Appendix B
Standard Oil Refineries
Barrels per Year Pratt Works SOCO^JY 1,024,074
Sone& St. of 272,074 Flemming New Jersey
Eagle " 936;482
Baltimore " 1,176.252
Philadelphia Atl. Ref. 4,944,917
Eclipse " 815,482
Vacuum Vacuum Oil 473,808
Buffalo SOCONY 436,918
P 'wurgh Atl. Ref. 143,708
Parkers— St. of 145,547 burgh New Jersey
Cleveland SOHIO 347, 962
Solar Sol. Ref. 586,478
Whiting St. of 2,373,992 Indiana
Neodesha St. of 291,620 Kansas
Sugar Cr. St. Mo. 74,073
Rich. Pt. Pac. Coast 586,179 Oil Co.
Figures taken from Report of the Commissioner. Vol. I "Part I, the Position of the Standarc Oil Company Within the Oil Industry", (Washington:1907), p.265 372 Chapter II Appendix C
Translation of Advertisement
"If a person wishes luck longevity, health and peace, he should live in a world of light. He should use the recently manufactured Standard Oil lamp and also use the real Standard Oil to light the lamp. The Standard lamp by Standard oil is as bright as the moon. A full lamp can last ten hours. It is labor saving and the quality of its oil is incomparable. This lamp can be placed on the table, and carried by hand. It can also be hung on the wall. People are happy when they use it. The quality of this company's lamp is due to L'le excellent methods of its experts in research. All the lamp cages and wicks are of special high quality. There is no smell of smoke even after the oil is burned completely. Although this lamp is more expensive than the smokey, dim lamp that is made of galvanized iron, don't forget, use of the Standard lamp at home will give clear vision to all members of the family. It is useful for all, man or woman. Late night work will not tire the eyes. It has great benefits. If there is a child who studies at home, he will work harder in the light. Who would not a child of his to make progress? Please remember that the benefit of this lamp is that helps people in the dark. This is a reasonable claim, not an odd one. Some people say that finding a matching shade is a problem if yours gets broken. Worry no longer. Branches of the Standard Oil Company in all the ports are sending this kind of lamp to all the cities and towns on a wholesale basis. The lamp costs the same in all stores. Including the shade and the wick, each lamp is sold at a reaasonable price. Make sure to keep the lamp clean to preserve its brightness. Every small hole must remain open. Open the lamp cage to clean the holes. The lamp can last for a long time if used carefully. If the lamp smells or smokes, this means that the wrong oil is being used, or the lamp is a fake. The lamp is really not expensive, and the buyer can have the benefit of luck, longevity, health and peace. If the store is selling this lamp at a price higher than that set by the company, please write or come in person to any branch of our company. The owner will welcome you."
Poster provided by William Coltman Translation by James T. Gillam Plate One»
Chinese Advertisement of Standard Oil
•llllîlllllîli?
**gS «Ÿ i S lliflfi îsîti 374
Plate Two
William Coltman and Staff. 375
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