Overseas Chinese Remittance and Trade Balance in Late Qing China

H.B.Morse and Modern Chinese Maritime Customs 1892-1907

Takeshi Hamashita^[1]

Introduction

In an economy like that of “modern” China，where the traditional sector played a major role in the relationship with the western world，intermediate functions such as the collection of maritime customs by the Foreign Inspectorate of Customs occupied an influential place in financial activity.

It is by now well-known that fundamental socio-economic changes occurred in China during the latter half of the 19th century，and particularly after the second Opium War and the Taiping Rebellion. Among these major economic changes were：

1. A reorganization of rural districts and of agricultural production，accompanied by an expansion of the gentry economy as a consequence of the Taiping Rebellion；

2. Changes in the management of foreign trade in the wake of the inroads made by foreign merchants in coastal and inland trade and the increasing competition with Chinese guild merchants，and through the initiation of the Foreign Inspectorate of Chinese Maritime Customs，this latter also being a consequence of the Taiping Rebellion；

3. A decline in public finance capabilities and the promotion of the Self-strengthening Movement by government and local officials，accompanied by the soliciting of foreign loans and initiation of a public bond policy.

As regards the third change，one of the major financial problems the Qing Government faced was how to repay the growing amounts of foreign loans and indemnities China had incurred. Among the solutions put forward by officials were measures to increase income from tax revenue.^[2] In any case，reform and indebtedness had by the turn of the century，a period of crisis and great change，become a key issue for both foreign and domestic financiers like Robert Hart and Hosea Ballou Morse in the Chinese Maritime Customs and Zhang Zhi-tong and Sheng Xuan-huai，Qing Government officials who had to try to cope with the new situation.^[3]

The first and second of the economic changes mentioned above paralleled and were at least partially linked to the financial changes occurring at the government level. As for the rural economy，both gentry and peasants gradually became more closely tied to financial organizations in the cities in order to facilitate the sale of their goods. With respect to the changes in foreign trade，the era of foreign merchant princes had essentially ended by 1870，while foreign banks had begun to monopolize the exchange business Foreign banks were starting to extend so-called “Chop-loans” （short-term loans） to Chinese native banks or Qian zhuang銭荘，and also to lend money to the Qing government，accepting part of the government taxes as security on the loans. However，it must be pointed out that Chinese merchants were also active，even aggressive，in both foreign and domestic trade as it expanded after the 1860’s.

In the context of the historical conditions of the time，we can say that proposals by Robert Hart （Inspector General of the Chinese Maritime Customs，1862-1908） and by H. B. Morse （Secretary of the Statistical Department of the Chinese Maritime Customs in Shanghai） concerning how to deal with and balance China’s international accounts and how to reform finances and increase revenues for the Chinese Government，emerged as typical and concerned responses to these underlying financial changes.

Morse’s career in the CMC may be summarized as follows. After graduating from Harvard in 1874，he was appointed in August the same year to Shanghai as 4^th Assistant，and then to Tianjin （Tientsin）. He was sent to the London office as 3^rd Assistant in 1880，and spent two years there. Between that time and until his retirement through bad health in 1909，he moved among a number of treaty ports centering on Longzhou （Lungchow） and Beihai （Pakhoi） in southern China. Besides Morse，there were three other Harvard graduates of 1874 who were recruited to the CMC at the same time：William F. Spinny，Henry F. Merrill and Charles C. Clarke. Morse was appointed secretary to Gustav Detring，the Commissioner at Tianjin，on November 10，1884. Morse played an important role in revising how the current economic scene in China was perceived at the time，both within the country and abroad. This was largely due to the pattern of his career in China. Following his service in Tamsui （Danshui），Taiwan，he moved around various parts of southern China，including Yunnan，Guangxi，Hunan，and Guangdong. Thus he was familiar with regions outside the areas of northern and central China whose economic picture was better-known. Morse discussed Chinese balance of international payment during his work at Statistical department at Shanghai Custom.

A. Balance of International Payments

Toward the end of the nineteenth century the increasing excess of imports over exports became a matter of concern. As shown in Table 1，imports exceeded exports by almost one third at the turn of the century.

Table 1 The Value of Merchandise and Treasure，1894-1903.

Table 1（cont’d）

Focusing on this point，Robert Hart，Inspector General of Customs in Peking wrote to H. B. Morse，Secretary of the Statistical Department of Customs in Shanghai，as follows：

The imports appear to have been in excess of exports，in both 1902 and 1903，to the extent of some seventy million taels each year. How does China pay for them，or how is the difference accounted for？There must be an explanation，and it would be well to study the question and record results clearly and tersely in one dispatch. A cognate question arises in connection with payment of indemnity，and interest on loans. China pays out annually some forty million taels；where does all that silver come from？Where does it go to？How is it made up for？Does it remain in the Banks at Shanghai，or go in specie to foreign Countries？Or is it remitted in Bills of Exchange，and how？And what are the inner processes in this complex and complicated proceeding？^[4]

Hart asked Morse to explain how China compensated for the imbalance of trade and to cast light on the silver situation. This issue was also very crucial for Chinese officials. One reflection of this was a meeting between the President of the Hu Bu，Zhao Er-xun，and Hart in which Zhao enquired about balance of trade.^[5]

The issue was in fact not new. Questions over the imbalance had already arisen at the end of 1880’s. Table 2 shows the imbalance for the years 1888 and 1889，with net import value derived from market value by an F.0.B. base adjustment and export value from market value by a C.I.F. base adjustment. In explaining the adoption of the F.0.B. and C.I.F. basis calculation，E. McKean，Statistical Secretary at the time，reported：

Table 2 Adjustment of Trade Value，1888 and 1889（Hk.Tls.：Haikwan Taels）1888.

Table 2（cont’d）

Now，those of Imports are based on，as far as can be ascertained，the prices of the commodities in the various markets of the ports at which the Imports enter China，and those of Exports on the prices in the markets of those ports at which the Exports quit China. Anyone can understand that the market price of any article must，as a rule，reimburse the seller all outlay incurred on it up to the time of sale，and must exclude all prospective outlay. Thus，such price of an Import includes not only the prime cost of the thing when it was about to land，but also costs incurred by it after landing，namely，the expenses of landing，storing，and selling，and the Duty paid on it；so also the market price of an Export excludes the cost of buying （i. e.the exporter’s profit or commission），the expenses of packing，storing，and shipping，and the Export Duty-increments of value all of which accrue to it in China and have to be added to the market price to ascertain the value of the article at the moment of its quitting China. And for the purposes of comparison it is the value of the Imports at the moment of landing and of the Exports at the moment of shipment that I have to estimate.^[6]

The trade balance problem continued to evoke similar questions at the beginning of the 20th century although the foreign exchange situation was much more conducive to export due to a lowered gold price of silver in the circumstances，it was necessary to seek other factors of a much more fundamental nature to explain the phenomenon from a wider consideration of Chinese external economic relations. Morse attempted to explain the problem as follows：

Until the end of the war with Japan，China had incurred practically no Foreign debt. As a consequence of that war she was burdened with a debt of ￡50000000 （or say，Hk. Tls. 400000000），and the periodic payments abroad under this head were further increased by the indemnities to be paid to Foreign Powers for their rescue operations in 1900-1901；the annual payments under these two heads now amount to upwards of Hk. Tls. 45000000 a year. The natural effect of this increase in the national indebtedness should be a compulsory increase in the shipment of merchandise to cover the indebtedness；but in this land of paradox it has happened that it is the imports which have increased，until they are now a third greater than the exports；and it is the object of this inquiry to throw some light on the anomaly thus presented.^[7]

Trying to arrive at a balance，he drew up a list of items belonging to what is now routinely known as invisible trade，（a term which Hart strongly suggested should be used），as shown in Table 3.

Table 3 Liabilities and Assets of China in International Trade （by H. B. Morse）

Table 3（cont’d）

The most notable characteristic of the table is the fact that the item of loans and indemnities is the second largest element of China’s liabilities. Here we will consider two items （F. and m.） of “invisible trade” on which Hart sought clarification. It will be seen that Morse did not distinguish between resident and nonresident foreigners in category F. which sets out the amount of home remittance from China. Although he calculated the amount by adding up two factors，we may question whether the sum total of （i） net rentals from real estate in the various ports and （ii） dividends of all local companies，may be taken as fairly representing the remitted savings of foreigners in China.^[8]Morse，incidentally，included Hong Kong as “essentially a part of commercial China.”

B. Remittance from Overseas Chinese

Morse was the first person to attempt to pin down all factors of external economic relations in one comparative table，and the inclusion of invisible factors is one of his most important contributions.

Besides his calculation of the profit remittances by foreigners，item “remittances from and money brought in by Chinese emigrants” -in the assets column is another of Morse’s significant additions to China’s international balance of payment tables. The item in fact accounts for a sizeable portion of total assets.

In Table 3 Morse more closely examines remittances from Chinese emigrants abroad，basing his estimates on the Chinese population in each country and their living situation there，and giving minimum and maximum calculations. For Indo-China he explained as follows：

Indo-China. - Chinese population，150000. The huge rice trade of Saigon is in the hands of Chinese. Chinese residents are not so well received or so well treated as further south，and for this payment has to be made；and wages of Chinese servants are good. A safe estimate，therefore，would be Hk. Tls.100 a head，or，in all Hk. Tls. 15000000.^[9]

It is，of course，very difficult，if not impossible，to calculate exact amounts of remittances from abroad because of the vagueness of the data，so Morse also indicated the major sources of remittances through banks in Table 4. We can quickly ascertain from this table that the amount of remittances was not a direct function of the Chinese population in a given place，so we can surmise that the remittances didn’t necessarily flow into China directly from each country but through the financial centres in each area，taking the intermediate form of trade settlements，investments，and foreign exchange business，before finally finding their way back to China.

Judging from the number of financial centres in Southeast Asia dealing with home remittances and from the fact that most overseas Chinese in the region are from southern provinces of China like Kwantung and Fukien，it is in fact most appropriate to deal with these remittances as a part of the south China regional economy.

Table 4-A Remittances from Emigrants Abroad

Table 4-B Remittances from Emigrants Abroad

Table 4-B（cont’d）

C. Financial Role of Hong Kong

Morse also dealt with the Hong Kong economy. In a Trade Report of 1904 he wrote as follows：

Hongkong is always our element of statistical confusion，receiving as it does Foreign goods for distribution to the ports of South China and Chinese produce for shipment to all ports of the world，including China itself.^[10]

The allusion of Morse to the complexities of Hong Kong from a statistical viewpoint relate to the financial role of Hong Kong as an exchange centre and intermediate centre of trade settlement. As may be seen from Table 5，outlining the import and export of treasure at Hong Kong，the silver trade with Chinese ports and gold trade with non-Chinese ports was a major function of the Hong Kong financial market，and contributed to Hong Kong’s reserves to the amount of about 15 million Haikwan Taels，of which nearly 80% was in silver. Morse explains that this difference between treasure export and import was a gain for the colony’s banking reserves.^[11]

Table 5 Import and Export of Treasure at Hong Kong，1904

It is evident that Morse faced a dilemma in treating Hong Kong statistically as a part of the Chinese economy. In fact he oscillated between a standpoint which included it and one which excluded it. This problem，together with that of how to calculate volume of the junk trade between the China coast，Hong Kong and Southeast Asia，reveals the difficulties that contemporaries，faced in understanding the Chinese economy in its full complexity，i.e. taking all aspects of the local economy into account.

In connection -with these “invisible” factors affecting the Chinese economy，Morse further pointed to the problem of fluctuating exchange. In diagram，Morse showed the course of the exchange movement - giving the annual average equivalent of the Haikwan Tael of silver in 60th English gold currency and in Chinese copper cash，that is，he provided a comparison between gold，silver and copper ratios-for the period 1870-1904. According to the the different stages of Chinese trade，different monetary media were used，necessitating a series of exchanges-trade settlement with foreign merchants took place in gold，the wholesale currency in China was silver，and the currency of the people was copper. Every consignment of foreign products，in the course of its movement from the place of production to the ultimate consumer，and every lot of Chinese produce moving between the producer and the foreign market was subject to a bewildering series of exchange conversions，in which each person who handled the goods was forced to allow a margin to cover all possible fluctuations in the chain，which could amount to as much as 16 per cent in the period necessary to move goods from their starting point to their ultimate destination.^[12]

The problem of exchange was a crucial issue in trade settlement both internationally and domestically in the latter half of 19th century owing to the sudden fall of the silver price in relation to gold，stemming from the increase of silver production and abandonment of the double standard currency system in many countries. This phenomenon did not result in an increase of exports and decrease in imports by the silver standard countries as might have been expected.^[13]

Conclusion

The argument by Morse on the relationships between exchange and trade is important both when taking the whole Chinese economy into consideration and in dealing with more localized or limited economic relationships such as that between southern China and Southeast Asia. As Hart frequently wrote to Morse that Chinese officials were very eager to get the statistical data gathered by the foreign inspectorates at each open-port，it is evident that Morse’s introduction of the concept of invisible trade was seen as an improvement of method and of analysis of the various factors behind the composition of the Chinese economy by Chinese officials.^[14]

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[1] 日本东京大学文学部名誉教授。

[2] Many reports on Chinese finance were written during this period by Foreign Inspectorates of the Chinese Maritime Customs. Among them are：Memorandum by Sir Robert Hart concerning the Indemnity to be paid by China，presented to the Commission appointed by the Diplomatic Body to consider what resource possessed by China should be applied to the payment of the Boxer Indemnity （1901）. Land Tax：the Inspector General’s Suggestions re Collection Appropriation，etc.，1904.

[3] Albert Feuerwerker，China’s Early lndustrialization：Sheng Xuan-huai （1844-1916） and Mandarin Enterprise，Cambridge，Mass.，1958.

[4] Hart to Morse，Peking，April 26，1904. The unpublished letters of Robert Hart to H. B. Morse in Houghton Library，Harvard University.

[5] Hart to Morse，Peking，April 26，1904. The unpublished letters of Robert Hart to H. B. Morse in Houghton Library，Harvard University，Dec. 6，1904.

[6] China Imperial Maritime Customs，Returns of Trade and Trade Reports for the Year 1889，p. 1.

[7] Documents Illustrative of the Origin，Development，and Activities of the Chinese Customs Service，Vol. 7，p. 184.

[8] Documents Illustrative of the Origin，Development，and Activities of the Chinese Customs Service，Vol. 7，pp. 188-190.

[9] Documents Illustrative of the Origin，Development，and Activities of the Chinese Customs Service，Vol. 7，pp. 197-198.

[10] China Imperial Maritime Customs，Returns of Trade and Trade Reports for the Year 1904，p. iv.

[11] China Imperial Maritime Customs，Returns of Trade and Trade Reports for the Year 1904，p. xi.

[12] China Imperial Maritime Customs，Returns of Trade and Trade Reports for the Year 1904，pp. i-ii

[13] Takeshi Hamashita，China，East Asia and the Global Economy：Regional and historical perspectives，Loutledge，2009，chapter 5.

[14] As for life and work of H. B. Morse in China，see the following；Li Aili，Wan Qing meiji shuiwusi yanjiu：yi yue haiguan wei zhongxin （American Custom Commissioners in Late Qing China，Tianjin Classic Publisher，2006），John King Fairbank，Martha Henderson Coolidge and Richard J. Smith，H.B. Morse：Customs Commissioner and Historian of China （The University Press of Kentucky，1995），Takeshi Hamashita，Modern Chinese Economic History （Kyuko Shoin，1990）