Imperial Chinese Hukuang Railway Gold Bonds

There is strong evidence that the controversial financing of the Hukuang Railway was the tipping point that sparked China’s revolution of 1911, which overthrew three millennia of dynastic rule and led to formation of the Chinese Republic the following year. No less qualified an observer than Sir John Newell Jordan, British Minister to Peking from 1906 until 1920, wrote with the benefit of hindsight at the end of his tenure that “the Hukuang Railway Agreement ... was the proximate cause of the downfall of the Dynasty.” (Woodhouse, 2004). The reader can be excused for finding it improbable that the terms of a railroad loan could trigger a revolution. The explanation is a tale worth telling.

By 1911, nationalists had long protested the extent of foreign control of China’s railroads. As summarized by Goetzmann and Ukhov (2005),

• By most accounts the competition among the great powers to secure railway concessions during this period through a combination of political diplomacy and the financial might of their capital markets was, in some ways, the high point of the age of Imperialism. At least it was characterized as such by contemporary commentators such as Lenin, who used the division of China into spheres of influence by foreign capitalists as the example of Capitalist Imperialism par excellence.

• ... Virtually of China’s railways constructed after 1895 were financed by foreign debt issues underwritten by European-led investment banking syndicates which obtained right of way, property concessions and promises of repayment from the Chinese Imperial government. Under the control of the bankers who financed the loans, Chinese railways were constructed, owned and operated by managers designated by the financial consortium. Certainly the most contentious feature of these loans was their provision for extra-territorial rights [by which foreigners enjoyed jurisdiction over portions of Chinese territory].

• The Chinese Eastern Railway was a prime example of extra-territoriality. The Russo-Chinese bank issued a 5 million tael loan[ ] in Russia in 1896 to finance the construction of a railway across Manchuria linking the Trans-Siberian Railway to Vladivostok. The railway and its right of way were entirely administered and policed by Russian officials, who controlled the receipts and disbursements. The line was, in effect, a little bit of Russian territory within China’s borders, and issued its own currency. [Author’s note: To this it may be added that a contingent of Russian troops travelled on each train, housed at defense posts erected along the line; that the Chinese Eastern Railway had over 20,000 Russian employees; and that until the 1920s over 120,000 Russians lived in Manchuria, accounting for a quarter of its population, most dependent upon the C.E.R. for their livelihood.]

The Hukuang Railways £6 million loan was the last in a long succession of foreign loans to the Imperial Chinese Government for railroad construction. No fewer than 27 such loans appear in the extensive list of Chinese external debt issues after 1861 compiled by Goetzmann and Ukhov (2005); the Hukuang loan was the largest, but three others were for amounts between $19.6 million and $22.5 million, and six more ranged from $6.5 million to $14.8 million. Just as numerous if somewhat less costly were 22 loans for war or defense, notably including a $6.5 million bond issue in 1885 to finance China’s defense against France during the 1880s. By far the largest obligations, though, were bonds to cover war indemnities imposed after China’s defeats in the 1894-5 Sino-Japanese War and the 1898-1901 Boxer Rebellion, amounting to some $100 million and $300 million, respectively.

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From: "The Bonds That Sparked the Chinese Revolution" by Michael Mahler.