Imperialism Imprisoned:
the closure of British Firms in the People’s Republic of China

business relations with China since the Manchurian incident of 1931 need to be examined against the background of her imperial decline and her gradual retirement from China, a China which for decades had been part of her 'informal empire'. Yet, what has often been referred to as ‘Britain’s retreat from China’ hardly represents the state of British interests, official and private, were simply too deeply entrenched, for what seemed at the time to be periodical fluctuations, to be totally uprooted. In the late I940s and early 1950s, by contrast, a new situation seemed to be emerging- the beginning of a dynamic retrenchment. Anxieties prevailing from the time of the outbreak of the Sino-Japanese Undeclared War of 1937 in both official and unofficial quarters in London concerning the future of Britain's traditionally privileged position in China began to materialize. Shortly after the People's Republic was established, the situation worsened even further as hopes to preserve the estimated f200-300 million worth of assets possessed by British firms and individuals there gradually evaporated.

Earlier, during the Pacific War and the period immediately following it, diametrically-opposed representatives of the British economy - business circles, primarily the China Association on the one hand, and Labor patriots, such as Emmanuel Shinwell on the other- often adopted similar policies with regard to British business interests in China. They wished to see them restored. At times they seemed to be clinging to a strong imperial momentum. While this was undoubtedly the case, there was another, more concrete, motive behind attempts to preserve and develop commercial ties with the Chinese, namely Britain's growing economic and financial difficulties - a direct outcome of the prolonged Second World War.

Indeed, a 'financial Dunkirk', according to the Treasury, was threatening the country, and Britain, in Attlee's words, was in every serious financial position. Figures presented in negotiations for an American loan indicated that the war had cost Britain a quarter of her national wealth or some f7,300 million. There were three main reasons for concern. The first was the dollar crisis precipitated by the sudden and complete canceling of Lend-Lease and the outstanding contracts by President Truman just days after the Japanese accepted the Allied terms of capitulation. The hope that Britain's financial difficulties would disappear during the transition period leading to the peacetime era with the help of continued American aid was thus shattered. The secondwas the basic difficulty of the British economic position. Between 1936 and 1938, for example, the average United Kingdom balance of payments figures indicated an excess of imports over exports. This, however, had been nearly offset by income from shipping, overseas investments, commissions, insurance and other sources. This type of balancing was now impossible as the sale of foreign assets to pay for the war amounted to over f1000 million leaving the net investment income from abroad at half its I938 level. The rise in the price of imports meant that Britain's net spending power was merely one-fifth of its pre-war level.3 By the same token, external liabilities had swollen many times. Their very existence constituted a distinct weakness in the British diplomatic situation. Further, a world food shortage followed the war and a grave fuel shortage hit Britain, reaching its peak in 1947. The third cause of concern stemmed from the fact that the war had worsened Britain's historical trading position in various parts of the world. In China, where Britain had enjoyed special - colonial- type - treaty privileges for years, American influence was now increasing. China, having been built up as a big American war-base against Japan, seemed likely to grow more dependent on the United States in the cultural, diplomatic, and financial fields in the course of the post-war era.

Against the background of deepening economic and financial difficulties at home, and the lingering imperial attitudes vis-a-vis the Chinese market, the British witnessed significant changes taking place in China itself even before the Chinese Communist Party emerged as the dominant political power on the mainland. Strong national feelings and expressions of self-assertion became evident. Not only was Chiang Kai-shek showing an interest in the aspirations of the Pan-Asiatic movement, but he was also becoming progressively more involved in China's economic prospects. His government in Chungking initially embarked on ventures such as the new corporation law, and took measures to tighten its grip on the economy. This was accomplished, for example, by the banning of foreign capital companies from operating mines and by enforcing stricter regulations on currency control. This new line of self-reliance was coupled with an expressed hope for the emergence of a new economic relationship with the former imperial powers, a relationship which would be based on equality. Indeed, from the Chinese point of view, ‘Imperialist exploitations' had to end forthwith. Hence, the difficulties imposed on British firms by the Chinese after the establishment of the People's Republic should be seen, at least to a degree, as a continuation of an assertive line which had emerged earlier. At the same time, however, it is obvious that the story of the closing of the British firms in the early 1950s contains its own unique features.

By April 1952 major British firms in China had expressed their intention to close down operations there. Contrary to traditional practice of doing their utmost to expand commercial activities in China, they were now attempting to withdraw from that remote and troubled. The decision taken by twenty well-established companies, such as the British-American Tobacco Company, Butterfield and Swire, the Chartered Bank of India, Australia and China, the Hong Kong and Shanghai Bank, Imperial Chemical Industries, Jardine Matheson, and Shell Petroleum, was a direct result of the increasing difficulties placed in the way of foreign firms from 1950. The British commercial community simply wrote off its f81 million of outstanding loans to China as a loss. The future of the remaining f200-300 million of British commercial property and investments was still uncertain. No financial assistance from the British government to help maintain commercial establishments could be expected. The traditional Board of Trade claim that 'China is the greatest potential market in the world and always has been’ seemed to have become more relevant than ever.

It was undoubtedly ironic that such was the state of affairs of British interests following the de jure recognition of the new regime in China by London on 6 January 1950. This recognition, accorded despite the American stand and advice had been initiated by and large with a view to strengthening and solidifying Britain's commercial presence in China and its good relations with India. Indeed, India was of importance here. The Indians saw in China's revolution the counterpart of their own successful struggle for independence. 'For them that it was Asian meant everything, that it was communist was almost irrelevan'. Business interests which composed the China lobby in Britain favored recognition as soon as possible in the hope that this would enable them to continue trading there. The government, for its part after all, did not have the emotional resistance of the American administration with regard to recognizing the fact that Mau Tse-tung had won the civil war and that Chiang Kai-shek was finished. Bevin, as Allen Bullock stressed, had more of a free hand than either Acheson or Schuman in this respect. Furthermore, there was unanimity in the Labor Party on the question of recognizing Communist China, contrary to the situation later on in respect of the Korean War.

On I November r949 Bevin sent a message to Acheson, saying that he was inclined to go ahead and recognize the new regime iChina on the grounds that the Communists were now in control of three-quarters of China and that the best way to protect British trading interests was to keep a foot in the door. 'Too long a delay in according them recognition cannot fail to make them ill-disposed. towards us. We may thereby gratuitously vitiate our future relations ...', he wrote in a Cabinet Paper dated one week earlier. Soon after that, the Cabinet agreed and recognition was accorded. It is interesting to note that the Conservative view - at least as expressed by Churchill in the House of Commons when the issue was debated - proved, as in other major questions of foreign policy, that the distance between him and Bevin was almost non-existent. The continuing depreciation in the position of foreign investments in China was caused by heavytaxation, enforced subscription to government loans, restrictive labor legislation and completecontrol in each and every direction. This made variousforms of private enterprise unprofitable and unattractive and also led to a reduction of the British commercial stake in China. The closing of trade offices, the releasing of staff and a sharp decline in the number of British subjects residing in the commercial centers became a characteristic of Sino-British business relations. Even gloomier prognostications shortly proved true. The new system, which held individual firm-managers personallyresponsible for policies formulated by their head offices, made it difficult for foreign enterprises to retrench or withdraw. The case of R. V. Drewe of 'Eagle-Lion' represents perhaps the best example of the distress of foreign companies in China at the time. Reporting his troubles to M. C. Gillett of the British Embassy in Peking, he states:

Please make a special effort to appreciate and understand the fact that our own (yours and mine) Western ideas as to business, the process of law, democracy, interpretation of various material and abstract things etc. come into direct conflict with the Eastern ideas existing in this country. Here there is properly speakingno exact process of law, and no exact laws. All existing laws are pre-fixed with the heading 'TEMPORARY TRIAL SYSTEM' - thus they are flexible to suit each individual case. If the people (the word here can represent one person, many persons, the masses: a section of the Government or the entire Government as he latter is 'people's' Government) think that you are wrong, then you are wrong, even though there may be no law against your so-called wrong. In other words, unlike the Western system, you are usually taken to be guilty until you yourself can prove that you are innocent. If you argue too much in the process of proving your innocence, you are against the people, therefore against the Government, therefore you are a reactionary.

Drewe explained how, in the People's Republic of China, before any action was taken for or against an individual, his class distinction had to be determined, based on a review of the class distinction of his parents as well as his own past and present. This, he stressed,

explains why a certain act committed by a worker need not necessarily be a crime, but exactly the same act: committed by a capitalist could be a serious crime... In the class struggle, the evolution from capitalism towards social-ism is today no longer a purely bloody struggle. Capitalists are allowed to exist for the time being, pending iquidation or self-extinction. They therefore do not get into trouble unless they get involved in disputes with workers or so-called infringements of the law.

Drew believed that he came under one of the following two class distinctions: 'Capitalist/petty bourgeois class, (with imperialist background on account of nationality', or 'a worker (but a traitor to his class, poisoned with petty bourgeois ideas and with imperialistic background on account of nationality)'. Based on the class distinction of his parents and his own past, he was likely, in his opinion, to be considered as belonging to the first category. 'I have been a "manager" and as such was the representative of the capital side of business. As such I looked after the interests of the owners and therefore automatically worked against the workers. Whether or not the owners accept this, or whether they consider me an employee with a rank of a "manager" is immaterial to the people here. Ii they consider me a capitalist, I will be treated as such. The object, therefore, if I am to try for better treatment, is to try and get our of this unhealthy class distinction'. As to belonging to the second class, Drewe believed that, indeed, he was not a capitalist 'because of the hard fact', as he put it, 'that I have to work for a living under an employer. However, the likelihood is on the lesser side that they will consider me as belonging to this class, and I will get off more lightly.'

How did Drewe find himself entangled with the Chinese authorities? Through his introduction and sales efforts, he explained, the Chinese government purchased large quantities of cinema studio equipment. Long before the actual transaction was concluded, his Superior in the company came to the conclusion that in order to keep the company and its employees out of trouble (such as possible breakdown of equipment) and in order to avoid the rather, complex question of taxation, it would be better for the company not to take pan: in the actual transaction, nor make any profit for the company in China. Instead, they planned to let the transaction go through the government's own official import organization. This was eventually done. Thus, both the company and Drewe himself merely played the role of intermediaries with- out handling either money or cargo. They took all reasonable precautions within what they considered their rights and in a legal manner. However, the Chinese authorities, learning of the transaction, insisted that there were numerous illegal aspects in the 'Eagle-Lion' case. In fact, the very act of being only intermediaries was viewed as constituting an infringement of the(business laws. A firm could only engage in a specific field of business as permitted in its business license. Drewe estimated that, in addition, the authorities could argue that his company had committed other misdeeds, such as the evasion of revenue stamps, tax and business taxes on the sale, evasion of income taxes on the profit, and flight of profits and foreign currency out of the country. Likewise, the authorities could assume that the company was trying to shirk its responsibility for possible inferior quality of materials supplied by staying nominally out of the transaction.

Furthermore, coinciding with the transaction, the company closed down, and the senior staff - Drewe and his superior - tried to leave the country. Drewe's superior was allowed to leave, but Drewe, who had been more involved in the sale, was kept back for more than a year. During this time, China went through the 'five anti' movement (anti-corruption, anti-bureaucracy, anti-tax evasion, anti-theft of national resources and anti-theft of economic secrets), and the Chinese became even more suspicious and inquisitive. Though his basic viewpoint on business in China had remained unchanged, he realized that the Chinese authorities looked at things from a different point of view. Was it indeed right to claim that the 'Eagle-Lion' had nothing to do with the sale involving the equipment! The suspension of employment in the People's Republic of China was an intricate matter involving financial arrangement and the approval of the Ministry of Labor. Was it truly valid to assert that he was no longer the manager of the company? After all, he had neither resigned nor had he been discharged. Therefore, he concluded ,'I can but bow my head, admit my responsibilities as the "manager" and throw myself on their mercy'.

The Ministry of Industry and Commerce of the People’s Government insisted on approving decisions which had previously been made by each firm on its own initiative. Not only was it impossible to open or close a firm without its approval, but changing maor disposing of any assets was also not allowed without its consent. Not allowed to reduce the cost of labor commensurate with the factor of production, the British firms were forced to continue to pay for redundant labor. Jardine Matheson alone, it was estimated, employed as many as 20,000 Chinese workers , mainly in Shanghai. Foreign merchants and manufacturers, recognized as pertaining to the capitalistic class (and therefore able to pay), were at times even forced to accept additional workers onto pay-rolls in spite of the fact that the existing staff were only working part-time or nor, at all. In the case of the Shanghai and Hongkew Wharf Company, for example, the Nationalist blockade created a situation whereby the company did little or no business for ten months during 1950. In fact, only a handful of ships came to Shanghai during that period. The Company, however, was being squeezed, since overheads had risen substantially. Wages were the main cause of the rising overheads. Previously, the Chinese employees had been treated as seasonal workers taken on by the company on the basis of the number of ships in port. Now, however, under the new regulations, these workers became permanent employees. This meant that more than a thousand 'permanent' workers were added to the company's payroll. The Wharf Company was now eating up reserves at a rate of about f20,000 a month.

Head offices in London (and other capitals) as well as foreign managing directors in China reached the conclusion that trade with China was probably not worth the hazards to person and property which it entailed, quite apart from the financial risk. Finding ways and means to cut losses became the businessmen's first concern. They no longer wanted to continue to operate what they regarded as 'moribund business' irrespective of losses. The legal procedure available for voluntary, liquidation in an orderly manner, however, remained theoretical only. Attempts at liquidation met exorbitant demands by labor, demands which were described by most merchants and manufacturers as being 'tantamount to blackmail'. The authorities, in some cases, demanded a levy of to per cent on all movable and fixed assets as liquidation tax. Also, as indicated, foreign managers were being held personally responsible for their firms obligation to pay salaries and taxes. Taxes were levied retroactively and companies came under, penalty of heavy fines for non-payment at very short notice. Up to the spring of 1950, most firms had been able to meet their commitments by the sale of irreplaceable stocks or by remittances from abroad. These methods of finance, however, were drawing to an end as the lowered purchasing power of the masses in China made the sale of stock impossible. A continuation of remittances from abroad out of the companies' reserves could only result in grave consequences and even bankruptcy.

The year 1951 witnessed further deterioration. Profits if indeed there were any, were made in terms of local money and were not remittable. The embargo placed on trade with China by Britain and the United States following the outbreak of the Korean War,' the counter-measures taken by the Chinese authorities and the increasing tendency of China to shift the bulk of her trade from the western powers to communities within the Soviet bloc, had their own effect. Further- more, much of the Chinese produce exported to the Soviet Union and her satellite countries was finding its way out to western Europe, including the United Kingdom. China Association officials in London felt that the purchase of this produce by the western European countries would help the Chinesereorient their trade in a way that suited them politically and help them circumvent the effect of the American-directed UN embargo. This practice added to the difficulties encountered by British merchants in the Far East. By 1952 it was getting increasingly difficult for businessmenworking in China to obtain exit permits. Likewise,it became harder to obtain entrypermits for staff to relieve those already stationed there. The great dream of China - the promising market - seemed to be becoming more and more illusory.

Prior to 1949, Mao Tse-tung argued that China was in its bourgeois-democratic revolutionary stage. The inauguration of the new regime virtually marked the end of the democratic revolution and the beginning of the proletarian revolution. Since the bourgeoisie had participated in the democratic revolution, the new Communist government: deemed it beneficial to its own interests to permit this class to continue to participate in the work of carrying out the socialist revolution. Mao made it clear that it would be necessary to permit the existence of a capitalist sector in the economy of the Chinese People's Republic for a fairly long period after the victory of the revolution. This would be in that interest of the whole economy and in the interest of the working class and the laboring people, both in the present and in the future. Indeed, it seemed far more profitable for the Communist regime to preserve temporarily the practical rights of the bourgeoisie -both Chinese and foreign - than to seek the immediate dissolution of that class. T. N. Thompson has pointed out that this kind of balanced and cautious policy made good sense in the concert of 1949. The Chinese Communist Party had by then shifted its center to urban areas in the hope that the cities could provide 'the material, technological, and organizational means not only for their own economic and social transformation, but for the socialization of the countryside as well'. Yet, at the time of the transfer of power, much of the urban economy was totally dislocated and industrial production and most other economic activities were far below the level of the prewar peak. Unemployment was high, inflation was rampant and food shortages widespread. The new leadership lacked the necessary experience and claiming to cope with the demands of an urban, industrial economy. They therefore had to allow the economy to run on existing pre-revolutionary lines for a while, often with the assistance not only of non-Communists, but also of foreigners, who dominated China's urban economy. The principal task remained, however, that of changing the economy along new Marxian lines. A guided, and somewhat regimented, society was thus deemed essential.

It was against this background that each individual manager of a foreign firm was made personally responsible for policies and acts pursued by his head office (even of those taken before he became manager) and that further restrictions on the entry and exit of foreign staff were imposed. Moreover, the People's Government trading- organizations had no qualms about canceling contracts even if raw materials had already been paid for and processed. New tax regulations and legal judgments, often appearing to be discriminatory against foreigners, were adopted. All in all, much uncertainty engulfed British and other foreign nationals. They became increasingly afraid of arrest and detention incommunicado without charges being preferred. Pressure by the trade unions, too, was constantly mounting and local authorities were reluctant to give any protection to firms accused by the unions of malpractice. Throughout this period, many of the functions formerly handled in China by private merchants and industrialists were gradually taken over by state institutions. This reduced the need for the maintenance in their existing form (number of employees etc.) of many foreign owned enterprises. It was not, therefore, surprising that nearly all British companies came to the conclusion that the change in conditions necessitated a corresponding change in the nature of their organization and the scope of their activities. They felt that they could no longer operate satisfactorily in China nor serve a useful purpose in the future. Consequently, they believed that the proper course for them was to arrange for custody or closure of their business. Managements contemplated the setting up of a new form of organization, better suited to the new cond, in the form of an association of representatives of manufacturers and overseas buyers who would maintain direct con- tact with the appropriate Chinese authorities. This body would, in fact, act as a permanent trade mission. Meanwhile, the British merchants expected the Chinese authorities to approve the termination of the services of redundant staff, issue exit permits for non-Chinese staff and come up with a solution to the problem of custody or transfer of a business as deemed appropriate.

The Chinese, for their part, maintained their own line of argument. Chang Han-fu, China's Deputy Minister for Foreign Affairs, for example, insisted that while China desired the restoration and the development of international trade relations with other countries, these had to be built on a new basis of equality and mutual benefit. All foreign residents and firms in China abiding by the law would receive protection. Discriminatory trade policy against China, on the other hand, would be resisted. Chang stressed that since 1950, under the constant pressure of the United States, the British government had adopted a series of unfriendly measures of control in respect of trade against his country. He cited the May 1951 American proposal for an embargo against the People’s Republic of China, a proposal the British delegation supported, and the June 1951 British declaration that all export items to China and Hong Kong would come under the control of special permits. These measures of trade- control and embargo were hostile to the Chinese people and were therefore regarded as calculated to obstruct the trade exchange between the two countries, trade which had declined in volume. The serious difficulties which British companies and manufacturing firms encountered in China, Chang implied, were caused, nor by steps taken by his government, but rather by the depressed state of trade between the two countries and by bad management on the part of the British. It was therefore the British authorities rather than the Chinese government who were contravening and jeoparidizing the interests of the British people.

Less diplomatic and considerably more blunt in referring to the British and their commercial interests in China was a Communist party economist, Wei Tsu-chu. Wei's writing demonstrated not only the depth of the Chinese authorities' knowledge of the British interests, but also their true feelings regarding those interests. Discussing the special features of British investments in China, Wei stressed that profits from these investments surpassed those which obtained in India. In China, full use had been made of those British enterprises which had offices under the special privileges of the treaty ports and the protection of extra-territorial rights. This, he stressed, epitomized the original and stereotyped mode of imperialism - exploiting surplus labor in the colonial areas. There was virtually no single case of the British investing in purely Chinese companies nor of investment in the form of credit loans. In India, by contrast, over 5o per cent of British investments consisted of share-holding in Indian companies or credit participation. The greater part of British investments in China was centered on enterprises which ‘savored of commercial exploitation'. Out of the total of British capital in China, the actual amount brought in by British firms was very limited - not more than a quarter of their investments, viz. f5o million. Yet each year they received more-than f1o million from China in remittances from profits.

A more specific example of British imperial exploitation was presented by the Historical Academic Research Committee in the people's Republic of China. According to this Committee, the Ewo Brewery, established in I936 by Jardine Matheson and Co. in Shaghai had an all-British board of directors. Its technicians too were all foreigners.

Only the workers were Chinese. The factory's records were kept in Hong Kong. The total investment capital of the Ewo Brewery was Y5 million, divided into 5 million shares. The Chinese claimed that immediately after the establishment of the brewery, British merchants placed 75 percent of the shares (Y3.7 million) on the stock market:

Because China had at that time a semi-colonial, semi-feudal Status, with unstable domestic politics, and a chaotic economy, people feared for the security of their assets and therefore sought to buy the stocks of foreign- managed factories. The British merchants took advantage of this fearful state of mind, to raise the value of the shares of the Ewo Brewery from Y1 per share to Y2 or even Y3 per Share. In this way they were able to collect more than Y10 million on the sale of shares with face value of Y3·75 million. A Y5 million brewery swelled to the price of two breweries, while moreover, control of the company remained in British hands. Even though Chinese investors had bought 75 per cent of the shares, they had no say in running the company, as the shares were held anonymously; although they held three times as much of the capital as he British, they were not represented by a single Chinese director.

According to the Research Committee, the British merchants took the money raised in the sale of the Ewo Brewery shares, and proceeded to use it to operate another factory, which again led to the augmentation of their funds. This sort of practice was one of the means by which they carried out 'their economic invasion of China’. Further, the British announced chat Chinese barley could not be used to produce beer. They argued that hops could not be grown in China, and that even if they were planted, they would not mature. They had therefore to be imported. This line was taken despite the fact that at the time there were already many hop plants growing in Heilungchiang province.

The technical aspects of the brewing process were kept secret from the Chinese factory workers. Thus, many of them remained ignorant of key technical procedures even after a decade or two of working in the factory. The Ewo Brewery, argued the Chinese, making use of its 'comprador' and reactionary government: collaborators evaded paying taxes, under-reported output and earned large profits. It also resorted to all sorts of unfair commercial and advertising practices.

After the establishment of the People's Republic, the sales of thebrewery declined steadily. According to the Research Committee this was a direct result of British inability to engage in speculation and profiteering. (In Jardine Mathesdn's view, by contrast, the decline in sales was largely attributable to China's deprivation of Ewo's right to sell beer.) The British announced that the brewery had gone bankrupt and that no funds were available to pay the workers' wages. They requested permission to sell all the brewery's moveable assets. Believing that the Chinese government was unaware that 75 per cent of the investors in the brewery were Chinese, the British proposed to sell the factory to China. In the negotiations which followed, the Chinese side brought forward the evidence of investment and the matter was eventually settled by buying back the brewery from the British for the face value of their 25 per cent of the company shares. In 1952 the name of the company was changed to Hua Kuang Company. Since then the barley and hops used to manufacture the beer have all been grown in China. The quality of the beer was improved and output has risen eightfold.

Between the businessmen's accusation of the Chinese authorities and the latter's expression of grievances over the misbehavior of foreign capitalists, one fact emerged quite clearly - the rules of the business game in China and with China had changed drastically. Moreover, the People's Government was now primarily concerned nor with profits, but with the employment of Chinese workers; not with establishing good will in foreign capitals, but with increased production. Fearing increased isolation from the West - the United States Navy was pressing for a blockade of the entire coast - Peking felt that holding British firms hostage was a proper means of averting furthisolation. It hoped that the firms' respected managing directors would exercise pressure on London to resist such an idea. When restrictions on trade with China and the freezing of Chinese assets imposed by Washington actually began to damage the economy of the People's Republic, Peking introduced the barter system in the hope that this would help avoid exposure to traps. The principle of the new system was 'imports first and exports later': imports had now to arrive first in China before the corresponding export barter goods were allowed to leave the country.

This practice immediately limited the volume of foreign trade to a very small proportion which could be conducted on 3 comparatively safe basis. British trade and commercial interest now suffered considerably. Indeed, only for a short period of time - until an American embargo was imposed on Hong Kong - did the Colony's merchants manage to benefit from the boom that resulted from more stable conditions in China and the spate of Chinese purchases at the beginning of the Korean War. The British commercial community suffered considerably from the restrictions imposed on trade with China. This, as well as the prolonged war, sharpened differences both within the ranks of the Labor Party and between the British and the Americans. The Korean War cast a somber shadow over the final phase of the Attlee government. As noted by Kenneth O. Morgan, Britain, as the United States' chief ally was inevitably embroiled. In addition, of course, Britain had her own real concerns in the Far East - in Hong Kong,Singapore and the war against communist insurgents in Malaya. Thus there were moments when the divergence between British and American policy in Asia- first made explicit by the difference over recognizing the communist regime in China - seemed to be causing a real rift. Both governments could see the danger, but each was under strong pressure from public opinion pulling in opposite directions.

However, steps taken by the British naval forces (when put at the disposal of the American Seventh Fleet to prevent any attack on Formosa) were supported by the Conservatives, who gave the Attlee government full backing. This was coupled with the support the government enjoyed from the bulk of the Labour Party. At the same time, alarm that Britain might be dragged into war sharpened anti-Americanism, always latent in the Labor Party, and, as a study of the press shows, soon began to undermine confidence in American leadership. At any rate, differences within the ranks of the Labor Party were often discernible. Herbert Morrison, who had been vigilant against communists, and who replaced Bevin as Foreign Secretary in March 1951, played only a negligible role in foreign affairs, as Eden replaced him in October.

Throughout the period of decreasing trade and commercial activity the Chinese authorities were careful not to resort to an outright confiscation of assets. Rather, they employed a tactic of 'protracted expropriation' in relation to foreign property. This, at least as far as the foreigners saw it, amounted to practically the same as direct confiscation - rentals were frozen, taxation raised, demands for considerable repairs at short notice were made, and massive fines were imposed. At the same time, firms were consistently being refused permission to close down and they were forced to employ all the men on their payroll regardless of the fact that there was scarcely enough work for even a fraction of them. They had to keep on paying wages by drawing heavy drafts from their head-offices in Hong Kong. Thus, an estimated f37,ooo to f5oo,ooo a month were sometimes pumped into China, In the course of 1951, Jardine Macheson alone brought in remittances totaling over f140,000. In mid-March 1952, Jardine Matheson's Robin Gordon, as the responsible person for the Ewo Brewery, was locked up for a week by order of a judge of a People's Tribunal for the firm's failure to meet its February 1952 wage bill for Ewo's 2oo Chinese workers. Eventually almost f9,ooo were raised and sent to China to help pay the bill, the previous year's income tax and an accumulated fine of f1 per cent per day on the unpaid wages.

Gradually, it became clear that there could be no escaping the obvious conclusion that British merchants in China had become hostages, not only of the authorities, but also of their innumerable assets built up over decades, hostages of the old dream they cherished of the 'Promised Market', a dream that never came true. Managers and directors became captives of their own imperial concepts, and after the war, in view of the desperate state of the British economy, of the necessity to make export a high priority. Just like the proverbial fox, they were unable to leave the vineyard with their stomachs full. The closure of operations in China could nor be accomplished at will, and at least some of the yields made throughout the previous century had to be returned. For the Chinese this was very small recompense for what they considered as ‘hundred years of exploitation’ by the foreigner; They thus did not hesitate to employ subtle methods to achieve expropriation, of foreign assets, ensuring at the same time that no claim for compensation could even in the distant future.

Often tax officials would demand payment of large sums on grounds that a mistake in the tax assessment had been made by the authorities some years before. In such instances, a firm was not only liable for the additional amount still outstanding, but also for a fine on the unpaid tax at o.5 per cent per day retroactive from the date due. In other cases, when the day came for the renewal of leases of ‘godowns' for storage, the lessees would decide unanimously not to renew their leases. Contracts for cold storage were cancelled, port dues were increased and exorbitant demands were made for the provision of amenities for workers (such as expensive medical care), or for elaborate repairs to structurally sound buildings. Private firms were completely in the hands of the Chinese government, having to obtain raw materials from it and sell their products to it. It was totally up to the authorities whether a company was to make a profit or quickly become bankrupt. The Chinese staffs had a way of putting pressure on the managers to make their London offices give way on various issues on the spot. They would besiege the manager in his office, sitting there ail day long refusing to move. A manager who cried to make his way out and accidentally touched one of them risked facing an accusation of assault.

The foreign firms found themselves in the midst of a 'catch': closure of a firm's activities depended upon the good will of the People's Government. Maintaining that good will, on the other hand, required a demonstration of good faith which in turn could only be shown by conducting business within the New China.

This state of affairs remained almost unchanged up to 1952. It was only then that a ray of hope could be discerned by the managing directors of foreign firms, some of whom had gone as far as requesting the Chinese authorities to nationalize their assets to free them from further damage and trouble - a request that was inevitably rejected. The director of the Ministry of Foreign Affairs agreed in principle with Mr. Kidd of Jardine Matheson and Co. that perhaps it would be possible for his government to accept a formula according to which local assets would be surrendered against remission of the company's liabilities. This actually constituted a repeat of a practice which had been forced on the Kailan Mining Administration as early as 1950. At that juncture it was estimated that Jardine Matheson's assets exceeded its liabilities in value and Kidd inquired whether the balance would be paid in cash. The director of the Ministry of the Foreign Affairs refused to consider the idea. Instead, he quoted other precedents such as those of the Yee Tsoong Tobacco Co. and the Astor House Hotel, which involved a straight exchange of assets against liabilities. Thus, contrary to hopes entertained by the British, and contrary to whatthey regarded as recognized standards, not only did the Chinese authorities take all possible steps to ensure continued remittances in order to pay redundant workers who could not be dismissed, but they also refused to consider, in case of the surrender of assets against remission of liabilities, to pay the excess. Gradually, however, the formula of 'liabilities against assets' emerged as the only way out of the situation. Any other way was doomed to total rejection by the Communist authorities who dictated both the procedures and the pace of relations with the foreign business communities.

For British firms, the decision to withdraw from China was not easy. T. N. Thompson has observed, that some, like Jardine Matheson, considered hanging on, at least legally, to their properties in the hope that in the future - should circumstances change - they could again engage in profit-making. John Keswick, the Director of Jardine Matheson, for example, expressed the view chat the obvious maneuver would be to try and conduct his firm's retreat so that the Chinese government would be forced 'to take our properties without our consent. This way, ‘in the happy event of the Chinese Government being overthrown' and foreign capitalists being allowed to return to China, Jardine would be in a position to repossess itself. However, it did not take long for peswick as well as other decision-makers within the British commercial establishments directly involved in the China trade to realize that bills were mounting up day by day as they delayed closing down their operations, and that the situation was becoming extremely difficulties In March 1952, Jardine Matheson and other China Association member firms agreed that closure of their respective firms should be expedited and that assistance should be sought from the British government. However, no concrete action was taken. There was simply not sufficient agreement as to a collective decision about a cut-off date for the remittance of sterling to China.

The British banks did not, like the idea of a deadline at all. The British-American Tobacco Company, was engaged in its own negotiations for closure with the Chinese authorities. Shell seemed to be interested only in getting its five remaining staff members our of China. Jardine Matheson's directors, realizing that this was the state of affairs, and that official British initiatives of sending notes to Peking were of no avail, resorted to an independent line of action - talks on closure on the basis of the firm's holdings with the greatest liabilities to be negotiated first. This tactic was chosen as a direct result of the severe demands made on the firm by the trade unions, demands which the Chinese government insisted be accepted before discussion of closure could even take place. When preparing the papers for negotiations with the Chinese, an over-large discrepancy between assets and liabilities on the side of assets was quoted intentionally. This was meant to deter the Chinese authorities should they decide to add to the firm's liabilities.

However, the Chinese officials expressed little interest in the firms calculations. They did not agree to negotiate the closure of Jardine Matheson before closing down its three associated firms. They, rather than the British managers, were going to decide the order in which the Company's holdings in China would be liquidated., They were the ones who would determine the pace of the negotiations last well as the terms of the final closure. These officials werefar from impressed by the high figures of assets quoted by Jardine Matheson. They made it clear that in their opinion, there were no potential buyers for what the company listed as assets, and that outside the capitalist environment these had no value as they were no longer profit-making. The Chinese authorities even questioned the very legality of the ownership some of the assets. In July 1953, shortly after the KoreanArmistice, they took over first the Company'sthree associated firms- their wharf, mills and brewery. The closure agreement for the parent firm was finally negotiated a year later, several months after the Geneva Conference. By that time Jardine Matheson had already remitted over f700,000 to China.

Throughout this period there were thoughts in various British circles about retaliatory actions against the Chinese. J. K. Drinkall of the Far Eastern Department, for example, prepared a memorandum in which he tried to put forward ideas in this direction. He mentioned possible counter-claims (outstanding railway loans, Chinese obligations to the ex-employees of the Shanghai Municipal Council and the unpaid balance of the stabilization Board funds), control of remittances from Britain and Hong Kong (in order to prevent British firms from being blackmailed), control of remittances from Malaya, the freezing of Chinese sterling, the seizure of Chinese property and assets abroad, prohibition of all trade with China or even the withdrawal of the Charge d'Affaires from Peking. No one, however, took such suggestions seriously. he application of any of the measures suggested, it was believed, would constitute a radical change in Britain's China policy and could not be justifiedin the circumstances envisaged. It was not thought that any of the measures suggested would be effective in securing the firms' representatives in China. Any increased pressure against the Chinese was thought likely to cause further deterioration in the bilateral relations and subsequently make the release of staff even more difficult. By late 1952 it seemed that any hopes the firms might have held of an improvement in the Chinese attitude with regard to British trade, and consequently in the prospects of revived trading were totally unfounded or extinguished'. Heavy and discriminatory taxation, arbitrary judiciary and other similar practices were intensified by the impact of the san fan and the wu fan campaigns which considerably weakened the position of urban capitalists. Quite a few British firms came to the conclusion that without a radical change in Peking's policy it would be impossible to continue to maintain their establishments in China.

A striking illustration of the crisis and its unique nature is perhaps best provided by the list of foreigners whose freedom was taken away from them as a direct result of the friction with the Chinese authorities. Late in 1952 there were eight UK citizens, seven Canadians and twenty-six Americans in gaol, with nine other Canadians under house arrest. By the end of 1953 there were only a few firms still able to carry on business. Those which did were under strict Chinese government control. Thirty-nine British, Commonwealth and American citizens were still being held under detention orders.

As for the three banks operating in China, permission was not granted to close their branches. They remained in limbo: neither able to conduct any business, nor allowed to dismiss any of their Chinese staff nor get their British staff out of the country. Remittances to keep their offices going had to be made as before. The representatives of the banks informed the authorities that should the situation remain unchanged, they would have to stop remittances after 31 December 1954. This measure was resorted to despite the managements' full knowledge that this ultimatum might have unpleasant repercussions for their local managers in China, whom the authorities there held personally responsible for the payment of staff wages. Yet the head-offices considered that unless they took a stand, the drain would go on indefinitely, and their people would never come out. It was at that juncture that they, like many companies before them, went as far as offering to sur- render all their assets against their accumulating liabilities. Soon the Chinese expressed their preparedness to allow them to go into liquidation. They demanded, however, chat responsible persons should remain in China until dollar accounts belonging to the Chinese were released.

In the spring of 1954 the pace of events began to move more quickly for the British firms. The Geneva Conference signified a brief relaxation in relations between Britain and China. The difficulties of British businessmen were discussed in private talks between Anthony Eden, Churchili's Foreign Secretary (who enjoyed Attlee’s support, although not that of the Bevanites who clamoured for a distinctively 'socialisr' foreign policy) and Chou En-lai. The latter undertook to make sure that the authorities in Peking would speed matters up. H. Trevelyan, the British Charge d'affaires in China, also held talks with the director of European Affairs at the Chinese Ministry of Foreign Affairs on the treatment of British subjects, finns and banks. He raised the issue of exit permits for British nationals stationed in China. Subsequently, replacement visas were granted more easily, firms were allowed to cut down staff and discussions on closure proceeded more smoothly. At the same time, however, on no issue of great importance, or where a question of principle was involved, did the Chinese give any ground. By 1955 most British firms that wished to do so had received permission to close. They withdrew all their foreign staff and effectively abandoned their assets.

Throughout the period under discussion, the policies pursued by the People's Government in Peking towards the foreign capitalists mirrored the revolutionary changes which were then taking place in China. They cannot therefore be discussed or analyzed in total isolation from those changes. In late 1955, Mao Tse-tung decided to push forward from the joint public-private management of individual enterprises to joint management of whole trades. This system was subsequently extended. By early 1956, 92 per cent of private industrial enterprises had become jointly operated, and 75 per cent of private commerce had been thus transformed. Soon capitalists were to be compensated for the use of their capital at an interest rate of 5 per cent per annum.

It must be stressed, however, that the issue of the foreign, and particularly British, firms in China can be seen as a category by itself. Although economic in nature, it was at the same time an integral part of the complex Sine-foreign and Sine-British relations with their imperial past. International politics were also interconnected with the issue. From a Chinese Government's point of view, the British merchant of the 'outside world'. Pressing community was, after ail, an extension it, unlike pressing the local bourgeoisie, could not but cause seismic vibrations in distant quarters. Financially too - and this is in fact one of the major themes to be stressed- the British firms in China were often merely branches of multi-national conglomerates. It was exactly this very nature of the companies which the Chinese authorities managed gradually to turn to their complete benefit.

Only in Geneva, in the unique environment which emerged during the course of the international conference, were the Chinese tactics modified so that the eventual relaxation of the Sine-British tension became possible. At the same time, by using delaying tactics and by refusing permission to close down operations far a long time, the Chinese authorities had actually allowed the liabilities of the firms to build up and become nearly equal, or even in excess of, their assets. The length of time during which liabilities accumulated was determined by, the People's Government the exercise of its sovereign prerogatives, and not by the foreign firms which, as Thompson has correctly pointed out, were now subject to the conditions set forth by the new government. In negotiating the closure of firms the Chinese government insisted, for example, that all contracts made up to the time of closure should be exactly executed. They rejected the force majeure closures stipulated in contracts in cases where the embargo on China prevented the execution of the contract. They even threatened to sue the companies for non-execution of the contract.

On the whole, as noted by E. Luard, 'the Chinese Government had successfully secured some of the most modern and prosperous business undertakings in China, without incurring either the odium or the financial liability of outright confiscation'. They certainly did not pay any compensation. Rather, a unique nationalization process of ‘reverse compensation' took place. Most of the British assets fell into Chinese hands. Jardine Matheson alone left behind property that was estimated at f30 million, while the British American Tobacco Company, another pillar of foreign imperial presence, wrote off a loss of about f5o million. To many hostage firms the assets left behind in China represented only a portion of interests held world-wide. But some small businesses lost almost everything they had. They were all compelled to abandon, at the stroke of a pen, assets that had been built up over many decades of commercial activity, rather than go on sinking more and more money, without return, as ransom for staffs held hostage.

The end of the 'Imperial exploitation', now having a blurred Marxist-Leninist definition, signified the end of the foreign, particularly British, commercial and manufacturing interests in China. From now on, the only hopes that could be entertained were those relating to a future trade with China, a China ruled by the Communist Party and boycotted by many countries.

The case of the closure of British firms in China in the early 1950s illustrates more clearly perhaps than any previous instance the nature of the transitionary phases from a century of imperial rivalry and exploitation to an era of national revolution, from a foreign-dominated capitalist urban economy to one in which China itself owned its means of industrial production. Just as in the mid-nineteenth century inequality in almost every conceivable field enabled the Europeans to penetrate the Chinese markets, so a century later the revolutionaries in China employed. What one can perhaps term 'local inequality' (based to a great extent on the new developing balance of international power) to extricate themselves from the bondage of foreign domination and imperialism.