Ch 29 - Twilight of the Yi Dynasty

My Neighbor, My Friend

Faced with a massive post-war debt, China agrees to accept foreign loans from Russia, France and other European Powers and leading Chinese officials openly advocate an alliance with Russia as a future safeguard against Japanese and Western aggression.

While events in Korea kept the Japanese busy trying to hold on to their new position, the Tokyo government still had to contend with the matter of the Russo-Franco-German Triple Intervention. Japan faced three alternatives. First, it could reject their warnings out of hand and risk the outbreak of another war. Second, Japan could bring in other Western powers by calling for an international conference on the question of the Liaodong Peninsula. Finally, it could simply accept the advice of the three powers and give up the Liaodong Peninsula altogether.

After months of negotiations, the Japanese reluctantly yielded to foreign pressure and decided to return the Liaodong Peninsula to China. On November 4, 1895, Viceroy Li Hongzhang and Ambassador Baron Hayashi Tadasu, Japan's minister to China, signed the formal agreement that nullified Article 2(a) of the Treaty of Shimonoseki and returned the Liaodong Peninsula to China, but for a price;  an additional indemnity of 30 million taels of silver (roughly $17 million). After its astonishing success in the war against the Chinese, Japan had to be content with Taiwan, the Pescadores Islands and a large indemnity.

The Japanese felt a strong sense of humiliation in having to cede the Liaodong Peninsula back to the Chinese after having bought the territory with the blood of Japanese soldiers. Both the Japanese people and their government believed that the concessions gained through the treaty of 1895 were lawful in light of current international custom. The Meiji emperor's announcement of the decision to return the peninsula fueled a tremendous resentment among the Japanese people, particularly toward Russia, which, in Japanese eyes, had been the principal perpetrator of the Triple Intervention. The entire episode awakened the Japanese to the cold reality of the international power game;  the weak were the victims of the strong. The idea that their country was so weak that it had no choice but to accept the actions of the great powers deeply angered the Japanese, an emotion that quickly ovetook the nation along with a visceral hatred of the Russians and a growing desire for revenge.

The Triple Intervention constituted a temporary and wholly artificial merging of interests that Great Britain and the United States could have quickly broken with a unified action. The English and the Americans however, were preoccupied with other concerns at the time and chose not to interfere. The China Squadron provided ample protection for British merchant shipping and British civilians in the treaty ports during the war and the reinforcement of all the European fleets in the area did not create any friction between Russia and Great Britain.

China had a huge financial problem. The Treaty of Shimonoseki obligated China to pay Japan a war indemnity of 200,000,000 Kuping taels of silver in eight installments (1 Kuping tael = 578.84 grains of pure silver = 1.3230629 ounces). The first half of the indemnity had to be paid within twelve months. Following negotiations between China and Japan, on October 6, 1895, China agreed to pay the indemnity in London using the English Pound Sterling as currency, which amounted to £32,900,981.

The Liaodong Agreement of November 1895 obligated China to another indemnity of 30,000,000 Kuping taels of silver (£4,935,147) in exchange for Japan returning the southern portion of Fengtian Province, which included the Liaodong Peninsula. In addition, China agreed to an annual payment of 50,000 Kuping taels (£ 82,253) to support the stationing of Japanese troops in Wei hai-wei until the indemnity was fully paid. The combined war debt amounted to over half the annual revenue of the Qing court. China could not afford to meet its obligation.

Only foreign loans would solve China's massive financial problem and through them China soon learned a hard lesson in the politics of imperialism. Though it seems paradoxical, powerful nations do not refuse loans to weak countries with poor credit. On the contrary, they are eager to make such loans. Once a strong country has financially obligated a weak one, particularly a weak country that is unlikely to fulfill its debt, the weak nation has gone a long way toward collapse as an independent state. At that point it requires little for the stronger nation to foreclose on the debtor nation with confidence.

Almost immediately after the Treaty of Shimonoseki was signed, China's three "friends" had a falling out over the opportunity to lend China the money to pay the Japanese indemnity. French banks, particularly the Banque de Paris et des Pays-Bas (Parisbas), took the initiative in May 1895 and formed a consortium with a group of Russian banks to offer China the fatal gift. On July 6, 1895, the Franco-Russian consortium extended a 36 year loan of 400,000,000 francs (nearly $80,000,000) at 4% to the Chinese government to cover half the indemnity. Finance Minister Sergei Iul'evich Witte pledged Russia's resources as security to guarantee the loan.

Neither Great Britain nor Germany were willing to concede so profitable a monopoly to Russia and France however, and over the next three years they made two successive joint loans to China, each for £16,000,000. China secured the loans with Chinese customs revenues. Both nations agreed to give no foreign power rights to supervise or administer those revenues without granting a similar right to Russia. Thus it was that Russia gained the privileged position from which it would later exert its power over China. The Celestial Kingdom had begun the process of mortgaging its sovereignty. The conviction had already formed that China was going to end up being partitioned according to national greed and the power that greed could bring to bear. Many in the Qing government began to have grave forebodings of the eventual extinction of China.

Overwhelmed by Russian offerings of friendship, leading Chinese officials openly advocated an alliance with Russia as a future safeguard against Japanese and Western aggression. Viceroy Li Hongzhang, who had always been pro-Russian and anti-Japanese, gave the idea his full support. He considered an alliance with Russia the cornerstone of future Chinese diplomacy, particularly after Great Britain's disappointing failure to help China during its war with Japan. Even the aging Manchu Empress Dowager Tz'u Hsi sanctioned such an alliance. The Chinese felt that to be defeated by Western Powers was an act of nature. To be defeated by the Japanese however, was another matter, for they were of the same world, even once under the tutelage of China. All but the most blind of China's reactionaries understood that Japan's success came from its adoption of Western science and technology.

Despite their apparent unity against Japan, Russia, France and Germany were not a close knit group. In fact, their financial and political interests defined their relationships more than any action taken by the Japanese. During the late 19th century, warming relations between Russia and France coincided with deteriorating relations between Russia and Germany. In both cases, money was at the root of the changing balance of power.

The French regarded Russia as not only a potential ally in Europe, but as a lucrative financial market for investing free capital. Russian loans paid 4% interest, while internal loans in France yielded just 3.5%. French banks began investing vast amounts of money in higher yield Russian loans. A consortium of Paris banks began buying up Russian securities on the German market, not only because the French saw Russia as an ally, but because the Russian government appeared to be a strong guarantor of the timely cashing of loans and making loan interest payments.

Russia also had a strong financial interest in France. In the early 1890s, the Russian Ministry of Finance adopted a program to accelerate the development of Russian industries, a program that needed capital and lots of it. As Finance Minister Sergei Witte described it, "Russia needed capital as much as the Sahara desert needs water." Witte foresaw an economic expansion in the Far and Near East, mainly in Manchuria and Persia, fueled by state and foreign capital investments. He intended to prepare both markets for the expansion of Russian industry and expected the eventual earnings from the sale of Russian goods in these markets would carry the interest payments on Russia's foreign loans.

In the wake of the Sino-Japanese War, Witte, a strong proponent of the Trans-Siberian Railroad, saw a great opportunity to develop Russia's economic penetration of Manchuria. He understood that extending the Trans-Siberian Railroad through Manchuria could expand Russian influence throughout Northeast Asia without worrying about British sea power. Under his guidance, the St. Petersburg International Commercial Bank and a group of French banks - Hottinger & Co., Banque de Paris et des Pays-Bas (Parisbas), Credit Lyonnais, and Comptoir National d'Escompte - joined forces in December 1895 to create the Russian-Chinese Bank specifically to participate in the development of economic ties between Russia and the Far East. Three eights of the banks initial capital stock of 6 million rubles was invested in Russia and five eights was invested in France. French administrators participated in the bank, but the Russian government retained control of its main operations.

Russian Minister to China, Arturo Cassini worked secretly behind the scenes in Beijing to frame a new agreement with China that would give Russia the right to use any harbor in China and to conscript Chinese troops in the event of a conflict with another Asian state. Of particular interest to Tsar Nicholas, the Qing government also agreed to give Russia use of Port Arthur in case of war. Should another power raise objections, the Russians could use the port facilities at Kiaochow. Finally, Manchuria would be opened to Russia for the purpose of conducting surveys and mapping. Once the Trans-Siberian Railroad was completed , China agreed to allow the construction of a rail line under the joint control of Russia and China that would connect with the port at Talienwan or some other city.

The European powers, while apprehensive about Russia's continued southward expansion, did nothing to deter Japan's aggression in Korea. Germany viewed the continued presence of the Imperial Japanese Army in Korea as indispensible. Other powers felt that demanding a Japanese withdrawal would only stir up more trouble. The British saw Japan's control over Korea as a necessary check on Russian expansion, while the United States government took the bold stand of instructing its minister not to make any statement unfavorable to the Japanese.

Francis Bertie, America's Assistant Under-Secretary of State in charge of the African and Asiatic Departments of the Foreign Office, reviewed the strategic implications for Britain should Russia or Germany seize naval ports in the Far East. On January 28, 1896, he came to the grim conclusion that,

The Russians must have a winter harbour. It would be better that they should have one separated from their territory so that we can cut off their communications with such a harbour rather than they should have Talienwan with the Liaodong Peninsula or a Corean port with Corea . . . the Admiralty ought to make up their minds . . . what counterpoise if any we ought to seek in the event of Russia establishing herself permanently at Kiaochow Bay or at some other Port in the north of China, or at some Corean port.

Russia and Japan saw Korea as a helpless nation;  demoralized and negligible, the inviting target of Russian and Japanese aims. The future of the peninsula hung on the interests, ambitions, aims and purposes of these two powerful Asian nations. The prospect of a peaceful accord or any harmonious adjustment of the situation in Korea was slim and any prospect of an accord that did not leave the peninsula amputated or extinct was almost nonexistent.

Great Britain was anxious to prevent any Russian or German annexation of a Chinese or Korean seaport, but had no way to exert sufficient pressure to prevent it. In a major policy speech on February 3, 1896, First Lord of the Treasury Arthur Balfour invited Russia to focus instead on acquiring a commercial ice-free outlet to the Pacific Ocean. Few in London believed that Russia would react along those lines. The British Director of Naval Intelligence had to admit that Russia's expanded Pacific Fleet, "naturally deserved to have some secure and ice-free place of assembly during the winter months, elsewhere than in Japanese or even Korean ports."

Kim Hong-nuik, born in Hamgyong Province near the Russian border, allegedly could not read either Korean or Chinese. He did have a talent for speaking Russian however, and had worked as an interpreter at the Russian Legation since 1888. A minor bureaucrat, Kim became a key political player after the assassination of Queen Min.

With the Capital Guards Unit out of Seoul dealing with roving guerilla bands, the Russians spotted an opportunity to expand their influence. A contingent of 100 sailors from a Russian warship anchored at Inchon moved into Seoul under the pretext of protecting the Russian legation. An additional 120 sailors joined this group in short order, while Minister Karl Waeber laid plans to persuade King Kojong to seek refuge in the Russian legation.

King Kojong had been a virtual prisoner in his own palace ever since the death of Queen Min, but proved to be a bit more assertive than the Japanese imagined. Out of sheer desperation, the king sought the help of Kim Hong-nuik to help him decide whether to remain a prisoner of the Japanese or seek refuge with the Russians. Kim, along with other members of the royal palace staff, began planning to move King Kojong and Crown Prince Yi-Chak to the Russian Legation.

The plan was successfully executed in every detail. For days on end, women's sedan chairs moved in and out of the palace at frequent intervals, both day and night. In time, the palace guards became quite used to seeing them and paid little attention to their passing. Sometime during the night of February 11, 1896, King Kojong, disguised as a woman, took his seal of state and stepped into a woman's sedan chair. The young Crown Prince, also disguised as a woman, along with several ministers climbed into sedan chairs. The entire group slipped by the Kyongbok Palace guards unescorted. The secretive parade walked directly to the Russian Legation in Seoul, where they were courteously received and given the best portion of the legation building. Almost immediately, Japanese Minister Komura Jutaro met with Russian Minister Alexis de Speyer to request that the king return to the royal palace. King Kojong refused, having already decided on the lesser of two evils.

The Russians quickly seized on King Kojong's arrival at their legation as a heaven-sent opportunity. Once under Russian protection, King Kojong issued a proclamation denouncing the pro-Japanese faction in Seoul. The leaders were captured soon afterward and summarily executed. Kojong dismissed Japanese officials from his court and employed several Russians in his service. He also announced that he would resume his rule over the country from the Russian Legation, where he received visiting ministers and foreign diplomats. Although he escaped the immediate pressure of the Japanese, his continued presence with the Russians tarnishsed Korea's image in the international arena and public opinion began clamoring for his return to the palace. Japanese influence over the Yi court rapidly sank to a new low.

In May 1896, Russia invited all nations to send representatives to Moscow for the coronation of Tsar Nicholas II in the Cathedral of the Assumption in the Moscow Kremlin. Russia took advantage of the opportunity to conclude several secret agreements designed to further its own ambitions in East Asia. It was here that the Russian desire for a railway concession and the Chinese desire for an alliance finally got together.

Seventy-four-year-old Viceroy Li Hongzhang, once in disgrace after the Sino-Japanese War, was appointed China's Imperial Commissioner First Class and head of the Chinese mission to Moscow. Li left China to venture West for the first time in his life to participate in the coronation of a new Russian tsar and to visit with the rulers of Great Britain, France, Germany, and the United States.

The Tsar took no chances and dispatched a trusted emissary to "intercept" Viceroy Li at Suez and personally escort him to Odessa and on to St. Petersburg. Finance Minister Sergei Witte remarked,

[The tsar] . .desired to prevent him [Li] from visiting any other European country before his arrival in Russia, for it was clear to me that while in Europe Li Hongzhang was bound to become the object of the various intrigues of European statesmen.

In St. Petersburg, Finance Minister Witte continued the negotiations begun by Russian Minister Arturo Cassini in Beijing and again presented his case to Li Hongzhang for a railway through Manchuria. Witte confidently assured Li that such a railway would have the beneficial effects of easing Russia's defense of China and of raising the productivity of Chinese agriculture along the right of way. It would not raise Japanese opposition since it would also link Japan to the markets of Europe. Although Li raised a few minor arguments against it, he secretly welcomed the project and approvingly relayed the tsar's remarks that the Trans-Siberian Railroad would benefit both China and Russia by blocking future British and Japanese advances.

Finance Minister Witte also welcomed closer relations with China, but for different reasons. He wanted Chinese concessions to extend the Trans-Siberian Railway across Manchuria to Vladivostok, a route that would not only save some 350 miles and avoid the difficult route down the Amur River valley, but would make the peaceful penetration of China all the more easier in the future. Russia was also allowed to build its own rail line to Mukden, if China found itself unable to do so. The rail lines south from Mukden to Talienwan and Port Arthur would to be built according to Russian designs.

Finance Minister Sergei Witte and Viceroy Li Hongzhang concluded a secret agreement in St. Petersburg on three key principles. First, China would grant Russia permission to construct the Trans-Siberian Railroad along a direct line between Chita and Vladivostok, a route that would expedite the transportation of Russian troops in northeastern China. Second, China would cede a right-of-way nearly one thousand miles long through Manchuria sufficient to permit construction of the railroad across central Manchuria from Manchuli to Sui-fen-ho, linking to the Trans-Siberian line at both terminals. Finally, China and Russia agreed to defend each other against any Japanese aggression against China, Korea, or Russia's East Asian possessions. Russia's interest focused on the first two principles;  China's interest focused on the last.

In addition to concessions in Manchuria, the treaty gave Russia the right to "lease" the port of Kiaochow (modern Jiaozhou) on the southern coast of the Shandong Peninsula for fifteen years and, in the event of a war, to use the facilities at Port Arthur (Lushun).

Russian Foreign Minister Lobanov-Rostovsky drafted the final document and on June 3, 1896, he and Li Hongzhang signed the Li-Lobanov Treaty. Both parties felt they had achieved their goals. Russia gained a firm foothold on Chinese soil, the most important gain of any Western nation to date. With the stroke of a pen, Russia ended Great Britain's commercial supremacy in China. To Li Hongzhang's delight, China had again succeeded in playing one barbarian nation off against another - this time using Russia against Japan. Li proclaimed the treaty would give China twenty years of peace. China would not see even two years of peace. The terms of this agreement set in place an explosive situation that periodically rocked East Asia during the next fifty years.

To fund the construction of the new rail line through Manchuria, Finance Minister Witte used the Russian-Chinese Bank as the instrument of choice to exploit Chinese concessions and secure a strong foothold in East Asia. The Li-Lobanov Treaty was implemented through a contract signed in September 1896 between the Qing government and the Russian-Chinese Bank to finance the operation of a private railroad management company known as the Chinese Eastern Railway Corporation. A branch of the Russian-Chinese bank was created in the frontier town of Harbin, Manchuria, which had far reaching powers, including tax collection duties, the management of local finances and the construction of such railway and telegraph lines as might be conceded to Russia by the Chinese.

The contract creating the Chinese Eastern Railway Corporation stipulated that, "The Company shall have the right unconditionally and exclusively to administer its lands." The "lands" were the rights of way along the railroad. That clause gave the Russians justification for exercising police authority over everyone living along the railroad right of way. To avoid the implication that China had surrendered any right of sovereignty over the rail line, or had given political jurisdiction to the Chinese Eastern Railway , Russia was not allowed to have its own military troops in northern Manchuria. Nevertheless, Russia moved its armed forces into Manchuria to provide police protection by describing them as "railway guards" or "frontier guards."

The Russian-Chinese Bank and the Qing Government oirganized the Chinese Eastern Railway Corporation, but it had few Chinese officers and even less Chinese influence. Stockholders in the company were restricted to Russian and Chinese investors, but the Russian Government owned all the bank's shares. Later, Russia used the corporation to develop and secure its own control in Manchuria. The concession to build the railroad would remain in effect for a minimum of 36 years, after which time China was given the right to purchase the line for a fixed price of 700 million rubles. If it was not bought by the Chinese by that time, the line would revert to Chinese ownership for free after 80 years.

The expansive Russian empire was in its most dynamic phase and there was unanimous agreement in St. Petersburg on the desirability and feasibility of expansion to the Pacific coast. The only difference of opinion concerned the method. The head of the Asiatic Department in the Russian Foreign Office feared that such a route would quickly generate suspicions among other world powers and might lead to the partitioning of China. Despite such objections however, Finance Minister Witte gained the approval of Tsar Nicholas II to expand Russian influence through Manchuria, North China and Korea.

Against this backdrop, Japan maneuvered to recover its waning influence in Korea as best it could, but made little headway so long as King Kojong remained in the Russian Legation. Unable to openly confront Russia in Korea with its limited military strength, Japan had to settle for Russian cooperation in Korea to avoid a fight it was not yet fully prepared to undertake. By the middle of 1896, the strategic landscape in northeast Asia shifted dramatically in Russia's favor. By the winter of 1896, the great Russian bear was leaving tracks across the Far East. Facing the rising sun, it cast its long shadow across the Korean peninsula.