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Leading the Way: The United Kingdom's financial and trade relations with Socialist China, 1949–1966*

Published online by Cambridge University Press:  21 December 2016

ROBERTO PERUZZI
ROBERTO PERUZZI*
Affiliation:
Department of Asian and North African Studies, Ca’ Foscari University of Venice, Italy Email: peruzzi@unive.it
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Abstract

This article aims to deepen scholarly understanding of the special political and economic connection between Britain and Socialist China during the 1950s and the 1960s. After 1949, the British government had substantive reasons to preserve a link with Beijing, despite the unfolding of the Cold War. First, British assets in China were numerous. Second, the Crown colony of Hong Kong was an indispensable strategic enclave, although militarily indefensible. Third, the Foreign Office considered that Asia should represent an exception to unquestioned British loyalty to the Atlantic alliance, since the United Kingdom needed to prove that it was able to represent and preserve Commonwealth interests in the area. The article will point out that the United Kingdom maintained a privileged role as the main trading partner of the People's Republic of China (PRC) outside the Socialist bloc, thanks to the financial and commercial role played by Hong Kong. This is proved through an analysis of the fate of British financial institutions in China, which represented a favourable exception in the bleak scenario of the PRC nationalization process, as well as of the industrial development of the British colony, which was based on importing food and labour from the mainland, while serving as a financial hub in support of the PRC economy.

Type
Research Article
Information
Modern Asian Studies , Volume 51 , Special Issue 1: Circumventing the Cold War: The parallel diplomacy of economic and cultural exchanges between Western Europe and Socialist China in the 1950s and 1960s , January 2017 , pp. 17 - 43
Copyright
Copyright © Cambridge University Press 2017 

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Footnotes

*

I am indebted to Catherine R. Schenk and her research, which opened the way for a different and richer approach to the topics treated in this article, the limits of which are only my fault.

References

1 To a much lesser extent, in the 1960s, Singapore and Macau also had a similar role.

2 For aspects of the PRC's politics and economy in the period, see Zanier's article in this special issue.

3 The National Archives, United Kingdom (hereafter: TNA), FO 371/75749, F. 5523/1015/10.

4 The HSBC was involved in more than 80 per cent of the value of foreign investments and interests, not only British, but also those of many others countries (such as the United States, France, Canada, Australia, and others).

5 This soon involved Singapore and London as financial and trade brokerage centres, especially for the Bank of China, and, indirectly, New York and Kuwait City as the main markets for sterling securities outside the Commonwealth area, while Hong Kong was the most important market in the sterling area after the United Kingdom.

6 Clayton, D. (1997). Imperialism Revisited. Political and Economic Relations Between Britain and China, 1950–54, Macmillan, Basingstoke Google Scholar; Wenguang, Shao (1991). China, Britain and Businessmen: Political and Commercial Relations, 1949–57, Macmillan, Basingstoke Google Scholar; Tang, J. T. H. (1992). Britain's Encounter with Revolutionary China, 1949–1954, Macmillan, London, 1992 CrossRefGoogle Scholar.

7 In this regard, Aron Shai talks of ‘hostage capitalism’. See: Shai, A. (1996). The Fate of British and French Firms in China, 1949–1954. Imperialism Imprisoned, Macmillan, Basingstoke Google Scholar.

8 Howlett's work shows a more nuanced attitude on the part of the PRC government: Howlett, J. (2013). ‘The British boss is gone and will never return’: Communists takeovers of British companies in Shanghai (1949–1954), Modern Asian Studies, vol. 47, no. 6, pp. 1941–1976 CrossRefGoogle Scholar.

9 Specific references to Schenk's works are made in the text that follows.

10 King, F. H. H. (1991). The History of the Hongkong and Shanghai Banking Corporation, Cambridge University Press, Cambridge Google Scholar.

11 Osterhammel, J. (1992). Storia della Cina moderna (Italian edition), Einaudi, Torino, p. 318 Google Scholar, note 52 (original edition: China und die Weltgesellschaft, C. H. Beck, Munchen, 1989).

12 In March 1953, he became chairman of the London Committee of HSBC.

13 Collis, M. (1965). Wayfoong. The Hongkong and Shanghai Banking Corporation, Faber and Faber, London, p. 243 Google Scholar.

14 Ibid., p. 242.

15 For a study on capital transfer from Shanghai to Hong Kong in this period, see: Wong, Siu-lun (1988). Emigrant Entrepreneurs: Shanghai Industrialists in Hong Kong, Oxford University Press, Hong Kong, especially Chapter 3Google Scholar.

16 Collis, Wayfoong, p. 244.

17 TNA, FO 371/46232, F. 1331/409/10. See also: Shai, A. (1984). Britain and China, 1941–1947: Imperial Momentum, Macmillan, London, pp. 150–151 Google Scholar; Tang, Britain's Encounter with Revolutionary China, pp. 15–16.

18 TNA, CAB 129/31, CP (48) 299, December 1948.

19 Any thoughts of a military defence of Hong Kong was definitively abandoned when the American administration refused to give a guarantee of the defence of the colony in 1951; the British Army provided only a symbolic defence in the eventuality of Chinese aggression. Fischer, G. (1968). ‘Hong-Kong’, Revue française de science politique, 18e année, no. 2, pp. 323–324.

20 Ovendale, R. (1983). ‘Britain, the United States, and the recognition of Communist China’, The Historical Journal, vol. 26, no. 1, p. 142 CrossRefGoogle Scholar.

21 FRUS, 1949, IX, p.14–32, Stuart to Acheson, 17 May 1949, pp. 24–25. Ovendale, ‘Britain, the United States, and the recognition of Communist China’, p. 144.

22 TNA, FO 371/75814, F. 12884/1023/10, Stevenson to Bevin, 29 August 1949; TNA, FO 371/75814, F. 13102/1023/10, Stevenson to Bevin, 1 September 1949.

23 Ovendale, ‘Britain, the United States, and the recognition of Communist China’, pp. 147–148.

24 As remembered by R. P. Moodie, accountant at HSBC in Shanghai: The only difference was that ‘before all the roads were covered with Nationalist flags, this time they were all Communist flags’. Other differences were the unusual (for the Bank's employees) aggressiveness of the union representing the Chinese employees and engineers who were working for the Shanghai branch. See King, F. H. H. (1991). The History of the Hongkong and Shanghai Banking Corporation, Vol. IV: The Hongkong Bank in the Period of Development and Nationalism, 1941–1944. From Regional Bank to Multinational Group, Cambridge University Press, Cambridge, pp. 374–375 Google Scholar.

25 Kung Hsiang-hsi (in Pinyin: Kong Xiangxi), banker and Nationalist politician, brother-in-law of T. V. Soong.

26 Soong Tzu-wen (in Pinyin: Song Ziwen; generally known in English as T.V. Soong), minister of finance (1928–1933), governor of the Central Bank of China (1928–1934), and brother-in-law of Sun Yat Sen and Chiang Kai-shek.

27 King, F. H. H. (1988). The History of the Hongkong and Shanghai Banking Corporation, Vol. III: The Hongkong Bank between the Wars and the Bank Interned 1919–1950, Cambridge University Press, Cambridge, pp. 411–412 Google Scholar.

28 Moodie in King, The History, Vol. IV p. 375.

29 Edwards in ibid., pp. 375–376.

30 Most of them closed in 1941 and in 1949 (six in one year), only to reopen in the first half of the 1980s (Guangzhou, Canton, in 1979). Qingdao closed in 1951, Shantou in 1953, Tianjin in 1954, and Beijing in 1955.

31 King, The History, Vol. IV, p. 378.

32 Ibid.

33 In the period 1950–1954, the HSBC had to transfer US$10 million from London to Shanghai to cover the Chinese branches’ liabilities, and US$18 million to meet current expenses.

34 King, The History, Vol. IV, p. 383.

35 Ibid., pp. 377 and 383.

36 Ibid., p. 383. The ‘Ta Hwa Agreement’, as it was called, was signed on 26 April 1955 by the HSBC, the Bank of China, and the Ta Hwa Enterprises Company.

37 This was going to be the ‘Ta-Wha Enterprises Company’, created in accordance with the agreement between the Bank of China and the HSBC. Turner to Yoxall, 15 July 1953, Shanghai file, Chairman's papers, HSBC Group Archive.

38 Turner to Morse, 14 October 1954, Chairman's papers, Post settlement file, HSBC Group Archive; Turner to S. A. Gray, 26 April 1954, in ‘China’, Closure file, ibid.

39 It is worth noting that this was the same Morse who in 1952 communicated to the Chartered Bank his opinion that it was necessary to close down all activities in China.

40 King, The History, Vol. IV, p. 396.

41 If there was a common basic approach by the Chinese authorities in dealing with foreign firms in China, the ‘special relationship’ with the HSBC was an exception to the rule. As an introduction to this, see Howlett, ‘The British boss is gone and will never return’, pp. 1941–1976 (with two interesting case studies). See also: Shao Wenguang, China, Britain and Businessmen; Shai, The Fate of British and French Firms in China, 1949–1954.

42 Turner and the HSBC Board ‘forgot’ to give the Bank of England any information about their negotiations and about the final agreement. King, The History, Vol. IV, p. 394.

43 Collar wrote one of the first serious analyses of the perspectives for PRC-United Kingdom trade: see Collar, H. J. (1953). ‘British commercial relations with China’, International Affairs (Royal Institute of International Affairs), vol. 29, no. 4, pp. 418–428 CrossRefGoogle Scholar.

44 Report on the Trade Mission by F.C.B. Black to O. Skinner in Hong Kong, 27 November 1954, in Correspondence in the Post-settlement file, Chairman's paper and in the Correspondent Banking Department files, HSBC Group Archive.

45 King, The History, Vol. IV, p. 391. For the HBSC-Bank of China relationship in the 1950s, see Schenk, C.R. (2009). ‘Sterling, Hong Kong and China in the 1930s and 1950s’, in White, N. and Akita, S. (eds), International Order of Asia in the 1930s and 1950s, Ashgate, Farnham, pp. 131–150 Google Scholar.

46 King, The History, Vol. IV, pp. 384 and 393.

47 Supposedly, it was referring to the Banque de l'Indo-chine, as we can see in Bonin, H. (2002). ‘Les Banquiers français en Chine (1860–1950): Shanghai et Hong Kong relais d'un impérialism bancaire ou plates-formes d'outre-mers multiformes?’, in Cesari, L. and Varaschin, D. (eds), Les relations franco-chinoises au vingtième siècle et leurs antécédents, Artois Presses Université, Arras, pp. 157–170 Google Scholar.

48 Both the banks had managers and offices in mainland China in the period considered here. HSBC Group Archive, Correspondent Banking Department files, G. O. W. Stewart to S. W. P. Perry-Aldworth, 19 April 1960.

49 King, The History, Vol. IV, p. 399.

50 Ibid., p. 397.

51 In 1962, due to the heavy taxation on revenues, closing the Shanghai office of the HSBC was reconsidered, but again the Board in London decided to maintain the branch, anticipating long-term advantages. W.A. Stewart to F.J. Knightly, 30 December 1964, Paper for March 1962 Board Meeting recommended closing the Shanghai branch, General Head Office, 158, HSBC Group Archive; Letter from L. Kadoorie arguing to maintain the Shanghai office, March 1961, General Head Office, 157, HSBC Group Archive.

52 W. A. Stewart to M. W. Turner, 12 January 1965, General Head Office, 158, HSBC Group Archive.

53 From 1968 to 1971, the Shanghai office's profits rose from RMB108,000 to RMB288,000. General correspondence, London Office to Head Office, 1967, 1970, 1971, General Head Office, 160, HSBC Group Archive.

54 Schenk, C. R. (2012). ‘Banking and Exchange Rate Relations between Hong Kong and Mainland China in Historical Perspective’, in Schenk, C. R. (ed.), Hong Kong SAR's Monetary and Exchange Rate Challenges, Palgrave, London, p. 58 Google Scholar.

55 The China Resources Company was mainland China's biggest import/export corporation based in Hong Kong.

56 Also known as ‘the Paris Group’, created in 1949. The 15 members comprised the United States, Canada, and Western European countries.

57 Mitcham, C. J. (2005). China's Economic Relations with the West and Japan, 1949–1979, Routledge, London, pp. 7–10 Google Scholar.

58 Ibid., p. 6.

59 TNA, T 317/902, Board of Trade/Secret/J.H.M. Solomon to D.M. Day (FO), 4 September 1967, ‘China Trade with the United Kingdom’, CRE 4. See also King, The History, Vol. IV, pp. 926–929; Mitcham, China's Economic Relations, pp. 10–13; Simei, Qing (1990). ‘The Eisenhower Administration and Changes in Western Embargo Policy Against China, 1954–1958’, in Cohen, W. I. and Iriye, A. (eds), The Great Powers in East Asia, 1953–1960, Columbia University Press, New York, pp. 128–131 Google Scholar.

60 Yeung, P. (1970). ‘Trade ties between Hong Kong and Mainland China’, Asian Survey, vol. 10, no. 9, p. 822 CrossRefGoogle Scholar.

61 Hong Kong Government (1968), ‘Hong Kong Trade and Shipping Returns, 1931–40’, ‘Hong Kong Trade Returns, 1946–53’, ‘Hong Kong Trade Statistics, 1954–66’, Hong Kong Government Gazette, Special Supplement no. 4, 2 February 1968.

62 Yeung, ‘Trade ties between Hong Kong and Mainland China’, p. 823.

63 Collis, Wayfoong, p. 243.

64 ‘Prospects for Trade with China’, Far Eastern Economic Review, 29 September 1955, pp. 395–399.

65 Szczepanik, E. (1958). ‘The embargo effect on China's trade with Hong Kong’, Contemporary China, vol. 2, pp. 85–93 Google Scholar.

66 Yeung, ‘Trade ties between Hong Kong and Mainland China’, pp. 822–823.

67 Ibid., p. 824.

68 Data and statistics from: Hong Kong Government, ‘Hong Kong Trade Returns, 1946–53’, ‘Hong Kong Trade Statistics, 1954–66’, Hong Kong Government Gazette, Special Supplement.

69 TNA, CO 1030/1747, Memorandum on the social origins of Hong Kong's disturbances, CO 1030/1746, FCO 40/39, UK Parliamentary Commission on Hong Kong's disturbances report, FCO 40/263, FCO 40/54, T 295/241.

70 Share, M. (2007). Where Empires Collided: Russian and Soviet Relations with Hong Kong, Taiwan and Macao, Chinese University Press, Hong Kong, pp. 148–149 Google Scholar.

71 Szczepanik, E. (1961). ‘Hong Kong's trade with Mainland China’, Hong Kong Economic Papers, no. 1, pp. 65–74 Google Scholar; Chen, E. (1987). ‘Foreign Trade and Economic Growth in Hong Kong: Experience and Prospects’, in Bradford, C. I. and Branson, W. H. (eds), Trade and Structural Change in Pacific Asia, University of Chicago Press, Chicago, pp. 333–334 Google Scholar.

72 Eckstein, Communist China's Economic Growth, p. 286. Price, R. L. (1967). ‘International Trade of Communist China, 1950–65’, in An Economic Profile of Mainland China, Studies Prepared for the Joint Economic Committee, Congress of the United States, vol. 2, Government Printing Office, Washington, DC Google Scholar.

73 Szczepanik, ‘Hong Kong's trade with Mainland China’, pp. 65–66.

74 Davis, D. (1963). ‘China earns from Hongkong’, Far Eastern Economic Review, pp. 689–695. US Central Intelligence Agency, Communist China's Balance of Payments, 1950–65 (1 August 1966), pp. 47–48.

75 Hong Kong Government, ‘Hong Kong Trade Statistics, 1954–66’, Hong Kong Government Gazette, Special Supplement. Eckstein, Communist China's Economic Growth, p. 286. Yeung, ‘Trade ties between Hong Kong and Mainland China’, pp. 825, 827.

76 Laurens, ‘Les pays occidentaux et le marché chinois’, pp. 75–76.

77 TNA, T 317/902, Confidential, Board of Trade, CRE 4, 25 May 1967, ‘United Kingdom trade with China’; TNA, T 317/902, Secret, Ministry of Defence, D. W. Russell, CO, Dependent Territories Division, 10 July 1967, ‘Value of Hong Kong to China’. See also Laurens, ‘Les pays occidentaux et le marché chinois’, p. 76.

78 The central financial role of Hong Kong was strengthened in 1964 by the decision of Eisaku Sato, prime minister of Japan, to limit the Import-Export Bank of Japan in granting credits to Japanese enterprises for trading with mainland China, pushing them to look for financial support in the colony's banking system.

79 TNA, T 317/903, Secret, M.C. Fessey, Minute on Treasury meeting/enclosed report: ‘Direct investments in Hong Kong’, 18 May 1967; TNA, T 317/903, Secret, B. J. Murray Preston to Mr Copeman, 17 May 1967, Ministry of Defence meeting/enclosed report: ‘A Note on the Economic Value of Hong Kong to China’.

80 Schenk, ‘Banking and Exchange Rate Relations between Hong Kong and Mainland China’, p. 47.

81 Some of the banks were registered in China, others were registered in Hong Kong but controlled by the PRC. It is possible that there were other Chinese financial institutions registered in the colony or in Singapore for which it is not possible to establish effective ownership by the PRC or PRC-controlled banks. On the Bank of China see also: Mitcham, China's Economic Relations, p. 12, and n. 30; Szuprowicz, B. O. and Szuprowicz, M. R. (1978). Doing Business with the People's Republic of China: Industries and Markets, John Wiley and Sons, New York, pp. 75–78 Google Scholar.

82 The Nanyang Commercial Bank was registered in Hong Kong but was a PRC-controlled bank.

83 After 1967, the three banks’ deposits gradually lowered and in 1972 reached a level of 9 per cent. Only in 1981 did they reach again 15 per cent. Schenk, C. R. (2000). ‘Banking groups in Hong Kong 1945–1965’, Asia Pacific Business Review, vol. 7, no. 2, pp. 131–154 CrossRefGoogle Scholar. See also Schenk, ‘Banking and Exchange Rate Relations between Hong Kong and Mainland China’, pp. 48 and 51.

84 Schenk, ‘Banking and Exchange Rate Relations between Hong Kong and Mainland China’, p. 48.

85 The only available report on the specific nature of liquidity regarding the Chinese banks registered in Hong Kong is one from December 1966. In that month ‘the 80% of the overall liquidity of Chinese Mainland banks was held overseas’. Twenty per cent was held in cash and ‘net bank balances in Hong Kong’. About 70 per cent of these overseas liquid assets were held in the PRC, and the rest in London. See Schenk, ‘Banking and Exchange Rate Relations between Hong Kong and Mainland China’, pp. 51–52.

86 Ibid., p. 53.

87 For a general overview of the banking system in Hong Kong, see: Schenk, C. R. (2001). Hong Kong as an International Financial Centre. Emergence and Development, 1945–65, Routledge, London, pp. 44–71 CrossRefGoogle Scholar.

88 Of course, recognition of the PRC was also determined by the awareness that there was no alternative to a pragmatic approach to the situation.

89 Namely, the involvement of the PRC in the Indochinese War, and the beginning of the Korean War.

90 Among others, PRC-controlled shipment companies operating from Hong Kong and Singapore did so under the British flag.

91 Some of these banks also operated from Singapore, Malaysia, and London.

92 TNA, T 317/902, Secret, From the Bank of England to Mr Figgures (FO), 30 August 1967. The Bank of China purchased sterling securities on the international markets, in particular in Kuwait and New York, also through the banks of other countries, especially the French Banque de l'Indochine. Schenk, Hong Kong as an International Financial Centre, pp. 82–88.

93 This is visible in Table 2, when adding direct trade between United Kingdom and PRC to Hong Kong's trade with mainland China.