The truth was Lay had somewhat altered the regulations drawn up by Robert Hart and approved by Prince Kung, and had then told Captain Osborne that of course the Chinese would agree to anything he wished.  Subsequent events proved him wrong, and showed that he had made the fatal mistake of committing his employers too far.  Perhaps this was not unnatural considering that he was just then receiving the most flattering notice from the British press and a C.B. from the British Government for his services—­yet it was none the less disastrous.

In May 1863 Lay returned to Shanghai, and, Robert Hart’s acting appointment having come to an end, he was made Commissioner at Shanghai, with charge of the Yangtsze ports, the position being specially created for him by Prince Kung in order to give him more authority than would belong to the simple Commissioner of a port.  That same autumn the Sherard Osborne affair came to a crisis.  Returning from a trip up the Yangtsze, Hart found Lay and Li Hung Chang at daggers drawn.  The former had just peremptorily demanded a large sum of money to provision the fleet, and the latter had flatly refused to put his hand in his pocket without official orders to do so, Robert Hart, who very shrewdly guessed at the real cause of the misunderstanding, offered to go and see Li and explain.  Very tactfully he told Li that all Lay and Captain Osborne wanted was his formal sanction to present at the bank, as without this the transaction would not have the necessary official character.  Li agreed readily enough when the matter was presented in this light; what he had objected to was Lay’s abrupt demand to pay so many thousand taels out of his own pocket immediately.

But no small manoeuvre such as this, however successful, could arrange the larger matter.  The fleet had been an utter failure.  Osborne himself was disgusted; the Chinese were dissatisfied.  They therefore made the best of a bad bargain, and sent the ships back to be sold in England in order to prevent their falling into the hands of the independent and quarrelsome Daimios of Japan, or, as Mr. Burlingame, the United States Minister, greatly feared, into the hands of the Confederates.

Thus ended a very curious incident which, by closing as it did, undoubtedly set back the clock of reform in China.  It may be that from the political point of view this was as well; that, had the venture been an unqualified success, the Chinese might have thrown themselves too much into the arms of foreign Powers and tried to reform too fast by slavish imitation instead of slowly working out their own salvation.