War with Japan sounded the first trumpet-blast which should have been heeded.  In the year 1894, being faced with the necessity of finding immediately a large sum of specie for purpose of war, the native bankers proclaimed their total inability to do so, and the first great foreign loan contract was signed.

[Footnote:  (a) This loan was the so-called 7 per cent Silver loan of 1894 for Shanghai Taels 10,000,000 negotiated by the Hongkong & Shanghai Bank.  It was followed in 1895 by a 3,000,000 pounds Gold 6 per cent Loan, then by two more 6 per cent loans for a million each in the same year, making a total of 6,635,000 pounds sterling for the bare war-expenses.  The Japanese war indemnity raised in three successive issues—­from 1895 to 1898—­of 16,000,000 pounds each, added 48,000,000 pounds.  Thus the Korean imbroglio cost China nearly 55 millions sterling.  As the purchasing power of the sovereign is eight times larger in China than in Europe, this debt economically would mean 440 millions in England—­say nearly double what the ruinous South African war cost.  It is by such methods of comparison that the vital nature of the economic factor in recent Chinese history is made clear.]

Little attention was attracted to what is a turning-point in Chinese history.  There cannot be the slightest doubt that in 1894 the Manchus wrote the first sentences of an abdication which was only formally pronounced in 1912:  they had inaugurated the financial thraldom under which China still languishes.  Within a period of forty months, in order to settle the disastrous Japanese war, foreign loans amounting to nearly fifty-five million pounds were completed.  This indebtedness, amounting to nearly three times the “visible” annual revenues of the country—­that is, the revenues actually accounted for to Peking—­was unparalleled in Chinese history.  It was a gold indebtedness subject to all sorts of manipulations which no Chinese properly understood.  It had special political meaning and special political consequences because the loans were virtually guaranteed by the Powers.  It was a long-drawn coup d’etat of a nature that all foreigners understood because it forged external chains.

The internal significance was even greater than the external.  The loans were secured on the most important “direct” revenues reaching Peking—­the Customs receipts, which were concerned with the most vital function in the new economic life springing up, the steam-borne coasting and river-trade as well as the purely foreign trade.  That most vital function tended consequently to become more and more hall-marked as foreign; it no longer depended in any direct sense on Peking for protection.  The hypothecation of these revenues to foreigners for periods running into decades—­ coupled with their administration by foreigners—­was such a distinct restriction of the rights of eminent domain as to amount to a partial abrogation of sovereignty.