by Carl Crow
There were several blank weeks in the history of Grimes before he arrived at the Grand Hotel in Yokohama with a fair amount of baggage and registered as Dr. Peters of the Fiji Islands. His letters showed that he was the chief medical officer of the Fiji Islands who was making a trip to Japan to purchase hospital supplies. A series of cables convincingly explained a mix-up about his letter of credit and said that a new letter for 10,000 yen was on its way. The manager of the hotel not only gave him credit but personally loaned him 500 yen for spending money.
For a week or more the hospital supply houses of Tokyo and Yokohama were kept busy booking the biggest orders they had ever received. Dr. Peters found the hospitals of Japan so superior to those he had seen in a world tour of investigation that he told the delighted Japanese he intended to recommend to his government that all other equipment be scrapped and replaced by their products. A few days later he was able to show a Tokyo manufacturer a cable stating that his recommendation had been approved and authorizing him to double his purchases. The cable included polite expressions of regret that he should be temporarily embarrassed by lack of personal funds and assured him that more letters of credit were on the way. The Japanese read this part of the cable as well as the other and was horrified to think that a good friend and customer should have any worries over money matters. Dr. Peters reluctantly admitted that he had only a few yen in his pockets and funds were immediately supplied. It would have been impolite to press him as to the amount he needed so in true Japanese style the manufacturer gave him an envelope containing a sum which, as a personal loan, was as princely as the purchases had been. There were a number of manufacturers who had received large orders. Each of them saw the cable and each responded in the same generous way. With his pocket full of yen notes the bogus Dr. Peters was ready to leave Japan when something happened.
The San Quentin officials had sent to Shanghai a picture of the prisoner who insisted that his name was Johnson and that he had never been on the China Coast. One look at the picture showed that it certainly was not Grimes. The unfortunate deputy reluctantly told his story. Cables were sent and the unfortunate Johnson was released and sent to his home in Sweden with a new outfit of clothes and a liberal amount of money. The Japanese police had no difficulty about locating Grimes, but they couldn’t find the thousand-yen notes the hospital-supply manufacturers had loaned him. He was brought back to Shanghai and the judge took no more chances on sending him across the Pacific and sent him to Bilibid in the Philippines. When he had served his term he paid one brief visit to Shanghai. So far as is known only one person saw him. That was a Chinese banker who advanced him fifty thousand taels against a forged bill of lading for a cargo of flour.
Shanghai saw no more of him. But a few years ago he wrote me from an address outside the United States. The tone of his letter would indicate that we were Shanghai buddies. His idea was that he would supply me with the material and I would write the story of his life. The idea was intriguing but I felt that I couldn’t do a good job of work if I had to write with one hand on my pocketbook.
If anyone has any doubts about whether the American youth of today has retained the venturesome spirit of his pioneer forefathers, he should live in Shanghai for a little time and see the number of them who are adventuring around the world without a letter of credit, or credit of any kind, and rarely with enough money to carry them to the next port. I have seen hundreds of them of both sexes, and although there usually did not appear any prospects for them to secure any employment locally, I recall but one or two who did not find something to do. In theory the large number of young Americans who landed in Shanghai every year without any visible means of support should have placed on the local American community the burden of feeding them or sending them home. In practice all they ever asked for was an opportunity to work and those who were not successful managed in one way or another to get back home or find their way to another port.
Many of them were girl stenographers, and many others were reporters of both sexes. In fact for years the local newspaper offices and business concerns have depended on these vagrant young Americans just as the printing offices of America used to depend on the “tramp printer” before the use of linotype became general. And places were found for the newcomers for the same reason that there were vacant type cases in the old newspaper offices. Though some of the young adventurers got steady jobs and settled down for years and became old residents, most of them were off to Bangkok or Batavia or some other spot as soon as they had saved a little money.
Most of the young fellows looking for newspaper work came to see me, and it was only by chance that I came in contact with others. I will never forget one who came to ask my help in getting wholesale prices on a line of cheap American watches I was advertising. He said he had a new market for the watches and would not interfere with any of the local retail outlets, but until he had developed this market he didn’t want to disclose what it was.
The distributor saw no harm in coming to an arrangement with him on a strictly cash basis and sent me a stock of watches and the responsibility for carrying out the deal. The model the young man was interested in selling was an imitation gold of very showy design that sold in America for $3.50. When he learned the price, it developed that he had just enough money to pay for two watches, and he started in business with that limited stock.
In less than half an hour he was back, and the money he had collected enabled him to pay for three watches. He soon returned to buy five watches. His final purchase for the afternoon was six watches which was about all he could dispose of in a light-weight suit without appearing to be stuffed with hard-boiled eggs.
This kept up for several days with the purchase of watches in half-dozen lots until he had disposed of several hundred of them. Then as he made his usual purchase he thanked me for my kindness and said he probably wouldn’t see me again as he was off the next day for Hong Kong.
“But,” I said, “why leave Shanghai when you are doing such a good business? I haven’t asked you any questions, but you must be doing pretty well. You sold more than fifty watches yesterday.”
“I’ve done very well,” he said, “but I am about out of customers. I’ve hocked at least one watch in almost every pawnshop in town, and I think that is just about the saturation point.”
VI
“Master can sign chit”
“If the profits are great, the risks are great.”
THERE were a lot of reasons for the establishment in China of an easy system of credits, and in a country where customs changed very slowly the system continued long after the reasons for its existence had disappeared. The foreigner was generally regarded as a man of great wealth which he undoubtedly was when his earning power was compared with that of the general average of the Chinese about him. The extravagance of his mode of living made him a spectacular figure and created the impression that he did not have to worry about the amount of money he spent. The club bar bills of many of the taipans amounted to more than a successful small shopkeeper could earn. The cost of foreign imported food was a constant source of amazement to people who bought a picul of rice with the expectation that it would feed the entire family for a month. The shopkeepers who competed for this profitable business were glad to extend credit to these extravagant and highly profitable customers, and they did so with a minimum of risk. Foreigners were few in number and the status of each was pretty well known.
The chances were that Shopkeeper Wong had a nephew or a cousin on the pay roll of the customer’s office and knew at all times just what his financial status was. Even if he did not have this information available in his own family circle there were always ways of getting it. There was never any particular danger of the debtor running away, for he was usually under an employment contract; and everyone with whom he had any dealings knew just when he had enjoyed his last home leave and when the next one was due. There was a general belief that all foreigners paid their debts; and although there were always some w
ho did not, the profits made on those who did pay evened up for all losses on the others. The fact that a man who was in business for himself was not able to pay his bills for several months or might be in straitened circumstances for a longer period did not necessarily injure his credit rating. There was always a big element of chance in the import and export business; one’s working capital might be tied up for months at a time but by the law of averages the old-timer could be expected to make a clean-up sooner or later.
Even if he had desired it, the foreign business man could not escape the element of gambling in his trading for he dealt in no fixed values. Chinese produce might increase or decrease in price during the months that must elapse between the time the contract for its sale was made and the cargo was collected from up country, packed and placed on board ship so that drafts might be drawn against the purchaser. In theory the foreign merchant was solely a commission agent who imported or exported cargo only against firm orders backed by banks’ letters of credit. In practice he often extended credit and was left with cargo on his hands on which he might make or lose a great deal of money. I know an American who was in a small business in Hong Kong and had secured in 1914 a very large order for steel from a Chinese dealer. When news came of the outbreak of war in Europe the dealer got panicky and canceled his order and the American saw bankruptcy as inevitable. After the American had spent a few sleepless nights the dealer was back trying to cancel his cancellation but without success for steel prices were rising.
Long before the cargo reached Hong Kong the American had sold it for a neat profit of $50,000. Believing that with the demands made by, the war steel would go still higher he placed further orders and finally made a profit of several hundred thousand dollars on steel without having had a single bar of it stored in his godown. This small fortune was made as a result of wartime conditions but at all times there were similar opportunities in silk, cotton, peanuts, hides and dozens of other products for which there is always a sale though at prices that seldom remain fixed for more than a few hours at a time.
Another element of gambling was always present because the trader bought in one currency and sold in another and there was no fixed relation between the two. All transactions in China whether for the purchase of produce or the sale of foreign goods were made in silver currency either the “Mex.” dollar or the tael which was not a coin but an ounce of silver. In the currencies of the world the dollar or the tael were worth their market value in silver, nothing more nor less. The value fluctuated every day and sometimes there were steady trends in one direction or the other. When I went to China the Mex. dollar was usually figured as being worth about fifty cents in U. S. currency as the quotation usually hovered within a few cents of that figure. For a time it was worth twice that figure and then it slipped back to less than half.
A great many people made fortunes as money-changers on a large scale, buying and selling silver currency just as one would play the wheat market at home. During periods of violent fluctuation a speculator might easily make thousands of dollars in a day or lose thousands just as easily and just as quickly. When the value of silver was fluctuating violently the biggest news of the day was provided by the announcement of the exchange rate which was made every morning at 10 o’clock by the Hongkong & Shanghai Bank. Within a very few minutes everyone in Shanghai knew whether the rate at which the silver dollar could be exchanged was steady or had gone up or down. The telegraph flashed the news to every corner of China. No matter what the quotation might be it was good news for some and bad for others. The importer wanted to see the price of silver go up because it would mean a greater sale for imported goods. The exporter wanted to see it go down as that would mean he would make a larger profit on the sale of Chinese produce. It was not until just before the Japanese invasion that the Chinese government succeeded in establishing its currency on a gold basis and so reduced this speculative element in trading to a point where it was not the principal factor in trade. The results were just beginning to tell in the form of increased prosperity when the Japanese troops marched in.
Because of the element of chance that was to be found in all business the China Coast resident developed a gambler’s point of view toward life - a tendency to accept reverses as just one of those things that can’t be helped and to look forward with confidence to better luck next time. A drop in the price of silver might mean heavy losses to one section of the community but it would just as surely mean just as heavy gain to another. Civil war in the interior would mean a disruption of trade but it made credits easier in the foreign concessions because the refugees brought their money in for deposit in the foreign banks. The Japanese invasion starting in 1937 gave the trade of Shanghai the most severe blow that the old-timers could remember and when the Chinese currency started slipping toward fractional values there did not appear to be any hope. But when things looked their blackest there was an unexpected boom in real estate as men who had money on deposit in the banks hastened to buy land before the currency could slip to any lower level.
Almost everyone speculated on exchange and for a long time the banks encouraged this form of gambling by making it easy for almost anyone to sign contracts for the sale or purchase of any kind of foreign currency in terms of Chinese money. I was one of many who thought that the drop in the value of the Russian rouble was only temporary and that it was only a question of time until there would be a change for the better. The change came but not the sort we expected and roubles dropped still lower. But at the same time we had bet that the pound sterling would increase in value which it did so that the loss in roubles was partially offset. The foreign devils were inveterate gamblers as were the Chinese for that matter and they had the gambler’s inexorable belief that the next deal would be the lucky one.
Bank credits were easy. In a way they had to be or neither the banks nor the traders would have done very much business. The principal function of the banks was to finance the shipment of cargo. If a merchant had an order for $100,000 worth of peanuts the bank would advance the money to pay for the peanuts as they were collected and prepared for shipment. Or in the case of import cargo the bank would pay the manufacturer in America for the cargo and carry the importer’s overdraft until the cargo was landed on the China Coast and paid for. These were not long-term loans for at most they would run for only a few months. The profit made by the bank was not confined to the interest collected. Each transaction gave the bank a deal in foreign exchange and the larger the volume of exchange business the bank controlled, the stronger its position would be in the never-ending struggle between the currencies of the world.
This control of foreign exchange not only enabled the great banks to make huge profits for themselves but was of great advantage to the business men of their own countries. For many years the American banking machinery of China was of such negligible importance that all American business was financed through London, placing the American trader at a great disadvantage. In fact American trade did not begin to prosper until American banks were strong enough to stand on an even basis with the banks of other countries.
The security held by the banks was nothing so tangible as real estate or stocks and bonds. It might consist of anything from a dozen cases of lipstick to a tanker full of wood oil. It might be moved about from one place to another and it fluctuated in value. The banks sometimes took heavy losses and very frequently they gave the defaulting creditor additional credits and helped him to recoup his losses and pay off all his debts. It used to be said in Shanghai that the most certain way to insure business success was to fail and get heavily in debt to the Hongkong & Shanghai Bank. Instead of throwing the unfortunate trader into bankruptcy the bank would help him to get started again. There was no odium attached to being in debt but the man who escaped his creditors by going bankrupt had a hard time ever living that down.
The system of extending credits against cargo made fraud easy but it was not common. One firm of Continental importers did build up what appeared t
o be a very large business in cheap glassware and at the climax of its operations the banks held liens against hundreds of cases of what was supposed to be readily salable cargo. But when the cases were finally seized and opened it was found that they contained nothing but stones and straw. Because such frauds as this were easy, commercial credits were placed on a personal basis. The man with a good reputation would find it easy to secure an overdraft while the newcomer would be dealt with cautiously and the man who was known to have taken part in some shady deal in the past was unofficially but effectively black-listed.
The inconvenient currency made an easy credit system in retail business almost a necessity. The old Mexican silver dollar which was the standard medium of exchange in all retail transactions was a beautiful but clumsy coin even when freshly minted. Only five or six of them would cause a noticeable weight in the pocket of a light-weight suit and it would have been practically a physical impossibility to carry enough of them to meet the expenses of a gay dinner party or an evening at a night club. Paper bank notes were not common and it was a long time before they were generally accepted. The silver dollars did not retain their original beauty for very long. Every time one of them came into the possession of a Chinese banker or exchange merchant he would test its genuineness and give it his guarantee by stamping it with a steel die or with ink. The result was that the coin soon became a misshapen and filthy lump of silver which fastidious people would not handle if they could avoid it.
Then there was the “small money” system which provided a complicated mathematical problem every time there was a purchase involving a fractional part of a dollar. The coins consisted of twenty-cent pieces, ten-cent pieces, and coppers. But no one of these coins had any fixed relation to the dollar or to any other coin. The dollar might be changed for five twenty-cent pieces, one ten-cent piece, and seven or eight coppers. But ten coppers could not be changed for a ten-cent piece, nor could a twenty-cent piece be changed for two ten-cent pieces. It was no easy task to master the intricacies of this complicated system of exchange and one of transient utility, for the relative value of each coin fluctuated every day. One might possibly go to the trouble of figuring out the change he should get out of a dollar on a twenty-five-cent purchase, but he would have to figure it all out again with a new set of values the following day.
