Wednesday, December 28, 2005

1874: The Year A Tiger Changed Its Stripes

Much has been made in these pages of Jardine Matheson's early role as a founder of Hong Kong, in the rather amoral context of its desire to trade opium profitably and unmolested in China. Its role is undeniable, and is a major reason why Hong Kong is the unsentimental, business-first city that it remains today, much like the character of William Jardine.

But it must be said in the firm's defense that it soon divested itself from the opium trade, concentrating more on shipping, manufacturing, property and infrastructure projects. Although one of its one-time principals, Donald Matheson, abhorred the opium trade for moral and religious reasons, it was not sentiment that made the firm leave this business. No, the reason it left what William Jardine once described as "the most gentlemanlike speculation that I know of" was because it was no longer profitable. Its profitability was damaged beyond repair once it was de facto legalized by the results of the Second Opium War. The protections afforded traders by extraterritoriality had become so great that the risk, and therefore the profit margins had declined dramatically.

But the ironies of history could not have been lost on most observers in 1874, the year that China set up customs stations near Hong Kong waters to interdict companies that smuggled goods, whether opium or otherwise, into Chinese ports. In September of that year, with a great hue and cry, the merchants of Hong Kong, mostly foreign but also some Chinese, gathered at City Hall to vent their grievances about this horrendous impediment to trade. The head of HSBC, then a Mr. Grieg, opened the session with highly bearish forecasts about the consequences of the Chinese "blockade". (How highly typical of a bank analysis!). Others followed with their own vintage vitriol.

But the one man who dissented from this popular opinion was none other than the taipan of Jardine Matheson, in that year a man named James Whittall. He cited the large amount of trade carried by his firm as proof that he knew what he was talking about, and said that he had noted no downturn in trade; to the contrary he had noticed the opposite. According to local historian Carl T. Smith in his Essays in "A Sense of History (Part II)", he said that "trade had improved after some sluggishness, and was as large as it had ever been." He had also said that "China had every right to levy and collect duties on cargoes." He then bluntly pointed out that the main problem for Hong Kong was that a great many merchants in the city "smuggled". When drawing attention to a junk that had been seized by Chinese authorities (with Hong Kong Chinese merchants claiming that it was unfair) he said that the junk had smuggled goods on board and that the seizure was legitimate.

His speech won him few friends in Hong Kong, but pointed out that it was unfair for the local merchants to claim that paying duties was wrong when most countries in Europe also levied such port duties. It also showed how much that firm had changed in character, its 'stripes' if you will, in just 30 years. Far from being interested in the next opium run up the China coast, Jardines was planning the first railroad in China (which unfortunately came to naught when the Chinese government, at first suspicious of railroads, bought it up from Jardines, and tore up the entire line from end to end). It knew that its interests in China made it imperative that it cultivate China rather than make it an enemy.

So it was that the firm responsible for founding Hong Kong as an opium smuggler, came out publicly in favor of Chinese interdiction efforts against smugglers just a generation later. Nevertheless, the surprise we might still feel today at this change goes to show how delicately a firm with such a long and infamous history has had to balance its past with its present interests. It remains a sore subject for senior executives in the firm to this day in the public arena (although privately methinks some of them are rather proud of the firm's colorful, controversial founder).

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