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Financing a Steam-Navigation Company in China, 1861–621

Published online by Cambridge University Press:  24 July 2012

Kwang-Ching Liu
Kwang-Ching Liu
Affiliation:
Graduate Student at Harvard University
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Abstract

Russell & Co., the Boston partnership which had long been prominent in the China trade, found its business as commission agent in a state of serious decline by 1861. Therefore Edward Cunningham, a junior partner resident in Shanghai, conceived the idea of founding a steamship line to operate up the Yangtze River. This venture would require a capital far exceeding that used by Russell & Co. in its commission business. The head of the firm, Paul Sieman Forbes, who lived in New York and Newport, spurned the project in favor of more lucrative and secure investments in the United States. Cunningham then showed his promotional abilities by raising the necessary capital in China. Not only was the resultant Shanghai Steam Navigation Company profitable in itself, it also brought much commission business to Russell & Co. This article, based mainly on the manuscript records of the Forbes family, contributes to a more realistic estimate of the amount of American capital in the Far Eastern trade and to a greater appreciation of the administrative problems and methods involved.

Type
Research Article
Information
Business History Review , Volume 28 , Issue 2 , June 1954 , pp. 154 - 181
Copyright
Copyright © The President and Fellows of Harvard College 1954

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References

2 Forbes, Robert B., Personal Reminiscences, 2nd ed. rev. (Boston, 1882), 366.Google Scholar In 1876, on the eve of the sale of the Russell fleet to the Chinese-government-sponsored China Merchants' Steam Navigation Company, it had a total of 16 steamers (a total of 11,204 tons); among the rival companies in China, the China Navigation Company (Butterfield & Swire & Co., agents) had six steamers, the China Coast Steam Navigation Company (Jardine, Matheson & Co., agents) had six, while the China Merchants' Steam Navigation Company had just overtaken the American fleet by having 17 steamers (a total of 11,706 tons). (Imperial Maritime Customs, Report on Trade at the Treaty Ports, 1877 [Shanghai, 1878], 76–77Google Scholar; also references in North-China Herald, Shanghai, hereafter NCH.)

3 Quoted in Dayton, Fred E., Steamboat Days (New York, 1925), 375–82.Google Scholar The date of this report is determined by its mention of the American-built steamer Yangtze (owned by Dent & Co.) as having run for nearly three years.

4 Imperial Maritime Customs, Report on Trade at the Treaty Ports, 1865 (Shanghai, 1866), 133Google Scholar. After 1871, primarily because of the lower cost of building in Britain, Russell & Co. itself ordered all its new steamers from Glasgow — furnished with English machinery, but built on American models. (See Cunningham to P. S. Forbes, 18 and 20 April, and Cunningham to Russell & Co., Shanghai, 18 May 1871, Forbes Collection – hereafter FC.) Of Russell & Co'.s 16 steamers in 1876, six were such English-built American models. (U.S. Congress, House Miscellaneous Documents, 45th Cong., 2nd sess., no. 31, “Testimony taken before the Committee on Expenditures in the State Department” [Washington, D. C, 1878], part 2, pp. 230–1.)

5 Edward Cunningham was clerk with Russell & Co., 1845–49, and partner, 1850–57, 1861–63, and 1867–77. In 1850–54, he was very active in his capacity as American Vice-Consul in Shanghai. (Dennett, Tyler, Americans in Eastern Asia [New York, 1922], 210 and 217 ff.)Google Scholar Cp. Cunningham's own essay, Our Political and Commercial Relations with China (Washington, D. C., 1855); copy in Massachusetts Historical Society.

6 John Heard, III, “Diary, 1891,” Heard Collection (at Baker Library, hereafter HC), FP-4, pp. 139–40. Heard & Co. operated normally one and sometimes two steamers on the Yangtze River in the period 1861–67, but did not set up a large project like Russell & Co.'s. Cp. Mason, Mary Gertrude, “Aspects of the Trade between China and America, 1840–1870,” Bulletin of the Business Historical Society, X (April, 1936), 24–28.CrossRefGoogle Scholar

7 Cunningham to P. S. Forbes, 4 June 1861, FC. (Cunningham in this letter overstates the case, since the commission business of Russell & Co. continued for many years after 1861; see below, p. 180. For further description of the difficulties encountered by China merchants who were trying to act on a commission basis for distant principals, see Checkland, S. G., “An English Merchant House in China after 1842,” Bulletin of the Business Historical Society, XXVII [Sept., 1953], 162–9.)Google Scholar Russell & Co.'s exchange business in Chinas treaty ports, which had been very large in the late 1840's and early 1850's, had by this time also declined. (Forbes, Reminiscences, 359–61.)

8 Warren Delano, Jr., was partner of Russell & Co. in 1840–46 and 1861–66. On his unsuccessful industrial ventures in the United States in the 185's see J. M. Forbes to P. S. Forbes, 8 Nov. and 7 Dec. 1857, “Letters of John Murray Forbes, 1843–1867” (typewritten volume at Baker Library – hereafter LJMF); also Delano, Daniel W. Jr, Franklin Roosevelt and the Delano Influence (Pittsburgh, 1946), chap. 9.Google Scholar

9 This is the so-called second treaty settlement – the result of the treaties negotiated in 1858 and the two conventions of 1860 at the conclusion of the Anglo-French expedition to Peking. Hankow, Kiukiang, and Chinkiang on the Yangtze River and Newchang, Tengchow (Chefoo), and Tientsin in the Gulf of Pechihli area were opened.

10 Cunningham to P. S. Forbes, 1 Feb. 1861, FC.

11 Delano to P. S. Forbes, 18 Sept. 1861; cp. Cunningham with P. S. Forbes, 28 June 1863, annex. Russell & Co.'s only other assets were real estates in China valued in 1861 at $260,000. Referring to another business project (shipping rice for the Chinese government) Cunningham wrote in June, 1861: “The only real difficulty was the want of money, … times having changed since we could depend on Houqua for a floating balance of 2 or 300,000 and an extra 200,000, in case of great need.” (Cunningham to P. S. Forbes, 14 June 1861, FC.)

12 Cunningham's proposal is discussed in Delano to P. S. Forbes, 14 and 27 Feb. and 1 and 16 March 1861; see ako Cunningham to P. S. Forbes, 4 June 1861, FC.

13 Delano's superior authority is discussed in Delano to Nelson Marvin Beck-with, 4 Dec. 1860. Delano was also in control of the credits supplied to Russell & Co. by Baring Brothers & Co., London. (Cunningham to P. S. Forbes, 15 May 1861, FC.

14 Delano to P. S. Forbes, 1 March 1861. “The experience of the past six months proves to me that we can use here a large capital in advances upon merchandise securing both interest and commissions and thereby making up a portion of our loss by the withdrawal of our distant constituents” (Delano to P. S. Forbes, 18 Sept. 1861, FC.)

15 Delano to P. S. Forbes, 16 March 1861, FC.

16 Delano to P. S. Forbes, 31 March 1861, FC.

17 Cunningham to P. S. Forbes, 4 June 1861. See also Delano to Cunningham, 26 March, and Delano to P. S. Forbes, 26 May 1861, FC.

18 Delano to Cunningham, 26 March 1861, FC.

19 Cunningham to P. S. Forbes, 15 May and 4 and 14 June, FC. On 4 June, Cunningham wrote: “I claim distinctly that I am altogether the aggrieved party. Aggrieved because Delano would not treat my suggestions for business with sufficient consideration. … The facts are that as soon as I found out what an important matter the steam navigation of the Yangtze was to be, I lost no time in giving him every information and pressing upon him the necessity of imediate action. I was so prompt that we could have been two months before everyone, instead of two months behind. He treated my suggestions with a sort of lofty superciliousness, hard to bear from a man whom I had already found out to be not supernaturally clever. … He also came near shutting up any chance of joint action in Yangtze steam, for, in my indignation I, at first, so wrote. But, reflecting that he is not the house, I destroyed my letter, drew up a proper subscription list, and determined to unite.”

20 Delano to P. S. Forbes, 26 May 1861; and Cunningham to P. S. Forbes, 15 May, 14 June, and 11 July 1861, FC.

21 “In the ownership of the vessels spoken of, I think each individual interest should extend through all the vessels – which [sic] working for a common fund would avoid any jealousy or preference of one over another, and would simplify accounts and the management generally. … The proprietors should be an association – but avoid anything like incorporation and a charter.” (Delano to P. S. Forbes, 16 March 1861, FC.)

22 Shipping intelligence, NCH, 27 July 1861; Delano to P. S. Forbes, 14 Oct. 1861, FC.

23 P. S. Forbes was partner of Russell & Co., 1844–73, and was its head from 1846 until his retirement. (For the phrase “head of the house,” see partnership agreement on the admission of T. Walsh, appended to Cunningham to P. S. Forbes, 12 Oct. 1856, FC.) R. B. Forbes was partner, 1839–44 and 1849–54. J. M. Forbes was partner, 1834–38, although in the late 1850's he still retained rights of “good will” – rights which he held jointly with P. S. Forbes. On the term 1861–63, J. M. Forbes wrote P. S. Forbes: “Co-partnership terms same in other respects with the present one by which the entire good will of the House practically reverts to you at the end of the term.” (J. M. Forbes to P. S. Forbes, 15 Nov. 1859, LJMF.)

24 Beckwith to P. S. Forbes, 14 Feb. 1861 (cp. Delano with P. S. Forbes, 18 Sept. 1861). Articles of Co-partnership for the term 1855–57 show that P. S. Forbes received from 2/16 to 3/16 of the firm's division of profits. As head of the house, P. S. Forbes gave wide responsibility to his partners in China. “Someone was destined to wear the mantle & I know of few who would have spread it more widely over others than I am doing.” (P. S. Forbes to R. B. Forbes, 15 July 1858, FC.)

25 “Your engagements standing thus far about 60,000$ for Mil. Tract Bonds & Stocks and 50,000 for Aurora Bonds. I am negotiating for a further lot of Mil. Tract Bonds and Stocks which will about use up the 90,000 remaining.” (J. M. Forbes to P. S. Forbes, 21 Jan. 1855.) “You asked whether you can have 100,000 instead of 50,000 of the Mo. Bonds. You misunderstood me. The Bonds we propose to sell are not Missouri State Bonds – but Hannibal and St. Jo. R. Road Bonds.…” (J. M. Forbes to P. S. Forbes, 21 Jan. 1856, LJMF.)

26 J. M. Forbes to P. S. Forbes, 5 March 1861. J. M. and P. S. Forbes jointly owned at this date $400,000 of the Third Mortgage and Convertible Bonds issued by this railroad, under an arrangement by which each took half (see same to same, 19 July 1858 and 3 Feb. 1860, LJMF).

27 See the frequent mention of the steamboat in P. S. Forbes's letters to R. B. Forbes throughout the 1850's. P. S. Forbes once thought of taking out a patent for his invention of a new instrument of propulsion – “a wheel placed obliquely to its axis” – an idea which does not seem to have worked. (P. S. Forbes to R. B. Forbes, 23 June 1857 [illustrated], FC.)

28 P. S. Forbes to R. B. Forbes, 13 Feb. 1858, FC.

29 J. M. Forbes to P. S. Forbes, 23 Feb. and 14 March 1858, LJMF. P. S. Forbes did build another steamer in 1859, the Peiho, which cost about $200,000 and was partly financed by Russell & Co. itself (see Beckwith to P. S. Forbes, 8 Aug. 1859, FC). J. M. Forbes gave the following advice when the vessel was being fitted out: “Take another figure. You can always in China get 9 to 12% for money, or today can buy undoubted Western mortgages & R. Rd. Bonds that will give you equal to 10% interest—at which rate her [Peiho's] yearly interest on her cost on arrival will be say $21,000. If you cannot do better there, I would consider carefully before refusing an offer of a little under her cost.” (J. M. Forbes to P. S. Forbes, 2 May 1859, LJMF.) Although P. S. Forbes did not heed this advice in 1859, he approved the sale of the steamer in China in early 1860 (see Delano to P. S. Forbes, 7 April 1860, FC).

30 Cunningham to P. S. Forbes, 11 July 1861, FC.

31 Delano to P. S. Forbes, 14 Oct. 1861, FC.

32 J. M. Forbes to P. S. Forbes, 14 April 1861, LJMF.

33 Delano to P. S. Forbes, 5 and 14 Oct. 1861, FC; Dayton, Steamboat Days, 379, 393.

34 Delano to P. S. Forbes, 7 Aug. 1861, FC.

35 Forbes, Reminiscences, 266–9, and appendix table of vessels; Letters and Recollections of John Murray Forbes, Sarah Forbes Hughes, ed. (Boston and New York, 1899), II, 71–72; U.S. Navy Department, Official Records of the Union and Confederate Navies in the War of Rebellion (Washington, D.C., 1894–1922), series 2, Vol. I, pp. 55, 107.

36 J. M. Forbes to P. S. Forbes, 16 May 1861, LJMF.

37 U. S. Navy Department, Official Records, 84.

38 Forbes, Reminiscences, 264, 277.

39 Warren Delano, Jr., took little part in the preparation of this enlarged plan, and is known to have attempted to stop Cunningham from purchasing waterfront properties at the Yangtze ports for the steam enterprise. In February, 1862, after Delano had been informed of recent purchases of this kind made by Cunningham, he wrote to a former Russell partner: “You may imagine with what degree of patience I take this news—at the same time, I hope to get rid of the whole thing by and through the means of E. C.'s ‘grand consolidated coast of China and river steam navigation, lightering and warehousing association.’” (Delano to Beckwith, 20 Feb. 1862, FC.)

40 NCH, 1862 and 1863 (copy in British Museum).

41 John Heard's letter book, HC, FL-7, p. 197.

42 Ibid., p. 210.

43 Delano to Cunningham, 26 March 1861, FC.

44 These were present in the S. S. N. Co.'s shareholders' meetings in 1863 and 1864. See “Minutes of a General Meeting of the Shareholders of the S. S. N. Co.,” 10 Feb. 1863 and 18 Jan. 1864, and “Minutes of a Special General Meeting,” 3 Oct. 1864.

45 Ahyune, Chongfat, and Koofunsing are known to have been Cantonese compradors of Russell & Co. who had followed the firm to Shanghai. See Cunningham to John Murray Forbes, Jr., 24 April, 14 May and 4 June 1868, Russell & Co., Canton Papers (at Baker Library). Chan-yeu-chang does not seem to have become Russell & Co.'s comprador until 1865, but before that date he is known to have made large shipments of his own between Shanghai and Hankow on the S. S. N. Co.'s steamers. (Delano to P. S. Forbes, 19 Aug. 1864; George Tyson to P. S. Forbes, 24 March 1865, FC. ) The silk quotations of the “chop” of Koofunsing (Koo-foong-sing or Kukee) appear frequently in NCH.

46 Cp. Forbes, Reminiscences, 364–6.

47 Cunningham to P. S. Forbes, 10 Nov. 1865; shipping intelligence in NCH, 27 July 1861.

48 “Prospectus of a Joint Stock Company for Steam Navigation of the Chinese Waters, and the Establishment of a Warehouse System in Shanghai” (undated); cp. John Heard, III's letter book, HC, FL-7, pp. 145, 155–6.

49 The Kin Lee Yune site at Shanghai's French Concession was convenient for the foreign merchants as well as for the Chinese. As a correspondent of the NCH described it: “The premises of the [S. S. N.] Company are upon the French Concession, and under the walls of the native city, so that they are very favorably situated for every description of merchandise, and for laying down teas under preparation for shipment. They will accommodate, when completed, from 30,000 to 35,000 tons of cargo.” (NCH, 29 March 1862, 50.)

50 The following are members of the foreign community (exclusive of members of Russell & Co.) who were present at the shareholders' meetings in 1863 and 1864. Those who can be identified as associating with British firms are Nichol Latimer and Robert Richard Westall (both Smith, Kennedy & Co.), J. Broadthurst Tootal (Ellisen & Co.), W. Thorburn (Jarvie, Thorburn & Co.), Thomas Hanbury (Bower, Hanbury & Co.), A. J. How (Johnson & Co.), James Whitlow (Holliday, Wise & Co.), J. Wheatley (Reiss & Co., for executor of A. Fincham). The other known American is A. Overweg (Olyphant & Co.). Other foreign shareholders are Francis Loureiro (Shanghai shipbroker), Thomas Vincent (commander, receiving ship Emily Jones), G. W. Schwemann and Rudolph Heinsen (both Siemssen & Co.), José Loureiro (Nagasaki agent for Dent & Co.). See above, note 44; identification is based on China Directory for 1863 (Hong Kong, 1863) and references in NCH.

51 NCH, 29 March 1862, 50–51.

52 The share list of the S. S. N. Co. cannot be found. It was kept at the Shanghai house of Russell & Co.; even clerks of the house were not allowed access to copies (Frank Blackwell Forbes to Cunningham, 11 Feb. 1871, F. B. Forbes's Letter Books [family collection], hereafter FBFLB. Lacking a copy of the share list, we can nevertheless make some deductions from the following facts: (1) In the Prospectus, which envisages a total capital of Tls. 1,200,000, it was stated: “Of the 1,200 shares into which the capital is divided it is understood that Messrs. Russell & Co. will take 700. There remain 500 shares, of which it is proposed to leave 100, for the present, for other ports. Of the remaining 400, 150 have already been applied for.” (2) It is known that Russell & Co. as a firm had taken only a token subscription of a few shares; see below, note 58. (3) It is further known that individual members of Russell & Co. themselves had to rely on their Chinese friends to muster the votes of over 500 shares in the S. S. N. Co.'s shareholders' meeting: members of Russell & Co. themselves – as one source indicates – did not own even one-third of Tls. 1,000,000; see below, notes 53 and 63. It can be deduced, therefore, that when the Prospectus says that Russell & Co. planned to take 700 shares, it means that this quantity was reserved for members of Russell & Co. and their Chinese friends. As worked out in March, 1862, the stock capital of the S. S. N. Co. was not Tls. 1,200,000 but Tls. 1,000,000; see the “Constitution and Deed of Settlement, Shanghai Steam Navigation Company,” March, 1862, and “Report of the Board of Directors for the General Meeting,” 18 Jan. 1864. It can be assumed, therefore, that adjustments had been made in the allocation as stated in the Prospectus.

53 U. S. Congress, House Misc. Docs., part 1, pp. 885, 224.

54 In June, 1863, Cunningham wrote P. S. Forbes the following concerning his contribution to the house's capital for the next term: “I have already ex-hausted myself upon capital. … By organizing the Yangtze [Insurance] Co., I helped you to about Tls. 150,000, which will always continue if business is profitable. By the S. S. N. Co., if that prospers, you will have another Tls. 150,000. With the above my resources are finished. Personally I cannot do anything except to allow my surplus rents to accumulate, & there will be none unless the SSN Co. pays dividends when I can lay up what my shares give – perhaps [Tls.] 10 or 15,000 a year.” On Cunningham's inability to supply capital from the United States, see Cunningham to P. S. Forbes, 21 Jan. 1859, FC.

55 For data on various partners, see Forbes' Reminiscences, appendix table. Among clerks of the firm who took shares were F. W. Sauermann, J. W. Leembruggen, and F. E. Foster. (See above, note 44.)

56 Henry Hughes Warden to P. S. Forbes, 25 Aug. 1870; Russell & Co., Shanghai, to P. S. Forbes, 5 April 1871, FC. The shares of the S. S. N. Co. were reset at Tls. 100 a share in 1868.

57 J. M. Forbes to P. S. Forbes, 6 Dec. 1862, LJMF.

58 Cunningham to P. S. Forbes, 28 Jan. 1863, annex, FC.

59 J. M. Forbes to P. S. Forbes, 6 Dec. 1862, LJMF.

60 J. M. Forbes to P. S. Forbes, 25 Jan. 1863, FC.

61 In the following pages, an attempt has been made to describe the “institutional arrangements” made at the time of the creation of the enterprise, with only incidental references to its later history. The writer is preparing a study of the 15-year story of this American enterprise in China, with emphasis on policy and management and including an analysis of profit and service.

62 It should be noted here that the S. S. N. Co. was never incorporated or chartered; Cunningham described it as a “private co-partnership.” (U. S. Congress, House Misc. Docs., part 1, p. 886.)

63 Cunningham's memorandum, “Scrip Dividend of the S. S. N. Co. for 1870,' FC. According to the provision of the Constitution and Deed of Settlement, a majority vote in the General Meeting of Shareholders decides in all cases, although the Prospectus proposes that the vote of 700 shares is necessary for the change of agency.

64 See the Board of Directors' reports for the various years.

65 Warden to P. S. Forbes, 21 Dec. 1870 (postscript) and 16 Feb. 1871, FC; “Minutes of a General Meeting,” 4 March 1871 and 20 Feb. 1872. Cunningham criticized Warden for the form of the scrip issue; see Cunningham to P. S. Forbes, 11 May and 28 Aug. 1871, FC. However, Cunningham had assumed that the mistake was Warden's and that the Board of Directors could be brought to agree with whatever form of scrip Russell & Co. might propose.

66 Tyson to P. S. Forbes, 22 June 1866, FC. The problem was finally solved by applying to the Plymouth Rock the indemnity received from underwriters in London for the steamer Huquong (sunk Aug., 1866); see “Report of the Board of Directors,” 18 Jan. 1867.

67 Data for this paragraph are taken from the Board of Directors' reports of the various years and from NCH.

68 The Constitution and Deed of Settlement provided that after 30 June 1863 Russell & Co.'s commission was to be reduced to 3½ per cent upon gross receipts; however, a decision of the General Meeting of 18 Jan. 1864 made the 5 per cent rate permanent. The gross receipts of the S. S. N. Co. for the three years 1868, 1869, and 1870 are known to be, respectively (in round numbers), Tls. 1,983,000, Tls. 1,890,000, and Tls. 1,938,000 (F. B. Forbes to David King, Jr., 1 July 1871, FBFLB).

69 F. B. Forbes to P. S. Forbes, 29 Nov. 1870, FBFLB. The total net profit of Russell & Co. itself for the year 1869 is known to have been about Tls. 176,000, and for 1870 over Tls. 200,000. (Warden to P. S. Forbes, 11 Aug. 1870 (postscript), FC; F. B. Forbes to James Murray Forbes, 21 Nov. 1870, FBFLB.)

70 This arrangement was provided for in the Constitution and Deed of Settlement, Article X.

71 Delano to P. S. Forbes, 23 June 1862, FC; F. B. Forbes to W. M. Clarke, 19 July 1869, FBFLB.

72 These facts emerge from a study of FBFLB for the years 1866–71. The following are typical references to Russell & Co.'s foreign trading activities during this period. Concerning the silk shipments of the season of 1870, F. B. Forbes wrote Cunningham: “You can see that our own risk is only 68,000 taels – the loss of which, at the extreme figure of 20% would be Tls. 13,600 – while our commissions on Tls. 495,000 at an average of 3% are Tls. 14,850.” (12 Sept. 1870.) In Nov., 1871, F. B. Forbes noted that the firm had shipped 261 packages of tea to J. M. Forbes & Co. – one of the very few tea shipments which the house made in that year. “This shipment is not on a j/a [joint account] but for a/c of Russell & Co. 1871, and we drew for it under Baring credit No. 2” (to Samuel Wyllys Pomeroy, Jr., 22 Nov. 1871).

73 Directors' reports, 1871–76. One reason why it was decided to invest the S. S. N. Co.'s reserves in U. S. Government Bonds was that the local banks were unwilling to give more than 6 per cent interest for deposits. See Warden's reply to a shareholder in the General Meeting of 1870 (“Minutes of a General Meeting,” 5 March 1870). Concerning the arrangement of the “revolving credit,” see Warden to P. S. Forbes, 22 March 1871, with annex, FC; F. B. Forbes to H. H. Warden, 27 June 1871, FBFLB. The last reference reads: “French mail in this morning brings a revolving credit from Barings for £25,000 to commence when our securities are in their hands. Cmn [commission] ½%.”