The China Consortium, also referred to as banking consortium or financial consortium or four-, five-, or six-power consortium depending on context, refers to two successive cooperative arrangements formed by foreign banks under their respective governments' directions in the early 20th century, to coordinate lending to the Chinese government. These initiatives were resented by Chinese nationalists and later similarly criticized by Chinese Communists, as instruments of colonialism wielded by Western nations and Japan.
First China Consortium
Background
The emergence of the "old" China Consortium in 1909–1910 happened in the context of Qing dynasty China's need for external financing, because of its need to pay war damages under the Treaty of Shimonoseki of 1895 (200 million taels) and Boxer Protocol of 1901 (450 million taels), and with the scramble for railway concessions in the late 19th and early 20th centuries. The context was further framed by the British-French Entente Cordiale, concluded in April 1904, and by the Japanese victory in the Russo-Japanese War of 1904–1905, which stimulated nationalist sentiment in China.
The Consortium's origins can be traced to a joint British-French initiative in 1904 for joint funding of railway lines in the central area of China. By then, Hankou (now part of Wuhan, near the center of China proper) was being linked to the northern capital of Beijing with funding by Belgian and French investors. In order to further link Hankou with Guangdong in the south and Sichuan in the west, the British and Chinese Corporation (a joint venture of HSBC and Jardine Matheson), the Pekin Syndicate (a British firm with many French investors), and a French grouping that included the Banque de l'Indochine created a joint investment vehicle, called Chinese Central Railways Ltd. The British-French arrangement of 1904 was explicitly open to future American and also Belgian participation, even though no American participant firmly committed at the time.
In subsequent years, Chinese official Zhang Zhidong played Western powers against each other to secure better borrowing conditions, and offered the opportunity to finance the central Chinese railway network, by then known as the Hukuang Railway (with reference to an ancient name for much of the area between the Yangtze and the Southern Chinese coastline), to German financiers instead. Zhang's move in turn prompted the British and French bankers to adopt a more inclusive approach vis-à-vis their German peers.
Establishment of the consortium
In the spring of 1909, an agreement crystallized between the British, French and German bankers, who decided to go ahead despite reminders from American counterparts about the pledge back in 1904 to include them in the deal. A formal agreement to form the three-nation banking consortium was finalized in Beijing on by HSBC, the Deutsch-Asiatische Bank and Banque de l'Indochine, for a loan of £5.5 million subject to Chinese government approval.
The British government, however, soon again adopted the American view that the 1904 arrangements were binding, and thus advocated inclusion of American partners. By then, the U.S. administration led by president William Howard Taft had formulated a new understanding of the prior Open Door Policy, with more emphasis on commercial investment and thus dubbed the "Dollar diplomacy". This reversal opened a new sequence of protracted negotiations to include American bankers led by J.P. Morgan & Co. Eventually, an agreement was found at a meeting in Paris at the Banque de l'Indochine head office, on . The contracting parties were, for the UK, the British and Chinese Corporation and Chinese Central Railways Ltd, with Carl Meyer, C. S. Addis, and G. Jameson as signatories; for Germany, the Deutsch-Asiatische Bank, with Franz Urbig and Emil Rehders; for France, the Banque de l'Indochine, with politician Joseph Caillaux, Stanislas Simon and Maurice Casenave (Banque de l'Indochine), and Émile Ullmann (Comptoir National d'Escompte de Paris); and for the U.S., Morgan's UK affiliate Morgan, Grenfell & Co., with Edward Grenfell, Henry P. Davison, Max Warburg, Henry H. Harjes, and Willard D. Straight as signatories.