Peaceful Penetration

The Qing Dynasty's pro-Russian and alliance sentiments played right into Sergei Witte's hands.

"Since we are already engaged with China, I hope you can take on an important role in Beijing. With the Emperor's coronation approaching next year, it would be ideal if China could send a prominent official to attend."

Prime Minister Witte, residing in the grand residence of the Ministerial Assembly, invited a China expert for detailed discussions. This expert was none other than Duke Yelisseyevich Yelisseyevich Ukhtomsky, who had previously served in the Ministry of Internal Affairs.

"Sergei, are you referring to the matter of securing a loan?"

"Yes, I have proposed to the Chinese side that Russia is willing to assist with the loan issue."

After the signing of the Treaty of Shimonoseki between China and Japan, Russia, along with Germany and France, intervened to secure the return of the Liaodong Peninsula for the Qing Dynasty. In the subsequent negotiations in July, the ransom for Liaodong was set at 20 million taels.

However, whether the compensation was 200 million taels or 220 million taels, the Qing Dynasty was unable to pay and had to seek loans from abroad.

To address this, Witte paid special attention to the Qing Dynasty's borrowing activities. As early as May, he proposed through the Russian Ministry of Foreign Affairs that Russia was willing to provide a loan.

Meanwhile, the Qing Dynasty, eager to court Russia, was very diligent in its efforts. The mutual interest led to prompt negotiations between the two countries on the loan issue.

Qing Dynasty's plenipotentiary envoy, Xu Jingcheng, had already been dispatched to St. Petersburg, while Witte had strategically arranged for a loan from various Parisian banks for China.

Given Russia's financial situation, it could not provide the entire loan on its own. However, French financial capital was abundant, and many bankers maintained friendly relations with Witte.

"Sir, the bank representatives have arrived at the Ministry of Foreign Affairs," a secretary informed Witte shortly after he resumed his work.

Representatives from banks such as the Hodinger Bank, the Banque Hollandais de Paris, the Lyon Crédit Bank, and the St. Petersburg International Bank gathered at Witte's residence.

The French government's stance on the Qing Dynasty's loan was ambiguous. Consequently, many bankers, eager for the commercial opportunities in the Far East, were attracted by Witte's offer of a loan guaranteed by Russian state finances. Naturally, the usual practices of bribery and corruption within the Russian bureaucracy were also at play.

The meeting proceeded smoothly, as many details of the negotiations had already been prepared in advance.

The loan amount was set at 400 million francs, approximately 100 million gold rubles, or the equivalent of 100 million taels of silver. It was to be divided among four Russian banks and six French banks, with an annual interest rate of 4% and a discount of 94.125%. The loan was to be repaid over 36 years, with customs duties of the Qing Dynasty serving as collateral.

If the principal and interest are not repaid by the due date, additional revenues must be provided to Russia as collateral.

"Long live Russo-Chinese friendship."

"Long live."

"Long live Russo-French friendship."

"Long live."

During the toasts and celebrations at the Ministry of Foreign Affairs, Qing Dynasty's plenipotentiary envoy Xu Jingcheng signed the loan contract in the presence of Prime Minister Witte and Foreign Minister Ramsdorf.

The official name of the contract was the "4% Loan Contract," and because the loan was co-issued by Russia and France, it was also known as the "Russo-French Loan."

"Gentlemen, why not establish a bank in China with special permission from the Russian government? French banks would provide 62.5% of the capital, while the remaining share would be provided by Russian banks."

Following the gathering at the Ministry of Foreign Affairs, the shrewd Witte proposed a bold plan to create a bank in China engaged in a broad range of activities. This bank would issue currency and provide loans for various projects, including railway construction in Northern Manchuria, which Witte had envisioned.

The proposal shocked the bankers, as the French would contribute the majority of the capital, yet the board of directors would be structured contrary to the capital distribution—Russia would hold five seats, while France would hold only three.

Despite their reluctance, the French bankers had no choice but to accept.

"This could soon become a powerful tool for Russia, enhancing its economic influence in China and countering British intervention," Witte told Ramsdorf and Duke Ukhtomsky, who were present at the meeting.

The "4% Loan Contract" explicitly stated that the Qing Dynasty's customs revenues would serve as collateral. These revenues, amounting to up to 20 million taels of silver annually, were one of the Qing Dynasty's most crucial sources of income.

However, the Qing customs had long been controlled by the British. Therefore, Witte aimed to use the new bank to oversee the Qing Dynasty's national debt under the pretense of supervision, thereby gaining influence in Qing customs management and countering British dominance in China.

Against this backdrop, the new bank was named "The Russo-Chinese Bank of Daosheng."

Thus, Duke Ukhtomski was not only dispatched to the capital to handle negotiations with the Qing court but was also appointed as the Far East representative for the Russo-Chinese Bank.

"Sergei Yuriyevich, if you intend to build a railway branch into southern Manchuria, the bank alone will not suffice. The Chinese are very sensitive about Western nations extending railways into their territory; it touches on issues of sovereignty and dignity."

As an expert in Qing affairs who was fluent in Chinese, Ukhtomski shook his head.

"Do you have any good suggestions, Ukhtomski?"

"From my understanding of China, if you want to achieve your objectives, you'll need to bribe the Emperor's trusted aides and courtiers. This will significantly reduce resistance in negotiations."

He proposed setting up a special fund within the Russo-Chinese Bank to facilitate these bribes.

"Then, for His Majesty's coronation next year, which Chinese official should we invite?"

Foreign Minister Ramsdorff inquired.

"Of course, Li Hongzhang!"

As soon as Ukhtomski mentioned this name, all three agreed it was an excellent choice.

Realizing that formulating and implementing Far Eastern policy required multiple considerations, Prime Minister Witte, who was concerned with the policy's development and execution, quickly established a sixth office within the ministerial meeting's administrative headquarters.

The Sixth Office comprised representatives from the Foreign Ministry's Far East Bureau, the Russo-Chinese Bank, the Ministry of Finance's Far East Financial Agency, railway commissioners, and other diplomats, economic, and military officials involved in the Far East. It was tasked with managing Far Eastern diplomatic policy.

Although Prime Minister Witte maintained that his proposed "peaceful penetration" policy aimed to secure economic benefits without risking war, he had, in reality, entangled Russia more deeply in the Great Power game in the Far East.

Today, regardless of Witte's subjective intentions, the First Sino-Japanese War would merely be the starting point for a series of conflicts in the Far East.