"In the latter half of the seventies Jardine, Matheson and Company was also interested in the establishment of cotton mills in China although there was no explicit provision in the treaties for foreign-owned factories, even within the concessions, and it was generally assumed that the British government would not defend the rights of those attempting to test Chinese intentions. The firm's initial plan, drawn up in 1877, did not call for Western ownership; rather it followed the kuan-tu shang-pan ("government supervision, merchant operation") principle in encouraging the formation of a cotton mill company under official supervision and Chinese merchant management with Jardine's using its close industrial and commercial associations in Britain as agent on behalf of such a Chinese company.
F.B. Johnson suggested to a group of Chinese merchants that they organize a joint-stock company for the purpose of building a mill in Shanghai. The suggestion was discussed for several months into 1878 and Hu Kuang-yung, with whom the firm had done considerable business, sounded out his friends about the company, to be called the Anglo-Chinese Shanghai Steam Cotton Mill Company. The mill was to have 800 looms and initial capital required would be Tls. 350,000. James Keswick was reasonably confident of its success: "All I can say at the moment is that if the scheme be carried through at all we shall have the business for I do not anticipate that the Chinese will go to any other firm." But the resistance of Chinese officials to schemes initiated by foreigners was still much greater than the firm realized. Merchant friends had been "discussing and petitioning" through the spring and summer of 1878 until the appearance, in October, of a petition to Li Hung-chang from Peng, expectant taotai of Shanghai, which proposed a Chinese-managed mill....
Through 1880-1881 the firm offered agency services for a government-sponsored mill. Johnson realized why any mill project would be delayed, writing: "It is evident that the Mill, if started, will mainly have to compete with Native manufacturing industry and this is just what Li and Shen, its patrons, do not want to do."
Finally, exasperated by the evident failure of the government scheme, a group of foreign merchants in Shanghai, with Jardine's participating, organized another joint-stock cotton mill company in November, 1882. Their prospectus provoked a protest from the taotai of Shanghai and resulted in an exchange of letters between the Shanghai consular body and Tso Tsung-tang, the new governor-general of Kiangsu, Kiangsi, and Anhwei, on the question of the Western right to establish manufacturing plants in China. The taotai maintained that foreigners had no right to engage in cotton manufacturing in opposition to the officially sponsored Chinese company. Tso supported the taotai in his reply to British protests, arguing that if the manufacture of cotton goods was permitted, then silk, satin, and the reeling-off of cocoons might follow and destroy the livelihood of many Chinese in the city and countryside. He requested the consuls to instruct their nationals to abstain from such works and the Tsungli Yamen repeated his request.
The consular body replied that they declined to admit the right of the Chinese government to prohibit such industries, and that the matter must be settled by discussion between Western diplomats and the Tsungli Yamen in Peking, not by the fiat of local authorities...
This subtle approach to the problem of bureaucratic obstructiveness ignored the determination of Chinese officials to prevent merchant participation in foreign-controlled schemes, which many sincerely believed would injure the livelihood of the common people and further weaken China. Others, undoubtedly, realized that industrial projects managed by foreign merchants would be beyond the reach of the "squeeze" system so vital to many official incomes.
However, official resistance did not dampen the firm's interest in cotton mill schemes. Typical of these schemes was an abortive 1889 plan to organize a cotton-spinning mill at Shanghai in cooperation with a Bombay yarn merchant: "if he can get up sufficient capital I shall endeavor to get a company formed entirely Chinese, with a separate agreement appointing Jardine, Matheson and Company as Managers for a small percentage on gross, say 2%," an arrangement which would honor China's prohibition of foreign-owned factories while fitting into the firm's agency structure. Later, when Li Hung-chang's kuan-tu shang-pan company erected a mill at Shanghai, Jardine's offered to accept its management in case outside help was needed; this offer was also declined.
Five years later, in June, 1894, in order to test China's prohibition of foreign-owned manufacturing plants at a time when tension between China and Japan seemed likely to bring warp the firm began to order cotton-spinning machinery from Platt Brothers of Oldham. The first shipment was regarded as a test case and liable to confiscation but "if it succeeds we will order more machinery at once to build a Mill on our property behind the Ningpo Wharf, Shanghai." Another joint-stock company would be organized since "We could get the whole of the capital from the Chinese Piece Goods dealers in Shanghai" and the proposal would make it clear that no official would be included in the company's directorship because "the dealers would not put a tael in any mill where the official element appears." Twenty years of kuan-tu shang-pan enterprise had convinced the firm that Chinese capitalists would no longer tolerate any compromise with official power: "The time has come to exercise our rights."
If the shipment failed there were two ways outlined for disposal of the machinery, to sell it to the Chinese mill or to return it to makers at a reduction and, through the British government, to put in a claim on the Chinese government for any loss. The correspondence does not indicate the outcome of this test, soon dwarfed by war, but the Jardine-managed "Ewo Cotton Spinning and Weaving Company" opened in May, 1897,, after the Japanese had secured manufacturing "rights" for all foreigners in the treaty of Shimonoseki. Demoralized and defeated, the bureaucracy had to yield privileges which they had withheld from Western entrepreneurs since the first Opium War.
"On the front page will be found the prospectus of the first cotton mill in China started by foreigners and under foreign control; for though the promoters thought it well to put two Chinese on the provisional committee, the control of the mill will be entirely in foreign hands. It is appropriate that Messrs. J.M. & Co., who have fought for the machinery question so long, should be first in the field with a foreign mill. The eager demand for the share in the enterprise is shown by the fact that only 2,000 shares of the 7,500 to be first issued remained to be allotted on the 1st instant, and we cannot doubt that in the able hands of such a leading firm in China the Ewo Cotton Spinning & Weaving Co. will be a conspicuous success." China Mail (July 8, 1895), "Ewo Cotton Spinning & Weaving Eo.," North China Daily News. By 1908, the shareholders, most of whom were Chinese, had received in dividends Tls. 28 per each 100-tael share." - Western Enterprise in Late Ch'ing China