With this blog, I am beginning a series that will highlight and explain some poorly understood and overlooked aspects of the relationship between the United States and the People’s Republic of China. We often read about the US-China relationship in discrete components of the whole: just the tensions in the South China Sea, or just the trade imbalance, just Nixon’s China trip, just the yuan valuation controversy. We rarely see the whole thing as a gestalt, with an overarching narrative. This is problematic, because this prevents people for seeing the US-China relationship for what it actually is. In short, it is true that the United States and China are increasingly rivals for domination of the Asia-Pacific region, but, on a deeper level, the two countries prop each other up and are so integral to each others’ finances, as presently constituted, that they need each other for survival. This situation was the deliberate result of American policies that I’m going to describe here. Understanding the evolution of the co-dependent US-China financial relationship is the key to understanding China’s present economic situation and the strategic future of the Asia-Pacific. Like two leaning towers of Pisa placed side by side, the United States and China hold each other up, even as they press upon each other. A close look at history will reveal that this system of mutual support was the result of a careful process of wise strategic planning, conducted with judiciousness and foresight. This is a story of the triumph of business and capital over politics and culture. I want readers to appreciate the full majesty of this great work, so let’s not skip the earliest days of America’s China project.
The Rockefeller dynasty is more responsible for the creation of the twin-engined US-China financial system than any other group of people. The family saw China’s potential as a market early on. John D. Rockefeller Sr., the family’s patriarch and founder of the Standard Oil monopoly empire, sold his first kerosene to China in 1863 and made his first charitable donation to Christian missionary efforts in China that same year. Commerce and philanthropy would come to define the next several decades of Rockefeller engagement in China. The synergy between trade and charity was strong and definitely intentional.
Entering the Asian Market
Rockefeller philanthropic institutions and biographers have portrayed the family’s interest in China during the early 20th century as a hobby, driven by nothing more than an idle fascination with Chinese culture and history and a generic desire to “do good”. But when we look at the activities of their commercial empire in China during this time, it’s clear that they were investing, not just donating. You don’t get to be the richest man in the history of the world, with a family fortune equal to about 1.5% of total annual US economic output, unless you’re always looking for an angle. During the early decades of the 20th century, the United States was transitioning to a coal-generated electric power grid. But China was desperately poor and would not be electrified for decades. The country was a market of 400 million people who mostly relied on vegetable oil lamps to light their nights.
The Rockefeller-owned Standard Oil monopoly, which was the largest company in the world at that time, made large capital investments to capture that market and provide “Oil for the Lamps of China“. The company gave away at least 8 million new kerosene lamps, branded with the “Mei Foo” name under which Standard Oil sold kerosene in the Chinese market, and sold millions more at ultra low prices, to create a demand for Standard Oil kerosene.
The venerable Harvard IR historian Ernest May gives us a sense of the scale of the Rockefeller empire’s investment in China:
The inflow of American kerosense grew to an annual volume of 12 million gallons in 1887 and 200 million gallons on the eve of World War I…Standard Oil attempted to crush its competitors in China by resorting to dramatic price reduction. The low Chinese price was subsidized by Standard Oil’s above-normal profits in other markets. The company did this in order to acquire an opening wedge in the fabled China market…From the very beginning the oil companies considered the exploitation of the Chinese market to be a long-term project. They established schools in New York to train carefully selected personnel [for China]. Standard Oil’s selection process was far more rigorous than that of the US Foreign Service…Standard resorted to bulk tanker shipments to importing centers, where the oil was stored in tanks. Near the tanks, the kerosense was tinned and cased for transhipment to the interior. These container factories required a substantial investment by Standard Oil. [Source]
The Standard Oil presence in East Asia was the largest American direct investment in the region prior to World War II. Although the company was broken up in 1911 due to anti-trust action, the family retained control of most of its constituent parts and operations in China were not affected. Stanvac, the company’s main operating subsidiary in China, owned hundreds of river vessels to bring its products to market in China’s interior, including 13 large tankers. After 1932, Standard took a hit to its market share by entering into a voluntary market allocation agreement with Royal Dutch Shell, Texaco and the Soviet owned Kwang-Ha oil company, but China remained an important market for the Rockefeller petroleum empire.
You Gotta Spend Money to Make Money
Concurrently with this massive investment of capital and expansion of operations in China, the Rockefeller family’s philanthropic institutions were spending lavishly in the country. Rockefeller funded philanthropic institutions spent tens of millions of dollars in China between 1900 and the Second World War. Rockefeller money created the China Medical Board and Peking Union Medical College, which essentially introduced modern Western medicine to China, as an adjunct to a concurrent effort by Rockefeller-funded organizations to totally transform the American health system. The Foundation’s attempted a total transformation of the lives of hundreds of millions of rural Chinese peasants, by introducing modern technological agriculture methods via the North China Council for Rural Reconstruction. The agricultural program was cut short by the Japanese invasion in 1937, but over the course of the 20th century, the Rockefeller Foundation would dedicate well over $1 billion to “change China”.
And changing China was indeed the goal. In 1933, the Foundation trustees issued an internal statement on their activities in China that found the country to be “bound by few hampering traditions” with “plastic conditions in her life and institutions at the present moment” that invited an effort to transform them. They openly hoped that “China might become a vast laboratory in the social sciences”. Down the generations, the family’s abiding interest in China continued. Richard Rockefeller, the great grandson of John, the dynasty’s founder, and son of the family’s current leader, David, stated:
The sentiment that my grandfather, grandmother and other family members of that generation had for China, very positive feelings for the country, passed through the generations to all of us. So China in a way wasn’t really as foreign of a place as it was for a lot of Americans.
So why were America’s richest philanthropists so interested in the future of China? The key to understanding all of this lies in Standard Oil’s distribution of free kerosene lamps to the peasant farmers of rural China in the early 20th century. From their first dealings in the country, the family came to understand the importance of deploying capital up front, to change Chinese society in ways that would increase Chinese demand for Rockefeller empire products in the future. To change China into a nation of kerosene consumers, they saw fit to donate millions of lamps. To change China into a nation of consumers of other products, they decided to deploy their vast wealth to effect a more complex change. A China populated by peasant farmers could only offer so many potential revenue streams. A China enriched by modern agriculture methods, with increased per capita productivity resulting from modern sanitation and health, could offer so many more. The Japanese invasion in 1937, the civil war and the communist takeover would hamper these efforts for decades, just as they were gathering steam. But the fact is that the first three generations of the Rockefeller family and their administrators were ambitious, with tremendous business acumen and an attention to detail. They foresaw China’s potential. For most of human history, China had accounted for the largest portion of global GDP. The Rockefellers knew the great strength that lay beneath the temporary weakness of China at the turn of the 20th century. They understood that it just needed capital investment, and that capital investment would reap great rewards.
So, why is any of this important? It’s important because the later generations of the Rockefeller family would not forget the lessons of these early encounters in the new era after the Second World War. At a time when the fear of communism prevented most Americans from thinking clearly about China, the Rockefeller empire would remember China’s great potential as a market and the great harvests that could be reaped there from a comparatively small sowing of capital investment. Their careful orchestration of China’s opening to the West during the 1970s and 80s, informed by the lessons learned in the pre-WWII era, would form the basis of the modern US-China relationship and thus the entire global economy. We’ll hear that story in Part 2.