They built, they built
The CER itself was conceived as a large-scale project that forms the infrastructure and laid the foundation for the internationalization of domestic business through the export of capital. The construction and operation of the China Eastern Railway (CER) has become one of the most instructive examples of public-private partnerships at the international level.
The CER concession was conceived for 80 years in order not only to directly connect Chita with Vladivostok, but also to help Russian expansion in Northeast China. Wars and revolutions significantly reduced its efficiency, which led to the sale of the CER to the state of Manchukuo just 32 years after the start of operation. But already in August 1945, the road fully paid for itself, providing uninterrupted supplies to the Red Army, which was crushing the samurai in Manchuria.
The construction of the CER is inextricably linked with the history of the construction of the Trans-Siberian Railway, which began to be built in 1891. Three years later, it turned out that it was economically expedient to straighten the Far Eastern section of the road by laying a route through Manchuria. The main inspirer of the project S. Yu. Witte regarded it as a springboard for Russian expansion in China, which, in its confrontation with Japan, favorably perceived the strengthening of relations with Russia. At the end of 1895, on the initiative of S. Yu. Witte, the Russian-Chinese Bank was organized. China agreed to build a railway through Manchuria to Vladivostok (and it was the Chinese who gave the name of the CER), and Russia received the coveted concession. But a number of foreign researchers believe that China, for which Manchuria was a periphery, counted on settling there itself, relying on Russian investments in infrastructure.
In May 1896, a secret agreement was signed in Moscow on the Russian-Chinese military alliance and the construction of the Chinese Eastern Railway (the document was fully published only in the 1920s). According to this agreement, the rights to build and use the CER were not received directly by the tsarist government, but by the Russian-Chinese Bank. This bank was under strict Russian state control, had a capital of 6 million gold rubles, and 5/8 of these funds came from four French banks. The cost of building the road was almost two orders of magnitude higher than the bank's capital, and a significant part of the financing was attracted through the issue of securities. The first issue of bonds in the amount of 15 million rubles in 1897 was distributed by the Russian-Chinese Bank itself, subsequent issues - by the Russian government.
At the end of the summer of 1896, a contract was signed in Berlin for the construction and operation of the Chinese Eastern Railway (published only in 1916). The contract provided for the creation by the Russian-Chinese Bank of a special joint-stock company of the Chinese-Eastern Railway. The capital of the Company was five million gold rubles (five thousand shares at a price of one thousand rubles). The chairman of the board of the CER Society was appointed by the government of China, and received content from the Society. The road manager was appointed by the Russian government. From a financial point of view, it was the Russian government that undertook to guarantee the CER Company to cover all the costs of operating the main line and servicing bond payments. State lands necessary for the construction, operation and protection of the main line were transferred to the CER Company free of charge, and private lands were bought out by it.
The CER company received a number of significant customs and tax benefits. Upon completion of construction, the CER Society provided a lucrative loan to the Chinese government. At the same time, the Chinese government had the right to buy out the CER ahead of schedule 36 years after its opening, but on the condition of full reimbursement of all construction costs, as well as repayment of all debts of the CER Company with interest. Otherwise, China received the road free of charge at the end of the concession period (that is, taking into account the launch of the road - July 1, 1983).
The construction of the road began from two sides at once - from Vladivostok and Chita. In 1898, Russia received from China the right to extend the terms of the concession to the construction of the southern branch of the Chinese Eastern Railway, leading to Port Arthur, leased together with the site for the construction of the Dalniy port for 25 years. After the defeat in the Russo-Japanese War of 1904-1905. this section went to the Japanese under the name of the South Manchurian Railway.
Prospecting work on the route of the future railway was carried out in record time, and already in 1898 the builders began excavation work (in the southern section - in 1899). At the same time, the city of Harbin was founded, which later became the economic center of all of Northeast China. Since 1898, through the efforts of the CER Society, the commercial port of Dalniy (now the city of Dalian) has also been built. At the same time, 30 million gold rubles were spent on its construction in seven years.
By the summer of 1900, about 1, 4 thousand km of tracks (57%) had been laid on the Chinese Eastern Railway, including the southern branch, movement began in some sections. However, the Ikhetuan (Boxer) uprising broke out in China, and on June 23, 1900, the CER was attacked for the first time. As a result, a significant part of the railway track, infrastructure facilities and station buildings were destroyed. After the uprising, only 430 km of tracks remained intact, and the losses amounted to 71 million rubles, but later the Chinese government reimbursed them to the CER Society. The railway was rebuilt and completed in an accelerated mode, and in June 1903 it was ready - 92 stations and 9 tunnels were built, although, as is usually the case in Russia, some finishing touches were carried out during the operation of the railway, including the period of the Russo-Japanese War … But even then, for the operational transfer of troops, 146 new patrols (525 km of tracks) were laid.
Japan's positions were strengthened and the uncertain status of the CER made itself felt as soon as relations between Russia and China deteriorated. Already in 1906, the Chinese questioned the terms of the concession, formally signed with the private Russian-Chinese Bank. Russian diplomats had to defend all the conditions of the concession for the Chinese Eastern Railway, since it was the only legal basis for the presence of Russian troops in Manchuria. At the same time, the abandonment of the status of a state-owned enterprise ensured a more favorable attitude of the Chinese towards the Russian presence in the CER zone.
In anticipation of the storm
The Russo-Japanese War prevented the Chinese Eastern Railway from concentrating on commercial transportation. Even after its completion, the main line served military needs. Only in 1907, the CER resumed regular work on the transportation of private cargo and passengers.
In 1905, the southern branch of the Chinese Eastern Railway and access to the Yellow Sea were lost. Plans for the active use of the Transsib for the transit of goods from Europe to Asia have come under threat. Delivery of goods by rail from Vladivostok to Hamburg or Liverpool was several times more expensive than transportation by sea. As a result, more than ¾ of traffic on the Chinese Eastern Railway in the peaceful years 1907-1913. were associated not with transit (tea, etc.), but with internal transportation and export of timber, coal and grain cargo. The accelerated construction of the Amur railway, a section of the Transsib across the territory of Russia, also did not contribute to the prosperity of the CER.
From a financial point of view, the loss of the southern branch of the CER and the port of Dalniy led to large losses. With the consent of the Russian Minister of Finance, part of the bond capital and loans falling proportionally to the southern branch, as well as the capital for the construction of the port and city of Dalniy and for the organization and operation of the Company's shipping company were withdrawn from the Company's accounts. Bonded loans attributable to these enterprises (5th, 6th, 8th, 9th and 10th) were canceled.
The short period of peaceful life of the Chinese Eastern Railway did not have a large economic effect, although transportation grew rather quickly. With the outbreak of World War II, the main line again switched to military cargo. The total cargo turnover in 1914 decreased slightly - to 1.1 million tons. Some economic revival in the CER Society was caused by the transfer of the Ussuriysk railway located in Russia to its management, which naturally caused controversy in the State Duma, since a state-owned enterprise was transferred into the hands of a formally private foreign railway.
The development of the economic potential of Northeast China has increased the demand for the services of the CER, and, consequently, its income. Already by 1910, the road did not have a deficit in operation, and in 1915-1917. The CER did not even require additional payments for its operation from the Russian government. The financial problems of the CER Society were caused not so much by the activities of the railway itself as by participation in financing various projects for the development of Manchuria. As is customary, alas, in Russia, it could not do without ineffective, inappropriate use of funds. In addition, the Russian military administration always played a special role in the actual management of the CER before the 1917 revolution.
The analysis of the economic role of the CER should not be limited to assessing the activities of the main line itself (the length of the main line was 1726 km plus access roads and timber branches), which was indeed unprofitable for most of the years. After all, even the CER Society was not limited to the railway: it owned workshops in Harbin, a steamship flotilla, power plants, and the Zhalaynor coal mines. The company obtained the right to prospect and develop coal deposits at a distance of approximately 17.3 km (30 li) on both sides of the railway, but the land for coal mining had to be bought or leased. As for the shipping company, before the Russo-Japanese War, the CER Society was engaged in sea transport with the help of 20 steamers, and after the loss of Dalny it owned only a river flotilla on the Sungari.
On the other hand, thanks to the Chinese Eastern Railway in Northeast China, Russian trade has sharply intensified, and Russian entrepreneurs have implemented a number of investment projects. In addition, in Harbin, social infrastructure, as they would say now, was rapidly developing. In general, by 1914, Russian private investments in the region reached almost 91 million rubles, but this accounted for only 15% of Russian direct investments in Manchuria - the rest came from the CER itself.
Sell in Soviet style
The civil war and intervention did not bypass the Chinese Eastern Railway, and its freight turnover in 1918 decreased by 170 times compared to 1917! Under the pretext of fighting against communist influence, on December 27, 1917, the Chinese government banned the export of foodstuffs to Russia, including tea, and in January 1918 closed the border altogether. At the same time, the white emigration gave a new significant impetus to the economic development of Harbin and the area around the highway.
By a decree of December 17 (4), 1917, the Council of People's Commissars unilaterally changed the terms of the 1896 contract and nationalized the Russian-Asian Bank, transferring its functions to the People's (State) Bank. In February 1918, the former board of the CER Society in Petrograd was disbanded. Nominally, the Chinese Eastern Railway came under the jurisdiction of the People's Commissariat of Railways of the RSFSR, although for several years the new Soviet government did not hold actual control over the railway.
When the Soviet Union and China established diplomatic relations in 1924, the USSR gave up a number of “special rights and privileges in Manchuria. This led to the liquidation of the Russian concessions in Harbin and a number of other Chinese cities, however, the CER remained under the control and maintenance of the Soviet side. In 1925-1927. Soviet-Chinese trade revived, and, as a result, the volume of cargo transportation along the CER began to grow.
True, then a new aggravation of relations between the two countries began, and the role of provocateurs had to be played by units formed from former White Guards who settled in Harbin. In July 1929, with their support, the Chinese attempted to alienate the road.
The raid on the board of the Chinese Eastern Railway in Harbin and its institutions along the entire line of the road to Pogranichnaya station was accompanied by the arrest of Soviet employees and the severance of diplomatic relations. At the same time, the authorities of Mukden and Nanking refused to settle the issue peacefully, which led in August to a rupture of diplomatic relations between the USSR and Kuomintang China. Mukden troops and Russian White Guards began military operations against Soviet troops on the Amur and Transbaikalia, but units of the Special Far Eastern Army, entering the territory of Dongbei, unexpectedly quickly defeated them.
The outcome of the conflict was summed up on December 22, 1929 in Khabarovsk - the Chinese were forced to sign a protocol on the restoration of the status quo of the CER. The Chinese authorities even pledged to disarm the White Guards by expelling their commanders from Dongbei. In response, the USSR immediately withdrew its troops from the northeast of China. These events have received the name "Conflict on the Chinese Eastern Railway" in the historical literature.
But already in 1931, Japan began to seize Manchuria and it became clear that the fate of Soviet participation in the CER concession was a foregone conclusion. After months of negotiations, which began in June 1933 and was accompanied by tough bargaining at a price, when there were several series of counter offers, the USSR and the puppet state of Manchukuo agreed to sell the Chinese Eastern Railway for 140 million yen. The USSR agreed to receive two-thirds of the amount in Japanese goods within two years, another part in cash upon the conclusion of an agreement, and something even in Manchukuo treasury bonds guaranteed by the Japanese government (with an annual yield of 4%).
In August 1945, after the defeat of the Kwantung Army in Manchuria, the Chinese Eastern Railway returned to Soviet control. Already on August 14, the Soviet-Chinese agreement on the Chinese Changchun Railway was signed (this is how the CER was named and the southern branch to Port Arthur that returned to its subordination). This document established a joint company on a parity basis for the operation of the road exclusively for commercial purposes with the subsequent transfer of the entire road to China free of charge in 1975. But at the peak of Stalin's friendship with Mao Zedong, the road was finally transferred to the PRC much earlier, in the early 1950s.
