The Chinese Government Purchasing Commission was constituted by the China Indemnity (Application) Act of 1931, which implemented the terms of the Exchange of Notes between the Chinese and British Government, dated September 19th and 22nd 1930, concerning the disposal of the British share of the China Indemnity of 1901.
The original China Indemnity totalling $333 million was set by the Boxer Protocol of 1901, aimed at compensating eleven nations (including Britain, USA, France, Japan, Russia, Holland and Belgium) for losses incurred during the Boxer "Rebellion" in 1900. However, China's role as an ally in the Great War led the British Government to issue a declaration in December 1922 which stated that the balance of the share of the Indemnity would be thenceforth devoted to 'purposes mutually beneficial to China and the United Kingdom'. A report published by the Anglo-Chinese Advisory Committee in 1926 set out recommendations for the best use of deposited Indemnity Funds and all future instalments. The Exchange of Notes with the Chinese Government in 1930 confirmed that the bulk of Indemnity Funds would be used for the creation of an endowment to be devoted to educational purposes. It was proposed that the provision of this endowment would lie in the investment of the greater part of the Funds in rehabilitating and building railways and in other productive enterprises in China. For the control, apportionment and administration of the endowment, a Board of Trustees would be appointed in China, which would include a certain number of British members.
The Chinese Government further proposed that Funds on deposit be transferred to a 'Purchasing Commission' in London to consist of a chairman, who shall be China's diplomatic representative in London, a representative of the Chinese Ministry of Railways, and four other members appointed by the Chinese Government after consultation with the Board of Trustees from a panel of persons commended to those Trustees by His Majesty's Principal Secretary of State for Foreign Affairs as being persons of standing with wide experience in business matters, for the purpose of purchasing bridges, locomotives, rolling stock, rails and other materials from United Kingdom manufacturers for the use of the Chinese Government Railways and other productive undertakings in China'.
The Board of Trustees for the Administration of the Indemnity Funds Remitted by the British Government was inaugurated on 8th April 1931, and based in Nanking [Nanjing], China. The Chinese Government Purchasing Commission held its first meeting on 29th April 1931. The first members of the Purchasing Commission included the Chairman, Sao-Ke Alfred Sze (Envoy Extraordinary & Minister Plenipotentiary), Dr C C Wang (Ministry of Railways), Sir Arthur Balfour, Sir Basil Blackett (Treasurer), Mr W T Charter, Sir Ralph Wedgewood and Mr T S Wynn (Secretary). The premises were at 21 Tothill Street, London.
The primary function of the Chinese Government Purchasing Commission was to enter into, supervise and secure the carrying out of contracts for the supply and delivery in China of such plant, machinery and other materials to be manufactured in the UK as required and ordered by the Chinese Government. One half of all instalments of the Indemnity Funds were to be transferred to the Purchasing Commission to be used in discharging its obligations, and one half to the account of the Board of Trustees for application to mutually beneficial objects. Until 1940, the Purchasing Commission was also involved in the work of arranging facilities for the practical training of Chinese students and junior engineers with British firms.
The Chinese Government Purchasing Commission was directly responsible to the Board of Trustees in China, which determined its Constitution and approved the nomination of its members. The term of office for a member of the Purchasing Commission was three years, subject to reappointment. Four members were required to constitute a quorum. It purchased materials under instruction from the Board, which communicated orders from the various Chinese Ministries. Only those orders that were transmitted through the Board were deemed valid. The Purchasing Commission was required to report to the Board on receipts, expenditure and purchases, and submit an annual report with a statement of accounts and audited balance sheet. It was permitted to provide itself with offices, staff, expert consultants and accountants with the consent of the Board.
During its relatively brief history, the Purchasing Commission arranged purchases on behalf of the Ministry of Railways, Hangchow Kiangshan Railway, Tientsin Pukow Railway, Ministry of Communications, National Construction Commission, Ministry of Industries, National Resources Commission, Huai River Commission, Kwantung River Conservancy Commission and the China Merchants Steam Navigation Company. Contracts included the provision of locomotives, rolling stock and track for the Canton Hankow Railway, and the Nanking Pukow Train Ferry; coasting steamers for the China Merchants Steam Navigation Company (built on the Clyde and the Tyne); radio and telegraphy equipment for the Ministry of Communications; plant for the construction of power stations such as the Tsishuyen Power Station and Kunming Electricity Works for the National Construction Commission, and factories such as the National Central Machine Works for the Ministry of Industries.
The work of the Purchasing Commission suffered seriously from the effects of the Second World War. By 1938-1939 hostilities with the Japanese were causing shipping difficulties in Chinese ports. Raw and manufactured materials were subject to regulations for the control of exports, and the handling of export licences created extra work. Prices were unstable, with insurance premiums and freight rates considerably higher due to the need to cover against War Risk. There was a consequent decrease in purchases. From December 1938 the remittance of Indemnity Funds was suspended, and by 1941 the purchase of materials with these Funds had almost ceased. During the War and in the following years, the main efforts of the Purchasing Commission were given to services rendered through the China Purchasing Agency Ltd. In addition the Purchasing Commission attempted to complete deliveries pursuant to orders in place prior to 1949.
By 1949 the Chinese Communist Party had seized power from the Chinese Nationalist government. The Peoples' Republic of China was established at Peking [later Beijing] on 1st October, with Mao Zedong as Chairman of the Central Peoples' Government. The change in government undoubtedly had an effect on the position of the Board of Trustees, and by 1951 it seems that communication from the Board had ceased. The position of the Purchasing Commission became increasingly uncertain. The late Chinese Ambassador had relinquished his position as Chairman on the termination of his diplomatic mission, and the representative of the Chinese Ministry of Railways had retired on the grounds of ill-health, with no replacement. The remaining four British members continued to administer the affairs of the Purchasing Commission and safeguard the balance of funds, $300,000. However, the sudden death of Sir Arthur Rundell Guinness in March 1951 meant that only three members remained - less than was required for a quorum. Furthermore, the expiration of their terms of office was due to expire on 22nd September 1951. Various approaches were made to the Foreign Office and Ministry of Foreign Affairs in Peking requesting the appointment of an additional member, or a reduction in the size of quorum. No word was received from China, and the Purchasing Commission was officially wound up in September 1951.
The China Purchasing Agency Ltd was formed in 1939 to effect purchases with funds that did not come under the arrangements for the disposal of the British share of the China Indemnity. It shared staff and offices with the Chinese Government Purchasing Commission.