Chapter 75: Procurement (Part 1)

To retain such a high-quality client, Da Ban had already racked his brains countless times. In the Far East of this era, whenever people mentioned “this bank” or simply “bank,” HSBC was the first to come to mind. Founded in 1866, this bank was extremely powerful—starting with a capital of 5 million Hong Kong dollars (1 Hong Kong dollar equivalent to 1 piastre), its capital has now exceeded 10 million Hong Kong dollars, roughly ten times that of Crédit Oriental’s 8 million francs.

In other aspects as well, HSBC was a colossal entity. Its business volume accounted for over half of the entire Far East banking industry. Last year, its deposits exceeded 24 million yuan, and its assets surpassed 100 million yuan. Even its remittance services exceeded 100 million yuan. Compared to Crédit Oriental, HSBC offered lower interest rates, better terms, and more thorough services, forcing Crédit Oriental to struggle to survive in its shadow.

Da Ban remained calm and said, “Then let’s settle this repayment of 300,000 francs first.” He needed to assess Liu Yu’s strength. With a wave of his hand, he picked up his hat, and the person behind him understood immediately: “I’ll call the accountant and cashier over.”

With such a large amount of money, even Da Ban wouldn’t dare accept the cash in just two people’s presence; procedures had to be followed. About ten minutes later, two cashiers and an accountant arrived on the ship. Liu Yu also received his business card: “Craig, Manager of Crédit Oriental’s Haifang Branch.”

Craig watched calmly as the two cashiers counted bundles of banknotes. Each thin bundle contained 1,000 francs. 300,000 francs wasn’t as much as outsiders might imagine—it filled a briefcase easily.

“100,000…”
Craig initially thought Liu Yu might be using a strategy of feigning weakness to lure him in, but when it reached 100,000 francs, he grew restless. He went over personally, picked up a bundle of franc banknotes, and counted them. Indeed, there were 50 notes of 20 francs each. He took one out and examined it carefully under the sunlight and sea breeze—yes, it was genuine.

As a professional who had switched careers midway, he was confident about this. He randomly picked another note and inspected it closely—the watermark was definitely authentic. Meanwhile, the cashiers had already counted 150,000 francs. Craig put the bundle back and said, “Your strength is truly remarkable, Mr. Liu Yu. We should be the best partners.”

“Although HSBC is powerful, it’s located far away in Hong Kong and Shanghai, so it can’t offer the best service.”

Not to mention the 300,000 francs, even the 150,000 francs in banknotes demonstrated the strength of the Black Flag Army and the Xiliu Camp. He also thought of the legendary huge gold mine in Shanxi, wondering how much profit the Xiliu Camp had made from it. Letting go of such a high-quality client would be a disgrace for any banker.

Liu Yu didn’t respond, but Liu Qing spoke on his behalf: “But HSBC offers draft services. We need to purchase many goods soon and require such services.”

Liu Qing was also an old hand at Oriental Union, but Craig pretended it was their first meeting: “Honorable Lord Liu Qing, it’s a great pleasure to meet you. We can also provide bill of exchange services.”
Liu Qing explained, “We can issue bills of exchange as well, but by ‘bill of exchange service,’ I mean bill discounting and letter of credit financing.”
These two services emerged in the 1870s as financial practices that arose in the Far East. Before letter of credit financing became popular, a foreign firm had to wait until the cargo ship arrived and the payment was settled before receiving the money. But now, with a bill of exchange, one could use it as collateral at a bank for a loan even before the transaction was completed. As a result, the same goods could be circulated two or three times in the same amount of time. HSBC rose to prominence because, during the economic crisis of 1866, it guaranteed six months of bill exchange coverage, while other banks only offered four months. Within a few months, it became the most popular bank in Hong Kong.
“No problem!” Craig had long wanted to engage in this highly profitable bill of exchange business. “Everything is fine! We can also provide letter of credit guarantees. I assure you that your interests will be maximized with our support.”
He added, “Whatever goods you need, you don’t necessarily have to purchase them in Hong Kong. Haifang Port has a wide range of products, and we can offer end-to-end services.”
By then, Liu Qing had already shaken his hand and said, “Our Black Flag Bank is not a formal foreign bank. The bills of exchange we issue are only valid within our region and cannot be used in Haifang, Hong Kong, or Saigon. Since your bank couldn’t provide bill of exchange services, we had no choice but to turn to HSBC.”
In fact, the story about HSBC was completely fabricated, and Black Flag Bank had never issued any bills of exchange. It should be noted that even the China Merchants Bank, supported by the Qing government, had its bills of exchange not recognized by foreign banks. Only when foreign employees of the China Merchants Bank signed on the back of the bills could they be accepted, let alone those from a purely military bank like Black Flag Bank.
But Craig was now obsessed. He immediately asked Liu Qing again, “We can provide comprehensive bill of exchange services. Whatever supplies you need, as long as Haifang has them, we can make them available to you. We’ll handle the customs matters.”
Oriental Union Bank and the customs controlled by the French were in a collusive relationship, with almost nothing they couldn’t exchange. Craig assured Liu Yu, “Everything is negotiable except arms. Don’t you want to import sulfuric acid?”
Sulfuric acid was always under customs restrictions. Xiliuying could only produce small amounts of sulfuric acid and nitric acid on a regular basis. These two chemical products were fundamental to the military industry. Without them, Xiliuying’s military industry would come to a halt immediately. Importing them had always been a major challenge, and they had long relied on smuggling. Now, to win over clients, Craig made the wisest decision of his life: “Everything is negotiable, except arms.”

He knew that some sulfuric acid and nitric acid would be turned into military materials for Xiliuying, but he wasn’t clear about how far Xiliuying’s military industry had progressed. He thought Xiliuying could at most manufacture some bayonets and a bit more black powder. As for producing rifles or nitroglycerin, he believed that was absolutely impossible. After all, the Qing government had invested tens of millions of silver dollars, yet only a very small amount of modern weapons had been produced, and their quality was far from satisfactory.

Liu Yu was overjoyed upon hearing his promise. You see, Xiliuying had already achieved small-scale production of nitroglycerin, the most powerful explosive of the era, but more nitric acid and sulfuric acid were needed for it. The cotton explosives invented by Lian Jincheng had reached a dead end; now that Xiliuying found their effectiveness insufficient, they still had to rely on nitroglycerin. Although nitroglycerin was an extremely unstable explosive, Liu Yu remembered that treating it with diatomaceous earth could yield a highly powerful and safe explosive. However, the problem still lay with sulfuric acid—the most basic ingredient. If they could import a batch of sulfuric acid, the problem would be solved immediately. But Liu Yu wasn’t satisfied. Calmly, he said, “We need to provide each soldier with a set of uniforms soon, so we need to import some dyes. Can the suppliers come aboard?”

Since Liu Yu wouldn’t come ashore, the big bosses of the foreign firms in Haifang City could only come aboard and wait for his invitation. Some of these firms specialized in certain types of business, while others dealt in various kinds. All of them were not large enough and hoped for some windfall: “What? Oriental Bank offers letter of credit and bill discounting? Is this for Xiliuying’s purchases?”

Now, Craig had provided a perfect solution. The 300,000 francs from Xiliuying wouldn’t be used to repay the loan but would instead become a deposit at Oriental Bank’s Haifang branch. Using this deposit as collateral, they could apply to the branch for a range of banking services, including the remittance services Liu Yu needed most urgently. Now, Liu Yu could purchase goods in Haifang and Hong Kong without paying in cash—just by issuing bills. This not only saved effort but also greatly reduced procurement costs.

Liu Yu’s first order was for 1,000 kilograms of sulfuric acid and 1,200 kilograms of nitric acid—a huge deal. To thank Craig for his assistance, the foreign firms offered him a small gift: “A token of our appreciation, Agent Craig. We came in a hurry, but once this transaction is completed, we’ll have another gift for you.”

Craig wanted more gifts—he could already see his dream coming true. Those 300,000 francs represented the value of his life. He planned to earn 300,000 francs in this position before moving to a better one. Once he had accumulated 1 million francs, he could return to his home country to live off his investments.

Xiliuying’s second major order was for fabric: “The entire Black Flag Army needs unified uniforms. You know how much fabric is required for 4,000 sets of uniforms… No, I mean 12,000 sets.”

Liu Yu wasn’t going to kindly help the Black Flag Army get new uniforms—he was preparing uniforms for his own new army. But Craig clearly misunderstood: “Do you need shoes too?”

For an army of four thousand, even the simplest military supplies require a huge investment of funds. “I think you’ll need at least ten thousand pairs of shoes.”
Liu Yu knew that the current force of just over a thousand in Xiliu Camp was far from enough. Once the Sino-French War broke out, it would be necessary to expand the camp to the size of four large camps. Of course, he needed more military supplies, but he was more concerned about dyes: “I need dyes, a whole shipload of picric acid.”