The Chinese Government has never disguised its view that the' present depression in Shanghai is a definite handicap to the process of recovery in China generally, Re-Ports of good crop prospects from the anterior are held to promise a slight improvement in trading conditions, of which Shanghai may take due advantage in the proper time. Yet such is the peculiar stagnation produced by the combined effect of restricted credit, loss of confidence in exchange, defects of the administration of the law! and the overcrowding directly emanating from the pressure of economic stringency on the individual family, that Shanghai cannot be in shape to cope with a trade revival unless practical steps be taken in relief of the land market, land having been, as was pointed out the other day, the virtual stard-ard of Shanghai's exchange of cxin= modities. Enough has been said for the moment on the broad question of the artificial enhancement of land values due to the hectic boom period and over-expansion of credit. It is evident that determination of that issue cannot be secured when the market is to all intents and purposes frozen stiff. Only a fluid market can really put: the market price on land. Reference has frequently been made in these columns to the sinister part played by the administration of the: law in retarding the market's recovery of freedom. In discussing land values last week "the loss of virtue in the system of registration und defects in the mortgage law..." received specific mention as partly contributory to the "general stagnation" here. The Government's finances would, Promptly benefit were this stagnation broken and there can be little doubt that it is within the Government's power by a simple administrative decision to achieve that much-desired consummation, It iz often regretted that public confidence in the exchange position is so faltering. The Government could not make a hotier bid for firmer confidence than by showing] its readiness to remove the two main obstacles to the recovery of, the mortgage business on which so much of Shanghai's prosperity depends. This is not said with any idea of stimulating a land boom; for reasons made clear last week this Journal would deprecate dogmatic assertions regarding the norn of Jand values, The last thing it would desire to see would be a repetition of the dizzy performances, of a few years ago. It recognizes, however, that there is money to buy land and buyers willing to buy, if only the deterioration in the value of mortgages as securities—a deterioration due to certain precise and easily, remedial conditions—were dimi nated by Government action. Let the facts be briefly cited. "Until about a year ago the Civil Code (article 873) empowered a mortgagee who had not been paid at maturity to apply to the Court for: the property to be sold by auction and pay himself out of the sale proceeds, This right was virtually, nullified last year by the Judicial Yuan's decision (No. 493) to make enforcement depend on the mortgagee first obtaining the fin judgment of the Court: thus ai action in the Court was entailed, the mortgagor being given the right to two' appeals, without showing grounds. The consequence is that inordinate delay amounting, for all, practical purposes, to the reduction, fof the mortgagee to a state of impotence has been introduced into what formerly was a simple, effective and well-recognized ' procedure for ensuring the negotiability of an important security. At the begining of this year, in response to urgent protests by Chinese bankers and merchants, the Government induced the Legislative Yuan to modify its ruling by a decision (1404 of February 4, 1936) of which the following is the relevant passage:
Before the laws regarding land registration will be put into force, when a mortgagee has nol been paid in duo time, the Court! can order the sale of the mortgaged property by auction if no objection has been made either on the part of the mortgagor or a third. party, without awaiting a final judgment, This has corrected in some degree the excessive latitude of the Legislative Yuan's previous decision, (No. 493); even so it does not alter the fact that, as the result of that ill-advised action, the borrower wishing to default can Leave the lender without any recourse except through the tortuous, expensive and prolonged processes' of the courts. Nor should it be forgotten that, originally, mortgage practice was based on the insertion in the. Decd of an express power of sale 60 a5 to enable the mortgagee, should the mortgagor default in the payment of either principal or interest, to exercise such power of sale without the necessity of having to apply to the Court for an order for sale, ow far has the system been drawn from that simple, practical basis which so well ensured the value of the mortgage deed and its conse~ quent effectiveness as an: instru ment of credit!
Side by side with this grave blow to the validity of the mortgage deed as a document on which credit may be raised, came the sudden acceptance by the Courts of their right to interfere between landlord and tenant in declaring what is or what is not "fair rent." If duly prescribed conditions had been formulated to guide the Courts and reasonable expedition had been assured for disposing of actions, this might not have been so serious. The Courts, however, not only interpreted the law in such a way as to deprive the landlord of his effective claim on arrears of rent from a defaulting tenant, but, applied the machinery of appeals and other processes which, however appropriate in general legal practice, became disastrous instruments of abuse in the hands of dishonest tenants. This journal is is not for the moment conewrned with the morality or otherwise of these developments. No doubt, in certain circumstances, the legis nature is right to endeavour protect the mortgagor and tenant, alike from harsh and unconseionable treatment by mortgagee or landlord, Such effort, however, demands a far more scientific study of the whole problem than has been yet practicable in China, It is therefore merely dangerous to make the Courts the agents of a reform which they are not "equipped to. safeguard against gross abuse. The practical issue is the effect of these developments on the value of the mortgage deed as an instrument of credit. In the past that deed has been most valuable as the basis of business enterprise here, because by swift and clearly understandable processes the mortgagee could exercise his rights on default by the mortgagor and also the Jand= lord was assured of receiving from his tenant the duly agreed upon rent, the regularity of the receipt of which was an additional guarantee of liquidity to the mortgagee. Now when it is no longer possible for the mortgage to possess such attributes, its value as a means of raising credit and therefore of financing business has been so seriously reduced as to be almost negligible. This, of cause, has immensely accentuated the stagnation arising from the depres~ sion. If the Government would ive its immediate attention to this matter by the simple process of restoring the old expedition and by removing from the Courts the power to interfere between land-ord and tenant, it would be, at one stroke, improving its own financial resources and it would be giving Shanghai a real chance to break the ice of the present land frost, There is talk of the establishment of a mortgage bank, At best it would have but limited influence and involve further delay. The situation is so critical that nothing short of decisive promptitude will relieve it, Cannot the Government, forti-fled by the strong representations of Chinese bankers and business men, rise to the height of the occasion and justify its often expressed solicitude for the commercial integrity of the country? To those who resist any measures taken to protect the mortgagee or landlord against dishonesty or to confirm him in his legal rights, it would be useless, of course, tomake any ethical appeal. They may perhaps be persuaded of the wisdom of the course suggested, when it is pointed out that {he only effect of the present legal shackles on the proper operation of the mortgage deed or rent agreement is to destroy the value of mortgages instruments for raising credit,
Text read from the printed page and cleaned; old type leaves the occasional error.