had been appointed Sir Hercules Robinson's successor, took up the reins of office on March 11, 1866, after an interregnum of twelve months, during which the Hon. W. T. Mercer, a former Colonial Secretary, administered the Government. The new Governor was greatly surprised at the state of affairs which confronted him, as he had been led to expect to find a colony with an overflowing treasury and a prosperous and contented community. He set to work with energy to straighten things out once more. As the stress was to a large extent the product of monetary trouble, it was to finance that he gave his first consideration. The position with which he had to deal was no ordinary one. In 1865 there was a surplus of assets over liabilities of $298,000, but the next year this had fallen to $184,000, and in January, 1867, there was a mere nominal surplus of $24,000 made up of unavailable assets. In 1865 there was an excess of expenditure over revenue of $94,361, and in 1866 this had increased to $167,877. Sir Robert MacDonnell effected sensible economies by readjusting offices in the Civil Service, and by cutting down redundant expenditure in all directions. In this way he at once reduced the outgoings from $936,954 to $730,916, though the full reduction was only effected by leaving the military contribution in arrear. On the revenue side he devised a lucrative new source of income by putting in force a stamp act. The measure was strongly opposed by the commercial community, and the Chinese traders, as far as they dared, ignored the enactment when it was enforced, but as the need of a new source of revenue was imperative the scheme was persisted with, and eventually it came to be recognised as a legitimate and innocuous means of revenue production. As far as the finances of the Colony were concerned its effect was immediate and marked. In 1868, the first year of its enforcement, the tax brought in the large sum of $101,000. The income for the year generally was good, the revenue reaching the unprecedented sum of $1,134,105. As the expenditure for the period was no more than $991,811 there was a surplus of $140,000. The finances of subsequent years were seriously embarrassed by a difficulty which arose between the Governor and the Colonial Office in reference to some measures for the regulation of gambling houses in the Colony which the Government introduced. Sir Robert MacDonnell, conceiving that gambling was an ineradicable vice of the Chinese, deemed it better to regulate it than to make futile efforts to suppress it. He accordingly decided to introduce the farming system, under which the right to keep gambling houses was let out to licensees for a sum of money. The system was in force at the Portuguese Colony of Macao, and it prevails to this day in the Federated Malay States under quasi British rule. But at home the idea of any part of the Colonial revenue being derived from vice was received with disfavour, and the Colonial Secretary (the Earl of Carnarvon), while reluctantly giving permission to a trial of the system, stipulated that the licence fees must not be farmed out but treated as matters of police and not as revenue. Sir Robert MacDonnell in a despatch pointed out the impossibility of proceeding by any other method than farming the licence, and suggested that a discretionary power should be given to the Governor in Council to exercise authority under the ordinance as circumstances might render expedient. The Duke of Buckingham, who had succeeded Lord Carnarvon, concurred in his predecessor's instructions, and expressly declined to sanction the farming system. In another despatch he intimated that the licence fees should be limited to an amount covering police arrangements connected with the system. The ordinance having been confirmed, with the qualifying conditions indicated. Sir Robert MacDonnell proceeded to enforce it. The licence fees were, to meet the demands of the home authorities, placed in a distinct special fund, which amounted to $155,000 on May 23, 1868, to $221,733 on June 28, 1869, and to $277,334 on December 31, 1869, When the scheme had got fairly under way there was a strong outburst of indignation from a section of evangelical churchmen who regarded with horror the fact that the Government had had anything to do with the unclean thing. The agitation commenced in the Colony was carried to England, and the flames of sectarian fanaticism were assiduously fanned by the ex-Attorney-General and the former editor of the Daily Press, who were glad of the opportunity afforded of having another fling at the administration. While this agitation was proceeding. Sir Robert MacDonnell was conducting a very lively controversy with the Colonial Office in reference to the manner in which he had interpreted his instructions. The Duke of Buckingham, realising the extent to which the Government had been committed, expressed his entire disapproval of the proceedings, and threatened "to stop the licensing altogether." Sir Robert, replying to this despatch to Earl Granville, who had succeeded the Duke at the Colonial Office, alluded to the ducal despatch as embodying "sweeping comments which implied a general censure on the Hongkong Government." Earl Granville thereupon lectured the Governor upon the peculiarly unbecoming tone of his remarks, and at a subsequent date passed heavy censure upon Sir Robert for his dealings with the money in the special fund and ordered him to pay back into the fund all unauthorised appropriations amounting to $129,701. The end of the controversy was that the scheme had to be abandoned and drastic measures of economy adopted to make up for the deficiency in the revenue caused by the withdrawal of the appropriations.
Apart from domestic questions, Sir Robert MacDonnell's administration was of some importance, in that it coincided with the raising of some notable controversies affecting the relations of the Colony with the Chinese Empire. The chief of these was the question of what came to be known as "the Blockade of Hongkong" by the Chinese authorities. The measure referred to was an effort made to regulate the junk trade between the Colony and Chinese ports. The first exercise of the supposititious power was experienced about the middle of October, 1867, when the steam cruisers of the Canton Customs, aided by some gunboats, stopped and searched several native craft leaving the harbour. Subsequently, the blockade was rigorously enforced, every junk quitting or entering the harbour being boarded and overhauled. In cases where the papers were not in proper order the junks were detained and double duty was levied in the case of goods shipped at Pakhoi and Canton, or other Treaty ports, by junks which, en route, touched at Hongkong. The ostensible object of the blockade was the prevention of smuggling, but the effect of it was to impose heavy disabilities upon the native trade by driving the shipments made into foreign bottoms, the freight charges of which were heavier than those of the junks. Great indignation was excited amongst the mercantile community at the action of the Chinese Government, but it was found that the hands of the Hongkong Government were to some extent tied, by the fact that the scheme was suggested to the Chinese Viceroy at Canton by the British Consul—Mr. (afterwards Sir) D. B. Robertson. Nevertheless, the Governor took energetic action within the limits of what was possible and expedient. He strengthened the water police force, and obtained a steam launch to assist the Colonial gunboat Victoria in patrolling the Colonial waters to prevent trespass by the Chinese craft on the Colonial territorial limits. He also compelled the Chinese warships to fly a special official flag as a condition of their being allowed to anchor in the harbour. Discovering that the object of the Chinese Government in instituting the blockade was to levy a special war tax, called likin, which was not only applied to opium but to a large list of ordinary goods. Sir Robert demanded of the Canton authorities a copy of the tariff upon which the charges were based. His request in this matter was not complied with, but his energy had unquestionably a salutary influence in curbing the excessive zeal of the Chinese officials. Meanwhile, the local mercantile community had adopted a strongly worded memorial to the Secretary of State protesting against the blockade, and demanding its withdrawal. The agitation was kept alive by the Chamber of Commerce, and from time to time vigorous philippics were delivered against what was regarded as a subversion of the rights of the Colony. But the representations had little effect on the authorities at home, who, animated by what seemed to Hongkong people as an overweening desire to keep on good terms with the Chinese Government, refrained from taking steps to secure the removal of the blockade. In the end the Chinese merchants deemed it wise to pay the imposts demanded of them, and the system, having been thus acquiesced in by the parties most affected, was continued until it became an established institution. Another matter of diplomatic interest which agitated the public opinion of Hongkong at this period was the appointment of a Chinese consul in Hongkong. When the proposal for the establishment of a Chinese consulate in the Colony was made, strong objection was taken by the local merchants on the ground that the power which a Chinese consul would gain over the local Chinese population would constitute a veritable imperium in imperio, and subject the native community to an intolerable system of official espionage, and to the insatiable rapacity of a corrupt officialdom. Sir Rutherford Alcock, then British Minister at Peking, dismissed these objections lightly as "fears more or less chimerical and exaggerated," and the Earl of Clarendon, Foreign Secretary at the time, concurred in the main with his views. But though the establishment of a Chinese consulate in Hongkong was accepted in principle, no steps were taken to give effect to the proposal.
All this time the trade of Hongkong was advancing rapidly. Many causes contributed to bring about this result. The opening of the Suez Canal in 1865 was one important factor. This important measure gave new life to the trade of the Far East, and especially to those forms of trade which from the outset have flourished at Hongkong. The establishment of bonding houses and the formulation of a liberal tariff in Japan in July, 1866, was another contributory cause of some moment. Furthermore, the connection of San Francisco with Hongkong
