Chung Thye Phin in Chinese Business Enterprise By Rajeswary Ampalavanar Brown

Chung Thye Phin in
Chinese Business Enterprise
By Rajeswary Ampalavanar Brown
Published by Taylor & Francis, 1996
ISBN 0415142938, 9780415142939

Page 61, 62, 63, 64

Chapter 3: The Khaw group: Chinese business in early twentieth-century Penang by J. W. Cushman

The Eastern Smelting Company, Ltd

Having acquired a reliable supply of ore and an expanded shipping service to carry it, all that was lacking was an up-to-date smelting plant. Tin from Thai mines had traditionally been smelted in small Chinese blast furnaces made of clay known as relau Tongka (lit. a Tongkah furnace).[78] The principal advantage of these smelters over the more sophisticated western smelters was cost: the Chinese-style smelters required little capital outlay whereas the technologically advanced western smelting plant required large capital inputs. The principal disadvantage of Chinese smelting methods was that the smelted product contained a high impurity content which required further treatment to achieve the "almost theoretical purity ... demanded for ... the [European] tin plate trade."[79] Nor were the Chinese smelters able to effect the economies of scale possible to the bigger smelting enterprises.

In addition to the "vast numbers of small Chinese smelting works scattered all over the various centres of tinstone production",[80] some Chinese were experimenting with more modern smelting methods. The most important of these was the plant begun in Penang by a close associate of the Khaws, Lee Chin Ho b 1863).[81] He opened the Seng Kee Smelting Works in 1898 on an acre of land off Dato Kramat Road. With four reverbaratory furnaces, electrically driven equipment and a laboratory for testing ore samples,[82] the Seng Kee smelter provided an alternative to the Butterworth smelter of the Straits Trading Company, and a solid base from which the Chinese-run smelting industry could expand.

Lee Chin Ho's works were purchased towards the end of 1907 by the Eastern Smelting Company, Ltd. a new company formed in that year with a capital of $1,500,000. The company's object as expressed by its secretary, James Donald, was "to encourage the miner in the development of his property, and to stimulate the tin industry so far as we possibly can."[83] It's first Board of Directors read like a Who's Who of the FMS and Thai mining industries: Eu Tong Seng, Chung Thye Phin, Ng Boo Bee, Ong Hung Chong, Khaw Joo Tok and his nephew Khaw Bian Kee.[84] Its Managing Director, Herman Jessen, had , moreover, gained extensive experience in the smelting business during his years with Behn, Meyer and Co. Besides smelting the ore from their own mines, the new company also hoped to attract ore from the many small mines that were continuing to use traditional methods of smelting.

One of the first steps the new company took was to open ore-buying agencies throughout the FMS. These proved to be popular with the miners who, in the past, had felt that the Straits Trading Company did not always offer the fairest prices for their tin.[85] Because Eastern Smelting was backed by the Chinese, most of whom were themselves mine owners, it had an advantage over the Straits Trading Company when doing business with other Chinese miners. Its success in gaining the confidence of the mining community can be judged by Eastern Smelting's dramatic increase in production figures over the three years it was in operation. In 1908 it smelted 11,400 tons of ore and unrefined tin, or 18 percent of the tin shipped from the Straits; by 1910 it was smelting 16,000 tons or 29 percent of total shipments.[86] (See Figure 2.2.)

Eastern Smelting did not remain under Chinese direction for long, however. In 1911 the company, "an established and thriving business" according according to the Pinang Gazette,[87] was sold to British interests headed by the former Resident of perak, Sie Ernest Woodford Birch. Birch's involvement with the concern predated the takeover in 1911. Birch had visited the Seng Kee works in the early 1900s and afterwards suggested to Lee Chin Ho that "it would be an excellent idea if a large company could be formed" involving the "leading mineowners as shareholders" so their ore "could be smelted down at one place, at cheaper rates."[88] He had also been among the guests at the formal opening of the company by the Governor of the Straits Settlements, Sir John Anderson, on 17January 1908.

Birch may well have acquired an option on the Eastern Smelting Company after the one held by George Meudell, an Australian entrepreneur, had lapsed when tin prices fell in 1908-1909.[89] Meudell remarked in his memoirs that the company he had "bonded for sale in London only needed more capital" and that after he had let his option go, "somebody else floated the tin smeltery and bagged the profit."[90] The "somebody else" appears to have been Ernest Birch and his associates, Cecil Budd and David Currie.

The original firm's lack of capital was emphasised in all the contemporary discussion of the company's sale. The 1911 Prospectus noted, for instance, that "the principal object of this issue is to provide working capital for extending the said business." Business had even been refused "owing to the lack of the necessary capital."[91] The Chinese directors argued that with the company's shares trading on the London market, "they could get fresh capital there more easily than they could locally".[92] Fresh capital was also needed if they were to compete with the Straits Trading Company which was planning to expand. It was expected that the new subscription would provide sufficient funds to overcome past financial shortfalls.

[78] Wong Lin Ken, The Malaysian Tin Industry  to 1914 (Tuscon, 1965) pp 157-158
[79] Arnold Wright and Thomas Reid (eds) The Malay Peninsular; A record of British Progress in the Middle East (London, 1912) page 276
[80] C. G. W. Lock, Mining in Malaya for Gold and Tin (London, 1907) pp 161-162
[81] On Lee Chin Ho, see "Pinang Gazette" Centenary Number (1933): Feldwick. pp 856-857
[82] Wright p 817
[83] PG, 18 January 1908
[84] PG, 17 March 1908
[85] PG, 17 July 1901
[86] Eastern Smelting Company, Ltd, Prospectus, July 1911 (Lim Keong Lay Collection, Rare Book Room, Penang Public Library)
[87] PG, 31 August 1911
[88] PG Centenary Number on Lee Chin Ho
[89] Wong, p 243; Birch 156-157
[90] George Meudell, The Pleasant Career of a Spendthrift (London, 1933) p 136
[91] Prospectus, 1911
[92] PG Centenary Number on Lee Chin Ho