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Li Hongzhang and Zuo Zongtang borrowed money from banks with very high interest rates. What was the reason for doing this?

When it comes to the famous Zuo Zongtang, what many people can think of is that he led troops to regain Xinjiang. However, according to historical records, when Zuo Zongtang and Li Hongzhang were at war, every time they borrowed money from foreign banks, they deliberately chose banks with high interest rates. Their behavior is really puzzling. Why did they borrow from a bank with high interest rates instead of a bank with low interest rates? Was it because they were rich at the time?

Although the interest rate is high, high-interest loans have two advantages: large amount of funds and fast borrowing speed. Only by using high interest rates can we attract powerful foreign banks to borrow money and quickly raise the necessary money to meet the needs of the military. Zuo Zongtang could use foreign debts to force payment of wages. After all, although these foreign debts were borrowed by Zuo Zongtang, the person who repaid them was not him, but the governors of the provinces. In the future, the governors of each province will repay foreign debts with rates. The higher the interest rate on the loan, the more urgent the provincial governors felt and quickly raised funds to repay the debt.

High interest rates leave profit margins for Hu Xueyan. Zuo Zongtang went to foreign banks to borrow money four times, but Hu Xueyan was the one who helped him get through. Zuo Zongtang was a figure within the system. He led troops to fight and the state would pay his salary; but Hu Xueyan was a businessman and could not get his due remuneration through institutional arrangements. Zuo Zongtang could only adopt other methods, such as letting Hu Xueyan eat the interest rate difference, as a reward. The higher the interest rate, the greater Hu Xueyan’s profit margin.

Gain support from the British through high-interest loans. At that time, HSBC Bank in the UK had the highest interest rate. Zuo Zongtang borrowed high-interest loans from the British HSBC Bank with great fanfare in an attempt to tie the British to the chariot of the Western Expedition. This move achieved excellent results. Previously, Britain had an ambiguous attitude on the Xinjiang issue and intended to recognize the Agub rebels and provide weapons to the rebels. Later, after Zuo Zongtang borrowed money from the British HSBC Bank, Britain's attitude towards the rebels changed, and it began to support the Western Expedition and provided a large number of advanced weapons to the Western Expedition.