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5.
We do not understand from your letter that the ar-
rangements with the British and Chinese Corporation set out
in the papers which you have communicated to us are to be
We turned into a formal contract, at least at present.
are therefore not taking any action in this direction.
6. There is, however, one point in the arrangement
with the Chinese Corporation which it appears to us might
with advantage be altered in the interests of the Government
of Hong Kong. We observe that it is proposed that the net
profit or loss on the whole line should be divided between
the Governments of China and Hong Kong in proportion to the
actual cost of building and equipping the sections belonging
to the two Governments respectively. I beg, however, to
point out that the effect of such an arrangement would be to
divert to the profit of the Chinese Government any savings
which we may be able to effect on behalf of the Government
of Hong Kong in carrying out the Colony's section of the
work. I would therefore suggest that the arrangement
should be altered to that which we understand exists in the
case of the Forth Bridge, and probably in other cases, where
the excessive cost of particular works or sections of a line
are compensated for by the particular sections being treated
as having a greater mileage than they actually possess and
as a set off by way of bonus against the higher cost of
their construction. Such a system would have the effect
of retaining in the interests of the Government of Hong Kong
any savings which we may be able to effect in the construc-
tion of the Colonial section of the line, as compared with
the probably extravagant cost of the Chinese section which
will be entailed by the manner in which it is to be financed.
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7.
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