CO129-331 - Public Offices - 1905 — Page 13

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and any commissions are not to be reckoned. In Mr. Ross' opinion the traffic on the Chinese section would not suffice to pay interest on the loan besides working expenses, and consequently provision must be made in fixing the amount of the loan for at least one year's interest, if not for two. As the Hong-kong Government will no doubt be able to raise the capital required for the British section much more cheaply than the Chinese Government for theirs, while the land will no doubt be acquired more cheaply and there will be no commissions to pay, the Chinese Government will, it appears, be at a disadvantage if interest is to be allowed only on the amount actually expended on construction and equipment. The enclosed copy of a rough pro-forma estimate shows that under this clause, while the amount of the Loan is estimated at £1,500,000, only £1,000,000 of this will rank as entitled to interest in calculating the net profits. The Engineer's estimate for the construction and equipment of the British section is put down in the same document at £488,317, but Mr. Ross states that he was authoritatively informed that it would be nearer £600,000. The net profits if divided according to mileage would be as 4 to 1, but if divided according to the actual amount of capital expended on construction and equipment would work out as 5 to 3. On this question therefore there is likely to be much opposition from the Chinese side.

I enclose also copy of a letter addressed to me by Mr. Ross in which these questions are discussed and Your Lordship will see that he advises the amount of the loan should be stated as "not more than £2,000,000".

Copy of this despatch, with enclosures has been forwarded to the Governor of Hongkong.

I have &c.,

(Signed)

Ernest Satow.