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10. We gather from the papers that the Governor has contemplated the appropriation towards the cost of the Colonial section of the Kowloon-Canton Railway of the first £500,000 repaid by the Chinese Viceroy, and although we do not consider, for the reasons we have already given, that such a procedure is sound financing, such an arrangement might, we consider, be carried through provided that the further arrangements which I proceed to describe are also given effect to.
11. We would propose that all the monies received from the Chinese Viceroy on account of his debt to the Colony, whether in respect of interest or repayment of capital, should be paid into a special fund which should be under our control, and that such fund should be administered in the following manner. The payment of the interest required for the Stock raised to provide the £1,100,000 should be the first charge on the Fund. Secondly, the monies required for building the Colonial section of the Kowloon-Canton Railway should be provided up to the estimated amount of £500,000 out of the Fund, the Colony paying into the Fund interest at the rate of its permanent debt on the amount of all such advances. Thirdly, all further amounts remaining in the Fund, including the interest on loaning out monies in the Fund, shall be considered as being earmarked towards paying off the debt created to provide the £1,100,000. Fourthly, if the Government of Hong Kong should hereafter enter into arrangements with the Viceroy of Canton to build the Chinese section of the Kowloon-Canton Railway, the monies remaining in the Fund might be used for the purpose, but only with the express approval of the Secretary of State.
12. If the arrangement suggested as possible in section
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