for some three weeks attending the opening of the Soochow section of the Shanghae-Nanking Railway.) He called on me next day, the 31st July, and, though he still maintained that the Corporation's instructions were unchanged and remained as stated in Inclosure 7, he gave me to understand that they did not preclude an exercise of discretion. But he saw great difficulty in making his negotiations here dependent on the conclusion of a joint Working Agreement by your Excellency and the Viceroy at Hong Kong or Canton, and suggested that, as it was clear the Working Agreement must, from its nature, be arranged locally, a clause in his Agreement providing that the issue of the loan would be contingent on a satisfactory Working Agreement being concluded would be sufficient for your purpose.
I agreed that it would be difficult for him to conduct his negotiations successfully here if he had to wait on your Excellency's, and I personally thought his suggestion a good one.
In my telegram of the 31st July I informed your Excellency of Mr. Bland's suggestion, and inquired when you proposed to open negotiations with the Viceroy for the conclusion of the Working Agreement.
Next day (1st August) I received your Excellency's telegraphic reply, in which you said that, according to a report of the 4th May from His Majesty's Consul-General at Canton, the Chinese authorities were unwilling to go into any details of the working arrangements until the Loan Agreement was settled. You suggested that the Wai-wu Pu should be informed that any departure from the terms of the Shanghae-Nanking Loan Agreement should only be accepted if a satisfactory Working Agreement were concluded with the Hong Kong Government, and that I should ask the Chinese negotiators if they would accept the February draft of the Working Agreement in principle, subject only to such modifications as would be necessary in consequence of alterations in the Loan Agreement. You feared that if the clause were inserted in the Loan Agreement, as suggested by Mr. Bland, it would lead to every obstacle being placed in the way of completing the Working Agreement, and to an indefinite postponement of the Canton-Kowloon Railway, a result which, in view of the Whampoa scheme, would probably suit the Viceroy's wishes.
I had the honour to reply to your Excellency next day (2nd August) by telegraph that I feared the procedure you suggested would create a deadlock. I thought that, as the Chinese negotiators were only too well aware that the interests of the Hong Kong Government and of the Corporation were not identical, they would lose no opportunity of playing one set of negotiations off against the other for purposes of delay, and that Mr. Bland's chances of concluding his Loan Agreement in reasonable time were poor unless he was given a fairly free hand. I said that I could, as suggested, inform the Wai-wu Pu that any departure in the Kowloon Loan Agreement from the Shanghae-Nanking terms would only be accepted, provided a satisfactory Working Agreement was concluded with the Hong Kong Government; but remarked that the Wai-wu Pu would either refuse to agree to this or remain silent, and that Mr. Bland could fairly point to this communication of mine as an excuse if his negotiations failed. I felt that it would be useless to ask the Chinese negotiators to accept the February draft of the Working Agreement in principle, if, as seemed probable, the Loan Agreement must eventually be radically different from the February draft, and inquired whether a new draft Working Agreement could not be prepared and discussed by your Excellency with the Viceroy when the bases of the Loan Agreement were settled here.
Yesterday I had the honour to receive your Excellency's telegram in reply, in which you adhered to your opinion that the communication to the Wai-wu Pu should be made, but said that the terms of the Working Agreement might, if I considered it desirable, be left for discussion after the bases of the Loan Agreement were arranged. You added that if a modified Loan Agreement were concluded without settling the Working Agreement, we should be unable to claim this settlement as a return for relaxing the terms by which the Chinese Government is bound under the Canton-Kowloon Preliminary Agreement,
It may yet be some days before the negotiations commence, and, in any case, does not seem to be necessary that I should make the communication to the Wai-wu Pu as desired by your Excellency at the outset. I think it may be useful, therefore, to place before you by letter some of the considerations which were in my mind during the exchange of telegrams above recorded. The first and predominating one is that the Chinese authorities, both at Canton and here, do not wish to conclude any Agreement, loan or working, in regard to the Canton-Kowloon Railway. They look upon the Preliminary Agreement as a concession extorted years ago by force, and for that reason to be resisted by every trick and pretence open to them.
That being so,
completion of another negotiation at the other end of the Empire, would labour under it is clear that a negotiation in Peking, which is made dependent on the successful difficulties which those who have had experience of the ingenuity of the Chinese in these matters will recognize to be out of the ordinary. The Chinese negotiators, not wishing to conclude either Agreement, are not likely to be swayed in a direction favourable to our purpose by any threat to refuse to conclude one if difficulties are raised in regard to the other; they are more likely to take adroit advantage of such a threat and procrastinate indefinitely. It will, I think, require all Mr. Bland's single-minded endeavours, and the strenuous support of this Legation to enable him to come to terms in any case, and if he did succeed in coming to an arrangement I should be very averse from delaying final acceptance and signature on the ground that His Majesty's Government required the Working Agreement to be settled beforehand as a return for consenting to the relaxation by the Corporation of the terms of the Preliminary Agreement.
It seems to me that, if possible, the two Agreements should be negotiated as nearly simultaneously as possible, that is to say, the negotiation of the Working Agreement should begin at Canton or Hong Kong as soon as the bases of the Loan Agreement are settled; that every effort should be made to have them signed simultaneously, but that no hard and fast condition should be laid down with the Chinese or the Corporation in the matter. If the Viceroy refuses to discuss the details of the Working Agreement with your Excellency until the Loan Agreement is concluded here, then I think the course suggested by Mr. Bland, or something similar, is best designed to help our objects. In any event, it would be my duty in the negotiations here to specially attend to the interests of the Hong Kong Government, and to take any step which, in my judgment, would further your Excellency's desires.
I have, &c. (Signed)
LANCELOT D. CARNEGIE,
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