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meet the reasonable wishes of the Chinese Government wherever possible without affecting the essential conditions of the Agreement.
[At this point his Excellency Na-tung withdrew.]
His Excellency Tang Shao-yi, in opening the proceedings, drew attention to the words "British Kowloon" in the Preliminary Agreement, which, in his opinion, were misleading, the term being applicable only to the city of Kowloon and not to the leased territory. It was understood and agreed that the Corporation's loan and construction apply only to the Chinese section of the railway, i.e., from Canton city to the border of the leased territory.
After some general discussion as to the basis and method of negotiations, his Excellency Tang suggested that the Canton Viceroy's proposals, handed to Mr. Bland on the 9th April last, should be discussed seriatim, which was agreed to.
His Excellency, however, observed that these proposals would require modification in several particulars to make them acceptable to the Chinese Government. The railway was a Chinese Government line, the Imperial Government would guarantee the interest, and the Imperial sanction was therefore necessary for any Agreement made in respect thereof. Mr. Bland thought that his Excellency the Viceroy's proposals had been authorized by the Government, and in regard thereto, generally speaking, the Corporation was prepared to come to an agreement, but if further modifications of the Nanking loan terms were required the matter might involve serious difficulties,
Turning to the conditions proposed by his Excellency the Viceroy of Canton, it was understood and recorded ;----
Clause 1.-That the loan should be an Imperial Chinese Government loan with bonds issued in London and interest guaranteed by the Chinese Government in the usual manner, Under these circumstances the pledging of provincial revenues, such as the Salt Gabelle, was held by the Government to be inadvisable and unnecessary.
As to the price, considerable discussion took place, Mr. Bland suggesting that no fixed price be named, but that the Corporation agree to pay to the Chinese Government the actual issue price, less 6 points.
Kung Taotai was of opinion that a loan on terms similar to those given by the Hong Kong Government to his Excellency Chang Chih-tung would be more satisfactory.
His Excellency Tang Shao-yi held that the expenses of underwriting flotation, &c., and the Corporation's remuneration would be fully met by a total reduction of 5 points. Mr. Bland drew attention to the fact that the Corporation had hitherto received little or no financial benefit from its relations with the Chinese Government, and therefore hoped that if the other conditions of the contract came to be amicably arranged to the latter's satisfaction a quid pro quo might reasonably be forthcoming in the form of more liberal terms of remuneration. The Viceroy had suggested 95 as the price, but in the existing conditions of the market the Corporation's proposals should give the Chinese Govern- ment 96 or 97. The question was eventually left for further discussion, it being recognized that its settlement must depend upon that of other clauses in the contract, e.g., the question of profit certificates.
As regards the latter, and the question of control after construction, the Corporation was prepared to waive its rights, provided the other conditions of the Agreement could be amicably adjusted.
As regards the term of the loan, proposed by the Viceroy at fifty years with the option of redemption after ten years, Mr. Bland pointed out the unfavourable effect of so short a term upon bond buyers, and suggested that a premium of 21 per cent, he payable upon any bonds redeemed before the lapse of twenty-five years.
Clouse 2-Control during Construction. This subject was generally discussed. His Excellency Tang Shao-yi expressed the opinion that, the interest being guaranteed by the Imperial Government, a system of control such as that provided for in the Nanking Agreement was inadmissible, and a Board of Commissioners undesirable. Mr. Bland thought that if the position and powers of the Engineer-in-chief and Auditor appointed by the Corporation were satisfactorily arranged and defined, this question should not present great difficulty; but it was essential for the purposes and success of the loan that the railway be built and equipped in a thoroughly efficient manner by the Corporation under the direction of the Chinese Government's Representative. (This matter was also discussed under clause 6.)
Clause 3.---Elimination of this clause proposed.
Clauses 4, 5, 7, and 8.-Not discussed,
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Clause 9.-His Excellency Tang Shao-yi, whose views were supported by the Canton Viceroy's Delegates, stated that the Viceroy's proposals for commission on material were not acceptable to the Government. He held that as the selection of the materials lay primarily with the Engineer-in-chief, under the direction of the Chinese Government's Representative, and as the Engineer-in-chief was a paid employé of the Chinese Railway Administration, the Corporation was not called upon to incur responsi bility or to render services in respect of construction, and that payment of commission was therefore inadmissible. In the case of goods imported from Great Britain he thought the usual trade commission might be paid to the Corporation as agents, but nothing more.
Mr. Bland stated that on such terms no Agreement could be concluded. The proposal amounted to limiting the business of the Corporation to the financing of the loan, and ignored not only the Preliminary Agreement, but the rights and benefits originally granted to the Corporation in 1898, viz., the right to construct and equip the The Directors of the Corpora- railway on behalf of, aud for, the Chinese Government. tion could not agree to such an essential departure from the Nanking loan conditions, involving acceptance of terms far less favourable than those in every other railway loan and construction Agreement hitherto made by the Imperial Government. The railway, according to the terms of the Concession granted, was a joint enterprise in which the good name and success of the Corporation were directly concerned, to produce results satisfactory to the Chinese Government; in this, as well as in the nomination of an efficient and capable Engineer-in-chief, the Corporation incurred direct responsibility, and rendered services to the Chinese Government and to the bondholders for which, in common fairness and by established usage, they were properly entitled to commission. The Corporation had consented to the principle that no commission should hereafter be charged on Chinese products locally purchased, but the present proposal was equivalent to cancelling the Corporation's construction rights. The Viceroy's proposals on this subject were based on a fair view of the matter, and it was to be hoped that they would be adhered to. The Viceroy had inserted the clause that, on equal terms, British materials should be used, but the proposal to pay commission on these goods only was in itself equivalent to a premium on non-British competition.
His Excellency Tang Shao-yi cited the Northern Railways precedent as that which should be adopted. Mr. Bland pointed out that no construction rights, but only financial arrangements, were negotiated under that Agreement, which dealt with a railway already in existence. In the present case the Chinese Government has granted to the Corporation the right to build and equip the railway under certain conditions, and unless that right is ignored the corresponding right to commission is incontestable. The 5 per cent. charged by the Corporation should not be considered only as commission on materials, but as remuneration for the Corporation's responsibility and services, extending over the whole period of the Loan Agreement, and involving the maintenance of an establishment in China.
The matter was left for further discussion, and a meeting fixed for Wednesday next, the 29th August, at 3 P.M.
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