less favourable, and that the price now offered, waiving profit certificates, is 91½. The Corporation would prefer to issue the loan on commission, as agents, retaining the stipulated participation in profits, but if this should not be acceptable, the above alternative offer was to be submitted, on the understanding that the bonds would be redeemable under the same conditions as those of the Shanghae-Nanking Railway. He was further instructed to point out that, although Shanghae-Nanking Railway Bonds could now be issued at 102, the Canton-Kowloon Railway was considered as a decidedly inferior security.
He was
His Excellency Tang Shao-yi absolutely declined to consider this offer. not prepared to conclude a contract on the fixed-commission basis, nor would the Chinese Government agree to allow participation in profits. Even at the price which he understood the Corporation had previously suggested (93), it would not make an agreement, the Chinese Government being in a position to command better terms elsewhere. His Excellency Tang intimated that if the Corporation's terms were finally unacceptable to the Chinese Government, it would be justified in financing the railway in other quarters, and observed that the terms now offered were conceded solely in recognition of the right conferred by the Preliminary Agreement; he laid stress on the liberal terms given by the Government of Hong Kong in the loan to his Excellency Chang Chih-Tung last year.
Mr. Bland stated that, in accepting several important modifications of the conditions properly claimable under the Preliminary Agreement, the Corporation was earnestly endeavouring to place its relations with the Chinese Government on a footing of mutual interest and goodwill. Should these endeavours prove to be unavailing, the only possible course would be to return to the original terms of the Concession, which had received the Imperial sanction, and was therefore binding. He hoped, however, that the present negotiations would result in an amicable settlement of the matter. With a view to facilitating the same, he would urge upon the Directors of the Corporation the advisability of making the most liberal offer possible, compatible with the prospect of a reasonable profit and reimbursement of expenses of the loan issue. At the same time, the Chinese Government would no doubt recognize the justice of the Corporation's claim to be compensated for the annulment of its rights to participation in the profits of the enterprise, rights enjoyed under the several Railway Agreements upon which the present Concession was admittedly based. The market value of the Shanghae-Nanking Railway profit certificates was at present £6, and the compulsory surrender of such realizable securities must be a matter for arrangement. He thought that, allowing reasonable compensation under this heading, the best terms which could possibly be offered under existing market conditions would be 93.
The question was left in abeyance pending receipt of a further communication from the Board of Directors.
His Excellency Tang Shao-yi referred to Article 6 of the Canton Viceroy's draft Agreement and to the status and duties of the Engineer-in-Chief and Chief Accountant, desiring that these matters be clearly understood and recorded.
Mr. Bland stated the Corporation's views, already expressed at a previous meeting on this subject. It was essential for the purposes of the Loan Agreement that, as the Shanghae-Nanking Railway system of joint control was not to be followed on this occasion, the rights and interests of the bondholders should be stated in the Agreement in a manner to inspire confidence. To this end it was essential that China should specifically guarantee, during the term of the loan, the efficient maintenance of the railway under the Engineer-in-Chief, and the effective supervision of receipts and expenditure by the Chief Accountant representing the interests of the Corporation and bondholders. The position of the Engineer-in-Chief must be definitely recognized as a dual post and his authority in this joint enterprise as derived from the Chinese Director-General and the Corporation. Considerable discussion occurred on the subject, his Excellency Tang Shao-yi desiring to protect the Chinese railway administration from being compelled to employ indefinitely an engineer or accountant who might for personal reasons fail to make himself persona grata with the responsible Chinese authorities. It was eventually agreed that these employés should be appointed, and removable, by the Corporation, in consultation with the Director-General.
Mr. Bland suggested that in other respects the provisions of the Northern Railway Loan Agreement might be mutually acceptable, and undertook to redraft Article 6 of the Viceroy's proposals with a view to a further consideration of the subject.
His Excellency T'ang Shao-yi then referred to Article 20, and to the question of the bonds redemption. In this connection he pointed out that in the Shanghae-Nanking Railway Agreement, owing to an error in the Chinese translation, the Chinese Government was under the impression that the bonds in that contract were redeemable at 2½ per cent. premium up to twelve and a-half years and thereafter at par—a fact which emphasizes the need for extreme care in preparing such contracts.
Kung Taotai, referring to the Corporation's present proposals, said that the method adopted under the Shanghae-Nanking Railway Agreement was opposed to all usage and that the method of redemption to be followed, conforming to other Chinese railways, was that of fixed annual repayments in accordance with an amortization schedule. Any bonds redeemed before due date within the first twenty-five years would carry a premium of 2½ per cent., and six months' notice would be given of the Chinese Government's intention to redeem.
Mr. Bland, while undertaking to place this proposal before the Corporation, observed that these conditions might affect the saleable value of the bonds, and thus further reduce the price of the loan, which, as observed by the Board of Directors, is already regarded in the market as a security inferior to the Shanghae-Nanking Railway.
Finally the question of commission on materials was discussed, his Excellency Tang Shao-yi stating that the utmost the Chinese Government can offer is to pay commission on all foreign importations, as distinct from Chinese manufactures. He estimated the probable total of such purchases at £500,000, and therefore offered to commute the commission for a lump-sum payment of £25,000.
Mr. Bland observed that the expression "commission on materials" was used, as already frequently explained, for want of a more adequate phrase, to signify the remuneration paid to the Corporation for its general responsibility and services in the construction of the railway; that the responsibility included protection of the bondholders' interests by the construction of a first-class line, and that if the principle of a commutation for this remuneration were admitted, it would not relieve the Corporation of its duty in supervising and controlling the construction. Regarding the amount of the commutation, he observed that neither on the basis of general "superintendence and services" nor on the accepted usage in railway construction could the commission be limited to foreign importations. The Corporation had already met the Chinese Government in a liberal spirit, by waiving its claims to commission on Chinese produce purchased locally, but it must be evident that if, for instance, half the material could be supplied from Hanyang or Tongshan, the Corporation would still be entitled to remuneration for its services and responsibility in the construction of the line. He suggested that, on this basis, the minimum commutation would be £35,000, which is less than 2¼ per cent. on the loan. While considering the system adopted in the Shanghae-Nanking Railway more generally acceptable, the Corporation might be willing to accept such an arrangement with a view to concluding this vexed question.
His Excellency Tang Shao-yi observed that, in the event of the Corporation offering acceptable terms as regards the price of the loan, the amount of the commission commutation might be increased.
At this point the meeting adjourned.
September 28, 1906.
(Signed)
J. O. P. BLAND.
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