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the Japanese Consul and the Hankow Taotai on the 9th May, and by the Viceroy's Secretary Chan on the 11th May.
Mr. Midzuno, who has just returned from Japan, told me that he had practically arranged his Concession extension, though want of money would delay its development. He next inquired whether the Viceroy had definitely engaged an English engineer for the Hunan section of the Hankow-Canton Pailway; said Mr. Haraguchi did not like and the post of Adviser, and had only with reluctance agreed to stay for one year more ; finally commented on his Excellency Chang's extreme financial embarrassment.
I replied that there were two British engineers ready to negotiate with the Viceroy, who would, of course, see that of the whole number of engineers employed one half were British, the other half Japanese. It was a pity that the Board prevented his Excellency's raising a loan for railway construction at this favourable juncture.
My colleague then explained with some hesitation that Mr. Odagiri, on behalf of the Yokohama Specie Bank, had suggested the Viceroy's borrowing for industrial purposes, and so obtaining the fands requisite for railway purposes. The Japanese Bank had no hope of obtaining any considerable sum by selling bonds in Tôkiô, but expected to raise money easily in London if Parr's Bank and the Hong Kong and Shanghae Banking Corporation would co-operate. The floating of the loan simultaneously in The two British banks and the London Japan would be only in order to "save face."
branch of the Yokohama Specie Bank had insisted on a formal Chinese Government guarantee, and wanted special revenues to be indicated and deposited in a foreign bank as collected. He hoped if I were applied to, as would probably be the case, I would explain that a Decree and the Board of Reorganization's guarantee should quite suffice.
I replied that I did not like the proposal to get money indirectly for railways by an "industrial loan." The issue of an Imperial Decree was essential for any loan, but if that Decree were issued under a misapprehension caused by the wilful concealment of facts known to the lenders, China might, on learning the truth, justly repudiate its guarantee, while the Viceroy assuredly ran a grave risk by thus hoodwinking the Throne. The guarantees proposed seemed adequate, but I thought a combined effort by those interested should be made to enable the true purpose of the loan to be published.
Mr. Midzuno seemed impressed, but repeated that any way was better than letting the railways remain unbuilt. Supposing the two British banks agreed to join the Japanese bank in floating the loan, were the financiers of any other nation in a position that entitled them to intervene ? He asked because he understood that the Hong Kong and Shanghac Banking Corporation had recently renewed with the "Deutsch-Asiatische Bank "
some compact for the partition of loans in China. Remembering the recent independent action of the German bank here, I told him that, as far as I was aware, there was no agreement that would justify a German demand to participate; but that, in view of the relations between our Syndicate and certain French financiers, I personally believed the British banks would desire to inform those French financiers and to offer them a share in the business proposed.
To that Mr. Midzuno thought his bank would have no objection.
I was free,
He added that this information was given me in strict confidence. however, to communicate it to you. At the same time, as he had not reported the matter to his Minister, be hoped that, should you talk to Mr. Hayashi on the subject, you would not reveal that he was my informant.
I replied that I should, of course, acquaint you with the conversation, and include his request in my report.
Mr. Midzuno did not inquire whether I had any previous acquaintance with the
matter, and I did not feel called upon to volunteer any information.
The same afternoon the Hankow Taotai, Sang, when calling, upon his restoration to health after three months' illness, asked me what I thought of the scheme of an industrial loan.
I repeated to him what seemed to me the manifest and serious objections to such a disingenuous step. He assented, and hoped that the Viceroy might now try again to secure the support of the Board to a Railway Loan. The Board's support, provided the Loan conditions were fair, should be enough, despite outside opposition. Would it be necessary to pledge the line itself, as that would be sure to raise clamour ?
I reminded him that in 1905 our Syndicate had thought the li-kin revenue would form a sufficient security, provided the loan had the Imperial sanction. My own idea was that the Board of Reorganization's guarantee to supply from provincial revenues the instalments of interest and principal should be the first security; that the
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engineering and financial control should also be satisfactorily provided for, and that, in order to assure the confidence of the bondholders, there should be an undertaking that, in case any instalment became overdue by a certain period, the working of the line should pass to the lenders until the outstanding item was paid off and future payments secured. In this way the railways would never pass out of Chinese control except by China's own default. As he knew, we never inquired, so long as loan payments were made on due date, from what source the money was obtained.
Mr. Sang thought such a proposal was most fair, and would try to induce his Excellency Chang to choose this straightforward procedure. At the same time there were public and industrial works in Hupei that needed money. Could a loan be obtained for such purposes?
I opined that such a loan might be raised, provided the particular undertakings were specified, though railways were the most popular enterprise with bondholders; but it would be a pity to charge Hupei and China's credit for such a comparatively small purpose. Possibly a loan to include such works might be feasible.
On the 19th instant Mr. Chan also asked about the prospect of an Anglo-Japanese loan.
I held to him much the same language as to Mr. Sang, but added that he must know that the Japanese Bank could not itself find any such sum as 3,000,0001.
From Mr. Midzuno's questions, I am inclined to suspect that Mr. Odagiri, failing the co-operation of the British banks, may seek German assistance. Neither to him nor to the Chinese officials did it seem prudent to point out that, once the object of the loan was revealed, the claim of the Yokohama Specie Bank to consideration as first to come forward to the Viceroy's aid falls to the ground, since our efforts date from the autumn of 1905, and that in case his Excellency adopted the industrial loan expedient the British authorities would be likely to resent being defrauded of their promised first option of lending for railway construction in his Excellency's provinces.
I have, &c.
E. II. FRASER,
(Sgined)
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