This Document is the Property of His Britannic Majesty's Government. 20
CHINA RAILWAYS.
CONFIDENTIAL.
C.O.
31828
[July 10.1
RECE
SECTION REGE 6 SEP 07
[22861]
No. 1.
(Confidential.) Sir,
Colonial Office to Foreign Office.-(Received July 10.)
Downing Street, July 10, 1907, I HAVE laid before the Earl of Elgin your letters of the 20th and 27th ultimo, respecting the Chinese loans required for the construction of the Hankow-Canton Railway.
2. "In the former letter Sir E. Grey inquires whether, in his Lordship's opinion, there would be serious objection to an arrangement whereby the northern section of this line would be constructed with British and the southern section with French capital.
3. As Sir E. Grey is aware, when the Hong Kong Government advanced the funds which enabled the Chinese to assume control of the line by buying out the American bondholders, certain conditions were made in the interests of British trade, and an Agreement was finally entered into in September 1905 by the Viceroy at Wuchang, which was expressed to be binding not only on him, but also on the Viceroys of Hunan and Kwantung. By this Agreement the Viceroys undertook that, if it was found necessary to borrow money from abroad for building the line, (1) British financiers should have the first option of undertaking the business; (2 if British capital was employed, British firms should have the first option of executing orders for material purchased abroad; (3) half the engineers employed would be of the nationality that found the money,
4. From your letter of the 19th January, 1906, and previous correspondence, it appears that in November 1905 the French Embassy suggested that the understanding in regard to Anglo-French financial co-operation in China should be extended to the Hankow-Canton line. The British and Chinese Corporation were sounded by the Foreign Office as to their willingness to agree to such an arrangement, and Sir E. Satow as well as (through this Office) the Governor of Hong Kong were asked for their views. Sir M. Nathan objected to the proposal; Sir E. Satow also objected, for reasons which he stated at length. He pointed out that the co-operation of the French would not help us in this matter, any more than it had done in connection with the Szechuan and Hankow Railway, as they were distrusted by the Chinese, and he gave it as his opinion that we had nothing to lose by waiting. Eventually Sir E. Grey decided that we could afford to wait.
5. Meanwhile, however, the British and Chinese Corporation had taken the com- munication made to them as an authority to proceed with the negotiations, and in January 1906 the French Embassy informed Sir E. Grey that an agreement had been arrived at between the British and Chinese Corporation and a French financial group, and inquired if it had the cognizance and approval of His Majesty's Government. According to the communication from the French Embassy, this agreement contem- plated the formation of a new Company whose capital would be at the disposal of the British and Chinese Corporation, the French group, and a Belgian group, in the proportions of 45, 45, and 10 per cent, respectively. Lord Elgin has not been able to discover, from the correspondence in this Office, the nature of the reply which was finally returned to the French Government; but from the papers before him he gathers that Sir E. Grey was prepared to approve the arrangement provided that the Belgian interest was eliminated, that the capital was divided in equal parts between the British and French groups, and that the Chairman of the Company was a British subject appointed by the British group and possessing a casting vote
6. The impression left on Lord Elgin's mind at the time by the correspondence referred to above was that the proposed agreement would be purely a business arrange- ment between certain British and French financiers, the French not appearing in the negotiations with the Chinese; and this view was confirmed by the statement in M. Franqui's letter to Mr. Addis of the 11th December, 1905 :---
"In my opinion the best plan would be for you to wire the Manager of the Hong Kong and Shanghae Banking Corporation at Hong Kong, asking him to explain fully
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