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antagonism to the French. Mr. Fraser's experience of the Viceroy's character ted him to think that he would hardly risk this. The danger which Mr. Hillier saw in this course was that, should it fail, and should the London and Paris markets then be closed to the Japanese, the latter might then be driven to the Germans, who, to counteract British influence in Japan generally, might be disposed to assist them. This was a danger, however, which Mr. Fraser thought our London financiers' knowledge of the German market placed them in a better position to estimate.
In this view of Mr. Fraser's I concur, and I am further inclined to think that, having regard to the specific assurances given to Mr. Lowther at Tokió, it is hardly necessary any longer to consider the possibility of the Japanese again offering a railway loan to the Viceroy without previous consultation with us.
In view of our official engagements to the French Government, and in order to convince my French colleague, who has at times appeared to me to be unduly suspicious on the point, that we were acting strictly in accordance with those engagements, I have thought it well to keep M. Casenave fully and frankly informed of the Viceroy's attitude and of the views held by Mr. Fraser and Mr. Willier. M. Casenave clearly sees the delicacy of the situation, and the possibility that the Viceroy may use the incident as a pretext for receding from his engagements to us. He therefore telegraphed to the Banque de l'Indo-Chine, informing them of what had occurred, suggesting that some compromise might be arrived at. On the 21st he received a reply in the following
terms:-
"Le Ministre des Affaires Étrangères a été saisi de la question. Il est inadmissible que le Vice-Roi refuse participation si même nous sommes d'accord avec les Anglais. En conséquence, il importe de savoir quelle est la cause de l'obstination du Vice-Roi. Le Gouvernement Français s'oppose à tout changement des Accords Anglo- Français."
I duly informed Mr. Fraser of this, and added that, in the circumstances, it seemed to me that nothing could be done here until some fresh arrangement had been come to at home.
Meanwhile the situation has been further complicated by the action of the German Consul at Hankow, reported in my telegram No. 118 of the 22nd June, and the asser- tion to the Taotai of German prior rights to a loan on the score of proposals made in 1905. The Taotai seems to have put him off, and I have not at present heard anything further on the subject, but the possibility of German competition should be borne in mind.
M. Casenave's further suggestion that the name of the French should be eliminated from the Hupei Agreement on condition that we should submit to similar effacement in case of the loan which the Viceroy at Canton proposes to raise for the construction of railways in the Province of Kuangtung seems to me open to obvious objections. The Hupei section of the railway will be a purely commercial undertaking, while the Canton end can scarcely fail to have a political interest which, in view of our position at Hong› Kong and our connection with the Canton-Kowloon Railway, we can scarcely allow the French to monopolize with safety.
The Chinese Government, too, on reflection, could hardly view without concern the acquisition by France of the exclusive privilege of financing the construction of the southern portion of the Canton-Hankow line.
(No. 53.) Sir,
I have, &c.
(Signed)
Inclosure 1 in No. 1.
Consul-General Fraser to Sir J. Jordan.
J. N. JORDAN,
Hankow, June 18, 1907,
I HAVE the honour to report the gist of an interview, lasting three hours and a-half, which Mr. Hillier and I had with the Viceroy Chang on the 16th instant, regarding his proposed loan for the ostensible purpose of provincial public works.
Upon his arrival on the 14th instant Mr. Hillier handed me an English draft (of which I understand you have a copy) of a Loan Agreement, and, aided by the text of previous Agreements, I contrived to translate it myself into Chinese by the following"
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afternoon, and the Chinese was then written out by a trustworthy employé of the Hong Kong and Shanghae Bank.
The Viceroy began the interview by asking what had occurred in the loan matter. after Messrs. Bland and Hillier's return to Peking on the 20th May.
He smiled at President Ts'ên's unwillingness to father the suggestion to the Throne... of a railway loan, and showed keen interest in Mr. Hillier's Report of his Excellency Ts'ên's determination to get permission to raise 1,500,0001, from foreign sources for the needs of the Canton Viceroyalty.
His Excellency then asked if we had the Chinese text of our proposed contract, and, having read it through, declared emphatically that all reference to the Banque de l'Indo-Chine must be struck out.
We had coined the term Hui-Tung Co for a British Corporation to be represented by two banks, British and French, and we explained fully the propriety of associating the name of the French bank with our own in the contract.
The Viceroy listened with some impatience, and at once rejoined that his reason for applying to us was his long friendship with my Government and myself, and the special aid rendered him in 1905. The Hong Kong and Shanghae Bank's reputation in China stood high, and he wanted to borrow solely from that British institution, and to have no dealings with the French, to whom he owed no consideration whatever.
We pointed out that the Hong Kong and Shanghae Bank was under participation agreement with the German bank, and so it would in that case be necessary to append to the contract such a final clause as was appended to the 1905 Chinese Government Loan. If his Excellency preferred it, Mr. Hillier would omit all reference to the French bank in the body of the contract and submit the draft of a final clause announcing French participation so as to render the bonds saleable on the Paris Bourse.
The Viceroy, however, repeatedly insisted that the contract must be solely with the British, the Decree communicated solely to you, and the bonds signed solely by the Chinese Minister in London. He added that we had insisted on the withdrawal of the Japanese offer, though it was Mr. Odagiri who devised the method that rendered borrowing feasible, and now to drag in any other nation would be unjust and offensive to Japan. Moreover, the Germans had earlier tried to make a loan (referring either to their 1905 efforts as to the Hankow-Szechuan Railway, or to their recent abortive 1,000,000l. Agreement), and would not be content to play second fiddle. Finally, the insertion of the French bank would insure rejection by his Government of his loan proposal.
His Secretary, Kao, who alone was present, here whispered to me the word. "Yünnan"; but, I believe, his Excellency is also moved by the recollection of incidents when he was at Canton in 1884-85, of the high-handed manner in which the French Concession here was extended, of the Nanchang case last year, and possibly of the French support of the Belgian claim to priority in the matter of the construction of the redeemed trunk line to Canton.
The Viceroy held firmly that the bank's relations with French or Germans were a domestic concern, and could not be forced upon the notice of third parties. In view of Mr. Bland's Memorandum inclosed in my despatch No, 80 of the 13th December, 1906, his Excellency's position seems a strong one.
We explained in vain that the lenders were to be a British Company registered in London and under British protection ouly.
Even when we suggested substituting the British Chinese Corporation, his Excellency inquired suspiciously whether its shareholders were all British and whether any were Chinese; and in spite of assurances that in British Companies all nationalities might hold shares, and that some Chinese officials, whose example his Excellency was free to follow, held shares in the Corporation, he did not absolutely assent to the substitution. I was influenced in putting this suggestion to his Excellency for Mr. Hillier by the fact that both in December and in May the lenders were, I understood, to have been the British and China Corporation, which seemed to be confirmed by your telegram No. 26 of the 2nd June. Of the new Company which was to be formed for the trunk line southwards, neither I nor Mr. Hillier had any recent information.
On other points his views were more in harmony with ours, though he kept altering his note of the terms he wanted,
Ultimately, his Excellency jotted down the amount of the loan as 1,500,000%; the interest 5 per cent.; the term twenty-five years, during the first ten of which only interest would be payable; extra drawings of bonds allowed after the completion of ten years, but such bonds to carry 2 per cent. premium up to the fifteenth year. The Viceroy did not object to the engineer clause; in fact, he altered it to read that only
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