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may, therefore, be said that this Company has to pay interest on a capital expenditure of 2,154,665 dollars invested in the lands, harbour works, railway, &c.
At the present moment there exists berthing accommodation for six ships of the ordinary size of the China coasters. The berths are connected by rail to storage godowns and to the railway junction at Tangho. The berths, godowns, and railway are open to traffic brought there by any ship or firm trading to the port, and for the use of all the conveniences established a moderate charge is made. The scale of charges, of which a copy is attached, compares I think favourably with what would ordinarily under similar circumstances be expected, and, what is more, the charges are low enough to compare favourably with those incurred in bringing cargo to many of the other ports of China.
So far as I can gather, the question on which His Britannic Majesty's Minister is in doubt is as to whether the rights of ship-owners to trade in an open port are not being infringed by the control exercised by the Chinese Engineering and Mining Company (Limited) at Chingwantao, and it is to remove this doubt that I produce below certain contentions which I trust will lead to a removal of the misconception of the Company's actual position which appears now to prevail.
First, the Chinese Engineering and Mining Company (Limited) does not claim to havo any prior right to the port itself. All that is claimed is the right to exercise control over property purchased or paid for out of the funds of the shareholders. The Company has built wharves and a branch railway line and has purchased land, a proceeding open to any other commercial concern. It must be remembered that Ching- wantao in itself did not afford any facilities for commerce. It has only become a port through the work carried out at the expense of the Company.
There are many other sites on the coast which could, I believe, be dealt with in a similar manner to give just as good accommodation. I have heard that it has been under the consideration of the British and Chinese Corporation to construct a harbour at a spot conveniently near the Nan Piao coalfields, and have been told that the facilities at the site chosen are even greater than those at Chingwantao.
Again, the point at Peitaiho could, I think, be dealt with on very similar lines to those adopted at Chingwantao. I give the above as instances of what might be done by other Companies, supposing they were prepared to embark capital in other places in the same way as has been done by the Chinese Engineering and Mining Company (Limited) at Chingwantao. Nor is there any reason why other Companies should not expend capital at Chingwantao itself in the erection of their own piers, railway sidings, and godowns. It would not be to the interests nor is it the intention of the Mining Company to oppose any steps any other Company may take in this direction.
It has been argued that no other Company would be so favourably situated as the Mining Company, in that the ownership of the Kaiping coalfields brings a valuable trade in coal to the port of which the Mining Company reaps the sole advantage. I consider this argument is wrong as a basis, and that the Company is fully entitled to use its commercial advantages to their greatest extent in competition, if necessary, with other firms, because it must be remembered that the coalfields themselves have been purchased by the Company, and the risks and responsibilities involved in the expenditure entitles this Company to have the matter of the advantages of the port for shipping purposes considered absolutely independently of any outside connection.
Supposing, however, that this contention were not agreed to, the argument breaks down when it is proved, as can be done, that notwithstanding the coal trade the revenue of the port and the profits on the export coal trade and the shipping by which it is carried is insufficient to give anything like an adequate return on the capital expended.
With regard to the financial aspect of the question, I have already stated the capital invested in Chingwantao amounts to 2,154,665 dollars. At 7 per cent. (a low rate of return for investments in China) interest on this sum amounts to 150,826 dollars per annum.
The following is the return of net revenue from all sources during the period the Company has held possession of the property :—
February 1901 to 1903.-The result of working showed practically no profit, but as the piers, &c., were under construction the operating charges were debited to capital
account.
February 1903 to 1904.-Loss 18,196 dollars.
February 1904 to 1905.--Profit 58,182 dollars.
The profit during the latter period was considerably swollen by the Hsin Min Tun traffic carried to Chingwantao during the war.
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Averaging the result of the two years, the net profit amounted to a little below 20,000 dollars per annum. It will be seen, therefore, that, comparing this figure with the amount of interest to which the Company can consider itself entitled, the balance (150,000 dollars --
- 20,000 dollars) 130,000 dollars per annum may be considered as the yearly loss incurred on the undertaking. The two arguments which might be used to show that this loss is fictitious are-
1. That the income derived from the sale of coal exported is so great that the Company can afford to incur the expenditure.
2. That the port is in its infancy, and that in the course of some years the loss now incurred will be converted into a profit.
With regard to the first of these arguments, I have already stated that I consider that in treating the question the profits of the Company as regards its coal business should not in any way be connected with the consideration of the question of the port of Chingwantao. Added to which, I may say that in a Report submitted by myself to the Board of Directors of the Company in London (which is open to your inspection) I proved conclusively that up to last year the whole of the Company's shipping and export coal business carried on through Chingwantao was an unprofitable one, and I only recommended its continuance with the idea that the abandonment of the trade would be a retrograde step, and that I had hopes that the march of events, both as regards the advance of the Chinese coal trade and the state of Japanese coal trade, would allow of a development of the market for Kaiping coal, which in the end would produce satisfactory results.
With regard to the second of the arguments.
After careful consideration of the whole question, I think it may be possible that the property of the Company at Chingwantao will pay a reasonable rate of interest on the capital involved, but I do not think this is possible for a considerable number of years to come. Taking the whole of the assets and what can be done with them into consideration, I think it doubtful whether even a fair interest on the present capital can be obtained under existing circumstances, and the only way it will be practicable to make the investment a paying one will be to carry out such further work as may be necessary to make the port available for ocean-going steamers of large size, thus utilizing the port as a general sea terminus for foreign shipped cargo. The consideration of this question involves much careful and deliberate argument which it will not be practicable to consider in this Memorandum. If it is decided to carry ont the necessary works, I do not think the expenditure required will fall short of 2,000,000 dollars.
I think the above outline will give a fair idea of the present position of the Mining Company with regard to Chingwantao. It is now necessary to take up the considera- tion of the position adoption by other British Shipping Companies in the matter. As far as I can understand, two points have been raised, I do not know by whom, in favour of these Companies, namely -
1. That they should have equal rights and privileges in the ports as are possessed by the Mining Company.
2. That they should be granted the same rate by the Imperial Chinese Railway for the conveyance of their traffic as is now accorded to the Mining Company.
In view of what I have already stated, it appears to me that the first of these contentions is unjustifiable to a degree which I feel sure has never been appreciated by the Companies themselves. That they should be allowed to use the property of the Company at all is a concession which certainly they have no right to demand; but that they should use the Company's property on terms equal with the Company itself is not only unreasonable, but would even place them in a position of distinct advantage over the Company, in that they have not to bear any portion of the heavy burden with which the Company has saddled itself in the capital expenditure incurred on which, as I have already stated, a loss is being incurred of 180,000 dollars per annum.
In fact, under the terms and charges at present arranged, and having regard to the amount of cargo being exported and imported via Chingwantao, or likely to be imported or exported for some time to come, the Company actually is at a disadvantage compared with other Companies utilizing the port.
It may be stated that the second point with regard to preferential railway rates militates against the above. This is to be a certain extent true, but it is also true that the extra advantages gained by the Company in this direction are far more than counter- balanced by the interest lost on the capital involved, and from a purely financial point of
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