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the Syndicate banks will hold the proceeds with accrued interest to the order of the Director-General, who, in ordering payment of any sums exceeding 80,0001, shall give notice to the Syndicate banks ten days before the day on which they are required.
Art. 15. If during the time of construction the whole amount of the instalments, with accrued interest to be paid by the Syndicate banks, should, after deduction of the sums necessary for the service of interest on the loan, not be sufficient for the construction of the railway line, the amount of deficiency shall be provided by a supplementary loan to be issued by the Syndicate banks, the interest and other conditions of which are to be the same as in the present Agreement, but the price thereof shall be arranged when the time arrives according to the condition of the market. If after the completion of the line there should be a balance at credit of the railway account, the Syndicate banks shall transfer such unused balance to the credit of the interest reserve fund, bereinafter mentioned in Article as a provision for payments
to which the Chinese Government is bound by Article 8 of this Agreement.
Art. 16. If before the publication of the prospectus for the issue of the loan any. political or financial crisis should take place by which the market and the prices of existing Chinese Government stocks are so affected as to render the successful issue of the loan impossible on the terms herein named, the Syndicate banks shall be granted further extension of time, but not beyond eighteen months from the date of this Agreement, for the performance of their contract. If within this time limit the first series of the loan shall not have been issued, then this contract shall become null and void.
Art. 17. The railway will be built and controlled by the Imperial Chinese Govern- ment, who will select and appoint a German Chief Engineer for the northern section and a British Chief Engineer for the southern section.
The Chief Engineers will be under the orders of the Managing Director, but whenever appointments are to be made on the railway staff or functions are to be defined of the technical employés, as well as in the case of their dismissal, the Managing Director will act in consultation with the respective Chief Engineer, and the decision will be subject to the sanction of the Director-General.
Art. 18. As remuneration for all services rendered by the Syndicate during construction of the railway, the Syndicate shall receive the sum of
Z., half of which shall be paid when the construction work is half completed, but not later than eighteen months after commencement of construction, and the other half upon completion of the line. This amount shall be regarded as a commutation of all commission to which the Syndicate would properly be entitled, and of payments of all services rendered in the construction and equipment of the railway, in respect of the present loan.
In return for this commuted commission the Director-General is entitled to require the Syndicate to superintend the purchase of all materials required for the construction and equipment of the railway, which shall be purchased in the open market at the lowest rate obtainable, it being understood that all such materials shall be of good and satisfactory quality. At equal rates and qualities goods of German and British manufacture shall be given preference over other goods of foreign origin for the northern and southern sections respectively. Invoices and inspectors' certificates are to be submitted to the Director-General.
With a view to encouraging Chinese industries, Chinese Government and other materials are to be preferred, provided price and quality are suitable.
No commission shall be allowed to the Syndicate on the purchase of materials except as above provided. All trade discounts or rebate, if any, are, during construc- tion, to go to the construction account, and, after completion, to the credit of the railway.
Art. 19. The Director-General will endeavour to
arrange with the Chinese Imperial Government regulations for the payment of li-kin and duty upon merchandize and live stock in transit over the railway line, and these regulations shall not be less favourable than any arrangements made for the same purpose with other most- favoured railways in China built with capital borrowed from foreign countries.
Art. 20. All materials necessary for the construction and working of the line obtained either from foreign countries or from other provinces of China, and the revenue derived from the railway as well as the railway's landed property, shall, in virtue of its being a Government railway, be exempt from duty or taxation of all kinds, and the Imperial Government of China will instruct the Customs, Li-kin, and local authorities accordingly. This exception shall continue until such time as the Imperial Government imposes duties and taxes on other lines of railways.
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Art. 21. Branch lines or extensions in connection with the railway line mentioned in this Agreement that may appear profitable or necessary later on shall be built by the Imperial Government with funds at their disposal from Chinese sources, and if foreign capital is required preference will be given to the Syndicate banks.
Art. 22. By the Preliminary Agreement under Imperial sanction a participation of 20 per cent. of the net profits has been promised to the Syndicate Banks in remunera- tion for their general responsibility and services. In commutation of this participation in net profits, the Syndicate banks are granted the right to retain points of the price of the loan, that is to say, that if the banks should take the loan, e.g., at the fixed price of 94 per cent., they will hand over to the Chinese Government only
per cent., and in case of the loan being floated in two or more series, the banks will be given a flotation commission of per cent., instead of 5 per cent., as stipulated in Article 13, retainable by the banks from the proceeds of the second and auy subsequent issue of the Joan.
Art. 23. Of the surplus of the net annual revenue of the railway line after payment of interest and repayment of principal of the loan, an amount equal to not less than that required to pay the ensuing year's instalments of interest shall be deposited with the Syndicate banks, and shall bear interest at the market rate.
Art. 24. The Deutsch-Asiatische Bank and the Chinese Central Railways (Limited) may, subject to all their obligations hereunder, transfer or delegate all or any of their rights; powers, and discretions hereunder to any German or British Company, Directors, or agents with power of further transfer and sub-delegation; such transfer, sub-transfer, delegation, or sub-delegation to be subject to the approval of the Director- General.
Art. 25. This Agreement is signed under authority of an Imperial Edict dated
which has been officially communicated to the Ministers of Germany and Great Britain in Peking by the Wai-wu Pu.
Art. 26. Five sets of this Agreement are executed in English and Chinese, one set to be retained by the Yuchuan Pu, one by the Board of Commerce, one by the Director-General, one by the Deutsch-Asiatische Bank, and one by the Chinese Central Railways (Limited). In the event of any doubt arising regarding the interpretation of the contract, the English text shall rule.
(Extract.)
Inclosure 4 in No. 1.
Mr. Cordes to Mr. Mayers.
Peking, July 24, 1907. IN the event of no sufficient special security being found available, I think Mr. Hillier's suggestion of forgoing a specified security might very well be submitted to the consideration of our Boards in London and Berlin. It says: "Payment of interest and principal to be unconditionally guaranteed by the Imperial Chinese Government. No specific security to be hypothecated; but in the event of the Chinese Government at any future time hypothecating internal revenues for other loans, the present loan to have priority. In the event of default, the Chinese Government undertakes to arrange (with the Powers concerned), in consultation with the trustees of the bond- holders, for the assignment, under suitable guarantees, of internal revenues sufficient for the payment of the annual loan service."
the
Mr. Hillier adds: "It is becoming more and more difficult to think of any tangible and accessible security which can be earmarked nowadays for Chinese loans; and it is to guarantee and good faith of the Chinese Government that we really have to look for our security in the future. The form I suggest seems to me to create the soundest security that is now possible. It would probably also appeal to the Chinese as removing the necessity of immediate hypothecation, while at the same time creating a useful precedent."
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