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Another difficulty relating to the security for the payment of interest on the bonds, in fulfilment of Article 3 of the Loan Agreement, was the subject of the correspondence inclosed in Mr. Bland's letter of the 31st July. I have maintained that it is Mr. Bland's duty to exhaust every effort of his own to secure the execution of the Loan Agreement before applying to me, and I think it is evident from the inclosure in his letter of the 3rd August that by a policy of patient insistence it is possible for the agent of the Corporation to keep the Chinese to their engagements by amicable means and without the incessant intervention of this Legation. This inclosure also seems to me to justify up to the present the attitude which I have adopted of ignoring the Rescript of the 15th April until it is clear that the Chinese Government mean to act upon it in contravention of the Loan Agreement.
I have, &c.
(Signed) J. N. JORDAN.
P.S.--Mr. Bland has to-day handed me letter on this subject from Mr. Landale, of Messrs. Jardine, Matheson, and Co., at Shanghae, of which I inclose an extract.
Mr. Landale takes much the same view of the question as I have done, and I entirely agree with him that we shall be in a stronger position to make representations to the Board of Communications regarding the non-fulfilment of the Loan Agreement after Mr. Foord's appointment has been made. Mr. Bland, at my suggestion, has asked Mr. Landale to inform Mr. Foord that, in the event of trouble, he can look to the Legation for support, his object in the meanwhile being to work smoothly with the Provincial Bureau and secure the efficient construction of the railway.
(Translation.)
Inclosure 1 in No. 1.
J. N. J.
KIANGSU and Chêkiang Railway Companies: Memorial submitted by the Board of Posts and Communications on the 15th April, proposing Regulations with reference to the Loan of Funds by the Board to the Companies.
ON the 6th March a joint Memorial was submitted by the Board of Communications and the Wai-wu Pu proposing that a loan should be made by the Board to the Companies for the construction of the Shanghae-Hangehow-Ningpo Railway; that arrangements should be made for the repayment of this loan, and the railway should be under private (not official) management. This Memorial received the Imperial sanction. Regulations have been prepared by the Board and approved by representatives of the Companies.
In the Loan Agreement between the Board and the British and Chinese Corporation, the former, in consideration of obtaining the cancellation of the draft Agreement and regaining control of the line, accepted certain conditions involving a financial loss, as by agreeing to the issue of the loan below parity. Now that the line has been transferred to private ownership the Board are unwilling that this loss should fall entirely on the shareholders, and whilst it will be made up in part by the Companies, who have agreed to pay 5 per cent interest to the Board (the interest on the British and Chinese loan being 5 per cent.), any deficit still remaining will be met in the manner suggested in the annexed Memorandum.
Fourteen Regulations are submitted for Imperial sanction, on receipt of which they will be communicated to the provincial authorities, and the loan will be issued forthwith, so that work may be commenced at once.
The Board also recommend that, as the loan will probably not be sufficient to complete the line, and it is also desirable to extend the railway system of the two provinces, the Companies should endeavour to raise additional capital, and that the provincial authorities should encourage them to do so.
Memorandum.
It is calculated that the losses incurred by the Board under its agreement with the British and Chinese Corporation, in respect of the issue of the loan at 93, payment of 21/2 per cent. premium on repayment of loan, having to deposit funds in London at 4 per cent, agency charges, &c., will amount in thirty years to about 3,490,000 taels. The additional per cent. interest paid by the Companies will in thirty years amount to 890,000 taels, and the Board of Communications have arranged with the Board of Finance that the residue shall be made up as follows: 20,000 taels shall be provided annually by the Board of Finance, 30,000 each by the Provinces of Chêkiang and Kiangsu, and 10,000 by the Board of Communications. The total amount will be forwarded to the Board of Communications in the fourth month of each year for payment to the British and Chinese Corporation. The loss arising from the deposit of funds with the Hong Kong and Shanghae Bank at Shanghae, cost of transmission, and the premium of 2 per cent. payable if the loan is repaid after ten years, will be met by the Board of Communications. As soon as the Companies are making a nett profit, per cent, of the royalty which, under their agreements, they have then to pay to the Chinese Government will be paid to the Board until the advance has been repaid in full. If this proposal is approved by the Throne the necessary instructions will at once be issued.
On the 15th April this Memorial was approved by Imperial Rescript.
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Inclosure 2 in No. 1.
Regulations with reference to the Loan made by the Board of Communications to the Kiangsu and Chêkiang Railway Companies.
ON the 6th March a Memorial was presented by the Board and was sanctioned by the Throne, providing that the railways should be under private management, and that a loan should be made by the Board to the Companies.
2. As by this Memorial the Kiangsu and Chêkiang Railway Companies reverted to private management, although a loan is made by the Board for the purpose of building the Shanghae-Hangchow-Ningpo Railway, this line remains entirely under private management, and will be treated by the Board in the same way as any other Railway Company.
3. All matters with regard to the loan from the British and Chinese Corporation will be managed by the Board of Communications, the British and Chinese Corporation cannot interfere in any way with the management of the Shanghae-Hangchow-Ningpo Railway.
4. The nominal amount of the loan made by the Board to the Companies is 10,000,000 taels. The actual amount shall not exceed 10,000,000 taels, or be less than 7,500,000 taels. The loan will be issued in instalments, notice being given to the Companies ten days before the payment of each instalment. The first instalment of 800,000 taels shall be paid within seven months from the 6th March. The whole amount shall be issued in twelve months, which period may be extended to eighteen months, or at the most to twenty-four months. If it is found impossible to pay full amount of the loan within the stipulated period, these Regulations become void, and the Companies must repay with interest within six months, or at the most twelve months, the whole sum actually received.
5. The Shanghae-Hangchow-Ningpo Railway Bureau shall make formal application to the Board when funds are required. Fifteen days' notice shall be given by telegraph when more than 130,000 taels is to be applied for.
6. Interest at the rate of 51/2 per cent, shall be paid by the Companies on the money borrowed from the Board, interest being payable half-yearly. The charges incurred by the Board through the issue of the loan from the British and Chinese Corporation at 93, agency charges, &c., shall be made up in the manner provided in the Memorandum attached.
7. The section of the railway from Chiangkan has already been completed, and trains are being run thereon. As this loan is now being made by the Board, the responsibility for the repayment of capital and interest rests with the Shanghae-Hangchow-Ningpo Railway Bureau.
8. After ten years from the 6th March, 1908, the Companies shall commence to repay the loan, payment to be completed in thirty years from the above date. The date on which the annual payments are to be made will be fixed by the Board. The Companies shall also be at liberty after ten years to repay the whole amount of the loan either in one or in several payments. As soon as the loan has been repaid in full these Regulations become void.
9. Interest shall be paid half-yearly on the amount actually received from the Board.