Sir,
With reference to my interview yesterday with Mr. Liang, the Director-General of the Ministry for Foreign Affairs, on the subject of the proposed Chinese Government Railway Loan, I have the honour to report as follows: -
I asked Mr. Liang whether he had any reconsideration to offer on the two points on which we had been unable to come to an agreement. He said that the Government were still averse from giving any additional security by the Customs in case of default, the Government was anxious not to commit itself to fresh obligations in this direction. I must take that as a final answer.
I asked whether he had been able to reconsider the question of authorizing us to state the objects of the loan, particularly its application, in the first instance, to completing the sum required for the redemption of the Peking-Hankow Railway. He said that was also a point on which I must take his previous answer as final; it was impossible to comply with this condition. I again asked if he could explain to me the objection to so simple and reasonable a request. He replied that the Government wished to make this a "kuo chai," a Government loan pure and simple; they wished to borrow, in fact, on the same terms as any other country, and could not submit to be tied down by restrictions such as those proposed. I said that while China enjoyed high credit, other countries had a budget of revenue and expenditure, and published an estimated budget for the coming year. China, with an existing foreign liability of £120,000,000, had none of these; no one knew anything of her actual resources and expenditure, nor was there any assurance that she had an accurate knowledge of them herself, and it was unreasonable for China to expect that she could go on the market and borrow on the same terms as countries which gave full information on these points. Mr. Liang entirely admitted the truth of this. They all realized that China must have a budget, but at present they had not the experts to take the task in hand; it would require at least three or four years of labour and investigation by officials who were already overworked before a budget could be given to the world. I replied that every one would welcome the realization of this reform, but it was hardly reasonable to expect the markets to accept it by anticipation. In the meantime China would do well to maintain her credit by adhering to the old forms of security, which we had done our best to free from every condition calculated to impair the national dignity.
With regard to the loan service, Mr. Liang said the Government were willing to state that for the first five years it would be paid from the surplus revenues of the Peking-Hankow and Peking-Mukden Railways; after that from the profits of the various enterprises which formed the object of the loan. I observed that it might be well not to fix a definite time like five years for the realization of these profits; but, apart from that, as they declined to tell us what these enterprises were, the arrangements for repayment did not seem to lend themselves to presentation in a form suitable for a prospectus. I asked if the completion of the Hankow-Canton line was one of the enterprises they had in view, and Mr. Liang said it was not.
In reviewing the stage arrived at, I observed to Mr. Liang that two important questions appeared to stand in the way of further progress of negotiations. Customs control of the security in case of default, and the declaration of the specific objects of the loan, foremost of which we had from the first been led to believe was the redemption of the Peking-Hankow Railway. Until the views of the banks on these fundamental points had been ascertained, it seemed waste of time to discuss minor ones, with which Mr. Liang concurred. He was friendly and courteous throughout, but gave the impression that he was speaking under strict instructions. Judging from their effect, there is no prospect of coming to an agreement so long as they are in force.
At the same time the Chinese must borrow before long. They are in urgent need of funds to complete important trunk and branch lines, the construction of which the Government has decided to take into its own hands; and when they have become convinced, by the most practical of all tests, that their estimate of the national credit has been placed too high, there may be some hope of wiser and more moderate counsels prevailing.
(Signed) E. G. HILLIER,
[This Document is the Property of His Britannic Majesty's Government.]
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CHINA RAILWAYS.
CONFIDENTIAL.
[32672]
No. 1.
C. O.
[September 21,
SECTION 2.
37616 Rece 12. 15 001 08
Sir J. Jordan to Sir Edward Grey.-(Received September 21.)
(No. 359. Very Confidential.)
Sir,
Peking, August 6, 1908. I HAVE the honour to transmit to you herewith copy of a letter which Lord ffrench, agent of Messrs. Pauling and Co., has addressed to the high authorities of Manchuria, respecting the survey of a line of railway from Chin Chow Fu, on the Gulf of Liaotung (latitude 41° 30′ north, longitude 122° east), to Tao Nan Fu (latitude 45° 30′ north, longitude 120° east). The distance is about 300 miles, and the line would lie so far away from the South Manchurian Railway as to preclude any question of competition being raised by the Japanese. The proposal is not, however, I understand, to be regarded as a substitute for the Fakumen project, although it may conceivably facilitate an eventual compromise of that question.
This railway would open up an entirely new and undeveloped region, and its prolongation to Tsitsihar would secure connection with the Chinese Eastern Railway. The success of the scheme would depend largely upon the capabilities of Chin Chow as a winter port, and Mr. Hughes, a British engineer, whose engagement by the Manchurian Government I reported in my despatch No. 317 of the 14th July, is to devote special attention to this subject during the next few months.
Lord ffrench informs me that his proposal for the survey of the line has been accepted, and that he hopes to have the engineers at work as soon as the cool weather sets in.
I have, &c. (Signed) J. N. JORDAN.
Inclosure in No. 1.
Lord ffrench to Governor and Viceroy of Manchuria.
(Private and Confidential.)
Peking, August 1, 1908. Your Excellencies,
WITH reference to our interviews, and your Excellencies' expressed intention of having a line of railway built between Chin Chow Fu and Tao Nan Fu, and your wish that it should be built and equipped by Messrs. Pauling and Co. (Limited), in conjunction with the British and Chinese Corporation, we have the honour to confirm to your Excellencies, on behalf of Pauling and Co., that, with the view to obtaining the construction and equipment of the line, we are prepared in the first instance to make an inspection of the route, for which the Government of Manchuria will pay us our out-of-pocket expenses, not to exceed the sum of £1,000.
We would then submit to your Excellencies an estimate of the amount for which we would undertake to make a detailed survey, together with plans, sections, and specifications; and, based upon these, would submit a statement of the amount for which we would undertake to build and equip the line, and the period within which we would hand over the railway fit for traffic.
On your Excellencies' acceptance of this proposal we shall at once commence the preliminary inspection.
We have, &c.
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