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may be so badly laid out, the permanent way so light, and the bridges so inadequate in strength that the Hongkong section trains could not safely run over them and it is even conceivable that the gauge might be altered". It would seem to me that in this matter the Secretary of State has lost sight of the fact that the loan agreement stipulates that "the line shall be built and equipped in accordance with the best modern system" (Article 2) and the Engineer-in-Chief is responsible for its "efficient construction" (Article 6).
Emphasis is laid on the fact that as the railway itself forms the 1st mortgage security of the British and Chinese Corporation it is essential to their interests that it should be thoroughly efficient. That they will safeguard those interests is the guarantee to this Government. As regards a change of gauge, I should maintain that such an act would be a violation of Article 18 which pledges the Chinese to the Joint Working of the two lines as two sections of the same line. It will moreover be essential to their interests that their line should have access to the sea. In the matter of efficient and economical construction, I have every confidence in the Chief Resident Engineer, Mr. Grove. Hitherto at any rate he has received support from his colleague, Mr. Wei Hun, and I have no reason to think that the Chinese Authorities are inclined to interfere with his technical work, or to bring pressure to bear upon him to make it of a less efficient character.
8. There is, however, a danger which appears to me to be of a more tangible and real character. The Chinese Government are offering what appear to be exorbitant prices for the land required. In this connection I enclose a memorandum regarding the rates offered in the British and Chinese sections respectively. Since it is alleged that the peasants refuse even these offers it is conceivable that they may be increased or purchase indefinitely postponed and since