(Secret.) Sir,
2
Inclosure 2 in No. 1.
Governor Sir F. Lugard to Sir J. Jordan.
Government House, Hong Kong, August 6, 1908.
I HAVE the honour to inform you that I received by last mail a Secret despatch of the 26th June, 1908, from the Secretary of State for the Colonies, calling my attention to the urgent necessity of moving in the question of a Joint Working Agreement between the Chinese and Hong Kong Governments on the subject of the Canton-Kowloon Railway. I attach the duplicate copy of this despatch, in the last paragraph of which I am directed to keep you fully informed, and in which it is suggested that I should consult with you in the matter. I shall therefore be glad of any observations and suggestions which your Excellency may be good enough to make. I attach also a copy of my reply.
2. In the course of a conversation which I had with your Excellency at the end of March last, you expressed the view that the interests of this Colony would best be served if the negotiations on the part of the Chinese Government were to be left entirely in the hands of the Governor-General of the two Kwang provinces, who should be fully empowered in that behalf as the Representative of the Central Government. By this means you anticipated that the interminable delays which took place in the former negotiations relative to this railway might to some extent be averted and the inconveniences arising from the distance which separates the parties to the negotiations might be avoided. You undertook to use your best efforts to this end, and I have the honour to inquire whether your Excellency has any information to give me in this respect. For the reasons given in the third paragraph of my despatch to the Secretary of State it would seem advisable to press rather for the general control of the line to be vested in the Viceroy than to allude specifically to the matter of negotiations regarding the Joint Working Agreement.
3. Lord Crewe in the despatch inclosed considers that "the question has assumed a new aspect" owing to the fact that the Chinese Government has refused to appoint Sir John Wolfe Barry and Partners as Consulting Engineers to the Chinese section of the line. From this remark I conclude that it has hitherto been the impression of the Colonial Office that Sir John Wolfe Barry and Partners, as Consulting Engineers to both sections, would have a preponderant voice in advising as to the terms of the Joint Working Agreement. I understand that though the Chinese Government is not unwilling to accept the services of that firm in an informal way as regards preparation of designs of bridges and so on it has been finally decided that they shall occupy no formal position as Consulting Engineers, and that in such a matter as the negotiation of a Joint Working Agreement they would not be consulted?
4. It is obvious that the first step for this Government to take in this matter is to ascertain with whom negotiations are to be carried on. If the Central Government should entirely refuse to empower the Viceroy at Canton to act on their behalf it will become necessary for the Board of Communications (or whoever else may exercise the power of delegation) to name an official to conduct the negotiations with this Government. In that case I presume that the Chinese Government would recognize the desirability, if not the absolute necessity, of their Delegate coming to Canton in order to judge on the spot of the local conditions, and negotiate with me (or the officer deputed by me in that behalf) in person. It has, however, been pointed out to me that if the Central Government were urged to send a Peking official to Canton for this purpose, he would probably supersede the local Managing Director, Mr. Wei Hun, who is a man of broad views, and is on excellent terms with the Chief Resident Engineer. The appointment would, moreover, dislocate the present régime and probably result in the replacement of Mr. Wei Hun and others. For this reason I hesitate to do more at the present stage than to ask your Excellency to press for the control to be vested in the Viceroy, and the Managing Directorship in Mr. Wei Hun.
The terms of the Agreement will involve the consideration of many matters of a highly technical nature, and it is possible that I may find it advisable to secure the advice of a Railway Traffic Manager of experience. I shall, therefore, require to have ample notice of the date on which negotiations are likely to begin.
5. The Secretary of State puts forward three "possible dangers" to the interests of this Colony. Regarding the first—the selection of a Chinese port for the terminus of the trunk line—I have had occasion to address you from time to time. I am not aware that the project has of late found favour, and I am informed that the insufficient depth of water at Whampoa affords a very strong objection to the scheme. Should it be revived it will, as heretofore, be strenuously opposed under Article 15 of the Loan Agreement.
6. The second danger is that "the Chinese Government may strangle goods traffic by the imposition of li-kin charges." I am aware that your Excellency has already brought this question to the notice of the Chinese Government in the case of the Shanghae-Nanking Railway, and I have seen a printed copy of your despatch No. 123 of the 16th March, 1908, but none of later date, to the Secretary of State for Foreign Affairs on this subject. The terms of the Loan Agreement for the Kowloon-Canton Railway are not identical in this matter with those of the Shanghae-Nanking Railway, and they appear to provide for exemption "from any special taxes" only until the loan has been paid off. I am also in doubt, seeing that Kowloon is not a Treaty port, whether "exemption certificates" may be claimed for goods consigned to Canton or eventually to Hankow. The question of li-kin charges would of course form one of the matters for negotiation under the Joint Working Agreement, but I confess that I am at present at a loss to see what rights this Government possesses which would be violated by the imposition of li-kin dues, or what lever it can use to prevent such action on the expiry of the Loan Agreement.
To put the matter bluntly, this Government has embarked on a project costing probably about 1,000,000l., but has no Agreement of any kind whatever with the Chinese Government, with whose railways it is to connect. Such few and unsatisfactory safeguards as it possesses (such as the stipulation for no competing line) are contained in the Loan Agreement between the Chinese Government and the British and Chinese Corporation to which this Government is not a party, and which I presume could be modified by mutual consent, and in any case lapses twenty-five years after the line is completed if the loan is duly repaid. In these circumstances I feel that I have but little to negotiate upon in framing the Joint Working Agreement beyond the terms of Article 18, which binds the Chinese Government to make an Agreement "for the joint working of the two sections."
I shall be grateful to your Excellency for any information on the subject of railway li-kin, and any suggestions which you may be able to offer as to the conditions in this matter which this Government could reasonably ask, both during the continuance of the Loan Agreement and subsequently, and the arguments by which such claims could be supported.
7. The third point to which the Secretary of State invites my attention is that "it is conceivable that the line may be so badly laid out, the permanent way so light, and the bridges so inadequate in strength, that the Hong Kong 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 first 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 inclose 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 all land has to be paid for out of the loan, the contingency is not remote that the available capital would be insufficient for the completion of the construction. The raising of further capital, whether by Chinese subscriptions or by a further loan from the British and Chinese Corporation, would, if the completion were indefinitely delayed, probably afford opportunities for interminable delays.
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