[LOV
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I see that the Hankow pact of 1905 was signed only by the Viceroy, and is practically a promise from him. Do you know whether we are in any way officially bound to give the Japanese the advantages they claim? It seems to me absurd that, without quid pro quo, British capital should be thus fettered for the advancement of Japanese interests, and that we ought to be able to get away from this incubus if the Chinese can be got to see that the conditions under which the arrangement was proposed have now completely changed, with the elimination of departmental construc- tion in foreign bands.
I should be very grateful for your advice in this matter.
Yours, &c. (Signed) J. O. P. BLAND.
Inclosure 2 in No. 1.
Memorandum of Interview between Mr. Bland and Chang Chih-tung re Loan for the Hankow-Canton Railway,
HIS Excellency was assisted by two deputies, viz., Kao Ling Wei (a native of Chihli), representing the interests of Hupei, and Tseng Kuang Yung, of Hunan. The interview lasted several hours. Its results may be briefly summarized as follows :---
His Excellency Chang proposes to raise a loan of 3,000,000l. to be devoted to the construction of the Hupei and Hunan sections of the railway, and to be supplemented, if necessary, by a further loan hereafter. The total length of these sections is estimated at 400 miles. He stated that he applies in the first instance to the Corporation, in view of his agreement with His Majesty's Consul-General at Hankow, but emphasized the fact that by this agreement the British are only entitled to a first option, and that he is at liberty to invite competition whenever available. If the Corporation's terms were unfavourable he had no doubt that other British Syndicates, not to mention German, Belgian, and Japanese capitalists, would be glad to negotiate the loan. He deprecated from the outset any suggestion of financial supervision or administrative control on behalf of the bondholders, referring frequently to the Yu-chuan Pa's recent Peking- Hankow Redemption Loan as proof of the complete confidence of foreign investors. He desired to make a loan on similar terms, giving as collateral security the hi-kin revenues of Hupei, neither the railway nor its earnings being pledged for the service of the loan. As regards the negotiations, the preliminaries would be discussed by the provincial deputies and the final conditions by himself. He understood that the Corporation was associated with French capitalists, but as these negotiations were the outcome of his Agreement with Mr. Fraser, he could take no cognizance of any party other than the Corporation. He hoped that the matter might be speedily concluded, his chief object being to proceed at once with the construction of the railway, and he saw no reason why an Agreement similar to the Yu-chuan Pu's recent loan should not be concluded forthwith, leaving the construction of the line in the hands of the engineers already engaged by the Hukuang Viceroy on the recommendation of Mr. Fraser.
I explained to his Excellency the essential difference between a loan for the redemption of a line well constructed and profitably working and a loan for the construc- tion of a new railway, and I stated that, in the opinion of the leading financiers in London and Paris, the results of recent railway loans had conclusively demonstrated the fact that, in the interests of the Chinese Government's credit as well as for the greater security of foreign investors, it was desirable that the Chinese Government should either agree to place the construction in the hands of reliable and responsible contractors or to accept some such reasonable conditions for financial control, &c., as were made in the case of the Canton-Kowloon Railway Agreement. I pointed out that, although Imperial Chinese Railway bonds now rank high in the European market, this is chiefly due to the fact that the earlier loans were made under conditions which insured efficient construction and economical working, but that it would only need a few object-lessons like those afforded in the results of the Tien-tsin-Pukow and Shanghae-Hangchow-Ningpo Loans to cast serious doubts upon the stability of Chinese Government undertakings, with immediate prejudice to the country's borrowing powers.
His Excellency Chang personally admitted the desirability of financial supervision in the interests of bondholders, but stated that the introduction of such a condition was impossible in the face of the determined opposition of the gentry and people. The Chinese Government was determined to avail itself of foreign capital only under
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conditions which would obviate all possibility of interference by foreigners in the affairs of the railways. He thought that a construction contract would expedite the completion of the line, and was prepared to give the system a trial, but did not wish this point referred to in the Loan Agreement. He desired to conclude the latter at once, leaving for further consideration the question of a contract, for which no definite proposals could be forthcoming under two months.
I replied that the Corporation was not prepared to negotiate the present loan on the basis of the Luhan Redemption Agreement; that for the purposes of a prospectus offering reasonable prospects of success it was essential that investors should either be assured of (1) efficient construction in the hands of well-known contractors or (2) effective supervision of finances and construction by British employés of good standing. As the latter condition seemed unwelcome, it appeared to me that con- It was, moreover, struction by contract afforded the only immediate solution. unreasonable, I observed, to suggest that British or French funds would be forthcoming unconditionally, and for the possible benefit of manufacturers of other nationalities, without privilege or benefit to the country supplying the capital; under no circumstances could China hope to obtain such terms in any quarter.
After a long discussion it was agreed that Messrs. Kao and Tseng would draw up and send me a Memorandum embodying his Excellency's rough idea of the terms of the loan, which might serve as a basis for obtaining an expression of opinion, or a counter- proposal, from the Corporation in London. His Excellency Chang requested that I should also prepare a rough draft of terms of the Loan Agreement as acceptable to the Corpora- tion. To this end I suggested, and it was agreed, that the draft should be in alternative form, one allowing for construction contract and the other without that condition.
His Excellency referred to the fact that Mr. Moore and other employés were under agreement to the Yueh Han Railway Company, and had no doubt that, having been taken on at the recommendation of Mr. Fraser, their services would be continued under any Loan Agreement that might be made. 1 replied that His Majesty's Consul-General had recommended these men on the understanding that it was the Chinese Government's intention to build the railway without foreign capital. While anticipating the Corpora- tion's readiness to do everything possible to arrange matters to his Excellency's satisfaction, I could give no assurance on this point. I thought it unlikely that Messrs. Pauling and Co., or other responsible contractors, whose successful work depends chiefly upon economic organization, would be willing to employ any but their own trained staff.
As regards the Hupei division of the Szechuan Railway, his Excellency stated that When he was this undertaking remains in the hands of the provincial authorities. Viceroy at Wuchang he had intended to construct both lines under one foreign loan, but in the present negotiations he is concerned only with the Yueh Han trunk line, which the Government desires to have built without further delay.
In conclusion, his Excellency laid stress upon the presence in Peking of Messrs. Cordes, Odagiri, and Jadot, and there would appear to be little room for doubt that these gentlemen have been invited to take an interest in the business, with a view to stimulating competition. Mr. Tseng Kuang Yung observed that, as the bonds of the recent Luhan conversion had gone to a premium, China might reasonably expect more liberal terms in the present instance. If this attitude is maintained, it would seem advisable to allow the Chinese Government to realize that the credit of the country cannot be stretched indefinitely, and that its limit has now been reached.
December 24, 1908.
Inclosure 3 in No. 1.
Consul-General Fraser to Sir J. Jordan.
(No. 82.) Sir,
Hankow, December 28, 1908. I HAVE the honour to forward translation of the text published in a local native paper of the Grand Secretary Chang Chih-tung's Memorial reporting his imminent settlement of a loan with the British and Chinese Corporation for the construction of the Hupei and Hunan divisions of the Canton-Hankow Railway, and also a précis of telegrams exchanged between a Hunanese Society in Shanghae and the Hunan Railway Company extracted from the "Universal Gazette which corroborates the change of attitude towards foreign loans of that province.
[2104 u-2]
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517