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"In this connection I have the honour to remind your Excellency that by the terms of the Loan Agreement British materials have a certain claim to preferential treatment, and that any further reduction of the above-mentioned balance might be construed to imply that this condition is not being effectively observed."
Under Article 18 of the Loan Agreement it is provided that the Managing Director shall have the right, while paying the above stipulated commutation of com- mission to the said agents, in respect of all purchases of foreign materials, to avail himself of the services of other agents in China or abroad should he see fit to do so." It is also provided that: "With a view to the encouragement of Chinese industries, preference shall be given at equal prices and qualities, over British and other foreign goods, to Chinese goods and materials manufactured in China." As, therefore, it is not certain that such materials will be purchased through the British and Chinese Corpora- tion, there is no ground for excessive anxiety on your part as to the amount of the funds deposited in London. In opposing further transfers of funds you appear to desire that the railway should incur a loss over the exchange.
I remain, &c.
(Signed) LIANG SHIH-YI,
P.S.-I would further call your attention to the fact that the total remittances to China, inclusive of the sum of 500,000l., amount to 875,0007. The statement in your letter that the remittances to Shanghae amount to 935,0001. is therefore incorrect.
Your Highness,
Inclosure 2 in No. 1.
Sir J. Jordan to Prince Ch'ing.
L. S.-Y.
Peking, February 9, 1909. MR. BLAND, the agent of the British and Chinese Corporation, has laid before me in various communications the following facts relating to the treatment of the funds raised in England under the Shanghae-Hanchow-Railway Loan Agreement of the 6th March, 1908.
It is well-known that the Managing Director and Chief Engineer of this railway, not yet being able to enter upon the performance of their duties under the loan contract owing to the obstruction of the Kiangsu and Chekiang Railway Bureaux, there has been little or no occasion for the expenditure of the loan funds on railway purposes.
In spite of this patent fact, sums amounting to between 800.0001, and 900,000/ have been transferred from the Shanghae-Hangchow-Ningpo Railway Loan funds in London to the credit of that railway's account, and to the order of the Yu-chuau Pu in Shanghae, and requisitions in large amounts have been made on the Shanghae account by the Yu-chuan Pù.
Mr. Bland further points out that up to the present these requisitions have in every case been made upon forms signed by his Excellency Liang Shib-yi, presented through the Chiao-tung Bank, and he gives a description of three of the requisitions which were presented by the Chiao-tung Bank to the Hong Kong and Shanghae Bank at Shanghae on the 31st December. They are numbered 15, 16, and 17, and amount in all to 330,000 tacls, of which 150,000 taels were stated to be for "formation," an 130,000 taels for "bridges."
Now Article 14 of the Loan Agreement is very explicit, and its meaning is very clear. It states that "requisitions on the loan funds will be drawn in amounts to suit the progress of construction of the railway by orders on the Hong Kong and Shanghae Banking Corporation signed by the Yu-ch'uan Pu and its duly authorized representative, and accompanied by his certificates or those of the said Board stating the nature and cost of the work to be paid for. Such amounts as may be required for expenditure in China may be transferred under the instructions of the Yu'ch'uan Pu at their discretion, to Shanghae, the transfer being effected through the Hong Kong and Shanghae Banking Corporation, and the transferred funds shall remain ou deposit with that Bank until required for railway purposes,” The plain intention of that Article is that the loan funds shall remain in London, receiving interest at 4 per cent. until required in China, and shall then be left at the Hong Kong and Shangbae Banking Corporation at Shanghae until actually required for payments for railway account; and it is equally plain that in transferring between 800,0001. and 900,0001, from London to Shanghae
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before the Managing Director and Chief Engineer have been allowed to enter properly upon their duties, and therefore before it is possible to incur any large expenditure, the letter and spirit of the Article have been distinctly violated. It is also a direct violation of the letter and spirit of the Article to hand over the large sums mentioned to the Chian-tung Bank, which, I am informed, was created by the Board of Communica- tions for its own purposes although the Ta Ch'ing Bank exists for the transaction of Government banking business, on the requisitions described by Mr. Bland. Requisitions of that nature are, under the circumstances, grossly indequate and do not comply in any way with the certificate of the Board of Communications required by Article 14.
After frequent references to these irrregularities in conversation with his Excellency Liang Shih-yi without result, Mr. Bland wrote an official letter to him on the 20th January, placing the facts on record, and protesting against the manner in which the loan funds were being drawn upon. His Excellency replied on the 1st February to Mr. Bland justifying the form of the requisitions by the statement that they corresponded with certificates in the case of the Tien-tsin-Pukow Railway, which the Hong Kong and Shanghae Bank had always accepted without protest, and leaving it to be under- stood that the hugh transfers from London to Shanghae were made for exchange purposes.
The treatment of the Tien-tsin-Pukow Loan funds has been made the subject of a separate communication to your Highness, and it is enough to say here that a wrong thing being done in one case is no reason why his Excellency Liang Shih-yi should do a wrong thing in another case. It is not the business of the Hong Kong and Shanghae Bank to protest; it is the business of the Corporation, and Mr. Bland has made their protest repeatedly verbally, and in writing, without the smallest effect. And if it is true that the 800,000%, of 900,0001, were transferred from London to Shanghae on account of the fluctuations of silver, I must point out that this procedure on the part of the Board of Communications amounts to gambling in exchange, does not come within the scope of the Loan Agreement, and is contrary to principles of sound business.
I have all along been anxious to avoid interfering officially between the Board of Communications and Mr. Bland in these railway loan matters, but the attitude of the Board seems to me to leave me no option. The conditions of the Loan Agreement were designed to secure an honest and economical construction of the railway, and it is in the interests of honest and economical construction alone that I am writing to your Highness to request that the Board of Communications be called upon for a full explanation of the actions protested against by Mr. Bland.
I avail, &c. (Signed) J. N. JORDAN,
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