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that employé they could have kept in constant touch with me. I strongly advised such a course, and when my advice was treated with contempt I could only assume that I was looked on entirely as an employé of the Chinese Government, and not in any way as an ally of the Corporation.
Your own letter appears to me to contain an argument in favour of the audit here. You state that you have asked for a monthly statement of materials. Appa- rently you have not got this. Yet you have bad the right to send a man here to examine the books and get it for himself. The decision as to what is "foreign material is not an easy one. I myself do not know in some instances.
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You state that, with the auditor at your end and with me to advise you, you can handle the thing with some hope of success. You are overlooking the fact, however, that I have no right to advise you. According to the terms of my Agreement, which was drawn up with the approval of the Syndicate, I am absolutely forbidden to give information about, the affairs of the railway. In order to call attention to any irregularity I have to commit a breach of my Agreement and to incur the enmity of my employers, whereas my confrère in the north has merely to whisper to the auditor, who, not being an employé of the Chinese Government, can put his foot down firmly.
Ï am verry sorry indeed that my views do not agree with yours in this matter, but I entirely fail to understand the benefit of making the audit at Peking. It deprives me of all effective support, and I cannot see how it can possibly benefit any one except Henderson.
Yours sincerely, (Signed)
Sir,
T. W. T. TUCKEY.
Inclosure 5 in No. 1.
Mr. Bland to Lu Hai-huan.
Peking, February 2, 1909.
I HAVE the honour to refer to the despatch which I addressed to your Excelleney on the 15th ultimo, in which it was requested that immediate measures might be taken to put an end to the unsatisfactory state of affairs on the southern section of the Tien-tsin-Pukow Railway, due to the Managing Director, Loh Taotai's, neglect of duty and failure to observe the conditions of the Loan Agreement.
To this despatch I have as yet received no reply, but I understand that your Excellency has personally investigated the position of affairs, and inquired into the relations existing between the Managing Director and the Engineer-in-chief, and the reasons for the delay which has occurred in commencing work. to be soon informed of the results of your Excellency's inquiry into these matters.
I hope therefore In the meanwhile I have the honour to place the following additional facts before your Excellency in support of the above request
www.im
1. Between the 6th July and the 1st October the Managing Director drew from the loan funds various sums amounting to 962,000 taels. Now, it is clearly laid down in the Loan Agreement (Article 14) that requisitions on the loan funds are to be made "in amounts to suit the progress of construction," and that the funds are to be held “on deposit with the Hong Kong and Shanghae Bank until required for railway purposes." To take one of several cases: on the 1st October Loh Taotai drew the sum of 250,000 taels for steel rails, but up to the end of December construction had not begun, and no contract had been made or funds disbursed for rails. therefore clearly to a serious breach of the Loan Agreement, and to the signature The facts point of incorrect and irregular certificates by the Managing Director.
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2. By the Loan Agreement (Article IS) it is laid down that "the Chinese Central Railways (Limited), will act as agents of the Railway Administration during construction for the purchase of all materials, plant, and goods required to be imported from abroad"; and furthermore, that "in the case of all tenders, indents, and orders for the importation of goods and materials from abroad, the said agents shall purchase the materials required on the terms most advantageous to the railway at a commission rate of 5 per cent. These stipulations of the Loan Agreement have from the outset been ignored by the Managing Director, who, instead of regarding the Chinese Central Railways (Limited) as the railway's agents, bas treated them with marked unfairness and discourtesy. At the beginning of January Mr. Loh went so far as to request the Manager of the Hong Kong and Shanghae Bank to make the
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loan funds available for the purchase of materials in London to the order of other agents, and this without explanation or notice, a request which was declined pending reference to your Excellency.
The agents of the Chinese Central Railways (Limited) in China, Messrs. Jardine. Matheson, and Co. (Limited), are entitled to special consideration at the hands of the Railway Administration, if only because it was to this firm, in partnership with the Hong Kong and Shanghae Banking Corporation, that the Concession was originally granted by the Chinese Imperial Government, to construct this railway. If the Managing Director has any reason or justification for declining to avail himself of the services of the railway's official agents, that reason should be clearly stated without delay. To resort to other agents would involve the railway in additional and unnecessary expenditure of commission; it would substitute for uniformity of procedure and responsible agents the undesirable system of promiscuous purchases through miscellaneous channels; and such an arrangement could only be justified by the Managing Director's proving that the Chinese Central Railways" (Limited) agency had failed to give satisfaction. The clause in the Loan Agreement which reserves to the Railway Administration the right to avail itself of the services of other agents while paying 5 per cent. commission to the Chinese Central Railways (Limited) was intended to secure liberty of action in the interests of economy (should occasion arise) and not of wasteful expenditure.
3. Similarly, it is laid down in the Loan Agreement that for all important purchases of foreign materials tenders shall be called for, and the goods shall be purchased in the "open market," preference being given to goods of British manu- facture at equal rates and qualities. I am in a position to prove to your Excellency that in calling for and allotting tenders Mr. Loh has violated these conditions.
4. The Loan Agrement was signed a year ago; the Engineer-in-chief and Managing Director were appointed in February. Between that date and end of December the Engineer-in-chief had made repeated applications to be authorized to engage the necessary secretariat and accounts staff, but without result. By the Loan Agreement it is laid down that the accounts of the railway will be kept in Chinese and English, in accordance with accepted modern methods, and will be open at any time to the inspection of the Syndicate's auditor; furthermore, that monthly statements of foreign materials purchased will be submitted for the auditor's verification. As the result of the Managing Director's refusal to engage the necessary staff, these provisions of the Loan Agreement remain unfulfilled. Although, as above stated, Loh Taotai commenced drawing on the loan funds in July last (when the appointment of Mr. Henderson to be auditor was accepted by your Excellency), no accounts or statements of materials have been forthcoming. His excuse that he is without a competent accountant is tantamount to repudiation of the most important provision of the Loan Agreement, and affords sufficient ground in itself for the strongest protest.
On the 7th ultimo the auditor requested your Excellency to supply him with the monthly statements of materials for the past balf-year, and to inform him when the accounts would he ready for inspection; he notifies me, however, that he has received no reply. I would respectfully request your Excellency's attention to this matter. The head office is presumably in possession of the accounts and other information required, and it is at the head office that the Chinese Central Railways (Limited) desires its auditor to exercise the functions provided for in the Loan Agreement.
In conclusion, I am directed to submit, for your Excellency's consideration, that the Chinese Central Railways (Limited) cannot, without serious responsibility to the bondholders, acquiesce indefinitely in the present unsatisfactory condition of affairs on the southern section of the railway, contrasting strongly, as it does, with the regular and efficient progress of construction on the northern section, and that, in the absence of more satisfactory fulfilment of the Loan Agreement, an appeal to the intervention of His Majesty's Minister will become unavoidable. It is the earnest desire of the Chinese Central Railways (Limited) to work in complete harmony with the Railway Administration, to avoid all undue interference with your Excellency's control of the railway, and to promote to the best of its ability efficient and economical con- struction, but under the conditions actually existing these ends are impossible of attainment.
I have, &c (Signed) J. O. P. BLAND.
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