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tion in order to make this point more clear, as any vagueness in the Agreement now is likely to cause considerable trouble hereafter.
With regard to the terms of redemption, I understand from Sir Walter Hillier that it will be the desire of the Chinese Imperial Government to effect the redemption in thirty years, the funds for this redemption to be derived from the surplus profits acerning from the working of the mines. I consider that the payment necessitated by this would seriously affect the value of the present investments, and would be a great hardship on the present shareholders of the Company. It must be remembered that the Company is resigning a valuable property, after holding it for thirty years, to the Government, which has no claim to it whatsoever, and that during that time it will be paying a revenue to the Government in the form of taxes, &c., considerably in excess of what similar Companies are called upon to pay in other countries.
The reserve fund would be maintained out of the profits, which at the end of the period of redemption would become the property of the Chinese Government, and which is in itself, therefore, a form of extra taxation. I have not calculated out the exact amount which would be required per annum, supposing the whole of the 1,000,0001, the present capital, to be provided for in thirty years, but it would amount to considerably over 20,0001. per annum, or probably more than 10 per cent, of the total profits of the undertaking.
With regard to the third point quoted above, it seems to me that the settlement of this depends largely upon the power the Chinese Government has of dealing with the shareholders and owners of the new Lanchow Mining Company. I feel convinced they will ask for sums quite in excess of what it will be possible to give. I suggest as a maximum payment it is desirable to offer an amount equal to the value of the works so far carried out, this payment to be made in cash, I believe it is the desire of the Chinese Government that payment should be made in bonds. It is obvious that if this were done it would eat up still more of the profits of the present under- taking, as all bondholders would be entitled to an equal share in the results of the working of the Kaiping Coal Basin. In other words the owners of the mine, who started their work in hostility to the present Company and without any justification or right to do so, would by their action become possessed of a share of the property they have done their best to jeopardize. Supposing even the rights of the present Company over the whole of the Kaiping basin to be still in dispute, I do not consider that the arrangement would be just. As it is, however, it seems that until the Chinese Government has replied to your Memorandum, the rights of the Company over the whole basin may be considered to have been proved.
For the moment the position stands as follows: I have telegraphed for instruc- tions from my Board and for power to deal with the questions that have arisen within certain limits I have asked them to define. I inclose copy of this telegram.* On the other hand Sir Walter Hillier is endeavouring to obtain the clear views of the Chinese Government with regard to the questions of redemption and payment to the Lanchow Mining Company. When I receive the reply of my Directors, I shall return to Peking to resume negotiations.
I trust that my views on the three points over which difficulties are likely to arise will meet with your approval and support.
I have, &c.
(Signed)
Inclosure 2 in No. 1,
W. S. NATHAN,
Tentative Suggestions for the Settlement of Matters in Dispute with the Chinese Engineering and Mining Company.
THE Lanchow and Kaiping Mines, together with any mines that may subse- quently be opened in the Kaiping area, which will hereafter be clearly defined, to be placed under one Administration to be entitled the "Imperial Northern Mining Administration," or some such similar title.
2. The shares of the present Chinese Engineering and Mining Company to be exchanged for Chinese Government silver bonds bearing interest at the rate of 7 per cent., and guaranteed by the Chinese Government.
* See "Affairs of China," February 27, section 1.
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3. Bondholders to be entitled to a participation in the profits of the Administra- tion in addition to the guaranteed interest to the extent of per cent, of the net profits after deducting
(a.) The royalties due to the Chinese Government; (b) The interest due on bonds;
(c) A certain percentage set aside as a sinking fund for redemption of
bonds;
(d.) A reserve fund;
the balance of the profits to go to the Chinese Government.
4. The bonds to be redeemable at the rate of a certain number per annum after
years, the total number to be redeemed in
years.
5. The Administration to be under the management of a Foreign Chief Manager, to be appointed by the London Committee, and a Chinese Chief Manager or Director- General, to be appointed by the Chinese Government. The foreign staff to be appointed by the Foreign Chief Manager with the approval of the Chinese Chief Manager, and the Chinese staff to be appointed by the Chinese Chief Manager with the approval of the Foreign Chief Manager.
6. Accounts to be kept in English and Chinese and to be published half-yearly. 7. The London Board of Directors to be replaced by a London Committee with whom shall rest the appointment of the Foreign Chief Manager and the carrying ont of any matters in London which may be necessary.
8. Additional bonds will be issued, if it is considered advisable to cover the cost of the Lanchow Shaft up to the date of the proposed arrangement coming into force.
9. The outstanding obligations of the Chinese Engineering and Mining Company to the Chinese Government, to Chang Yen Mao and to other employés or shareholders of the Company to be paid by the London Directors of the Chinese Engineering and Mining Company by a certain date to be agreed upon.
Inclosure 3 in No. 1.
Further Proposals discussed and suggested between Sir W. Hillier and Major Nathan, to which neither party agrees, but which have been formulated as a basis of negotiations on which a settlement might be arrived at.
AGREEMENT between the Imperial Chinese Government and the Chinese Engineering and Mining Company (Limited), for the transfer to the Imperial Chinese Government of the properties and rights of the Kaiping mines, &c., at present administered by the Chinese Engineering and Mining Company (Limited)."
AN Agreement entered into on the
day of
by which the Chinese Engineering and Mining Company (Limited), hereinafter called the "Company," transfers in perpetuity to the Imperial Chinese Government, hereinafter called the "Government," all the properties, rights and benefits hitherto administered by the Company under the conditions enumerated below:--
1. All the mines now opened or projected including the mines at present worked by the Company and those opened or projected by the Lanchow Mining Company and any mines that may be opened or require to be opened hereafter in the Kaiping Mining basin, the area of which is defined as
shall be under an Imperial Mining Administration to be called the "Imperial Mining Administration of North
China."
2. The capital of the Company amounting to 1,000,000 shall be repaid by Government gold bonds bearing interest at the rate of 7 per cent. per annum, and secured on the revenue of all the mines open or to be opened in the Kaiping basin.
3. In addition to the guaranteed interest as above specified the bondholders shall be entitled to all the profits accruing from all mines opened or to be opened in the Kaiping basin under the conditions set forth below, and after providing for-
(a) Royalty on coal produced amounting to 50,000 taels per annum. (b) The amount of the interest on bonds guaranteed as above.
(c) Provision for a sinking fund for the redemption of the bonds the amount
to be set aside each year for this purpose to be distributed in equal amounts per aunum over a period of sixty years, the sums so derived to be deposited in a bank selected by the Chinese Government.
[2243 n-1]
B 2
250
re