5
to the provincial party, while its refusal would afford Sir John Jordan strong grounds for protesting that the Chinese are now rejecting the very terms on which they have them- selves insisted as a standard. In order to bring the formula into line with the actual German Tien-tsin-Pukow practice the word "accompanied" has, of course, to come out; the Auditor's statement does not in practice accompany the Managing Director's requisition, he informs the bank direct. The question is, how far does this neutralize the legal effect decided by counsel in the case of the first formula, that is to say, can the bank withhold payment of a requisition in the event of the Auditor's state- ment not having been received? If Counsel's opinion is favourable on this point, I trust that we may find in the amended clause a solution which will satisfy the susceptibilities of the Chinese.
Yours, &c. (Signed) E. G. HILLIER.
P.S.-I inclose herewith translation of a draft Memorandum by Mr. Rump, dated' the 23rd April, 1909.
E. G. IL
Inclosure 2 in No. 1.
Telegrams exchanged between Peking und London.
(1.)
Peking to London, April 21, 1909.
ANXIOUSLY awaiting reply to our telegram of 16th.
(2.)
London to Peking, April 21, 1909.
Replying to your telegram of 16th April, counsel advises that, if proposed amend- ment added, bank could withhold payments in event of Auditor's statement not furnished. Consequential alterations in paragraph 3 of Article 14 will be required. In answer to our further inquiry, counsel advises that Auditor, before giving statement, would be entitled to be satisfied as to bond fide of requisition. Also Auditor could reasonably withhold statements until satisfied that any previous misapplication of funds had been rectified. Under these circumstances, your proposal appears to us to afford required security, and we approve.
ment.
(3.)
Peking to London, April 27, 1909.
Referring to your telegram of 21st, Chinese Government refuse proposed amend- They propose instead insert clanse stipulating generally for procedure in accordance with actual practice in force northern section, Tien-tsin-Pukow Railway to be embodied in separate Memorandum referred to in Loan Agreement and communi- cated by official despatch. Memorandum is now in course of preparation, but as Chinese Government are not prepared to prolong present negotiations unless there is prospect of arriving at agreement, we are requested to ascertain immediately if you can agree to foregoing in principle, subject to terms of Memorandum. With reference to foregoing, our opinion is, although according to information furnished to us by Deutsch-Asiatische Bank, present working effective, we are doubtful if satisfactory Memorandum will be obtaincl. As an alternative we suggest obtain counsel's opinion regarding following modi- fication E. G. Hillier's proposal: instead of "accompanied by Auditor," read: “Auditor at the same time handing banks," and at the end of the clause add, “in accordance with the present practice northern section Tien-tsin-Pakow Railway." Communicate this to Banque de l'Indo-Chine. Telegraph reply immediately.
Inclosure 3 in No. 1.
Memorandum by Mr. C. Rump, Auditor of the Northern Section of the Tien-tsin-Pukow Railway.
(Based upon actual experience of the working of the line.)
(Translation from German.)
WE consider the existence of a mutual unconditional confidence between the Managing Director and the Chief Engineer as the chief requirement for the satisfactory working of a Loan Agreement on the basis of the Tien-tsin-Pukow Railway Contract.
The Chief Engineer must, as far as possible, have a free hand in all technical questions, including the writing out of tenders for materials; and, on the other hand, all questions of the internal administration, purchase of land, arrangements with Chinese contractors, and other matters which are more or less dependent on the customs of the country, must be left to the better insight of the Managing Director.
The purchase of land must be effected under the direct orders of the Managing Director. The establishment of special land offices has not proved a success on the northern section of the Tien-tsin-Pakow Railway, especially has the purely Chinese way of accounting for expenditure proved to be too clumsy and slow. Therefore for the southern part of the northern section, the rule has been established that the sectional engineers, in accordance with the survey made have to draw detailed maps, on the basis of which a prompt and clear accounting for the purchases made is made possible.
For the internal administration, especially of the accounting department, it has been found necessary that, simultaneously with the appointment of the Chief Engineer, a competent Chief Accountant, acceptable to the banks, should be appointed. It is part of his duties to superintend the education of an office staff to keep pace with the progress of construction.
The Secretariat and stores must be organized with the assistance of foreign employés, in accordance with European methods. This is necessary on account of the importance of the Secretariat for a well-regulated business, and an account of the values contained in the stores.
For the drawing of funds, and the interest on loan proceeds, it is commendable that the Managing Director, in consultation with the Chief Engineer, should prepare a quarterly budget for all expenditure likely to be incurred within the next three months; this budget should be submitted to the bank.
As is the case on the northern section, the Chief Engineer must bave the necessary authority over the foreign personnel; also he must have an opportunity before the engagement of any foreign employé to form an opinion of their training, knowledge, and character, so that he may not have to work with men of inferior training and cantankerous character.
With the exception of the Chinese engineers, all other engineers must have a perfect knowledge of the language of the engineer, as otherwise intercommunication would be seriously hampered.
The engineer intrusted with the building of the line must be assisted by Chinese advisers, whose duty would be to facilitate their dealings with population and authorities. They are not allowed to interfere in any way in the work of construction, but they have the right to report directly to the Managing Director. It is commendable to have the construction accounts examined and made payable by the sectional engineers, before payment is made through the Chinese cashiers, so as to have double control.
April 23, 1909.
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