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original contracting parties, with which no outsider could claim the right of interference. I then suggested increasing the Szuchuan-Hankow portion of the loan by 500,0001, making a total loan of 6,000,000, the Americans to have a participation of 1,500,0001, as for account of the Szuchuan-Hankow portion, equivalent at the same time to 25 per cent. of the whole loan. By this means it seemed to me the face of all parties would be saved, while America would receive her full rights in terms of the Ch'ing-Conger convention of 1903. Fletcher thought the suggestion a good one, and believed that it would satisfy his Government; he would wire it in substance, although not as coming from me, since I warned him that I had no power to make any proposals, it was a personal suggestion.
The same evening I went with Cordes to see the deputies, informed them of what had passed between Fletcher and myself, and asked them to report it to the Grand Secretary, and ascertain if he would be prepared to agree to the increase of 500,000%. in case the scheme came to anything. At 11 o'clock that night the deputies came with a message from Chang Chih-tung, saying that he approved of the scheme and agreed to the proposed increase of the loan, and asking us to do everything possible to get the Americans and our own groups to come to a settlement on this basis.
The next day I went to see Fletcher, and laid before him the two clauses as embodied in my telegram to you of yesterday, and which I proposed to wire to you in the form of a recommendation. Fletcher said that it correctly expressed the proposal we had discussed the previous day, in his opinion it would satisfy his government, and he would wire it with his recommendation. At the same time he mentioned that, to his telegram suggesting an increase of the loan as a basis for compromise, he had received a reply stating that there was no objection to this arrangement, provided it secured to the Americans equal participation "in every respect"; he presumed this meant equality of treatment with regard to loan, service, &c., but he had wired for an explanation. I returned to the bank to code my telegram to you, and was followed almost immediately by Fletcher, with a telegram he had just received from Washington answering his enquiry. It simply reaffirmed the American claim in the fullest and most uncompromising terms, as will be seen from the following extract furnished me by Fletcher: "American participation to include all rights with regard to materials, engineers, auditors, and any other benefit which would naturally accompany one- fourth interest in the loan." I pointed out to Fletcher that, as this revived the engineer question which I understood to have been waived, and must also be interpreted to mean participation in future issues for the Canton-Hankow Railway, which we regarded as inadmissible, further discussion between us was obviously waste of time. He agreed with me, but asked me not to look upon what he had communicated to me as an ultimatum; he could only account for the stiff attitude of his Government by the assumption that they were irritated by the result of the London conference.
The next day I went to see Liang Tun-yen, President of the Wai-wu Pu, and told him all that had taken place, most of which, of course, he knew already. He had seen Fletcher, who had shown him his telegram. Liang said that he was at his wits ends what to do, and the old Grand Secretary, who had behaved throughout with dignity and a sincere desire to do the right thing, was worn out with worry and anxiety. The Americans were unreasonable in the extreme, and were taking advantage of China's weakness to put her in a most humiliating position. At the same time they could not lose sight of the fact that friendship with America was the key of their foreign policy, it was to America that they looked for protection from future Japanese aggression, and they could not afford to ignore her wishes. I agreed with him that, reduced to a bare financial basis, the difference between ourselves and the Americans was out of all proportion to the heat and friction that was being evolved, but there were principles at stake which could not be lightly ignored, either by the Chinese Government or ourselves, and it baffled my ingenuity to suggest any other way of satisfying the Americans that would not infringe one or other of these, All I could do now was to report to him the unsuccessful results of my efforts at a solution, and it was for himself or the Grand Secretary to make the next move. He quite concurred, and said he considered the banks had been most reasonable. In reply to his enquiry, I told him that my proposal was embodied in my telegram to you, of which I gave him the substance, and he said he would see Fletcher and try to induce him to wire the proposal to Washington; also he would send a private wire to Rockhill, now due in Washington, and ask him to explain the situation.
In face of the heavy guns brought into action by President Taft, the contest
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becomes hopelessly unequal, and unless our Governments are prepared to come to our support, the choice lies between yielding to the American demands, or leaving the agreement exposed to all the dangers of a situation beset with ever increasing international complications. My own opinion is we have got to yield, but the move should come from the Chinese Government, or from our own Government, not from us. If the Chinese Government asks us, in order to put an end to the situation, to admit the Americans to a full one-fourth participation in the loan, we are hardly in a position to refuse, but so far they have not done so. If, on the other hand, our Governments are prepared to come to our support, not to the extent of insisting upon ratification of the agreement, but to the extent of protecting it against all comers until such time as China is in a position to ratify it, an impasse would be created which would throw upon America all the odium and responsibility for the indefinite postponement of all further railway progress in the Yangtse Valley. I do not think that any of us would seriously countenance such a policy, least of all our own Governments, but the question of national dignity remains, and the high-handed action of President Taft has forced it into somewhat disagreeable prominence, not only for China but for the other Powers concerned
If, after every effort at friendly compromise has been rejected, we are forced to submit finally to the dictation of America, there can be no doubt as to the position America will take out here in the future.
Yours very truly,
E. G. HILLIER.
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