[This Document is the Property of His Britannic Majesty's Government
CHINA RAILWAYS.
CONFIDENTIAL.
2765
[November 24.]
The 28 10 SECTION 3.
[43073]
No. 1.
Mr. Hillier to Mr. Hunter.-(Communicated by Mr. Addis, November 24.)
My dear Hunter,
Peking, November 3, 1909. THE resumption of drawings upon the loan funds of the Shanghae-Hangchow- Ningpo Railway by the Yu-chuan Pu has again raised the question which caused us so much trouble and anxiety exactly a year ago. Sir J. Jordan, with whom I discussed the subject yesterday, thinks strongly that it is positively wroug to allow the Chinese to continue to draw the loan funds in the face of the chaotic state of things existing on the railway; but he says, and not without reason, that so long as we go on paying requisitions, any efforts on his part to bring pressure to bear on the Chinese are rendered futile-nothing but the stoppage of funds will give him the necessary lever. He saw the Wai-wu Pu on Tuesday, the 26th October, and spoke to Na-tung strongly on the subject. The latter told him that Tang Shao-chien, the ex-president of the railway, is now on his way to Peking for audience, and assured him that on his arrival they would go into the matter, and endeavour to get things put upon a better footing. Sir John does not attach much weight to this assurance, and has written strongly to the Foreign Office, urging the importance of taking up a firm attitude, and stating his opinion that the bank should be called upon to support his action by withholding further funds until things have been put upon a satisfactory basis. He requests at the same time that I will place his views before you and Addis.
I have, of course, explained to Sir John repeatedly the position of the bank as defined by counsel's opinion of the 12th November last, and that the responsibility for initiative rests with the British and Chinese Corporation, by means of an injunction to be obtained from the proper British Court. Sir John considers that it is a case in which the bank, being the actual custodians of the funds, should be prepared to take the responsibility of acting without the delay involved by the legal procedure recom- mended by counsel. In his opinion, the action of the Chinese themselves has been so illegal, and their breaches of the loan agreement so flagrant, that they would never dare to contest the action of the bank upon legal grounds. Diplomatically, of course, their position would be still more weak, and the refusal of the bank to pay out any more funds under the present conditions would give Sir John the strongest possible lever to work with. The responsibility for the present scandalous state of things rests, in fact, with Liang Shih-yi. He is fully aware of it, for he spoke to me about it quite recently in the strongest torms of disapproval, and even expressed to me a wish that something might be done to put an end to the situation; and yet, with his tongue in his cheek, he continues to draw out large sums of the loan funds and pay them into the Chiao-tung Bank. Where they go to after that we have no means of tracing. If into the railway, then they are being applied under conditions which Liang himself admits to be a scandal and an open breach of the loan agreement; if not, then they have been drawn under a bogus requisition and false pretences. The situation is certainly humiliating and intolerable in the extreme, and it is Liang, who has acquired such a high reputation among his colleagues for his success in flouting the foreigner, that Sir John is particularly auxious to bring sharply to book; unless this is done, Liang's audacity will know no bounds, and we shall be building up endless trouble for ourselves, both in this and other instances.
I do not know if the British and Chinese Corporation are prepared to take the legal steps prescribed by counsel, or how long it would take to get the necessary injunction, but I certainly think that something should be done. Personally, I am inclined to agree with Sir J. Jordan, that, in the circumstances, the Chinese would never dare to seek legal remedy either against the corporation or the bank, were these to take the responsibility of withholding further funds without an injunction; but such action should not be taken except with the officially expressed wish and full approval of the British Government, coupled with the assurance of their diplomatic support against any counter-action on the part of the Chinese. There is also this to recommend such a course, namely, that the corporation and the bank should shelter themselves, vis-a-vis the Chinese, behind the officially expressed wishes of our Govern-
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