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It was objected that the initialled agreement stipulated that the Imperial Government was to apply the borrowed funds solely to the construction of the railway lines therein named; and that, consequently, this would be a fundamental departure))) from the principle of the agreement. Since it was explained by his Excellency Liang that the object of the proposed addition was to assure the gentry of a return upon the capital they had already sunk in the railway line, it was suggested that this might be met by a provision stating clearly that all surplus profits of the working of the railway lines to be constructed by the Imperial Government in terms of the agreement should, after payment of the service of the loan, be entirely at the disposal of the Chinese Government for division amongst the shareholders of the general or other companies, as they might deem fit.
His Excellency Liang made a note of this suggestion, and appeared to consider it practicable.
It was clearly stated by the Chinese negotiators in the course of this discussion that the present negotiations would be conducted by the Yuchuan-pu; the question of signature, whether with that Board, or the Board of Finance, or the Wai-wu Pu, would be determined by the Throne. The banks had nothing whatever to do with the so-called general company.
2. The elimination of the so-called "branch line" from Ching-mên-chou viâ Shasi to Hanyang. It was explained by his Excellency Liang that this was with a view to propitiate the gentry who, in giving up their claim to the construction of main lines, expected the construction of branch lines to be left to them.
We replied that this was again a fundamental change in the agreement, which the instructions of our legations debarred us from discussing. The proposed loan of 6,000,000l. was admittedly entirely inadequate for the completion of the railway lines named in the agreement, and the gentry would have their chance as soon as that sum was exhausted and further capital required, whether for main or branch lines.
His Excellency Liang then said that the idea was to fix a limit of time, say, four years, for the construction of this branch line by the gentry, at the expiration of which time, if not so constructed, it would be built with money borrowed from the groups. He expressed the conviction that the gentry were unable to raise the money by themselves for the construction either of that or of any other line, and he felt assured that he could embody this proposal in a clause which would be acceptable to the groups.
The matter was left at that, after we had repeated to his Excellency Liang our inability to consider this proposal to cut out the branch line referred to.
3. The appointment of a Chinese engineer-in-chief, acceptable to the groups, with divisional engineers of the four nationalities under him.
This was also objected to as a fundamental change. It was suggested as an alternative that clause 17 should remain unaltered, but that a provision might be added, allowing for the appointment of a Chinese consulting engineer, acceptable to the groups.
This suggestion was noted, and apparently favourably considered by the Chinese negotiators.
4. The incorporation into the main agreement of the principal provisions of the despatch, and the omission of the ten working regulations appended thereto; also the incorporation into the main agreement of the supplementary agreement providing for American participation.
No insuperable objection was found to this, and it was reserved for future discussion, subject to a detailed reconsideration of the ten regulations.
Exception was particularly taken by the Chinese negotiators to the reference made in article 17 of the agreement to the practice in force on the northern section of the Tien-tsin-Pukow Railway, and we raised no objection to cutting this out.
His Excellency Liang said that he would prepare a new draft agreement embodying the above suggestions, together with some ininor points, which he would send to us in the course of the next ten days for our consideration. It was arranged that, when we had fully considered these written proposals, we were to notify the president, and request a further interview for their discussion.
Peking, January 4, 1911.
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Enclosure 2 în No. 1.
Liang Shih-yi's proposed Alterations in the Hukuang Loan Agreement.
IN the heading of the agreement the first contracting party should be changed to read "The Company General of the Hunan-Hupei Section of the Canton-Hankow Railway and the Hupei Section of the Szechuan-Hankow Railway," instead of his Excellency Chang Chih-tung, &c.
In article 2 delete the reference to branch lines of the Szechuan-Hankow
Railway.
Delete the names of the places through which the line is to pass.
The director-general shall decide the point where the work shall commence. In article 3, it should be clearly stated that funds formerly provided by the Chinese Government and the funds contributed for shares by merchants shall all be reckoned as part of the capital of the railway.
Delete the reference to the date of commencement and completion of the work. In article 4, after the words "5 per cent. per annum" add "reckoned for the date of [? from receipt of the funds by China."
Article 9 should be altered to read, "The Imperial Chinese Government shall give instructions to the provinces concerned that out of the receipts from li-kin and other revenues stated sufficient funds to meet the amount of principal or interest in arrears shall be paid over to the banks."
Add to article 7 the words "or payments may be made in national currency." In article 17 delete the words "in accordance with the methods now in operation on the northern section of the Chin-pu Railway." (This reference does not occur in our final draft.)
Supplementary letters to be cancelled.
Alter to read "A Chinese engineer-in-chief shall be employed. Divisional engineers for each line shall be one British, one French, one German, and one American."
To article 18 should be added, "before purchase of materials are made the price and quality must be submitted to the director-general for his approval."
Article 19 should be entirely deleted.
Delete the clause "The Chinese officials acting in the matter of this loan do not receive any commission whatsoever."
Cancel all supplementary letters.
The question of purchase of materials and that of auditing the accounts should be inserted in the preliminary agreement.
Insert wherever required the words "Board of Posts and Communications" and "The Board of Finance."
Insert whorever required the words "France" and "America."
There are still many points which require either deletion or adjustment.
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