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Khabarovsk will be much more liberal than heretofore, and will lead to a more sympathetic attitude towards commercial enterprise generally, and, in the absence of Russian capital, towards foreign commercial enterprise in particular.
When M. Gondatti was recently in Vladivostock, I took the opportunity to call upon him and pay my respects. He received me very cordially, and introduced the subject of attracting foreign capital to the district, declaring his conviction that this was essential to ensure its speedy economical development. He appeared to be In this his views are particularly favourably disposed towards British capital. diametrically opposed to those of General Unterberger, who regards all foreigners with suspicion and adopts towards their undertakings an attitude of passive opposition. M. Gondatti's opinions are those of the more intelligent type of officials, who see that Russia cannot by herself solve the problem of opening up and colonising this country, and consider that the best way of attaining that object and so conjuring the Japanese peril, in which they all believe, is by encouraging foreigners to lead the way.
I have thought that a reference to this subject may be of interest to your Excellency, more especially since the change of policy indicated above may probably bring about a considerable extension of British commercial interests in these parts. At the same time, I have the honour to transmit herewith translation of a letter which I sent to M. Gondatti after my conversation with him touching upon various circun- stances which, from the foreign capitalist's point of view, make this country an unsatisfactory field for investment under present conditions.
I have, &c.
(Translation.) (Confidential.) Sir,
Enclosure 2 in No. 1.
R. M. HODGSON.
Vice-Consul Hodgson to Chamberlain Gondatti.
Vladivostock, December 6 (19), 1910. IN the conversation which I had the honour of having with your Excellency on the occasion of your last visit to Vladivostock, you expressed your opinion as to the necessity for the introduction of foreign capital in order to hasten the development of the natural resources of this region. As British capital has already been sunk to some extent in local enterprises, I have thought the opportunity a fitting one to lay before you certain conditions at present existing which seriously hamper such British enterprises as have already been inaugurated and are of a nature to check the creation of foreign undertakings generally.
The channels to which British capital is likely to be attracted are the exploitation of minerals, timber, and fisheries. That the country is extremely rich in minerals cannot be doubted, and British capital, which is always on the look-out for new sources whence to obtain raw materials for manufacturers at home, should find here a most promising field for investment. As long, however, as the present restrictions as to foreign tenure of mining concessions are maintained, it is highly improbable that it will venture into it. For the successful working of mining propositions a large expenditure of capital is necessary, and recourse has generally to be had to subscribed capital. At present neither individuals nor companies of foreign nationality have the right to be holders of mining rights. Consequently, in order to permit theni to work at all, they are driven to employ various subterfuges, so as to enable them to work in the names of Pussian subjects. This constitutes in itself a serious defect in the system, for not only does the raising of money become a practical impossibility when the persons who seek to raise it cannot be owners of the mining rights to the exploitation of which the funds are to be devoted, but such promoters as have sufficient capital to work themselves are liable to be discouraged by the very obvious dangers attending the putting of their undertakings in the names of third parties. This is more especially the case in present conditions, when there are so few persons locally of sufficient standing financially to warrant large interests being entrusted to them, and no possibility exists for foreigners to bind such as there are. Morally the system is indefensible, as it simply lends to wilful evasion of existing laws.
The peculiar restrictions which attach to mining in the 100-verst belt are particularly detrimental to the development of the mining industry by the aid of foreign capital, inasmuch as it is precisely this region which must be the most attractive on account of its proximity to sea transportation.
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Another obstacle to the extension of foreign undertakings is the limitation of technical assistance, Persons proposing to invest money in operations of the kind have the very natural wish to have their work superintended by a technical staff with whose methods and manner of work they are familiar. They will hesitate before sinking money in an area where the very presence of their engineers is liable to be prohibited. You will understand that in this connection I do not in the least suggest that the proper supervision required under the law of the country be waived.
With the gradual depletion of forests nearer home, the demand for timber from this country for Europe should certainly grow in the near future. The industry is, for foreign enterprise, severely handicapped by various circumstances, notably the restrictions on the foreign ownership of timbering rights and the inadequate length of the term of concessions. It is on this last that the greatest stress should be laid. Under present regulations, four years is the maximum of time which can be granted to any concessionnaire. It is possible that such a short term may be practicable in European Russia, where forests are largely in private hands, and, consequently, do not come under the rule. Here, in a new country, where private ownership is almost non-existent, where the population is scarce, and means of communication quite. insufficient, it is self-evident that owners of capital will not be disposed to invest money in founding enterprises at great expense when they have no means of obtaining any guarantee of the stability of their tenure beyond four years. The case of a British undertaking, the first of its kind in the country, has already been brought to your Excellency's notice. Timbering rights were granted in this instance in 1907 and confirmed by the Governor-General of the Amur for four years, it being understood though this could obviously not be inserted in the contract-that the rights would be prolonged at the end of that period. The four years expire in 1911, and application for the renewal of the concession is now being made, but it appears that the Department of Domains purposes again to put up to auction the forest which the company ("The Oriental Timber Corporation") is working, the basis of the tender being double and treble the royalty which existed when the business started, that is to say, at a figure which will render the continuation of operations an impossibility. It is not necessary to insist upon the disastrous effect the threatened treatment may have, if carried out, not only on the company directly concerned, but also on the prospects of other parties being disposed to place money in similar undertakings. This same company, being bound by a peculiar clause in their contract, are now experiencing the greatest difficulty in securing the right to transfer their property from the name of a person who has no longer any interest in it to their own name, though they have given sufficient guarantee of their soundness in expending over 900,000 roubles on their allotment, besides a similar ainount on the shipment of timber and the erection of mills to work it in Australia,
The export trade in timber is, moreover, handicapped by the treatment of ships which call at Vladivostock to take up labour-unobtainable on the coast at loading ports---as engaged in the coasting trade, and therefore liable to coasting dues; while a serious obstacle is offered by the system of treating as closed ports all the harbours in the region except Vladivostock and Nikolaievsk, and so forcing steamers to lose time while awaiting the permission from Khabarovsk which they require in order to enable them to load on the coast. Indeed, the latest circular issued by the Governor-General of the Amur on this subject (No. 9021 of the 11th September last, addressed to the chief of the Amur customs district) would seem to indicate that it will be henceforth impossible for any but Russian steamers to engage in export from local ports, inasmuch as Russian steamers alone will be allowed to call at such ports.
Restrictive regulations similar to those obtaining in the mining and timber businesses are observable in the treatment of the coastal fisheries, but there is, I think, no need to go into them in detail. Of the reasons which dictate this attitude towards foreign enterprise I have, of course, no knowledge. I have, indeed, only ventured to deal with the question mentioned above on account of your Excellency's opinion, as expressed to me, of the desirability of attracting foreign capital into this region, and my conviction, based on cases which have come within my notice, that this object will with difficulty be attained under existing conditions.
I have, &c.
R. M. HODGSON.
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