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received from Hankow copy of a letter addressed by the Director-General to the Hong Kong and Shanghai Bauk, from which we note with surprise that Dr. Jeme has been appointed by your Ministry to be acting engineer-in-chief of the Han-I section. We regret that your Ministry did not see fit to consult us on this question as requested in our letter to you of the 15th instant, and that in replying to that letter you omitted to disclose that you had appointed the Director-General to act concurrently as engineer- in-chief. Had you been good enough to consult us in advance we would have pointed out that by the terms of the Hukuang Railway's Loan Agreement, article 17, the engineer-in-chief of the section concerned must either be a European or American during the currency of the loan. The appointment made by your Ministry, being thus contrary to the Loan Agreement, is not acceptable to our groups; and we therefore have the honour to request that you will select a European or American engineer-in- chief for the post. We would suggest on grounds of economy that the American engineer-in-chief of the I-Kwei section should be instructed to act concurrently as engineer-in-chief of the Han-I section.
an
In this connection we beg to enclose copy of a letter addressed to us by Dr. Jeme covering copy of his letter of the 17th instant to Mr. Randolph, to the peremptory tone of which we feel bound to take strong exception; and we shall be glad if your Ministry will inform us of the reasons why engineer-in-chief, who has served the Chinese Government with conspicuous zeal and ability, should be informed in so harsh a manner that his services will not be retained under whatever circumstances. Since by the terms of the Loan Agreement there must be an American engineer-in-chief of I-Kwei section, we would strongly urge on you the advisability of making no change at the present time.
We have, &c.
Sir,
E. G. HILLIER. R. SAINT-PIERRE. E. T. GREGORY.
Enclosure 5 in No. 1.
Mr. Hillier to Chinese Minister of Communications.
Peking, September 26, 1917. WITH reference to our conversation on the 21st instant on the subject of the Hukuang Railways, and in anticipation of the visit to Peking of the director-general, Dr. Jeme, I have the honour to enclose berewith for your consideration a memoranduin of the views expressed to you at our recent interview by the groups' representatives.
I have, &c.
E. G. HILLIER.
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article 17, that there should be a foreign engineer-in-chief, and they suggested, grounds of economy, that the American engineer-in-chief of the I-Kwei section might be employed concurrently as engineer-in-chief of the Han-Yi section, with the duty of maintaining the work already done, and preserving the stores and materials, if any. By the terms of the letter of agreement of the 1st March, 1913, moreover, it was provided that foreign accountants should be appointed to the various sections of the railway, and the groups' representatives therefore suggested that the chief accountant of the Hupei-Hunan section be appointed to act concurrently as the chief accountant of the Han-Yi-1-Kwei sections. The groups' representatives informed the Ministry at the same time that they had instructed the banks' auditor of the Hupei-Hunan section, Mr. Bell, to discharge concurrently the functions of banks' auditor for the Han-Yi and I-Kwei sections, in place of Her Schmidt, who had been the bank's auditor for those sections until China's declaration of war against Germany,
4. It appeared trom the conversation which ensued between the Minister and Vice- Minister of Communications and the banks' representatives that the Ministry and the Director-Grueral took the view that the Han-Yi section was a separate entity, of concern only to the German Bank, and of no concern to the other participants in the Hukuang Railways Loan. This is not the case. The Han-Yi section forms part of the railway property mortgaged to the banks in March 1913 as additional security for the loan, and the elimination of the Germans renders all the more direct the interest of the other participants.
The British, French, and American groups' representatives therefort take the view that the Director-General should have informed them of his intention to sell materials belonging to the Han-Yi section, and hold that, in any case, the proceeds from the sale of any materials purchased with loan funds must be recredited to the railway's construction account in one of the group banks. They consider, also, that they should be fully informed as to the considerable balance of loan funds which was in the hands of the Deutsch-Asiatische Bank prior to the Chinese declaration of war on Germany, and that this balance, so soon as recovered, should be placed in one of the group banks.
5. The groups' representatives entirely concur with the desire of the Ministry of Communications to effect retrenchment and economies whenever possible in the expenditure of the Hukuang Railwaye, and consider that a great step would be made towards this object were the Ministry to abolish entirely the department of the Director-General, costing 15,000 dollars a month, and were to make the managing director of the Hupei-Hunan section the authority in control of the three sections of the railway, as long as activity on two of these sections remains suspended.
Peking, September 26, 1917.
Enclosure 6 in No. 1.
Memorandum,
1. THE dismissal of the German staff from the Han-Yi section of the Hukuang Railways renders necessary the formulation of new arrangements acceptable to the British, French, and American banks participating in the Loan Agreement of the 20th May, 1911.
2. The backs are in agreement with the Ministry of Communications that construction work on the Han-Yi section should be suspended, and that any funds so saved should be used on completing the construction and equipment of the Hupei- Hunan section. This was the course of action followed in the case of the I-Kwei section, where the American engineer-in-chief was retained on a reduced salary, with a Chinese storekeeper and a few watchmen and workmen, to safeguard the property and put into saleable condition the large supply of railway materials purchased out of loan funds from the Szechuan Provincial Railway Company, a policy which has been fully justified by
results.
3. The Ministry of Communications, since the dismissal of the German staff on the Han-Yi section, has placed that section under a Chinese staff. At the meeting between the Minister and Vice-Minister of Communications and the banks' representatives on the 21st September, it was pointed out by the latter that this arrangement is not satisfactory to the banks, as it fails to fulfil the provision of the Loan Agreement,
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