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CHINA REPORT
the spending on British material of something like £8,000,000 which will eventually pass to the Purchasing Commission in London, but I cannot see that the Chinese Government has any serious intention of guaranteeing interest either on the money which the Commission will spend or on the half instalments which will be paid to the Trustees but the spending of which the Chinese Government apparently claims to control. Even if the Chinese Government have a genuine desire to carry out their undertaking to treat the whole indemnity as an endowment-on which inci- dentally they subsequently promised interest at 5 per cent.-how can they possibly get this interest out of railways, the bondholders having the first claim on the profits? Besides, all sorts of other schemes are being matured, such as a factory in Nanking for the manufacture of electrical machinery. Thus nothing certain will be forthcoming from about £8,000,000 of the available capital, and if the other three millions odd are to be spent by the Chinese Government in the same way, there will be no income at all available for education. In fact, so far as I can see, the British surrender of the indemnity will in no way tend to improve British prestige in China-quite the contrary. The point I wish to make here is that there is no hope of enhancing general British influence in China, or of turning the eyes of Young China to Britain, if not in gratitude at least with interest, as the result of this last act of British generosity" (pp. 13–14).
We understand that nothing has occurred since the date of the minute from which these words are quoted to make Sir William Hornell take a more hopeful view of the situation; and at the time when our delegation left Hong Kong for England, at the beginning of December, he had decided to resign his membership of the Board. One of his reasons for this decision was, no doubt, the difficulty of absenting himself at frequent intervals from Hong Kong to attend meetings held at Nanking; another was the fact that the proceedings at the meetings take place (not unnaturally) in Chinese, a language with which he (like all his four British colleagues on the Board) is not acquainted. But the primary reason for his action was of a more fundamental nature, which a perusal of his minute makes sufficiently clear. Whether his British colleagues will think it worth while to retain their membership of the Board probably depends largely upon whether they find it possible to reconcile the existing facts of the situation with their conception of their responsibilities as Trustees.
When the statute of 1931 was going through its legislative stages early in that year, a good deal of criticism was directed against it both
SITUATION CREATED BY EXCHANGE OF NOTES
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in and out of Parliament on the ground that it compelled the Chinese to confine their purchases of railway material to the British market. It was urged that it was unfair to the Chinese to debar them from buying in the cheapest market or from calling for tenders from all the industrial nations. It was indeed unfortunate that Great Britain considered it necessary to attach such a condition to her gift, but this is perhaps a comparatively trifling objection to the new indemnity agreement and is much less serious than others to which we have called attention. If British locomotives and other railway material were substantially dearer than those produced in foreign factories, and were of no better quality, the Chinese would have real grounds for complaint. We are glad to be able to report, however, that the very numerous adverse criticisms of the new agreement which we heard from Chinese were in no case directed against that part of it which obliged the Purchasing Commission to buy their material in England. Nor would there have been any serious justification for such criticism. In this connection a passage from the Report of the British Economic Mission to the Far East, 1930-33 (pp. 66-67), is worth quoting :-
"Our competitors' prices are frequently lower than ours, but those who know our products recognise that they are very much better and more durable. This is shown up clearly in repair departments where the frequency of repairs on competing loco- motives is much greater than in the case of British ones. The competing vehicles which we saw made it clear that the British specification was altogether on a higher plane. The very fine locomotives recently delivered from Great Britain to the Canton- Kowloon and Shanghai-Nanking railways should have a great educational effect.'
These observations give us confidence that even if the Chinese are obliged to purchase some of their railway material in Great Britain at a higher price than that asked by some of our industrial competitors, they are receiving full value for their money. It is not on this ground, then, that we venture to criticise the agreement arrived at in the recent Exchange of Notes, though as already stated it is undoubtedly re- grettable that the British gift to China should have been accompanied by a condition which must inevitably create the unpleasant suspicion that the British Government is determined that whatever may become of the cultural projects for which the returned indemnity had originally been intended, the bulk of the money shall be applied to the stimulation of industry in Great Britain.
In view of economic conditions in England it is not surprising
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