6. Shortly before the experimental term expired, the "Lee Hong," the boat responsible for the 1935 rate war, applied for a licence to resume running between Hong Kong and Canton, under the Chinese flag. The Steamboat Companies tried without success to induce the owners of this vessel to enter the river-rail agreement and, in consequence of this failure; an assurance was sought from the Railway that, if they lowered their fares with the object of countering this new threat, the Railway would neither re-institute its "50-cent trains" nor reduce its fares other than pari passu with themselves. As this course was considered to be inimical to Railway interests, the matter was left statu quo, the Railway reserving the right to take any steps it thought fit to protect its traffic should the river war recommence. The "Lee Hong" resumed operations on May 11th and, although some of the smaller boats decreased their fares slightly, the basic fares on river and rail remained unaltered throughout the year.
7. The "Lung Shan" and "Sui An", two ships of the Hong Kong, Canton and Macao Steamboat Company's fleet, were laid up on July 1st and subsequently sold to Shanghai interests. This act, which was believed to be the result of an agreement reached by the various shipping interests, eased the economic situation on the river considerably.
8. A re-adjustment in the competitive relationship between river and rail transport took place on August 21st, when the larger steamers cancelled their day sailings from Canton and substituted a night schedule similar to that from Hong Kong. This innovation did not affect rail traffic to any appreciable extent, although river traffic improved as a direct result of this amenity. By catering primarily for night traffic, the river services ceased to duplicate the normal functions of the railway.
9. A set-back was suffered by the co-ordinated river interests on October 26th when a fresh boat, the S.S. "Fuk On", came on the run. It is not anticipated that this boat will continue to operate for any appreciable length of time.
10. In general, it may be said that the co-ordination effected between river and rail has proved most beneficial to both, and has led to substantial increases in revenue. Its stabilising influence may be traced in the Chart on page 1, which shows in graphical form the monthly percentages of railborne passengers to total passengers carried, during the past three years. The ratio between rail and water carryings has been remarkably steady during the last four months of the year, and there appears to be no reason why this ratio cannot be maintained.
11. During the early part of the year, an investigation was conducted into the possibilities and limitations of the two Hall Scott motor coaches which had been purchased in the year 1922 at a cost of $91,578 each. These coaches had proved an unprofitable investment, owing to the fact that it had been impossible to find a service for them with enough paying mileage per year. It was decided to convert one of the coaches into a