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agreements entered into, without any interference from the Chinese Railway Administration, unless they should be acting ultra vires.

"(4) Both sections of the railway should be managed and worked as though they were one line, the revenue being divided between the Chinese Government and the Colonial Gov. ernment according to mileage or auch other arrangement as may be found best on investigation."

7. On the 24th June the Colonial Office Eastern replied, stating that :-

"(A) It will be an essential condition of any agreement that may be entered into between the Hong Kong Government and the Corporation that in the event of any new com- pany being entrusted with the con- struction or working of the line or of any part of it, it shall have a British domicile and British Directors.

"(B) In view of the long time that has elapsed since the Corporation made their original Agreement with the Chinese Government, and of the de- sirability of avoiding any further delay in carrying out this important work, it will be necessary for the agreement with the Hong Kong Government to contain & clause which, in the event of the Corpora- tion failing to raise the necessary funds and to begin the construction of the Chinese section of the railway within one year of the date of the new agreement, or in the event of their failing to complete the section within three years of that date, will debar the Corporation from raising any objection to the cancelling of the concession by the Chinese Government.

"(c) Before the Agreement is finally signed it will be necessary that it shall be accepted by the Legislative Council of Hong Kong, inasmuch as the revenues of that Colony will be largely pledged for the construction of the part of the railway which will fall within Hong Kong territory.

"(D) It still appears to the Secretary of

State that the proposal made in my previous letter to lease the line when constructed to the Corporation, or to a railway company promoted by it, will, by securing unity in responsi- bility and direction, best

secure

No. 88,

Pp. 43-44.

PUBLIC RECORD OFFICE

Reference :-

C.O. 882

PUBLIC RECORD OFFICE, LONDON ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC-

COPYRIGHT PHOTOGRAPH-NOT TO

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efficiency in the working of the rail- way, and he would wish this proposal to be again considered by the Directors, who should understand that inasmuch as the primary object of the Hong Kong Government is to facilitate communication between Hong Kong and Canton in the interests of British trade in Southern China, arrangements may probably be accepted which in ordinary cir cumstances might be regarded as unduly liberal to the Corporation. The following two alternatives are suggested:

"(1) That the line shall be leased to the Corporation at a fixed rental sufficient to cover interest and sinking fand on the cost of construction through- out the period of the lease and dating from the issue of the railway loan by the Hong Kong Government, the Corporation taking the profits on the working of the whole line, but giving a guarantee for the punctual payment of the interest and sinking fund throughout the period of the lease on the expenditure incurred by the Hong Kong Government, and for the

proper maintenance, to the satis. faction of a Government Inspector,

of the Government line and its equipment.

(2) That the payment to the Colonial Government by way of interest and sinking fund shall be a first charge on the profits of the whole line after paying working expense, and the cost of maintenance as above, and not merely of the British section of the line, and that any profits accru- ing above a certain substantial rate of interest to the shareholders, the payment of which interest will rank after the payment of interest and sinking fund to the Colonial Govern- ment, shall be divided between the Corporation and the Hong Kong Government on the basis of the re- spective cost of constructing and equipping the two sections. Such cost to be calculated exclusive of any expenses incurred in raising funds for the undertaking beyond such reasonable and necessary ex- penses as may be specifically pro- vided for in the Agreement, and any commission on materials supplied.'

The Corporation were desired to state defi- nitely whether they accepted (A), (B) and (C), and whether they were prepared to accept either of