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PUBLIC RECORD OFFICE

Reference :-

C.O. 882

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PUBLIC RECORD OFFICE, LONDON

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Enclosure 2 in No. 246.

MEMORANDUM of an interview with the Acting Viceroy of Canton, Tsên Chun Wsuan, by Dr. G. E. Morrison, on March 23, 1906.

I spoke to the Viceroy about the national credit of China, and said that the name of China stood high in the world because of the faithful fulfilment of her agreements. I said that the effect would be most serious if China were to repudiate the preliminary contract signed March, 1899, for the construction of the Kowloon- Canton Railway. The Viceroy replied that he did recognise the validity of the preliminary contract referred to, and that four days before he had caused a letter to be written to the Consul-General (Scott) saying, that in response to his memorial, an Imperial rescript had been issued, authorising the commencement of negotiations for the final contract. He expressed the hope that the conditions would not be the same as the Shanghai-Nanking Railway, but that they would be to some degree modified. I said that I felt sure that the Governor of Hong Kong would assist to have the conditions made acceptable to China, but that an essential preliminary was the frank recognition of the validity of the preliminary contract. He said he did recognise its validity. Then he proceeded to state the terms that China desired, and mentioned terms which were obviously those suggested by the Peking. Shanhaikwan Railway loan, but he did not mention the name of this.railway. I said that I was not interested in the specific terms of the railway; that those were for negotiation by the parties interested; what I was concerned with was the question of repudiation or recognition. He repeated that he did recognise the validity. I then spoke of the agreement formally entered into by the Chinese Government, whereby the construction of the Shanghai-Nanking Railway and of the Kowloon-Canton Railway was to be entrusted to the British Corporation on terms not inferior to those granted in the case of the Peking-Hankow Railway to the French and Belgians. I said this formal undertaking bound China to grant the same terms in the case of the Kowloon Railway as were granted in the case of the Shanghai Railway. I added that any modification of the terms would be a concession, but that I felt sure that the British would be most reasonable. He repeated the hope that the terms of the Shanghai Railway would in this case be modified. I reminded him that no money could be obtained for the construction of a railway that was not controlled by the syndicate through whom it was obtained, and I said that the insertion of a redemption clause such as has been inserted by the British and others in the different railway contracts, absolutely safeguarded the Sovereign rights of China. I reminded him that in the case, for example, of the Peking-Hankow branch line, China can redeem the bonds at par at any time after September 7th, 1907. By the payment of £4,500,000 she has then a fully-equipped branch line of 700 miles, at present managed by the Belgians and French.

The nett result of my conversation was that I formed the opinion that he would consent to the terms of the Shanhaikwan line, and subsequently I ascertained that this was the opinion of the Consul-General, who believes that he could, with reasonable hope of success, undertake negotiations on this basis.

NOTE. I understand that the chief objection of the British and Chinese Corporation to the Shanhaikwan agreement is the omission of any clause providing that all materials used in construction of the line shall be obtained through the Corporation.

Enclosure 3 in No. 246.

CANTON-KOWLOON RAILWAY.

MINUTES of 3rd meeting with Viceroy's Deputies, held at the British Consulate- General on Wednesday, 28th March, 1906, at 3 p.m.

Present:--

Taotais Wei, Wen and Kung, as representing His Excellency the Viceroy

of Canton.

Mr. Tebbit, His Britannic Majesty's Vice-Consul, and Mr. C. H. Ross,

representing the British and Chinese Corporation, Limited.

Mr. Ross handed to each Deputy a copy of the proposed draft Agreement, dated 16th February, 1906, pointing out that this reprint had been drafted in the

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name of His Excellency the Viceroy of Canton (in place of that of Sheng Kungpao), and in deference to suggestion from Peking the amount of proposed loan was therein stated as £1,500,000—in addition to amount required for land, with a proviso added in Clause 2 for the issue, if necessary, of further bonds in event of this sum proving insufficient for the completion of the railway. With these alterations and additions the draft was identical with the (blue) draft of 9th February, 1905, given to the Deputies in December last.

On the basis of this revised draft, Mr. Ross was now prepared and authorised by the British and Chinese Corporation to open negotiations.

Mr. Wen enquired if Mr. Ross had seen the two proposals recently made by the Viceroy, and on receiving an affirmative reply, said that the Viceroy had decided to now recognise the preliminary agreement with the Corporation as a binding document, and it was his intention to raise a loan through the Corporation for the construction of this railway, but he had now to consider the terms most suitable to the conditions prevailing in his province.

Mr. Kung said, the Viceroy understood that the Northern Railways Loan Agreement which had been made with the Corporation in 1898 was a very satis- factory form of agreement, and had worked well.

Mr. Ross informed the Deputies that he had no authority to discuss any terms or proposals which differed materially from the lines indicated in the preliminary agreement.

Mr. Wen assured Mr. Ross that this was understood and appreciated by him- self and his colleagues, but what was now desired was to privately and unofficially discuss the matter so that they might thoroughly understand it, and be in a position to accurately report to the Viceroy.

His Excellency's idea was to ask the Corporation to raise a loan and engage a British chief engineer to supervise construction; material which China herself could not supply would be ordered from the cheapest market through the agency of the Corporation.

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Mr. Ross.--By the terms of the proposed draft Agreement the Corporation would raise the necessary loan, and the railway would be constructed by the Viceroy of Canton under the supervision and with the assistance of a Board jointly com- posed of two Chinese, two represent lives of the Corporation, and the chief engineer. The Shanghai-Nanking Railway was managed by a similar Board, and if the Deputies made enquiries they would find that it worked harmoniously, and that all matters of importance were referred to the Director-General for his approval.

Mr. Wei enquired in what way the draft Agreement differed from the Northern Railways Loan?

Mr. Ross. The Northern Railways Loan was floated on the security of a railway already completed, several hundred miles in length, with a large supply of rolling-stock and other property. The loan was partly to pay off debts due by the administrators of the railway to various foreign banks, and to construct an extension to Newchang and Sinmingtung, and the security offered to investors was ample. In the case of the proposed Canton-Kowloon Railway, there was no security as the line had yet to be built. The proposed joint Board of Commissioners, how- ever, was a guarantee to investors that their money would be used for the purpose intended, and that the railway would be properly and economically constructed.

Mr. Wen.-The Viceroy, of course, recognizes that during construction foreigners must supervise and control the work, but after completion the railway must be a Chinese railway and under Chinese control. In event of default, the Corporation could put in an accountant to control accounts.

Mr. Ross. By the terms of the Northern Railways Loan the Corporation furnished a qualified foreign accountant, who supervises accounts, and with not unsatisfactory results to the Chinese Government.

Mr. Wen. There is also a staff of Chinese accountants?

Mr. Ross. Yes, and this is also the case in the Shanghai-Nanking Railway, where the Chinese Commissioners have free access to all accounts; all cheques are signed by a Chinese Commissioner and a foreign Commissioner jointly. Mr. Ross then enquired if His Excellency the Viceroy had studied the proposed working agreement, which provided for the working of the railway after completion.

Mr. Wen. I have discussed with His Excellency the general outline but not details. The Viceroy recognizes the desirability of the two lines working together,

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