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(7.)

MY DEAR SIR CECIL,

(6.)

Downing Street, December 9, 1904. YESTERDAY morning I had a message from Keswick asking if they could see me in the afternoon. I said that I should wish you to be present, and, of course, could not get you up in time; but if they wished for a talk preliminary to another confer- ence I should be glad to meet them.

They turned up in the afternoon, Keswick explaining that he was off to Scotland for a few days.

He then spoke in the sense of his letter (which you have already seen) as to the retention by each party of local receipts. Macrae followed on the same lines. His points were (1) that the Chinese would not agree to this part of my scheme; (2) that the Corporation's loan would have a better reception if their alternative were adopted; for they were advised by their experts that the local traffic on the Chinese section would be greater per mile than that on ours, and they would make a point in the prospectus of the prospective profits from local traffic.

As to (1) I replied that it might safely be left to the Chinese to raise the objection as they were well able to take care of themselves in negotiation, though I hinted as delicately as possible, they would undoubtedly raise the point if in any way prompted. As to (2) I pointed out that, primâ facie, bondholders were only concerned to get their 5 per cent., though I suspected that the Corporation would have to follow its own bad precedent in the Shanghai-Nanking case and abandon their profit Certificates to the bondholders.

As for the public, I said that none of us were really in a position to forecast what the respective proportions of the local traffic would be; for my part I anticipated a considerable surburban traffic for Kowloon; and any high class prospectus-writer would quite honestly dress up as attractive a prospectus on either side, and Macrae, had to admit that this was 90.

I insisted once more that Macrae was not giving us proper credit for what we were bringing into the pool-the co-operation of the Colonial and Imperial Govern- ments and that these would be of more weight with the investor than the question of how local receipts were to be divided.

But, apart from this, I said my main difficulty was that this new proposal upset the balance of my scheme as a whole. The case of two associated lines in England was not analogous, for there each was master in his own house. Here the Colonial Government could be outvoted by the Chinese plus the Corporation, and it might be to the interest of the latter to foster the local traffic on the Chinese section at the expense of ours. To protect ourselves we should have to constitute a fresh board for the control of our local section and to alter the arrangement for a common owner- ship of the rolling-stock. Thus the simplicity of my plan would be gone; the more one looked into it, the more changes seemed inevitable if the Corporation's view were met, until it would end by pulling the whole scheme to pieces, and I owned frankly that I didn't feel equal to putting the puzzle together again if the pieces were all to be shaken out on the table.

I had previously hinted to Macrae that if his view of the Chinese attitude were correct (he had foreshadowed all sorts of difficulties owing to their dislike to foreign interference) I thought our course might be easier if we eliminated the Corporation altogether. He retorted that there would be no difficulty on their side if they were adequately compensated: to which I counter-retorted that there would be ne question of compensation in my mind if we broke off on this point. Keswick was undisguisedly cn my side, naturally, and indeed part of the interview consisted in a discussion be- tween the two Directors. He threw out a suggestion that provision might be made for revising the distribution of profits if it was found after a time to be unfair.

Before we parted I said that my main object was not to wring out the last six- pence for the Colony, and that if they could offer any suggestion for a division of the profits, while preserving the pooling arrangement, I would consider it, though I could not promise that it would be accepted. The essential thing to my mind, if we had a Joint Board, was to secure that the Board had the same financial interest in the prosperity of each section,

The above is to keep you au courant.

Sir C. Clementi Smith, G.C.M.G.

Yours, &c..

G. V. FIDDES.

The British and Chinese Corporation, Limited,

DEAR MR. FIDDES,

3, Lombard Street, London, E.C., December 10, 1904. SINCE calling upon you with Mr. Macrae on Thursday in reply to your letter of the 7th instant, I have conferred with my colleagues and informed them that we were unable to convince you of the desirability of altering proposal L in the manner sug- gested in my letter of the 5th instant.

Such being the case and being anxious to do all we can to facilitate the business, we have decided, and I am requested to intimate it to you, that the Board acquiesce in the proposal as it stands, expressing only the hope that you will consider and we trust allow the Chinese to take into the cost of the railway the discount at which they are obliged to allow upon the placing of their bonds. Of the necessity of this discount we have no doubt of being able to convince you, as we have practical experience of the cost of floating Chinese loans, and we feel sure that the Chinese will object to the principle of their discount being regarded as dead capital.

We are embodying the proposals, as shown in your letter of the 17th November,

in a draft of an agreement to be made between the Chinese Government and the Colonial Government and will submit it to you as a rough draft in a few days.

This agreement we suggest should be scheduled to and made a vital part of the Loan Agreement to be negotiated with the Chinese.

DEAR MR. KESWICK,

(8.)

Yours, &c.,

W. KESWICK.

Colonial Office, December 13, 1904.

I was very glad to learn from your letter of the 10th instant that your Board have now seen their way to agree to the proposals which I put before you.

and

The matter has now reached a stage at which we can put our agreement on record, you will shortly receive from us an official letter for that purpose.

I note the point raised in the second paragraph of your letter; it shall receive care- ful consideration, but you will not expect me to offer any definite expression of opinion upon it at the present moment.

41961

No. 44.

Yours, &c.,

G. V. FIDDES.

COLONIAL OFFICE to THE BRITISH AND CHINESE CORPORATION, LIMITED. [Answered by No. 50.]

SIR,

(Confidential.)

IN your letter of the 8th of July,* you suggested that the questions raised in

Downing Street, December 16, 1904. official correspondence with this Department as to the proposed railway from Canton to Kowloon should be discussed by qualified persons on either side in the hope of arriving at a working agreement. This proposal was concurred in by Mr. Secretary Lyttelton, who nominated Mr. G. V. Fiddes, of this Department, and Sir C. Clementi Smith to represent him for the purpose.

Mr. Lyttelton is informed that your Board nominated you, as Chairman of the Board, and Mr. C. C. Macrae, as one of the Directors, to represent the British and Chinese Corporation, and that the questions at issue have been thoroughly discussed, with the result that the Board have expressed their willingness to assent to an agreement on the following lines:--

(a.) Conditions B (with reasonable reservations) and C of the Colonial Office letter of 24th Junet to be accepted by the Corporation.

(b.) The Hong Kong and Chinese sections to be constructed and owned by the respective Governments.

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• No. 28.

↑ No. 25.

I 9

PUBLIC RECORD OFFICE

Reference :-

C.O. 882

6 PUBLIC RECORD OFFICE, LONDON.

ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH—NOT TO