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('ondition 2.—Interest to be at 4 per cent. per annum, payable half yearly at Hong Kong, and secured by the opium revenue of Hupeh and Hunan.

Condition 3-Terms to be ten years, with liberty to pay off after five years. Condition 4.-A payment of £500,000 to be made within 14 days of the com- pletion of the final loan and joint working agrements from the railway from Canton to Kowloon, and the remainder in two equal instalments, the first by the 30th September and the second by 15th December

Condition 5.-Wuchang and Canton Viceroys and Governor, Hunan, to give assurance in writing that in case of foreign capital or engineers being required for railways in the Hu Kwang and Liang Kiang Provinces, first option of supplying them or either of them should be given to Great Britain.

Condition 6.-Same persons to give assurance in writing that until loan is repaid no arrangements will be made with any company not wholly Chinese nor with any Foreign Government for connecting Canton with any deep sea port, except by agreement with Government of Hong Kong.

With regard to 2, do you think security good?

Regarding Condition 4, first instalment seems to me best way of securing early completion of negotiations for Kowloon-Canton Railway, but as regards subsequent instalments you can vary the conditions as you think fit.

Regarding fifth condition, Secretary of State suggests also extensive assurances to cover material for equipment and construction of the railway, but I feel doubtful

if we shall get such assurances as well as our other requirements.

Condition 6 is aimed at the extension of the Canton-Hankow Railway to Whampoa, and against the connecting of Canton with Kwang Chan Wan, but I leave its inclusion entirely to your discretion.

23345/S.

159

IX.

SECRETARY OF STATE to GOVERNOR, Hong Kong.

(Dated July 8, 1905.)

Your telegram, June 30th. On 2nd August Crown Agents will have at their disposal about £250,000, and if you can so arrange it, it would be convenient to them to make the first advance of £550,000 on that date.

23880/S.

X.

GOVERNOR, Hong Kong, to Secretary of State.

(Dated July 10, 1905.)

Your telegram, 8th July. I asked Satow on 4th instant to offer Wuchang Viceroy loan on conditions including the following:-

Begins: Payment of £400,000 to be made within 14 days of conclusion of final loan and joint working agreements for Canton-Kowloon Railway, or on August 31st, whichever is earlier date. Second instalment, £350,000, by September 30th, if above agreements have been already completed. Third instalment, £350,000, by 15th December. Ends.

I would rather not modify this condition unless Satow informs me it is unacceptable.

PUBLIC RECORD OFFICE

Reference :-

TLC.O. 882

6

ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC--|

COPYRIGHT PHOTOGRAPH—NOT TO

PUBLIC RECORD OFFICE, LONDON

VII.

HIS BRITANNIC MAJESTY's Minister, Peking, to GOVERNOR, Hong Kong.

Your telegram, 1st July. instead of four :-

(Dated July 3, 1905.)

Would suggest substitution of following proposals

"Undertaking in writing from Viceroy, Canton, that he will see to the con- clusion of final loan and joint working agreements for railway from Canton to Kowloon without undue delay. A payment of £400,000 to be made within 14 days of completing the above agreements, or on 31st August, whichever is the earlier date.

The second instalment of £350,000 to be paid by 30th September, if the agree- ments have been already completed. The third instalment, £350,000, to be paid by 15th December."

As preliminary agreement of 1899 was concluded by Sheng, it is probable that he will negotiate the final agreements, and the Viceroy at Canton cannot be held entirely responsible for the negotiations. But I feel sure that with the Canton Viceroy willing to co-operate, Sheng can be hastened, and the limit of time mentioned above seems reasonable.

I should prefer to make no reference to six. Such a condition is sure to excite suspicion, and, if obtained, the assurance could only cover ten years in any case.

VIII.

GOVERNOR, Hong Kong, to His Britannic Majesty's MinisTER, Peking. (Dated July 4, 1905.)

Your telegram, 3rd July. I accept your modification of 4th condition, and agree to omit the sixth. If you are satisfied that the security is good, please make offer to Viceroy at Wuchang and advise me of result.

XI.

HIS BRITANNIC MAJESTY'S MINISTER, Peking, to GOVERNOR, Hong Kong. (Dated July 10, 1905.)

-

Your telegram, 4th July. Following from Consul, Hankow, yesterday: "Wuchang Viceroy wishes 'engineers' to be altered to half engineers,' so that he may employ Japanese equally with British. He also objects to inclusion of Canton- Kowloon Railway affair in this transaction, but I expect I shall be able to make him see the propriety of advising the Canton Viceroy to give the assurance required. Am I right in supposing that this assurance required in respect of Canton-Kowloon Railway Agreements and future railways in Liang Kiang, Hu Kwang Provinces should be given before the signature of the loan agreement, and that they need not be included therein? Shall I draw up an agreement and sign it, after telegraphing to you, on behalf of Government of Hong Kong?"

I replied to-day as follows:-"Your telegram, No. 32. Paragraph 1. I would agree to alteration if we can be assured equipment and material for railway will, consistently with considerations of cost and quality, be obtained from British industry, and if it is clearly understood that other half of engineers will be Japanese the chief engineer of the Canton-Hankow line would, of course, have to be British.

"Paragraph 2. Satisfactory assurances with regard to Canton-Kowloon Rail- way is a sine quâ non. We are entitled under existing agreements to all we are asking for; all we want is the willing co-operation of the Canton Viceroy to prevent friction and delay. If he suspicious he can be shown draft of final agreement confidentially.

"Paragraph 3. Yes. Assurance in writing should be handed over at the same time as the loan agreement is signed, and need not be mentioned therein.

"Paragraph 4. Draw up agreement and telegraph text. Before signature I must consult Government of Hong Kong."

Regarding the third paragraph it would not be possible, I think, to induce the Chinese Government to include the assurances in the text of the loan agreement. They will be quite as efficacious given separately.