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(No. 47. Confidential.)
Inclosure 1 in No. 1.
Consul-General Fraser to Sir J. Jordan,
Sir,
Hankow, May 25, 1907. IN confirmation and continuation of my telegrams and despatch of the 11th instant, on the subject of the Viceroy Chang's attempts to raise funds for railway construction, I have the honour to report as follows:-
On the 15th May you telegraphed that the Yokohama Specie Bank had withdrawn from the negotiations, and the same day the agent of the Hong Kong and Shanghae Bank here gave similar information, adding that the London office of the Yokohama Specie Bank had formally notified his London office of a Tôkio telegram to that effect.
On the same afternoon Mr. Midzuno told me that the three London banks were urgent for a Chinese Government guarantee of the loan, as they were co-operating shortly in the issue of a 200,000,000 yen loan in connection with the South Manchurian Railway, and that he had telegraphed suggesting the insertion of the last paragraph of Article XV of the Shanghae-Nanking Railway Final Agreement as an adequate safe- guard, but without eliciting any reply.
On the 17th May Mr. Bland arrived and Mr. Midzuno called asking for news. On the 18th May Mr. Hillier came, and I learned that the Viceroy proposed to receive us on the 20th. Mr. Bland and I induced the Hankow Taotai, on whom we were calling, to telephone that Mr. Hillier must leave by the express train that night, and the Viceroy then invited us to cross over to Wuchang at once.
His Excellency then astounded us by stating that Mr. Odagiri and the Japanese Consul had been with him that morning pressing on him a loan of 20,000,000 taels for industrial purposes, and repudiating any intention of seeking British co-operation.
Their offer held the field, and must be withdrawn before he could open negotiations with us.
After much discussion and explanation of the Japanese Bank's inability to supply such a sum from its own resources while the issue of bonds in London and Paris would be blocked by the British and China Corporation and its French friends, bis Excellency consented to block out the general provisions of a railway loan, though he was careful to say that there were great difficulties in the way of his memorializing direct for leave to sign such a loan.
The same evening Messrs. Bland and Hillier saw Mr. Odagiri, who at first claimed a perfect right to negotiate a railway or other loan, and scoffed at the undertakings obtained by us from the Viceroy as already denounced by his Excellency to the Throne, and only covering part of the trunk line to Canton.
On our return I had quoted to Mr. Bland his Excellency's despatch of the 9th September, 1905, as his Excellency had that afternoon himself denied its covering all railways in Hukuang, and he was thus able to refute the assertions of Mr. Odagiri, who on having the serious consequence of any attempt at trickery pointed out to hin declared that he would withdraw entirely on receiving an order from his Minister.
On the 19th May, as I was, in accordance with his Excellency's request, sending him in Chinese cypher an account of the interview between Messrs. Bland and Hillier and Mr. Odagiri, the Japanese Consul called to explain that he and Mr. Odagiri had gone on negotiating simply because their bank had not apprised them of the Tokiô message to London concerning the cessation of their negotiations, and that there was no intention of encroaching on the British sphere of interest. M. Bland had convinced Mr. Odagiri of the extent and force of the 1905 undertaking, and he, the Consul, had that morning telegraphed to his Minister that he must withdraw from all participation in such loan arrangements.
On the 20th May I asked the Viceroy to receive Mr. Hillier on the 25th, and on the 21st instant his Excellency sent his Secretary Chan with the inclosed note declining to memorialize for a railway loan, and asking me to call on the 23rd May. The Secretary said his Excellency was afraid of denunciation by newspapers, students, and gentry, and dare not do more than support the Board of Communications if that Board proposed to sign a Loan Agreement with the British and China Corporation. But his Excellency still hankered after a loan for general purposes, even if he had to reveal privately to their Majesties and the Grand Council the real destination of the money.
I telegraphed this news to you, and on the 22nd received your reply that the
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Board of Communications refused to move first, and that the matter must await a change of popular feeling, the Viceroy being meanwhile kept to his engagements with us.
On the same evening the Japanese Consul sent me in confidence a translation of his report to his Minister of our conversation of the 18th May. I inclose this document, since, as I telegraphed, it diverges widely from Mr. Combe's and my recollection of what really passed.
When I saw the Viceroy on the 23rd he met my report that the Board could not see why it should move first in a Hupei matter by remarking that he knew that his Excellency Ts'en's offer of support was a mere politeness, and that no loan for railway purposes could be considered, because any Memorial from his Excellency might very probably be discussed only by the Grand Council. This attitude be maintained, despite my arguments that his Memorial promising, in view of their Majesties' orders, to do his best to raise Chinese capital for railways left an opening for reporting that two years had been spent in vain efforts to raise such capital, and Hupei must borrow or do without railways. Reminded of his last year's confidence, that the Hupei gentry and people would acquiesce in such a loan, he shifted the responsibility on to the shoulders of Hunan and the unenlightened officers of the capital. Finally he suggested the development of mines as a good ostensible purpose for a loan, since that, although included in the Board's former veto, did not appear in the Decrees in answer to his 1905 proposals; and he developed a scheme of securing the amortization of a loan of 1,000,000l. by selling at a cheap rate a fixed annual amount of antimony ore, mined by native methods, to the lenders' orders. I objected that ore was bulky and expensive to transport. He rejoined that an Anglo-Chinese smelting establishment might be established near Hankow, or better near Shanghae, and that Hunan's experience showed how valuable such ore was.
His object was, he confessed, to make himself secure from charges of selling China's rights to outsiders, and he would, as an additional security, go on selling railway shares to Chinese.
When this million was exhausted he would borrow again for railways if the times should become propitious.
I said I would, as he desired, telegraph to you and consult the Hong Kong and Shanghae Bank here and let him know the result.
Mr. Taylor at once pointed out that antimony ore varied enormously in value, and would be an unstable asset unless an expert first inspected and later was stationed at each mine; and that the antimony market was so uncertain that Messrs. Carlowitz had to feed it most carefully in order to maintain prices.
Finding that Mr. Odagiri remained here and that Mr. Hillier insisted on the specification of the purposes of a Hupei Development Loan, I drew up the inclosed letter to his Excellency's secretary, and sent it yesterday evening.
There appeared to me to be danger lest the Yokohama Specie Bank should, through some large local Japanese firm, pay to the Viceroy instalments of a loan really for railway construction, but nominally for public works, even though the issue of bonds for such a loan might be impracticable. Their offer of 95 as the net price of a 5 per Cent. Loan suggested that money raised in England at 4 per cent. was to be relent to Hupei at a commission of 1 per cent. The Viceroy had, on the 4th instant, threatened to close with that bank's offer unless we offered better terms, and his need of money is notoriously pressing.
I was reassured, however, when I called on the Japanese Consul this forenoon, in order to deliver to him the message authorized by you in regard to our Agreements with China, to learn that he had received from his Minister instructions, based on the perusal of the documents sent him by His Majesty's Legation, to notify the Viceroy that no Hukuang loans, present or future, would be negotiated by any Japanese bank, as such transactions pertained solely to British financiers. He added that he and Mr. Odagiri would shortly call on his Excellency for this purpose, and that Mr. Odagiri would leave on the 28th May to continue his inspection of the branches of the Yokohama Specie Bank in China.
I have, &c. (Signed)
E. H. FRASER.
P.S.-Since writing the above I have received your telegram No. 23. I submit that Mr. Hillier's opinion of a development loan is unnecessarily harsh, in view of the peculiar situation of the Viceroy and the virulent opposition to suggestions for using foreign capital in Chinese railway undertakings. I take it that his Excellency would
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