CO129-345 - Public Offices & Foreign Office - 1907 — Page 25

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[This Document is the Property of His Britannic Majesty's Government.]

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CHINA RAILWAYS.

CONFIDENTIAL.

[25524]

No. 1.

0. [July 31.1

31828 SECTION 1.

IREC

Reef 6 SEP 07

(Confidential.) Sir,

Colonial Office to Foreign Office.-(Received July 31.)

Downing Street, July 30, 1907.

I AM directed by the Earl of Elgin to acknowledge the receipt of your letter of the 25th July, in which you inclose a copy of a Memorandum from the French Ambassador on the subject of the Hankow-Canton Railway, together with the draft of a Memorandum in reply. You inquire whether his Lordship sees any objection to the terms of the latter document.

2. In paragraph 10 of the letter from this Department of the 10th July, Lord Elgin expressed the opinion that if the southern section of this line were built by French capital the French would probably claim for themselves the benefit of the Anglo- Chinese Arrangement of September 1905. It now appears from M. Cambon's note that the French Government, as a result of what they assert to be the agreement come to between certain British and French financiers, claim, in respect of the whole line, that Anglo-French capital shall not be devoted to its construction without "la participation des deux pays pour la construction, le matériel, la direction, le contrôle, et l'exploitation." The proposed reply apparently accepts this claim (which, it may be observed, goes beyond anything in the terms of the Chinese undertaking), and you state in your letter that Sir E. Grey is of opinion that there can now be no question of repudiating the French claim for equal participation.

3. Lord Elgin is very unwilling to accept this view of the situation. You observe that the negotiations were carried on by the British and Chinese Corporations under a misapprehension, and before the Foreign Office were aware that they intended to enter into negotiations on the subject. His Lordship cannot see how this arrangement between two financial groups (which has been officially represented to the Chinese Government as "internal and purely financial") can be held to impose on His Majesty's Government the obligation to accept French participation of the nature described by M. Cambon. Even less can it be contended that any action of the Corporation would justify His Majesty's Government in pressing French personnel and French control on an unwilling Chinese Government who were in no way parties to the negotiations or even cognizant of them. It appears to Lord Elgin that the inevitable result of replying to the French Government as proposed will be that the Viceroy, when again approached, will repudiate-and justifiably repudiate the whole arrangement, and that the line eventually will be constructed by capital and under the auspices of a Government which is neither British nor French.

4. A further aspect of the case is disclosed by correspondence with the Japanese Government, which Lord Elgin has noticed in the collection of printed papers on the affairs of China recently forwarded from your Department, It appears that the Yokohama Specie Bank had discussed with the Viceroy at Wuchang the question of a Japanese loan for railway construction. Thereupon His Majesty's Representative at Tokio, on the instructions of the Secretary of State for Foreign Affairs, called the attention of the Japanese Government to the terms of the Anglo-Chinese engagement, specified the advantages offered by it to British capital and British manufacturers, and expressed the hope of His Majesty's Government that, in these circumstances, no loan would be granted by Japan which would be prejudicial to British interests in regard to railways in China, The Japanese Government replied that the existence of this Agreement was previously unknown to them, and on learning of it they gave directions to the bank to retire from the affair. Lord Elgin apprehends that a very unfavourable impression will be left on the minds of the Japanese Government when they discover that the British Government have made use of them to prevent Japanese nationals from concluding a profitable business arrangement, while at the same time they were voluntarily conceding to the French an equal share in the advantages of the Agreement.

5. A further point of importance has been brought to Lord Elgin's notice since my letter of the 10th instant was written. The resident engineer of the British section of the Canton-Kowloon Railway, in discussing the prospects of the line, has expressed the

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