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This complete volie-face on the part of the Viceroy closes a phase of the negotiations which has latterly degenerated into something very like comic opera. It has, indeed, been impossible during the past fortnight to keep pace by letter with the almost daily developments which have taken place, and I do not propose to weary you with a recapitulation of their intricate details. All I will now attempt is a review of the later phases assumed by the negotiations, of the causes at work, and of the position in which, in my judgment, the general question of the loan is now left. Copies of telegrams which have passed since the 21st June are here inclosed.
The interview of the 26th June with the Viceroy's deputies, who had evidently come armed with very precise instructions, convinced me that there were other forces at work besides the legitimate desire of the Viceroy to extract from us favourable terms. It seemed to me just possible that if the Viceroy could be induced to accept the British and Chinese Corporation as the principal party to the Agreement the objections of the French might be overcome. He could assign no reasons except sentimental ones for not doing so. The Peking Government could have no possible objection to the British and Chinese Corporation, seeing that they concluded an Agreement with them only a few months ago, and it was plain to me that there was something more than flattering preference behind Chang's persistent demand for the Hong Kong and Shanghae Bank alone. In my opinion we have not far to look for the explanation.
Of the forces which are working to shape the future of Hankow and of the Upper Yang-tsze at the present moment none is more conspicuous or more striking than the growing influence of the Japanese. There are said to be some 5,000 Japanese in or about Wuchang. They are found at Changsha and at Ichang, their flag is to be seen everywhere on the river, and the Viceroy, strongly pro-Japanese in his sympathies, is surrounded by a ring of Japanese advisers, whose influence is perceptible at every turn. Their distinct methods of business and their peculiar way of acquiring information separate them from other foreigners. That they have great ambitions in the Yang-tsze valley, there can be no manner of doubt, and their object seems to be to conquer as much by a process of absorption by numbers as by the ordinary competition of trade. They evidently have reasons for attaching a great deal of importance to obtaining a share in the present railway scheme. They have no money to contribute, but they have labour and they have materials, and it is therefore obviously of the greatest importance to them to arrange, if possible, that the loan with which the railways are to be built should carry with it no vexatious conditions likely to affect them in these fields of industry.
If this hypothesis is correct--and it is strikingly borne out by what has come under my own observation—it is no longer difficult to account for the Japanese objection to the British and Chinese Corporation, and for their strong preference for the Hong Kong and Shanghae Bank, which, as a purely financial institution, does not concern itself with the questions of labour and materials.
With this conviction in my mind, and under the discouraging impression of the interview of the 26th June, at which the deputies practically went back on every clause of the proposed Agreement which made the business possible, I sent you my telegram of the 27th June, and the promptness of your reply showed at least that you bad
little very hesitation in approving the action proposed.
My own opinion was equally clear, but I was in a somewhat different position. I felt, when it came to the point, that I had to consider not only the interests of the bank, but those of the British Government, which, in this respect, had practically been committed to my charge, and I had therefore to consider how far I was justified in jeopardizing, without the gravest reasons, the British preference which our Government had been at so much pains to obtain.
On the 29th June I received a note from the Specie Bank, asking if the Japanese Consul might call and see me. The account of this interview and the subsequent interview and correspondence with Mr. Midzuno I inclose herewith.
He evidently came to see me under express instructions, and the correspondence will interest you as disclosing the Japanese point of view on this side.
Mr. Midzuno's recollections of what passed at these interviews did not accord at all times with mine, but you will note that, with regard at least to the nominal nature of the participation which the Specie Bank desires to have in the issue of the loan, Mr. Midzuno and I are agreed. The request to appear in the prospectus merely as an agent to receive applications for bonds appears harmless enough, however unaccountable its motive, and perhaps you can see your way to conceding them this much.
On the 30th June I received a note from Fraser, who was away at Kuling, which confirmed my opinion as to the necessity for prudence in taking the step proposed in
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my telegram to you of the 27th June, and I accordingly left for Kuling that night in order to confer with him,
On my return to Hankow on the 3rd July, I found that Cordes had called to see me, He told Taylor that he had been staying at the Viceroy's yamên since the 28th ultimo, arranging the Tien-tsin-Chinkiang Final Agreement. The Viceroy had mentioned my negotiations, and Cordes had made him an offer; he did not tell Taylor what the offer was. As he, Cordes, was leaving on the previous day, the Viceroy told him he had just received a telegram from the Wai-wu Pu instructing him not to proceed with his negotiations with me.
I reported this to the Consulate, who wired it to the Legation, and Sir J. Jordan at once asked for an interview with the Wai-wn Pu. The Board, I understand, informed Sir John that they had heard of the negotiations going on in Hankow, and had wired to Chang Chih-Tung to ask him what it was all about, but they could get no reply out of him. They raised no objection to the French, nor, in principle, to Chang's borrowing; they only wanted him to make a clean breast of it and let them know what his require- ments were and what he was doing, They did not confirm the statement that they had wired to Chang not to proceed with the negotiations. The German Minister, they said, had called on them on the subject, and, from his attitude, they feared there would be some trouble with him. With regard to the principle of borrowing money for publie works and spending it on railways they were not prepared at the moment to express an opinion; they wanted further information from Chang,
The result of this interview was telegraphed by Sir John Jordan to Fraser, who had in the meantime returned from Kuling. Fraser telegraphed to Peking for instructions how to act in the event of Chang attempting to break off negotiations over the question of French participation. Your own instructions to myself on this point I looked upon as covered by your telegram to me of the 4th July.
Sir J. Jordan's reply was to the effect that Fraser should, in the event named, warn the Viceroy against the consequences of his unfriendly attitude towards the French, and hold him to his engagement with the British Government.
Armed with these instructions, we prepared ourselves for a somewhat disagreeable interview with Chang on the 7th instant.
The Viceroy, however, was never more cheerful. He at once launched into an exposition of his views on the new situation which had been created by Sir J. Jordan's interview with the Wai-wu Pu, winding up with the astounding proposition that not only the French, but also the Germans, should be admitted as parties to the Loan Agreement.
Mr. Fraser observed that, before committing himself to any opinion on this proposal, it would be necessary for him to ascertain the views of his Government; and, for my own part, I suggested that it appeared a good moment for me to return to Peking and explain his Excellency's views to Sir J. Jordan and the Wai-wn Pu. The Viceroy approved of the last suggestion, and proceeded to furnish me with instructions for my mission. I was, he said, to inform the Wai-wu Pu of the nature and object of the loan, its amount, term, interest, price, and security, but I was not to discuss with them the other conditions of the Agreement, as the Viceroy preferred to retain the settlement of these in his own hands. As the Edict of 1905 prohibiting the borrowing of foreign money for railway construction is still in force, the Viceroy could not call this a railway loan. At the same time, I was to point out that no mortgage of any railway line or other condition derogatory to China's rights is proposed. The Province of Hupei is very hard up, and the experience of the last two years has clearly shown that it is impossible to raise the large sums required for railway construction by means of share capital alone. If, therefore, railways are to be constructed, the funds for their construction must be largely diverted from the provincial revenues, and if from the revenues of one Department, why not from those of the Public Works Department ? Again, Tsen Shun-hsuan, Viceroy-designate of Canton, is treating with the Government for permission to borrow on exactly similar lines. Why should he, Chang, not receive at their hands the same consideration as his colleague Tsen ? If the objections of the Wai-wu Pu are founded on the fear of offending other nations, I am to suggest that equal participation be given to the Great Powers, Eugland, France, and Germany, although the Viceroy would prefer that the Agreement should be made in the name of the Hong Kong and Shanghae Bank alone, the provisions for participation being embodied in a final clause, as in the 1905 Loan Agreement. Having arranged these points satisfactorily with the Wai-wn Pu, I am to let him know through Mr. Fraser, and we can then proceed to the discussion of the other terms of the Agreement.
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