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British engineers should be employed on works executed with the proceeds of the loan, the
purpose of which he defined as [Chinese characters], which Mr. Hillier translates as public works," I, as "engineering and tradal undertakings."
The only other serious objection raised by him was as to the appointment of a receiver of the li-kin revenue in case of default in payment of interest or instalments of principal. I pointed out that a similar provision was to be found in the 1900 and 1905- Loan Agreements; but he argued that now all Agreements were very closely scrutinized, and that the comparatively excessive size of the revenue pledged rendered such a provision in addition to the quarterly li-kin bonds quite superfluous. He also urged us to promise a net price of 947, for each 1007, bond; but this Mr. Hillier could not assent to without a reply from his principals in London, who had originally suggested 921.
As the conversation had already lasted a long time, we agreed to leave the points on which we were not quite in accord for further discussion after the Viceroy had had time to peruse the draft Agreement at leisure, and Mr. Hillier had received from his principals replies to his telegraphic Reports.
We were desirous of retiring, but the Viceroy detained us to consider the Yokohama Specie Bank's request to be one of the issuing banks, and Mr. Odagiri's scheme of carrying out railway construction by tenders involving deferred payment
for work done.
I repeated to his Excellency my declaration to Messrs. Midzumo and Odagiri that the issue question pertained entirely to the banks concerned; and Mr. Hillier added that the prospectus of a loan could not contain the name of any bank not mentioned in the loan contract.
As regards the construction tenders, we held that, if the payments were deferred beyond at most one year after the work was taken over by the railway's engineer, such contracts were really loans in disguise-and, as I pointed out, loans at high rates, as the contractor must insure himself against contingencies during the period of suspense.
The Viceroy let us gather that his real desire was to avoid having to apply for Peking sanction for further loans and, at the same time, to placate the Japanese, who professed to be able to advance up to 7,000,000 yen in such contracts.
His Excellency welcomed the suggestion that the Hong Kong and Shanghae Bank might finance such work equally with the Yokohama Specie Bank, and he seemed disposed to agree to cover advances by second mortgage bonds of the Ya-li-ch'u-an arrangement which Mr. Lillier thought rendered the scheme a sound business proposal, so long as the amount at any time outstanding and the periods of the advances were kept within reasonable limits.
I have, &c.
(Signed)
Inclosure 2 in No. 1.
Draft Agreement, dated June 10, 1907.
E. H. FRASER.
THIS Agreement, made between his Excellency Chang, Viceroy of the Hukuang provinces of China, &c., acting with the authority of and on behalf of the Imperial. Government of China, hereinafter called the Viceroy, of the one part, and the Hong Kong and Shanghae Banking Corporation and Banque de l'Indo-Chine 'as agents for an Anglo-French combination, comprising one or more Companies formed or to be formed, hereinafter called the Syndicate, of the other part, for the issue and regulation of a loan of 1,000,000 for the carrying out of public works and improvement of communications in the Province of Hupei, witnesseth as follows:---
1. The Syndicate is hereby authorized to issue an Imperial Chinese Government 5 per Cent. Gold Loan for the amount of 1,000,000. The loan shall be entitled "The Imperial Chinese Government 5 per Cent. Sterling Loan of 1907, for Hupei provincial Public Works and Communications.”
2. Interest on the loan shall be at the rate of 5 per cent. per annum, and shall be calculated on the amount of the nominal principal of the loan from time to time outstanding. The interest shall commence on the first day of the month, Western calendar, in which the loan is issued to the public, and, subject to earlier redemption of the loan, shall be paid to the banks hereinafter appointed as agents for the service of the loan, by the Viceroy, in accordance with the provisions of Article 3 of this Agreement. Interest will cease on complete redemption of the loan.
The term of the loan shall be fifteen years, and the principal shall be repaid to the bondholders in ten equal annual instalments of 100,000%, commencing with the sixth year; but the Viceroy shall have the right to redeem the loan at par at any time after the expiration of ten years, that is to say, that, in addition to the annual drawings in Europe provided for in the prospectus, the Viceroy on giving six months' notice to the banks may call for extra drawings to be held for redemption at par of the whole or any portion of the principal outstanding. Any such extra drawings must take place on the date of an ordinary drawing provided for by the prospectus.
3. The service of principal and interest of the loan shall be paid in instalments every three months by the Viceroy to the Hong Kong and Shanghae Banking Corporation and the Banque de l'Indo-Chine in accordance with the amounts, and ten days in advance of the dates of the schedule to be attached to this Agreement when the date of issue of the loan has been fixed, together with a sum of one-quarter of 1 per cent. on such amounts to cover commission to the Hong Kong and Shanghae Banking Corporation and the Banque de l'Indo-Chine, who are hereby appointed agents for the entire service of repaying the loan; and funds in Hankow sycee sufficient to meet each such payment in gold in Europe on its due date will be handed to those banks in Hankow, the exchange for which will be arranged by the Viceroy with those banks. The Viceroy shall have the option of settling exchange at any date or dates within three months previous to any due date for the repayment of interest and principal. The Syndicate retains the right to rearrange the service of interest and repayments of principal to the bondholders on such terms as it shall deem advisable.
4. The Syndicate shall issue, and is hereby authorized to issue, to subscribers to the loan bonds for the total amount of the loan, in such form, languages, currencies, and amounts as the Syndicate, in consultation with the Chinese Ministers in London and Paris, may determine; and these bonds shall be sealed by the Minister for China in London or Paris respectively, as evidence that the Imperial Chinese Government is bound thereby.
5. The Imperial Government of China hereby unconditionally guarantees and declares itself responsible for the due repayment of the principal moneys and interest of this loan, which is further hereby secured by the revenues of the Ya-li-ch'u, or Board of Reorganization for the collection of the shop tax and of the li-kin on general merchandize (excluding opium and salt) of the Province of Hupei, estimated to be 3,000,000 Kuping taels a-year. So long as principal and interest of the loan are regularly paid, there shall be no interference; but if the principal or interest of the loan are in default at due date, then the Syndicate shall be entitled, and shall be allowed by the Imperial Chinese Government, to appoint a European Commissioner to administer and control the collection of the revenues of the said Ya-li-ch'u in the interests of the bondholders, and the Imperial Chinese Government hereby engages that it will support and assist him in all legal measures to this end. When the loan, with principal and interest, has been fully redeemed, the powers of the said Commissioner shall cease.
Sterling tri-monthly or quarterly bonds on the revenues of the Ya-li-ch'u, equal in value altogether to the total amount of the principal and interest of the loan, sealed by the Viceroy of the Hukuang provinces and by the Treasurer of Hupei, and countersigned by the foreign Commissioner of Customs in Hankow, shall be deposited with the Hankow and Shanghae Banking Corporation and the Banque de l'Indo-Chine in Hankow. In the event of the money to meet a payment of interest or instalment of principal not being handed to the banks at due date as provided, these provincial revenue bonds shall become available for the payment of the assigned taxes and duties in the Province of Hupei, and the provincial authorities shall be instructed accordingly.
So long as this loan or any part thereof shall be unredeemed it shall have priority, both as regards principal and interest, over all future loans, charges, and mortgages charged on the said security of the shop tax and li-kin on general merchandize of the Province of Hupei. No loan, charge, or mortgage shall be raised or created which shall take precedence of or be on an equality with this loan, or which shall in any manner lessen or impair its security over the said revenues of the shop tax and li-kin on general. merchandize of the Province of Hupei as stipulated above; and any future loan, charge, or mortgage charged on the said revenues shall be made subject to this loan, and it shall be so expressed in every Agreement for every such future loan, charge, or mortgage.
In the event of the Chinese Government during the currency of this loan entering upon definite arrangements for the revision of customs tariff, accompanied by stipulations for decrease or abolition of li-kin, it is hereby agreed on the one hand that such revision shall not be barred by the fact that this loan is secured by li-kin revenue; and on the
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