2
states that, according to his information, a portion of the surplus would be used for the Hupei section of the Hankow-Canton Railway.
M. Casenave has also communicated to both Mr. Bland and Mr. Hillier a telegram of the 4th July from the Banque de l'Indo-Chine, stating that the French Minister is instructed by his Government to notify the Chinese Government that the French bondholders of the "Société d'Études," some 80 per cent. of the whole number, I understand, will require repayment on the 31st December, if the existing loan contract is modified in any way by the Belgians, and that a quotation on the Paris Bourse for new bonds issued by the "Société d'Études" will be refused. This evidently means that the French, for their own reasons, are determined to make it impossible for the Belgians to come to any fresh arrangement with the Chinese, and to force the latter to deal with the French and English groups; and though it is true that a redemption loan analogous to the Tien-tsin-Pukow or Shanghae-Ningpo loans would be more advantageous to the Chinese than the present Belgian contract, it is, I fear, highly improbable that the Chinese Government will accept any conditions involving a French personnel or French control instead of the Belgian. Rather than agree to such conditions, they would, I think, prefer to let things remain as they are and continue the Belgian arrangements, and it is clear that this view is also held by Mr. Hillier.
Throughout Mr. Hillier's negotiations with the Board of Communications, he has been requested to avoid introducing this Legation officially into the matter, at any rate until it has assumed shape, and, of course, the instructions contained in the above-mentioned telegram of the 4th July appeared to imply the direct intervention of the French Legation at the Wai-wu Pu. Both M. Casenave and Mr. Hillier were opposed to this, for obvious reasons, and it has now been arranged with my French colleague that the communications of the French Government should be made indirectly through M. Casenave to the Board of Communications. Meanwhile,
Mr. Hillier is awaiting the reply of his principals to his telegram of the 1st July, and informs me that Mr. Addis has gone to Berlin, no doubt in connection with this matter.
I have been at pains to set out fully in this despatch and inclosures the leading facts relating to these negotiations, which appear to me to be complicated by unusual factors. Apart from the obligations of the British and Chinese Corporation and the Chinese Central Railways to the French group, of the Hong Kong and Shanghae Bank to both, and of the Hong Kong and Shanghae Bank to their German associates, there would seem to be another difficulty in the overlapping of the interests of the British concerns amongst themselves, which gives an impression of disunion to the Chinese and retards progress. I would suggest that this could perhaps be remedied by more explicit instructions from the bank and the Companies to their agents, who, I am certain, are performing their duties under difficult circumstances with complete loyalty to their principals and French associates.
I inclose an article which appeared in the "Peking and Tien-tsin Times" of to-day, and which contains a fair summary of current opinion on the subject of the redemption of the Belgian contract.
I have, &c.
Sir,
(Signed)
Inclosure 1 in No. 1.
Mr. Bland to Chinese Central Railways.
J. N. JORDAN.
Peking, May 7, 1908.
As
PEKING-Hankow Railway: Redemption scheme. On my return from Hankow with M. Casenave on the 27th ultimo, we agreed that the situation justified immediate and energetic action in this matter. reported in previous letters, the Chinese have hitherto declined to entertain any formal proposals or to negotiate officially; they have continued to hint unofficially at the possibility of business in this direction, but it has been evident that this was simply to bring pressure to bear on the Belgian Company, Three months ago I asked his Excellency Liang Shih-yi definitely to state whether he would consider proposals for the redemption of the railway, and he replied in the negative. As a general rule, the Chinese are not unwilling to avail themselves of competition, and it may therefore
3
594
safely be assumed (as the native press states) that certain influences have been brought to bear upon the notoriously corrupt President of the Board of Communications, his Excellency Ch'en Pi. Until quite recently, it appeared as if Belgian diplomacy would succeed in obtaining an extension of the Lu-han Loan Agreement in return for surrendering the whole or part of its participation in the profits of the line.
As the result, however, of certain representations and action taken by M. Casenave last month, and of publicity given to the question, the Board of Communications became apprehensive of the results of declining competition, and the Belgian negotiations were for the moment checked. The moment seemed, therefore, opportune for attempting to secure the business, or at least a locus standi.
On the 28th April, however, Mr. Hillier informed me that, acting under instructions, he was in negotiation for this business with Mr. Liang Shih-yi; the basis of negotiation being a Government loan without any conditions involving control of the railway. He was negotiating, not for the Chinese Central Railways, but for the Hong Kong and Shanghae Banking Corporation, it being understood that the loan, if effected, would involve French participation, as well as German financial interest. As no such arrangement has been communicated to me, and as M. Casenave and myself have been proceeding under the instructions conveyed to us after the meeting between M. Simon and Mr. Addis on the 24th February last, and in the sense of the Agreement then recorded, it was evidently necessary to arrive at a clear understanding as to the nature and effect of the instructions under which Mr. Hillier has been acting. Accordingly I telegraphed to you (28th April) as follows:—
"The following is from J. O. P. Bland: With regard to the Peking-Hankow Railway Loan Redemption, I am informed by E. G. Hillier he has received instructions to negotiate on behalf of the Hong Kong and Shanghae Bank independently of the Chinese Central Railways. This is contrary to my instructions and Agreement with French group as stated in the British and Chinese Corporation's letter of 26th February. Telegraph your definite instructions."
and now await your Board's instructions.
Judging from the information afforded me by Mr. Hillier, it would appear probable that the present conflicting instructions are due to a misunderstanding and to M. Simon's having confused Mr. Addis in his capacity of Manager of the Hong Kong and Shanghae Bank and that in which he represented the British and Chinese Corporation and the Chinese Central Railways; the results are none the less regrettable, since the Chinese are therefore led to expect that they can borrow funds for the redemption of the railway on simple Chinese Government guarantee. While such proposals are under discussion, or even remotely possible, it would, of course, be futile for the representatives of the Chinese Central Railways to endeavour to negotiate for a loan under conditions involving either subsidiary advantages in regard to supply of material or any form of administrative control.
Pending further information and instructions, it is unnecessary for me to refer to this matter further than to say that, having regard to the peculiar political conditions under which the Lu-han loan was originally floated, and to the position of the French Government in that transaction, it must be evident that for the successful conclusion of the proposed (Anglo-French) redemption scheme, maintenance of our recognition therein of French preponderance of interests (as agreed upon) is essential, and in view of other arrangements, most expedient. The conditions under which Mr. Hillier is negotiating would not only eliminate any question of preponderant French interests, but would introduce German finance. Your Board must be aware that the French Government would, under no circumstances, assent to any such arrangement.
Broadly speaking, the British and Chinese Corporation and the Chinese Central Railways are Companies organized for the special purpose of business (financial, commercial, or administrative) in connection with railways in China. For the continued existence of these Companies it is a sine qua non that railway loans (i.e., loans having for their object the construction or financing of railways) should be something more than simple banking transactions, that is to say, they should at least involve agency business for supply of material. Furthermore (as the lines now under construction will amply demonstrate), it is essential to the satisfactory construction and working of railways in China that Loan Agreements in future should not abandon the safeguards heretofore observed in regard to supervision of the railway's receipts and expenditure, a matter of no small importance to China's future credit. It would clearly be impossible for the Chinese Central Railways, insisting upon these conditions,
2
states that, according to bis information, a portion of the surplus would be used for the Hupei section of the Hankow-Canton Railway.
M. Casenave has also communicated to both Mr. Bland and Mr. Hillier a telegram of the 4th July from the Banque de l'Indo-Chine, stating that the French Minister is instructed by his Government to notify the Chinese Government that the French bondholders of the "Société d'Études," some 80 per cent. of the whole number, I understand, will require repayment on the 31st December, if the existing loan contract is modified in any way by the Belgians, and that a quotation on the Paris Bourse for new bonds issued by the "Société d'Études" will be refused. This evidently means that the French, for their own reasons, are determined to make it impossible for the Belgians to come to any fresh arrangement with the Chinese, and to force the latter to deal with the French and English groups; and though it is true that a redemption loan analogous to the Tien-tsin-Pukow or Shanghae-Ningpo loans would be more advantageous to the Chinese than the present Belgian contract, it is, I fear, highly improbable that the Chinese Goverment will accept any conditions involving a French personnel or French control instead of the Belgian. Rather than agree to such conditions, they would, I think, prefer to let things remain as they are and continue the Belgian arrangements, and it is clear that this view is also held by Mr. Hillier.
Throughout Mr. Hillier's negotiations with the Board of Communications, he has been requested to avoid introducing this Legation officially into the matter, at any rate until it has assumed shape, and, of course, the instructions contained in the above-mentioned telegram of the 4th July appeared to imply the direct intervention of the French Legation at the Wai-wu Pu. Both M. Casenave and Mr. Hillier were opposed to this, for obvious reasons, and it has now been arranged with my French colleague that the communications of the French Government should be made indirectly through M. Casenave to the Board of Communications. Meanwhile,
Mr. Hillier is awaiting the reply of his principals to his telegram of the 1st July, and informs him that Mr. Addis has gone to Berlin, no doubt in connection with this
matter.
I have been at pains to set out fully in this despatch and inclosures the leading facts relating to these negotiations, which appear to me to be complicated by unusual factors. Apart from the obligations of the British and Chinese Corporation and the Chinese Central Railways to the French group, of the Hong Kong and Shanghae Bank to both, and of the Hong Kong and Shanghac Bank to their German associates, there would seem to be another difficulty in the overlapping of the interests of the British concerns amongst themselves, which gives an impression of disunion to the Chinese and retards progress. I would suggest that this could perhaps be remedied by more explicit instructions from the bank and the Companies to their agents, who, I am certain, are performing their duties under difficult circumstances with complete loyalty to their principals and French associates.
I inclose an article which appeared in the "Peking and Tien-tsin Times" of to-day, and which contains a fair summary of current opinion on the subject of the redemption of the Belgian contract.
I have, &c.
Sir,
(Signed)
Inclosure 1 in No. 1.
Mr. Bland to Chinese Central Railways.
J. N. JORDAN.
Peking, May 7, 1908.
As
PEKING-Hankow Railway: Redemption scheme. On my return from Hankow with M. Casenave on the 27th ultimo, we agreed that the situation justified immediate and energetic action in this matter. reported in previous letters, the Chinese have hitherto declined to entertain any formal proposals or to negotiate officially; they have continued to hint unofficially at the possibility of business in this direction, but it has been evident that this was simply to bring pressure to hear on the Belgian Company, Three months ago I asked his Excellency Liang Shih-yi definitely to state whether he would consider proposals for the redemption of the railway, and he replied in the negative. As a general rule, the Chinese are not unwilling to avail themselves of competition, and it may therefore
3
594
safely be assumed (as the native press states) that certain influences have been brought to bear upon the notoriously corrupt President of the Board of Communications, his Excellency Ch'en Pi. Until quite recently, it appeared as if Belgian diplomacy would succeed in obtaining an extension of the Lu-han Loan Agreement in return for surrendering the whole or part of its participation in the profits of the live.
As the result, however, of certain representations and action taken by M. Casenave last month, and of publicity given to the question, the Board of Communications became apprehensive of the results of declining competition, and the Belgian negotiations were for the moment checked. The moment seemed, therefore, opportune for attempting to secure the business, or at least a locus standi.
As
On the 28th April, however, Mr. Hillier informed me that, acting under instruc- tions, he was in negotiation for this business with Mr. Liang Shih-yi; the basis of negotiation being a Government loan without any conditions involving control of the railway. He was negotiating, not for he Chinese Central Railways, but for the Hong Kong and Shanghac Banking Corporation, it being understood that the loan, if effected, would involve French participation, as well as German financial interest. no such arrangement has been communicated to me, and as M. Casenave and myself have been proceeding under the instructions conveyed to us after the meeting between M. Simon and Mr. Addis on the 24th February last, and in the sense of the Agreement then recorded, it was evidently necessary to arrive at a clear understanding as to the nature and effect of the instructions under which Mr. Hillier has been acting. Accord- ingly I telegraphed to you (28th April) as follows :—
"The following is from J. O. P. Bland: With regard to the Peking-Hankow Railway Loan Redemption, I am informed by E. G. Hillier he has received instruc- tions negotiate on behalf of the Hong Kong and Shanghae Bank independently of the Chinese Central Railways. This is contrary to my instructions aud Agreement with French group as stated the British and Chinese Corporation's letter of 26th February. Telegraph your definite instructions."
and now await your Board's instructions.
Judging from the information afforded me by Mr. Hillier, it would appear probable that the present conflicting instructions are due to a misunderstanding and to M. Simon's having confused Mr. Addis in his capacity of Manager of the Hong Kong and Shanghae Bank and that in which he represented the British and Chinese Corporation and the Chinese Central Railways; the results are none the less regret- table, since the Chinese are therefore led to expect that they can borrow funds for the redemption of the railway on simple Chinese Government guarantee. While such proposals are under discussion, or even remotely possible, it would, of course, be futile for the representatives of the Chinese Central Railways to endeavour to negotiate for a loan under conditions involving either subsidiary advantages in regard to supply of material or any form of administrative control.
Pending further information and instructions, it is unnecessary for me to refer to this matter further than to say that, having regard to the peculiar political conditions under which the Lu-han loan was originally floated, and to the position of the French Government in that transaction, it must be evident that for the successful conclusion of the proposed (Anglo-French) redemption scheme, maintenance of our recognition therein of French preponderance of interests (as agreed upon) is essential, and in view of other arrangements, most expedient. The conditions under which Mr. Hillier is negotiating would not only eliminate any question of preponderant French interests, but would introduce German finance. Your Board must be aware that the French Government would, under no circumstances, assent to any such arrangement.
Broadly speaking, the British and Chinese Corporation and the Chinese Central Railways are Companies organized for the special purpose of business (financial, commercial, or administrative) in connection with railways in China. For the continued existence of these Companies it is a sine qui non that railway loans (ie., loans having for their object the construction or financing of railways) should be something more than simple banking transactions, that is to say, they should at least involve agency business for supply of material. Furthermore (as the lines now under construction will amply demonstrate), it is essential to the satisfactory construction and working of railways in China that Loan Agreements in future should not abandon the safeguards heretofore observed in regard to supervision of the railway's receipts It would and expenditure, a matter of no small importance to China's future credit. clearly be impossible for the Chinese Central Railways, insisting upon these conditions,
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