CO129-360 - Public Offices - 1909 — Page 406

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line by the Anglo-French Agreement of 1908. Unfortunately, the materials for a similar bargain with Germany do not exist, and, so far as the German group was concerned, it was certain that no proposal, however favourable, which the British and Chinese Corpo. ration could make, short of equality of treatment as regards supply of material, stood any chance of being accepted.

As a way out of the difficulty it was suggested that the Hong Kong and Shanghae Bank should take over the negotiations for the loan, in its own name but on behalf of the British and Chinese Corporation, to whom it would account for any profit that might result from the operation. It was not proposed to make any change whatever in the Agreement with the Chinese. Any guarantee that could be obtained, every stipulation as to the appointment of engineers and the supply of material was to be inserted in its proper place in the Agreement. The Chinese had declined to recognize any party to the Agreement except the British; it was hoped, therefore, that the French and German groups would, as on a former occasion, offer no objection to let the British representa- tive sign by himself. The separation of the financial and constructional elements of the contract, between the English on the one band and the French and German groups on the other, could then be automatically effected by a postscriptum or additional clause to the Agreement, admitting the French and Germans to financial participation only. If not, a subsidiary Agreement with the Germans, similar to that already signed with the French, recognizing the British preferential rights with regard to engineers and material, would be sufficient,

It must be admitted that the scheme, as proposed, offered but a slender chance of success, but no other had been suggested, and for want of a better it was decided to give it a trial.

Negotiations were accordingly opened by myself, as representative of the Hong Kong and Shanghae Bank, with the French group at Paris on the 25th January last, and continued with the German group at Berlin on the 28th January.

The basis of negotiation was stated in the following Memorandum, a copy of which was submitted to the French and German groups respectively :-

1. The Hong Kong and Shanghae Banking Corporation, the Banque de l'Indo- Chine, and the Deutsche Asiatische Bank, having obtained the consent of the British group, represented by the British and Chinese Corporation, agree to authorize Mr. Hillier to negotiate, by himself, the conditions of the Hankow-Canton Railway loan and to sign the Agreement on behalf of the Hong Kong and Shanghae Banking Corporation alone.

2. It is agreed that, as regards finance, the loan shall be shared by the three banks in equal proportions.

3. As regards construction, the Banque de l'Indo-Chine and the Deutsche Asiatische Bank recognizing the predominance of the British interests, agree to abstain from any action likely to prejudice the preferential rights of the British group to the appointment of engineers and to the supply of material in virtue of the Anglo-Chinese Agreement

of 1905.

Of the prolonged discussions which ensued it is unnecessary to say much. The French financial group raised no objection to 1 and 3, provided it was understood (which it was) that the first was to be considered conditional upon the persistence of the Chinese refusal to consent to join signature of the Agreement.

No. 2 was the stone of stumbling. Not that the French group of financiers them- selves appeared to have serious objection to German participation in principle. It was the French Government who refused their consent. It is true that within an hour of my departure for Berlin, the French Minister of Finance intimated that if the scope of the British proposal were extended to embrace an Anglo-French-German entente générale for the whole of China (and possibly elsewhere) he might reconsider his decision. The reply was that the wider question was not within the competence of the present negotiator to discuss.

It must be considered, then, that the French Government definitely refused its consent to the British proposal for German participation ad hoc.

The action of the French, of course, rendered nugatory in advance any negotiations with Germany. It was considered right, however, as an act of courtesy and evidence of good-will that I should explain to our German friends in person the efforts we had made on their behalf and our regret that they had been rendered fruitless, not through any lack of zeal on our part, but solely by the action of the French. Under these circumstances, while we should be the last to object to fair competition, we thought it not unreasonable to ask that Germany should refuse to be drawn into playing the

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Chinese game by bidding against us for a business in which the British preference was admitted. The result could only be, since we were determined not to let the business slip through our fingers, to reduce our profits without adding to theirs and to provoke a feeling of irritation and vexation which must inevitably prejudice our future Telations.

The German reply was favourable in the sense of disclaiming any reprisals. They could not, of course, exclude themselves from competition, even for a British preference business, but it would be fair competition. No bid would be made except upon terms at which they would be prepared to finance the whole loan themselves.

This admission, such as it is, by the Germans, and the frank recognition by the French of the British preferential rights to the appointment of engineers and the supply of material must be considered, I am afraid, the meagre fruits of these barren negotiations. It is something, too, that they closed with mutual expressions of good- will and understanding. Otherwise, all parties concerned are left just where they were before.

Memorandum submitted to English Ambassador at Paris, January 27, 1909.

British preferential right to appointment of engineers and supply of material is not disputed by either French Government or French group of financiers.

As regards finance, French group do not object to German participation in principle.

The French Government, however, while not averse from considering a scheme for an entente générale with Germany, decline to admit German participation ad hac.

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