CO129-360 - Public Offices - 1909 — Page 590

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

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with their Excellencies Li Ching Fong, Yang Shih C'hi and other high officials, and have offered to undertake the business on reasonable conditions, advantageous alike to the Chinese Government and the local shareholders; but the first condition essential to the introduction of foreign capital for the construction of these, or any other railways, is that the transaction be open and above board, and that the borrowing of funds be formally approved by the Imperial Chinese Government. It is quite useless for any Provincial Railway Company or Chinese Bank to propose to contract loans abroad for large amounts, under conditions which have not received the sanction of the Government, and the sooner this fact is realized, the better.

For some years past, the Anhui Railway Company has been proclaiming its intention and its ability to construct its Provincial Railways, with purely Chinese capital, as enterprises, independent of all Government control. The results, similar to those experienced in Szechuan, Kiangsi, and elsewhere, have not been satisfactory, either from the patriotic or the financial point of view, and it is evident that the present condition of affairs cannot be protracted indefinitely.

I have

From your present letter, I gather that the Anhui Railway Company, realizing its position, is prepared to use foreign capital, so long as it can save its face by pretending to be ignorant of the fact that its agent, the bank, has borrowed funds abroad. had several similar applications from local and provincial Companies, and to all I have considered it my duty to explain that, so long as the officials, merchants, and gentry concerned, consider that there is any danger or disgrace in borrowing foreign capital, it would evidently be improper and unwise for them to do such a thing, even by roundabout and secret ways; it would be equally imprudent for the Corporation, which I represent, to lend itself to any such methods.

When the Anhui gentry realize that their railways can be built for them more cheaply with foreign capital than with Chinese subscriptions; when accepting this fact, they seek and obtain the Chinese Government's sanction to finance their local enterprises in this way; finally, when they are prepared to afford to foreign capital the necessary safeguards for its proper expenditure and eventual repayment under conditions such as obtain, in similar cases, in all civilized countries-then, and not before, will it be possible to interest British financiers in these undertakings.

I have informed the Directors of the Anhui Railway Company that my Corporation is prepared to submit to them an estimate for the cost of the Wuhu line, and any other they may require, naming a fixed price per mile and a definite period of construction. In the event of our estimate being accepted and a loan duly authorized, the Corporation would finance the business, providing funds sufficient to cover the construction contract, purchase of land, rolling-stock, and other local requirements. In this way, the Anhui Company would obtain the line in the quickest and cheapest manner, and, once built, the Corporation would have no further concern in the matter, so long as the interest and principal of the loan were forthcoming at due dates.

Or, if this proposal is not acceptable, I am prepared to discuss any reasonable alternative with any duly authorized and responsible party, and to do all in my power to arrange matters on a mutually satisfactory basis. But I am not prepared to consider any proposals of the kind you now make, or to accept the seal of the Pao Sing Bank as sufficient security for a loan on the London market.

I remain, &c.

(Signed) J. O. P. BLAND.

CHINA RAILWAYS.

CONFIDENTIAL.

[5464]

C.O. 8782

IRECR

[February 15.1

SECTION 1.

REGP 12 MAR 09

No. 1.

Memorandum communicated to M. Cambon, February 15, 1909.

THE Secretary of State for Foreign Affairs has had under his careful con- sideration the communication made by the French Ambassador on the 1st February, in regard to the proposed loan for the Hankow-Canton Railway and the mission of Mr. Addis, Managing Director of the Hong Kong and Shanghae Bank, to Paris and Berlin in connection therewith.

M. Cambon's Memorandum reviews the proposals of Mr. Addis and the argu- ments brought against them by the representatives of the French financial group which were discussed between them in Paris.

In regard to the latter, His Majesty's Government are entirely in accord with the Government of the Republic as regards the principle that purely financial loans to China are greatly to be deprecated and in giving a somewhat reluctant assent to Mr. Addis' mission, on the basis that the loan should be shared between the British, French, and German Banks in equal proportions, His Majesty's Government were actuated by the knowledge that if German participation were refused, the German group would in all probability make an offer to the Chinese for the whole loan of 3,000,000l. and would quite possibly secure it, more especially if the Anglo-French offer were coupled with conditions which the Chinese Government were unwilling to agree to, in which case all the industrial advantages would undoubtedly also fall to Germany. At the same time it was never contemplated either by His Majesty's Government or by the Hong Kong and Shanghae Bank that a purely financial loan should be made to which no conditions would be attached in the interest of the sub- scribers. It seems very unlikely that in any such scheme as that now under con- sideration the Germans would be content with anything less than a division on equal terms and if it be decided to refuse German participation the result will be keen competition between the various groups concerned, ending with the Chinese being able to obtain such loans on very easy terms and practically without guarantee that the money will be devoted to the purpose for which it is lent-which is precisely the result which the two Governments desire to avoid.

The Memorandum proceeds to express surprise that before consulting the French group Mr. Addis informed the Germans that, so far as the English group was con- cerned, their participation would be admitted.

Some misapprehension must have arisen on this point as it appears after refe- rence to Mr. Addis that no such communication, either direct or indirect, was made to the Germans until the French had first of all been consulted and their consent obtained. The facts are as follows:-

On the 18th January, 1909, Mr. Addis received a telegram from the German group, represented by the Deutsch-Asiatische Bank, pressing for German participation in the Hankow-Canton Railway Loan. An effort was first made to get the German Syndicate to withdraw, but as this was unsuccessful the information was immediately passed on to M. Simon, as the representative of the French group, with a request for an expression of his opinion. On the 21st January, M. Simon replied that he accepted German participation in principle. It was not until then that the Germans were informed by telegraph on the 22nd January, that the Anglo-French group would consent to German participation in principle subject to details which Mr. Addis would explain to them personally.

Mr. Addis discussed these proposals in Paris with the result which is known (that German participation was refused by the French Government) but it was considered right as an act of courtesy and evidence of good-will that he should explain to the German group

in person how matters stood. Mr. Addis is quite at a loss to under- stand how it can be said that he did not wait for the French reply. On the contrary, at the request of the French, the meeting at Berlin was postponed for twenty-four hours expressly in order to admit of that reply being received. It was, as com- municated to Mr. Addis by M. Homberg on Wednesday the 27th January to the

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