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of an arrangement were already defined in a binding form in the Hankow despatch, and all that remained to be done now was to fix the rate of interest and the price of the loan, and the matter could be settled. But Mr. Bland disregarded the despatch and introduced other issues by insisting that the Engineer-in-chief must sign indents for the purchase of materials out of loan funds, which I regard as an interference in Chinese railway control.
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Although I attach the highest importance to friendly relations, this kind of unreasonable demand cannot, in my opinion, be complied with; and even if I were to accept such a condition it would certainly be opposed by all the Metropolitan Boards, and be criticized strongly by the gentry and public opinion in the provinces. It can therefore under no circumstances be agreed to, and, moreover, it is of no advantage in this matter.
"Mr. Bland has already declared that he will not do the business, and tells us to make arrangement with other countries; and whereas he is the nominee of Sir John Jordan, recommended to me through Mr. Fraser, his decision not to undertake the business is sufficient evidence that Great Britain declines to handle this matter. My request to Mr. Fraser in the first place to name an agent, and my protracted negotia- tions with Mr. Bland which supervened, were fulfilments of the obligation laid down in my despatch to apply first to Great Britain for the quotation and arrangement of a price. As Mr. Bland will not undertake this, my application to other countries is merely what was contemplated in the despatch which provided that China will be free to choose the fairest and most favourable tender, and make other arrangements for borrowing.'
"At the present moment my negotiations with other countries show promise of a possible agreement. The points which Mr. Bland is fighting for none of the other countries insist upon, and this is more than sufficient to show that he has introduced irrelevant issues, and that in his disregard for good relations he is purposely trying to force our hand.
"As I have done my best in every respect to fulfil the terms of the despatch, and am in a position to settle the matter with others, I should be quite justified in holding no further negotiations with Mr. Bland. But, in consideration for my friend Mr. Fraser, and out of respect for Sir John Jordan, who has appealed to your Excellency in this matter, I am willing, as a mark of exceptional friendship, to open negotiations with Mr. Bland once more, and once only.
"But there are three things to which Mr. Bland must agree before I open nego- tiations with him. If he will not agree to these three points it is useless to discuss the matter. These points are :---
"1. The Engineer-in-chief will only attend to the affairs of the requisite works within his sections, and may not interfere in anything else. He cannot sign orders for the purchase of materials out of loan funds.
2. As regards the purchase of materials, it must be stated in the plainest terms in the Agreement that preference must be given to materials produced or manufactured in China.
"3. The main conditions of the Agreement must be settled definitely in two days. Within three days of this definite settlement of the conditions they will be opened, together with the sealed tenders from other countries, in the presence (of all concerned), and no pretext for delay will be entertained.
"I have the honour to request your Excellency to communicate the above arrangement to his Excellency Sir John Jordan for his consideration, and for direc- tions to be conveyed to Mr. Bland; and I await a reply without delay, so that I may proceed with negotiations with other countries in settlement of this question.
"As regards the suggested appointment of representatives by the British Legation and your Board (the Wai-wu Pu) to mediate in this matter, it hardly appears to me necessary, as it is a question which of itself is extremely easy to solve, if Mr. Bland would not bring in extraneous issues. If he still insists on maintaining his point, there will be no use either in discussing the matter further or in offers of mediation.”
Your Excellency will perceive from the foregoing that the Grand Secretary is paying the utmost regard to the friendly relations of our two countries, but it is necessary in this matter to carry out the terms of the original despatch, and then it can be arranged without difficulty. Recently Chinese bonds have been standing very high, and exchange is favourable, but in view of market fluctuations it is not surpris- ing that the Grand Secretary is extremely anxious to avail himself of these circum-
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stances to settle the business so as not to incur the criticism that, by delaying, he has missed this opportunity,
I trust, therefore, that I may receive a reply from your Excellency within one or two days with regard to the three conditions which the Grand Secretary lays down for communication to his Excellency. If Mr. Bland is unwilling to come to an arrangement on the basis of the despatch of 1905, I also trust that your Excellency will favour me with an carly reply, in order that delay may be avoided, and that the opportunity may not be lost.
Inclosure 2 in No. 1.
Sir J. Jordan to Liang Tun-yen.
Sir,
Peking, February 23, 1909. YOUR Excellency was so good as to send me in the evening of the 21st February the reply of the Grand Secretary Chang Chih-tung to my Memorandum of the 19th February, and yesterday I had the opportunity of a conversation with you on the subject.
The Grand Secretary states that in arranging the redemption of the Hankow- Canton Railway Concession he was treated with the greatest consideration by Mr. Fraser, and throughout his Excellency appears to wish to consider this matter as though it were a personal one between Mr. Fraser and himself. The obligations under which the Chinese Government, represented by his Excellency, lies are to His Majesty's Government, and their nature can be understood from the fact that a loan of 1,100,0007. par and 44 per cent. was secured at a time when another high official of the Chinese Government elsewhere obtained a loan of similar amount from an English bank at 91 and 5 per cent. A simple calculation shows the pecuniary benefit alone accruing to the Chinese Government from the transaction with his Excellency, which was an extraordinary act of consideration and friendship on the part of His Majesty's Government, and for which up to the present there has been no return whatever.
at
His Excellency refers to the understanding laid down in his despatch of September 1905 to Mr. Fraser, and states that Mr. Bland disregarded it by insisting on the Engineer-in-chief certificating indents for the purchase of materials out of loan funds. There is nothing in his Excellency's despatch to the effect that the Chief Engineer shall not do so, and Mr. Bland was only asking for what is the usual practice on railways under construction. His Excellency cannot furnish a precedent of a properly-conducted railway in any country where the principal technical expert, the Chief Engineer, is not consulted on all questions of expenditure on works and material. It is the only way to combine economy with efficiency, and I am utterly unable to understand why a practice which is universal in other countries should be considered by his Excellency to be in conflict with sovereign rights. Mr. Bland, in pressing for this condition, had his recent experiences on the Shanghae-Ningpo and Tien-tsin-Pubow Railways in mind, and if his Excellency really desires to see the loan funds properly spent on the construction of the Hankow-Canton Railway, he will himself insist on all expenditure being supported by the certificate of the Chief Engineer. Mr. Bland had also to see that the preference to British material promised by the despatch of September 1905 was secured in the Loan Agreement, and without inspection of the indents by a nominee of the British and Chinese Corporation it is not possible to insure that this proference is actually given. I cannot therefore admit that Mr. Bland's requirement is in any way unreasonable, and there is no doubt that the British and Chinese Corporation aro justified in refusing to conclude a loan contract without a provision which safeguards the preferential rights conceded by his Excellency's despatch.
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His Excellency further says that on resuming negotiations with Mr. Bland the main conditions of the Agreement must be settled definitely within two days, and that within three days more Mr. Bland's terms will be opened together with the sealed tenders of other countries in the presence of all parties concerned. point out that a time limit of two days in negotiations of this kind is scarcely reason- able, but I am more concerned by the proposition regarding the tenders, which I do not clearly understand. If the transaction of 1905 has any meaning it signifies that, in return for the loan arranged by His Majesty's Government, British finance and industry should have a preference in regard to certain railways. In all his discussions with his
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