[B]
This Document is the Property of His Britannic Majesty's Government.]
C.0.
14133
CHINA RAILWAYS.
CONFIDENTIAL.
168
[April 8.REC
TREE 20 APR OF SECTION 1.
[13187]
No. 1.
Memorandum communicated to Chinese Minister, April 8, 1909.
WHEN, in the summer of 1905, funds were advanced under the auspices of His Majesty's Government to enable the Chinese Government to repurchase the Concession for the Canton-Hankow Railway, held by an American Syndicate, certain conditions were made in the interests of British commerce, and an Agreement was entered into in September of that year between his Excellency Chang Chi Tung, Viceroy of Wuchang, and Mr. Fraser, His Majesty's Consul-General at Hankow. By this Agreement his Excellency undertook that, if it was found necessary to borrow money from abroad for constructing the Canton-Hankow Railway-
1. British financiers should have the first opportunity of undertaking the business. 2. If British capital was employed, British firms should have the first option of executing orders for materials purchased out of China.
3. Half the engineers employed would be of the nationality that found the money. This loan of 1,100,000l. was made to the Chinese authorities at par and 44 per cent. at the time when another loan of similar amount was negotiated by them at 91 and 5 per cent.
This fact is sufficient to show that the loan of 1,100,000%, constituted a very marked act of consideration and friendship on the part of His Majesty's Government, for which up to the present there has been no sort of return.
It is understood that in the course of the recent negotiations strong objection was made by Chang Chili Tung to the stipulation that indents for the purchase of materials out of loan funds should be accompanied by a certificate from the Chief Engineer. In insisting upon this proviso, however, the British and Chinese Corporation were only asking for what is the usual practice on railways under construction. It would be impossible to point out any properly conducted railway in any country where the principal technical expert, the Chief Engineer, was not consulted in all questions of expenditure on works and material.
Such a condition, which is universal in all countries, in no way conflicts with China's sovereign rights. Moreover, the necessity for such a guarantee is emphasized by the recent unfortunate experience of this country in connection with the Shanghae- Ningpo Railway.
It is well known that, in spite of the fact that the Managing-Director and Chief Engineer of this line have been unable to enter upon the performance of their duties under the Loan Agreement owing to local obstruction, and that there has consequently been little occasion for the expenditure of loan funds, nevertheless suns amounting to between 800,0001. and 900,0001. have been transferred from the railway loan funds in London to the credit of the Railway's account, and that requisitions in large amounts have been made on the Shanghae account of the Yu-ch'uan Pu. These requisitions, moreover, have in every case been made upon forms signed by his Excellency Liang Shih-Yi and presented through the Chiao-tung Bank.
These proceedings are, however, absolutely contrary to Article 14 of the Loan Agreement, which lays down that requisitions on the loan funds are to be drawn in amounts to suit the progress of construction of the railway by orders on the Hong Kong and Shanghae Banking Corporation, signed by the Yu-ch'uan Pu and its duly authorized representative, and accompanied by his certificates, or those of the said Board, stating the nature and the cost of the work to be paid for.
Had his Excellency Chang Chi Tung really desired to see the loan funds properly spent on the construction of the Hankow-Canton Railway, he would himself have insisted on all expenditure being supported by the certificate of the Chief Engineer.
The understanding arrived at in 1905 further provides that in return for the loan arranged by His Majesty's Government, British finauce and industry should have a
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