520
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appointed by the lenders is satisfied that they are being properly spent, and it has the further merit of fully justifying our action in insisting on a material modification of the Tien-tsin-Pukow terms. To have accepted, after all that has occurred, those terms as they stood would have involved a severe sacrifice of political consistency on our part, and have enabled the Germans to claim credit with the Chinese for having brought us into line on the question.
An alternative suggestion, which is obviously due to German inspiration, that we should take the Canton-Hankow line and leave the Hankow-Szechuan one to the Germans, was not entertained.
Before closing this despatch I consider it my duty to draw serious attention to the portion of Mr. Hillier's letter to Mr. Addis which embodies the result of his investiga- tions into the working of the northern section of the Tien-tsin-Pukow line. The difference in the working of the two sections of the line has been a material factor in all negotiations which have taken place, and requires the closest examination on our part.
To begin with, it should be frankly recognized that the Germans had certain natural advantages at Tien-tsin which we did not possess at Nanking. They had their bank there, while we had no bank at Nanking; they were close to the Director-General, who resided, at first at least, exclusively in Peking; and they were within easy communication of the Central Government. To these advantages must be added the appointment of a Managing Director, whether by choice or accident, who proved very an enable to advice, and, according to the Chinese themselves, stretched his powers considerably to meet German requirements. We, on the other hand, had the misfortune to hit upon a Managing Director who combined all the worst qualities of a Chinese obstructionist with a degree of professional experience as an engineer which could not be ignored.
Our disadvantages were, in my opinion, appreciably accentuated by the methods which we pursued. The Germans saw from the outset the important part the Auditor would play in carrying out the Tien-tsin-Pukow terms, and they selected a man of thirty years' experience in China, with a good knowledge of the language, to fill the post. The success which has attended the step is fully described in Mr. Hillier's letter, and contrasts strangely with our action in the south.
Mr. Tuckey, the Engineer-in-chief, was insistent from the start upon the appointment of an Auditor with whom he could communicate freely on the spot, but the appointment was conferred upon Mr. Henderson, the Accountant in the Northern Railways, who laboured under the double disadvantage of being in the service of the Chinese Government and of being 800 miles away from the place where the accounts were kept. The result was that he never entered upon the performance of his duties, and that the first audit of the accounts in the southern section was made by Mr. Ross, a chartered accountant, early in the present month. It fortunately just reached me in time to form the basis of a protest to the Wai-wu Pu, which had, I have reason to believe, an important effect on the course of the present negotiations; but had our machinery for working the Tien-tsin-Pukow Agreement been organized with as much care and foresight as the Germans bestowed upon theirs, it is possible that we might have been spared some of the numerous protests we have been obliged to make on the whole question.
The Germans, I understand, have not had occasion to appeal to their Legation for assistance, while this Legation has been incessantly occupied for months past in ensavouring to remove the troubles on the southern section of the line.
I have, &c.
(Signed)
Inclosure 1 in No. 1.
Mr. Hillier to Mr. C. S. Addis.
J. N. JORDAN,
My dear Addis,
Peking, April 28, 1909. SINCE writing to you on the 17th instant, I have received your letter of the 8th. Honkow-Canton Railway. I inclose copies of telegrams that have passed. On receipt of your telegram of the 21st instant, I communicated my proposed amendment to Crdes, and it was submitted to Chang Chih Tung, who gave it a firm but friendly refusal. It was a fundamental departure from the terms of the Tien-tsin-Pukow Agree- ment to which, in the present mood of the gentry, he dared not consent. The counter
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proposal was some course based upon the actual procedure now in force upon the northern section of the Tien-tsin-Pukow Railway, with which the Germans declare them- selves perfectly satisfied; and, in order that I might ascertain what this was by my own personal inquiry, the German Railway Auditor, Mr. Rump, was sent for from Tien-tsin. I bad a long conversation with him, the result of which certainly surprised and revealed a state of things which does great credit to the energy and tact of the Germans, although German success must be largely attributed to the rare personal qualities of Mr. Rump, who is a shrewd business man, with thirty years' experience in the north of China, and a good knowledge of the language.
rue,
Mr. Rump has an office in the head office of the railway in Tien-tsin, where he has daily relations with the Chief Accountant, and access to all the books. The Chief Accountant is a German, appointed by the Chinese on the recommendation of the Deutsch-Asiatische Bank. Requisitions upon the loan funds are drawn up by the Chief Accountant who, before submitting them for the signature of the Chinese Managing Director, consults with Mr. Rump. The latter examines the returns of cash held by the Chinese cashier, and by the engineers of the sections concerned, and upon these data decides if the requisition is in order, and advises his bank accordingly. He is always in a position to advise his bank a couple of days beforehand that such and such a requisition is about to be presented; if he does not consider it in order he has no hesitation in saying so, and apparently, under such circumstances, the bank is prepared to withhold payment. It is recognized by the Germans that there are certain squeezes which are unavoidable, and have to be met; for instance, the Yu-chuan-pu will not pass an account without being paid for it, and the total amount of such squeeze is put down at 20,000 taels a-year. To provide this, a certain amount of the loan funds is allowed to lie out with the native banks, the difference between the 6 per cent. interest allowed by those, and 2 per cent. allowed by the foreign bank, furnishing the necessary margin. Upon this calculation the average amount with the native banks would be 5 lacs taels, and Mr. Rump satisfied himself by examination of the pass books of these banks, that the money is there. According to Mr. Ross' report on the southern section, he was unable to satisfy himself on this point, and presumably the pass books were not produced.
The German system is, in short, that the Auditor works with a German Chief Accountant of their own selection, and no requisitions are passed without his concurrence, but as to how much of this can be put on paper, I confess to have grave misgivings. The Germans have their own position to consider, and a system which may be tacitly accepted by the Chinese, might raise dangerous questions were an attempt made to give it official form. Cordes himself recognizes this, but the burden lies with him in this instance, and my position is so weak, that I cannot refuse to consider the proposition without risk to the negotiations. It is of course clear that the Germans and the Chinese would not have deferred the signature of the final Agreement for over a month unless they were very anxious for us to come in, though it is difficult to accurately gauge the strength of our position in this respect, and I feel that I cannot afford to overestimate it without undue risk. Chang Chih Tung we have to remember has the eyes of the provincials upon him, and I fully believe that he dare not depart from the fundamental principles "these are of the Tien-tsin Pukow Agreement; he must be in a position to say, Tien-tsin-Pukow terms." The impression is of course at present that we are being lured by imperceptible steps to accept Tien-tsin-Pukow terms in the end, and so complete the German triumph and our own humiliation; but the situation has evolved a new and subtle distinction, and we have now to differentiate between "German Tien-tsin-Pukow terms " and
"British Tien-tsin-Pukow terms," between which apparently there is a wide difference in practice.
The suggestion contained in the latter part of my telegram of yesterday is my last card. With the modification proposed my clause would read :-
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Requisitions on the loan funds will be drawn in amounts to suit the progress of construction of the railway by orders on the Hong Kong and Shanghae Banking Corporation, &c., sigued by the Managing Director of the railway, or, in his absence, by his duly authorized Representative, the Auditor at the same time handing to the banks a statement particularizing the expenditure drawn for, copies of indents and [or] vouchers being furnished to him for that purpose by the departments concerne in accordance with the present practice on the northern section of the Tien-tsin-Pakow Railway."
The key of the modification lies in the final addition to the clause, and the formula as a whole correctly represents the actual practice of the northern section as described by Mr. Rump. Its acceptance by Chang Chih Tung will be consistent with his pledges
[2264 aa-1]
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