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my telegram No. 86 of the 7th May, was that, without a definite understanding beforehand as to the Szechuan Railway, the Germans would be left in a favourable position at Ichang, where the Hupei section ends, and we should not be able to compete with them for the extension on equal terms, bound as they were to the French, who were not popular politically in Szechuan.
Your telegram No. 87 of the 7th May in reply informed me of Mr. Addis' views and also that a meeting of the three groups was in prospect. He was much afraid that if we insisted on further stipulations as a condition of ratifying Hillier's arrange. ment the Germans would make further claims, and more especially demand German engineers on other sections of the Hankow-Canton line." He pointed out that hitherto our claim to a British engineer for the whole of that line had not been questioned by them, and that as far as French unpopularity was concerned the arrangement dealing with the Szechuan railway would be on behalf of the Chinese Central Railways, which is a British company. You also thought that as we had secured the points to which we attached most importance, some control over expenditure, and our claim to a British engineer for the whole of the Hankow-Canton line had hitherto been admitted in the course of the negotiations, it seemed unwise to risk wrecking the agreement by insisting on further claims. You had therefore authorized Mr. Addis to make the best arrangement he could; if he found the Germans well-disposed, he could continue negotiations for a general agreement or make a definite arrangement in regard to the Szechuan line, but if it appeared that to insist upon these points now the whole negotiations would bo upset, he would reserve them for future negotiation.
As you learnt from my telegram No. 88 of the 9th May, I was not altogether disposed to concur in Mr. Addis estimate of the situation. I had had more than one indication that the Hong Kong and Shanghae Bank were inclined to forget the political side of this matter in their natural anxiety to conclude the financial bargain, and I did not think that they sufficiently understood that our protests alone had stopped the Chinese from closing with the Germans during the past two months. To me it seemed fairly certain that the Chinese Government did not intend to conclude with the Germans about the Hankow-Canton Railway unless our protests were removed. As for the danger of the Germans demanding engineers on other sections of the Hankow-Canton line, I pointed out that the Hupei section of the Szechuan Railway (which turns out to include a line from Kuang-shui on the Peking- Hankow line through Nsiang-yang to Ichang as well as one from Hankow to Ichang) was almost as long as the Hupei and Hunan sections together of the Hankow-Canton, and, there being no question at present of a foreign loan for the Canton section, it was clear that under Hillier's arrangement the Germans obtained more than their share of engineer and material rights. Regarding the Chinese Central Railways, the Chinese knew it was half French, and as questions of engineer and material would have to be settled in the future it appeared to me only too probable that in the absence of an arrangement we should then be at a great disadvantage in dealing with such questions, since the Germans would have constructed their section to Ichang and would naturally do their utmost to secure the extension into Szechuan, I also thought that matters would not be improved if the question of the Szechuan extension was mentioned by Mr. Addis in the conference and dropped because he found the Germans ill-disposed, and I felt myself that, failing a satisfactory under- standing about the extension, it might be better for us to retain what we had got, the Hupei section of the Szechuan line, and maintain our position and protests regarding the Hankow-Canton.
Other considerations occurred to me which I refrained from adding to an already lengthy telegram. By arranging a formula with Mr. Hillier under which the loan funds were better protected the Chinese admitted the justice of our objections to the Tien-tsin-Pukow terms, and thereby strengthened the grounds of our protest. More- over, as with that formula conceded there was nothing to prevent Mr. Hillier from undertaking the loans for both railways, in accordance with China's long-standing written engagements with us, I felt confident that the Chinese could be brought to consider the arrangement we were prepared to agree to, that the Germans should share equally with the French and English groups in the financial loans of both railways, and be given the engineer and material rights on the Ichang section of the Szechuan line-a generous concession on our part, and one which was made purely in the interests of an amicable settlement. The Chinese would also be specially interested in finding a solution on that basis. Our protest, which could not be ignored without serious consequences, could be got rid of; Chang's obligations to us would be met;
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good relations with the money markets of London and Paris-an important consider- ation to China-would be maintained; and the Germans would be well recompensed for any assistance the Chinese might consider they had given in this matter. The Germans, too, appeared to me to have good reasons for coming to terms. A breach with the London and Paris markets was obviously not desirable; the prospects of concluding a final agreement for the Hankow-Canton, in the face of our protests, were, in the circumstances, poor; the Hupei section of the Szechuan line is little less important than the Hupei and Hunan sections of the other line; and the right to participate to the extent of one-third in future loans for the two lines is probably no small advantage.
Your telegram No. 90 of the 11th May informed me that in view of the consider- ations suggested by me you had arranged that Mr. Addis should hold out for an arrangement including Szechuan railways in the negotiations about to take place in Berlin, and your two telegrams Nos. 93 and 94 of the 14th and 15th May conveyed the very gratifying news that he was completely successful in those negotiations.
In reporting what is, I hope, the final stage in these protracted and complicated negotiations, I desire to place on record my sense of the obligations which His Majesty's Government owe to Mr. Fraser, His Majesty's Consul-General at Hankow, and to Mr. Campbell, Chinese Secretary of this Legation, for the services they have rendered to British railway interests in China.
Mr. Fraser negotiated the 1905 agreement, which, in spite of its unavoidable weak points, has proved our main reliance throughout, and without which we should never, in face of German competition, have secured a modification of Tien-tsin- Pukow terms.
To Mr. Campbell I am especially indebted for the invaluable assistance he has given me in watching and directing the negotiations here in all the phases through which they have passed since November last.
I have, &c.
J. N. JORDAN.
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