CO129-373 - Public Offices - 1910 — Page 494

}

2

their flotation, of which class there are now several representatives in Peking. Some of these financial schemes have come to nothing, while others have aiready materialised. I need mention only a few of the smaller schemes to the exclusion of such loans as the supplementary loan for the construction of the Tien-tsin-Pukow Railway, the At the end of last Hukuang Railway Loan, and the Chinchow-Aigun Railway Loan.

year the province of Hupei issued a loan for 2,400,000 taels; during the summer the province of Anhui issued bonds for 1,200,000 taels, and for some time Messrs. Samuel Macgregor were in negotiation to take up 1,000,000 dollars' worth of these bonds, but the negotiations, as far as I know, fell through. At the present moment the province of Kuangsi is reported to be seeking to raise a loan of 10,000,000 dollars" for the development of industries, while the Viceroys at Canton and Nanking have each asked the Hong Kong and Shanghai Bank for a loan of 3,000,000 tuels to relieve the financial stringency in their respective provinces. I understand that an edict sanctioning these two last loans has been issued, but that the bank's directorate in Hong Kong, contrary to the advice of their agent in Peking, insist on an Imperial guarantee, on the ground of the arrangement to that effect come to with the allied financial groups.

For a similar reason Mr. Hiller had to break off negotiations with the Viceroy of Manchuria in regard to a loan of 10,000,000 taels for the industrial development of Manchuria. The English, French, and German banks felt that it was impossible to dispense with the Imperial guarantee, since it had been granted for all previous large loans, and the withholding of it might be regarded as an attempt to introduce an inferior class of bond which would seriously prejudice the public credit of China, though the banks expressed themselves as being entirely satisfied with the security offered by the Viceroy. In regard to this loan, I understand that it has already been brought to your notice that the American group advanced a prior claim to this loan on the strength of an agreement come to in August 1908 between Mr. Straight, the American consul-general in Mukden, and Tang Shao-yi, then Governor of Mukden. Personally I doubt whether this agreement was of any value, and in any case it was nullified by the terms of the Hong Kong and Shanghai Bank agreement, signed by the Viceroy of Manchuria and sanctioned by Imperial Edict on the 9th November, 1908, which gave a prior claim for any future loans to the bank. As a matter of fact, the question was never raised officially, and each side declared its willingness to admit the other to participation in the loan if obtained.

An agreement for this Manchurian loan bas, as I have before stated, now been signed by Mr. Cloud, who represents another American group, the Hawley-Macey group, and is therefore not bound by the arrangement come to between the original American group and the three European banks, "that they do not care to entertain a proposition for any Chinese provincial loan unless bearing an unconditional Imperial guarantee, and believe that it would be prejudicial to the interests of all concerned to It is, I hope, a mere have other groups entertain provincial loans unless so secured." coincidence that the moving spirit in this Hawley-Macey group is a Mr. Fearon, the vice-president of the international bank, and that the international bank here is the bank of the Kuhn-Loeb-Morgan group, and represents that group during the absence of Mr. Straight.

My despatch No. 300 of the 6th September informed you of the advance of 3,500,000 faels made by the combined foreigu banks in Shanghai to enable the native banks involved in the financial crisis to tide over their difficulties and to restore confidence. As a matter of fact this result was not attained, and the Hong Kong and Shanghai Bank has already been approached in regard to a fresh loan of 2,000,000 taels, and it now appears as if still further loans would be necessary to help the Shanghai market.

I have dealt at some length with the so-called “Birchal " loan for 450,0001, in my despatches No. 332 of the 22nd September and No. 345 of the 4th October, and I stated in them that the Board of Communications were at the same time borrowing 2,500,000 dollars from the Yokohama Specio Bank on similar terms. I now hear that the question of the "Birchal" loan, especially the manner in which it was obtained, is likely to come up for discussion in the Senate.

Mr. Hillier informs me that the Board of Communications have recently approached him for an immediate temporary advance of 1,000,000 dollars, but that he had to refer them elsewhere.

I have no doubt that I could still further increase my list of loans and requests for loans, but I have cited enough to prove how urgent the demand for money is both on the part of the Imperial Government and of the provinces. Duke Tsai Tse,

3

in introducing the budget in the Senate, said: "Money is needed to carry out the various branches of reforms, such as the organisation of the army, the promotion of commerce and education, and the development of industries. All this cannot be pushed forward without money.'

He might have mentioned many more purposes for which money is urgently needed and is not forthcoming from the revenues of the country, and he omitted to give any hint of the source from which the necessary funds could be procured.

The negotiations with the American Legation are the first sign that the Imperial Government are alive to the advisability of abandoning the present system of living from hand to mouth, borrowing a little here and a little there on the easiest terms obtainable without any due thought to the real credit of the Empire in the money markets of the world.

The amount mentioned, 10,000,000, is obviously insufficient for all the reforms that China has in hand, and rumour talks of the necessity of far larger loans to follow. In financial questions I feel that I must speak with considerable diffidence, but I know that it is the hope of serious financiers interested in China that the floating of any large loans may afford a suitable opportunity of establishing some form of foreign financial control over the revenues of the Chinese Empire and over the expenditure of the proceeds of the loans, and may lead to the substitution for the arrangement between the three European and the American groups in regard to provincial loans of an agreement between the four Governments as to the attitude they will adopt towards loans floated by their nationals for the Chinese Government.

I have, &c.

W. G. MAX MÜLLER,

493