CO129-470 - Public Offices - 1921 — Page 327

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proceeded concurrently during the months of July and August. Mr. Tsao Ju-lin, having somewhat grudgingly agreed to substitute a wireless chain for the improved land lines contemplated in his agreement with the Japanese, announced that four wireless stations already purchased, but not yet erected by the Chinese Government, would be used for this chain, and that there was no occasion to purchase installations from the Marconi Company. When confronted by me with the statement that these four stations could only be those offered by the Telefunken Company in January 1914 (see my telegram No. 735 of the 31st August), but the purchase of which had been formally denied by his predecessors, in response to repeated enquiries made by me on behalf of His Majesty's Government during the past three years, Mr. Tsao took refuge in the amazing reply that these denials had been merely given to allay our suspicions, and that as a matter of fact the Chinese Government had purchased these stations from the German Company.

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I warned Mr. Tsao that we should protest against any Telefunken stations being used in the neighbourhood of the Indian frontier, and against the gross breach of faith with His Majesty's Government implied in his admission. demanded to know, therefore, whether or not he intended to purchase the necessary stations from the Marconi Company, and stated that in the event of a refusal I should be compelled to report the matter to you.

Mr. Tsao asked for a delay of two weeks in which to consider his position, and finally on the 2nd August he agreed to purchase from the Marconi Company.

Further difficulties arose in connection with the terms of payment and also with the responsibilities to be assumed by the company in undertaking the unprecendented task of transporting and erecting modern machinery in the wilds of Central Asia, and these protracted the negotiations even after the conclusion of the Wireless Telephone Agreement with the Ministry of War. As soon, however, as the loan funds payable under this latter agreement had been actually handed over to the Chinese Government on the 18th September, and I was able to claim from Mr. Tsao-who is also acting as Minister of Finance-the immediate conclusion of the Wireless Telegraph Agreement, which was thus signed on the 9th October and formally communicated to me by the Wai-chiao Pu in a note dated the 23rd October. Copies of this note and of the reply, dated the 28th October, in which I confirmed the placing on record of both agreements are enclosed herewith.

By means of these agreements the Marconi Company, after nine years of effort. have at last succeeded in obtaining a footing in the field of wireless enterprise in China. To secure this result it has been necessary to depart for once from the policy hitherto pursued by His Majesty's Government, and to allow a British firm to supply the Chinese Government with a loan for unspecified and uncontrolled purposes. The immediate justification for such a step would be found in the impossibility of overcoming otherwise the strong pro-German influence which still operates in Chinese Government departments to the detriment of British competitors in a field of such national importance as that of wireless communications, the eventual justification will be found if and when the option on a Sino-foreign wireless factory in China secured under article 12 of the Wireless Telephone Agreement can be translated into fact, and the supremacy of the Marconi system thereby established in this country.

As it will be seen from my telegram No. 933 of the 13th instant, negotiations are already in progress for the formation of a Chinese National Wireless Telegrapli Company, the capital of which would be found by the Chinese Government and the Marconi Company in equal shares. This company, if formed. would erect a factory in China and would enjoy a prior right to supply all future wireless requirements of the Government.

The terms of the two agreements enclosed herein are largely self-explanatory. and it is unnecessary for me to comment upon them in detail.

Under the wireless telephone agreement, in addition to securing the wireless factory option referred to above, the Marconi Company supply 200 wireless telephone field sets, which are to be ready for shipment from England in March next, and also provide a competent instructor to train a staff of operators in the Marconi system of wireless telephony, which the Chinese Government adopt exclusively for a period of ten years. By an exchange of letters accompanying this agreement the company agree to present to the Government two 5-kilowatt are wireless telegraph sets free of all expense. The object of this gift is to demonstrate to the Government the superiority of these sets over the 5-kilowatt Telefunken sets hitherto adopted by them.

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Under the wireless telegraph agreement the Marconi Company undertake to supply three 25-kilowatt arc wireless telegraph stations of the latest type and to erect them for the Government at Kashgar, Urumchi, and Lanchow. It was origin- ally proposed that a fourth station should be supplied for erection between Peking and Lanchow, but the Chinese, on the ground of economy, preferred to remove the existing Telefunken station at Kalgan to Sianfu and rely on the triple land lines between the latter town and Peking to ensure continuous communication between the capital and Kashgar.

These three stations are to be ready for shipment from England in April next, while the engineer in charge of their erection is to be placed at the disposal of the Government here not later than March next, in order that the necessary preliminary work may be taken in hand without delay,

The financial safeguards incorporated in the two agreements are the best that can be obtained from the Chinese Government under existing conditions, but it must be borne in mind that, in the absence of a pledge of some foreign controlled revenue as collateral security, the risk of temporary default must always be present in contracts of this nature until a stable Government shall have placed the administration of China's finances on a level with her credit.

Having now obtained these agreements it remains for the Marconi Company to reinforce their position by such a scrupulous performance of the spirit and letter of their obligations as will convince the Chinese Government of their superiority over competitors of other nationalities.

There are two points in connection with the execution of these contracts and with the entry of the company into relations with the Chinese Government generally which I have requested Mr. Ginman, on his return to England, to bring to the notice of his

directors.

In the first place, the company should be permanently represented in Peking by a technical employee of their own of the standing of Mr. Ginman. The Peking syndi- cate with its well-established Chinese connection, had undoubtedly been of assistance to the company in their negotiations, but it was the presence of an expert, whom the Chinese knew to be a direct representative of the company and of the company only, which was the essential factor in the results obtained.

In the second place, the company must deal with a British bank. The utilisation of the Banque Industrielle de Chine for the purpose of the service of the loan made under the wireless telephone agreement not only caused adverse comment among Chinese and British alike, but it is likely to prove highly embarrassing to this legation if called upon in the future to protect the company's interest ris-à-vis the Chinese Government.

I have the honour to ask that the attention of the company in London may be formally invited to these points in order to ensure that the carrying out of the financial clauses of the wireless telegraph agreement and any subsequent contracts may be effected through a British medium,

In conclusion, I feel it my duty to place on record my sense of the indebtedness which His Majesty's Government owes to Mr. Barton, the Chinese Secretary to His Majesty's Legation, for his indefatigable work in assisting me throughout these protracted negotiations.

I have, &c.

Enclosure No. 1.

Wai-chino Pu to Sir J. Jordan.

J. N. JORDAN.

(Translation.) Sir.

August, 30, 1918. I AM in receipt of a letter from the Ministry of War stating that an agreement with the British Marconi Wireless Telegraph Company (Limited), for the purchase of wireless telephones has been signed and sealed, and forwarding me one copy each of the Chinese and English text, which I am requested to communicate to your Excellency.

I have, therefore, the honour to transmit to you one copy each of the Chinese and English text of the said agreement, in original, for purposes of record.

I avail, &c.

(Seal of the Wai-chiao Pu.)

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