Note 1.

An agreement for a loan for the construction of these railways was originally concluded between the Chinese Government and the British, French and German banks, on June 6, 1909, in the following terms:

Agreement with British, French and German Banks for Hukuang Railways,

June 6, 1909.

"This Agreement is made at Peking on the 19th day of the 4th moon in the first year of the Emperor Hsuan-T'ung, corresponding to the 6th of June, one thousand nine hundred and nine, western calendar, and the contracting parties are:

"His Excellency the Grand Secretary Chang Chih-tung, director-general of the CantonHankow Railway and of the Hupeh section of the Szechuen-Hankow Railway, duly authorized by imperial decree to act on behalf of the Imperial Government of China, of the one part, and

"(a) The Deutsch-Asiatische Bank, Shanghai, and

"(b) The Hongkong and Shanghai Banking Corporation associated with the Banque de l'Indo-Chine, hereafter called the Banks, of the other part.

"ARTICLE 1.-The Imperial Government of China authorizes the Banks to issue a 5 per cent gold loan for an amount of five million five hundred thousand pounds sterling (£5,500,000). The loan shall be of the date on which the bonds are issued to the public, and shall be called 'The Imperial Chinese Government Five Per Cent Hukuang Railway Loan of 1909.'

“ARTICLE 2.—This loan is designed to provide capital (1) for the redemption at a premium of 21⁄2 per cent, with accrued interest, of certain unredeemed gold bonds of the total par value of two million two hundred and twenty-two thousand dollars United States currency, issued by the American-China Development Company on behalf of the Imperial Chinese Government, and

"(2) For the construction of a Government railway, main line from Wuchang, the capital of the Hupeh Province, through Yo-chou and Chang-sha, the capital of the Hunan Province, to a point in the prefecture of Ch'en-chou, on the southern boundary of Hunan, connecting with the Kuang-tung section of the Canton-Hankow Railway line, the total length of this line, hereinafter known as 'The Hupeh-Hunan section of the CantonHankow Railway line,' being 1,800 Chinese li, or 900 kilometers, and of

'A Government railway main line from Ichang, in the Province of Hupeh, through Ching-men-chou and Hsiang-yang, to a point at or near Kuang-Hsui, connecting it with the Peking-Hankow, and a branch line from Ching-men-chou, on the aforesaid main line, through Shasi to Han-yang, the combined length of these two lines, hereinafter known as The Hupeh section of the Szechuen-Hankow Railway line,' being about 1,600 Chinese li, or 800 kilometers.

"The survey line shall be open to revision by the director-general of the railways. 'The Chinese Imperial Government undertakes to call in, after having received from the Banks application in writing to do so, the aforesaid gold bonds and the Banks will apply the amount necessary for the said redemption out of the proceeds of the loan, and will deliver the redeemed bonds to the Chinese Government, after having made the bonds valueless. The Chinese Imperial Government will, after receipt of the redeemed bonds, cancel the inscription of the pledge of the Canton-Hankow Railway line in their archives and will advise the Banks in writing after having done this.

"It is understood that the allotment of the aforesaid total nominal capital of £5.500,000 will be in the proportion of £2,500,000 to the Hupeh-Hunan_section of the Canton-Hankow Railway line, and £2,500,000 to the Hupeh section of the Szechuen-Hankow Railway line, and that any surplus of the nominal amount of the £500,000 hereby allotted for the redemption of the gold bonds, issued by the American-China Development Company aforesaid which may remain after complete redemption of those bonds shall be added to the amount allotted to the Hupeh section of the Canton-Hankow Railway line.

"ARTICLE 3.-After deduction of the amount required for the redemption of the gold bonds referred to in Article 2 of this agreement, the balance of the loan proceeds shall be solely devoted to the construction of the aforesaid railway lines, including the purchase of lands, rolling stock, and other equipment, and to the working of the line, and to the payment of interest on the loan during the period of construction, which is estimated at four years from the actual beginning of the work. The commencement of the work shall not be delayed beyond six months after this agreement has been signed, within which period the Banks shall notify the director-general that the sum of five hundred and ten thousand pounds sterling (£510,000) has been placed at his disposal in case funds should be required for survey or construction purposes, or for the ordering of material, the said sum to be held in Europe or remitted to China as he may direct, as a first installment on account of the proceeds of the loan. This amount of £510,000, or whatever portion thereof is actually advanced, together with interest thereon, not exceeding a charge of 6 per cent per annum, shall be deducted from the first proceeds of the sale of the bonds.

ARTICLE 4.-The rate of interest for the loan shall be 5 per cent per annum on the nominal principal and shall be paid to the bondholders half-yearly. The said interest shall be calculated from the date on which the loan is issued to the public, and shall be paid by the Imperial Chinese Government during the time of construction, either from the proceeds of the loan or from other sources, and afterwards, in the first place, out of the revenues of the railway, and then from such other revenues as the Chinese Government may think fit to use for the purpose, in half-yearly installments according to the amount specified in the schedule attached to this agreement and fourteen days before their due date, western calendar, as calculated half-yearly from the date on which the loan is issued to the public.

"ARTICLE 5.-The term of the loan shall be twenty-five years. Repayment of the principal shall commence after the expiry of ten years from the date of the loan, and, except as provided in Article 6 hereinafter, shall be made by equal yearly amortization to the Banks in half-yearly installments out of the revenues of the lines or such other revenues as the Chinese Government may think fit to use for the purpose, according to the amounts specified in the schedule attached to this agreement, but fourteen days before their due date, western calendar, as calculated half-yearly from the date on which the loan is issued to the public.

"ARTICLE 6-If at any time after the lapse of ten years from the date of the loan the Imperial Chinese Government should desire to redeem the whole outstanding amount of the loan or any part of it not yet due for a payment in accordance with the schedule for repayments hereto attached, it may do so up to the end of the seventeenth year by payment of a premium of 22 per cent on the face value of the bonds; that is to say, by the payment of £102 10s. for each £100 bond, and after the lapse of seventeen years without premium; but in each and every case of such extra redemption the Imperial Chinese Government will give six months' previous notice in writing to the Banks, and such redemption shall be effected by additional drawings of bonds to take place on the date of an ordinary drawing, as provided for in the prospectus of the loan.

"ARTICLE 7.-The half-yearly payments due for amortization and interest, referred to in Articles 4 and 5, shall be made in accordance with the amounts of the schedule attached to this agreement and fourteen days before their due date, as fixed by Articles 4 and 5, in equal shares to the Banks by the director-general of the railway, who shall hand to the Banks in Shanghai or in Hankow, fourteen days before the said due date, funds in Shanghai (Kuei-yang) sycee or Hankow 'Yang-li' sycee sufficient to meet such payments in gold in Europe, exchange for which shall be settled with the Banks on the same day, the railway having, however, the option of settling exchange with the Banks simultaneously at any date or dates within six months previous to any due date for the payment of interest and/or principal. These payments may, however, be made in gold in Europe if the Imperial Chinese Government should happen to have gold funds bona fide at their disposal in Europe not remitted from China for the purpose and desires so to use them.

"In reimbursement of expenses connected with the payment of interest and repayment of principal of the loan, the Banks will receive from the Chinese Government a commission of one-fourth of 1 per cent on the annual loan service.

"ARTICLE 8.-The Imperial Government of China hereby engages that the interest and principal of this loan shall be duly paid in full, and should the revenues of the railways and/or the proceeds of the loan not be sufficient to provide for the due and full payment of the interest and repayment of the principal, the director-general shall memorialize the Throne and the Imperial Government of China shall thereupon make arrangements to insure that the amounts of the deficiency shall be met from other sources and handed over to the Banks on the date upon which funds are required to complete full payment of interest and repayment of principal.

"ARTICLE 9.-The present loan, in respect to both interest and principal, is hereby secured by

"(1) Hupeh general likin, amounting to two million (2,000,000) haikwan taels a year; "(2) Hupeh additional salt tax for river defense, amounting to four hundred thousand (400,000) haikwan taels a year;

(3) Hupeh new additional 2-cash salt tax of September, 1908, amounting to three hundred thousand (300.000) haikwan taels a year;

"(4) Hupeh collection of Hukuang interprovincial tax on imported rice, amounting to two hundred and fifty thousand (250,000) haikwan taels a year;

"(5) Hunan general likin amounting to two million (2,000,000) haikwan taels a year; "(6) Hunan salt commissioner's treasury regular salt likin, amounting to two hundred and fifty thousand (250,000) haikwan taels a year.

"The above provincial revenues are hereby declared to be free from all other loans, charges, or mortgages.

So long as the principal and interest of this loan are regularly paid, there shall be no interference with these provincial revenues; but if principal or interests of the loan be in default at due date, then, after a reasonable period of grace, likin and other suitable

internal revenues of the Provinces of Hupeh and Hunan sufficient to provide the amounts above stated shall forthwith be transferred to and administered by the Imperial Maritime Customs in the interest of the bondholders, and so long as this loan or any part thereof shall remain unredeemed it shall have priority, both as regards principal and interest, over all future loans, charges, and mortgages charged on the aforesaid provincial revenues. No loan, charge, or mortgage shall be raised or created which shall take precedence of or be on an equality with this loan, or shall in any manner lessen or impair its security over the aforesaid provincial revenues, and any future loan, charge, or mortgage charged on the said provincial revenues shall be made subject to this loan, and it shall be so expressed in every agreement for every such future loan, charge, or mortgage.

"After the redemption of the existing gold bonds referred to in Article 2 of this agreement, it is understood and agreed that so long as this loan is unredeemed the railway shall, under no circumstances, be mortgaged, nor the receipts given as security to any other parties.

"In the event of the Chinese Government, during the currency of this loan, entering upon definite arrangements for the revision of the customs tariff, accompanied by stipulations for the decrease or abolition of likin, it is hereby agreed on the one hand that such provisions shall not be barred by the fact that this loan is secured by likin and provincial revenues, and, on the other hand, that whatever likin is required to provide for the security of this loan shall neither be decreased nor abolished except by previous arrangement with the Banks, and then only in so far as an equivalent is substituted for it, in the shape of a first charge upon the increase of customs revenue consequent upon such revision. "ARTICLE 10.-The Banks are hereby authorized to issue to the subscribers to the loan bonds for the total amount of the loan in gold, for such amounts as may appear advisable to the Banks. The form and language of the bonds shall be settled by the Banks, in consultation with the director-general or the Chinese ministers in Berlin, London, or Paris. They shall bear the facsimile of the signature of the director-general and his seal of office, in order to dispense with the necessity of signing them all in person, and the Chinese minister in Berlin, London, or Paris, as the case may be, shall, previous to the issue of the bonds, put his seal upon each bond, with the facsimile of his signature, as a proof that the issue and sale of the bonds are duly authorized by and binding upon the Chinese Government. The representatives of the Banks in Berlin, London, or Paris, as the case may be, shall countersign the bonds as agents for the issue of the loan.

"In the event of the bonds issued for this loan being lost, stolen, or destroyed, the bank concerned shall immediately notify the director-general and the Chinese minister in Berlin, London, or Paris, as the case may be, who shall authorize the bank to insert an advertisement in the public newspapers notifying that payment of the same has been stopped, and to take such other steps as may appear advisable or necessary, according to the laws and customs of the country concerned, and should such bonds not be recovered after a lapse of time to be fixed by the Banks, the director-general and the Chinese minister in Berlin, London, or Paris, as the case may be, shall seal and execute duplicate bonds for a like amount and hand them to the bank, by whom all expenses in connection therewith shall be defrayed.

"ARTICLE 11.-All bonds and coupons and payments made and received in connection with the service of this loan shall be exempt from all Chinese taxes and imposts during the currency of this loan.

"ARTICLE 12.—All details necessary for the prospectus and connected with the payment of the interest and repayment of the principal of this loan, not herein specifically provided for, shall be left to the arrangement of the Banks, in consultation with Chinese ministers in Berlin, London, and Paris. The Banks are hereby authorized to issue the prospectus of the loan as soon as possible after the signing of this agreement; and the Imperial Government will instruct the Chinese ministers in Berlin, London, and Paris to cooperate with the Banks in any matters requiring conjoint action, and to sign the prospectus of the loan.

ARTICLE 13.-The loan shall be issued to the public in one amount as soon as possible after the signature of this agreement, and not later than twelve months after the date thereof. The price of the bonds to the Imperial Chinese Government shall be 95 per cent of their nominal value. Subscription will be invited by the Banks in Europe and in China both from Chinese and Europeans on equal conditions, preference being given to the application of the Chinese Government, providing such application be made not less than four days before the issue of the prospectus to the public. Seven days' notice of the issue of the prospectus will be given by the Banks to the Imperial Chinese Government.

"ARTICLE 14.-The proceeds of the loan shall be paid to the credit of the Hukuang Government Railways account' with the Deutsch-Asiatische Bank, the Hongkong and Shanghai Banking Corporation, and the Banque de l'Indo-Chine in China, Berlin, London, or Paris, as the case may be. Payments of loan proceeds into the credit of this account shall be in installments and on dates conforming to the conditions allowed to the subscribers to the loan. Interest at the rate of 3 per cent per annum shall be granted on the credit balance of the portion of this account kept in Berlin, London, Paris, and interest on

the credit balance of the portion kept in China will be allowed at the Banks' rate for current accounts, to be arranged. Subject to the payments and deductions to be made from the loan proceeds in terms of Articles 2 and 3 of this agreement, the Banks will hold the net balance, with accrued interest, to the order of the director-general. Transfers of the loan funds to China in amounts conforming to actual construction requirements will be made by the director-general on his sole authority; the transfer being effected through the Deutsch-Asiatische Bank, the Hongkong and Shanghai Banking Corporation, and the Banque de l'Indo-Chine, as the case may be; ten days' previous notice will be given to the bank concerned of the transfer of any sum exceeding twenty thousand (£20,000) pounds, and the transerred funds shall remain on deposit with that bank until required for railway purposes. The director-general shall, at his discretion, make transfers from the loan funds held in China by the Banks to the credit of a construction account for the Hupeh section of the Szechuen-Hankow Railway line with the Deutsch-Asiatische Bank, and of a construction account for the Hupeh-Hunan section of the Canton-Hankow Railway line with the Hongkong and Shanghai Banking Corporation. Requisition upon these construction accounts will be drawn in amounts to suit the progress of the construction of the railway lines by orders upon the Deutsch-Asiatische or the Hongkong and Shanghai Banking Corporation, signed by the managing director of the line concerned or, in his absence, by his duly authorized representative, who shall, moreover, two days previous to the presentation of such order, issue in duplicate a certificate stating clearly the object of the funds to be drawn, handing one copy to the auditor (hereinafter referred to) and one copy to the bank concerned.

"The accounts of the railways will be kept in Chinese and English and/or German, in accordance with accepted modern methods, and will be supported by all necessary vouchers. During the period of construction the said accounts and vouchers will be open at any time to the inspection of two auditors for the Hupeh-Hunan section of the CantonHankow Railway line and the Hupeh section of the Szechuen-Hankow Railway line, respectively, appointed and paid by the Banks, whose duty it will be to satisfy the Banks as to the due expenditure of the loan funds in accordance with the provisions of Article 3 of this agreement, and to certify to monthly statements of the foreign materials purchased by the railway administration under the provisions of Article 18 hereinafter. The railway administration_will publish annually, upon the close of its financial year, a report, in the Chinese and English languages, showing the working accounts and traffic receipts of the railways, which report shall be procurable by the public on application.

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ARTICLE 15.-If, after the deduction of the amount required for the redemption of the gold bonds referred to in Article 2 of this agreement, and of the sums necessary for the service of interest on the loan during the time of construction, the balance of the loan proceeds, with accrued interest, should not be sufficient to complete the construction and equipment of the railway lines named in Article 2 of this agreement, the amount of the deficiency shall be provided, in the first place, from such Chinese funds as may be available so as to permit of the uninterrupted continuance of the work of construction, and any balance then uncovered shall be supplemented by a further foreign loan for the amount required, to be issued by the Banks. The interest and other conditions of such supplementary loan or loans will be the same as in the present agreement, and the price payable to the Chinese Government in respect to these supplementary loans shall be the actual rate of their issue to the public, less flotation charges of five and one-half points retainable by the Banks-that is to say, a charge of five pounds ten shillings (£5 10s.) sterling for every £100 bond issued. If after the completion of the lines there should be a balance of the railway's accounts, such unused balance will be transferred to the credit of the interest reserve fund hereinafter mentioned in Article 20 as a provision for payments for which the Imperial Chinese Government is responsible under this agreement.

"ARTICLE 16.—If before the publication of the prospectus for the issue of the loan any political or financial crisis should take place by which the markets and the prices of existing Chinese Government stocks are so affected as to render, in the opinion of the Banks, the successful issue of the loan impossible on the terms herein named, the Banks shall be granted a further extension of time, but not beyond eighteen months from the date of this agreement for the performance of their contract. If within this time limit the loan shall have not been issued, then this contract shall become null and void, and advances made by the Banks under the provisions of Article 3 shall be repaid by the Chinese Government with accrued interest, but without any other compensation or remuneration whatsoever.

"ARTICLE 17.-The construction and control of the railway lines shall be entirely and exclusively vested in the Imperial Chinese Government, and shall be organized in accordance with the practice at the present time actually in force on the northern section of the Tientsin-Pukow Railway line. For the work of construction the Imperial Chinese Government will select and appoint a fully qualified British chief engineer for the Hupeh-Hunan section of the Canton-Hankow Railway line and a fully qualified German chief engineer for the Hupeh section of the Szechuen-Hankow Railway line who shall be acceptable to the Banks. In the event of the Banks objecting to any proposed appointment, the cause of such objection shall be definitely stated. These two engineers shall be under the orders