"In reply we have the honour to inform you that we agree to the conditions stated in your letter and referred to above, and are prepared to receive your instructions with regard to the transfer from the loan funds of the equivalent of $709,950.00, the proceeds of which our Branches in Hankow will be requested to hold at your disposal for payment to the Hunan Railway Company.

"We have the honour to acknowledge the receipt of your letter No. 1 of 22nd January, in which you set forth under five headings the understanding now reached with regard to the redemption of the Hunan and Szechuan Railways as follows:

66 6

"1. In accordance with the report of the_Engineer-in-Chief, Mr. Collinson, the materials, and property of the Hunan Railway Company are worth at least $2,300,000. The first instalment of the principal and interest upon the shares amounting to $709,950 has been paid, and provision has been made by the above mentioned transfer of £55,000 for the payment of $554,150 due on account of the second instalment of the principal and interest of the Hunan Railway Company's shares. In addition, it has been decided to make a provision of $1,000,000 to meet payment of the debts of the Hunan Railway Company on account of materials, &c. The total of the above amounts is within the amount of $2,300,000 estimated to be the minimum value of the line by the Engineer-in-Chief.

"2.-With the exception of the sums enumerated above, the Ministry of Communication takes full and entire responsibility for the payment of all money due to the Hunan Railway Company for redemption of the railway and for payment of its debts of every description.

"3.-Should the final estimate of the Engineer-in-Chief exceed the aforesaid sum of $2,300,000, the amount of excess shall be paid from loan funds in terms of the Letter of Agreement of 27th October, 1913.

4-In the event of there being a surplus from the $1,000,000 provided for the payment of the debts of the Hunan Railway Company after all claims have been paid, it shall be applied to the payment of the principal and interest upon the shares of the line, in terms of the letter of Agreement of 27th October, 1913.

5. With regard to the payment to be made for the redemption of the Hunan and Szechuan Railways, the Loan Agreement only allows £600,000 for this purpose. The total amount of money for redemption of the two lines from loan funds must therefore not exceed £600,000, but in case this should prove insufficient it is agreed that the necessary appropriation shall be made from the second series of the loan provided for under Article 15 of the Loan Agreement, it being understood that the total appropriation of loan funds from the first and second series for the resumption of the said lines shall not exceed their final Valuation by the Engineer-in-Chief.'

"In reply we have the honour to confirm that we agree to the above five clauses on condition that we receive from the Minister of Communications the reply to our letter of September 26th last respecting the extension of the Szechuan Railway, asked for in our letter No. 2 of to-day's date. "We have the honour to be, Sir,

Sir,

Minister of Communications.

On the 26th September and 11th November last we addressed you on the subject of the extension of the Ichang-Kweifu section to Chengtu, and the importance of an

immediate decision on this matter being taken by the Chinese Government in view of the expenditure which is now about to be made on the section in question.

"In the meantime an understanding has been arrived at with the Director-General with regard to the resumption of the Huna (Hunan) and Szechuan Provincial Railways, which makes it desirable to deal comprehensively with the whole question of the HanYüeh-Chuan Railways.

"According to the Loan Agreement the Hupei-Hunan section of the Canton-Hankow Railway stops in the district of Yichanghsien on the border of Hunan Province. But unless this line is extended and connection with Canton completed, it cannot be made a commercial success, and there appears to be no certainty as to when the line now under construction by the Canton Provincial Company will be completed to the border of Hunan. "We would therefore beg to state that if the Chinese Government should decide to change the present commercial status of the Provincial Railway, and should find it necessary to borrow capital for that purpose, the Group Banks will be prepared to furnish the funds necessary for dealing with this matter in accordance with the intentions of the Chinese Government.

"We have the honour to request that if the above proposal in regard to the Canton extension meet your wishes, you will be good enough to inform us in this sense, and at the same time favour us with a reply to our letter of 26th September last with regard to the Szechuan extension.

"We have the honour to be, Sir,

"Your obedient servants,

"(Sd.)

Ministry to Banks, January 23, 1914.

[Translation.]

E. G. HILLIER,
HEINRICH CORDES,
R. SAINT PIERRE,
D. A. DE MENOCAL."

"To The Hongkong & Shanghai Bank, Deutsch-Asiatische Bank, Banque de l'Indo-Chine, International Banking Corporation,

"I beg to acknowledge receipt of your letters dated 26th September and 11th November of last year and 22nd January of this year, all of which I have noted.

"With regard to the extension of the Szechuan line to Chengtu, this ministry intends at an early date to proceed with this extension, and to settle upon a method of procedure in respect of the surveys and other matters as soon as possible, in consultation with the groups.

With regard to the extension of the Hupei-Hunan line into Kuangtung territory, this ministry notes that should the Chinese Government, in the future, decide to change the commercial status of the Canton Provincial Railway and have to borrow funds, the groups are willing, in accordance with the intentions of the Chinese Government, to provide a loan for this purpose. With regard to this question it is the intention of this ministry to consult with the groups at an early date.

"I have, etc.

"23rd January, 1914.

Note 2.

With a view to the nationalization of the Hunan and Hupei provincial railways, contemplated by Article 3, there was issued on May 9, 1911, an imperial edict of which the translation is as follows:

Imperial Edict regarding Nationalization of Trunk Lines of Railway, May 9, 1911.

"The Board of Posts and Communications has memorialized stating that in obedience to instructions the memorial of the supervising censor Shih Ch'ang-lien on the importance of clearly determining the treatment of trunk and branch railway lines has been taken into consideration.

'The plan proposed is eminently suitable. China has a great area. Her boundaries are far apart. The distances amount to several ten thousands of li, to traverse which requires many months. The court thinks day and night about the difficulty of guarding the frontier, wishing to find a way to overcome it. But there is no other way than to

construct railways quickly. Moreover the consultations connected with constitutional government, the movements of troops, the transportation of produce, all depend on convenient means of communication. All important reforms depend on this.

The Government must have in all directions extending to the borders of the Empire great trunk lines in order to carry on government effectively, and to maintain centralised authority. Hitherto the methods have been ill-conceived and there has been no fixed plan, with the result that the railway administration of the whole country has fallen into confusion. There has been no distinction between trunk and branch lines and no estimate of the powers of the people. Requests on paper to act hastily have been granted. Commercial railway enterprises have been carried on for many years. In Kuangtung shares have been withdrawn and only a small section of railway has been built. In Szechuan there has been misappropriation of funds and fruitless attempts to recover. In Hunan and Hupei offices have been opened for many years, capital has been vainly wasted to the exhaustion of the people's resources, either by useless extravagance or by fraudulent practices. If this period of waste continues longer the burdens of the people will be the heavier and both Government and people will suffer injury. How can we contemplate the consequences of such mistakes? We now clearly proclaim to the whole Empire that the trunk railway lines are to belong to the Government. This is to be the fixed policy of the Government. All the companies which have been organized in the provinces before the 3rd year of Hsuan-t'ung which have been hindering too long by their failures should at once revert to the Government, which will build the roads without further delay. Branch roads may still be connected by the people according to their ability, but all permits heretofore issued for the building of trunk lines are hereby cancelled. As to the method of taking over these enterprises the Board of Finance and the Board of Communications will carefully work out the details in accordance with this edict, asking without delay for the edict to put them in execution.

The ministers concerned must not show indecision nor delay this matter. If any, disregarding the larger interests involved, make disturbances about the railway administration, encourage discontent and opposition, they will be dealt with at once as offenders against imperial regulations.

"Let this be widely proclaimed."

The text of the agreement by which the Central Government took over the Hunan section of the Canton-Hankow Railway is not available. The following is the translation of the agreement concluded November 2, 1912, between the Department of Communications and the Szechuan-Hankow Railway Company, for the taking over of the company's line:

Agreement for Purchase by Government of Szechuan-Hankow Railway Company's Line, November 2, 1912.

"Liu Sun-yuan (hereinafter to be called the representative) acting as representative to the Szechuan-Hankow Railway Company (hereinafter to be called the Company) has received full powers from the whole body of shareholders of the said Company, to confer with the Department of Communications (hereinafter to be called the Department) regarding the nationalization of the said railway, and has agreed as follows:

"1.-The construction work, machinery, workshop, and land, etc., of the whole IchangWanhsien section of the Szechuan-Hankow Railway shall be handed over to the government, as agreed upon by the whole body of shareholders of the Company, and all other sections of the Szechuan-Hankow Railway (from Chengtu_to Wanhsien) shall also be handed over to the Government: but in the future, if the Government alter the location of the railway, in such a way that this railway is not made a trunk line, excepting the Ichang-Wanhsien section, all other sections shall still be turned over to the Company.

"2.-All cash funds of the Company shall be taken back by the Company to be used for other industrial purposes: such cash funds are of the following description :—those funds that are deposited with the Bank of Communications, the Hanyang Iron Works, the Cement Company, and all the cash funds of the Company deposited in Shanghai, Hankow, Chungking, Chengtu: in addition to this, the machinery and workshop land and all other appended property of the copper mint of Chengtu, shall also be taken back by the Company, and the Government shall undertake to draw back for the Company all such funds as loaned to the Bank of Communications, and advances made to the Hanyang iron works.

'3.-Regarding the public loan bonds issued on account of the payment of construction work on the Ichang-Wanhsien section, the outstanding debts on account of materials bought of the various foreign companies, and the loan of the Hupei Army's Payment Bureau Loan, the above three items amounting to about Tls. 900,000: it is agreed that the said bonds shall be redeemed by the Government, the outstanding accounts with the various foreign companies to be settled by the Government, and the Hupei Army Payment Bureau Loan shall be taken care of by the Company.

"4.—The Department shall issue promissory notes to the Company to reimburse all

direct and indirect expenditure incurred on construction work by the Company expenditure directly or indirectly incurred by the Company, and beginning on the date when the railway is received by the Government, an annual interest of six per cent shall be started on this reimbursement due to the Company, and the interest shall be paid to the Company once a year. All expenditure direct on construction work directly incurred by the Company up to the end of the eighth month of the first year of the Republic (August 31, 1912) shall be paid to the Company in instalments, within ten years: all expenditure indirectly on construction work incurred by the Company, such as interest on shares, salaries, students' tuition, etc., shall be reimbursed to the Company in instalments within five years, beginning on the eleventh year of taking over of the railway by the Government; the different items are detailed on a separate statement. All the interest on shares due to shareholders before the taking of the railway, shall be reckoned as indirect expenditure. All the direct and indirect expenditure shall be calculated according to the records of the Szechuan Railway Company Shareholders' Meeting and the records kept by the Department of Posts and Communications of the former Tsing Dynasty. All direct expenditure shall be calculated jointly by a specially appointed officer of the Department and the manager of the Company at Ichang: the indirect expenditure shall be calculated jointly by a specially appointed officer of the Department and the head office of the Company at Chengtu, so that the railway may be properly handed over. All expenditures that have no bearing on the railway work either directly or indirectly, shall not be taken into account.

"5.-All bankrupt accounts at Shanghai shall be attended to by the Company and the Government shall assist in the collecting of such accounts.

"6.-If in the future the Szechuan-Canton-Hankow General Railway Company be organized, the holders of promissory notes mentioned in Article 4 shall be free to exchange such promissory notes for share certificates of the General Railway Company.

"7.-All detail procedures for the carrying out of the above articles shall be further discussed by the representative with the Department.

"November 2, 1912.

"THE DEPARTMENT,

"THE REPRESENTATIVE."

Note 3.

With the object of giving more practical effect to the principle of impartial preference, as among the markets of the four nationalities concerned, in respect to the supply of equipment and materials, a conference of directors and engineers-in-chief of the Hukuang railways was held, under the chairmanship of the director General (Dr. Jeme Tien-yu) at Hankow in May, 1914. The following articles were adopted by the conference in reference to bridges (May 20 and 21) and in regard to locomotives and rollingstock (May 25):

Hankow Conference Resolutions concerning Equipment and Materials for Hukuang Railways, May 20-25, 1914. "BRIDGES.

"1. Consulting engineers to be appointed by the Ministry of Communications in each country with authority to approve or reject the designs and workmanship of the manufacturers and to officially accept the structure on behalf of the section for which the structure is intended.

"2. All indents must be forwarded by the managing directors of the various sections to the director general, who in sending indents to the purchasing agents will forward copies simultaneously to the groups banks in New York, London, Paris and Berlin for distribution and advertisement, and the representatives of the groups banks in Peking for distribution to the local representatives of the American, British, French and German manufacturers.

"3. Sealed bids with recommendations to be presented to the director general at Hankow by the consulting engineers of the various countries interested ninety days from the date indents are forwarded by the director general to the groups banks in New York, London, Paris and Berlin. Local manufacturers forward their bids direct to the director general at Hankow.

4. All tenders to be publicly opened in the presence of the bidders' representatives on that date.

5. The specifications of the material to be used throughout in tendering for the supply of bridges and bridge material and for the manufacture and fabrication of same shall be in strict accordance with the recognized standards and best practices prevailing in Great Britain, France, Germany and the United States of America.

"For material as accepted from Great Britain, the specifications for same shall be as recommended by the British Standards Committee as affiliated with the International Association for testing materials.

"For materials as accepted from the United States of America, the specifications for same shall be in accordance with the specifications recommended by the American Society for testing materials affiliated with the International Association for testing materials.

"For materials as accepted from Germany, the specifications for same shall be in accordance with the specifications as recommended by Königl. preussische staatseisenbahn verwaltung (Royal Prussian state railway administration).

"For materials as accepted from France, the specifications for same shall be in accordance with the specifications as recommended by a similar society to the above and affiliated with the International Association for testing materials.

"6. The chief engineers shall submit the type of bridge required, together with the span, length over-all, depth or height, width or loading, when tenders are invited, and the bidders shall submit tenders each in accordance with the approved specification of the nationality of the bidders.

"7. The most favorable American, British, French and German bidders complying with the adopted specifications to be immediately awarded the contract.”

"LOCOMOTIVES AND ROLLING STOCK.

"1. Consulting engineers to be appointed by the Ministry of Communications in each country with authority to approve or reject the designs and workmanship of the manufacturers and to officially accept the locomotives and rolling stock on behalf of the section for which the locomotives and rolling stock are intended.

"2. All indents must be forwarded by the managing directors of the various sections to the director general, who in sending indents to the purchasing agents will forward copies simultaneously to the groups banks in New York, London, Paris and Berlin for distribution and advertisement, and the representatives of the groups banks in Peking for distribution to the local representatives of the American, British, French and German manufacturers.

"3. Sealed bids with recommendations to be presented to the director general at Hankow by the consulting engineers of the various countries interested ninety days from the date indents are forwarded by the director general to the groups banks in New York, London, Paris and Berlin. Local manufacturers will forward their bids direct to the director general at Hankow.

4. All tenders to be publicly opened in the presence of the bidders' representatives on that date.

"5. The specifications of the material to be used throughout the tendering for the supply of locomotives and rolling stock and for the manufacture and fabrication of same shall be in strict accordance with the recognized standards and best practices prevailing in Great Britain, France, Germany and the United States of America.

Only usual tests of quality shall be required and no chemical analysis to be prescribed. Furthermore, the production of the steel shall be left to the manufacturers.

"In construction and design of details each country to use its own standards, method of construction, quality of workmanship and tests and all of the foregoing, providing they are standard in one of the four countries, are to be acceptable to the other three countries.

"All tenders to be accompanied by a certificate from the manufacturer indicating upon the basis of which specifications the tender is made, bidders being privileged to select one of the four following specifications:

"1. The specifications recommended by the British Standards Committee.

"2. The specifications recommended by the American Society for testing materials.

"3. The specifications recommended by the Königl. preussische Staatseisenbahn verwaltung (Royal Prussian state railway administration).

"4. The specifications recommanded by the Cahiers des charges unifiés des compagnies françaises de chemins de fer.

"6. English and metric standard system of measurements. In the event of specifications being issued in the metric system the English equivalent to the nearest sixteenth of an inch higher is to be accepted, and in the event of specifications being issued in the English system the correspondingly higher metric equivalent is to be accepted.

"7. The engineer-in-chief specifies in the tenders the type of construction of the engines, including the general measurements required, as accurately as possible. All details referring to maximum axle pressure, power of engine, gradients, curves, etc., must be mentioned in the tender-specifications.

"In the tender-specifications accurate description of special engine fittings should be made by the engineer-in-chief.

"8. The construction of the engines shall be under the control of the consulting engi