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Part 6. CONCLUSIONS AND SUGGESTIONS.

INTRODUCTION.

In this chapter an effort will be made to summarize the conclusions of the writer's investigation and to formulate such suggestions as seem warranted. All the situations covered in this report will be referred to in general. Remarks concerning China are to be understood as applying to both China proper and Manchuria, and, unless otherwise stated, the same will be true of Japan and Chosen. The original purpose of this report was to cover the markets for railway materials, equipment, and supplies, and it is fully realized by the writer that this intention has been departed from to a certain extent, in that a considerable part of the data may be considered as referring to investments rather than markets. Circumstances, however, have seemed to justify this treatment.

PAST PROGRESS.

It is felt that the data included in this report show conclusively that China has made real progress toward a solution of its railway problems, particularly when one considers the "original conditions." One of the convincing evidences that China has made substantial progress in its railway development is to be found in the working results of the present railways, not only in cases where profits might reasonably have been expected, but also in others where they could hardly have been anticipated.

Probably the best arrangement for the railways in China would be Government ownership and operation under a strong central organization, such organization to be assisted for the present by broadminded foreign railway experts who will work for the railway development of China as a whole instead of the limiting "sphere-of-influence" policy of the past.

Regarding Japan, it seems only necessary to say that it has passed through all the stages of its railway development until at present, from the standpoint of railway markets, it seems a question rather of competition from Japanese sources than of retaining the general trade in the Empire that the United States has enjoyed in the past. While there will continue to be markets for many materials of American manufacture, the Japanese will, of their own accord, investigate and decide as to their requirements. In short, Japan has reached the point where it is capable of carrying on its own individual railway development. This has been the object of the Japanese railway policy for a considerable number of years.

FUTURE PROSPECTS.

Japan's present ability to supply and control most of its railway requirements in normal times will no doubt be further developed,

and this also means increasing Japanese participation in the Chinese railway markets, particularly in view of the developments that Japan controls in Manchuria and the possibility of similar developments in Shantung.

Railway progress in China will undoubtedly be substantial, and if the restrictions of the "spheres of influence" and the railway loan agreements are eliminated (as in fairness to China they should be), this development may be phenomenal especially if China, in turn, corrects some of the retarding internal conditions, such as the likin taxes and "squeeze," and eliminates the political influences and local military interferences. When the volume of business handled is considered in connection with the rather small amount of rolling stock, it becomes apparent that the administration of these lines is being handled with considerable efficiency, particularly when allowances are made for all the handicapping conditions. Improvement in working results would be brought about if some of the obvious restrictions could be broadly corrected.

CONSOLIDATION OF CHINESE GOVERNMENT RAILWAYS.

It is debatable whether consolidation or unification is the correct word to use in connection with the process that seems to be desirable for the Chinese Government Railways.

The Ministry of Communications has made considerable progress in what may be termed regulatory requirements, such as those making uniform the railway accounts, the operating organization, and, to å certain extent, the operating methods of the several railways constituting the group of lines known as the Chinese Government Railways. There has been some progress toward through handling of traffic and interchange of equipment, but very little actual progress has been made in consolidating these lines under one central administration so that they can be developed and operated as a whole to the best advantage-in which arrangement there would be a number of very real possibilities of obtaining improvement in the efficiency of both facilities and management.

In suggesting the possibilities along these lines the writer has generally been met by the question: "What about the attitude of the owners of the bonds of the railway loans with which these lines were built?" In the past this has been the principal factor in preventing the consolidation of these lines, and this, together with the claims of the several "spheres of influence," continues to block (or at least materially to hinder) the proper development of the Chinese Government Railways as a whole. It is obvious, of course, that there must be some advantage accruing to the owners of these bonds to induce them to agree to a new arrangement. To those now in control of the present concessions or loans, what are the advantages to be gained by assenting to such consolidation? In the writer's opinion, by proper consolidation of these lines the value of these bonds will be enhanced rather than endangered, particularly by reason of the fact that such a security is safeguarded by spreading it over an extensive system, the earnings of which will not be materially affected by local conditions. In addition, such action would assist in further railway development in China, which, in turn, would again enhance the security of the present loans.

The first table on page 53 shows that the investment assets of the Chinese Government Railways total $406,741,411 Mex., not including the Kirin-Changchun Railway, which is a detached line now under Japanese control, and the Canton-Hankow line, which is not yet completed. Interest charges on the funded debt of these lines for 1916 totaled $12,258,896 Mex., leaving a balance to net income, except deduction for permanent Chinese Government investment, of $20,801,268 Mex., or a margin of almost 170 per cent to meet interest charges on funded debt. On lines north of the Yangtze River and the two Shanghai lines, which can be considered as a connected system, even a better showing is made. This is indicated by the first subtotal on page 53. The three lines shown last are all disconnected but will become part of the connected system when the Canton-Hankow line is completed.

When one comes to examine the investment assets and the capital liabilities, it is seen that the Chinese Government has a very substantial equity in this group of railways. The second table on page 53 is a summary of the balance sheets for the six most important lines for the year 1916 (except the Peking-Suiyuan, which is for 1915).

The following is a further summarizing of the balance sheets of the above lines, as of December 31, 1916, with the 1916 report of the Peking-Suiyuan line, which has just been received, but which makes very little change in the totals. This table shows in the columns of assets the cost of the three classes of permanent investment assets, and in the column of liabilities it shows present outstanding capital liabilities and liabilities permanently disposed of through surplus earnings:

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The conclusion to be drawn from this table is that in these six lines the Chinese Government has investment assets of $116,971,578 Mex., not counting the working assets and the assets in the other lines, both of which will add a good deal in real value. This equity is being added to each year in the amortizing of the several loans.

The data presented seem to warrant the suggestion that, to protect the present bondholders in consolidating these lines, a consolidation mortgage is one of the practicable arrangements; and through this same means the capital could be furnished to take care of the extensions, betterments, and additional equipment, which will make these railways still better paying properties.

It has been the writer's intention not to include the CantonHankow Railway (or, to give it the correct name, the Hukuang Railways) in the above suggestions, for the reason that the resources pledged for the present Hukuang Lines seem adequate. It appears practicable, however, to utilize the above-mentioned equity in obtaining the additional funds that will be necessary to complete this line-undoubtedly the most needed additional line in Chinaand in doing so to effect the consolidation of all the Chinese Government Railways into one organic system.

The following table shows the status of the Hukuang Railways on December 31, 1916:

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The writer, in presenting the above suggestions, appreciates the many difficulties that would have to be overcome in making the proposed consolidation. It is felt, however, that this is the treatinent which will result in the greatest and best railway development in China, when the situation is considered as a whole, and that the Chinese Government's equity, with the existing progress, renders this the best solution of a difficult situation. One of the very substantial advantages in consolidation would be the rearranging and combining of the present management and the introduction of more efficient administrative methods. There are also economies that could be effected by the joint use of existing equipment-all of which are prevented by the present restrictions. The administration of the present Chinese Government Railways, so far as the joint use of tracks and equipment is concerned, is just as strictly accounted for as though the lines were privately owned and operated.

PROGRAM OF CONSTRUCTION.

As already explained, Japan has worked out a very complete and comprehensive program of railway construction as regards both the

additions to the Government railways and the private light railways to be built under the 5 per cent subsidy law.

With the present restrictions resulting from the "spheres of influence" and the railway loan agreements, it is practically impossible for the Ministry of Communications to plan and adopt any comprehensive program of railway construction for China as a whole, though there is no doubt as to the desirability of such action. Therefore one feature of the suggested consolidation of the Chinese Government Railways should be the elimination of those restrictions and the working out and adoption of such a program.

It is particularly fortunate that so much of the present mileage has been built with the standard gauge (4 feet 8 inches), and it is also fortunate that thus far there has been very little duplication of facilities or building of parallel lines, though the two elaborate stations at Tsinanfu and the three terminals at Peking show what may occur if the present conditions continue.

It is obvious that it would be entirely beyond the scope of the present report to attempt to outline such a program. Although some construction programs have been suggested, such as that by Dr. Sun Yat Sen's Chinese National Railway Corporation, none of them, in the writer's opinion, have been based on such an exhaustive study as the correct solution of the problem warrants and demands. There is every reason why a carefully worked out construction program should be adopted and followed in the building of future railways in China and in the extensions and additions to the present lines. In deciding upon such a program consideration should be given to the construction of lines to develop the resources of the country, particularly fuel and iron, and the avoidance of parallel lines and lines paralleling the water transportation routes. The latter condition forms the explanation for the lack of success of certain of the present railways, since some of the water transportation lines, especially some of the native Chinese craft, carry a limited amount of freight for very low charges. A preliminary study of the situation seems to warrant the statement that in most instances lines could be located to develop the country fully, to avoid very largely the paralleling of water routes, and still to provide through rail connections between the large centers of population. It has been generally agreed that the completion of a comprehensive system of railways in China would do much to stabilize the country, particularly in connection with the suggested currency reforms.

After the completion of the text of this report, the writer's attention was called to the study of the development of the Chinese railways made by Mr. A. J. H. Charignon, a French civil engineer, who, at the time his book was published, was employed as technical adviser to the Ministry of Communications. While this study is entitled a "Program of development" of the Chinese railways, it impresses the writer rather as a very excellent reference work covering the many railway projects in China as they stood at the time this study was made (1912 to 1914). There is a large amount of useful and apparently very accurate data, particularly as to the length of the lines. The Chinese names (French version) are given with much care and consistency in the rendering. There are 21 maps showing the various projects and also a large map of China. The text is in French, and so far as is known no translation has been

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