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that no orders for materials shall be executed or any expenditure incurred without due authorization by the managing director concerned.

In return for payment of commission as above stated the British & Chinese Corporation (Ltd.) and the Deutsch-Asiatische Bank as agents for the respective railway lines, shall be prepared to superintend the purchase of all foreign materials required for their construction and equipment, which shall be purchased in the open market at the lowest rate obtainable, it being understood that all such materials shall be of good and satisfactory quality and that the aforesaid agents will avail themselves of the services of engineering experts to be selected by the Ministry of Posts and Communications for the inspection of such materials. The fees of these inspectors shall be borne in equal shares by the Ministry of Posts and Communications and the purchasing agents. At equal rates and qualities goods of British, French, German, and American manufacture shall be given impartial preference over other goods of foreign origin. The Railway Administration of the Ministry of Posts and Communications reserves the right, while paying the above stipulated commission to the said agents in respect of all purchases of foreign materials, to avail itself of the services of other agents in China, or abroad, should it see fit to do so.

The most favorable shipping and insurance rates are to be secured and statements thereof together with original invoices and inspectors' certificates are to be submitted to the director general and the managing director concerned; all return commissions and rebates of every description shall be credited to the railways, and all purchases made by the agents on behalf of the railways shall be supported by manufacturers' original invoices and inspectors' certificates. No commission shall be paid to the agents except as above provided; but it is understood that the Railway Administration shall provide out of railway funds for the remuneration of consulting engineers whenever their services are engaged.

With a view to the encouragement of Chinese industries, preference will be given, at equal prices and qualities, over British, French, German, American, or other foreign goods to Chinese materials and goods manufactured in China, such cases being left to the decision, in consultation with the engineers in chief, of an inspector appointed by the Ministry of Posts and Communications. No commission will be paid on purchases of such Chinese materials and goods.

It is understood and agreed that, after the construction of the lines is completed, the British & Chinese Corporation (Ltd.) and the Deutsch-Asiatische Bank will be given the preference for agency business for the respective lines, during the currency of the loan, for the supply of foreign materials which the Railway Administration may require, on terms to be hereafter mutually agreed upon.

ART. XIX. Should the Imperial Chinese Government itself hereafter consider it desirable to construct extensions in connection with the railway lines named in article II of this agreement in order that the interests of the country may be better served, such extensions shall be built by the Imperial Chinese Government with funds at its disposal from Chinese sources, but if foreign capital is required, and the terms offered by the banks are as favorable as those offered by others preference will be given to the banks.

ART. XX. After payment of interest and repayment of principal of this loan for any current year, the Railway Administration will deposit with the banks in Shanghai or Hankow any surplus of the net revenue of the railway lines for that year up to the amount required to pay the following year's installments of interest on the loan, the rate of interest on the deposit being arranged with the banks from time to time with due regard to the conditions of the market.

ART. XXI. All expenses in connection with the flotation and issue of this loan, such as underwriting, commission and brokerage, telegraph charges, advertising, postage, engraving and printing of prospectus and bonds, stamp and legal fees, shall be borne by the banks.

ART. XXII. The Deutsch-Asiatische Bank, the Hongkong & Shanghai Banking Corporation, the Banque de l'Indo-Chine, and the American Group shall take the loan in equal shares and without responsibility for each other.

ART. XXIII. The Deutsch-Asiatische Bank, the Hongkong & Shanghai Banking Corporation, the Banque de l'Indo-Chine, and the American Group may, subject to all their obligations under this agreement, transfer or delegate all or any of their rights, powers, and discretions hereunder to any German, British, French, or American company, directors, or agents, with power of further transfer and subdelegation; such transfer, subtransfer, delegation, or subdelegation to be subject to the approval of the Ministry of Posts and Communications.

ART. XXIV. This agreement is signed under the authority of an imperial edict dated the twenty-second day of the fourth month of the third year of the Emperor Hsuan Tung, corresponding to the twentieth day of May, 1911, Western Calendar,

which will be officially communicated to the Ministers of Great Britain, France, Germany, and the United States of America in Peking by the Waiwupu.

ART. XXV. Eight sets of this agreement are executed in English and Chinese, four sets to be retained by the Imperial Chinese Government and four sets by the banks. In the event of any doubt arising regarding the interpretation of the contract the English text shall rule.

Signed at Peking by the contracting parties this twenty-second day of the fourth month of the third year of the Emperor Hsuan Tung, corresponding to the twentieth day of May, one thousand nine hundred and eleven, Western Calendar. The Minister of Posts and Communications,

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SHENG HSUAN-HUAI.

H. CORDES.

E. G. HILLIER,

Agent.

R. SAINT PIERRE CASEnave.

WILLARD STRAIGHT,

Representative.

DISPATCH FROM THE MINISTER OF COMMUNICATIONS.

To the Representatives of

The Deutsch-Asiatische Bank,

The Hongkong & Shanghai Banking Corporation,

The Banque de l'Indo-Chine,

and The American Group.

PEKING, March 1, 1913.

GENTLEMEN: I duly received the letter of the representatives, dated the 11th of July last, in which were submitted four points for discussion. I beg to state that frequent discussions have already taken place and that nearly half a year has elapsed since our joint discussion of the 28th of September. A solution has not yet been arrived at. Construction work is in abeyance for lack of funds. Both parties agree that no further delay should occur.

We have mutually agreed that this Ministry shall address a dispatch to you setting forth a method of procedure and I would request that you will assent thereto and favor us with a reply so that funds to meet requirements may be speedily made available.

The method of procedure decided upon, under four headings, is as follows:

1. It has already been arranged that the Szechwan Commercial Railway shall be taken over and operated by the Government. The Commercial Railway line of the Canton-Hankow Railway in Hunan has already been taken over by Director General Huang in Hunan. The survey of the Canton-Hankow Railway in Hupeh is nearing completion and arrangements have been made for commencing work at the Wuchang end. The German engineer in chief and the American engineer in chief have already been appointed and before many days will proceed to make the survey of their respective sections. The above may all be considered as a simultaneous commencement of work on the four railway lines.

2. According to the terms of article 14 of the loan agreement one-half of the proceeds of the loan funds transferred to China shall be deposited with the Chiao-Tung Bank or with Ta-Ching Bank. It is now agreed that the funds transferred to China shall be temporarily deposited with the Deutsch-Asiatische Bank, the Hongkong & Shanghai Banking Corporation, the Banque de l'Indo-Chine, and the International Banking Corporation, designated by the American Group, in readiness to be drawn upon from time to time as required for the work until such time as either the Chiao-Tung Bank or the Ta-Ching Bank has been reorganized as the State Bank of China and has estab

lished its credit, and business relations with foreign banks have been mutually resumed. When such time comes the Government may consult with the groups as to a reversion to the method of procedure laid down in article 14 of the loan agreement, by which the deposits of the proceeds of the loan funds shall be shared with the ChiaoTung Bank or the State Bank of China as agents.

3. For the purpose of now removing the bondholders' apprehensions that the amount of the likin specified in the agreement as security may have been decreased, the property and materials of the railway are hereby specially given as a provisional guaranty that the likin is unimpaired. Excepting this, all other conditions should be carried out in accordance with the loan agreement. In the future whenever the Chinese Government is able to demonstrate that the likin is not only unimpaired, but assignable by the central Government, or to find some other suitable security, then the said guaranty of the security shall be immediately canceled and annulled and it shall be unnecessary to substitute this with any other guaranty. In the event of the Chinese Government drawing up new regulations consequent upon the abolition of likin the same shall be carried out in accordance with article 9 of the loan agreement.

4. By article 14 of the loan agreement auditors are to be engaged by the banks for the inspection of the accounts. Their duty, as a matter of course, will be to investigate, to consult, and make enquiries. They should therefore be in constant attendance at the Railway Accounts Office, so that they may be closely connected and acquainted with the affairs relative to their office, and they shall continue to function during the time of construction and so long afterwards as the mortgage of the railway, referred to in heading No. 3 of this letter, shall remain in force. In case of doubt as to the employment of loan funds or of any railway revenues, then the auditors are empowered to suspend payment of requisitions until satisfactory explanations are received by them from the managing director and/or the director general. It has already been decided that railway accounts shall be kept in Chinese and English in accordance with modern methods. China, actuated by the desire to have accounts kept so that they shall be clear for auditing, will herself forthwith engage experienced foreign accountants whose executive power and appointment to the various railway sections shall be entirely and exclusively controlled by the director general. The director general shall have the sole power of engaging or dismissing the accountants. These appointments are made by the Chinese Government and have no concern whatever with the loan agreement.

With regard to the control of the railway material during the time of construction it is necessary to make proper arrangements. The managing director and the engineer in chief should select a foreign engineer to be stationed at the store yards to control, supervise, and keep records and in the event of damage, loss, or misuse the managing director and the engineer in chief shall be responsible.

The above points having been mutually determined upon verbally, I have to request that you the representatives--will promptly reply and proceed to carry out the agreement and thus avoid further loss upon the part of the railways.

With compliments, etc.

CHU CHI-CHIEN, Minister of Communications.

REPLY OF THE BANKS.

PEKING, March 3, 1913.

To the Honorable Mr. CHU CHI-CHIEN,

Minister of Communications.

SIR: We have the honor to acknowledge receipt of your letter of the 1st instant setting forth under four headings the procedure which has been agreed upon for carrying out the purposes of the Hukuang Railways loan agreement [the four headings outlining the method of procedure are here repeated].

In reply we have the honor to state that we are now prepared to arrange for the transfer of loan funds to China for purposes of survey and/or construction in amounts as may be necessitated by the progress of the work.

Arrangements are now being made for the engagement of auditors in terms of the loan agreement, and pending their appointment we are prepared to designate members of our banks' staffs in Hankow to act provisionally as auditors for the Hupeh-Hunan section of the Canton-Hankow line and the Hupeh section of the Hankow-Szechwan line respectively.

We shall be glad to learn from you as soon as possible the names of the foreign accountants whom it is the intention of the Chinese Government to engage in accordance with the provisions of heading No. 4 above.

We have the honor to be, Sir,
Your obedient servants,

For the Hongkong & Shanghai Bank,
E. G. HILLIER.

For the Deutsch-Asiatische Bank,

H. CORDES.

For the Banque de l'Indo-Chine,

R. SAINT PIERRE CASENAVE.

For The American Group,

F. H. MCKNIGHT.

MEMORANDA OF SEPTEMBER 12, 1913.

DIRECTOR-GENERAL FENG TO REPRESENTATIVES OF THE FOUR GROUPS.

PEKING, 12th September, 1913.

GENTLEMEN: I have the honor to acknowledge the receipt of your letter of September 4 with reference to the omissions to be made in the draft memorandum of September 3, Article IV, paragraph (e), and in the annex, Article II.

It has now been agreed to omit the whole of the two clauses above mentioned. I intend upon my return to Hankow immediately to embody the terms of the two said clauses in the departmental regulations.

The two clauses in question read as follows:

MEMORANDUM I, ARTICLE IV, PARAGRAPH (E) (Draft of 3d sepTEMBER).

"The mode of transmitting all funds required by the engineer in chief for his district engineers for survey or construction expenditure shall be settled by the managing director, in consultation with the foreign accountant concerned, with due regard to their safe, economical, and speedy transmission, full consideration being given to the recommendations of the engineer in chief.

"The district engineers shall receive, take charge of, and account for all funds sent to their districts."

MEMORANDUM II, ARTICLE 2 (DRAFT OF 3D SEPTEMBER).

"District engineers will have charge of all stores and materials in their districts, and will be authorized to call for tenders where necessary for construction work and to submit the same with their recommendations to the engineer in chief for selection. The engineer in chief will submit his selection to the managing director for approval and sanction, which decision will be given with all possible dispatch in order to avoid delay in construction."

I have the honor to be, gentlemen,

Your obedient servant,

FENG YUAN TING.

PEKING, 12th September, 1913.

To the Hongkong and Shanghai Banking Corporation,

The Deutsch-Asiatische Bank,

The Banque de l'Indo-Chine, and

The American Group.

SIRS: With reference to the memorandum of procedure for transfer and expenditure of funds and auditing of accounts in five articles with the annex regarding construction and purchase of material in two articles, for the Hukuang Railways, as agreed to in our meetings, I beg to enclose you herewith copies of these memoranda for your information and acceptance, and shall be glad to be favored with your reply confirming the same.

I am, sirs, your obedient servant,

The Honorable Mr. FENG YUAN TING,

FENG YUAN TING.

PEKING, 12th September, 1913.

Director General Hankow-Canton and Hankow-Szechwan Railways. SIR: We have the honor to acknowledge receipt of your letter of to-day's date, inclosing for our information and acceptance copy of the memorandum of procedure

for transfer and expenditure of funds and auditing of accounts, in five articles, with the annex regarding construction and purchase of materials in two articles for the Hukuang Railways, as agreed to in our meetings.

In reply, we have the honor to confirm our acceptance of the same.
We have the honor to be, sir,

Your obedient servants,

For the Hongkong and Shanghai Banking Corporation,
E. G. HILLIER,

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MEMORANDUM OF PROCEDURE FOR THE TRANSFER AND EXPENDITURE OF FUNDS.

In order to put into operation the terms of the letters of agreement of March 1 and 3, 1913, the following rules of procedure for the transfer and expenditure of funds in five clauses and the annex thereto regarding construction and purchase of materials in two clauses have been agreed upon.

1. In the second half of each month estimates of construction and administrative expenditure for the following month shall be made out by the foreign accountants of the sections concerned, based upon the forecasts (vide also memorandum regarding construction, etc.) supplied to them by the managing director and engineer in chief concerned (signed copies of which forecasts are to be attached thereto). Each estimate will be accompanied by a statement prepared and signed by the foreign accountant concerned, showing—

(a) Available balance at the credit of the construction account concerned on date of report.

(b) Actual cash balance of all imprest accounts.

(c) Approximate expenditure until the end of the current month.

(d) Gold balances of the Hukuang Government Railways accounts in Europe and/or

America.

2. Funds can not be expended for any purposes other than those for which they were requisitioned in the estimate. Should it be found that additional funds are required for unforeseen contingencies during any month, such funds must be requisitioned for under a supplementary estimate, to be dealt with in accordance with the ordinary procedure for monthly requisitions.

3. The monthly estimates and statements above mentioned shall be submitted for sanction before the 20th of every month to the director general of the railways in Hankow, who has been duly empowered by the Ministry of Communications to act as its representative, and copies will be forwarded in due course to the bank and auditors concerned.

After the director general has sanctioned these estimates and statements and after they have been passed with all due dispatch by the auditor concerned, the director general will direct the banks to transfer to China an equivalent amount from the loan funds to be credited to the construction account concerned.

It is understood that the provisions of article 14, paragraph 5, of the loan agreement for the forward settlement of exchange still holds good, subject always to the amounts settled being based upon approximate monthly forecasts by the departments concerned. 4. Funds having passed into construction account are then available for expenditure in accordance with the following procedure devised to meet the conditions of the loan agreement, article 14, paragraph 9, and the letters of agreement of 1st and 3d March, which require that "the accounts of the railways shall be kept in English and Chinese in accordance with accepted modern methods,” and that‍ “they shall be clear for auditing."

(a) All bills and pay sheets must be certified by the heads of the departments concerned, and initialled and chopped as correct by the foreign accountant before they can be paid, with the exception of payments under clause 5 of this memorandum and of the expenditure incurred by district engineers from their imprest accounts.

(b) Wherever practicable, payments must be effected by checks; where payment by check is not practicable such payment will be made in cash by the cashier from an imprest account to be furnished to him by the foreign accountant.

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