the Government that something was being done; furthermore, it was anticipated that there would be no difficulty in settling terms when the results of the survey were known, and consequently an expedition, under the late Captain Rich, was despatched in November over the projected route. Starting from Hankow, they arrived in Peking in the early spring of 1897, and in due course presented a report upon which all subsequent estimates for the line have been based.

Meanwhile, a new factor had been imported into the situation in the shape of a Belgian syndicate, which subsequent events showed to be a Franco-Belgian combination with Russian proclivities, designed to assist the achievement of the long-cherished ambition of France to join hands across China with her great northern ally. H.E. Sheng quite properly proceeded to take advantage of the competition; it was only unfortunate from the American point of view that he allowed his discrimination to be outweighed by his zeal to secure a good contract. The Americans were ready with a more or less reasonable business proposition. The Belgians, on the other hand, bent on obtaining the concession, were apparently willing to undertake the work on practically any terms that might be offered. The Belgians accordingly carried the day.

It is perhaps of interest to recall the language in which on a subsequent occasion Sheng gracefully paraphrased the situation:

"Your Memorialist, Sheng, had the intention of employing American capital for the construction of the Lukouchiao-Hankow line, but afterwards when the American, Washburn, came to China his conditions were found too hard, and consequently negotiations were broken off. Your servant was thus constrained to approach Belgium."

And again:

"Negotiations were first opened with American merchants, which failed owing to their demanding too many powers. Then with British merchants, who were very much the same, which would have caused some scores of years of harm, and the Memorialist was much disheartened, both at the disadvantages to be dealt with in borrowing the money, as well as the difficulties which would be met with in the repayment of it; and though his pen is worn, and his lips are parched with talking, he has not ventured to settle matters thus out of hand. In the spring of last year the Memorialist hurried up to Wuchang to decide definitely how matters should be settled with Chang Chih Tung personally, when just at this time some Belgian merchants approached him through the medium of the Belgian Consul at Hankow, and

matters were discussed. The several important points that were wrangled about with the British and Americans were brought forward, and our demands were all agreed to by the Belgians without further discussion. Chang Chih Tung and the Memorialist talked the matter over privately, and came to the conclusion that Belgium was but an iron and steel manufactory, and acknowledged to be a small country, without any wish for aggrandisement, and that borrowing money from them would be most advantageous, and attended with but little risk. So we left the British and American alone and took up the Belgians, and Your Majesty has been thoroughly informed of the two agreements then made."

A foreigner of some experience in such matters recently expressed his conviction to the writer that, broadly speaking, to achieve success in negotiations with Chinese it is sound policy, within limits, to sign your agreement first and discuss its terms afterwards. In other words, obtain a grant of the rights you require in principle, and then, with the aid, if necessary, of your Minister in Peking proceed to dictate to the Chinese the conditions on which it is to be held. It is said that thus you satisfy the natural weakness of the Chinese character for appearances.

In the present case this is precisely what occurred. While the Americans were bargaining, the Belgians were accepting the Chinese terms. As Sheng himself put it: "Our demands were all acceded to without further discussion." It was perhaps scarcely surprising that a contract was in due course signed between the Belgian Syndicate and His Excellency in June 1897.

It was soon found, however, that financiers in Europe could do nothing with the contract in its present shape, and it became necessary to obtain more attractive terms. The second stage in the process above indicated had been reached, and resort was had to diplomatic pressure in Peking, negotiations being opened up with the Tsung-li Yamen by the Belgian Minister, backed up by the representatives of Russia and France.

Although it was known that the concession of 1897 had been granted and had proved unworkable, and that diplomatic efforts were being made in Peking to obtain improved terms, the British Minister does not appear to have thought it necessary to take any particular action in the matter. He relied on an assurance from the Yamen that the syndicate was a bona fide Belgian affair, and on the fact that he had secured the insertion in the original agreement of a clause restraining alienation to any other foreign Power. It must also be added that he was not aware of the active interest

which was being displayed by France and Russia, and consequently did not realise the significance of what might at any moment develop into a political movement against British interests in the region of the Yangtze, if indeed it was not in intention already such.

The first warning note apparently was struck by Dr. Morrison in a telegram to The Times in May 1898. It was followed by the first manifestation of uneasiness on the part of the British Government. But, unfortunately, matters were too far advanced for any effective action to be taken, and in the course of a few weeks the revised contract was duly executed.1

The telegraphic interchange of instructions and information which passed at that time between London and Peking form an instructive comment on the methods that have sometimes been employed to safeguard British interests in China. Brief, significant, almost pathetic in their newly awakened anxiety, these messages also record the detailed history of those few weeks, and will be found to repay perusal by those at all interested in the course that events took in Peking at that time.

In Paris no secret was made of the part played in the transaction by French diplomacy. An official communiqué from the Ministry for Foreign Affairs which appeared in Le Temps on the 28th of June, while speaking of the important part reserved to French industry in providing material for the line, frankly congratulated the country on a success achieved "at a time when the railroad question was destined to play so important a part in the relations of China with the Powers."

A further triumph awaited them. The agreement had so far only received Sheng's signature; it had still to be ratified by the Government before becoming effective. And to this ratification Sir Claude MacDonald opposed the strongest objections. The news of the signature of the agreement had, in view of recent developments, aroused consternation in London, and the China Association addressed Lord Salisbury on the 8th of July in terms which showed that they were fully alive to the dangers with which British interests were threatened. Stress was laid on the political element in the concession that had been granted, and it was pointed out that circumstances were conceivable in which " preferential freight and differential rates might be made to subserve national ends." 1 The contract was contained in two agreements, a loan contract and a working agreement; vide Appendix B, Nos. 1 and 2.

"State finance," they urged, referring to the interest of the RussoChinese Bank in the matter, " must be opposed by State finance," and a suggestion was put forward that Her Majesty's Government should guarantee a loan for the purpose of constructing the line.

On this proposal being rejected it was suggested that the rights for this line should be taken over in exchange for the rights in connection with the Imperial Chinese Railway extension to Newchwang. But though instructions were telegraphed to Sir Claude MacDonald to negotiate on these lines, it is not clear that he took any steps to that end. He not improbably realised that the proposition was an impossible one. Li Hung Chang was in Peking with influence scarcely impaired, and he was certainly too astute a statesman to fail to realise the value to China of British interests in the north, nor despite his friendliness to Russia was he desirous of assisting the attainment of her ambitions on the scale that would result from gratuitously providing her with such a weapon as the northern line. On the foreign side the Belgians with their growing interests on the Yangtze could hardly have been brought to agree to the proposal, while the French would doubtless have opposed with all their influence an exchange from which they would not only derive no advantage, but which would place a final bar on the attainment of their trans-China railroad ambitions. There was thus no prospect of an adjustment on these lines, and further action seemed to wait on future developments.

Early in August a Shanghai newspaper published what purported to be a copy of the contract with the Belgian Syndicate. This contract Sir Claude MacDonald had frequently requested to be allowed to examine, but had always received the answer that the Tsung-li Yamen had not yet themselves been furnished with a copy. On seeing it, as published in the Shanghai Press, strong representations were made by despatch and by the Minister in person to the Chinese Government on the subject of the financial part to be played by the Russo-Chinese Bank. British opposition to the grant of the concession had from the outset been based on the suspected introduction of Russian influence. There was no objection to legitimate commercial enterprise in the Yangtze Valley region, but the construction of a railway which might be devoted to the attainment of political ends involving possible ultimate territorial aggrandisement at the expense of British trade interests could not, of course, be suffered to pass unchallenged.

Anterior, therefore, to the signing of the contract by Sheng, the Tsung-li Yamen had been asked for and had given assurances that the Russo-Chinese Bank was not interested in the scheme. Consistency now demanded of the Chinese an explicit repudiation of the terms of the contract as published in Shanghai, and an undertaking by the Chinese Government that any clauses admitting the Russo-Chinese Bank to participation in the contract should not receive Imperial sanction.

Such an undertaking was solemnly given by the Tsung-li Yamen to Sir Claude MacDonald on the 6th of August. Three days later, however, it became known in the British Legation that the Yamen had resiled from this position, and all attempts of the British Minister to approach the authorities were frustrated. On the 12th of August the agreement was ratified, and Sir Claude MacDonald wrote to Lord Salisbury:

That the ratification has thus been rushed through is undoubtedly due to the influence of Li Hung Chang, combined with strong pressure on the part of the representatives of Russia, France, and Belgium."

He added:

"If heavy payment is not exacted from the Chinese Government for their bad faith, Li will persuade his colleagues that it is safer to slight England than any other Power, and any pressure which we may want to bring to bear in other matters will be without weight." 1

Lord Salisbury's reply was an authorisation to insist on immediate completion, on terms identical with those contained in the Peking-Hankow contract, of the following concessions, which had been under negotiation for some time: the lines radiating from Shanghai under negotiation by the British and Chinese Corporation; the Canton-Kowloon line, and the lines projected by the Pekin Syndicate in Honan and Shansi.

This stronger tone had the desired effect. On the 14th of September the Tsung-li Yamen gave a satisfactory undertaking in regard to these concessions, to which opportunity will be taken of referring in detail later.

To return, the revised arrangement that had been come to was embodied in two documents, a loan contract and a working agreement. Under the former, provision was made for the issue of a loan of 112,500,000 francs to be represented by 500 franc bonds,

1 Blue Book No. 1 of 1899. No. 287.