"I have the honor to inform Your Imperial Highness that I am in receipt of a letter from Mr. A. W. Bash, agent of the China Investment and Construction Company, requesting me to forward to Your Imperial Highness the inclosed letter, in which he makes application for a concession to provide a loan for the construction of a railway line from Ch'eng-tu, Szechuen, to Chungking and Hankow, in case the viceroy of Szechuen should find himself unable to prosecute his reported plan to raise money from native sources for such a line. He begs that your board will place his application on file. I have much pleasure in complying with Mr. Bash's request, and so forward the application inclosed.' In regard to the above I have the honor to state that the viceroy of Szechuen is even now engaged in selling shares and accumulating capital from Chinese sources for the purpose of building the line from Hankow to the Province of Szechuen. It is not intended that foreign capital shall be used, but if in the future the native capital proves to be insufficient, or if a time comes when they wish to borrow funds from foreigners to fill in with, then will the matter be dealt with as proposed in the letter written by my board to your excellency in the sixth moon of last year (August 15, 1903), and companies composed of Englishmen and Americans will be consulted. As for the application of the China Investment and Construction Company, it can not be conveniently granted for the present. "It is my duty in the premises, therefore, to make this reply to your excellency, that you may be informed of the matter, and I trust that your excellency will issue proper instructions to the above-mentioned company. "I take, etc." Consult For. Rel., 1909, pp. 144-215, and 1910, pp. 269-291, in regard to the negotiations for the admission of the American group to equal participation with the other banks. The terms of cooperation among the banking groups of the four nationalities were settled by an agreement reached at a conference of their representatives at Paris, May 23, 1910, of which the text (together with the minutes of a meeting of their committee on the same date) is thus printed in For. Rel., 1910, p. 280: Inter-Bank Railway Agreement among American, British, French and German Banks, May 23, 1910. "Parties: The British and Chinese Corporation, Limited, Chinese Central Railways, Limited, representing the British group. The Deutsch-Asiatische Bank, representing the German group. The Banque de l'Indo-Chine, representing the French group. "1. The British, German, French, and American groups agree to enter into an agreement with the Chinese Government for a loan of £6,000,000 and any supplementary loans to be issued in connection therewith for the above railways on the basis of the two draft agreements approved by the parties hereto and initialed by them, being the draft original loan agreement, with accompanying despatch and a draft supplemental loan agreement. "2. This loan to be divided equally between the four groups, and to be issued simultaneously. "3. All orders for materials to be divided as far as possible equally between the four groups. 3a. The American group shall share equally in the commissions on the purchase of materials, plant, and goods allowed by the terms of article 18 of the original loan agreement. "4. In regard to the appointment of chief engineers and subengineers for the lines contemplated by the original loan agreement it is agreed that the chief engineer for the Hankow-Canton Railway is to be appointed by the British and Chinese Corporation, Limited; that the chief engineer for the Ichang-Hsiangyang-Kuangshui line and the IchangHanyang line, to the length of about 800 kilometers, is to be appointed by the German group, which is to provide for the appointment by the American group of a subengineer for a section of these lines to the length of about 200 kilometers. With regard to the proposed extension of the line from Ichang or Hsiangyang to Ch'eng-tu, which is estimated to be 1,600 kilometers in length, the chief engineer for the first 400 kilometers is to be appointed by the American group; the chief engineer for the next 600 kilometers is to be appointed by the British group, and the chief engineer for the remaining 600 kilometers is to be appointed by the French group. If the extension of the line above referred to should be less than 1,600 kilometers in length, then the above-mentioned lengths of 400, 600, and 600 kilometers shall abate proportionately. If the extension of the line above referred to should exceed in length 1,600 kilometers, then the appointment of chief engineers of the excess between 1.600 kilometers and 2,200 kilometers shall be apportioned equally between the American, British, and French groups. If such extension should exceed in length 2,200 kilometers, then the appointment of chief engineers of the surplus over 2,200 kilometers shall be divided as nearly as possible equally among the four groups. 5. Each of the groups to apply to their respective bourses for the internationalization of the above loans. "6. The stamp duties on the bonds to be pooled and divided equally between the four groups, but this is not to be treated as a precedent for future loans. All other expenses of issue to be borne by the respective groups. "7. The preliminary expenses incurred by the four groups prior to the signing of this agreement shall be shared by the four groups upon an equitable basis. "For the British group: "For the German group: "For the French group: "For the American group: CARL MEYER. E. C. GRENFELL. H. H. HARJES. "FRENCH, BRITISH, GERMAN, AND AMERICAN GROUPS. "Minutes of a meeting held at the Banque de l'Indo-Chine on 23d May, 1910, of the committee appointed at the meeting of the four groups held that day. "Present: Mr. F. Urbig, in the chair. Mr. M. Casenave. Mr. G. Jamieson. Mr. W. D. Straight. "The following resolutions were passed: "1. Preliminary expenses.-That to carry out and give effect to clause 7 of the agreement between the four groups drafted at the meeting of the groups held that day, the American group pay to the French, British, and German groups respectively the sum of £1,500, being 1 per 1,000 on the share of the loan allotted to the American group. "2. Purchasing arrangements.-That the existing arrangements of article 18 of the original loan agreement be allowed to stand, provided that the two purchasing agents give to the French and American groups a letter in the following terms, and provided moreover that said purchasing agents shall be bound to report as far as possible to any group requesting such information regarding the purchase of materials under the instructions of the director-general in accordance with the provisions of the original loan agreement with accompanying despatch and the supplemental loan agreement: "We beg to inform you that we have been appointed purchasing agents for HankowCanton, Hankow-Szechuen railways, in accordance with article 18 of the Hukuang loan agreement initialed on the 6th June, 1909. "In view of the terms of said loan agreement with accompanying despatch and the agreement supplementary thereto providing for the admission to participation of the American group and securing equal consideration for British, German, French, and American materials and equal facilities for the receipt of tenders in the markets of the four countries, we beg to state that we will take all steps necessary to assure the above-mentioned consideration for French-American materials and make all proper provision for the receipt on an absolute basis of equality of tenders from British, German, French, and American manufacturers.' “3. Commission on materials.—As regards commission on materials it was resolved that one-fifth be retained by purchasing agents to cover expenses; that the balance be divisible; "On Hankow-Canton: One-fourth each to the British and Chinese Corporation, Limited, the French group, the German group, and the American group. "On Hankow-Szechuen: Two-fourths to Chinese Central Railways, Limited, onefourth to the German group, and one-fourth to the American group. "4. Rotation of purchasing agents. It was also resolved that upon any new loan being negotiated for the purposes of the extension referred to in article 4 of the agreement of the 23d May, 1910, the group which is entitled to the appointment of chief engineer shall be entitled to nominate the purchasing agent. "(Signed) F. URBIG. In connection with the loan agreement of May 20, 1911, consult the following correspondence supplementary thereto : Exchange of Communications between Ministry and Banks, March 1 and 3, 1913. The Minister of Communications to the representatives of the Deutsch-Asiatische Bank, the Hongkong and Shanghai Banking Corporation, the Banque de l'Indo-Chine and the American group. "Gentlemen: [Official translation, as printed in Wang, p. 585.] "Peking, March 1, 1913. "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 more than 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 have agreed 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. 44 The method of procedure decided upon, under four headings, is as follows: "1. It has already been arranged that the Ssu-ch'uan Commercial Railway shall be taken over and operated by the Government. The Commercial Railway line of the CantonHankow Railway in Hunan has already been taken over by Director General Huang in Hunan. The survey of the Canton-Hankow Railway in Hupei 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 the Ta-Ching Bank. It is now agreed that the funds transferred to China shall be temporarily deposited with the Deutsch-Asiatische Bank, the Hongkong and 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 established 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 Chiao-Tung 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 guarantee 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 guarantee of the security shall be immediately cancelled and annulled and it shall be unnecessary to substitute this with any other guarantee. 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 storeyards 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., (Signed) 66 CHU CHI-CHIEN The Representatives of the Banks to the Minister of Communications. [Text as printed in Wang, p. 591.] (SEAL) "Peking, March 3, 1913. 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, as follows: [Headings 1, 2, 3 and 4 as in the letter of the Minister of Communications, above.] "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. 64 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 Hupei-Hunan section of the Canton-Hankow line and the Hupei section of the Hankow-Ssu-ch'uan 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 and Shanghai Banking Corporation. E. G. HILLIER, Agent. (Signed) H. CORDES. (Signed) R. SAINT PIERRE. (Signed) F. H. McKNIGHT." Memoranda of September 12, 1913, and Accompanying Correspondence.* Gentlemen, Director-General Feng to Representatives of the Four Groups. "Peking, 12th September, 1913. "I have the honour to acknowledge the receipt of your letter of September 4th with reference to the omissions to be made in the Draft Memorandum of September 3rd., 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 3rd 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 * Translation. Bank's print. 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 II (Draft of 3rd September.) "District Engineers will have charge of all stores and materials in their districts, and will be authorised 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 Engineerin-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 honour to be, Gentlemen, "Your obedient servant, Director-General Feng to Representatives of the Four Groups. "Sirs, Deutsch-Asiatische Bank, Banque de l'Indo-Chine, and "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 Materials 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 favoured with your reply confirming the same. In order to put into operation the terms of the Letters of Agreement of March 1st and 3rd 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. "Memorandum of Procedure for the Transfer and Expenditure of Funds. "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. 66 66 (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 cannot 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 Banks 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. 66 |