ARTICLE 3.—In view of the Company's successful administration of the South Manchuria Railway, the Government will specially commission the Company to direct the affairs of the Railway in its stead during the term of the loan.

But when the loan is redeemed in full, the Company will hand back the property, rolling stock, and equipment, everything in good condition, to the representative of the Government.

ARTICLE 4.-In order to effect the object referred to in the preceding article, the Company will select three Japanese as directors (Chu Jen), to occupy the offices of Director of General Affairs (Kung Wu Chu Jen), Traffic Director (Yün Shu Chu Jen), and Accounting Director (K'uai Chi Chu Jen). Their salaries will be arranged by the Government and the Company.

The Company must communicate the names and records of the directors, referred to in the preceding paragraph, to the Ministry of Communications before they can take office, and the same procedure shall apply when they are changed.

The Company will select one of the directors, referred to in the first paragraph of this article, as its representative, to carry out the powers and obligations of the Company as defined in this agreement.

In matters of importance the Company's representative or a director must first consult with the Chief of the Administration before taking action. If they can not come to an agreement, both parties will separately refer the matter to the Ministry of Communications and the Company to be decided.

The orders for all receipts and disbursements of the Railway must be signed in conjunction with the Chief of the Administration before they can be valid.

The fixing of freight rates, as well as the raising and lowering thereof and the granting of exemptions therefrom, and also the fixing of all regulations, can be published only after consultation with the Chief of the Administration.

ARTICLE 5.-The appointment, dismissal, promotion, and salary arrangements of the Chinese and Japanese employees of the Railway, with the exception of the directors, will be fixed by consultation between the Chief of the Administration and the Company's representative. But employees of Chinese nationality will be proposed by the Chief of the Administration, employees of Japanese nationality by the Company's representative.

ARTICLE 6. In case employees of Japanese nationality should come within one of the following categories, the Chief of the Administration will at once notify the Company or the Company's representative to have them immediately dismissed:

Those who (1) Are unfit for their positions. (2) Show lack of application, (3) Disobey the rules, (4) Break the law, (5) Insult their superior officers.

ARTICLE 7.-During the period that the Company administers the affairs of the Railway, the Government and the Company, after consultation together, will arrange to have turned over to the Company 20 per cent of the profits of each working period which remain after being applied to the redemption of the capital and the payment of the interest of the loan, the principal and interest of the sums advanced by the Government under the second paragraph of Article 8, and the principal and interest of the loans made by the Company under the third paragraph of the same article.

ARTICLE 8.-Whenever the receipts from the working of the Railway are insufficient to meet the expenses, the Government will act in accordance with the usual procedure in force in connection with necessary appropriations for carrying on ordinary enterprises.

The appropriations referred to in the preceding paragraph will pay interest at the usual rate and, as soon as receipts exceed expenses, will become a first charge on the surplus in favor of the Government.

In case the necessary appropriations referred to in the first paragraph cannot be raised by the Government, they will be loaned by the Company at the usual rate of interest, the loan to be repaid to the Company as soon as receipts exceed expenses.

ARTICLE 9. The freight receipts and other income of the Railway will be paid in Chinese currency and deposited in Japanese banks, the method of deposit to be decided upon later in conjunction with the details in regard to the loan.

ARTICLE 10. In the purchase of machinery and supplies for the upkeep and traffic requirements of the Railway preference will be given to those produced in China, if equal in price and quality to those produced in foreign countries.

When the machinery and supplies for the upkeep and traffic requirements of the Railway, referred to in the preceding paragraph, are purchased, no matter whether they are Chinese or foreign, a statement thereof must be drawn up and first submitted for the inspection of the Chief of the Administration.

ARTICLE 11.-During the term of this agreement the Government may not assess any special taxes upon the Railway or the profits of the Railway. But the Railway will be responsible for the payment of taxes collected generally upon all railway lines.

ARTICLE 12.-The rights of policing, administration, jurisdiction, and taxation on the Railway and on land used by the Railway are naturally vested in the Government.

ARTICLE 13.-Chinese troops or military material will have priority in transportation, the transportation procedure to be in accordance with the general regulations governing Chinese railways built by loan and also at a discount of 50 per cent of the freight table to be fixed later.

ARTICLE 14. The general regulations of the Ministry of Communications applicable to all railways will also be observed by the Railway. But if, owing to special conditions in connection with the Railway, they should be difficult to apply, the matter should be reported with a statement of the facts to the Ministry of Communications.

ARTICLE 15.-For the protection of the whole line a police force will be established, the officers and men of which will be made up entirely of Chinese, and supported out of the receipts of the Railway.

In case Chinese national troops or provincial troops should be required for the protection of the Railway, their salaries, etc., should be defrayed by the Chinese Government or the provincial government concerned.

ARTICLE 16.-—If the Chinese employees of the Railway or their children desire to study at the schools managed by the Company they will be permitted to do so free of charge as an evidence of good will.

ARTICLE 17.-If in the future the Government should require to construct branch lines or extensions of the Railway it will do so with Chinese capital. But if it should require to use foreign capital, except as stipulated by agreement otherwise, priority will be given to the Company to undertake the matter as a commercial enterprise. The mileage of the branch lines or extensions will be fixed by the Government.

ARTICLE 18.--In order to increase the profits of the Railway and with the object of establishing complete connection with the South Manchuria Railway, the Government and the Company will each appoint Deputies to consult together and arrange the following matters:

(1) Traffic connection between the Railway and the South Manchuria Railway.

(2) The connection of T'ou Tao Kou station on the Railway with the Company's Changchun station and the procedure in regard to the use of the stations in common.

(3) The improvement and completion of the Railway and the drawing up of estimates of necessary expenditures.

The necessary expenditures above referred to can be arranged at the proper time by means of a loan between the Government and the Company. ARTICLE 19. The details in regard to the loan will be arranged by separate agreement.

ARTICLE 20.-This Agreement will be drawn up in Chinese and Japanese and four copies made of each text, of which three of each will be deposited with the Chinese Government and one of each with the Company. Dis

agreements in regard to the interpretation of the meaning of this agreement will be decided by the Japanese text.

12th day of the 10th month of the 6th year of the Republic of China. Minister of Finance.

Minister of Communications.

12th day of the 10th month of the 6th year of Taisho.

Representative of the South Manchuria Railway
Company.

Manager.

No. 42

JAPAN (Industrial Bank of Japan, Bank of Chosen, and Bank of Taiwan) AND CHINA

Preliminary agreement for a loan for the construction of the KirinHueining Railway.'-June 18, 1918

For the purpose of constructing the railway from Kirin, in the Republic of China, to Hueining, through the Southern part of Yenchi (Chientao) and the Tumen River, the Government of the Republic of China (hereinafter called A) hereby enters into the present preliminary agreement with the three Japanese Banks, the Industrial Bank of Japan, the Bank of Chosen and the Bank of Taiwan, represented by the Industrial Bank of Japan (hereinafter called B) as the basis of a formal loan agreement for the same Railway:

ARTICLE 1.—A shall with due promptness outline the amount of funds required for the construction of the railway and other items of necessary expenditure and bring it to the notice of B for its consent.

In accordance with the amount of funds required as referred to above, B shall issue 5 per cent. public loan bonds of the Republican Government of China in gold currency for A.

ARTICLE 2.—The period for the redemption of the present loan shall be limited to forty years. Redemption of the loan shall begin from the 11th year calculating from the date of the issue of the bonds and the method of yearly instalment redemption shall be followed.

ARTICLE 3.-As soon as the formal agreement for the Kirin-Hueining Railway loan is signed, A shall begin to construct the line so as to hasten its completion.

1 MACMURRAY, vol. II, p. 1430, translation from Chinese text as published in the Government Gazette of June 29th, 1918. See also Note to this document, post, p. 200.

ARTICLE 4.-A shall build the railway bridge over the Tumen River conjointly with the Railway Department of the Office of the Japanese Governor General for Korea and shall share half of the expenses thereof. Regarding the through traffic between this railway and the railway in Korea, a separate agreement shall be entered into with a view to developing the traffic and securing the smooth co-operation of the two railways concerned.

ARTICLE 5.—A shall pledge the following assets to B as security for payment of interest and redemption of the present loan bonds:

All the property owned by and the revenue due to the railway either at present or in the future.

Without the approval of B, A shall not offer either the property or the revenue of the railway to others as loan security.

ARTICLE 6.-The actual amount of funds to be received by 4 out of the issue of the present loan bonds shall be such as to be more profitable to A than what is stipulated in the Ssupingkai-Chengchiatun1 Railway Loan Agreement concluded on December 17 of the 4th year of the Republic.

The rate at which the present loan bonds are to be issued shall be fixed according to the circumstances under which they are issued.

ARTICLE 7.-Regarding the particulars which are not provided for under the foregoing articles, they shall be decided upon by A and B in accordance with the Tientsin-Pukow Railway Loan Agreement signed on the 10th of the 12th moon of the 33rd Year of Kuanghsu.2

ARTICLE 8.-The present preliminary agreement shall be the basis of the formal agreement for the Kirin-Hueining Railway Loan, which shall be concluded within six months after the conclusion of the present preliminary agreement.

ARTICLE 9. Upon the conclusion of the present preliminary agreement, B shall pay to A an advance of $10,000,000 in full without any deduction for commission.

ARTICLE 10.—The advance referred to above shall bear 71⁄2 per cent. interest per annum; that is, 71⁄2 yen shall be paid for the yearly interest of every 100 yen.

ARTICLE 11.-The advance shall be paid to A in specie in exchange for the Treasury Notes issued by A.

ARTICLE 12.-The Treasury Notes mentioned in the foregoing article shall be subject to change every six months. At each occasion of their change for new ones, the interest due for the said period shall be paid to B. ARTICLE 13.-After the conclusion of the formal agreement for the Kirin-Hueining Railway Loan, the advance shall have the preferential right

1 No. 37, ante.

1 MACMURRAY, vol. I, p. 684.