Papers Relating to the Foreign Relations of the United States, Transmitted to Congress, With the Annual Message of the President, December 2, 1878

No. 85.
Mr. Seward to Mr. Evarts.

United States Legation,
Peking, March 22, 1878. (Received May 16.)

No. 424]

Sir: Some three or four years ago a plan was agreed upon by tire viceroy of Tientsin and certain Chinese to work coal mines in the southwestern part of this province, and a gentleman long resident at Tientsin was dispatched to England to purchase machinery and to engage mining superintendents. The plan was considered by those foreigners who examined into it as not likely to give good results, and in point of fact it failed before operations had been fairly begun, it having become evident that the outlays required were much larger than the first estimates.

Of late, a more promising project has been brought forward by Mr. Tong King-sing, whose name will be familiar to you as one of the managers of the Chinese Merchants’ Steam Navigation Company. It appears that he has examined a district to the north of Tientsin, and found there coal and iron in adjacent beds; that specimens of both have been submitted to analysis, and found equal to inferior English coal and iron; and that, after computing the cost of constructing works at the mines and a railway to a neighboring river, he believes that mining operations can be undertaken at a profit. He reports all this to the viceroy, who concedes the permission asked for, and directs two officers to associate themselves with Mr. Tong King-sing, “for the organization of a financial scheme and the, arrangement of all preliminaries.” They report in turn regulations under which a commercial company may be formed to carry on the proposed operations. The viceroy having approved these, the prospectus of a proposed company was at once issued.

It may be accepted as certain that coal and iron exist in the given district, and that the promoters of the enterprise are in earnest in their desire to work the mines. The amount of capital which is required, however, is large, about $1,100,000, and it is by no means sure that this can be secured. It is always possible that official hostility may at any moment be developed. Aside, therefore, from any question as to the merits of the scheme in a strictly commercial point of view, it is not unlikely that the undertaking will fail, either in the outset or later on. The fact, however, that the viceroy has twice formally approved proposals to undertake mining operations is of much importance to the cause of progress, and cannot but encourage enterprises which will be successful.

It is to be regretted that the promoters of the given enterprise are not at liberty to choose their field of operations. A few miles to the west of Peking are some of the finest coal mines in the world, and iron is found in the same neighborhood. These mines could be worked with more certainty and at less expense, in all respects, than those in the other district; and in the great matter of transportation they are far more favorably circumstanced. The government, however, is rigidly opposed to the introduction into them of foreign machinery, or the construction of a railroad or tramway from them to this city, to the river near here, or to Tientsin. As a consequence, all ideas of working them must be dismissed.

I have, &c.,

GEORGE F. SEWARD.

[Inclosure in dispatch No. 424.]

the proposed chinese mining company.

[From the South-China Daily News, Shanghai, February 12, 1888.]

The Shên Pao has recently published the full text of the interesting reports from Mr. Tong King-sing to the grand secretary, Li Hung-chan, upon the capabilities of the coal and iron districts to the northwest of Tientsin, which were inspected by him in October last, in company with Mr. Morris, a mining engineer. We have already reprinted some extract translations from the China Mail; but a connected summary of the pamphlet will not be without interest to many of our readers:

The first paper gives a general report of his visit. He left Tientsin on the 24th October in a small steamer for Peh-t’ang, where he found a good anchorage with as great a depth of water as at Taku. On the second day he reached Lu-t’ai, a town of some importance, about 30 miles up the Peh-t’ang River. Here he left his boat and struck Inland, halting the first night at a village called Wang-Ian, near to which is a river, communicating with the sea. The river takers its rise some 14 miles above K’ai-p’ing, a small town situated in the heart of the mining district. There is a fair depth of water as far as K’ai-p’ing, but the river is, so tortuous in its course, and spanned by so many bridges, as to render navigation difficult.

On the second day after leaving Lut’ai, he reached the town of K’ai-p’ing above mentioned, and during the three following days was engaged in surveying the neighborhood within a radius of eight or ten miles, in search of coal and iron ore. The result was encouraging; specimens of coal and iron ore were collected and subjected to analysis, the details of which are given in a separate report, to which we shall refer later on.

Section 2 treats of the general features of the country. He remarks that in the northern portion of this district, a continuous chain of hills runs from west to east for a distance of nearly twenty miles. At the foot of this range, and close to it, there is a chain of low hills running parallel to it, which doubtless at some remote period formed part of the base of the larger range. In the smaller range, iron was found; while the space between the low hills and the higher ones is full of coal mines. These latter have been in existence since the time of the Ming dynasty, and the country is covered with the traces of old workings, while some scores of pits are still in active work. He descended some of the pits, and found in some places that they had been sunk in a solid bed of coal; in others, the seam appeared on one side only. Pieces of coal were lying about in all directions on the surface, affording ample proof of its abundance. He was informed by the miners that in no single instance had they reached the bottom of a seam, from which it may be inferred that there is plenty of it underground. Here follows an explanation of the origin of coal, with an illustration of the reason why it should be better the deeper it is worked. He was told by Mr. Morris that only one description of coal was worked in the district, of which he estimated there were at least six million tons. In foreign countries one description of coal is never found alone, and although the miners were unaware of the existence of other kinds, Mr. Morris was of opinion that it would be found that they existed in still larger quantities.

Section 3 describes the working of the mines by the natives. All the mines are private property, and worked by private individuals. The pits are from 7 to 8 feet in diameter, with a depth varying from 60 to 160 feet. They are cut in an oblique direction, and the sides shored up with wood every 4 or 5 feet. The miners dig on till they get to water, and then their troubles begin. They do not know how to pump out the water, and the workings get clogged with mud, till, finally, they have to be abandoned altogether. This is not the only difficulty to be contended against. They lose the run of the seam, and cannot recover it; the sides of the pit fall in; foul air accumulates, or the workings catch fire, all of which possibilities render mining a dangerous employment. Profits, too, are extremely small. A picul of coal at the pit’s mouth is worth one mace five or six, and broken coal about a mace; while one man cannot dig more than five or six hundred catties a day, from which it may be seen that mining is not a very profitable speculation.

Section 4 contains an explanation of the foreign system of working mines.

He then turns (section 5) to the iron-producing capabilities of the district. At Fêng-shan, near to K’ai-p’ing, the iron runs in a line following the base of the hills for a distance of about 15 miles, showing above the surface in some places, in others lying below it. Sometimes it is found in a single vein, in some places there are two distinct veins. These veins or strata are from 40 to 50 ch’ih (feet) in width, and of an unknown thickness. By the side of the iron ore, limestone is to be found, and below the iron is also coal; a remarkable instance of the economy of nature in her provisions for the benefit and profit of mankind. For, to smelt a picul of iron ore, 70 catties of lime and 3 piculs of coal are required; if these are not found in proximity, transport adds greatly to the cost of production. The natives appear to be ignorant of the properties of iron ore, although it is lying about all around them, and have no idea of the proper way to smelt it; in fact, there is really only one proper method of smelting it, and that is by the foreign plan with foreign machinery. There are no graves about Fêng-shan, and the country is sparsely populated, the only inhabitants being miners. The mines are the property of private individuals, who would be only too glad to part with them. The land belongs partly to the government and partly to private individuals, who are quite ready to dispose of so barren a soil.

Three specimens of iron ore were collected: a red ore (specular?), an ore of a brownish hue (ochry-red ore?), and a yellow ore with bluish-black spots (iron pyrites?). The first kind was taken from the stony soil at the base of the hills; the second from the hill-side; and the third from the top of the hills. Each specimen apparently contained about three-tenths of metal.

Section 6 is an estimate of the cost of working the Fêng-shan iron in the foreign way. The following are the figures given:

For smelting a picul of iron:

	Tls.	m.	c.
Lime, 70 catties, cost	0	0	7
Coal. 300 catties	0	3	0
Porterage	0	1	0
Total	0	4	7

Or, say, one ton of iron can be produced at a cost of 8 taels. In England, iron costs at the pit’s mouth from 10 to 12 taels per ton.

Add to this the price of coal for smelting, about 5 mace per picul of iron, thus raising the cost of production to about 1 tael per picul. The price of iron in China is at present about 2.2 taels per picul. A smelting-furnace will smelt 600 tons a month. If prepared iron be worked at the same furnace, the outturn will be 1,000,000 catties (or, say, a little over 400 tons).

Section 6 is followed by a comparative statement of the value of K’ai-p’ing coal (section 7). The coal is light and loose, burning greatly to ash, for which reason steamers visiting Tientsin will not burn it.

English Coal costs at Shanghai	8 taels per ton.
Sinnan (?Sydney) coal	7 taels per ton.
Japan	6 taels per ton.
Taiwan, 4.5 taels to	5 taels per ton.

K’ai-p’ing coal would probably command Taiwan coal prices.

K’ai-p’ing coal sells on the spot for 0.1.6 tales per picul, or 2.7 taels per ton. The cost of cartage per ton to Lut’ai would be 200 odd large cash per picul, or 2.2 taels per ton. The freight by boat from Lut’ai to Tientsin is estimated at 0.5 taels per ton, and coolie hire at Tientsin is put down at 0.2 taels. This gives the following figures:

	Tls.	m.
Price of Coal at pit’s mouth	2	7
Cartage to Lut’ai	2	2
Boat hire	0	5
Coolie hire	0	2
	5	6
Steamers purchasing coal have to pay a duty per ton of	0	7
Add coolie hire	0	1
This gives a total of taels	6	4

It is hardly strange, therefore, that steamers will not use it.

Now, suppose the coal were worked by the foreign method, the following would be the figures:

	Tls.	m.
Price at pit’s mouth	1	0
Expenses as above	3	7
This would reduce the price at which it could be put on board ship to	4	7

The coal might find purchasers for local consumption at this rate, but it could not compete with foreign coal in Shanghai; for 1 tael odd per ton has still to be added for freight to Shanghai and porterage; this does not include duty and godown rent, of 6 mace, which would raise the cost to over 6 taels. Even if, as on Taiwan coal, a duty of 1 mace per ton only were to be levied, the cost of laying it down in Shanghai would still be 5.5 taels. This does not provide for a difficulty which working the mines on the European principle would still entail, viz, want of means of transport. An outturn of from 5,000 to 6,000 piculs a day would require 300 large carts to carry it away. Not only are there not so many forthcoming, but a demand for them would raise the cost of cartage. Hence it is apparent that 5.5 taels is a low estimate of the cost of laying down the coal at Shanghai.

Now, suppose a line of railway were laid down from K’aip’ing to Lut’ai. The figures would then be:

	Tls.	m.	c.
Coal at pit’s month	1	0	0
Railway carriage	1	1	0
Freight to Shanghai	1	1	0
Loading and discharging	0	4	0
Half-duty export and import	0	1	5
Brokerage at Shanghai	0	2	0
Godown rent	0	1	0
Total	4	0	5

This would permit of coals being laid down at Shanghai at, say, 4 taels per ton, which would not only enable the coal to hold its own against foreign coal, but yield a profit of 5 mace. Suppose 150,000 tons were produced a year, the profit would then be 75,000 taels.

If, therefore, it be a desideratum to drive foreign coal out of the market, and at the same time to give to the steamers of the China Merchants’ Company return freights amounting to tls. 100,000, it can only be effected by the adoption of a railroad.

Having explained that a railway is essential to the profitable working of the mines, Mr. Tong-king-sing proceeds to submit an estimate of the probable cost of the line required. It should run from K’ai-p’ing to the mouth of the Chien River, a distance of 100 li (about 36 miles).

The following are his figures:

	Tls.
Purchase of land, 18mow, for each li a tls. 10; cost for 100 li	18,000
Ballast for each li a tls. 450; cost for 100 li	45,000
Bridges over roads (?)	10,000
Watch-towers, & c	10,000
Machinery, trucks, and cars	8,000
Wood-work (sleepers?) per li, tls. 500; cost for 100 li	50,000
Iron work (rails?) per li, tls. 2,000	200,000
Labour per li, tls.100	10,000
Stone-work per li, tls.250	25,000
Construction of wharves	24,000
Total	400,000
Estimating-the carriage of coal on this line at 15,000 tons per annum, a saving on cartage from K’ai-p’ing to Lut’ai would be made of	330,000
Deduct half this amount as the cost of freight to Shanghai	165,000
And there will be an actual saving of, say.	165,000
Again, estimate the annual saving on the cartage of 200,000 piculs of iron at	30,000
And a total saving is shown of	190,000

Thus, it is manifest that, reckoning in round numbers, in two years the line will clear itself.

The annual traffic and passenger receipts will just meet expenses on account of rent, labor, &c.The above figures are based upon the present ruling prices at Shanghai of Taiwan coal (tls. 4.5 per ton), and iron (tls. 2 per picul); any increase on these quotations will, of course, yield larger returns.

Section 9 deals with estimates of the, cost of working iron.

Chinese do not make much use of cast iron. Arsenals and artificers in iron employ chiefly wrought iron. Two sets of smelting furnaces for cast iron would turn out 600 tons per month. Twenty furnaces for wrought iron would produce 1,000,000 catties per month. The furnaces would cost, inclusive of freight and insurance, tls. 200,000. The probable cost of conveyance of these furnaces to K’ai-p’ing, setting them up, and erection of buildings, dwelling-houses, &c., would raise the estimate to tls. 300,000. They would produce annually 120,000 piculs of wrought iron; value, at present rates, tls. 260,000 odd. The out-turn of cast iron would be 7,200 tons; value, at present rates, tls. 140,000: or, the out-turn of the furnaces would amount together to—

		Tls.
Wrought iron		260,000
Cast iron		140,000
Total		400,000
Deduct from the above labor and capital, tls	180,000
Wages of Chinese and foreign workmen and superintendents, with maintenance	50,000
Duties	30,000
Freight, porterage, and godown rent	40,000
		300,000
This leaves a balance of		100,000

Plant for coal-mines, wood-work, and sheds for storage, with wages of foreigners, and purchase of many necessary appliances, would entail altogether an expenditure of tls. 100,000. As, however, has been already shown, to work the coal at a profit, a railway must be constructed,-and to construct a railway, iron must be procured. Iron and coal are inseparable, and should be worked together. The following estimate is therefore arrived at:

	Tls.
Purchase of plant for working coal and iron	400,000
Railway, as by estimates given above	400,000
Total	800,000

These are large figures, and it will not be easy to raise so great a sum; it is therefore proposed to proceed by degrees. An immediate call of tls. 300,000 might be made, which will be devoted to the purchase of plant. The first call should be followed during the succeeding year by a second for a similar amount, which might be made to suffice for the purchase of land, construction of a railway, and the initiation of coal-mining smelting operations. The railway once completed will in a year yield a profit

of tls	190,000
Add profit on coal	75,000
Add profit on iron	100,000
Total	365,000

Hence, in two years the profits would cover the original outlay, and afterward an annual income would he made of more than taels 300,000.

(Note.—These last figures are somewhat ambiguous. It is first stated that tls. 800,000 will be required, and immediately afterward it is proposed to undertake operations with a capital of tls. 600,000 only.)

As operations involving so large an outlay should not be entered upon without great caution, specimens of the iron have been sent abroad to be analyzed. If they should be found to reach a standard of 40 or 50 per cent., machinery should be purchased. Mr. Tong-king-sing awaits the report on the quality of the iron before making any suggestions as to the advisability of leaving the execution of his scheme in the hands of the government or vesting it in a company.

This closes the first report.

Paper II is, like the preceding one, divided into various sections, the first of which embodies an analysis of the different specimens of coal and iron gathered at K’ai-p’ing. These are found to be of inferior quality to the best kinds of English coal and iron, but to compare so favorably with the medium qualities as to warrant their being worked. Mr. Tong-king-sing is of opinion, however, that the responsibility and charge of so great an undertaking should be intrusted to competent agents, whose authority should be absolute and undivided, economy and caution being the two great principles to which chief prominence must be given.

Section 1 is followed by a series of short essays or arguments, pointing out the immense advantages to be derived by the adoption of the scheme proposed.

In No. 1 it is shown that Great Britain produces annually 3,412,000,000 tons of coal and 6,000,000 tons of iron, which distributed over a population of 33,000,000 gives a yearly income of more than tls. 10 per head. China derives no such income from her natural resources, although her population and area is ten times greater than that of Great Britain; but, on the contrary, pays away annually between six and seven million taels in the purchase of foreign coal. In China, reeds, stalks, and timber are chiefly used for fuel. One picul of coal is equivalent to several piculs of wood, and is much cheaper; a statement that is easily proved by the fact that coal, and not wood, is used for fuel in England. Cheapness of fuel means so much the more into the pocket of the poor man. The smaller the consumption of fire-wood, the cheaper and more plentiful timber becomes. Hence, production of coal in China will, in time, do away with the necessity for purchasing foreign timber, another outlet for Chinese capital.

No. 2 is a justification of the anticipations that are formed of the success of the mining scheme.

In commencing mining operations, whether in coal or iron, four conditions have to be considered:

1. Quality.

2. Quantity.

3. Cost of labor and material.

4. Means of transport.

Ten years ago the annual out-turn of coal in England was only several million tons; it has now reached the enormous figure of 130,000,000 tons. The best coal realizes tls. 2.3; medium quality, tls. 1.8; inferior quality, tls. 1.3; and at these prices profits are large, for a miner’s wages are 8 mace a day, and one man can raise daily 5 tons.

Iron sells just now in England at the pit’s mouth for tls. 2.3 per picul, best quality; medium quality for tls. 1.7; inferior quality for tls. 1.3. Steel fetches from tls. 30 to tls. 180 per ton. The cost of labor is now so heavy that little or no profits are made, and many workings are closed. Hence it may be concluded that there will-be no further rise in prices.

K’ai-p’ing coal, though not of the best quality, is free from sulphur and other deleterious substances. The specimens analyzed were gathered from the surface, and it may reasonably be inferred that the deeper coal will be much better. Granted that it will only command the same prices as inferior English coal, a fair margin of profit will still be obtained. Native miners can be engaged at one mace odd per diem; put down each man’s average at only two tons a day, and the cost of production would even then be half that of English coal.

The iron compares favorably with inferior British iron, and even if it will not produce steel, will command English prices and yield a large profit. Chinese labor is cheap, and lime, coal, and charcoal, for smelting purposes, are procurable on the spot. A picul of wrought iron will cost to produce about tls. 1; and if, as foreign experts declare, it will come up to medium English iron and produce the inferior quality of steel, large profits will be made.

As regards quantity, this must be determined by experts. Arrangements have been made to engage a mining expert from England at a salary

of £1,000 sterling per annum, who will start for China immediately if telegraphed for.

Transport.—Lu-t’ai is 120 li, or about 45 miles, from K’ai-p’ing, with which it is connected by a good road. Cartage would cost about 200 cash per picul, and even were porters to be employed, a profit would be made. For large profits, however, a railway is required. It is easy to extract the coal, but what is wanted is the means of securing a constant issue; this can only be obtained by means of a tramway such as exists in Formosa, which would further serve to convey smelting machinery and other heavy plant.

No. 3 deals with estimates of the cost of the production of coal, and is for the most part a repetition of figures earlier given. The paper concludes with a statement that a boring machine has already been purchased, and suggests that a foreigner be engaged at a salary of £400 per annum to employ this machine in testing the coal districts, with a view to discovering the depth of the coal seams, the nature of the lower strata of soil, the depth at which water is found, &c., &c.

No. 4 deals with estimates of the cost of the production of iron, and, like the foregoing, goes over much old ground. The conclusion arrived at is, briefly, the following:

To erect smelting furnaces and construct a small railway a few li in length, a capital would be required of tls. 300,000. With these appliances, the out-turn of iron would be 15,000,000 pounds, which, after deducting cost of coal and labor, would yield a net profit of mace 4 or 5 per picul, or, say, an annual profit of tls. 60,000 to tls. 70,000; this, supposing the iron to realize only the same price as inferior British iron. Should the iron be equal to medium British, or were a railway constructed to carry it off, profits would be proportionately greater.

In reply to these representations, the grand secretary, Li, concedes the permission applied for, under the authority of an imperial decree of June, 1875, sanctioning the opening of mines at Tz’u-chow, and in Formosa. The Tz’u-chow mining scheme fell through in consequence of the difficulties in the matter of transport that presented themselves. The Formosa mines, however, have been worked with such success as to warrant the commencement of similar operations in Chihli. The mining engineer engaged by Mr. Hart to survey the coal districts at Wu Süeh should be directed to proceed to K’ai-p’ing, and his powers put to the test. If he proves unequal to the duties that are required of him, other experts should be engaged to take his place.

A former Tao-t’ai of Tientsin called Ting, now awaiting a provincial judgeship, and Li, the present Taotai of Tientsin, are called upon to associate themselves with Tong King-sing. The three are to form a committee for the organization of a financial scheme and the arrangement of all preliminaries.

It would be tedious to follow in all their details the voluminous reports of these officers, which occupy many pages of the prospectus from which the Shên Pao obtains the papers it publishes; it will be enough to summarize the conclusions at which they arrive. These are, in brief, that a company should be formed under the following regulations:

The company shall be styled the K’aip’ing kung wu chü, and shall have exclusively for its object the working of the coal and iron in K’ai-p’ing and the neighborhood, with the preparation of iron, cast and wrought.

The capital shall consist of tls. 800,000 divided into shares of tls. 100 each, any number from one to a thousand being allotted to a single applicant. On application a sum of tls. 10 per share shall be paid down, and a receipt shall be given for the number of shares secured. A further call of tls. 40 shall be made in February, 1878 (the commencement of the Chinese year), and plant and machinery will then be purchased. The remaining tls. 50 shall be payable in May, 1878, when the receipts for the first and second payments shall be called in, and the proper scrip issued.

One coal-mine shall first be opened and two smelting-furnaces for cast iron, with twenty or thirty wrought-iron furnaces erected, as well as hammers and machines for drawing iron bars.

The whole outlay, which is to include purchase of land, erection of buildings, and construction of railroad, shall not exceed tls. 800,000. Should the scheme hereafter prove profitable, more shares, to the extent of tls. 200,000, shall be issued, raising the capital of the company to tls. 1,000,000. It shall not exceed this amount.

It shall be understood that holders of original shares shall have the first refusal of any new shares put on the market.

The management and direction of the company shall, in the first instance, be vested in the committee. When operations have commenced, they shall be at liberty to recommend the appointment, as coadjutors, of any employés whom they find to be able and competent. These shall succeed members of the committee (in the event of the retirement of the latter or their removal to other ports) in fee direction and management of the affairs of the company.

The company, although under official superintendence, shall he purely a commercial undertaking, and shall be conducted on commercial principles. The employés in the higher branches shall be selected from among the shareholders. No officials shall be appointed in addition to those already delegated, nor shall government clerks and suchlike be employed. A daily record book shall be kept, and accounts made up monthly and yearly. The yearly accounts shall be published and a copy furnished to each shareholder.

The annual profits of the company shall be divided in the following manner:

A fixed dividend of 10 per cent, on each share shall first be paid.

One-fifth of the remaining profits shall be distributed as a bonus among the employés of the company. The balance shall go to the shareholders.

The superintendents and workmen in the employ of the company shall have fixed salaries allotted to them. These shall be paid monthly, and no transfers of salary from one to another shall be made nor advances granted. Accurate accounts of all expenditure shall be kept, and all payments of the nature of donations, complimentary douceurs, and the like, will be disallowed.

Holders of shares to the value of tls. 10,000 shall have the privilege of appointing a working superintendent, whose functions, emoluments, &c., shall be determined by the management. He shall be liable to dismissal for incompetence or insubordination, but his patron shall be invited to appoint another representative. Godowns shall be erected at K’ai-p’ing and Lu-t’ai for the storage of coal and iron. At Tientsin the go-downs of the China Merchants’ Company shall be hired, at a rental hereafter to be fixed.

All coal and iron shall be sold at market rates, but the China Merchants’ Company and the arsenals shall have the right to purchase what they require before any is put on the market. The company shall report to the proper authority whenever mines are opened on government land, and the proper taxes shall be paid. Where land owned by private individuals is required, it shall be purchased at the proper price.

All coal and iron shall pay inland duty, and, similarly, the usual duty shall be paid on that which is exported for sale. A lekin duty of 5 candareens per picul shall be paid on wrought iron, and 3 candareens per picul on cast iron; on coal the lekin shall be 1 candareen per picul.

The above suggestions were submitted to the governor-general, who replies at some length, accepting, with a few slight modifications, the regulations drawn up by the committee.

A form of scrip was then prepared, and a prospectus issued, from which the foregoing summary is taken.

The various branches of the China Merchants’ Steam Navigation. Company are authorized to receive payment and application for shares.

Erratum.—In the précis of section 2, published Tuesday, by a printer’s error Mr. Morris is made to estimate the quantity of coal in the district referred to at 6,000,000 tons. It should be 60,000,000.