Mr. Adee to Mr. Conger.

No. 838.]

Sir: I have to acknowledge the receipt of your dispatch, No. 1607, of May 14 last, requesting instructions in regard to the acceptance of the revised Chinese mining regulations, which, as you point out, do not fulfill the provisions of the treaty with the United States.

In reply I inclose herewith for your information and for your guidance in further correspondence with the Chinese foreign office a copy of a letter from the Acting Secretary of the Interior, inclosing copies of reports from the Acting Director of the Geological Survey and the Acting Commissioner of the General Land Office, embodying such suggestions as they deem practicable, with the view to securing such amendments to the Chinese mining regulations as will bring them more in harmony with our treaty with China and make them more practicable for industrial and commercial purposes.

I am, etc.,

Alvey A. Adee,
Acting Secretary.
[Page 161]

Mr. Ryan to Mr. Hay.

Sir: I am in receipt by reference of the Director of the Geological Survey of your letter of the 6th ultimo, inclosing an original dispatch from our minister at Peking and accompanying inclosures, in regard to the acceptance of the revised mining regulations adopted by edict of the Emperor of China, March 17, 1904, and alleged not to have fulfilled the treaty provisions with the United States, and requesting to be furnished with such suggestions as will tend to bring the regulations in line with the provisions of the British and United States treaties.

In response thereto I have the honor to transmit herewith copies of reports from the Director of the Geological Survey and Commissioner of the General Land Office, embodying such suggestions as they deem practicable, with a view to securing such amendments to the mining regulations above referred to as to bring them more in harmony with our treaty with China, and to render them more practicable for industrial and commercial purposes.

The inclosures accompanying your letter are herewith returned, as requested.

Very respectfully,

Thos. Ryan, Acting Secretary.
[Subinclosure 1.]

Mr. Fimple to the Secretary of Interior.

Sir: I have the honor to acknowledge by your reference the receipt of “suggestions “of the honorable Director of the Geological Survey, regarding the acceptance of the revised mining regulations adopted by edict of the Emperor of China, March 17, 1904, alleged by our minister to China not to fulfill treaty obligations, and I submit, as requested by you, the suggestions deemed appropriate by this office.

The adoption of the mining regulations now under consideration was apparently rendered necessary by the stipulations contained in Article VII of the “treaty between the United States and China for the extension of commercial relations between them,” signed October 8, 1903.

* * * * * * *

Said revised regulations were promulgated subsequent to the ratification of the treaty mentioned and are in number 38, the preamble to which sets forth that they are temporary and to be continued until Chang Chih-tung shall have compiled a special work upon the subject, when it will have to be again taken up with him that there may be no lack of uniformity.

A copy of said regulations prepared by the Department of State is among the papers submitted, and reference is herein made to that copy in order to avoid the insertion thereof, in extenso, in this communication.

Your reference of this subject, in the judgment of this office, calls for the expression of an opinion upon the question whether the regulations now under consideration, taken as a while, would operate so as to result in any practical encouragement to foreign prospectors, miners, or capitalists, having in view mining operations or the making of investments in mining enterprises in China as contemplated by the treaty.

Entertaining the views above mentioned, I am unable to suggest any radical objection to regulations Nos. 1 and 2. Certainly, as to prospecting for or to working a discovered mine, a permit to be secured by impartial methods does not seem to be unreasonable.

Regulation No. 3, in so far as it relates to mines upon private property, seems to be objectionable in that it does not specifically provide the proceeding necessary to obtain a permit to prospect or mine upon private property in a case where it is impracticable to obtain the owner’s consent, and this in a country so densely populated as China is believed to be of great importance.

Subdivision (b) of regulation 4, in that it requires applicants for permits [Page 162] composed of Chinese and foreigners to disclose the exact number of shares held by the foreigners, appears to be a part of the regulations framed with an evident intention to prevent the operative control of any mining undertaking or enterprise by foreign capitalists, as seems to be contemplated by the treaty, and thus tending to discourage the investment of foreign capital.

Inasmuch as it is not made to appear that foreign investors are limited to purchase shares in more than one association or company receiving concessions, it would not appear that regulation 5 is objectionable, even in coal-mining enterprises, because of limitation of the maximum size of a concession to about 2½ English square miles.

Regulations 7, 8, 9, 10, 11, and 12 relate to applications for permits to prospect for deposits of mineral, the method of procedure, the fees and rentals to be paid, and the rights and privileges to be obtained. These regulations seem to be unnecessarily cumbersome and restrictive, and, in my judgment, they could properly be so modified and simplified as to more readily and effectively conserve the object sought to be attained by both Governments under the treaty provisions relating to this subject. It is, however, conceded that applicants for a permit to prospect—that is, to make careful and effectual search for valuable mineral deposits and the making of such excavations and constructing such mining works only as would reasonably be necessary to determine the locus and boundaries of the property to be described in a subsequent application for a permit to work a mine or for the contemplated mining concession—should be restrained within some proper regulations having in view the protection of the rights of others. Upon the question of fees, rentals, and damages I am not in possession of sufficient data to enable me to judge as to the propriety of the regulations relating thereto.

Regulation 13 and the subsequent ones relate to methods to be pursued in making applications for permits to work mines, the conditions upon which such permits will be granted, and, generally, the duties and liabilities of those who have obtained permits to work mines in China. Special attention is invited to regulation 16.

* * * * * * *

This regulation seems to have been drafted, perhaps unintentionally, so as to prevent the issuance of a permit to prospect or work a mine in China in any case where a majority of the stock is owned by foreigners. It is believed that the conditions insisted upon in this regulation constitute impediments such as would cause a prudent foreign capitalist not only to hesitate, but would practically force him to decline to embark his means in any enterprise hampered by such unsatisfactory conditions. The reasons for this are so obvious that they need not be stated here. It clearly appears to me that this regulation in effect repels rather than attracts foreign capital, and therefore is not in harmony with the provisions of the treaty.

Regulation No. 24, wherein it provides that the applicants must commence operations within six months from the date on which the permit shall have been granted, would not meet the conditions under which foreign capital would be placed; necessarily in the beginning the mines to be operated would be far from base, and six months would be too short a time for the commencement of operations on the ground.

Regulation No. 29 is at least very vague, but it appears to be objectionable from the treaty standpoint, in that every important contract necessary in the practical mining operations is to be delayed and impeded by the submission thereof to the board of commerce for its action thereon, and possibly its nullification.

Regulation No. 34 is one of importance to those contemplating investments in mining enterprises in China, as the taxes or royalties to be paid directly affect the question of the feasibility of the undertaking. I am not prepared to say that the proposed taxes are exorbitant.

I have not commented upon every one of these regulations, but only upon those by me deemed of sufficient importance. Of these I consider of most importance regulations 16, 24, and 29, but considering these regulations in their entirety and the scope thereof, and all of the surrounding incidents which occur to me, I am constrained to say that in my judgment if these regulations were to be accepted as setting forth the permanent and only conditions upon which citizens of the United States could embark in mining operations in the Empire of China, it would be impossible to induce any of them to invest any considerable portion of their capital therein, and if I am correct in this opinion, it follows that the regulations under consideration were not drafted so as not to offer [Page 163] impediments to the attraction of foreign capital nor place foreign capital at a greater disadvantage than they would be under generally accepted foreign regulations as provided by the treaty.

Therefore I would suggest that, prior to the acceptance of these regulations, the United States, acting in strict conformity with the provisions of said treaty, should require the Government of China to modify and simplify them so as to eliminate therefrom the objectionable features and conditions hereinbefore indicated.

All of the papers received from the Department are herewith returned.

Very respectfully,

J. H. Fimple, Acting Commissioner.
[Subinclosure 2.]

Mr. Rizer to the Secretary of the Interior.

Suggestions regarding mining regulations of China.

Sir: In response to the letter from the Hon. Francis B. Loomis, Acting Secretary of State, in which he asks the Director of the Geological Survey for suggestions touching the revised Chinese mining regulations, I beg to submit the following:

The provisions of the quoted treaty articles appear to cover two main objects: (1) That the mining regulations shall offer no impediment to the attraction of foreign capital; (2) that foreign capitalists should not be placed thereby at a greater disadvantage than they would be under generally accepted foreign regulations.

As the province of his Bureau is confined to mining interests within the territory of the United States, while it may be able to offer general suggestions with regard to the regulations in question that are germane to the first of these objects, those comprised under the second head presuppose a familiarity with foreign customs and regulations that would be possessed in so much higher degree by the members of your department that we would hesitate to offer any definite suggestions with regard to them. On the accompanying pages the proposed regulations are taken up and commented on by paragraphs.

The regulations proposed are open to the general criticism that the many petitions required by the board and the accompanying apparently unnecessary formalities will involve delay that would prove annoying and perhaps discouraging to the proposed investor, but this may be a matter so ingrained in the customs of the country that it can not be dispensed with. Of this your department is the best judge.

From examination of the regulations it would appear that much of the conservatism of the regulations is due to ignorance of mining practice and mining law on the part of the Chinese board. This is accentuated by the fact that they have but a very general idea of the character and value of the mining resources of the country. Satisfactory legislation on this subject can only be obtained when the legislators or councilors are acquainted with the extent and type of the mineral deposits which will be covered by the proposed laws. In view of this fact it might well be proposed to China that she should accept at her own expense the services of such an expert or experts in mining and mining law as the United States can offer; that she should appoint an equal number of qualified Chinese to form with these experts a commission to study the conditions and draft regulations.

This course might be urged upon China as one required by good faith in fulfilling the provisions of the treaty, but a stronger argument might be based on China’s weakness toward those who seek concessions. China knows practically nothing of her own resources. She grants concessions without knowing the value of what she is giving. To correct this the plan should contemplate a preliminary reconnaissance of the more important mining districts, from which the foreign experts might gather the most important facts relating to occurrence and development of minerals and regarding Chinese customs and labor; and this reconnaissance should be followed by geological and topographical surveys to be prosecuted under the mining board by foreign, by Japanese, and ultimately by Chinese assistants. This latter work should continue indefinitely.

[Page 164]

The preliminary reconnaissance by the American expert or experts might be accomplished in a year, and should if possible be shared by the Chinese commissioner or commissioners, to the end that discussion and observation might develop agreement. The final consideration of regulations by the commission might thus be approached with common understanding of the difficulties and a hope of overcoming them, great as are those which stand in the way of just agreements between Chinese and foreigners.

In addition to the geological and legal aspects of this question, there are those of a financial character. In finance the Chinese are expert, and American representatives should not be less so.

Very respectfully,

H. C. Rizer,
Acting Director.
[Subinclosure 3.]

Comment by paragraphs.

Preamble. It appears from the preamble that these regulations are based on those of 1898 and 1902, and comparison shows that the features which most obviously contravene the treaty of 1903 are taken therefrom. Such modifications as have been made are contrary to the spirit of that treaty rather than in accord with it.

These revised regulations are described as temporary and subject to revision, particularly when Chang Chih Tung shall have completed a study of the subject.

  • Paragraph 2. Permits for prospecting. It seems a wise provision to issue a preliminary prospecting permit at a less cost than one for actual mining, since actual mining operations can not be advantageously carried on until the ground has been opened sufficiently to determine the character of the deposit, whether it is rich enough to pay for working, and the best methods of working and probable cost of exploitation.
  • Paragraph 3. Clause 3, which provides that in case the Government ought to develop a property the officials should buy the land and the owner shall not oppose, is vague in that it does not state under what conditions or by whose decision action may be taken. It opens the door for interference by “officials” and leaves the owner no option. The clause may, however, be merely an assertion of the right of eminent domain.
  • Paragraph 4. In so far as this paragraph provides that the viceroy and governor of a province shall investigate the local circumstances and determine whether or not these regulations have been violated, it establishes duplicate authority and divides responsibility. The viceroy and governor are not necessarily better qualified to secure the facts through their agents than the board may be through its representatives. In order to attract foreign capital and facilitate foreign investment, the authority and responsibility should be centered in the board. This is in accord with Chinese precedent.
  • Paragraph 4c. The area of a square li and of a mon should be given in terms of metric measure.
  • Paragraph 4d. It may not always be possible to define in advance the kind of ore. Ores commonly differ in character near the surface and in depth.
  • Paragraph 5. Thirty square li being the maximum area permitted a mining concession, it is important to ascertain whether this must include all timber which may be cut under the provisions of paragraph 32. Timber is very scarce in a greater part of China and may ordinarily be at a distance from the site of a mine.
  • The provision that the length may not exceed four times the width appears arbitrary and likely to work hardship on the mine operator and on adjacent landowners. In case the permit be for the maximum area of a claim, 30 square li, the width under this provision could not be less than 2.75 li, or 0.9 English mile, which is more than the mine operator might need and would encroach upon his neighbors. The embarrassment would not be removed if the claim were smaller.
  • The limitation to a maximum claim of 30 square li, about 2⅓ English square miles, is calculated to prevent investment in coal lands, such as those of Chansi, because the amount of coal which might be mined on the prescribed area would not pay for the cost of development under Chinese conditions. This clause strikes directly at the development of the most important of China’s mineral resources.
  • Paragraph 7. This seems too restrictive. The owner of the prospecting permit should be allowed to go as deep as he can within the time allotted him, but, that he should not be tempted to take advantage of this permit to extract ore unfairly, there might be a provision that on any ore actually shipped from the mine he should pay the usual royalty.
  • Paragraph 8. If, as suggested above, the production of ore on a commercial scale be taken as distinguishing mining from prospecting, any violation of the permit to prospect would be readily proved. The investigation here proposed is merely an instrument of delay.
  • Paragraph 9. The payment of tax and rent on land affected by a permit to prospect before prospecting is begun is not practicable. Prospecting consists of two operations, (1) a search for minerals whose location is unknown, (2) an initial investigation of a mineral deposit to determine if it is worth working. In the former operation no precise limit of search may be set within narrow bounds. In the latter such limits may be set, and only then can rent or tax be levied. In these regulations the second meaning only appears to have been considered.
  • Paragraph 10. The remarks on the preceding paragraph apply to the requirement that the locality, boundaries, and extent of the area to be prospected should be stated.
  • As regards the authority vested by this clause in the viceroy and governor the comments on paragraph 4 apply here. A party who had not secured the favor of the local officials could not obtain a concession under these rules.
  • The manner of application for permit also seems unnecessarily complicated. For the foreigner it would seem unjust to deny his application if he has failed to comply with regulations unknown to him that do not appear in these regulations.
  • Paragraph 11. Appears unnecessary, since the local magistrate is empowered to adjust damages to property in the case of Chinese.
  • Paragraph 12. The clause that excavations should be filled up again is likely to prove annoying to foreigners.
  • Paragraphs 13–14. These seem to involve a vexatious and unnecessary amount of red tape. The issuance of a mining permit ought itself to work the cancellation of the prospecting permit, since it confers broader rights. The right to confiscate property if the transfer has been made without the sanction of the board gives an overarbitrary power to that board.
  • Paragraph 15. It would be better if mining machinery were admitted either at a reduced duty or entirely free, as is the case in Mexico and other countries that find it advantageous to favor the development of their mineral wealth by foreign capital.
  • Paragraph 16. The provision that the majority of the stock of a mining property must be held by Chinese is likely to discourage foreign capital. Responsible capitalists are not, as a rule, willing to invest in mining enterprises unless they hold a control of the stock, so that they can assure themselves of intelligent management. It would seem that in their unfamiliarity with large mining operations Chinese control might interfere very disastrously in carrying-on a mining enterprise. The restrictions in this clause are less liberal than those of previous regulations.
  • Paragraph 17. The restrictions as to borrowing money when original capital proves insufficient, as experience shows is very frequently the case in mining enterprises, seem unnecessarily rigid.
  • Paragraph 19. This clause appears to involve unnecessary expense and delay, placing foreigners at a greater disadvantage than Chinese, since they must apply to the board of foreign affairs as well as to the mining board.
  • Paragraph 20. This clause stands in the way of development by offering obstacles to what may be a legitimate enlargement of the mining property, should the deposit be found to extend beyond the limit of the concession.
  • Paragraph 22. It is difficult to understand why the building of a branch railway to a mine should be limited in distance. Previous regulations have allowed them to connect with the nearest trunk line or waterway, which is the more reasonable concession.
  • Paragraph 23. Whether the costs of permit here provided for are excessive or not needs to be determined by some one familiar with the conditions in China. They do not seem to be excessive for a legitimate enterprise.
  • The imperial statutes referred to and the conditions under which the Government is not required by law to indemnify should be stated.
  • Paragraph 24. In view of the difficulties of organizing mining operations in China, of the remoteness of Chinese mining districts from centers where machinery [Page 166] and other necessities may be obtained, and of the slow methods of transportation to the interior, the time limit, six months, for beginning operations is very short. At least one year should be allowed and in case of mines far in the interior two would not be unreasonable.
  • Paragraph 25. Provides that if workmen be killed, in spite of precautions taken, local officials shall investigate and determine a generous indemnity. This seems to open a way for exactions by local officials. It should first be proved that the killing was the fault of the mine owners and not, as is usually the case, the result of a disregard of the rules on the part of the miner. There should also be a right of appeal to the board.
  • Paragraph 26. Foreign employees so often prove themselves ignorant of restraint in China that a provision to control them may appear reasonable; but they can not be placed, as in this clause, in the power of the local official for removal.
  • Paragraph 28. The committee of arbitration, for which this clause provides, would in many cases be of doubtful value, and would seem to be unnecessary in view of the local authority of magistrates and treaty provisions for protection and trial of foreigners.
  • Paragraph 29. This clause continues the control of the mining board after a permit has been issued and extends it to approval of the contract for operating the mine. Just what is meant by this contract is not clear. There might be no contract or a number of contracts in operating a mine. If the clause gives the board authority over every step of mining operations, it provides conditions under which business like management would be impossible.
  • Paragraph 32. The scarcity of timber in China, especially in the north and northwest, makes it important that general regulations should be established. It does not seem probable that the interests of the Government or of mine operations would be satisfactorily served or consistently administered by the mining board acting through agents, as it must. The question is important.
  • Paragraph 33. To “seal up” a mine might in some instances amount to confiscation. At best it would occasion serious damage through the stoppage of pumps and accumulation of water. It is probable that the mining board did not understand this.
  • Paragraph 34. The variable rates of tax or royalty prescribed in this clause are objectionable. It should first be definitely stated whether this tax is to be levied on ore actually mined, or only on that shipped away from the mine. The latter is more reasonable, since if it is not worth shipping the mine owner should not be called upon to pay for what brings him no return. Furthermore, shipments are more easily determined than amount mined.
  • The rates prescribed are unnecessarily complicated and rest on no logical basis, hence should be entirely revised. It is generally customary to fix the royalty on bulky materials which require little or no preliminary preparation before shipment, such as coal, earthy salts, iron ore, and petroleum, at so much per ton or other unit of weight or measure. For the metals and other substances mined, which require considerable treatment in order to separate the valuable metals, etc., uniform ad valorem dues are usually fixed, since a number of different metals often occur in the same deposit, and it can not be determined a priori that the ratio of cost of production to value of product is dependent on the intrinsic value of the metal produced. A dollar’s worth of gold is likely to cost just as much to produce as a dollar’s worth of lead. Antimony, lead, and zinc occur under the same natural conditions, hence it is unreasonable that one should be taxed 5, another 7½, and another 10 per cent. A uniform rate should be made in the case of ad valorem dues.
  • It is suggested that for coal, iron ore, earthy salts, and petroleum a tax on unit of weight or measure corresponding to 10 or 15 cents per ton or barrel might be levied. For all other substances mined, a tax of 5 to 10 per cent ad valorem on the material shipped away from the mine. If the royalty were collected on the value of the material at point of consumption, the mine owner would be paying royalty on the profits earned by transportation companies.
  • Paragraph 35. Provides for an export duty. This may be necessary in China, but it seems an impolitic measure, and is onerous on the mine owner. If enforced, the royalty should be correspondingly lowered.
  • Paragraph 36. Provides for quarterly returns. Semiannual or annual returns might be sufficient. It would be unfair to compare the mine returns with those of the customs, as much ore might be lost in transit in spite of precautions of mine owner.
  • Paragraph 37. Bond to be given by holder of permit for faithful performance of his duties. The amount provided seems large and the fees already paid constitute a guaranty of good faith. Furthermore, there is no provision for the return of the amount of bond. For the foreigner this seems an onerous and unnecessary charge, and likely to discourage him, because he might unintentionally incur a forfeiture of his bond through ignorance of regulations.