Papers Relating to the Foreign Relations of the United States, With the Annual Message of the President Transmitted to Congress December 8, 1908
File No. 5315/141–143.
Minister Rockhill to the Secretary of State.
Peking, October 21, 1908.
Sir: In continuation of my No. 1024 of the 12th instant, in which I transmitted a copy of the memorandum of a loan for £5,000.000 contracted by the Chinese Government for the refunding of a Belgian loan of 1898, I have now the honor to inclose copy of the text of the agreement, signed on the 8th instant.
In a previous dispatch, No. 973 of July 30th last, I had referred to the present disposition of European capitalists to lend to China [Page 204] only when guarantees were given that the money borrowed would be employed exclusively for the purpose for which the loan was contracted. Paragraph 2 of article 1 of the present agreement was inserted to this end and was considered sufficient guarantee by the contracting banks, as the only road which can be redeemed at present is the Pei-Han Railroad. Article 7, besides providing for an unconditional guarantee of the loan by the Chinese Government, secures the payment by a first charge upon certain provincial revenues, most of which are, however, new taxes, which will, it is believed yield much less than the amount estimated. This is, however, of small importance; the general guarantee is unquestionably all-sufficient.
I have, etc.,
Pei-Han redemption loan contract.
This agreement is made between the board of posts and communications, Peking, acting for and on behalf of the Imperial Government of China under the authority of an imperial edict dated the 8th day of October, 1908, hereinafter called the board, of the one part, and the Hongkong and Shanghai Banking Corporation and the Banque de l’lndo-Chine, hereinafter called the contracting banks of the other part.
1. The Imperial Chinese Government hereby authorizes the contracting banks, either by themselves or associated with others, to issue an imperial Chinese gold loan, in one issue, of the amount of five millions pounds sterling.
Of the proceeds of this loan the Imperial Chinese Government will employ 80 per cent in Europe to complete the redemption of certain railway loans; the balance of the proceeds, namely 20 per cent, will be employed by the board of posts and communications in productive works of public utility coming within the department and functions of that board.
2. The term of the loan shall be 30 years, and the principal shall be repaid to the bondholders in 20 equal annual installments of £250,000, commencing with the eleventh year; but the Imperial Chinese Government, on giving a previous notice of six months to the contracting banks, shall have the right to redeem the whole loan, or increase the regular redemption by extra drawings, after the fifteenth year and up to the twenty-third year, inclusive, by the payment of a premium of 2i per cent upon the par value of each extra bond so redeemed—that is to say, by the payment of £102.10 for each £100 bond—and shall have the right to redeem the whole loan or increase the regular redemption by extra drawings after the twenty-third year at par. Any such extra drawings must take place in Europe on the date of an ordinary drawing provided for in the prospectus of the loan.
3. The loan shall bear interest during the first 15 years at the rate of 5 per cent per annum, and thereafter, from the sixteenth year, at the rate of 4½ per cent per annum on the nominal principal from time to time outstanding, and the interest shall be paid to the bondholders half yearly. The interest shall commence from the date on which the loan is issued to the public, and will cease upon complete redemption of the loan.
4. The service of principal and interest of this loan due to the bondholders shall be paid in equal shares to the contracting banks in Shanghai by the board, who will hand to those banks, 10 days before the due date of every yearly payment of principal and half yearly payment of interest, as calculated from the date of issue of the loan, funds in the Shanghai sycee sufficient to meet each such payment in gold in Europe, the exchange for which will be settled by the contracting banks on the same day on a fair basis after arrangement with the board; but the board will have the option of settling exchange in equal shares with the two contracting banks at any date or dates within six months previous to the due date of any payment. These payments may be made in gold in Europe should the Imperial Chinese Government have funds in Europe at its disposal, not remitted for the purpose, and desire so to employ them.
[Page 205]In reimbursement of expenses connected with the payment of interest and the repayment of principal of the loan to the bondholders, the board will pay to the contracting banks with each payment of the loan service a commission of two per mille on such payment; that is to say, a commission of £2 on every £1,000.
5. The service of principal and interest of this loan will be paid from the surplus revenues of the various productive works of public utility controlled by the board of posts and communications. In the event of these surplus revenues being insufficient, other revenues will be selected to make up the deficiency.
The board will further, from and after the date of the first coupon, and during the currency of this loan, leave on fixed deposit in equal shares with the two contracting banks in Shanghai the estimated silver equivalent of the payment of the interest next due. In like manner, from and after the end of the tenth year, the board will also leave on fixed deposit with the contracting banks in Shanghai the estimated silver equivalent of the installment of the principal next due. These fixed deposits will be renewed and adjusted half-yearly on the dates on which interest coupons become due to the bondholders, the silver equivalent of interest and of principal which they represent being calculated at the rate of exchange, or average rate of exchange, settled for the remittance of loan service made 10 days previously. Interest on these deposits shall be allowed by the contracting banks at their advertised rates for the time being for 12 months fixed deposits, subject to any change or rate from the date of such change, and will be payable half-yearly.
6. The contracting banks shall issue, and are hereby authorized to issue, to subscribers to the loan, bonds for the total amount of the loan in gold, in such languages and for such amounts as shall appear advisable to the contracting banks. The forms of these bonds shall be decided in consultation with the Chinese ministers in London and Paris, who shall seal the bonds with their official seals as evidence that the Imperial Chinese Government is bound thereby.
Canceled bonds will be handed by the contracting banks to the Chinese minister in London or Paris.
In the event of bonds issued for this loan being lost, stolen, or destroyed, the contracting banks shall immediately notify the Chinese minister in London or Paris thereof, who shall authorize the contracting banks to insert an advertisement in the public newspapers notifying that payment of the same has been stopped, and to take such other steps as required by the laws of the country. Should such bonds not be recovered after the lapse of time provided by the law, the banks will require from the claimants the requisite guarantees together with proof of loss in the usual form for examination by the Chinese minister in London or Paris, as the case may be, who will then, without further authority from the Chinese Government, seal and execute duplicate bonds for a like amount, and hand them to the contracting banks, by whom all expenses in connection therewith shall be defrayed.
Coupons and drawn bonds not presented for payment within 30 years after the date of their maturity shall be forfeited to the Imperial Chinese Government.
7. The Imperial Chinese Government hereby unconditionally guarantees and declares itself responsible for the due payment of the principal and interest of this loan, which is further hereby secured by a first charge, free from all encumbrances upon the following provincial revenues:
| Province of Chekiang: | Taels. |
| House tax, wine excise, pawnshop licenses, title-deeds tax, amounting per annum to | 400,000 |
| Old and new additional tax on salt | 600,000 |
| Province of Kiangsu: | |
| New additional tax on salt | 700,000 |
| House tax | 300,000 |
| Province of Hunei: | |
| Old and new additional tax on Szechuen and Huai | 600,000 |
| Tax on tobacco, wine, and sugar, house and land title-deeds tax | 400,000 |
| Province of Chihli: | |
| Tobacco, wine, and miscellaneous duties | 800,000 |
| Salt commissionar’s treasury revenue from additional salt tax | 200,000 |
| New additional tax on salt | 250,000 |
| Total kuping taels | 4,250,000 |
It is understood that the security of this loan over the above annual revenues is limited to 4,250,000 kuping taels irrespective of collection. If more is collected, it will not be included in the security.
In the event of default of payment of any installment of provincial and of interest of this loan at due date, the Imperial Chinese Government will instruct the provincial authorities in control of the said revenues to hand them over to the contracting banks.
So long as this loan, or any part thereof, shall be unredeemed, it shall have priority, both as regards principal and interest, over all future loans, charges, and mortgages charged on the said security of the provincial revenues herein assigned. No loan, charge, or mortgage shall be raised or created which shall take precedence of or be on an equality with this loan, or which shall in any manner lessen or impair its security over the said provincial revenues as stipulated above, and any future loan, charge, or mortgage charged on the said provincial revenues shall be made subject to this loan, and it shall be so expressed in every agreement for every such future loan, charge, or mortgage.
8. All bonds and coupons and payments made and received in connection with the service of this loan shall be exempt from Chinese taxes and imposts.
9. All details necessary for the prospectus and connected with the service to the bondholders of the interest and repayments of the principal of this loan, not herein explicitly provided for, shall be left to the arrangement of the contracting banks, who shall issue a prospectus of the loan. The Imperial Chinese Government will instruct the Chinese ministers in London and Paris to cooperate with the contracting banks in any matters requiring conjoint action, and the Chinese ministers in London and Paris will approve and sign the prospectus of the loan.
10. The contracting banks hereby take this entire loan of Ł5,000,000 firm at the price of 94 per cent to the Chinese Government. Of the resulting net proceeds of this loan, namely, Ł4,700,000, the sum of Ł3,760,000 will be held to the order of the board in Europe on the 10th day of December, 1908, and the balance, namely, Ł940,000, will be held to the order of the board in Europe on the 5th day of February, 1909.
Transfers of the loan funds to China will be made by the contracting banks at the rates of exchange which will be settled on a fair basis after arrangement with the board. The board will give to the contracting banks 10 days previous notice of the transfer to China of any sum exceeding Ł20,000.
If any of the loan funds are left on deposit with the contracting banks in London or Paris, interest will be allowed at rates to be settled by mutual arrangement between the contracting banks and the board.
11. All expenses in connection with the flotation and issue of this loan, such as underwriting, commission and brokerage, telegraph charges, advertising, postage, printing of prospectus and bonds, stamp duty, and legal fees, shall be borne by the contracting banks.
12. In the event of any extraordinary political or financial crisis in Europe or elsewhere, by which the prices of Chinese, British, or French securities become so seriously affected as to render it impossible to float this loan on the terms herein named, the contracting banks shall have the right to withdraw from this contract, which in that case shall become null and void, subject to any arrangement between the contracting parties for an extension of time.
13. The Hongkong and Shanghai Banking Corporation and the Banque de l’Indo-Chine shall take the loan in equal shares without responsibility for each other.
14. This agreement is signed under the authority of an imperial edict dated the 8th day of October, 1908, which will be officially communicated by the Waiwu pu without delay to the ministers for Great Britain and France in Peking.
15. Quadruplicate sets of this agreement are executed in English and Chinese, one set to be retained by the board, one set by the Waiwu pu, and one set by each of the contracting banks. In the event of any doubt arising with regard to the interpretation of this contract, the English text shall rule.