Papers Relating to the Foreign Relations of the United States, With the Annual Message of the President Transmitted to Congress December 7, 1909

File No. 5315/407–411.

Chargé Fletcher to the Secretary of State.

American Legation,
Peking, June 9, 1909.

No. 1175.]

Sir: Confirming my telegram of the 7th instant, I have the honor to inclose copy of the agreement between Chang Chih-tung, director general of the Canton-Hankow Railway and of the Hupeh section of the Szechuen-Hankow Railway, and the Deutsch-Asiatische Bank, the Hongkong and Shanghai Banking Corporation, and the Banque de l’lndo-Chine for a loan of five million five hundred thousand pounds (£5,500,000) sterling.

The proceeds of the loan are to be devoted to the construction by China of the Hupeh-Hunan section of the Canton-Hankow Railway and of the Hupeh section of the Szechuen-Hankow Railway and the redemption of the outstanding bonds issued by the American-China Development Co. on behalf of the Chinese Government on account of construction of the Hankow-Canton Railway.

The Hunan-Hupeh section of the Canton-Hankow Railway extends from Wuchang, the capital of Hupeh Province, through Yochou and Chang-sha, the capital of Hunan, to a point on the southern boundary of Hunan, connecting with the southern or Kuangtung section of the Canton-Hankow Railway.

The Hupeh section of the Szechuen-Hankow Railway extends from Ichang in Hupeh to Kuang-Hsui on the Peking-Hankow Railway, passing through Ching-men-chou and Haiang-yang, and includes also a branch line from Ching-men-chou through Shasi to Hanyang.

Two million five hundred thousand pounds is allotted to the construction of each of these sections, and £500,000 to the redemption of the American-China Development Co.’s bonds. If any excess of the latter sum remains after retirement of these bonds it is to be applied to construction of the Hunan-Hupeh section of the Canton-Hankow Railway.

The rate of interest on the loan is 5 per cent, and the term is 25 years. After 10 and up to the end of the seventeenth year of the loan China has the right to redeem the whole or any part of the loan at a premium of 2½ per cent of face value of the bonds. The price of bonds to the Chinese Government is fixed at 95.

The loan is guaranteed by the Imperial Chinese Government and is secured by—

(1) Hupeh general likin, amounting to 2,000,000 haikwan taels a year;

(2) Hupeh additional salt tax for river defense, amounting to 400,000 haikwan taels a year;

(3) Hupeh new additional 2–cash salt tax of September, 1908, amounting to 300,000 haikwan taels a year;

(4) Hupeh collection of Hukuang interprovincial tax on imported rice, amounting to 250,000 haikwan taels a year;

(5) Hunan general likin, amounting to 2,000,000 haikwan taels a year;

(6) Hunan salt commissioner’s treasury regular salt likin, amounting to 250,000 haikwan taels a year, which are declared free from all other imposts and charges.

It will be noted that the general terms are similar to those of the Tientsin-Pukow Railway loan agreement, forwarded in my No. 817, of January 17, 1908. Two foreign chief engineers and two auditors, one for each section, respectively, are provided for, but do not seem to possess any real power to check expenditure.

The clause with reference to the abolition of likin is in the same language as Tientsin-Pukow agreement. The banks themselves or their agents will act as agents in the purchase of materials, etc. Chinese materials will be given preference, but if foreign materials are required those of German, British, and French origin will be given preference at equal prices. The agents will receive a commission of 5 per cent on purchase of foreign materials, but no commission on Chinese goods.

It is also provided that branch lines in connection with the railways named shall be built by China with such funds as she may have, but if foreign capital is required preference will be given to the banks mentioned. It may be that the banks will contend that this article gives them preference in the further extension into Szechuen, but it is the present intention of the Chinese Government to build that extension with Chinese funds, as the people of Szechuen strongly object to a foreign loan in this connection.

The agreement also provides for delegation and subdelegation of rights of the banks, but only to German, British, or French concerns.

I am confidentially informed by the representative of the British & Chinese Corporation, whose name does not appear in the agreement, but which is no doubt interested with the Hongkong & Shanghai Banking Corporation, that Chang Chih-tung has given an assurance in writing to the banks that the Imperial Government will not delegate its authority to the Provinces, as was done in the Kiang-su Railway, and that the local gentry will not be allowed to interfere in the matter.

The British & Chinese Corporation were originally interested in the Canton-Hankow Railway loan, but by insisting on stricter terms incurred the displeasure of the Chinese authorities and were excluded from active participation in this loan. I am told by its representative, Mr. Bland, who leaves shortly for London, that an effort will be made by his principals to interest American capital also, and that they will be prepared to lend China all the money she wants. It is very likely that money will be offered to China freely on terms as good or better than these, and there is some danger that she will be tempted to borrow more than sound principles of finance will justify.

Referring to the assurances given by China to Mr. Conger in 1904 and 1905, which have formed the subject of recent telegraphic correspondence between the department and the legation, I have the honor to inclose translation of the notes on which our rights to participate in a foreign loan for the Hankow-Szechuen Railway are based. The department will note that Mr. Conger, in reporting this matter, placed a stronger construction on these assurances than would seem to be justified by the translations inclosed. The validity of these assurances has not, however, been called in question by the Wai-wu Pu in the interviews with Mr. Rockhill and myself, and the legation’s proceeding on the assumption that they are recognized as binding.

Immediately upon receipt of the department’s telegram of May 24 last on this subject, Mr. Rockhill took up the matter with the Wai-wu Pu and in three or four personal interviews urged our claim in the premises. He was informed that the foreign office had no authority in the matter; that Chang Chih-tung has been solely empowered by imperial edict to deal with it; that they would inform him of our position and claim.

On receipt of your telegram of the 4th instant I went, on the 5th, to the foreign office and insisted upon our right to be consulted in accordance with the assurances heretofore given and informed them that we were in a position to take up the matter. I was informed that our representations had been communicated to Chang Chih-tung, who had made no reply.

On returning to the legation, I embodied your instructions in a note, copy of which I inclose.

The substance of your telegram of the 8th instant will be communicated to the Prince of Ching this afternoon and I have also asked for an appointment with Cnang Chih-tung, the director general of the Hankow-Szechuen Railway, to whom I will also communicate its contents to-day or at the very earliest opportunity.

I have, etc.,

Henry P. Fletcher

[Inclosure 1.]

Chargé Fletcher to the Prince of Ching.

American Legation,
Peking, June 5, 1909.

Your Imperial Highness: In further reference to the representations made by Mr. Rockhill and myself to Your Highness’s board recalling the assurances given to this legation in 1904, to the effect that in case China was unable herself to provide the funds necessary for the construction of the Hankow-Szechuen Railway, American and British capitalists would simultaneously be notified, and informing Your Highness’s board that the American Government held that this assurance guaranteed to American and British capital the preference in a foreign loan floated for this purpose, I now have the honor to inform Your Highness that the American Government, in view of the reports that British, French, and German financial groups have under consideration an agreement with China to provide a loan for the construction of a portion of this line, has recalled to the British Government the original understanding between China, Great Britain, and the United States, and has informed that Government that the United States has taken no action which could be construed as a relinquishment of the right of American capital to participate in this enterprise.

This legation has been informed that the representations heretofore made on this subject have been communicated to His Excellency Chang Chih-tung, director general of the Hankow-Szechuen Railway, and the attitude of my Government on the subject made clear to his excellency, but that he has made no reply on the subject.

I now have the honor to request Your Highness’s board at once to notify His Excellency Chang Chih-tung and the other officials charged with this matter that the American Government insists that the assurances of 1904 be observed, and that American capitalists be consulted and allowed to participate in the loan about to be floated.

I trust that I may be favored with an early reply which I may communicate to my Government at Washington.

I avail, etc.,

Henry P. Fletcher.

[Inclosure 2.—Translation.]

The Chinese Foreign Office to Minister Conger.

Foreign Office,
Peking, August 15, 1908.

We have the honor to acknowledge the receipt yesterday of Your Excellency’s note,¹ saying that you had read in a London newspaper a statement to the effect that two British companies had applied to the Chinese Government for a concession to build a railway from Hsin-yang, in Hunan, via Hsiang-yang in Hupeh to Ch’eng-tu, Szechuen; that the said paper also said that there were Chinese who desired to construct the road, and that in the future, if foreign capital should be borrowed, it was proposed to first consult with the aforesaid two companies; that Your Excellency had to state clearly that your countrymen had long ago asked for a concession to build through the region mentioned, and that you had talked with us about it in a personal interview and had said that if it should be desired to borrow money for this purpose offers ought first to be made to the Americans; that if it should be allowed foreigners to construct the road, the concession ought first to be offered to Americans; that if arrangements should be made with others which would interfere with the just rights of Americans, you must enter your protest against them.

Our board finds on examination that with respect to the building of the Hankow-Szechuen Railway an English company had applied in the XXV year of Kuanghsu for such a concession, which was not granted; afterwards, in the fourth moon of the present year, the British chargé Mr. Townley, had several times requested that the concession be given to British companies, and at that time our board replied that it had originally been proposed that the Chinese should themselves construct this road; that if in the future it should appear I that the capital was not sufficient or that foreign capital ought to be borrowed, since British and American companies had successively applied for concessions to build the road, when the time came application could be made to the British and American companies In short, when companies of various nationalities app]y to China for railway concessions, it must always remain with China to decide the matter. It is not possible to regard an application not granted as conferring any rights or as being proof that thereafter application must first be made to the persons concerned.

As in duty bound, we send this reply for Your Excellency’s information.

We avail, etc.,

(Sixth moon, 23d day.)

[Inclosure 3.—Translation.]

The Prince of Ching to Minister Conger.

Foreign Office,
Peking, July 18, 1904.

I have the honor to acknowledge the receipt of Your Excellency’s letter of recent date, as follows:

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 & Construction Co., 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 Cheese 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 forigners 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 (Aug. 15, 1903), and companies composed of Englishmen and Americans will be consulted. As for the application of the China Investment & Construction Co., it can riot be conveniently granted for the present.

It is my duty in the permises, 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.

1. See p. 175.