File No. 5315/576–577.
Chargé Fletcher to the Secretary of State.
Peking, October 5, 1909.
Sir: In continuation of my No. 1239, of the 5th ultimo, on the subject of the Hukuang loan, I have the honor to report that the negotiations, which had practically resulted in an agreement, have been brought to an abrupt pause by the death of the aged grand councilor, Chang Chih-tung, the director general of these railways, as I have to-day telegraphed the department.
The department has noted from the telegrams passing between the department and the legation the progress of the negotiations since my last dispatch on this subject.
The question of the provisions of the agreement with regard to the purchasing agencies was practically the only one to be settled by the various interests. The bankers’ conferences finally resulted in the proposal which I telegraphed you on the 24th ultimo and which the department approved by its telegram of September 25.
[Page 204]Immediately on receipt of the department’s telegram I notified President Liang Tun-yen informally that we were ready to close, so that it should be clearly understood that the responsibility of further delay in the signature of the agreement could not be laid at our door.
The last proposal with respect to the purchasing agencies seemed to meet with the approval of the European bankers, although neither China nor ourselves were so notified. The Hongkong Banking Corporation and the British legation both professed ignorance of the reasons which actuated the British Government in asking the bank to delay signature, and up to this time the embargo has not been lifted.
That the agreement as telegraphed to the department has not been signed is due, in my opinion, to the action of the British Government.
I inclose copy of the agreement as it now stands.
The death of Chang Chih-tung gives the British Government an opportunity of reconsidering the whole Yangtze railway loan question and of undertaking the negotiations de novo.
I am informed that in the last three weeks conferences have been held by the British, French, and German groups in Europe, and that a new agreement had been or was about to be concluded. The object, and presumably the result, of these conferences was the decrease of the German interests, but in what respect I am unable to report.
Whether the agreement shall be concluded as it now stands, with the substitution of another Chinese official to represent the Chinese Government in the place of Chang Chih-tung, or whether the whole matter be taken up afresh, our position as far as the Hankow-Szechuen line is concerned is incontestable.
Both the German and British rights in the Hankow-Canton line seem to rest largely on the assurances of Chang Chih-tung, which, as far as I am aware, have never received the definite sanction and approval of the Central Government, although in view of the advance of funds for the redemption of the Hankow-Canton Railway loan by the Hongkong Government, the British would seem to have a moral claim on the Central Government which would be impossible to evade.
In conversation a few days ago with Sir Chen-tung Liang Cheng, former Chinese minister to Washington, he informed me that he had promised the Secretary of State, Mr. Root, that in the event of foreign capital being necessary America should have the first call, in view of the fact that the American concession was canceled by China against our desires. The whole matter of the railways in the Hukuang Provinces was, however, in the hands of Chang Chih-tung, and his subsequent transactions with the British would seem to have given them superior rights.
The department is familiar with the circumstances attending the introduction of German interests in the Hankow-Canton line, but it may be worth while to recall the fact that their claims are based on the agreement made in March last with Chang Chih-tung, never ratified by edict, whereby they undertook to lend him the necessary funds for the construction of the Hankow-Canton line on what are known as the “Pukow” terms. This tentative agreement encountered strong British objection on the ground that on September 9, 1905, Chang Chih-tung, then viceroy of the Hukuang Provinces, [Page 205] by a letter to the British consul general at Hankow, Mr. E. H. Fraser (see Mr. Rockhill’s dispatch No. 1079,1 of Jan. 7, 1908), had given assurances binding the viceroys and governors of the three Provinces of Hupeh, Hunan, and Kuangtung and their successors in office to accept, at equally favorable terms, British financial support if (foreign funds) required to build the Yueh-Han (Hankow-Canton) Railroad.
A compromise of the British and German claims was finally reached by the transfer of the German interests from the Hankow-Canton line to the Hankow-Szechuen line, the French interests being joined to the British. This compromise took the form of the agreement initialed here on June 6 last. Neither this legation nor, as far as I am aware, the Government at Washington, was cognizant of the inclusion of the Hankow-Szechuen line in this agreement until the latter part of May, and then only by means of press reports to that effect. Neither the British nor the Chinese Government approached us to learn whether our rights in connection with the Hankow-Szechuen line would be insisted upon.
It is idle for either the bankers or the Governments concerned to plead ignorance of the existence of these rights, and I have lately been informed that the proposal to include the Hankow-Szechuen line and thus find a way out of the impasse in which the British and German interests found themselves was first made some time in the latter part of April.
The change of attitude on the part of the British Government is due, in my opinion, largely to the influence of Mr. Valentine Chirol, who criticized in the Times the action of his Government and the legation here for failing to cooperate with American interests and for surrendering to the Germans. Mr. Rockhill also had, as the department has no doubt been informed, an interview with Sir Edward Grey, at which Mr. Chirol was present, in which the whole loan situation was reviewed. Dr. Morrison, the Peking correspondent of the Times, has also been favorable to a frank recognition on the part of the British interests of our rights, and has freely criticized the haggling of the Honkong Bank, which he has attributed to German influence which is represented on the board of directors of this institution.
There is undoubtedly a strong inclination in certain influential British quarters to try to curtail, if not entirely eliminate, the German interests in the Yangtze railway loans, and it might be that the death of Chang Chih-tung will be seized upon as offering a favorable opportunity to effect this. And it is not impossible that the two lines and the loans for their construction may be separated, in which event we should insist upon—and I think the British Government would support—an absolutely equal American participation in the Hankow-Szechuen line in every respect.
This course, however, would mean a sharp conflict between German and British interests, and if the Germans were forced out of the Yangtze Valley they would insist upon compensation at the hands of the Chinese Government in loans in Shantung and elsewhere, and the objectionable “spheres of influence” policy would be revived in another form.
[Page 206]I am strongly of opinion that the present agreement or, better, an agreement frankly providing for the equal treatment of all parties with regard to engineers, auditors, purchasing agencies, etc., is far preferable to a reopening of the whole question, when special local lights and interests will be insisted upon.
The existing conditions make it almost impossible for China at present to borrow money for her industrial development on any except the old “concession” lines. In one respect this is exceedingly unfortunate for China, in closing to her the open financial market, but in another it is a salutary check on what, with unlimited opportunity to borrow and ignorant if not corrupt methods of expenditure, might easily lead to bankruptcy.
Before leaving the subject of loans for the construction of railways in Hunan and Hupeh, I feel it my duty to point out to the Government that there exists in both these Provinces strong opposition to the borrowing of foreign capital. During the lifetime of Chang Chih-tung this opposition would have amounted to little more than talk; for, having been so long viceroy of these Provinces, his influence would, I believe, have been sufficient to overcome all local objection. I do not believe that this local opposition should be yielded to on the part of the Central Government. It was a local movement of misguided patriotism which compelled the repurchase of the Hankow-Canton line, but for which the railway would now be in operation. The Provinces have had ample opportunity to proceed with the construction with native capital of these lines and have failed utterly. It is clear that the line should and can only be built by the Imperial Government, and it would be a political blunder of the first magnitude if the Central Government were to yield to this outcry. At the same time the Central Government is woefully weak and may, now that Chang Chih-tung’s influence in the Yangtze is withdrawn, hesitate to adopt the strong line with these Provinces which will be necessary not only for the success of the undertaking but for the prestige and authority of the Central Government. Liang Tun-yen, however, clearly realizes this, and has repeatedly stated that the local opposition would not be allowed to interfere with the consummation of this important project.
I have, etc.,
- Not printed.↩