File No. 893.811/223

Minister Reinsch to the Secretary of State

No. 1072

Sir: In continuation of my despatch No. 1056 of April 28, 1916., I have the honor to report on the progress of the negotiations with respect to the improvement of the Grand Canal, in connection with the Huai River conservancy.

In the absence of Mr. Gregory, Dr. T. J. Gatrell has been authorized to negotiate on his behalf as the representative of the American International Corporation. He was given the assistance of the Legation and particularly of the Chinese Secretary, Dr. Tenney. The problem which presented itself was to so frame the contract for the improvement of the Grand Canal in the Province of Kiangsu as to carry out the understanding that it was the first step in the execution of the Huai River conservancy plan, while at the same time giving opportunity to the American interests to ascertain more thoroughly the exact nature of the drainage work to be done in the Huai River basin, the cost thereof, and the security, before absolutely committing themselves to a definitive obligation with respect to the larger work.

H. E. Chin Pang-ping, Minister of Agriculture and Commerce, in his capacity as Director General of the National Conservancy Bureau, insisted that it would not be feasible to separate the work in the Huai River basin from that on the Grand Canal, as otherwise the Grand Canal project would become one entirely within the purview of the provincial authorities of Kiangsu and also the Central Government would be severely criticized for postponing or abandoning the larger work.

In order to meet the situation and in order clearly to indicate that the canal improvement is considered entirely as the first step in the Huai River plan, of which it is an integral part, the following arrangements were made: It was agreed that expert engineers would immediately be appointed to investigate the conditions relating to all the other works included in the Huai River conservancy and to draw up detailed plans for the carrying out of the same, which are to serve as a basis for raising a further loan or loans in order to complete said works. In an exchange of notes between the American Minister and the Minister of Agriculture and Commerce, acting in [Page 110] his capacity as Director General of the National Conservancy Bureau, it was agreed that the preliminary agreement concluded on January 30, 1914, would remain in force throughout the period of execution of the Grand Canal improvement, and that within this period a final agreement should be drawn up for carrying out the necessary work on the Huai River conservancy on the basis of the further investigations and reports of the engineers.

Copies of the contract relating to the Grand Canal in the Province of Kiangsu, as well as the exchange of notes2 above referred to are herewith enclosed. There is also enclosed a copy of the agreement previously concluded with respect to the portion of the Grand Canal in Shantung Province, reported on in my despatch No. 1056 of April 28; as well as the copy of a general edict on the conservancy issued February 24, 1916.

With respect to the contract relating to the Shantung portion of the Grand Canal, I have the honor to report that H. E. the German Minister, as indicated in my cablegram of April 21, has informed his Government that a contract has been concluded with American interests for the execution of the Canal improvement in the Province of Shantung, and that, under the treaty of 1898, participation in the loan is offered to German capitalists. On account of the necessary slowness in communication, no reply has yet been received from the German Government. The representatives of the American International Corporation stated to me that they had no objection to part of the money being furnished from German sources.

The contract relating to the Grand Canal in Kiangsu Province was signed by Dr. Gatrell subject to ratification by the directors of the American International Corporation. It is of great importance that this ratification should be promptly forthcoming. The contract is extremely favorable both in the matter of security and particularly in granting a ten per cent commission to the construction company. The work on the Huai River improvement is so prominently associated with American standing in China, is so eminently useful and beneficial, that it should be undertaken without delay. Under the present arrangement the larger reclamation work can now be thoroughly tested and the best mode of execution can be considered from every point of view before any further commitment is necessary.

I have [etc.]

Paul S. Reinsch
[Inclosure 1]

agreement for huai river conservancy grand canal improvement loan

Whereas, on January 30th, 1914, a Preliminary Agreement was signed by the Government of the Republic of China and the American Red Cross for the carrying out of certain works included in the Huai River conservancy,6 and which works would be of great humanitarian benefit, and

Whereas, it has been deemed advisable that, in order to assist in the carrying out of this work, the improvement of that portion of the Grand Canal which is included in the Huai River conservancy shall be undertaken as a first step: and

[Page 111]

Whereas, the American International Corporation, hereinafter called “the Corporation”, is willing to provide funds to carry out the said improvement of the Grand Canal, the Government of the Republic of China, hereinafter called “the Government”, and the American Red Cross Society agree that this shall be done on the understanding that, during the progress of the said work, the Corporation will recommend to the Government for appointment expert engineers to investigate and report upon the most recent conditions relating to all the other works included in the Huai River conservancy scheme and to draw up detailed plans for the carrying out of the same, to serve as a basis for its arrangements for raising a further loan or loans in order to complete the whole of the said Huai River conservancy works:

Now therefore, the Government and the Corporation have agreed as follows:

Article I. The Government hereby authorized the Corporation, and the Corporation agrees, to issue on behalf of the Government a gold loan, under terms and conditions hereinafter set forth, for an amount not exceeding Three Million Dollars U. S. Currency (G$3,000,000.) The loan shall be called the Huai River Conservancy Grand Canal Improvement Seven Per Cent Gold Loan of 1916.

Article II. The rate of interest for the loan shall be seven per cent (7%) per annum on the aggregate amount of the loan, and shall be paid punctually by the Government to the bondholders upon presentation of the proper coupons half-yearly through the bank or banks designated by the Corporation, in accordance with the schedule attached to this agreement.2 The said interest shall be calculated from the date on which the loan is issued and shall be paid out of revenues from the Canal fifteen (15) days before due date to the bank or banks designated by the Corporation. Should the revenues be insufficient to meet the amounts required for interest, the Government agrees to make up the deficiency from other sources.

The term of this loan shall be twenty (20) years. The loan shall be redeemed in fifteen (15) equal annual installments, dating from the fifth (5th) year of issue, by drawings which shall be held in New York at the office of the Corporation in conformity with the amortisation table hereto attached.2 The numbers of drawn bonds shall be published in four (4) daily newspapers at the expense of the Corporation. Drawn bonds shall be paid in gold at their face value. Bonds presented for payment must be surrendered together with their proper coupons. Interest on drawn bonds ceases on the day of drawing. If after five (5) years from the date of the issue of the loan the Government shall desire to redeem the whole or any portion of the loan, it may do so by paying a premium of one and one-half (1½%) per cent on the par value of the bonds, but in each and every case of such extra redemption the Government shall give six (6) months previous notice in writing to the Corporation, and such extra redemption shall be effected by additional drawings of bonds to take place on the date of an ordinary drawing as provided for in the prospectus of the loan. The redeemed bonds and interest coupons will be received and cancelled by the Corporation when they shall be presented for payment.

The Corporation is hereby authorized to issue to subscribers to the loan gold bonds to the total amount of the loan or for such portion as shall be determined by them. The form and language of the bonds shall be settled by the Corporation. The bonds shall be printed and engraved by the Corporation at the expense of the Government, and before being issued shall bear the facsimile signature and seal of the Minister of Finance of the Government of the Republic of China. The Chinese Minister in Washington, shall, previous to the issue of the bonds, authenticate them with a facsimile of his signature and seal so as to prove that the issue of bonds has been duly authorized and is a binding obligation of the Chinese Government.

Article III. This loan shall constitute a direct liability and obligation of the Government of the Republic of China, which hereby pledges its good faith and credit for the punctual payment of the principal and interest of the loan and for the performance of all undertakings on its part herein assumed. The loan shall be secured as follows:

All tolls and taxes, exclusive of likin, now levied or to be levied on the Grand Canal in Kiangsu Province and which the said Government [Page 112] guarantees to be Six Hundred Thousand ($600,000.) Mexican Dollars. In case the said tolls and taxes should not equal this amount, the Government will make up, from other sources, whatever deficiency there may be so that the amount available shall at all times equal Six Hundred Thousand ($600,000.) Mexican Dollars.

Article IV. The loan shall be issued in one or more series of bonds as soon as possible after the signing of this agreement. The issue price of the bonds to the Government shall be ninety percent (90%) of their face value. All expenses, such as banker’s commission, flotation charges, stamp charges, etc., shall be borne by the Corporation.

As soon as possible after the signing of this agreement there shall be transferred to the bank or banks in China designated by the Corporation and put to the credit of the Huai River Conservancy Grand Canal Administration Account, six (6) months’ estimated expenditure in advance. This amount of estimated expenditure for six (6) months, which shall be determined by the Director-General in consultation with the Engineer-in-Chief, shall be maintained by subsequent monthly transfers so that, as far as possible, there will be always six (6) months’ estimated expenditure in China on deposit. Interest at the rate of four (4%) percent per annum shall be allowed by the banks on this deposit. The balance of the proceeds of the loan shall be held on deposit in America for the service of the loan. Interest at the rate of two (2%) percent per annum shall be allowed the Government as long as any portion of this balance shall remain on deposit.

Requisitions for loan funds for the carrying out of the engineering work shall be drawn up by the Engineer-in-Chief and forwarded to the Director-General for his approval, who, before endorsing same for presentation to the banks for payment, shall consult with the Contracting Engineer as to the feasibility of the work proposed and the reasonableness thereof, and the Contracting Engineer shall furnish a certificate to the Director-General to the effect that the work proposed is feasible and the cost reasonable.

When the work is ready to begin, a Head Works Bureau, to be called the “Huai River Conservancy Grand Canal Improvement Works Bureau,” shall be established at Tsing-Kiang-Pu. This office shall be under the direction of a Chinese Director-General appointed by the Government, with whom will be associated an American Chief Engineer and an American Chief Accountant. These employees shall be proposed and certified for their posts by the Corporation, and shall be appointed by the Director-General. If the American Chief Engineer or the American Chief Accountant should prove untrustworthy, the Director-General shall duly inform the Corporation and dispense with their services, and the Corporation shall nominate their successors; and in the event of the Corporation desiring to remove them for good cause, it shall do so in consultation with the Director-General, It is understood that the duties performed by these employees are intended to promote the material interest of the Chinese Government and the bondholders respectively, and it is therefore agreed that all cases of difference arising therefrom shall be referred for amicable adjustment to the Director-General and the representative of the Corporation.

Any consulting engineer representing the Director-General who shall be under orders to inspect the progress of the work shall be afforded reasonable facilities for such inspection.

Statements of the receipts and disbursements shall be made monthly in Chinese and English in the Department of the Chief Accountant, who shall organize and supervise the same and who shall report thereon for the information of the Director-General and the Corporation.

The salaries of the Chief Engineer and Chief Accountant, and the salaries and expenses of the engineers to be engaged to make the investigations concerning all the other Huai River conservancy works referred to in the preamble to this agreement, shall be arranged between the Director-General and the Corporation, and shall be paid out of loan funds.

Article V. As soon as required after the signing of this agreement the Head Works Bureau shall establish a Canal Department Office, which office shall have charge of the collection of all the tolls and taxes defined in Article III of this agreement, and the revenue so collected shall be paid into the fiscal agency of the Corporation to be applied to the interest and amortisation of the loan until such interest and amortisation have been paid in full.

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The organization and management of this Canal Department Office shall be under the control of the Director-General, who will be assisted by the American Chief Accountant.

Article VI. The work shall be performed on a percentage basis by contractors designated by the Corporation, who shall be a concern of known reputation, of high standing, and who have had large experience in the successful carrying out of great construction enterprises, and in whom the Corporation have the utmost confidence that the work intrusted to their care shall be carried out rapidly, efficiently, and economically.

This concern shall open a Head Office in Peking, China, wherein the principal accounts and records of this work shall be kept. These accounts and records shall be open at all times for inspection by the Director-General, the Corporation, or their appointees, and any information which has a direct bearing in any way upon the work shall be at all times placed at their service. In addition, if required by the Government, a complete set of accounts in connection with the carrying out of this enterprise shall be kept in Chinese and statements issued monthly to the Director-General and the Corporation.

The contractors shall give their personal attention to this enterprise and it is hereby agreed that they shall receive as remuneration ten per cent (10%) of the monies expended upon the work. No charge, however, shall be made by the contractors to the Government for their head office herein mentioned or the staff employed therein, nor shall the contractors charge for their personal supervision or personal expenses.

Article VII. In the purchase of materials preference shall be given to Chinese materials when price and quality are equal, otherwise American materials and machines will be used when the price does not exceed the price of the same quality in other foreign markets.

The Chief Engineer shall be instructed at once to make a plan of the work to be done, which plan is to be approved by the Director-General in consultation with the Contracting Engineer, who shall submit a detailed scheme of procedure.

Article VIII. The Government will at all times provide sufficient protection for the work and all properties of the corporation as well as Chinese and foreigners employed thereon, and the Chief Engineer may apply to the Director-General for such protection whenever he deems it necessary.

Article IX. The Corporation may, subject to all its obligations under this agreement, transfer or delegate all or any part of its rights, powers, and discretions thereunder to any American corporation, directors, or agents, with power to further transfer and subdelegate; such transfer, subtransfer, delegation or subdelegation to be subject to the approval of the Government.

Article X. In the event of any bond or bonds issued by this loan being lost, stolen, or destroyed, the Corporation may notify the Minister of Finance of the Republic of China and the Chinese Minister at Washington, who shall authorize the Corporation to insert an advertisement in the public newspapers stating the payment of such bond or bonds has been stopped, and to take such other steps as may appear advisable or necessary according to the laws and customs of the country concerned. Should any bond or bonds be destroyed, or should such lost or stolen bond or bonds not be recovered after a lapse of time to be fixed by the Corporation, the Chinese Minister at Washington shall execute a duplicate bond or duplicate bonds for a like amount and deliver the same to the Corporation representing the owner or owners of such lost, stolen, or destroyed bond or bonds, which Corporation shall pay all expenses in connection with such delivery and execution of such duplicate bond or bonds for the account of the owner or owners of such bond or bonds.

Article XI. This agreement is executed in triplicate in English and Chinese; one copy to be retained by the Government, one by the United States Minister in Peking, and one by the Corporation; and should any doubt arise as to the interpretation of this agreement, the English text shall be accepted as the correct one.

Article XII. This agreement is signed subject to ratification by His Excellency, the President of the Republic of China, and to confirmation by the Directors of the American International Corporation, and shall not become valid until the actual fact of the aforesaid ratification and confirmation has been officially communicated by both contracting parties hereto to the American Minister in Peking.

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Signed at Peking this thirteenth day of the fifth month of the fifth year of the Republic of China, being the thirteenth day of May, Nineteen Hundred and Sixteen, Western Calendar:
For the Government of the Republic of China,
———— ————,
Director-General of the National Conservancy Bureau of China
For the American International Corporation,
———— ————,
On Behalf of
Ernest T. Gregory, Representative of the American International Corporation

annex

With reference to the Huai River Conservancy Grand Canal Improvement seven (7%) per cent Gold Loan of 1916, signed this day, it is understood by the contracting parties thereto that if, before the publication of the prospectus for the issue of this loan, any political or financial crisis should occur affecting the money markets of the prices of Chinese Government securities in such manner or to such degree as, in the opinion of the Corporation, will render impossible the successful flotation and issue of this loan on the terms herein named, the Corporation shall be granted a period of six (6) months from the date on which this agreement shall have been signed within which to issue the loan to the public. If on the expiration of this period the markets are still unfavorable, then the Corporation shall be entitled to ask the Government for extension of time. If the Government should refuse to grant the extension of time requested, this contract shall become null and void, subject always to the repayment to the Corporation with accrued interest of any loan funds which may have been advanced by them subsequent to the signing of this agreement.

Signed at Peking this thirteenth day of the fifth month of the fifth year of the Republic of China, being the thirteenth day of May, Nineteen Hundred and Sixteen, Western Calendar:
For the Government of the Republic of China,
———— ————,
Director-General of the National Conservancy Bureau of China
For the American International Corporation,
———— ————,
On behalf of
Ernest T. Gregory
, Representative of the American International Corporation
[Inclosure 2]

The Director General of the National Conservancy Bureau to Minister Reinsch

Sir: I have the honor to acknowledge the receipt of your communication of the 10th instant, and have duly noted that the American International Corporation, recommended by the American Red Cross Society is now proposing to undertake the improvement of the Kiangsu section of the Grand Canal as a part of the Huai River conservancy scheme. This bureau recognizes this as proof that the said Corporation or other nominee of the American Red Cross Society consents to undertake the work of the Huai River conservancy and to assume the obligations which devolve on the American Red Cross Society, its representative or successor, by the terms of the Preliminary Loan Agreement between the Chinese Government and the American Red Cross Society which was signed January 30, 1914.7 Therefore on making this contract with the said Corporation it is agreed that the Preliminary Agreement between the Chinese Government and the American Red Cross Society signed on January 30, 1914, and extended for periods of one year and four months respectively,8 will remain in force throughout the period of time during which the said Corporation is engaged on the work of the Kiangsu section of the Grand Canal. The said Corporation, or other nominee of the American Red Cross Society, shall, within the period during which the above mentioned work is proceeding, draw up a final agreement in accordance with the terms of the [Page 115] Preliminary Agreement, for carrying out all the work of the Huai River conservancy and arranging for the loan. I now send this reply in order to make the situation clear, and trust that you will note the same and make it a matter of record.

Chin Pang-ping
[Inclosure 3]

agreement for south grand canal of shantung province improvement loan

Whereas, the Government of Shantung Province with the approval of the Central Government of China is desirous of improving the South Grand Canal in Shantung Province and reclaiming certain land areas; and,

Whereas, this part of the Grand Canal is intimately related the Grand Canal within the scope of the Huai River Conservancy scheme, since it forms the upper regions of the latter, and as the benefits which will accrue to the people from the work are exceedingly great, the American International Corporation has been asked to arrange a loan to carry out the work, and the following agreement has been entered into:—

Hereinafter the Government of Shantung is called the “Government”, and the American International Corporation the “Corporation”.

Article I. The Government authorizes the Corporation to issue a gold loan on the terms and conditions hereinafter set forth for an amount not exceeding three million dollars ($3,000,000) U. S. currency. This loan shall be called the South Grand Canal of Shantung Province 7% Improvement Gold Loan.

The denomination, wording and design of the bonds shall be determined by the Corporation, and all expenses incurred in connection therewith shall be borne by the Corporation; but the cost of engraving and printing the bonds shall be borne by the Government, which shall also furnish a facsimile of its signature and seal to be engraved on the bonds. The Chinese Minister in Washington, shall, previous to the issue of the bonds, also furnish a facsimile of his signature and official seal to be engraved on the bonds to signify the sanction of the Chinese Government to their issue and as a proof of the binding obligation of the Chinese Government.

The first issue of the bonds shall be for two million five hundred thousand dollars ($2,500,000) U. S. currency at ninety (90%) per cent and shall be issued as soon as possible after the signing of this agreement. In the event that the Government should desire to issue any part of the balance of the loan, the Corporation shall be given the option to purchase same at the market rate at the time the issue is made. All expenses such as banker’s commission, flotation charges, stamp charges, etc., shall be borne by the Corporation.

Article II. The rate of interest for the loan shall be seven (7%) per cent per, annum on the aggregate amount of the bonds issued. After the signing of this loan agreement the Corporation will set aside the whole amount of the present issue and place it to the credit of the South Grand Canal Conservancy Account. Within six (6) months the Government shall pay the first interest coupon, and the amount of this interest shall also be placed to the credit of the South Grand Canal Conservancy Account. All subsequent interest payments shall be made in semiannual instalments according to the amortization table hereto annexed. Thereafter, all unused funds deposited in China shall bear interest at the rate of four (4%) per cent per annum, and the unused balance deposited in America shall bear interest at the rate of two (2%) per cent per annum. The amount deposited in China shall at all times be kept at such a figure as to be sufficient for six (6) months use.

Article III. The term of this loan shall be thirty (30) years. This loan shall be redeemed in twenty-five (25) equal annual instalments, dating from the fifth (5th) year of issue, by drawings which shall be held in New York at the office of the Corporation in conformity with the amortization table annexed hereto. The serial numbers of bonds drawn shall be published in four (4) daily newspapers at the cost of the Corporation. Drawn bonds shall be paid in gold at their face value. Bonds presented for payment must be surrendered together with their proper coupons. Interest on drawn bonds ceases on the day of drawing.

If after five (5) years from the date of the loan, the Government should desire to redeem the whole or any portion of this loan not yet redeemed, it [Page 116] may do so by paying a premium of one and a half (1½%) per cent on the par value of the bonds not yet redeemed. But in each and every case of such extra redemption the Government shall give (6) months previous notice in writing to the Corporation, and such extra redemption shall be affected by additional drawing as provided for in the prospectus of the loan. The redeemed bonds and interest coupons will be received and cancelled by the Corporation when they shall be presented for payment.

Article IV. This loan shall be secured by the lands which are to be reclaimed owned by the Government of Shantung Province, which said Government declares to be approximately three hundred thousand (300,000) mow. The Government declares that this land is not mortgaged at the present time and that it will not create a mortgage upon the lands during the term of this loan which will rank equal or prior to this loan.

This loan shall be further secured by all revenues of the Government derived or which may be derived from the Government lands affected by the proposed work, and also by additional revenues from the sale of, lease of or taxation of all reclaimed and/or improved lands, as well as any special taxes which may be levied by the Government on lands benefited by this construction work.

It will further be secured by all taxes derived or to be derived from all other lands affected by this improvement which the Government estimates to be approximately five hundred thousand (500,000) mow.

It shall further be secured by all tolls and taxes now derived or to be derived from the use of the South Grand Canal in Shantung Province during the life of this loan.

The Government hereby certifies that the estimated area of the above named districts amounts to eight hundred thousand (800,000) mow, and the area is to be confirmed by a map made after an actual survey.

It shall further be secured by all machinery and tools purchased by loan funds.

In case the said revenues prove insufficient, the Government undertakes to make good the deficiency with other revenues provided for in the budget of Shantung Province. If no money is available for repayment on the due dates, then after a reasonable, number of days of grace the Corporation shall supervise the collection of the revenues pledged as security for this loan, and such supervision shall last until the outstanding amounts are all repaid.

The director general shall be intrusted with the duty of managing and improving the reclaimed lands and the canal.

The Government agrees to set apart a portion of the surplus receipts turned over to the Government by the Conservancy Bureau for the maintenance of the canal.

All receipts in connection with the securities mentioned in this article shall be handled by the Conservancy Works Bureau and shall be deposited in the bank designated by the Corporation and the Government to meet the payments due for interest and repayment of principal of the loan. Any surplus left over shall be placed at the disposal of the Government. The above mentioned receipts are to be included in the Government’s budget.

Article V. The proceeds of the loan are only to be utilized for the improvement of the South Grand Canal in Shantung Province, commencing at Pang Chia-kou and Lan-huang Pa in the North, and ending at Wei Shan Hu and Tai-erh-chuang in the South, and for such extensions as may be required, as well as for work in direct connection with the valley of the Wen and Ssu Rivers, the Po River and marshes and other tributaries of the main canal, and for the improvement of the reclaimed lands.

The Government will furnish the Corporation as soon as possible after the signing of this agreement maps showing the lands which will be reclaimed by the proposed work and which have been designated as security for this loan.

The work shall be completed within thirty (3) (30?) months from the signing of this agreement unless delayed by some unforeseen occurrence.

Article VI. Upon the commencement of this work the Government shall with the approval of the Chinese Government, appoint a director general, who shall established a Head Works Bureau at Tsining-Hsien. In this bureau there shall be three (3) responsible departments, namely:—

(1)
A general affairs department with an officer in charge appointed by the director general. This department shall take charge of all work in connection with miscellaneous affairs.
(2)
An engineering department in charge of an American chief engineer. This department shall take charge of all work in connection with the engineering operations.
(3)
An accounts’ department in charge of an American chief accountant. This department shall have charge of all receipts and disbursements connected with the fulfillment of this loan agreement.

Whatever is done by these three (3) departments must be submitted to the director general for his approval.

All disbursements from the proceeds of the loan shall be made only after the approval of the director general. The American chief accountant is to be appointed by the director general at the recommendation of the Corporation.

Article VII. The Government shall ask the Corporation to recommend a well qualified person to be selected and appointed as chief engineer by the director general.

The qualifications of this chief engineer shall be the following: Five years experience in the engineering work of a well known river; an engineer who enjoys the best professional reputation.

The chief engineer shall be instructed at once to make a plan for the improvement of the Canal and the draining of lands as specified in Article V; which plan is to be approved by the director general in consultation with the contracting engineer who shall submit a detailed scheme of procedure.

If the American chief engineer or the American chief accountant should prove untrustworthy, the director general shall duly inform the Corporation and dispense with their services and the Corporation is to nominate their successors.

The salaries of the chief engineer and the chief accountant shall be arranged between the director general and the Corporation.

Any consulting engineer or other representative of the director general who shall be under his orders to inspect the progress of the work shall be afforded reasonable facilities for such inspection.

Article VIII. The engineering work shall be executed by a contracting firm which shall receive a remuneration at a certain percentage of the total cost of the work. The contracting firm shall possess excellent professional reputation, have ample experience and have to its record the execution of a great construction work. The Corporation may recommend to the director general for approval and appointment any contracting firm which they believe to be capable of doing this work speedily, durably and economically. The contracting firm shall actually supervise the work, and the procedure to be adopted in any work shall be submitted to the director general for approval. The contracting firm shall receive a remuneration amounting to ten (10%) per cent of the total cost of this work, besides which the contracting firm shall not demand any other fee.

Article IX. The Government will provide sufficient protection for the work and all properties of the Corporation as well as for Chinese and foreigners employed thereon.

Article X. The Corporation may, subject to all its obligations under this agreement, transfer or delegate all or any part of its rights, powers and discretions thereunder to any American corporation, directors or agents with power to further transfer and subdelegate. Such transfer, subtransfer, delegation or subdelegation to be subject to the approval of the Government.

Article XI. In the purchase of materials preference shall be given to Chinese materials when price and quality are equal.

Article XII. In the event of any bond or bonds issued by this loan being lost, stolen or destroyed, the Corporation may notify the Chinese Minister at Washington who shall authorize the Corporation to insert an advertisement in the public newspapers stating that the payment of such bond or bonds has been stopped, and to take such other steps as may appear advisable or necessary according to the laws and customs of the country concerned. Should any bond or bonds be destroyed, or should such lost or stolen bond or bonds not be recovered after a lapse of time to be fixed by the Corporation, the Chinese Minister at Washington shall execute a duplicate bond or bonds for a like amount and deliver the same to the Corporation representing the owner or owners of such lost, or stolen or destroyed bond or bonds, which Corporation shall pay all expenses in connection with such delivery and execution of such duplicate bond or bonds for the account of the owner or owners of such bond or bonds.

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Article XIII. All bonds, coupons and payments made and received in connection with the service of this loan shall be exempt from all Chinese taxes and imposts during the currency of this loan.

The Corporation is hereby authorized to appoint an agent to act as trustee for the bondholders.

Article XIV. This agreement is executed in quadruplicate in Chinese and English; one set to be retained by the Government of Shantung Province; one by the Central Government; one by the United States Minister in Peking and one by the Corporation; and should any doubt arise as to the interpretation of this agreement, the English text shall be accepted as the correct one.

Article XV. This agreement shall take effect as soon as it has been approved by the President of the Chinese Republic, and it will be automatically cancelled as soon as the entire amount of the principal and interest of the loan is paid.

Signed at Tsinan-fu, Province of Shantung, this nineteenth day of April, 1916.
Signed by: ______ ______,
Representing the Shantung Government
Ernest T. Gregory,

Representing the American International Corporation
Witness:
W. F. Carey

annex

Regarding the security named in Article IV of this agreement; since there are definite plans which forecast a good prospect for the revenues of the next year from the renting and sale of reclaimed land in the districts of Tung Pin, Tsining and Yutai, and from calamity stricken private owned lands, which are to be improved by the conservancy work, and from the additional taxes collected from the use of the South Grand: Canal; and since, moreover, in Article IV the Government guarantees to make good any possible deficiency in the revenues with other revenues provided in the budget, the Government’s sincerity in the matter is amply demonstrated. In appreciation of the Corporation’s kindly sentiments, and in order to further demonstrate the importance it attaches to its good credit, it is hereby stipulated that three hundred thousand ($300,000) Mexican dollars will be set aside yearly from the land tax of the Shantung Government as a reserve fund for making good any possible deficiency in the loan service funds. The Shantung Government will duly petition the Central Government to the effect that in no year will the above specially reserved fund be drawn upon before the payments due on account of this loan have been fully met.

Signed at Tsinan-fu, Province of Shantung, this nineteenth day of April, 1916.
Signed by: ________ _______,
Representing the Shantung Government
Ernest T. Gregory,

Representing the American International Corporation
Witness:
W. F. Carey
[Inclosure 4]

mandate

The State Department has been instructed to issue the following mandate:

February 23.

The development of agricultural enterprises depends solely on proper irrigation. So long as the rivers can be kept within their proper courses and the various tributaries continue to flow freely, inexhaustible benefit will accrue from irrigation with absolutely no possibility of the embankments breaking. It can be said without contradiction that irrigation is attended with nothing but benefits. In our arduous duties day and night the affairs of the people occupy our first attention. The problems which have attracted our special attention are the rivers in the environs of the Capital, the Huai Ho in Kiangsu and Anhui, the Sikiang in Kuangtung, and Tungting Lake in Hunan. [Page 119] The question of irrigation is a life and death question to the people; it is, therefore, our resolve that it shall be grappled with. We, however, are compelled gradually to attack the problem as the financial capacity of the country is limited. Hsu Shih-kuang has already been appointed director general of all affairs relating to the deepening of the rivers round about the Capital; while Tan Hsueh-heng has been made responsible for the dredging of the Sikiang. For the task of finding outlets for the Huai River the National Irrigation Bureau has already formulated the mode of procedure. Work on the rivers round about the Capital has already begun; but similar work on other rivers has been postponed through either the difficulty of raising funds or the failure of negotiating loans. On the other hand it must be remembered that however great the difficulties, perseverance will prevail in the end. Tan Hsueh-heng is hereby ordered to cooperate with Chang Min-chi in forwarding the progress of the various river works under their charge. The National Irrigation Bureau shall be held responsible for the work of finding outlets for the Huai Ho and the dredging of the Tung-ting Lake. The said bureau shall, with the cooperation of the authorities of the provinces concerned, set to work in this direction. First of all officials should be sent out to investigate and survey, while in the meantime funds should be raised for the actual carrying on of the work section by section with the view that actual results may thereby be attained. The aim is to complete the work of improvement within a few years so that agriculture may be developed and sources of money opened up. This will be our hope day and night.