Papers Relating to the Foreign Relations of the United States, With the Address of the President to Congress December 5, 1916
File No. 893.77/1536
Minister Reinsch to the Secretary of State
Peking, April 20, 1916.
Sir: I have the honor to enclose for your information copies of a railway loan recently concluded between the Chinese Government and the Russo-Asiatic Bank.
[Page 170]The railway for the construction of which provision is made, is to be known as the Pin-Hei Line. The railway is to connect Harbin with Mergen and Heiheifu, on the Amur River opposite Blagoveshchensk. Mergen is to be connected by a branch with Tsitsihar on the Trans-Manchurian Railway. The projected line is, therefore, in part almost identical with the northern portion of the Chinchow-Aigun project.
It is to be remarked that while the Trans-Manchurian Railway is the property of a company, the Chinese Eastern Railway Company, which represents the Russian Government, the contract for the Pin-Hei Railway is drawn up along the lines of the usual railway loans to the Chinese Government. The funds are borrowed by the Chinese Government to which the railway is to belong. The bank, of course, enjoys the customary rights of control in connection with auditing and operation.
In a conversation on the concession, Mr. Grave, the Russian Chargé d’Affaires, explained to me that the construction of the section from Harbin to Mergen was considered especially desirable because of the agricultural and forestry resources of the region traversed. He stated that while the, commencement of the work would have to be delayed on account of the war the above portion at least, would be undertaken as soon as money could be secured.
The eventual raising of a part or the whole of this loan in America and the purchasing of materials from the same source is taken account of in the contract (Articles VII and XIV); it would, therefore, appear that the Russian bank would be inclined to make arrangements with American capitalists to further the early construction of the line.
I have [etc.]
Agreement for the Chinese Government 5% Gold Loan of 1916 for the Pin-Hei Railway.—March 27, 1916
Article I. Contracting Parties.—The present contract is concluded at Peking the 27th day of March, 1916, the twenty-seventh day of the third month of the fifth year of the Chinese Republic, between the Government of the Chinese Republic (hereinafter called “the Chinese Government”), represented by His Excellency Chow Hsueh-Hsi, Minister of Finance, and His Excellency Liang Tun-Yen, Minister of Communications, duly authorized, of the first part; and the Russo-Asiatic Bank (hereinafter called “The Bank”), a joint stock company established in Petrograd, represented by Mr. L. de Hoyer, duly authorized, of the second part.
Article II. Date, Designation and Amount of the Loan.—The Chinese Government authorizes the Bank to issue a gold loan for the nominal amount of Roubles 50,000,000 (fifty millions) either at once or by successive issues equivalent to an approximate amount in French francs, Belgian francs, pounds sterling, or American dollars, at the option of the Bank.
The proceeds of the issue shall be carried by the Bank to the credit of the Chinese Government in the currency of the market or markets of issue, and for the amount realized in each market. The payment of interest and the repayment of the bonds shall be effected in the currency of the issuing market, and in other places in their respective currencies at the rate of the day. The Bank shall be in charge thereof.
The loan shall bear the date of the issue of the bonds. It shall be known as: The “Chinese Government 5% Gold Loan of 1916, for the Pin-Hei Railway.”
[Page 171]Article III. Purpose of the Loan.—This loan is destined exclusively to furnish the funds required for the following purposes:
1. The construction, equipment and putting into operation of a line which shall connect Harbin, or a point situated on the Chinese Eastern Railway near Harbin with Hei-hei-fu (Sahalian), situated on the Amur opposite the town of Blagoveshchensk, passing through Mergen, with a branch road connecting Mergen and Tsitsihar. The exact route of the line shall be decided upon by common consent between the director general, representing the Chinese Government, and the engineer in chief, designated according to Article 15, who will for this purpose be guided by the interests of the enterprise.
It is understood that the construction and equipment shall comprise the acquisition of the necessary lands, rolling-stock and other installations, and the means of connection with the Chinese Eastern Railway in such manner as to assure the easy and profitable operation of the line.
The Chinese Government will take all the measures and assume all necessary indemnities and charges whatsoever with a view to assuring the passage of the line through public property, both governmental and provincial, and private property, both in towns and villages and in the country. All the funds required for this purpose by the Chinese Government, of which estimates shall be made by the director general, shall be put into his hands, and shall be charged against the proceeds of the loan. However, the amount of payments to be made under this heading to the Chinese Government shall be fixed by agreement between the director general and the Bank, and shall be subject to the revision of the engineer in chief, in conformity with Article XIII, hereafter.
2. For the purchase of the line running from the town of Tsitsihar to the Chinese Eastern Railway, and the incorporation of that branch with the present line. The purchase of the line shall be made through the Director General.
3. For the payment of the interest coupons upon the loan, as well as the working expenses during the period of construction, the duration of which is estimated at five years, and which shall be definitely fixed after the completion of the surveys.
In case the construction should be concluded sooner than is anticipated, the balance of funds so obtained shall be consigned to the Bank, and shall constitute a reserve fund for the payment of the interest coupons on the present loan, or else for work of improvement or repair of the line.
In case the Chinese Government should come to an arrangement with the Russian Government for the purpose of connecting Hei-hei-fu and Blagoveschensk, by a bridge or by a ferry-service between the two banks of the Amur, the details of this enterprise shall be the subject of an exchange of letters between the representatives of the Chinese Government and the Bank, which letters shall be thereupon annexed to this contract.
Article IV. Interest.—The interest upon the present contract shall be reckoned at 5% (five per cent) per annum upon the nominal amount. It shall be paid semi-annually by the Chinese Government, through the Bank, to the bondholders; it shall be calculated to run from the date of the issue of said loan to the public, and paid under the conditions stipulated hereinafter.
Article V. Term and Repayment.—The term of the loan shall be forty-six years. The payment of principal shall begin at the expiration of sixteen years, counting from the date of issue to the public, subject to the right of anticipatory repayment as provided for in Article VI, hereafter. It shall be effected by annual and uniform amortizations, paid in halves, semi-annually, to the Bank. These payments shall correspond to the amounts specified in the amortization table annexed to this contract, and shall be made fourteen days before their due dates as fixed according to the European calendar, each half year following the date of public issue. Bonds and interest coupons as matured will be taken up and cancelled by the Bank, when they are presented for payment. The Bank will send them in good order to the Chinese Ministers accredited to the countries in which such payment may have been made.
The Bank shall repay to the Chinese Government the whole amount of every bond or interest coupon which may not have been presented for payment within thirty years from the date on which it was repayable or payable.
When the loan shall have been entirely paid off, the present contract shall immediately become null and void.
Article VI. Anticipatory Repayments.—The Chinese Government, after the expiration of sixteen years from the date of the loan, shall have the right [Page 172] to repay at any time, in whole or in part, the amount of the loan not yet repaid, in consideration of a premium of 2½ (two and one-half per cent), in case of repayment before the 27th year, upon the nominal value of those bonds on which payment may not jet be obligatory according to the table annexed to this contract:—that is to say, by paying for a bond of one hundred roubles, for example, two roubles and fifty kopecks. After the 27th year, it may make repayment without any premium whatever.
Every time that the Chinese Government wishes to make such an extraordinary repayment, it must give six months previous notice to the Bank in writing.
These extraordinary repayments shall be made by supplementary drawings of bonds, which shall take place at the same date as the ordinary drawings in accordance with the provisions of the prospectus of the loan.
Article VII. Service of the Loan.—The Chinese Government, by these presents, binds itself formally and without reserve to pay in full and punctually the interest and the principal of the loan, in accordance with the schedule annexed to the present contract. Furthermore, the Chinese Government accords to the holders of the bonds of the present loan a special guaranty on the Pin-Hei Railway.
This special guaranty constitutes a first mortgage on the line itself, its stationary and rolling-stock, its appurtenances and its profits. This is accepted by the Bank in the name of the bondholders.
If the Chinese Government is in arrears in the payment, at the date fixed, of all or part of the half-yearly interest or repayment of principal, the Bank shall have full power to exercise all the rights accruing from this special guaranty according to the laws in force on this subject in the countries of Europe, such as Russia, France or England.
During construction, the interest shall be paid out of funds deducted from the proceeds of the loan.
The Chinese Government shall take the funds necessary for the payment of interest, after the completion of construction, and for the repayment of principal, from the receipts of the railway, and in case of their insufficiency, from its general revenues.
The receipts of the railway shall be deposited without delay in the bank, and placed in a special account in roubles for the railway, at Harbin or at such other branch of the Bank in North Manchuria as it might designate.
The Bank will take out of these deposits the total amount necessary for the service of the loan on the two due dates next following; this operation will be so effected as to assure the provision of the gold required for this service at least fourteen days before the due dates.
The half yearly payments due for interest and for repayments of principal shall be deposited in the Bank fourteen days before the due dates fixed by virtue of the preceding paragraphs.
These deposits shall be made by the Minister of Communications with the Bank in Harbin, and must be of an amount sufficient to cover the payments in gold in Europe and in America.
In case, however, the receipts of the railroad should not be sufficient for the payment of interest and repayment of principal, and the Chinese Government should consequently be obliged to raise the necessary funds from its general revenues, such deposits shall be made by the Minister of Communications with the Bank at Shanghai or at such a place as the Bank may designate, in Shanghai sycee approved by the Bank, or in national currency (whenever this is in circulation); and they must be of an amount sufficient to cover these payments in gold in Europe and in America.
The payments may, however, be made in gold in Europe, if the Chinese Government happens to have at its disposal in Europe bona fide gold funds, not transferred from China for this purpose, which it wishes to use for this purpose.
In reimbursement for the expenses in connection with the payment of interest and the repayment of the principal of the loan, the Bank shall receive from the Chinese Government a commission of ¼% (one-fourth per cent) upon the annual loan service.
If in the future any Chinese State bank establishes a branch in Russia, and not a mere correspondent or foreign agent, this State bank shall share with the Bank to the extent of 50% (fifty per cent) in the service of transfer of funds.
[Page 173]Article VIII. Price of the Loan.—The price of bonds to be paid by the Bank to the Chinese Government shall be the price of their Issue to the public in the Petrograd market, less 6% (six per cent) of their nominal value. In case no issue should be made in Petrograd, the price shall be that obtained in the place or places of issue, less 6% of the nominal value of the bonds. The Bank reserves the right to determine the amounts to be issued on the several markets. In fixing these amounts, it will take into consideration the conditions of those markets.
The Bank will assume the expenses incident to the issuing and placing of this loan, such as underwriting, commission and brokerage, outlays for telegrams and correspondence, advertising, engraving and printing of the prospectus and bonds, stamps and taxes.
The director general or the Ministers of China in the countries where the issue is to take place, shall be notified in advance of the rate of issue of the loan, which must be as favorable as possible.
Article IX. Issue.—The Bank is authorized to prepare immediately the gold bonds representing either the total amount or only a portion of the loan; it will keep them in its possession until the issue of the loan at as early a date as it considers favorable for making it. The Bank is authorized to deliver the bonds to subscribers in due time, according to prospectus of the loan.
The denomination of bonds shall be fixed by the Bank, which may prepare bonds of different values.
The Bank shall determine the form of the bonds, the language in which they shall be drawn up, and the currency in which their value shall be expressed, in conformity with the usages in the countries in which the issues are to be made. It shall in advance inform the director general of this, or the Minister of China in the countries of issue.
The bonds shall bear the facsimile of the signature, and of the official seal of the Minister of Finance and of the Minister of Communications, in order to relieve them from signing them themselves.
As soon as the bonds shall have been printed, the Chinese Minister at Petrograd, or in the other countries where the issue is to be made, will cause to be affixed to each bond the facsimile of his official seal and of his signature, as proof that the issue and sale of these bonds are authorized by the Chinese Government, and are made in its name and for its account.
The bonds shall be sealed and countersigned by the Bank or by its agents in the countries where the issue is to be made.
All details necessary for the prospectus, or relating to the payment of interest and to the repayment of the principal of the loan, which may not have been fixed explicitly by the present contract, shall be arranged by the Bank, after having consulted with the Chinese Ministers accredited to the countries where the issue is to be made.
The Bank is authorized to publish the prospectus of the loan as soon as possible after the signing of the present contract.
The Chinese Government shall give instructions to its representatives accredited to the countries where the issue is to be made, that they shall sign the loan prospectus and that they shall give their co-operation to the Bank in all questions which may call for it.
The first series, of which the amount shall not be less than 10,000,000 roubles (ten million) or its equivalent in French francs, Belgian francs, pounds sterling, or gold dollars, according to Article II, shall be issued as soon as possible after the ratification of the present contract. The date of issue of the subsequent series, which shall not be less than one-fifth of the total amount of the loan, shall be fixed by mutual agreement between the Bank and the Chinese Government in such a way that the work and the purchase of materials provided for under the present contract shall suffer no delay. The Bank may nevertheless float the whole loan in one single issue if it deems it opportune to do so, on so advising in advance the Chinese Government, which will consent thereto.
The subscription shall be opened by the Bank, in Europe, in America, if an issue is made in that country, and in China, under equivalent conditions. Preference shall be given to the subscription of the Chinese Government on condition that this subscription is delivered to the Bank at least four days before the publication of the prospectus.
The Bank shall make known to the Chinese Government the date of the publication of the prospectus of the issue, at least seven days in advance.
[Page 174]If before the publication of the prospectus for the issue of the loan, the present state of war should not have ceased in Europe, or if in consequence of this crisis, the state of the markets should render the issue impossible, or if a political or financial crisis in China should seriously affect the price of Chinese Government securities already existing, the Bank shall be granted a reasonable extension of time for the execution of the present contract. If the loan has not been issued during this extension of time, the length of which shall have been fixed by mutual consent, the present contract shall become null and void.
Article X. Lost Bonds.—If any of the bonds issued for the present loan is lost, stolen or destroyed, the Bank will so advise the Minister of Communications as well as the Chinese Minister accredited to the country where such bond was issued.
The latter shall authorize the Bank to publish in the newspapers the notice that all payment on this bond is suspended, and to take all such measures as may be necessary under the circumstances in conformity with the laws and usages of the country.
If the bond has been destroyed, or if the lost or stolen bond has not been recovered within the period fixed by the Bank, the Chinese Minister accredited to the country shall affix his seal to a duplicate of the bond, of the same nominal value, and shall deliver it to the Bank in its capacity as representative of the owner of the bond lost, stolen or destroyed.
The Bank shall pay all expenses in behalf of the owner of the bond.
Article XI. Exemption from Taxes.—All bonds, all coupons, and all payments made or received in connection with the service of the present loan, shall be exempt from all Chinese imposts and taxes during the term of the loan.
Article XII. The Bank Trustee.—The Bank may act as trustee for the bondholders of the present loan.
It may undertake to represent them, and shall have the power to act in their name, in all negotiations which may be necessary with the Chinese Government, or in any discussion concerning the present loan.
Article XIII. Deposit of Proceeds from the Loan—Accounts of the Railroad.—The Bank shall deposit the proceeds of the loan to the credit of an account designated the “Chinese Government 5% Gold Loan of 1916 for the Pin-hei Railway,” which shall be opened by the Bank in Europe, and in America if a block of the issue is placed in that country.
The proceeds of the loan shall be deposited to the credit of this account by successive payments, according to the conditions granted to subscribers to the loan.
The credit balance of this account shall bear interest to the profit of the Chinese Government at the rate of 3% (three per cent) yearly. As to the sums transferred to China, and not yet used, they shall bear interest at the best rate given by the Bank on ordinary deposits.
The Bank shall hold at the disposal of the director general the net proceeds of the loan plus the accrued interest, having care however to reserve the amount necessary for the payment of the interest coupon and the commission of the Bank on these coupons during the period of construction of the line, which is estimated at five years, but which will be definitely fixed after the completion of the surveys. A sufficient sum shall also be left in Europe and in America, if issue has been made in that country, for all payments for material and for staff.
The director general may transfer to China at his pleasure the funds of the loan, after having come to an agreement with the Bank on the subject. Transfers made during the course of a week cannot exceed £75,000 (seventy five thousand pounds sterling) without the consent of the Bank.
Transfers shall be made through the Bank, and the amount thereof shall be deposited to the credit of a “Pin-Hei Railway” account at Harbin, on the responsibility of the Bank.
According to the table of estimates drawn up by the engineer in chief for expenditures to be made in China during the month or months following, the director general shall determine the amount of the sum to be drawn from the account, which sum shall be deposited to a rouble account for construction, which account shall be opened by the Bank in Harbin, or at such other branch of the Bank in North Manchuria as it may designate.
This transfer from the Pin-Hei Railway account to the construction account shall be made under the care of the director general, and through the Bank. It [Page 175] shall not involve the sums required for more than one month, unless the Bank consents thereto. The construction account shall bear interest at a rate fixed according to the rules in force for this category of current accounts.
Withdrawals from the construction account shall be made in sums sufficient to meet expenses in proportion to the progress of the railway line, by drafts addressed to the Bank, which drafts shall be signed by the director general and the engineer in chief jointly.
The amount of these drafts shall be turned over to an agent designated by the director general, against the receipt of the agent, and on the responsibility of the director general. This agent shall not part with these funds save upon a requisition signed jointly by the director general and the engineer in chief, The director general and engineer in chief shall have the most absolute right of control over all the expenditures and receipts of the railroad.
During the term of the loan, the accounts of the railroad shall be kept in Chinese and in Russian, according to the modern methods applied to Chinese railroads built with the aid of foreign capital, and under the supervision of a Russian chief accountant engaged by mutual consent of the director general and the Bank, and placed under the orders of the engineer in chief. The chief accountant shall draw up a schedule of the European staff which he thinks necessary for the proper conduct of his department, and shall submit it for the approval of the director general through the engineer in chief. The director general reserves the right to select and engage the Chinese staff required by the chief accountant, and shall place them under the latter’s orders.
The administration of the railroad shall publish annually, at the close of the accounting year, a report in Chinese, Russian and French, showing receipts and expenses of operation of the railway. The public shall have access to this report on request.
Article XIV. Eventual Deficit or Surplus.—If the proceeds of the loan, augmented by the interest, are not sufficient to complete the construction and equipment of the railroad, the Bank shall issue a new series of the loan for the amount necessary for the entire completion of the line, and for putting it into definitive operation, advising the Chinese Government thereof in advance. The interest on the new series, as also the price, shall be the same as for the present loan.
The new series shall enjoy the same guaranties, and shall be placed in all respects on the same footing as the series of the present loan.
If, however, the Chinese Government should have bona fide funds available, these funds might be employed for the continuation, without interruption, of the construction work. These funds would be considered as forming part of the capital of the railway, but the dividends to which this capital would be entitled may not in any way impair the stipulation which assure the payment of interests and repayment of capital of the present loan.
If after the entire completion and equipment of the railway, there should remain a surplus of unused funds available, this surplus would be consigned to the Bank, and would constitute a reserve fund for the payment with which the Government is charged by reason of the present contract, or for the work of improving or repairing the line.
Article XV. Construction.—Surveys for the construction of the line shall be begun in the shortest time possible after the signature of the contract, and the work undertaken as soon as possible after the issue of the loan.
The length of the line shall be definitely fixed after the completion of the surveys. The width of the track must be the same as that of the Chinese Eastern Railway.
The Chinese Government shall name a director general for the line.
This functionary shall have permanent residence in the immediate vicinity of the work. He shall have full power to act in the name and for the account of the Chinese Government within the scope of the present contract. The engineer in chief shall be subordinate to him, or, in his absence, to his duly authorized representative. The compensation of the director general shall be fixed by the Chinese Government in agreement with the Bank, and devolve upon the railroad.
The work of construction of the line shall be carried on under the head directorship of the director general.
The director general and the Bank shall choose by mutual agreement and conscientiously, an engineer in chief who must be a Russian, experienced and honest.
[Page 176]The engineer in chief shall settle upon the surveys, plans, routes and estimates for the line, direct the execution of all the work, and order materials, tools and equipment necessary to insure regular operation. However, all these operations shall be submitted in advance for the approval of the director general.
The director general shall fix the amount of the salary of the engineer in chief after agreeing upon it with the Bank.
The engineer in chief shall prepare a schedule of European staff necessary for the construction work, and shall submit it for the approval of the director general. This staff, which includes the chief accountant, chiefs of the various departments, the chiefs of sections, etc., shall be engaged with the assistance of the Bank, which shall place them under the orders of the engineer in chief.
In whatever concerns the Chinese staff, technical or otherwise, the director general shall reserve the right to choose it. He shall place it under the orders of the engineer in chief. No employee, Chinese or European, shall be engaged without the consent of the director general.
It is understood that Chinese subjects, who have made special studies or have acquired sufficient practical knowledge may be recommended to the engineer in chief by the director general, who will employ them under the same conditions as the European employees; but it will be necessary first to send them to the engineer in chief, who, assisted by the technical delegate of the director general, shall examine into their capacities.
The director general may require the dismissal of any of the non-technical staff for serious faults. As for the technical staff and all the European staff, the director general may demand their dismissal from the engineer in chief, who must give effect to this demand if the reason indicated is found to be sufficient.
To discharge or dismiss the engineer in chief, the director general and the Bank must first agree upon it.
The European staff must in general show the highest respect for the director general and his special representatives. They should respect the local authorities and not mix in the affairs of the country. They must also respect the manners and customs of the Chinese in order to live on terms of good understanding with the inhabitants.
The intention of the contracting parties in inserting the foregoing stipulations is to safeguard the prestige of the director general, and to assure the regular progress of the work.
The director general also reserves the right, in agreement with the Bank, to delegate upon the work one or more special representatives furnished with full powers. The compensation of these representatives shall devolve upon the railway.
The Bank engages to come to an agreement with the Chinese Eastern Railway with a view to having a special tariff of 50 (fifty) per cent reduction from the usual rate for the transportation by that road of materials for constructing the Pin-Hei Road.
This advantage, however, will not extend to that part of the Chinese Eastern Railway between Kwanchengtze and Harbin.
Article XVI. Supplies.—The Bank shall act in the capacity of agent of the railway, during the period of construction, for the purchase of all materials, supplies and merchandise, tools and raw materials serving for the manufacture of materials in China, which have to be imported from abroad.
With a view to encouraging Chinese industry, at equal price and quality preference shall be given to Chinese supplies and materials manufactured in China, as against those of foreign production. No commission shall be paid on purchases of Chinese supplies and materials.
For all orders and purchases made abroad the Bank shall call for tenders with a view to obtaining the most advantageous conditions, especially those relating to quality and price. On equal terms, goods of Russian production shall be accepted by preference, if the engineer in chief recommends them to the director general; otherwise, and in general, supplies of Russian production or of the countries in which an issue of the loan is made, shall be placed on an equal footing and even enjoy on equal terms a preference over products of any other foreign origin. The orders as well as the specifications for the work shall be made by the engineer in chief and submitted for the approval of the director general.
Accounts of sums paid for supplies of materials and expenses of any kind paid in Europe shall be sent, with all vouchers supporting them, every three months to the general management for approval. The Bank shall add to the net original cost of supplies bought in Europe and America a commission of 5% (five per cent) as remuneration for its services as agent
[Page 177]All orders made through the Bank for the railway shall be exempt from all customs duties, taxes and likin taxes on their entry into or transit through Chinese territory.
Nevertheless this stipulation shall not impair the right of the Chinese Government hereafter to levy upon these orders such future taxes as shall be paid upon those destined for the construction and equipment of all other railways of the country, without distinction.
Article XVII. Operation during Construction.—As fast as the different sections of the line are finished, the director general and the engineer in chief shall turn over the operation of such section or sections to a Russian chief of operation, who will be engaged by mutual agreement between the director general and the Bank, and placed under the orders of the engineer in chief; and they will in general, by mutual agreement, take such steps as are necessary for operating them.
Article XVIII. Branch Lines and Future Extensions.—When the Chinese Government shall deem it necessary or desirable to build branch lines connecting with this railway, or to extend this line, it shall do so from its own funds, that is, from funds proceeding from bona fide Chinese sources.
If it desires to call in foreign capital, it agrees to come to an agreement by preference with the Bank and to give it an option on the contracts relative to this enterprise, on the same terms as those which might be offered by other banks or foreign companies.
Article XIX. Definitive Operation.—The operation and administration of the railway shall be under the head directorship of the director general.
When the construction of the railway has been entirely completed, the duties of the engineer in chief shall be regarded as finished, and the director general, in agreement with the Bank must engage a Russian engineer who will be in charge of the operation of the railroad as well as of the maintenance of the line, and its materials and accessories. This engineer will be subordinate to the director general or, during his absence, to his duly authorized representative. The director general shall fix the terms of his engagement.
The engineer in chief, by agreement with the director general, shall engage the necessary European staff such as chief of operation, chief of line and works, chief of traction, chief of traffic.
In order to discharge or dismiss the engineer in chief, the director general and the Bank must first agree.
All receipts and expenditures must be placed regularly to the account of the railway with the Russo-Asiatic Bank, the interest upon the account being fixed at the best rate given by the Bank for deposits on sight or fixed deposits, as the case may be.
All the expenses for the operation and upkeep of the line shall be paid from the receipts and the various profits of the line, after which the net profits shall be directly applied to the discharge of the present loan.
If after payment of these expenses and after making provision for the payment of interest on the bonds and for the amortization of the principal according to the amortization table annexed to the present contract, there remain funds unused or available for other purposes, these funds shall be placed at the disposal of the Chinese Government.
The chief accountant general, who shall be of Russian nationality, shall be named by the director general in agreement with the engineer in chief. He shall sign, jointly with the representative of the director general all drafts and documents of account of every kind.
The representative of the director general and the engineer in chief shall have the most absolute right of control over the receipts and expenditures of the railway.
Whenever it is necessary to name technical agents for the railway, or to define their functions, or else to decide on their dismissal, the director general must consult the engineer in chief and act in agreement with him.
In case of disagreement between the engineer in chief and the director general the difference shall be submitted to the Minister of Communications, who will decide the question in the last resort.
The protection of the railway shall be assured by a force of Chinese police, commanded by Chinese officers, whose wages and maintenance shall be borne entirely by the railway as part of its own cost of construction and maintenance. The number of these guards shall be fixed by the director general in agreement with the Bank.
[Page 178]If the protection of the railway should necessitate employing further military forces belonging either to the Chinese Central Government or to the Provincial Government, such protection must be asked by the railway and granted promptly. The said military forces shall then be maintained at the expense either of the Chinese Central Government or of the Provincial Government.
In case of war with any nation whatsoever, or of a revolution in China, the transport of troops, munitions, and supplies of the Chinese army shall have precedence over all other commercial transportation. It shall be conducted in conformity with the instructions of the director general. It shall furthermore be forbidden to transport anything which might be of a character injurious to the Chinese Government.
Supplies.—It is understood and agreed that after the completion of the construction of the line, the Bank shall have a right of preference to conduct business as agent, during the term of the loan, for everything in regard to the supply of materials and raw materials which the administration may require, on terms which shall be agreed upon later by common consent. These conditions shall not be more favorable to the Bank than those stipulated under Article XVI.
In case there shall be a question of giving one or more foreign houses in the capacity of agents an order for any supplies for operation of the line, the Bank shall have under equal conditions the preference over others.
Article XX. Right of Delegation, Substitution and Transfer.—The Bank may designate one or more banks in China or abroad to execute jointly with it, or in its stead, all or part of the financial service with which it is entrusted by virtue of the present contract.
The Bank shall have the right, subject to all the obligations which it has undertaken by the present contract, to transfer or delegate all or part of its rights, powers and advantages to any other company or group, or to agents or administrators, with power of substitution in whole or in part.
It is clearly understood that these companies or groups to which delegation or substitution is effected by application of the preceding paragraph must be of Russian nationality, and that these transfers of rights shall be subject to the approval of the Minister of Communications.
Article XXI. Arbitration.—In case of conflict or of divergence of opinion between the Bank or its delegates and the director general on the subject of the execution of the present contract, these conflicts or differences of opinion shall be submitted to the decision of two arbitrators, one chosen by the Chinese Government, the other by the Bank. In case of disagreement, the two arbitrators shall designate a third arbitrator, who shall decide in the last resort.
Article XXII. Executory Formulas.—The present contract must be sanctioned by Presidential decree.
The promulgation of the decree shall be officially confirmed without delay by the Wai Chia Pu to his excellency the Minister of Russia at Peking.
It is made in four copies, each comprising the French text and the Chinese text; two copies shall be kept by the Chinese Government, and two by the Bank.
In case of doubt or difference as to the interpretation of the present contract, the French text alone shall govern.
Minister of Communications
Minister of Finance