File No. 893.77/1569
Minister Reinsch to the Secretary of State
Peking, October 27, 1916.
Sir: In continuation of my despatches Nos. 1082 and 1118, of May 17 and June 14, respectively, I have the honor to report further concerning the agreement between the Chinese Government and the American firm of Siems-Carey Company for the construction of railways. I am herewith transmitting a copy of the original agreement, with annexes, signed May 17 last,20 as well as a copy of the supplementary agreement, signed on the 29th ultimo. The conclusion of the original contract was formally notified to the Legation, on June 10 last, through the Foreign Office.
There is also enclosed a translation of the mandate, issued on the 20th instant, by which the President gives his approval to the supplementary agreement of September 29.
While the contract had been completed and formally sanctioned, as well as notified to the Legation by June 10, when the last Cabinet under President Yuan Shih-kai was still in existence, the changes in the political situation consequent upon the death of President Yuan rendered it questionable whether the contract would be executed promptly and without considerable opposition. While his excellency Tsao Ju-lin was still holding office as Minister of Communications and Acting Minister for Foreign Affairs, the American International Corporation, acting as the partners of Siems-Carey Company in this matter, undertook to finance the contract and to make a preliminary advance of G$500,000. The subsequent acceptance of this advance by the Minister of Communications, made at a time when the complexion of the Cabinet had already changed, marked the acceptance of the contract by the first Cabinet of President Li Yuang-hung. While the contract was considered absolutely [Page 193] binding with its communication to the Legation by the Foreign Office on June 10, nevertheless the question of its execution had been taken up by the new Cabinet, of which his excellency General Tuan Chi-jui was Premier and in which his excellency Dr. Chen Chin-tao filled the position of Minister of Finance. During this transition period and subsequently, the good will borne towards American interests by both of these high officials counted for a great deal in bringing about the rapid conclusion of the supplementary arrangements necessary for the smooth execution of the contract.
On June 30 the appointment was announced of his excellency Hsu Shih-ying, as Minister of Communications, in place of his excellency Tsao Ju-lin. The Cabinet had now been more radically constituted through the entry of Messrs. Sung Hung-yi, Ku Chung-hsiu, and Chang Yao-tseng. The attitude which these new men would take towards the execution of the contract was uncertain; the new Minister of Communications, however, showed himself friendly from the start. He stated that in order to assure the smooth working of the contract, he would, acting under Article 17 of the original Agreement, suggest certain modifications. In three interviews with the American Minister in July and August—particularly in the interview of August 22—the Minister of Communications admitted that the contract was complete and binding in its form at the time; but he took the ground that obstruction would be avoided and smooth working assured if certain concessions were made. The chief concessions asked for by the Minister of Communications were the reduction of mileage of the first allotment from fifteen hundred to eleven hundred miles, and reduction of the percentage of participation of the company in the revenues of the railway from twenty-five to twenty per cent. After negotiations extending through the months of August and September, the supplementary agreement of September 29 was concluded in which the concessions asked for were made by the American company, and by which certain matters relating to the financial operations and to the appointment of officials were settled to the satisfaction of both parties.
An agreement had been reached by September 21, at which time I directed to the Minister of Communications a note, of which a copy is herewith enclosed.
There had been some discussion as to whether the contract would have to be submitted to Parliament for its approval. On this point the Legation took the position that as the contract had in its original form being entirely completed before the reconvocation of Parliament, it could not be singled out from all the treaties and agreements, more than sixty in number, concluded without the consent of Parliament since the formation of the Republic. A list of these treaties, contracts, etc., is forwarded with my No. 1243 of today’s date to the Department.2
While there were some voices in the Cabinet which demanded a submission of the contract to Parliament, ministers like General Tuan Chi-jui and Dr. Chen Chin-tao took the positive ground that such a submission could not be made without bringing before Parliament the question of all contracts made before its reconvocation. [Page 194] The contract was therefore not submitted to Parliament, the Minister of Communications only holding himself ready to answer questions in respect to it should they be asked. Parliament having been very busy with questions of internal politics and with such matters as the Japanese inroads in Manchuria, and the forced extension of the French settlement in Tientsin, the contract has thus far not been mentioned in Parliament.
With respect to the approval of His Excellency the President, the Minister of Communications stated to me that he had requested this in order that there might be no doubt of the active approval by the President of an agreement originally made in the time of his predecessor.
While the negotiations for this contract were beset with perhaps unequalled difficulties from the beginning, on account of the disturbed and shifting political situation, the details of the matter were handled with great ability by Mr. Roy S. Anderson, the representative of the Siems-Carey Company, under the personal direction of Mr. W. F. Carey himself, who impressed the Chinese particularly with his sense of justice and fair play. It is the object of Mr. Carey to create an American enterprise which will take advantage of American methods and experience in solving problems of construction, development and management, similar to those which have been encountered in America. It is not his idea to aim purely for construction profits, but to create an undertaking which in all its parts will be permanently successful. He was therefore willing to stake the second allotment of fifteen hundred miles upon the success of the first alignment. Mr. Carey acts on the principle that in enterprises of this importance, everything depends upon the efficiency of the human organization created; he has therefore spared neither pains nor expense to gather in the United States a group of construction and railway experts of the highest order, who are to carry out this work. The general manager for Siems-Carey Company is Mr. Frederick C. Hitchcock, formerly of Messrs. McArthur Brothers and Company.
With respect to the alignments of railway agreed upon, they do not, of course, equal in attractiveness such great trunk lines as the Peking-Hankow Railway and the Shanghai-Nanking Railway. When all the mileage already assigned to Great Britain, France, Germany, Belgium, etc., on which construction is now indefinitely postponed on account of the war, is considered, it may seem as though only lines of decidedly minor attractiveness could be left. This would indeed be true should the nations to whom concessions have been made be permitted to claim very broad rights of excluding other railway enterprises in the same general regions where their concessions are. It may be necessary at this point to establish a criterion as to what shall be considered undue paralleling of a railway such as could be justly objected to by a country to whom the prior concession has been made.
In connection with the above matter, the character of the American enterprise is of much importance; it must be remembered that the sole security of the American company is the railway itself—no additional securities have been assigned; moreover, as pointed out above, the enterprise is not confined to construction, but includes [Page 195] a share in the operation and management after the lines are completed. For these reasons, the American company will not consider building a railway which is not commercially sufficiently promising to afford both adequate security and assurance of profitable operation. These facts are in themselves a sufficient safeguard against a duplicating of the existing or ceded lines, which might be undertaken if the American corporation were assured of construction profits wherever, no matter where, the lines might be built. Should, therefore, protests be made on the ground of duplication, it would appear to be just and sound to take the position that the commercial prospects of any given line should control.
Returning now to the alignments enumerated in the agreement, no doubt is entertained here concerning the importance and the profitableness of the railway from Hengchow (Hunan) to Nanning (Kwangsi). With respect, however, to the other railways, the question of commercial soundness can be determined only through preliminary surveys, which are presently to be undertaken. Other lines are under consideration for substitution should, upon due investigation, it appear inadvisable to proceed with the construction of any of the lines enumerated.
The conclusion of so favorable a contract at this time, without obstruction or delay, is eloquent evidence of the good will which the Chinese people and officials bear toward American enterprise. Aside from the high officials mentioned above, among whom his excellency Tsao Ju-lin showed special readiness to take responsibility for advanced action, all the minor officials who were concerned in the negotiations showed a friendly and helpful spirit. This is true particularly of Mr. Chuan Liang, counsellor, and Mr. Jen Chuan-pang, confidential secretary, in the Ministry of Communications.
I have [etc.]