Papers Relating to the Foreign Relations of the United States, With the Address of the President to Congress December 4, 1917
File No. 893.77 1597
Minister Reinsch to the Secretary of State
Peking, February 17, 1917.
Sir: Supplementing the despatch (No. 1368) of the 30th ultimo in which I forwarded for the information of the Department certain correspondence with the Japanese Minister here, in regard to the status of Japanese railway enterprises in Manchuria and the eventual, possibility of American participation therein, I have the honor to enclose herewith a copy of a personal note, dated the 3d instant (although received on the ninth instant), with which the Japanese Chargé d’Affaires enclosed, for my confidential information, a copy of the Chinese text of the note from the Wai Chiao Pu to the Japanese Legation, under date of October 5, 1913, embodying a “General Provisional Railway Loan Agreement” relating to Manchuria. A translation from the Chinese text so communicated is also enclosed herewith.
Of the several railway loans which, by this agreement, the Chinese Government undertook to construct with the assistance of Japanese capital, it is understood that detailed arrangements have thus far been made only in regard to the Ssupingkai-Chengchiatun section—the contract for which, dated December 27, 1915, was transmitted to the Department with my despatch (No. 1331) of January 3 last.
The Pukow-Hsinyang Railway loan agreement of November 14, 1913 [printed below] which is specified in Article II as the type upon which the detailed agreements for these lines are to be modeled, was transmitted to the Department with my despatch (No. 3) of November 18, 1913.
I have [etc.]
The Japanese Chargé d’Affaires to Minister Reinsch
Peking, February 3, 1917.
My dear Minister, I beg to enclose copy of the note of the Chinese Minister for Foreign Affairs under date of October 5, 1913 as desired by Baron Hayashi on the eve of his departure from Peking in compliance with your request made in the personal letter of the 29th ult. on the subject of cooperation between Japanese and American capital in the development of railways in Manchuria. The note being naturally of confidential character, I hope that your excellency will be good enough to keep it secret.
With the assurance [etc.],
The Chinese Minister for Foreign Affairs to the Japanese Minister
Sir: The question of Chinese railway loans has often been raised by you and discussed many times, A plan has now been decided upon, which is communicated to you herewith.
[Page 177]general provisional railway loan agreement
- 1.
- The Government of the Chinese Republic agrees to make loans
from Japanese capitalists for the construction of the following
railways:
- a.
- From Ssupingchieh, via Chengchiatun to Taonanfu.
- b.
- From Kaiyuan to Hailungcheng.
- c.
- From the Changchun station of the Kirin-Changchun Railway, across the South Manchuria Railway line, to Taonanfu.
- The lines referred to above will connect with the South Manchuria Railway and the Peking-Mukden Railway. Arrangements therefor will be drawn up separately.
- 2.
- The detailed arrangements in regard to the loans mentioned above will be modeled on the Pukow-Hsinyang Railway Loan Agreement. After this General Agreement has been drawn up the Chinese Government will, as soon as possible, come to agreements with Japanese capitalists.
- 3.
- The Chinese Government agrees that if in future railways are to be built from the city of Taonanfu to the city of Chengtefu and from Hailungfu to the city of Kirin, that if it is proposed to borrow foreign capital, negotiations will first be entered into with Japanese capitalists.
Note.—The Pukou-Sinyang Railway loan agreement mentioned in above note, is reproduced below.
pukou-sinyang railway loan agreement
This Agreement is made at Peking on the [14th] day of [November] 1913 corresponding to the [14th] day of the [11th] month of the 2d year of the Chinese Republic, and the contracting parties are:
The Government of the Republic of China (hereinafter called “The Chinese Government”) acting through its Minister of Finance, its Minister of Communications, and the special commissioner appointed to negotiate the present agreement of the one part, and Chinese Central Railways Limited, London, (hereinafter called “The Company”) of the other part.
Whereas a preliminary agreement was signed in respect to the Pukou-Sinyang Railway Loan on January 6, 1899, corresponding to the 25th day of the 11th month of the 24th year of Kuang Hsu, it is now agreed that this final agreement shall be substituted for the said preliminary agreement and this final agreement witnesseth as follows:
Article 1. The Chinese Government hereby authorizes the company to issue a five per cent (5%) Gold Loan for an amount of Three Million Pounds (£3,000,000). The loan shall be of the date on which it is issued to the public and shall be called “The Chinese Government five per cent Pukou-Sinyang Railway Loan.”
Article 2. The loan is designed to provide capital for the construction of a Government line of railway from a point on the Tientsin-Pukou Railway, Southern Section, to a point at or near Sinyang on the Peking-Hankow Railway, a distance of about three hundred and fifty miles.
The route to be followed between these two points shall be decided upon by the director general of the railway after completion of the final survey.
Article 3. The capital so provided shall be solely devoted to the construction of the railway line including the purchase of the land, rolling stock and other equipment, and to the working of the line and to payment of interest on the loan during the period of construction, which is estimated at 3 years from the actual beginning of the works, the commencement of which is not to be delayed beyond six months from the date of the signature of this agreement, within which period the company shall notify the director general that a sum not exceeding £200,000 has been placed at the disposal of the railway administration, to be held in Europe or remitted to China as it may direct, as a first instalment on account of the proceeds of the loan. This amount of £200,000 or whatever portion thereof is actually advanced, together with interest thereon not exceeding a charge of six per cent (6%) per annum, shall be deducted from the proceeds of the sale of the bonds.
Article 4. The rate of interest for the loan shall be five per cent (5%) per annum on the nominal principal, and shall be paid to the bond-holders half-yearly. The said interest shall be calculated from the date on which the loan is issued to the public and shall be paid by the Chinese Government during the time of construction either from the proceeds of the loan or from other sources, and afterwards [Page 178] in the first place, out of the revenues of the railway, and then from such other revenues as the Chinese Government may think fit to use for the purpose in half-yearly instalments according to the amount specified in the schedule attached to this agreement and fourteen days before due dates, Western Calendar, as calculated half-yearly from the date on which the loan is issued to the public.
Article 5. The term of the loan shall be forty (40) years. Repayment of principal shall commence from the eleventh year from the date of the loan and, except as provided in Article 6 hereinafter, shall be made by yearly amortization to the Hongkong and Shanghai Banking Corporation out of the revenues of the line or such other revenues as the Chinese Government may think fit to use for the purpose according to the amounts specfied in the schedule attached to this agreement, but fourteen (14) days before their due dates, Western Calendar, as calculated from the date on which the loan is issued to the public.
Article 6. If at any time after the lapse of ten (10) years from the date of the loan the Chinese Government should desire to reduce the whole outstanding amount of the loan or any part of it not yet due for repayment in accordance with the schedule of repayments hereto attached, it may do so until the twentieth (20) year, by payment of a premium of (2½%) two and half per cent on the face value of the bonds, that is to say, by payment of one hundred and two pounds and ten shillings for each £100, bond, and after the 20th year without premium: but in each and every case of such extra redemption, the Chinese Government shall give six months notice in writing to the company 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.
Article 7. The Hongkong and Shanghai Banking Corporation having been appointed by the company agents for the service of the loan the payments due for amortization and interest, referred to in Articles 4 and 5, shall be made in accordance with the amounts of the schedule attached to this agreement and fourteen days before their due dates. These payments shall be made by the director general to the Hongkong and Shanghai Banking Corporation, in Shanghai, in Shanghai sycee and/or coin of the national currency, as soon as the said currency shall have been effectively established, sufficient to meet such payments in gold in London, exchange for which shall be settled with the bank either on the date of payment or at the option of the railway administration at any date or dates within six months previous to any due date for the repayment of interest and principal. These payments may, however, be made in gold fourteen days before their due date, if the Chinese Government should happen to have gold funds bona fide at their disposal in Europe not remitted from China for the purpose, and desire so to use them.
In reimbursement of expenses connected with the payment of interest and repayment of principal of the loan the Hongkong and Shanghai Banking Corporation will receive a commission of one quarter per cent on the annual loan service.
Article 8. The Chinese Government hereby unconditionally guarantees that the interest and principal of this loan shall duly be paid in full, and should the revenues of the railway and/or the proceeds of the loan not be sufficient to provide for the due and full payment of interest and repayment of principal, the Chinese Government will make arrangements to ensure that the amount of deficiency shall be met from other sources and handed over to the Hongkong and Shanghai Banking Corporation on the date upon which funds are required, to complete full payment of interest and repayment of principal.
Article 9. The loan shall be secured by mortgage of the railway declared to be now entered into in equity by virtue of this agreement, and shall, as soon as possible hereafter be secured by a specific and legal first mortgage in favour of the company upon all lands, materials, rolling stock, buildings, property and premise of every description purchased or to be purchased for the railway, and on the railway itself, as and when constructed, and on the revenues of all descriptions derivable therefrom.
The provisions of this article in respect of the mortgage are to be construed and treated as equivalent in purport and effect to a mortgage customarily executed in England.
Article 10. The company is hereby authorized to issue to the subscribers to the loan, bonds for the total amount of the loan for such amounts as may appear advisable to the company. The form of the bonds shall be settled by the company in consultation with the director general or the Chinese Minister in London. The bonds shall be printed or engraved in Chinese and English: they shall bear the [Page 179] facsimile of the signature of the director general and of his seal of office, in order to dispense with the necessity of signing them all in person. But the Chinese Minister in London shall previous to the issue of any bonds, put his seal upon each bond with a facsimile of his signature, as a proof that the issue and sale of the bonds are duly authorized by, and binding upon, the Chinese Government, and the representative of the company in London shall countersign the bonds as agents for the issue of the loan.
In the event of bonds issued for this loan being lost, stolen or destroyed, the company shall immediately notify the director general and the Chinese Minister in London, who shall authorize the company to insert an advertisement in the public newspapers notifying that payment of the same 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, and should such bonds not be recovered after a lapse of time to be fixed by the company, the director general or the Chinese Minister in London shall seal and execute duplicate bonds for a like amount and hand them to the company, by whom all expenses in connection therewith shall be defrayed.
Article 11. All bonds and coupons and payments of interest and repayments of principal in connection with the service of the loan shall be exempt from all Chinese taxes and imposts during the currency of this loan.
Article 12. All details necessary for the prospectus and connected with the payment of interest and repayment of the principal of this loan, not herein explicitly provided for shall be left to the arrangement of the company in consultation with the Chinese Minister in London. The company is hereby authorized to issue through its agents the Hongkong and Shanghai Banking Corporation the prospectus of the loan as soon as possible after the signing of this agreement (subject to the provision stated in Article 13 below) and the Chinese Government will instruct the Chinese Minister in London to cooperate with the company in any matters requiring conjoint action and to sign the prospectus of the loan.
Article 13. The loan shall be issued to the public in one series of bonds to the amount of three million pounds sterling (£3,000,000) as soon as possible after the signature of this agreement, subject always to the engagement of the Chinese Government under Article 17 of the Chinese Government 5 per cent Reorganization Gold Loan of April 26, 1913. The price of the bonds to the Chinese Government shall be the actual price of issue to the public in London less flotation charges of five and a half points (5½) retainable by the company that is to say a charge of Five Pounds Ten Shillings (£5.10/—) for every £100 bond issued.
Article 14. The proceeds of the loan shall be paid to the credit of a Pukou-Sinyang Railway account with the Hongkong and Shanghai Banking Corporation in London. Payments of loan proceeds into the credit of this account shall be made in instalments and on dates conforming to the conditions allowed to the subscribers to the loan. Interest at the rate of three (3) per cent per annum shall be granted on the credit balance of the portion of this account kept in London and interest on the credit balance of the portion transferred to China will be allowed at the Bank’s usual rates for such accounts. After deduction of the funds required for the service of interest and for commission on this service during the time of construction, the Bank will hold the net proceeds with accrued interest to the order of the director general, who, in authorizing the payment of any sums exceeding £20,000 shall give notice to the Hongkong and Shanghai Banking Corporation ten days before the day on which they are required. Requisitions on the loan funds will be drawn in amounts to suit the progress of construction of the railway by orders on the Hongkong and Shanghai Banking Corporation signed by the managing director or his duly authorized representative, and the chief accountant, and accompanied by a certificate stating the nature and cost of the work to be paid for.
Funds to meet monthly estimates of construction expenses shall be transferred to Shanghai as and when required by order of the director general, such transfers being effected through the Hongkong and Shanghai Banking Corporation, and the transferred founds [funds] shall remain on deposit with this Bank until required for railway purposes.
The accounts of the railway will be kept in Chinese and English, in accordance with the accepted modern methods, under the direction of a duly qualified British Chief Accountant to be chosen and appointed by the director general with the previous consent of the company. The terms of his agreement will be fixed by the director general. The chief accountant will draw up a list of the necessary staff for his department for submission to the director general, who shall decide and [Page 180] make the appointments, and the chief accountant shall have sole charge under the authority of the director general and/or the managing director, or his representative, of all disbursements and receipts of railway funds during the currency of this loan, and shall sign, in conjunction with the managing director, all documents appertaining to the disbursement of railway founds [funds]. The railway administration will publish annually upon the close of its financial year a report in the English and Chinese languages showing the working accounts and traffic receipts of the railway, which report shall be procurable by the public on application.
Article 15. If during the time of construction the net proceeds of the present loan with accrued interest, should, after deduction of the sums necessary for the service of interest on the loan, not be sufficient to complete the construction and equipment of the railway line, the amount of deficiency shall be provided, in the first place, from such Chinese funds as may be available, so as to permit of the uninterrupted continuance of the work of construction, any balance then uncovered being supplemented by a further foreign loan for the amount required, to be issued by the company. The interest and other conditions of such supplementary loan to be the same as in the present agreement.
If after the completion of the line there should be a balance at credit of the railway account such unused balance will be transferred to the credit of the interest reserve fund hereinafter mentioned in Article 17 as a provision for payments for which the Chinese Government is responsible under this agreement.
Article 16. The construction and control of the railway shall be vested entirely in the Chinese Government. The Chinese Government will appoint a director general of the railway who will reside in the immediate neighborhood of the line, and have full power to act in the name and on behalf of the Government within the terms of the present agreement. The engineer-in-chief, who will be chosen and appointed by the director general with the previous consent of the company, shall be a duly qualified British engineer and shall take orders from the director general, the managing director or his duly authorized representative. The terms of his agreement will be fixed by the director general. His duties will be to make the survey, draw up the plans of the line and make estimates, to direct the execution of the works and to order under the authority of the director general, the managing director or his duly authorized representative all the materials and equipment necessary for the exploitation of the railway. He will draw up a list of the necessary Chinese and foreign engineering staff for submission to the director general, and the latter shall appoint and send them to the engineer-in-chief who shall then assign works to them. Whenever appointments of technical employees, both Chinese and foreign, are to be made or their functions defined, as well as in the case of their dismissal, the engineer-in-chief shall be empowered to take the necessary action by the director general, the managing director or his representative.
As and when any section of the line is constructed and ready for traffic it will be handed over by the engineer-in-chief to the director general, who will, as far as circumstances permit, open such section to traffic, and will select a duly qualified British traffic manager who will be charged with the operation of the railway under the orders of the director general and/or the managing director or his representative.
When the work of construction is entirely completed the services of the engineer-in-chief will terminate, and the director general will select a duly qualified British engineer for the maintenance of the railway under the orders of the director general and/or the managing director or his representative.
The two officers above referred to shall be appointed by the director general with the previous consent of the company, and the director general shall fix the terms of their agreements.
Article 17. All receipts and earnings of the railway shall be regularly paid into the railway’s account with the Hongkong and Shanghai Banking Corporation, interest on such funds being allowed by the Bank at rates to be arranged for current account or fixed deposit as the case may be.
All expenses of working and maintaining the line shall be paid from the receipts and earnings, and any remainder thereof shall be charged with the service of the loan. If, after payment of these expenses, and making due provision for payment of interest on the bonds, and for repayment of principal due in accordance with the amortization schedule hereto attached, there remain surplus funds unappropriated and properly available for other purposes, such funds shall be at the disposal of the Chinese Government to be used in such manner as the director general may decide, provided always that after completion and opening of [Page 181] the line to traffic the amount sufficient for regular payments of interest and repayments of principal shall be deducted from such surplus funds, if any, and shall be deposited with the Hongkong and Shanghai Banking Corporation six months before the date on which such payments fall due.
In the event of there being no surplus funds available as aforesaid from the earnings of the railway the amount required for payments of interest and repayments of principal shall be provided in accordance with the conditions of Article 8 hereinbefore.
Article 18. The company will act as agents of the railway administration during construction for the purchase of all materials, plant and goods required to be imported from abroad. For all important purchases of such materials tenders shall be called for by the director general: in the case of all tenders indents and orders for the importation of goods and materials from abroad, the said agents shall purchase the materials required on the terms most advantageous to the railway, and shall charge the original net cost of the same plus a commission of five per cent. It is understood that no orders for materials shall be executed or any expenditure incurred without the approval of the director general to whom the engineer-in-chief shall apply for sanction.
In return for payment of commission as above stated the company shall be prepared to superintend the purchase of all foreign materials required for the construction and equipment of the railway, which shall be purchased in the open market at the lowest rate obtainable, it being understood that all such materials shall be of good and satisfactory quality, and that the railway administration shall have the right to reject on arrival in China materials which do not come up to specifications. At equal rates and qualities goods of British manufacture shall be given preference over other goods of foreign origin.
Original invoices and inspectors’ certificates are to be submitted to the railway administration; all return commissions and rebates of every description shall be credited to the railway: and all purchases made by the agents on behalf of the railway shall be supported by manufacturers’ original invoices and inspectors’ certificates.
No commission shall be paid to the agents except as above provided: but it is understood that the railway administration shall provide out of railway funds for the remuneration of consulting engineers, whenever their services are engaged.
With a view to the encouragement of Chinese industries preference will be given, at equal prices and qualities, over British or other foreign goods, to Chinese materials and goods manufactured in China. No commission will be paid to the company on purchases of such materials and goods.
It is understood and agreed that after completion of construction of the railway the company will be given the preference for such agency business, during the currency of the loan, for the supply of foreign materials as the railway administration may require, on terms to be hereafter mutually agreed upon.
Article 19. Branch lines or extensions in connection with the railway line mentioned in this agreement that may appear to the Chinese Government profitable or necessary later on shall be built by the Chinese Government with funds at their disposal from Chinese sources, and if foreign capital is required preference will be given to the company. The length of such branch lines or extensions shall be determined by the Chinese Government.
Article 20. The company is hereby appointed trustees for the bondholders, and in any future negotiations respecting this loan or matters arising in connection therewith, which may take place between the railway administration and the company, the latter shall be taken as representing the bondholders and as empowered to act on their behalf.
Article 21. If, after the signature of this agreement and before the publication of the prospectus for the issue of the loan, any political or financial crisis should take place by which the market and the prices of existing Chinese Government stocks are so affected as to render, in the opinion of the company, the successful issue of the loan impossible on the terms herein named, the company shall be granted a reasonable extension of time to be mutually agreed upon for the performance of their contract. If within the time limit then determined the loan shall not have been issued, then this contract shall become null and void, and any advances made by the company under the provisions of Article 3 of this agreement shall be repaid by the Chinese Government with accrued interest, but without any other compensation or remuneration whatsoever.
Article 22. By the preliminary agreement dated January 6, 1899, it was stipulated that the terms and conditions of the present agreement should be subject to the terms and conditions contained in the final agreement for the Shanghai-Nanking Railway.
[Page 182]Article 12 of the said final agreement for the Shanghai-Nanking Railway provides for the participation by the lenders in the net profits of the railway, after certain charges have been met, to the extent of 20%, and net profit certificates were issued to the lenders to the amount of 20% of the nominal capital of the loan.
It is hereby mutually agreed that in consideration of the company waiving its rights under the aforesaid preliminary agreement it shall be granted the right to retain, in commutation of this participation in net profits one hundred and twenty thousand pounds (£120,000) out of the proceeds of the loan in instalments and on dates in proportion to, and based on, the terms of subscription to the loan, as stated in the prospectus. No further payment in respect of commutation of profits will be allowed on any supplementary loans.
Article 23. The company may, subject to all its obligations under this agreement, transfer or delegate all or any of its rights, powers and discretions thereunder to any British company, directors or agents with power of further transfer and subdelegation; such transfer, subtransfer, delegation or subdelegation to be subject to the approval of the director general.
Article 24. This loan is contracted, after having been passed by the National Assembly, under the authority of a Presidential Order dated the [14th] day of [November,] 1913, Western calendar, which has been officially communicated to the Minister of Great Britain, in Peking, by the Waichiaopu.
Article 25. Four sets of this agreement are executed in Chinese and English, three sets to be retained by the Chinese Government and one set by the company.
In the event of any doubt arising regarding the interpretation of the contract the English text shall rule.
Signed at Peking by the contracting parties this [14th] day of the [11th] month of the 2d year of the Chinese Republic, corresponding to the [14th] day of the [11th] month [November,] 1913, Western calendar.
[Note.-Amortization schedule not printed.]