Since the general contents of the Federal Contract will be well known to
you, I think it is hardly necessary to say any more at present about our
apprehensions over the possibility of a radio monopoly in China. There
are, however, certain points in the Federal Company’s Agreement of
September 19th, 1921,67 which I feel may have escaped the notice of
the United States Government, and these I have outlined in the enclosed
memorandum for your information.
In the light of this memorandum, you will realize that, if the Federal
Contract is carried out, my Government may find themselves obliged, at
the request of the British banks and bondholders interested, to take
concerted action with the other Powers concerned for the protection of
British interests in this matter.
[Enclosure]
Memorandum
Clauses 4 and 5 of the Agreement of September 19th, 1921, between the
Federal Company and the Chinese Government read in part as
follows:
From Clause 4
“… The Government also pledges as further and additional
security, as aforesaid, the surplus earnings from any and every
source accruing to the Ministry of Communications, and if at any
time such earnings shall prove deficient, the Government agrees
in such event to provide from other Government sources amounts
necessary and sufficient to redeem the Bonds herein authorized
to the end that the obligations of said Bonds shall be promptly
and fully met. … The Ministry of Communications above referred
to, so as to fully pay the same agrees that no deductions of any
kind shall be made from said surplus earnings of said Ministry
of Communications above referred to until full provision has
been made for said payment as aforesaid, the Government further
agrees, in any event, to provide for the full and prompt
discharge of said Bonds, in the amounts falling due each year,
together with the premium thereon, from other earnings of the
Ministry of Communications or from other Chinese Government
sources.”
From Clause 5
“… Further so long as any part of this loan is unredeemed and
unpaid, the said China-Federal Radio Administration and the
surplus earnings of the Ministry of Communications, shall not,
under any circumstances, be mortgaged, nor shall the respective
receipts therefrom be given as security to any other party, nor
shall the Ministry of Communications of the Chinese Government
impair the security of this loan by any pledge of, or agreement
to pay from, the surplus earnings of said Ministry of
Communications, to the end that this loan, so long as any part
of it unredeemed and unpaid, shall have priority as regards
principal and premium, and interest over all other loans,
charges, or mortgages charged or to be charged on the Ministry
of Communications … and no loan, charge or mortgage shall be
raised or credited [created] which shall
take precedence or be on equality with this loan, or which shall
in any manner lessen or impair its security upon the revenue
aforesaid.”
It is felt that the pledging of the whole of the surplus revenues of
the Chinese Government Railways to an industrial concern, for
purposes outside railway development, is prejudicial to the working
of the International Bankers’ Consortium of 1918. Moreover, a
special lien on Chinese Government revenues would seem inconsistent
with the principle of complete equality which formed the basis of
the wireless resolution passed by the Consortium Council in Paris
[Page 1071]
on May 28th, 1923,
from which the following (Article 5) is a pertinent extract:
“It was resolved that each group in the new consortium shall
be a national unit and that no member of any group shall,
within the scope of the operation of the consortium,
represent directly or indirectly any other national
interest”.
In this connection, it is of interest to note that the Federal
Agreement provides that the Bonds of the Chinese Government shall be
secured upon the radio stations, and all revenue accruing therefrom,
and it also specifically provides that if this security is found to
be insufficient, then the Chinese Government pledges all surplus
earnings from whatever source of the Ministry of Communications, and
from all other Chinese Government resources. Under the agreement,
the Chinese Government is further prohibited from impairing the
security of the bonds “by any pledge or agreement to pay from the
surplus earnings of the said Ministry of Communications to the end
that this loan as long as any part of it remains unredeemed and
unpaid shall have priority as regards principle [sic] and premium and interest above all future loans,
charges, or mortgages charged, or to be charged on the Ministry of
Communications.” This would appear to conflict with the undertaking
entered into by the four Powers interested in the Banking Consortium
and seems further to contravene the pronouncements of the United
States Government on behalf of their national group in their notes
to (a) the French, British and Japanese
Embassies of October 8th, 1918,69 and (b) to the Chinese
Government on September 28th, 1920,70 from which the following extracts are
respectively quoted:
- (a)
- “The proposal of the Government of the United States
contemplated that industrial, as well as administrative
loans should be included in the new arrangement for the
reason that, in practice, the line of demarcation
between various classes of loans often is not easy to
draw. Both alike are essential fields for legitimate
financial enterprise and both alike should be removed
from the sphere of unsound speculation and of
destructive competition. The intention of this
Government was to suggest as a means to that end, that
the interested Governments should, by common consent,
endeavour so to broaden the membership in the newly
formed national groups that all financial firms of good
standing interested in such loans might be included in
the respective groups and should withhold their support
from independent financial operations without previous
agreement of the interested Governments”.
- (b)
- “In the proposal of the United States Government which
in practice envisaged a reconstruction of the Old
Consortium it was specifically stated that there was no
intention of interfering with any
[Page 1072]
of the rights of the
Consortium. The hope was expressed, however, that the
new national Groups formed might be made so broad as to
include the members of the former Consortium as well as
others who had legitimate claims to such inclusion, so
as to meet the larger needs and opportunities of China
in a spirit of harmony and of helpfulness rather than of
harmful competition and self-interest.”
A further portion of Clause 5 of the Federal Agreement lays down that
no deductions of any kind shall be made from the surplus earnings of
the Chinese Ministry of Communications until full provision has been
made for the wireless bonds. This is at variance with Article 5 of
the Agreement regarding the Anglo-French loan of 1908 to the Board
of Posts and Communications,71 which states that the service of the loan will
be paid from these surplus revenues. The text of article 5 of the
loan agreement is as follows:
France (Banque de
l’Indo-Chine), Great Britain (Hongkong and
Shanghai Banking Corporation) and
China.
Agreement for a loan of £500,000 [£5,000,000] to the board of Posts and
Communications—October 8th, 1908.
. . . . . . . . . . . . . .
Article 5.
“The service of principal and interest of this loan will be paid
from the surplus revenues of the various productive works of
public utility controlled by the Board of Posts and
Communications; in the event of these surplus revenues being
insufficient, other revenues will be selected to make up the
deficiency.”
“The Board will further, from and after the date of the first
coupon, and during the currency of this loan, leave on fixed
deposit in equal shares with the two contracting banks in
Shanghai, the estimated silver equivalent of the payment of
interest next due. In like manner, from and after the end of the
tenth year, the Board will also leave on fixed deposit with the
contracting banks in Shanghai the estimated silver equivalent of
the instalment of principal next due. These fixed deposits will
be renewed and adjusted half yearly on the dates on which
interest coupons become due to the bondholders, the silver
equivalents of interest and/or principal which they represent
being calculated at the rate of exchange or average rate of
exchange, settled for the remittance of loan service made ten
days previously. Interest on these deposits shall be allowed by
the contracting Banks at their advertised rates for the time
being for twelve months fixed deposits, subject to any change of
rate from the date of such change and will be payable
half-yearly.[”]
Finally, Clauses 4 and 5 of the Federal Agreement seem to violate
Article 6 of the Agreement of April 10th, 1911, between the Eastern
Telegraph Company and the Chinese Government, which agreement reads
as follows:
[Page 1073]
Copy from Book of Agreements of Eastern Extension,
Australasia and China Telegraph Company, Limited, and the Chinese
Government, in F. 1490/667/10 of 1925.
An Agreement, made this tenth day of
April, 1911, corresponding with the Twelfth day of the Third
Moon of the Third Year of Hsuan Tung, Between The Imperial Chinese Board of
Communications (hereinafter called “The Yuchuanpu”) of
the one part and the Eastern Extension
Australasia and China Telegraph Company, Limited, and
The Great Northern Telegram Company,
Limited, of Denmark (hereinafter called “The
Companies”), of the other part.
Whereas the Yuchuanpu for the purpose
of reorganising, improving and developing the Telegraph and
Telephone Services throughout the Chinese Empire has to provide
large sums of money in the immediate future.
And Whereas in accordance with the
existing agreements between the Imperial Chinese Telegraph
Administration and the Companies certain revenues administered
by the Companies are paid quarterly to the said
Administration.
And Whereas the Companies are prepared
to make an advance on account of the said revenues to the
Yuchuanpu for the purposes stated.
It Is Therefore Mutually Agreed between
the parties hereto, as follows:—
Article 1
The Companies agree to make an advance to the Yuchuanpu of the
sum of £500,000 (five hundred thousand pounds sterling) on the
conditions hereinafter named.
Article 2
The advance shall be made at par, and shall bear interest at the
rate of five per cent per annum.
Article 3
Of the said sum of half a million pounds sterling a sum of
£300,000 (three hundred thousand pounds sterling) shall be paid
by the Companies to the Yuchuanpu on May First, 1911,
corresponding with the Third Day of the Fourth Moon of the Third
Year of Hsuan Tung, and the balance of £200,000 (two hundred
thousand pounds sterling) shall be paid within six months after
the date of the payment of the above stated £300,000. The said
payments shall be made to a bank designated by the
Yuchuanpu.
Article 4
The advance of money together with all interest in respect
thereof shall be satisfied and extinguished by the payment by
the Yuchuanpu to the Companies of a series of equal half-yearly
instalments of £21,018 (Twenty-one thousand and eighteen pounds
sterling) each. The first of these half-yearly instalments shall
be paid on June 30th, 1912, corresponding with the Sixteenth day
of the Fifth Moon of
[Page 1074]
the Fourth Year of Hsuan Tung, and the last of the half-yearly
instalments shall be paid on or before the 31st December, 1930.
All payments shall be made in sterling or its equivalent through
a Bank designated by the Companies either in London or at
Shanghai. Should from any unforeseen circumstances of whatsoever
nature the Yuchuanpu find itself unable to make the stipulated
payment on the date agreed upon, the Companies shall be paid
interest at the rate of five per cent per annum on the amount of
the outstanding account from the date on which payment was due
and until the actual date of payment, it being understood that
in case of non-payment or short payment the Companies may deduct
any amount due under this Agreement from money due from the
Companies to the Imperial Chinese Telegraph Administration under
the existing Agreements or Contracts between the said
Administration and the Companies or either of them.
Article 5
The Imperial Government of China hereby guarantees the repayment
of the £500,000 and the payment of interest thereon in
accordance with the stipulations contained in Article 4, and as
security for the money advanced hereby grants to the Companies a
preferential lien on China’s revenue from “Through Traffic” and
“Limitrophe Traffic”: subject always to the lien held by the
Companies under any Agreement or Agreements in force for the
time being between the Imperial Chinese Telegraph
Administrations and the Companies. The above revenues are
declared free from all other loans, mortgages or charges.
By the aforesaid “Through Traffic” is understood traffic as
defined in the sixth recital of the Agreement dated the 26th of
July, 1904, between the Imperial Chinese Telegraph
Administration and the Companies, and by the aforesaid
“Limitrophe Traffic” is understood traffic as defined in Article
one of the Telegraph Convention dated the 13th of May, 1897,
between the Imperial Chinese Telegraph Administration, and the
Great Northern Telegraph Company, Limited, of Denmark, with the
additional traffic as mentioned in Article seven of the
Agreement dated the 22nd of October, 1902, between the same
parties.
Article 6
No Loan or Mortgage shall be charged upon the security named
above until this present advance of money by the companies is
redeemed, and neither the Yuchuanpu nor the Imperial Chinese
Telegraph Administration shall make any arrangements or
agreement or take any other step during the term of this present
Agreement that would in any way diminish China’s share of the
revenue from the aforenamed “Through Traffic” and “Limitrophe
Traffic”.
Article 7
This Agreement is signed under authority of an Imperial Edict
dated the Eighth day of the Third Moon of the Third Year of
Hsuan Tung which has been officially communicated to the
Ministers of Great Britain, Russia and Denmark in Peking by the
Waiwupu.
[Page 1075]
In Witness Whereof the undersigned duly
authorised to this effect have signed the present agreement.
Done in Peking in the English language and in the Chinese
language. Six expeditions [sic] duly
compared and found to be in agreement, of which one shall be
retained by the Yuchuanpu, one by the Waiwupu, one by the
British Minister, one by the Russian and Danish Minister[s], and
one by each of the Companies, have been signed in each of these
languages on the Tenth day of April, 1911, corresponding with
the Twelfth day of the Third Moon of the Third Year of the reign
of Hsuan Tung.
For the Imperial Chinese Board of Communications,
(Signed)
Chow Wan Pang.
(seal)
Appointed with
Imperial approval Director
General of the Imperial Chinese
Telegraph
Administration and being an expectant Taotai
with
the brevet rank of the second class.
For . . . . . . .
For
the Eastern Extension Australasia and China Telegraph Company,
Limited.
(Signed)
A. B. Skottowe.
The
Acting Manager in China.
For the Great Northern Telegraph
Company, Limited, of Denmark.
(Signed)
J. J.
Bahnson.
The General Manager in China and
Japan.
