File No. 5315/530–533.
Chargé Fletcher to the Secretary of State.
Peking, August 18, 1909.
Sir: Continuing my No. 1213, of July 23 last, on the subject of American participation in the Hukuang Railway loan, I have the honor to report that, on the receipt of the department’s telegram of July 27, 9 p.m., I called on Mr. Liang Tun-yen and, as instructed, conveyed to him your acknowledgment of the suggestion contained in his personal telegram to Mr. Rockhill. I explained, as I had done fully before, the importance which we were compelled to attach to a real quarter share, but informed him that I was very anxious to find a solution satisfactory to all parties, and that it seemed to me that the next step was to ask the bankers for a reply to the proposal made in accordance with your telegram of July 20. This he promised to do, and the bankers telegraphed to their principals for instructions.
On receipt of the department’s confidential telegram of July 30, I called on Mr. Liang and the bankers, and was informed by the latter that they were not in position to make an official or definite reply to our proposal.
Inasmuch as it seemed to me important to have a reply from them, and being ignorant of the nature of the department’s proposition, I replied to you suggesting that it might be well to withhold the department’s proposition until the banks replied. I had reason to believe the banks were considering our proposition for one-fourth participation. At length, on Saturday, August 7, the three bankers here called at the Wai-wu Pu and, I understand, informed Mr. Liang that they were authorized to accept his mediation in the matter. On the same day I received your telegram of August 6 containing the department’s proposition. I immediately communicated with Mr. Liang and arranged an interview for Monday afternoon—the 9th. I then submitted a paraphrase of your telegram of the 6th, and he suggested that, as he had discussed the matter with the bankers and found very little difference between us, a meeting should be arranged for the following day. I agreed, and on Tuesday, the 10th, met Mr. Liang, Mr. Hillier, Mr. Cordes, and Mr. Casenave at the Wai-wu Pu. I submitted a draft of an agreement embodying your telegram of August 6, except that part which related to the appointment of an American chief engineer for the next section of the Hankow-Szechuen line, as I had been privately informed by Mr. Liang that any reference to the Szechuen extension at this time would evoke a storm of criticism from the people of Szechuen.
The bankers said they had no authority to accept our proposal for the creation of a board of engineers and to do so would necessitate a change in the present agreement, which they did not believe either Chang Chih-tung or their principals would accept. Mr. Liang was of the same opinion. It was also thought the creation of such a board would give rise to many difficulties in practice. I then asked if the bankers would object to the appointment of American engineers in subordinate capacities. They all said they would have no objection, and it was understood, though not specifically stated, that such appointments would be made.
The bankers then referred to the conversation they had had with Mr. Liang on the previous Friday (6th August) and asked him if he [Page 191] had the memorandum then drawn up. He had mislaid it, but attempted to draw it up from memory with their assistance and with certain changes I suggested. The alternative proposal (copy inclosed), which I telegraphed you on the same day, was the result.
When the question with reference to materials was reached, the bankers proposed that our participation in this respect be limited to one-half preferred materials on the Hankow-Szechuen line. I pointed out the impracticability of this and declined to submit to you any proposition which did not recognize the same preference for American materials on both lines as enjoyed by English, French, and German materials. In this I was supported by Mr. Liang, although some doubt was expressed as to Chang Chih-tung’s attitude. Finally the bankers agreed to this and it was incorporated in the alternative proposal.
As to future loans: When this feature was reached it was pointed out that as it was likely more money would be needed for the completion of the Hankow-Canton than for the Hankow-Szechuen line, we should not ask participation in future loans for that line, but that they would, on the other hand, clearly recognize our right to furnish one-half of any foreign capital borrowed by China for the Hankow-Szechuen line. Facing the undeniable fact that since the American-China Development Co.’s fiasco American participation in any loan for the Hankow-Canton Railway will encounter serious opposition from the officials, who fear a storm of protest from the gentry, and, realizing that our participation in the present loan is based on assurances which have reference solely to the Hankow-Szechuen line, I felt that if we could secure a clear recognition of our rights in this regard we could allow the future to take care of itself, and I therefore agreed to submit to you Article III in its present form.
As to Article IV: It was understood that an inter-bank agreement should be drawn up to provide for American participation, which, when acepted by the American Government, should be submitted to Chang Chih-tung and taken note of by him in his memorial for an edict approving the original loan agreement, “changed only as to the amounts”; and it was understood that the edict would be formally communicated by the Wai-wu Pu to the chief of this mission at the same time and in the same manner as communicated to the English, French, and German ministers.
The details of the changes and provisions which would be necessary to provide for American participation were discussed informally by running through the agreement article by article and noting them. Mr. Cordes, on behalf of the banks, brought up the question of additional security in connection with the increase of the loan to £6,000,000. Mr. Liang thought the security sufficient. After a short discussion, the bankers waived the question, as it was evident they could not insist in a change in the agreement in this respect while resisting all other alterations. Further discussion of the details of the interbank agreement was postponed until a definite reply had been received from the department and bankers’ principals on the alternative proposal. The conference finished, the results were telegraphed to Europe and to the department.
As I telegraphed you, I do not believe, under the circumstances, that much practical advantage will be gained from insistence upon a provision for subordinate engineers. The chief engineer is practically in entire control, and we shall have to rely upon his good [Page 192] faith. I do not believe he will risk giving, undue preference to the materials of his nationals in view of future extensions or other loans where nationality of engineer will be different.
I was informed by the bankers that working regulations had been drawn up for construction, etc., which provide greater guaranties as to expenditure, etc., than is provided for in the Tientsin-Pukow Railway agreement, and that they would furnish me with a copy of them. These regulations were an after thought and, as I telegraphed you on the 17th instant, provision for their recognition was inserted, I am informed, after the recent exposures in connection with the Tientsin-Pukow Railway (see my No. 1221, of Aug. 3, 1909), although they had been prepared in the form of a letter from Chang Chih-tung, at the time the agreement was initialed, and therefore did not appear in the copy forwarded in my No. 1175, of June 9 last. I shall forward a copy of these regulations as soon as possible.
A few days later I was informed privately that all the bankers had been authorized to conclude on the basis proposed.
On the 16th instant I received your telegram of August 15, and the following day handed to Mr. Liang, at his private residence, a memorandum embodying your instructions, copy of which is inclosed herewith. In discussing this reply of the department he stated that he did not believe Chang Chih-tung would make objections to the employment of American engineers, and that the assurance that American engineers would be employed could be given.
I then told him that I should expect appropriate official recognition of American participation in the loan after a common understanding had been reached by all concerned. He replied that that was quite natural, and that there would be no difficulty on that score.
I told Mr. Liang that Mr. Straight, the representative of the American group, was expected Thursday and that immediately upon his arrival we would proceed to the preparation of the interbank agreement. He expressed much pleasure at the prospect of an early settlement, and said the matter should not be unnecessarily delayed, as Chang, whose patience had been put to its most severe test, was now being exposed to the criticism of the gentry of Hunan and Hupeh for the employment of foreign capital at all. (See inclosure 3.)
Mr. Liang’s position throughout these negotiations has been most difficult, and for many weeks Chang Chih-tung, his patron and political sponsor, wielding at present the strongest influence in Peking, has declined to receive him. While this may seem childish, it is none the less a fact, the explanation of which would unnecessarily prolong this already very long dispatch.
I hope to submit the outlines of the interbank agreement to the department on Friday, the 20th.
I have, etc.,