We also enclose for the information of the Department a very brief
suggestion from our Group of matters to be placed upon the agenda of the
meeting.78 If the Department has any suggestions in connection
with any of these topics, they will be gratefully received.
[Enclosure]
The Chairman of the British Group
(Addis)
to Mr. C. F.
Whigham, Representative in London of the American
Group
My Dear Whigham: I understand that Mr.
Lamont is expected here sometime in July and, if it would suit his
convenience, I should propose to convene a meeting of the Consortium
Council at this office for Monday, July 28.
As soon as we have agreed the date of the meeting with Lamont I
should advise the other groups and invite them to give me as early
notice as possible of any items they desire to place on the
agenda.
[Page 545]
I may take this opportunity of reminding you that the Consortium
Agreement, which was for a period of five years, will expire in
October, 1925. It may be expedient, therefore, at our meeting to
consider in advance what step, if any, should be taken to provide
for its renewal. It might take the form, for instance, of a
resolution for its renewal without any limit of time, subject to the
right of any Group to withdraw on giving six or twelve months’
notice.
I have taken advantage of the return from China of Major Nathan, C.
M. G., who has recently been appointed Chairman of the British and
Chinese Corporation, and of the presence of Mayers, to ask them to
formulate what in their view constitutes the chief difficulties in
the way of industrial progress in China. I enclose an advance copy
of the memorandum which they have prepared.
With the permission of my colleagues on the Council I should propose
to ask these gentlemen to be present at our meeting in July for the
purpose of answering any questions which the Council may wish to put
to them. Their proposals, which, it will be noted, involve the
elimination of Residuary Participation, are intended to secure
greater individual freedom of action on the part of the Peking
Representatives of the Consortium.
I reserve the expression of any opinion on the merits of the
proposals until their authors have had an opportunity of explaining
them to the Council.
As soon as the date of the meeting is fixed I propose to communicate
a copy of the Memorandum to each of the other Groups who will, no
doubt, wish to discuss this very important matter with their
respective Governments.
Yours sincerely,
[Subenclosure]
Memorandum by Mr. S. F. Mayers, of the British
Group in Peking, and Mr. W. S. Nathan, Chairman of the British
and Chinese Corporation, Ltd.
Lack of Progress in Railway
Construction
1. It is now two years since the Consortium recorded the view that
there was no reason why the development of railways should wait on
the solution of China’s administrative problems.
2. During these two years the increase of disorder in China and the
continued reluctance of the Government to seek assistance from the
Consortium have rendered progress impossible.
[Page 546]
3. We suggest that the time has arrived to bring to a test the
question as to how far assistance from the Consortium, as at present
constituted, is practicable.
Chinese Reluctance to Negotiate
with the Consortium
4. In the sphere of general debt consolidation the Chinese objections
to dealing with the Consortium are apparently less pronounced than
in the sphere of railway development. In the opinion of our
representatives on the spot, the prospects of assistance from the
Consortium being ultimately found practicable for financial or
administrative loans are better than the prospects of making a
Consortium loan for railway purposes.
5. The reason they assign for this is that the Chinese have less fear
of losing their liberty of action by concluding a financial loan,
with an international combination such as the Consortium than they
have of seeking from such a combination the funds needed for railway
purposes. In the case of a financial loan the Chinese feel that once
the security has been allocated and the arrangements made for its
supervision by the Customs or Salt Revenue departments, there will
be no marked increase in foreign control of their affairs. On the
other hand, in the case of railway loans, they foresee serious
administrative difficulties in entrusting to the nominees of a
quadruple international body the increased foreign control of their
railways which they know is inevitable if they are to regain the
confidence of foreign investors.
Dissolution of the Consortium
Undesirable
6. The disordered condition of China, with the consequent lack of
security, renders it difficult to see any advantage, at the present
time, in considering either the dissolution of the Consortium or the
separation of industrial or railway loans from the scope of its
intended activities. If such loans were now thrown open to
international competition, it is at least doubtful whether railway
development would be accelerated. In any case, before such
considerations are taken into account, it appears advisable to
examine the possibility of making some progress by means of an
understanding which would permit of greater liberty of action on the
part of the individual Groups.
Possibility of Developing Existing
British-Financed Railways
7. The various existing railways, for example those in which the
British Group is especially interested, viz. the Peking-Mukden,
Tientsin-Pukow, Shanghai-Nanking, Shanghai-Hangchow-Ningpo and
Canton-Kowloon lines, could each profitably employ a considerable
[Page 547]
amount of new capital;
but the Ministry of Communications will not entertain any suggestion
of a Consortium loan for these railways, and the Consortium
Agreement precludes any proposal for public issues for these lines
without participation being offered to the other groups. In these
circumstances it would conduce to progress if the British Group were
at liberty to arrange for the finance required by these existing
railways without the obligation of offering participation to the
other groups.
possibility of developing other
existing or New railways
8. As regards other existing railways, the Peking-Hankow and Peking
Suiyuan lines are in urgent need of new capital for the payment of
debts and for further development. We believe that an offer of a
loan for the rehabilitation of these two railways would be welcomed
by the Ministry of Communications, if means can be found to present
such an offer in a manner acceptable to Chinese public opinion. We
therefore suggest that, so soon as any one of the groups has decided
on its ability to make such an offer, it should inform the other
groups of its intention and proceed with negotiations
individually.
9. Similarly, in the case of loans for the construction of new
railways any group which is in a position to make proposals to the
Ministry of Communications for the issue of a loan should be at
liberty to do so individually, after informing the other groups of
its intention.
10. In both of these cases it would be understood that upon signature
of an agreement the group concerned would be bound to offer a share
to any other group desirous of actual participation but without
obligation to offer residuary participation.
Proposals for Greater Individual
Liberty of Action
11. In order to put the foregoing into concrete form, we suggest the
adoption by the Consortium of a resolution on the following lines:—
With a view to giving effect to the opinion expressed in
Article 12 of the Report of the Consortium Council dated May
1922, that the development of railways in China should not
wait upon the solution of China’s administrative problems it
is resolved that:—
- (a)
- With regard to existing railways in respect to
which any group holds mortgage rights or rights in
respect of further finance, such group shall be free
to conclude agreements for the further finance of
such railways by public issue without offering
participation to other groups.
- (b)
- With regard to other existing railways, new
railways or industrial enterprises, any group which
is in a position and desires to make a public issue
shall be free, after informing the other groups, to
negotiate and conclude agreements for such railways
or enterprises either individually or with any other
group or groups who are also in a position and
desire to take their share of the public issue for
the same purpose.
- (c)
- It shall be understood that no negotiations for
any one of the railways for which an agreement has
been pooled by an individual group shall be
initiated without the consent in writing of that
group.
Alternative Proposal for
Inter-Government Negotiations
12. If, on the other hand, it is felt by all the groups that the
principle of equal participation must be strictly maintained, it
appears to us advisable to ask the four Governments to ascertain,
either through their Ministers in Peking, or by sending a special
mission to China, by what means and under what conditions the
Chinese Government can be induced to agree to a Consortium loan for
railways on the lines of equal participation contemplated by the
Agreement. In the absence of an understanding between the Chinese
Government on the one side and the Consortium Powers on the other,
it appears to us improbable that the Consortium Agreement as it
stands can be made operative for railway loans.
- W. S. Nathan
- S. F. Mayers
