HI 
 
HE3287.H7""^"''"'"^"">"-"''^^>' 
 .."^i'way problems in China 
 
 3 1924 013 693 357 
 
STUDIES IN mSTORY, ECONOMICS AND PUBLIC LAW 
 
 EDITED BY THE FACULTY OF POLITICAL SCIENCE OF 
 COLUMBIA UNIVERSITY 
 
 Volume LXVI] [Number 2 
 
 Whole Number 159 
 
 RAILWAY PROBLEMS IN CHINA 
 
 MONGTON CHIH HSU, Ph.D. 
 
 COLUMBIA UNIVERSITY 
 
 LONGMANS, GREEN & CO., AGENTS 
 London : P. S. King & Son, Ltd. 
 
Columbia Hmufrattn 
 
 FACULTY OF POLITI CAL SCIENCE 
 
 Nicholaa Murray Butler, LL.D., President. Munroe Smith, LL.D., Professor 
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 A. Dunning, LL.D., Professor of History and Political Philosophy. J. B. Moore, LL.D., 
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2 
 RAILWAY PKOBLEMS IN CHINA 
 
Cornell University 
 Library 
 
 The original of this book is in 
 the Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924013693357 
 
STUDIES IN HISTORY, ECONOMICS AND PUBLIC LAW 
 
 EDITED BY THE FACULTY OF POLITICAL SCIENCE OF 
 COLUMBIA UNIVERSITY 
 
 Volume LXVI] [Number 2 
 
 Whole Number 159 
 
 RAILWAY PROBLEMS IN CHINA 
 
 BY 
 
 MONGTON CHIH HSU, Ph.D. 
 
 COLUMBIA UNIVERSITY 
 
 LONGMANS, GREEN & CO., AGENTS 
 
 London : P. S. King & Son, Ltd. 
 
 1915 
 
Copyright, 1915 
 
 BY 
 
 The Faculty of Political Science of 
 Columbia University, New York 
 
PREFACE 
 
 The purpose of this work is to present the important 
 economic and political problems of railway development 
 in China. In the body of the treatise no attempt 
 has been made to set forth, in detail, the technical 
 and administrative questions involved in the work of 
 building and operating railways. In view of the fact that 
 most of the railways in China have been built with foreign 
 capital, the author has attempted to analyze carefully the 
 railway loan agreements in order to throw some light upon 
 the present status of railway management and construction. 
 As the railway has recently occupied the center of interest 
 in the internal and foreign politics in the country, a great 
 part of the material of the treatise is, therefore, focussed 
 upon the political phases of the railway situation. 
 
 The author desires to acknowledge his indebtedness to 
 Professor Edwin R. A. Seligman for his invaluable instruc- 
 tion and advice in the conduct of the work. Acknowledge- 
 ments are due also to Professor H. R. Mussey, who kindly 
 read the treatise in proof and made many useful criticisms 
 and suggestions, and to Mr. Hugh W. Robertson for his 
 assistance in adapting the manuscript for the press. 
 
 M. C. H. 
 233] 5 
 
CONTENTS 
 
 PASS 
 
 CHAPTER I 
 Introduction n 
 
 FIRST PERIOD 
 
 CHAPTER n 
 A Discouraging Beginning ig 
 
 SECOND PERIOD 
 
 CHAPTER ni 
 The Struggle for Railway Concessions 
 
 j. Foreign Political and Strategical Railways 28 
 
 ii. Railways Granted to Foreign Capitalists 34 
 
 iii. Railway Spheres of Interest 45 
 
 CHAPTER IV 
 
 The Foreign Railways 
 
 i. The Chinese Eastern Railway 52 
 
 ii. The Shantung Railway 56 
 
 iii. The Yunnan Railway 58 
 
 CHAPTER V 
 Railways Built with Foreign Capital 
 
 A. The British Interests: 
 
 i. The Chinese Government Railways of North China .... 65 
 
 ii. The Shanghai-Nanking Railway 69 
 
 iii. The Tao-Ching Railway 71 
 
 B. The Belgian, French and Russian Interests: 
 
 i. The Peking-Hankow Railway 74 
 
 23s] 7 
 
8 CONTENTS [236 
 
 PAGE 
 
 ii. The Peinlo Railway 78 
 
 jii. The Cheng-Tai Railway 81 
 
 C. The American Interests. 
 
 THIRD PERIOD 
 
 CHAPTER VI 
 Provincial and Private Enterprises 
 
 i. The Hsinning Railway 92 
 
 ii. The Kiukiang-Nanchang Railway 93 
 
 iii. The Fukien Railway 94 
 
 iv. The Shanghai-Hangchow-Ningpo Railway 95 
 
 V. The Szechuan-Hankow Railway 99 
 
 CHAPTER VII 
 The Railways Built by the Chinese Government loj 
 
 CHAPTER VIII 
 Nationalization of Railways 
 
 i. The Conflicts of Interests 108 
 
 ii. The Government's Railway Policy 120 
 
 CHAPTER IX 
 International Co-operation 
 
 i. The Canton-Kowloon Railway. . 133 
 
 ii. The Tientsin-Pukow Railway 135 
 
 iii. The Hukuang Railways 140 
 
 iv. The Lung-Tsuing-U-Hai Railway 154 
 
 V. The Sinyang-Pukow Railway 157 
 
 vi. The Shasi-Shingyifu Railway 159 
 
 CHAPTER X 
 The Manchurian Railway Problems 163 
 
 CHAPTER XI 
 Conclusion 176 
 
Approximate Equivalents of Chinese Currency, 
 Weights and Measures 
 
 i. — Money 
 
 Until the new National Coinage Act was promulgated by 
 a Presidential Mandate on Feb. 27, 191 4, the monetary unit 
 commonly used was the " tael." It fluctuated greatly in 
 value. The Haikwan (customs) tael was not a coin but a 
 weight in silver by means of which duties were paid to the 
 Maritime Customs. The average exchange value of the 
 Haikwan tael during recent years has been as follows: 
 1907, 79 cents gold; 1908, 65 cents; 1909, 63 cents; 191 o, 
 66 cents; 1912, 67 cents. 
 
 In June, 1912, one Haikwan tael ^ 
 2s. pd. 
 3.47 francs. 
 2.81 marks. 
 0.67 gold dollar. 
 1.50 yen (Japanese). 
 1.50 Mexican dollar. 
 
 ii. — Weights 
 
 I catty = ij^ lbs. or 604.53 grammes. 
 
 I picul=i33j^ lbs. or 60.453 kilogrammes. 
 
 iii. — Length 
 
 I ch'ih = i4.i inches or 0.358 metres. 
 
 I li ^ about one-third of a mile (or theoretically 2,115 feet or 
 two-fifths of a mile). 
 
 iv. — Area 
 I mow (Shanghai) = one-sixth of an English acre. 
 
 V. — Capacity 
 
 I tow (for tribute) ==629 cubic inches (10.31 litres). 
 
 237] 9 
 
CHAPTER I 
 
 Introduction 
 
 In a country so vast in territory and so dense in popula- 
 tion as China it is natural that arterial communication is 
 necessary. Serious efforts have been made by China's 
 nilers to connect the four quarters of the country by both 
 land and water routes. Therefore, long before the intro- 
 duction of the steamer and railroad into China, intercom- 
 munication had already taken place between the different 
 parts of the country, even those most remote. In olden 
 times when the country was flourishing long canals and 
 grand highways were usually kept in good order. Until 
 very recently, however, waterways and river embankments 
 had been neglected and repairs on roads had been practically 
 abandoned. Now they are almost impassable. At the 
 present there are still many old trade routes in the country 
 and owing to the small mileage of railroads in China old 
 methods of communication and transportation are still 
 maintained. 
 
 Land Transportation. The chief means for conveying 
 travelers on land are the sedan chair, the mule litter, the 
 cart (used only in the North), horses, mules and donkeys. 
 The horse is most expeditious, while the sedan chair is most 
 comfortable but most expensive. Commodities are carried 
 by barrows (sometimes also used for travelers and mostly 
 used in the South), pack horses, mules, donkeys, camels and 
 for short distance, oxen. A horse or mule will carry 240 
 to 320 pounds. Camels will carry still more, but are used 
 239] II 
 
12 RAILWAY PROBLEMS IN CHINA [240 
 
 only in the North. A wheelbarrow will carry, as a rule, 
 180 to 300 " catties " (240 to 400 pounds), and will make 
 about 16 miles a day. Carts can carry more than these 
 wheelbarrows. 
 
 There are many trade routes on land. The principal 
 ones are those which connect the big cities, and these cities, 
 in turn, with the capital. From Peking several highways 
 branch in various directions leading to Mongolia, Man- 
 churia, Central Asia, the west and the southwestern parts 
 of China proper. The trade route from Peking to Man- 
 churia has been recently displaced by a railroad. It takes 
 months to travel overland from Peking to the northern, 
 western and southern corners of the country. From Nan- 
 kow Pass, north of Peking, there is a caravan route extend- 
 ing to the North and Northwest. Journeys are generally 
 divided into stages of about thirty miles each. In the 
 South the ordinary road is a mere path generally defined 
 by neither ditches nor hedges, winding through the paddy 
 fields or over the uplands. In the North, where carts are 
 used, it is a common thing to see a new track cut right 
 across a field of growing wheat in spite of the efforts of the 
 owner to prevent it. There are traces in many places of 
 ancient pavements, but these have almost wholly disap- 
 peared, and the road is simply a bank of earth. 
 
 Water Transportation. Nowadays a number of steam- 
 boat companies are organized and run steamers regularly 
 on the navigable rivers, canals and lakes, and even along 
 the sea coast. Where steam is prohibited, native " slipper " 
 boats, house boats and junks of various sizes are used. For 
 coast and sea-going work, junks of large and strong propor- 
 tions with large sails are still occasionally seen. 
 
 The Yangtsze, which is navigable for some 2000 miles, 
 the Hwai, the Han, the West and the Peiho rivers are great 
 arteries of commerce. The Grand Canal is now practically 
 
241] INTRODUCTION 13 
 
 worthless for transportation from the South to the North, 
 although it was once the chief route of traffic. Steam navi- 
 gation along the coast takes its place now. Some sections 
 of the Grand Canal and the Hoangho are still useful but 
 only for local traffic. 
 
 In the maritime provinces and the Yangtsze Valley 
 waterways are numerous. The perfect network of water- 
 ways, partly natural and partly artificial, in Kiangsu, in 
 connection with the Yangtsze River and the Grand Canal, 
 furnishes cheap and comfortable communication with all 
 parts of that province. There are lakes of considerable 
 size by which communication is carried on with the differ- 
 ent provinces in Central China. The Wuhu, the Taihu, 
 the Poyang, the Tungting and other lakes, with the water- 
 ways branching in various directions from them, furnish 
 good water communication with the adjoining regions. 
 
 The costs of travel and of freightage vary from year 
 to year with the means of transportation, with the seasons 
 of the year and differ, also, in different parts of the coun- 
 try. Land transportation is usually, as in other countries, 
 more expensive than water transportation. Competition, 
 however, is a decisive factor. No matter whether it be be- 
 tween the same kind or different kinds of conveyance, or 
 between water and land routes, where there is keen com- 
 petition, passenger tariffs and freight rates are usually much 
 lower. 
 
 Over these trade routes and by the old means of trans- 
 portation mentioned above, Chinese produce and merchan- 
 dise were carried from one part to another of the country 
 long before the Occidental world became civilized. But as 
 China, owing to her geographical position and her endow- 
 ment of abundant resources for self-support was absolutely 
 cut off from the rest of the world for so long a time past, 
 no impetus was given to her to develop fully her systems 
 
14 RAILWAY PROBLEMS IN CHINA [242 
 
 of communication. On the contrary, internal communi- 
 cation has been gradually falling into greater and greater 
 neglect. The defective condition of communication kills 
 trade on its way inland and paralyzes the authority of 
 Peking a few hundred miles from the capital. The grow- 
 ing weakness of the Peking Government has, for a long 
 time past, been becoming more and more apparent to the 
 people and the officials, whose confidence had been com- 
 pletely shaken, even before the shock of recent political 
 events. Absence of communication means failure of con- 
 trol, lack of power, want of grip, causes which chiefly ex- 
 plain the frequent occurrence of rebellions. 
 
 On the other hand, foreign nations have, one after an- 
 other, closed in upon China both by land and by sea. The 
 expansion of foreign commerce, the lust for territorial ac- 
 quisition and the intense international struggle for power 
 and influence throughout the world, animated by modern 
 national imperialism, have naturally resulted in demands 
 for concessions of territories for coal stations and commer- 
 cial ports and for extra-territorial jurisdiction over the 
 places where citizens or subjects of the respective countries 
 reside. Above all, they have demanded concessions of 
 rights for construction and even control of railways in or- 
 der to increase their own resources through the absorption 
 or exploitation of the undeveloped but vast and wealthy 
 realm of the Celestial Empire. Several foreign nations, 
 principally Russia, Germany, France, Great Britain and later, 
 Japan, have taken an aggressive part in this movement. 
 Concession after concession was forced out of the hands 
 of the Peking Government. Railway concessions, stand- 
 ing above all others in value, have been and are still most 
 eagerly sought and retained because railways can be used 
 politically to strengthen the concessionaires' hold on China 
 as well as to develop commercially their concessions of 
 
243] INTRODUCTION 15 
 
 mines and other enterprises. In modern times the railway 
 is the best and most effective instrument for colonization 
 and for accomplishing the policy of imperial expansion. It 
 is no wonder, therefore, that international politics in China 
 are mostly railway politics. 
 
 Keeping this in mind, one will not be surprised to find 
 that a foreign railroad loan in China is quite different from 
 that in the United States and in many other countries. In 
 the United States or elsewhere a railroad loan raised abroad 
 is commonly regarded as a commercial transaction between 
 two parties, while in China it means a political issue between 
 two or more nations. To present the different important 
 phases of the railway problems in China, it is advisable, 
 however, to trace the various stages of their development in 
 connection with the local growth of the railway itself. The 
 history of railway development in China may be divided 
 into three periods : 
 
 (i). The first period began in 1863 and ended in 1894. 
 At the very beginning the first attempt to introduce the 
 " iron highway " into China was discouraging, not unlike 
 what had been experienced in the United States, England 
 and elsewhere, owing to the opposition of the conservative 
 class of the people. Later on, however, a small number of 
 influential and enlightened officials, who realized the im- 
 portance of the railway to the prosperity of the country, 
 succeeded, in the face of manifold obstacles and in spite of 
 endless discouragement, in creating the first instalment of 
 the railway system now known as the Chinese Government 
 Railway of North China. 
 
 (2). The second period, extending from 1895 to 1905, 
 was marked by the " Battle for Concessions " in which the 
 struggle for the right of way for railway construction and 
 for financing was the most notable feature. Before this 
 period no railway concession had been granted to foreigners. 
 
J 6 RAILWAY PROBLEMS IN CHINA [244 
 
 After 1895 they were given so many concessions that the 
 Boxer Trouble was practically precipitated as a result. In 
 this period we find that notorious terms were stipulated 
 in railway loan agreements. 
 
 (3). The third period, commencing during the Russo- 
 Japanese War and extending to the present, is characterized 
 by the appearance of native private enterprises, the conflict 
 of interests between the provincial companies and the Cen- 
 tral Government due to the adoption of the Nationalization 
 Policy, the financial combination of some foreign syndicates, 
 and the settlement of the question of control to a certain 
 extent in regard to loan funds. During this period 
 railway loans were contracted on more favorable terms than 
 in the last period. 
 
FIRST PERIOD 
 
CHAPTER II 
 A Discouraging Beginning 
 
 In 1863, twenty-seven foreign firms sent a petition to 
 Li Hung-chang, then governor of Kiangsu, applying for 
 the concession of the right to estabhsh a line between 
 Soochow and Shanghai. Their petition, however, was re- 
 ceived with decided disapprobation, and the scheme was 
 finally abandoned. At about the same time, Sir Macdonald 
 Stephenson drew up a comprehensive scheme ^ for railway 
 construction in China and presented it to the Manchu Gov- 
 ernment. His document for some reason was pigeon-holed. 
 
 The next move emanated from Shanghai. On the appli- 
 cation of Messrs. Jardine, Matheson & Co. to construct an 
 ordinary road from Shanghai to Woosung, about twelve 
 miles down the Whangpoo River, a permit was issued in 
 which it had been made particularly plain upon both sides 
 that only animals could be used for motive power. The 
 employment of steam was specifically forbidden. But in 
 1875 when the road was completed, the company, ignoring 
 the protest of the natives, laid down upon it a two-foot-six- 
 
 1 Railways in China, by Sir Macdonald Stephenson, 1864. Stephen- 
 son took Hankow as a starting-point and proposed to construct 
 lines eastward to -Shanghai and westward through the provinces of 
 Yunnan and Szechuen to India. While a line was to run from Han- 
 kow southward to Canton, another line from Chinkiang to Peking via 
 Tientsin was projected. It was also proposed to connect Ningpo with 
 Shanghai, and to carry a line from Soochow to the province of Fukien. 
 In addition to these lines a connection between Canton and the pro- 
 jected line to India was suggested. 
 
 247] 19 
 
20 RAILWAY PROBLEMS IN CHINA [248 
 
 inch gauge railway and used a locomotive to haul the cars. 
 The people in the neighborhood of the line became greatly 
 excited. Petition after petition was sent in to the pro- 
 vincial authorities asking that the company keep its promise. 
 It was not until a laborer was run over and killed by the 
 locomotive that the Central Government directed the pro- 
 vincial authorities to have the concession canceled. After 
 some troublesome diplomatic negotiations this first railway 
 was repurchased by China in 1877. The closing chapter 
 of the history of this enterprise points to the tearing-up of 
 the track and the shipment of the rolling stock, rails and 
 sleepers, to the Island of Formosa. The wretchedly advised 
 course of action taken by the company could only delay the 
 introduction of the railway into China for a short time, be- 
 cause a few years later a successful attempt to introduce 
 the " iron horse " was made in the North. 
 
 In 1878, Li Hung-chang, now Viceroy of Chihli, be- 
 came interested with Mr. Tong King-sing in establishing 
 a colliery in Tangshan. The Chinese Engineering and 
 Mining Company was then formed. From this point to 
 Pehtang, the nearest point for shipping coal by water routes, 
 was about thirty miles. The question of transportation 
 became vital to the success of the company. A canal 
 was then constructed from the colliery to Lutai, the nearest 
 point on the Pehtang River. There were seven miles be- 
 tween Hsukochung, on the end of the canal, and the colliery ; 
 and to cover this distance a mule tramway of standard 
 gauge was built in 1880 after a hard fight by the resident 
 engineer, Mr. C. W. Kinder. After the completion of this 
 tramway a determined effort was made to introduce the 
 railroad into China. Without consulting Peking, Mr. 
 Kinder built a locomotive, christened " The Rocket of 
 China," on June 9, 1881. The locomotive was made out 
 of old iron and steel picked up at the mines and a portable 
 
249] ^ DISCOURAGING BEGINNING 2 1 
 
 winding engine. After inducing the authorities to with- 
 draw their objection to its use Mr. Kinder put the " Rocket " 
 into commission on construction work. 
 
 The initial venture of the railway from Hsukochung was 
 a success and two additional locomotives were secured in 
 1882. Mr. Kinder then began to urge the extension of the 
 tramway to Lutai and succeeded with the assistance of 
 Viceroy Li Hung-chang, now impressed with the value of 
 the railway. The Kaiping Railway Company was then 
 formed with a capital of about $500,000 (Mex.) to take over 
 the tramway and carry out the construction of the exten- 
 sion. Dr. Wu Ting-fang was appointed to manage the 
 company. Work was begun at Hsukochung in 1886 and 
 six months later it was completed. At the same time some 
 rolling stock, including an American locomotive and forty 
 ten-ton coal cars, was purchased from the United States. 
 
 The experiments of these two initial railroads had, with- 
 out doubt, an important educational effect. This can be 
 seen in some of the memorials ^ presented to the Throne by 
 some of the learned officials. The testamentary declaration 
 in favor of railroads, warships and other foreign appliances, 
 as an essential means of enabling China to keep abreast of 
 other civilized nations, written by Viceroy Tso Tsung-tang, 
 the suppressor of the Mohammedan rebellion in Kansuh 
 and Turkestan, helped greatly to hasten the acknowledg- 
 ment of the importance of Chinese railways. 
 
 But the chief impulse which led to the official acceptance 
 of the modern system of transportation, as an institution, 
 was supplied by the war with France in 1884. The diffi- 
 culty of sending troops to Tongking convinced the Govern- 
 ment of its essential value as a means of mihtary transport. 
 
 iSee Kuang-su Chong-yau (The Emperor Kuang-su's State Papers), 
 vols, xi-xv, inclusive. 
 
22 RAILWAY PROBLEMS IN CHINA [250 
 
 By 1887 the Kaiping line was completed to Lutai; and 
 Li Hung-chang had a memorial before the Imperial authori- 
 ties urging the extension of the line to Tongku and on to 
 Tientsin on the plea that such a road was a military neces- 
 sity and would tend to the better protection of the empire 
 from invasion. Meanwhile, the Board of Admiralty, stimu- 
 lated by the Marquis Tseng, also presented a memorial to 
 the Throne, in which they proposed the construction of a 
 railway from Taku to Tientsin and Shanhaikwan, for the 
 purpose of facilitating the mobilization of troops in those 
 places and also for the transportation of coal which they 
 described as " the life and the pulse of the navy." These 
 two memorials fortunately struck the right chord and the 
 Empress Regent issued an edict ^ formally approving the 
 construction of a railway in China. The name of the com- 
 pany was then changed to " China Railway Company " and 
 a prospectus ^ was issued advertising for the subscription 
 of Tls. 1,000,000, the Hongkong and Shanghai Banking 
 Corporation being made bankers.^ It was, however, with 
 great difficulty that the promoters succeeded in financing 
 the scheme. 
 
 In April, 1888, the section to Tongku was completed; in 
 August, Tientsin was reached. In 1890, the section to the 
 east of Tientsin was completed to Kuyeh. By 1891 the ex- 
 tension to Shanhaikwan was authorized and the Chinese 
 Imperial Railway Administration was formed with Mr. 
 Kinder as Engineer-in-Chief to carry on the work which 
 was completed in 1894. 
 
 Besides the above actual progress, other projects were ad- 
 
 1 For full text of edict, see Appendix C in R. S. Grundry's China 
 Past and Presetit, London, 1895. 
 
 2 See Appendix D in the same book, and U. S. Consular Reports, 
 vol. xxiii, no. 81, p. 66. 
 
 ' The bankers were Englishmen and the bank is a British institution. 
 
251J A DISCOURAGING BEGINNING 23 
 
 vocated by quite a number of officials. In February, 1889, 
 the Viceroys and Governors throughout the Empire were 
 commanded to advise the Throne on the subject of railways. 
 Two of these memorials ^ were received with great atten- 
 tion, namely, those of Liu Ming Chuan (Governor of 
 Formosa) and Chang Chih-tung (Viceroy of Liang Kuang) . 
 The former advocated strongly the advisability of continu- 
 ing the Tongku-Tientsin line to Tungchow, while the latter 
 urged the construction of a trunk line from Lukowchiao 
 (a village near Peking) to Hankow, an important indus- 
 trial and commercial center on the Yangtsze River. The 
 Tungchow project was, however, strongly opposed by the 
 reactionary party who maintained that as railways would 
 facilitate the transport of foreign troops and as Tungchow 
 was only twelve miles from Peking the capital would be 
 dangerously exposed to foreign attack in case of an in- 
 vasion. This opposition was carried to such an extreme de- 
 gree that it not only blocked the decree but incited a riot 
 of the junk owners whose business on the Peiho River had 
 suffered more or less by the competition of the railway. 
 The riot was not quelled until the Viceroy ordered the 
 destruction of the bridge connecting the Foreign Settle- 
 ment and South Tientsin, thus placating the junk owners 
 by facilitating the shipping demand. 
 
 Meanwhile permission had been granted to continue the 
 railway beyond the Great Wall at Shanhaikwan. At the 
 outbreak of the war with Japan in 1894, the line had been 
 extended to Chung-hou-so, forty miles beyond Shanhaik- 
 wan. The line between Tientsin and Shanhaikwan, how- 
 ever, a distance of 1 74 miles, was the only one in operation 
 in this period. The Chung-hou-so extension was still 
 under construction when the war broke out and several 
 
 1 Kuang-su Chong-yau, vol. xv, leaves 9-12 and 12-15. 
 
24 RAILWAY PROBLEMS IN CHINA [252 
 
 branch lines had been projected. Surveys were also made 
 160 miles from Chung-hou-so to Kirin, the center of Man- 
 churia. During the war with Japan work on the road was 
 naturally interrupted suddenly and was resumed afterwards 
 only by overcoming much political opposition and many 
 financial difficulties. The close of the war marks the close 
 of the first period of railroad development in China. 
 
 General References 
 
 U. S. Consular Reports, vol. x, no. 34 (1883) ; vol. xxiii, no. 81 (1887) ; 
 vol. xxvi, no. 96; vol. xxix, nos. lOi and 103. 
 
 C. Denby and E. P. Allen, " Chinese Railway Development," in Engi- 
 neering Magazine, London, 1898, vol. xvi, pp. 339-348. 
 
 R. E. Bredon, Railway and Inland Taxation, Shanghai, 1897. China : 
 Statistical Dept., Special Series, no. 22. 
 
SECOND PERIOD 
 
CHAPTER III 
 The Struggle for Railway Concessions 
 
 Throughout this period railway politics took a very 
 important and significant part in the campaign of interna- 
 tional politics played in China. T he strug gle for railway 
 concessiona cajme hand in hand „with the " Battle foFTTon- 
 cgssions " ^ waged from 1896 to 1900. The latter desig- 
 nates the occupation of territory under the guise of lease, the 
 securing of rights or grants for the working of mines, the 
 construction and management of railways, and the enjoy- 
 ment of special or exclusive financial and commercial privi- 
 leges in China, either by the interested foreign governments 
 separately or in combination, or by the foreign syndicates 
 backed by their respective governments to carry out a cer- 
 tain design, political, military, commercial or otherwise. 
 It is evident, therefore, that in order to clear up the com- 
 plicated position taken up by the railway in this " Battle," 
 it is necessary to touch upon some of the influences and 
 causes, the development and result of which were utterly 
 unexpected. 
 
 Railway concession has occupied many volumes of diplo- 
 matic correspondence found in the Colored Books of the 
 different governments, especially those published from 1897 
 to 1901. In the "Battle for Concessions" the private 
 speculator in railways appeared on the scene to worry the 
 Chinese Government, but behind him, in addition, was the 
 
 1 According to Lord Salisbury's description ; see British Blue Book, 
 China Aifairs, no. i, 1899, dispatch no. 232. 
 
 255] 27 
 
28 RAILWAY PROBLEMS IN CHINA [256 
 
 whole diplomatic force of his country. Later, the bankers, 
 encouraged by their governments to finance railway con- 
 i struction in those regions which the latter had marked out as 
 ; their sphere of political influence or of pecuniary interest, 
 I secured for the money market the issues of loans and for 
 , the trade of their respective countries orders for the ma- 
 \ terials required. 
 
 The subject is very complex and rapidly changing in dif- 
 ferent phases. It is only possible to indicate briefly the 
 essential points which have an intimate relation to the rail- 
 way development of China. Let us now, first of all, trace 
 the causes and events which, being political and strategical 
 on the one hand and financial and commercial on the other, 
 led to the struggle for railway concessions and to the sub- 
 sequent controversies and troubles between China and the 
 Powers, and even dissension among the Powers themselves. 
 The railways given away by China under the circumstances 
 created by these events and causes may be accordingly 
 divided into two distinct categories, according to the pur- 
 poses of their promoters, viz. : ( i ) those granted for political 
 and strategical reasons ; (2) those granted for commercial or 
 capitalistic reasons. 
 
 Foreign Political and Strategical Railways 
 
 When our troops were defeated by the Japanese in the 
 autumn of 1894, the policy of the Powers with respect to 
 China was consequently changed. Russia headed the way 
 and prepared to play an important part in the Far East by 
 the construction of the Trans-Siberian Railway. Long be- 
 fore the Chino- Japanese War, Russia had cherished the 
 idea of constructing a railroad from the Urals to the 
 Pacific coast, ^ with the object of strengthening her strate- 
 
 ' Count Monravieff Amurski, the Czar's Minister of Foreign Affairs, 
 after having annexed the province of Amur to Russia, favored the idea 
 
257] ^^^ STRUGGLE FOR RAILWAY CONCESSIONS 29 
 
 gical position and political influence in the Far East. 
 Russia's first attempt was to seize one of the Korean ports, 
 free from the grip of ice, as a terminus, but this attempt 
 failed owing to England's objection.^ In May, 1891, the 
 Siberian Railroad was officially started by the Czarevitch, 
 now the Czar of Russia, at Vladivostock. The Chino- 
 Japanese War had given Russia the opportunity to secure 
 an ice-free port in the territory of China. 
 
 Under the terms of the peace treaty of Shimonoseki, 
 negotiated with Japan and signed April 17, 1895, by Li 
 Hung-chang, on behalf of the Manchu Court, China was 
 compelled to recognize the independence of Korea, and to 
 cede to Japan Port Arthur in the Liaotung Peninsula and 
 Weihaiwei in the Shantung province in addition to the 
 islands of Formosa and the Pescadores. In the Liaotung 
 Convention, November 8, 1895, the Mikado's Government, 
 under the pressure exerted by Russia, Germany and France 
 combined, retroceded Port Arthur and Weihaiwei to China, 
 obtaining as compensation a further sum of 30,000,000 taels 
 in addition to the original war indemnity of 200,000,000 
 taels. The financial difficulties of the Chinese Government 
 in paying off the first instalment of the indemnity gave 
 opportunities to the foreign Powers to obtain influence in 
 the councils of the Manchu Empire. Accordingly, the 
 European Powers competed for the privilege of supplying 
 the monetary needs of China. 
 
 The Czar's Minister of Finance, M. de Witte, devised a 
 
 of making an overland road from Russia to the Far East, which was 
 set out in Voltaire's letter dispatched to Count Schervorof, dated Fer- 
 ney, June 11, 1761. 
 
 1 Before 1885 Russia intended to seize Wensan. In anticipation of 
 such action, England, meanwhile, seiz«d Port Hamilton, a Korean 
 island. In February, 1887, England evacuated it on the promise of 
 Russia that she would not take any Korean territory. 
 
30 RAILWAY PROBLEMS IN CHINA [258 
 
 remarkable but infamous scheme of making the Russian 
 Government China's guarantor so as to enable China to float 
 a loan of 400,000,000 francs at 4 per cent, issued at 94, 
 in Paris. In return, as compensation for her friendly ofiice, 
 Russia made a treaty with China — the Cassini Convention — 
 whereby Russia secured the privilege of constructing a rail-, 
 road across Manchuria to connect her Siberian and Ussuri 
 System. This concession marked the beginning of the , 
 initial struggle for railway concessions in China, which had I 
 hitherto been pursued somewhat more on political than com- 
 mercial lines. This was also the first step toward what has 
 been called " Russia's pacific conquest of China." And 
 thus the tragic curtain to the " Battle for Concessions " 
 was lifted. 
 
 France was not inactive in demanding something for her 
 services to China. On June 20, 1895, a treaty with France 
 was signed by China, stipulating, besides the extension of 
 the frontier between China and Indo-China and the ex- 
 ploitation of mines situated in the Province of Yunnan and 
 other resources, that the military railways already built be- 
 tween Phulangthuong and Langson in Tongking, or other 
 railroads to be constructed in Annam might, after a mutual 
 understanding, be extended into Chinese territory. In 1897, 
 an exchange of notes took place between the French Min- 
 ister in Peking and the Tsung-li Yamen ^ reminding China 
 of her obligations.^ 
 
 Great Britain now wanted to act in her turn. On Febru- 
 ary 4, 1897, she made a treaty with China, in which, be- 
 sides many privileges granted to her, China allowed an im- 
 
 ' The Foreign Office of China, the first of its kind found in the his- 
 tory of China, established Jan. 31, 1861. 
 
 2 See Documents Diplomatiques, China; issued by the Ministere des 
 Affaires fitrangeres, published by the Paris Imprimeree Nationale ; 
 vols, of the years 1894 to 1898. 
 
259] '^^^ STRUGGLE FOR RAILWAY CONCESSIONS 31 
 
 portant modification on the Burmese frontier. At the end' 
 of the same year, China, having been obliged to Hquidate 
 the Japanese War Indemnity, negotiated a loan with some 
 British financial agents. The security of the loan was to 
 be the native and maritime customs, the salt tax and Likin 
 (an internal merchandise tax) . But the British Government ■ 
 was not satisfied with this ample and sufficient security and 
 demanded certain concessions in addition. These included 
 the railway from Burma to Yunnan, a guarantee of the non- 
 alienation of the Yangtsze region to any other Power, 
 greater freedom of internal trade with the abolition of Likin 
 on foreign goods in the treaty ports, and finally the opening 
 of Talienwan and Nanning to foreign trade. Russia pro- 
 tested against the loan on the ground that the balance of in- 
 fluence would be upset thereby, while France objected to the 
 Railway clauses and the opening of Nanning. Russia also 
 offered an alternative loan on easier terms to China. But 
 the British exerted such great pressure upon Peking that the 
 Central Government had no way to escape and was forced 
 to yield. The loan was finally arranged under Anglo-Ger- 
 man auspices with the Likin as security, which was to be 
 under the control of the Inspector-General of Maritime 
 Customs, an Englishman. At the same time China had to 
 grant in recompense all the British demands.^ 
 
 From the above lesson China learned to her great cost 
 that the supposed friendly offices of the foreigner might be 
 just as dangerous to her national honor and integral exist- 
 ence as his open hostility. 
 
 But China was not yet at the end of her troubles. In 
 1897 when two German priests were murdered by a mob in 
 Shantung, the Kaiser Wilhelm's Admiral without sending an 
 ultimatum or any notification to Emperor Kuang-su seized 
 
 1 See British Blue Book, China, no. i, 1899, pp. 12-30. 
 
32 RAILWAY PROBLEMS IN CHINA [260 
 
 Kiaochow Bay, town and district, and the German Govern- 
 ment refused to evacuate until Qiina vi^as hectored into 
 agreeing, in a formal convention on March 8, 1898, tO' com- 
 pensation to the families of the murdered missionaries, an 
 amount to reimburse Germany for the cost of occupation, 
 the degradation of the Governor of Shantung, the ninety- 
 nine years' lease of the country occupied, and the granting 
 of mining, railway and exclusive financial privileges 
 throughout the whole valuable province where Confucius, 
 the Greatest Teacher of China, was born. By virtue of 
 this convention Germany obtained the right to build a tri- 
 angular railway system in Shantung. German capitalists 
 also obtained the right of preference to find capital for any 
 scheme for the development of Shantung made by the 
 Chinese Government or citizens, and German-made ma- 
 terials were guaranteed a preference over all others.^ 
 
 The recognition of the occupation of Kiaochow and the 
 concessions of railways and mines to Germany accelerated 
 the aggressive actions of the other covetous Powers. Russia 
 made a more significant advance from North Manchuria 
 and on March 27, 1898, secured a twenty-five years' lease 
 of Port Arthur and Talienwan, and compelled the Manchu 
 Court to permit the Chinese Eastern Railway Company " to 
 extend a branch line from a certain point (Harbin) on 
 the main line to these two ports. 
 
 As Russia, Germany and Great Britain had been granted 
 important concessions in the North and the Yangtsze Valley, 
 France, in order to balance her political and commercial 
 influences in the Far East, occupied in April Kwong- 
 chowwan, in the Gulf of Tongking, and secured the right to 
 
 ' Parker (E. H.), "The German Sphere of Influence in China," in 
 United Service Maga., 1899, vol. cxli, pp. 172-186. 
 
 2 Cf. infra, p. 52. 
 
26l] THE STRUGGLE FOR RAILWAY CONCESSIONS 33 
 
 construct a railway to Yunnan from the Tongking frontier 
 and a promise not to alienate any territory in the three pro- 
 vinces of Kwangtung, Kwangsi and Yunnan/ 
 
 Next, as the balance of power in the Gulf of Pechili was 
 materially altered by the surrender of Port Arthur to 
 Russia, the Marquis of Salisbury, then head of the British 
 Foreign Office, sent a British fleet from Hongkong to the 
 Gulf and demanded Weihaiwei from China. In June, 
 Kowloon including Mirs Bay was also ceded to England. 
 Meanwhile, Japan also demanded the non-alienation of 
 Fukien province. 
 
 These disgraceful events in the history of China are 
 briefly enumerated here in order to show that the so-called 
 " Spheres of Influence," or the " Spheres of Interest " - 
 were roughly established at this stage of the struggle with 
 regard especially to the concessions of railways. The pohcy 
 of securing a sphere of influence or of interest was pursued 
 without any regard to China's claim to rank as a sovereign 
 nation. 
 
 And thus we see that the four systems of railway, i. c, 
 the Russian system in Manchuria, the German system in 
 Shantung, the French system in Yunnan and Kwangsi, and 
 the British system connecting Burma with Yunnan and 
 Szechuan all owe their origins to political and strategical 
 rather than commercial aspirations. They are singled out 
 here that they may not be confused with other roads which 
 belong to the second category. 
 
 The Russian, German and French groups were completed. 
 They are to all intents and purposes the property of the 
 three countries named, with the exception of that of the 
 
 1 See volumes of the years 1898-1901 of the Documents Diploma- 
 tiques, China. 
 
 2 For definition of these terms see Reinsch, World Politics (New- 
 York, 1912), pp. 61 and 113. 
 
34 RAILWAY PROBLEMS IN CHINA [262 
 
 Germans which may go into the pocket of the Mikado after 
 the present World War. China has no control over them. 
 Her sovereign rights are encroached upon in all respects. 
 Ho>v China shall deal v/ith them, or rather how China 
 shall get them back, is a question which is serious in char- 
 acter and the solution of which depends upon future circum- 
 stances and most important of all, upon the material strength 
 China will have in the future. 
 
 The British system, however, was only projected and 
 surveyed in 1899. Since then no definite agreement has yet 
 been reached. Recently several surveys have been made 
 but no further work has been done as the moimtains and 
 valleys all run crosswise to the projected route, which will 
 require, consequently, considerable labor in construction. 
 
 Railways granted to Foreign Capitalists 
 
 The railways of the second category were initiated by 
 China to an extent and were more or less political in nature 
 although financial and commercial considerations were 
 taken up seriously. These originated in a very unpleasant 
 manner. The disastrous result of the Chino-Japanese 
 War was a profound surprise and humiliation to China and 
 it had left behind it strong progressive tendencies in the 
 bosoms of many of China's patriotic children. Many of 
 the enlightened officials realized that the want of means of 
 rapid transport had prevented China from using efficiently 
 her troops stationed in different parts of the country, and 
 they grasped the fact that the remedy for the defeat lay 
 in the construction of railways. Among them was Chang 
 Chih-tung, now transferred to take up the Viceroyship of 
 Hukuang. Viceroy Chang petitioned the Throne to au- 
 thorize the establishment of a company which should raise 
 capital in China and undertake the construction of all im- 
 
263 J ^^S STRUGGLE FOR RAILWAY CONCESSIONS 35 
 
 portant trunk roads, retaining full control in the hands of 
 China. He suggested that the upper section of the trunk 
 line running from Lukouchiao to Hankow should be first 
 constructed and this section when completed be extended to 
 Canton. He further stated that a great trunk line putting 
 the metropolis in quick communication with the several 
 central and southern provinces was not only commercially 
 but strategically necessary.^ In February, 1896, a Chinese 
 company was formed with a capital fixed at thirty million 
 taels. The failure to raise capital at home, however, fet- 
 tered the hands of Chang Chih-tung and his followers and 
 ultimately forced the Government to admit foreign capital. 
 ABslgian_syndicate, La Societe d'Etude des Chemins de 
 fer en Chine, appeared m the scene, and, in May 1897, after | 
 underbidding a group of American financiers and another 
 of British capitalists, obtained the contract for the con- 
 struction of the line.^ When it became known that the \ 
 syndicate was assisted at the Peking Court by the ministers ' 
 of Russia and France and also by the influence of the Russo- 
 Chinese Bank — this meant to the English and Germans that 
 a Russian move to bring Russian influence to the very heart 
 of the Yangtsze Valley and Shantung was hidden under 
 the Belgian syndicate — the British and German ministers 
 protested very violently, basing their remonstrances on the 
 " most favored nation " clause of their respective treaties. 
 The British Government, which was emphatic in its remon- 
 stance and demands, ordered a naval demonstration on the 
 China Sea and made the Belgian concession a pretext for 
 demanding from China important privileges and railway 
 concessions. 
 
 ' See British Blue Book, China Affairs, no. i (1899), pp. 87-89 (tran-.- 
 lation). 
 
 - U. S. Monthly Consular Reports, 1898, vol. Iviii, no. 218. 
 
36 RAILWAY PROBLEMS IN CHINA [264 
 
 In 1898, Sir Claude MacDonald succeeded in exacting 
 from China a string of concessions for the construction 
 of various railways in the Yangtsze river basin, in South 
 China and in the southwestern part of China, and with the 
 co-operation of the Kaiser's minister secured the conces- 
 sion of the Tientsin-Chinkiang line. Meanwhile, the 
 Peking Syndicate,^ an Anglo-Italian combination, obtained 
 a grant of extensive mining and railway rights in the Pro- 
 vince of Shansi and that part of Honan north of the Yellow 
 River, while the Russo-Chinese Bank secured a concession 
 for a line from Chingtingfu to Taiyuanfu, the capital city 
 of Shansi. The French were also active in the Chinese 
 railway extensions, for in September 1899, the official agree- 
 ment between China and France for the Lungchow-Nan- 
 ning railway was signed in Peking. 
 
 After having experienced various troubles with the for- 
 eigners, the Government became anxious for the future of 
 the concessions granted, and decided to grant away its rail- 
 ways with more carefulness thereafter. On December 13, 
 1898, the Tsung-li Yamen, in collaboration with the Board 
 of Mines and Railways,^ memorialized the Throne to the 
 effect that " with the exception of the trunk and branch 
 lines already arranged for and sanctioned, the construction 
 of which will be proceeded with in order, no other lines 
 shall be undertaken for the present." ' On the same day 
 the Imperial holograph Rescript — " Let it be as proposed " 
 — was received. The Yamen then transmitted copies of the 
 
 1 The Peking Syndicate was registered in England on March 17, 1897, 
 for the purpose of obtaining and developing concessions for mining, 
 railway, and other industries in China. 
 
 2 The board was created by the Imperial Edict of Aug. i, 1898, to 
 take charge of railway and mining matters in connection with foreign 
 concessions. 
 
 ' British Blue Book, Affairs of China, no. i (1900), pp. 23-27. 
 
26sJ '^^E STRUGGLE FOR RAILWAY CONCESSIONS 37 
 
 Decree and Memorial to the Diplomatic Corps in Peking for 
 their information. This was of course followed by a storm 
 of protest from the latter. This time, however, the Gov- 
 ernment was able to resist and stuck to its decision. There- 
 after the granting of railways to foreigners was stopped for 
 a considerable number of years, although various applica- 
 tions were made from time to time by different syndicates. 
 According to the Memorial the reasons for this sudden 
 stoppage of grants of right for railway construction were 
 as follows : 
 
 1. Under the circumstances at that time it was necessary 
 to discriminate between the urgency of the various proposed 
 lines and the order in which they should be built, i. e., to 
 undertake trunk lines first and branch lines next. 
 
 2. It was feared that there would be no material funds 
 for the repayment of foreign debts, principal and interest, 
 or to meet the cost of maintaining the lines. 
 
 At about the same time the Board of Mines and Railways 
 drew up a set of " Regulations for Mines and Railways " ' 
 governing future enterprises so as to assert control over 
 them and encourage Chinese to invest money in them. The 
 essentials of the regulations may be summed up as follows : 
 
 1. Railways and mines can be managed by officials, by 
 merchants, and by the two in combination. 
 
 2. The mines and railways of Manchuria, Shantung and 
 Lungchow (in Kwangsi province) are affected by inter- 
 national relations and therefore will not be allowed to form 
 precedents either for Chinese or foreigners. 
 
 3. Railways and mines must not be worked in combin- 
 ation. In future no more mining rights will be given along 
 the routes. Mining companies are allowed, however, to 
 
 1 For full text of the regulations see translation given in U. S. 
 Monthly Consular Reports, April, 1899. 
 
38 RAILWAY PROBLEMS IN CHINA [266 
 
 construct branch railways to connect with the nearest water- 
 ways. 
 
 4. Only the Government board has the right to grant ap- 
 plications for mines and railways. 
 
 5. In the case of Chinese enterprises the companies must 
 have a proportion of at least three-tenths of the shares 
 owned by Chinese. When this proportion has been raised, 
 foreigners may be invited to buy shares ; but in borrowing 
 foreign money the sanction of the board must first be asked. 
 Foreign money-lenders must on the other hand request their 
 minister to communicate with the Tsung-li Yamen, asking 
 if the company is authorized to borrow. Money lent in 
 any other way will be treated as a private loan. Should 
 disputes arise between Chinese and foreign merchants, in 
 connection with railway and mining enterprises, they must 
 be settled by arbitration; the governments concerned will 
 not interfere. 
 
 6. All such enterprises will be granted a monopoly for a 
 fixed period, the duration of which will be determined by 
 the circumstances of the case. 
 
 In addition to the above there are other minor points 
 regulated which relate to the sanction of contracts and agree- 
 ments, the procedure in regard to the acquiring of lands, the 
 provision for a school of instruction by the companies, the 
 qualification of promoters, the protection of foreign en- 
 gineers and surveyors, rewards to Chinese entrepreneurs, 
 the imposing of custom duties on railway traffic and min- 
 ing produce, the proportion of profits to be paid to the 
 Government, the examination of accounts, etc. 
 
 Later events show, however, that although these regula- 
 tions were elaborately drafted and approved by the Govern- 
 ment they could not be carried out satisfactorily, especially 
 those relating to foreigners. The provisions regarding 
 Chinese private enterprises could be enforced only to a cer- 
 
267] '^HE. STRUGGLE FOR RAILWAY CONCESSIONS 39 
 
 tain extent. The high proportion of profits which was 
 fixed at 40 per cent for railways and 25 per cent for mines 
 has done nothing to encourage such enterprises. Lately, 
 however, a new set of mining and railway regulations have 
 been published giving more liberal terms to the private 
 entrepreneurs. 
 
 At the time when the regulations for mines and railways 
 were issued there were practically no Chinese private mining 
 and railway enterprises. Naturally they were regarded by 
 the foreigners as restrictions imposed upon them alone. 
 Further diplomatic negotiations were carried on demanding 
 modifications. To these the Government turned a deaf ear. 
 As a matter of fact, up to that time over 6000 miles of rail- 
 ways, most of which were on paper, had been granted to the 
 foreigners. The full list of railway concessions to all na- 
 tionalities up to November 23, 1898, can best be seen in the 
 following inclosures attached to a dispatch ^ which was sent 
 by Sir MacDonald to Lord Charles Beresford : 
 
 (Inclosure i) 
 
 Nationality- 
 
 British".. 
 Russian . . 
 German '. 
 Belgian . . 
 French. . . 
 American' 
 
 No. 
 
 Total length of line 
 represented 
 
 6,420 miles 
 
 ^British Blue Book, "Affairs of China," no. i (1899), pp. 344-347- 
 ^ Half interests are reckoned at half the estimated length. 
 ' Including Hankow-Canton and Yunnan- Yangtsze Railways. 
 * Including Manchuria Railway (from Stretensk to Vladivostok). 
 
40 RAILWAY PROBLEMS IN CHINA [268 
 
 (Inclosuee 2) 
 
 Concessions other than British {up to Nov. 22 , i8p8) 
 
 RUSSIAN 
 
 (i). The Manchurian Railway Concession dates from 1896. 
 
 The whole length from Stretensk on the main 
 
 Siberian line to Vladivostock is estimated at 1,400 miles, of 
 which about 1,000 will pass through Chineses territory. 
 
 The concession is purely strategical. The country traversed, 
 though potentially rich, in great part is, and will be for a long 
 time, sparsely populated, and the line cannot, in the near future 
 at any rate, hope to pay its working expenses. 
 
 (2). The Port Arthur Agreement of March, 1898, arranges 
 for the conclusion by Russia of a branch from the above line 
 to Port Arthur or Talienwan. The length of the railway will 
 be about 400 miles 
 
 (3). The Russo-Chinese Bank has signed a contract for the 
 construction of a branch line from Taiyuanfu to connect with 
 the Lu-Han trunk lines near Chingting. Length approximately 
 130 miles 
 
 FRENCH 
 
 The French possess the right to construct three lines ; but be- 
 yond acquiring this right they have done nothing. 
 
 (i). From Tongking up the Red River Valley to Yunnanfu, 
 say 290 miles. 
 
 The impression in French railway circles is that a railway 
 through Yunnan will not pay expenses, and if any serious at- 
 tempt is made to carry out the extension of the Tonquin sys- 
 tem, it will be merely as a stepping-stone to Szechuan. Yet 
 again, any pretensions that a railway from Yunnan to the 
 Yangtsze may have to rank as a commercial project have been 
 pronounced against by every traveller in Central China. 
 
 (2). Langson-Lungchow-Nanning Railway. Length, about 
 100 miles. (There appears to be an alternative open to the 
 French of going to Pese instead of Nanning.) 
 
269] "^HE STRUGGLE FOR RAILWAY CONCESSIONS 41 
 
 (3). From Pakhoi inland, presumably to Nanning. Length, 
 say 120 miles. The Tonquin press have pointed out that this 
 line will benefit English commerce more than French. It will 
 never, in my opinion, be built by the French. 
 
 GERMAN 
 
 (i). Kiao-Chow-Yichow-Tsinan line; length, 420 miles. 
 (2). Tientsin-Chinkiang line to be built by an Anglo-German 
 Co. (See No. 3, British Concessions.) 
 
 BELGIAN 
 
 The Lu-Han or Peking-Hankow Railway. A Franco-Bel- 
 gian Syndicate has secured the Concession for this, a trunk line 
 of some 650 or 700 miles passing North and South through 
 Chihli, Honan and Hupeh. 
 
 This railway is an old project born of Chang Chih-tung's 
 objection to building lines near the coast, " lest they should 
 facilitate the access of an enemy." Its prospects as a com- 
 mercial enterprise are not considered so good as those of the 
 rival Tientsin-Chinkiang line. 
 
 AMERICAN 
 
 The only railway in which America is at present interested 
 is the trunk line projected from Hankow to Canton. (See 
 British Concession no. 11). 
 
 (Inclosure 3) 
 Railway and other Concessions obtained by British Companies 
 
 I. shansi 
 
 The Peking Syndicate has acquired the " sole right to open 
 and work coal and iron mines throughout the districts of Yii 
 Hsien and Ping Ting Chow, and the Prefectures of Lusan Fu, 
 Tsu-chow Fu, and Ping Yang Fu, and also petroleum wherever 
 found." 
 
 Under its contracts, the syndicate has also the right to 
 " construct branch railways to connect with main lines or 
 
42 RAILWAY PROBLEMS IN CHINA [270 
 
 with water navigation, to facilitate transport of Shansi coal." 
 This has been interpreted officially to include the right of 
 connecting the mines with Siang-yang in Hupeh, the near- 
 est head of navigation giving access to the Yangtsze. 
 This means a railway of 250 miles. 
 
 II. HONAN 
 
 The Peking Syndicate has also acquired rights similar to 
 those obtained in Shansi in that part of Honan north of the 
 Yellow River. 
 
 III. CHIHLI 
 
 The Hongkong and Shanghai Bank are financing and con- 
 trolling the North China railways from Peking to Tientsin, and 
 thence to Shanhaikwan and Newchwang. The total length of 
 these is about 500 miles, of which 300 miles are completely 
 open to traffic. 
 
 IV. NORTH CHINA 
 
 The bank has also acquired a half-interest in the coal mines 
 at Nan P'iao, in the Ch'ao-yang district. According to ex- 
 perts, these mines possess the best and richest coal seams in 
 North China, and they have the immense advantage of being 
 close to a line of railway and the sea. 
 
 v. CHIHLI AND KIANGSU 
 
 The Tsung-li Yamen have undertaken officially that the 
 construction of the Tientsin-Chinkiang line shall be intrusted 
 to an Anglo-German Syndicate. The British portion of this 
 Syndicate is represented in China by Messrs. Jardine, Mathe- 
 son, & Co., and the Hongkong and Shanghai Bank. This will 
 be a trunk line of 600 miles passing through more populous 
 country than the Lu-Han Railway (the Belgian line), with 
 which it is certain to be able to compete. 
 
 VI. KIANGSU 
 
 A British Syndicate, represented by Messrs. Jardine, Mathe- 
 son, & Co., and the Hongkong and Shanghai Bank, has ob- 
 
271] THE STRUGGLE FOR RAILWAY CONCESSIONS 43 
 
 tained the concession to finance and construct the Shanghai- 
 Nanking Railway. There is no more paying district than this 
 for a railway in China. The length of the line will be 170 
 or 180 miles. 
 
 VII. KIANGSU, ANHUIj AND HONAN 
 
 The same syndicate has the right to extend the Shanghai- 
 Nanking Railway from Pukow opposite Nanking to Hsin Yang, 
 in Honan, a distance of 270 miles. 
 
 VIII. KIANGSU AND CHEKIANG 
 
 The same syndicate has the right to construct a line from 
 Soochow to Hangchow with possible extension to Ningpo. 
 This line will run through a very populous district for over 
 200 miles. 
 
 The last three concessions all lie within the Yangtsze region. 
 
 IX. PROVINCE OF CHEKIANG 
 
 The Peking Syndicate has also obtained mining concessions 
 similar to the Shansi and Honan in this province. 
 
 X. KWANGTUNG 
 
 The Jardine Syndicate has the right to construct a railway 
 from Kowloon to Canton. The length of this line will be 
 nearly 100 miles. 
 
 XI. HUPEH, KIANGSI, AND KWANGTUNG 
 
 An American Syndicate signed a preliminary agreement for 
 the construction of a railway from Hankow to Canton in May, 
 1897. Negotiations are now in progress for the amalgamation 
 of this concession with the Kowloon-Canton line, and the 
 working of the whole line from Hankow to Canton by an 
 Anglo-American Company. This will be a trunk line, ap- 
 proximately 600 miles long. 
 
 XII. YUNNAN, KWEICHOW, AND SZECHUAN 
 
 The right to extend the Burmah system into China as far as 
 the Yangtsze is admitted, and surveys are now in progress. 
 
44 RAILWAY PROBLEMS IN CHINA \_2y2 
 
 This involves a possible railway of 700 miles. (See Remarks 
 on French Concessions.) 
 
 The number of miles and some of the routes relating to 
 the above railway concessions were only roughly estimated 
 and plotted and may be subsequently, as we shall see later, 
 subject to changes. Notwithstanding, most of these con- 
 cessions have been realized one after another. 
 
 Up to the middle part of the year 1900 the Russian, 
 French, Belgian, and American syndicates pushed on in 
 surveying or in constructing their respective roads with 
 considerable vigor and energy. The British concession- 
 aires, however, were very inactive and backward in carry- 
 ing out the work on their concessions, most of which were 
 only in preliminary arrangement and by no means promis- 
 ing of anything definite. This was first due to the political 
 intrigues which had influenced the Government to oppose 
 British enterprises and support the Franco-Belgian group 
 of capitalists backed by Russian diplomacy, and secondly 
 due to the outbreak of the Boer War which had made it 
 for a time impossible to raise capital in the London money 
 market to finance projects. 
 
 The securing of concessions for building railroads and 
 working mines by foreign syndicates supported by their re- 
 spective governments or by the combination of several gov- 
 ernments, the energetic but dangerous action exhibited by 
 the aggressive foreign ministries and navy and army cliques 
 in robbing territories and seizing political and commercial 
 privileges, and the subsidizing of China by foreign capital 
 stirred up an anti-foreign feeling among the people. 
 In June, 1900, the Boxer movement originating in the 
 Province of Shantung, burst over North China. Its results 
 were the further humiliation of China and the retardation 
 of the constructional work on railways. After the Boxer 
 
273] ^^^ STRUGGLE FOR RAILWAY CONCESSIONS 45 
 
 trouble construction of railways was, nevertheless, pushed 
 on with greater rapidity than ever before. After this con- 
 vulsion China began to lead a new life and to look forward 
 towards finding some means for her reform and salvation. 
 
 Railway Spheres of Interest 
 
 So far we have studied only one view of the " Battle for 
 Concessions," i. e., how the European Powers have treated 
 China and what they have squeezed out of her, especially 
 with respect to railway concessions. Now we come to an- 
 other aspect of the battle, i. e., how the European Powers 
 came from time to time into conflict with one another in 
 dividing their spoils exacted from China. It is instructive 
 and interesting to note the understandings and arrangement^ 
 made among the foreign governments and concessionaire^ 
 as to their respective spheres of activity with regard to the 
 construction and financing of railways in China. 
 
 I. England and France. Our attention is first attracted 
 b)' the Anglo-French Siam Convention of 1896, respecting 
 the exploitation of Szechuan and Yunnan. By this Con- 
 vention the two nations pledged each other to enjoy in com- 
 mon all the privileges and advantages of any nature con- 
 ceded to either nation within these provinces. This agree- 
 ment is looked upon as a temporary modus zivendi, be- 
 cause when a French syndicate obtains concessions in 
 Yunnan or Szechuan they usually add these provinces to 
 their sphere of interest, and similarly with the British. The 
 emphatic denouncement ^ of the French pretensions by Sir 
 MacDonald tells us the truth. A similar situation was 
 created in the province of Kwangtung. As the Govern- 
 ment lacks power to declare its intention to exclude the in- 
 terference of the one in favor of the other, international 
 complications are to be feared in case any cause of friction 
 
 1 Cf. supra, p. 40. 
 
46 RAILWAY PROBLEMS IN CHINA [274 
 
 is created, especially when remembering the tremendous 
 interests at issue between the two nations in these provinces. 
 2. England and Germany. Another international ar- 
 rangement was that which developed out of. the apportion- 
 ment of the Tientsin- Pukow line. In August, 1898, Mr. 
 Yung Wing (educated in the United States), who had been 
 granted the right to form a company to construct this road, 
 signed a contract with an Anglo-American Syndicate for a 
 loan of 5,000,000 pounds sterling.^ As the Germans have 
 secured railway rights in Shantung the German minister in 
 Peking applied for the grant of this concession. Because 
 of the German influence in Shantung and the indefinite 
 nature of Mr. Yung Wing's right the syndicate subsequently 
 withdrew from the field. But as the line was in part to 
 traverse the Yangtsze Valley, the British and Chinese Cor- 
 poration was also interested in it. The suggestion was then 
 made that the enterprise should be taken up by both British 
 and German capitalists acting jointly. The two govern- 
 ments concerned favored this idea and sanctioned the pro- 
 posal. A working arrangement was immediately formu- 
 lated for the financing and construction of the line, in which 
 Great Britain would take up that part from the southern 
 boundary of Shantung to the terminus at Chinkiang (later 
 changed to Pukow, a point opposite Nanking, the terminus 
 of the Shanghai-Nanking Railway project), and Germany 
 would share to the extent of such part of the line as tra- 
 versed her sphere of influence. 
 
 In the meantime Russian influence was becoming pre- 
 dominant over North China and threatening the interests 
 of the two nations. The situation was such that it re- 
 quired a more complete understanding between England 
 and Germany and a strengthening of their common purpose 
 
 ^ U. S. Monthly Consular Reports, 1898, vol. Ivii, pp. 585-587. 
 
275] -^-^^ STRUGGLE FOR RAILWAY CONCESSIONS 47 
 
 to prevent further encroachment by Russia upon the center 
 of China. Consequently the capitalists of the two countries 
 arrived at an agreement in regard to their respective rail- 
 way spheres in China. The British financiers agreed to 
 confine their activities to the Yangtsze Valley, while the 
 Germans retained the valley of the Yellow River and the j 
 Province of Shantung. The arrangement has important/ 
 international consequences, as it has checkmated the Russian 
 advance from the North and created a German sphere of 
 railway interest which has served as a wedge between those 
 of the British and the Russians — a wedge which has pre- 
 vented much friction between Great Britain and Russia. 
 The agreement,^ proposed by Herr M. A. von Hanseman 
 representing the German Official Syndicate with regard to 
 the railway spheres of interest for applications for railway 
 concessions in China, which was accepted by the British and 
 Chinese Corporation and the Hongkong and Shanghai Bank- 
 ing Corporation and sanctioned by their respective govern- 
 ments, is understood to be as follows : 
 
 It is desirable for the British and German Governments to 
 agree about the sphere of interest of the two countries regard- 
 ing the railway constructions in Qiina, and to mutually sup- 
 port the interests of either country. 
 
 1. British sphere of interest, mz. — ^The Yangtsze Valley, 
 subject to the connection of the Shantung lines to the Yangtsze 
 at Chinkiang ; the provinces south of the Yangtsze ; the prov- 
 ince of Shansi with connection to the Peking-Hankow line at 
 a point south of Chengting and a connecting line to the Yang- 
 tsze Valley, crossing the Hoangho Valley. 
 
 2. German sphere of interest, vis. — The province of Shan- 
 tung and the Hoangho Valley with connection to Tientsin and 
 
 ^ British and German Agreement re Railway Construction in China, 
 Minutes of Meeting held at New Court, St. Swithen's Lane, London, 
 on the 1st and 2nd Sept., 1898. 
 
48 RAILWAY PROBLEMS IN CHINA [276 
 
 Chengting, or other point of the Peking-Hankow line, in the 
 south with connection to the Yangtsze at Chinkiang or Nan- 
 king. The Hoangho Valley is understood to be subject to the 
 connecting Hnes in Shansi forming part of the British sphere 
 of interest, and to the connecting line to the Yangtsze Valley, 
 also belonging to the said sphere of interest. 
 
 3. England and Russia. In the winter of 1898 when the 
 Chinese Imperial Railway Administration concluded with 
 the British and Chinese Corporation the Shanhaikwan Ex- 
 tension Railway Loan of 2,300,000 pounds sterling, the 
 Russian government raised serious objections to the Loan 
 Contract while the British Government of course upheld it. 
 This was followed by a storm of violent protests ; and long 
 negotiations were conducted between London and St. Peters- 
 burg (Petrograd). On April 29, 1899, notes were ex- 
 changed and signed by the British Ambassador at Petro- 
 grad and the Russian Minister for Foreign Affairs, record- 
 ing the Agreement ^ arrived at in regard to railways in 
 China. The arrangement was, in substance, as follows : 
 
 1. Russia engages not to seek for herself or on behalf of 
 Russian subjects other railway concessions in the Yangtsze 
 Basin, and not to place obstacles either directly or indirectly in 
 the way of railway enterprises in that region supported by the 
 British Government. 
 
 2. Similar engagement, mutatis mutandis, by Great Britain 
 north of the Great Wall. 
 
 A supplementary note, which reflects at once more clearly 
 the real nature and demarcation of the spheres of interest 
 of the two nations was exchanged at the same time, respect- 
 ing the Shanhaikwan-Newchwang extension and the branch 
 line from Siaocheichau (north of Shanhaikwan) to Hsin- 
 mintun, which reads in part as follows : 
 
 ^ Britisli Blue Book, China, no. 2 (1899), p. 87, et seq. 
 
277] -^^^ STRUGGLE FOR RAILWAY CONCESSIONS 49 
 
 The general arrangement established is 
 
 not to infringe in any way the rights acquired under the said 
 Loan Contract, and the Chinese Government may appoint both 
 an English engineer and a European accountant to supervise 
 the construction of the line in question and the expenditure of 
 the money appropriated to it. 
 
 But it remains understood that this fact cannot be taken as 
 constituting a right of property or foreign control, and that 
 the line in question is to remain a Chinese line under control of 
 the Chinese Government, and cannot be mortgaged or alienated 
 to a non-Chinese Company. 
 
 As regards the branch line from Siaoheichau to Hsinmintun, 
 in addition to the aforesaid restrictions, it has been agreed 
 that it is to be constructed by China herself, who may permit 
 European (not necessarily British) engineers to periodically in- 
 spect it, and verify and certify that the work is being properly 
 done. 
 
 The present agreement is, naturally, not to interfere in any 
 way with the right of the Russian Government, if it thinks fit, to 
 support applications of Russian subjects or establishments for 
 concessions for railways which, starting from the main jMan- 
 churian line in a southwestern direction, would traverse the 
 region in which the Chinese line, terminating at Hsinmintun 
 and Newchwang, is to be constructed. 
 
 Besides the above mentioned nations there were several 
 others taking great interest in railway matters in China. 
 Among them were the United States and Italy. From the 
 very beginning the United States has pursued a very right- 
 eous course in dealing with China. She always main- 
 tained fair play which has been greatly appreciated by 
 China. Her " open door " policy, made known through 
 her wise Secretary of State, Mr. Hay, has saved China 
 from serious humiliation. Even during the stormy period 
 of the Battle for Concessions China had great confidence in 
 her. This can be proved in the case of the Canton-Hankow 
 
50 RAILWAY PROBLEMS IN CHINA [278 
 
 concession, which the Chinese Government intrusted to 
 the American syndicate, with full power to control the ex- 
 penditure of loan funds and the management of the road, 
 while, on the contrary, she held these to herself in the case 
 of the Belgian concession for the Peking-Hankow road.^ 
 
 At the beginning of 1899, Italy endeavored to secure 
 a place in China. She selected as her field of exploitation 
 the Province of Chekiang. Although she had England's 
 support, her effort was a failure. This was due to two 
 reasons : First, Peking did not look upon her with favor ; 
 secondly, the popular opposition of the Italians in those 
 days to an expansionist policy changed the mind of 
 their government. Italy now adopts the policy of only 
 utilizing the commercial opportunities in China. 
 
 Belgium has, no doubt, taken up a very prominent posi- 
 tion in the Chinese railway circles; but she has no special 
 policy, except to find new markets for the products of her 
 great iron industries, and at the same time to create a pro- 
 fitable financial business. She has, however, to attach her- 
 self to France and Russia to accomphsh her desire. 
 
 This was the general situation, and the above were the 
 general arrangements concluded between the leading Powers 
 in China just before the close of the last century. At the 
 dawn of this century when Japan succeeded in claiming her 
 ascendancy over Far Eastern affairs a new character was 
 added to the list of the players in the Chinese railway 
 drama. We will study this very character in the following 
 period of railway development in China. 
 
 It is understood that the above international arrangements 
 can not be and will never be perpetually maintained. There 
 are many forces, political, financial, or otherwise, working 
 constantly to upset them. We shall see later that the Russian, 
 the German and even the British spheres of interest have 
 
 1 Cf. infra, pp. 74-78. 
 
279] ^^^ STRUGGLE FOR RAILWAY CONCESSIONS 51 
 
 already been changed or modified one after the other, not 
 only by outsiders and new forces but also by the very nations 
 who concluded these arrangements. In fact, France has 
 been engaged in a great effort to join hands with Russia 
 across the British sphere of influence. However, such an 
 action, like other undermining forces, can not affect Great 
 Britain seriously for she has pursued the wisest course in 
 China — the course of the " open door " and equal commer- 
 cial opportunity. Great Britain was chiefly interested in 
 the trade of the Yangtsze Valley. Her effort has been 
 mostly directed towards preserving the freedom of trade 
 unhampered by foreign interference, except occasionally 
 when the situation was such that she had to act in a some- 
 what awkward manner. 
 
 On the other hand, the course taken by Russia and Ger- 
 many has been tested and is found an utter failure. The 
 rapid changing of hands of their interests in South Man- 
 churia and Shantung teaches these foreigners a lesson that 
 selfishness can never succeed. Nay, injuries brought upon 
 the wrong-doers themselves have resulted from their cher- 
 ishing the ambition of territorial expansion and national 
 imperialism. In order to accomplish that ambition various 
 wonderful schemes and clever intrigues have been applied 
 for the purpose of securing exclusive privileges from a help- 
 less country. At the time of the Battle for Concessions who 
 knew that what they had gotten from China was to be lost ? 
 Nay, more than that, they have lost their own energy and 
 money in addition to the loss of their game. It remains 
 to be seen who will ultimately be benefited. 
 
 Turning now from politics to the consideration of the 
 railway status, we are in a position to note what has been 
 actually accomplished by the concessionaires. The railways 
 described below are those the construction of which was 
 either completed or started within the second period of rail- 
 way development in China. 
 
CHAPTER IV 
 
 The Foreign Railroads 
 
 The Chinese Eastern Railway 
 
 On September 8, 1896, an agreement was signed between 
 the Chinese and the Russian Governments regarding the 
 construction of this hne. Under this agreement the Russo- 
 Chinese Bank, a semi-official institution incorporated to pro- 
 mote Russian interests in the Far East, acquired the right to 
 form a company called the Chinese Eastern Railway Co. to 
 construct a railway across Manchuria forming part of the 
 through line from Europe to Vladivostock. The company 
 was organized with a capital of 5,000,000 roubles, nominal 
 credit, which was divided into 1,000 shares at 5,000 roubles, 
 nominal credit. The statutes of the company were drawn 
 up by the chief promoter, M. de Witte, and formulated by 
 the Russo-Chinese Bank.^ 
 
 According to the statutes, which were approved by the 
 Russian Government on December 4-16, 1896, the share- 
 holders of the company may be only Chinese and Russians. 
 The concession shall lapse at the end of eighty years from 
 the day of opening of traffic along the whole line. The 
 Russian Government guarantees the revenue of the line for 
 covering working expenses, as well as for effecting the obli- 
 
 1 Chinese Eastern Railway Agreement and Statutes, see Chung Hiva 
 Fa Kwei Tai Tsueucn (Complete Set of Rules, Regulations, Treaties, 
 etc. of the Republic of China), (Shanghai, 1913), treaties, vol. xi, 
 leaves 30 et seq. The statutes (in English), translated partly, see 
 British Blue Book, China, no. i (1900), pp. S7-61. 
 
 S2 [280 
 
28 1 J THE FOREIGN RAILROADS 
 
 53 
 
 gatory payments on bonds. Bonds can be issued only on de- 
 mand, and only with the consent of the Russian Minister 
 of Finance. The Russian Government also guarantees pay- 
 ment of the interest and the amortization of the bonds, and 
 reserves to itself the right to appropriate the bond loan 
 at a price which shall be determined between the company 
 and the bank, and to pay to the company the agreed amount 
 in ready money. The company is managed by a Board of 
 Management of nine members elected by the shareholders, 
 and a Chairman appointed by the Chinese Government. The 
 Vice-Chairman is chosen by the members of the Board from 
 among themselves. The chief duty of the Chairman is to 
 keep watch over the interests of the Chinese Government. 
 The Vice-chairman is supposed to interest himself ex- 
 clusively in the management of the company. The Russian 
 Government has a right to superintend the progress and 
 development of the works, during the period both of con- 
 struction and of exploitation. The Russian Minister of 
 Finance has, moreover, the right to ratify the nominations 
 of the Vice-Chairman, the Chief Engineer, and all other 
 officials. On the expiration of thirty-six years from the 
 time of completion of the whole line, the Chinese Govern- 
 ment has the right to acquire the line by refunding to the 
 company in full all the outlays made on it by making pay- 
 ment for everything, such payments to be made with ac- 
 crued interest. 
 
 In addition to the above there are other regulations con- 
 cerning the transport of troops, the control of properties 
 near the line, the discrimination of tariff, etc. All the 
 terms stipulated in the agreement prove the preponderating 
 Russian influence in the enterprise. It must be borne in 
 mind that the majority of the shares are in the hands of the 
 Russian Government. 
 
 It is therefore evident that the Chairman, appointed by 
 
54 RAILWAY PROBLEMS IN CHINA [282 
 
 China, is simply a figurehead, and that the whole road is ex- 
 clusively Russian. Throughout all the statutes of the agree- 
 ment the only important reservation made in the interest of 
 China is the right of repurchase of the road on the expir- 
 ation of thirty-six years from the date of its opening for 
 traffic and on the assumption of the responsibilities of the 
 said company. 
 
 After all arrangements were settled the Russian Govern- 
 ment was very prompt in carrying out the construction of 
 the road, more on account of the important political con- 
 sideration at that time than because of the shortening of the 
 route. The Trans-Siberian Railroad as originally pro- 
 jected was entirely within Russian territory and followed the 
 bank of the Amur River from Stetinsk to the Ussuri — a 
 wide useless detour. When Russia secured this conces- 
 sion the section on the north bank of the Amur River 
 was abandoned for a Trans-Manchurian Railroad which 
 leaves a station near Chita and enters Manchuria at Man- 
 chouli to rejoin the original line at Nikolskoli, about 67 
 miles from Vladivostock — thus shortening the distance by 
 about 500 miles. The line running across Manchuria to- 
 wards Vladivostock covers a distance of about 960 miles 
 in Chinese territory. In the Spring of 1897, work of con- 
 struction was started and in the same year the city of 
 Harbin was founded and made the headquarters of con- 
 struction. This was the first step toward what has been 
 called Russia's " pacific conquest " of China. 
 
 But it was merely preparatory to a more significant and 
 more ambitious advance. When the Germans stepped on 
 Shantung and seized Kiaochow Bay from China, Russia 
 secured a twenty-five-year lease of Port Arthur and 
 Talienwan and a permit to extend a branch line of five- 
 foot gauge, from Harbin on the main line to Talienwan, 
 subject to the same conditions as stipulated in the September 
 
283J THE FOREIGN RAILROADS 55 
 
 8, 1896, Agreement between the Russo-Chinese Bank and 
 the Chinese Government. The eighth clause of the Agree- 
 ment ^ (March 27, 1898) concerning the lease of the Liao- 
 tung Peninsula issued for this branch line reads : 
 
 The Chinese Government agrees that the principle of the 
 permission given in the 22d year of Kuang-su (1896) to the 
 Manchurian Railway Co. for the construction of a railway 
 shall now from the date of signature be extended to the con- 
 struction of a branch line from a certain station in the afore- 
 said main line to Talienwan, or if necessity requires, 
 
 to a convenient point on the sea coast in the 
 
 Liaotung Peninsula between Yingtsu (Newchwang) and the 
 Yalu River. The provisions of the agreement of the 8th of 
 September, 1896, between the Chinese Government and the 
 Russo-Chinese Bank, shall be strictly observed with regard to 
 the branch line above mentioned. 
 
 The construction of the whole system was pushed on very 
 rapidly. In the fall of 1901 the entire Chinese Eastern 
 Railway connecting the Trans-Siberian line with Vladi- 
 vostock across Manchuria and the line south from Harbin 
 to Port Arthur were completed. This system in Man- 
 churia in all measured about 1,600 miles. The estimated 
 cost of construction of the whole system was about Rbs. 
 422,292,547. After the Russo-Japanese War the South- 
 ern section of the railway from Kuangchengtze to Dairen 
 (Japanese spelling of Talien) was surrendered to Japan. 
 The Chinese Eastern Railway system, as it now stands, 
 has a total mileage of only 1,078 miles; the Manchouli 
 (via Harbin) to Suefenho (Pagronitchnaia) section forms 
 the Manchurian section of the Trans-Siberian Railway with 
 a branch to Kuangchengtze. 
 
 1 Chung Hwa Fa Kwei Tai Tsueuen, treaties, vol. xi, leaves 32-35. 
 
56 RAILWAY PROBLEMS IN CHINA [284 
 
 The Shantung Railway System 
 
 When Germany secured in Kiaochow a strategical and 
 political position a railway convention was concluded at the 
 same time with the signing of the Kiaochow lease whereby 
 the right to construct a triangular system of railways in 
 Shantung was also secured. The base of the triangle was 
 to be a line running south-westward from Kiaochow to 
 Ichowfu; one side was to proceed from Ichowfu to 
 Tsinanfu, which would be the apex; and the other side was 
 to connect Tsinanfu with Tsingtao. Although it was stipu- 
 lated in the railway agreement ^ that a Sino-German Co. 
 was to be formed and that the people or Government of 
 China were at liberty to invest money if they chose and 
 appoint directors for the management of the enterprise, 
 the merchants, investors and Government of China did not 
 take the risk of purchasing shares because of the political 
 conditions of the country at that time. So the railway, now 
 in operation, was practically financed and constructed by 
 the Germans entirely. The Germans also secured the right 
 " to hold and develop mining property for a distance of 
 thirty H (g miles) from each side of these railways and 
 along the whole extent of the lines." It was provided in the 
 same agreement as follows : 
 
 If at any time the Chinese should form schemes for the de- 
 velopment of Shantung, for the execution of which it is neces- 
 sary to obtain foreign capital, the Chinese Government, or what- 
 ever Chinese may be interested in such schemes, shall, in the 
 first instance, apply to German capitalists. Application shall 
 also be made to German manufacturers for the necessary ma- 
 chinery and materials before the manufacturers of any other 
 power are approached. Should German capitalists or manu- 
 facturers decline to take up the business the Chinese shall then 
 
 1 Chung Hwa Fa Kwei Tai Tsucucn, treaties, vol. iv, leaves 18-20. 
 
28s] '^^^ FOREIGN RAILROADS 57 
 
 be at liberty to obtain money and materials from sources of 
 other nationality than German. 
 
 The acquisition of these rights aroused keen enthusiasm 
 in Germany. The Reichstag appropriated 8,500,000 marks 
 for the development of the port of Tsingtao. Various 
 syndicates in Germany competed for the concession from 
 the government to construct the railways in the Province 
 of Shantung. In June 1899 the " Schantung Eisenbahn 
 Gesellschaft " (Shantung RaiWay Co.) was organized by 
 the prominent competitors at Berlin with a capital of 54,- 
 000,000 marks. By its concession the syndicate secured the 
 following rights : ( i ) The right to build a line from Tsing- 
 tau to Kiaochow and from the latter point via Wehsien to 
 Tsinanfu together with a branch line to Poshan, within a 
 period of five years. (2) The syndicate was given an option 
 to construct a line, until the end of 1908, from Kiaochow 
 to Ichowfu and another connecting Tsinanfu and Ichowfu. 
 (3). The syndicate secured the exclusive right for a period 
 of five years of searching for minerals and petroleum with- 
 in a zone of thirty li along both sides of the railways and 
 of applying for claims in respect of them. 
 
 In consideration of this concession the syndicate agreed 
 to turn over to the German Government a part of the surplus 
 profits after paying a dividend of five per cent. 
 
 On March 21, 1900, a set of regulations ^ for the Kiao- 
 chow and Tsinanfu Railway was drawn up and signed by 
 the representatives of the Chinese Government and the 
 Sino-German Co., for the purposes of facilitating the con- 
 struction work, of protecting the railway, of defining more 
 clearly the scope of the company's activity and the nature 
 of the concession, etc. Article 17 of the Regulations 
 stipulated in these words : " The object of constructing this 
 
 ' Chung Hwa Fa Kwei Tai Tsueuen, treaties, vol. xii, leaves 8-12. 
 
58 RAILWAY PROBLEMS IN CHINA [286 
 
 line is solely the development of commerce, and it will not 
 be permissible to transport foreign soldiers, munitions used 
 by foreign soldiers or anything which is injurious to China. 
 If this rule is violated the offender or offenders will be 
 punished according to the Laws of the Maritime Customs." 
 And in Art. 28, it was agreed that the provincial govern- 
 ment of Shantung shall have the right to buy back this line 
 after twenty years by paying four-fifths of the original cost 
 of the machinery, rails and all other equipment of the road. 
 The construction of the main line from Tsingtau to 
 Tsinan was completed in 1904, a distance of 240 miles. It 
 is standard gauge of 4' 854" laid on iron sleepers, and has 
 a branch line to the Poshan mines of 34 miles, making, in 
 all, 274 miles. The proposed line between Ichowfu and 
 Tsinanfu was abandoned in favor of the Anglo-German 
 Syndicate in connection with the construction of the 
 Tientsin- Pukow line. In regard to the line from Kiaochow 
 to Ichowfu the preliminary surveys have been made, but 
 further work has been abandoned. 
 
 The Yunnan Raihvay 
 By the Convention ^ of April, 1898, the Chinese Govern- 
 ment granted to the French Government or the company 
 chosen by the latter, the right to construct a railway from 
 the frontier of Tongking to Yunnanfu. On December 25, 
 1898, the French Chamber of Deputies passed a law au- 
 thorizing the Government of Indo-China to grant a guaran- 
 tee of interest to the company which might become the guar- 
 antees of this line. The governor-general of Indo-China, 
 confirming this law, signed, on June 15, 1901, with a syndi- 
 cate of the principal financial houses of Paris, a convention - 
 
 1 Documents Diploinatigties, China, 1894-1898, pp. 45-50. 
 
 2 Report of Cie. Frangaise des Chemins de fer de L'lndo-Chine et du 
 Yunnan et Societe de Construction de Chemins de fer Indo-Chinois, 
 pp. 10-12. (Paris, 1910.) 
 
287] THE FOREIGN RAILROADS 59 
 
 (ratified by a law of July 5, 1901) for the building of the 
 railway from Laokay to Yunnanfu and for the working of 
 the whole line from Haiphon to Yunnanfu. It was stipu- 
 lated in the latter convention that the syndicate had to 
 organize, within three months from the date of the passage 
 of the law approving this convention, a stock company with 
 a capital of 12,500,000 francs, to work the line from 
 Haiphon to Laokay which was to be built by the govern- 
 ment of Indo-China, and for the purpose, also, of building 
 and working the railway from Laokay to Yunnanfu. It 
 was also stipulated that the company would receive from 
 the colony a subvention of 12,500,000 francs and also a 
 guarantee of not more than three miUions of francs payable 
 yearly during 75 years, which was to be additionally guaran- 
 teed by the home government, for the bonds which it should 
 have issued for the purpose of building the railroad. The 
 annuity will produce a capital sum of 76,000,000 francs in 
 75 years. Thus the total capital estimated at the start was 
 101,000,000 francs. 
 
 Immediately following this convention the Compagnie 
 frangaise des Chemins dc fer de I'lndo-Chine et du Yunnan 
 was organized and bonds were issued. For the purpose of 
 building the line from Laokay to Yunnanfu, this company, 
 in its turn, intrusted the work to the Societe de Construction 
 des Chemins de fer Indo-Chine, which was formed by the 
 consolidation of the Regie generale des Chemins de fer and 
 the Societe de Construction des Batignolles.^ 
 
 In the autumn of 1903, when the conditions under which 
 the extension of the line was to be made on the territory 
 of China became justified, the French minister in Peking 
 negotiated with the Government the final agreement. = The 
 
 ^Ibid., pp. 12-13. 
 
 2 Chung Hzi'a Fa Kwei Tai Tsueuen, treaties, vol. iii, leaves 41-48. 
 
6o RAILWAY PROBLEMS IN CHINA [288 
 
 principal provisions regarding the statutes of the railroad 
 are, in substance, the following: 
 
 The Chinese Government has no further obligation than to 
 surrender the necessary land for the Hne and its dependencies. 
 The gauge of the line is to be one meter. Once the line be 
 completed, and if the parties concerned deem it expedient, 
 after an understanding has been arrived at between the high 
 provincial authorities on the one side and the French minister 
 and the Waipupu on the other, as to the mode of procedure, 
 branch lines connecting with the main line may be constructed. 
 All supplies, machinery and materials necessary for the con- 
 struction and exploitation of the railroad shall be exempted 
 from Import Duty. In case of war with other nations and the 
 railroad not maintaining its neutrality, China may take over 
 the line and operate it, if she thinks fit. On the expiration of 
 eighteen years after the date of signing the agreement the 
 Chinese Government has the right to get back the land granted 
 and to repurchase the Hne from the French Government after 
 the payment of all expenses put into the railroad, including 
 stocks, interest and principal of bonds and all properties in 
 connection with the railroad. 
 
 The line was constructed by France with French capital 
 without guarantee from the Chinese Government. The 
 duration of the concession is to be eighty years, as in the 
 case of the Manchurian Railway Concession; and on the 
 expiration of that period the railway shall revert to China. 
 
 When the construction work began on the Yunnan sec- 
 tion of the line there were various engineering and other 
 technical difficulties which had to be overcome. The enor- 
 mous expenditure required to construct the railroad through 
 the Nanting Valley, and the extraordinary amount of tun- 
 neling, bridging, cutting and filling consumed all the ori- 
 ginal funds of the concessionaire company, which col- 
 lapsed in 1 90S. In 1909, the French Foreign Affairs 
 
289] '^HE FOREIGN RAILROADS 61 
 
 Committee presented its report upon the bill — which, pro- 
 viding for the supply of sufficient funds to complete the 
 work, was passed through the Chamber of Deputies at the 
 end of 1908 — authorizing the government of French Indo- 
 China to raise a loan of 53,000,000 francs in order to meet 
 the expenditure charged to the budget of that dependency 
 in connection with the building of the Yunnan Railway. 
 The loan is guaranteed by the home government, bearing 
 interest at 4 per cent, and is redeemable in 65 years. 
 
 With the fund realized from the above loan the Laokay- 
 Yunnan line was completed and opened to traffic in April, 
 1910. Its commercial prospect, according to recent re- 
 ports, is not very bright. 
 
 In consequence of the financial and other vicissitudes of 
 the enterprise and various alterations in the plans, the initial 
 cost of the whole line from the sea to Yunnanfu amounts to 
 about Fes. 165,000,000 as compared with the original esti- 
 mate of Fes. 101,000,000. The capital of the Compagnie 
 frangaise des Chemins de fer de I'Indo-Chine et du Yunnan 
 was raised to Fes. 17,500,000. Bonds amounting to Fes. 
 10,488,962 have been issued by the company. 
 
CHAPTER V 
 
 Railways Built with Foreign Capital 
 
 Before the outbreak of the Russo-Japanese War prac- 
 tically all railways in China were built with foreign loans. 
 Owing to the unsettled conditions of affairs in China in 
 those days and the ignorance of the authorities about rail- 
 way matters, exceptional powers and privileges were granted 
 to the foreign bankers who, thereby, retained full control 
 over the loan funds. As the foreign governments, who 
 have endeavored to acquire fresh fields for colonization or 
 to create preferential markets for their merchants, have ex- 
 acted from China promises of different kinds for the rights 
 of way for railway construction, the conclusion of loan 
 agreements has been usually accomplished after much 
 troublesome diplomatic negotiations. Therefore, a foreign 
 loan negotiation was regarded more as a political issue than 
 as a commercial transaction. Although nominally the loan 
 agreements were made between the Chinese Government 
 and the various syndicates which were supposed to be 
 private organizations, they were taken more as " treaties " 
 between the Chinese Government and the different foreign 
 governments than as honest business contracts between two 
 parties. Under such conditions, it can readily be seen, 
 the result was that unfavorable and even notorious terms 
 were stipulated in the agreements. 
 
 The loan agreements concluded before 1905 were more 
 or less similar in principle to the Shanhaikwan Extension 
 Railway loan (sometimes called Peking-Newchwang Rail- 
 62 [290 
 
291] RAILWAYS BUILT WITH FOREIGN CAPITAL 63 
 
 way Loan) Agreement/ the preliminary draft of which was 
 signed on June 7, 1898, when the Government contracted 
 with the Hongkong and Shanghai Banking Corporation a 
 loan for the Imperial Railways of North China. The de- 
 finitive agreement for the same loan was signed on Decem- 
 ber 10, 1898. Under this agreement a precedent was cre- 
 ated, the effect of which is well described by the editor 
 and proprietor, Mr. Geo. Bronson Rea, of the Far Eastern 
 Reviczv, in the following words : ^ 
 
 China voluntarily admitted the principle that her officials 
 were incompetent to honestly administer the proceeds of a for- 
 eign loan to the satisfaction of the investor. And having once 
 placed her financial probity in question, she has been forced 
 through successive similar agreements to follow a practice 
 which no other nation in the world tolerates for an instant. 
 Throvigh all subsequent loan negotiations China has been made 
 to feel the mortification of the foreign assumption that al- 
 though her security is good her integrity is rotten 
 
 In short, while China could give ample se- 
 curity and pay good interest, she could not be trusted with the 
 expenditure of the money. And under the provisions of loan 
 agreements based on these principles, China has been deprived 
 of authority in her own affairs, and the national commercial 
 and political interests of money lenders advanced coming into 
 direct conflict with the Open Door Doctrine. 
 
 Under this agreement and several others which were 
 concluded at about the same time and prior to the Boxer 
 outbreak of 1900, the bankers have secured not only the 
 " control "over the loan funds but also the management 
 of the railways during and after construction. 
 
 '■ Cf. supra, p. 48. For Chinese text of Agreement see Chang Hwa 
 Fa Kwei Tai Tsueuen, treaties, vol. xi, leaves 1-5. For English text 
 see Kent, Railway Enterprise in China ('London, 1907), Appendix C. 
 
 ^ The Far Eastern Review (Shanghai, China), vol. vi, no. 6, p. 215. 
 
64 RAILWAY PROBLEMS IN CHINA [292 
 
 The provisions embodied in these agreements were prac-^ 
 tically similar in principle. Besides securing a first mort- 
 gage on the railroad whose construction they financed, the 
 bankers were entitled to a share in the profits of the line, 
 in the management of which they usually obtained for thein 
 chief engineer powers superior to the Chinese Administra- 
 tor-General or Managing Director. They obtained also 
 facilities and privileges which assured them that the loan 
 funds should be so expended that the mortgaged property 
 would constitute a sufficient security. In addition to the 
 share in the surplus profits over an adequate return of 
 revenues from the road, ordinarily a government-guaran- 
 teed 5 per cent interest, at which money was borrowed, must 
 be paid to the syndicate. In floating the loan the syndicate 
 received the profits which were represented by the difference 
 between the issue price and the price which the Government 
 agreed to take for each £ 100 bonds, after deducting all pre- 
 liminary expenses, cost of issue, underwriting, etc. Further- 
 more the syndicate usually acted as purchasing agents for 
 the supply of materials and were entitled to a commission 
 of a certain percentage on the cost. It was also usually 
 stipulated that no further loan was to be raised on the 
 same seciirity except through the same syndicate, i. e., dur- 
 ing the life of the agreement the syndicate was insured by 
 China that the road should not be alienated, or rather that 
 the syndicate should be given a lien on the road. The loan 
 was to be redeemed only after a certain period by paying a 
 premium (if after a shorter period), or at par (if after a 
 longer period), or by a special arrangement with the syndi- 
 cate if the above two conditions were not provided. 
 
 These general provisions found in the early railway loan 
 contracts were not made without reluctance on the part of 
 the Government. Some of these contracts are still work- 
 ing. Later on, however, as we shall see in the third period 
 
293] R'-ilLWAYS BUILT WITH FOREIGN CAPITAL g^ 
 
 of railway development, when contracting new loans the 
 Government succeeded after much trouble in modifying 
 some of these provisions, especially the most notorious ones. 
 Let us now study in greater detail the various railways for 
 the construction of which loan agreements were concluded 
 on the above old principles, and the various important events 
 connected therewith. 
 
 THE BRITISH INTERESTS 
 
 I. The Chinese Government Railways of North China 
 
 We have already traced the development of this system 
 up to the time when the Chino-Japanese War broke out. 
 Here we are going to say something about its extension to 
 Hsinmintun, Newchwang and Peking. 
 
 After the war with Japan the line was extended to 
 Fengtai and from there to Machiapu, near Peking. Mean- 
 while, the China Railway Company which owned the Tien- 
 tsin-Kuyeh section was bought up by the Imperial Railway 
 Administration, by reimbursing its shareholders with gov- 
 ernment bonds bearing 5 per cent interest for their scrip. 
 
 Up to that time the Imperial Railway Administration 
 had already owed the Hongkong and Shanghai Banking 
 Corporation Tls. 1,240,000; the Russo-Chinese Bank, Tls. 
 600,000; and the Deutsche-Asiatische Bank, Tls. 700,000. 
 In order to take up these liabilities and carry on the exten- 
 sion to Hsinmintun (in Manchuria), Mr. Hu Yen Min, 
 the Governor of Peking and Administrator of the road, de- 
 cided to float through the British and Chinese Corporation ^ 
 a loan of Tls. 16,000,000, or £ 2,300,000, " for the construc- 
 tion of a railway line from Chunghousuo to Hsinmintun, 
 
 ' The British and Chinese Corporation is a syndicate formed by the 
 Hongkong & Shanghai Banking Corp. and the firm of Messrs. Jardine 
 & Matheson & Co. for promoting British interests in China. 
 
66 RAILWAY PROBLEMS IN CHINA [294 
 
 and a branch line to Yingkow (opposite Newchwang), and 
 for the redemption of previous loans to the Tientsin-Shan- 
 haikwan and Tientsin-Lukouchiao lines." The final agree- 
 ment ^ was then signed on October 10, 1898, with the British 
 and Chinese Corporation. 
 
 Under the terms of this agreement the British endeavored 
 to establish British railway principles and to create a mono- 
 poly for the supply of materials and so forth. The essential 
 points in this agreement are as follow : 
 
 1. The loan was to be the first charge upon the security 
 of the entire property between Peking and Shanhaikwan, 
 and on the freights and earnings of the new lines when 
 constructed. 
 
 2. In addition to the above the Chinese Government was 
 made to declare itself responsible for the payment of the 
 principal and interest at due date; and in the event of the 
 Chinese Government being unable to pay the principal and 
 interest the railway line and entire property were to be 
 handed over to the Corporation. 
 
 3. No further loan was to be raised on the same security 
 except through the Corporation; during the life of the loan 
 the lines in the agreement were never to be alienated or 
 parted with. 
 
 4. The life of the loan was to be forty-five years. 
 
 5. Repayment of principal commenced with the sixth year 
 in forty equal annual instalments. Extra drawings (by lot) 
 for redemption might be called by paying 20 per cent pre- 
 mium on the par value of the bonds. China engaged her- 
 self not to redeem or convert the loan except as provided 
 in the agreement. 
 
 6. The price of the loan to China was to be 90, but the 
 
 ^ Cf. supra, pp. 48 and 63. Notice that the final agreement was signed 
 with the British & Chinese Corporation, not with Hongkong & Shang- 
 hai Bank. 
 
295] RAILWAYS BUILT WITH FOREIGN CAPITAL 67 
 
 Corporation had authority to reduce it to 88 at its own dis- 
 cretion in case the market proved unfavorable. 
 
 7. During the currency of the loan the chief engineer 
 of the railway should be a British subject, and the principal 
 members of the railway staff should be Europeans, who 
 could be appointed by the Chinese Administrator-General, 
 but dismissed only in the event of misconduct or incom- 
 petency, after consultation with the chief engineer. 
 
 8. A European accountant was to be appointed by the 
 syndicate with full power to organize and direct the keep- 
 ing of the railway accounts, and to act with the Administra- 
 tor-General and the chief engineer in the supervision of 
 receipts and expenditures. 
 
 From the conditions prescribed above we see that the 
 loan was quite amply secured and safeguarded — probably 
 more amply than any loan of such a nature in the world. 
 In addition to the mortgage on the property a government 
 guarantee was required; and the British engineer-in-chief 
 has practical control of all affairs. 
 
 Seeing so many advantageous terms given to the con- 
 cessionaire, the Russian Government made an official pro- 
 test on the ground that the appointment of the chief engineer 
 and accountant would constitute " foreign control of the 
 line " and that it would interfere with Russian rights in 
 Manchuria. In the meantime the Russo-Chinese Bank also 
 entered into competition to handle the loan on more favor- 
 able terms to China. Subsequently, as we have seen, the 
 matter was adjusted by defining the respective railway 
 spheres of interest. 
 
 After this controversy was over construction work was 
 pushed on very rapidly. By February, 1900, the line was 
 extended to a point thirty miles beyond Yingkow. From 
 Kaopangtze the line was also extended further for twenty 
 miles. Then the Boxer trouble broke out, the construction 
 
68 RAILWAY PROBLEMS IN CHINA [296 
 
 program was greatly interfered with, and many parts of 
 the line were torn up. 
 
 The Boxer trouble brought the invasion of the allies into 
 Peking as well as international complications over the rail- 
 way line. The Russians assumed control of the Tonghu- 
 Yangtsun (north of Tientsin) section, while the British 
 soldiers controlled the Fengtai station, the north end of the 
 line. The Russians then proposed that the Germans should 
 take charge of the Peking- Yangtsun section and the Rus- 
 sians manage the Yangtsun-Shanhaikwan section. This 
 aroused the British, who took quick action at once by landing 
 a force at Shanhaikwan in September. Following on the 
 heels of the British the Russians also sent a force there and 
 claimed the section from Tonghu to Newchwang by right 
 of conquest. Thus conflicts of interests were precipitated 
 among the allies. The relations between Great Britain 
 and Russia were especially strained. In 1901, conferences ^ 
 were held and the different Powers concluded an agreement 
 by which the Russians retired and the British Railway Ad- 
 ministration was given the control of the Shanhaikwan- 
 Peking section. By the end of 1902, the British were also in 
 control of the Shanhaikwan-Newchwang section. Later 
 on, the whole road was turned over to the Chinese Imperial 
 Railway Administration. 
 
 This is the most prosperous line in China. Traffic re- 
 ceipts increased by leaps and bounds. The financial basis 
 of the road is very firm. Now, the Chinese share holdings 
 exceed the British loan participation in the capital of the 
 road, and the Government has endeavored from time to 
 time to secure a little more right to exercise a voice in the 
 control of the road. With the profits of the road, the 
 Peking-Kalgan Railway was built by the Government, en- 
 
 '^ British Blue Book, China, no. 7 (1901), 127 pages. 
 
297] RAILWAYS BUILT WITH FOREIGN CAPITAL ^g 
 
 gineering works were erected for constructing bridges, while 
 cars, locomotives, and even several short branch lines were 
 also built. The Tangshan Railway and Mining College is 
 also partly supported by this road. 
 
 //. The Shanghai-Nanking Railway 
 
 On May 13, 1898, the preliminary agreement for the 
 acquisition of a loan for the construction of this line was 
 signed between Sheng-Hsuan-hwai, then Director-General 
 of the Chinese Imperial Railway Administration, and the 
 British and Chinese Corporation, at Shanghai. On July 
 9, 1903, the final agreement '■ was concluded between the 
 same parties. The latter provided for the issue of a sterling 
 loan for an amount of not more than f 3,250,000. The 
 bonds were to be issued for the entire sum and were similar 
 to those of the Chinese Government Railway of North 
 China, with the railway as first mortgage security therefor. 
 The price agreed upon for the loan was 90 per cent of the 
 nominal value of the bonds which bear interest at 5 per cent 
 per annum on their nominal value payable half-yearly. The 
 life of the loan was to be fifty years. Before 25 years from 
 the date they were originally issued the bonds were to be 
 redeemable at £ i02>4, and after 25 years at par. 
 
 The general principles outlined in the final agreement 
 were practically modeled after those of the Chinese Govern- 
 ment Railways of North China, with the exception that 
 they were described in greater detail and a few additions 
 were made. In addition to the Chief Engineer and the 
 Director-General, a Board of Commissioners was created 
 for surveying the construction and operation of the railway. 
 
 ' For English text see Kent, Railway Enterprise in China, Appendix D. 
 For Chinese text see Chung Hwa Fa Kwei Tai Tsueuen, treaties, 
 vol. vi, leaves 5- 17. 
 
70 RAILWAY PROBLEMS IN CHINA [298 
 
 The members of the Board were to be five in number, of 
 whom two were to be Chinese — one to be appointed by the 
 Director-General and one by the Director-General in con- 
 sultation with the high authorities of the province through 
 which the line passes ; and besides the Chief Engineer, who 
 was to be nominated by the Corporation and approved by 
 the Director-General, there would also be two British mem- 
 bers selected and appointed by the Corporation. It was 
 clearly stipulated in this agreement that after deducting from 
 the income of the railway the working and other expenses, 
 the Corporation was to receive 20 per cent of the net profits, 
 to be represented by or in form of certificates to an amount 
 equal to one-fifth of the cost of the line. 
 
 Although it was stipulated that the loan was to be £ 3,- 
 250,000, only £ 2,900,000 has been issued in two instalments. 
 In view of the extravagance entailed in increasing the size 
 of the loan, the expenses in its underwriting and floating and 
 the commission on purchases, the Government authorized the 
 balance of the loan and any further funds needed for the 
 completion and operation of the line to be supplied from 
 the Treasury. 
 
 The entire road was completed by March, 1908. It was 
 fairly substantially built, but the trade conditions of the 
 region it serves do not demand such an expensive road; 
 The capital expenditure on the construction of the line and 
 therefore the interest on the loan are so great that there is 
 always a large deficit between the fixed charges and the 
 earnings in spite of strenuous efforts made to reduce it.. 
 The Government has to bear this heavy loss. 
 
 As a result of the lessons learnt from the administration 
 of this road, in which the foreign chief engineer has sole 
 control of the expenditure of the ^loan funds, China has 
 changed her attitude towards all foreign loans, especially 
 British loans. This explains partly the reason why China, 
 
299] RAILWAYS BUILT WITH FOREIGN CAPITAL yi 
 
 in signing new loan agreements of any importance after 
 1905, insisted upon the modification of the old British 
 principles. 
 
 ///. The Tao-Ching Railway 
 
 This railway is sometimes called the Peking Syndicate 
 Railway. The Peking Syndicate, Limited, was registered 
 on March 17, 1897, in London, for the purpose of obtain- 
 ing and developing concessions for mining, railway and 
 other undertakings in China. It was originally organized 
 by British and Italian financiers with a capital of £ 20,000 
 which was later increased to £1,520,000. Now the British 
 interests practically predominates the syndicate entirely. 
 
 In May, 1898, the Shansi Bureau of Trade signed an 
 agreement with the syndicate for working coal and iron 
 mines in five different places ^ in the Shansi province ; and 
 in June, the Yu-feng Company signed a mining agreement 
 on similar terms with the said syndicate for mining in 
 Honan province in the neighborhood of Huai Ching and 
 north of the Yellow River. Both of these agreements were 
 ratified by the late Government. 
 
 It was stated in Art. 17 of the said agreements that the 
 Peking Syndicate, on notifying the Governor of the pro- 
 vince concerned, should be permitted to build a railway 
 connecting the mines with a main line or with water navi- 
 gation. In June 1902, when the coal mines in Sui-wu Hsien 
 of Honan province were about to be opened, the syndicate 
 gave such notice to the Governor and obtained permission 
 to build a railway from these mines to Taokow, a port on 
 the Wei River. In 1905, the line, extending from Taokow 
 to Pashan (near Chinghua Chen) in the Province of Honan 
 and covering a distance of about 90^ miles, was completed. 
 
 1 Yu-Hsien, Pingting-chow, Luanfu, Tsechowfu, and Pingyangfu. 
 
72 RAILWAY PROBLEMS IN CHINA [300 
 
 At that time there arose an ambiguity in the interpreta- 
 tion of the seventeenth clause of the concession agreements, 
 which reads : 
 
 Whenever it may be necessary for any mine to make roads, 
 build bridges, open or deepen rivers and canals, or construct 
 branch railways to connect with main lines or with water navi- 
 gation to facilitate transport of Shansi coal, iron and all other 
 mineral products from the province, the Syndicate on report- 
 ing to the Government of Shansi is authorized to proceed with 
 the works, using its own capital without asking for Govern- 
 ment funds. 
 
 This clause was interpreted by the government officials as 
 restricting the company to local requirements, but the syndi- 
 cate argued that they were entitled by it to the right not 
 only to build railways in the immediate localities of the 
 mines but also to build roads at the discretion of the syndi- 
 cate, in other words, to build lines to any market in China 
 at their option, if their argument is followed to its logical 
 end. 
 
 As a matter of fact, as far back as 1898, besides the sur- 
 vey on the Taokow-Pashan-Tzechowfu line, several other 
 surveys were conducted by the surveying parties sent out 
 by the syndicate in order to find a line to the Yangtsze. 
 They found the route from Taokow to Pukow the most 
 desirable and made a claim on it. 
 
 About the same time, the British and Chinese Corpora- 
 tion, a rival syndicate having the support of the British 
 government, secured the concession for the Tientsin-Pukow 
 line. In such a situation the interests of the two syndicates 
 necessarily came into conflict. Subsequently, this difficulty 
 was solved by a combination of the two companies and an 
 agreement to equal participation in all future railway de- 
 velopment north of the Yangtsze. 
 
30lj RAILWAYS BUILT WITH FOREIGN CAPITAL 73 
 
 Having watched for some time the compHcated develop- 
 ment of the Peking Syndicate's concession, and realizing 
 their error in committing themselves to such an indefinite 
 agreement, secured at a time when they were ignorant of 
 its value, the government officials set to work to undo their 
 mistakes by purchasing the Taokow-Chinghua Railway at 
 its construction value. To this end an agreement ^ was 
 entered on July 3, 1905, in which the Government agreed 
 to take over the line from the syndicate and to give in pay- 
 ment gold bonds bearing interest at 5 per cent, and per- 
 mitted the control of the road to remain with the s)aidicate 
 until the bonds are redeemed. 
 
 The cost of constructing the road was estimated at 
 f 614,000 and is represented by a loan of f 700,000 which 
 has been accepted by the syndicate at 90. The loan runs 
 for thirty years and is redeemable after 1916. While the 
 line has been handed over to the Chinese Railway Adminis- 
 tration it continues to be operated by the syndicate which 
 is to receive 20 per cent of the net profits. It was also 
 stipulated in the loan agreement that when the syndicate 
 has fixed a date for opening mines in the neighborhood of 
 Tsechow, the syndicate will provide funds for the construc- 
 tion, etc., of the Pashan-Tsechow section. It may be added 
 here that the Tao-Ching line was originally not a loan-built 
 road, because the loan was contracted, after the completion 
 of the road by the syndicate, to buy out the syndicate's 
 absolute control of the line. 
 
 Having seen the danger of the indefinite agreement, the 
 provincial authorities, at the same time, endeavored to re- 
 purchase the Shansi rights from the syndicate. After much 
 bargaining with the syndicate and long diplomatic negotia- 
 tions with the British minister at Peking they succeeded in 
 
 ' For English text see Supplement to The Far Eastern Review, 
 China's Foreign Railway Agreements, Nov., 1909, pp. 6-7. 
 
74 RAILWAY PROBLEMS IN CHINA [302 
 
 having the syndicate surrender its rights of mining in 
 Shansi by offering Tls. 2,750,000. On the other hand, the 
 syndicate, in making an agreement with the Shansi authori- 
 ties, obtained the promise of a preferential right of supply 
 of capital for future enterprises. The agreement provides 
 that " if hereafter foreign capital is required for mining, 
 iron smelting or transport of materials, the Peking Syndi- 
 cate shall have the first option." By " transport of ma- 
 terials " it has been presumed by the directors of the syndi- 
 cate to mean railways. Here is the germ of possible future 
 dispute. 
 
 THE BELGIAN, FRENCH AND RUSSIAN INTERESTS 
 
 /. The Pcking-Hankozv Railway 
 
 This was the first railroad for the construction of which 
 the Government formally invited the co-operation of foreign 
 capitalists. As we have seen in 'Chapter III, page 35, a 
 Belgian Syndicate, willing to accept all terms offered by the 
 Government without question, secured the concession by 
 underbidding the American and British capitalists. The 
 Chinese Railway Company, a government organization,^ 
 had already raised a capital of thirteen millions of taels in 
 China. On May 27, 1897, a provisional contract was 
 signed between the Chinese Railway Company and the 
 Socicte fmancierc et industrielle beige en Chine, for a loan 
 of 112,500,000 francs bearing interest at 4 per cent. As 
 the Belgians found out that the loan could not be success- 
 fully floated on this basis, on July 21 an additional protocol 
 to the contract was concluded between Sheng Hsuan-huai, 
 the Director-General of the Chinese Railway Company, and 
 the representatives of the Belgian Sjmdicate, bringing the 
 interest up to 4.4 per cent. When the syndicate wanted to 
 
 1 Cf. supra, pp. 34-35- 
 
303] RAILWAYS BUILT WITH FOREIGN CAPITAL 75 
 
 finance the project in Europe, the agreement was found still 
 unworkable. With the help of diplomatic pressure, in 
 which they were assisted by Russia and France, the Belgians 
 secured improved conditions from the Government by re- 
 vising the original arrangement. On June 26, 1898, two 
 more contracts, a loan contract and an operating contract, 
 were signed with the Societe d'Etude de Chcmins de fer 
 en Cliine,^ in addition to the original contract and protocol. 
 
 The agreement ^ in its final form provided for the issue 
 of a loan of a nominal value of 112,500,000 francs (£4,- 
 500,000), at 90, represented by 225,000 bonds of 500 francs 
 gold, bearing interest at 5 per cent and to be amortized with- 
 in twenty years after 1909. The Government was given 
 the right to repay the loan in or after 1907, thereby cancel- 
 ling the agreement. The bonds were secured on the net 
 revenues of the line and the gross revenues of the Chinese 
 Government (a new point different from the British con- 
 tracts where the whole road was pledged as security) . Dur- 
 ing the currency of the loan the Russo-Chinese Bank was to 
 take charge of all financial arrangements. The 13,000,000 
 taels of the Chinese Railway Company was in the first place 
 to be applied to the construction and to the putting in com- 
 plete working order of the Lukouchiao-Paoting section of 
 the line. 
 
 The syndicate has the right to direct the construction of 
 the line. The work of construction and technical control 
 was placed under a chief engineer appointed by the syndi- 
 cate, subordinate to the Director-General. This chief en- 
 gineer could select the foreign railway staff, but appoint- 
 ments could only be made by the Director-General, who also 
 
 ' A Franco-Belgian syndicate in which the Belgian share was only 
 40 per cent. See Documents Diplomatiques, Chine, 1898-1899, pp. 140- 
 146 (published, Paris, 1900). 
 
 2 Laboulaye, Les Chemins de fer de Chine (Paris, 1911), pp. 107-120. 
 
76 RAILWAY PROBLEMS IN CHINA [304 
 
 had absolute power of dismissal for insubordination, drunk- 
 enness, bad conduct, incapacity or carelessness, without the 
 sanction of the chief engineer (a far more favorable term 
 than that stipulated in British contracts). 
 
 The Society d'Etude was promised that, with the excep- 
 tion of what could be supplied by the Hanyang Works (a 
 Chinese semi-official iron and steel establishment), all ma- 
 terials and supplies necessary for the construction and work- 
 ing of the railroad should be ordered, from the Societe 
 d'Etude, which would fill the orders under the best possible 
 terms subject to the approval of the Chinese Director- 
 General. A commission of 5 per cent was to be paid to 
 the syndicate on all purchases abroad. 
 
 Under the terms of the operating contract, the Societe 
 d'Etude was to take over the working of the line as soon as 
 each section was completed, following its final acceptance 
 by the Imperial Administration of Chinese Railways. The 
 syndicate or its representatives were to organize the various 
 services ; to have absolute right to hire and dismiss the per- 
 sonnel for the services ; to make all purchases necessary for 
 operating, maintaining or repairing the road; to fix the 
 schedule of rates in the terms of the concession contracts; 
 and to collect revenues of all kinds and pay the operating 
 and managing expenses of the company. These measures, 
 taken for operating the line, were to be submitted, for con- 
 sultative purposes, to the Director-General of Chinese Rail- 
 ways. The Chinese Railway Company, however, was to 
 have absolute right of control over the receipts and ex- 
 penses. By the operating contract it was also agreed that 
 the concessionaires were entitled to 20 per cent of the net 
 profits of the undertaking after the payment of all expenses 
 and the bond interest. 
 
 In March, 1899, the loan was issued at the same time at 
 Brussels and Paris. Nearly four-fifths of it was subscribed 
 
305] RAILIVAYS BUILT WITH FOREIGN CAPITAL yj 
 
 in France. Thus, nominally, the railway was a Belgian 
 concession ; actually French interests dominated the line and 
 the Russians had also participated in the project. In this 
 connection it was confirmed that French and Russian in- 
 fluences combined to the furtherance of the Belgian syndi- 
 cate's interests during the negotiations for the loan, with 
 the ultimate purpose of securing a link in the Peking- 
 Hankow line for a railway through the country. 
 
 As a whole, the terms of the agreement were much more 
 favorable to China than those of the British agreements, in 
 that they gave the Chinese authorities greater control of the 
 property. The provisions of the agreement, which gave 
 China absolute control of expenditure of funds and the 
 privilege to redeem the loan at the end of ten years, placed 
 an effective check on any ambitious scheme to dominate the 
 railway situation by Belgian, French or Russian interests. 
 
 By the fall of 1905, the line was opened for traffic, with 
 the exception of the bridge over the Yellow River, the con- 
 struction of which presented many engineering problems. 
 The length of the great bridge is 3.03 kilometers, or about 
 2 miles, consisting of 102 spans, a part of them 65 and 
 the remainder 98 feet in length. The length of the line 
 is about 756 miles. 
 
 By 1907, the road was earning large profits. The Gov- 
 •ernment, considering the great future value and probable 
 profits of the line, decided on exercising its right to repur- 
 chase the road according to the provisions of the agreement, 
 in order to secure absolute possession of the line and elimin- 
 ate the payment of the great percentage of profit. Negotia- 
 tions were then entered into with the Belgian syndicate 
 virith a view of issuing a new loan to redeem the old one. 
 At that time the capital of the Government for the Lukao- 
 chiao-Paoting line was Tls. 5,620,000, and part of the ori- 
 ginal Belgian loan was already paid off. It was found that 
 
78 RAILWAY PROBLEMS IN CHINA [306 
 
 it was necessary only to raise a loan of 50,710,000 francs 
 to redeem the old loan. The negotiations were successful. 
 On January i, 1909, the Belgian interest was bought out 
 and the line was taken over by the Government authorities 
 at Peking. In this transaction, the Government promised 
 the Belgian syndicate an extra bonus of 705,000 francs as 
 soon as the accounts of the road were audited by a commis- 
 sion consisting of representatives of the Government and 
 of the syndicate. On the payment of the bonds, the syndi- 
 cate's connection with the line ceased entirely. 
 
 //. The Peinlo Raihvay 
 
 This line runs across the Peking-Hankow road from 
 Kaifengfu to Loyang (Honanfu) in the Province of Honan. 
 In 1899, the construction of this line was proposed by the 
 Government. In 1902, negotiations for a loan took definite 
 form and in 1904 a final contract ^ was concluded in 
 Shanghai between Sheng Hsuan-huai, the Director-General 
 of the Imperial Railways, and the representative of the 
 Conipagnie Gcncralc dc Chemins de fer et de Tramzuays 
 en Chine, Monsieur Armand Rouffart. 
 
 The contract provides for a loan of £1,000,000 or 25,- 
 000,000 francs, issued at 90, bearing interest at 5 per cent, 
 secured by the road and guaranteed by the Government, 
 which has the privilege of redeeming it in twenty-five years. 
 After ten years, the date of first amortization, it can be 
 refunded or converted. In the agreement the same general 
 rule as applied to the Peking-Hankow road was practically 
 adopted for the ordering and purchasing of materials and 
 the engagement of the chief engineer and foreign staff. 
 The conditions regarding the management of the road and 
 
 ^ Chung Hwa Fa Kwei Tai Tsueuen, treaties, vol. xii, leaves 24-33. 
 For French text see Laboulaye, Les Chemins de fer de Chine, pp. 
 154-170. 
 
307] RAILWAYS BUILT WITH FOREIGN CAPITAL yg 
 
 the supervision of accounts were also practically similar to 
 those of the Peking-Hankow loan contract. A significant 
 point provided in the agreement is that the Belgian com- 
 pany secured an option ^ to extend the line to Si-ngan Fu, 
 the capital city of Shensi province. 
 
 The road was completed some years ago. The outcome 
 of the contract was fairly satisfactory to both parties. The 
 road is about 120 miles long and is now in Chinese control. 
 
 't> 
 
 ///. The Cheng-Tai Railway 
 
 This is a branch line of the Peking-Hankow Railroad, 
 running from Chengting to Taiyuanfu. In 1897, the Russo- 
 Chinese Bank and the Comptoir d'Escompte sent a French 
 engineer into the Shansi province to study its mineral re- 
 sources and determine the route of a future railway. In 
 May, 1898, a preliminary agreement for a loan of 25,- 
 000,000 francs for the construction of this line was ap- 
 proved by the Government. On a re-survey, the loan was 
 increased to 40,000,000 francs, nominal value, owing to the 
 difficult engineering works to be encountered in traversing 
 the very mountainous country. The final agreement ^ was 
 then formally ratified on September 7, 1902, by an Im- 
 perial Decree. 
 
 According to the agreement the bonds were to be issued 
 at 90, bearing interest at 5 per cent and redeemable in 
 twenty-five years. The loan is secured on the undertaking 
 and guaranteed by the Chinese Government. 
 
 All the construction and works were executed under the 
 supervision of the Imperial Chinese Railway Company. 
 The Russo-Chinese Bank engaged to use local materials 
 
 ' Cf. infra, Lung-Tsing-u-Hai Ry. 
 
 ' Chung Ewa Fa Kwei Tai Tsueuen, treaties, vol. xii, leaves 1-7. 
 For French text see Laboulaye, Les Chemins de fer de Chine, pp. 
 124-137. 
 
8o RAILWAY PROBLEMS IN CHINA [30S 
 
 and labor as far as possible, and in any case to spend the 
 greater part of the loan on the spot; but in case materials 
 were to be procured abroad, they must be purchased by the 
 Bank from Russia and France at prices settled by reference 
 of the company to the Chinese Ministers in Russia and 
 France. 
 
 The construction of the line was turned over to the 
 Belgian syndicate of the Peking-Hankow line. The ad- 
 ministration of the road rested with the Chinese Railway 
 Company. A foreign Agent, paid by the company, was to 
 be present at all meetings of the managing officers and to 
 exercise supervision over all matters of accounts, machinery, 
 etc. The accounts were to be kept after foreign methods. 
 
 After the completion of the railway the yearly surplus, 
 if any, left after the payment of working expenses and 
 " official profits," was to be dealt with as follows: 5-ioths 
 to the Company; should this 5-ioths amount to 30,000 
 taels or over, the salary of the Superintendent of the Chinese 
 Railway Company would be paid out of it; if the 5-ioths 
 did not amount to Tls. 30,000, the salary was to form part 
 of the working expenses; 2-ioths to the State; i-ioth to 
 the Shansi Trade Bureau to be used for public purposes ; 
 and the remaining 2-ioths to the Bank during the currency 
 of the loan. 
 
 Construction work commenced in 1903 and the road 
 opened for through traffic in 1907. Owing to the moun- 
 tains and difficult nature of the country which the line 
 traverses, a meter gauge with 60 lb. rail was adopted in- 
 stead of a standard gauge. The difference in gauge pro- 
 hibits a junction with the main line (Peking-Hankow Hne), 
 and the interchange of cars, compelling the complete trans- 
 fer of through freight at the Chentow terminal (a town, 
 several miles to the south of Chingtingfu). 
 
309] RAILWAYS BUILT WITH FOREIGN CAPITAL gl 
 
 THE AMERICAN INTERESTS 
 
 The Canton-Hankow Railway 
 When the American financiers were forced to retire from 
 the Peking-Hankow deal by the Belgian syndicate in 1897, 
 the Chinese Government, having adopted the policy of 
 dividing as equally as possible the railway rights between 
 the different Powers, invited the American financiers to 
 undertake the Canton- Hankow line. A contract ^ was then 
 signed in April, 1898, with the American China Develop- 
 ment Company, by Dr. Wu Ting-fang acting as represen- 
 tative of Mr. Sheng Hsuan-huai. About the time of the 
 execution of the contract the Spanish-American War broke 
 out, and nothing further was done until after the con- 
 clusion of the war when, in the following autumn, a sur- 
 veying party headed by Mr. Wm. Barclay Parsons was 
 sent to China. After the survey it was discovered that the 
 cost, originally put at $20,000,000 gold, had been under- 
 estimated to the extent of nearly 100 per cent. The com- 
 pany therefore determined to negotiate a supplementary 
 agreement in order to modify certain terms in the contract. 
 After overcoming much political difficulty and opposition 
 arrayed against him by the French and the Belgians, Mr. 
 Cary, a member of the New York Bar, supported from 
 Washington and Peking, had the supplementary agreement 
 concluded in 1900. In the new agreement " the following 
 principal modifications of terms were made : 
 
 1. An increase in the amount of the loan to $40,000,000 
 gold. 
 
 2. An extension of the time for completion of the road 
 from three to five years. 
 
 3. A restriction on assignment, in regard to which a 
 
 '■British Blue Book, China, no. i (1899), pp. 336-339- 
 ^The Canton-Hankow Railway Contracts, published by the Irving 
 Press, 22s Fourth ave., New York City, in 1900. 
 
82 RAILWAY PROBLEMS IN CHINA [310 
 
 clause was inserted as follows : " The object of mak- 
 ing this supplemental agreement of equal force with 
 the original agreement is to permit the benefits being 
 transmissible by the American Company to their suc- 
 cessors or assigns, but the Americans cannot transfer 
 the rights of this agreement to other nations or people 
 of other nationality." 
 According to the final agreement the loan was to run 
 for 50 years, although earlier redemption was provided. 
 Bonds, which were secured on the property and guaranteed 
 by the Government, were to be issued at 90 and were to 
 bear interest at 5 per cent. The American Company was 
 voluntarily given by the Chinese Government absolute power 
 to direct construction and operation of the line and to con- 
 trol the expenditure of the loan funds. At the same time 
 the company was granted 20 per cent of the net profits 
 of the line after operation for a number of years. 
 
 When the American syndicate ^ secured this advantageous 
 agreement, the European combination set to work to un- 
 dermine American preponderance by purchasing shares in 
 the open market in New York City. The unfortunate death 
 of Senator Brice, a man of great energy and remarkable 
 character, which qualities had attracted the original sub- 
 scribers to the syndicate, caused the enterprise to lose its 
 chief supporter and gave the Belgians and the French a 
 freer hand to accomplish their aim. Among those as- 
 sociated with him was no one who fully shared or was 
 able to carry out his ambition of introducing American 
 
 ' The American Syndicate, which was organized by the late U. S. 
 Senator C. S. Brice with Wm. Barclay Parsons as chief engineer and 
 Cary and Whitridge as attorneys, was composed of practically all the 
 great rival financiers of New York, all of whom signed Senator 
 Brice's application for the concession. The members of the syndicate 
 were J. P. Morgan, J. D. Rockefeller, Mr. Cassatt, the Vaniderbilts, 
 Mr. Harriman, Mr. Gould, Mr. Sage, Mr. Hill, Sir Wm. Van Home 
 and other capitalists and leading banking firms. 
 
31 1 J RAILWAYS BUILT WITH FOREIGN CAPITAL 83 
 
 railroads into China. Consequently, the Belgian agents 
 obtained a controlling number of shares in the company. 
 Mr. Parsons, who had succeeded to the presidency of the 
 company on Senator Brice's death, was then superseded by 
 Cjeneral Whittier, the agent of the Belgian syndicate in 
 New York; and in addition, the American Manager of the 
 company's Shanghai office and the American engineers were 
 recalled and replaced by Belgians. 
 
 In the spring of 1904, China protested strongly against 
 the situation and refused to recognize the Belgian control 
 of the company. Through the efforts of J. P. Morgan 
 & Company, a majority of the shares were again brought 
 under American control.^ But after that several months of 
 complete inactivity followed. An outcry was raised among 
 the gentry and merchants of the South, demanding the 
 cancellation of the concession. Sheng Hsuan-huai, directed 
 by Viceroy Chang Chih-tung who had taken special pre- 
 caution to prevent Belgian influence extending to this line 
 before the concession was made, then insisted that the 
 agreement be cancelled. After tedious negotiations the line 
 was taken over by the Government on payment of $6,- 
 750,000 gold. Later, the Government handed the road 
 over to three provincial companies which were to undertake 
 its construction separately in three different sections. 
 
 The American Company had undertaken two surveys, had 
 built 32 miles of railway (the Samshui branch), and had 
 completed 50 miles of roadbed at the Canton end of the main 
 line. They claimed an expenditure of $3,000,000 gold for 
 
 ^ According to Mr. J. C. Fergusson's report the stock books in the 
 different N. Y. banking offices showed that 6,000 outstanding shares 
 were owned by American citizens, members of the original syndicate, 
 1,004 hy a French banking house and the balance, 1,796, by Belgians. 
 Mr. Fergusson was Sheng's foreign secretary despatched to the U. S. 
 to investigate the actual situation and to ascertain the cause of the 
 delay. 
 
84 RAILWAY PROBLEMS IN CHINA [312 
 
 this work and $3,750,000 as compensation for the loss of 
 valuable rights, making in all $6,750,000 gold. This sum 
 has been commented upon as unduly excessive. In fact, 
 it was the American company who committed the breach 
 of faith because it had been particularly stipulated in the 
 supplemental agreement that no rights should be trans fered 
 to other nationalities. The United States State Depart- 
 ment, however, was credited with not having brought any 
 diplomatic pressure to bear on Peking to retain commercial 
 or political advantages under the terms of the concession. 
 Such an attitude taken by Washington was greatly appre- 
 ciated in Peking. The United States has always been looked 
 upon by Peking as the " most favored nation." As a matter 
 of fact, the Chinese Government had granted the American 
 company more favorable terms in the agreement than any 
 other concession, except perhaps the early Peking-New- 
 chwang loan contract. 
 
 During the turmoil of demands for the cancellation of the 
 concession, the merchants and gentry of Kwangtung, Hunan 
 and Hupeh (through which the line passes) promised with 
 great enthusiasm to repurchase the American interests and 
 to raise capital in the country to build the line themselves. 
 But when the time came for payment of the American loan 
 no substantial funds were forthcoming. The British con- 
 sul at Hankow then proposed to Viceroy Chang to offer his 
 service to obtain a British loan through the Hongkong Gov- 
 ernment to redeem the American interests. The negotia- 
 tion for the loan was successful. On September 9, 1905, 
 a loan agreement ^ was concluded for a loan of £ 1,100,000 
 bearing interest at 4>4 per cent, redeemable in ten years 
 and secured by the opium revenues of Kwangtung, Hunan 
 and Hupeh. 
 
 ' Chung Hwa Fa Kwei Tat Tsueuen, treaties, vol. xi, pp. 20-24. 
 
313] RAILWAYS BUILT WITH FOREIGN CAPITAL gc 
 
 General References 
 I. — OMcial Publications: 
 
 China: i. Chung Hwa Fa Kv/ei Tat Tsueuen (Complete set of Rules, 
 
 Regulations, Treatises, etc., of the Republic of China), (Shang- 
 hai, 1913), vols, on treaties. 
 China: 2. Kuang-su Chong-yau (The Emperor Kuang-su's Statepapers), 
 
 vols. 11-26. 
 France: Documents Diplomatiques, China, issued by the Ministere des 
 
 Affaires Estrangeres, Paris, vols, of the years 1894-1901. 
 Great Britain: British Blue Book, China Affairs, vols, of the years 
 
 1898-1901 inclusive. 
 The United States : Monthly Consular Reports, vols, of the years 1894- 
 
 1905. 
 Mayers (Wm. F.), Treaties between the Empire of China and Foreign 
 
 Powers, Shanghai, igoi. 
 Report of the Compagnie Frangaise des Chemins de Per de I'lndo- 
 
 Chine et du Yunnan, and Societe de Construction de Chemins de 
 
 Per Indo-Chinois. Paris, 1910. 
 Rockhill (W. W.), Treaties and Conventions with or concerning China 
 
 and Korea (Washington, D. C, 1904), pp. 207-424. 
 
 II. — Treatises: 
 
 Beresford (Lord Charles), The Break-up of China (London, 1898), 
 
 chap, xxiii. 
 Brown (Arthur J.), New Forces in Old China (New York, 1904), chs. 
 
 xi-xvii. 
 Conant (Charles A.), The United States in the Orient (Boston, 1901). 
 Cary (C), China's Present and Prospective Railways (New York, 
 
 1899). 
 Curzon (Geo. N.), M. P., Problems of the Far East (Westminster, 
 
 1896), ch. X. 
 Davies (H. R.), Yunnan, the Link between India and the Yangtsze 
 
 (Cambridge, 1909) . 
 Hatch (Ernest F. G.), Far Eastern Impressions (London, 1905), chs. 
 
 x-xv. 
 Kent (P. H.), Railway Enterprise in China (London, 1907). 
 Krausse (A.), China in Decay (London, 1898), ch. xii. 
 Krausse (A.), The Far East (London, 1900). 
 Leroy-Beaulieu (Pierre), The Awakening of the East (London, 1900). 
 
 Translated from French by Richard Davey, part I, chs. ix, x, xi ; 
 
 part III, chs. viii, ix, x. 
 Michie (Alexander), The Englishman in China (London, 1900), vol. 
 
 II, chs. xxv-xxxiv. 
 
86 RAILWAY PROBLEMS IN CHINA [314 
 
 Parsons (Wm. Barclay), An American Engineer in China (New York, 
 
 1900), Preface and chs. ii and ix. 
 Reinsch (Paul S.), World Politics (New York, 1900), parts ii and iii. 
 Ular (Alexandre), A Russo-Chinese Empire (Westminster, 1904). An 
 
 English version of "Un empire russo-chinois." 
 
 III. — Articles: 
 
 Bowne (T. Johnstone), "Railway Engineering in China," in Cassier's 
 
 Magazine (New York, igoi), vol. xx. 
 Cammaerts (E.), " Le Reseau des Chemins de Fer Chinois,'' in Rev. 
 
 econ. internal. (Bruxelles, 1905), vol. vi, no. I. 
 Fauvel (A. A.), " Le Trassinien et les Chemins de Fer Chinois," in 
 
 Revue Politique et Parlementaire, vol. xxi, Sept., 1899. 
 Gundry (R. S.), "China: Spheres of Interest and the Open Door," in 
 
 Fortnightly, July, 1899. 
 Parsons (Wm. Barclay), "Railway Development in China," in Mc- 
 
 Clure's Magazine (New York, 1900), vol. xv. 
 Preyer (Otto E.), " Das Eisenbahnwesen Chinas," in Archiv fur Eisen- 
 
 bahnwesen, Jahrg. 32 (1909). 
 Rea (Geo. B.), "Railway Loan Agreements and Their Relation to the 
 
 Open Door," in Far Eastern Review, vol. vi, no. 6, Nov., 1909. (In 
 
 the same number see description of all railways in China up to 
 
 1909.) 
 Rigby (Ed. Hulme), and Leith (W. O.), "Railway Construction in 
 
 N. China," in Institution of Civil Engineers, Min. of Proc, vol. 
 
 clx, London, 1905. 
 Tepper (Henry), "China and the West," in Institutes of Bankers' 
 
 lour. (London, 1901), vol. xxii. 
 
THIRD PERIOD 
 
CHAPTER VI 
 Provincial and Private Enterprises 
 
 The third and present stage of railway development may 
 be regarded as commencing during or immediately after 
 the Russo-Japanese War. The victory of the Mikado's 
 troops over the Czar's not only arrested the increasing 
 influence and power of Russia in Manchuria and Peking 
 but gave the greatest impetus ever found in the history of 
 China to hasten China's reform movement, and also stimu- 
 lated the patriotic children of China to act more rapidly in 
 different fields and in various forms. The progress made 
 in railway affairs was one of these. The different classes 
 of the people, instead of the enlightened officials alone as in 
 the case of the previous periods, have appreciated the ad- 
 vantages and have realized the importance of the iron high- 
 way. 
 
 Feeling that their country was dominated by foreigners 
 and fired with the laudable ambition to furnish from their 
 own pockets the capital required for the building of rail- 
 ways in their own provinces, the prominent merchants and 
 gentry of the several provinces started a " sovereign right 
 campaign." They either filed application with the Board 
 of Commerce for the purpose of undertaking railway build- 
 dng in their own provinces or petitioned the Waiwupu ^ 
 (Board of Foreign Affairs) to regain some of the conces- 
 sions already granted to foreigners, basing their pleas on 
 the stipulation with the concessionaires that " those conces- 
 sions promised to them can be handed over to any Chinese 
 
 iThe Waiwupu was established by the Imperial Edict of July 24,. 
 1901, which has reformed the Office of Foreign Affairs. 
 
 317] 89 
 
go RAILWAY PROBLEMS IN CHINA [318 
 
 corporation provided they are purely Chinese undertak- 
 ings." After accomplishing this they started to raise capital 
 entirely from Chinese sources and to organize stock com- 
 panies ^ which, by the way, showed the furthest stage of 
 commercial development the people of China have reached. 
 Out of these conditions several characteristics were later 
 ■developed in railway matters, viz. : ( i ) Private enterprises 
 greatly influenced by the sovereign right campaign; (2) con- 
 flicts of different interests; (3) nationalization of railways; 
 (4) financial combination among foreign syndicates and a 
 resultant monopoly. We will study these different phe- 
 nomena in their proper place. Let us first of all trace how 
 the different private enterprises came about. 
 
 Mr. Chang Yu-nan of Fukien, who made his fortune in 
 Java, was the first Chinese merchant who started the first 
 purely Chinese railway enterprise. In 1903, he obtained a 
 grant from the Government to build a line from Swatow to 
 Chaochowfu in the Province of Fukien. The Chaochow 
 and Swatow Railway Co., capitalized at $3,303,303 Mex., 
 was the first distinctly Chinese railway organization which 
 has succeeded in constructing and operating a road. Con- 
 struction work was commenced in September, 1904, and 
 carried out by Japanese engineers. The road was open to 
 traffic throughout its entire length of about 30 miles by No- 
 vember, 1906. But the competition of the slow but cheap 
 boat lines was so keen and the length of the railway was so 
 short that its earnings have been very poor. No dividends 
 have been paid since 1906. Now the manager of the road 
 plans to raise more funds to extend the line to Sheklung on 
 the Canton-Kowloon Railway.^ 
 
 ' Chinese merchants usually formed a " guild " to carry on an en- 
 terprise on any large scale. 
 
 ' Anderson, Railway Situation in China, U. S. Special Consular Re- 
 port, no. 48, p. 25. (Washington, D. C, 191 1.) 
 
319] PROVISIONAL AND PRIVATE ENTERPRISES 91 
 
 The activity of the private entrepreneurs of China was 
 next seen in the Provinces of Kwangtung and Hunan, where 
 the wealthy merchants and gentry combined to redeem the 
 American interests when the Belgians gained control of the 
 American China Development Co. The Mercantile Ad- 
 ministration of Yuet-Han (Canton-Hankow Railway Co.) 
 was then organized in 1905 with a capital of $40,000,000 
 Mex. on which calls have been made for carrying on the 
 work. By 191 1, about one-half (100 miles) of the Kwang- 
 tung section of the whole line had been completed. The 
 Hunan section has been undertaken by a separate provincial 
 company which has raised about $5,000,000 Mex. and has 
 completed about 35 miles of railroad. Owing, however, to 
 the difficulty of raising enough funds to push the work for- 
 ward and the strong opposition of the villagers, progress 
 has been very slow.^ 
 
 In 1906, we find construction work begun on four other 
 private roads, vis., the Hsinning Railway in Kwangtung 
 province, the Kiangsi ( Kiukiang-Nanchang) Railway in 
 the Province of Kiangsi, the Anhui (Wuhu-Kuangtechow) 
 Railway in the Province of Anhui and the Chekiang- 
 Kiangsu ( Shanghai-Hangchow-Ningpo) Railway. In 1907, 
 work on the Fukien (Changchowfu to Amoy) Railway in 
 the Province of Fukien and the Tsitsihar Light Railway in 
 North Manchuria was started by natives. In 1910, the rails 
 of the Tungkuan-Honanfu (Lotung) Railway in the Prov- 
 ince of Honan and the Szechuan-Hankow Railway were 
 laid from their respective terminals.'' 
 
 Besides the above lines on which work has been actually 
 done there were many other lines projected, e. g., the Har- 
 bin-Shuhui-Huilin line, in Manchuria, a light railway of 
 about 150 miles; the Yushan (in Kiangsi) to Changshan 
 
 1 Anderson, op. cit., pp. 21-23. 
 
 ' China Year Book (in English), (London, 1914), pp. 234-242. 
 
92 RAILWAY PROBLEMS IN CHINA [320 
 
 (in Chekiang) line; and the Tungpu line. For the con- 
 struction of these lines local funds were raised in 191 1. 
 There were alsoi other projects which were of less definite 
 nature. All these lines, however, had been surveyed before 
 the Revolution of 191 1 broke out.^ 
 
 The Chekiang-Kiangsu, the Szechuan-Hankow, the Can- 
 ton-Hankow and the Lotung lines are considered trunk lines 
 which we will discuss later in greater detail. The rest of 
 the roads which have been completed or are under construc- 
 tion at present are taken as branch lines and are therefore 
 of only secondary importance. It is, however, interesting 
 and instructive to study briefly the experiences of a few of 
 the private and provincial railway companies which were 
 more or less successfully organized and have actually done 
 something real and tangible. 
 
 I. The Hsinning Railway ^ 
 
 The Hsinning Railway Co. was originally formed with a 
 capital of $2,660,000 Mex. Later the capital of the com- 
 pany was increased to $4,306,120 Mex., $1,000,000 of which 
 represents loans from merchants. The company was or- 
 ganized by Mr. Chin Yu-hee, who gained his knowledge of 
 railway matters in the United States of America where he 
 resided for many years. It was due to his influence that the 
 Chinese residents in the United States subscribed most of 
 the capital. A small part of it was subscribed by the Chinese 
 merchants in Hongkong. 
 
 The line runs through the Hsinning district of Kwang- 
 tung province. The completed section of the line running 
 from Kongmoon to Samkaphoi (a harbor site in lower 
 Hsinning) via Kongyik and Hsinnighsien is about 68 miles 
 
 ' Anderson, Railway Situation in China, passim. 
 
 ' China Year Book, 1914, p. 239. And The Far Eastern Review, 1909, 
 Nov., pp. 254-257. 
 
32 1 ] PROVISIONAL AND PRIVATE ENTERPRISES 93 
 
 in length. The cost of construction is estimated at $3,510,- 
 000 Mex. The company has already secured permission to 
 connect with the Canton-Hankow line from Kongmoon at 
 Fatshan. 
 
 There are two exceedingly remarkable features in con- 
 nection with this road, (a) It is the first railway in China 
 financed, constructed and operated entirely by Chinese. Not 
 a single cent of foreign money is invested in the enterprise 
 and not one foreigner is employed, (b) The salary paid to 
 the president of the line is perhaps the lowest received by 
 the head of any railway in the world. Mr. Chin Yu-hee, 
 the President, Chief Engineer and General Manager, signs 
 a voucher for $80 Mex. a month. The success of the enter- 
 prise is largely due to his energetic activity and commend- 
 able devotion. The completed section of the line is operated 
 very economically. Work on the extension has, however, 
 been somewhat delayed by the unsettled conditions prevail- 
 ing in the country and by the local opposition, because of 
 superstitions, to the building of bridges over ponds or 
 creeks. 
 
 II. The Kiukiang-N anchang Railway ^ 
 After having obtained the right of way in 1904, the Kiu- 
 kiang-Nanchang Railway Co. secured permission from the 
 Board of Commerce to issue lottery tickets in order to raise 
 the necessary capital for construction. It was originally 
 contemplated extending the line from Nanchang to Shao- 
 chow to Kwangtung, to connect there with the Canton- 
 Hankow Railway. The line was surveyed in 1905, but 
 actual construction was not commenced until 1908. The 
 company was organized with a capital of Tls. 2,800,000. 
 From the beginning financial troubles set in and work was 
 greatly retarded. The company had planned to contract 
 
 1 China Year Book, 1914, p. 241. Anderson, op. cit., p. 19. 
 
94 RAILWAY PROBLEMS IN CHINA [322 
 
 loans from local banks, but the money was not forthcom- 
 ing in a way to permit rapid work. 
 
 It is reported that only about one-half of the whole line 
 of 87 miles in length is near completion. Trains are run- 
 ning over a short distance of the road. The engineering 
 staff, until very recently, was entirely Japanese. No engi- 
 neering obstacle is encountered in building the line, but the 
 difficulty of securing a sufficiently large capital from local 
 sources to complete the line has embarrassed the railway 
 management greatly. 
 
 In 1912, the company arranged a loan agreement with a 
 Japanese syndicate for Yen 5,000,000; but the condition 
 that all contracts were to be in the hands of the syndicate and 
 also the mode of paying the proceeds of the loan aroused 
 serious opposition from these merchants and gentry who 
 have interests in the enterprise. 
 
 III. The Fukien Railway ^ 
 
 In 1905, the Merchants' Fukien Railway Co. was or- 
 ganized by Mr. Chen Pao-chen. In 1906, the route from 
 ChangchO'W to Amoy, a distance of 33 miles, was surveyed ; 
 and a right of way was secured to connect Fukien with 
 Kwangtung on the south, and with Kiangsi on the west. 
 The company was originally formed with a capital of $6,- 
 000,000 Mex. in $5 shares on which a call of one dollar has 
 been made from the Chinese residents of the Straits. The 
 provincial taxes upon salt and grain were pledged as security 
 for interest upon the shares 'of the company. Thus the 
 road was voluntarily transferred to the Provincial Govern- 
 ment, notwithstanding the claim of the so-called share- 
 
 ^ Far Eastern Review, vol. vi, no. 6, pp. 262-266; and vol. x, no. 8, 
 p. 321. 
 
 2 The so-called " shares " as stated in the reports of the company- 
 are in reality bonds. 
 
323] PROVISIONAL AND PRIVATE ENTERPRISES 95 
 
 holders, who were ignorant of corporation laws, that the 
 road was a private enterprise. 
 
 The officials and engineers of the road are all Chinese. 
 The company has contracted with Japanese firms for 
 sleepers. In 1909, a year after the construction work 
 was begun, all the funds previously obtained were exhausted 
 and a loan of $500,000 was raised from the Bank of Com- 
 munication. In 1914 less than twenty miles of the line was 
 open to traffic ; also, the financial strength of the merchants 
 had failed. 
 
 IV. The Shanghai-Hang chow-Ningpo Railway ^ 
 The history of this road teaches a lesson of what is 
 known as " Might is Right." We remember that when the 
 " Battle for Concessions " was at its height at Peking, the 
 British and Chmese Corporation secured with official sup- 
 port the preliminary agreement for the concession of the 
 Soochow-Hangchow-Ningpo road. As the Corporation was 
 fully occupied in financing the Shanghai-Nanking and the 
 Kowloon-Canton ^ roads the perfecting of this concession 
 was consequently delayed. According to the agreement the 
 concession could be canceled. In fact, Mr. Sheng Hsuan- 
 huai in 1903 notified the Corporation to this effect, but the 
 representatives of the Corporation turned a deaf ear to his 
 note. The Ministry of Commerce at the same time recom- 
 mended the Throne to cancel the original concession. The 
 Manchu Throne took the advice. An Imperial Edict of 
 September 23, 1905, transferred the right of construction 
 to a provincial railway bureau which was organized to con- 
 struct the road with Chinese capital only. Under this au- 
 thority two companies — the Kiangsu Railway Co. and the 
 
 > Far Eastern Review, vol. vi, pp. 240-250. China Year Book, 1914, 
 pp. 239-240. 
 2 Cf. infra, pp. I33-I3S- 
 
.96 RAILWAY PROBLEMS IN CHINA [324 
 
 Chekiang Railway Co., were formed to construct and oper- 
 ate the whole line. The Kiangsu Railway Co. was organized 
 with a capital of $3,000,000 to take up the road between 
 Shanghai and Fenching. The Chekiang Railway Co., oper- 
 ating the road from Fenching to Hangchow and Ningpo, 
 was oi-ganized with a capital of $5,000,000 all paid up. 
 
 The British Co. then awoke from its lethargy and pro- 
 tested very violently against this infringement of its 
 rights. Under British diplomatic pressure the Peking Gov- 
 ernment had to agree to sign a loan agreement ^ with the 
 British company for a 5 per cent Gold Loan of £1,500,000 
 for the construction expenses of the road on terms similar 
 to the Tientsin-Fukow Agreement.^ This loan was strongly 
 opposed by the provincial companies on the following 
 grounds : 
 
 1. As the British concessionaires did nothing during the ten 
 years after the conclusion of the preliminary agreement in 
 1897, the concession has now lapsed. 
 
 2. In June, 1903, H. E. Sheng Hsuan-huai wrote officially 
 to A^r. Brenan (the representative of the Corporation) to the 
 effect that if the concessionaires failed to commence work 
 within six months, then the preliminary agreement would be 
 cancelled, but no reply was received from the representative 
 nor was work begun at that time. 
 
 3. The Chinese Railway Cos. of Kiangsu and Chekiang have 
 no need to float a loan from the said Corporation as was done 
 for the proposed Tientsin-Chinkiang trunk line, for they have 
 funds themselves to build the Soo-Hang-Ning Railway with- 
 out assistance. 
 
 4. The natives of Kiangsu and Chekiang obtained Imperial 
 permission last year to construct the railway with purely 
 Chinese mercantile funds. 
 
 ' Chung Hvoa Fa Kwei Tai Tsueuen, Treaties, vol. xi, leaves 24-28. 
 2 Cf. infra, pp. 136-138. 
 
325] PROVISIONAL AND PRIVATE ENTERPRISES gy 
 
 5. The Chinese Railway Co. at Hangchow has now com- 
 pleted the construction of the short railway from that city to 
 Kianghu and has opened it to traffic as part of the section in 
 Chekiang, while the company at Soochow is laying rails for 
 the Shanghai-Sungkiang portion and preparations are being 
 made to push them forward as soon as possible. 
 
 6. Although the proposed loan of £1,500,000 is to be guar- 
 anteed by the Provincial Governments of Kiangsu and Che- 
 kiang, yet, as both capital and interest will be repaid out of 
 the profits of the railway in future, it is the same as placing it 
 on mortgage. 
 
 7. As the construction of railways in China with Chinese 
 money is an important matter, the Peking Government should 
 exert itself to retain full control, otherwise the consequences 
 will be greatly detrimental to both the country and the people. 
 
 Realizing the seriousness of the matter, the Central Gov- 
 ernment asked that the two provinces concerned send a 
 deputation of delegates to Peking to state directly the case 
 against the foreign loan. It might be remarked here that 
 the delegation thus summoned was regarded as the begin- 
 ning of provincial representation in the capital. The British 
 Government, however, brought such a great pressure upon 
 Peking that the Central Government, despite the decided 
 opposition of the provincial companies supported by a 
 unanimous public sentiment, had to complete the manifestly 
 unfair loan agreement with the British company in March, 
 1908. A vigorous campaign in opposition to this action 
 was carried on throughout the two provinces, and new ef- 
 forts were made to raise money to operate the completed 
 section of the road and to extend the line to Ningpo. In 
 June, the Chekiang Railway Co. authorized an increase of 
 capital of $15,000,000 to be paid in five instalments. In 
 response to the earnest appeal of the company more than 
 53,000 persons subscribed for the stock. Nearly 40,000 of 
 the shareholders were laborers, farmers and small trades- 
 
98 RAILWAY PROBLEMS IN CHINA [326 
 
 men. The first call on the new issue of $3,000,000 has been 
 paid in. 
 
 The Government was thus placed in a difficult position. 
 A deadlock followed. After considerable delay the Gov- 
 ernment effected a compromise, by which the construction 
 of the line was left in the hands of the provincial companies, 
 while the Board of Communications allotted a certain sum 
 of the British loan at 5^ per cent interest, charging 7 per 
 cent of the amount as premium.^ 
 
 Having ample funds to complete the whole road, the com- 
 panies loaned the money to the local banks at a higher rate 
 of interest than that exacted from them by the Government. 
 In reality the money obtained from the British company 
 was never spent on the road. Although the loan provided 
 for the employment of a British engineer and the purchas- 
 ing of materials through the British company, the provin- 
 cial companies were very reluctant to permit the British 
 engineer to inspect the line and had flatly refused to accept 
 the purchasing agents' services. Consequently they had to 
 pay the sum of $250,000 Mex. in lieu of the 5 per cent com- 
 mission for the purchasing agents' services stipulated in the 
 loan agreement. 
 
 The Government from time to time vainly endeavored to 
 persuade the British company that it should permit the Gov- 
 ernment to utilize the funds in other directions. The Gov- 
 ernment went on paying 5 per cent interest for five years 
 until the line was nationalized in 1913.^ The British never 
 abandoned their hope of securing ultimate control of the 
 line. This is the case of a forced loan ! This is the lesson 
 of " Might is Right " ! 
 
 The section of the line from Shanghai to Hangchow, 116 
 
 ' Chung Hwa Fa Kwei Tai Tsueuen, Treaties, vol. vi, leaves 28-30. 
 2 Cf. infra, p. 128. 
 
327] PROVISIONAL AND PRIVATE ENTERPRISES gg 
 
 miles long with 36 miles of siding, is completed — the long- 
 est private road ever built by Chinese engineers with Chinese 
 capital. A part of the section between Hangchow and 
 Ningpo, a distance of about 112 miles, has been completed, 
 but the road has not been competently managed. No divi- 
 dends have ever been paid to the Kiangsu shareholders. The 
 Chekiang Railway Co., however, has given its shareholders 
 a guarantee of 7 per cent interest on the paid-up value of 
 their shares,^ this constituting a first lien on the revenues of 
 the property. 
 
 V. The Szechucm^Hankow Railway ^ 
 
 The history of the Szechuan-Hankow Railway is some- 
 what similar to that of the Shanghai-Hangchow-Ningpo 
 Railway. The results of a foreign loan for the former were, 
 however, much more serious than for the latter road. In 
 1904, a company had been organized by Hsi Liang, then 
 Viceroy of Szechuan, in order to prevent a foreign loan 
 being raised for the construction of the line. Shortly after- 
 wards the services of two Chinese engineers (American stu- 
 dents), Messrs. Hu and Luk, were secured to survey the 
 line, but nothing developed from the survey. The policy of 
 the company at that time was to defer work until sufficient 
 funds were in hand to complete the section from Ichang to 
 Kweichow, a distance of about 100 miles. 
 
 In 1906, the people of Szechuan and Hupeh took into ser- 
 ious consideration the matter of constructing this road, and 
 some $600,000 Mex. was subscribed to promote the con- 
 struction of this line. A college was also established for 
 
 1 The word " shares " as employed in the reports of this company is 
 misleading as the so-called shares are in reality debentures with a 
 priority over any further loans. 
 
 ^ China Year Book, 1914, pp. 233-4; Anderson, Railway Situation in 
 China, pp. 16-18. 
 
lOO RAILWAY PROBLEMS IN CHINA [328 
 
 training railway engineers. Although agitations from those 
 who wished to see the railway built with native capital broke 
 out from time to time, nothing was actually done on the 
 road until 1909 when the Four Nations' Loan question came 
 up, whereupon a considerable amount of capital was raised 
 in Szechuan and spent upon it. 
 
 At a meeting of shareholders held in November, 1909, the 
 accounts submitted showed that a sum of Tls. 15,405,902 
 had been collected in shares, of which only 28 per cent had 
 been subscribed voluntarily, the greater proportion of the 
 remainder having been collected as " tsu ku," i. e., shares 
 given in exchange for forced levy, payable by every land- 
 holder in the form of an addition to his land-tax. Offices 
 were established in the different districts to collect the land- 
 tax shares, and as there are over 100 districts in Szechuan, 
 that number of offices were established. Each office was 
 allowed Tls. 200 on every Tls. 10,000 worth of shares col- 
 lected — the allowance covering the cost of remitting the 
 share money and other sundry expenses. 
 
 During 19 10, work was pushed on with great energy. 
 Construction was in progress for a distance of 80 miles 
 from Ichang toward Kweichow. In May, 191 1, when the 
 Four Nations' Loan was concluded by the Government the 
 dissolution of the company was threatened, a national revo- 
 lution precipitated, and work interrupted. After the revo- 
 lution the line was taken over by the Government.^ 
 
 This record of the above-mentioned enterprises is suffi- 
 cient to show that the people are more and more interested 
 in railway matters and that the pressure from the people in 
 favor of railway construction, taking the country as a 
 whole, is growing. At the present, as the Government up- 
 holds its nationalization policy, a notable feature of the 
 
 1 Cf. infra, p. 129. 
 
329] PROVISIONAL AND PRIVATE ENTERPRISES loi 
 
 situation is the comparatively rapid development in different 
 parts of the country of the desire for railways tributary to 
 the lines already constructed. This shows also an apprecia- 
 tion of the need, in the development of local industries, of 
 close and convenient connections with trunk lines. Many 
 cities are coming to appreciate the fact that they must have 
 railway connections at once or their present share of the 
 trade of the country will be lost. In fact, a number of 
 small lines have been either projected or are in the course 
 of construction; many new enterprises have been inaugu- 
 rated, and many ambitious plans are laid out. 
 
 But in almost every case work has been either suspended 
 or delayed due to the lack of funds on the part of the pro- 
 moters and, also, to the difficulty of raising the necessary 
 money. The fact that some of the railways already in oper- 
 ation have been poorly managed or have been operated under 
 conditions that make it impracticable to secure fair returns 
 on the capital invested in them is a constant discouragement. 
 These and other causes have led the Government to take 
 over all trunk lines which have been undertaken by private 
 entrepreneurs, especially those which have been unduly de- 
 layed in execution. 
 
 Nevertheless, the demands of trade in the interior are 
 becoming more pronounced in favor of more rapid, safer, 
 and better communication. Public sentiment is steadily pre- 
 paring for tremendous railway development. It is undoubt- 
 edly true that the technics of railroad financing, construction 
 and management must be learned by the Chinese railroad 
 men. As China has the experience of other countries for 
 her guidance, in time this problem will be solved one way or 
 another. The question of state regulation, especially finan- 
 cial regulation, of private enterprises, has been taken up 
 seriously by the Government but has not been solved satis- 
 factorily. The most important question facing the country 
 
I02 RAILWAY PROBLEMS IN CHINA [330 
 
 is that of healthy financing and rapid construction. To give 
 encouragement to the private enterprises, far-sighted and 
 systematic management on the part of the railway managers 
 and intelligent legislation on the part of the Government 
 are factors absolutely indispensable. As provision is made 
 by the Government whereby private companies may under- 
 take the construction of branch lines, in the future private 
 capital will be used almost wholly for developing the local 
 interests. 
 
CHAPTER VII •; 
 
 The Railways Built by the Government 
 
 We have studied some of the loan-built railroads in Chap- 
 ter V. We will consider the others later. All these roads, 
 which are now or have been supervised jointly by Chinese 
 and foreigners during construction or in operation, are con- 
 sidered Chinese Government railways.^ If the status quo of 
 China can be maintained and in course of time the loans re- 
 paid these roads will be, sooner or later, entirely at the dis- 
 posal of the Government. The Peking-Hankow road has 
 been repurchased by China. Others will be redeemed later. 
 In addition to these there are two Government railroads 
 which were built under purely Chinese supervision with 
 Chinese capital. Now we are in a position to consider these 
 two roads. 
 
 I. The Pinghsiang-Chuchow Railway ^ 
 
 This road was surveyed by American engineers under Mr. 
 Wm. Barclay Parsons in 1898, when the reconnaisance was 
 made for the Canton-Hankow railway. Construction work 
 commenced in 1899. It was built by Chinese and American 
 engineers with Chinese capital and is 70 miles long con- 
 necting the An- Yuen coal mines under German operation at 
 Pinghsiang with Chuchow, a small town on the Hsiang- 
 
 ' See China Year Book, 1914. PP- 219-334- 
 
 ' This road belongs to the 2nd Period. It is placed here simply for 
 the purpose of grouping under this heading. Reference: Far Eastern 
 Review, Nov., 1909, PP- 3i8-3i9- 
 
 331] '°3 
 
I04 RAILWAY PROBLEMS IN CHINA [332 
 
 Kiang River through which coal is shipped to the Hanyang 
 Steel and Iron Works. 
 
 A college of engineering, mining and language was estab- 
 lished, in which Chinese students are trained for the many 
 branches of work which require a more skilled labor. With 
 the exception of the heads of the important departments the 
 railroad engineers, conductors, etc., are all Chinese. 
 
 The cost of constructing the entire line was approxi- 
 mately Tls. 3,600,000 (roughly £7,000 per mile). It is in- 
 teresting to compare the cost of this road to that of the 
 Peking-Syndicate road which was constructed under purely 
 foreign supervision with foreign funds. Both roads were 
 built with the same objective — the transportation of coal 
 from the mines to a navigable river. The Peking-Syndicate 
 road has cost the Government £6,830 per mile for its trans- 
 fer, or, allowing for certain contingencies, the same as the 
 Pinghsiang line. 
 
 II. The Peking-Kalgan Railway '■ 
 
 The construction of this line was commenced from Peking 
 in October, 1905. Nine months later, the Nankow Pass 
 was reached, a distance of 32 miles, and by the end of 1909 
 the whole line was completed. Its total length is about 130 
 miles, extending to Tatungfu in the Province of Shansi. 
 There are many weighty facts of construction, including 
 tunnels, at the Nankow Pass, where a gradient of i in 30 
 for five miles has been introduced. Mr. Jeme Tien-yow, a 
 Yale graduate, was appointed as the Chief Engineer to un- 
 dertake the construction work. When the construction of 
 the line was first proposed many people believed that the 
 Nankow Pass would present insuperable difficulties from 
 the engineer's standpoint. When Mr. Jeme suceeded in com- 
 
 ^Far Eastern Review, Nov., 1909, pp. 320-328. 
 
333] RAILWAYS BUILT BY THE GOVERNMENT 105, 
 
 pleting this important work he was hailed throughout the 
 world as the " father " of Chinese railway engineers, and 
 honors were heaped on him by his fellow-countrymen and 
 by his Government. 
 
 The line was built entirely under Chinese supervision and. 
 from the surplus profits of the Peking-Mukden Railway. 
 In the construction of this line there are several features 
 which render it distinct from other railroads in China : 
 
 1. It is the first Government railroad built entirely by 
 Chinese — not a single foreigner has been employed. This 
 is a national pride. The successful manner in which the 
 construction work has been carried out is a striking object- 
 lesson of what can be accomplished by the people of China 
 who have received a technical training. It acts also as an 
 incentive to other Chinese enterprises. 
 
 2. It was the most serious engineering proposition ever 
 undertaken in China. In the Nankow Pass, besides the 
 steep gradients and a number of sharp curves, heavy cuts 
 and fills were required and four tunnels, the total length of 
 which is 5,370 feet, had to be pierced. Furthermore, the 
 engineering difficulties in the Kimingyih-Kalgan section of 
 the line were almost as serious as those of the Nankow Pass. 
 
 3. Considering these engineering difficulties, the substan- 
 tial character of the road and the low cost of construction 
 (under £10,000 per mile), it may be said that this road has 
 established a record in mountain railway building. This at 
 the same time shows that there was strict honesty in super- 
 vising the work. " Economy on the Peking-Kalgan Rail- 
 way has been almost reduced to a science," says the World's 
 Chinese Students' Journal of Shanghai (1909). 
 
 The road is of great political importance. It facilitates 
 communication between Mongolia and China proper. 
 Russia has endeavored to undermine the loyalty of the 
 
Io6 RAILWAY PROBLEMS IN CHINA [334 
 
 tribal chieftains in Mongolia. When the road is ultimately 
 ■extended to Urga (the capital of Outer Mongolia) and to 
 Kiakta (the frontier town), China will be able to strengthen 
 her control over that vast region. 
 
 The road has also great commercial value, for it taps the 
 overland trade of North China and Mongolia. With the 
 completion of the road, Kalgan, the great soda-manufactur- 
 ing center and the seat of extensive transit trade between 
 North China and Mongolia, will present a dififerent pros- 
 pect and undoubtedly become very prosperous. As to the 
 line itself it supports its upkeep very satisfactorily. In 191 1, 
 the net revenue of the line amounted to over $3,500 Mex. 
 per mile, and in 1912 to $9,000 per mile — a good result. 
 The surplus is being used to extend the line. 
 
CHAPTER VIII 
 Nationalization of Railways 
 
 The policy of nationalizing the railways which form the 
 different sections of the future trunk systems became more 
 definite and prominent in 191 1, when Mr. Sheng Hsuan- 
 huai headed the Ministry of Communications and Posts.^ 
 The memorials of the Tsung-li Yamen and the Board of 
 Mines and Railways, and of such prominent men as Li 
 Hung-chang, Chang Chi-tung and others, presented to the 
 Manchu Throne, and the Imperial edicts given out corres- 
 pondingly from time to time, seemed to indicate the exist- 
 ence of such a policy; nevertheless, it was not considered 
 seriously in those days. Mr. Tsen Chun-hsuan, who held 
 the post of the President of the Board of Communications 
 for a short time in 1907, had also petitioned the Throne 
 suggesting the advisability of having China's railways under 
 proper unified control with a proper system,^ but again his 
 views were not taken into serious consideration. Mr. Tsen 
 did not suggest the taking over of the private roads. 
 
 Mr. Sheng's policy was to have all trunk lines built, oper- 
 ated and controlled by the Government and to have those 
 under private construction resumed by the State.' In order 
 
 * By an Imperial Edict of Nov. 6, 1906, which was issued to reform 
 the Metropolitan official system, the Board of Communications and the 
 Board of Navy were created to control the services and systems of 
 telegraph, steam navigation, railway and post. 
 
 ' English translation of the memorial, in Journal of the American 
 Asiatic Association, Feb., 1910, p. 14. 
 
 3 Cf. infra, pp. 1 16- 11 7. 
 
 335] 107 
 
Io8 RAILWAY PROBLEMS IN CHINA [336 
 
 to explain how this important policy came about and to note 
 its effects upon the national life of China, it is desirable to 
 record the essential facts which occurred after 1906 in re- 
 gard to the railway. 
 
 I. The Conflicts of Interest 
 
 After 1906, as we have seen, a number of provincial 
 companies came into existence, mostly for patriotic rea- 
 sons. Some of them secured concessions directly and some 
 of them indirectly through the provincial Administrations 
 from the Central Government which at that time had no 
 definite idea whatsoever of state ownership or of central 
 control of trunk roads. It granted concessions to the prcH 
 vincial companies simply with the expectation of construct- 
 ing the railways by its own people, thus preventing the 
 trouble of raising foreign loans and eliminating foreign con- 
 trol. Hence, even some of the trunk lines were granted to 
 the provincial companies for financing and construction. 
 The Shanghai-Hangchow-Ningpo, the Canton-Hankow, the 
 Szechuan-Hankow, the Tungpu and the Lotung lines were 
 the most notable instances. But later on when it was dis- 
 covered that the provincial companies had not carried out 
 the work satisfactorily and the construction of the lines was 
 either too slow or totally suspended, the Government began 
 to change its attitude towards them and planned to cancel 
 the provincial concessions. 
 
 Meanwhile, the country was in a precarious situation. 
 China's neighbors made trouble with her. Japan on the 
 Yalu, Russia on the North, France and Great Britain in 
 Yunnan and Kwangsi had all raised boundary ques- 
 tions. Internal troubles arose everywhere. Secret societies 
 in the South were particularly active aiming to overthrow 
 the Manchu dynasty. From every point of view further 
 humiliation of the country seemed inevitable and days of 
 
337] NATIONALIZATION OF RAILWAYS 109 
 
 trouble for the Empire were not far off. For the sake of 
 preserving the prestige of the dynasty and the safety of the 
 country, the Government reaHzed that at the critical moment 
 a show of force must be made. 
 
 The new army of thirty-six divisions had already been 
 successfully centralized under the command of the Minister 
 of War instead of being placed under the command of the 
 several governors and viceroys separately as it was before. 
 But the lack of transportation with the South and the West 
 would render the mobilization of this army impossible. 
 Such a condition demanded the construction of the lines 
 linking the four quarters of the country without delay. As 
 the provincial companies could not accomplish what the 
 Government expected them to do, naturally the Government 
 stepped in to take the matter up itself and adopted the same 
 policy with regard to the railway as to the new army. 
 
 But the Treasury was empty. It was impossible for the 
 Government to accomplish its object without raising loans 
 abroad. Therefore, on June 6, 1909, Chang Chih-tung, then 
 Grand Councillor, signed a preliminary agreement with the 
 representatives of some British, German and French banks 
 for a loan of £5,500,000 for the construction of the Hupeh- 
 Hunan section of the Canton-Hankow line, the Hankow- 
 Szechuan road and for other expenditures. These two 
 roads are of national importance. The former when com- 
 pleted will connect Peking with Canton, while the latter will 
 connect Chengtu (the capital of Szechuan) with Hankow 
 (the Chicago of China). 
 
 Since an agreement had been made on October i, 1903, 
 between Prince Ching, then President of the Foreign Board, 
 and Sir Ernest Satow, then British Minister at Peking, stip- 
 ulating that American capital might be admitted to the 
 Szechuan road, a group of American financiers accordingly 
 wanted to co-operate in the loan. China was glad to have 
 
no RAILWAY PROBLEMS IN CHINA [338 
 
 American participation in the loan, because she has more 
 confidence in the United States than in any other country. 
 But the three banking groups, who had already secured the 
 concession, refused to admit a new partner. The State De- 
 partment of the United States then came out and exerted its 
 influence for the benefit of a particular syndicate ^ which it 
 designated to take up the loan. The basis for intervention 
 on the part of the American Government was the promise 
 made by Prince Ching in his Red Note of July 18, 1904, to 
 the American Minister, Mr. Conger, replying to the applica- 
 tion of the China Investment and Construction Co. for a 
 loan concession for the Hankow-Szechuan road. After 
 much tedious diplomatic negotiation ^ the United States 
 succeeded in her demands for participation in the loan. On 
 August 17, 1909, another contract was drafted by which 
 the loan was raised to £6,000,000, divided equally among 
 the four groups ; hence it is called the "Four Nations' Loan." 
 But the matter was not settled. Russia and Japan, who 
 have not sufficient funds to exploit their own resources and 
 no money to lend, also desired to participate in the loan, and 
 urged a further increase of the amount of the loan. Further 
 discord arose. The loan was thereby temporarily suspended. 
 International controversy then followed. Severe accusa- 
 tions were exchanged between the Powers. We will study 
 this phase of the controversy in connection with the loan 
 later. Its brief outline is mentioned here simply for the pur- 
 
 ' Secretary Knox turned the financial negotiations over to the Wall 
 Street bankers, headed by J. P. Morgan & Co., and advised them to 
 put in a claim for participation, at the same time ignoring the claim 
 of the China Investment & Construction Co., which had secured the 
 original promise from the Chinese Government. Members of the 
 latter company severely criticized Secretary Knox for favoring the 
 former. See Wall St. Journal, Feb. 15, 1910. 
 
 ' Cf. infra, Hukuang Railways. 
 
339] NATIONALIZATION OF RAILWAYS m 
 
 pose of showing its effects upon the people of China and its 
 relation to the nationalization program. 
 
 The threatening actions of Russia and Japan, the quar- 
 rels and turmoil among the Powers themselves, and above 
 all the shaking of " mailed fists " at China by the aggres- 
 sive Powers produced a bad impression upon the chil- 
 dren of China who suspected that there were pernicious 
 schemes planned by the aggressive Powers. Meetings were 
 held everywhere. Many Railroad Associations were formed 
 to recover the sovereign rights. Patriotic subscriptions were 
 made for the building of the two roads. Telegrams and pe- 
 titions of protest were sent from all classes of the people to 
 the central authorities. The students and gentry of Hupeh 
 and Hunan warned Peking that they would resist the con- 
 struction of any railroads in their provinces unless the 
 terms of the loan contract were first submitted for the ap- 
 proval of the provinces concerned. As in the case of the 
 Shanghai-Hangchow-Ningpo road, delegates were sent by 
 the two provinces to the Central Government to state their 
 cases against he loan. According to the telegrams sent to 
 Chang Chih-tung and the Board of Communications and 
 Posts they protested against the loan on the following 
 grounds : ^ 
 
 1. Foreign loans had always proved detrimental to 
 Chinese political interests. 
 
 2. Since over eight-tenths of the Chinese railroads were 
 controlled by foreign Powers, further alienation would 
 prove harmful. 
 
 3. By the Imperial Edict of 1899,^ prepared by the Bureau 
 of Mines and Railways, Chinese were to have prior right in 
 the construction of their own railroads. 
 
 ^Journal of the American Asiatic Association, Oct., 1911, vol. xi, no.. 
 9, p. 277- 
 2 Cf. supra, pp. 37-39- 
 
112 RAILWAY PROBLEMS IN CHINA [340 
 
 4. The Provincial Railway Association guaranteed to 
 raise the necessary amount of money, if privileges and al- 
 lowance of time similar to those granted to the foreign 
 Powers were accorded to it. 
 
 The provincial attitude was so determined and so firm 
 that the ratification of the loan was further delayed. On 
 the other hand, the loan Powers, except the United States, 
 demanded its early ratification by addressing an incidental 
 note to the Waiwupu. The Peking authorities were thus 
 placed in a very delicate and difficult position. Another 
 deadlock similar to that of the case of the Shanghai-Hang- 
 chow-Ningpo road was followed for more than one and a 
 half years by patriotic agitation on the one hand in the prov- 
 inces concerned and by diplomatic controversy on the other 
 in Peking. 
 
 Meanwhile, heroic measures were taken by the two prov- 
 inces to raise the necessary annual allotment on the shares 
 in order to construct their portion of the southern trunk 
 line. But the materialization of the funds was slow and a 
 slight progress in the construction work was made only 
 with waste and extravagance. Agitations, however, still 
 continued and spread far and wide with great rapidity. 
 
 The people of China now as a whole feared that the na- 
 tions which advanced the money would obtain internal con- 
 trol over the affairs of the country and that the application 
 of the Hukuang Loan {i. e., Four Nations' Loan) would be 
 but the fastening of the last nail in the coffin for China. 
 They denounced the a.ction of the Government as a grave 
 blunder. The suspicious procedure in the loan negotiations 
 and the pretensions of Russia and Japan added " oil to the 
 flames ". The people then demanded a more intimate ac- 
 quaintance with the management of the affairs of the coun- 
 try. The Manchu Throne was compelled to grant on Octo- 
 
341 ] NATIONALIZATION OF RAILWAYS 113 
 
 ber 14, 1909, the establishment of the National and Provin- 
 cial Assemblies. The provinces' persistent opposition to the 
 humiliating foreign loans had given impetus to the constitu- 
 tional movement. 
 
 Nevertheless, each province was desirous of building its 
 own railroads and of making out of them whatever profits 
 might accrue. Grand Councillor Chang Chih-tung had 
 formulated a scheme, generally acceptable to the provin- 
 cial delegates at Peking, whereby the profits and control of 
 the Government railways would be divided upon a prear- 
 ranged scale between Peking and the provinces concerned. 
 Had his death in October, 1909, been deferred, the loan 
 question would have been solved without serious conflicts. 
 
 It is desirable to point out here that it is a false belief 
 that the people of China are opposed to all foreign loans. 
 They opposed some particular loans only, which were nego- 
 tiated under suspicious circumstances and humiliating con- 
 ditions. As a matter of fact, the provincial companies, who 
 have endeavored to secure foreign loans on their account 
 without vexatious financial supervision, hawked their 
 securities in the money markets in Shanghai and elsewhere 
 in China. Simply because of the formal declaration of the 
 Imperial Edict, attached to the railway regulations ^ pre- 
 pared by the Board of Mines and Railways, that provincial 
 loans or loans raised by any Chinese merchants which have 
 not been sanctioned by the Central Government would not 
 be recognized as Imperial liabilities, and for the lack of suf- 
 ficient guarantees and proper information about their finan- 
 cial condition, these securities were rejected by the foreign 
 banks and commercial houses. 
 
 Nevertheless, the provincials continued their campaign of 
 
 '"'Revised Regulations for Railway Construction in China," U. S. 
 Monthly Consular Reports, Apr., 1904, vol. Ixxv, no. 283. 
 
114 RAILWAY PROBLEMS IN CHINA [342 
 
 agitation and forced the Peking authorities to recognize 
 their rights to build the roads as provincial undertakings. 
 The Peking Railway Administration was at the same time 
 accused of corruption and graft. On the other hand, the 
 Central Government, anxious for the application of the Hu- 
 kuang Loan and the centralization of the railways, declared 
 that the provincial railway administrations could practically 
 accomplish nothing but flagrant dishonesty and waste of 
 money and time. 
 
 While the provinces insisted upon the recognition of their 
 sovereign rights, the Central Government intended to estab- 
 lish its authority more strongly all over the country. It 
 was too weak, however, to impose its Imperial will on the 
 provinces against their protests. None of the responsible 
 chiefs of the Boards of Finance and Foreign Affairs, not 
 even the Prince Regent and the Grand Councillors, endeav- 
 ored to stand out and meet with courage the revolt in Hunan 
 and Hupeh, threatened if this course were pursued. They put 
 the responsibility upon the nation and the obligations toward 
 the foreign Powers upon the shoulders of the President of 
 the Board of Communication and Posts. As the Board of 
 Communications and Posts was the storm center no offi- 
 cial, willing or strong enough to assume any responsibility, 
 could be found to preside over it. This explains the short 
 terms held by Mr. Sheng's predecessors in this office, most 
 of whom were sacrificed to the hostility and intrigues of the 
 provincials. In 1910, as we remember, when the Ministry 
 of Communications proposed to nationalize the Shanghai- 
 Hangchow-Ningpo road, agitation was so strong that it had 
 already practically led to and later culminated in a revolt. 
 
 When Mr. Sheng Hsuan-huai was raised to the Presi- 
 dency of the Board of Communications in January, 191 1, 
 he proved himself courageous enough to carry out the Im- 
 perial will. Mr. Sheng was regarded with great esteem by 
 
343 ] -^^ TIONALIZA TION OF RAILWA YS 115 
 
 the Peking authorities because of his intimate relations with 
 the Hukuang gentry/ His ability was recognized by for- 
 eigners and Chinese alike, and he was depended upon to win 
 over the people and thus overcome their hostility to the Hu- 
 kuang Loan, the terms of which could not be altered at that 
 time because the foreign banks considered them already too 
 liberal for the safeguarding of their investments. But, un- 
 fortunately, he was not strong enough, or rather the Gov- 
 ernment was not strong enough to support him, and his 
 records in the administration of the China Merchants' Steam 
 Navigation Co. and of the Imperial Telegraphs were not 
 clean enough to secure the confidence of the people. 
 
 To make matters worse, within four months of office he 
 had produced in the history of China an extraordinary per- 
 iod of frenzied finance and had increased China's indebted- 
 ness on paper by £17,500,000 sterling. 
 
 On March 24th, a loan of Yen 10,000,000 from the Jap- 
 anese and on April 7th, another of £500,000 from the East- 
 ern Extension and Great Northern Telegraph Cos. were 
 floated by him for the purpose of defraying the expenses of 
 the Board. By April i8th, he had contracted with the Four 
 Nations' Banking Group a loan of £10,000,000,'' thirty per 
 cent of which was to be expended for Manchurian develop- 
 ment, the balance for currency reform. The people were 
 greatly excited by the announcement of the latter big loan. 
 They sent to Peking violent protests which the Government 
 ignored until too late. 
 
 After having concluded the above successfully, Mr. Sheng 
 then turned his attention to the perplexing railway prob- 
 
 ' The Pinghsiang Colliery and Railway, the Tayeh Iron Mines and 
 the Hanyang Iron & Steel Works, all located in Hunan & Hupeh, had 
 been managed by Mr. Sheng. 
 
 » This loan was not floated owing to the Revolution of 191 1. See 
 China Year Book, 1914, chapter on Finance. 
 
Il6 RAILWAY PROBLEMS IN CHINA [344 
 
 lems. He decided tO' have the question of authority cleared 
 up once for all and definitely settled between the provinces 
 and Peking, because in almost every case the provinces op- 
 posed the application of such foreign loans as v^ere handled 
 through the central authorities. He knew well that until 
 this vital question of provincial and central rights was 
 solved one way or the other, railway development through- 
 out the whole country would remain at a standstill. 
 
 Realizing that, without a more effective control over the 
 loan funds, the foreign financiers would never agree to ad- 
 vance the vast sums required for reorganization and re- 
 form, and aiming to carry out the Imperial desire which em- 
 bodied an active federal policy of strengthening the Central 
 Government immediately after the organization of the Coun- 
 cil-Cabinet,^ Mr. Sheng chose the method of centralization 
 in dealing with the railways. The policy of centralization of 
 the control of railways was then clearly outlined. With the 
 support of Prince Ching's Cabinet he obtained the approval 
 of the policy from the Throne which had been convinced of 
 the disorganization and weakness resulting from the failure 
 of the provincial companies' attempt at railway construc- 
 tion. On May 9, 191 1, a most important Imperial Edict ^ 
 was issued on Mr. Sheng's advice, proclaiming in part as 
 follows : 
 
 After careful and repeated deliberations, the nation must pos- 
 sess a complete system of trunk lines to and from the four 
 quarters of her territory in order to administer the Govern- 
 ment by a grasp on the central pivot. . . . Therefore, we de- 
 sire to proclaim explicitly to the world that all the trunk rail- 
 
 1 The Edict, abolishing the Grand Council and organizing a Cabinet, 
 was issued on May g, 191 1, wliile amendments were made in the As- 
 sembly regulations giving greater power to the people. See Peking 
 Gazette of May, 191 1. 
 
 ^Ibid. 
 
345 ] ^^ TIONALIZA TION OF RAILWA YS ny 
 
 ways shall be State-owned; this shall be the fixed pohcy. 
 Whatever trunk railways in the provinces which were under 
 private management by companies established before the third 
 year of Hsun Tung (1911) have delayed in construction long 
 enough, they shall immediately be taken over by the Govern- 
 ment as State-owned, and their building work shall be pushed 
 on with energy. With the exception of the branch railways 
 which shall continually be allowed to be undertaken by the 
 people according to their ability, all cases of trunk railways 
 formerly granted shall be cancelled. With regard to the de- 
 tails in the manner of taking them over, let the Ministers of 
 Finance and of Communications and Posts gravely obey this 
 Decree, and devote their whole attention to devising the fulfil- 
 ment of it. . . . 
 
 Following this Edict another Imperial decree, purposing 
 to prevent any local manipulation of local shares, was issued 
 prohibiting the sales of railway shares in the provinces of 
 Hunan, Hupeh and Szechuan and directing the viceroys and 
 governors to assume responsibility for the maintenance of 
 order and the protection of officials engaged in the nation- 
 alization of the Canton-Hankow and Szechuan-Hankow 
 trunk lines and the carrying out of the construction program. 
 Mr. Tuan Fang was then sent to Hupeh, Hunan and Sze- 
 chuan to explain the Goverimient railway policy and was 
 appointed Director-General of these two lines with the au- 
 thority to handle their transfer. Also, all provincial and 
 railway officials were instructed to facilitate this transfer. 
 Mr. Tsen Chen-hsuan was despatched, as Viceroy of Sze- 
 chuan, to replace Mr. Chao Ehr-feng. 
 
 Twelve days after the proclamation of State ownership 
 of railways the signing of the Hukuang Loan of £6,000,000 
 vv^as announced. This loan was to be floated by the Four 
 Nations' banks. It had been under negotiation for two 
 years and was the crux of the contentions between the prov- 
 
Il8 RAILWAY PROBLEMS IN CHINA [346 
 
 inces and the Central Government, between the Government 
 and the Powers interested and among the Powers them- 
 selves. 
 
 The Hukuang agreemnt and the nationalization edict 
 were regarded by the Provincial Assemblies and the Rail- 
 way Bureaus as successive direct challenges and breaches of 
 promises by the Government. Protests came to Peking 
 from almost every Provincial Assembly, from almost every 
 railroad company and from different kinds of associations 
 and newspapers. The Government was accused of break- 
 ing its promise to cencede the people the right of consid- 
 eration of national affairs, of floating loans and of depriv- 
 ing the Chinese of the right to build their own railways 
 without placing the questions before the National Assembly 
 for consideration and approval. Delegates were appointed 
 by various " Railway Protection Societies " to visit Peking, 
 to present their argument against the foreign loans, etc. 
 Their first intention was to oppose absolutely foreign loans. 
 When they reached Peking, however, they modified their 
 attitude to a claim that the various matters under protest 
 should be decided by the National Assembly and that the 
 Government should abide by its decision. 
 
 Pending the deliberation in Peking, matters in the prov- 
 inces went from bad to worse. The methods adopted by the 
 Government for taking over the provincial interests were 
 defective in many respects and appeared unjust to the eyes 
 of the private owners. The principle outlined for redeem- 
 ing the various lines from the private owners was to pay the 
 shareholders in cash the actual value of their property as 
 constructed up to the time of transfer, and further to repay 
 to them out of the prospective profits of the road any money 
 that had been wasted or otherwise lost in the enterprise. 
 
 For the redemption of the Hunan-Hupeh section of the 
 Canton-Hankow road the Government was to pay the share- 
 
347] NATIONALIZATION OF RAILWAYS ng 
 
 holders cash to the amount of 60 per cent of their share 
 script, and to give them bonds for the other 40 per cent, 
 payable out of the future profits.^ It seemed at one time 
 that the financial interests in Hunan and Hupeh were at the 
 point of accepting the terms offered and that the people 
 there might possibly have been pacified. 
 
 But the Government was not willing to pay the share- 
 holders of the Szechuan-Hankow road what they wished 
 in cash because only a very little actual construction work 
 had been done by the company. The Government pro- 
 posed to settle with the shareholders by making good the 
 funds, which the compan}'^ had wasted, out of the future 
 profits of the road. The Szechuan Railway Bureau strongly 
 objected to this method of settlement with the shareholders. 
 The Government, on Mr. Sheng's advice, acted with firm- 
 ness and with no intention of changing its plan in the im- 
 pending crisis. Agitation was then directed against the 
 manner in which the policy of nationalizing the railways was 
 carried into effect by Mr. Sheng Hsuan-huai. 
 
 To make matters worse, Mr. Tuan Feng (who was later 
 murdered by the Szechuan people) and Mr. Tsen Chen- 
 hsuan had brought troops with them upon their mission. 
 This startled the already angered populace in Szechuan 
 and elsewhere. The people of Szechuan then demanded 
 an explanation of such an action. The reply was unsatis- 
 factory. Therefore, they suspected that the real reason of 
 the Government's wish to secure control of the railways was 
 to use them for mihtary purposes in keeping the people in 
 subjection. The Province of Szechuan passed from agita- 
 tion to revolt. The avowed revolutionists and constitution- 
 alists lost no time in taking the long and eagerly looked- 
 for opportunity of carrying on a hot campaign against the 
 
 1 U. S. Daily Consular and Trade Reports, Sept. 9, 1911, no. 2ig. 
 
I20 RAILWAY PROBLEMS IN CHINA [348 
 
 Manchu Throne. From city to city, from province to pro- 
 vince, the fire continued to spread. On October 10, 191 1, 
 the explosion of a bomb in the city of Wuchang, capital of 
 Hupeh, signaled the downfall of the Manchu dynasty; and 
 the world was astounded by the most remarkable revolution 
 of modern times. 
 
 Subsequent events showed, however, that not all the peo- 
 ple opposed the nationalization policy as such. Most of 
 them opposed it because of the manner and method by which 
 the policy was carried out. To say that the revolution was 
 caused entirely by Mr. Sheng's policy or by the conclusion 
 of the Hukuang Loan Agreement is to misread history. 
 By article III of the Loan Agreement,^ it had become in- 
 cumbent upon the Government to take over the lines already 
 constructed in Hupeh and Hunan. This was resented by 
 the shareholders, who showed their dissatisfaction in the 
 usual way. The differences over the matter would no doubt 
 have ultimately been settled had not other forces such as 
 floods, famine and, above all, the revolutionary campaign 
 which had been at work for years seeking to overthrow 
 the Manchu dynasty and to restore Chinese control, united 
 to make the revolution popular. 
 
 II. The Government's Raikvay Policy 
 
 During the Revolution of 191 1, the Provisional Gov- 
 ernment at Nanking under Dr. Sun Yat-sen had been pre- 
 pared to pledge to the Japanese independent bankers for 
 whatever loans they could raise the properties of the China 
 Merchants' Navigation Company, the Kiangsu, Chekiang, 
 Kiangsi, Fukien lines and the southern section, of the 
 Canton-Hankow road, the Hanyang Coal, Iron and Steel 
 enterprises and other mining and industrial companies. 
 
 ^Cf. infra, Hukuang Loan Agreement and References. 
 
349] NATIONALIZATION OF RAILWAYS 121 
 
 These loans were, however, checked by the Government at 
 Tokio, owing in some cases to the protests of the British 
 and of other foreign governments. Out of the efforts made 
 by the Nanking Government to raise foreign loans only a 
 few negotiations were successfully concluded and only small 
 advances were obtainable.^ 
 
 After his resignation from the Provisional Presidency, 
 in September, 1912, Dr. Sun was empowered by President 
 Yuan Shi-kai to organize a national corporation or com- 
 pany for the financing and construction of future railways 
 in China. The Chinese National Railway Corporation was 
 thereby organized at Shanghai with Dr. Sun as its Director- 
 general. Dr. Sun then appointed Mr. George Bronson Rea ^ 
 as Technical Secretary. The plans of the corporation were 
 accordingly outlined comprising a comprehensive scheme ^ 
 for the construction of 10,000 miles of essential trunk lines 
 which were to be financed and constructed over a period of 
 from ten to fifteen years, calling for an expenditure of 
 approximately £100,000,000. 
 
 Mr. Rea was then delegated by Dr. Sun to visit Europe 
 and initiate negotiations for financing the contemplated lines. 
 Mr. Rea succeeded in arranging a contract on a percentage 
 basis with Messrs. Pauling & Company, a great railway 
 contracting firm of London, for financing and constructing 
 the Canton-Chungking line.* The contract was signed at 
 
 ' Far Eastern Review, Apr., 1912, special copy on " Financial and 
 Historical Review of the Chinese Revolution." 
 
 ' Mr. Rea is the proprietor and editor of the Far Eastern Review 
 (Shanghai), a monthly devoted to Commerce, Engineering and 
 Finance in the Far East. 
 
 ' For details of the scheme see China Year Book, 1914, chapter on 
 Communications. For map of the scheme see Far Eastern Review, 
 June, 1913, p. 15. 
 
 ■* Cf. infra, pp. 160- 161. 
 
122 RAILWAY PROBLEMS IN CHINA [350 
 
 Shanghai on July 4, 1913, between Dr. Sun and Lord 
 French, the representative of the PauHng firm. Later when 
 Dr. Sun was impHcated in the Second Revolution against 
 President Yuan his powers as Director-General of the 
 Chinese National Railway Corporation were annulled by 
 the President in a special mandate issued two days after 
 the outbreak of the revolution. The Corporation was there- 
 by dissolved. The contract, which was regarded by i\Ir. 
 Rea as creating a new precedent for the construction of 
 railways in China " because of the most favorable financial 
 and construction terms ever accorded to any government for 
 this kind of work," was transferred with little modification 
 by the Peking Government to the Shasi-Shingyifu Railway.^ 
 
 Although the form of government was changed, the 
 policy of centralization could not and most probably will 
 not be changed for generations to come. From the be- 
 ginning of the new Republic the difficulties of central con- 
 trol of finance were felt. The determination of the Pro- 
 visional Government at Peking to retain all borrowing 
 powers in the hands of the Central Government was strongly 
 resisted by some of the financial interests in the provinces 
 and a certain political party, who endeavored to assert their 
 right to independent financial operations and loans raised 
 on provincial securities. This and other causes precipitated 
 the Second Revolution on July 18, 191 3. 
 
 Since the First Revolution merchants and others had 
 suffered bitterly by the disorganization of commerce and 
 the unsettled state of the country and had hoped for the 
 permanent removal of disaffection, a chance to return to 
 security, and a distinct promise of the general resumption 
 of business. With the disappearance of the Manchu dynasty 
 as a common ground of opposition the Second Revolution 
 
 1 Cf. infra, p. 159. 
 
35lJ NATIONALIZATION OF RAILWAYS 123 
 
 lacked support from the people and was soon suppressed. 
 The result was the dissolution of the Kwok Min Tang 
 (the Young China Party) and the Parliament, and the for- 
 mation of the Central Administrative Conference. The per- 
 iod between the First Revolution and the Second Revolu- 
 tion may be called a period of two years' conflict between 
 the different political parties and between the Central Gov- 
 ernment and the provinicial interests — a period of practical 
 deadlock. 
 
 With the inauguration of the Republic after the Second 
 Revolution the Central Government was left without funds 
 and was confronted with immense liabilities. The pro- 
 vinces failed to contribute their quota of revenue. The 
 Government was thus forced to turn its attention to foreign 
 loans in order to eke out its existence. The Crisp Loan, 
 the Reorganization Loan, and several small loans were thus 
 contracted. 
 
 In the meantime the Government struggled to solidify 
 its position. After exerting much energy and overcoming 
 much trouble it succeeded in centralizing the financial con- 
 trol to a certain extent. The Minister then took an im- 
 portant step in defining clearly the central and provincial 
 powers with regard to financial control in a set of instruc- 
 tions ^ issued to the provinces. The essential instructions 
 are as follows : 
 
 1. No province will be allowed to contract foreign loans 
 after June next year (1914). 
 
 2. With the exception of industrial loans, the amount of a 
 loan should not exceed $3,000,000 (Mex.). 
 
 3. The proceeds of the loans should be used only for mili- 
 tary expenses, returning overdue loans or paying other un- 
 avoidable expenses. The ordinary administrative expenses 
 
 1 Far Eastern Review, Nov., 1913, p. 211. 
 
124 RAILWAY PROBLEMS IN CHINA [352 
 
 should be defrayed by the revenues of the province, and no 
 loan should be used for administrative purposes. 
 
 4. Before concluding a loan, the province should first report 
 to the Ministry of Finance the source from which the repay- 
 ment of the loan is to be made. 
 
 5. No revenue which is included in the class of national tax 
 should be used as security for loans by the provinces. 
 
 6. Before signing a loan agreement, the draft of the agree- 
 ment should be approved by the Ministry of Finance. 
 
 7. A comprehensive and detailed statement of the expendi- 
 ture of every loan should be submitted to the ^Ministry of 
 Finance. 
 
 Also, in view of the troubles involved in the foreign loans 
 raised by the private entrepreneurs, such as in the cases of 
 the Kiangsu Railway Company,^ the Hanyihping - and other 
 loans, the Government has drawn up a new set of regula- 
 tions governing the conditions under which merchants may 
 contract foreign loans. The regulations ^ issued in March, 
 1914, are as follows : 
 
 1. Any merchant who borrows foreign loans to undertake 
 business, no matter whether the loan is a new one or has been 
 discussed in the past, should first make a report to the Min- 
 istry to whose control his occupation is subject. 
 
 2. When circumstances necessitate the merchant making a 
 foreign loan, he should first make a report to the Ministry 
 stating its use and the source from which he can derive money 
 for its repayment. 
 
 1 Cf. infra, p. 128. 
 
 ' The Hanyihping Co., i. e., Hanyang Steel Works, Taiyih Iron Mines 
 and the Pinghsiang Colliery, had arranged a loan of Yen 15,000,000 
 with Japanese financiers. Sheng Hsuan-huai, who fled to Japan when 
 the first revolution broke out, was accused of negotiating for the dis- 
 posal of his shares to the Japanese. Thus a storm of protest arose. 
 The Government was dragged in and asked to take over the enterprise. 
 
 ^ Far Eastern Review, ^larch, 1914, p. 395. 
 
353] NATIONALIZATION' OF RAILWAYS 125 
 
 3. Merchants who have been allowed by the Ministry to 
 make foreign loans should submit the agreement for such 
 loans to the Ministry for its approval. No agreement should 
 be considered as valid if it is signed before the Ministry ap- 
 proves it. 
 
 4. Before the signing of an agreement, the merchant should 
 first inform the Ministry, which will send a delegate to witness 
 the signing, and no loan agreements shall be considered as valid 
 unless they have been subjected to the above processes. 
 
 The Government has also issued a lengthy statement ^ 
 dealing with its different schemes for financial relief, its 
 policy towards military administration, industrial develop- 
 ment, etc. In addition, its policy towards the means of 
 communication was finally set forth as follows : 
 
 We will be careful regarding State enterprises. The Gov- 
 ernment will only undertake such projects as must be man- 
 aged by the State, while other business enterprises will be left 
 to the people. The Government will not compete with them, 
 but it will guide and encourage them . . . 
 
 Railways, navigation, postal and telegraph administration 
 are yet in the budding stage, and great possibiHty lies before 
 them. We will draw a comprehensive scheme and decide upon 
 the order of development according to the relative importance. 
 The most important thing is to train men for the work. They 
 should be equipped with technical education. We will wel- 
 come the investment of foreign capital in communication en- 
 terprises, provided that there is no political significance. 
 Special accounting methods will be employed by the Ministry 
 of Communications because of the enormous amount of for- 
 eign loans connected with the railways and the like. All 
 accounts should be strictly supervised by the Government. . . . 
 
 Since the inauguration of the Republic the public has 
 
 1 English translation of text of statement, in Far Eastern Review. 
 Nov., 1913, pp. 211-214. 
 
126 RAILWAY PROBLEMS IN CHINA [354 
 
 realized the necessity of building more railways and the 
 idea of inviting foreign capital for the development of rail- 
 ways has become deeply rooted in the mind of the pubHc. 
 Hence the above statement regarding the railways. 
 
 With the announcement of the policy regarding the rail- 
 ways, measures were taken by the administrative authorities 
 of the Ministry of Communications to unify the accounting 
 and statistical systems for China's railways. This was 
 regarded as a forward movement for more effective control 
 of all Government railways and as a first effort made to 
 introduce all-round standardization of things connected 
 with the railway. 
 
 A conference was inaugurated with Mr. Yih Kung-chao, 
 vice-Minister of the Ministry of Communications and 
 Director-General of Railways, as chairman, and Dr. C. C. 
 Wang as vice-chairman. Dr. Wang was the leading spirit 
 of this movement. A number of the members of the Min- 
 istry interested in accounting and the chief accountants of 
 the different railways were then appointed as members of 
 the Commission on the Unification of Railway Accounts and 
 Statistics. Dr. Henry C. Adams, the expert in charge of 
 railway statistics and accounts of the United States Gov- 
 ernment, was engaged as Adviser. 
 
 The success made by the Commission in overcoming the 
 many peculiar difficulties arising from the different nation- 
 alities and languages involved and the established habits 
 and methods in keeping accounts of the different railways 
 was hailed with praise from many quarters as a precedent 
 for such an undertaking not only in China but also in other 
 parts of the world. To illustrate the difficulties confront- 
 ing the Commission, in the conference three languages, i. e., 
 Chinese, English and French, had to be used for discussion. 
 
 A distinct movement made by the Republican Govern- 
 ment was the great allotment of railway mileage to foreign 
 
355] NATIONALIZATION OF RAILWAYS 127 
 
 syndicates. Up to end of the year 19 13, the new Govem- 
 ment has approved approximately 3800 miles of railways to 
 be constructed with foreign capital. The new lines ar- 
 ranged for during the year are as follows : 
 
 1. The Tatung-Chengtu Railway, 1,200 miles, granted to 
 the Societe Generale de Belgique. 
 
 2. The Pukow-Sinyang Railway, 350 miles, the Chinese 
 Central Railway Co., Ltd., of London. 
 
 3. The Shasi-Singyi Railway, 760 miles, contracted with 
 Messrs. Pauling & Co., Ltd., London. 
 
 4. The Tsinan-Shunteh & Kaumi-Hanchwang Railways, 300 
 miles, conceded to German syndicate. 
 
 5. South Manchuria Ry. Feeders, 1,200 miles, Japanese in- 
 terests. 
 
 The extent of new lines under construction during the year 
 was as follows : 
 
 1. The Hukuang System, 1,200 miles, Four Nations' Group. 
 
 2. The Kalgan-Tatung Railway, 100 miles, practically com- 
 pleted by the Government itself. 
 
 3. The Lung-Tsing-U-Hai Ry., 1,500 miles, Franco-Belgian 
 interests. 
 
 The above concessions show that the Government has 
 pursued a policy intended to co-ordinate its existing railway 
 systems and to bind them by judicious connections into as 
 complete and effective an organ of communication and de- 
 velopment as indicated in the statement of its general policy. 
 In addition to these concessions the Ministry has also drawn 
 up plans for the construction of all important lines. It 
 has been estimated that the mileage of these proposed lines 
 is many times longer than before. 
 
 The new Government has also determined to take up 
 what the Manchus have left undone, i. e., to nationalize all 
 
128 RAILWAY PROBLEMS IN CHINA [356 
 
 provinicial railways which form sections of the future trunk 
 systems. Mr. Sheng's pohcy was to be pursued. The first 
 step made was to take over the Shanghai-Hangchow-Ningpo 
 Railway. 
 
 The Shanghai-Hangchow-Ningpo Raikvay. As pointed 
 out in Chapter VI, the management of this road was un- 
 satisfactory and the late Government had already made an 
 attempt to nationalize it in 1910. When the Revolution 
 Government at Nanking was in dire need of money the 
 Kiangsu Railway Company, for patriotic reasons, signed 
 a loan agreement with Okuma & Company, one of the 
 largest Japanese engineering concerns, to advance Tls. 
 3,000,000, at par, at 8 per cent interest, secured on the 
 revenues and physical property of the Kiangsu section of the 
 line. Owing to the protest raised by the British Govern- 
 ment, which pointed out that the trouble between the Rail- 
 way Company and the British syndicate still remained un- 
 settled and that Japan's participation in its loan would com- 
 plicate matters, the Japanese Government accepted the 
 British proposition of suspending the payment of the sec- 
 ond and subsequent instalments of the loan. 
 
 In 19 1 3, the people of Kiangsu, realizing that they could 
 not secure any return on their investments unless a change 
 was made, consented to hand over their property, upon a 
 fair valuation of the Chiaotung Pu,^ to be managed as a 
 State concern, thus hoping to regain some of their money. 
 The acquirement of the Kiangsu section of the railroad by 
 the Government made the sale of the Chekiang section of 
 the line inevitable. On March i, 19 14, the proprietors of 
 the Chekiang Railway held a meeting at Hangchow and 
 agreed by a large majority to sell their shares to the 
 Government. 
 
 "■ New name for the Ministry of Communications, changed from the 
 old name, Yu Chuan Pu, after the inauguration of the Republic. 
 
357] NATIONALIZATION OF RAILWAYS 129 
 
 The Hukuang Raikvays. By the end of 1912 at a con- 
 ference held by General Li Yuan-hung, Civil Governor 
 Liu of Hupeh and the managers of these lines, it was de- 
 cided that the Szechuan-Hankow and the Canton-Hankow 
 (the Hupeh and Hunan section) should be nationalized. 
 It was arranged that all the materials for the construction 
 of the railways purchased by the private capitalists should 
 be redeemed by the Government. The funds now reserved 
 by the " People's Railway Company " of Hunan and 
 Hupeh may be invested in other commercial enterprises or 
 in constructing the tributary lines in connection with the 
 trunk railways. In Chengtu public meetings were held by 
 the shareholders of the Szechuan-Hankow road. The 
 shareholders decided to utilize their funds for the construc- 
 tion of lines in connection with the main lines. 
 
 After some negotiations between the representatives of 
 the provinces concerned and the Ministry of Communica- 
 tions the policy of government ownership of the two lines 
 was agreed upon. Terms acceptable to both parties con- 
 cerned were arranged. In the spring of 1913, agreements 
 of transfer ^ were made between the railway companies and 
 the Ministry of Communications regarding the taking-over 
 of the two roads by the Ministry. 
 
 The Lotung and the Tnngpii Raikvays. The same fate 
 fell upon these two roads. The private companies organ- 
 ized to construct them have been in existence for several 
 years, but very slow progress has been made in the con- 
 struction work. The Tungpu line runs from Tatungfu in 
 Northern Shansi to Puchowfu in the extreme south of the 
 province. The Ministry of Communications has contem- 
 plated the transfer of this line to State management, and 
 its incorporation into a big trunk system. 
 
 1 For full text of the transfer agreement for Szechuan-Hankow 
 R. R., see Far Eastern Review, March, 1913. 
 
130 RAILWAY PROBLEMS IN CHINA [358 
 
 The Lotung line forms a section of the Lung-Tsing-U- 
 Hai line, the Northern latitudinal trunk line.^ In the con- 
 tract made on September 24, 1912, with La Compagnie 
 Gencrale dc Chemins de Per et de Tramway en Chine, 
 Article IV, section 2 provides that " the Chinese Govern- 
 ment obligates itself to purchase, equip and put into opera- 
 tion the Lotung section, granted to the provincial company 
 of Honan, so- that the company may at an opportune time 
 take all necessary steps in order to prosecute without delay 
 and hindrances the work outlined in the contract to the 
 West." At the end of the year 1913, the Lotung railway 
 was transferred from private ownership to Government 
 control and the Government is earnestly considering the 
 completion of this line. 
 
 The Fiikien Raikvay. In 1914, less than twenty miles 
 of the Fukien railway was open to traffic, and the financial 
 condition of the company was hopeless. As the people 
 of the province objected to the levying of additional taxes 
 for the construction of the line, the company requested the 
 Government to nationalize the line. The Ministry of Com- 
 munications thereupon sent deputies to Fukien to take over 
 the property. 
 
 China's Trunk Lines. At the end of the year 1912, the 
 Ministry of Communications proposed four trunk lines, two 
 running north and south and two running east and west, 
 through the whole country. The proposal was submitted 
 to the Cabinet and met with approval. The lines are as 
 follows : 
 
 I. The Central longitudinal line, beginning from Mon- 
 golia, running through Peking and Shansi, turning south- 
 ward to Hankow and thence to Chin Lung. Peking is to 
 be the center of this line. 
 
 1 Cf. infra, pp. IS4-IS7. 
 
359] NATIONALIZATION OF RAILWAYS 131 
 
 II. The Eastern longitudinal line, beginning from Man- 
 churia, passing through Chihli, Shantung, Kiangsu, and 
 Chekiang and ultimately reaching Fukien and Kwangtung. 
 
 III. The Northern latitudinal line, beginning from Hai- 
 chow, passing through Honan and Tungkwan and Kansu 
 and thence to Hi (there meeting the Central Asiatic Rail- 
 way ?). 
 
 IV. The Central latitudinal line, beginning at the Nan- 
 king terminus of the Nanking-Shanghai Railway, passing 
 through Wuchang, and entering Szechuan. 
 
 When the above trunk-line system is compared with that 
 outlined in Mr. Tsen Chen-hsuan's memorial presented to 
 the Manchu Throne several years before there is a marked 
 difference between the two. Mr. Tsen suggested a system 
 with a particular center from which all trunk lines should 
 radiate to different parts of the country — a star system — 
 while the newly approved system is a rectangular system. 
 Mr. Tsen's view was to make Peking the center of all trunk 
 lines, which were to be four in number, vis. : 
 
 I. The Northern trunk line, running from Peking 
 through Kalgan, Kulun (Urga) and then to Kiachta in 
 Mongolia. 
 
 II. The Eastern trunk hne, made by extending the 
 present Peking-Mukden line to Aigun via Chiaonan and 
 Tsitsihar in Manchuria. 
 
 III. The Southern trunk line, beginning from Peking 
 and ending at Canton via Hankow, i. e., the Peking-Canton 
 line when completed. 
 
 IV. The Western trunk line, formed by extending the 
 line between Chengting (on the Peking-Hankow line) and 
 Tayuan which will join with the Tungpu Railway, to the 
 West via Tungkwan and Lanchow, and ultimately enter- 
 ing Hi. 
 
CHAPTER IX 
 International Cooperation 
 
 In the last period we have shown that, with the exception 
 of the Chinese Eastern Railway, the Shantung Railway 
 and the French Yunnan Railway, which are of entirely 
 political origin, nearly all railways in China were built by 
 foreign loan contracts the terms of which are very dis- 
 advantageous to China. Railway loan agreements con- , 
 eluded in the last period show that China has entrusted , 
 even the control and the expenditure of loan funds to for- 
 eign syndicates, notwithstanding that ample security and 
 high interest were provided for the loans. This was due 
 in the first place to the inexperience of the governmental 
 authorities in railway matters in the very beginning; hence 
 a bad precedent was established in case of the Peking- 
 Newchwang Railway loan agreement. And in the second 
 place this was due to the fact that spheres of interest were 
 marked out and the foreign S3'ndicates devoted their at- 
 tention mostly to their respective spheres, hence at that time 
 there was relatively less competition and rivalry for railway 
 financing and construction in one another's spheres than in 
 this period. 
 
 When the people of China became a little more familiar 
 with the railway business, when China's credit was improved 
 more or less and when the foreigners became more inter- 
 ested in Chinese affairs, trade and railway construction, the 
 situation underwent a change. On the one hand, China 
 could secure comparatively more liberal terms in contract- 
 132 [360 
 
36 1 ] INTERNATIONAL CO-OPERATION 133 
 
 ing new loans, although not to the full extent accorded 
 many other nations who raise foreign loans for railway 
 construction. On the other hand, there was created a new 
 financial arrangement — an arrangement between different 
 nations to have several rival interests combined to finance 
 and construct a certain line or several lines. This kind of 
 combination is not only new in the history of old China 
 but also perhaps in the history of railway financing in any 
 other part of the world. It will be best to study a little 
 more in detail the important cases of loan negotiations and 
 contracts in this period so as to illuminate the above 
 features. 
 
 The Canton-Kowloon Railway ^ 
 
 In 1898 the British and Chinese Corporation had secured 
 the concession to build this line. The concessionaires had 
 accomplished nothing until 1905 when the American China 
 Development Company agreed to give up its concession for 
 the construction of the Canton-Hankow line and to receive 
 in compensation a sum of $6,750,000, U. S. C, a part of 
 which was advanced by China through a British loan. This 
 line is very important for maintaining Hongkong's position 
 as distributing center for South China, because if a deep 
 water harbor were established somewhere near Canton and 
 in connection with the Canton-Hankow line, the traffic 
 through Hongkong would be lessened by severe competition 
 in the future. After the purchase of the American inter- 
 ests this possibility of competition may be eliminated. 
 
 Before the end of 1905, the Hongkong Government had 
 proceeded to make arrangements to construct the British 
 section of the line, a distance of 22 miles, through Kowloon 
 (British leased territory). Meanwhile negotiations were 
 
 ' Far Eastern Review, Nov., 1909, pp. 33S-34S ; Kent, Ry. Ent. in 
 China, pp. 173-176. 
 
134 RAILWAY PROBLEMS IN CHINA [^62 
 
 carried on with the Peking Government to construct the 
 Chinese section of the Hne, a distance of about 89 miles. 
 
 The final agreement ^ between the Chinese Government 
 and the British and Chinese Corporation was then signed 
 on March 7, 1907, for a 5 per cent gold loan of f 1,500,000, 
 issued at 94. The general rules for the supply of materials 
 are similar to those stipulated for the Shanghai-Nanking 
 Railway, with the exception that a lump sum of £ 35,000, 
 instead of 5 per cent commission on all purchases, was paid 
 for all services rendered in the construction and equipment 
 of the line. The loan is guaranteed by the Chinese Gov- 
 ernment and secured on the railway when completed. The 
 financial terms also are similar to those of the Shanghai- 
 Nanking road. The life of the loan is thirty years, repay- 
 able at 102^ after twelve and one-half years, or at par 
 after twenty-five years. 
 
 From the experience on the Shanghai-Nanking road 
 where, owing to the control of expenditures resting entirely 
 in the hands of the British chief engineer, the usual ex- 
 travagance and unnecessary expenditures in management 
 and construction had been the results, the Government 
 authorities in negotiating this loan insisted upon some modi- 
 fications of the Shanghai-Nanking terms and succeeded in 
 securing for the Chinese Director-General participation in 
 the supervision of the funds and in putting the Chinese 
 Managing Director in the place of the Board of Control, 
 i. e., the administration of the railway is thus invested in 
 the Managing Director who is appointed by the Viceroy at 
 Canton. With the Managing Director are associated a 
 British chief engineer and a British chief accountant. These 
 British employees are nominated and certified as competent 
 for their posts by the Corporation and are then approved 
 
 ' Kent, appendix F, no. 4. 
 
363J INTERNATIONAL CO-OPERATION 135 
 
 by the Viceroy. If their services should prove unsatis- 
 factory to the Viceroy, he would request the Corporation 
 to dispense with their services and to nominate their suc- 
 cessors, and, in the event he wished to remove them for 
 good cause, it should be done in consultation with the 
 Viceroy. 
 
 All receipts and payments, authorized by the Managing 
 Director, must be certified by the chief accountant, i. e., 
 while the Chinese ofificial has the privilege of handling the 
 expenditures the accounts are supervised and checked by the 
 British. It was arranged in this way because the English- 
 men usually did not trust the Chinese to spend a foreign 
 loan honestly. But later events show that the Einglishmen 
 themselves are experts of the " squeeze " and are not all 
 trustworthy. 
 
 After the construction work on the line had been started 
 only a little more than a year, charges of graft and cor- 
 ruption were directed against the chief accountant's depart- 
 ment. When put on trial the chief accountant was con- 
 victed on the charge of embezzling an enormous sum of 
 money. 
 
 Notwithstanding, this loan agreement has, in practice, 
 been found more satisfactory than all the preceding ones 
 contracted with the British and there has been complete 
 harmony based on mutual confidence between the two 
 parties. 
 
 The Tientsin-Pukow Railway ^ 
 
 In 1898 Germany and Great Britain had secured jointly 
 a concession for constructing this line. In May, 1899, the 
 preliminary negotiations for financing, constructing, equip- 
 
 ' Kent, pp. 148-153, and appendix E for preliminary agreement. Far 
 Eastern Review, pp. 309-310, and 329-334 of Nov., 1909, copy. For 
 final agreement (English translation), see supplement of same issue. 
 
136 RAILWAY PROBLEMS IN CHINA [364 
 
 ping and operating the line were completed. In 1900, the 
 Boxer Uprising suspended further progress. In June, 1902, 
 negotiations were again resumed and on January 13, 1908, 
 the final loan agreement was concluded. At the time of 
 negotiating the final loan contract China's credit was im- 
 proved more or less. The Government authorities, who 
 determined to reassert a little of China's dignity, insisted 
 on more effective " control " of the line. As there was 
 rivalry and competition between the German and British 
 syndicates for the loan, China succeeded in making some 
 important modifications of Ihe old loan terms and in estab- 
 lishing a more favorable precedent for future loans. 
 
 This loan is known as the Imperial Chinese Government 
 5 per cent Tientsin-Pukow Railway Loan. The amount of 
 the loan was fixed at £ 5,000,000 to be issued in two instal- 
 ments. The life of the loan is thirty years, amortization 
 to commence after ten years in half-yearly installments at 
 a premium of 2}^ points (£102^/2 on every £100 bond), 
 and at par after twenty years. The first issue was placed 
 on the market in March, 1908, at 98%, for £3,000,000, of 
 which £1,890,000 was raised through the Deutsch-Asiatische 
 Bank in Germany for the German section of 401 miles and 
 £1,110,000 was raised through the Chinese Central Rail- 
 ways, Ltd., in London for the construction of the British 
 section of 235 miles. Instead of paying the usual 20 
 per cent of the profits of the railway, China paid a lump 
 sum of £200,000 to the Anglo-German Syndicate out of 
 the first issue of the bonds. 
 
 The loan was oversubscribed in Europe for several times 
 its value. A considerable portion was also subscribed for 
 by Chinese in Peking and Tientsin. An amount of £260,000 
 in bonds exclusive of those purchased by private native 
 investors is also held by the provincial governments of 
 ChihH, Shantung, Kiangsu and Anhui. The price to the 
 
365] INTERNATIONAL CO-OPERATION 137 
 
 Government for the first floating was 93, and the second 
 was the actual rate of issue to the pubHc, less 5^ points 
 commission to the financial syndicates. 
 
 The loan service is met from the earnings of the road. 
 The loan is secured on the Likins and internal provincial 
 revenues of Chihli, to the amount of 1,200,000 Haikwan 
 Taels per year, of Shantung, 1,600,000 Hn. Tls. per year, 
 the Nanking Likin of 900,000 Tls. per year, and the Huaian 
 Native Customs in Kiangsu of 100,000 Tls. per year. At 
 the same time the loan is guaranteed by the Central Govern- 
 ment. Th e rai lway itself is not mortgaged as collateral se- 
 curity as in the case of previous lines. It was for the first 
 time stipulated in a foreign loan agreement that, in case of 
 default on the loan service, the hypothetical revenues were 
 to be administered by the Maritime Customs Service. 
 
 The signing of this agreement marked the square deal 
 for the first time in the history of railway loans in China, 
 and the first recognition by the foreign banks of China's 
 right to participate in the control of loan funds and con- 
 struction. The old principle of joint management was 
 abandoned. The construction and control of the road rest 
 entirely in the Government. 
 
 China has the power to appoint experienced British and 
 German chief engineers, acceptable to the Anglo-German 
 syndicate. These engineers are subordinate to the control 
 of the Chinese Managing Directors of the two sections re- 
 spectively. In the employment and dismissal of the techni- 
 cal employees of the line, the Managing Director and the 
 chief engineer have to concur and submit their diflferences 
 of opinion to the Director-General for decision. China also 
 secured the privilege of appointing a European chief en- 
 gineer to administer the entire line after construction, with- 
 out reference to the syndicate. 
 
 The Director-General retained in his hands complete 
 
138 RAILWAY PROBLEMS IN CHINA [366 
 
 control of the funds derived from the loan, subject, how- i 
 ever, to the condition that the loan funds should be drawn 
 upon a requisition signed by the managing directors who 
 were to certify for what the money was required. There 
 was no provision for the services of a foreign accountant 
 to certify payments, as in the case of the other loans. A 
 modern system of accounting was, however, provided for, 
 subject to inspection at intervals by a representative of the 
 syndicate in order to verify the payments. The purchase 
 of materials was also arranged for on a most favorable 
 basis for China. 
 
 The terms of this agreement were the most favorable 
 ever conceded to China. It was only due to the rivalry and 
 competition of the British and German interests that these 
 well known " Tientsin- Pukow " terms have come about. 
 The Germans have taken all the credit of conceding these 
 liberal terms to China and were loud in their praise of the 
 generous terms, while the British financiers, who were usu- 
 ally more or less selfish in dealing with China and forgot 
 entirely the notorious case of the Canton-Kowloon road, 
 held the opinion that Chinese official honesty was not trust- 
 worthy and that the terms were too liberal and were not 
 sufficient to guarantee the bondholders. 
 
 When the agreement went into effect matters in the two 
 sections of the road developed exactly contrary to what 
 the respective foreign syndicates had thought. In the Ger- 
 man section some discrepancies occurred in the accounts to 
 the amount of Tls. 3,000,000 and other graft was discov- 
 ered in the accounting department. This occurrence of 
 frauds was a hard blow to the Tientsin-Pukow terms. The 
 burden of this disgrace, however, can not be accepted in its 
 full weight by the Chinese officials, because, owing to the 
 carelessness, negligence and lack of knowledge of the rail- 
 road business on the part of the Managing Director, the 
 
367] INTERNATIONAL CO-OPERATION 139 
 
 Germans have an equal opportunity of conducting the busi- 
 ness transactions, and contrary to the provisions of the loan 
 agreement the German chief engineer enjoyed equal control 
 over the accounting department. The auditor, or rather the 
 representative of the Anglo-German syndicate, should also 
 be blamed for failing to discover these enormous pecula- 
 tions in the accounts. 
 
 The Managing Director and his confederates were, how- 
 ever, removed and severely punished by the Government 
 while the alleged German accomplices whom Chinese law 
 could not reach were free from prosecution, owing to the 
 protests of their innocence by the German interests. The 
 innocent Director-General, against whom no breath of sus- 
 picion had been stirred, was dragged down by the fall of 
 the Managing Director, because the Government held him 
 responsible for the misdeeds of his subordinates. 
 
 Aside from this dissension and fraud the operation of 
 the " Tientsin-Pukow " terms was as a whole satisfactory. 
 This was shown in the British section where the Managing 
 Director was an able man and knew the railway business 
 almost as thoroughly as the British chief engineer. He was 
 able to secure low prices for materials which had formerly 
 been purchased for other lines by foreign purchasing agents 
 at much higher prices. He gave equal opportunities to all 
 manufacturers, native and foreign, and awarded many 
 contracts at lower prices to American and Continental firms 
 rather than the British manufacturers whose interests 
 the British engineer invariably advocated. Such an action 
 on the part of the Managing Director naturally offended the 
 Englishmen who wanted to monopolize the supply of ma- 
 terials since the loan was raised in England : hence, friction 
 often occurred during the construction of the road. Not- 
 withstanding this, matters progressed very favorably. 
 
 The German or northern section of the line was opened 
 
I40 RAILWAY PROBLEMS IN CHINA [368 
 
 to traffic in February, 1912; the British or southern section 
 was opened in June, 1912. This road traverses an ex- 
 ceedingly rich district, and is already making itself felt in 
 the transportation of cargo as a formidable competitor of 
 the old Grand Canal route. The passenger traffic of the 
 Peking-Hankow line from Peking and Tientsin to the lower 
 Yangtsze Valley is also more or less diverted to this road. 
 At the present these are the only two lines in China which 
 may be said to have to face the problem of competition as 
 found in other countries. The effect of the Tientsin- 
 Pukow road on the development of the trade of Shanghai, 
 as the great commercial center for Central and North China, 
 and of Pukow and Hankow, as interior distributing centers 
 of the Republic, is a matter of considerable interest which 
 will be more seriously watched in the future. 
 
 The Hukuang Railways ^ 
 (Canton-Hankow and Hankow-Szechuan Railways) 
 
 In the last chapter we studied the fight for the con- 
 trol of these lines between the provinces concerned and 
 the Central Government. Here we will take up the loan 
 negotiations between China and the interested banking 
 groups of the different Powers, and the quarrel among the 
 Powers themselves regarding these important lines. We 
 shall also see how a compromise and a co-operation of inter- 
 national finance — a great financial combination in China — 
 were effected. 
 
 On October i, 1903, Great Britain succeeded in securing 
 the right of construction for her own and American capi- 
 talists. An agreement signed by Prince Ching with the 
 
 ^ Far Eastern Review, Apr., 1910, pp. 523-8; June, igii, passim; Aug., 
 1911, pp. 82-88; Jan., 1914, pp. 290-307. Bland, Recent Events and Pres- 
 ent Policies in China (Philadelphia, 1912), pp. 322-5; China Year Book, 
 1914. pp. 233-5- 
 
369] INTERNATIONAL CO-OPERATION 141 
 
 British Minister Sir Ernest Satow stipulated that " if China 
 desires to construct a Hankow-Szechuan Hne and her capi- 
 tal is insufficient, she will obtain all necessary foreign capi- 
 tal from Great Britain or the United States." And when 
 the Hongkong Government made a loan to China for the 
 redemption of the Canton-Hankow concession from 
 America, Great Britain also secured a preferential right 
 to supply both money and material for the construction 
 of the Canton-Hankow line. 
 
 In the early part of the year 1909, China decided to raise 
 a loan for the construction of the above two lines. In ac- 
 cordance with her agreement with Great Britain, China 
 extended the first chance to the British and Chinese Cor- 
 poration to supply the loan — the corporation being an amal- 
 gamation of British and French interests since 1905.^ 
 Meanwhile German interests expressed a desire to partici- 
 pate in the loan. On March i, 1909, a tripartite agreement 
 was arranged in Paris after a stormy conference. On April 
 2, an American banking group (the China Investment and 
 Construction Company) also formally proposed American 
 participation in the loan by addressing the British and 
 Chinese Corporation. 
 
 During the negotiations, Mr. J. O. P. Bland, the represen- 
 tative of the British syndicate, determined to have the 
 " Canton-Kowloon " terms applied to the agreement, while 
 Grand Councillor Chang Chih-tung insisted that " Tientsin- 
 Pukow " terms should be stipulated. To this Mr. Bland 
 refused to accede, and negotiations were abruptly broken 
 off by the Grand Councillor because of the British arrog- 
 ance. Some German bankers then stepped in and offered to 
 
 1 Agreement between certain British corporations, a group of French 
 capitalists and Chinese Central Rys., Ltd., for the construction of the 
 Sinyang-Pukow and Hankow-Chengtu Rys., signed on Oct. 2, 1905 ; see 
 Far Eastern Review, Jan., 1914, pp. 305-307- 
 
142 RAILWAY PROBLEMS IN CHINA [370 
 
 accept the " Tientsin- Pukow " terms and at the same time 
 secured some special privileges over the Canton-Hankow 
 Railway. Immediately a preliminary agreement was made 
 to float a loan for the construction of the Canton-Hankow 
 line. Thus German influence was let into the Yangtsze 
 Valley which Great Britain has struggled hard to maintain 
 as her special sphere of interest for many years. The 
 British Legation in Peking at once lodged a strong protest 
 with the Grand Councillor, accusing him of breach of 
 promise. To this the Grand Councillor replied that since 
 the British syndicate refused to accept the terms similar 
 to those of the Germans their preferential rights had been 
 canceled. The British Government, not satisfied with this 
 explanation, maintained that the pledge was made to the 
 British Government and not to the British syndicate, and 
 that the British Minister should be notified so that other 
 British capitalists might take up the loan. In consequence 
 of this the future activity of the British and Chinese Cor- 
 poration in China was destroyed, because, during the sub- 
 sequent loan negotiations in Peking, China refused to deal 
 with the representative of that corporation. Mr. Bland, 
 who acted for a good many long years in the Chinese drama, 
 " lost his face " and was compelled to retire from the " fiow- 
 ery " stage. The Hongkong and Shanghai Banking Cor- 
 poration took over the British interests in China. 
 
 At the same time the people of the nations concerned also 
 accused one another. Diplomatic protests and recrimin- 
 ations then followed. The bankers, however, found a 
 means of solving the complicated problem. They held a 
 conference in Berlin. As a result of the conference a 
 compromise was brought about to the effect that the Hong- 
 kong and Shanghai Banking Corporation and its French 
 associates agreed to combine with the German Group to 
 negotiate a loan to cover not only the Hankow-Canton road 
 
371 ] INTERNATIONAL CO-OPERATION 143 
 
 but also the Hankow-Szechuan line. An inter-group 
 agreement was concluded under which the German Group, 
 after having agreed to withdraw its claim over the Canton- 
 Hankow line which was to be constructed by an Anglo- 
 French Group with a British chief engineer, secured the 
 right to construct a railroad from Hankow to the border 
 of the Province of Szechuan with a German chief engineer. 
 Having reached this compromise the tripartite groups con- 
 cluded with the Grand Councillor on June 6, 1909, a pre- 
 liminary agreement for a loan of £5,500,000, accepting the 
 terms embodied in the Tientsin-Pukow Agreement. 
 
 On June 10, 1909, when this became known, the Ameri- 
 can Legation in Peking forwarded a protest to the Grand 
 Councillor against the ratification of the preliminary agree- 
 ment on the ground that an American syndicate had secured 
 an original promise from the Chinese Government that " in 
 the event of the floating of foreign loans for the Hupeh 
 section of the Szechuan road China will first consult America 
 and Great Britain." Protest was also made against the 
 items in the proposed loan agreement giving preference to 
 German, British and French materials. 
 
 At the same time the American Ambassador in London 
 also called the attention of the British Foreign Office to the 
 fact that Americans had the right and the desire to partici- 
 pate in the loan and that in Article HI of the agreement,' 
 signed on October 2, 1905, between the British and French 
 groups provision was made for American participation. 
 According to the same agreement a period of twelve months 
 from the date of signature was named as the time within 
 which American capitalists might notify the British and 
 French Groups of their desire to share in their activities. 
 Meanwhile, a number of American capitalists, mostly Wall 
 Street bankers headed by J. P. Morgan & Company, formed 
 
 1 Far Eastern Review, op. cit. 
 
144 RAILWAY PROBLEMS IN CHINA [372 
 
 a powerful group with the object of backing up the United 
 States Government's attitude ^ toward the loan and entered 
 the field for participation in the investment in China. 
 
 The Peking authorities found it hard to disregard the 
 American claim and felt, also, that it was an advantage to 
 China to admit the American interests. But as the pre- 
 liminary agreement had already been signed it was very 
 difficult to change any of the conditions without arousing 
 storms of protest from the Governments of the tripartite 
 groups. In fact, the United States had not definitely in- 
 formed China of her desire nor showed any determined 
 eagerness to co-operate in this loan during its negotia- 
 tion, until the European syndicates had already settled the 
 trouble amongst themselves and had cleared up their differ- 
 ences with China.^ The American Charge d' Affaires, Mr. 
 
 ' The United States' attitude towards the loan was explained in an 
 official statement given out from Washington, D. C, in Oct., 1909. A 
 part of the text of the statement says : "The Government of the United 
 States is much gratified at the formation of a powerful and respon- 
 sible American financial group to enter the important field of invest- 
 ment in China, and is giving to the enterprise that cordial support which 
 the Department of State stands ready to give all legitimate and bene- 
 ficial American commercial and financial undertakings in foreign coun- 
 tries. Such undertakings are to be encouraged because of direct benefit 
 to American commerce and to international relations. . . ." See Far 
 Eastern Review, Nov., igog, p. 317. This attitude was regarded as the 
 outcome of the so-called "Dollar Diplomacy" launched by Mr. Taft, 
 then President of the United States, and Mr. Knox, then Secretary of 
 State. 
 
 ^ In the same official statement issued in Oct., 1909, from Washington, 
 the United States Government confessed that : "Although American 
 capitalists did not, owing to the financial conditions in this country, find 
 it convenient to accept the British invitation to cooperate with the 
 British and French groups in endeavoring to persuade China to make 
 the foreign loan for the construction of the Hankow-Szechuan line, it 
 is fortunate that before the negotiations were terminated the organiza- 
 tion of this powerful American syndicate has made it possible for 
 China to fulfil her agreement and grant to the U. S. participation in 
 this loan in accordance with the Waiwupu's promise of 1904." Ibid. 
 
373] INTERNATIONAL CO-OPERATION 145 
 
 Fletcher, was, however, very energetic in making representa- 
 tion after representation to the Waiwupu of China's obli- 
 gations and of his Government's determined attitude to- 
 ward this loan. 
 
 On the other hand, the European diplomats demanded 
 an early ratification of the loan by bringing pressure upon 
 the Grand Councillor to memorialize the Throne. Among 
 them the British Minister was especially emphatic in his 
 demands. Mr. Fletcher warned the British Minister that 
 his action would disturb the cordial relations between the 
 United States and Great Britain. The newspapers of 
 Europe and America then made a great outcry, each siding 
 with their own representative. The Europeans accused the 
 United States of having allowed the European countries 
 to do all the hard work, then at the last moment of having 
 claimed a share in the reward of their efforts and of having 
 delayed the negotiations by insisting on participation ; while 
 the United States maintained that she was first in the field 
 for this particular loan and had on three separate occasions 
 between January and April of the year 1909 pointed out 
 to British banking interests that the American banking 
 group had a desire to co-operate in this loan, and that on 
 each occasion the proffered co-operation had been declined 
 by them, although German and French co-operation was 
 accepted shortly thereafter. 
 
 China, however, realized the seriousness of the situation. 
 She assured the American Legation of her postponement 
 of the final ratification of the agreement. The Germans 
 became at once very energetic in using every means to bring 
 about the ratification of the contract. The Washington 
 Administration under Mr. Taft then took drastic action 
 by sending a presidential message to the Prince Regent of 
 China emphasizing American rights, employing however 
 only friendly terms. The Waiwupu was then instructed 
 
146 RAILWAY PROBLEMS IN CHINA [374 
 
 to open negotiation with Mr. Fletcher for the admission 
 of American capital on equal terms with the Europeans. 
 On August 17, 1909, admission of American capital was 
 definitely accepted and the loan was increased from 
 £5,500,000 to £6,000,000, the four groups to take a quarter 
 each. This increase meant that China was forced to bor- 
 row £500,000 more in order to admit the United States. 
 
 When it seemed that everything was settled additional 
 troubles arose. Russia and Japan, who have no surplus 
 capital for investment in foreign lands, also insisted upon 
 a share in the loan and urged a further increase of the loan 
 to accommodate them. This caused another diplomatic 
 war lasting, however, only a short time. 
 
 Furthermore, negotiations among the four groups who 
 had already secured the concession struck another obstacle 
 and from that there resulted a further delay in concluding 
 the final agreement. The competing countries experienced 
 great difficulty in arranging the question as to the amount 
 of line each would control and the appointment of en- 
 gineers who could influence, in favor of their respective 
 countries, the purchase of all the railroad supplies needed, 
 thereby originating the channel of future commerce. The 
 Germans were accused of not being willing to yield suffi- 
 ciently to the other Europeans to equalize the common loss 
 involved by the American participation. On the other hand, 
 the British were accused by the Germans and French of 
 delaying the loan for petty gains. 
 
 Somehow, however, these two points of dispute, i. e., 
 the allotment of the line mileage and the appointment of 
 engineers, were settled. A third question came up — the 
 question of appointing purchasing agents. The American 
 Group, knowing the national prejudices of the European 
 engineers in awarding tenders and the past record of the 
 British and Chinese Corporation and the Deutsch-Asiatische 
 
375] INTERNATIONAL CO-OPERATION 147 
 
 Bank in placing orders for materials regardless of the pro- 
 vision of the loan agreements, endeavored to secure Ameri- 
 can participation in the appointment of a purchasing agent 
 who would guarantee a square deal to American manufac- 
 turers. Owing to the refusal of the British and German 
 Groups to permit any change in the wording of Clause 18 
 of the original agreement, which named the British and 
 Chinese Corporation and the Deutsch-Asiatische Bank as 
 plJrchasihg agents for all the lines, the negotiations between 
 the four financial groups dragged along for several months 
 more. Finally the representative of the American Group 
 was induced to yield. He waived the right to appoint an 
 American purchasing agent on the condition that the British 
 and the German purchasing agents should write an official 
 letter obligating themselves to an impartial awarding of 
 tenders. Thus the exclusive purchasing rights for the 
 entire system including the American section were con- 
 ceded to the Deutsch-Asiatische Bank and the British and 
 Chinese Corporation. At a meeting held in Paris on May 
 23, 1910, between the representatives of the four groups, 
 an inter-group agreement was signed providing for " the 
 receipt of or an absolute basis of equality of tenders from 
 British, German, French and American manufacturers." ^ 
 At the same meeting it was also agreed that the four groups 
 should participate equally in the purchasing commission, 
 the Deutsch-Asiatische Bank and the British and Chinese 
 Corporation receiving one per cent as compensation for the 
 actual services rendered, and the other 4 per cent to be 
 equally divided between the four groups. Thus the con- 
 tention between the several leading financial groups as well 
 as their respective governments was brought to an end. 
 
 ' For full text of the agreement, see Far Eastern Review, vol. viii, 
 no. 3, p. 83. 
 
148 RAILWAY PROBLEMS IN CHINA [^y6 
 
 During the period of this contention, the seriousness of 
 the international turmoils, coupled with the ridiculous pre- 
 tensions of Russia and Japan, had roused the fears of 
 China's loyal children who suspected that there was cruel 
 design behind the loan. The result was a popular opposi- 
 tion to placing the " sovereign rights " of the nation in the 
 hands of foreigners. 
 
 After all these many difficulties had been overcome the 
 final agreement ^ was signed on May 20, 191 1, between Mr. 
 Sheng Hsuan-huai, the Minister of Posts and Communi- 
 cations and the representatives of the Four Nations' Groups. 
 The world-famous loan is called " The Imperial Chinese 
 Government Five Per Cent Hukuang Railway Sinking Fund 
 Gold Loan of 191 1." According to the agreement a loan 
 of £6,000,000 was floated to : 
 
 1. Redeem certain hitherto unredeemed gold bonds to 
 the total par value of gold $2,222,000, issued by the Ameri- 
 can China Development Company on behalf of the Im- 
 perial Chinese Government. 
 
 2. (a) Construct a Government railway main line from 
 Wuchang, the capital of the Hupeh province, through Yo- 
 chow and Changsha, the capital of Hunan province, to a 
 point in the district of Yichang-hsien, in the prefecture of 
 Chenchow, of the southern boundary of Hunan, connecting 
 with the Kwangtung section of the Canton-Hankow railway 
 line, the total length of this line, to be known as the " Hupeh- 
 Hunan section of the Canton-Hankow railway line," being 
 an estimated distance of 1,800 Chinese li, or 900 kilometres ; 
 (b) and a Government railway main line from a point at 
 or near Kuangshui in the Province of Hupeh, connecting 
 with the Peking-Hankow railway line and passing through 
 
 ' For full text of the agreement, see Supplement to the Par Eastern 
 Review, Aug., 191 1. 
 
377] INTERNATIONAL CO-OPERATION 149 
 
 Hsiang-yang, and Chingmenchow to Ichang, an estimated 
 distance of 600 Chinese li, or 300 kilometres, — this latter 
 section of the main line having been added in substitution 
 for the branch line from Chingmenchow to Hanyang ori- 
 ginally agreed upon, — the total length of this main line, 
 hereafter known as the " Hupeh section of the Szechuan- 
 Hankow railway line" being about 1,800 Chinese li, or 
 900 kilometres. 
 
 The agreement provides that after the deduction of the 
 amount required for the redemption of the gold bonds the 
 balance of the loan shall be solely devoted both to the con- 
 struction of the aforesaid railway lines, including the pur- 
 chase of land, rolling stock and other equipment, and also 
 to the working of the lines, as well as to the payment of 
 interest on the loan during the period of construction, which 
 is estimated at three years from the actual beginning of the 
 work, a longer period, however, being allowed for the 
 completion of the section from Ichang to Kweichowfu in 
 consideration of the engineering difficulties to be en- 
 countered. 
 
 In the agreement it was also stipulated that the security 
 for the loan shall be the general Likin of Hupeh province, 
 amounting to Tls. 2,000,000 per year; the Hupeh additional 
 salt tax for river defence, amounting to Tls. 400,000 per 
 year; the Hupeh new additional 2 cash salt tax of Septem- 
 ber, 1908, amounting to Tls. 250,000 per year; the Hupeh 
 collection of Hukuang inter-provincial tax on imported rice, 
 to the amount of Tls. 250,000 per year; the general Likin 
 of Hunan, amounting to Tls. 2,000,000 per year ; the Hunan 
 Salt Commissioner's Treasury regular salt Likin, to the 
 amount of Tls. 250,000 per year; in all amounting to Tls. 
 5,200,000 per year. In case of default in the payment of 
 principal or interest of the loan, Likin and other suitable 
 internal revenues of the Provinces of Hupeh and Hunan 
 
I50 RAILWAY PROBLEMS IN CHINA [378 
 
 sufficient to provide the above-stated amount shall be trans- 
 ferred to, and administered by, the Imperial Maritime 
 Customs in the interest of the bondholders. 
 
 The duration of the loan is forty years. Yearly amorti- 
 zation in half-yearly instalments shall commence after ten 
 years out of the revenues of the line, or such other re- 
 venues as the Chinese Government may think fit to use for 
 the purpose. The whole outstanding amount of the loan 
 may also be redeemed after ten years from the date of the 
 loan by paying a 2j^ per cent premium on the face value of 
 the bonds, and after the lapse of seventeen years without 
 premium. 
 
 The price of the bonds to China was 95 per cent of their 
 nominal value with 5. per cent interest. 
 
 The construction and control of the railway lines are 
 en^rely_and exclusively vested in the Chinese Government, 
 in addition to the power of appointing a British chief en- 
 gineer for the Hupeh-Hunan section of the Canton-Hankow 
 railway line from Wuchang to Yichanghsien ; a German 
 chief engineer for the Kuangshui-Ichang section of the 
 Szechuan-Hankow line; and an American chief engineer 
 for the section of that line from Ichang to Kweichowfu. 
 All these engineers must be fully qualified and acceptable 
 to the banks concerned. 
 
 The supervision of expenditures and the control of the 
 loan funds were stipulated in a manner similar to the 
 Tientsin-Pukow terms. 
 
 After the signing of the agreement, as we have seen, a 
 revolution broke out, which, with its aftermath, produced 
 a great change in the economic condition of the country 
 and the value of the securities already pledged. The ma- 
 chinery of tax collection was dislocated. Likin collections 
 fell off and other revenues pledged also suffered. The 
 credit of the native banks was seriously afifected. Progress 
 
379] INTERNATIONAL CO-OPERATION 151 
 
 on the construction work was completely blocked. These 
 and other factors persuaded the foreign bankers to raise 
 the question of reconsidering some of the points in the 
 agreement. The bankers deemed it advisable to have the 
 security revised, the arrangements for the banking of funds 
 reconsidered, and a change instituted with regard to the 
 auditors. Negotiations were re-opened with the Minister 
 of Communications. The following points were raised and 
 agreed upon : ^ 
 
 1. Additional security. The property and materials of 
 the lines shall be specially given as provisional guarantee that 
 the Likin will be unimpaired. 
 
 2. Change in the methods of transfer of loan funds. In 
 Article 14 of the agreement it was stipulated that the trans- 
 ferred funds to the extent of one-half of the net balance 
 of the loan proceeds might, at the discretion of the Ministry 
 of Posts and Communications, be deposited with the Bank 
 of Communications (Chiao-tung Bank) or with the Taching 
 Government Bank, the Chinese Government declaring itself 
 responsible for all the funds of the loan deposited with 
 these banks. After the outbreak of the Revolution the 
 above-mentioned banks and the Treasury were affected and 
 both of the banks failed to do their usual business with the 
 foreign banks. After much tedious negotiation it was 
 decided that the loan funds should be deposited temporarily 
 with the Deutsch-Asiatische Bank, the Hongkong and 
 Shanghai Banking Corporation, the Banque de ITndo-Chine, 
 and the International Bank in readiness to be drawn from 
 time to time as required for the work until such time as 
 either the Chiao-tung Bank or the Taching Bank has been 
 reorganized as a State Bank of China and has established 
 its credit, and business relations with foreign banks have 
 
 1 Far Eastern Review, Mar., 1913, pp. 454-4S6. 
 
152 RAILWAY PROBLEMS IN CHINA [380 
 
 been mutually resumed. When such time comes the Gov- 
 ernment may consult with the banking groups as to a re- 
 vision of the methods of transfer laid down in Article 14 of 
 the agreement by which the deposits of the proceeds of the 
 loan funds were to be shared with the Chiao-tung Bank 
 or the State Bank of China as agents. 
 
 3. Change in the keeping of accounts. Article 14 of the 
 agreement also set out that the accounts were to be kept in 
 Chinese and English in accordance with accepted modern 
 methods, and were to be supported by all necessary vouch- 
 ers. Such accounts and vouchers were to be open for in- 
 spection, at any time during the period of construction, by 
 the auditors engaged by the banks. This was deemed by 
 the banks to be an insufficient safeguard in view of the 
 altered conditions in the country, and they pressed in addi- 
 tion for the appointment of qualified accountants. The 
 banks also deemed it advisable to have adequate provision 
 made for the supervision of materials. It was ultimately 
 decided that China should herself forthwith engage ex- 
 perienced foreign accountants whose dismissal and appoint- 
 ment would be entirely and exclusively controlled by the 
 Chinese Government. It was also agreed that the Manag- 
 ing Director and the engineers-in-chief of the respective 
 sections of the Hukuang system should select a foreign 
 engineer to be stationed at the store yards to control, super- 
 vise and record the materials. In the event of damage, 
 loss or misuse the Managing Director and the chief engineer 
 shall be held responsible. 
 
 Another difficulty encountered by the Central Govern- 
 ment was its failure to secure a permanent Director-General 
 for the lines. ^ This was, however, soon overcome. When 
 
 ' General Huang Hsing and Mr. Tsen Chen-hsuan were appointed 
 successively to the Post of Director-General of the system. Both of 
 
38lJ INTERNATIONAL CO-OPERATION 153 
 
 the Central Government was again strongly established in 
 Peking and the country became pacified, construction work 
 was pushed on in both the southern and the western lines. 
 
 Special conferences were then held between the chief 
 engineers and accountants of the lines and the banks, and 
 regulations were drawn up and agreed to by the Ministry 
 of Communications for the proper transference and dis- 
 bursement of the loan fund and provisions taken against 
 waste and misappropriation. 
 
 By 1 91 3-19 14, an arrangement was made by the Chinese 
 Government with the four banking groups for the extension 
 of the Hupeh-Szechuan railway from Kweichowfu, via 
 Chungking, to Chengtu, the capital of Szechuan province, 
 involving the construction of over 500 miles of lines. It 
 is understood that the financial arrangements will be equally 
 shared by the four groups. Details had not yet been settled 
 when the European War broke out. It is doubtless the 
 French who will be more benefited by this extension 
 than the other three nationalities, because it will be most 
 probably the French Banking Group who will be given the 
 right to appoint a chief engineer for this section of the 
 Hankow-Szechuan road as they were not given that privi- 
 lege in the previous agreement. It remains to be seen, 
 however, how the present war will affect the whole system 
 of the Hukuang roads. 
 
 Since the conclusion of the Hukuang Railway Loan, 
 China has contracted several other important railway loans, 
 understood to be issued on practically the same conditions 
 as the Tientsin- Pukow railway loan. The most significant 
 of these are the Lung-Tsing-U-Hai Railway, the Sinyang- 
 Pukow Railway and the Shasi-Shingyifu Railway loans. 
 
 them were later implicated in the Second Revolution and fled the 
 country. 
 
154 RAILWAY PROBLEMS IN CHINA [382 
 
 The Lung-Tsing-U-Hai Railway '- 
 
 In 1903 a loan contract for the construction of a railway 
 from Kaifengfu to Honanfu (the Pienlo Railway) in the 
 Province of Honan was made between the Chinese Govern- 
 ment and the Conipagnie Generate de Chemins de fer et de 
 Tramways en Chine.^ Article 23 stipulated : 
 
 If the Compagnie finishes in good condition the work of the 
 railway from Kaifengfu to Honanfu, strictly in accordance 
 with all the clauses of the present contract, in this case and if 
 the Chinese Government decides to extend the railway from 
 Honanfu to Si-ngan-fu, the Director-General of the Imperial 
 Chinese Government Railways obligates himself to agree to 
 a preference and to give an option for the loan required for 
 the enterprise to the Compagnie, conformably to the clauses 
 and conditions of the present contract. 
 
 It is well understood that if the Chinese Government is able 
 to provide the necessary capital for the construction of the 
 extension from its own resources or with funds raised by the 
 subscription of its own nationals, the Compagnie may not 
 benefit by this Article. 
 
 After the Revolution the Chinese Government decided to 
 extend the Pienlo Railway and to complete the Lotung line, 
 which was to be nationalized, to Lanchowfu, capital of 
 Kansuh province, in the West, and to Haichow or 
 Suchowfu in the Kiangsu province, in the East. The Gov- 
 ernment recognized that the Compagnie had completed in 
 good condition the construction of the Pienlo railway and 
 found that it was impossible to raise capital from native 
 sources. It decided, therefore, to borrow foreign capital. 
 The Ministry of Communications was then authorized by 
 
 ^ Far Eastei-n Review, May, 1913, p. S43 (for sketch of the road) ; 
 May, 1914, p. 472 ; Jan., 1914, pp. 293-296. 
 
 " Cf. supra, p. 79. 
 
383] INTERNATIONAL CO-OPERATION 155 
 
 the Presidential Order, dated August 31, 191 3, to negotiate 
 a loan with the Compagnie Generale. But certain clauses 
 of the 1903 contract offered serious difficulties, notably the 
 clause admitting the Compagnie to a participation in the 
 future profits of the line. After some negotiations a modi- 
 fication was attained. It was agreed that certain compen- 
 sation should be granted the Compagnie Generale for the 
 abandonment of its rights previously acquired and the Gov- 
 ernment received to itself in return all the rights and ad- 
 vantages arising from the development of this line in its 
 entirety. 
 
 In September, 1912, the loan contract ^ was signed by the 
 Ministers of Communications and Finance on the one part, 
 and the representative of the Compagnie Generale on the 
 other. The authorized amount of the loan was to be 250,- 
 ooo,cx)0 francs, issued at 94, bearing interest at 5 per cent. 
 The life of the loan is forty years. Repayment of capital 
 and redemption at 102J/2 commence ten years after the 
 issue of the loan. During the construction the interest will 
 be paid from the funds realized from the proceeds of the 
 loan. The payment of interest and the repayment of the 
 loan are guaranteed by the Chinese Government and by a 
 special guarantee on the railway which constitutes a first 
 lien on the road itself and its attachments. 
 
 The Chinese Government will be in sole charge of the 
 operation and direction of the railway. The Director- 
 General and the chief engineer have absolute control over 
 all expenditures and receipts of the railway. The work of 
 constructing the railway will be performed under the su 
 preme direction of the Director-General. The Director- 
 General and the Compagnie shall act together, conscien- 
 tiously, in choosing an engineer-in-chief who shall be either 
 
 ' Far Eastern Review, Jan., 1913, giving full text of the agreement. 
 
156 RAILWAY PROBLEMS IN CHINA [384 
 
 Belgian or French, experienced and honest, and whose 
 salary shall be fixed by the Director-General with the 
 acquiescence of the Compagnie. All estimates and speci- 
 fications and details of the works must be submitted in the 
 first place to the Director-General for his approval. No 
 Chinese or European employees can be engaged without the 
 assent of the Director-General. The chief of general ac- 
 counts, who must be of either French or Beligian national- 
 ity, will fill at the same time {du bon emploi) the position 
 of Auditor. He will be named by the Director-General and 
 confirmed by the Compagnie. He will sign jointly with 
 the representative of the Director-General all the checks 
 drawn and all responsible documents. Each time that it 
 becomes necessary to appoint technical employees for the 
 railway, or to define their functions, or even to remove 
 them, the Director-General must consult with the engineer- 
 in-chief and act in accord with him. In case of disagree- 
 ment the decision of the Minister of Communications will 
 be final. The engineer-in-chief is to organize a European 
 staff for the construction and submit it to the Director- 
 General for his approbation — the staff comprising the chief 
 of services, the chief of section, the chief of the account- 
 ing bureau, etc., who are to be engaged by the Compagnie 
 and placed under the order of the engineer-in-chief. 
 
 The Compagnie will be charged during all the time of 
 construction with the supplying of everything necessary 
 for the construction and equipment of the line and for the 
 needs of its operation except such Chinese supplies as can 
 be procured at equal price and of equal quality. 
 
 Although it is stated in the agreement that the Compagnie 
 Generale is domiciled in Brussels, yet the French Yellow 
 Book for 1900 '■ describes it as a Franco-Belgian syndicate, 
 indicating that French interests predominated. The pro- 
 
 1 Cf. supra, p. 7S, foot-note. 
 
385] INTERNATIONAL CO-OPERATION 157 
 
 ject also met with hearty support from Russia because the 
 Hne when completed if extended a little further westwards 
 will connect with Russia's Asian system, and constitute a 
 through trunk line from Central Asia to the heart of China 
 and thence to the seacoast. Furthermore, the Banque 
 Sino-Belge, for which M. de Vos acted as representative 
 as well, has a close connection with the Russian banking 
 group. ^ Therefore, it may be said that Russian interests 
 have also probably played an important part in this deal. 
 
 This line traverses the poorest and most desolate districts 
 in China proper. Periodical floods often throw thousands 
 of the people into starvation and disease. This railroad will, 
 enable" tlie Government to ameliorate these conditions in^ 
 the future. 
 
 From the political and military point of view the line is 
 of even more importance, because when completed it will 
 enable China to control her north-western provinces more 
 effectively and when extended in the future it will facilitate 
 the colonization of Sinkiang by China. 
 
 It will be of great commercial value because it will open 
 a deep-water port somewhere between Tsingtau and Shang- 
 hai, in order to command the great trade-routes from the 
 central provinces to the sea, thus decreasing the dominating 
 importance of Shanghai and Tsingtau which are under for- 
 eign influence. 
 
 The Sinyang-Pukow Railway 
 
 The preliminary agreement for the concession of this line 
 was signed in 1899. Not until November 14, 1913, was 
 the final agreement ^ duly signed by the Ministers of Com- 
 
 ' See Inter-Group Agreement for the Sextuple Reorganization Loan, 
 in Far Eastern Review, Mar., 1913, pp. 439-441 ; or China Year Book, 
 1914, ch. on Finance. 
 
 ' For full text of agreement, see Far Eastern Review, Jan., 1914, pp. 
 J07-310. 
 
158 RAILWAY PROBLEMS IN CHINA [386 
 
 munications and Finance on the one part and the represen- 
 tative of the Chinese Central Railways, Ltd., on the other 
 part. The final agreement was signed as a purely British 
 undertaking, providing for the appointment of British en- 
 gineers and the purchase of materials from Great Britain. 
 But as a large percentage of the shares ^ of the Chinese 
 Central Railways, Ltd., are held in France and Belgium, 
 French and Belgian partners are entitled to a division of the 
 profits. The French and Belgians are, however, not ad- 
 mitted to a participation in the allotment of purchase of 
 materials and appointment of engineers, because by doing 
 this openly the truth would be revealed to the Chinese Gov- 
 ernment. Without informing China, by the 1905 inter- 
 group agreement ^ the British have practically transferred 
 to the French and the Belgians a part of their rights which 
 the British Government had wrung from China as a penalty 
 for signing the Peking-Hankow loan with the Belgians. 
 
 The terms of this loan agreement practically follow the 
 trend of the Tientsin-Pukow terms. The loan is called 
 " The Chinese Government Five Per Cent Pukow-Sinyang 
 Railway Loan." It provides for an amount of £3,000,000 
 to construct a railway line from a point on the Tientsin- 
 Pukow railway (southern section) to a point at or near 
 Sinyang on the Peking-Hankow railway, a distance of 
 about 350 miles. 
 
 The duration of the loan is forty years. Amortization 
 will commence with the eleventh year from the date of the 
 loan. After twenty years the outstanding amount of the 
 loan may be reduced by paying £102^ for each £100 bond. 
 The loan is secured by a specific and first mortgage upon all 
 lands, materials, rolling stock, buildings, property and pre- 
 
 1 Cf. supra, p. 141, foot-note. 
 
 2 Ibid. 
 
387] INTERNATIONAL CO-OPERATION 159. 
 
 mises of every description purchased or to be purchased for 
 the railway, and on the railway itself, as and when con- 
 structed, and on the revenues of all description derived 
 therefrom. This provision differs from that of the Tientsin- 
 Pukow agreement in which internal revenues and Likins 
 of the several provinces the road traverses were pledged as 
 security. The control and construction of the railway are 
 vested entirely in the Chinese Government. 
 
 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 concerning the Shanghai- 
 Nanking railway. Article 12 of the Shanghai-Nanking 
 agreement provides for participation by the lenders in the 
 net profits of the road after certain charges have been met, 
 to the extent of 20 per cent. Net profit certificates were to 
 be issued to the lenders to the amount of 20 per cent of the 
 nominal capital of the loan. In this agreement the British 
 waived their rights under the old preliminary agreement by 
 retaining, in commutation of this participation in net profits, 
 a lump sum of £120,000 out of the proceeds of the loan. It 
 is also provided in this agreement that " no further payment 
 in respect of commutation of profits will be allowed on any 
 supplementary loans." 
 
 The Shasi-Shingyifu Railway ^ 
 
 Aside from the above improvements made in contracting 
 foreign loans for railway construction, China has also made 
 some marked progress in other directions by adopting what 
 many other countries have used in carrying on important 
 public works, i. e., the " percentage contract construction 
 
 1 Far Eastern Review, Dec, 1913, pp. 248-9 ; July, 1914, p. 52 ; Dec, 
 1914, pp. 220-224; Jan., 1915, pp. 302-08. 
 
l6o RAILWAY PROBLEMS IN CHINA [388 
 
 system." The system is that a contract is made by the 
 Government with an experienced contracting party (mostly 
 engineering firm or firms) of high financial standing to 
 finance and construct a railroad, providing that a certain 
 percentage of profit shall be allowed by the Government to 
 the contractor over the actual cost of construction and 
 equipment and that the Government is to supervise the entire 
 work during and after its construction. " It is an equitable 
 system for carrying on large pubhc works where it is im- 
 possible to make an accurate estimate at the time of entering 
 into a contract." 
 
 This system was introduced for the construction of this 
 road. The Shasi-Shingyifu railway contract is a modifica- 
 tion of the one signed by Dr. Sun Yat-sen with Lord 
 French on July 4, 1913, providing for a railway between 
 Canton and Chungking.^ Mr. Rea, Technical Secretary 
 of the Chinese National Railway Corporation, who was 
 entrusted with all negotiations for loan contracts in Europe 
 by Dr. Sun, took to himself all the credit of introducing 
 this new system into China. Feeling confident that the 
 great construction firms could build the railways more " eco- 
 nomically and expeditiously " than could the individual en- 
 gineers nominated by the official banking groups under the 
 prevailing departmental system in which the bank is the 
 principal to the contract, Mr. Rea decided to invite the large 
 contracting firms of high financial standing to participate in 
 the development of Chinese railways. He succeeded in 
 initiating in London in April, 1913, an agreement with 
 Messrs. Pauling and Company for the construction of a 
 line from Canton to Chungking under a contract in which 
 the contractor's profit was a fixed percentage over and above 
 the actual cost of construction and equipment of the road. 
 
 1 Cf. supra, p. 122. 
 
389] INTERNATIONAL CO-OPERATION 161 
 
 After the dissolution of the Chinese National Railway 
 Corporation, the Government refused to recognize the valid- 
 ity of any agreement entered into by Dr. Sun. However, 
 having become convinced of the soundness of the principle 
 underlying the Canton-Chungking railway contract of rail- 
 way construction on a percentage basis, the Government 
 negotiated another agreement for the Shasi-Shingyifu line 
 which was considered of more political importance for the 
 present than the Canton-Chungking line. The Shasi- 
 Shingyifu railway extends from a point near the city of 
 Shasi on the Yangtsze River, in the Province of Hupeh, 
 through Lichow, Changteh, Shenchow, Yuanchow, Chen- 
 yuan, Kweiyang and Aushunfu to Shingyifu, in the south- 
 western corner of the Province of Kweichow, with a branch 
 from Changteh to Changsha, the capital of Hunan province. 
 
 On July 25, 19 14, the final agreement was signed between 
 the Chiao-tung Pu and Messrs. Pauling and Company, Ltd., 
 for a loan of £10,000,000 at five per cent interest. The life 
 of the loan is forty years. In this agreement there are 
 several points which do not appear in any of the previous 
 agreements, viz. : 
 
 1. The railway is to be constructed by contract. 
 
 2. The Chinese Managing Director is to co-operate with a 
 firm of British consulting engineers in drawing plans and 
 supervising the work. 
 
 3. A firm of British accountants is to be engaged to keep 
 the accounts of the loan, which is secured on the railway 
 and the properties connected therewith, and is also guaran- 
 teed by the Government. 
 
 4. Specifications and costs must be first approved by the 
 Chinese authorities. 
 
 By inserting such an arrangement, in addition to the 
 other advantageous terms stipulated in the other new loan 
 
1 62 RAILWAY PROBLEMS IN CHINA [390 
 
 contracts, it is believed that China can control and supervise 
 the road better and that the road can be built much more 
 economically and with greater efficiency than by follovi^ing 
 the usual stringent terms of the old departmental system 
 of construction. 
 
 Independent firms and interests (financiers and manu- 
 facturers) had been debarred for many years by the official 
 banking groups from entering the field in China for the 
 purpose of competing in railroad building. The Shasi- 
 Shingyifu agreement may be considered as the first stroke 
 against the monopoly enjoyed for many years by the official 
 banking groups and enforced by them from time to time 
 through the tactics of diplomacy and " dirty politics." 
 
CHAPTER X 
 The Manchurian Railway Problems 
 
 After the Russo-Japanese War, by the terms of the 
 Portsmouth Peace Treaty (September 5, 1905), the 
 Japanese Government, with the consent of the Chinese Gov- 
 ernment, took over the Hne extending from Port Arthur 
 up to Kuangchengtze, a distance of 508 miles, together with 
 such rights connected with the railway as had been conceded 
 to Russia. On December 22, 1905, Baron Komura, then 
 Japanese Minister at Peking, negotiated a convention — the 
 Manchurian Convention ^ — and received confirmation from 
 the Chinese Government regarding the transfer to Japan 
 by Russia of Talienwan and Port Arthur and all rights un- 
 der the lease of the Liaotung peninsula. According to the 
 Supplementary Articles of the Convention, Japan secured 
 from China also (i) the right to construct a branch line 
 from Mukden to Antung (planned to connect with the 
 Korean trunk line at the terminus of Wiji, opposite to 
 Antung on the Yalu River,) and (2) the right to partici- 
 pate in the construction of a second branch further north, 
 between Kuangchengtze and Kirin. 
 
 The South Manchuria (Nannian) Railway System ^ 
 After this railway system had been taken over by Japan 
 
 ' For full text of treaty (translated into English), see Journal of the 
 American Asiatic Association, Feb., 1906, pp. 19-20. 
 
 ' Far Eastern Review, Feb., 1909 (whole issue) ; China Year Book, 
 1912-1914, Ch. on Communications; Journal of the American Asiatic 
 Association, Dec, 191 1, pp. 339-45- 
 
 391] 163 
 
164 RAILWAY PROBLEMS IN CHINA [392 
 
 from the Russians, under the Japanese Imperial Ordinance ' 
 of June 7, 1906, the South Manchuria Railway Company- 
 was organized with an authorized capital of 200,000,000 
 yen of which 100,000,000 yen were paid up by the 
 Japanese Government and 20,000,000 yen were subscribed 
 by the Mikado's subjects, i.e., the actual capital of the 
 company is now 120,000,000 yens. The company was 
 formed with this capital for : ( i ) taking over, developing 
 and operating the railways already constructed, except the 
 Antung— Mukden light railway and its accessories; (2) 
 improving the Nanman and the Antung-Muken railways 
 with the exception of the property in the Leased Territory 
 which should be specially designated by the Government; 
 and (3) working the coal mines at Fushun and Yentai. 
 
 The Japanese Government guarantees the payment of 
 interest at the rate of 6 per cent per annum on the paid-up 
 capital of the company for fifteen years after the registra- 
 tion of its organization. It was provided that the subsidy 
 shall in no case exceed 6 per cent of the paid-up capital and 
 that the subsidy with an interest of 6 per cent shall be 
 made a liability of the company to the Government, repay- 
 able from the excess of the company's dividends above 10 
 per cent per annum on all shares. 
 
 In the Japanese Imperial Ordinance, it was provided that 
 the South Manchuria Railway Company should be a 
 Chinese- Japanese organization but for some reason the peo- 
 ple of China could not avail themselves of the opportunity 
 to buy shares. On the other hand, certain branch lines and 
 collieries, notably the Yentai and Fushun mines, which were 
 Chinese private properties although a certain amount of 
 Russian capital was invested in them, were listed by Japan 
 as the property of the South Manchuria Railway Co. 
 
 ' Journal of the American Asiatic Association, Oct., 1906, pp. 266-8. 
 
393] THE MANCHURIAN RAILWAY PROBLEMS 165 
 
 As the result of the intimate association of the company's 
 organization with the Japanese Government the company 
 has assumed various functions which render it somewhat 
 hke a Colonial Administration. The company is empow- 
 ered : ( I ) to engage in mining, marine transport, electric 
 works, sales in consignment of the principal goods carried 
 by rail, warehousing business, and construction and ad- 
 ministration of land and houses on the land belonging to 
 the railway; (2) to make the necessary provisions for edu- 
 cation, health, and engineering work within the hmit of the 
 land belonging to the railway; (3) to collect fees from in- 
 habitants within the limit of the land belonging to the rail- 
 way from which to defray the expense for the items quoted 
 above. 
 
 In fulfilment of an agreement entered into in June, 1907, 
 with the Russian Government, the railway line and prop- 
 erties to the south of Kuangchengtze station, together with 
 the coal mines of Shikpailing and Taochiatun, as well as 
 other appurtenances, were formally transferred to the South 
 Manchuria Railway Company, between July 15 and July 
 18, 1907. 
 
 In order to provide the necessary funds for widening the 
 tracks and making immediate improvements of the railway 
 system, the company has issued in London three separate 
 issues of debentures of a total amount of £8,000,000 at the 
 uniform rate of interest of 5 per cent, both principal and 
 interest being guaranteed by the Japanese Government. 
 
 In April, 1907, the railway had already been re-opened 
 to traffic. The Russian five- foot gauge on the southern 
 section of the Eastern Chinese Railway had been reduced 
 to three feet six inches, during the war, in order to enable 
 the Japanese military engineers to operate the line with 
 rolling stock from Japan, where the railways are all con- 
 structed either on the 3^^' or 2>^' model. In 1908, the 
 
1 66 RAILWAY PROBLEMS IN CHINA [394 
 
 main line and branches (except the Antung-Mukden branch) 
 were converted from the narrow gauge to the standard 
 guage of 4' Syi", which is the uniform gauge on most of the 
 railways in China. 
 
 The railway is protected by a large force of Japanese 
 stationed at different points along the main and the branch 
 lines. This policing administration is under the supervision 
 of the Japanese governor-general of the Leased Territory, 
 who has charge also of elaborate postal and telegraph sys- 
 tems. Also, the Manchurian Consular Courts have civil 
 jurisdiction in the railway settlement. 
 
 The South Manchuria railway is an instrument in the 
 hands of the Japanese Government for the promotion of 
 exclusive Japanese interests in South Manchuria. Owing 
 to the discrimination and rebates of rates in favor of 
 Japanese firms foreign goods other than those of Japanese 
 manufacture have suffered a great deal. In connection with 
 her ownership of the road many exclusive privileges were 
 claimed by Japan in her encroachment upon China's sover- 
 eign rights, and a complete repudiation was demanded of 
 the " open door " doctrine which Japan had occasion, time 
 and again, to declare to the Powers. 
 
 In order to develop the terminal of the road, at Dalny 
 (Dairen), in the Leased Territory, the railway company 
 allowed reduced rates to the shipper who shipped his goods 
 through Dalny. Newchwang, the natural port of Man- 
 churia and the headquarters of foreign firms engaged in 
 the Manchurian trade, is thus subject to a severe competition 
 and its prosperity dwindles. This is a case not unlike the 
 local discrimination so often found in the United States. 
 
395] "^HE MANCHURIAN RAILWAY PROBLEMS 167 
 
 The Antung-Mukden Railway ^ 
 
 This road was originally a narrow gauge line, hurriedly- 
 constructed to meet the military exigencies of Japanese 
 operations during the struggle with Russia. Under Article 
 VI of the supplementary agreement to the Manchurian 
 Convention (December 22, 1905), Japan acquired the right 
 to improve and operate this line for a period of eighteen 
 years from the date of the agreement, after which the 
 Chinese Government may purchase the line at a price to be 
 based upon an appraisal of all properties by a foreign ex- 
 pert selected by both parties. 
 
 It was also stipulated in the same Article that: (i) the 
 conveyance by the railway of the troops and munitions of 
 war of the Chinese Government prior to such sale; (2) the 
 despatching of a Commissioner by China who was to be 
 consulted by the persons undertaking the work on behalf 
 of Japan in regard to the manner in which the improvements 
 of the road were to be effected; and (3) the appointment 
 of another Commissioner to look after the business relating 
 to the railway, shall be dealt with in accordance with the 
 regulations of the Eastern Chinese Railway. 
 
 Then there arose a controversy over the interpretation 
 of the agreement. Viceroy Hsi Liang of Feng Tien pro- 
 vince took the view that, although the treaty provided for 
 the improvement of the road, it did not provide for its 
 reconstruction, and what China meant was that Japan might 
 repair the line to adapt it for the conveyance of goods with- 
 out any change of gauge. Japan turned a deaf ear to this 
 argument and proceeded at once to begin the work of recon- 
 struction. China proposed to submit the matter to the 
 Hague for adjudication. Japan refused. 
 
 ' Far Eastern Review, Nov., 1909, pp. 295-6 ; Journal of the American 
 Asiatic Association, July, 1909, pp. 183-4. 
 
l68 RAILWAY PROBLEMS IN CHINA [396 
 
 The conversion of the line into a standard gauge was 
 commenced in August, 1909, and was completed in 1912. 
 The total length of the new line is about 170 miles. By 
 the completion of the bridge over the Yalu River, through 
 communication on a standard gauge from Fusan (in Korea) 
 to Mukden was established. The road is operated under 
 the management of the South Manchuria Railway Company. 
 It is considered a foreign railroad because its status is 
 similar to that of the Eastern Chinese Railway. The road 
 is of great commercial and political importance. 
 
 The Hsinmintun-Mukden and Kirin-Changchun Railways 
 
 On April 15, 1907, an agreement ^ was made between 
 China and Japan for the repurchase by China of the Hsin- 
 mintun-Mukden railway (3^^' gauge and 40 miles long) 
 constructed by the Japanese military authorities during the 
 Russo-Japanese War, by paying to Japan a sum of gold yen 
 1,550,000, a portion of which, representing half the cost 
 of the section east of the Liao River, is to remain on loan. 
 In the same agreement it was provided also for a loan from 
 Japan for the construction of the Kirin-Chanchun line pro- 
 jected by China. It was also agreed that, with the exception 
 of the periods in which the loans are to be repayable, the 
 conditions of these loans and the regulations for the man- 
 agement of the railways shall be in all respects similar to 
 those of the loan contract of the railways inside and outside 
 Shanhaikwan. The most important conditions are as 
 follows : 
 
 I. The periods in which the loans shall be repaid shall 
 be, for that of the Hsinmintun-Mukden line east of the 
 Liao River, eighteen years, and for that of the Kirin- 
 
 1 Chung Hwa Fa Kwei Tai Tsuenen, treaties, vol. xii, leaves 33-37; 
 Kent, Ry. Ent. in China, app. A, no. 6. 
 
397] ^^^ MANCHURIAN RAILWAY PROBLEMS 169 
 
 Changchun (Kuangchengtze) hne, twenty-five years. No 
 repayment in full of these loans shall be allowed before the 
 expiration of the periods named. 
 
 2. The security for the loan from the South Manchuria 
 Railway Company for that part of the Hsinmintun-Mukden 
 line east of the Liao River shall be the real property of the 
 aforesaid section and its earnings. The security for the 
 mercantile shares to be issued by the Kirin-Changchun Rail- 
 way Administration, as well as for the loan from the South 
 Manchuria Railway Company, shall be the real property of 
 the railway and its earnings. 
 
 3. The loans and the interest thereon are guaranteed by 
 the Chinese Government. 
 
 4. During the period of the loans a chief engineer and 
 an accountant for each of the lines shall be Japanese and 
 shall act with the Chinese Director-General. 
 
 5. The railways mentioned being Chinese Government 
 lines, this government shall have the right to transport sol- 
 diers and subsistence over each line free of charge, when- 
 ever military affairs or measures of relief shall require. 
 
 6. All earnings of the railways in question must be 
 deposited in Japanese banks. 
 
 On November 12, 1908, a supplementary agreement^ 
 was concluded providing for a loan of 320,000 yen (half 
 the cost of the section) for that section of the Hsinmintun 
 line east of the Liao River, and a loan of 2,150,000 yen 
 (half the cost of the Hne) for the Kirin-Changchun line, 
 issued at 93 and bearing interest at 5 per cent respectively. 
 
 The tracks of the Hsinmintun-Mukden line were then 
 converted to standard gauge. The regular management of 
 the line has now been taken in charge by the Administration 
 of the Chinese North Railways. 
 
 1 Kent, op. cit. 
 
170 RAILWAY PROBLEMS IN CHINA [398 
 
 Construction on the Kirin-Changchun line was com- 
 menced in 1910 and completed in October, 1912. It is about 
 80 miles in length. 
 
 It is planned to extend the Kirin-Changchun line to 
 Hoiryong, the principal town of Chientao, a distance of 200 
 miles. When completed the line will be of great commercial 
 and strategical value. It will contribute to the development 
 of commerce between China, Korea and Japan. The con- 
 ditions under which the line is to be built may be similar 
 to those of the Kirin-Changchun line. 
 
 The Attempt to Neutralise the Manchurian Railways ^ 
 
 Thus we see that Manchuria is divided into three railway 
 spheres, one served by the Chinese Government Railways 
 of North China, another, which expands as it extends north- 
 ward into Kirin province, by the Japanese South Manchuria 
 railway system, and a third by Russia's Chinese Eastern 
 Railway. Russia and Japan have special interests in North 
 and South Manchuria respectively. When China at- 
 tempted to induce foreign capital other than Japanese and 
 Russian to build new railways there, or when any other 
 nationality wished, itself, to invest money in Manchuria 
 for railway construction, strong protests were usually met 
 with from either Russia or Japan or both. 
 
 American capitalists have taken great interest in Man- 
 churian railway affairs because American commerce had 
 once occupied a very prominent position in Manchuria. 
 Immediately after the Russo-Japanese War, the late Mr. 
 E. H. Harriman, the American railway magnate, concluded 
 with Marquis Ito and Marquis Katsura a memorandum of 
 
 1 Bland, Recent Events and Present Policies in China, passinu Far 
 Eastern Review, Apr., 1910, pp. 526-9 ; Nov., 1909, pp. 228-9 ', Fet>-. 1909, 
 pp. 294-9. Jour, of the Atner. Asiatic Assn., Feb., 1910, pp. 4-7 ; Sept., 
 1910, pp. 232-243. 
 
399] ^^^ MANCHURIAN RAILWAY PROBLEMS lyi 
 
 agreement for a joint American- Japanese ownership and 
 working of the South Manchuria Railway. This joint 
 working scheme, to be financed with American capital, was 
 to form a link in Mr. Harriman's projected round-the-world 
 transportation system. But when the Japanese statesmen, 
 fully appreciating the tendency of world politics in the 
 future, wanted to nullify what they had promised Mr. 
 Harriman, they put the blame upon the Chinese Govern- 
 ment by duly informing Mr. Harriman that the Chinese 
 Government would not consent to the admission of Ameri- 
 can capital into the South Manchuria Railway system, since 
 they desired themselves to join the Japanese in working it. 
 As a matter of fact, China was kept absolutely ignorant of 
 Mr. Harriman's proposals. Contrary to the Japanese 
 statements, as we shall see, China was endeavoring to enlist 
 American capital for the development of Manchuria. 
 
 In 1906, Russia had also at one time approached Ameri- 
 can capitalists with an offer to sell the Chinese Eastern 
 Railway. 
 
 In August, 1907, Mr. T'ang Shao-yi, appointed Governor 
 of Feng Tien, endeavored to enlist the active sympathy and 
 support of the United States and Great Britain by offering 
 opportunities for railway construction to American and 
 British capitalists and contractors. Mr. T'ang suggested 
 to Mr. W. Straight (U. S. Consul-General at Mukden, now 
 president of the American Asiatic Association) that a Man- 
 churian Bank with American capital be formed to act as 
 the financial agent of the Government of Manchuria, and, 
 in co-operation with Messrs. Pauling & Company, of Lon- 
 don, to undertake the construction of a line from Hsin- 
 mintun to Aigun, together with other enterprises, " for the 
 development of commerce and industry of Manchuria," with 
 which, under the Portsmouth Treaty, Russia and Japan had 
 agreed not to interfere. The project was delayed by the 
 financial panic of 1907 in the United States. 
 
172 RAILWAY PROBLEMS IN CHINA [400 
 
 After the panic, in the summer of 1908, Mr. Straight 
 carried with him to Washington a memorandum, signed by 
 the Governor of Mukden, which was to form the basis of 
 negotiations for a loan of £20,000,000, for the estabHsh- 
 ment of the Manchurian Bank. Meanwhile, an agreement 
 was reached between Lord French representing Messrs. 
 Pauling and Company, Mr. J. O. P. Bland representing the 
 British and Chinese Corporation, and the Manchurian Gov- 
 ernment for the construction of a railway running from 
 Tsitsihar to Chinchow. The American capitalists, or, 
 rather, the Manchurian Bank, was to undertake the exten- 
 sion of this line from Tsitsihar to Aigun — the total length 
 of the line being about 750 miles. In November, before 
 Mr. T'ang's arrival at Washington to discuss in person the 
 details of this project, besides other matters, Messrs. Kuhn, 
 Loeb and Company had declared to the State Department 
 their willingness and readiness to finance the Manchiirian 
 Bank. By the death of the Emperor Kuang-su and the 
 Empress Dowager, Mr. T'ang's mission failed, because of 
 the lack of support from the Prince Regent who dismissed 
 Mr. Yuan Shi-kai (then Grand Councillor), the chief sup- 
 porter of Mr. T'ang's policies. 
 
 In December, the Russian Government again opened nego- 
 tiations with certain New York bankers for the sale of the 
 Chinese Eastern railway, provided, however, that Japan 
 would agree to sell the South Manchuria railway. Accord- 
 ing to Mr. T'ang's statements China would welcome such 
 action on the part of the Russian Government. It was 
 hoped that an international syndicate might be organized 
 to purchase both railways on behalf of the Chinese 
 Government. 
 
 Mr. Knox, American Secretary of State, then addressed 
 simultaneously the Chinese, British, German, Russian and 
 Japanese Governments, proposing to authorize the organi- 
 
40lJ THE MANCHURIAN RAILWAY PROBLEMS 173 
 
 zation of an international syndicate which would buy out 
 the Russian and Japanese railway interests in Manchuria. 
 At the same time Mr. Knox also suggested to the govern- 
 ments mentioned, with the exception of Russia, that if the 
 Powers were unwilling to join in the general neutralization 
 scheme they should at least unite in financing and construct- 
 ing the Chinchow-Aigun railway. Learning this second 
 proposal, the Russian Government suspected that the Ameri- 
 can Government was playing a double game. Russia and 
 Japan then politely but firmly rejected Mr. Knox's pro- 
 posals. The so-called neutralization scheme of Mr. Knox 
 thus became a failure. The immediate result of this neu- 
 tralization scheme was the formation of the Russo-Japanese 
 entente (agreement signed on July 4, 1910) to divide the 
 Manchurian and Mongolian interests between themselves. 
 
 The intentions of the United States Government were 
 just. Its policy aimed at " taking the railways of Man- 
 churia out of Eastern politics and placing them under an 
 economic and impartial administration by vesting in China 
 the ownership of the railways ;" in other words, it wished 
 to place Manchuria under an " international economic pro- 
 tectorate," pending such time as China could control it her- 
 self independently. Theoretically it seemed to be a fair and 
 satisfactory arrangement but when tried in practice it re- 
 quired mutually altruistic aims and harmonious relations 
 between the Powers. 
 
 Furthermore, Mr. Taft's Administration at Washington 
 erred in placing the Chinchow-Aigun road in the same cate- 
 gory in the neutralization scheme as the Chinese Eastern 
 and the South Manchuria railways. They overlooked the 
 fourth Article of the Portsmouth Treaty in which Russia 
 and Japan had pledged themselves " not to obstruct any 
 general measures, common to all countries, which China 
 may take for the development of commerce and industry 
 
174 RAILWAY PROBLEMS IN CHINA [402 
 
 in Manchuria." By this Article China was strictly entitled, 
 at her discretion, to construct the Chinchow-Aigun line. 
 For China's interests the two questions should have been 
 treated separately. 
 
 When the neutralization scheme failed, the United States 
 proceeded independently in the matter of the Chinchow- 
 Aigun railway. But the Russo-Japanese entente had al- 
 ready become effective. Russia denounced the Chinchow- 
 Aigun project as a design for attacking Russian territories 
 in Eastern Siberia and Russia's " special interests " in 
 Mongolia and Manchuria. 
 
 On the other hand, when the Japanese learned that nego- 
 tiations for the loan agreement and the construction con- 
 tract were in progress, their Government entered an em- 
 phatic protest, forbidding the Chinese Government to ex- 
 tend the Imperial Railways northwards from Hsinmintun, 
 basing its prohibition on the Manchurian Convention of 
 December 22, 1905, asserting that the extension would seri- 
 ously compete with the South Manchuria road. Finally 
 the proposition of the Chinchow-Aigun project also failed. 
 
 Judging from the attitude and the actions of the Japanese 
 Government in those days, one need not have waited until 
 the outbreak of the present World War to know that a 
 clash between China and Japan in regard to the Man- 
 churian railways is inevitable. Japan always desired to 
 extend the life of the lease of the Peninsula and the South 
 Manchuria railways. Article III of the Port Arthur and 
 Talienwan agreement of March 2y, 1898, provided that the 
 duration of the lease should be twenty-five years, and Article 
 VIII provided that the Chinese Eastern Railway should 
 revert to China at the end of eighty years and might be 
 repurchased at the end of thirty-six years. By the Treaty 
 of Portsmouth, as we have pointed out, Russia's rights 
 were transferred to Japan and were officially recognized by 
 
403] THE MANCHURIAN RAILWAY PROBLEMS 175 
 
 the Chinese Government in 1905. The situation is this, 
 namely, that in 1934, nineteen years hence, China may re- 
 purchase the hne at its actual cost. But previous to this, 
 in 1923, or eight years from date, the lease of the Liao- 
 tung Peninsula, including the ports of Dalny and Port 
 Arthur, expires. Japan's policy is to embark on various 
 grand schemes of development and expansion so that she 
 may control more efifectively South Manchuria. But she 
 has no funds. With the short-life lease she cannot negoti- 
 ate in the financial markets of the world the necessary loans 
 for the improvement of Dalny or Port Arthur. It is plain, 
 therefore, that Japan must receive some assurance from 
 China that the lease will be extended, in order that she may 
 secure loans abroad. 
 
 The World War gives Japan the chance to achieve her 
 purposes. Harsh demands are sent to Peking. Negotia- 
 tions are now pending. The crisis comes. China's sover- 
 eign rights and integrity and the principles of the " open 
 door " have been and are unmistakably threatened. Shall 
 China yield or shall she fight? Had Mr. Knox's neutrali- 
 zation scheme been successful, such serious complication 
 might not now be arising. Granted that Japan secures what 
 she demands, the Manchurian questions which have become 
 mixed up with the " open door," equal opportunities, sover- 
 eign rights, etc., will still remain to be solved. Further 
 dissensions and conflicts (probably armed conflicts) will be 
 inevitable. 
 
CHAPTER XI 
 
 Conclusion 
 
 With a period of over fifty years of railway development, 
 China now has only 5,980 miles of railway in operation and 
 a little over 2,000 miles under construction.^ In comparison 
 with countries such as the United States, Argentina, India, 
 and others, the progress made in railway construction in 
 China has been exceedingly slow, especially when we con- 
 sider her vast territory and dense population. The reasons 
 are many. 
 
 Opposition 
 
 At the very beginning when there was very little foreign 
 influence, strong opposition to foreign improvements and 
 national antipathy to innovations were quite common. 
 Many writers attributed these objections to the supersti- 
 tious fear of trespassing upon ancestral tombs. This super- 
 stition, however, has slight weight, with the lower and more 
 ignorant classes only. Of course, there exists among all 
 people in the world a strong prejudice against any innova- 
 tion, but this prejudice can be, and has been, easily over- 
 come whenever the innovation gains official support and 
 encouragement. 
 
 The opposition to railway construction from the educated 
 and official classes deserves more serious consideration. 
 
 ' Up to the early part of 1914, China Proper has 5,980 miles of rail- 
 way in operation and 2,065 miles under construction. In other words, 
 she has .03 miles of line to every 100 square miles of country and .18 
 miles to every 10,000 inhabitants. China Year Book, 1914, p. 215. 
 176 [404 
 
405] CONCLUSION 177 
 
 Again, here, many writers have blamed the short-sighted- 
 ness of these classes for preventing the general enlighten- 
 ment of the country in order that they might retain their 
 own prerogatives and power. These writers overlook the 
 fact that the social, political and economical systems of 
 China have been fully adjusted and were crystallized cen- 
 turies ago. Naturally, it is not to be expected that these 
 people would adopt without hesitation or inquiry the West- 
 ern systems which were new and untried. Of course, those 
 officials who were ultra-reactionary in tendency and who dis- 
 couraged the introduction of railways should bear the 
 blame for delaying the progress of railway construction. 
 
 It was the labor question which brought from the in- 
 telligent people of China the most serious objections to the 
 introduction and development of rapid transportation. The 
 railway throws the old means of transportation into disuse. 
 It was feared that the boatmen, the carters, the packmen, 
 and the porters would be deprived of their means of sup- 
 port and existence. This fear was manifested by the junk 
 men of the Peiho River, the inhabitants of Tungchow, and 
 the carters of Tientsin and Peking. This led some intelli- 
 gent officials and merchants to the belief that what China 
 needed was not condensation of work but expansion; in 
 other words, not an increase in the working capacity of man 
 by substituting machinery, but a sufficiency of work for the 
 normal capacity of man's unaided hands. This may be 
 true in some industries in China but not in railway trans- 
 portation. At the very beginning it was true that some of 
 the boatmen, carters, and others were affected, as in the 
 case of the Government Railways of North China, but this 
 was soon adjusted. In course of time the fears of the 
 ruinous competition of the railway were found groundless 
 as had been discovered in other countries. The railway, 
 instead of decreasing, really increased the employment of 
 
178 RAILWAY PROBLEMS IN CHINA [406 
 
 these laborers in transporting goods at higher wages by 
 diversifying and developing new means of trade. Now, 
 hostility from these people who are still making their liv- 
 ing by old methods of transportation has practically dis- 
 appeared. 
 
 In some cases, however, hostility to railways was caused 
 by the shameful maltreatment of the laborers by the for- 
 eigners who took charge of the actual work of construction. 
 
 There was also complaint that the people were not will- 
 ing to part with their land. China is a country of small 
 landowners. It is not to be denied that it requires time to 
 deal with them in order to obtain the necessary land for the 
 right of way, but this difficulty can be, as it has been, ad- 
 justed by a fair valuation and honest dealing. 
 
 All the cases of opposition were found to arise almost 
 entirely within the first period of railway development in 
 China. Later, when the people became more familiar with 
 this new system of transportation, almost all the unreason- 
 able objections were withdrawn. 
 
 - Hindrances 
 
 It is the problem of delay in railway construction that 
 should be seriously considered. " Dirty poHtics," internal 
 and international, has been the chief factor causing grievous 
 retardation to railway development in China. Before the 
 demarcation of their respective spheres of interest, each 
 government of the Powers concerned protested against 
 others' activities in certain parts of the country and endeav- 
 ored to place obstacles in the way of any enterprise of its 
 opponents. When the question of their respective spheres 
 of special activities in different fields had been settled, offi- 
 cial banking groups were designated by the different govern- 
 ments to exploit the country. Each group had practically 
 a monopoly to undertake railway construction. Every one 
 
407] CONCLUSION 179 
 
 of them had its hands too full of concessions which were, 
 therefore, unduly delayed in fulfilment. The unscrupulous 
 concessionaires took advantage of a weakened government 
 to secure more than their due. Naturally an awakened 
 people will object to the sacrifice of public interests under 
 the pretence of development; hence the stubborn hostility 
 to foreign concessions, and hence the delay in almost every 
 case by months and even by years of the conclusion of loan 
 agreements. 
 
 Working hand in hand with these political groups were 
 the so-called syndicates, speculators, groups of men and 
 of interests primarily not associated with railway construc- 
 tion, coming into the country to exploit " flowery Chung 
 Hwa," by raising to an absurd figure the capital cost of the 
 railways built. According to Mr. G. B. Rea's analysis of 
 the railway situation in China,^ the average cost of railways 
 built under foreign loan agreements is $45,000 gold per 
 mile, while serviceable railways can be constructed and 
 equipped for $20,000 to $30,000 gold per mile when built 
 without foreign interference. 
 
 Furthermore, the Government had no effective control 
 over these syndicates. The result was that the syndicates 
 were permitted to float loans without first submitting to 
 the Government definite surveys and construction tenders, 
 which would have afforded a check on capital expenditures 
 
 ' Mr. Rea's conclusion of his famous analysis is briefly as follows : 
 China could more than double her railway building if unmolested in 
 the administration of her affairs. The same amount of money would 
 be expended, while the orders to foreign manufacturers for cars, loco- 
 motives and railway supplies would be doubled. What the bankers, 
 purchasing agents, and staff employees would lose would be repaid to 
 the foreign manufacturers ten^ times over, and in the end bring just as 
 much profit to the banks as though they held out for the continuance 
 of a system in which they are at present the greatest beneficiaries. 
 Far Eastern Review, Nov., 1909, pp. 215-227. 
 
l8o RAILWAY PROBLEMS IN CHINA [408 
 
 and would have made the concessionaires and not the Gov- 
 ernment liable for any expenditure not expressly specified 
 in the final agreement. All the above hindrances wtre 
 chiefly caused by the international jealousies of the great 
 commercial Powers and the short-sightedness of the for- 
 eign financiers. 
 
 We now come to the internal retarding forces which 
 have blocked the progress of the railway, and which should 
 be more seriously taken into consideration than the external 
 forces. First of all, we find the enormous defects of the 
 old order of things, the constant change of policies and 
 the vacillation of the old Government, causing irritating 
 friction with the people. The outcome of these was the 
 hot-headed agitation against foreign enterprises and gov- 
 ernment ownership of railways. Such an extreme attitude, 
 assumed by the radical elements of the people, destroyed that 
 mutual confidence which is so necessary to progress and 
 naturally retarded the very process of evolution or develop- 
 ment in railway as well as in other industries. 
 
 This unsettled state of affairs in the country accounts 
 for a great deal of the delay in railway construction. The 
 famines, the brigandage and the frequent rebellions, as re- 
 sultants of the economic pressure, the over-population and 
 the lack of food supply, have been the chief causes of un- 
 rest in the country. These things paralyze the commerce 
 and industry of a country, put the people in destitution and 
 absorb the surplus energy. One of the results of this busi- 
 ness paralysis was the lack of capital for investment in the 
 railways, hence the failure of the private enterprises; an- 
 other result was the loss of revenues and credit, hence the 
 Government had to accept foreign loans under humiliating 
 conditions, and hence its reluctance to launch any new or 
 large railway enterprise. 
 
 The people of China possess mental power of organiza- 
 
409] CONCLUSION igj 
 
 tion. Their habits of thinking systematically and of act- 
 ing methodically lead directly to organized effort. The 
 mutual aid associations, the temperance societies, and the 
 secret social fraternities are notable illustrations of this or- 
 ganized effort. Above all, they have the more definite com- 
 mercial and labor combinations. The provincial clubs or 
 "guilds" are organized to control the market, regulate 
 prices and avoid cut-throat competition. The labor com- 
 bines are formed to promote the interest of the working- 
 men. But the deficiency of skilled workmen and profes- 
 sional experts in every line of modern improvements, the 
 virtual absence of the modern mechanism of money and 
 stock exchanges, and the ignorance of new corporation sys- 
 tems have tied the hands of many vigorous railway prpo- 
 moters, entrepreneurs and financiers. 
 
 Dangers 
 
 The aggressive policy (the policy of economic and geo- 
 graphical gravitation) of Russia and Japan as the outgrowth 
 of military aristocracy in those lands, has caused clashes 
 and hostility between these powers and other countries who 
 have interests in the Orient. We have seen that by a series 
 of exceedingly shrewd moves, Russia had secured predomi- 
 nant influence in Peking, had extended her railways into 
 Manchuria, had assumed virtual control over a large part 
 of its territory, and thus had led to the great war in the 
 Far East at the dawn of this century. After the revolt of 
 the Khalka Mongol princes, Russia again manifested her 
 " forward policy," inaugurated by the Russo-Japanese en- 
 tente (July 4, 1910), by demanding the autonomy of Mon- 
 golia, by making loans at the same time to the provisional 
 government of North Mongolia and by securing provisions 
 for railway construction in that vast region. After Japan 
 
1 82 RAILWAY PROBLEMS IN CHINA [410 
 
 and Russia united to veto the proposed construction of the 
 Chinchow-Aigun railway, the Russians suggested at once 
 to the Chinese Government, as an alternative scheme, the 
 construction by China of a railroad from Kalgan to Urga 
 with the intention of connecting with the Siberian Railway 
 via Kiakhta, thus shortening the distance between Irkutsk 
 and Peking by about 800 miles. This is no doubt a costly 
 and strategic undertaking. Russia wanted China to do it. 
 What was her intention? She intended to repeat the same 
 old trick she had played in Manchuria. In addition to this 
 scheme the Russian Government has also cherished the idea 
 of constructing railways from Taskkent to Kashgar, and 
 from Bisk to Chuguchak. By means of these prospective 
 railways Russia aims to secure the geographical and eco- 
 nomic gravitation of North Mongolia and possibly the 
 New Dominion. 
 
 Japan wants to stay permanently in Manchuria. She has 
 adopted the well-known colonization method of " peace- 
 ful penetration " by making use of the railway and the 
 bank. Her uncompromising veto of the Chinchow-Aigun 
 project and her present unreasonable demands, as the out- 
 come of the World War, which she has pressed upon China, 
 prove conclusively that Japan is determined not only to 
 close the door to equal opportunities in South Manchuria 
 but also to prevent the establishment of any vested interests 
 other than her own throughout the Chung Hwa Republic. 
 The ambitious and unscrupulous statesmanship of the mili- 
 tary-aristocratic class of the Japan people has made Japan 
 a formidable factor in international diplomacy. She at- 
 tempts to undermine the influence and the interests of other 
 Powers in China. Can she do it single-handed? Here is 
 the danger of a possible future conflict — a conflict sure to 
 cause humiliation to China. 
 
 Railway loans floated by China have in the past gener- 
 
41 1 ] CONCLUSION ig^ 
 
 ally received a government guarantee and have been se- 
 cured by first mortgages or by the pledge of provincial 
 revenues as security. The proposed hypothecation of 
 China's internal revenues for the loans has involved im- 
 portant political complications* Whenever internal dis- 
 turbances may arise or whatever other unforeseen causes 
 may come up to impair the due payment of interest or the 
 repayment of principal, China's sovereignty will be at stake. 
 
 General References 
 (For the Third Period) 
 
 I. — Official Publications: 
 
 China: Imperial Maritime Customs; III. Miscellaneous Series no. 3. 
 
 China, Treaties, Shanghai, 1908. 
 
 Chinese Texts, same as in the Second Period. 
 
 Great Britain : British Blue Book, China, 1902-1912 ; and desultory 
 
 Consular Reports. 
 The United States: Monthly Consular Reports, 1904-1915. 
 Anderson (Geo. E.), Railway Situation in China, Special Consular 
 
 Reports, no. 48. (Washington, D. C, 1911-) 
 
 II. — Treatises: 
 
 Blakeslee (G. H.), editor, Recent Developments in China, New York, 
 1913, Clark University addresses, Nov., 1912. 
 
 Bland (J. O. P.), Recent Events and Present Policies in China, Phila- 
 delphia, 1912. 
 
 Brunnert (H. S.) and Hagelstrom (V. V.), Present Day Political Or- 
 ganization of China, translated into English from Russian by Belt- 
 chenko (A.) and Moran (A. A.), Shanghai, 1912. 
 
 Comite de I'Asie Fran^aise, Guides Madrolle, Chine du Sud, and Chine 
 du Nord, Paris, 1904. 
 
 Denby (Hon. Charles), China and Her People, Boston, 1906, vol. ii, 
 chs. xvii and xviii. 
 
 Gibson (Rowland R.), Forces Mining and Undermining China, New 
 York, 1914, chs. vi-x. 
 
 Hosie (Alexander), Manchuria, London, 1901, chs. ii-iv. 
 
 Jernigan (T. R.), China's Business Methods and Policy, London. 1904. 
 
 Laboulaye (Eduard de), Les Chemins de fer de Chine, Paris, 1911. 
 
 Maurer (J. H.), The Far East, Reading, 1912. 
 
l84 RAILWAY PROBLEMS IN CHINA [412 
 
 Morse (H. B.), The Trade and Administration of the Chinese Empire, 
 
 London, 1908, chs. vii-x (rev. ed., 1913). 
 Pott (F. L. H.), The Emergency in China, New York, 1913. 
 Reinsch (P. S.), Intellectual and Political Currents in the Far East, 
 
 New York, 1911. 
 Simpson (B. L.), The Coming Struggle in Eastern Asia, London, 1908, 
 
 pt. ii-iii. 
 The China Year Book (Bell & Woodhead), New York and London, 
 
 1912-1914. 
 
 III. — Articles: 
 
 Bary (A. J.), " Railway Development in China,'' in Soc. of Art. Jour., 
 
 London, 1909, vol. 57, pp. 541-560. 
 Dillon (E. J.), "New China and the Re-grouping of the Powers," in 
 
 Contemporary Review, May, 1912, pp. 714-36. 
 
 " Dual Alliance for the Far East," ibid., July, 1910, pp. 107-19. 
 
 "Russia and China," ihid., Mar., 1911, pp. 374-9. 
 
 — — " Ex criente lux ; ex occidente Knox," ibid., April, 1910, pp. 492- 
 
 S03. 
 
 Lapeyriere (J. de), "Notice sur les Chemins de fer en Ohine," in Soc. 
 
 de Geog. Comm-erciale de Paris, 1908, vol. 30, pp. 338-49. 
 Lawton (L.), " The Powers and the Far East," in Fortnightly Review, 
 
 May, 191 1, pp. 817-838. 
 Maybon (Albert), "Les Chemins de fer chinois," in Nouvelle Rev. 
 
 (Paris, 1907), vol. 165, pp. 202-216. 
 Millard (T. F.), "America in China," in Forum, July, 1910. 
 
 "Our Blundering Diplomacy in the Far East," in American Mag- 
 azine, July, 1910, pp. 817-825. 
 
 Read (T. T.), "China's Great Problem," in Popular Science Monthly, 
 
 Nov., 1912, pp. 457-464. 
 Weale (P.), "One Solution of the Manchurian Problem," in Annals of 
 
 the American Academy of Political and Social Science," Jan., 
 
 1912, pp. 39-55- 
 
 IV. — Perio dicals : 
 
 The Far Eastern Review, Shanghai, 1908-1915. 
 
 The Journal of the American Asiatic Association, New York, 1905-1915. 
 
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 8. [98] Leeal Development in Colonial Massachusetts. 
 
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 [108] Attitude of American Courts In Labor Cases. 
 
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 I. [188] 'Provincial and Liocal Taxation In Canada. 
 
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 8. [188] 'The Distribution of Incomes. 
 
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 [141] Reconstruction In North Carolina. 
 
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 1. [142] The Development of Modern Turkey by means of Its Press. 
 
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 1. [146] "^Constantlue tlie Great aud Christianity. 
 
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 1. [158] 'The Recognition Policy of the United States. 
 
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