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RAILWAY PROBLEMS IN CHINA
BY
MONGTON CHIHjHSU, B. S., M.A.
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS
FOR THE DEGREE OF DOCTOR OF PHILOSOPHY
IN THE
Faculty of Political Science
Columbia University
0 9 6
NEW YORK
1915
RAILWAY PROBLEMS IN CHINA
BY
MONGTON CHIH HSU, B. S., M.A.
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS
FOR THE DEGREE OF DOCTOR OF PHILOSOPHY
IN THE
Faculty of Political Science
Columbia University
NEW YORK
1915
Copyright, 1915
BY
The Faculty of Political Science of
Columbia University, New York
H
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 preserif "status ot railway management and construction.
^ As the railway has recently occupied the center of interest
e£ 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-
S ments are due also to Professor H. R. Mussey, who kindly
2 read the treatise in proof and made many useful criticisms
8 and suggestions, and to Mr. Hugh W. Robertson for his
assistance in adapting the manuscript for the press.
M. C. H.
233] 5
27
CONTENTS
PACK
CHAPTER I
Introduction n
FIRST PERIOD
CHAPTER II
A Discouraging Beginning 19
SECOND PERIOD
CHAPTER III
The Struggle for Railway Concessions
i. 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
235] 7
8 CONTENTS [236
PAGE
ii. The Peinlo Railway 78
iii. 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 103
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, 1914, 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; 19 10,
66 cents; 1912, 67 cents.
In June, 1912, one Haikwan tael =
2s. 9d.
3.47 francs.
2.81 marks.
0.67 gold dollar.
1.50 yen (Japanese).
1.50 Mexican dollar.
ii. — Weights
I catty =15/} lbs. or 604.53 grammes.
I picul = i33J<3 lbs. or 60.453 kilogrammes.
iii. — Length
1 ch'ih = i4.i inches or 0.358 metres.
1 li = about one-third of a mile (or theoretically 2,115 feet or
two-fifths of a mile).
iv. — Area
1 mow (Shanghai) = one-sixth of an English acre.
v. — Capacity
1 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
rulers 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 j:anals 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] 11
I2 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 l^
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
I4 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-
1 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 I5
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.
j6 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.
1
c
"^
r
FIRST PERIOD
CHAPTER II
A Discouraging Beginning
In_i863li twenty-seven foreign firms sent a petition to J
Li Hung-chang, then governor of Kiangsu, applying for
the concession of the right to establish 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 Raihuays 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 CHIXA [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.
^li 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 wrater 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 .3. mule tramway of standard
gauge was built in 1880 after a hard fight by the resident
engineer, Mr. C. \Y. 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] A DISCOURAGING BEGIN X IX G 21
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 tcTTTuTai and "succeeded with the assistance of
Viceroy Li Hung-chang, now impressed with the value of
the railway. TheKaiping 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 [884. The diffi-
culty of sending troops to Tongking convinced the Govern-
ment of its essential value as a means of military transport.
^ce Knang-su Choncj-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 1 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 2 was issued advertising for the subscription
of Tls. 1,000,000, the Hongkong and Shanghai Banking
Corporation being made bankers.3 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 Present, London, 1895.
2 See Appendix D in the same book, and U. S. Consular Reports,
vol. xxiii, no. 81, p. 66.
3 The bankers were Englishmen and the bank is a British institution.
251] 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 x 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 174 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 Kuaug-su Cliong-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. 101 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. The_s_truggle_for railway
concessions came hand in hand with the " Battle for Con- ./
cessions " * waged f rorr{~i8Qo~ To~iQoa] The latter desig-
nates the occupation of territ< »ry 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 [897
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 Affairs, no. 1, 1899, dispatch no. 232.
2551 27
28 RAILWAY PROBLEMS IN CHINA [256
whole diplomatic force of his country. Later, the bankers,
encouraged by their governments to finance railway con-
struction in those regions which the latter had marked out as
their sphere of political influence or of pecuniary interest,
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, vis. : ( 1 ) 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 Rartway. _ Long be-
fore the Chino- Japanese War, Russia had cherished the
idea of constructing a railroad from the Urals to the
Pacific coast,1 with the object of strengthening her strate-
1 Count Monravieff Amnrski, the Czar's Minister of Foreign Affairs,
after having annexed the province of Amur to Russia, favored the idea
2^y] THE STRUGGLE FOR RAILWAY CONCESSIONS 2g
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.1 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, [895, by Li
Hung-chang, on behalf of the Manchu Court, Chiiia"was
compelled to recognize the independence of Korea, and 1 1
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 v
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, seized 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
7'
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,
Jn Paris. In return, as compensation for her friendly office,
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
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, 18957 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 x reminding China
^ of her obligations.2
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-
1 The Foreign Office of China, the first of its kind found in the his-
tory of China, established Jan. 31, 1861.
2 See Documents Diplomatique s, China; issued by the Ministere des
Affaires fitrangeres, published by the Paris Imprimeree Nationale ;
vols, of the years 1894 to 1898.
2~g] THE STRUGGLE FOR RAILWAY CONCESSIONS 31
portant modification on the Burmese frontier. At the end
of the same year, China, having been obliged to liquidate
the Japanese War Indemnity, negotiated a loan with some
British financial agents. The security of the loan was Jp
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.1 — .
From the above lesson China learned to her great cost
that the supposed friendly offices of the foreigner might be y/
just as dangerous to her national honor and integral existj
ence as his open hostility.
But China was not yet at the end of her troubles. In
1 897 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.
$2 RAILWAY PROBLEMS IN CHINA [26o
Kiaochow Bay, town and district, and the German Govern-
ment refused to evacuate until China was 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.1
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
0 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 2 to
extend a branch "fine 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
1 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.
J^A-
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.1
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 Alirs 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 " L"
were roughly established at this stage of the struggle with
regard especially to the concessions of railways. The policy
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 tha^ the four systems of railway,]?', c,
the Russian system in Manchuria, the German system in
Shantung, the French system in Yunnan and Kwangsi, and
the Briti.-di system connecting Burma with Yunnan and
Szechuanall 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-
tique s, China.
2 For definition of these terms see Reinsch, World Politics (New
York, 1912), pp. 61 and 113.
V
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.
How China shall deal with 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 mountains 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. JVlany 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] THE STRUGGLE FOR RAILWAY CONCESSIONS
63
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.1 In February, 1896,1a 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 f< TI< >wers and
ultimately forced the Government to admit foreign capital.
A Belgian syndicate. La Socictc d'Etudc des Chemins de
fcr en Chine, appeared in the scene, and, in May ^897, after
underbidding a group of American financiers and another
of British capitalists, obtained the contract for the con-
struction of the line.2 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.
1 See British Blue Book, China Affairs, no. 1 (1899), pp. 87-89 (trans-
lation).
2 U. S. Monthly Consular Reports, 1898, vol. lviii, no. 218.
/
36 RAILWAY PROBLEMS IN CHINA [264
In 11898, 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,1 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 Chingtlngfu 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-Xan-
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,2 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. 1, 1898, to
take charge of railway and mining matters in connection with foreign
concessions.
s British Blue Book, Affairs of China, no. 1 (1900), pp. 23-27.
265] THE STRUGGLE FOR RAILWAY CONCESSIONS $j
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. c, 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 " 1
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 V
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- V
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.
270353
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] THE 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. Late]
however, a new set of mining and railway regulations have
Keen 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 23,11898, can best be seen in the
following inclosures attached tba dispatch 1 which was sent
by Sir MacDonald to Lord Charles Beresford :
(IX CLOSURE i)
Nationality
British2..
Russian . .
German 2.
Belgian . .
French. . .
American2
No.
Total length of line
represented
2,800 miles '
1,530
720
750
420
300
6,420 miles
1 British Blue Book, " Affairs of China," no. 1 (l 0 PP- 34 W 17-
2 Half interests are reckoned at half the estimated length.
3 Including Hankow-Canton and Yunnan- Yangtsze Railways.
4 Including Manchuria Railway (from Stretensk to Vladivostok).
40 RAILWAY PROBLEMS IN CHINA [268
(Inclosure 2)
Concessions other than British (up to Nov. 23, 1898)
RUSSIAN
(1). 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.
(1). 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] THE STRUGGLE FOR RAILWAY CONCESSIONS 4I
(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
(1). 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
1. 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-
2ji] 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. KIANGSUj AXI1UI, AND EONAN
The same syndicate has the right to extend the Shanghai-
Nanking Railway from Pukow opposite Nanking to Hsin Vang,
in Honan, a distance of 270 miles.
VIII. KIAXG5U AXD 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. PROVIXCE OF CHEKIAXG
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, KIAXGSI, AXD KWAXGTUNG
An American Syndicate signed a preliminary agreement for
the construction of a railway from Hankow to Canton in .Maw
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, KWHU HOW, 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 [272
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_,5H_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] THE STRUGGLE FOR RAILWAY CONCESSIONS 4-
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. c., 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 arrangements
made among the foreign governments and concessionaires
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
by 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 vivendi, lie-
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 1 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.1 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
1 U. S. Monthly Consular Reports, 1898, vol. lvii, pp. 585-587.
27-] THE STRUGGLE FOR RAILWAY CONCESSIOXS 4j
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
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,1 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 China, and to mutually sup-
port the interests of either country.
i. British sphere of interest, vis. — 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, via. — The province of Shan-
tung and the Hoangho Valley with connection to Tientsin and
1 British and German Agreement re Railway Construction in China,
Minutes of Meeting held at New Court, St. Swithcn's Lane, London,
on the ist and 2nd Sept., 1898.
48 RAILWAY PROBLEMS IN CHINA [2/6
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 lines 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 1 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 :
1 British Blue Book, China, no. 2 (1899), p. 87, et seq.
2yy] THE 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 Man-
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.1
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.
Bel^iumjias, 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 accomplish 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] THE STRUGGLE FOR RAILWAY CONCESSIONS 5I
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, &n agreement was signed between
the Chinese and the Russian Governments regarding the
construction of this line. Under this agreement theRusso-
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 Cc^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.1
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 Hwa
Fa Kwei Tax Tsueuen (Complete Set of Rules, Regulations, Treaties,
etc. of the Repuhlic of China), (Shanghai, 1913), treaties, vol. xi,
leaves 30 et seq. The statutes (in English), translated partly, see
British Blue Book, China, no. 1 (1900), PP- 57-6i.
52 [280
2gl] 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
Yice-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 TSgyJ\vovk 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
2gi] THE FOREIGN RAILROADS 55
8, 1896, Agreement between the Russo-Chinese Bank and
the Chinese Government. The eighth clause of the Agree-
ment x (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 (1 901 \the entire Chinese Eastern
Railway connectingjhejljan^- Siberian line with Yladi-
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.
3 Chung Hwa Fa Kwei Tai Tsucucn, 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
Tsinanf u, which would be the apex ; and the other side was
to connect Tsinanfu with Tsingtao. Although it was stipu-
lated in the railway agreement 1 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 li (9 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 Hzva Fa Kzvci Tai Tsucuen, treaties, vol. iv, leaves 18-20.
2S5] THE 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! TrT June (1899 the " Schantung Eisenbahn
Gesellschaft " (Shantung Railway 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 : ( 1 ) 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 1 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
1 Chung Hwa Fa Kwei Tai Tsucuen, 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
yf after twenty years by paying four-fifths of the original cost
of the machinery, rails and all other equipment of the road. J
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' 83/2 " 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 Railway
By the Convention x 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 Yunnan fu. 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 2
1 Documents Diplomatiqaes, China, 1894-1898, pp. 45-50.
2 Report of Cie. Frangaise des Chemins de fer de L'Indo-Chine et du
Yunnan et Societe de Construction de Chemins de fer Indo-Chinois,
pp. 10-12. (Paris, 1910.)
2gj] 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 millions 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 dcs Chemins de fcr de V Indo-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
dcs Chemins de fcr Indo-Chine, which was formed by the
consolidation of the Regie generate dcs Chemins de fcr and
the Societe de Construction dcs Batignolles.1
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.2 The
1 Ibid., pp. 12-15.
2 Chung Hwa Fa Kwei Tat Tsueuen, treaties, vol. iii, leaves 41-48.
60 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 line 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 line 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] THE FOREIGX RAILROADS 6 1
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,
191 o. 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 Vlndo-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
it
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 be.tw.eerL.twQ
parties. Under such conditions, it can readily be seen,
v /(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,1 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
Review, in the following words : 2
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.
Through 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.
1 Cf. supra, p. 48. For Chinese text of Agreement see Chung Hzva
Fa Kwei Tai Tsueuen, treaties, vol. xi, leaves 1-5. For English text
see Kent, Railway Enterprise in China (London, 1907), Appendix C.
2 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 their
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 security except through the same syndicate, i. <?., 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] RAILll'Ays BUILT WITH FOREIGN CAPITAL 65
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
/. 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.
ATteF the- war with Japan the line wTas extended to
FengtaTandTrom there to Macrnapu, 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 l
a loan of Tls. 16,000,000, or £ 2,300,000, " for the construc-
tion of a railway line from Chunghousuo to Hsinmintun,
1 The British and Chinese Corporation is a syndicate formed by the
Hongkong & Shanghai Banking Corp. and the firm of Messrs. Jardine
& Matheson & Co. for 1 . 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
1 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 6/
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 1
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-
1 British Blue Book, China, no. 7 (1901), 127 pages.
297] RAILWAYS BUILT WITH FOREIGN CAPITAL fig
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 £ 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 £ io2]/2, 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 Tsueucn, treaties,
vol. vi, leaves 5-17.
J
jO 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
herefore 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 FOREIGX CAPITAL yi
in signing new loan agreements of any importance after
1905, insisted upon the modification of tbg 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
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, Tsecliowfu, 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.
3oi] RAILWAYS BUILT WITH FOREIGN CAPITAL 73
Having watched for some time the complicated 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 syndicate
until the bonds are redeemed.
The cost of constructing the road was estimated at
£ 614,000 and is represented by a loan of £ 700,000 which
has been accepted by the syndicate at 90. The loan runs
for thirty years and is redeemable after 191 6. 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
1 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 P eking -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,1
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
Societe Unancierc ct 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 Syndicate, bringing the
interest up to 4.4 per cent. When the syndicate wanted to
1 Cf. supra, pp. 34-35-
wl RAILWAYS BUILT WITH FOREIGN CAPITAL --
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'Etudc de Chemins de fer
en Chine.1 in addition to the original contract and protocol.
The agreement 2 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
1 A Franco-Belgian syndicate in which the Belgian share was only
40 per cent. See Documents Diplomatique s, Chine, 1898-1899, pp. 140-
146 (published, Paris, 1900).
2 Laboulaye, Les Chemins de fer de Chine (Paris, 191 1), 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 Societe 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] RAILWAYS BUILT WITH FOREIGN CAPITAL 77
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
with 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 1, 1909, the Belgian interest was bought out
and the line wras 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 Pcinlo Railway
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 1 was concluded in
Shanghai between Sheng Hsuan-huai, the Director-General
of the Imperial Railways, and the representative of the
C ompagnic Generate de Chemins de fer ct de Tramzcays
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
1 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 79
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 x 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.
///. The Chcng-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'Escompic 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
1 Cf. infra, Lung-Tsing-u-Hai Ry.
2 Chung Ewa Fa Kzvci Tai Tsucucn, treaties, vol. xii, leaves 1-7.
For French text see Laboulaye, Lcs Chemins de fer dc Chine, pp.
124-137.
80 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 line),
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 8l
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 1 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 agreement2 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
1 British Blue Book, China, no. 1 (1899), pp. 336-339-
2 The Canton-Hankow Railway Contracts, published by the Irving
Press, 225 Fourth ave., New York City, in 1900.
82 RAILWAY PROBLEMS IN CHINA [3IO
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 2 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
1 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 Vanderbilts,
Mr. Harriman, Mr. Gould, Mr. Sage, Mr. Hill, 'Sir Wm. Van Home
and other capitalists and leading banking firms.
3i i ] 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
General 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.1 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
1 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 by 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 fol2
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 1 was concluded for a loan of £ 1,100,000
bearing interest at 4^ per cent, redeemable in ten years
and secured by the opium revenues of Kwangtung, Hunan
and Hupeh.
1 Chung Hwa Fa Kwei Tat Tsueuen, treaties, vol. xi, pp. 20-24.
313] RAILWAYS BUILT WITH FOREIGN CAPITAL 8~
Gexeral References
I. — Official Publications:
China: 1. Chung Hwa Fa Kwei Tax 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, 1901.
Report of the Compagnie Francaise des Chemins de Fer de I'lndo-
Chine et du Yunnan, and Societe de Construction de Chemins de
Fer 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 Yangtsce
(Cambridge, 1909).
Hatch (Ernest F. G.), Far Eastern Impressions (London, 1905), chs.
x-xv.
Kent (P. H.), Railway Enterprise in China (London, 1007).
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 UI, chs. viii, ix, x.
Michie (Alexander), The Englishman in China (London, 1000 "), vol.
II, chs. xxv-xxxiv.
86 RAILWAY PROBLEMS IN CHINA [^
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, 1901), vol. xx.
Cammaerts (E.), " Le Reseau des Chemins de Fer Chinois," in Rev.
econ. internat. (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'
Jour. (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 xef orm 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 rail way— aff airs was one-oi th^se^- 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-
ing in their own provinces or petitioned the Waiwupu l
(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
1 The Waiwupu was established by the Imperial Edict of July 24,
1 901, 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 x 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. : ( 1 ) 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 wasTso 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.2
1 Chinese merchants usually formed a " guild " to carry on an en-
terprise on any large scale.
1 Anderson, Railway Situation in China, U. S. Special Consular Re-
port, no. 48, p. 25. (Washington, D. C, 1911-)
319] PROVISIONAL AND PRIVATE ENTERPRISES gi
The activity of the private entrepreneurs of China was
next seen in the Provinces oi ECwangtung and Hunan, )vhere
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- S
ward and the strong opposition of the villagers, progress
has been very slow.1
In 1906, we find construction work begun on four other
private roads, viz., 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 19 10, 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.2
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.
1 China Year Book (in English), (London, 1914). PP- 234-242.
92 RAILWAY PROBLEMS IN CHINA [o2o
(in Chekiang) line; and the Tungpu line. For the con-
struction of these lines local funds were raised in 191 1.
There were also other projects which were of less definite
nature. All these lines, however, had been surveyed before
the Revolution of 191 1 broke out.1
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 2
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 Xwang-
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
1 Anderson, Railway Situation in China, passim.
3 China Year Book, 1914, p. 239. And The Far Eastern Review, 1909,
Nov., pp. 254-257.
32 1 ] PRO l 'ISIONA L A ND PRIVA TE EX TERPRISES 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 oiV'
creeks.
II. The Kiukiang-N anchang Railway l
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, o{>. cit., p. 19.
y
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. TJhe 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 1 9 12, 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.
n/
III. The Fukien Railway l
In 1905, the Merchants' Fukien Railway Co. was or-
ganized by Mr. Chen Pao-chen. In 1906, the route from
Changchow 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 2 of the company. Thus the
road was voluntarily transferred to the Provincial Govern-
ment, notwithstanding the claim of the so-called share-
1 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-Hangchozv-Ningpo Railway x
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 Chinese 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 2 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
1 Far Eastern Review, vol. vi, pp. 240-250. China Year Book, 1914,
pp. 239-240.
2 Cf. infra, pp. 133-135-
96 RAILWAY PROBLEMS IN CHINA ^2,
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 organized 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 x 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-Pukow Agreement.2 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 Mr. 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.
1 Chung Hwa Fa Kwei Tax 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.1
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 1913.2 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
1 Chung Hwa Fa Kwei Tai Tsueuen, Treaties, vol. vi, leaves 28-30.
2 Cf. infra, p. 128.
327] PROVISIONAL AND PRIVATE ENTERPRISES 99
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,1 this constituting a first lien on the revenues of
the property.
V. The Szechuan-Hankow Raihvay 2
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.
2 China Year Book, 1914, pp. 233-4; Anderson, Raihvay Situation in
China, pp. 16-18.
IOO 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
S 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," T. 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 1910, 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.1
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 IOi
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 fundsjjn 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 return-
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 n >
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 \xqSS
seriously by the Government but has not been solved satis-
factorily. The most important question facing the country
102 RAILWAY PROBLEMS IN CHINA [330
is that of healthy financing and rapid construction. To give
encouragemenTTcf The private entCTpnselT^ar-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.1 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 Railzuay 2
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-
1 See China Year Book, 1914, pp. 219-234.
1 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. 318-319.
331] 103
IG4 RAILWAY PROBLEMS IN CHINA [332
iang River through which coal is shipped to the Hanyang
teel 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 x
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 1 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-
iFor Eastern Review, Nov., 1009, pp. 320-328.
333] RAILWAYS BUILT BY THE GOVERNMENT 10-
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
wrhich render it distinct from other railroads in China :
i. 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 different 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 19 12 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 1911, when Mr. Sheng Hsuan-
huai headed the Ministry of Communications and Posts.1
TRe memorials 01 the Tsung-h ¥amen 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,2 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
I under private construction resumed by the State.3 In order
1 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.
1 English translation of the memorial, in Journal of the American
Asiatic Association, Feb., 1910, p. 14.
3 Cf. infra, pp. n 6- 117.
3351 I07
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 pro-
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-4n- a precarious -situation.
China's neighbors made trouble with her. Japan on -the-
Aralu, 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
237] NATIONALIZATION OF RAILWAYS IOg
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 realized 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 /C
of War instead of being placed under the command of the
several governors and viceroys separately as it was before.
But jjie 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 wrEHTegafdTo the railway as to the new army.
BuTthe Treasury wal 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 1, 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 admit toil to the
Szechuan road, a group of American financiers accordingly
wanted to co-operate in the loan. China was glad to ha\e
HO 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 1 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 conce'ssion for the Hankow-Szechuan road. After
much tedious diplomatic negotiation 2 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-
1 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 UI
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_j
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
i. 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, 2 prepared by the Bureau
of Mines and Railways, Chinese were to have prior right in
the construction of their own railroads.
1 Journal of the American Asiatic Association, Oct., 1911, vol. xi, no.
9, P- 277.
2 Cf. supra, pp. 37-39-
II2 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 action 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-
y quaintance with the management of the affairs of the coun-
try. The Manchu Throne was compelled to grant on Octo-
34 1 ] NA TIONALIZA TION OF RAILWA YS u^
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 jpnly^ 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. lxxv, no. 283.
HA 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 19 10, 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] NATIONALIZATION OF RAILWAYS n5
the Peking authorities because of his intimate relations with
the Hukuang gentry.1 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 18th, he had contracted with the Four
Nations' Banking Group a loan of £io,ooo,ooo,2 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-
1 The Pinghsiang Colliery and Railway, the Taych Iron Mines and
the Hanyang Iron & Steel Works, all located in Hunan & Hunch, had
been managed by Mr. Sheng.
3 This loan was not floated owing to the Revolution of 191 1. See
China Year Book, 1914, chapter on Finance.
n6 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 were 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,1 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 Edict3
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 9, 191 1, while amendments were made in the As-
sembly regulations giving greater power to the people. See Peking
Gazette of May, 191 1.
'Ibid.
34-] NATIONALIZATION OF RAILWAYS ny
ways shall be State-owned ; this shall be the fixed policy.
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, Ilupeh 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 carrving-out of the construction program.
Mr. Tuan Fang was then sent to Hupeh, Hunan and Sze-
chuan to explain the Government 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
was 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-
n8 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 wrere 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-
.4~] NATIONALIZATION OF RAILWAYS 119
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.1 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 w< >rk
had been done by the company. The Government pro-
posed to settle with the shareholders by making good the
funds, which the company 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, Air. Tuan Feng (who was later
murdered by the Szechuan people) and Air. 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 wishJio secure control of the railways was
to use them for military 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 hut campaign against the
1 U. S. Daily Consular and Trade Reports, Sept. 9. ion. no. 219.
120 RAILWAY PROBLEMS IN CHINA [348
Manchu Throne. From city to city, from province to pro-
vincepthe 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,1 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 Railway 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.
1Cf. infra, Hukuang Loan Agreement and References.
349] NA TIOXALIZA TION OF RAILWAYS Y 2 i
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.1
After his resignation from the Provisional Presidency,
in September, 191 2, 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-
generaTT Dr. Sun then appointed Mr. George Bronson Rea 2
as Technical Secretary. The plans of the corporation were
accordingly outlined comprising a comprehensive scheme3
for the constructionTof io^bbo miles oTessential 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.4 The contract was signed at
1 Far Eastern Review, Apr., 1912, special copy on " Financial and
Historical Review of the Chinese Revolution."
2 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.
3 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.
4 Cf. infra, pp. 160-161.
122 RAILWAY PROBLEMS IN CHINA r->-,0
Shanghai on July 4, 191 3, between Dr. Sun and Lord
French, the representative of the Pauling firm. Later when
Dr. Sun was implicated 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 Mr.
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.1
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
\/ihe 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.
oej] NATIONALIZATION OF RAILWAYS 123
lacked support from the people and was soon suppressed.
The result was the dissolution of the Kwok Min Tang1 \/
(the Young China Part}-) 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 betweenv/^
the different political parties and between the Central Guv-
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 x issued to the provinces. The essential instructions
are as follows :
1. Xo 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
■ 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,1 the Hanyihping 2 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 3 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.
s 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.
3 Far Eastern Review, March, 1914, p. 395.
353] NATIONALIZATION OF RAILWAYS I2z)
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. Xo 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 possibility 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 public.
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. c,
Chinese, English and French, had to be used for discussion.
A distinct movement made by the Republican Govern-
(y ment was the great allotment of railway mileage to foreign
355] NATIONALIZATION OF RAILWAYS 127
syndicates. Up to end of the year 191 3, the new Govern-
ment has approved approximately 3S00 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 Generate de Belgiquc.
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 jtoco-prdinate 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. c, to nationalize all
128 RAILWAY PROBLEMS IN CHINA [35£
j)rovinicial railways which form sections of the future trunk
s)-stenM1__J\^Sh«igTpoiicy*was to be pursued. The first
step made was to take over the Shanghai-Hangchow-Ningpo
Railway.
The Shanghai-Hangclwz^-Xincjpo Raikcayj 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 19 10. 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 1 9 1 3, the people of Kiangsu, realizing that they could
not secure anv return on their investments unless a change
was made, consented to hand over their property, upon a
fair valuation of the Chiaotung Pu,1 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 1, 1914, the proprietors of
the Chekiang Railway held a meeting at Hangchow and
agreed by a large majority to sell their shares to the
Government.
1 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
;~ TheHukuang Railways. By the end of 191 2 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 wTith 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 19 13, agreements
of transfer x 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 Tungfiii Railways: 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.
iFor full text of the transfer agreement for Szechuan-IIanknw
R. R., see Far Eastern Review, March, 1913.
130 RAILWAY PROBLEMS IN CHINA [358
The Lotting line forms a section of the Lung-Tsing-U-
Hai line, the Northern latitudinal trunk line.1 In the con-
tract made on September 24, 191 2, with La Compagnie
Generate dc Chemins de Fer 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 Lotting 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 Lotting railway
was transferred from private ownership to Government
control and the Government is earnestly considering the
completion of this line.
The Fukien Railway. In 19 14, 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. 154-157.
359] XATI0XAL1ZATI0N OF RAILWAYS 1^1
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, viz. :
I. The Northern trunk line, running from Peking
through Kalgan, Kulun (Urga) and then to Kiachta in
Mongolia.
II. The Eastern trunk line, 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-
cluded 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
iiV-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 syndicates 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
36i] 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-Koidoon 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
1 Far Eastern Review, Nov., 1909, pp. 335-345; Kent, Ry. Ent. in
China, pp. I73-J76.
I34 RAILWAY PROBLEMS IN CHINA [362
carried 011 with the Peking Government to construct the
Chinese section of the line, 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 £ 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
1 Kent, appendix F, no. 4.
363] 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 official 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 Englishmen
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 1
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-
1 Kent, pp. 148-153, and appendix E for preliminary agreement. Far
Eastern Review, pp. 309-310, and 329-334 of Nov., 1009, copy. For
final agreement (English translation), see supplement of same issue.
1 36 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 the 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 2^2 points (£1023/2 on every £100 bond),
and at par after twenty years. The first issue was placed
on the market in March, 1908, at 98^4, 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
Chihli, Shantung, Kiangsu and Anhui. The price to the
365] INTERNATIONAL CO-OPERATION i^y
Government for the first floating was 93, and the second
was the actual rate of issue to the public, less 5l/2 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. The railway 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 Ky//
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 differences
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-
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
140 RAILWAY PROBLEMS IN CHINA [368
to traffic in February, 1912; the British or southern section
was opened in June, 191 2. 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 Huknang 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 1, 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
1 Far Eastern Review, Apr., 1910, pp. 523-8; June, 191 1, passim ; Aug.,
191 1, 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,
1 91 4, pp. 233-5.
369] INTERNATIONAL CO-OPERATION i4I
British Minister Sir Ernest Satow stipulated that " if China
desires to construct a Hankow-Szechuan line 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 1905.1
Meanwhile German interests expressed a desire to partici-
pate in the loan. On March 1, 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 arr< »g-
ance. Some German bankers then stepped in and offered t 1
1 Agreement between certain British corporations, a group of I
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. 3°5"307-
I42 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 " flow-
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 ^3
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 III of the agreement,1
signed on October 2, 1905, between the British and French
groups provision was made for American participa
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.
I44 RAILWAY PROBLEMS IN CHINA [372
a powerful group with the object of backing up the United
States Government's attitude x 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.2 The American Charge d' Affaires, Mr.
1 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., 1909, p. 317. This attitude was regarded as the
outcome of the so-called " Dollar Diplomacy " launched by Mr. Taf t.
then President of the United States, and Mr. Knox, then Secretary of
State.
2 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 I45
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
I46 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
purchasing 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." a
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.
1 For full text of the agreement, see Far Eastern Rez'iew, vol. viii,
no. 3, P- 83.
I48 RAILWAY PROBLEMS IN CHINA [376
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
1 For full text of the agreement, see Supplement to the Far Eastern
Revieiv, Aug., 191 1.
37j] 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 lit 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 2^2 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
entirely 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 affected. Progress
379] INTERNATIONAL CO-OPERATION I5I
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
i. 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 lTndo-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. 454-456.
I52 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.1 This was, however, soon overcome. When
1 General Huang Hsing and Mr. Tsen Chen-hsuan were appointed
successively to the Post of Director-General of the system. Both of
381] INTERNATIONAL CO-OPERATION ^3
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 19 1 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.
I54 RAILWAY PROBLEMS IN CHINA [382
The Lang-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 Compagnie Generate de Chemins de fer et de
Tramways en Chine.2 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
1Far Eastern Review, May. 1913, p. 543 (for sketch of the road) ;
May, 1914, p. 472; Jan., 1914, pp. 293-296.
2 Cf. supra, p. 79.
383] INTERNATIONAL CO-OPERATION 1^
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, 191 2, the loan contract 1 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,-
000,000 francs, issued at 94, bearing interest at 5 per cent.
The life of the loan is forty years. Repayment of capital
and redemption at 102^2 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
1 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 x describes it as a Franco-Belgian syndicate,
indicating that French interests predominated. The pro-
1 Cf. supra, p. 75, foot-note.
85]
o°:>
INTERNA TIONAL CO-OPERA TION
157
ject also met with hearty support from Russia because the
line 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.1 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 the 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_ord£r 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-Pukozv Raihvay
The preliminary agreement for the concession of this line
was signed in 1899. Not until November 14, 19 13, was
the final agreement2 duly signed by the Ministers of Com-
1 See Inter-Group Agreement for the Sextuple Reorganization Loan,
in Far Eastern Review, Mar., 1913, pp. 439"44' i or China Year Book,
1914, ch. on Finance.
* For full text of agreement, see Far Eastern Review, Jan., 1914, pp.
307-310.
y
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 2 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 i~g
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 Raihvay ^
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. c, 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.
!6o 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 public 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, 19 13, providing for a railway between
Canton and Chungking.1 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, 191 3, 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 ^1
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 [$g0
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 following
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 line 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 1 — 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 ( 1 ) 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 {Nanman) Railway System '
After this railway system had been taken over by Japan
1 For full text of treaty (translated into English), see Journal of the
American Asiatic Association, Feb., 1006, pp. 19-20.
2 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
^4 RAILWAY PROBLEMS IN CHINA [392
from the Russians, under the Japanese Imperial Ordinance x
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 : ( 1 ) 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.
1 Journal of the American Asiatic Association, Oct., 1906, pp. 266-8.
393] THE MANCHURIAN RAILWAY PROBLEMS rf-
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
like 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 limit 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 tf/t' or 2^2' 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 Sy2", 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] THE MANCHURIAN RAILWAY PROBLEMS rfy
The Antung-Mnkdcn Railway l
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 : ( 1 ) 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.
1 Far Eastern Review, Nov., 1009, pp. 295-6; Journal of the American
Asiatic Association, July, 1909, pp. 183-4.
1 68 RAILWAY PROBLEMS IN CHINA [396
The conversion of the line into a standard gauge was
commenced in August, 1909, and was completed in 191 2.
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 agreement1 was made between
China and Japan for the repurchase by China of the Hsin-
mintun-Mukden railway (3^2' 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 :
1. 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 Tsueuen, treaties, vol. xii, leaves 33-37;
Kent, Ry. Ent. in China, app. A, no. 6.
397] THE MANCHURIAN RAILWAY PROBLEMS rfg
Changchun (Kuangchengtze) line, 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 line) 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.
1 70 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 1
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, passim. Far
Eastern Review, Apr., 1910, pp. 526-9; Nov., 1909, pp. 228-9; Feb., 1909,
pp. 294-9. Jour, of the Amer. Asiatic Assn., Feb., 1910, pp. 4-7; Sept.,
1910, pp. 232-243.
399] THE MANCHURIAN RAILWAY PROBLEMS tyj
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 Eisin-
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.
1 72 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 establish-
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 Manchurian
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-
4Ol] THE MANCHURIAN RAILWAY PROBLEMS ij$
zation of an international syndicate which would buy i >ut
the Russian and Japanese railway interests in Manchuria.
At the same time Air. 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 r< >ad 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 t<> obstruct any
general measures, common to all countries, which China
may take for the development of commerce and industry
Ij4 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 27, 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 xyc
the Chinese Government in 1905. The situation is this,
namely, that in 1934, nineteen years hence, China may re-
purchase the line 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 effectively 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.1 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.
1 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 ijj
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-, y?
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 [4q6
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 t< >
_^~ 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 politics," 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
4oy] CONCLUSION I79
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,1 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
1 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.
180 RAILWAY PROBLEMS IN CHINA [40g
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 were
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, xausingHrr-kating
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 jgj
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
lS2 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-
1 / 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 !g3
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-
ganisation of China, translated into English from Russian by Belt-
chenko (A.) and Moran (A. A.), Shanghai, 1912.
Comite de l'Asie Franchise, 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 1004.
Laboulaye (Eduard de), Les Chemins de fer de Chine, Paris, 191 1.
Maurer (J. H.), The Far East, Reading, 1912.
^4 RAILWAY PROBLEMS IN CHINA [4I2
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, 191 1.
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. lour.,
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," ibid., Mar., 191 1, pp. 374-9.
— — ' " Ex criente lux ; ex occidente Knox," ibid., April, 1910, pp. 492-
503.
Lapeyriere (J. de), " Notice sur les Chemins de fer en Chine," in Soc.
de Geog. Commerciale 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 Po pillar 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. — Per io dicals :
The Far Eastern Reviezv, Shanghai, 1908-1915.
The Journal of the American Asiatic Association, New York, 1905-1915.
VITA.
The author was born in Canton, China, September, 1885.
He attended the Tangshan Railway and Mining College,
North China, from 1906 to 1910, when he was sent by the
Government to the United States to study. He attended
the University of Illinois, receiving the B. S. degree from
that institution in 1912. He studied Economics at the Uni-
versity of Pennsylvania during the year 191 2- 13, doing
seminar work with Professor E. R. Johnson. He received
the M. A. degree from Pennsylvania in 19 13. As a student
of the Department of Political Economy at Columbia Uni-
versity, 19 13-15, he studied under Professors Seligman,
Clark, Seager, Mussey, Chaddock, Giddings, Tenney,
Robinson and Hirth, working in the seminars of Professors
Seligman and Seager.
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