# The International Development of China/Appendix 1

APPENDIX I
Preliminary Agreement Providing for the Financing and Construction of the Railway from Canton to Chungking with Extension to Lanchow
This Agreement is made at Shanghai on the fourth day of the seventh month of the second year of the Republic of China being the fourth day of July, 1913, and the contracting parties are: The Chinese National Railway Corporation (hereinafter termed "the Corporation") duly authorized in virtue of the Presidential Mandate of the ninth day of the ninth month of the Republic of China being the ninth day of September, 1912, and in virtue of the Charter of the Corporation duly promulgated by a Presidential Mandate of the thirty-first day of the third month of the second year of the Republic of China being the thirty-first day of March, 1913, on the one part and Messrs. Pauling and Company, Limited, of 26 Victoria Street, London, S. W. (hereinafter termed "the Contractors") on the other part.
Now it is Hereby Agreed by and between the parties hereto as follows:
ARTICLE I
The Contractors, or their Assigns, agree to issue on behalf of the Government of the Republic of China a sterling Loan, bearing interest at the rate of five per cent per annum, (hereinafter referred to as "the Loan") for such an amount as may be mutually estimated to be necessary for the completion of the Railway from Canton to Chungking.
The Loan shall be of the date on which the first series of Bonds are issued and shall be called "The Chinese National Railways Government five per cent Gold Loan of 1912 for the Canton Chungking Railway."
ARTICLE II
The proceeds of the Loan are designed for the construction and equipment of the Railway from Canton to Chungking (hereinafter called "the Railway") and for all necessary expenditure appertaining thereto as may be arranged in the Detailed Agreement, referred to in Article 17.
ARTICLE III
The payment of the interest and the redemption of the Capital of the Loan are guaranteed by the Government of the Republic of China and by a special lien upon the Canton Chungking Railway.
This special lien constitutes a first mortgage in favour of the Contractors, acting on behalf of the Bondholders, upon the Railway itself, as and when ​constructed, and on the revenue of all descriptions derivable therefrom, and upon all materials, rolling stock and buildings of every description purchased or to be purchased for the Railway.
Should there be default in payments on the dates fixed of all or part of the half yearly interest or amortization payments, the Contractors shall have the right to exercise on behalf of the Bondholders all the rights of action which accrue to them from the special mortgage.
ARTICLE IV
During the time of construction of the Railway the interest on the Bonds and on any advances made by the Contractors shall be paid from the proceeds of the Loan. The accruing interest from any proceeds of the Loan not used during the period of construction, and the earnings derived by the Corporation from the working of any sections of the Railway as they are built, are to be used to make up the amount required for the payment of the said interest, and if any deficiency remains it is to be met from the proceeds of the Loan.
When the construction of the Railway is wholly completed, the interest on the Bonds is to be paid from the income or earnings of the Railway received by the Corporation, in such manner and on such dates as may be provided for in the Detailed Agreement provided for in Article 17 of this Agreement.
If, at any time, the earnings of the Railway, together with the funds available from the proceeds of the Loan, ​are not sufficient to meet the interest on the Bonds and the repayment of the capital in accordance with the Amortization Schedule to be attached to the Detailed Agreement, the Government of the Republic of China, in approving of this Agreement, unconditionally undertakes and promises to pay the principal of the Loan and the interest of the Loan on the due dates to be fixed therefor in the Detailed Agreement provided for in Article 17 of this Agreement.
ARTICLE V
The bonds shall be Bonds of the Government of the Republic of China.
ARTICLE VI
The Loan shall be issued to the public in two or more series of Bonds, the first issue to be made to the amount of from one to two million pounds sterling as soon as possible after the signature of the Detailed Agreement referred to in Article 17 of this Agreement. The issue price of the Bonds shall be fixed by the Corporation and the Contractors sometime before the issue, taking the last price of similar Bonds as a basis for fixing the market price. The price payable to the Corporation shall be the actual rate of issue to the public less a sufficient amount to cover the cost of stamps on the Bonds in the various countries of issue, provided always that at least fifty per cent of the Bonds shall be issued in England, plus floatation charges of four per cent retainable by the Contractors (that is to say, a charge ​of four pounds for every one hundred pound Bond issued).
After the Detailed Agreement referred to in Article 17 is settled, and pending the issue of the Loan, the Contractors shall deposit the sum of fifty thousand pounds with the issuing Bank to the Canton Chungking Railway account, and this amount can be drawn on by the Corporation for survey and other necessary expenses authorized by the Managing Director against certificates signed by the Chief Accountant and Chief Engineer. This sum of fifty thousand pounds shall bear interest at the rate of five per cent per annum and shall be refunded out of the proceeds of the Loan.
ARTICLE VII
The proceeds of the Loan shall be deposited with the issuing Bank, to be nominated and guaranteed by the Contractors, to the credit of a Canton Chungking Railway Account on such terms as may be mutually arranged in the Detailed Agreement referred to in Article 17.
When the work of construction is ready to begin a sum equal to the estimated expenditure in China for six months shall be transferred to a Bank in China to be mutually agreed upon and there placed to the credit of a Canton Chungking Railway Account to be operated upon by the Corporation under certificates signed by the Chief Accountant and the Chief Engineer. This amount of estimated expenditure for six months shall be maintained by subsequent monthly transfers so that, ​as far as possible, there shall always be six months estimated expenditure in China on deposit in a Bank in China to be mutually agreed upon.
ARTICLE VIII
Immediately after the signing of the Detailed Agreement, the Corporation will establish a Head Office at Canton for the Canton Chungking Railway. This Office will be under the direction of a Chinese Managing Director to be appointed by the Corporation, with whom will be associated a British Engineer-in-Chief and a British Firm of Public Accountants, of recognized standing, whose representative shall be Chief Accountant (hereinafter called "the Chief Accountant"). These British Employes shall be nominated by the Corporation and the Contractors, jointly, and shall be appointed by the Corporation. Their dismissal shall take place, only, with the joint approval of the Corporation and the Contractors.
It is understood that the duties to be performed by these employes are intended to promote the mutual interests of the Corporation and the Bondholders respectively, and it is therefore agreed that all cases of difference arising therefrom shall be referred for amicable adjustment between the Corporation and the Representative of the Contractors. The salaries and other terms of Agreement of the Engineer-in-Chief and the Chief Accountant shall be arranged between the Corporation and the Contractors; and the amount ​of their salaries, etc., shall be paid out of the general accounts of the Railway.
For all important technical appointments for the operation of the Railway, Europeans of experience and ability shall be engaged and wherever competent Chinese are available, they shall be employed. All such appointments shall be made, and their functions defined, by the Managing Director and the Engineer-in-Chief in consultation, and shall be submitted for the approval of the Corporation; similar procedure shall be followed in the case of Europeans employed in the Chief Accountant's department. In the event of the misconduct, or the incompetency of these European employes, their services may be dispensed with by the Managing Director, after consultation with the Engineer-in-Chief, and subject to the sanction of the Corporation. The form of Agreements made with these European Employes shall conform to the usual practice.
The accounts of the receipts and the disbursements of the Railway's construction and operation, shall be in Chinese and English in the department of the Chief Accountant, whose duty it shall be to organize and supervise the same, and to report thereon for the information of the Corporation through the Managing Director, and of the Contractors as representing the Bondholders. All receipts and payments shall be certified by the Chief Accountant and authorized by the Managing Director.
For the general technical staff of the Railway, after ​completion of construction, the necessary arrangements shall be made by the Managing Director in consultation with the Engineer-in-Chief, and reported to the Corporation in due course.
The duties of the Engineer-in-Chief shall consist in the efficient and economical maintenance of the Railway, and the general supervision thereof in consultation with the Managing Director. The duties of the Chief Engineer during construction shall be set forth in the Detailed Agreement, referred to in Article 17 of this Agreement.
The Engineer-in-Chief shall always give courteous consideration to the wishes and instructions of the Corporation, whether conveyed directly or through the Managing Director, and shall always comply therewith, having at the same time due regard to the efficient construction and maintenance of the Railway.
A school for the education of Chinese in Railway matters shall be established by the Managing Director subject to the approval of the Corporation.
ARTICLE IX
The Contractors shall construct and equip the Railway and shall receive as remuneration a sum equal to seven per cent on the actual cost of the construction and equipment of the Railway. The term "Equipment" shall be held to include in its meaning all requirements necessary for the operation of the Railway and shall therefore include Rolling Stock and Locomotives sufficient for operation.
​It is clearly understood that the term "Equipment" does not include any purchases made for the Railway after it has been completely constructed and equipped and handed over ready for operation.
It is further clearly understood that the cost of land purchased for the Railway, the salaries of the Managing Director, Chief Accountants, Chief Engineer, and the cost of their offices and staff shall not be included in the meaning of the terms "construction and equipment."
The Contractors shall have the option of constructing on the same terms the proposed extension of the Railway to Lanchow in the Province of Kansu, or a Railway of similar milage in some other part of China to be mutually agreed upon, and this option shall be for seven years from the commencement of construction.
All other arrangements in connection with the construction and equipment of the Railway shall be settled in the Detailed Agreement referred to in Article 17.
ARTICLE X
All land that may be required along the whole course of the Railway within survey limits, and for the necessary sidings, stations, repairing shops and car sheds, to be provided for in accordance with the detailed plans, shall be acquired by the Corporation at the actual cost of the land, and shall be paid for out of the proceeds of the Loan.
ARTICLE XI
The Contractors shall hand over to the Corporation each section of the Railway, when completed, for operation in accordance with the provisions of the Detailed Agreement.
ARTICLE XII
The Contractors shall be appointed Trustees for the Bondholders and shall receive such remuneration as may be fixed in the Detailed Agreement.
ARTICLE XIII
The Government of the Republic of China, whenever necessary, will provide protection for the Railway while under construction or when in operation, and all the properties of the Railway as well as Chinese and foreigners employed thereon, are to enjoy protection from the local Officials.
The Railway may maintain a force of Chinese Police with Chinese officers, their wages and maintenance to be wholly defrayed as part of the cost of the construction and maintenance of the Railway. In the event of the Railway requiring further protection by the military forces of the Government, the same shall be duly applied for by the Head Office and promptly afforded, it being understood that such military forces shall be maintained at the expense of the Government.
ARTICLE XIV
All materials of any kind that are required for the construction and working of the Railway, whether imported from abroad or from the Provinces to the scene of work, shall be exempted from Likin or other duties so long as such exemption remains in force in respect of other Chinese Railways. The Bonds of the Loan, together with their coupons and the income of the Railway shall be free from imposts of any kind by the Government of the Republic of China.
ARTICLE XV
With a view to encouraging Chinese industries, Chinese materials are to be preferred, provided price and quality are suitable.
At equal rates and qualities, goods of British manufacture shall be given preference over other goods of foreign origin.
ARTICLE XVI
The Contractors may, with the approval of the Corporation, and subject to all their obligations, transfer or delegate all or any of their rights, powers, and discretions, to their successors or assigns.
ARTICLE XVII
As soon as this Preliminary Agreement is signed it shall be forwarded to the Government of the Republic of China for approval. When it has met with the approval of the Government of the Republic of China, ​a necessary Detailed Agreement shall be made embodying the principles of this Agreement with such amplifications and additions as may be mutually agreed upon between the parties hereto.
ARTICLE XVIII
On its approval of this Agreement, and acceptance of the obligations set forth herein, the Government of the Republic of China shall officially notify the British Minister at Peking of the fact, and this approval shall be taken as covering the Detailed Agreement referred to in Article 17.
ARTICLE XIX
This Agreement is executed in quadruplicate in English and Chinese, one copy to be retained by the Corporation, one to be forwarded to the Government of the Republic of China, one to be forwarded to the British Minister at Peking, and one to be retained by the Contractors, and should any doubt arise as to the interpretation of the Agreement the English text shall be accepted as the standard.
Signed at Shanghai by the contracting parties on this fourth day of the seventh month of the second year of the Republic of China being the fourth day of July nineteen hundred and thirteen.