Book_^-4J3 CONVERSATIONS BETWEEN THE CHINESE AND JAPANESE REPRESENT- ATIVES IN REGARD TO THE SHANTUNG QUESTION u TREATY FOR THE SETTLEMENT OF OUT- STANDING QUESTIONS RELATIVE TO SHANTUNG. AGREED TERMS OF UNDERSTANDING RECORDED IN THE MINUTES OF THE JAPANESE AND CHINESE DELEGATIONS CONCERNING THE CONCLUSION OF THE TREATY FOR THE SETTLEMENT OP OUTSTANDING QUESTIONS RELA- TIVE TO SHANTUNG. MINUTES PREPARED BY THE JAPANESE DELEGATION i ^ ^^kM ^7 WASHINGTON GOVERNMENT PRINTING OFFICE 1922 CONVERSATIONS BETWEEN THE CHINESE AND JAPANESE REPRESENT- ATIVES IN REGARD TO THE SHANTUNG QUESTION TREATY FOR THE SETTLEMENT OF OUT- STANDING QUESTIONS RELATIVE TO SHANTUNG. AGREED TERMS OF UNDERSTANDING RECORDED IN THE MINUTES OF THE JAPANESE AND CHINESE DELEGATIONS CONCERNING THE CONCLUSION OF THE TREATY FOR THE SETTLEMENT OF OUTSTANDING QUESTIONS RELA- TIVE TO SHANTUNG. MINUTES PREPARED BY THE JAPANESE DELEGATION WASHINGTON GOVERNMENT PRINTING OFFICE 1922 -jl^ RECEIVED CONTENTS. Minutes of the proceetlingg : First meeting, Dec. 1, 1921. 3 p. m , Second meeting, Dec. 2, 1921, 3.30 p. m_.. Tliird meeting, Dec. 5, 1921, 3.30 p. m Fourtli meeting, Dec. 6, 1921, 3.30 p. m Fifth meeting, Dec. 7> 1921, 3.15 p. m Sixth meeting, Deo. 8, 1921, 3.30 p. m , Seventh meeting, Dec. 9, 1921. 11 a. m EiglUh meeting, Dec. 9, 1921, 3 p. m Ninth meeting, Dec. 10, 1921, 3.15 p. jn Tenth meeting. Dec. 12, 1921, 3.15 p. m Eleventh meeting, Dec. 13, 1921, 3 p. m Twelfth meeting, Dec. 14, 1921, 3.15 p. m Tliirteenth meeting, Dec. 15, 1921, 3.15 p. ni Fourteenth meeting, Dec. 16, 1921, 2.30 p. m Fifteenth meeting, Dec. 17, 1921. 3 p. m Sixteenth meeting, Dec. 19, 1921. 3 p. m Seventeenth meeting, Dec. 20, 1921. 3 p. m Eigliteenth meeting, Jan. 4, 3922, 5 p. m Nineteenth meeting, Jan. 5, 1922, 5.30 p. m Twentieth meeting, Jan. 6, 1922, 3 p. m Twenty-first meeting. Jan. 11, 1922, 11 a. m Twenty-second meeting, Jan. 11, 1922, 4 p. m Twenty-third meeting, Jan. 12. 1922, 11 a. m Twenty-fourtli meeting. Jan. 12, 1922. 3 p. m Twenty-fifth meeting, Jan. 13, 1922, 11 a. m Twenty-sixth meeting, Jan. 14. 1922. 10.30 a. m Twenty-seventli meeting, Jan. 16, 1922, 10.30 a. m Twenty-eighth meeting, .Tan. 17, 1922, 10.30 a. m Twent.v-ninth meeting, Jan. IS, 1922, 4 p. m Thirtieth meeting, Jan. 19, 1922. 4 p. m Thirty-first meeting. Jan. 23, 1922, 3.30 p. m Thirt.v-second meeting, Jan. 24, 1922, 3.30 p. m Thirty-third meeting, Jan. 26, 1922. 4 p. m ^ Thirty-fourth meeting, Jan. 30, 1922, 3 p. m Thirty-fifth meeting, Jan. 31, 1922, 10 a. m Thirty-sixth meeting, Jan. 31, 1922, 5 p. m . Meetings of tlie drafting committee Treaty for settlement of outstanding questions relative to Shantung-. Agreed terms of understanding recorded in the minutes Index -_. Page. 1-5 6-15 16-23 23-31 31-38 39-44 45-52 52-63 63-73 73-84 84-98 98-109 109-118 118-133 133-146 147-159 159-173 173-188 188-195 196-208 208-217 217-230 230-237 237-251 251-260 260-272 272-280 280-292 292-296 296-304 304-313 313-321 321-333 333-360 360-368 368-382 383 384-391 392-393 395 (in) MINUTES OF PEOCEEDINGS. FIRST MEETING. The first meeting, held in governing' board room, the Pan Ameri- can Union Building, Washington, D. C., at 3 o'clock in the afternoon of Thursday, December 1, 1921. PKESENT. China. — Dr. Sao-Ke Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries: Mr. Philip K. C. Tyau, Gen. Fu Huang, Mr. Tung-Fan Hsu, Mr. Chuen Chao, Mr. Yun Kuan Kuo. Japmi. — Baron T. Kato, Mr. M. Hanihara, Mr. K. Debuchi. Sec- retaries: Mr. S. Saburi, Mr. E. Kimura, Mr. H. Saito, Mr. T. Shiratori. Also present as observers: The United States of America. — Hon. Charles E. Hughes (part of the meeting) , Mr. John Van A. MacMurray, Mr. Edward Bell. The British Empire. — The Eight Hon. Arthur James Balfour, O. M., M. P. (part of the meeting), the Right Hon. Sir John Jordan, G. C. I. E., K. C. B., G. C. M. G. ; Mr. M. W. Lampson, M. V. O. OPENING REMARKS, Mr. Hughes said that he confidently hoped that a fair and mutually satisfactory settlement might result from the friendly conversations now to be undertaken by the representatives of Japan and China. He felt gratified that the suggestion he had made in conjunction with Mr. Balfour had been accepted by both Japan and China. He was convinced that questions of this sort could be speedily solved in no other way than by an interchange of views of this description. He entertained most earnest and confident hope that the free conversa- tions would be productive of good results. Mr. Balfour said that the sentiments expressed by Mr. Hughes entirely coincided with his own. He had full confidence that the representatives of the two powers would come to an agreement on the Shantung question, which was so important not only to the coun- tries immediately concerned but to the whole world. He joined Mr. Hughes in sajdng that in the course of the conversations, if any circumstances should come to pass which called for friendly inter- vention on his part, it would be his great pleasure to offer his services. He was in that connection entirely at the disposal of Mr. Hughes and the representatives of Japan and China. He understood that Mr. Hughes's idea was that the conversations should be conducted with- out their presence. (1) Baron Kato, speaking in Japanese, said : " We are sincerely gratified by the opportunity which has been afforded us to meet with the representatives of China in an attempt to arrive at a satisfactory adjustment of the Shantung question. We can not let this occasion pass without expressing our deep ap- preciation of the good offices of Secretary Hughes and Mr. Balfour, which have made the present meeting possible. " It is needless for us to assure you that Japan is eagerly looking forward to an early settlement of this long-pending controversy. We may add that it is the desire of the Japanese people to eliminate all cause for misunderstanding between China and Japan, in order that these two neighboring nations in the Far East may live in future in jDcrfect harmony and accord. And we have no doubt that this sentiment is fully shared by our Chinese friends. " We are not unmindful of the difficulties with which the Chinese Government is being confronted in entering into direct negotiations on the subject. We are, however, confident that, if approached from a broader jDerspective, the question should be susceptible of a speedy solution. The true and vital interests of the two nations are in no way conflicting. " It is unfortunate that the real issues involved have been very largely misunderstood in the popular mind. The term ' Shantung question,' is itself a misnomer. The question is not one which affects the whole Province of Shantung. The imi:)ortant points now await- ing adjustment relate onl}^ to the manner of restoring to China an area of territory, less than one-half of 1 per cent of the Shantung Province, and also to the disposition of a railway 290 miles long, and its appurtenant mines, formerly under exclusive possession and management of the Germans. There is absolutely no question of full territorial sovereignty being exercised by China throughout the length and breadth of the Province. " Careful examination of the correspondence recently exchanged between Japan and China will show that the divergencies of opinion between the two Governments are more apparent than real. We are hopeful that this meeting will be able to determine in common accord the essential terms of settlement, leaving the matters of de- tail or of local nature for arrangement by the commissioners of the two Governments to be specially aj^pointed for that purpose." Dr. Sze said that he desired to repeat on behalf of the Chinese delegation the deep appreciation of the good offices exerted by Mr. Hughes and Mr. Balfour, to which he had already given expression officially the day before in the full committee. The Chinese dele- gation came to this country with the hope of obtaining a speedy so- lution of all outstanding questions between China and other powers. Among the rest, the Shantung question stood out as one of most vital importance to China. The Chinese Government as well as the entire Chinese people wished for an early and just settlenaent of that ques- tion. It was highly desirable that through the kind assistance of the two gentlemen and the cooperation of the Japanese colleagues a satisfactory agreement should be reached. Mr. Hughes was gratified to receive assurances from both delega- tions that the conversations would be conducted in the most friendly manner. He was in full accord with Mr. Balfour in offering services whenever needed. He added that the physical facilities of the Pan American building were also at the disposal of the negotiators. (Mr. Hughes and Mr. Balfour left the meeting at this point.) PROCEDURE. -Baron Kato, speaking in Japanese, expressed his desire to have the conversations conducted in the most open and friendly manner, so that, without much formality, they could express freely their frank opinions. He then desired that a decision should be made as to the procedure of the meetings. However, being unable to speak in Eng- lish, he would intrust the task of carrying on the conversations to Mr. Hanihara. Mr. Hanihara repeated that the conversations should be carried on as informally as possible and desired that arrangements should now be made as to a few points of procedure. He suggested — (1) That no chairman or president be elected for the meetings in view of their very informal and friendly nature. (2) That it was deemed desirable that as much publicity as might be agreed upon should be given the deliberations of the meetings. (3) That minutes be kept by the secretaries of the proceedings of each session and be approved by the delegates at the next meeting. (4) That the date of the next meeting be decided upon each time. MINUTES. Dr. Sze declared that the Chinese delegation welcomed the oppor- tunity for free and frank talk. As to the matter of the communique, he thought that as much publicity as possible should be given in the press, so that no unnecessary misunderstanding might arise. As to the keeping of the minutes, he wondered whether it would not be best to trespass further upon the good offices of the gentlemen representing the United States and Great Britain. Mr. Hanihara said that that suggestion struck him as a very good one. If those gentlemen would be good enough to undertake that task, he suggested that the respective delegations each send a secretary to assist in the work. He asked what was the pleasure of the rep- resentatives of the United States and the British Empire in the matter. Mr. MacMurray said that he and his colleagues were keeping a record of the proceedings but they were really for their own use. He suggested tiiat it would perhaps be more appropriate that the minutes should be officially kept by the secretaries of the respective delega- tions. Mr. Hanihara said that in that case perhaps it would be best that each delegation appoint a secretary to prepare the minutes and have the representatives of the United States and the British Empire help them in completing them. The proposals of Mr. Hanihara were agreed to. SUBSTITUTION OF A PLENIPOTENTIARY. Baron Kato then stated that, on account of the work of other meet- ings, and, further, on account of the illness of Baron Shidehara, the Japanese delegation might find it difficult to send all their plenipoten- tiaries to this meeting. He would do his best to be present himself as often as possible, but it might so happen that a substitute would be sent in the place of a plenipotentiary. In a word, he suo^gested the adoption of the panel system. He supposed that such might be the case also with the Chinese delegation. In point of fact, Mr. Debuchi was present to-day in place of a plenipotentiary. Dr. Sze said that that was agreeable. Dr. Koo said that, without placing undue emphasis on the question of formality, he wanted to know clearly what was the authority of a substitute when he attended the meeting, whether he would possess the same authority as any plenipotentiary. Baron Kato, speaking in Japanese, answered that in case a sub- stitute took the place of a plenipotentiary he would have the powers to state the views of the Japanese delegation, but the responsibilities for the statements would be assumed entirely by those who were plenipotentiaries. DATE AND FEEQUENCT OF MEETING. Dr. Sze suggested that, it being desirable to have meetings as often as possible, they should meet every afternoon, because the mornings Avould be occupied with the meetings of the full committee. Mr. Hanihara suggested that, inasmuch as many other meetings would be held, and because the length of time to be required for the preparation would depend upon the nature of the subject niatter on the agenda of the following meeting, it would be best to decide upon the date of the following meeting at the end of each meeting. He entirely shared the views of Dr. Sze that the meetings should be held at frequently as possible. He then went on to ask whether the Chinese delegation was prepared to enter into the discussion of the question proper to-day. BASIS or DISCUSSION. Dr. Sze declared that they were willing to listen to whatever the Japanese delegates might be prepared to say, but they had, for their part, nothing prepared to present to the conference. After some discussions, it was decided that the conversations should be restricted to-day to the question of procedure. Mr. Hanihara said perhaps the conference could take the Japanese note, under the date of September 7, 1921, as the starting point of discussions at the next meeting. Dr. Koo stated that we could perhaps take the whole communica- tions exchanged between Japan and China relating to the Shantung question as the basis of discussion. Baron Kato expressed his approval. The meeting adjourned at 4.30 p. m. to meet again at 3.30 p. m. Friday, December 2, 1921. Then the form of the press communique was discussed. The Japanese delegates desired that the statement of Baron Kato should be incorporated in the communique, but Dr. Sze objected to this course on the ground that, owing to the incorporation in the state- ment of several points, such as those in relation to the term " Shan- tung question " and the mines appurtenant to the railway, on which the Chinese delegates desired to have their observations published at the same time, and for fear that misunderstandings might be caused by the publication of the Japanese statement by itself, the Chinese delegation would rather prefer that the publication of the statement should be deferred until to-morrow. Thereupon, after certain discussion, it was decided that the communique should be in the form annexed herewith (Annex I). It was decided : (1) That the meetings should be entirely informal. (2) That there should be no chairman or president for the meet- ings. (3) That as much publicity as possible should be given to the proceedings of the meetings. (4) That Mr. Hanihara and Dr. Koo should supervise the draft- ing of the press communique. (5) That the minutes should be made by the secretaries of the Japanese and Chinese delegations with the assistance of the repre- sentatives of the United States and the British Empire. (6) That a plenipotentiary may send a substitute. (7) That the whole communications exchanged between Japan and China in relation to the Shantung question should be made the basis of future discussions. (8) That the date of the following meeting should be decided upon at the end of each meeting. Japanese Delegation, Washifigton, D. C, December J, 1921. SJC-i.] . Annex I. December 1, 1921. [For the press.] Issued hy the Chinese and Japanese delegations. The conversations between the Chinese and Japanese delegates relating to the Shantung question, arranged through the good offices of Mr. Hughes and Mr. Balfour, commenced this afternoon at 3 p. m. in the conference room of the Pan American Union Building. The meeting on the part of China was attended by Dr. Sze, Dr. Koo, and Dr. Wang, accompanied by Mr. Tyau, Gen. Wang, Mr. Hsu, Mr. Chao, and Mr. Kuo ; and on the part of Japan by Baron Kato, Mr. Hanihara, Mr. Debuchi, accompanied by Mr. Saburi, Mr. Kimura, Mr. Saito, and Mr. Shiratori. Mr. Hughes and Mr. Bal- four, accompanied by Sir John Jordan, Mr. Miles Lampson, Mr. J. V. A. MacMurra}^ and Mr. Edward Bell, opened the meeting and retired, leaving the above-named American and British representa- tives to assist at the sessions. The meeting discussed questions of procedure and decided to issue a communique at the end of each meeting. The next meeting will be held in the same building at 3.30 p. m., Friday afternoon next. SECOND MEETING. The second meeting, held in governing board room, the Pan Ameri- can Union Building,^ Washington. D. C, at 3.80 o'clock in the after- noon of Friday, December 2, 1921. PRESENT. China.— Dv. Sao-Ke Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries: Mr. Philip K. C. Tyau, Gen. Fu Huang, Mr. Tung-Fan Hsu, Mr. Chuan Chao, Mr. Telly Howard Koo. Japan.— Fv'mve I. Tokuga^Ya, Mr. M. Hanihara,. Mr. K. Debuchi,. Secretaries: Mr. S. Saburi, Mr. E. Kimura, Mr. H. Saito, Mr. T. Shiratori. Also present as observers : The United f^ fates of America. — Mr. John Van A. MacMurray, Mr. Edward Bell. The British Empire. — The Right Hon. Sir John Jordan, G. C. I. F^,, K. C. B., G. C. M. G. ; Mr. M. W. Lampson, M. V. O. PRESENCE OF FRENCH OBSERVERS. Dr. Sze said that before entering upon the conversations he wanted to ask the opinion of the Japanese delegation about the proposal which the Chinese delegation had received from the French delega- tion for having two French observers along wath the British and American observers. He wished, wath the consent of the Japanese .delegation, to reply that the French request would be acceded to with pleasure. Mr. Hanihara replied that although he and his colleagues had no special objection to the French suggestion, yet in this matter of in- formal conversations with the Chinese delegation they had had to obtain specific authorization from the Japanese Government; and that, moreover, it seemed to them to be proper that the pleasure of Messrs. Hughes and Balfour should be consulted in this matter. They did not, therefore, feel at liberty to make a reply either way at once. BASIS OF DISCUSSION. Dr. Koo said that yesterday his colleague. Dr. Sze, had expressed, in a general way, the desire of the Chinese delegation to cooperate with the Japanese delegation to the end that a speedy and just solu- tion of the Shantung question might be arrived at. The statement he wished to make now was about the difficulty of the position of the Chinese Government in entering upon these conversations, and there- fore the desirability of avoiding anything that might w^arrant the in- ference that, in agreeing to enter into the conversations, the Chinese Government had changed its attitude in regard to any of the treaties between China and Japan, as well as treaties between other Govern- ments. It would be best, for the purpose of facilitating the progress of these conversations, to forestall the chance of any such inference being drawn. Yesterday they had agreed that the whole corre- spondence exchanged between China and Japan on this question of Shantung should be made the basis of discussion. Now, the Chi- nese delegation was ready to listen to any observation that the Japa- nese delegation might see fit to make, the more so since the Chinese Government had received no response to their last note of Novem- ber 4. Mr. Hanihara stated that the proposals of the Japanese Govern- ment in regard to the Shantung question had been made in a most concrete and clean-cut way. The Japanese delegation had also caused a paper to be made in which the rights formerly held by Germany in Shantung, the position of Japan after the peace conference of 1919, and the proposals contained in her latest communication to China, made on September 7 last, were all set forth in clear contrast (i^n- nex I) . It was now his desire that a concrete exposition of the Chi- nese position in this matter should be made, so that these several questions concerning Shantung might be taken up one by one. Dr. Koo said in reply that the attitude of the Chinese Government in this matter had been stated in their note of October 5, and had further been clarified in their second note of November 4. The Chinese delegation had hoped, and they still hoped, that the ques- tion of Shantung might be settled along the lines of those notes. They would be glad if their Japanese colleagues would make any sug- gestion for any way of bringing their views closer together. He might add, however, that the easiest and simplest way w^ould be to disengage their niinds from the complicated state of affairs created by the difference of views with regard to the various treaties which concerned China. He thought it was very necessary for the success of their conversations to confine their discussions mainly to facts as they were. Mr. Hanihara stated in reply that he quite agreed. He had no desire to open academic questions. They would take as a basis of their discussion facts as they were. He thought it was best to take up concrete questions, item by item, and he was ready to enter into the deliberations of any question the Chinese colleagues liked. Dr. Sze said that if the Japanese note of September 7 was taken as the basis of discussion, then the Chinese delegation would have to revert to the Chinese note of October 5, and they would thus be going round in a circle. The logical thing Avould be for Japan to make some new proposal as the next step. Mr. Hanihara stated that he was not at all insisting upon making the Japanese note of September 7 the basis of discussion. His idea was that some concrete problems should be made the subject of de- liberation. Otherwise they would not know where to start, and he thought that the Japanese note of September 7 and the Chinese note of October 5 contained items which could be conveniently made the subject of consideration. Dr. Sze said that he agreed. Mr. Hanihara suggested that perhaps they could take a certain item in the Japanese note and see whether they could come to any agreement on that particular point, and if they did, they might regard it as a provisional decision or agreement ad referendum and thus go on through all the items enumerated. Dr. Sze said that that was agreeable, but he desired to point out that certain important questions were not mentioned in the Japanese note. One of them was the question of the salt field. There existed in China a salt monopoly. The revenue from the salt Gabelle had been assigned as security of several loans, in some of which Japanese l)ankers were also interested. Mr. Hanihara assured the Chinese delegation that he did not hesi- tate to take up any subject but suggested that, as it might be neces- sary to make preparations in advance, it would be best to decide each time upon the subjects that should come up for discussion at each next meeting. ITEM 1 OF THE JAPANESE NOTE OF SEPTEMBER 7. Dr. Koo stated they should have some starting point; so he would l)egin Avith the first item of the Japanese note of September 7. He wanted to know whether the Japanese delegation desired to make any observation regarding that subject. Mr. Hanihara tliought that, inasmuch as they had decided to dis- cuss concrete problems, perhaps some other item might more ap- propriately be taken up first. The subject matter of the item sug- gested by Dr. Koo had relation to the treaty of Versailles. Dr. Koo observed that he had no desire at all to be understood as if lie tried to draw into discussion the question of the interpretation as to the various treaties in dispute. Then he asked which item Mr. Hanihara desired to take up. Mr. Hanihara signified his willingness to take up any other item and suggested that the second or third be made the subject of discussion. Dr. Koo thought item 3, Avhich referred to the question of the railway, represented one of the most difficult phases of the Shan- tung question. He Avondered whether it was the intention of Mr. Hanihara to discuss it noAV or later. Mr. Hanihara stated that he had no special choice, but perhaps it would be best to take up first such subject as would be susceptible of easy solution. KATLW^AY. Dr. Sze said that he was very optimistic in coming to the meet- ing. It was stated to be the desire and determination of the Japanese delegation to cooperate with the Chinese delegation for a solution of the Shantung question. That sentiment was recipro- cated, and he was hopeful of speedy and fruitful results even as to the difficult question of the railway. Mr. Hanihara agreed that the question of the railway should be made the subject of discussion. He added that as he was not pre- pared to discuss the detailed features of that question, he preferred that the discussion should be of a general nature. Dr. Koo observed that he felt certain that he was not exaggerat- ing when he said that the question of Shantung Railway was one 9 to which the Government and people of China attached the great- est importance. Japan had proposed that the Shantung Railway should be made into a joint Sino-Japanese enterprise. He and his colleagues appreciated the desire on the part of the Japanese Gov- ernment to promote the Japanese and Chinese cooperation in re- gard to economic enterprises in China. The idea of joint enterprise in general was not objectionable on theoretical grounds, but, con- fining themselves to this particular question in hand, the Chinese Government could not see their way to accept the principle of joint enterprise. The Chinese delegates hoped that the Japanese col- leagues would, in view of the particular interest attached to the railway by the Chinese Government and people, accept the Chinese viewpoint in this question. If this railway were to be handed back to China and were to be administered as a Chinese Government railway, it was understood that the restitution would, of course, be effected subject to the condition proposed by the Chinese Govern- ment in their note of November 4; namely, the Chinese Government would be prepared to redeem or purchase half of the total amount of the valuation of the railway and its appurtenances. He could not but strongly emphasize the desirability of arriving at a solu- tion of the question on that basis because that would go a long way to remove the misunderstanding and misgivings which were enter- tained by the whole Chinese nation. By accepting this proposal, he felt certain Japan would not only not lose any substantial ad- vantage, but, in the long run, would have a great deal to gain, be- cause Japan and China had many interests in common and so much to do with each other. In urging this formula he recalled Baron Kato's wise and far-sighted remark, made j^esterday, that the Shan- tung question should be approached from a broad perspective. Mr. Hanihara stated that as to the Kiaochow-Tsinanfu Railway Japan's proposition was to make it a joint Sino-Japanese enter- prise. Having heard Dr. Koo's observations, he desired to state the position of the Japanese Government for making that proposition. To do so, he had to go back into the history of the question, not that he desired to open up any useless discussion, but just to make an exposition of what Japan regarded as a very generous proposition. In 1918 the Chinese Government approached Japan with request for a loan of 20,000,000 yen. As conditions of that loan it was agreed that Japanese capitalists should be permitted to finance cer- tain extensions of the Kiaochow-Tsinanfu Railway, which China proposed to construct at once. At the same time the Chinese Gov- ernment urged that Japan would make a concession in favor of China by undertaking that the Kiaochow-Tsinanfu Railway should be turned over to a joint Sino-Japanese enterprise. By the ar- rangement of 1915 China had already agreed to approve any disposi- tion which Japan might eventually make with Germany on the subject of the German rights in Shantung, including those relating to the Kiaochow-Tsinanfu Railway. It was, therefore, in an entirely liberal spirit on the part of Japan that she consented to yield to China a half share and half interest in that railway. The loan 10 requested by China was then concluded on those conditions, and the money was immediately paid to the Chinese Government. It would thus be seen that the plan of a joint Sino- Japanese enterprise of the Kiaochow-Tsinanfu Railway was due to the initia- tive of the Chinese (lovernment and had definitely been agreed upon as a condition of the loan concluded in 1918, It now appeared that the Chinese Government proposed .to repu- diate its commitment on this point on the ground that the plan in question was objected to by the entire Chinese people. It did not seem to be quite fair that a party to an agreement, after having received benefits of that agreement, should refuse to be bound an}' longer by the terms of the same agreement. There was something more involved in the issues than a question of legal technicality. The Japanese delegation trusted that if the whole facts were made known the Chinese people would be quick to appreciate the justice of Japan's position. The railway was formerly an exclusive Ger- man property in which China had no share or interest. It came into possession of Japan after considerable sacrifices in men and treasure, and she now proposed to turn it over to a joint Sino- Japanese enterprise in which the tAvo parties were to stand on a fair and equal footing. It was realized that public opinion in China should not be disregarded in the adjustment of the question, but it w^ould equally be realized that public opinion in Japan should also be weighed and considered. Japan believed that in making the present proposal she had gone more than halfway to meet China's standpoint. She hoped that she would be met by China in the same spirit of mutual accommodation. Dr. Koo said that without, of course, the slightest intention to avoid the discussion of any phase of the subject, he would urge upon his Japanese colleagues that it would simplify their conversation and would contribute to a speedy agreement, if they could leave the question of the treaty and notes of 1915 and 1918 aside from their conversations. He need hardly point out that it was those documents that had caused great anxiety and that had been a most fruitful cause of suspicion, distrust, and misapprehension on the part of the Chinese people. Nor were the feelings of the Chinese people at this moment by any means reassuring. He would therefore urge upon his Japanese colleagues to view the question from the point of view of the actual situation and try to work out a solution satis- factory to both parties. The facts relating to the negotiations of 1915 and the circumstances under which the treaties and the supple- mentary notes were signed were by no means withheld from the knowledge of the public either in China or elsewhere. It was that knowledge which was responsible for the profound feeling of anxiety and disquietude of the Chinese people and also for the bad feeling between the Japanese and the Chinese nations. He would, therefore, urge that this question should be approached from the point of view of the greater interest of the friendly neighborhood and good understanding between the two countries. So far as the moneys advanced were concerned, he did not wish to digress into the political situation at the time when they were lent and the manner in which 11 they were used. Any advance of moneys that had been made woidd be fnlly refunded. Moreover, the private interests legitimately established and the vested rights properly acquired would naturally be safeguarded and protected. The Chinese Government would assure the Japanese Government about the refunding of the moneys and urge them to consider the question at issue in the spirit of the farsighted remarks of Baron Kato the day before. Mr. Hanihara stated that the Japanese proposal of the joint undertaking was for Japan's part going more than halfway. They had gone so far only because they desired to promote friendship and common interests between the two powers. If there were difficulties in China on account of public opinion, Japan had the same difficulties at home, leaving for the moment from consideration the question of the rights or wrongs of the case. The Japanese people believed that the railway in question had been rightfully acquired and would not understand why it should be given up. Japan valued the friendship of China and so she had offered as much as possible in this question. Her people would say that China had insisted from the outset that the railway should be returned to China and had shown no disposition whatever to come a step forward. It would not be fair that Japan should be the only party to go forward and make concessions. Dr. Sze remarked that he had had experiences with several rail- ways in China and had once been the heacl of the Chinese Ministry of Communications. He desired to say, therefore, one word from his experience. From the point of view of the advantage, not only to China and Japan, but also to the commerce of all the powers, it would be most desirable that China should develop a unified system of management and operation of the Chinese railways. The ad- vantages were very manifest. Under the present system it was necessary to make arrangement for the connection of the Kiaochow- Tsinanfu Railway and the next adjacent railway each time the goods were shipped. All such complications would be done away with by the adoption of the unified system. Japan would benefit, as well as China. In fact, Japan had already come halfway. Why would she not reach the goal. That would not only add much to the facilities of communi,cation, but would bring about in a general Avay great improvement of the relations between the two countries. There were misgivings in China, and the feeling toward Japan was not at its best, but he hoped all such obstacles to good, friendly re- lations would be removed. He thought that the time was most opportune ; that the benefits to be derived from the action of Japan would far outbalance any losses that might be involved. China was not selfish in this proposition, although he would admit that she would be the first to be benefited. The unified system had already proven to be of great advantage in certain parts of the country ; for instance, in Kwantung Province. He was very proud to state that the results attained in Kwantung had been praised by a judicial association in New York some time ago. In view of those great benefits to be derived from the unified system, he was sure that the public of Japan would be reconciled. 12 Mr. Hanihara remarked that the people of Japan woukl not look at the question in that light. They would think that the delegates of Japan merely knew how to meet the Chinese wishes. He did not think that much progress would be made in thus exchanging gen- eral observations upon this most difficult question in regard to Shantung. He thought it might be better to hold the subject in abeyance for some time and take up easier questions to avoid a dead- lock from the start. As it was not desirable to hamper the progress of the conversations and frustrate their purpose, he suggested that some easier matter might be made the subject of discussion. Dr. Koo said that he had no objection to proceed to some other question and come back to the railway at some later meeting. But he desired to say a word or two in relation to the statement made by Mr. Hanihara to the effect that the Shantung Eailway had been right- fully acquired by Japan. It was difficult for him to understand how a power could rightfully acquire a property belonging to another power which was situated in the land of a friendly country without the consent of that friendly country. He also wished to add, prosaic as might be the statement, that a joint enterprise was a thing which would not work satisfactorily unless the two parties to it were com- ing together in a spirit of willingness and accord. It was some- thing like the matrimonial contract which would not be a success if the contracting parties Avere forced into it. Therefore it Avas hoped that the idea of the joint enterprise would not be insisted upon. However, leaving the question of the railway for the present, he was quite prepared to take up any other subject. AGENDA. At the suggestion of Dr. Sze, the agenda for the next meeting was decided as follows: 1. The customs administration (item 6, Japanese note September 7, 1921). 2. The foreign settlement and the opening of ports and cities (item 2, Japanese note September T, 1921). 3. Public property (item 7, Japanese note September 7, 1921). The press communique was decided upon in the form annexed (Annex II). The meeting adjourned 5.30 p. m. until 3.80 p. m. Monday, De- cember 5, 1921. It was decided: 1. That the question of the admission of French observers be de- cided after consultation with Messrs. Hughes and Balfour and after consultation on the part of the Japanese delegates with their Gov- ernment. 2. That the question of the railway be discussed at some later meetings. 3. That the agenda for the next meeting be the items 6, 2, and 7 of the Japanese note of September 7, 1921. Washington, D. C, Decemher 2, 1921. 13 Annex I. Comparison of rights enjoyed by Germans and the Japanese proposals in 1919 and 1921. I. The Leasehold of Kiaochow and the Rights as to the Neutral Zone. Rights enjoyed by Ger- many. Japan's position after the peace conference at Paris in 1919. Japanese proposals to China on Sept. 7, 1921. (a)|The administrative rights in the leased terri- tory were entirely in the hands of the Germans. (6) Around the leased teiTitory Germany estab- lished a neutral zone of 50 kilometers radius with ap- purtenant rights. (c) Part of the Bay of Kiaochow was used as a naval port and strong forti- fications were erected. (a) The leasehold and the rights in relation to the neutral zone to be restored to China. (6) Japan to establish an exclusive Japanese settle- ment in a part of the city of Tsingtau. (The Japan- ese Minister for Foreign Affair's declared on August 2, 1919, that Japan had in contemplation proposals for the reestablishment in Tsingtau of a general for- eign settlement instead of the exclusive Japanese settlement.) (c) The whole Bay of Kiaochow to be opened as a commercial port. (a) The leasehold and the rights in relation to the neu- tral zone to be restored to China. (6) Japan to abandon plans for the establishment of a Japanese exclusive settle- ment or of an international settlement, provided that China engages to open, of its own accord, the entire leased territory of Kiaochow as a port of trade and to perntiit the nationals of all foreign countries freely to reside and to carry on commerce, indus- try, and agriculture or any other lawful pursuits within such territory, and that she further undertakes to respect the vested rights of all for- eigners. (c) The whole Bay of Kiaochow to be opened as a commercial port. {d) China to carry out forthwith the opening of suitable cities and towns within Shantung for resi- dence and trade of the na- tionals of all foreign coun- tries. (e) Regulations for the opening of places [mentioned in the foregoing items to be determined by China upon consultation with the powers interested. II. Rights Relative to the Railways. (1) SHANTUNG BAIL WAY. (a) Management and or- ganization: The railway was con- structed by a German company on the strength of a license issued by the German Government, which had obtained full concession for the railway from the Chinese Govern- ment. 93042—22 2 (a) To make it a joint Sino-Japanese enterprise in point of capital and management, both in name and fact. (fl) To make it a joint Sino- Japanese enterprise in point of capital and management both in name and fact. 14 Comparison of rights enjoyed by Germans and the Japanese proposals in 1919 and 1921. — Continued. I. The Leasehold of Kiaochow and the Rights as to the Neutral Zone. Rights enjoyed by Ger- many. {b) Policing of the rail- way: The police power be- longed to China but the whole police force was un- der the actual control of the German adviser. (c) The mines appurte- nant to the railway were under practically exclu- sive German management. Japan's position after the peace conference at Paris in 1919. (6) China to organize the police force and Japa- nese instructors to be ap- pointed on the recommen- dation of the directors of the railway. (c) These mines also to be worked as a joint Sino- Japanese enterprise. Japanese proposals to China on Sept. 7, 1921. (b) Japan to make special arrangement with China as to the organization of the special police to safeguard the rail- way. Japan to withdraw her troops along the railway as soon as she receives the announcement from the Chi- nese Government that such police force has been organ- ized. (c) These mines also to be worked as a joint Sino-Japa- nese enterprise. (2) othek railways. The options relative to the Kaomi-Hsuchow Rail- way and the Tsinan-Shun- teh Railway, and also the options relative to the Yentai-Weihsien and Kaipin-Yenchow Rail- ways Avere held by the Germans. Japan to succeed to the German rights. Rights relating to the ex- tension of the Kiaochow-Tsin- anfu Railway as well as op- tions for the construction of the Yentai-Weihsien Rail- way to be thrown open for the common activity of the In- ternational Financial Con- sortium in China. III. Options in Regard to the Supply of Men, Capital, or Material. Germany enjoyed such options. Japan to succeed to the German rights. IV. The Customs House at Tsingtao. The customs house at Tsingtao belonged to the general customs system of China, but several privi- leges were given to Ger- many. Japan to succeed to all German rights and pnAd- leges except those which are concomitant to lease- hold.. The status of the customs house as forming an integral part of the general customs system of China to be made clearer than under the Ger- man regime. V. The German Public Property Within the Leased Territory. It belonged to the Ger- man Government. Japan to succeed to the German ownership and the arrangements for its final disposal to be made be- tween Japan and China. Public property used for administrative purposes to be in general transferred to China, it being understood that the maintenance and operation of the public works and establishment shall be previously arranged between Japan and China. 15 SJC-2.] Annex II. * [For the press.] December 2, 1921. At the first meeting of the Chinese and Japanese delegates held yesterday in the Pan American Union Building, relative to the ques- tion of Shantung and in response to the opening remarks of Mr. Hughes and Mr. Balfour expressing their gratification in the ac- ceptance on the part of China and Japan of their good offices and their desire to extend their friendly intervention with a view to se- cure a fair and satisfactory arrangement of this question, Baron Kato and Dr. Sze replied as follows: Baron Kato, (Text the same as quoted in the minutes of the first meeting. ) Dr. Sze. I desire first of all to express on behalf of the Chinese delegation the sincere thanks and appreciation for the friendly and good offices that you two gentlemen have offered on behalf of your tAvo countries in bringing about conversations with a view to a fair settlement of the Shantung question. I need not add anything more to what I said yesterday at the general meeting of the full committee. The Shantung question is one of vital importance to China. Its importance to China and the difficulties connected therewith are too well know^n to all to need any remarks by me to-day. It is uni- versally admitted that the condition is unsatisfactory and that an early and speed}^ solution^r fair and just and satisfactory to the de- sires and aspirations of the Chinese people, is necessary. I join with you all in the hope that our conversations will be fruit- ful of results, resulting in a fair and just settlement. With reference to the observation of Baron^ Kato that the Japanese Government was not unmindful of the difficulties which have con- fronted the Chinese Government in regard to the method of settling this question, the Chinese delegation is gratified that these difficulties have been perceived by the Japanese delegation — difficulties which have made necessary the resort to the present procedure which, under the good offices of Mr. Hughes and Mr. Baliour in behalf of their respective Governments, has been initiated. The conversation was resumed at 3.30 this afternoon together with the American and British representatives. Prince Tokugawa re- placed Baron Kato in representing Japan at this session. It was agreed on the part of the two delegations that, in discussing the Shantung question, they would take the actual facts and not the academic viewpoints as the basis of discussions, which will be for the sole purpose of promoting mutual understanding and good neighbor- hood between China and Japan and without giving ground for the least inference that the discussions will be based upon the treaty ar- rangements which had been in dispute between these two countries or others. An interchange of views on the question of Kiaochow-Tsinanfu Railway then took place and this discussion will be continued at an- other meeting. The next meeting will be held at 3.30 Monday afternoon. 16 THIRD MEETING. The third meeting, held in governing board room, the Pan Ameri- can Union Building, Washington, D. C, at 3.30 in the after- noon of Monday, December 5, 1921. PRESENT. China. — Dr. Sao-Ke Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries: Mr. Philip K. C. Tyau, Gen. Fu Huang, Mr. Tung-Fan Hsu, Mr. Chuan-Chao, Mr. Telly HoM^ard Koo. Jaqmn. — Prince I. Tokugawa, Mr. M. Hanihara, Mr. K. Debuchi. Secretaries: Mr. S. Saburi, Mr. E. Kimura, Mr. H. Saito, Mr. T. Shiratori. Also present as observers: The united States of America. — Mr. John Van A. MacMurray, Mr. Edward Bell. The British Empire.— The Eight Hon. Sir John Jordan, G. C. I. E., K. C. B., G. C. M. G. ; Mr. M. W. Lampson, M. V. O. CUSTOMS. Mr. Hanihara said that the meeting was to take up the question of customs to-day. Before that, however, he wanted to call atten- tion to item 4 of the Japanese memorandum of September 7, in which it was declared that Japan would renounce all rights with regard to foreign assistance in persons, capital, and material stipulated in the Sino-German treaty of March 6, 1898. He then desired to point out that the maritime customs house at Tsingtao under the German regime had had several unique features in contrast with other customs offices in China, in accordance with the Sino-German agreements of 1889 and 1895. Among them, the following features might be mentioned: {a) Members of the European or foreign staff should, as a rule, be of German nationality. / (5) The German language should be made the ruling official lan- guage in the customs office. y- (c) Certain articles should be duty free; for instance, articles for /use by German troops, machinery and similar articles for use in the < leased territory, etc. {d) The establishment of the free area. {e) The payment to the German Government of a certain pro- k" ortion of the iniport duties. The Japanese Government now proposed to make the customs at Tsingtao an integral part of the general customs system of China, simultaneously with the restitution of the leased territory. It was, however, hoped that China would be willing to extend facilities in the matter of language to the Japanese traders who had no command either of Chinese or English, and therefore it was desired : {a) That Japanese should be recognized as one of the official lan- guages for the Tsingtao customs in the same manner as Chinese or English. .5r"" 17 (h) That the same considerations should govern the selection of the personnel of the Tsingtao customs; in other words, that a suffi- cient numbr of officials versed in the Japanese language should be appointed. Dr. Sze said that China desired to have a customs system uniform at all places. It would be very difficult to allow a certain language to be recognized as one of the official languages at a certain customs office and to deny the same practice at other places. If the Japanese language was to be so recognized at Tsingtao, others might desire some other language to be so treated and there would be no end — even the Czecho-Slovaks might come out and demand a like privi- lege. It was impossible for China to adopt a third official language at any of her customs offices. It would be very cumbersome if all notices and instructions had to be written in three languages — Chinese, English, and Japanese. There were a great number of French people who were engaged in trade in China, but they had never asked for such a privilege. The Chinese Government could pledge themselves to give eYery facility to the Japanese traders at the customs at Tsingtao. Moreover, there was much similarity be- tween the Japanese and Chinese languages, so that he did not think it would take long for the Japanese to learn Chinese. Mr. Hanihara observed that special consideration should be given to the Japanese trade, which represented an overwhelming portion of the trade of Tsingtao, as figures in his hand showed. He did not think that the Japanese proposal was at all unreasonable. He was not asking for the privileges enjoyed by the Germans under their regime, but Avas only desiring the Chinese Government to recognize the conditions actually prevailing in Tsingtao. Dr. Sze stated that for the past few years the conditions in Tsing- tao had been exceptional and abnormal. Under ordinary conditions there would be clecidedly more trade carried on by British and American merchants. Nothing was farther from his thought than to intimate that he wanted to discourage the Japanese trade, but he did not consider that the figures for the last two years could be made the basis of a special claim. Mr. Hanihara said that it was of course very difficult to talk about the future, but if the present conditions could point to anything it might be safely forecast that the Japanese trade in Tsingtao would steadil}^ increase. Dr. Sze repeated that the Chinese Government would be ready to recommend the Inspector General of the maritime customs to afford facilities to the Japanese traders. His sole intention was not to encumber the task of the customs office. He would cite the cases of other Chinese ports, such as Hangkow, where a great number of Japanese were engaged in trade, but where only the English and Chinese languages were used. Mr. Hanihara repeated his observation that the actual situation should be taken into consideration. Dr. Sze pointed out that during the w-ar all European steamship lines were stopped and trade with western countries was suspended. Mr. Hanihara then pointed to the decided preponderance, by a wide margin, of the Japanese trade in Tsingtao in 1919 compared with the trade of other countries. The total trade of Tsingtao 18 amounted to a little over 87,000,000 Mexican dollars, of which 60,000,000 Mexican dollars was represented by Japanese trade. The difference between the conditions under the German regime and those proposed by the Japanese Government should be emphasized. Dr. Sze said that he was given to understand that something decidedly better was to be offered, but, he pointed out, an excep- tional feature was going to be attached to the Tsingtao customs — a feature which was absent at any other port in China. Mr. Hanihara here emphasized the difference of the character of the Japanese traders in Tsingtao from those at other ports in that at Tsingtao there were a great number of small traders who under- stood neither English nor Chinese. Dr. Koo said that it was his opinion that the growth of Japanese trade in the Chinese ports had nothing to do with the use of the Japanese language. The Japanese trade in Tsingtao was placed in a very favorable position and the use of the Japanese language did not seem to him to be essential to its growth. It was perfectly true that under the German regime the German language was recog- nized as the official language, but Japan had offered to restore the Kiaochow leasehold to China and to make the Tsingtao customs an integral part of the Chinese customs system. He hoped that Mr. Hanihara would not try to diminish the luster of this offer by attach- ing conditions to it. Mr, Hanihara admitted the use of the Japanese language was not the main cause of the development of Japanese trade. But, at the s'ame time, the great facilities that would accrue to the Japanese from the use of their own language in the Tsingtao customs could not be denied. That facility was at present being enjoyed by the Japanese, and were it to be suddenly taken away from them their suffering would be great indeed. There was no desire or intention whatever to interfere with the interest of other nationals or with the customs system of China. The importance of the matter could only be realized if it had been considered in the light of the actual interests of the Japanese traders, especially the smaller merchants. Sir John Jordan suggested the possibility of some arrangement being made by which proper and full facilities might be provided for the Japanese. Dr. Sze suggested that the difficulty of the Japanese traders might be met by having an official translator in the customs office. Mr. Hanihara said he did not necessarily insist upon having Jap- anese as one of the official languages, but only upon an arrangement being made by which papers written in the Japanese language could be accepted at the Tsingtao customs. Dr. Sze did not consider it fair that the customs commissioner should be made to reply in Japanese to papers written in that language. Mr. MacMurray said that, while he might be in the wrong, his un- derstanding was that Japan was merely asking for the use of the Japanese language for customs papers, not in the sense that notices, instructions of the commissioner general, correspondence, etc., should all be made in Japanese, but that Japanese should be permitted to file their papers in Japanese. He asked Mr. Hanihara if that was not the point. 19 Mr. Hanihara said that he expected notices, instructions, and the like should also be given in Japanese and that he thought this could be done easily by employing at the customs office men versed in the Japanese language. Sir John Jordan inquired of the Chinese delegates about the actual practice at other ports; for instance, such as Harbin and Hangkow. Dr. Sze replied that at Harbin no Japanese were employed except a few in connection with railways. At the Hangkow customs the languages officially used are English and Chinese. There were there many French merchants, and they could address their communica- tions in French, which would always be answered in English. It would not be fair for the customs commissioner to be required to sign documents written in a language which he did not understand. Mr. Hanihara said he noted that the Chinese delegation pledged all possible facilities for the Japanese traders at the port of Tsingtao, ' and he suggested that the rest be left to the arrangement between the inspector general and the Japanese minister at Peking. Dr. Sze thought it better, in order to avoid the possibility of mis- understanding, to have a definite decision right here. Dr. Wang suggested the employment of Chinese at Tsingtao who understood Japanese in order to take care of all papers written in Japanese. Mr. Hanihara hoped that his Chinese friends would take into con- sideration the actual situation in Tsingtao, where there were many small Japanese traders whose interests had to be protected. He did not see how it could be difficult for his Chinese colleagues to agree to this very reasonable proposal, which was not calculated to be detrimental in the least to the trade interests of other countries nor to the customs system of China. Dr. Sze, in this connection, made reference to his own experience in Harbin, where the Japanese consul general, who understood English, French, and Russian, persisted in writing to him in Japa- nese. He had nobody with him who understood Japanese and had to undergo much difficulty on that account. He would not have mentioned this incident had not Mr. Hanihara pressed him so hard. Mr. Hanihara did not know anything about the incident, but he supposed it was because of the common practice for diplomatic officers to write official notes in their own language. Dr. Sze pointed out that the same consul general wrote to his colleagues from other countries in Harbin in English or French, as the case might be. Dr. Koo thought the spirit of the Japanese proposal in this whole matter of the Tsingtao customs w\as admirable, but he did not see how the recognition of the use of the Japanese language could make the Tsingtao customs more clearly an integral part of the Chinese customs system. Mr. Hanihara again dwelt upon the many privileges enjoyed by the Germans which Japan now proposed to relinquish, the use of the Japanese language being the only one desired by Japan. Dr. Koo asked if all these privileges were to be given up without any conditions. Mr. Hanihara said that there might be some other minor privilesres besides those enumerated by him at the outset, but that it was in- tended to waive- all these privileges except this matter of language. 20 Dr. Sze inquired if that was the only point insisted upon. Mr. Hanihara referred Dr. Sze to the concrete proposal he had made early in the meeting. Japan desired to have Japanese made one of the official languages and to have officials versed in the Japa- nese language appointed at the Tsingtao customs office. Dr. Sze had just understood that the question of langTiage was the only point insisted upon. He had purposelj- inquired whether that Avas the only point Mr. Hanihara desired to insist upon, but he now found that there was another proposal. That made the con- versation impossible. Mr. Hanihara said that the second point was a corollary of the first. He did not approach the whole question in a petty spirit of discussion, but, on the contrary, in a most friendly spirit, which he hoped Avould be reciprocated b}' his Chinese colleagues. Dr. Koo asked if he was to understand that if the first point was not agreed to, the second would naturally be dropped. Mr. Hanihara said the two points were related to each other. Dr. Koo said that the Chinese delegates wished to facilitate prog- ress and that the useful discussion the^^ had on this point made things clearer than at the beginning. They were now prepared to meet the Japanese proposal halfway. To that end he would propose some such formula as this : " The Chinese Government will make a recom- mendation to the Inspector General of the Chinese maritime customs w^ith a view to permitting the Japanese traders at Tsingtao to com- municate with the said customs in the Japanese language." He hoped that that would make things easier for the Japanese traders. Dr. Wang said that the above formula would dispose of the second point inasmuch as by that arrangement the employment of officials versed in the Japanese language would be made necessary. Mr. Hanihara said the Japanese proposal was not made in the form of a demand ; that it was merely the expression of a desire on the part of the Japanese GoA'^emment, with a vieAv principally to the actual conditions at Tsingtao. In this connection he would point to the difference again between the conditions under the Ger- man regime and the Japanese proposition. Dr. Koo said that the selection of customs officials must be left to the discretion of the Inspector General, he being the person who knew best who w^ould be most suitable for the positions in the cus- toms office. Dr. Sze mentioned the fairness Avith which the Inspector General had discharged his duties these many years, and how no complaint of partiality in the matter of the appointment of officials was ever made. Mr. Hanihara said that theoretically he had nothing to say against that system, but that, as a matter of fact, and as experience in the past seemed to tell, disagreeable incidents might arise from the ab- sence at the Tsingtao customs office of a sufficient number of persons who understood the Japanese language. What Japan w^anted in this respect was A^ery little though she might ask much if she wanted to. Dr. Sze wanted to be informed of the facts of the unpleasant ex- perience referred to by Mr. Hanihara, so that the Inspector. General might look into them. Mr. Hanihara said that he did not want to enter into that discussion.. 21 Dr. Koo desired to have the second Japanese proposal made clear once more. (He was given the typewritten copy of the two Japanese proposals.) Dr. Koo found out that the Japanese proposals had not been made as a condition to the surrender of the Tsingtao customs, but only as Japan's wish. Mr. Hanihara said it was the wish of the Japanese Government to have those two points given favorable consideration. Dr. Koo said he would propose a tentative formula that the Chinese Government would make a recommendation to the Inspector General that in his selection of the staff of the Tsingtao customs consideration be given, within the limits of the established service regulations, to the diverse needs of the port of Tsingtao. He thought the formula met the Japanese wish as far as possible without at the same time tying the hands of the Inspector General too much. Mr. Hanihara said the formula would be acceptable if it was made clear that the words " diverse needs " covered the matter of Japanese language. Dr. Koo thought there was no doubt that the Inspector General would take that point into consideration in his selection of the cus- toms staff ; but he did not desire to have any discussion in detail about what the Inspector General should do. Mr. Hanihara thought it would be desirable to have that point made clear, so that difficulty might be avoided in future. Dr. Koo considered it inadvisable to specify and enumerate the needs mentioned in the formula. Mr. Hanihara tentatively agreed to the formula, and suggested that all questions thus tentatively agreed upon would later be taken up for final consideration. Dr. Sze emphasized the necessity of impressing the public with the results accomplished at these conversations. So he was anxious to have a definite decision arrived at upon this question of customs. Mr. Hanihara agreed ; only he wanted to have the phrase " diverse needs of the port " changed so as to mean the trade needs of the port. (After some discussion the phrase " diverse needs of the trade of Tsingtao" was suggested and agreed upon.) He once more desired to make it, clear that all the decisions and declarations made in regard to the Tsingtao customs would be taken, along with decisions and declarations that might be made in the course of the conversations, as part and parcel of the entire agreement on the Shantung question. (It was agreed that this point would unequivocally be recorded in the minutes.) 1. It was decided that, simultaneously with the restitution of the leased territory of Kiaochow, the customs house of Tsingtao be made an integral part of the Chinese maritime customs, with the under- standing (I) that the Chinese Government make a recommendation to the Inspector General of the Chinese maritime customs, with a view to permitting the Japanese traders at Tsingtao to communicate with the said customs in the Japanese language; (II) that the Chinese Government make a recommendation to the Inspector Gen- eral of the Chinese maritime customs that in the selection of a suitable staff for the Tsingtao customs consideration be given within the limits of its established service regulations to the diverse needs of the trade of Tsingtao. 22 ABKOGATIUX OF THE SIX O- JAPANESE PKOVISIONAL ARGEEMENT OF 1915. Dr. Koo asked Mr. Hanihara whether it could be understood that the Sino-Japanese provisional agreement of August G, 1915, regard- ing the Tsingtao customs would naturally be abrogated as a result of the above understanding. Mr. Hanihara agreed. He desired, however, to make it clear that that was to be regarded as a part of the entire agreement on the whole question of 8ha]itung. which he hoped would be finally reached. 2. It was decided that the provisional agreement between Japan and China, relative to the maritime customs office of Tsingtao, of August 6, 1915, be automatically abrogated as soon as the decision in regard to the Tsingtao customs came into effect. AGENDA. The Chinese delegation wondered whether the question of the railway could not be discussed instead of the question of public property and the opening of ports and cities, as had been arranged at a previous meeting. After a few exchanges of views, it was de- cided that the latter two questions should be first discussed, but that as soon as they were disposed of, the question of the railway should be taken up. 3. It Avas decided that the question of the railway should be dis- cussed as soon as the questions in the agenda were gone through. TRESS COMMUNIQUE. The press communique was agreed upon in the annexed form (An- nex I). At 5.30 p. m. the meeting adjourned until 3 p. m. Tuesday, Decem- ber 6. Washington, D. C, Deeemher -5, 1921. SJC— 3. Annex I. [For the press.] December 5, 1921. The Chinese and the Japanese delegates met at 3.30 this afternoon at the Pan American Union Building. Mr. Hanihara made the fol- lowing declaration : " Japan will renounce all preferential rights with regard to foreign assistance in persons, capital, and material stipulated in the Sino-German treaty of March 6, 1898." The ques- tion of the maritime customs of Tsingtao was then discussed. After an interchange of views, they have decided that the said customs will be made an integral part of the Chinese maritime customs, with the understanding, first, that the Chinese Government will make a recommendation to the Inspector General of the Chinese maritime customs with a view to permitting the Japanese traders at Tsingtao to communicate with the said customs in the Japanese language; second, the Chinese (Tovernment will make a recommendataion to the Inspector General of the Chinese maritime customs that in the 23 selection of a suitable staff for the Tsingtao customs, consideration be given within the limits of its established service regulations to the diverse needs of the trade of Tsingtao. With these two understand- ings the Japanese delegates waived all of the privileges formerly en- joyed by the Germans in relation to the maritime customs at Tsingtao. The provisional agreement between Japan and China relative to the maritime customs office of Tsingtao on August 6, 1915, will be auto- matically abr.ogated when the above-mentioned decision comes into effect. The meeting adjourned to meet at 3 o'clock to-morrow afternoon FOITRTH MEETING. The fourth meeting, held in the governing board room, the Pan American Union Building, Washington, D. C, at 3.30 o'clock in the afternoon of Tuesday, December 6, 1921. PRESENT. China. — Dr. Sao-Ke Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries: Gen. Fu Huang, Mr. Tung-Fan Hsu, Mr. Chuan Chao, Mr. Telly Howard Koo. Japan. — Prince I. Tokugawa, Mr. M. Hanihara, Mr. K. Debuchi. Secretaries: Mr. S. Saburi, Mr. E. Kimura, Mr. H. Saito, Mr. T. Shiratori. Also present as observers : The United States of America. — Mr. John Van A. MacMurray, Mr. Edward Bell. The British Empire.— The Right Hon. Sir John Jordan, G. C. I. E.. K. C. B., G. C. M. G. ; Mr. M. W. Lampson, M. V. O. PUBLIC PROPERTY, Mr. Hanihara said that the subject matter to be discussed to-day was public property. Dr. -Sze questioned what was the meaning of the phrase " in gen- eral," used in the Japanese memorandum of September 7. Mr. Hanihara desired to explain the Japanese position. In the memorandum of September 7 the Japanese Government stated that " public property used for administrative purposes within the leased territory of Kiaochow will, in general, be transferred to China, it being understood that the maintenance and operation of public works and establishments shall be previously arranged between the Japanese and Chinese Governments." He then read a statement, as follows : "(1) Public property used for administrative purposes" consists of: "(a) Property which originally belonged to China and was trans- ferred to Germany at the time of lease ; "(5) Property acquired or buildings or works constructed by Ger- many during the German regime ; and "(c) Property acquired or buildings or works constructed by Japan during the Japanese occupation. 24 "(2) In tlie Japanese memorandum of September T last, it wds stated that such property Avould, in general, be transferred to China. The words ' in general ' were advisedly used, it being contemplated to retain a few buildings and premises for the use of the Japanese consulate to be established there. Further, Japanese public schools, a cemetery, shrines, and other properties of similar nature shall be handed over to the Japanese community for maintenance and preser- vation. "(3) Public works, such as roads, waterworks, parks, drainage, sanitary equipment, etc., shall be handed over to China. In view, however, of their close bearing upon the interests and welfare of the general public, it is desired that suitable arrangements be first made to insure their satisfactory maintenance and management. "(4) Enterprises relatinfr to electric light and telephone, stock- yard, etc., hitherto under Government management, shall be handed over, on suitable conditions, to Chinese corporations to be newly organized with Chinese and foreign shareholders. " Dr. Koo desired to knoAv whether the idea of the Japanese dele- gates in making such classification was that the mode of restoration should be different according to the classes. Mr. Hanihara replied that the classification was made just to explain what sort of public property existed in Kiaochow. Of such public property Japan would return to China such portion without compensation as they themselves had acquired without compensa- tion. Dr. Koo desired to know if that proposition referred only to class (c) above enumerated. Mr. Hanihara explained that the proposition covered not only (c) but also (h). All such property as Japan had to obtain by payment on her part would have to be compensated for by the Chinese Gov- erment. Dr. Sze remarked that it appeared as if Japan desired not to return the public property in Kiaochow to China but to sell it. He sug- gested, with a view to avoiding unnecessary misunderstanding, that the Japanese delegation would prepare an informal statement pre- cisely enumerating such buildings and works as the Japanese Gov- ernment desired compensation for. Mr, Hanihara answered that the Japanese delegation did not pos- sess any detailed information about the public properties in Tsingtao. He wondered whether that was not also the case with the Chinese delegation. Dr. Sze said that they had no detailed information either. But he did not exacth' see what the Japanese delegation wanted. Mr. Hanihara said that the idea of the Japanese delegation was to appoint a commission to investigate the matter in detail on the spot, for the purpose of determining which buildings and works should be compensated for and which not. If he was pressed too much, he had to fall back on the treaty and to state that the Japanese Govern- ment now owned all public properties which had belonged to Ger- many. He felt that what Japan was proposing, was a very gener- ous and reasonable offer, because Japan was going to give to China all public properties, only asking for reasonable compensation for such as had been paid for by the Japanese Government. 25 Dr. Koo stated that he desired, of course, to leave the question of the treaty out of consideration. He felt, however, that he was in duty bound to reiterate the position of China whenever he heard the affirmation that Japan had lawfully acquired the leased terri- tory of Kiaochow. He did not wish that the position of the Chinese delegation be misunderstood. It had been agreed that from the point of view of present consideration their respective positions vis-a-vis various treaties would not be touched. Dr. Sze pointed out that there were enumerated in paragraph 2 of Mr. Hanihara's statement the Japanese consulate, public schools, etc. He wanted to have a list of exactly what the Japanese Govern- ment desired to retain. Mr. Hanihara said he did not have a complete list, but that the public market was among the properties to be retained. He could assure his Chinese colleagues, however, that nothing unreasonable would be retained. He had no "joker" in his proposition. Dr. Sze stated that the Chinese delegation would have to face questions from their people. Dr. Wang observed that the statement of the Japanese delegation was in very broad terms. For instance, the phrase " other properties of similar nature " might mean anything. He desired that the Japanese delegation would specify the public property they desired to retain. Mr. Hanihara said that while he was unable to enumerate such public properties exactly, he could give a few examples ; for instance, the headquarters of the Japanese Association, the Commercial Mu- seum, the crematorium, the public market, a few statues, epitaphs and cenotaphs. About all these agreement could easily be arrived at if a committee was appointed to make an investigation on the spot. Dr. Koo thought that, in order to facilitate the progress of dis- cussion, it would be best to set aside for the moment such details and discuss the general principle first. Mr. Hanihara said that he quite agreed. Dr. Koo stated that, in the first place, the Chinese delegation did not feel that they could accept the principle of compensation for - the public properties. They were mostly real property which was in the nature of fixtures to the territory itself. The question was not of the acquisition of such public properties but of their restoration. If the question of compensation was eliminated, the matter would be simplified. If that point was accepted, then the Chinese delegation would agree to go into a detailed examination of the points raised by the Japanese proposal. Evidently there were certain classes of property whose retention by Japan the Chinese delegates would be disposed to consider. In any case, however, he desired to reiterate that he and his colleagues could not accept the principle of compen- sation. Mr. Hanihara regretted that he could not agree. Not that he wanted to go into the question of the treaty, but he would again point to the great sacrifices in men and money through which Japan had acquired her rights in Tsingtao. It was only fair that Japan should ask for some compensation. As for the amount to be asked, he assured his Chinese friends that it would be reasonable in all cases. Dr. Koo stated since the sacrifices made by Japan in the acquisition of the properties were mentioned by Mr. Hanihara he desired to be 26 permitted to refer to the Chinese note of November 4, a passage of which read to the effect that innumerable losses and damages had been sustained by the Chinese people in Shantung as a result of the Japanese occupation of Tsingtao. Mr. Hanihara wondered what damage the stationing of Japanese troops along the raihA^ay could have caused to the Chinese people. Dr. Sze said that the Chinese delegation were ready to submit a list of damages and losses sustained by the Chinese people. Mr. Hanihara said that lie was not prepared to take up that mat- ter. Japan did not remain in Shantung of her own choice; but, since the Chinese Government would not consent to make suitable arrangements, she had been forced to remain there. Dr. Koo remarked that it was difficult for China to prevent Japan from remaining in Shantung; it would be still more difficult to pre- vent Japan from leaving it. Mr. Hanihara wondered whether they were not drifting back to the academic discussions. He suggested that his Chinese friends might, at least, consent in principle to the payment of compensation. Dr. Koo said that, leaving aside for the moment that question of principle which the Chinese delegation could not accept, they would be prepared to consider the certain exceptions of suitable character mentioned in Mr. Hanihara's statement. Mr. Hanihara stated that the properties had been duly acquired and Japan had paid the price for them, and therefore he thought that the principle of compensation should be admitted. Dr. Sze remarked that Japan had already had the full enjoj-ment for a long time of such property, and that that ought to be enough compensation. Mr. Hanihara said that he could not accept such a view. Dr. Koo inquired Avhether it was Mr. Hanihara's view that such compensation should always take a material form ; whether the luster and glorj^ of victory would not have been sufficient compensation for Japan for her actual losses and expenses. He thought that the whole question should be approached from the broader perspective, as had been suggested by Baron Kato. They could not say in the com- munique that the whole afternoon had been spent in the discussion of the compensation for a handful of public properties in Shantung. ■ Mr. Hanihara repeated that the Japanese proposition was founded on reasonable grounds in view of the actual expenditure made by Japan. Dr. Sze referred to the attitude of America in regard to Cuba. America cleaned the country and spent a great amount of money for its development, yet America never asked the Cubans to make com- pensations. Mr. Hanihara said that it had not been agreed to approach the Shantung question in the spirit of charity and philanthropy. Dr. Koo said that one of the reasons why the Chinese people had opposed the direct negotiations between Japan and China as to the Shantung question had been the fear that some serious conditions might be attached to the restitution of Kiaochow. They never had suspected that compensation would have been implied when it was proposed that the public properties would in general be transferred to China. 27 Mr. Hanihara stated that Japan could retain all public properties, if she would. Dr. Koo signified that that was where they disagreed. Dr. Sze remarked that Japan was going in reality to sell those properties instead of returning them. ISIir. Hanihara said that Japan was not going to sell things to China; she was asking simply for adequate compensation in cases where expenditure had been necessary on her part. Dr. Koo referred to the language used in paragraph 4 of the Jap- anese note of September 7. He did not think that that contained any claim for compensation. Mr. Hanihara said that Japan did not propose to retain anything material and important. Dr. Koo said that if it could be agreed that the principle of com- pensation should be dropped, then the Chinese delegates were ready to consider suitable exceptions; namely, the cemetery, the public school, etc., which would be retained by the Japanese residents. Mr. Hanihara said that that was a matter of course ; but he had to insist upon the principle of compensation. Dr. Koo said that he had understood that Japan was making a voluntary offer to restitute the territory of Kiaochow. It would naturally have been expected that there should be as few conditions as possible attached to it. As he had remarked the day before, he would like to see the luster of the generous proposition of Japan remain unimpaired. Mr. Hanihara said that his Government were advancing as few conditions as possible in this question. Dr. Koo cited the case in private law where a person built a house on another man's land, and said that in such a case compensation was not to be granted. He did not mean to argue that way, but he only mentioned it in his eagerness to persuade his Japanese colleagues to give up the demand for compensation. Mr. Hanihara asked if the Chinese delegation was ready to offer compensation for some of the properties, at any rate. Dr. Koo answered that, in so far as those public properties men- tioned under the second paragraph were concerned, the Chinese dele- gation were ready to do more than pay compensation; they were willing that these should be retained by the Japanese. Mr. Hanihara asked Dr. Koo if, laying aside the point of compen- sation, he had any observation to offer on the other points of the Japanese proposition. Dr. Koo remarked that, apart from the question of compensation, they were prepared to make suitable exception in favor of the Jap- anese community from among the public properties to be handed over to China. Mr. Hanihara thought they had to go back to the origin of the Jap- anese rights in order to fully appreciate the spirit of the Japanese proposition. Japan proposed to return all these public properties in Shantung which she could retain if she wanted to. She was asking, instead, only compensation. As for cemeteries, schools, and the like, Japan was going to keep them. There could be no question of asking permission for their retention. 28 Dr. Koo remarked that it would facilitate the progress of the dis- cussion if it was kept in mind throughout that Kiaochow had always been a part of Chinese territory. Mr. Hanihara said that they fundamentally differed on that point. Kiaochow had been taken away from China, and Japan was now offering to restore it to China's sovereignty. It was now actually in the possession of Japan. He thought that they were going to take the facts as they were. Dr. Sze pointed out that there was the expression " eventual restora- tion " on one of the Japanese official notes, and he expressed surprise at seeing that phrase now turned into " eventual selling." Mr. Hanihara said that it did not seem to him that the Chinese delegates viewed the question in a correct light. There was no ques- tion of asking compensation for the restoration of Kiaochow. The question was only about certain public properties for the acquisition of which Japan had to pay the expenses. It w^as only fair that these expenses should be refunded. Mr. Hanihara, continuing, said that it was apparent they could not come to an agreement about the first and second points of the Japanese proposition, and he wondered what his Chinese colleagues had to say about the third and fourth. Dr. Koo said that the public properties coming under item 4 were evidently properties that would belong to the municipality, and that it would be proper that these should be given over to the Tsingta* municipality which would be set up by China. He did not see why so much anxiety should be entertained about the maintenance and management of these properties, because it was as much the interest of China as of anybodyr else that they should be kept in good order. Mr. Hanihara agreed to Dr. Koo's remark in theory, but he thought it would turn out to be the interest of China as well as the foreign community in Tsingtao if proper arrangement was made whereby these public properties could be kept in good condition. Dr. Koo repeated that no one could desire more than the Chinese authorities to have them in good condition. Dr. Wang cited the instance of the German settlement in Tien-tsin, which had been taken up by the Chinese authorities during the war and maintained in perfect condition. Dr. Koo asked what was meant by " suitable conditions " men- tioned in the fourth paragraph of the Japanese proposal. Mr, Hanihara said it was proposed that Chinese corporations should be newly organized, with Cliinese and foreign shareholders. It would be necessary to arrange in what proportion the shares should be given to foreigners and Chinese and to provide suitable arrange- ments by which the public utilities might be worked satisfactorily. Dr. Koo said that the Chinese Government would naturally see to that matter. If his experience in all countries, outside China, could not be altogether misleading, he thought that there were no fixed standards by which to judge the efficiency or inefficiency in different cases. There was always a minority who would be finding fault and be seeking improvements. It was just the same with Tsingtao under Japanese occupation. There recently appeared a series of articles by Mr. J. E. Doyle in the China press, criticizing the Jap- anese adrninistration of public utilities. He read a passage from the 29 articles which was to the purport that there was in Tsingtao insuffi- cient water supply, poor electric light, and irregular telephone man- agement, and that there was no improvement whatever in seven years of Japanese occupation. He did not attach too much im- portance to such criticism; he knew there were faultfinders every- where. Mr. Hanihara asked if it was proposed that these public utilities should be run entirely by the Chinese Government, and wondered if they were not managed by the local government under the German regime. Dr. Koo suggested that these public utilities and works should be turned over to the Chinese local government. Mr. Hanihara said it would be desirable if a municipal council upon which foreign interests were represented took care of those properties. He mentioned the presence of a great many Japanese in Tsingtao, whose interests the Japanese Government were naturally anxious should be looked after. Dr. Koo said that that solicitude on the part of the Japanese Government was quite natural, but he thought it was not necessary. He thought it would be easier and would be more conducive to good feeling if it was handed over to the local authority. Mr. Hanihara remarked that, unless proper arrangements were previously agreed to, it was hard for the Japanese delegation to feel assured that the interest of foreign residents would be fairly pro- tected. He disclaimed distrust on his part of the Chinese authori- ties, but he said there were many treaties of a political character which had like conditions attached to them. Dr. Koo said that the Chinese delegation was prepared to give general assurance that the interests of the foreign community would be safeguarded. Mr. Hanihara stated that it seemed to him inadvisable not to have a practical arrangement on that point. He did not know what kind of municipal government was going to be set up in Tsingtao, but he thought something along the line of the system adopted at Shanghai and other settlements might be applied to the present case. Dr. Koo said that no concrete project had been worked out as yet concerning Tsingtao, but that it was such an important trading port that it was impossible for the Chinese Government not to do its best to promote and facilitate the foreign interests there. That would be the spirit of the Chinese Government toward the foreign interests and foreign residents in Tsingtao. He therefore thought that there need be no apprehension on the part of the Japanese on that score. Dr. Koo said he would summarize the views of the Chinese dele- gation in the following way : The Chinese delegation could not accept the principle of compensa- tion even if that was limited to certain classes of public properties only. If the Japanese delegation would consent not to insist upon compensation the Chinese delegation would be prepared to consider the certain suitable exceptions to be made in favor of the Japanese community in Tsingtao. As for the third and fourth points in the Japanese proposition, the Chinese delegation considered the public works and enterprises ought to be restored to China in order that 93042—22 3 30 they might in turn be handed over to the municipal government of Tsingtao, and the latter would take all the necessary measures to maintain them in good condition. Mr. Hanihara said that he was not able to yield on the first point (compensation) and hoped that the question might be discussed later. He hoped the Chinese delegation would reconsider the mat- ter. He hoped that if they could not agree in principle they might at least recognize the reasonableness of compensation for some of the properties. He said it was not so much a question of principle as of practical settlement. Dr. Koo asked if he was to understand that the second, third, and fourth points were accepted by the Japanese delegation. Mr. Hanihara said he was not quite ready to accept them, because he could not clearly understand Dr. Koo's points. He wondered, for instance, if the proceeds of the public utilities and works were going to be used solely for the interest of the public. In other words, he wanted to know if the taxes levied on the waterworks, for instance, would be solely devoted to the use of the municipality, or would be spent for other purposes. He thought it was most impor- tant that the interest of the public should be well taken care of. Dr. Koo observed that he thought the Chinese Government could give a general assurance in the sense that the municipal government of Tsingtao would take into consideration the interests of the foreign community in Tsingtao in its administration of the public works and utilities. Mr. Hanihara said that, unfortunately, he could not agree to the counterproposition of the Chinese delegation. Dr. Koo said that the difficulty was only on the first point, and that if his Japanese friends did not insist on that point, then the Chinese delegation would be prepared to accept the second point. Mr. Hanihara said that if the Chinese delegation did agree to com- pensation for some of the public properties, even if they did not recog- nize the principle of compensation, he thought he would be able to entertain the views of the Chinese delegation. Dr. Koo asked how many public buildings, for instance, there were in Tsingtao. Mr. Hanihara said he did not possess even the approximate figures, and that it was his idea to have the valuation of the public properties made by commissioners on the spot. Dr. Koo said that it was not because he was in any way ready to- accept the principle of compensation that he asked for the figures. Mr. Hanihara said the Japanese Government had no intention to ask any unreasonable compensation. Dr. Sze asked what public properties Mr. Hanihara had in mind for compensation. Mr. Hanihara said that that was the trouble ; he had instructions to ask for compensation, but did not know exactly what properties should be compensated for. Dr. Sze said that it was like signing a blank check for the Chinese delegation to agree to compensation without knowing what i)roperties were to be compensated for. . Mr. Hanihara said that that could be ascertained only on the spot, and that commissioners could easily find out about that. 31 Dr. Sze said that he would suggest, in order to facilitate the dis- cussion, to adjourn until the Japanese delegation referred to their home Government and obtained detailed information about the public properties at Tsingtao. Mr. Hanihara asked if his Chinese friends had any information about those properties. Dr. Sze said that he had none. Mr. Hanihara remarked that if the Chinese delegation did not have any information themselves, it would be impossible for them to discuss the matter, even if detailed information were forthcoming; from Tokyo. PRESS COMMUNIQUE. The press communique was agreed upon in the annexed form (Annex I). At 5.30 p. m. the meeting adjourned until 3.15 p. m. Wednesday,, December 7. Washington, D. C, December 6?, 1921. SJC-4.] Annex I. December 6, 1921. [For tlie press.] The Chinese and Japanese delegates met at 3 p. m. in the Pan American Union Building, December 6, 1921, and discussed the question of restoration to China of the public properties in the territory of Kiaochow. The meeting adjourned to meet at 3.15 p. m. to-morrow. FIFTH MEETING. The fifth meeting, held in governing board room, the Pan Ameri- can Union Building, Washington, D. C., at 3.15 o'clock in the after- noon of Wednesday, December 7, 1921. present. China. — Dr. Sao-Ke Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries : Gen. Fu Huang, Mr. Tung-Fan Hsu, Mr. Cliuan Chao, Mr. Telly Howard Koo. Japan. — Prince I. Tokugawa, Mr. M. Hanihara, Mr. K. Debuchi. Secretaries: Mr. B. Kimura, Mr. H. Saito, Mr. T. Shiratori. Also present as observers : The United States of America. — Mr. John Van A. MacMurray, Mr. Edward Bell. The British Empire. — The Right Hon. Sir John Jordan, G. C. I. E., K. C. B., G. C. M. G.; Mr. W. M. Lampson, M. V. O. "^o PUBLIC PROPERTY. Dr. Sze said that the views of the Chinese delegation on the question of public jDroperties had been given the day before, and that they would welcome any further observation on the part of Mr. Hanihara. Mr. Hanihara said that there was not much to be added, but that he Avould try to make the position of the Japanese delegation a little clearer. In the first place, he wanted to emphasize once more his belief that the Japanese were entitled to compensation in hand- ing to China the public properties which Avere acquired or built by the Germans during their regime; that the position of Japan was quite tenable as a matter of both law and justice. It seemed the Chinese delegation, in claiming the surrender of the properties without compensation, had failed to appreciate the distinction be- tween the territory of Iviaochow and the public properties upon that territory. Japan proposed to restore the territory to China, but the ownership of the public properties was upon entirely different footing. Those buildings and works erected by the Germans had never been in the possession of China ; in other words, China had at no time possessed any title to them. The disposition of these properties had nothing to do with the question of the territorial right to Kiaochow. Japan could, for instance, obtain a property in the District of Columbia without the sovereignty of the United States being in any way affected. All those public properties in Tsingtao had been ceded to Japan and Japan now proposed to trans- fer, not to restore, the essential part of these properties to China, only asking for some of them proper compensation. That was the position of the Japanese Government, but, in the interest of speedy settlement of the Shantung question, the Japanese delegation were prepared to give further consideration upon this matter of com- pensation, should the Chinese delegation be disposed to meet him halfway. He was only referring to the public properties under (b) as given in the Japanese proposition. Further, in making that offer, he must not be understood as abandoning the position taken by Japan as to the propriety of the demand of compensation. Dr. Sze wondered if Mr. Hanihara could not extend that offer to the property under (c) , since he said that he was ready to meet the Chinese delegation halfway. As to Mr. Hanihara's remark that China had made no contribution whatever in respect to the public properties in Shantung, he would mention the fact that 20 per cent of the whole customs revenue at Tsingtao had been yearly contributed to the Japanese Government of Tsingtao. Mr. Hanihara said that he didn't know anything about the pub- lic properties having in part been built or maintained with that con^ tribution. What he had just j)ointed out was merely the fact that China didn't have any ownership or claim upon them.- Dr. Sze asked Mr. Hanihara for more light upon that group of properties which it was intended should remain in the hands of the Japanese at Tsingtao. He thought it was desirable to have these properties specified, so that the misgivings of the Chinese people might be dispelled. He wanted, for instance, to know exactly how many buildings it was proposed should be retained for the use of the Japanese consulate. He thought the words " a few " were rather dangerous. Mr. Hanihara said that that belonged to minor details which could easily be decided if commissioners of Japan and China met and discussed the matter on the spot. He would assure them, however, that Japan would only ask for what everybody would agree as rea- sonable. Dr. Sze asked if the Japanese delegates would say three build- ings — one for the consul's residence, one for the office, and one for the consular court. Mr. Hanihara said he couldn't commit himself without knowing the actual needs of the case. Dr. Sze insisted upon having the number of buildings for con- sular use specified. Mr. Debuchi said that it was merely a matter of common sense; if commissioners from the two countries met together, these minor points could easily be decided. If Japan were to ask for a hundred buildings for consular use, why, everybody would laugh. Dr. Sze said he thought that the public market was in charge of the municipality and that it might be better to transfer it to the Chinese municipality if only in the interests of public sanitation. Mr. Hanihara said that he didn't know what the case was with the public market. Dr. Sze said that if it had always been in the hands of the resi- dent Japanese they could have it, but if it was under municipal ad- ministration there would seem no reason why it should be retained by the Japanese association. Dr. Koo said that he was glad to hear that his Japanese colleagues would be prepared to give further consideration to the question of compensation for the properties coming under (h). He would ask more light thrown upon that proposal. Mr. Hanihara said that his meaning was that if his Chinese friends agreed to compensation he would meet them halfway in the practical settlement. Of course, that didn't mean that the Japanese delegation were giving up their position as to the principle. Dr. Koo said that if the Japanese delegation didn't insist upon compensation as to properties under (b) the Chinese delegation would be prepared to go on to the consideration of properties un- der (c). Mr. Hanihara said that the solution of the first point depended upon that of the second point, tnat all the individual questions must be taken as a whole. The concessions he intimated as to (b) de- pended upon how much the Chinese delegation was going to concede as to ((?). Dr. Sze said he was afraid the sort of bargaining Mr. Hanihara's remarks would seem to suggest would give an unfortunate impres- sion upon outsiders, especially the Chinese people. Mr. Hanihara said that it was not a question of bargaining; he thought it was impossible to decide only upon one point without reference to another. Dr. Koo observed that if the settlement of each item depended upon that of all other items the progress of discussion would be made impossible. For instance, they had come to a complete agree- ment the other day upon the question of customs. He hoped that it 34 was not meant that that agreement was subject to modification in the light of later discussions of otlier items. They had to decide on each item as it came uj) with, of course, the understanding that the solu- tion of each item had to go with the whole solution of the Shantung question. ■ So he would be glad to learn what Mr. Hanihara's defi- nite idea was as to (b) before going over to (r. Koo the day before. He did not care much about the wording, but he desired that the sub- stance should be accepted. His formula read as follows : " In handing over to the Chinese Government public works in Tsingtao, such as roads, waterworks, parks, drainage, sanitary equipment, etc., it is agreed that, in view of the close bearing they have upon the interests and welfare of the general public, repre- sentatives of the foreign community in Tsingtao should be called on to cooperate in the maintenance and management of such public works." Dr. Koo wondered whether he could accept that formula. The underlying idea of the formula he had proposed yesterday was that the foreign community in Tsingtao should have fair representation, but he could not accede to the Japanese proposal, which involved the commitment on the part of the Chinese Government as to the form of the municipal government to be set up in Tsingtao. Mr. Hanihara observed that the expression " fair representation " might mean anything. His main idea in proposing the above for- mula was to obtain some assurance as to the manner in which the voice of the foreign community should be equitably represented. Dr. Koo suggested that, with a view to meeting Japan's wishes, the formula might take the following form : " The Chinese delegation take note of the desire of the Japanese delegation that in the management and maintenance of the public works in Tsingtao such as roads, etc., the foreign community at Tsingtao should have fair representation." The idea prompting his proposal was not to object to any such representation. Only, he could not bind down the Chinese Govern- ment to any particular form of representation. He thought the 93042—22 4 46 important point was that there should be fair representation of the voice of the foreign community. Mr. Hanihara said that what Japan was concerned with was a practical assurance. What he desired was that the form of the municipal government should be such as to offer that assurance. Dr. Koo said that that was the intention underlyhig the formula he had proposed. To the assurance as such he had no objection, but as to the question of the form of the municipal government he had to take into consideration the public sentiments of China. He did not desire to compromise the principle of administrative in- tegrity. He desired to meet the wishes of the Japanese delega- tion in substance, and therefore he wished that the Japanese dele- gation would accede to his proposal in the matter of form. Mr. Hanihara said that, in connection with the opening of the port of Tsingtao, it was anticipated that a certain form of govern- ment would be adopted by China. Whatever government there might be established, it was desired that the foreign community should be permitted to take an equitable part in the management of the public works in question. He did not care in what form that should be effected. Dr. Koo explained that his formula would give substance to Japan and form to China. Mr. Hanihara said that if an assurance could be given that the formula was drawn up in that sense, he could accept. Dr. Koo stated that that was the intention of the Chinese dele- gation, and that the Japanese delegation could take the agreement as embodying the assurance that the foreign community in Tsing- tao would be called on to participate in the maintenance and man- agement of the works in question in a fair and equitable manner. An agreement was reached on the understanding that the Chinese delegation gave assurance that actual participation would be per- mitted to the representatives of the foreign community in the man- agement and maintenance of the public works in question : " The Chinese delegation give an assurance t^ the Japanese dele- gation that in the management and maintenance of the public works in Tsingtao, such as roads, waterworks, parks, drainage, sanitary equipment, etc.. handed over to the Chinese Government by the Japa- ese Government, the foreign community in Tsingtao shall have fair representation." Dr. Sze remarked that the electric and telephone undertakings un- der paragraph 4 were under municipal government during the Ger- man administration. He thought, therefore, that these undertakings should also be under the municipality in the future. Mr. Hanihara said that they were at present under the Japanese Governmental control, as they used to be during the German regime, but in point of actual fact the subscribers to the electric and tele- phone undertakings were in a large measure Japanese residents. Further, the Japanese had business interests in the stockyard. These undertakings Avere in their nature better managed as private enter- prises rather than as public works. The desire of Japan was noth- ing more than to have some share in such private enterprises. Neither did he propose that the Japanese should have any special privilege, but only that interest should be shared by foreigners and the Chinese residents. He thought it best to have those enterprises turned into 47- Chinese corporations, in which foreign residents, inckiding the Japa- nese, might have have a share. Dr. Sze remarked that when the Tsingtao municipal government was set up, they would have to meet expenditures and naturally to obtain revenue. It was most desirable that taxation should be lightened as far as possible, and he was sure that the undertakings in question would be a source of revenue which would make for lightening the burden of taxation. He thought it was only fair that the municipality should profit by conducting such enterprises. Therefore, the public works under paragraph 4 would best be dis- posed of in the same manner as those under paragraph 3. In the long run that method would prove the most beneficial to the Japanese residents as well as the residents of other nationalities in Tsingtao, because that would mean less taxation to be paid. Mr. Hanihara thought that some arrangement might be made whereby to tax the corporations themselves or to let them pay a certain amount of royalty. That would meet the requirements of the municipal government which Dr. Sze had in mind. To take the example of the city of Tokyo, the municipality gave license to certain enterprises in the nature of public utilities, of which a certain portion of the profit was to be paid into the treasury of the municipality. Such undertakings would yield profit, and it was desired that the Japanese in Tsingtao should be permitted to participate in such profitable business to the same degree as the Chinese. Dr. Sze inquired to what degree the Japanese were participating in those undertakings at present. Mr. Hanihara replied that all of them were under Government control. But as to the telephone enterprise, there were at present 940 subscribers, of which 891 were Japanese. As to the electric-light enterprise, he had no statistics, but the situation was more or less the same. In consideration of these actual facts, Japan wanted to have some proper share in the business. Dr. Koo said that he desired to know, merely for his information, how these Japanese had come to have such share in it. Mr. Hanihara said that they had no share at present, but he now proposed to have a corporation made in which the Japanese might hold some share if they wanted. He did not think that that was a very difficult proposition. He did not want to have a Japanese cor- poration established — only the privilege to own shares equally with the Chinese was desired. Dr. Koo inquired whether these enterprises were German Gov- ernment enterprises. Mr. Hanihara replied in the affirmative, and said that a new ar- rangement was now proposed. Dr. Koo stated that, of course, the suggestion to establish a Chinese corporation would be inviting to the Chinese people, but if the nature of the enterprises was taken into consideration, it would be thought better to leave them to the municipal government, as under the Japanese and the German administration. Mr. Hanihara stated that under the German administration, prac- tically everything belonged to the Government — wharves, godowns, etc. Such arrangement was natural, because Tsingtao was under Germany not only an ordinary commercial port but was more or 48 less a military port. Again, Japan's status in Tsingtao was only temporary and those German Government enterprises continued to be operated under similar management. But now the leased terri- tory Avas to be returned to China and it was necessary to look after the interests of the Japanese residents there. It was not unreasonable at all, because Japan was asking no special advantage or privilege. Dr. Koo inquired whether the management at present was found satisfactory. Mr. Hanihara replied that it was fairly good. However, govern- ment business generally incurred more expense than private under- takings. That was the case more or less in every place, including this country. In order to secure efficient management, private man- agement would be more suitable for undertakings of this description. Dr. Koo declared tliat electric light and telephone services being of great imjDortance to the people, he desired to have them placed under municipal control. Mr. Hanihara said that the municipal government would have con- trol or supervision over such undertakings. As a matter of fact, however, in many places in China such services were under private management. For instance, in Shanghai and Hangkow telephone service was privately undertaken. Dr. Koo replied that that was not so in all cases. As to telephone service, there might be places where that was started as a private business, but the rule was Government management. Mr, Hanihara assured Dr. Koo that he didn't desire to prejudice the general system adopted by the Chinese Government. However, in transferring the public properties in Tsingtao it was required that legitimate rights of the Japanese should be taken into considera- tion. It was not like the case of some new place absolutely under the control of the Chinese Government. Tsingtao had been under the control of Japan ever since that place was wrested from the grip of the Germans. Actual facts should be given recognition and the interests involved should be looked after. Dr. Koo replied that the importance of these enterprises made it advisable to turn them over to the municipal authorities. There would be no ground of complaint on the part of any foreigner. Mr. Hanihara said that if the corporations to be established were to be Japanese or other foreign corporations, it might be difficult to control for the Chinese municipal authorities, but it was proposed to form Chinese corporations. Dr. Koo inquired whether the point Mr. Hanihara wished to make was to establish Chinese corporations and that the Japanese should have a share in the proj^erty. Mr. Hanihara said that that was the case. It amounted to an arrangement by which the Japanese should be permitted to own shares. It could be so arranged, perhaps, that the Chinese and the Japanese should each own, "say, 500 shares ; or the Chinese, the Japanese, and other foreigners 300 shares each. There was, of course, difficulty on both sides, but as far as Japan was concerned she was going to restore almost everything except these few enterprises which it was desired should be turnecl into private Chinese corporations with both Japanese and Chinese as shareholders. It was only fair that the Japanese at Tsingtao should be permitted to share in the profit of such a small number of enterprises. 49 Dr. Koo said he understood that the purpose of Mr. Hanihara's suggestion was to enable the Japanese and other foreigners to share in the profits of these undertakings. The Chinese delegation was disposed to accept the proposal in as far as/the stockyard was con- cerned. But it was diificult for them to yield on the electric-light and telephone services. It was their idea to turn the electric-light service over to the municipal government. As for the telephone service, it should be left to the department of communications of the Chinese Government to dispose of it according to the policy they have adopted. It should be pointed out that the stockyard was by far the most profitable of all the enterprises enumeratecl. It was hoped that the Japanese delegation would see their way to accept this compromise. Mr. Hanihara remarked that he would once more point to the fact that 90. per cent of the telephone subscribers at Tsingtao were Japanese. He did not fail to see the point made by Dr. Koo about the desirability of the telephone being left to the department of com- munications in the interests of a uniform system of communication in China. It must be made clear, at the same time, that Japan was not proposing to make an exception of the telephone service at Tsingtao. The business would be undertaken by a Chinese corpora- tion which would be formed by Chinese and Japanese shareholders. He thought it was, on the whole, a very fair arrangement and that no opposition on the part of the Chinese people was to be expected. If, on the contrary, it was given up in a manner desired by the Chinese delegation, there Avould be great disappointment and strong opposition on the part of the Japanese people. Dr. Koo said the stockyard was the most profitable of the three, so that it was offered by way of compromise. As to the other two enterprises, it was hoped his Japanese friends would agree to the desirability of their being managed either by the Chinese Govern- ment or by the local government. Public interest was so closely bound up with these enterprises. Mr. Hanihara said he did not desire to go into the origin of the Japanese rights in regard to these enterprises. They were, at any rate, under the actual control of the Japanese authorities, and the Japanese community in Tsingtao was so vitally interested in them. Dr. Koo said it was the rule in every kind of discussion to com- promise — to give and to take. Mr. Hanihara said that in their present proposition the Japanese delegation were ofTering everything. There was no question of give and take. He hoped his Chinese colleagues would find themselves able to come to an agreement. Dr. Koo said that the Chinese delegation had been trying all along to accede to the Japanese views and that even here they offered to give in as to the most profitable of the enterprises mentioned in the Japanese proposition. In their very nature the other two should be left in the hands of the Chinese local government, for that seemed to him to be the best way to serve the general interest. Mr, Hanihara said he would suggest that that enterprise should be transferred to the Chinese Government, with the understanding that the latter should permit Chinese corporations to be formed with Chinese and foreign nationals as shareholders, by which these enterprises would be managed. 50 Dr. Koo said he did not see much difference in that. Mr. Hanihara said it was a question of form. The Chinese dele- gation had said that at every step they had met the Japanese offer. He appreciated that, but tl;e Japanese offer was the maximum of what they could do. They had gone so far in their earnest desire to come to a solution. Dr. Koo said he regretted the Japanese delegation could not accept the compromise. It was not a question of profits, but the peculiar nature of the enterprises that underlay the desire of the Chinese delegation. Mr. Hanihara said that Japan could retain them if she wanted to, but instead she was giving them up entirely upon very reasonable conditions. Dr. Koo said that when the Japanese people learned that the stockyard had been obtained they would be grateful to the Japanese delegation, because it was a very profitable enterprise. Mr. Hanihara said that he could not agree to confine the proposi- tion to the stockyard only. He would insist upon the preponderant interest of the Japanese in the other enterprises being taken into consideration also. Dr. Koo suggested leaving the question as it was and going on to another item. Mr. Hanihara said that he agreed on an understanding that they should come back to that later. Dr. Koo said that he felt that the Japanese conditions in every case were intended as absolute and final. It was very difficult to make headway. Mr. Hanihara said he desired to meet the Chinese viewpoint as far as possible; but as a matter of fact most of the Japanese propo- sitions represented the minimum, about which there was no yielding much further. Sir John Jordan asked Dr. Koo if the electric-light service had to be managed by the municipal government. He thought that it was different from the telephone service; that there was no fixed rule for the management of electric light. Dr. Sze said it would never do to give to the municipality only things that would produce no benefit. The municipality needed a certain amount of revenue. If it did not have the benefit of public enterprises for its revenue that would mean so much the more tax for the community. Mr. Hanihara said the municipal government could, of course, im- pose tax or royalty upon these enterprises, that would indirectly make the Japanese community contribute to the municipal revenue. Dr. Koo said that the Chinese compromise had been offered and that he wanted now to hear the Japanese compromise. Mr. Hanihara said that that had been stated in this way, that the enterprises in question should be turned over to the municipal gov- ernment which should permit Chinese corporations to be organized by Japanese and Chinese shareholders. As for the telephone service, if unification of system was desired, arrangement could be made for its incorporation in the unified system at some future time. He un- derstood that telephone was being undertaken by private corpora- tions at many other places in China; for instance, at Shanghai and Hankow. 51 Dr. Sze said that at those places the telephone was there before the telephone system of the Chinese Government came into existence. As to this matter of the telephone service, therefore, there was no choice for the Chinese delegation. Mr. Debuchi asked if the telephone systems at Nanking and Chang- sha were under management of the local government. Dr. Sze answered that he could not tell without consulting the experts, but, however that might be, China was going to turn over a new page. The only regret was that there should be exceptions at present. They would not have any more of them. Mr. Hanihara asked if the Chinese delegation could not take into consideration the actual facts and conditions in Tsingtao in the set- tlemeiit of the matter in hand. Dr. Sze said that according to the expert, the telephone system of Nanking was managed by a Chinese company, but that the share- holders were all Chinese. Mr. Debuchi asked if it was suggested to exclude all foreign inter- ests in Tsingtao. Dr. Sze answered it was as far as the telephone service was con- cerned. Mr. Hanihara said that he saw no reason why it should be difficult for the Chinese Government to give licenses to corporations to be newly formed in the territory over which China had not had any control for so many years. The whole question was about making proper arrangements about Tsingtao, for its passage from abnormal to normal conditions. It was only natural that in making those ar- rangements the actual conditions of the place should be taken into consideration. Except those few enterprises enumerated, there were practically none in which Japanese nationals could take part. Dr. Sze said he admitted that Tsingtao was in an abnormal condi- tion, but he thought there was no reason to perpetuate that abnormal condition. Mr. Hanihara said that nothing of the sort was intended. It was only desired that the conditions antecedent should be taken into con- sideration. It was one thing to ask for participation by the Japanese in a new telephone system at other places in China. It was quite another thing to ask the same thing about the telephone system, in which the Japanese are actually so overwhelmingly interested, and that in a locality which had been under the actual control of Japanese authority. Dr. Sze said that the Chinese delegation regretted that they could not give in in the matter of principle regarding the telephone. Dr. Koo said that in deference to the opinion of their neutral friend, Sir John Jordan, he would yield as to electric-light service. Mr. Hanihara said that he wantecl to observe that there was only one more enterprise, besides those enumerated before, which the Japanese delegation had in view. It was the Government laundry. Dr. Koo asked how it was about the gas. Mr. Hanihara said he did not know anything about the gas. He had to see if there was any gas service in Tsingtao. Dr. Koo said that that would not present much difficulty for the purpose of the present discussion. Mr. Hanihara said he found it difficult to agree to the exclusion of the telephone system, because the interest of the Japanese com- 52 miinity in Tsino-tao was actiiall}^ so closely bound np Avith that enterprise. It was not proposed that it should remain in the hands of the Japanese, but that it should be turned over and made into a private Chinese undertaking, with, of course, the right of super- vision in the municipal government. He suggested that the matter should be left for later consideration. Dr. Sze said that he could not agree to that. It was desirable that they should be enabled to tell the public that the three days' discus- sion amounted to something. Dr. Koo said that the total revenue of the stockyard and the electric light amounted to 510.000 yen a year, while that of telephone was only 87.000 yen. Mr. Hanihara wished to provide for the profits of the Japanese. But the telephone enterprise was the least profit- able, as the figures showed. Mr. Hanihara said he did not want to discuss figures. He only wanted to point out that under Government management the neces- sary improvements and extensions of the service would be found very difficult. Government funds would necessarily be limited. Ex- perience of Japanese municipal enterprises showed the difficulty of meeting the needs of the public in small matters. Dr. Sze said that, of course, a great deal would depend upon the sort of requests the subscribers might make. If the service was required 5 or 10 miles from the city, such demand could not be met either by private or Government enterprise. The Chinese delegation had met the Japanese demand almost at ever}^ point. Mr. Hanihara hoped that Dr. vSze would not say that, because it was the Japanese delegation who were offering to give up everj'thing. Washington, D. 6'., December 9, 1921. EIGHTH MEETING. The eighth meeting, held in governing board room, the Pan- American Union Building, AVashington, D. C, at 3 o'clock in the afternoon of Friday, December 9, 1921. PKESENT. China. — Dr. Sao-Ke Alfred Sze, Dr. Y. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries: Gen. Fu Huang, Mr. Tung-Fan Hsu, Mr. Chuan Chao, Mr. Telly Howard Koo. Japaoi. — Prince I. Tokugawa, Mr. M. Hanihara, Mr. K. Debuchi. Secretaries : Mr. E. Kimura, Mr. H. Saito, Mr. T.' Shiratori, Mr. S. Sakoh. Also present as observers : The United States of America. — Mr. John Van A. MacMurray,, Mr. Edward Bell. The British Emfire. — ^The Right Hon. Sir John Jordan, G. C. I. E., K. C. B., G. C. M. G.; Mr. M. W. Lampson, M. V. O. Mr. Hanihara said that after consideration upon point (4) he was going to make a suggestion which he hoped would meet with the approval of his Chinese friends. If China was prepared to give assurance that due consideration would be given to the extensions 53 and improvements to be required by the residents, the Japanese delegation would agree to turn over to China the telephone enter- prise ad referendum. He thought that that was a very fair proposi- tion. Difference of opinion that had arisen that morning would, in that way, be satisfactorily composed. Dr. Koo replied that due consideration would be given to such matters needed no mention. He thought that Mr. Hanihara was not assuming that the present condition was perfect. Everything would naturally be done to have improvements and extensions made in the general interests of the community, Mr. Hanihara thought that the onl3^ difficulty was that such things were sometimes neglected if there were no assurance. Dr. Koo inquired whether Mr. Hanihara meant extensions and improvements for local service onlj^ Mr. Hanihara replied that that was precisely the case. Dr. Koo said that, in order to meet the wish of the Japanese dele- gation, he and his colleagues would accept the Japanese proposal, but it was not to be incorporated in the agreement, but to be re- corded in the minutes. Mr, Hanihara said that he agreed. At this point the formula made by the Chinese delegates, reading as follows, was handed to Mr, Hanihara: " Enterprises relating to electric light and telephone, stockyard, etc., shall be handed over to the Chinese Government with the under- standing that the stockyard and electric-light enterprises are, in turn, to be handed over to the municipal government of Tsingtao, which will form Chinese corporations in conformity with the Chinese company law to manage them under municipal supervision and regu- lation." Mr, Hanihara said that he wanted to make it clear that foreign nations would be allowed to participate in those enterprises. Dr. Sze said that the Chinese company law allowed foreign na- tionals to own shares in the Chinese corporations, Mr. Hanihara suggested that the phrase " the stockyard and the electric-light enterprises " be changed to read " the stockyard, elec- tric-light, and laundry enterprises," because there was a laundry formerly run by the German Government, the management of which was succeeded to by the Japanese administration. He now desired to have that laundry enumerated in the agreement, Mr. Hanihara, continuing, said that he did not know anything about Chinese law, but he wanted to make it clear, if not in the agree- ment, at least in the minutes, that the Japanese would be permitted to become shareholders in such enterprises, Dr, Koo said that he had no objection. Dr. Koo at this point said that as to the telephone service, he had made a formula which might be agreeable to his Japanese colleagues. The formula read: "As regards the telephone enterprise which is to be handed over to the Chinese Government, the Chinese delegation give an assur- ance that the Chinese Government will give due consideration to requests from the foreign community at Tsingtao for such exten- sions and improvements as may be reasonably required by the general interests of the public." Mr, Hanihara said that that was not sufficient. He wanted to secure the assurance of the Chinese Government. 54 Dr. Koo replied that that was as clear as could be. The good man- agement of the telephone service would not only inure to the profit of the foreign community, but also to that of the Chinese themselves. However, if it was desired, he had no objection to have the above sense recorded in the minutes in some such way : " The Chinese delegation give assurance to make recommendation to the Chinese Government * * *." He wanted to know whether that met Mr. Hanihara's wishes. Mr. Hanihara said that that was not exactly what he wanted. What he desired was that the Chinese Government themselves should give the assurance. Dr. Koo replied that that was more or less implied. Mr. Hanihara said that so far as those present here were concerned the meaning might be clear, but others might give a different inter- pretation. If that point was made clear, the Japanese delegation would agree to turn the telephone system over to China ad refer- endum. Dr. Koo asked whether Mr. Hanihara was not in a position to decide at once. Mr. Hanihara said that the Japanese Government had had no doubt that the Chinese Government would give ready consent to this point, and the instructions he had in this respect were very ex- plicit. He had, therefore, to refer the matter to the Government for confirmation. Dr. Koo agreed. Mr. Hanihara said that the laundry enterprise above referred to should be expressly incorporated in the agreement in relation to those enterprises which were to be handed over to the municipal government of Tsingtao, with a view to their eventual transfer to Chinese corporations to be established. Dr. Koo agreed that the laundry enterprise should be so incor- porated. Agreement relative to paragraph •! read as follows : " Entei*prises relating to electric light, telephone, stockyard, laun- dry, etc., shall be handed over to the Chinese Government, with the understanding that these enterprises are, in turn, to be handed over to the municipal government of Tsingtao, which will form Chinese corporations in conformity with the Chinese company law to man- age them under municipal supervision and regulation. " As regards the telephone enterprise which is to b3 handed over to the Chinese Government, the Chinese delegation give an assurance that the Chinese Government will give due consideration to requests from the foreign community at Tsingtao for such extensions and im- provements as may be reasonably required by the general interests of the public. " The Japanese delegation agree to turn over the telephone enter- prise to the Chinese Government, subject to confirmation by the Japanese Government." CABLES. Dr. Koo asked whether cables came under the head of public property. Mr. Hanihara explained that his intention was to treat the ques- tion of cables separately. 55 Mr. Koo asked under what head they were to be included. Mr. Hanihara. replied that that question would be dealt with under item 8 of the Japanese memorandum dated September 7 last. The complicated aspects of the question made it more advisable that it should stand by itself. For example, in discussing that question they had to refer to the rights of the Great Northern Telegraph Co., and there were several other relevant questions which required more or less technical knowledge to be intelligently discussed. Dr. Koo contended that they belonged to class (6) of the public properties which they had been discussing. They were German Government properties. Mr. Hanihara insisted that the question should at any rate be treated separately. Dr. Koo agreed that the question be discussed later, but he de- sired that the conditions could not be any severer than those im- posed upon them in connection with the questions they had been discussing. Mr. Hanihara said that the conditions Japan had been proposing were and would be all reasonable and fair. Dr. Koo said that on that understanding the cable question would be discussed under item 8 of the note of September 7. Mr. MacMurray inquired whether the above agreemjent would not have the effect of excluding nationals of other countries from enjoy- ing the freedom of occupation; he understood that there were two Americans who were engaged in meat packing. He inquired whether they would not, on account of such formation of corporations, be obliged to discontinue their business. Mr. Hanihara replied that that was not the case at all. The Japanese would be placed on an equal footing with any foreigners of other nationalities. MACHINERY. Dr. Koo said that he understood that there was a great deal of machinery in the shipbuilding dockyards in Tsing-tao which had been temporarily removed to Japan. He wondered whether he could understand that they would come under class (6) of the public prop- erties. Mr. Hanihara said that he did not know, but, if they were taken away during the war, he wondered whether the Japanese Government had any obligation to return them. He then consulted with his secretaries and said that the ma- chinery was included under the head of class (b). MIXED COMMISSION, Dr. Koo said that both delegations had been speaking of estab- lishing some mixed body of appraisal and valuation in connection with the transfer of public properties. However, he thought that the discussion of that body would better be postponed, in view of the fact that that question had relation to various other questions to be dealt with later; for instance, the matters falling under paragraph 8 of the Japanese note of September 7. Mr. Hanihara agreed. 56 OPENING OF TSINGTAO PORT. Mr. Hanihara said that the Japanese memorandum of September 7 last stated: " § 2. The Japanese Government will abandon plans for the estab- lishment of a Japanese exclusive settlement or of an international settlement at Tsingtau provided that China eng:ages to open of its own acc^l the entire leased territory of Kiaochow as a port of trade and to permit to nationals of all foreign countries freely to reside and to carry on commerce, industry, agriculture, or any other law- ful pursuits within such territory, and that she further undertakes to respect the vested rights of all foreigners. China shall likewise carry out forthwith the opening of suitable cities and towns within the iProvin^ of Shantung for residence and trade of the nationals of all foreign countries. Eegulations for the opening of places under the foregoing clauses shall be determined by the Chinese Governfiient upon consultation with the powers interested." For the purpose of accelerating the discussion, he would take up the question of vested rights in connection with the opening of the portfr.- Dr. Koo said that he Avould be glad to hear the views of the Japanese delegation on that question. Mr. Hanihara explained that by vested rights were meant all rights lawfully acquired, whether during the German regime or since the Japanese occupation, which should be recognized and respected. Dr. Sze asked how Mr. Hanihara defined the term " lawfully ac- quired."' Mr. Hanihara said that he meant acquisition by ordinary lawful means. Dr. Koo then desired to hear further observations on the ques- tion from Mr. Hanihara. Mr. Hanihara said that the Chinese memorandum of October 5 stated : " The vested rights of foreigners obtained through lawful processes under the German regime shall, of course, be respected, but those obtained by force and compulsion during the period of Japanese, military occupation and against law and treaties can in no wise be recognized." That would seem to intimate that some of the rights had been obtained by force and compulsion. But such was by no means borne out by facts. Payments were in each case made and willingly accepted by the sellers. If there were any evidence to substantiate that intimation, he would be glad to hear. Dr. Koo said that he would be glad to give the Japanese delegates- evidence concerning statements made in the note. But before pro- ceeding to discuss such details, it might be desirable to attenipt to arrive at some general principle. Of course, the statement did not preclude acquisitions during the Japanese occupation of properties by lawful processes. But he thought, for one thing, such land as had been requisitioned by Japanese military authorities for military necessities should be given back to Chinese owners. Mr. Hanihara said that records showed that no land had been acquired by the Japanese troops without paying the price. Dr. Koo said that the information of the Chinese delegation would seem to show that a great deal of landed properties were requisitioned^ 57 by the Japanese authorities at prices fixed arbitrarily by tliemselves without reference to the market prices, in some cases at from 35 to 50 yuan per mow. Mr. Hanihara said that the Japanese information was entirely different from that. There was no instance of land purchased Tinder duress, and in every case price was paid to the seller which was satisfactory to him. When Germany took Kiaochow, land was bought at prices prevailing at the time of obtaining the leasehold, but the Japanese military authorities bought land at the market A^alue of the time. There was no question of coercion or compulsion. There were, indeed, a few people who agitated against the Japanese military authorities buying land, but, generally speaking, there was not much opposition. The price offered was willingly taken. In the Japanese civil office of Tsingtao there were records of all the purchase contracts of land. He thought the question concerning the purchase of landed properties could be adjusted by local settlement. Dr. Koo said that there might be properties lawfully acquired €ven during the Japanese occupation. Without trying to settle in- dividual cases, an agreement might perhaps be reached as to general principles. Mr. Hanihara said that he thought it was a sound suggestion. They could not enter into details here. Any agreement made here must necessarily be on general terms. Dr. Koo said that the vested interests acquired under the German regime would be respected, as a matter of course. As for those acquired during the period of the Japanese military occupation, they would be respected if it should be proved that they were acquired lawfully and equitably. Mr. Hanihara said that no reflection or intimation that there had been any unlawful acquisition could be allowed. Dr. Koo said that the question of vested rights acquired during the period of Japanese occupation might perhaps be better left to the discussion of the commissioners. He suggested that it would be better not to go into that question here. Mr. Hanihara said that he thought it would facilitate progress if it should be agreed on general terms that all vested rights should be respected, whether they were acquired under the German regime or during the period of the Japanese occupation, with the under- standing that matters of detail should be treated by the commis- sioners of Japan and China. Should it turn out that any of those properties were acquired unlawfully they could be treated accord- ingly by that commission. Dr. Koo said that he would submit a rough formula for con- sideration : " The vested rights of foreigners lawfully acquired under the German regime shall be respected ; and all claims in regard to vested rights acquired during the period of the Japanese military occupa- tion should be arranged by the Sino-Japanese Joint Commission. In case of dispute the matter shall be submitted to arbitration.'"' Mr. Hanihara said that he wanted to have it made clear that there was no intimation of unlawful acquisition durii;g the Japanese occupation. There was no reason to make distinction between the vested rights acquii"ed under the German regime and those acquired during the Japanese occupation so long as these were acquired 58 lawfully. He wondered why it could not be plainly stated that all vested ri sion of the railway to prevent its being used by the Germans, and that she was holding it with a view to its eventual restoration to 70 China. He wondered if Baron Shideliara was not referring par- iicuiarly to the- suggestion tliat profit from the railway should be deducted. ' liaron Shideliara said that it was not that alone, Japan was not getting any benefit at all according to the Chinese plan. Dr. Koo admitted it Avas true. It was possible China had miscon- strued Japan's purpose in taking possession of the railway. It had been thought that J apan had occupied Tsingtao and taken possession of the railway to prevent their being used in such a way as to endan- ger our position. It had not been supposed that desire for material benefit had been part of iier purpose. Baron Shideliara said that, apart from the political phase of the question, the fact was plain that Germany had property rights in Tsingtao and that she had agreed to transfer those property rights to ,'Japan. The property was now Japan's, but Japan had to pay for it I because it had been agreed that the railway was a private enterprise. Dr. Koo explained that when he suggested the profit for the last few years might properly be deducted from the whole value of the rail- way he did not know whether there was any profit at all. He merely thought that it was a reasonable suggestion. He was yet to be in- formed on that point. Baron Shideliara said he did not possess any information as to the profit or loss, as the case might be. He wanted to mention, how- ever, that it was his impression that the Japanese Government had sent railway experts and officials and that their salaries had been paid out of the Government treasury. Dr. Koo said that the matter of salaries paid to these railway offi- cials and employees would not be difficult to adjust. Baron Shidehara said that he might add that besides the 30,000,000 yen, which Japan would most probably have to pay to Germany, she had also invested large sums of money in the railway. When she had taken possession of it, the railway had not been in working order. He did not know to exactly how much those investments might amount. . Dr. Koo asked if those investments had been made out of the Gov- ernment treasury or from the profits of the railway. Baron Shidehara said that he had no exact figure. Baron Shidehara, continuing, said that one of his colleagues was under the impression that part of the investment had been defrayed out of the Government treasury and part from the profit. Dr. Koo asked if he could be informed whether there was any profit for the last few years. Baron Shidehara said that actual figures were not available. He was glad that this meeting had very much clarified the situation. There was much misunderstanding, at any rate, on the part of the Chi- nese delegation. Dr. Koo hoped that that clarification would lead to a speedy solution of the question. Dr. Sze said he should like to hear Baron Shidehara's opinion about the second proposal of the Chinese delegation. Baron Shidehara said that he had no suggestion to offer at present. It seemed to him, however, that the second proposal was, if anything, worse than the first. Under the first proposal Japan would get at least half the amount of the whole value of the railway, while she 71 would not be getting anything under the second proposah Moreover, it was proposed that the revenues of the railway for the past few years should be given up. The second proposal was really less favorable from Japan's standpoint. Dr. Koo said that if so the responsibility lay more with the repa- ration commission than with the Chinese delegation. Dr. Sze said that the first proposal had been made to meet in sub- stance the Japanese proposal of joint enterprise. Baron Shidehara said that if the Chinese proposition was a reply to the Japanese proposal, he did not see why only half of the whole value of the railway should be offered. He understood, however, that the proposition had been based on a misunderstanding. Dr. Sze said that in the interest of a speedy settlement C hina had offered to pay at once half the amount which had been mentioned in the Japanese proposal; but that, finding out that the offer had heen based on a wrong assumption, they now offered the amount of the whole value. Baron Shidehara said that the whole situation was now clear; that he was glad to hear that the first proposal of the Chinese dele- gation had been based upon a misunderstanding. He hoped that his Chinese colleagues would reconsider their counterproposal and that their new proposal would not go to much worse than the first. Dr. Sze asked if it was intimated that the question of principle advanced by the Chinese delegation was to be recognized. Baron Shidehara said that he did not mean to say as much as that. He desired to make sure of the 'meaning of the Chinese pro- posal. The first step in any discussion was the complete understand- ing of the question at issue. He wished fully to understand the Chinese point of view; he came here with no preconceived idea. He did not come here to make any proposal. His mind was open to any reasonable suggestion. Dr. Koo said that the second proposition of the Chinese delegates might be worse to Japan, but that would cost China twice as much as the first offer. Mr. Hanihara said that the Japanese delegation could produce the figures for the revenue of the railway. As for the expenditure, he could positively state that it had been defrayed by the central treas- ury of Japan. Dr. Koo inquired whether the revenue might be regarded as sur- plus profit. Mr. Hanihara replied that that represented only the gross reve- nue and was by no means to be taken as surplus profits. Dr. Koo said that that might be the case, but that there would be no difficulty in finding out the amount of the exact surplus profits. Mr. Hanihara said that the Japanese system of accounts was en- tirely different. Dr. Koo said that that was merely a question of accounting. The figures could perhaps be easily ascertained. If his Japanese friends would agree to the principle advanced by the Chinese delegation, that would help them a good deal. The details could be discussed at later meetings. Mr. Hanihara said that what he wanted to have from his Chinese colleagues was a concrete proposal. As Baron Shidehara said, the Japan'ese delegation had only been trying to clearly understand the • 72 Chinese standpoint. He was e:lad that the baron had pointed out the misunderstanding: on which the Chinese proposal had been based. Dr. Koo said that the misunderstanding was costly to China. Baron Shidehara said that that Avould be no reason Avhy Japan should bear the cost of that misunderstanding. Mr, llanihara desired that the Chinese delegates would present their proposal in writing, in a concrete form. Not that the Jap- anese delegation tried to bind the Chinese delegates in any way, but simply it was thought advisable to avoid any misunderstanding. Dr. Koo said that if the principle was decided upon, the Chinese delegates would be glad to present their concrete proposition. That would really facilitate the discussion. He would ask his Japanese friends not to leave this meeting without leaving a " milestone,'' to use the words of Secretary Hughes that morning. Baron Shidehara said that he Avould approach the question from the practical rather than the theoretical standpoint. He desired to have a more concreate plan than that Avhich had already been of- fered. The new Chinese suggestion was Avorse than the original, and by no means acceptable. He desired the Chinese delegates to reconsider the matter. Dr. Sze said that in the discussion of public properties, the course folloAved was to agree on the principle first. If the Japanese dele- gation could see their way to adopt that system and tentatiA^ely agree upon the principle in respect of the railway also, that Avould facilitate the discussion in a large measure. He would feel very optimistic about the outcome of the deliberations. Mr. Hanihara stated that the principle inA'olved in the present question would seem to be Avhether the system of joint enterprise was to be adopted or not. In discussing the principle, it was necessary to ascertain all detailed points. / Dr. Koo said that the principle China had noAv proposed was a [principle of full compensation of the whole property. Mr. Hanihara said that he hoped that the Chinese delegation would understand the Japanese position. He and his colleagues had already expressed their readiness and willingness to consider any proposition that they might make, apart from the Japanese proposition. The Japanese delegation. hoAVCA^er, Avere not prepared to giA^e up their position. In the meantime, the Japanese delega- tion Avould be glad to receiA^e any further proposition with a view to finding a means of adjustment. They should be in a form, con- crete, sound, and practical. If the Chinese delegation insisted upon discussing the principle, the Japanese delegation could not give up the idea of joint undertaking. Dr. Koo said that he could assure the Japanese delegation that I they would not be placed in any worse position. The Chinese propo- 'sition was to pay for the whole property, not half, as preAdously. He desired that the merits of the modified proposition should be recognized. Mr. Hanihara suggested that the meeting should now adjourn. He added that, if he was not asking too much, he would like to have the substance of the Chinese proposition in writing, so that they might have a useful discussion at the next meeting. Dr. Koo said that the Chinese delegation would be very glad to do so. 73 The press communique was agreed upon (Annex I) and the meet- ing adjourned at 5.30 p. m., until 3.15 p. m., next Monday. Washington, D. C, December 10, 1921. SJC-9.] Annex I. [For the press.] December 10, 1921. The ninth meeting of the Chinese and Japanese delegates relative to the question of Shantung took place in the governing board room of the Pan American Union Building at 3.15 this afternoon. The question of salt fields and that of the Kiaochow-Tsinan Eailway were discussed. Considerable progress has been made toward an under- standing on the part of two delegations. The meeting adjourned until 3.15 p. m. next Monday. TENTH MEETING. The tenth meeting, held in governing board room, the Pan Ameri- can Union Building, Washington, D. C., at 3.15 o'clock in the after- noon of Monday, December 12, 1921. PRESENT. China. — Dr. Sao-Ke Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries : Mr. Tsong-Ou, Mr. Tsai, Mr. Tung- Fan Hsu, Mr. C. H. Zee, Mr. Chuan Chao, Mr. Telly Ploward Koo. Japan. — Baron K. Shidehara, Mr. M. Hanihara, Mr. D. Debuchi. Secretaries : Mr. S. Saburi, Mr. E. Kimura, Mr. H. Saito, Mr. T. Shi- ratori. Also present as observers: The United States of America. — Mr. John Van A. McMurray, Mr. Edward Bell. The British Empire. — The Right Hon. Sir. John Jordan, G. C. I. E., K. C. B., G. C. M. G. ; Mr. m: W. Lampson, M. V. O. SALT INDUSTRY. Mr. Hanihara said that, before entering into the question of the railway, he would desire his Chinese colleagues to enlighten him a little further as to the question of the salt industry. He understood that China would be prepared to give compensation to the Japanese people engaged in that industry in Shantung. He desired to know more concretely what the idea of the Chinese delegation was in mak- ing that offer. He wanted his Chinese friends to understand that the industry was not under Government control but was conducted by private individuals. Therefore, the rights and interests involved would have to be looked upon as vested rights and interests. If the Chinese plan were to be adopted, the Japanese Government would have to persuade those private enterprises to give up their business on adequate terms. First of all, the Japanese Government would 74 have to pay for the actual investments made by those people, and their expenses in winding up business as well as their losses from dissolving outstanding contracts. Moreover, it might be necessary that the loss of profits expected would also have to be compensated for. He should like to know whether the Chinese delegates had any concrete idea on these points. He asked that question, not because he and his colleagues agi'eed to the Chinese proposal, but because the}' wanted to recommend to the Japanese Government to give due consideration to the Chinese proposal when it was found reasonable and worthy of consideration. He would also be glad to be informed whether the Chinese Government were prepared to make the payment in cash or in some other form. Dr. Sze replied that he had assured the eTapanese delegates that fair compensation would be made, but that no material as to the de- tails, such as the amount of investment, etc., was available. If, how- ever, the Japanese delegates could advance any concrete proposal, the Chinese delegates would try to meet the Japanese wishes as far as possible. Mr. Hanihara said that the Japanese position was to regard those private interests as vested rights and interests, but now the Japanese delegates desired to give careful consideration to the Chinese propo- sition. In order to do so, he found it necessary to ascertain the Chinese views on the points he had mentioned more in detail and in a more concrete form. The Japanese delegates would then give all possible consideration to the Chinese proposition and make recom- mendations to the Japanese Government accordingly. Dr. Sze regretted that he had not detailed information at hand. He desired that the Japanese delegates would recommend to the Government to agree to the principle suggested by the Chinese dele- gates. In the meantime he and his colleagues would try for their part to obtain the necessary information. Baron Shidehara thought that what Mr. Hanihara wished to ask was whether the Chinese, in taking over the salt industry con- ducted by the Japanese, would be prepared to pay not only for the actual investments made by those people but also the expense for the winding up of their business and their prospective profits. Dr. Sze said that the term " profits " was very vague. It was not clear whether profits for 10 years, 5 years, or 1 year were meant. Baron Shidehara asked whether the expenses involved in winding up their business would be included. Dr. Sze said that that was too much a matter of detail. The Chi- nese delegates had received express instructions in the matter. He and his colleagues did not desire to make any promises which later thev might find themselves lacking the power to make good. Mr. Hanihara desired that there should be no misunderstanding of his question. He wanted to ask whether the Chinese delegates were prepared to pay compensation only for the actual investments or whether they were also prepared to pay for the winding up and other expenses which were usually paid when a transfer of a business took place. Dr. Sze said that he had personally no experience in such transfer, and therefore could not tell. He was only able to say that the Chi- nese delegates could pledge themselves as to the matter of exporta- tion of salt to Japan, either to the Government or to private incli- 75 vidiials. He and his colleagues had to ask for further instructions as to other matters. Mr. Hanihara repeated his question whether the Chinese were ready to compensate not only for the actual investments but for other legitimate interests. Dr. Sze said that to his mind the Japanese engaged in salt industry knew that there was a (xovernment monopoly system in China. They must also have known that Japanese military occupation was only of a temporary nature. Therefore he did not expect much trouble in letting those people understand their status. He was, however, ready to consult the Chinese Government on the matter, and he wanted that the Japanese delegates would also ascertain the views of the Japanese Government as to the principle suggested by the Chinese delegates. As for the details, they could later be arranged locally. Mr. Hanihara said that in order to give consideration to the Chinese proposal it was necessary for the Japanese delegates first to know that a fair amount of compensation would be paid. He wondered whether he could understand that the Chinese Govern- ment would be ready to take into consideration not only the actual investment, . Dr. Sze, intervening, asked whether Mr. Hanihara meant to in- clude the expenses for winding up and the estimated amount of contingent profits. Mr. Hanihara answer in the affirmative. Dr. Sze said that he would like to know how much salt Japan wanted. Mr. Hanihara said that he did not possess figures. He added that the export tax was another important point to be considered in connection with the salt industry. Dr. Sze assured Mr. Hanihara that the Chinese delegates desired to be fair and reasonable. It was then agreed that the question should further be discussed at a later meeting, and that the discussion of the railway question should be resumed. THE QUESTION OF THE RAILWAY. Dr. Sze said that the first proposition was that China should take over from Japan, immediately upon the coming into effect of the agreement, the Tsingtao-Tsinanfu Railway, all rolling stock, branches, and other appurtenances thereto. This transfer should be completed within six months from the date of ratification. It would take some time to complete the transfer of such a thing as a railway. Mr. Hanihara inquired whether the idea of Dr. Sze was to fix a time limit to the transfer of the railway. Dr. Sze replied that in order not to embarrass in any way the passenger and freight traffic, it would be necessary for China to take over the railway gradually. The transfer might be started imme- diately after the agreement took effect and be completed in six months or on whatever date they might be able to agree upon. Mr. Hanihara said he was afraid that his Chinese friend was go- ing too fast. It had not yet been agreed that the railway should 76 be handed over to China. The jn-inciple itself still remained to be decided. Dr. Sze said that in assuming charge of the railway they would have to proceed step by step. To a certain extent the eniployees w^ould have to be new. Certain dislocations w^ould naturally be expected. That was the reason why he desired to have some arrange- ment on that point. Mr. Hanihara said that he had understood that the Chinese dele- gation would give him and his colleagues the Chinese views in a concrete form. Dr. Sze said that the most important part of the question was what China would have to pay. China desired to reimburse Japan to an amount equivalent to the amount of the set-off against Avhat Japan had claimed for indemnity from Germany as represented by the appraised value of the road. The Chinese delegates had now understood that Japan was not to acquire the railway for nothing, and therefore were ready to pay the set-off decided upon by the repa- ration commission in Paris. China wanted to reimburse Japan to that amount. Mr. Hanihara desired to ask a question, but Avondered whether Dr. Sze would rather continue. Dr. Sze continued and said that China would issue to the agreed amount bonds w^hich would bear interest at the rate of 5 per cent per annum, payable semiannually. The redemption of these bonds should begin in the next year — or so many years to be agreed upon — after her taking charge of the railway. China further Avished to reserve the right at any time, upon giving six months' notice, to redeem all or part of the outstanding bonds. It Avas possible, how- ever, that there might be no necessity of bond issue at all. Mr. Hanihara desired to ask a question. The first point was whether China was prepared to pay AA^iat Japan had to pay Germany. Dr. Sze said that Baron Shidehara had said that Japan would get nothing out of the transaction, but, as a matter of fact, she would. In the meantime, his Japanese friends might have noticed in the ncAvspapers that Germany had defaulted. That might not have di- rect influence upon the position of Japan in the question at issue, but in any case, Japan had the railway in her possession. It might be said that " a bird in the hand is worth two in the bush." Be that as it might, China might be able to make cash payment, but that was rather a side issue. Mr. Hanihara said that that was not the point. What he desired to know was whether China would pay only what Japan would paj' to Germany. According to the tentative arrangement in Paris, Japan had to pay 30,000,000 yen to Germany for the raihvay. He wondered if China was prepared to pay only that amount or would pay, in addition to that amount, what Japan claimed as fair compensation for the investment she had made in the railway. Dr. Sze thought that Japan Avould be greatly benefited. Firstly, she would get the great satisfaction of the general settlement. That satisfaction alone would be quite sufficient. Secondly, on account of the unified system of railway, the facilities would be greatly in- creased. At present there were no direct connections between the Tsingtao-Tsinanfu Eailway and the Tientsin-PukoAv Eailway, but when China took over the railway a through service would be made 77 possible and the transportation would be made cheaper. The mer- chants in Tsingtao, who were largely Japanese, would profit by the change, and the Japanese trade would receive no small measure of benefit. Those two considerations ought to be a source of great sat- isfaction to Japan. Moreover, Japan would not want China to pay such an amount as to make the railway overcapitalized. Mr. Hanihara said that the point he was trying to make was this, that there were properties which were later acquired by Japan. Ac- cording to the Chinese proposition, China would be prepared to pay just what Japan was to pay to Germany. He desired to know if China considered paying for the Japanese investments apart from that sum. Dr. Sze said that ordinarily perhaps that might be the case, but a kind friend would not let his friend pay more than he had paid. China should be required to pay just what Japan would have to pay. Dr. Koo said that he desired to make one point clear. The railway was now under the military occupation of Japan, but China could not admit that Japan had rightfully acquired that railway. He de- sired to look at the situation from the point of view of fact. He did not quite follow why the Japanese delegates asked China to pay something over and above the set-off which Japan was to pay to Germany. China would take over the railway at its appraised value. Germany's claim against Japan for the railwav had been made be- cause Japan was in actual possession of it. But, if China was to admit that that property was lawfully acquired by Japan, they would be placed in a very intricate and difficult position. So he de- sired to set aside the legal point from consideration. Then the point would not arise whether Japan should receive anything over and above what she had to pay to Germany, Mr. Hanihara said that both delegations had agreed to set aside the treaty and to treat facts as they were. Japan was in actual pos- session of the railway, and in coming into that possession would have to make a payment to Germany, and, moreover, Japanese capital had since been invested. If China would ask for the transfer of the railway to herself, it would only be fair to ask of her the payment of an adequate amount for the improv ements made with Japanese capital. One further point was that the amount tentatively agreed uponT)y the reparation commission was not a fair valuation of the railway itself. In making that valuation other things were at the same time taken into account. The amount was not what Japan alone decided, but it was agreed upon at the reparation commission. And, moreover, the claim was made against Japan rather than against Germany. The arrangement was that Japan was to pay something like 30,000,000 yen to Germany, but that was not the actual value of the railway at all, the question of Japanese invest- ments not having been taken into account. Dr. Sze asked how much Japan had spent by way of investment. Mr. Hanihara said that he had not the exact figures. He again asked whether China was prepared to pay only the amount Japan was going to pay to Germany. If so, that proposition "was unac- ceptable. Dr. Koo said that both delegations appeared really to have agreed in substance. The Japanese delegates asked 93042—22 6 78 Mr. Hanihara said that they had not asked anythine;. Only, he had been trying to enlighten himself as to the exact nature of the Chinese proposition. He hoped that he would not be understood as having abandoned the original position ^Yhic'h he had been taking and as to which his delegation had had explicit instructions. The earnest desire of the Japanese delegation, however, was to come to an early and fair settlement of the question. Dr. Koo asked if the Japanese point of view was that the money spent on the railway during the military occupation should be in- cluded in the valuation, even if that was not considered in the de- cision arrived at by the reparation commission in Europe. Mr. Hanihara said that that was just so. Dr. Koo said that was a question of fact. China had no desire to/)bject to reimbursing Japan for such money as had actually been spent for the pei-manent improvements of the line and the rolling stock. As a fair counterpart, however, profits should then be taken into consideration ; and, further, a small point was that the Chinese shares in the railway should be taken note of in adjusting Ihe ac- counts." So far as the principle waa concerned, China was prepared to consider the question of the Japanese investments, provided that the revenue from the railway would be credited to the line itself. They should be set off one against the other. It might, of course, turn out in China's favor, but. on the contrary, it might also tlirn out in Japan's favor. Mr. Hanihara said that, as to the question of profits, he did not quite agree. As to the question of the bond issue by the Chinese Government, he desired to know about the security for redemption^ about which his Chinese friends mentioned nothing. He wanted to know whether China had any proposal on that point. Dr. Koo replied that the question of security for the bonds had never occurred to him and his colleagues as being an essential point. He desired to know whether his Japanese colleagues thought it im- portant. Mr. Hanihara said he did not even know Avhether the Japanese Government would approve the whole proposition. It might be of little use to go into these points after all. However, in the ordinary course of business, an essential point in the flotation of bonds would be the security for redemption. Dr. Koo would have thought that the general credit of the Gov- ernment was sufficient, but if the Japanese delegates deemed it an important aspect, he and his colleagues had no hesitation in provid- ing an excellent security for these bonds. He desired to be informed whether the Shantung Railway was a paying business. Mr. Hanihara replied that his impression was that that was a pay- ing business, although he did not know personally. He had been informed, however, that Germany did not leave the railway in working order. Dr. Koo said that if the question of security was regarded as im- portant they would try to arrive at some conclusion as to what would be the best security. He suggested that possibly the revenue of the railway itself would be good security. Mr. Hanihara said that he was speaking for himself; he did not even know whether his colleagues would agree. But he considered 79 the question of the security as very important. He would ahnost say that it was imperative to know what security would be provided. Dr. Koo said that at present the Chinese delegation were not pre- pared to go very far into that question, because it had not occurred to them that that point would be raised. However, possibly the revenue of the railway itself would be most suitable. That was the case with the Shanghai-Hangchow-Ningpo Railway, which was in paying order. His colleague, Dr. Sze, had just told him that the surplus profit of the Peking-Mukden Eailway was also assigned as security for that railway. Such joractice had proven to be very satisfactory, and the bonds were quoted very high in the market. In mentioning the railway revenues, however, he and his colleagues had no desire to commit themselves speciiicall}^, but they were prepared to offer some good and safe security. Dr. Sze asked the opinion of Sir John Jordan as to the Shanghai- Hangchow-Ningpo Eailway. Sir John replied that that was quite satisfactory and that there were no complaints at all. Baron Shidehara said that he desired to ask a question. The Chinese delegates had just proposed that the net profit should be deducted from the value of the railway. If he had understood them correctl}^, their idea seemed to rest upon the assumption that China had been the legal owner of the railway since her declaration of war against Germany and that Japan had been operating the railway as an agent of China; because if Japan had been operating the rail- way on her own account and not as an agent of China he did not see why Japan should pass over to China whatever profit or loss the operation of the railway might have brought to Japan. Dr. Koo said that the point raised appeared to be whether Japan was or was not an agent of China in the operation of the railway. That might or might not be the case. He did not desire to enter into that discussion. Baron Shidehara asked why such an account should be made if Japan was not an agent of China. Dr. Koo said that the Chinese delegation had understood the day before that some expenditure had been made by the Japanese Gov- ernment and to-day they were informed that that investment had been made for improvements. In the normal course of things the revenue of the railway would first be assigned to defray the cost of operation, including salaries, and if something were left over as profit that might be used for the inij^rovements of the line. He under- stood that there was a separation of account between the expenditure and the revenue in the Japanese budget — salaries, for instance — being paid out of the central treasury direct. But so far as the net revenue was concerned he thought it only fair that that should be credited to the railway and set off against such expenditures as the investments in the form of improvements. Baron Shidehara said that while he might be slow of understand- ing he couldn't make Dr. Koo's point clear to himself. Mr. Hani- hara had mentioned the expenditure Japan had made upon the railway, probably because the result of that expenditure had formed part of the railway property. They were here going to decide what should be done with the railway — whether it should be handed over to China or be made into a Sino-Japanese joint enterprise. They 80 were not going back to the past. He couldn't see clearly why an account of the past profit and loss of the raihvay should be rendered to China. Dr. Koo said that if the cost of operation and all expenses, such as the salaries and wages of the railway officials and employees, had been paid out of the railway revenue there would be no question of reimbursement of expenditure. Baron Shiclehara said that according to the Chinese proposal China would get all the railway materials and the rolling stock, besides the railway itself. She would get the whole property and the whole value. He didn't see why there should be any question of past profits or losses. If they got the property, they ought to l^ay for it; if they got value created by others, thej' ought to pay for that, too. Dr. Koo asked whether expenses of rolling stock, etc., as well as those involved in the im])rovement made upon the railway were paid out of the railway revenues or from the Cxovernment treasury. Baron Shiclehara observed that it didn't matter how those expenses had been i^aid. China got the property; if it was worth, say, 10,000,000 yen, she should pay it. The situation was this, that the railway having been agreed on all hands to be the private property of the Germans China had no right to confiscate it. Dr. Koo understood, however, that in the appraisal of the railway taken in connection with the reparation question at Paris the im- provements upon the railway had been left out. Baron Shiclehara said that Japan, in acquiring the railway, had to reimburse the shares held by Germans. She had. moreover, heavily invested in rolling stock, etc. The valuation taken by the reparation commission was in fact of little account, since Japan had to pay, not the German Government, but private individuals of Germany. Dr. Koo asked if some data of improvements made by Japan during her occupation could be given. Baron Shidehara said that figures could be given on tliat point, but that the question was of principle. He could not see why the question of past profits and losses should be taken up. Unless upon the assumption that China was the legal owner of the railway prop- erty and Japan had been using that property merely as an agent he could not understand why Japan, should be askecl to account for profits and losses. Dr. Koo said that usually profits of an enterprise belonged to shareholders. Baron Shidehara said that since Japan had taken possession of the railway she was running it on her own account and on her own responsibiiitv and not as an agent either of Germany or of China. Dr. Koo said he thought the surplus profits still stayed with the railway. Under normal conditions the profits would be considered as belonging to the railway. Baron Shidehara answered that there was no question of normal conditions. Japan had taken possession of the railway as an act of war as part of her military operations. Dr. Koo inquired if payment for the improvements had not been asked by the Japanese delegation. 81 Baron Shidehara said that it was because they formed part of the value of the railway. Supposing; the railway was worth 30,000,000 yen under the German regime, Japan had added much to that value both with rollino- stock and various improvements. Dr. Koo asked if he was to understand that Japan, during her military occupation, was entitled to the profits of the railway and that such improvements as she had made upon it should not have been paid out of those profits. Baron Shidehara said it was entirely another question. The im- portant point was that China was going to get the benefit of the im- provements. Sir John Jordan asked Dr. Koo if he could not look at the question from the angle of what China was to get. Dr. Sze asked if Baron Shidehara counted among the improve- ments the repair which might have been necessitated by willful acts of destruction. Baron Shidehara said that Dr. Sze apparenth^ had in mind the acts of war and that in his opinion the repair of damages caused by the Germans' acts of war could perhaps be called improvement. Dr. Koo understood Japan's position to be that by reason of her military occupation she was entitled to operate the railway and to reap the benefits of that operation. In his opinion that privilege necessarily carried with it the obligation on Japan's part to main- tain the railway in good condition. In making expenditure on the railway, she was merely discharging that obligation. Baron Shidehara said lie couldn't see how it could be her obliga- tion. Dr. Sze said that whatever improvements Japan might have made had helped Japan to make greater profit out of the railway. It could not A-ery well be said that she would keep all the profit and at the same time make others pay for the improvements. Baron Shidehara said that Dr. Sze's way of reasoning was not clear to him. To illustrate. Germany had had an article which Japan had obtained from her. Japan nad herself madeianother article of the same nature. ]S[ow, China wanted to get both of these. Was it not natural that China should be asked to pay for both of them? Dr. Sze said that the duplication cost Japan so much more money but that at the same time it would give her corresponding increase of profits. Extra expenditure meant extra profit. Japan could not keep all the profits and make China pay for the improvements. Baron Shidehara said that Japan was operating the railway on her own account. She would naturally keep the profits or bear the losses. It was her property ; it stood to reason that China should pay for the whole value if she wanted to acquire it. Dr. Sze insisted that Japan could not make China pay for what helped her make monej^ Mr. Hanihara said he doubted if he could better explain the situa- tion than Baron Shidehara, but that he would give an illustration. Suppose A had owned the railway between Washington and Balti- more and had transferred it to B for $10,000,000. B had made im- provements upon the property, reaping, of course, profits out of the improvements. Now. imagine that after five years A should propose to B to repurchase the railway, would A say to B, " You have made profits out of the railway. The amount of your profits should be deducted from whatever value may have been added to the railway on account of your improvements. Suppose your profits exceed the cost of your improvements, vou will deduct that surplus from the $10,000,000 you paid me?" Dr. Sze said that it all depended upon circumstances, and that the proper thing to be done would be to let experts look into the matter of the value. Mr. Hanihara said that he was talking only about profit. Dr. Sze said that the original Chinese proposition was to pay to the amount of half the value of the railway, while the present plan was to pay for the whole value. That would mean a hundred per cent more. Baron Shiclehara asked if there was really any difference between the two plans. Dr. Sze said that under the second China would psij for every- thing, minus profits and the sum of the shares held by Chinese. Baron Shiclehara asked whether, when he said the whole value minus profits and the Chinese shares, he meant not simply the amount of money to be paid to Germany but the whole value of the railway. What if there were losses? Dr. Sze said that China was willing to take that chance. Baron Shidehara said that the situation was now clear to him. He had thought Japan was to get no payment for what she had spent. Dr. Koo said that she would be paid only what had been defrayed out of her treasury and also for the cost of improvements. The Chinese delegation were trying to agree in principle to the Japanese point of view. Baron Shidehara said that the Japanese delegation still believed in the fairness and justice of the original Japanese proposal, but that if any suitable alternative plan could be worked out they would be ready to recommend it to their Government for consideration and approval. Unless, and until such an alternative plan should be offered, it was impossible for them to commit themselves to the scrap- ping of their original plan, which had already been agreed to by the Chinese Government in 1918. If his Chinese colleagues should offer any suggestion, the Japanese delegation would be quite ready to take it up, and if they found it fair and suitable they would submit it to Tokyo for approval. In the meantime they had to reserve their original plan. Dr. Koo asked in what way Baron Shidehara thought the Chinese plan lacking. Baron Shidehara said that the situation was this, that the Japa- nese Government proceeded from the assumption that the railway was her property, having been acquired from Gemany. China had made no arrangement with Germany and was therefore not in a posi- tion to claim anything in regard to the railway. Of course, China could not confiscate it on the ground of the belligerent state that had existed between her and Germany because it was considered as pri- vate property of the Germans. JHe was not criticizing the Chinese plan ; he was only trying to make himself sure of the meaning of the ChiniBse proposal. But when it was said that the profit of the railv^ay should be deducted from the amount of its value it was hard for him, in view of what was stated above, to see why such deduction should be made. 83 Dr. Koo said he understood that the Japanese delegation considered the railway as Japan's property. It was not necessary for him to state the Chinese view of that. The Chinese Government, however, had the same right to their opinion that the Japanese Government had to theirs. They could not share the Japanese view in this matter. Baron Shidehara asked if the railway was considered as a Chinese property. Dr. Koo said that it was regarded as a Sino-German joint property, but that it was a question he would rather not discuss now. Baron Shidehara said that the status of the railway was an impor- tant point. If they started from the assumption that the railway was a Chinese property there would be no doubt of the fairness of the Chinese proposal. Japan would have no right to interfere in this question. Dr. Koo said that the very fact that discussions were being had by the two delegations showed that the status of the railway was in doubt. • Baron Shidehara said that they were only going to fix its future status. Dr. Koo said that that was why they had better leave out the ques- tion of the past. Japan wanted to hand it over to China, and China wanted to take it up. Baron Shidehara asked why, then, past profits were mentioned. Dr. Koo said that the Japanese delegation had mentioned salaries and improvements. They were prepared to meet the Japanese demand a.i far as possible, and therefore they desired to have figures concerning the profits and the improvements of the railway. Mr. Hanihara said that the figures concerning the profits had to be referred to Tokj'o, but those concerning expenditure could be given right here. Baron Shidehara said that the question of salaries was immaterial ; they were not an important item of the expenses. He supposed that it was the net profit that was wanted by the Chinese delegation. That could, of course, be obtained by deducting gross expenditure from gross profits. Dr. Koo said that he should be glad to drop the question of salaries and wages ; these were generally paid from the railway revenue. Baron Shidehara said they represented only a small part of the railway expenditure. In an}^ case they were things of the past. If China was going to get the whole ownership of the railway, it would seem only fair that she should pay the whole value without reference to profit or loss. Dr. Koo asked if improvements were included in that " whole value" and if expenses, salaries, and all that were to be left out of consideration ; in other words, if wha't was meant was the value of the railway as it stood to-day. Baron Shidehara answered in the affirmative. Mr. Hanihara said that after two days' discussion he thought they understood each other's position better. After a deliberate examina- tion of the Chinese proposal the Japanese delegation might offer their observation at the succeeding meeting. The Chinese delegation summarized their revised proposal in the following way: 84 1. China to take over from Japan immediately upon the coming into effect of this agreement the Tsingtao-Tsinan . Railwa3% its branches, all the rolling stock, equipments, etc., and all other appur- tenances thereto. This transfer shall be completed within six months after the date of ratification. 2. China to reimburse Japan to an amount equivalent to the amount of set-off which Japan claims against German}^ for indemnity, as represented by the appraised value of the road and its appurtenances, minus the Chinese capital to the amount of 360,000 marks gold and all interim profits during the period of Japanese occupation. China will issue to the agreed amount bonds which will receive interest at the rate of 6 per cent per annum, payable semiannually. The redemp- tion of these bonds shall begin on the year after taking charge of the railway, etc., by China by annual drawings of one— th of the total number of bonds issiied ; the last draAving payment shall be completed in the year China at any time, upon giving six months' notice, may redeem all or an}^ part of the outstanding bonds. The press communique was agreed upon (Annex I) and the meet- ing adjourned at 5.30 p. m. until 3 p. m. Tuesday. Wi\^HiNGT0N, D. C, Decemter i^, 1921. SJC-IO.] Annex I. December 12, 1921. [For the press.] The tenth meeting of the Chinese and Japanese delegates relative to the question of Shantung took place in the governing board room of the Pan American Union Building. The question of Kiaochow- Tsinan Railway was discussed. The meeting adjourned at 5.15 p. m. until 3 o'clock to-morrow afternoon. ELEVENTH MEETING. The eleventh meeting, held in governing board room, the Pan American Union Building, Washington, D. C, at 3 o'clock in the afternoon of Tuesday, December 13, 1921. PRESENT. China.— Dv. Sao-Ke Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries : Mr. Tsong-Ou, Mr. Tsai, Mr. Tung- Fan Hsu, Mr. C. H. Zee, Mr. Chuan Chao, Mr. Telly Howard Koo. Japan. — Baron K. Shidehara, Mr. M. Hanihara, Mr. K. Debuchi. Secretaries: Mr. S. Saburi, Mr. E. Kimura, Mr. H. Saito, Mr. T. Shiratori. Also present as observers : The United States of America. — Mr. John Van A. MacMurray,. Mr. Edward Bell. The British Empire. — The Right Hon. Sir John Jordan, G. C. I. E.,. K. C. B., G. C. M. G. ; Mr. M. W. Lampson, M. V. O. 85 THE QUESTION OF THE RAILWAY. Baron Shidehara desired to make observations on the more im- portant features of the Chinese counterproposal respecting the dis- position of the Shantung Railway, as follows : " 1. It is understood that the question of mines appurtenant to the railway may be set apart for separate consideration. " 2. The value of the Shantung Railway properties to be credited to Germany in the reparation account under the treaty of Versailles takes into account only the value of such properties as were left behind by the Germans. It does not represent the whole value of the said properties as they stand at present. It is presumed that it is not the intention of the Chinese delegation to propose that, in taking over the entire railway properties from Japan, China is to pay to Japan only for a portion of their actual value. Should it be agreed that the entire railway properties be handed over to China, it seems only fair that she should pay for whatever they are actually worth. " 3. Amount of money to be credited to Germany in the reparation account in relation to the Shantung Railway is to cover indemni- fication to all the shareholders of the railway company. It is not possible for Japan to make any special agreement with China which would place Chinese shareholders of the company on a different footing from those of other nationalities and which would involve modifications in the existing arrangement under the treaty of Ver- sailles. " 4. The railway has hitherto been operated by Japan on her own account and responsibility. It will be admitted that China is not the legal owner of the railway until an agreement to that effect shall have been made, and it seems evident that Japan can not properly be called upon to turn over to China whatever profits or losses may have been caused to Japan during her administration of the railway. " 5. It is extremely unlikely that the money market of any country will be ready for the present to provide a loan to China to cover the payment now proposed, unless the loan agreement is formulated on the basis of the terms embodied in railway loan agreements of com- paratively recent dates which China has entered into with various foreign capitalists. " The foregoing observations are made entirely without prejudice to Japan's original plan of a joint enterprise of the railway." Dr. Sze thought that as to the proposition in the first paragraph the Chinese delegation was ready to agree. The mines would be considered separately from the railway itself. As to paragraph 2, he desired to ask what was meant by " the entire railway properties." When they were taking up the question of public properties, it was agreed that the wharves — ^Wharf No. 3, particularly — and ware- houses would be considered in conjunction with the railway rather than under public properties. He wondered whether Japan was going to make China pay for those wharves, etc. Baron Shidehara replied that it was not the intention of the Japa- nese Government to ask payment from China for these wharves, warehouses, etc. He didn't know, however, whether any improve- ments had been made upon them. If improvements had been made on the wharves, etc., it would be only fair that China should be 86 required to pay for their value. To the extent that Japan had received from (Termany, she would hand over to China without pay- ment, but to the extent that Japanese capital had been expended for improvements, she would require China to make reimbursement. That would be the principle covering warehouses, etc. Dr. Sze asked what Japan Avas going to do with certain things which had been put up ; for insta*nce, the barracks for soldiers and the wireless stations. Baron Shidehara replied that they would be handed over to China. Dr. Sze asked how the valuation of those things was to be made. Baron Shidehara replied that it would be carried out on the same principle as the railway itself. Dr. Sze observed that things of that nature were sometimes of little or no use to the Chinese. The railway could be operated at a profit, but China might not be able to utilize at all, or to the full extent, establishments like barracks or wireless stations. Baron Shidehara remarked that those barracks might be of much use to China. The Chinese Government were going to organize a police force to safeguard the railway. He presumed that those buildings would be suitable for tlieir use. Dr. Sze said that during the German days there were some bar- racks Avhich might be sufficient for the use of the police force; they might not need any additional barracks set up by the Japanese, lie v;as not sure whether China could utilize those buildings to the full extent. Baron Shidehara said he Avas not personally informed as to the size of those barracks, but such details could easily be Avorkecl out by the commissioners on the spot. They could find out whether the buildings were of any value. Dr. Sze said that the reason he had referred to that question was because when the question of public properties was under discussion they agreed that the depreciation and the continuing value would be taken into consideration. Baron Shidehara replied that those considerations would certainly be weighed in making the valuation, but they could be considered later. Dr. Sze desired to make it clear to himself whether Baron Shide- hara meant that as to AA^harf No. 3 only the payment for the im- provements was required. Baron Shidehara replied in the affirmative. Dr. Sze inquired about the Avireless stations set up during the period of the military occupation. Baron Shidehara replied that with regard to the Avireless station in Tsinan he could say that Japan was ready to hand it over to China. As to the one at Tsingtao, how^ever, he desired to have a few days be- fore he made a definite ansAver. The GoA'^ernment instructions on that point were not explicit and there were certain phases to which he had to give further consideration. Dr. Sze said that those things were more or less connected with the troops. If China should be able to make use of them, they would be glad to take them over, but dismantling itself Avould mean some ex- penditure and China desired to make sure about the usefulness of the wireless stations. Another point he desired to make clear was about 87 the expenditure which Japan had made, more in fulfillment of the Anglo-Japanese alliance than in connection with the railway. He desired to know what was the Japanese proposition as to that class of expenditure. Baron Shidehara desired to know more specifically what Dr. Sze had in view. Dr. Sze said that his attention had been called to that phase of the question by one of the Chinese experts. Some establishments might not have direct connection with the railway, but rather with the mili- tary movements and the protection of the railway. He had nothing particular in mind, but wireless stations might come under that cate- gory. I3aron Shidehara asked if Dr. Sze had not said something about the Anglo-Japanese alliance. He supposed that the terms of the alli- ance had no connection whatever with the establishments in Shantimg. Dr. Sze said that the Chinese delegation had thought that it was under the terms of that alliance that Japan attacked Tsingtao. There might be some establishments which had no direct connection with the railway. For instance, the installation of the wireless stations had possibly been a military measure and had no direct connection with the railway. There might also be some few telephones, or things of a like nature, established for war purposes. Baron Shidehara said that that question had never occurred to him. Dr. Sze asked whether Japan desired China to pay for locomotives and cars which had replaced old locomotives and old cars. Baron Shidehara replied that his point was, that China should pay for whatever the properties were actually worth. As to the details, it was very difficult for him to answer oifhand. He wondered whether Dr. Sze meant by old cars and old locomotives those that were of no value — whether he meant cars no longer in use. Dr. Sze said that they might have been removed. He thought, as a general principle, deduction ought to be made for things taken away. Baron Shidehara assured Dr. Sze that it was not his intention to ask for payment for anything no longer of any value. Dr. Sze asked in what manner the actual value of those things was to be ascertained. Baron Shidehara replied that that was a very difficult question to answer. That was a practical question. Dr. Sze thought that the definition of that point was very im- portant. Unless they had some definite method of appraisal they would have no guiding principle along which to proceed. Baron Shidehara asked whether Dr. Sze had in mind the question of depreciation. Dr. Sze replied that that was so. Baron Shidehara said that that would be taken into consideration. Dr. Sze observed that Japan had been in occupation of Kiaochow since 1915. Seven years had since elapsed, and it would be only fair that depreciation and continuing value should be taken into con- sideration. Baron Shidehara agreed. Dr. Sze asked what Baron Shidehara had in mind as to the valua- tion of the railroad itself ; what he meant by the " actual value." Baron Shidehara replied that he thought that those questions could only be decided by the commissioners to be appointed. , 88 Dr. Sze said so far as the improvements were concerned he agreed to the views of Baron Shidehara. He desired to get his opinion about the road itself. Baron Shidehara asked whether Dr. Sze could suggest any prin- ciple which would govern such phases of the question. Dr. Sze questioned again about the road. Baron Shidehara asked whether Dr. Sze meant the railway tracks. Dr. Sze replied that he meant what the Germans had left when Japan took the railway over. Baron Shidehara asked whether any principle could be suggested. Dr. Sze said if the Japanese delegation could supply a list of all the improvements made by the Japanese the matter would be sim- plified, but he understood that the Japanese delegation was not in possession of the necessary data. He supposed that the guiding prin- ciple might be something like this: China to pay Japan the value of the railway determined by the reparation commission, plus the value of the improvements, taking into consideration the deprecia- tion and the continuing value. But he added that the value of the improvements should in no case exceed 10 per cent of the reparation value of the railway. He said that he had to have some idea about the amount China would eventually have to pay to Japan. If China had to issue loans in order to make that payment she would have to make arrangements for their flotation. That was the reason why he desired to have some limitation as to the amount to be paid for improvements. Baron Shidehara remarked that to limit the amount to 10 per cent of the reparation value of the railway was somewhat arbitrary. Dr. Sze admitted that that was rather arbitrary, but he could not do otherwise, as he had no data to go by. He wished he had the list of the improvements, so that he could have a better idea as to the amount to be paid by China. Baron Shidehara said that Dr. Sze's suggestion was that in deter- mining the actual value of the railway they were to take the repara- tion amount plus the value of improvements minus depreciation. So much was quite fair. China need not pay for such properties as had no longer any use or value, but as to the 10 per cent limitation, that was too arbitrary. He had at that moment no idea as to what the value of the improvements would amount to, but the principle of arbitrary limitation could not be accepted. Dr. Sze said that if he could get some idea about the approximate value of the improvements in two or three days that would help him a good deal in making loan arrangements. As a matter of fact, the Chinese delegation had had some offers. That was the reason why- he and his colleagues were anxious to ascertain what the size of the loan would be if they had to go about the flotation. He admitted the arbitrariness of the 10 per cent proposition, but if the Japanese delegation could furnish him any data as to the point in question it. would be very useful. Baron Shidehara answered that the Japanese delegation might perhaps obtain some rough estimate of the value of the improve- ments, but it would be very difficult to ascertain the amount of de- preciation. As to the value of improvements, he would ask Tokyo for information. 89 Dr. Sze said that that would be of great help to the Chinese delega- tion and desired that a telegraphic inquiry should be sent to Tolry^o. He said that there was one point which was particularly difficult for the Chinese delegation to explain to their people at home. They would be blamed by their people for not having made satisfactory arrangement for Chinese shares, for what China had put in the rail- way, while they had consented to so many arrangements necessitat- ing payment of money b}^ China. He thought Japan simply had to €redit to Germany so much the less. Baron Shidehara said it was actually difficult for Japan to accede to the Chinese desire. There were, besides Chinese shares, those in the hands of other nationals. If any special agreement was made with China some arrangement had to be made for them also. Dr. Sze thought that Japan could excuse herself on the plea of the different footing of the Chinese. He hoped the specially difficult position of the Chinese delegation would be appreciated by the Japanese colleagues. The question was of only small value finan- cially. But its sentimental value could not be overlooked. Baron Shidehara said that he appreciated the position of the Chinese delegation, but that he thought it was difficult for Japan to satisfy China in that respect. The German Government had already agreed that it should make arrangement with other nationals inter- ested in the Shantung Railway. The matter would involve the ques- tion of the modification of the principle which had been decided upon at the reparation commission and in the treaty of Versailles. Any special arrangement made with China would, of course, become known to all the world. He was afraid the Chinese desire might be difficult to be met. In any case it was not a very important ques- tion. Dr. Sze said that Dr. Koo had just drafted a formula in regard to the railway properties, reading as follows: " China to pay the actual value of the Shantung Railway proper- [ ties, as represented by the reparation commission figures, plus the ' actual amount, minus depreciation, expended by Japan, for such per- manent improvements on the roadbed and in rolling stock and equip- ! ment as were effected by Japan during the period of her military^ occupation." Mr. Hanihara inquired if the word " equipment " could include reclaimed land, wharves, warehouses, and such other properties as were used in connection with the railway. Dr. Sze asked if those properties could not be treated according to the principle adopted in connection with the public properties. Mr. Hanihara said that " equipment " might mean much, then again it might mean nothing. Baron Shidehara did not think that reclaimed land could be in- cluded in "equipment." Dr. Sze wondered if that did not belong to public property. Baron Shidehara said that there were tracts of land reclaimed for the purpose of the railway. He thought there had been a plan to construct workshops, which would involve the reclamation of a large tract of land. Mr. Hanihara said there were many houses built in connection with the operation of the railway. Those, he thought, ought to be included among the railway properties. 90 Dr. Sze suggested that some Avords might be inserted in the formula to cover the point raised by Mr. Hanihara. Baron Shidehara observed that instead of enumerating all these different kinds of railway properties it would be better simply to say " railway properties/' He would further suggest to use some such words as " additions to the railway properties " somewhere. Dr. Koo said that he understood that reparation value was not the whole value. He Avished to know what it represented, whether it was the value of the railway properties as they had been left by the Ger- mans in 1914. Baron Shidehara said that it was. The railway })roperties. as represented by the figures of the reparation commission, had for- merly belonged to Germany, but the improvements since made were Japanese property. These latter should not have come up before the reparation commission. Dr. Koo said that, that being the case, the value the reparation commission had had in view must naturally have depreciated through seven years' use of the property. Baron Shidehara said that Avhile it Avas possible that there had been some depreciation, it must be mentioned at the same time that the value of the raihvay properties had, as a matter of fact, greatly enhanced during those years. It had been constantly going up. Cer- tainly the raihvay proj^erties could not at present be acquired at the price prevailing before the Avar. Dr. Sze said that that phase of the matter could be considered along with the question of appreciation. He thought that it might be appropriate to have the phrase "subject to the principle of con- tinuing value " at the end of the formula discussed a moment ago. Baron Shidehara said that they had already agreed as to " actual value." The meaning was to his mind pretty clear. Dr. Koo inquired if he was to understand that only those prop- erties would be considered which Avere of continuing value to China. Baron Shidehara observed that, although a minor point, the words " military occupation "' might better be changed to " administration of the raihvay." Dr. Koo agreed. Dr. Sze said that he would like to have it quoted in the minutes that only such properties as Avere of continuing A'alue to China Avould be considered. Baron Shidehara agreed. Dr. Sze here read the amended formula as follows : " China to pay the actual value of the Shantung railway proper- ties as represented b}^ the reparation commission figure plus the actual amount, minus depreciation, that was expended for such per- manent improA'ements on or additions to the railway properties as were effected by Japan during the period of her administration of the railway." Dr. Sze, continuing, inquired whether the reparation figures Avere based on the agreement whereby Germany had handed oA^er the rail- way to Japan, and if Japan had received an inventory of the prop- erties. Baron Shidehara said he presumed so. Dr. Sze said that they had now settled the first and second points of Baron Shidehara's observations. As to the third point, he wished 91 the Japanese delegation would see their way clear to take the matter into consideration once more. Baron Shidehara answered that at present he did not. see how the Chinese desire could be met. Dr. Sze said that as to the fourth paragraph the Chinese delega- tion met the Japanese point. In regard to the fifth paragraph. Dr. Sze admitted that the terms of the proposed loan ought perhaps to be a little different from other loans. Five per cent was the rate of interest of many Chinese rail- way loans. He quite realized that the money market to-day was entirely different, but still he noticed that the allied war loans bore 6 per cent interest. That was why the same rate of interest had been offered in spite of the changed condition of the money market. It must be pointed out, however, that the Chinese Government might be able to make cash payment and that the plan proposed by China might, after all, mean nothing. Baron Shidehara said that it was not his intention to propose a loan to be furnished by the Japanese Government. The Japanese Government could not do it, for all loans had to be approved by the Diet. It was impossible for him to commit the Government in that respect. His idea was only that perhaps Japanese private financiers might take up the loan. Dr. Sze said that the Chinese delegation Avould be placed in a diffi- cult position if they could not tell his people anything definite about the terms of the loan. Of course, they would have to ask about the details of the loan before they made any offer. Baron Shidehara said it was impossible to consider any loan by the Japanese Government. Dr. Sze said that possibly bonds might be issued to the Japanese Government, as in the case of the Canton-Hankow Railway. Baron Shidehara said that it was impossible for the Japanese Gov- ernment to advance money. Apparently it was Dr. Sze's idea that the Japanese Government should buy those bonds. That was also impossible for the Japanese Government, unless with the authoriza- tion of the Diet. Dr. Sze suggested to leave paragraph 5 to later consideration. Dr. Koo said that the question of a loan was not coming until it was found impossible for the Chinese Government to raise the money needed for the compensation of the railway properties. There was no immediate necessity to settle the question. Mr. Hanihara said that Baron Shiclehara's observations had not been made as a proposition. The Japanese delegation were only try- ing to enlighten themselves on the various points of the Chinese proposition. Dr. Sze suggested that what had been agreed upon so far might be summarized. Dr. Koo said that, in other words, there had been a practical and substantial agreement upon the question of paying compensation for the railway properties. Might the Chinese delegation not consider their proposal as agreed to in substance and in principle? Mr. Hanihara said that the Chinese delegation had obviously mis- understood the nature of Baron Shidehara's observation. The Japanese delegation had not proposed anything. The closing sen- 92 tence of the baron's statement oiioht to have been enough to prevent any misunderstanding. If there had been any agreement reached, it was only on the meaning of the Chinese proposal. The Japanese delegation still stuck to their original proposal. They were only try- ing to see if the Chinese counterproposal was acceptable, so that, if it was acceptable, it might be referred to Tokio. Dr. Sze Avondered if they had not been negotiating on the five points of the eTapanese proposal. Baron Shidehara said it Avas not a proposal by any means ; that the original Japanese proposal still stood good. Dr. Koo said that as a matter of fact they had reached an under- standing on the various points of the Chinese proposition. There had been a practical agreement on the broad principle of the disposi- tion of the railway i)roperties. They now knew how to proceed further from that principle. Mr. Htuiihara said that evidently his Chinese friends seemed to start from the assumption that the Japanese delegation had agreed to turn over the railway to China, but that they had not done anything of the sort. They had simply been studying the proposition laid be- fore them. He hoped there would be no misunderstanding. Dr. Koo said that, to put it another way, the Chinese delegation had, in deference to the views expressed by Baron Shidehara, been making concession after concession, until the Chinese proposal had now been made acceptable to the Japanese delegation. If they were prepared to abandon their plan of joint enterprise, they would find the method proposed by China agreeable. They had now before them two acceptable things — the joint enterprise and compensation for the railwa}^ properties. The first was not acceptable to China, while the second was acceptable to both. Mr. Hanihara emphatically denied that the Japanese delegation had said the Chinese proposal was acceptable. Dr. Koo said that the Chinese delegation had all along been mak- ing concessions and modifications in order to make their proposals acceptable to Japan. He asked whether, in order to mark a step-' in their discussions, it could not be considered as agreed that the railway properties could be disposed of on the basis of what they had agreed to during the day's discussion. Mr. Hanihara said that they were still at a stage where they were only trying to find out a common ground, for if both sides stuck to their original position there would be no adjustment. Baron Shidehara said that the progress so far made amounted to this — that they both made their positions entirely clear to each other. But there was no agreement. That was the present stage of progress. Dr. Sze said that not only had the Chinese position been made clear, but many modifications of that position had been made to meet the points of Baron Shidehara's observation. Baron Shidehara said that the Chinese counterproposal had been made clear by the questions put by the Japanese delegation, but that there were still certain features which had not yet been quite clarified. Dr. Wang inquired how the Chinese proposal, if not accepted, had impressed Baron Shidehara. 93 Baron Shidehara answered that, as said yesterday, his mind was open to any suggestion, but that he could not say that he was either in favor of or against the proposal. Dr. Koo asked if he could not say how to-day's Chinese propo- sition seemed to him. Mr. Hanihara said that it was very necessary for the two dele- gations to approach and solve the so-called " Shantung question " as a whole. The railway question was surely the most difficult of all the questions to be discussed, but, at the same time, they should not lose sight of the several other questions which had likewise to to be solved if they were to reach a satisfactory settlement. As he had suggested before, it would be better, in order to accelerate the progress of the discussion, that other matters which might be sus- ceptible of easier solution were now taken up, and they could come back to this question of the railway after adjusting those easier points. Then they could more easily come to an agreement on the question of the railway from the perspective of the entire Shantung question. Dr. Sze said that he feared that the criticism at home and elsewhere would be that the delegates had once discussed the ques- tion of the railway, and after taking an adjournment, came back to the same question; and that they were now going again to ad- journ. It would be very hard to make an explanation to the Chinese public. While he appreciated the Japanese standpoint that it was necessary to have some time to consider, he feared that he could not agree to proceed to another question. Mr. Hanihara said that from his strictly personal point of view the best method of discussion would be to proceed not too hurriedly. He thought the railway question was the most difficult of all the questions to be solved in connection with the Shantung question. To be perfectly frank, he still believed that the original proposition of a joint undertaking was a very fair and generous offer, although the Chinese delegates seemed to be far from being satisfied with that. In the circumstances, if they went on discussing the railway ques- tion without knowing what might be the final adjustments of other matters, it would be difficult to find the ground for compromise to which, after all, they had to come in order to reach an agreement. These other questions, while they might be of minor importance, formed important parts of the entire question, and they might be more easily solved than the question of the railway. When they were composed, the railway question would become the only remaining big question. The negotiators would be able to see where they stood and exercise their ingenuity and effort in such a manner as to find out a settlement acceptable to both. The question could be approached as a whole and settlement could be reached accordingly. In tha»t way they would know in what way they could come a step forward in conciliation and compromise. Dr. Sze said that there was no use disguising his feeling. He felt a. great pain in listening to the words of Mr. Hanihara. Indeed, he felt not only pain, but a great disappointment. He regretted to say so, but he could not help it. Baron Shidehara said that he could not understand Dr. Sze's dis- appointment. The Japanese delegates had not said that they were 93042—22 7 94 against the Chinese proposition, although they did not say that they were in favor of it. That was the present stage of their negotiations. He thought that fair progress had already been made. Dr. Koo said that the usual course followed by tlie two delegations in the discussion of many other questions was to sum up at the end of the conversation and make a tentative agreement upon any par- ticular point, subject to the settlement of the whole question. The question of the customs, which proved to be rather easy of solution, Avas treated in that manner. As to the railway question, the Chinese delegates had not only tried to make clear their position, but had made various concessions in order to enable both delegations to come to a tentative agreement, subject, again, to the settlement of the whole question. He and his colleagues desired to know if such stage had not yet been reached. He thouglit that they knew now w^here they stood in regard to this most important of all questions. It was very desirable to say at least that the points threshed out so far, to- gether with various concessions made by the Chinese delegates, would form the substance of an agreement. Only with that under- standing, and also with the understanding that the agreement would be subject to the settlement of the whole question, could they pro- ceed to some other matter. Mr. Hanihara said that he could not agree to the view taken by Dr. Koo. Suppose they tentatively agreed on that most important question and they could not agree on small matters, the situation would be very awkward. He felt sure that they could more easily reach an adjustment as to other questions and the whole situation would be made much easier. Dr. Koo said that there was a general guaranty in the agreement previously reached that no decision on any single question would come into force unless the whole question was solved. Therefore the Japanese position was quite safeguarded. Mr. Hanihara said that that was quite clear, but that the question was which method would be better — to take this question first, or to take other minor questions first. Japan had made even greater concessions than China. So far as he could see, the Japanese dele- gates had been carrying on the negotiations in a very conciliatory spirit. Baron Shidehara said that, as a matter of fact, the Chinese dele- gates had reserved the discussion of paragraph 5 for a future oc- casion. Dr. Koo said that the reason why the Chinese delegates had de- ferred the discussion of paragraph 5 was only because they were not able to .ascertain whether it was necessary, after all, to issue loan to make the payment. In any case that was a question of small and secondary importance. Baron' Shidehara said that he thought it would accelerate the dis- cussion to pass to some other question for the present, because he de- sired to have a few days to give consideration to the question of the railway. . . Dr. Wang asked whether the Japanese delegates could provision- ally come to an agreement, subject to the settlement of the whole question. 95 Baron Shidehara said that the Japanese delegates had made their position sufficient!}^ clear. They had been carrying on discussions with the understanding that they would be carried on without prejudice to their original plan of a joint enterprise. They had already said that they were not against the Chinese counterproposal. But at the same time they had not said that thej^ accepted it. They had, however, to have time to consider. It would take a few days more before they could make a decision. He was happy to say that the Japanese delegates had now fully understood the Chinese posi- tion. He thought that that would certainly help them to reach a satisfactory settlement. Sir John Jordan asked how long it would take for the Japanese delegation to come to a decision. Baron Shidehara replied that it would not take very long. He said to the Chinese delegates that they would meet again to-morrow presumabl}^ He added that, to be perfectly frank, the Japanese delegation had no definite instruction on the point. For his part, he was willing to give consideration to the Chinese proposition. Dr. Koo suggested that if the Japanese delegates found it neces- sary to obtain specific instruction, they might adjourn the meeting until they got it. Baron Shidehara said that it would be useful to take up, in the meantime, other questions in order not to waste time. Mr. MacMurray asked how many days the Japanese delegates considered it necessary to wait. Sir John Jordan said that the Chinese delegates were in a very difficult position. Dr. Koo said, so long as the general question was not settled, no part of the agreements would go into effect. He did not see the reason why the Japanese delegates should have any hesitation in agreeing in substance and tentatively on the question of the railway. Mr. Hanihara remarked that, as Baron Shidehara said, the Jap- anese delegates had no explicit instructions except that they had to stand by the original plan of joint enterprise. But they were ear- nestly seeking an arrangement which they might find themselves able to recommend to the Government. That was a verj^ fair and proper stand for them to take. Dr. iSze wondered what was in the mind of the Japanese dele- gates — whether they were waiting for all other questions to be dis- cussed and decided upon or whether they were awaiting instructions from home. Mr. Hanihara said that, on the supposition that the Japanese dele- gation would recommend to the Government to modify their former decision, it would be necessary to attach to such recommendation the reasons therefor. In order to ask instructions, he had to be able to say that all other matters would be settled in a satisfactory way. Dr. Sze said that he was constrained to use plain words. It had never been agreed that the Japanese delegates were to make a recom- mendation to their Government on any particular matter only when all other questions were disposed of. Dr. Wang said that the Japanese delegation had the general guaranty and that there was no danger in accepting the Chinese proposition. 96 Baron Shidehara asked whether the Chinese stand was that no other questions would be considered before the question of the rail- way was disposed of. Dr. Wang said that the Chinese delegation placed the railway question before any other question. Baron Shidehara said that he could not see why they should need- lessly lose time. It would be a few days before they would come to a decision as to the railway question. They could in the meantime discuss some other questions. He thought that some results would surely be attained. Dr. Koo said that he need not dwell upon the tremendous diffi- culties encountered by the Chinese delegates in entering into these informal conversations. Even at present reports they were receiving from home were by no means reassuring. They were carrying on the conversations under great pressure. He thought that that cir- cumstance was well known to the Japanese delegation. One hope the Chinese delegates had entertained in meeting the Japanese dele- gates was to arrive at an early agreement on the question of the rail- way. An increased pressure from outside was brought to bear upon them when the railway question had not been made the first subject of discussion. Since taking an adjournment on that question after a short discussion nearly one week and a half had been spent in dis- cussing other questions. The Chinese delegates found their diffi- culties greatly increasing. They had, however, been hoping all along to reach an early settlement of this question and be relieved from the pressure upon them. Baron Shidehara said that he quite appreciated the position of his Chinese friends and that he could assure them of his earnest desire to do everything to expedite the solution of the question. If they were, however, to stop the discussions, even for a few days, that would create a bad impression in the popular mind, since they might very naturallv surmise that the negotiations had been unsuccessful. Dr. Sze said that if they adjourned and took up other questions the Chinese delegates w^ould have to give explanations, which they hated to do. If they suspended the discussions, then the Chinese delegates could say that they were only waiting until the Japanese delegates received' instructions from home. He did not think that it would serve any useful purpose to discuss other matters before they settled the railwav question. Baron Shidehara said that he hoped the Chinese delegates would believe him when he said that he was eagerly looking for an early settlement of the whole question. He would frankly say that, w^ithin the limits of the instructions in hand, he could not agree to the Chinese proposal. At the same time the Japanese delegates were prepared to do their best. They were very much afraid if they dis- continued the conversations the public might get false impressions. He thought it best not to lose time by doing nothing while the Japanese delegates awaited instructions. Dr. Koo asked whether they could adjourn until the Japanese delegation communicated with Tokyo. Baron Shidehara said that telegrams to Japan would now take 72 hours in transmission. He thought that it would be better not to lose time. In the meantime the Japanese delegates would do their best 97 to find out some basis of agreement. It was their sincere intention to meet the wish of the Chinese delegates as far as possible. Dr. Wang said that they had been talking for two weeks ; that the position of the Chinese delegation was much more difficult than that of the Japanese delegation. Baron Shidehara said thej^ had been proceeding in the friendliest of spirit. Why should they not take up some other matter? He and his colleagues, for their part, would be glad to do their utmost to reach a decision. He did not wish to give the public the impres- sion that a critical stage in the negotiations had been reached. The Japanese delegation had not opposed, had not said anything against the Chinese proposition. Were his Chinese friends not ready to dis- cuss the question embodied in the fifth paragraph of his observations to-morrow ? Dr. Wang said that the position of the Chinese delegation would be made extremely difficult were they to take up other questions without at least coming to a tentative agreement. Baron Shidehara reminded the Chinese delegation that they had reserved paragraph 5 of his observations for future discussion. Dr. Koo said that it was only a secondary question, which would not arise before they had found out that cash payment could not be made. Baron Shidehara understood that the Chinese delegation has pro- posed to refer to Peking in regard to that question. Dr. Koo said he saw no necessity of doing so in a hurry. Baron Shidehara asked when they should meet again. Dr. Koo said that he did not desire to add to the difficulty already existing for the Chinese delegation. They might adjourn in order that the Japanese delegation might be able to communicate with Tokyo. The conversations might be resumed as soon as they had heard from Tokyo. Mr. Hanihara suggested taking up No. 5 of Baron Shidehara's observations to-morrow. The Japanese delegation desired to inform themselves further in respect of the question embodied in that para- graph. He suggested discussing that question the following day. Baron Shidehara remarked that if they met again the following day they could perhaps decide whether it would be advisable to ad- journ or not ; they could perhaps see clearly if they could come to an agreement. Dr. Koo said that in jDroposing adjournment, it was far from the intention of the Chinese delegation to press their Japanese colleagues unduly. Only, the procedure of the conversations had been closely followed by the Chinese people. They knew that the question of the railway had been twice taken up. The Chinese delegation could not wait until all other questions had been settled before a provisional understanding on the railway was reached. Baron Shidehara said that if they met the next day. the Japanese delegation might perhaps be able to define their position more fully, more explicitly. They could then decide to continue or adjourn for a few days. Dr. Koo inquired if, in other words, Baron Shidehara desired to have another meeting on the question of the railway to define the Japanese views. i)S Baron Shidehara said that the Japanese delegation could perhaps decide overnight what to do in the situation. He appreciated the position of his Chinese friends and would do his best to help them. Dr. Koo said that the Chinese delegation agreed, in the hope that a provisional agreement would be had at the next meeting. PRESS COMMUNIQUE. The press communique was agreed upon (Annex I) and the meet- ing adjourned at 5.40 p. m. until 3.15 p. m. to-morrow. Washington, D. C. Deceniber 13^ 1921. SJC-ll.] Annex I. December 13, 1921, [For the press.] The eleventh meeting of the Chinese and Japanese delegates rela- tive to the question ot Shantung was held in the governing board room of the JPan American Union Building. The discussion on the question of Kiaochow Tsinan Railway was continued. The meeting adjourned at G oVlock this afternoon until 3.15 o'clock to-morrow afternoon. TWELFTH MEETING. Twelfth meeting, held in governing board room, the Pan American Union Building, Washingt■ Baron Shidehara said that such questions did not arise in regard to the question of A^aluation. There was no use of discussing such a point academically. How much China had to pay Japan — that was a question of valuation. Dr. Sze said suppose an old car was broken ; it would be necessary to have a new one. That would be a replacement and Avould not invoh^e a question of valuation. Such matters should likewise be decided by the commission. Baron Shidehara said that the question of whether something was an improvement or not would naturally be involved in the question of how much China should pay ; it would only have to be considered in connection Avith the question of A^aluation ; there would be no need of settling that previously to actual valuation. Dr. Sze said that such determination might precede valuation. Baron Shidehara then proposed a formula reading: " on any matter connected with the A^aluation of the raihvay proper- ties, etc." Dr. Koo asked whether Baron Shidehara would have any objec- tion to saying: " on any question connected with the transfer of the Tsingtao-Tsinanfu Railway properties or any ques- tion connected Avith the valuation of the railway properties." Baron Shidehara wondered whether he might ask AAdiat Dr. Koo had in mind when he spoke of the question of transfer. 112 Dr. Koo said that he had nothing particular in mind. He had offered that suggestion merely to make sure that there was a ma- chine ready in case of differences. The whole idea was to expedite the execution of the agreement and to prevent any difficulties even necessitating reference to their respective Governments. Baron Shidehara said that he did not perceive the point Dr. Koo was trying to make. There could be no question of transfer unless it was a question of what property was to be handed over to China. Dr. Koo said that mainly Baron Shidehara was in the right. How- ever, divergences of view might arise. There might, also, be proper- ties which would raise doubt. He could assure the Japanese delegates that he had entertained no hidden desires. He only thought that it would be wise to insert some provision in case of contingency. Baron Shidehara asked whether the Chinese delegates would have any objection to taking off the Avhole paragraph 2 and embody the jDrovision in the notes under contemplation. According to the origi- nal wording the joint commission would be intrusted with the task of taking valuation only. According to Dr. Koo's proposal, however, the function of the commission would go much further. Dr. Koo said he would accept Baron Shidehara's suggestion with a slight modification which would read: " on any ques- tion relating to the transfer of the Tsingtao-Tsinanfu Eailway properties and on any matter connected with the valuation of the jDermanent improvements thereon or additions thereto." Baron Shidehara said that the whole wording of his original plan was to be modified to meet the Chinese wishes and proposed a for- mula, reading : "A Sino-Japanese joint commission shall be appointed for the pur- j)Ose of arranging technical matters connected with the transfer of the Tsingtao-Tsinanfu Eailway. or with the valuation of the per- manent improvements on. and additions to, the railway properties." ' Dr. Koo asked if it was wished to superpose that sentence in the notes to be exchanged. Baron Shidehara said that it was his intention to strike off the last sentence of paragraph 2 of his tentative plan and put it at the begin- ning of the exchanged notes. Dr. Koo said that he would accept it if it would be agreed that the word " all " should be substituted for the word " technical." Baron Shidehara pointed out that they were not going to revise the arrangement previously reached as to paragraph 2. Dr. Koo said that all matters to be taken up by the joint commis- sion would be technical, but that it was possible that difference might arise as to what were and what were not technical matters. Such question, for instance, as whether barracks and radio stations were railway properties or not might be considered technical or not. Baron Shidehara said that he did not see anj^ necessity for the suggested modification. Of course, it would be only technical matters that would come up before the joint commission. Dr. Koo said that, while it was true that questions which were not technical would not be taken up, difference of opinion might arise as to whether certain questions were technical or not. Baron Shidehara said that any matters larger than technical should, of course, be taken up by the two Governments. 113 Dr. Koo said that the nature and conditions of the transfer were to be determined largely by the two delegations right here, but the use of the word "technical" would cause unnecessary disputes within the commission itself. Baron Shidehara said that it was not their intention to organize a joint commission for any purpose larger than technical questions. The commission would not deal with political or administrative ques- tions. That was why it had been agreed that only an expert of a third power who had technical knowledge of those things should be consulted. Throughout the whole arrangement they had been talking of only matters of a technical nature. Dr. Koo denied he had had any political matters in his mind. He would then suggest the phrase " all matters of detail." Bkron Shidehara agreed. Dr. Koo then submitted the following: " Should the joint commission fail to reach an agreement on any question relating to the transfer of the Tsingtao-Tsinanfu Railway properties stipulated in the agreement of day, or on any matter connected with the valuation of the permanent improvements thereon or additions thereto as provided for in said agreement, such question or matter shall be taken up by the two Governments for dis- cussion and adjustment by means of diplomacy. In the determination of the points at issue, the two Govermnents shall, if necessary, obtain recommendations of an expert of a third power, who shall be desig- nated in advance in mutual agreement with each other. " Should the two Governments fail to reach an agreement, the said points at issue shall be referred to arbitration by expert or experts of a third joower or powers to be designated by mutual agreement be- tween the two Governments." Baron Shidehara, referring to the formula, said he objected to the phrase " in advance " in Dr. Koo's formula. He hoped that Dr. Koo would not stick to his idea in that respect. In making the provision they had only an extraordinary case in view. He was quite sure that the commissioners could agree on all matters of detail. Dr. Koo observed that when he said " in advance " he meant that an expert of a third power should be chosen before the two Governments took up the matter. Baron Shidehara said that he felt sure that if the two Governments took up any matter on which difference of views had occurred, they would be able easily to adjust it by compromise and there would be no need of calling in the assistance of an expert of a third power. That was why he said " if necessary." Dr. Koo consented. Baron Shidehara said that he did not see any meaning in the last paragraph of Dr. Koo's formula. In order to meet the Chinese desire, he had suggested his proposal, the meaning of which was that the Governments of Japan and China should decide any matter for themselves. His idea was not that an expert of a third power should decide anything. He would be asked only to aid with his recom- mendations. Dr. Koo said what if the tv\'o Governments could not agree ? Baron Shidehara said that although the recommendations of the expert of the third power would, of course, be respected, it was, as a 114 matter of iDrinciple, the two Governments that woukl decide upon any matter about which the joint commission could not agree. He thought that in practice the arrangement would work very satisfactorily, and that there would seldom occur the necessity of calling in the help of a neutral expert. Dr. Koo said that, not to prolong the discussion too much, he and his colleagues were disposed to agree to omit any reference to arbitra- tion if the Japanese delegation, for their part, would agree slightly to change the phrase '• an expert of a third power '' to '* an expert or experts of a third power or third powers." Inasmuch as some of the matters to be taken up would involve a great sum of money, the Chinese delegation desired to feel sure that there would be more than one expert. Baron Shidehara signified consent. Dr. Koo said that, with the understanding that the arguments of foreign experts should be respected, the Chinese delegation would consider this phase of the question as settled. QUESTION OF LOAN. Dr. Sze said that while the Chinese delegation considered it difficult to meet the Japanese views as i-egards the question of loan, he won- dered, however, if Baron Shidehara would be good enough to eluci- date his point first. Baron Shidehara thought that his meaning was sufficiently clear. He wondered if there were any point which he might make still clearer. Dr. Koo said that in order not to leave the position of the Chinese delegation undecided, they would propose to pay for the railway in cash. As for the mode of payment they would be pleased to discuss it with the Japanese delegation. The proposal of loan as formulated in the Japanese plan was not clear at all. If Baron Shidehara was prepared to elucidate various points of the proposal, he and his col- leagues would be glad to hear it. without being understood that their desire for cash payment was going to be relinquished. The question of loan was only of secondary importance from their standpoint. It would arise only when it was definitely ascertained that the necessary fund for the pa^^ment required could not be raised. Baron Shidehara said that while it might be a matter of secondary importance for China, it was with Japan one of the first importance. It was Japan's intention to retain in the railway a certain interest of the same nature and to the same extent as various foreign capitalists were actually allowed to have in regard to most of the Chinese rail- ways. Dr. Koo hoped that more light would be thrown on the point of Japan retaining an interest in the railway. He would appreciate if it could be made clearer why Japan should be particularly anxious to retain an interest in the railway. Baron Shidehara said that what he had meant by interest was only interest of the same nature as was granted to other, foreign capitalists in regard to Chinese railways. He did not know whether he had made himself clear, but his proposal was really a compromise plan. Perhaps he might succinctly recapitulate the position of Japan in regard to the Shantung question. At first Japan had believed, and still believed, 115 that she had a legal title to the Shantung Railway and its appur- tenant properties. China had concluded a treaty with Japan in 1915 in which she recognized in advance whatever agreement Japan might make with Germany in regard to the question of Shantung, and China had expressed her satisfaction with that arrangement; but in order to meet China's point of view, Japan made in 1918 certain important concessions in regard to this question. She proposed the plan of joint enterprise. The plan was at that time accepted by the Chinese Gov- ernment. China again expressed her satisfaction with the plan of 1918. As a further concession the Japanese delegation were now pro- posing that the railway properties should be handed over completely to China, Japan retaining only such interests in the railway as were in manj^ cases granted to other foreign nationals. If the plan of the loan agreement was now rejected by China, if she insisted upon the complete elimination of Japanese interest in the railway, the public in Japan would naturally ask what was the reason that Japan should be denied a treatment of equality with other foreign nationals, why Japan should be subjected to a discriminatory treatment. And there would naturally be created grave misgivings in the popular mind in Japan, He was afraid that that would be very deplorable for the future relations of the two countries. The Japanese delegates were already aware that they would be confronted with very grave diffi- culties in giving up the original plan of the joint enterprise. In the interests of a satisfactory and speedy solution of the question, they had taken upon themselves the whole responsibility in proposing this plan ad referendum. He hoped the Chinese delegates would take that into serious consideration. That proposition, which was really a plan of compromise, was designed to meet their mutual positions as far as possible. He hoped and desired that the Chinese delegates would not insist upon the complete elimination of Japanese interests from the railway. Briefly, that was the position of Japan at present. Dr. Sze said that he fully appreciated the difficulty of the Japanese delegates in meeting the Chinese point of view in this question of the railway. If the Japanese delegates entertained any anxiety at all as to the interests of the merchants using the railway, then he would like to be informed on that point. The Chinese Government would see that all facilities were afforded the Japanese merchants. When the Chinese delegation had proposed a cash payment for the railway they had no idea of discriminating against the Japanese interests. The idea of cash payment had come to the mind of the Chinese dele- gates only recently because they had received an offer from the Chi- nese bankers. At present, however, China might be, or might not be, able to make a cash payment. That was still an open question. If the Japanese delegates felt any anxiety as to the use of the railway, the Chinese delegates would do their best to meet the Japanese wishes by Avay of safeguarding the interest of the Japanese. The only difficulty with which they were confronted was that they might be criticized at home in that while they could use their own money, they were forced to use other persons' money. The Chinese delegates had no intention of discriminating against anybody. Baron Shidehara said that it was not exactly what he had in mind. The purpose of the Japanese proposition was to have a certain interest in the railway and not merely to protect and safeguard the commercial interests of Japan, It was principally for the purpose of meeting 116 criticism which Avoiild be made in Japan. As a matter of history, the Japanese j)roposal was really a great compromise. Japan had made concessions three times. At first Japan had conceded the point in regard to the whole proj)erty rights of the railway. She had had a clear title to the Shantung Railway and its appurtenant properties, but she had proposed a plan of joint enterprise with China which meant that China should haA^e half interest and half share in the railway properties. Now, she was again proposing a new plan by which to restore the whole property rights completely to China. It might not be out of place for him to point out that China still had a large amount of railway loans, for some of which she had great difficulty in paying the interest, not to mention the principal. In the face of that situation, China proposed to buy the Shantung Railway outright. Very naturally, the Japanese peoj)le would ask why Japan should be excluded from having an interest in the Shantung Railway while China still had considerable amount of loans of which both principal and interest remained unpaid. If China insisted upon the purchase of this railway, it would be difficult for the Japanese people to escape the conclusion that China did not like Japan to have any interest in it. The Japanese delegation fully realized the position of their Chinese colleagues, but at the same time the}^ hoped that their own position would also be apj)reciated. The original instructions they had were to stick to the plan of joint enterprise. Even in regard to the tentative plan proposed by them there would be difficulty in persuading the Japanese people. If the Chinese delegates insisted upon eliminating Japanese interest in the Shantung Railway, he was afraid that very serious misgivings might be created in the Japanese mind. This question of loan, therefore, was the point upon which he and his colleagues placed the greatest importance. Should it not be accepted, he did not know if there might be any other plan which they could accept and justify themselves before the public opinion of Japan. He hoped that the spirit of compromise in which the tenta- tive plan had been proposed by the Japanese delegation would be appreciated and that they would be met halfwa3^ The Chinese dele- gation had been met more than halfway. In fact, Japan had been making concessions successively. Dr. Koo said that far from the Chinese delegation entertaining- even the semblance of a discriminatory treatment for the Japanese, they had proposed to pay in cash reallj^ out of their desire to cement the relations between the two peoples. As the Japanese delegation were doubtless aware, this whole Shantung question had exercised the minds of the two peoples to such an extent that it was thought desirable to remove, once for all, this cause of prolonged misunder- standing. Therefore, in making the proposal, the Chinese delegation had in view the larger interests of both Japan and China. Thej- simply desired to promote better neighborly relations with Japan. He hoped that the Chinese position would not be viewed as in any way aiming at discrimination either against Japan or her people. Baron Shidehara said that the fact remained that China had not eliminated the interests of foreign nationals with regard to many of her railways, while she now proposed entirely'' to exclude Japanese interests from the Shantung Railway. The Japanese people would very naturally come to the conclusion that there was, in fact, dis- 117 crimination against them, and they would, naturally wonder what was the real meaning of this practical discrimination against them. There was no denying the broad fact that only Japanese interests were going to be eliminated, while other railways in which foreign nationals were interested had not been even touched. Dr. Sze said that this idea of buying out foreign interests was not confined to the Shantung Railway. In point of fact, the Belgian interests in the Peking-Hankow Railway had been paid back. Thus the proposal in regard to the Shantung Railway was not the first instance of this kind in the railway history of China. Baron Shidehara said that the very special circumstances which attached to the Shantung Railway — the history of the question — should be taken into consideration. He did not, but the public might, doubt why China in the present situation should propose to buy outright the railway property. It would be difficult for him to ex- j)lain why China should do so, while at the same time a large amount of debt was still in arrears, even in regard to various loans supplied by Japanese financiers who had great difficulty in getting payment for not only the principal but the interest. It was inevitable that the public opinion in Japan would strongly doubt the motive of China's action. Dr. Sze said that this idea of cash payment only had come to the Chinese delegation when offers had been made by Chinese bankers. They would naturally complain if Japanese financiers, instead of native bankers, should be asked to advance the money ne^eded. It was true that China was already heavily in arrears in regard to foreign loans. He thought it was all the more reason why no more railroad loans should be contracted with foreign financiers. It was understood that this Shantung Railway was very profitable. The Chinese bankers would naturally be desirous to participate in the profit, and it was difficult for the Chinese Government to refuse this very legitimate desire of their nationals. The Chinese delegation at the same time appreciated the public sentiment in Japan, so they would propose a comj^romise. They could not agree to the Japanese proposition concerning loans, but, on the other hand, they should be glad to do their utmost to remove any cause for misgivings that might exist on the score of the Japanese trade in Shantung. Baron Shidehara said that the Japanese people would Avonder what could be the motive of the Chinese merchants to buy the Shan- tung Railway outright without leaving any interest for the Japanese. It would be said that it was because of their desire to drive away the Japanese from the railway. Dr. Sze said that with bankers of all countries the question of in- terest was the most important consideration. The Chinese bankers knew the Shantung Railway to be a profitable concern. They saw it mentioned in a recent issue of the China press that the railway had made 16,000,000 yen last year. That was the underlying motive of the offers of the Chinese bankers. Dr. Koo said that, speaking from the broader point of view of the good neighborhood betAveen the two countries, he would consider it very wise to settle once for all this question of reparation for the Shantung Railway, so that the one cause of the unfortunate feeling between the two peoples might be dissipated. He hoped that if the whole question were viewed in that light, the Chinese proposal would 118 not only meet with the approval of the Japanese Government but eventually with that of her people as well. Baron Shidehara said that, in his opinion, the misunderstanding between the two peoples would be increased instead of being dissi- pated by the suggested arrangement. He thought he had made the Japanese position sufficiently clear. If there could be no agreement in regard to paragraph 3 of his tentative plan, it would be impossi- ble for him and his colleagues to take the whole responsibility in making to the Japanese Government a recommendation contrary to their explicit instructions. He hoped that his Chinese friends would reconsider their position. The Japanese delegation placed the ut- most importance upon the point at issue. Much as they regretted it, they would not be able to agree to the plan of purchase. Dr. Koo said that he would like his Japanese friends to help the Chinese delegation so that they might not be placed in a position vis-a-vis their people at home of being obliged to take a loan which was not wished by the Chinese people, but Avhich they felt they might be able to furnish themselves. While realizing the position of the Japanese delegation, he at the same time would ask them to consider the difficulty of the Chinese delegation as well. The proper thing to be done in this situation was, to his mind, to try to work out some plan which would relieve the Japanese delegates of their difficulty without placing the Chinese delegates in a trying position. Baron Shidehara hoped that it would be realized that he and his colleagues had sincerely done their very best. If even this modest plan should not be agreeable to the Chinese delegation, he did not know^ what could be done with the whole question. The press communique was issued in the annexed form (x\nnex I), and the meeting adjourned at 6 p. m. until 2.30 p. m. to-morrow. Washington, D. C, December 15^ 1921. SJC-13.1 Annex I. December 15, 1921. [For the press.] Issued hy ths Chinese and Jayanese delegations. Further progress was made in the thirteenth meeting of the Chi- nese and Japanese delegates relative to the question of Shantung in their discussion about the Tsingtao-Tsinanfu Railway. The meeting was adjourned at 6 p. m. until 2.30 to-morrow afternoon. FOTJRTEENTH MEETING. Fourteenth meeting, held in governing board room, the Pan American Building, Washington, D. C., at 2.30 o'clock in the after- noon of Friday, 16, 1921. PRESENT. China. — Dr. Sao-Ke Alfred Sze, Dr. Y. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries : Mr. T. C. Yen, Mr. Tsai, Mr. 119 Tung-Fan Hsu, Mr. C. H. Zee, Mr. Telly Howard Koo, Mr. Chuan Chao. Japan. — Baron K. Shidehara, Mr. M. Hanihara, Mr. K. Debuchi. Secretaries: Mr. S. Saburi, Mr. E. Kimura, Mr. H. Saito, Mr. T. Shiratori. Also present as observers : The United States of America. — Mr. John Van A. MacMurray, Mr. Edward Bell. The British Empire. — The Right Hon. Sir John Jordan, G. C. I. E., K. C. B., G. C. M. G. ; Mr. M. W. Lampson, M. V. O. THE QUESTION OF THE RAILWAY LOAN. Dr. Koo said that the stage had been reached at the end of yes- terday's discussion where, on one hand, the Chinese delegation, in view of the special difficulties confronting them, urged that the pay- ment for the Tsingtao-Tsinanfu Railway properties should be made in cash, and on the other the Japanese delegation on their part made it equally clear that on account of the difficulties confronting them, the best method of payment for the railway properties would be through concluding loan contracts with Japanese capitalists. He and his colleagues took this matter into very careful consideration. While they saw a great deal of difficulty in finding some way out of the difficulties on both sides, they were happy to say that they had found an arrangement which he hoped might be acceptable to the Japanese delegates. The underlying idea of that proposal was to meet the wishes of the Japanese delegation in substance without al- together overlooking the position hitherto taken by the Chinese dele- gation. In substance, the proposal was that China would pay for the railway not^n one cash installment, but in six installments, ex- tending for three years, at intervals of six months each. Only at the end of three years from the transfer the railway would be en- tirely redeemed. The first installment would be paid in cash. For the remaining five installments, the Chinese delegates proposed that the Chinese Government should deliver to Japan the amount in treasury notes seciired on the revenue of the Tsingtao-Tsinanfu Railway. Pending their maturity it w^as proposed that interest at a reasonable rate should be paid. After the first payment, the five remaining installments would be paid every six months. In order to give evidence to the earnestness of the Chinese delegates to pre- clude any possible ground of anxiety on the part of the Japanese merchants, as had been stated by Dr. Sze the previous day, China would, in the operation of the said railway, pledge herself not to practice any discrimination against the traders of any' foreig*n nationals. That was the gist of the new plan of the Chinese dele- gation which they submitted for the consideration of their Japanese friends. He hoped that it would be found acceptable, in considera- tion of the spirit in which it had been formulated. Baron Shidehara asked for a copy of the Chinese proposal. Copies of the Chinese proposal were distributed (Annex I). Baron Shidehara said that upon just a brief examination of the new Chinese proposal, he found that it did not differ much from what had been proposed at the previous meeting. That was simply ;a proposition of extending the payment for three years. That would 120 prove more favorable to China than an immediate payment in cash. He feared that the Japanese point of view in regard to the question had not been made entirely clear to his Chinese friends. It must be pointed out that when Japan had projDosed the plan of joint enter- prise, she had receded haWway from her original plan of full owner- ship and operation by Japan of the railway which she had believed she was legally entitled to under the terms of an express treaty provision. When, lastly, the Japanese delegates had proposed on their own responsibility a plan of the railway loan agreement in lieu of a plan of joint enterprise, they had committed themselves to the complete abandonment of their original plan. The proposal that Japan should retain a certain interest of the same nature and to the same extent as other foreign nationals were permitted to hold in other railways in China did not interfere with the full ownership or the full operation of the railway by China. She was to acquire the full control, the full ownershijD, and the full operation of the railway, and Japan simply wanted to reserve to herself a certain interest of such description as was practicall}^ of common applica- tion to all or most of the railways in China. Now. it appeared that China desired to make the last proposal of Japan a fresh starting point for a mutual compromise arrangement, whereas, for the Japanese part, the last proposal was, in fact, a com- plete surrender of the original plan of joint enterprise. It was now desired of the Japanese delegates that they should once more meet the Chinese point of view ; should concede halfway starting from the last proposal they had made. In entire frankness, he would like to say that such assertion on the part of the Chinese was hardly fair or just to the Japanese delegation. In order to reach a full under- standing of this question, it might be useful to explain the Japanese plan in a more concrete form. He should be perfectly frank in his explanation, and he iriisted that his frank expression of views in regard to the quest! n would not be misunderstood. He had been informed by men who had closely surveyed the situation of the Chinese railway that there were three distinct features in Chinese railways which struck foreign observers. In the first place, Chinese railway administration did not undertake any responsibility for the loss of goods intrusted to its care. Consignors of goods, not being able to rely upon the railway oiRcials. usually sent their own hired men to freight cars to take care of their own goods. In the second place, the distribution of freight cars and of space in freight cars for the consignors of goods was made in a very arbitrary way, and was very easily influenced by corruption. In the third place, the military' authorities and the individual soldiers very frequently inter- fered with the proper management and working of the railways, without any regard whatever to the interests of the public and to the nature of the service to be afforded by these organs of public utilit}^ In the circumstances, the practice had gradually grown up for foreign nationals interested in Chinese railways to ask China to engage and employ siich_chief engineers, traffic managers, and chief accountants as they r^iommended. What Japan would like to ask now was nothing more than what was generally accorded to foreign capitalists. The Japanese delegates would like to propose, in the same way as was the case with other Chinese railways, that those officials— chief engineers, traffic managers, and chief accountants — 121 should be engaged and employed by China in the Shantung Railway on the recommendation of the Japanese capitalists. It was under- stood that those officials would, of course, be subjected to the super- vision of the Chinese higher railway authorities. It was proposed that China should obtain full ownership, control, and operation of the railway, and that those officials whom Japanese capitalists might recommend should be placed under Chinese supervision and control. This plan, he was quite sure, would not interfere in any way with the Chinese control, administration, and operation of the railwa3^ nor with the plan of the unification of the Chinese railways which he understood China had now in view. He felt that the Japanese proposition was entirely fair and just to both, sides. The proposal the Chinese delegation now submitted was so different from what the Japanese delegates had in mind, and he regretted that he hardly found his way clear to accept it. Dr. Koo, addressing Baron Shidehara, said that after listening to his interesting and frank observations it might perhaps be use- ful if he should try to elucidate further the Chinese point of view with reference to some of the points which Baron Shidehara had raised and to make it as clear as possible. He should perhaps follow the order adopted by Baron Shidehara. In the first place, with regard to the legal status of the railway, it was hardly necessary for him to go into a detailed discussion as to the views he and his colleagues entertained. It would suffice to say that the very fact that the two delegations were engaged in these conversations with a view to set- tling the questions of Shantung would seem to show that the status of the railways was to say the least, more or less uncertain. The question was more theoretical than practical, at least for the im- mediate purpose both the delegations had in view. So he would pass on to the new Chinese proposal. Judging from the observa- tions Baron Shidehara had made, he feared that the spirit which had animated the Chinese delegates in making their new proposals had not been fully appreciated. They could well understand the Japanese desire to retain a financial interest in the Shantung Rail- way properties. It was in order to meet that desire as far as pos- sible, without at the same time overlooking their own position, that the Chinese delegation offered the new proposals. If they had not been able thus far to find it possible to propose any plan which would admit of the retention by Japan of a larger share in the Shan- tung_ Railway, he hoped it would not be viewed as if they had been looking to discriminate against the Japanese. As a matter of fact, no foreign power possessed greater or more important railway in- terests to-day in China than Japan, if the South Manchuria Rail- way was taken into consideration. In the second place, Avith reference to the observations Baron Shidehara was good enough to make concerning the administration of the present Chinese railways, he would say that, of course, the three points mentioned by him appear to him and his colleagues rather severe strictures. He, for one, felt that these were hardly deserved. He had just been informed by one of the experts of the Chinese delegation that the practice of holding shippers responsible for the goods consigned had been done away with, the railway ad- ministration having some time ago promulgated regulations plac- ing responsibility upon the railway for freight transportation. 122 AVith regard to distribution of cars and tlie granting of space to various shippers, his infonnation and impression were that there hacl been ver^^ little criticism on that point. On the contrary, the Chinese railway administration had from time to time been com- plimented on the fact that cars Avere being utilized to the utmost, and moreover by a new regulation shippers were not allowed to keep cars indefinitely — not more than 24 hours. If there had in fact been un- satisfactory service it must have been due, more than to any other cause, to the fact that at present there was a shortage of Avagons and cars on account of the transportation of soldiers, etc. The general point which he desired to make clear Avas this, that all the observa- tions made by Baron Shidehara had been made in reference to Chinese raihvays in general. Most of these railways Avere being administered Avith the assistance of foreign chief engineers, traffic managers and chief accountants. If the observations Avere founded on facts, it might be difficult to say Avhat share of the responsibility Avould fall upon the shoulders of these foreign officials. He did not, hoAvever, Avish to labor that point too much. The practice of employing foreign experts had groAvn up, not from any dissatisfaction on the part of foreign financiers but from the fact that in building raihvaA'S China had had to borroAv foreign capital I and that, in making railway-loan contracts, foreign bankers had j used the opportunity to ask for these various offices. But in the case 1 of the Shantung Railway loan, the road was already in operation. / It eA'idently stood in a different class from the railways Avhich Avere I merely projected and for which the necessarj^ fund for construction had to be financed. Besides, as regards the operation of the Shan- tung RaihvaAN though he Avas not in a position to make any definite statement, he believed that the Chinese Government meant to utilize such foreign expert assistance as might be found already in operation, for no one desired the efficiency of the Shantung Raihvay service more earnestly than China herself. He Avould, therefore, urge his colleagues from Japan not to misconstrue the motiA^es underlying the neAv proposal of the Chinese delegation. They had made an honest effort in order to meet the wishes of the Japanese delegation in regard to this aspect of the raihvay question, in the discussion of which they had already been engaged for a few daj^s. He had just been reminded bA' one of his colleagues of the efficiency of the Chinese in book- keeping. A notable instance was that one of the railways con- trolled by Japanese capitalists in South Manchuria — a branch of the South Manchuria Eailway — had been put in order through the assistance giA-en by the Chinese GoA^ernment. • Baron Shidehara said that the observations he had made upon the actual conditions of the Chinese railways referred principally to those railwaA^s which were exclusively under Chinese administra- tion, and the experts who had told him of the situation were men verj^ well acquainted with the actual state of affairs in China. These were matters of opinion, but Avhat he desired principally to call to the attention of his Chinese friends Avas this, that he could not well understand why this new Chinese proposal was considered different from the plan they had offered the day before. This plan Avould, in fact, give China a better position than the plan of payment in cash, for under this plan the payment was simply to be deferred three years. Japan would not be allowed to retain any interest whatever 123 in the railway ; simply the payment was to be secured upon the reve- nue of the railway properties, but the last installment would be due on the expiration of three years after this agreement came into effect. He did not see how that could be a compromise at all between the Japanese and the Chinese proposal. He would appreciate it if Dr. Koo could make the new plan a little clearer; if he could explain the difference between this proposal and the cash payment. Dr. Koo said that the obvious difference lay in the period of three years. The Chinese delegation had understood from Baron Shide- hara's observations the day before that the Japanese delegation de- ^ sired to satisfy Japanese public opinion by retaining financial in- terest in the Shantung Railway. It was to meet that wish that the Chinese delegation now proposed to prolong the payment by dividing it into six installments. By that arrangement Japan would have three years during which she would enjoy a considerable interest in the railway. Baron Shidehara asked what he meant hj considerable interest. Dr. Koo said that after the first installment had been paid Japan would still have five-sixths interest in the railway. He wondered if that looked an insignificant interest to Baron Shidehara. Baron Shidehara said that he did not see any compromise on the part of China. The postponement of payment was in China's inter- est and not in Japan's. The fact that the payment would be secured on the revenue of this railway seemed hardly to meet the desire he had expressed. Dr. Koo said that Baron Shidehara would not. perhaps, overlook the fact that the securing of the payment on the revenue of the rail- way, if onlj' for three years, would greatly contribute to the interest of Japan in regard to the railway. Baron Shidehara said he hardly could admit that. Dr. Koo asked if it was meant that cash payment was preferable,' when Baron Shidehara said that the new proposal would be less favorable to Japan because it gave more time to China in which to get the mone}^ for the pajanent. Baron Shidehara said that this new proposal comprised no con- cession on China's part, while on Japan's part it comprised complete surrender to the Chinese point. Dr. Koo said that in the original proposal of the Japanese delega- tion they desired China to take loans from Japanese financiers. All loans had to be terminated sooner or later. The fact that all the unpaid portions of China's payment should be secured under this new plan upon the revenue of the Shantung Railway would give every possible interest to Japan in the railway. Baron Shidehara observed that as he looked at a list of railway i loans of China he noticed that most of them had a period ranging from 40 to 50 j-ears. He did not find a single loan the term of which ' was only three years. Dr. Koo remarked that, as he had said a little while ago, all of China's railway loans had been contracted for lines merely projected j and none for lines already constructed. The Tsingtao-Tsinan Rail- j way stood in a different class from other railways now in operation, j He' felt sure that Baron Shidehara would not fail to see the differ- i ence. 124 Baron Shidehara desired that Dr. Koo would be good enough to explain what difference there was in fact between the Shantung Railway and the other Chinese railways now in operation. Dr. Koo said that Baron Shidehara had referred to other railway loans, and so he had answered that all railway loans were made not for buying lines already constructed, but for lines which were projected and for which the necessary fund could not be obtained locally. Dr. Sze said, to cite a few instances, China had purchased the Peking-Hankow Railway and also the Canton-Hankow Railway. Baron Shidehara said that there was one point on which his obser- vation the day before seemed to have been misunderstood. In the new proposal of the Chinese delegation it was said that the Chinese Government would give assurance that there would be no discrimina- tion against the interests of Japanese traders, but that was not the kind of discrimination he had in mind. What he meant was dis- crimination against Japanese capital. Dr. Koo said that he saw Baron Shidehara's point. He thought the last point of the Chinese proposal needed no mention in view of the principle of equal opportunitj^ for the commerce and industry of all nations in China, so he would drop that point. Baron Shidehara reminded Dr. Koo that according to the first Chinese proposal it would seem that Japanese capital was to be excluded. Dr. Koo said that that would not necessarily follow. When the Chinese delegation had proposed cash payment they had had in mind merel}^ the desire to raise the money locally so the charge of dis- crimination would not occur until it was made known that China desired to secure funds in foreign countries other than Japan. Baron Shidehara said that, as he had explained several times, Japan's public opinion would certainly look with misgiving upon any plan which excluded Japanese interest from the Shantung Railway, while, in regard to many other railways, China actually permitted foreign capitalists to hold similar interest, and while a large amount of loans provided by Japanese capitalists were still in arrears. Dr. Koo said that as his colleague, Dr. Sze, had observed, the money China proposed to pay to Japan was to come from Chinese bankers ; they had told the Chinese Government that they were in a jDOsition to finance this railway property in Shantung. As regards loans on which interest payment had not yet been made, the matter was entirely different. He had no accurate knowledge of the matter, but personally he thought the reason Avhy the Chinese bankers did not offer financial assistance to their Government to pay the outstanding loans was, perhaps, because of the circumstances under which these loans had been negotiated. Baron Shidehara said that the terms Japan had offered in regard to the whole Shantung question were quite generous and liberal, even taking only the financial phase of the question into consideration. For instance, the Japanese delegation had offered to hand over the docks, wharves, warehouses, etc., without any charge whatever. Ac- cording to the customs report made by the former customs commis- sioner at Tsingtao, the estimated value of those docks and warehouses amounted to 50,000,000 gold marks, and they were now to be offered to China without any charge! 125 Dr. Sze said that he understood improvements upon these proper- ties were to be paid for ; that it was only those wliich the Germans had surrendered to Japan that Japan proposed to hand over to China without charge. Baron Shidehara reminded Dr. Sze that German property was not Chinese property. He said he had simply pointed out that China was going to derive considerable benefit from the terms of the ar- rangement offered by Japan. In any case, he didn't think it neces- sary to go much further in discussing the terms the Chinese delega- tion had proposed. They were so different from what the Japanese delegation had proposed. He regretted to say that they were hardly acceptable to him and his colleagues. Dr. Koo inquired in what respect they were unacceptable. Baron Shidehara said that the Chinese proposal was unacceptable practically in all respects. There was no concession on China's part, while there would be a complete surrender on Japan's part. Dr. Koo said that what the Chinese delegation had understood their Japanese colleagues to attach the greatest importance to was financial interest Baron Shidehara interrupted Dr. Koo by saying, " financial in- terest of the same nature and to the same extent as other foreign capitalists had in most of the Chinese railways.'' Dr. Koo said that in view of the great importance the Japanese delegation had attached to financial interest, the Chinese delegation, out of the spirit of compromise, had proposed to create a period of three years. It was not, in his opinion, an inconsiderable interest. Al- though limited to three years, he hoped it would not be construed as denying Japanese interest in railways in China in general. As he looked at the table of outstanding railway loans of China in 1920, Japan's amount was yen 21,600,000, the second largest in the table. Baron Shidehara said that the proposal for securing the payment on the railway revenue for three years, if it was interest at all, was not the sort of interest which the Japanese delegates had in mind. That was entirely different from that which China had already given to foreign nationals. Dr. Koo said that railway revenues had been offered as security for various foreign railway loans. For instance, the surplus revenue of the Peking-Mukden Railway was assigned for the security of the Shanghai-Hangchow-Ningpo Railway. He was glad that Sir John Jordan had borne testimony to the fact that the financiers concerned in that loan were very much satisfied. Dr. Sze said that the revenue of the Peking-Mukden Railway had also been assigned as security for Shanghai-Pukow Railway. Baron Shidehara feared that perhaps he had not made himself clear. He wanted to say that if what Dr. Koo pointed out was any interest at all. that was exceedingly less than what China had already given to foreign nationals. Dr. Koo said that Baron Shidehara seemed to think very little of the interest he (Dr. Koo) had pointed out, thouirh that involved millions of gold marks. He inquired in what way Baron Shidehara desired to have the Japanese interest augmented. 93042—22 9 126 Baron Shidehara replied that if Japan had accepted cash pay- ment it woidd have been better — the postponement of payment would not be of any value to Japan. Dr. Koo wondered whether Baron Shidehara thought that the period was too short. Baron Shidehara stated that was not the only point. As he said a few moments ago, the Chinese delegates seemed to refuse some of the conditions proposed, namely, the engagement by China of a traffic manager, a chief engineer, and a chief accountant from Japan. Dr. Koo said that in order to maintain the highest efficiency in the operation, it w^ould perhaps be natural for the Chinese Government to enlist foreign expert assistance. The proposed arrangement did not necessarily preclude the Chinese Government from enlisting such foreign assistance as might be desirable in the operation of the rail- way. Did he understand that Japan would like, in order to increase her interest, to have a chief engineer Baron Shidehara interA^ened and said, a chief engineer, a traffic manager, and a chief accountant. He wondered whether Dr. Koo: had said that his proposition was not intended to preclude the en- gagement of a Japanese engineer, traffic manager, and chief ac- countant in the service of the railway. Dr. Koo stated that what he had said was that it did not necessarilj preclude the employment by the Chinese Government of any foreign nationals. In order to secure efficient operation of the railway, it might be desirable for the Government to utilize such foreign expert assistance as was available. Baron Shidehara supposed that the Chinese delegates could not go so far as to say that they had no objection to engaging Japanese- experts. Dr. Koo said that, if it was found necessary, the Chinese Gov- ernment would naturally utilize such foreign assistance as was al- ready done in connection with various Chinese railways. Baron Shidehara supposed, however, that the Chinese delegates could not commit themselves definitely to that arrangement. He well understood that the present arrangement did not preclude the Chinese Government from engaging some foreign expert .assistance, but he would like to ask if there was any objection on the part of the Chinese delegation to making such an arrangement. Dr. Koo, after a' few moments' consultation with his colleagues, asked Baron Shidehara what was the point of his question, which he had failed exactly to understand. Baron Shidehara said that his point was whether the Chinese dele- gation had an}^ objection to arranging with the Japanese delegation to engage the chief engineer, traffic manager, and chief accountant whom Japanese capitalists would recommend, in the Shantung Rail- way administration, of course, 6n the understanding that they would be under the supervision and control of the higher Chinese railway I authorities. Dr. Koo said that before he considered how to answer the ques- tion he would like to ask Baron Shidehara to elucidate the point, a little further. He wondered whether it was in the mind of Baron Shidehara that that arrangement should have reference only to the period during which the payment for the railway properties had not been completed. 127 Baron Shidehara said that of course the arrangement had been } proposed in that sense, but he had not agreed to the period of three ' years. He preferred a longer time. Dr. Koo said perhaps it would be easier for the two delegations if they could reverse the order of discussion. If the Japanese dele- / gates accepted three years, then the Chinese delegation would be j ready to consider the other question, thougli they could not as yet | quite commit themselves on that point. Baron Shidehara said that he would propose to have the period fixed on the basis of the terms generally accepted in relation to rail- way loans with various foreign capitalists. Dr. Koo said he desired to be pardoned for his repetition and re- dundance in pointing out the difference between this and other lines. The periods of loans for other lines, it was true, were much longer than three years. That was, hoAvever, due to the fact that the lines were much longer, the amount of loans much larger, and the con- struction took longer time. The construction of the Peking-Hangkow Railwaj^, for instance, had taken nearly 10 j^ears. His colleague had just passed him information that another reason for the longer terms was that it was difficult to ascertain for the people how soon the rail- way would be able to have sufficient traffic to get revenue to meet the loan services. Baron Shidehara said tliat he understood that when the railway was under the German regime, there was no fixed time for the re- purchase of the railway. Dr. Koo said that that was true, but there was an agreement to the effect that the Chinese Government could, at any time, negotiate as to the purchase of the raihvay. Baron Shidehara said that the Chinese, nevertheless, had not initi- ated such negotiations. Dr. Koo said that they had not in the past. Baron Shidehara said that was the point. China had been at lib- erty to start negotiations with Germany any time, but the Germans might very well have said that thej would like to have the railway for 40, 50, or 99 years. Since there had been no previous agreement made in that regard, China would not have had the right to purchase back the railway from Germany. Dr. Koo said, of course, it was not at all improbable that the Shan- tung Eailway properties, after being taken over b}^ China, might be operated jointly with the Tientsin-Pukow line in order to minimize the cost of operation. If that course were to be pursued, foreign en- gineefs of that line might be asked to take care of this line in Shan- tung also. Of course, if the Japanese delegates had in mind some one from Japan, that was another matter. The two delegations were really anxious to make progress in the discussion. If Japan could accept the period, then they might con- sider other points to which Baron Shidehara attached so much importance. Baron Shidehara said that he did not mean to be unreasonable, but the period of three years was so short that he could hardly con- sider it. Dr. Koo said that in fixing the period of the loan, he would ask the Japanese delegates to take into consideration the state of public opinion in China. The Chinese delegates had really tried to find a. way out of their present difficult position. 128 Baron Shidehara said that in that point the Japanese delegates were in the same difficulties. He hoped that the Chinese delegates would be able to act with detennination. If the two delegations were to follow public opinion too strictly, they would not iDe able to reach a solution satisfactory to both sides. As he had said before, the list of the more recent Chinese railway loans indicated that from 40 to 45 years was their common term. Dr. Koo wondered whether Baron Shidehara did not choose the longest ones. Baron Shidehara said that he had been alluding to loans concluded since 1913. The Pukow-Sinyang Railway had a term of 40 years; the Yamchou-Chunking Railway, 50 years; the Nanking-Hunan Railway, 45 years, and the Shansi-Hunan Railway, 40 years. Dr. Koo said that all those were building lines. They had merely been projected and the construction had not been completed. Baron Shidehara said that he did not mean to insist upon obtain- ing the same terms in regard to the Shantung Railway as those re- garding other railways. He was not asking for anything unreason- able, but the term of three years was so short, so different from what the Japanese delegates had had in mind, and they could hardly give consideration to the present Chinese proposal. Dr. Sze said that the Shantung Railway had already been com- pleted; therefore, he did not think that a period of three years was so ver}' short. In the case of the Tientsin-Pukow Railway, there was a provision as to repurchase, but 10 years were spent in its con- struction. Dr. Koo said that, in determining the period, the fact should be taken into consideration that the Shantung Railway had been com- pleted and had always remained out of China's hands. Three years from now, that was, in 1924. it would have been 22 years from tlie time when the concession was made, and 17 years from the time of its construction. Three years, therefore, should be a reasonable period. Baron Shidehara said that, at the same time, it must be pointed out that the Japanese delegates had made such considerable concessions successively and receded from their original position to meet the Chinese wishes. If the period which had elapsed since the Sino- German agreement in 1899, namely, 22 years, was deducted from the average period of the more recent foreign railway loans standing at 45 years, there would remain 22 or 23 years. Dr. Koo said he was sure Baron Shidehara did not consider that a reasonable period. Baron Shidehara said that he had been speaking of loans con- tracted since 1913 and he found that the average period was about 45 years. Dr. Wang said that, according to his computation, the average term, taking 17 different railway loans, would appear to be 33 years. Baron Shidehara asked what loans he counted. Dr. Wang handed to Baron Shidehara a list of the loans (An- nex II). Dr. Koo said that he did not wish to hurry Baron Shidehara, but while the figures might be desirable, the average would not be of so much help. The various contracts had different features; they dif- fered not only in themselves, but also according to the districts 129 traversed by the lines. For instance, a loan was floated in 1914 for the construction of the Nanking-Hunan Railway. AVhile the term was fixed for 40 years, the period of repurchase was fixed at 15 years after the loan contract was concluded. In the present case construction was completed in 1905 ; therefore, 16 years had already elapsed. If 3 jeavs were added, it would already be 19 years. Three years was not unreasonable, even from the point of view of the existing railway contracts. Baron Shidehara said that as regards the Shantung Railway the German Government had the right to purchase it after a term of 60 years, but China had no right to repurchase. Dr. Koo said that Baron Shidehara was, perhaps, referring to the charter of the company, but the Shantung Railway Co. had made an agreement with the Chinese Government on March 21, 1900, in article 28 of which the right of purchase was invested in the Chinese Government in explicit terms. Baron Shidehara said that, nevertheless, the Chinese Government had not tried to purchase the railway. Dr. Koo said that would not prevent the Chinese Government from holding the right to purchase. Baron Shidehara said that, indeed, that would not prevent the Chinese Government from proposing to purchase, but there was no obligation on the part of the German Government to sell. Dr. Koo said that that was true. But he hoped that Japan would not be in the position of Germany, He thought that Japan was a friendly power. Baron Shidehara said that in that case he would not stick to the point of the German term. Dr. Koo said that he hoped that the Japanese delegates would accept three years. Then the Chinese delegation would be disposed to discuss other aspects of the question to which Baron Shidehara attached so much importance. Baron Shidehara said that, frankly, he was afraid that a three-year period was not at all acceptable to the Japanese delegation. Dr. Koo asked what would, then, be Baron Shidehara's view as to a reasonable period. Baron Shidehara said that he found the average period for railway loans of comparatively recent dates to be 45 years. Were they to deduct therefrom 22 years, which represented the number of years since railway concession was made, there would remain 23 years. He thought that would be a reasonable period. Dr. Koo said that according to that basis of calculation China ought to have repurchased the railwaj;- a few years ago. Take, for instance, the Nanking-Hanchow Railway. The term was fixed at 45 years, but according to article 6 of the contract the right of purchase was provided for as becoming effectiA'e after 15 years. Therefore it appeared that the Shantung Railway ought to have been sold to China some years ago. An average period would then not be useful as a guidance in respect of their present discussion. What would be a useful guide was the period allotted for redemption. In the present case the contract was made in 1899: therefore already 22 years had elapsed. - If three years were added to that, it would make already 25 years. 130 Baron Shidehara said that they were discussing the question of the loan and not redemption. Dr. Koo said that even 15 years couhl not be taken as a standard. The term fixed for the Nanking-Hanchow Railway was about the longest. In the case of the Tientsin-Pukow Eailway the term was 10 years after the date of the loan. Baron Shidehara asked whether, considering that when the railway was in the hands of the Germans no term was fixed for purchasing back from the Germans, and considering further that the railway had never been Chinese property, whether it would not be possible for the Chinese delegation to accept the period of 23 years as the term of the loan. Dr. Koo said that Baron Shidehara's suggestion did not take into consideration the fact that in most of these railway contracts there were provisions for the repurchase or redemption after a compara- tively short period from the date of the loan. Baron Shidehara said that that period represented the time in which the loan could be redeemed. The terms of the loan itself might be different from the terms of redemption. Suppose a period of 23 years was decided upon. Within that period, say, after 15 years, China might be at liberty to pay at once the remaining capital ; so that, according to that arrangement, China could redeem the re- mainder of the capital after 15 years, but the period of the loan itself should be 23 years. Dr. Koo said that he desired to ask a question, not to lend them- selves to any misunderstanding. He wanted to know whether Baron Shidehara meant that the loan was a system of giving credit, as was here proposed. Baron Shidehara replied in the affirmative. Dr. Koo said that the idea suggested by Baron Shidehara of having two periods, one for the credit and one for complete redemption, ap- peared to the Chinese delegates to be a serviceable one, and in con- sideration of the acceptance by the Japanese delegation of the general basis of the Chinese proposal, he and his colleagues would accept Baron Shidehara's proposal, but they felt that the period was much too long. Baron Shidehara asked how long a time Dr. Koo would propose as a reasonable period. Dr. Koo said that while the Chinese delegates did not wish to ap- pear as if they were bargaining on the point of the period, the term of the credit 'might be increased to 10 years, but with the under- standing that any time after three years all the remaining unpaid portion of the sum could be paid on certain suitable notice. The Chinese delegates really felt that they were going out of their way to meet their Japanese friends, in order to make some progress in the discussion of that aspect of the railway question. In other words, instead of making the payment in six equal installments, all out- standing treasury notes might be redeemed on suitable notice after the lapse of three years. It was desired the reasonableness of that proposition should be recognized, it having been prompted by the sincere desire on China's part to meet the Japanese wishes. Baron Shidehara said that the fact was that he and his colleagues, who were not financial experts, thought it better not to try to-day to arrive at a decision as to the period of the loan. At the same time 131 "he had understood that the Chinese delegates were prepared to dis- f cuss the question of the engagement by the Chinese Government of | a chief accountant, a traffic manager, and a chief engineer whom the j Japanese capitalists would recommend. If the Chinese delegates j would discuss only the period of the loan and did not desire to di^-' cuss the question of the engagement, he was afraid he could not pro- ceed with the discussion of the question. The question of the en- gagement by China of the chief engineer and other experts was one to which the Japanese Government attached a great deal of im- portance. Dr. Koo desired that the Chinese position should be clearly un- derstood. The shorter the period of the loan, the more would the | Chinese delegates be disposed to consider the question of the engage- \ ment of experts. Baron Shidehara said that if the period was going to be only three years, it would be so short that there would be no need of discussing the engaging of experts. Dr. Koo asked what Baron Shiclehara's preference was. Baron Shidehara asked if Dr. Koo was speaking of the period of the loan. Dr. Koo answered in the affirmative. Baron Shidehara said he had to consult financial experts and ask their opinion as to what would be a reasonable term. Dr. Koo said that the Chinese delegates had proposed the period of three years to meet the Japanese wishes. If the question of period should be left uncertain, he and his colleagues would feel it difficult to justify themselves in proceeding with the question of engaging Japanese experts. Baron Shidehara said that he did not mean to leave the question of period unsettled. The loan in question was to be furnished by Japanese financiers, and therefore it was necessary that their opinion should be had. Dr. Koo said that that would be arranged between the Japanese Government and the Japanese capitalists. The Chinese delegates themselves were not financiers. They were not specifically author- ized by their Government and they were not in a position to accept anything definite in this respect. They also would like to have the benefit of the advice of their financial experts. Baron Shidehara proposed that they should adjourn until the fol- lowing day and consider the matter overnight. The press communique was issued in the annexed form (An- nex III). The meeting adjourned at 5 o'clock p. m. until 3 o'clock p. m. Saturday, December IT, 1921. Washington, D. C, Becemher 16, 1921. r SJC'-14.] Annex I. December 16. 1921. Chinese delegation — Proposal concerning inode of faynient. A. The total amount of reimbursement for the Tsingtao-Tsinanfu Eailway properties and their permanent improvements on and addi- 132 tions to them, as provided for in the agreement of this day, shall be paid in six equal installments. B. The first installment to be paid Avithin nine months after the coming into force of the agreement on the whole Shantung question and on the day on which the transfer of said properties is completed. C. The remaining installments shall be paid in treasury notes se- cured on the revenues of the said railway properties. D. The said notes shall be delivered on the same day on which the first payment is made. E. The said notes shall be redeemed at intervals of six months in equal amounts. F. Pending redemption, the said notes shall bear interest at per cent per annum. G. Chinese delegation is prepared to recommend to the Chinese Government to give an assurance that in the operation of the said railway there will be no discrimination against traders of any for- eign nationality. SJC-14. Annex II. December 16, 1921. Outstanding amounts of Chinese Clorernmcni raihrau loans, December, 1921. (List prepared by the Chinese Delegation.) Name of loan. Date of issue. Rate. Term of re- demption. Security. Amount outstand- ing at December, Years. Date. 1921. Peking-Mukden Railway. . Shanghai-Nanking Rail- way. Shanghai-Nanking land . . . Tao-Ching Railway Canton-Kowloon Railway. Tientsin-Pukow Railway . Do . 1900 1904 1914 1905 1908 1908 1911 1908 1909 1911 1913 1914 PCTCt. 5 5 6 5 5 5 5 5 5 5 5 6 45 50 10 30 30 30 30 30 30 40 40 20 1944 1953 1923 1935 1937 1938 1940 1938 1938 1951 1952 1933 Railway itself and its earn- ings. £1,322,500.00 2,900.000 00 60, 000. 00 do . General revenue of the Gov- eniment and railway reve- nue. Railway itself and its earn- ings. Likin of three Provinces Likin of five Provinces Surplus earnings of Peking Mukden Railway. 635,600.00 1,368,000.00 4,125,000.00 2,850,000.00 Shanghai - Hangchow- Ningpo Railway. 1, 237, 500. 00 4,250,000.00 Hukuang Railway Lung Hai Railway Hu-Foong Railway 5,954,845-13/7 4,000,000.00 375,000.00 Chinese Government and railway itself. Surplus of Peking Mukden Railway. Total 29,078,445-13/7 1903 1904 5 5 30 35 1932 1939 Chinese Government and railway itself. . do Chengtai Railway Frs.26,662,500.00 38,458,000.00 Total 65,120,500.00 1910 1911 1916 1918 5 5 5 5 IS 25 40 30 1927 1935 1956 1947 Hsin Feng Railway Chen Kin Railway ¥105,666.68 PeMn-Mukden Railway 10, 000, 000. 00 5,000,000.00 Kirin-Chang Chun 6,500,000.00 Total 21,606,666.68 133 Annex III. December 16, 1921. [For the press.] Issued ly the Chinese and Japanese delegations. The fourteenth meeting of the Chinese and Japanese delegates relative to the question of Shantung was held in the Pan American Union Building this afternoon at 2.30 o'clock. The discussion on the question of Tsingtao-Tsinanfu Eailway was continued. The meeting adjourned at 5 o'clock until 3 o'clock to-morrow afternoon. FIFTEENTH MEETING. The fifteenth meeting, held in governing board room, the Pan Americfin Union Building, Washington, D. C, at 3 o'clock in the afternoon of Saturday, December 17, 1921. PRESENT. China.— Dv. Sao-Ke Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries : Mr. T. C. Yen, Mr. Tsai, Mr. Tung- Fan Hsu, Mr. C. H. Zee. Mr. Chuan Chao, Mr. Telly Howard Koo. Japan.— B^von K. Shidehara. Mr. M. Hanihara, Mr. K. Debuchi. Secretaries: Mr. S. Saburi, Mr. E. Kimura, Mr. H. Saito, Mr. T. Shiratori. Also present as observers : The United States of America.— Mv. John Van A. MacMurray, Mr. Edward Bell. The British Fmjnre.— The Eight Hon. Sir John Jordan, G. C. I.E., K. C. B., G. C. M. G.; Mr. M. W. Lampson, M. V. O. THE RAILWAY LOAN. Dr. Koo said that at the end of the last meetin^j the two delega- tions were on the subject of the period of the loan in relation to the Shantung Eailway. As he had said, the Chinese delegates naturally desired to consult their experts concerning their proposal, in which i they had said that the period might possibly be extended to 10 years, | on condition that all remaining installments might be paid orTceriCain suitable notice after three years from the date of the agreement. He and his colleagues were sorry to say, however, that their experts had expressed grave doubt as to whether that would in any way sim- plify the matter. They were strongly of the opinion, inasmuch as the necessary fund could be raised in China from the Chinese bankers, that the plan of the payment in cash would be a most convenient form of procedure not only for China but for Japan also. As he had promised that the Chinese delegates would consult their finan- cial experts, he wished to bring that information up before the meet- ing. Even from a layman's point of view it appeared that it would be simpler if it could be arranged to make a single payment than to have the installments spread over several years. 134 Baron Shidehnra desired Dr. Koo to tell him very frankly the reason why the Chinese delegates preferred a cash payment to the arrangement of a loan contract. He understood that a great sum of debt remained still unpaid by China ; that there was a large sum of debt for which even the interest was in arrears. He had just been informed that the interest which had fallen due on December 1 last on the loan of 1911 between the Yokohama Specie Bank and the Chinese board of posts and telegraphs had not been paid. On that account the Yokohama Specie Bank was placed in a very awkward position in its relation with the shareholders of the loan.' The time limit had conje and the money had not been paid. Besides that particular loan there was a large amount of loans in regard to which the principal and interest had still been left unpaid. Why was China specially in a hurry to make payment in cash for the Shantung Railway while various other outstanding debts were left unpaid? He desired Dr. Koo frankly to tell him the motives for China's being in such a hurry in regard to the Shantung Railway payment. Dr. Koo said that in the case of the Shantung Railway -Chinese bankers had expressed their readiness to supply money. In other cases the Chinese Government had not been so fortunate. As the Japanese delegates were aware, every Government had very limited sources of income, and to meet some unexpected expenditure they Avere obliged to fall upon such assistance as might be offered by indi- viduals. As to the other loans mentioned by Baron Shidehara, of which the interest had not been paid, it appeared that the Chinese people themselves saw that so many of those loans had been con- tracted without much difficulty in circumstances which did not give them any concern. They naturally hesitated to offer any such assist- ance as in the case of the Shantung Railway. Moreover, the very fact that there were a number of loans of which the payment of the inter- ests was in arrears served as further explanation as to whj'^ the Chinese people desired to contract no further foreign loans. Baron Shidehara asked whether it was the policy of China not to contract any further foreign loans. Dr. Koo said that he did not know whether he had made his point of view clear. Whenever the Government could not raise money at home, they had to get it from abroad. In other words, in these matters the Government Avas not altogether its own master in China as in other countries. They depended upon the readiness on the. part of the people to invest in public securities. Baron Shidehara said that in the case of the Yokohama Specie Bank loan it was secured on the revenue of the Peking-Hankow Railway, but when the Specie Bank made inquiries of the Chinese Government as to the payment, it was told that there was no longer any revenue remaining on the railway. He understood that the Peking-Hankow Railway was a very paying concern, but still the loan secured on that railway was in default. The Japanese people would naturally wonder why China, in such a situation, should be in a special hurry in making cash payments for the Shantung Rail- Avay, but that would be repeating the same question he had alread}' put to Dr. Koo. In any case, he desired to ask whether the observa- tions just made by Dr. Koo meant that the Chinese delegates desired to withdraw their proj^osal of the day before. 135 Dr. Koo said that he had stated the opinion given by the Chinese financial experts, which strongly supported the legitimacy of the plan of cash payment, but if it was desired by the Japanese delega- tion to settle the question of the payment he and his colleagues were disposed to fall back upon the plan of the three-year period. He had frankly to say that they would try to do their best under the circumstances to minimize, so far as possible, the anxiety on the part of the Japanese investors in China. Especially in view of the belated payment of the Specie Bank loan of 1911, the Chinese propo- sition would really, it appeared to them, be preferable. Instead of adding to the anxiety of the Japanese bankers that would help liquidate the payment at once ; within nine months there would be no portion remaining unpaid. Baron Shidehara thought that he had already explained the reason why it was difficult for the Japanese delegates to agree to the plan of cash payment, and it would perhaps be unnecessary to repeat his observation. In this situation the proper way would be to proceed with the discussion on the Chinese proposal of the day before. To proceed with the discussion of that proposal, he would like to ask a question. The Chinese delegates used the term " treas- ury notes." He would ask if this was used in order to show that the arrangement was a short-term loan. Dr. Koo said the treasury notes were suggested merely because they were probably the simplest kind of evidence for the unpaid portion of the amount. Baron Shidehara said that his understanding was that the treasury bills, or treasury notes, indicated a kind of short-term loan. When the loan extended for several years some other term was generally used. Dr. Koo said that the term " treasury notes " was used in the contract of the Lee-Higginson loan, and also in some other loan contracted in 1916 with certain bankers in the United States. Baron Shidehara thought that the case was usually this, that when the Government had liability and did not find it wise to pay at once, but thought the fund could be raised in six months or at the end of a fiscal year, treasury notes were issued. They were a kind of short- term loan. Dr. Koo said that he might be wrong, but the treasury notes were used by a great many Governments in payment of liabilities which they might have incurred for a more or less limited term. That was the case, he understood, with the United States Government also. Baron Shidehara said that that was usually the case; he under- j^tood that they were for short terms. Dr. Koo said that in the case of the Lee-Higginson loan the term Avas 30 years. Baron Shidehara said that that was a minor point, only he wanted to make himself clear on that point. The Chinese delegates had made a proposal the day before, and perhaps it might be useful for the Japanese delegates to make some observations concerning that proposal. He would like to have it clearly understood at the be- ginning that in the mind of the Japanese delegation the only prac- tical method to effect a financial arrangement of the nature now contemplated would be to conclude a definite loan agreement between the Chinese Government and the Japanese capitalists. Apart from 136 the question of the various technical difRculties which stood in the way of the Japanese Government becomino; a party to such finan- cial arrantrement. it seemed hijs:hly undesirable that the Government itself should remain directly interested and involved in the Shan- tunoj Eaihva^' after it had completely been handed over to China. The enterprise was purely of an economic nature and any arrange- ment by which the Japanese Government itself retained interest in the railway might create much misgiving in the popular mind. It might be taken as if there were some political significance in it. Of course, the Japanese Government would be glad to use whatever influence it might have with its nationals in making the financial arrangement of that kind. They were quite read}^ to discuss and determine the basis of the arrangement so far as they were com- petent to do so. while leaving the matter of detail to be worked out by the capitalists, with the approval of the Chinese Government. With regard to the period of the financial arrangement now pro- posed, the Japanese delegates presumed that the point to which the Chinese delegates attached special importance was the period of the time after which China would be at liberty to redeem the whole outstanding liability, and he realized that the desire of the Chinese delegates was to make the term of such extra redemption as short as possible. At the same time, from the investors' point of view, they Avould naturally hesitate if they were left in uncertainty as to their exact position in regard to the payment or the redemption of the loan after such a short time as three ^'•ears, since China might or might not choose to effect such a redemption. Taking all circum- stances into consideration, it seemed to the Japanese delegates reason- able that the term of the extra redemption, the term after which China would have option of redeeming the whole outstanding lia- bility, should be fixed at 10 years instead of 3 years. As regards the term during which the loan was to run, he had proposed the day before a period of 23 years, but now he would make it a round number, namely. 20 years instead of 23 years. As he had stated the day before, the Japanese delegates desired the Chinese Government to see their way to enlist in the service of the Shantung Railway a chief engineer, a traffic manager, and a chief accountant whom the Japanese capitalists might recommend. They still placed great im- portance on the appointment, especially of the traffic manager and ihe chief accountant, to be recommended by Japanese capitalists. He would now propose : " 1. The financial arrangement to take the form of a loan agree- ment between the Chinese Government and Japanese capitalists. "2. The loan to run for a period of 20 years from the date of the agreement. China, however, to reserve to herself the option of redeeming the outstanding liability after a period of 10 years from the date of agreement. " 3. China to enlist in the service of the Tsingtao-Tsinanfu Rail- way, the chief engineer, traffic manager and chief accountant to be recommended by the Japanese capitalists, it being understood that these railway experts shall be subject to the supervision of the Chinese managing director." Dr. Koo said that he was not sure whether he understood the point of view of the Japanese delegation on that question. On the 137 other hand, he was inclined to feel that the spirit in which the Chinese proposal had been formulated was not fully appreciated by his Japanese friends. The desire of China to make the pa3anent of the total amount of the railway properties as soon as possible was a perfectly natural and reasonable desire. He did not see why the Japanese capitalists,, already having their confidence shaken in Chinese securities on account of the belated payment of interest of the Specie Bank loan, should be anxious to make this loan to China. In the second place, the Chinese delegates had already expressed their desire to effect the payment in installments, not from any desire in any way to give even the appearance of discrimination. They had made that proposition because they had received offers from the Chinese bankers to finance the Chinese Government, as had been explained on more than one occasion. Japan wanted to retain her interest lest her position might be misunderstood in Japan. For that reason, the original Chinese proposition had been modified so that the payment might be spread over the period of three years. The reason why they could not see their way to accept longer periods they had tried to explain the day before. The Shantung Railway stood in a different class from other railways in China for the con- struction of which loans had had to be secured. As regards the enlistment in the service of this railway of persons for three im- portant posts to be recommended by the Japanese capitalists, he was not sure whether the Japanese delegates would not lend themselves to an impression outside that in turning over the railway to China they wanted to retain a substantial portion of the control thereof. It seemed that, with the progress of their conversation, the two delegations were, instead of coming together, drifting farther apart on this question of payment. Baron Shidehara said that the Japanese delegates regarded the first point Dr. Koo had just mentioned as a just one. There were still a large amount of loans on which the interest had not been duly paid. People interested in the Yokohama Specie Bank loan and in the other loans on which the payment had been delayed, desire that the interest should be paid at once. While on the one hand failing to fulfill obligations, China proposed to make cash payment for the Shantung Railway. The Yokohama Specie Bank, for in- stance, naturally would raise the question why payment on its loans were delayed when China could help it. The public mind would infer that the reason was that China did not want Japan to have interest in the Shantung Railway. It would create great misgivings in the popular mind. He did not think it necessary to repeat that point once again. In the second place, he knew that the Chinese delegates had proposed to spread the payment over three years, but that did not give any benefit at all to the Japanese bankers who desired in- terest in the railway. If the loan were to be redeemed after only three years, there would hardly be any reason why ihej should be interested in it at all. Dr. Koo had said that Japan would be re- taining the control of the railway. That was far from the intention of the Japanese delegates. They were going to recognize the full control and operation by China ex- clusively, and the Japanese proposal certainly indicated that those experts would be under the supervision of the Chinese railway authorities. Thev would not control the railwav, the control would 138 be left with the Chinese authorities. The experts were meant to be ' their assistants, to be placed under tlie direction of the Chinese authorities. If his Chinese friends thought that those assistants would control the railway he would assure them that nothing was farther from the intention of himself and his colleagues. He did not think that the two delegations were drifing very much apart, as had been thought by Dr. Koo. The Chinese delegates now proposed 3 years and 10 years, respectively, for the period of redemption and for the term for which the loan would run. The Japanese proposal was simply to extend the period to 10 years "in the one case and to 20 years in the other. He had been given to understand that the Chinese delegation did not place as much importance on the period of the loan as on the period for the option of redemption. The Japa- nese delegates now proposed 10 years for this latter period, instea'l of 15 years, as had been proposed on the previous da3^ Dr. Koo said that he did not know- whether he had made himself clear in saying that the reluctance of the Chinese bankers to come to the aid of the Government in regard to the belated payment had been due to several causes, one of which was undoubtedly the fact that the important Shantung question had remained unsettled. It was quite possible, if that question could be solved in such a w^ay as to give no color even to an impression that while norminally turning over the railway to China, Japan still retained its control, the ground would be prepared for the Chinese bankers to assist the Government in regard to the belated payments. As to the three-year period, he (need not disguise his feeling. There was a great difference between 3 and 10 years, and 10 and 20 j^ears. Baron Shidehara had expressed the view that if the term was made too short the Japanese investors might not be interested in the loan. That brought in a new aspect. In offering the three-year period the Chinese delegates had hoped to meet the Japanese desire in order to prevent any misgivings arising in Japan. Japan desired to retain some interest in the railway. To meet that desire the Chinese delegates had modified their original proposal by substituting the three-year period for an immediate cash payment. He had now to express his gratification that Japan dis- claimed any intention of retaining control of the railway. In that case, the Japanese delegation would not insist upon the three very important posts being filled on recommendation by Japanese capi- talists. Baron Shidehara said that he disclaimed the intention on Japan's part to exercise the control of the railway; he would confirm that. But he had to insist that those most important posis mentioned in his counterproposal should be filled by Japanese experts. Their appoint- ment seemed to him to be of great importance from the point of view of the Japanese capitalists who might be interested in that question. Dr. Koo said that the Japanese proposition appeared to confirm one of the reasons which the Chinese delegates had had in mind for preferring a single payment. They wished to avoid entering into any more loans, in order to preclude any such appointment of im- portant experts. He was quite sure that the Chinese anxiety on that /(point was fully intelligible. It was hardly necessary to add that the pmver of recommendation in regard to the three main posts con- stituted an important control of the line, which the Japanese dele- gates had proDosed that China should retain exclusively to herself. 139 Baron Shidehara said that he did not see hoAv such a construction could be placed on the Japanese plan. It was the Chinese managing director who would issue instructions to these experts, who would control the latter and the whole railway. The Japanese experts would no more control the railway than he (Ambassador Shide- hara) was controlling the whole machine of the Japanese Govern- ment. Dr. Koo said that he was quite sure that Baron Shidehara would f see that the power to recommend candidates for those important | i^osts to the Chinese Government, with the implication that they should be accepted, would constitute an important element of control, j Baron Shidehara said that if certain persons recommended' were not agreeable to the Chinese Government they had only to say so. The Japanese capitalists would recommend others. It was the Chi- nese Government which appointed those men. He added that that was not to be regarded in any way as a special feature of the pro- posed arrangement, but that it was quite a common practice very generally accepted in the cases of various other railway loans. Dr. Koo said that, in the first place,, not all loans were accom- panied by the privilege of recommendation for those three posts. In the second place, those other loans had been made because it was necessary for the Chinese Government to raise money and could not obtain iit from the Chinese people. In the present case, as he had stated on several occasions, China preferred an immediate payment, as the Chinese people were ready to finance the railway. It would be very difficult for the Chinese delegates to explain why preference should be given to any foreign national at the expense of the right of the Chinese people and against their wishes. The question of loan arose when China could not raise money herself. Just to illus- trate: The Japanese Government would issue loan in the Japanese market if they could. Only when they could not do so in Japan on the same favorable terms, they would have recourse to foreign mar- kets. He mentioned that not for aiij other reason than to make clearer the Chinese standpoint. Great difficulties would confront the Chinese delegates if thej^ ignored the earnest offer of the Chinese bankers to provide funds for the present purpose. Baron Shidehara said he was afraid that the Chinese delegation entirely failed to consider the history of the whole matter. The starting point of the two delegations seemed to be a little different. He and his colleagues proceeded from the fact that the plan of joint enterprise had in itself been a great concession if compared to Japan's original plan of full ownership, to which she was entitled. Their last proposal was reall}^ a compromise plan. If the history of the matter should be disregarded, it would be difficult to reach a satis- factory understanding on this complex question. In the case of the Specie Bank loan China was under an obligation to pay the interest to the Japanese bank, but she had failed to fulfill that obligation. In this present case there was no obligation for China to make the payment in cash. But still China insisted on paying in cash in this case, while failing to discharge her obligation in the other. Dr. Koo said that the difference was that, in the case of the arrears in payment for the interest of foreign loans,, the Chinese Government was unable to persuade their people to lend any financial assistance. 140 but that in the present case the people were quite willing to come forth with the necessary financial assistance. Baron Shidehara said the point was whj^ the Chinese bankers should fail to help the Chinese Government in regard to the other loans while they were so anxious to offer money in regard to the Shantung Kailway. Dr. Koo said that the reason was very obvious. They desired to remove, as soon as possible, the causes which had disturbed the rela- tions l)etween Japan and China. They were people who were inter- ested in trade. They wanted the Shantung question to be settled in a way that would not tend to perpetuate or to hoard up anxiety and disturbing feelings on the part of the Chinese people to the conse- quent detriment of their trade interests. Baron Shidehara said he did not quite see how the fact that Jap- anese capitalists should retain certain interests in the Shantung Rail- wav should disturb the friendly relations between the two nations. t)r. Koo said that, in the words of Baron Shidehara, they were not to forget the history of the question. Baron Shidehara said that if an agreement was reached on the Shantung question, if it was set at rest forever, he did not see how the fact that Japanese capitalists retained a certain interest in the rail- v^ay could affect friendly relationship between China and Japan. Japan did not ask for any interest other than had been commonly requested in regard to other railways in China. Dr. Koo said that the Chinese people might very well ask why Japan should insist upon having interest in this particular railway. Baron Shidehara said that the answer would be quite simple. It was only a question of history. Japan had been making concession after concession successiA^ely, and had at last come to this final pro- posal. It was their last concession. No international question of this nature could be settled without a spirit of concession and compromise. It was in that spirit that the Japanese delegation proposed this plan. Dr. Koo said that Baron Shidehara's statement did not quite de- scribe the situation. It would be recalled that the Chinese delega- tion had first proposed a single payment, but because of the Japanese desire to retain a financial interest in the railway they had modified the proposal so that the paj^ment might be spread over three years. Taking into consideration their own difficulties, it was as far as the Chinese delegation could go. Baron Shidehara said he did not think it would be useful to proceed any further, both sides repeating the same arguments over and over again. He thought it would be better that this matter should be handled in a practical and businesslike manner. The Chinese dele- gates thought the period of time for the proposed loan was unac- ceptable. He wonclered how far, then, would they come to meet the desires of the Japanese delegation. Dr. Koo said he wished to point out that the present proposal of the Japanese delegation was so different from the Chinese proposal which had been offered as a concession to meet the Japanese wishes, it would be difficult for him and his colleagues to proceed to discuss the three propositions offered by Baron Shidehara. Baron Shidehara thought the Chinese delegation had' said that if for a short term, they would consider the engagement of Japanese railway experts. 141 Dr. Koo said that he remembered saying that he 7mght consider that question of personnel if the period were short. Baron Shidehara said he understood that as regards the question of period, the Chinese delegates placed more importance on the period of redemption. Dr. Koo said that it was naturally so, but that they desired the duration of payment should be made three years, so that they might be able to explain to the Chinese bankers that if they wished they could finance the railway as soon as it had been redeemed at the end of the three short years. Mr. Hanihara asked Dr. Koo if he did not see the reasonableness of the Japanese desire to retain a certain interest in the railway. Dr. Koo answered that it was the very reason why they had sug- gested three years instead of cash payment. If the Japanese dele- gation started from the Chinese concession, he did not see how there could be a fair agreement. When the Chinese delegation had said three years, it was in order to meet the Japanese desire to retain a certain interest in the railway. Mr. Hanihara said that, apart from the question of the duration of payment, if it was admitted that Japan should retain interest in the railway it would actually have to retain interest. In other words, the interest granted must not be meaningless. He wondered if that could be done if the payment were to be made in the form of the treasury notes of the Chinese Government. Dr. Koo thought the interest sought by Japan was financial in nature. Mr. Hanihara said it was a financial interest, but that it must be a substantial interest such as other nationals had been granted in other railways in China. Dr. Koo asked if Mr. Hanihara was speaking of the period of payment. Mr. Hanihara said he was speaking of interest. Dr. Koo said that the question of enlisting expert assistance could only be taken up after the question of period had been disposed of. Mr. Hanihara inquired whether the Chinese delegation were pre- pared to contract a loan in the form suggested by Baron Shidehara if the period of the loan, or rather the period of redemption, was made three years. (Mr. Hanihara hastened to add that he did not mean to propose that period for the said loan.) Dr. Sze said that China desired the mode of payment to be as cheap as possible. If the payment was made in treasury notes the Japanese Government could keep them and China could tell her own bankers that the payment was only being made in installments. If, on the contrary,^ the bonds were placed in the hands of banl^ers, they would discount them and the Chinese bankers would come to the Chinese delegates and say: "Why not give us first chance? " The whole idea was to find a way for the solution which would not place the Chinese delegates in a difficult position. The whole matter was of small importance from the point of view of the Chinese Govern- ment because the whole amount was small. Mr. Hanihara said that supposing the Japanese people desired certain interest in the railway, it would be unreasonable to expect them to be satisfied with the short period of three years. 93042—22 10 142 Dr. Sze said that he understood that this three-year period was for option. Options might be, or very often might not be, enforced. Baron Shidehara asked if there was not a provision for such an option in regard to many of the Chinese railways. Dr. Sze said that tlie enforcement of these options depended upon the condition of the money market and also on trade. Mr. Hanihara inquired whether the Chinese delegates would be prepared to consider a loan with the Japanese capitalists, if the Japanese delegates agreed to the term of option, or whether they would still insist upon making the payment in treasury notes. Dr. Koo asked what the most important difference was between payment by treasury notes secured upon the revenue of the railway and the concluding of a loan Avith Japanese capitalists. Mr. Hanihara said that, in the first place, if the treasury notes were secured upon the revenue of the railway, the Japanese Govern- ment Avould be directly interested in the railway, and in order to pro- tect the security it would become necessarj'^ for the Japanese Gov- ernment to take proper measures in regard to the railway. It would not be desirable eitlier to Japan or to China that a foreign Govern- ment should have direct influence in a Chinese railwaj'. If the finan- cial arrangement was left to private capitalists, they would recom- mend railway officials whom the Chinese Government would employ as their own emi^loyees, but if the Japanese Government held Chi- nese Government bond the}- would haA^e to send their own officials to take part in the operation of the raihvay. Dr. Koo said that Mr. Hanihara was assuming that the arrange- ment of Japan recommending candidates for those railway offices had been accepted, but the arrangement was not accepted in the form here proposed. Baron Shidehara asked in Avhat form it Avould be acceptable to China. ^ Dr. Koo said that, as had been stated several times, the Chinese delegates would be prepared to consider this question after the other question had been disposed of, for a great deal depended upon the duration of the payment. The two questions bore upon each other. Mr. Hanihara said it was necessary for the Japanese delegation first to knoAv Avhether or not the Chinese delegation would be pre- pared to conclude a loan with the Japanese capitalists. Only then would come the question of the term. Baron Shidehara said that the first point of the Japanese counter- suggestion was intended to prove beneficial to both countries. There might be misunderstanding if the Japanese Government itself were to retain any interest in the railway. The Chinese delegation had said that the}- would concede a certain interest in the raibvay to Japan and that the fact of payment being secured on the revenue of the railway was a considerable interest to Japan.- Now, if the Japa- nese GoA'-ernment were to hold that interest what would the people say about it? They would A^ery naturally read some political mean- ing into the arrangement. He had thought it would be much better, both from China's point of vicAV and from Japan's, that the financial arrangement should be made between the Chinese GoA^ermnent, on the one hand, and the Japanese capitalists instead of the Japanese Gov- ernment, on the other. 143 Dr. Koo said the difficulty about the loan proposal was in making suitable explanation to the Chinese bankers as to the reason for tak- ing a loan from foreign financiers instead of home capitalists. Baron Shidehara thought the circumstances of the case were a sufficient explanation. As a matter of fact, the treasury notes were, in his understanding, a kind of loan, a short-term loan. Dr. Sze said that he viewed it in the light of a deferred payment. Baron Shidehara said that deferred payment was in itself in the nature of a loan; Governments issued treasury notes as a form of short-term loan. It was so in almost every country. Dr. Sze found some slight difference between treasury notes and a loan. It was nothing more than a sort of a pledge in written form. There might be some other term. His impression was that treasury notes were more or less in the nature of a promissory note. Baron Shidehara thought he had before made it sufficiently clear that the Japanese Government was not in a position to take treasury notes — to conclude a financial arrangement of that nature with a for- eign Government. If they did, however, it would certainly create a false impression in the Chinese mind as well as in the Japanese. Dr. Koo said that as far as China was concerned there was no ground for misgiving because the Chinese Government would be pay- ing only what was due from her. Baron Shidehara asked if Dr. Koo's remark would hold good even if the Japanese Government was to retain an interest in the railway. Dr. Koo answered in the negative. He said that, as a matter of fact, the amount of payment whicii was due from the Chinese Government was to the Japanese Government, and certainly not to the Japanese subjects. He did not, therefore, see how there could be any misgivings in China so long as the payment was made from time to time by installments. Baron Shidehara reminded Dr. Koo that before the complete liqui- dation of the payment took place the Japanese Government would have interest in the railway. Dr. Koo had said that China would be giving considerable interest to Japan, in that the remaining install- ments would be secured upon the revenue of the railway. Dr. Koo said that the Chinese delegation had not at first mentioned the matterof security. It was the Japanese delegation that had raised that question. He suggested that the question of security might well be dropped. Baron Shidehara understood the reason why the Chinese delegation had put in this clause concerning security was in order to meet the Japanese wishes to retain an interest. He wondered if that was not the position of his Chinese colleagues. Dr. Koo said it was to meet the Japanese wishes. Baron Shidehara desired to ascertain if the Chinese delegation were ready to permit Japan to have interest in the railway. Dr. Koo said : " Financial interest; yes." Baron Shidehara said that the point he had raised was this : If the Japanese Government, instead of the Japanese capitalists, were to retain that interest, it would be a source of misgiving; it might be said that after handing over the railway completely to China the Japanese Government still retained interest in it. He did not think it desirable. 144 Dr. Koo said that the difficulty that confronted them was due to the fact that Japan was asking two things which were contradictory, which were hardly to be reconciled with each other. Japan did not want single payment, but, on the other hand, would retain interest in the railway. If interest in the railway should be given to Japan, it would create an undesirable impression because the debt was owing to the Japanese Government. If Japan did not insist on retaining interest in the railway, and if she was not opposed to a single pay- ment, the question would be simplified. Baron Shidehara thought the Chinese delegation had been ready to spread the payment over three years, during which period of time they were ready to allow certain interest in the railway to Japan. That was their position. The Japanese delegation now said that the question was whether the Japanese Government or Japanese capital- ists should be the party to the financial arrangement. That was the IDoint at issue. As far as he Imew, there was no Government that had any interest in railways in China. If the Japanese Government had a claim of interest in the railway, such a claim would give rise to an erroneous impression. As he had said several times before, Japan simply wanted to have in the Shantung Railway an interest of the same nature, of the same significance, and to the same extent as China had granted to other nationals. She was not asking anything more than what had been already conceded to foreign nationals in regard to other Chinese railways. Dr. Koo said that this interest was to be held only so long as the payment was not completed; that was to say, only for three years under the Chinese plan. Considering the special circumstances under which this railway question had arisen, the fact of the Japa- nese Government retaining interest of that kind need not neces- sarily raise serious objection. The Canton-Hankow Railway had been repurchased with the capital furnished by the Hongkong Gov- ernment. Baron Shidehara asked if the Hongkong Government retained any interest in the line. t)r. Koo said that the Hongkong Government did not desire it. Baron Shidehara said that if the Japanese Government were to retain interest in the Shantung Railway, it would look queer, for, in the nature of things, such enterprises should be left to the ac- tivities of private individuals. Dr. Sze said that if the arrangement was confined to the period during which the payment was pending, it would not, at least, be prejudicial to the interests of the Chinese bankers and it would certainly be easier to explain the matter to them. Mr. Hanihara said that it would make a great difference. If the Japanese Government held the treasury notes of the Chinese Government it would have the result of Japanese Government offi- cials participating in the operation of the Shantung Railway. Dr. Koo said it would undoubtedly be true if it was assumed that the engagement of Japanese assistance in the service of the railway had been -accepted by China. Baron Shidehara said that he did not understand, however, that it was the intention of his Chinese friends to oppose the plan of rec- ommendation by Japanese capitalists. They had said that they were 145 ready to consider the matter if the term of the loan was fixed for a short period. Dr. Koo said that the Chinese delegates were ready to discuss the matter, but not under the plan now proposed by Baron Shidehara. It was diiRcult to reconcile it with the idea of surrender of the full control of the railway. Baron Shidehara inquired if the Chinese delegation proposed to make the Japanese Government, instead of Japanese capitalists, the party to the financial arrangement under discussion. Dr Koo said originally the question was very simple; it was only a debt owing from the Chinese Government to the Japanese Govern- ment. Nobody would object to the Japanese Government receiving payment of a debt due from the Chinese Government. Complication came in because of the Japanese desire to retain interest in the rail- way. Baron Shidehara asked if the Chinese delegates did not say the}' were reacW to accord that interest. Dr. Koo said it was not an interest of such a nature as would be objectionable from the point of view of public opinion. Baron Shidehara said it was an interest similar to that accorded to capitalists of foreign countries. He would ask Dr. Koo if there would be no objection to the Japanese Government holding such in- terest in regard to the Shantung Railway. Dr. Koo said there would not be any objection. So long as the Chinese Government had not completed their payment to Japan, the interest of the Japanese Government in the railway would remain to the extent of the unpaid installments. Baron Shidehara said he hoped his Chinese colleagues would ap- preciate this point, that Japan was not asking anything more than was granted to others in Chinese railways. It was merely proposed to place the Shantung Railway on the same footing as many other railways in China. There was no special feature in the Japanese loan proposal as compared to other railway loans. Dr. Koo said that the position was this, that because of the re- purchase of the Shantung Railway, the Chinese Government in- curred debt to the Japanese Government. China desired to pay it as soon as possible ; but, in order to pay this debt, Japan desired China -to incur another debt to Japanese capitalists. The Chinese delegation had said, moreover, that if their proposal in respect to the duration of the period was accepted the}^ would consider the question of em- ployment of Japanese experts. Baron Shidehara said that it would be very unfortunate if they had to drift apart on the difference between 3 years and 10 years. | Dr. Koo hoped that they might agree upon 3 years, so that they might proceed to the question mentioned in the third paragraph of Baron Shidehara's proposal. Baron Shidehara said he was sincerelv under the impression that the Japanese proposal was quite reasonable and the period they had proposed was very fair. Dr. Koo asked Baron Shidehara if the period of 10 years was to be the term of the loan. Baron Shidehara said that it was proposed to be the term after which China should have full option of redemption. He thought the 146 Japanese suggestion in that respect had been made sufficiently clear in paragraph 2 of the counterproject. Dr. Sze said that the period of 10 years, if counted from the time of construction, would not be very long, but, counted from now, it was much too long. Baron Shidehara said that the Japanese suggestion was intended to protect the interests of investors, of those who would subscribe to this loan. The respective periods mentioned in the Japanese counterproject seemed to be quite necessary for that purpose. Dr. Koo regretted that there had not been much progress made. Baron Shidehara said that the only way there seemed to be was the reconsideration of the whole matter by each side. Dr. Sze said that the Chinese delegates had gone beyond authoriza- tion. They had met the Japanese point as far as possible. If the period of three years could be accepted it would make easier their explanation; their people at home would be lenient with them for gomg beyond their instructions. He hoped the Japanese delegation would be so good as to take into consideration the situation as it was. In the meantime he would like once more to assure the Japanese dele- gation that there was no idea of discrimination or prejudice against Japan, or in any way jeopardizing Japanese trade. Baron Shidehara said there were difficulties on both sides. The Japanese delegation, on their part, had been proceeding this far on their own responsibility. They were being animated by the same spirit. Mr. Hanihara wondered if there might not be some means for the Chinese delegation to make satisfactory explanation to their people at home, so that they might understand the reasonableness of Japan wishing to retain an interest, some reasonable interest, in the railway. The two delegations were, after all, meeting here, not to antagonize each other, but to find a solution satisfactory^ to both. Dr. Sze said that if the Japanese delegation knew the real character of the difficulty which confronted the Chinese delegation, they would be simply surprised. The whole trouble was that this question of Shantung had been left so long undecided. Mr. Hanihara said that they would meet again on Monday, and that the space of time between then and Monday would prove of much help to the two delegations in coming to an agreement. The press communique was agreed upon (Annex I) and the meet- ing adjourned at 5.30 p. m. until 3 p. m. next Monday. Washington, D. C, Deceviher 17, 1921. S.TC-15.] Annex I. December IT, 1921. [For the press.] Issued hy the Chinese and the Japanese delegations. The fifteenth meeting of the Chinese and Japanese delegates rela- tive to the question of Shantung took place in the Pan American Union Building at 3 o'clock this afternoon. There was a further interchange of views on the question of Tsingtao-Tsinanfu Railway. The meeting adjourned at 5.30 p. m. until 3 o'clock Monday after- noon. 147 SIXTEENTH MEETING. The sixteenth meeting, held in governing board room, the Pan American Union Building, Washington, D. C, at 3 o'clock in the afternoon of Monday, December 19, 1921. Present. China. — Dr. Sao-Ke-Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries : Mr. T. C. Yen, Mr. Tsai, Mr. Tung- Fan Hsu, Mr. C. H. Zee, Mr. Chuan Chao, Mr. Telly Howard Koo. Japan. — Baron K. Shidehara, Mr. M. Hanihara, Mr. K. Debuchi. Secretaries: Mr. S. Saburi, Mr. E. Kimura, Mr. H. Saito, Mr. T, Shiratori. Also present as observers : The United States of America.— Mr. John Van A. MacMurray, Mr. Edward Bell. The British Empire. — The Eight Hon. Sir John Jordan, G. C. I. E., K. C. B., G. C. M. G. ; Mr. M. W. Lampson, M. V. O. RAILWAY LOAN. Dr. Sze said that toward the end of the last meeting they were discussing the period in which the payment for the railway should be made. Dr. Koo had said that if the two delegations could de- " termine that point, he thought they would be free to discuss other points. The Chinese delegates would be giad to hear the views of the Japanese delegates on that point. Baron Shidehara wondered if the Chinese delegates had been able to reconsider the question of the period and to modify their posi- tion in that connection. Dr. Sze said that the position of the Chinese delegates was very difficult. However, in order to find a way out of the difficulties confronting the two delegations, the Chinese delegates had taken upon themselves the responsibility to offer a new proposition so that they might proceed further. The original plan was, first, that the payment would be deferred for three years, and at the end of the three years the Chinese Government would be free to exercise the option for redemption; and, secondly, that the term of the loan was to be 10' years. Now it was proposed that the 10-year term would be increased to 12 years. The Chinese delegates had been discussing among themselves about this point, but had not had time to consult their home Government. He hoped that the Japanese delegates would appreciate that the Chinese proposition was being made from their genuine and sincere desire to close this, question at the earliest possible date. He hoped that the Japanese delegates would find it possible to meet the wishes of the Chinese delegates. Baron Shidehara said that if it was possible for the Chinese dele- gates to give the Japanese delegates satisfaction in the question of experts to fill the three posts, upon recommendation by the Japanese capitalists, the Japanese delegates would be ready to accept the Chi- nese plan, with the modification that the period for the term of extra redemption should be five years instead of three years. He hoped that it would be possible for the Chinese delegates to go so far to 148 meet the Japanese delegates. He thought that five years for ther term of extra redemption and 12 years for the term of the loan was* a very reasonable proposition. Dr. Sze said that the Chinese delegates had given a careful con- sideration to the matter and had tried to find a way at once accept- able to Japan and easy to explain to the Chinese people. At first, they had thought they would offer five years for the period of re- demption and another five years for the term of the loan, but they found that that arrangement Avould be more difficult to explain to the people, and so they had decided upon extending the whole term to 12 years. At present the people were more or less excited, and it would be easier for them to understand if there was fixed a short term after which they could ui^e their option. After all, when the period of redemption actually came, the situation might have so changed that China might not exercise the option at all, but the Chinese delegates wanted to leave the term for redemption at three years because it would be easier to explain. Baron Shidehara said that about the term of this arrangement the Japanese delegates had first proposed 20 years, but now they said 12 years. He thought, hoAvever. that three years, which it was proposed to be the period after which China might exercise the op- tion of redemption, would be too short. The Japanese people might think that their delegates had been fooled. The difference now was only two years, and if that term was accepted he could promise that he would do his best to recommend to the Japanese Government that their arrangement should be approved. Dr. Sze repeated that the Chinese delegates had thought among themselves that the 5-5 formula for the years of redemption and the loan might be advisable, but they had found it impossible to lengthen the redemption term, and so proposed 12 years for the term of the loan. Baron Shidehara reminded the Chinese delegates that he was not trying to bargain ; he was simply trying to give a niore' favorable impression to the Japanese people. Dr. Sze said that the Chinese delegates had given almost what was beyond their power. Baron Shidehara asked whether the Chinese delegates really thought five years too long. Dr. Sze said that the difficulty was in getting the people to come to their point of view. The whole idea was that it was easier to get the people reconciled if the three-year term was adopted. Baron Shidehara said in any case the difference was so small. He suggested that they might proceed to point 3. Dr. Sze asked whether the treasury-note plan had been accepted by the Japanese delegation, "Baron Shidehara said that if the Chinese delegates could give the Japanese delegates satisfaction in regard to the question of point 3, they would, on their part, be ready to reconsider their proposition on that point. Dr. Sze said that as the Chinese delegates had been pressed by the Japanese delegates, they had already given the real reason why Chinese bankers desired to finance the railway. The profit was the principal motive. If the form of tlie treasury notes were taken, the Chinese bankers would find no reason for complaint. As to the 149 appointment of the technical experts, the efficiency of the manage- ment of the railway would be the principal concern of the Chinese Government as well as of the Japanese Government, China was very anxious to have a good management of the Shantung Railway, so that it would be a financial success. He thought that, perhaps, experts on some other line in China might be utilized in the Shan- tung Railway in order that an efficient management could be se- cured. The main point in the Japanese proposal, as he took it, was to have the line well managed. If only proper men were em- ployed on the line, fair treatment could be assured to all trade. Baron Shidehara said he did not exactly follow the meaning of the Chinese proposition. He inquired whether it was impossible for China to engage Japanese experts. Dr. Sze said that was not exactly the case. The fact was that China was aiming at economy in the operation of the railway as far as possible. The Shantung- Railway, when it was handed over to China would best be joined to the Tientsin-Pukow Railway, so that the salaries of officials, etc., might be saved. At present, the stations of the two railways at Tsinan were about 100 yards apart, and there was no through service, but in future the two railways would be run as one system, and in that case experts of the Tien- tsin-Pukow Railway might be utilized on the Shantung Railway. The Chinese delegates did not have in mind to reject any of the Japanese experts. The whole idea of the Chinese delegates was that economy and efficiency should be attained. Baron Shidehara wondered whether, in speaking about the for- eign experts engaged by the Tientsin-Pukow Railway, Dr. Sze had in mind that part of the line from Tientsin to Tsinan. He under- stood that in the southern section there were some British experts engaged. Dr. Sze replied that there was. a British chief engineer. Baron Shidehara inquired whether there was a British chief en- gineer for the northern section of the line. Dr. Sze replied that he was not sure. Mr. Dartman Avas the chief engineer until 191T for the northern section, but his duties had since been taken over by the Chinese assistant chief engineer. Baron Shidehara inquired whether he was correct in understand- ing that there still was a British engineer in chief in the southern section. Dr. Sze said that the Peking-Pukow Railway was divided into the southern and northern sections at Hantson. During the con- struction period, China relied so much upon the chief engineer, but after its completion there was very little to call for his assistance. There was another British engineer who had. long been in the service of the Chinese railways, a Mr. Duckey, who was now on the staff of the Peking-Hankow Railway. The Chinese Government desired to keep him, firstly, on account of his long service, and secondly, because it was very desirable to have a man at hand wdio had much experience and local knowledge. Baron Shidehara said that he might be wrong, but he had been informed that there were, besides a British expert, some other for- eigners engaged in the service of the southern section of the Tien- tsin-Pukow Railway, 150 Dr. Sze said that there might be some traffic inspectors. They had charge of traffic in diflferent local sections of the railway. They held only junior positions. Baron Shidehara said that the Chinese proposition seemed to be, in practice, that in regard to the Tsingtao-Tsinanfu Railway there would be no special experts employed from Japan. Dr. Sze said that he did not wish to be understood in that sense. vThere whole idea was that economy should be effected without sacrificing efficiency. Personally it had been his dream that all railways in China should be brought under one railway system, in order that economy should be etiected and facilities should be in- creased. It would not be advisable to have a special personnel for a railway branch which was only 280 miles long. Baron Shidehara said that he had no idea to place any obstacle in the way of the unification of the Chinese railways. As a matter of fact, however, the Shantung Railway was not so very short. In Japan the railways were divided into many sections, which were placed under more or less separate management. He thought that a line of 280 miles was not a very short one, and it might be worth while to have a traffic manager and chief accountant for that section, and that it would not in any way prejudice the unification plan of all the Chinese railways. His proposition amounted to this: There was no objection on his part to China appointing any experts on the whole line, and that for the Shantung section she might be able to appoint Japanese experts under Chinese supervision. Dr. Sze said that as to the traffic manager and the chief accountant, it would be best to have some experts appointed with a view to the whole line. However, separate books could be kept for the Shantung Railway and the Tientsin-Pukow Railway. As to the chief engineer, China might appoint a Japanese. He would be asked to look after the maintenance of the line in the Shantung district. Baron Shidehara said that he was not very particular about the name. If the term " traffic manager " was not to the taste of his Chinese friends, some such title as "' the manager in chief of the Shantung section '" might be used. Dr. Sze said that in one of the railways in China they had several district managers in the beginning, but later it was found better to centralize the duties in one single hand. Baron Shidehara said that the Tientsin-Pukow line was quite long, but the Shantung line was not short, either. It would be worth while to have a district manager in the Shantung section. Dr. Sze said that the Tientsin-Pukow Railway was shorter than the Peking-Hankow line. But if its various branches were taken into account it would nearlj^ match the length of the Peking-Hankow in importance. Those branch lines were very important, a quarter of the receipts of the whole Tientsin-Pukow system coming from them. At any rate he thought that the Tientsin-Pukow and the Tsingtao-Tsinanfu Railway should be placed under the same man- agement. As for the traffic manager, one person could offer much quicker service. Baron Shidehara said that he still hoped that the Chinese dele- gates would be able to agree that, while a general traffic manager might be one person for the whole line, there should be appointed 151 for the Shantung Kailway section a Japanese expert, to be recom- niended. by Japan. He could be placed under the Chinese super- vision. He thought that that was a very modest suggestion on the Japanese part. He added that he might suggest that the Chinese Government should appoint a general traffic manager for the whole combined line of the Tientsin-Pukow and the Tsingtao-Tsinan, while Japan might recommend an assistant traffic manager, who would be responsible for the Shantung branch only. It was said to be the intention of the Chinese delegation to bring the two railways under a unified system. That would in no way be obstructed; only it was desired that a Japanese expert should be appointed under the name of assistant traffic manager, or some such title, to take charge of the Shantung branch under the Chinese supervision. Dr. Sze said that he was not quite sure whether he had the full authority to say that a Japanese might be appointed for the Shan- tung Eailway after it became amalgamated with the Tientsin- Pukow Eailway. It was a question which had to be referred to the legal adviser of the latter line. It might be simply a matter of for- mality, but he and his colleagues had not gone through the necessary steps in making their suggestion in this regard. When he was actually associated with the railway administration of China, he had entertained a dream, to which he had already alluded, that all railways in China should be unified and run at a minimum cost in order that cheaper service might be offered to the public. When he was a director of the Peking-Hankow Railway, there were three principal assistant managers. Two of them were stationed at Peking and Hankow. However, he had decided that the one at Hankow could be dispensed with, and thus had effected economy without prejudice to the efficiency of the management. To meet the Japanese wishes, he had suggested the appointment of a district engineer from among the Japanese experts already in the service of the Chinese railways. Baron Shidehara said that Dr. Sze was talking of the district engineer, while the point they were now discussing was the traffic manager. He did not thing the Japanese suggestion would in any way interefere with the plan of the unification of Chinese railways; nor would China have anything to sacrifice in the matter of effi- ciency. China would have her own traffic manager for the whole system and the Japanese traffic manager would be placed under his supervision. He would not be particular about the name of the traffic manager; he might, perhaps, be called district traffic man- ager. He did not think it would involve special expense to appoint one traffic manager for the Shantung Railway section. It would be worth while to have a special traffic manager for that section. He thought the two delegations were now nearer together. Dr. Sze said that his personal idea was that none of the three ex- perts were necessary for the Shantung Railway : but. by way of com- promise, he had offered that a Japanese engineer might be em])loyed. He would state that the Tientsin-Pukow Railway was being run ver}^ cheaply, as was clearly shown in the statistics. Cheap service was being offered both to passengers and freight, because the running- expenses were small. It was deemed most important that the lines should be joined with the Tsingtao-Tsinan Railway. Both of them 152 would profit by it. At present, on account of the lack of connec- tion between them, the shippers had to bear unnecessary expenses. Baron Shidehara said that his suggestion was that the Shantung Eailway should be considered as a branch of the whole line, and that a district traffic manager might be appointed for that branch on the recommendation of the Japanese Government. Dr. Sze said that at Tsinanfu there was already a large force of officials. Dr. Koo observed that he was afraid that throughout his col- league, Dr. Sze, had been speaking about the engineer, while Baron Shidehara had been speaking about the traffic manager. Baron Shidehara said that he had not been talking of the engineer. The line had already been constructed. He had been suggesting that a Japanese traffic manager should be appointed. Dr. Sze said that from the point of view of the railway, traffic and finance should be unified. In the case of the Peking-Mukden Bail- way, there were good connections for Siberian traffic at Mukden. And at hrst it was thought more expedient to have an assistant traffic man- ager, but later it was found that that was unnecessary. He thought that the Japanese delegates would find that an assistant traffic man- ager Avould be superfluous. Personally, he thought no special for- eign experts would be needed in connection with the Shantung Kail- way, but as a matter of compromise he had suggested the appoint- ment of a Japanese chief engineer. He thought, if only from the point of view of the investors, it would be most advisable to curtail the expenses of the management as much as possible. Baron Shidehara asked what the function of the chief engineer would be. Dr. Sze replied that his function would consist in looking after the maintenance of the raihvay. Baron Shidehara wcridered whether the engineer would have any- thing to do Avith the traffic department. Dr. Sze replied in the negative. Baron Shidehara said that the Shantung Railway having been already completed, he thought that an engineer might not be very necessary, but the traffic department would always be much occupied, so that a special man for that post would be needed. If the Chinese delegates felt that the appointment of the Japanese traffic manager w^ould create bad impressions or misgivings in the popular mind in China, he could not share that view. He had no intention of inter- fering in the consummation of the unified system of the Chinese railways, and the appointment of a Japanese district manager in Shantung would not militate against the idea. Dr. Sze said that he thought that in certain cases of amalgamation of railways in China, there w^ere no special experts appointed for the small lines absorbed. In offering the appointment of a Japanese district engineer for the Shantung Eailway, the creation of a new precedent was being proposed. It might be added, moreover, that it would be impossible to expect that very able Japanese railway experts would be willing to assume a post on the Shantung section. Baron Shidehara said that if it was a question of life service there might be some reluctance on the part of the Japanese railway ex- perts to accept a position on the Shantung Eailway, but it was a question of only a few years. He felt sure that a good and able 153 man might be persuaded to accept that position. Moreover, the ap- pointment of the Japanese experts would not be expensive at all if the benefit that would accrue from such appointment to the general efficiency of the Shantung Railway service were taken into con- sideration. Dr. Sze said that the figures that one of his experts had just passed to him showed the great expense that would be involved in the ap- pointment of an extra chief engineer and that he had already been placed in an embarrassing position on account of his commitment on the point of employing a Japanese engineer. Therefore, he hoped Baron Shidehara would not press him any further. If the decision was put off another day, he was afraid that there might be more figures forthcoming to make his position still more embarrass- ing. To sum up, the Chinese proposal was that the delegates should recommend to their Government to effect the connection of the Tientsin-Pukow Railway and the Shantung Railway at the earliest opportunity, with a view to the efficiency and economy of the serv- ice; further, to employ a Japanese chief engineer on the Shantung section. Baron Shidehara said that he felt both sides had now been brought much nearer. It was now simply a question of the traffic manager. Considering the shortness of the period and the small amount of expense that would be incurred, the Japanese suggestion seemed to him a very modest one. It seemed to him the more so because the Japanese delegation had given up the original plan of a railway loan agreement and agreed to take the treasury notes of the Chinese Gov- ernment. In fact, he felt that he and his colleagues had gone too far and that there might come objection from the Japanese side. Dr. Koo §aid that there was not really much difference; that the Japanese delegation called it " traffic manager " and the Chinese called it " chief engineer." The Chinese delegation had done their very best to find a compromise plan out of this very complex situa- tion. With the understanding that the Chinese Government should declare its intention to appoint for the service of the Shantung Rail- way such Japanese engineer as might be found available from those Japanese experts who were already in the service of other Chinese railways, he hoped that it might be considered that this phase of the question had been happily terminated. Baron Shidehara said that when they had adjourned the preced- ing Saturday there remained three important points in regard to the Shantung Railway. The first was the question of treasury notes, the second the question of period, and the third the question of railway experts. The Japanese delegation had already expressed their will- ingness to go far in regard to the first and second questions. Although there still remained the minor question of three or five years in regard to the period of redemption, if only the Chinese delegation would be ready to give them satisfaction in regard to the third point the whole question would be practically settled. It might be added that, al- though in regard to the third question the Japanese position had iDeen that the chief engineer, traffic manager, and chief accountant should be engaged by China by the recommendation of Japan, it was not his intention to press the point concerning the chief engineer. With regard to the other two posts the Japanese delegation would be satis- fied that they should be that of district traffic manager and district 154 chief accountant, instead of bein- So long as the essen- tial points upon Avhich they placed especial importance were not accepted, the only course left open to the Japanese delegation was to report the whole matter to Tokyo before proceeding any farther in the discussion. It was far from his intention to intimate that negotiation should be suspended. If it was to be suspended, he hoped it would be only for a short time. In the meantime he hoped, if agreeable to the Chinese delegation, that they might discuss other matters relating to the settlement of the Shantung question. He hoped, moreover, that the Chinese delegation would also be good enough to communicate with the Peking Government and obtain instructions. The wdiole question could not be satisfactorily settled W'ithout concession on both sides. He hoped that his Chinese col- leagues would make the situation clear to their Government, and that they might again meet after both sides had received instructions. Dr. Koo said that Baron Shidehara had made the Japanese posi- tion very clear. He had no intention to prolong the conversation too much, but it seemed to him that the whole difference, if it was a difference at all, centered around the point of expert assistance for the railway. Perhaps he ought to repeat that the Chinese delega- tion had understood from the beginning that in asking them not to insist upon cash payment the Japanese delegation had desired to retain interest in the railway of such nature as certain foreign powers, generally had in railways in China. While they found great diffi- culty to meet the Japanese delegation on that point, the Chinese dele- gation had agreed to give Japan interest to the same extent as the British had in the Tientsin-Pukow line. It might perhaps be asked wherefore this particular line should have been mentioned. The answer was that the Tientsin-Pukow line was right next to the Shan- tung Kailway and that it was China's intention to connect these two lines and run them as one system. It was desirable, therefore, that these two lines should be placed on the same footing as far as foreign appointment was concerned. He washed only to add that the question of the railway had now been discussed for 10 days under the impres- sion — almost on the understanding — on the Chinese side, that the Japanese delegation throughout would have been communicating with their Government. It was rather a matter of surprise that they 3 71 had not obtained instructions before. As to the sugo;estion that meanwhile other questions should be taken up, it was rather difficult for the Chinese delegation to see their way to follow it. He might be allowed to recall that at the first meeting the Chinese delegation had asked that the railway question should be discussed first. In deference to the desire of the Japanese delegation, the question had been postponed a week, until the pressure upon the Chinese delegation had become too strong to postpone that question any further. They had now been engaged 10 days in the discussion of that question. If they were to proceed to other questions while leaving both sides in uncertainly as to the eventual outcome of the railway question, which was admittedly the most important of all, he and his colleagues wondered whether it would really be wise either for the Chinese or for the Japanese delegation. If they were not to come to an under- standing on this important and complex question of the railway, but were to take up other questions while leaving this matter to future settlement, he doubted whether much time would be really gained. For it was possible that if, a week later, they were to take up the question of the railway again, after dealing with other questions, a great deal of time would be required to refresh their memories on various phases of the question. That was the view of the Chinese delegation with regard to the future course to be taken. Baron Shidehara said that, while Dr. Koo expressed surprise that the Japanese delegation should not have obtained instructions earlier, it was practically impossible for them to do so until the decisive nature of the Chinese plan had been made clear to them. The dis- cussions for the last few days had been entirely devoted to finding out the exact nature of the Chinese plan. Of course, the Tokyo Government had been kept informed of what had been taking place at the meetings. He might, perhaps, frankly state that in regard to the settlement of the railway question, the Japanese delegation had not received any instructions from home. As he had already stated, they had been proceeding without waiting for any instructions from home, taking upon themselves the whole responsibility for what they had so far done. As for his suggestion that other questions should be taken up pending further discussion on the railway question, it was based simply upon the idea that if the meeting should now be suspended it would give an impression to the public as if there were a break-up expected. He did not want to give that impression. In fact, there was no break-up. If instructions from Tokyo should be entirely at variance with the Chinese plan, then a break-up might arise. At present, however, he was really looking forward to some communication from Tokyo which would provide reasonable basis for continuing discussions. He had thought it would be useful to discuss other matters meanwhile, but if the Chinese delegation were not inclined to do so the only course was to adjourn until further call. He trusted, however, that the Chinese delegation were as anxious as the Japanese delegation to reach a settlement of the whole question. As he had said before, there must be found some means of adjustment. If that were the case, he did not see Avhy other mat- ters should not be taken up pending instructions from home. Dr. Sze said that Baron Shidehara's apprehension on the score of the impression that the suspension of the conversations might give to the public mind might easily be disposed of. Moreover, if the sub- 172 ject of discussion were to be changed, it would become necessary for the Chinese delegation to make explanation to their own people. Therefore, so far as that part of Baron Shidehara's observation was concerned the result would seem to be the same either way. Dr. Koo asked whether he was to understand that the Japanese delegation wished to await instructions on the mode of payment. Baron Shidehara said that he was not quite sure if it would be accurate to say "the mode of payment," for the retention of certain interest in the railway, for instance, could not properly be called a question of payment. Dr. Koo said that was what he meant in asking the question. The one point upon which the two delegations had not been able to agree was the question of expert assistance. He meant to ask if it was upon that point that the Japanese delegation desired to wait upon in- structions. Baron Shidehara said that the position was that the Japanese Gov- ernment might prefer cash payment instead of treasury notes; he could not say at that moment what attitude Tokyo might take. The Japanese delegation proposed to submit the whole matter to their home Government. Should cash payment be preferred, the question of deposit had yet to be decided. Dr. Koo said that he had referred to the question of Japanese ex- pert assistance because he understood the Japanese delegation to attach special importance to that matter. He wondered whether the Japanese delegation had any preference as to the two alternative plans. Baron Shidehara said that he could not say that the Japanese delegation had any preference for either plan. It was difficult for them to agree to the plan of payment by treasury notes on the terms offered them. For instance, as regards the interest Japan desired to retain in the railway, if it was confined to the extent of having a Japanese district engineer, they did not feel justified in recommend- ing to TolrV'O, on their own responsibility, that the plan should be accepted. If the plan of the payment by treasury notes was to be accepted, he felt that the question of traffic manager and chief ac- countant should have first to be decided in a way satisfactory to Japan, but the Chinese delegation had not been able to give satisfac- tion on the question of personnel. He would therefore like to leave the matter in the hands of the Japanese Government, who would consider the whole situation and come to a decision as to what they should do. It would not take long for the Japanese Government to give instructions to the delegates, for it had been kept informed of the results of previous discussions. But since the delegates them- selves had not until that day clearly understood the exact nature of the Chinese projDosition, it was impossible for the Japanese Govern- ment to have given definite instructions earlier. Perhaps the in- structions might be sent almost any moment. Dr. Sze said that, therefore, adjournment should be taken, in the hope that instructions might come to-morrow. Baron Shidehara said that he hardly expected to have instructions so soon, though he would do his best to ask for instructions as soon as possible. Mr. Hanihara wondered if he might ask a question. He desired to be informed if, in the situation as it stood, there was nothing for 173 the Chinese delegation to ask further instructions about from their Government. Dr. Sze said that if they asked for instructions Peking would say that China had shown everything. Dr. Koo said that, indeed, the Chinese delegation had shown every card in their hand, while, after 10 days, they still did not know what was the exact position of the Japanese delegation. Mr. Hanihara suggested adjournment until Tokyo was heard from. Baron Shidehara said that he sincerely hoped that the Chinese delegation would report the whole situation to Peking and get in- structions. Dr. Sze said the Chinese deelgation were informing their Govern- ment every day. Baron Shidehara asked if they had no further instructions to ask from Peking. Dr. Koo said that the Chinese delegation had been exceeding their instructions considerably. Baron Shidehara said that in that respect, the Japanese delega- tion was doing the same thing, and perhaps in a greater degree. The communique was issued in the annexed form (Annex I). SJC-17] Annex I. December 20, 1921. [For the press.] Issued hy the Chinese and Japa/nese delegations. At the seventeenth meeting of the Chinese and Japanese delegates relative to the question of Shantung, held at the Pan American Union Building at 3 p. m. to-day, the two delegations discussed the question of the plan of payment in cash of China's liabilities regarding the Shantung Eailway properties and also an alternative plan of the pay- ment in Chinese treasury notes, having special reference to the ques- tion of the appointment by China of Japanese experts in the service of the Tsingtao-Tsinanfu Hallway, as proposed by the Japanese dele- gation. These questions involving points on which it was found necessary for the Japanese delegation to consult with its home Gov- ernment, the meeting adjourned at 6.30 p. m. pending receipt of in- structions by the Japanese delegation from Tokyo. EIGHTEENTH MEETING. The eighteenth meeting, held in governing board room, the Pan American Union Building, Washington, D. C, at 5 o'clock in the afternoon of Wednesday, January 4, 1922. PEESENT. China.— Dr. Sao-Ke Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries : Mr. T. Y. Tsai, Mr T. F. Hsu, Mr. C. H. Zee, Mr. Chuan Chao, Mr. T. H. Koo. 93042—22 12 174 Japan. — Baron K, Shidehara, Mr. M. Hanihara, Mr. K. Debuchi. Secretaries: Mr. S. Saburi, Mr. E. Kimura, Mr. H. Saito, Mr. T. Shiratori. Also present as observers : The United States of America. — Mr. John Van A. MacMurray, Mr. Edward Bell. The British Empire. — The Right Hon. Sir John Jordan, G. C. I. E., K. C. B., G. C. M. G. ; Mr. M. W. Lampson, M. V. O. THE QUESTION OF RAILWAY. Baron Shidehara said that he was happy to feel that with the ad- vent of the New Year they were able to resume consideration of the question of the Shantung Railway. The Chinese delegates would remember that at the last meeting he had recapitulated the progress of discussions on the question. He had stated that the only plan which the Japanese delegates had felt could be recommended to the Japanese Government as a sul)stitute plan of the original proposal of the joint enterprise was a plan of ordinary railway loan agree- ment on the basis of terms of similar agreements of comparatively recent dates. At that time the Japanese delegates had had no au- thority from Tokyo to make such a proposal but they had taken upon themselves the whole responsibility to make that proposition, so that if that was agreeable to the Chinese delegates they might recommend the Tokyo Government to consider that new plan. Un- fortunately, however, that plan had not been found acceptable to the Chinese delegates and the latter had offered two alternative plans. First, the plan of the immediate cash payment, and second, the plan of payment in treasury notes. After considerable discus- sions both the delegations had found, much to their regret, that they could not come to an agreement, and the Japanese delegates had thought that the only course left for them was to report the whole matter to Tokyo and ask for instructions. The Japanese delegates had now received instructions to the effect that the Japanese Gov- ernment, being anxious to find a speedy and satisfactory solution of the whole question, would be ready to agree to the plan of the \j railway loan agreement, but that was the limit of their conces- ' sion. It was not possible for them to agree to any plan short of an ordinary railway loan plan. In the situation, the Japanese dele- gates thought the only way left for them was to ask the Chinese delegates to reconsider the whole matter and the Japanese delegates would be glad to hear any suggestions which the Chinese delegates cared to make. Dr. Sze said that in order to avoid any possible misunderstanding it would be advisable to have a clear notion of what was in the mind of Baron Shidehara. He wondered whether the Chinese delegates should consider what Baron Shidehara had said as final or as still subject to further prolonged reference home. Baron Shidehara said that the Japanese delegates were quite will- ing to resume the conversations and exchange views in the matter. What he had stated was the substance of the instruction received from Tokyo. Dr. Sze said that he wanted to know to what extent the conver- sations could be carried on to useful purpose. If only exchanges 175 of views were to be continued on vague lines, it would be mere waste of time. Therefore he wanted to be very clear on that point. Baron Shidehara said that if Dr. Sze meant to ask if what he had said was final, he did not want to say that it was. To avoid such inference, he had said that the Japanese delegates were ready to hear suggestions from the Chinese delegates. Nothing was final between friends. Dr. Sze said that he understood that certain steps had been taken in Peking by the Japanese minister in regard to the Shantung ques- tion. He was sorry that the Japanese delegates had not taken the Chinese delegates into their confidence. Baron Shidehara said that there appeared to be certain misun- derstanding as to what had transpired in Peking between the Chi- nese minister of foreign affairs and the Japanese minister there. The Japanese minister simply intended to ask the attitude of the new cabinet of China on the Shantung question. Of course, the Japanese minister had expressed his hope that a speedy answer would be given to his question, but nothing in the nature of finality had been spoken. Dr. Sze said that the Japanese minister had wanted to have a categorical reply. Baron Shidehara said that what the Japanese minister had asked was whether the Peking Government favored or were against the railway loan agreement plan. It would only be natural to make such inquiry of a new cabinet to ascertain whether its policy would be different from the policy of the outgoing cabinet. He had not full information as to the conversation which had taken place in Peking, but, so far as he had been informed, the Japanese minister simply put to the Chinese minister of foreign affairs a question as to whether the new cabinet was going to follow the same policy hither- to adopted. He had not said anything in an unfriendly spirit. Dr. Sze said that, according to the information he had, Mr. Obata, under instructions from the Japanese cabinet, demanded of the Chinese Government a categorical reply as to whether the loan agreement plan was agreeable. The Chinese delegates were sur- prised at such development of affairs. They should have been taken into confidence by the Japanese delegates if such steps were to be taken. The British and the American friends at the table should also have been previously informed of any such demarche taken by Japan. In resuming their conversation, the Chinese delegates desired to know clearly to what extent the Japanese delegates had authority to negotiate. Baron Shidehara replied that he and his colleagues had the same authority as before. Dr. Sze said that if they were discussing the matter in the same way as before, and if finally the Japanese delegates were to say the same thing and refer the matter to the home Government, it would cause the Chinese delegates great inconvenience. He and his col- leagues, therefore, desired to be clearly informed as to that point. After the Chinese delegates had offered two plans, and those two plans had been found unacceptable by the Japanese delegates, he desired to know what the Japanese delegates intended to propose. 176 Baron Shidehara said that what Japan now intended to propose was a plan of an ordinaiy loan agreement on terms of such loan agreements as China had concluded with other foreign nationals. Dr. Sze said that one of the plans proposed by the Chinese dele- gates contained terms even more favorable than the terms of the Tientsin-Pukow Railway loan, and also the terms of the Kirin- Hueining Railway loan. Baron Shidehara said that the Japanese proposal was that the loan contract should be made along the lines of loan contracts of com- paratively recent dates. Dr. Sze said that the Kirin-Hueining Railway loan was of a very recent date. Baron Shidehara stated that that loan contract was still in a stage of preliminary agreement. It was only provisional and had not been signed. Dr. Sze said that that agreement had not been signed because the Japanese financiers desired certain changes in the terms. Baron Shidehara said that he had not yet studied the loan con- tract regarding the Kirin-Hueining Railway, but that he had in mind some loans contracted in 1913 and 1914. He understood that there were three or four loan agreements made in those years, and that since that time no new agreements had been concluded. Dr. Sze said that as he remembered it had once been pointed out by Baron Shidehara that the plan of the loan agreement was brought up because the management and operation of the Chinese railway'' were not efficient enough. The Chinese experts had made special studies of that matter and made a comparative investigation of the Kirin-Changchung Railway and the railways under purely Chinese management. They further made comparative studies of the Jap- anese and Chinese railways, so far as statistics were available in regard to the former. Such studies tended to show that the Chinese could manage their railways efficiently. He would read to the Jap- anese delegates the statistics, but before that he would recapitulate the Chinese position in the question under discussion. Here Dr. Sze read his statement (Annex I). Dr. Sze, continuing, said that he had given a considerable length of time to reading the statement, which he would have avoided if he could have helped it. The Japanese disinclination to entertain either of the two plans might have been based on the misapprehen- sion of the Chinese efficiency in management. He thought that it would be only fair to give that account of the actual condition of the Chinese railway. That statement was not made with any idea of disparagement of the Japanese railway administration. It was simply made with the hope that with such information the Japanese delegates might be able to see their way to reconsider the plans suggested by the Chinese delegates. Dr. Koo said that his colleague had clearly summarized the va- rious stages which the Chinese delegates had traveled through in order to meet the Japanese wishes. The gist of Baron Shidehara's observations seemed to be that the Japanese delegates now desired to revert to the position of asking China to accept the Japanese loan for the purpose of effecting payment for the Shantung Railway properties. That question of Japanese loan had been brought up before at one of the previous meetings and he recalled that the 177 Chinese delegates, on their part, had given reasons why they would not be able to accej)t that plan. Amongst others, he recalled two reasons which had been given. The first was that this Shantung Railway stood in a different position from the general class of rail- ways for which loan contracts had been entered into by China. The program here was really about the act of sale on one side and the act of purchase on the other. It was very difficult, at least so far as he could see, to support the demand on the part of Japan that China, in paying for the Shantung Railway, should contract a Jap- anese loan, the more so because China had offered cash payment. In fact, that was the original Chinese proposal and they still preferred that plan. But, in deference to the Japanese desire to retain an interest in the railway, the Chinese delegates had adopted the method of deferred pa^^ment. The second reason that had been given was that the insistence by Japan upon the plan of the railway loan contract would give rise to various misgivings in China. Moreover, it would be difficult to explain to the Chinese bankers who had made offers to the Chinese Government. On the other hand, the Japanese proposal would also offer grounds for misgivings because, as the Chinese delegates understood, Japan had proclaimed her sincere desire to return to China the properties formerly held by Germany, and also because later they had offered to restore the railway to China's full OAvnership and operation. He now wished to know the real purpose of the Japanese Government in insisting on China tak- ing a loan from Japan. By previous discussion of the question, he had been given to understand that the Japanese position had been to relinquish the idea of loan contract and consider the Chinese plan of deferred payment, and that the difference had centered around minor points — the mode of making deposits in the one case and the employment of experts in the other. To-day, he and his colleagues understood that the Japanese delegates desired to revert to the original plan of Japanese loan. He was not able to understand the reason why his Japanese colleagues should advance this proposal again. He should be glad to learn the grounds for this stand of the Japanese delegation. Baron Shidehara said that, if he understood correctly, his Chinese friends seemed to presume that the Japanese delegates had agreed unconditionally to the sale of the railway properties, but that was not at all the case. It must be remembered that all terms of adjust- • ment of the question under discussion were mutually interdependent. One of the terms was naturally the transfer of the property, and another term was that the railway loan plan should be accepted. They were mutually dependent. The Japanese delegates had not agreed to sell the railway unconditionally. If the Chinese delegates started from the presumption that the Japanese delegates had agreed to sell the railway properties the conclusion would loe utterly erro- neous. Dr. Koo had just said that the two Chinese alternative pro- posals had been agreed to, but the Japanese delegates had made it clear that the only plan which they could assume responsibility upon themselves to recommend to their Government was the plan of rail- way loan agreement. It was true that the Chinese proposals had been discussed, but then it was only for the purpose of clarifying the precise nature of those plans. The proposal of the Japanese Government itself had always been the plan of joint enterprise. That, however, being found unacceptable to the Chinese delegates, 178 he and his colleagues had said that they would recommend to their Government the plan of loan agreement as a substitute. The Chinese delegates had not felt free to agree to that substitute plan and there the whole matter had come to a deadlock. The matter had been submitted to Tokyo, and the Japanese Government now, for the first time, proposed the plan of loan agreement. What he desired to laiow was whether it was. the intention of the Chinese delegates to consider this plan of railway loan agreement, to take that as a basis of further discussion. If they felt that there was no room for them to reconsider their position on that plan, he did not know what to do. As to the long statement Dr. Sze had just read, he would like to reserve for a future occasion any comment that he might feel inclined to make in reply. Dr. Koo said that, to confess the truth, he and his colleagues had Tiot expected that their Japanese friends would again propose the loan agreement plan. He would be much obliged if reasons for Japan preferring the loan agreement to either of the Chinese plans could be given. Baron Shiclehara said that those reasons had been clearly stated on several occasions before. The Japanese point of view was that these railway properties Avere now Japanese property; that they were certainly not Chinese property. Now, in transferring to China those Japanese properties Japan desired to retain a certain interest in the railway, an interest such as other foreign nationals were freely permitted to possess in many Chinese railways. She pro- posed to hand over the railway properties to China while retaining only interest of that nature upon them. It was not meant to retain the management or operation of the railway, which would go to the Chinese Government. Even with regard to the employment of experts, Japan had expressed her intention that these experts should be placed under Chinese higher railway authorities. Dr. Koo said that, in other words, the main consideration with the Japanese delegates was apparently the retention of some in- terest in the railway. If he remembered correctly, it was the con- tention of tlie Japanese delegates that the Chinese plan would result in discrimination against Japan. It was in order to forestall such impression on the part of the Japanese people that the Chinese dele- ' gates had proposed the plan of deferred payment. They were still ready to meet their Japanese friends that far. Baron Shidehara asked if he understood that his Chinese col- leagues meant to hold to either of the two plans proposed by China and that they could not consider the plan of railway loan agree- ment. As he had said a moment ago, the Japanese Government could not go any farther than the plan of loan agreement. That was the limit of their concession. He would like to know if the Chinese delegates could not agree in principle to that plan. Dr. Koo said that the Chinese position was to meet by deferred payment the Japanese wish to retain interest in the railway. Baron Shidehara said that Japan wanted to retain that interest by means of this loan agreement plan. Dr. Koo asked why that particular form was desired. Baron Shidehara said that that particular form happened to be quite common in regard to railways in China. He wanted to know 179 why China should find it difficult to adopt that plan for this par- ticular railway. Dr. Sze said that the analogy did not apply to the Shantung Rail- way, the line having long been built. China had taken the first opportunity to take over the Peking- Hankow Railway by making use of a loan from the Banque de Chine and the Hongkong & Shang- hai Banking Corporation. The two banks had furnished the loan but had not made any demand for control of the railway. In regard to the Shantung Railway, China had agreed to give Japan much more than to the Belgian Bank and the Hongkong & Shanghai Bank. Baron Shidehara said that if there were any difference between this case and the other cases, he felt that the benefit of that difference lay with Japan. In the present case the property in question was Japan's property. There was a fundamental difference between this and other railways. He did not recall any case where foreign prop- erties had been handed over to China under such generous conditions as were now proposed by Japan. Dr. Sze said that no useful purpose would be served by academic discussion of the legal phase of the railway ; he would only mention that China had a share in the railway properties. Baron Shidehara said that shareholders were not the owners of properties. He agreed with Dr. Sze that it would serve no use- ful purpose to stick to legal questions — only he desired to know if there was no room for the Chinese delegates to consider Japan's offer of an ordinary railway loan agreement. He did not mean to impose this plan upon them. He merely wanted to know if they could not reconsider their position in regard to that plan. Dr. Sze said that the original Chinese proposal was to give Japan interest in the railway. If Baron Shidehara could give reasons for preferring the loan plan, it would help the Chinese delegates a great deal. Baron Shidehara said that, as the Chinese delegates knew, the plan of railway loan agreement was a plan of compromise. The Japanese Government found it impossible to agree to the plan of a cash payment or to that of treasury notes. In insisting upon the original plan the Chinese delegates were apparently not prepared to make any more concessions. Dr. Sze said that the Chinese delegates had made so many con- cessions, and that they must request to be told in what point their plan was unacceptable. Baron Shidehara asked if it was clear to the Chinese delegates that the plan of cash payment would give no interest to Japan in the railway. Dr. Sze answered in the affirmative. Baron Shidehara asked again if it was clear to Dr. Sze that the plan of deferred payment would give to Japan interest in the rail- way to a very much less extent than that ordinarily granted to for- eign capitalists in other railways in China. Dr. Sze said that the plan of deferred payment would give to Japan much more interest in the Shantung Railway than the British had in the Tientsin-Pukow Railway. Baron Shidehara said that Japan wished the same interest as for- eign capitalists had in other railways. He wondered if it would be 180 useful at all to continue discussion of reasons and argument about legal technicalities. Dr. 8ze said that if the Japanese proposal were made clear to the Chinese delegates they would, perhaps, be prepared to make conces- sions. As it was, it was as if they were groping in darkness. Baron Shidehara asked if the proposal was not really clear to the Chinese delegates. Dr. Sze said that he regretted to say that it was not. Baron Shidehara said that when he mentioned instances of rail- way loan agreements he did not have in mind such a railway as the Tientsin-Pukow Kailway, which had so long been in operation. He meant later loan agreements which China had concluded with British, French, and other financiers. Dr. Sze said that the most recent agreement was that for Kirin- Huei-ning Railway concluded with Japanese capitalists. Baron Shidehara understood that that agreement had not been con- cluded yet. Mr. Hanihara said that as far as he knew there was only a provi- sional agreement, and in that agreement there was no mention of the term of the loan. The negotiations had been going on for two years and had not yet been concluded. Baron Shidehara asked if the Chinese delegates objected in prin- ciple to the plan of the railway loan agreement. Dr. Sze said that the Chinese delegates could not agree to anything vague. In the Japanese note of September 7 the term " in general " had been used. Baron Shidehara now asked if the Chinese delegates agreed " in principle." Although these terms were very generally used, he confessed he did not know what was really meant by them. Baron Shidehara asked whether the Chinese delegates were dis- posed to discuss the railway loan agreement. Dr. Sze said that first of all he desired to have a clear notion in his mind in what respect the Japanese delegates found the plan of deferred payment unacceptable. If Baron Shidehara would be good enough to explain more in detail, he and his colleagues might be able to consider the Japanese proposal. Baron Shidehara wondered whether Dr. Sze meant to say that the Chinese delegates could not see any difference between the loan agreement and the deferred payment. Dr. Sze said that in a sense he saw the difference, but that under the plan of deferred payment the Chinese delegates had gone so far as to agree to the appointment of the Japanese district engineer. He desired to hear further explanation as to what was in the mind of the Japanese delegates, because he and his colleagues were trying to meet the Japanese delegates as far as possible. Baron Shidehara thought that the Japanese delegates had clearly stated their position several times. The Chinese delegates knew very well that the deferred payment suggested a direct transaction be- tween the two Governments, while the loan agreement suggested a transaction between the Chinese Government and Japanese capi- talists. He had already repeatedly explained that it would not be proper for the Japanese Government directly to hold interest in the Shantung Railway after it was handed over to China. Dr. Koo stated if the Japanese Government were to forego their direct interest in the railway, the situation would be clearer. The 181 Chinese Government would incur a debt to the Japanese Govern- ment. A government might not be free to hold such interest, but would surely be free to be a creditor ; various European Governments were now owing large sums of money to the American Government. In other words, it was not the first time that the plan of loan agree- ment had been brought up and the difficulty of the Chinese delegation in accepting such a plan still remained to this day. Because of that difficulty, the Chinese delegates had tried hard to find a way to meet the Japanese wishes to retain interest in the railway in some form and it was in order to get the two delegations out of the difficulty that the plan of the deferred payment was conceived. He and his colleagues had felt happy because that mode of payment seemed to them to meet the wishes of both sides. The Chinese delegates still hoped that the form would be abandoned and the substance taken by the Japanese delegates. The concession on Japan's part would be very little, but to the Chinese delegates it would mean a great deal, because Chinese bankers had offered to raise the necessary funds for the purchase of the railway. Baron Shidehara asked whether the difference between the de- ferred payment and the railway loan agreement was realized by the Chinese delegates. Dr. Koo replied that undoubtedly there was a difference of form. Baron Shidehara said he did not know whether it was a matter of form. There was a vast difference between a direct transaction between Governments and transaction between a Government and capitalists. The interest to be retained in the plan of the deferred payment would be the interest of the Japanese Government, where- as, under the loan agreement, the interest to be retained would be the interest of the Japanese nationals — of the private Japanese financiers concerned. There was a difference between the two, and that not only of form, but in substance. Dr. Koo said that it seemed to the Chinese delegates that a much wiser thing to do would be to settle this question of debt between the two Governments without introducing any third party. The Japanese capitalists had no standing in this question. Their intro- duction would mean complication in the matter. Baron Shidehara said that if that were the wise course for the Chinese delegates to take it was just to the same extent unwise for Japan to agree to it. The situation was quite clear. The Chinese delegates now recognized the difference between the plan of deferred payment and the plan of loan agreement. He wondered whether the Chinese delegates were not ready to discuss the ordinary loan agreement plan. Dr. Koo said that a distinction should be made between a railway projected to be built and one actually built. That explained one of the reasons why the Chinese delegates could not accept the plan of loan agreement for the Shantung Railway, apart from various other important reasons. Baron Shidehara said that at the same time the Chinese dele- gates should recognize the difference between the building of a new railway and the transfer of the railway and its appurtenant proper- ties already in the hands of Japan. 182 Dr. Koo said that he, of course, recognized the difference and that was the reason why an analogy between the Shantung Railway and other railways would not really be useful. Baron Shidehara said that Japan Avas now ready to hand over the Japanese properties on the basis of an ordinary loan agreement. That was a concession on Japan's part. He hoped that the Chinese delegates would consider the question overnight and see whether they could discuss the loan agreement. Dr. Sze hoped that the Japanese delegates would also consider the Chinese proj^osal of the deferred payment. Baron Shidehara said that the instructions received by "the Japanese delegates were to the effect that it was not possible for the Japanese Government to discuss the plan of the deferred pay- ment, which he understood to be the same thing as a payment in treasury notes. Dr. Sze said that if the plan of paying in treasury notes was a stumbling block, then the Chinese delegates could think overnight to find a means of getting around it. If any other point should be impeding Japan's acceptance of the Chinese proposal he and his colleagues would be glad to think that point over. They were always anxious to meet the Japanese point of view. Baron Shidehara said that he would be glad to hear the views of the Chinese delegates. He repeated that the treasury notes plan would in no case be acceptable to the Japanese delegates. Dr. Sze appreciated what Baron Shidehara had said, but asked him to remember that the Chinese delegates would find it very hard to explain if they were to reject the patriotic offer of the Chinese bankers to provide the necessary funds to purchase the- railway. Baron Shidehara said that, according to what he had heard at the last meeting, he thought that it would be impossible for China to make the cash payment in one installment. Dr. Sze said tliat if that was offering difficulty in the way of Japanese acceptance he should try to find a way out as to that point also. He was only too anxious to meet the Japanese delegates. The communique was issued (Annex II) and the meeting ad- journed at 7 o'clock until 3 p. m. to-morrow, if the meeting of the full committee on naval armament was finished in the morning, or at 5 o'clock if the said meeting should continue into the afternoon. Japanese Delegation, W ashington^ D. 6^., ^ January. 1922. SJC-18] Annex I. Statement hy the Chinese delegation. The conversations with regard to the railway have reached the following point: The Chinese delegation has proposed two plans for the acquisi- tion by the Chinese Government of the ownership and control of the railway. First plan. — Japan to transfer to China the railway and its branches together with all properties appurtenant thereto, includ- ing wharves and warehouses and other similar properties, it being understood that the question of the mines appurtenant to the rail- ]83 way shall be set apart for separate consideration. The said transfer to be completed as soon as practicable and not later than nine months after the coming into force of the agreement upon the whole Shan- tung question. China to pay to Japan the actual value of the railway properties, consisting of the sum of 53,406,141 gold marks or its equivalent plus the amount which Japan, during the period of her administration of the railway, has actually expended for permanent improvements on and additions to the railway properties, less a suitable allowance for depreciation. A Sino- Japanese joint commission to be appointed to arrange all matters of detail connected with the transfer of the railway and its appurtenant properties, or with the valuations of the improvements and additions. China to make a cash payment for the total amount due for the railway and its appurtenant properties, the moneys for which pay- ment to be deposited in a bank of a third power in the following manner: Two-fifths at the end of three months after the conclu- sion of the Shantung agreement, one-fifth six months after such date, and the remaining two-fifths nine months after such date. According to this plan no undertaking is to be given by China to employ upon the railway any officials of Japanese nationality. This plan the Japanese delegation is willing to recommend to its Government only under condition that China deposit the total amount to be paid in a hank of a third power at or prior to the time of the beginning of the transfer of the railway, and this sum to be paid to Japan pari passu as the transfer is proceeded with. Second flan. — The same as plan 1, except that payment is to be made by China in installments extending over 12 years, with an option on the part of China at any time after three years, upon giv- ing six months' notice, to pay all remaining unpaid installments. The first installment is to be paid on the day on which the transfer of the railway and properties is completed, and the remaining in- stallments to be paid in Chinese Government treasury notes secured on the revenues of the properties transferred. China herself to select and to employ in the service of the railway a district engineer of Japanese nationality. The Japanese delegation has agreed to recommend the second plan to its Government only upon condition that China appoint a Japanese associate traffic manager and Japanese associate account- ant upon the railway who are to cooperate with the Chinese traffic manager and Chinese accountant, and under the authority of the Chinese general manager of the railway. The Chinese delegation wishes to point out that the Japanese posi- tion is an unreasonable one as regards the insistence that China should pay into the bank, before the transfer is begun, the total amount to be paid, since this means not only that the money market will be disturbed by the creation in the bank of such a large credit in favor of the Chinese Government, but that the Chinese Govern- ment will, without any real necessity, lose a large amount of interest upon the sum thus deposited in advance of the time when it will need to be paid out. 184 As regards the insistence of the Japanese delegation that, if the second plan of deferred payments is adopted, a Japanese traffic man- ager and Japanese accountant, nominated by the Japanese Govern- \ ment, should be appointed by the Chinese railway administration, this also is unreasonable. A traffic manager has control over the character of service to be rendered shippers and the rates which will be charged them. This position thus would give to the Japanese not only the control over the revenues and expenses of the road to a large extent, and, there- fore, make its finances largely dependent upon their good will, but it would put within their keeping the most powerful weapon known to commercial warfare, and Avould permit of practically an unlimited economic exploitation of the territory served by the railway to the ; detriment of the Chinese merchants. The demand is thus one that is inconsistent with the avowed intention and desire of the Japanese Government that the railway should be returned to Chinese control. The position of the Chinese on this point can not be yielded with- out turning its back on 25 years of progress. From 1896 until 1908 the Chinese, their central Government, their provincial governments, and the general population resisted terms dangerous to their inde- pendence by evei'y expedient known to desperation. With the sign- ing of the Tientsin-Pukow agreement, however, a new attitude toward foreign assistance was brought about, and " Pukow terms " ever since have been considered synonymous with the terms satisfactory alike to the Chinese people and the other contracting parties. Japanese in- vestors themselves have recognized the propriety of such terms by naming them specifically as the basis for their latest contract for con- struction in Manchuria ; namely, on the Kirin-Huening line. Pukow terms provide that " after the completion of construction, the Chinese * * * Government * * * will appoint an engineer in chief,, who during the period of the loan shall be a European, without refer- ence to the syndicate." This engineer in chief was appointed for the precise purpose of guaranteeing that the way and structures of the line should be ade- quately maintained as a protection to the creditor. But the Chinese delegates have even strained the meaning of " Pukow terms " in the effort toward satisfying the objections of the Japanese delegates. While " Pukow terms " provide, not for the appointment of a Ger- man or a British subject, but merely for " a European," the Chinese have offered to appoint specifically a Japanese, rather than merely an Asiatic or a foreigner. Further stretching of these terms would jeopardize the fulfillment of any compact arrived at under these nego- tiations. A quarter of a century of struggle is at stake. The principal justification urged by the Japanese for the appoint- ment of the traffic manager has been what was conceived to be the necessities of the Japanese shippers along the line of the Shantung Eailway for efficient service. Doubts have been expressed as to the ability of the Chinese to give a service as efficient as that now rendered by Japanese. It has been proposed by the Chinese to consolidate the Shantung Railway with the Tientsin-Pukow Railway. The efficiency of the Shantung Railway under Chinese operation is to be indicated, therefore, by the efficiency of the Tientsin-Pukow Railway. It is not possible at the present time to compare the efficiency of the Tientsin- Pukow Railway with that of the Shantung Railway for the reason. 18& that no statistics on the Shantung Railway have been made public, but Japanese management on another Chinese railway is exhibited upon the Kirin-Changchun Railway and affords an excellent com- parison. For example, the percentage of revenues absorbed by oper- ating expenses are 69 on the Kirin-Changchun Railway as against only 48 on the Tientsin-Pukow Railway, clearly a most favorable showing for Chinese management. Besides, the rates upon the Tientsin-Pukow Railway are considerably lower in case of passenger fares and more than 50 per cent lower in the case of freight rates. Operating expenses per 1,000 service units (ton kilometer and pas- senger kilometer) are only $5.70 on the Tientsin-Pukow Railway, while they are $15.52 on the Kirin-Changchun Railway. The trains hauled by the Tientsin-Pukow Railway carry twice the number of tons and 50 per cent more passengers than those of the Kirin-Chang- chun, yet the fuel consumption per train kilometer on the Chinese- managed line is fully a third lower than that on the Japanese- managed line. It has been commonly said that the inefficiency of Chinese lines was to be found in the large number of workmen em- ployed compared with the amount of work to do. Yet on the Tientsin- Pukow Railway there are only 14.2 men per kilometer of line, while on the Kirin-Changchun Railway the average is 19.4. South Manchurian Railway statistics are so limited that it is im- possible to make comparison with other lines to any great extent. However, it appears that in 1919 the operating expenses absorbed over 45 per cent of gross revenues on the South Manchurian Railway, compared with 34 per cent of the Peking-Hankow (a younger line under purely Chinese management). The net revenues on the South Manchurian represent a return of less than 16 per cent on the prop- erty, while on the Peking-Hankow Railway they represent a 17 per cent return. Indeed, it can be demonstrated that the management of Chinese Government railways as a whole is not at all inferior to that of Japanese railways. Comparison can be made between the Chinese Government railways as a whole and the imperial Japanese railways. For example, in Japan 59 per cent of the revenues are required to pay operating ex- penses, while in China during the same year only 48 per cent was so required. The net revenue of the Japanese railways represents a return of 7.8 per cent on the property, whereas the net revenue of the Chinese railways represents a return of 9.2 per cent on the in- vestment. All of this is accomplished with rates which are very similar. Under normal rates of exchange, Chinese third-class pas- senger fares are slightly higher, but Chinese freight rates are slightly lower than Japanese rates. On the imperial railways of Japan the number of employees per kilometer per line averages slightly higher than on the Chinese Gov- ernment railways. Returning to the subject of the Tientsin-PukoAv Railway, with which the Shantung Railway may be consolidated, the excellent re- sults obtained upon that line are mere promises of what is undoubt- edly sure to come. This line has been open to traffic only about nine years. As is well known, a new line is unable to show as favorable results as one which has a longer history. For example, the operat- ing ratio, as stated above, in 1919 was 48 ; in 1915 it was 62. The re- turns upon the investment, which in 1919 was 7.2 per cent, in 1915 186 was only 1.8 per cent. The average train load has increased from 206 tons in 1915 to 319 tons in 1919. It is confidently asserted that, given sufficient time to develop traffic, Chinese railways are second to none in efficiency, measured-, of course, by the needs of the territory served. This is shown by the following comparison between lines over 200 kilometers in length, in which it is shown that the older the line the better it pays : Line. Date com- pleted. Yield on invest- ment. Peking-Mukden Peking-Hankow . . . Cheng Tai Shanghai-Nanking . Tientsin-Pukow . . . Peking-Suiyuan . . . 1898 1904 1907 1908 1912 1916 Per cent. 18.0 17.0 8.6 7.5 7.2 5.7 There are forces, other than mere time, working toward the fur- ther improvement of Chinese railways. When the Republic succeeded the Empire in 1912, it immediately started upon a vigorous program. This program consisted of two parts: (1) Increased construction, and (2) improved management of the existing lines. Within three years contracts for nearly 10,000 miles of lines were let, contracts which to this day remain unful- filled for the reason that contractors could not muster the funds nec- essary. But the administrative program has proceeded effectively and rapidly. The new Republic found that each railway in existence was a separate and distinct entity, always with a national characteristic and often with standards and practices which reflected strong personal tendencies on the part of its officers. Each of these 14 lines ren- dered its service absolutelj^ without reference to the existence of the other. There was less cooperation between these railways in China than between the railways of the different Governments of Europe. Within the space of nine years practically all of this has been changed. Passenger train schedules which made possible through connections, through tickets, and through baggage service were first provided for. Shortly afterwards through parcels (ex- press) service was added and at the present time a C. O. D. feature is in effect. A through train service has recently been added be- tween Shanghai and Peking, and during this year there will be installed five solid all-steel, all-Pullman trains running between Shanghai and Peking, provided the train ferry across the Yangtse River is completed in time. The difficulties in the way of through freight service were con- siderably greater; but to a large extent these have been over- come. Interchange of rolling stock and through billing arrange- ments were instituted something over a year ago and the account- ing for all of these inter-line matters is now taken care of by a central organization known as the clearing house, which is made a subordinate bureau of the ministry of communications. During this same period, also, a uniform classification for goods, uniform conditions of carriage, both for freight and passenger traffic, have 187 been promulgated and put into force. Most difficult of all has been the complete introduction of the metric system, both for weights and distances. This required three years of preparation on the part of the English lines, but all tariffs are now published with the metric system only. Effective February 1, 1921, shippers were offered an optional service, either at their own or at railway risk. During the past season conferences of operating officers have been held looking toward a standardization of operating rules, A standard system of car reports and rules for the distribution of cars to shippers has been adopted. For four years the subject of physical standards has been under active consideration. The introduction of the metric system was one phase of this, but because of its bearing upon interchange of rolling stock standard specifications for freight cars have received the most attention, and standards have been adopted for box cars, flat cars, and gondolas. Standard clearances also have been put into effect. But the subject which has been longest under consideration and is probably most nearly complete is that of standard accounts. As early as 1915 uniform classifications were promulgated covering capital, revenues, expenses, income, profit and loss, and balance sheet accounts, together with rules for train and locomotive kilo- metrage. A system of annual rej)orts was also installed and five such annual reports covering the financial and physical operations of all the Government railwaj^s have been issued, while a sixth will shortly appear. In the meantime, also, uniform accounts for sta- tions, for stores, and for construction engineering have been adopted. Workshop accounts and fuel efficiency accounts are next on the program for consideration. It is too early to appraise fully the value of this work toward standard administration. The United States and Japan are both familiar with the necessity of and with the great economies which result from the integrating of several railway lines into a single system. The results which have been obtained in Japan and America will certainly find their counterpart in China, Splendid as has been the financial and physical performances of the Chinese rail- ways when compared with the railways of other countries, these per- formances are sure to be improved as administrative standardiza- tion proceeds. The Chinese delegation, therefore, denies the in- sinuation of inefficiency which has been made against Chinese man- j agement. It can only believe that the insinuation was made with- out a fiill knowledge of the facts, and especially without a knowledge of the vigor with which Chinese management has revised and im- proved the instruments of administration. Only when the best Japanese railways are compared with the worst Chinese railways doe§ any advantage to the Japanese appear. There is every reason for the Chinese to wish to make the Shantung Eail- way prosper. For every Japanese whom it serves, hundreds and thousands of Chinese are served. Its profits would go to the credit of the Chinese railway treasury. Besides, in view of the statements which have been made in this conference, the Chinese management would conceive it to be somewhat under challenge, and accordingly be inspired to make a showing even better than that to which their ordinary energies would attain. The Chinese also are not un- 188 mindful that their stewardship upon this railway will be watched in other quarters where other railways similarly situated are con- cerned. More than the mere dollars and cents are involved, and the satisfaction of forei<^ners of more than one nationality is at stake. Hence, the interest of the Japanese nationals as creditors, as shippers, as purchasers of commodities produced in Shantung, or as sellers of Japanese commodities sold in Shantung will be adequately pro- tected wlien that railway is under Chinese management. It is not too much to say that the satisfaction of Chinese aspirations in this particular is fundamental to any betterment in the relations between China and Japan. Annex II. January 4, 1922. [For the press.] Issued hy the Chinese and Japanese delegations. The Japanese delegation having received instructions from Tokyo on the subject of the Shantung Railway, the Chinese- Japanese con- versations relating to the Shantung question were resumed at 5 p. m., Wednesday, January 4, 1922, in the Governing board room of the Pan American Union Building. The meeting adjourned at 7 o'clock p. m. until to-morrow, when discussions will be continued. NINETEENTH MEETING, The nineteenth meeting, held in governing board room, the Pan American Union Building, Washington, D. C., at 5.30 o'clock in the afternoon of Thursday, January 5, 1922. PRESENT. China.— Dt. Sao-Ke Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries : Mr. T. Y. Tsai, Mr. T. F. Hsu, Mr. C. H. Zee, Mr. Chuan Chao, Mr. T. H. Koo. Japan. — Baron K. Shidehara, Mr. M. Hanihara, Mr. K. Debuchi. Secretaries: Mr. S. Saburi, Mr. E. Kimura, Mr. H. Saito, Mr. T. Shiratori, Mr. K. Kanai. Also present as observers: The United States of America. — Mr. John Van A. MacMurray, Mr. Edward Bell. The BHtish Empire. — The Eight Hon. Sir John Jordan, G. C. I. E., K. C. B., G. C. M. G. ; Mr. M. W. Lampson^ M. V. O. THE RAILWAT QTJESTION. Dr. Koo said that at the end of the last meeting he believed both the Japanese and Chinese delegates had expressed their hope that the plan proposed by each side should be considered overnight by the other, in order to see whether any way might be found to bridge over the difficulties. The Chinese delegates, on their side, had given very careful consideration to the Japanese proposition. They were, 189 however, not able to see any way in which they could overcome the difficulties which confronted them in accepting the Japanese offer as a basis of the discussion. That might be very disappointing to the Japanese delegates. However, if the Chinese delegates de- clined to entertain the Japanese views, it was only because they did not see their way clear to adopt any other way. On the other hand, they were very anxious to bring the discussion to an early close, and so they now wished to make further concessions on their alternative plans in the hope that the Japanese delegates might find the Chinese proposal more acceptable than it had originally stood. With refer- ence to the method of cash payment, the Japanese delegates had desired, at one of the previous meetings, that a single deposit should be made instead of three deposits to be spread over nine months in which the transfer of the railway properties was to be com- pleted. If the cash payment was more acceptable to the Japanese delegates, the Chinese delegates would be ready to accept the plan ' of one single deposit on a specific date, leaving Japan to decide i whether it should be made before, or at the time, the transfer of the railway was begun. On the other hand, 'if the Japanese delegates still found the cash payment unacceptable, the Chinese delegates would be ready to make a further concession on the plan of the de- ferred payment, substituting another kind of security for the treas- ury notes. This new security was the notes of Chinese bankers. With these two further colTcessions, the Chinese delegates hoped that the Japanese delegates would find the two Chinese alternative plans more acceptable. He hoped that the Japanese delegates would cooperate with the Chinese delegates to expedite a satisfactory agreement on the railway question. Baron Shidehara said that Dr. Koo had just referred to the diffi- culties on the Chinese side to agree to the railway loan agreement. He would like to hear his explanation in a few wprds as to these difficulties. Dr. Koo said that he had tried yesterday and on previous occasions to make clear the various difficulties which stood in the way of the Chinese delegates, but he would be glad to recapitulate briefly the reasons which the Chinese delegates had for maintaining their posi- tion on the question of the railway. In the first place, the Chinese delegates could not hope successfully to explain away to the people at home why China should accept the Japanese loan when China's own bankers had offered to provide the necessary funds. In the second place, the present Shantung Railway question was one differ- ent from that of an ordinary railway loan. Heretofore such loans had been contracted for the actual construction of a new line, but in the present case the railway had actually been in operation for many years. The reasons which had given rise to other loan agree- , ments did not exist in this case. To entertain such a course as sug- gested by the Japanese delegates would neither be wise nor necessary. In the third place, not only the Chinese delegates, personally, were unable to see the wisdom of accepting a Japanese loan as the best means for payment, but the instructions from the Chinese Govern- ment had made it perfectly clear that he and his colleagues ought not to go beyond the two Chinese alternative plans. In the fourth place, the idea of the Japanese loan would not be wise, because it 93042—22 13 190 would give rise to misgivings in China. By tlie settlement of the Shantung question it was hoped to remove all causes of misr. Sao-Ko Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries: Mr. T. Y. Tsai, Mr. T. F. Hsu, Mr. C. H. Zee, Mr. Chuan Chao, Mr. T. H. Koo. Japan. — Baron K. Shidehara, Mr. M. Hanihara, Mr. K. Debuchi. Secretaries: Mr. S. Saburi, Mr E. Kimura, Mr. H. Saito, Mr. K. Kanai, Mr. T. Shiratori. Also present as observers : The United States of America.^ -M.t. John Van A. MacMurray, Mr. Edward Bell. The British Empire. — The Right Hon. Sir John Jordan, G. C. I. E., K. C. B., G. C. M. G.; Mr. M. W. Lampson, M. V. O. Baron Shidehara said that the Japanese delegates had given very serious consideration to the Chinese proposal made at the meeting of the day before and they had been compelled, with much reluctance, to state once more that, consistently with the terms of the instruc- tions from Tokj^o, they did not see how they could find their way to agree to any plan falling short of the plan of the ordinary rail- way loan agreement. Thej^ had repeatedly explained that the only plan which Japan could possibly accept as a substitute for the Jap- anese original plan of joint enterprise was the plan of a railway loan agreement on the basis of terms of similar agreements which China had concluded with various foreign nationals in recent years, sa}^ 1913 to 1914. In order to present the Japanese position in a more concrete form he would propose as the terms of arrangement the following: "(1) The period for which the loan was to run should be fixed at 15 years, while China should have an option for redeeming the out- standing liability, upon six months' notice, after five years from the date of the agreement. " (2) A Japanese traffic manager and chief accountant should be engaged in the service of the Shantung Railway. " (3) The details of the final arrangement should be worked out later on at Peking between the representatives of the two parties to the agreement." It would be observed that the terms now offered were decidedly more favorable to China than in the case of similar agreements which China had entered into with various foreign capitalists in recent years. The Japanese delegates sincerely hoped that those terms would commend themselves to the serious reconsideration of the Chinese delegates. The Chinese delegates had further proposed the day before that the good offices of Mr. Hughes and Mr. Balfour might be asked for the settlement of the pending difficulties. While, of course, placing utmost confidence in the judgment of these statesmen, he would like to say that the terms of the telegraphic communications from 197 Tokyo, instructing the Japanese delegates to maintain the plan of the loan agreement, were quit« explicit and that in the present situa- tion the Japanese delegates were not in a position to agree to ask for the American and British good offices as proposed by the Chinese delegates on the previous day. Dr. Koo said that he and his colleagues had. listened to the state- ment of Baron Shidehara with great attention. Thej' could not con- ceal their sentiment of deep regret that after so many meetings and such long discussions the Japanese delegates should revert to the question of the Japanese loan. He recalled that when first the Japa- nese delegates had brought up this aspect of the railway question he hoped the Chinese delegates had made clear the reasons why they could not make it the basis of discussion. The Japanese delegates were good enough to indicate their willingness to proceed on the basis of the two alternative plans proposed by the Chinese delegates. It would be recalled by the Japanese delegates also that it was at least under that impression, to put it mildly, that both delegations had devoted several meetings to the exchange of views on the details of the two Chinese proposals. Now, at this last stage of their con- versations on this question, the Japanese delegates desired to insist upon a proposition which was really, to use a metaphorical expres- sion, a yirgin soil. A great deal of labor had been spent on the two alternative plans proposed by China, and the Chinese delegates had been hoping all along that much progress had been made, when the Japanese delegates abruptly insisted upon reverting to the Japanese loan plan, which had been but lightly touched upon before. Of the two Chinese plans, the first proposition was that of a cash pay- ment. However, since the Japanese delegates had manifested great difficulty in accepting that plan, though not clearly stating so, the Chinese delegates had offered the plan of deferred payment. That had been offered because the Japanese delegates had expressed a de- sire to retain a certain interest in the railway. It would be hardly necessary to retrace all the ground covered, or to recount all the con- cessions made by the Chinese delegates step by step, in either of the two plans to meet the Japanese point of view. As late as the day before, after offering further concessions in respect of the two Chi- nese plans, the Chinese delegates had gone out of their way to try to meet the Japanese point of view by submitting a formula drafted solely from the desire to meet the Japanese wishes in the matter of incorporating, in a general way, the substance of existing railway loan agreements in the settlement of the railway question. Since yesterday the JajDanese delegates had not only made no conces- sions on the stand taken by them on December 20, but the Chinese delegates felt that the present Japanese proposition was in reality a step backward. It carried the two delegations further apart. In view of Japan's inability to accept the formula which the Chinese delegates had offered reluctantly, the latter felt constrained to with- draw that formula. The Chinese delegates would therefore state again that the two plans offered were still open for the acceptance by Japan, namely, the plan of cash payment with a single deposit or the plan of deferred paj^ment, in Chinese bankers' notes, extending over the period of 12 years with an option upon six months' notice to pay all remaining liabilities after three years, with the under- 198 taking by China to appoint a Japanese district engineer for the period the loan remained unpaid. As regarded Baron Shideiiara's observations concerning the uti- lization of the good offices of Mr. Balfour and Mr. Hughes, he was not sure whether he understood Baron Shidehara correctly. He trusted that it was not Baron Shidehara's idea to intimate that the good offices of Mr. Balfour and Mr. Hughes should not be utilized at any stage of their conversations. He understood that it was the baron's idea that the good offices need not be availed of at the pres- ent moment. So far as the Chinese delegates were concerned, they desired to make as rapid a progress as possible, and in fairness to themseh'es and as a token of appreciation toward those two gentle- men who had offered their good offices on behalf of their respective (Tovernments the Chinese delegates had no hesitation in inviting their good offices and in asking them to extend to the two delegations such assistance as might be useful for the progress of these conversa- tions. Unless, however, he had misunderstood Baron Shidehara's observations on that point he did not wish to propose to refer to the exact situation with reference to the acceptance upon both sides of the friendly offers made by both Mr. Hughes and Mr. Balfour. Baron Shidehara said that he remembered that before the two delegations had adjourned on December 20 there had been much dis- cussion on the railway loan agreement as well as on the two Chinese alternative plans. He remembered that the Chinese delegates had not found it j^ossible to accept the Japanese proposition, but that, on the other hand, the Japanese delegates had not been able to accept either of the alternative plans proposed by the Chinese delegation. In that situation the Japanese delegates had had to refer the whole matter to the Tokyo Government and to wait upon their instruc- tions. The conversations had been resumed three days before: as instructions had just then been received and as, it would be remem- bered, the instructions had opened a new phase in the situation. Formerly the railway loan plan had not been discussed as a plan of the Japanese Government, but after the receipt of instructions from Tokyo the Japanese delegates had submitted that plan as the plan of the Japanese Government. Naturally, as Japanese delegates, he and his colleagues had to act under instructions. With regard to the latter part of Dr. Koo's remarks, he was not quite able to follow the meaning of the observations made. Dr. Koo had said that Mr. Hughes and Mr. Balfour had offered good offices. Was it his mean- ing that these conversations had been opened through their good offices, or that after this difficult stage had been reached they had newly offered good offices? Dr. Koo said that on that point the Chinese understanding was that the offer of Mr. Hughes and Mr. Balfour was a continuing one^ The good offices would have been of very limited usefulness were they not of a continuing character. If there were any doubt at all, the best way to clear it would perhaps be to read from the record of the present conversations prepared by the Japanese secretaries passages upon what those statesmen had said at the opening session. The Japanese minutes on December 1 read as follows : " He (Mr. Balfour) added that he had full confidence that the representatives of the two powers would come to an agreement on 199 the Shantung question, so important not only to the countries imme- diately concerned but to the whole world. He joined Mr. Hughes in j saying that in the course of the conversations, if any circumstances ' should come to pass which called for friendly intervention on his part, it would be his great pleasure to offer his services. He was in i that connection entirely at the disposal of Mr. Hughes and the rep- resentatives of Japan and China." Mr. Hughes also had said that he — '' Was gratified to receive assurances from both delegations that the conversations would be continued in the most friendly manner. He was in full accord with Mr. Balfour in offering his services 1 whenever needed." I He thought that on that point the records were so very clear. What he (Dr. Koo) had said was that if Baron Shidehara, while not opposing the idea of asking good offices, merely considered the present moment not opportune to resort to that means, the Chinese delegates would not' press to refer the exact situation to Messrs. Hughes and Balfour. The very fact, however, that the four gentle- men had been assisting at every session as their representatives was a clear indication of the intentions of Mr. Balfour and Mr. Hughes. Baron Shidehara said that it had not been quite clear to him whether there had been any new offer for good offices from those two statesmen, but now the situation had been made very clear. Dr. Koo said that such new offer was not necessary so long as the original offer of good offices had been in the nature of a standing one. Baron Shidehara said that with regard to the question of the good offices he thought that the Japanese delegates had made their position sufficiently clear. He had stated that the instructions received from Japan were quite explicit in directing them to main- tain the plan of railway loan. In the present situation, therefore, the Japanese delegates were not in a position to request the good offices of Mr. Hughes and Mr. Balfour. He should like to ask I whether the Chinese delegates did not think it worth while to { discuss the terms of arrangement proposed by the Japanese dele- j gates that day or even to refer them to Peking for consideration. Dr. Koo said that he did not quite understand the purpose of Baron Shidehara's intimation for the Chinese delegates to refer to Peking. He hoped they had made it quite clear that the instruc- tions in their hands did not permit the Chinese delegates to accept the plan of the loan agreement. He did not know if the recent visit of the Japanese minister at Peking, first to the Chinese minister of foreign affairs and then to the premier, had not given the Japanese delegation an impression which, from the point of view of the Chinese delegation was, perhaps, a misimpression. Since the Chinese dele- gates had made a statement concerning their authorization they had received further communications from Peking making it perfectly clear that the idea of the plan of the Japanese loan was not ac- ceptable to the Chinese Government any more than to the delegation here. Without wishing unnecessarily to interest the Japanese dele- gates in Chinese politics, he might add that this recent instruction of the Chinese Government renewing their confirmation of the views of the Chinese delegates in the matter had been given after the formal cabinet meeting, which had been going on during the last 200 ! few days. He should like to know if, on one hand, the Japanese ' delegates rejected both of the Chinese alternative plans and insisted upon the Japanese loan plan; and, on the other hand, even though the difficulty was so apparent, they still did not see their way to utilize the good offices of Messrs. Hughes and Balfour, how, then^ did the Japanese delegates i)ropose to settle the question ? Baron Shidehara said that in the first place it was not his intention to request reference to Peking. He had simply put the question if the Chinese delegates did not think it worth while to refer to Peking. He now found that the two delegations had definite instructions from their respective Governments. The Japanese delegates could not accept the two Chinese alternative plans, and the Chinese delegates, in turn, could not accept the Japanese plan of loan agreement. That was the situation they were now confronted with, and he really did not know, just at present, how that difficulty could be adjusted. He added that he, nevertheless, did not abandon the hope that the two delegations might be able to come to some understanding on that difficult question. He would ask whether the Chinese delegates did not think it would be useful to meet again on Monday. Dr. Koo said that he hoped that it was not Baron Shidehara's pur- pose unnecessarily to protract the conversations. He took it that the flapanese delegates were aware that the labors of the Avhole con- ference were approaching their end. He presumed that it was the Japanese desire, as well as the Chinese, that a settlement of the Shantung question should not be delayed. The Chinese delegates liad tried to suggest various ways of meeting the difficulties con- fronting the two delegations, and they had made concessions, one after another, in both plans they had proposed. However, neither of them being found acceptable to the Japanese delegates, they had pro- posed to utilize the good offices of Messrs. Hughes and Balfour, be- cause they might, perhaps, indicate some new point of view which had escaped both the Japanese and the Chinese delegation. The Chi- nese delegates had received no new instructions which were not in the nature of confirming the position they had taken from the very outset. In the circumstances it would perhaps be the most advisable course for both the delegations to take, if they were to avail themselves of the good offices which Messrs. Hughes and Balfour had offered to both delegations. If the Japanese delegation was still disinclined to refer the matter to Messrs. Hughes and Balfour, the Chinese dele- gates might perhaps modify the course somewhat by inviting those two statesmen to join the two delegations in the conversations which really should not take place later than to-morrow. Dr. Sze said that it would be recalled that yesterday he had pro- posedthat the meeting should be held, if not in the morning to-day, early in the afternoon, so that they might have time enough to utilize the ^ood offices of Messrs. Hughes and Balfour if they consented to join them. In view of what Baron Shidehara had just said, he would suggest that the meeting should be held to-morrow. Baron Shidehara said that it was certainly not his intention to pro- tract the conversations. He was sure the Chinese delegates would realize that the Japanese delegates had been doing their best to expe- dite settlement of the question, but the fact was that the Chinese delegates had definite instructions and the Japanese had instructions 201 equally definite, and neither of them could proceed any further. As he had stated, therefore, they were not in a position at present to re- quest the good offices of the two statesmen. He thought, neverthe- less, it might be useful for the two delegations to meet next Monday. Dr. Sze said that, clearly, the Japanese delegates would not avail themselves of the good offices of Messrs. Hughes and Balfour. Baron Shidehara said that, as he had stated, the instructions from the Tokio Government were explicit and the Japanese delegates were, in the present situation, not in a position to ask for the good offices of Messrs. Balfour and Hughes. Dr. Sze reminded Baron Shidehara that he (Baron Shidehara) had not been here at the first few meetings. The minutes for the opening session had been read to the baron. The two statesmen had not said that the offer of the good offices was not a continuing one. Dr. Koo said that he understood that the Japanese instructions precluded the acceptance of the Chinese proposals, while the Chinese instructions made the acceptance of the Japanese proposal equally impossible. Therefore, neither of the delegations could proceed any further, there arising a situation amounting to an impasse. It was for difficulties of such kind that the good offices had been offered, and they could now effectively be utilized, if ever. He was at a loss to know how it could be hoped to settle the question if the Japanese delegates were not disposed on the one hand to make further con- cessions, after the Chinese delegates had made repeated concessions, and on the other hand they were not disposed at the present juncture to utilize the good offices of Great Britain and the United States. When he said that the Japanese delegates were not disposed to make any further concession he said so advisedly. Their present position was not conciliatory. They had gone back to the position which had existed on December 20. The Chinese had come much further from the position taken on that date. Therefore, if the Japanese dele- gates could not agree to request the good offices of Messrs, Balfour and Hughes, he should like to ask whether, if the Chinese delegates,! on their part, were to invite those two statesmen to come, the Japa-( nese delegates would have any objection to that course. Baron Shidehara thought that he had defined the position of the Japanese delegates with sufficient clearness. They were at that mo- ment not in a position to request the good offices of Messrs. Balfour f and Hughes, and without request from both parties he wondered ; whether it would be practicable for the two statesmen to join the; Japanese and Chinese delegations. Dr. Koo said that, nevertheless, if the Japanese delegates had no objection to requesting the presence of those two statesmen, they might be induced to join the conversations. Baron Shidehara said that he had no intention of objecting to the coming in of the two statesmen ; only he could not imagine how they would come in without the request of the two parties con- cerned. Dr. Koo said that he need hardly add that those two gentlemen were, according to his views, at liberty to come in at any time; The four gentlemen actually present here were their personal representa- tives, whom they sent because they wanted to see the question settled speedily and in a satisfactory manner. If they wished to come of 202 their own aceoixl. they ooiUd do so at any time, and the two dele cided. Dr. Sze said that, as had been pointed out before, Baron Shide- hara's formula was a little too indefinite as to date, which was all important. There were also other points on which the Chinese dele- gation desired to make some obsen-'ations. He would suggest they adjourn until that afternoon and then try to conclude definite ar- rangements so that the decision might be given for the newspapers, for the next day. Baron Shidehara asked if his formula was considered not definite enough because days and months were not expressly mentioned. Dr. Sze said that the Chinese delegation wished also to make ob- servations on other points. He wondered if the Japanese delegation could see their way to take Dr. Koo's draft as a basis. He and his colleagues would agree to make some modifications in that formula in order to meet the Japanese viewpoint. Baron Shidehara said that in Dr. Koo's formula mention was made of Japanese police forces. That was entirely another question. Dr. Sze wondered if there were not Japanese police forces along; the railway. Baron Shidehara said he understood there were no railway police. Of course, there were gendarmes, but they were part of the troops. There might also be certain police forces attached to the Japanese consulate at Tsinanfu. The question of that kind of a police force was now pending in the Far Eastern Committee. Dr. Sze said that the meaning of Dr. Koo's draft in that regard was that the Japanese troops should not be replaced by some other force under some other name. Baron Shidehara said there was no Japanese force for the protec- tion of the railway. Dr. Koo asked if there were not military constabulary. Baron Shidehara said that they were part of the military forces. Mr. Hanihara said that he could not attend the meeting that after- noon. He suggested that if his Chinese friends could agree to the formula presented by Baron Shidehara it could be given to the news- 217 rs_fQr-4he next day. It would be, he thought, good news for the public. The difference was only a question of days and months, and not years. Dr. Koo said that there was something more to it. That was why the Chinese delegation wished to make some observations. Dr. Sze said that the Chinese delegates wanted to have some agreement in terms so definite as to forestall loose interpretation on the part of the public. He thought the Chinese proposal was in that respect more adequate. He regretted that Mr. Hanihara could not ■come there that afternoon, but, as Baron Kato had suggested at the initial meeting what they called a panel system, he hoped the Japa- nese delegation might see their way to go over just that part of the discussion and complete it that afternoon. Baron Shidehara agreed that the afternoon session should take place at 4 o'clock. Dr. Sze repeated his regret at missing Mr- Hanihara's beaming smiles. Baron Shidehara said that the procedure that the Japanese dele- gates suggested was that the Chinese police should be right there on the spot before the Japanese troops withdreAv. The Chinese plan was that the Japanese troops should be first withdrawn and that then the Chinese police force would appear. The Japanese idea was to avoid an interregnum. Dr. Koo said that the Chinese delegates would modify their plan to meet that point. Washington, D. C, January 11, 1922. TWENTY-SECOND MEETING. The twenty-second meeting, held in governing board room, the Pan American Union Building, Washington, D. C, at 4 o'clock in the afternoon of Wednesday, January 11, 1922. PRESENT. China. — Dr. Sao-Ke Alfred Sze, Dr. V. K. Wellington Koo, Dr. Chung Hui Wang. Secretaries : Mr. Hawkling Yen, Mr. T. C. Yen, Mr. T. Y. Tsai, Mr. T. F. Hsu, Mr. C. H. Zee, Mr. Chuan Chao, Mr. T. H. Koo. Japan. — Baron K. Shidehara, Mr. K. Debuchi. Secretaries: Mr. S. Saburi, Mr. E. Kimura, Mr. H. Saito, Mr. T. Shiratori. Also present as observers: The United States of America. — Mr. John Van A. MacMurray, Mr. Edward Bell. The British Empire. — The Right Hon. Sir John Jordan, G. C. I. E., K. C. B., G. C. M. G. ; Mr. M. W. Lampson, M. V. O. WITHDRAWAL OF TROOPS. Baron Shidehara handed to the Chinese delegates the following formula : " The Japanese troops, including gendarmes now stationed along the Tsingtao-Tsinanfu Railway, shall be withdrawn as soon as the 218 Chinese police force shall have been sent to take over the protec- tion of the railway. " The disposition of the Chinese police forces and the withdrawal of the Japanese troops under the foregoing provisions may be effected in sections. The date of such process for each section shall be arranged in advance between the competent authorities of Japan and China, but in no case shall the entire withdrawal of the Japa- nese troops extend for a period longer than six months from the date of the signature of the present agreement. " It is understood that in the sections of the railway in which the Chinese police force shall have taken over such protection the Chi- nese authorities shall be responsible for the full and efficient protec- tion of the railway as well as of the persons and property of foreign residents. " The Japanese garrison at Tsingtao shall be withdrawn within 30 days from the date on which the transfer of the administration of the leased territory to China is to be completed." Baron Shidehara said that the Chinese delegates would recognize that he had somewhat modified his draft. He desired before pro- ceeding with the discussion of the question to state that he would like to give figures as to the number of the Japanese troops stationed along the railway and the leased territory of Kiaochow. The number stood at 2,700 officers and men. of whom 1,800 were distributed along the railway and 900 stationed at Tsingtao. With regard to the police force, there were 12 men attached to the Japanese consulate at Tsinanfu. The number of the troops just mentioned included 300 gendarmes, _Dr. Koo said that after the morning session had adjourned he had tried to draw up a new formula by amalgamating the drafts by Baron Shidehara and himself. Perhaps the Japanese delegates would like to see it. The substance was the same as the earlier drafts of the two delegations. Whereupon he handed over to the Japanese delegates the following formula : " The Chinese Government will as soon as possible send a sufficient number of military or police force to take over the protection of the Tsingtao-Tsinanfii Railway. The Japanese Government will there- upon immediately withdraw to Japan all the Japanese troops, mili- tary constabulary, and other forces which are now stationed along the railway and its branches and in other parts of Shantung. "The date of the withdrawal of the said Japanese troops, con- stabulary, and other forces shall be arranged in advance between the two Governments, but in no case shall the complete withdrawal of the said troops, constabulary, and other forces extend beyond the date of the coming into force of the present agreement. " The withdrawal of the Japanese garrison at Tsingtao, however, shall be completed not later than the date on which the transfer of the administration of the leased territory of Kiaochow takes place." The only point of difference. Dr. Koo continued, between Baron Shidehara's formula and his own was, in the first place, as to the dates on which the withdrawal of the two classes of troops — one stationed in and the other outside of the leased territory — was to be completed. On that point he would say that the Japanese forces along the railway and other points in Shantung should be withdrawn 219 not later than the date of the coming into force of the present agree- ment, so that no departure should be made either from the position hitherto taken by the Japanese Government or that taken by the Chinese Government. As to the withdrawal of the Japanese garrison from Tsingtao, such withdrawal should be effected when the transfer of the leased territory of Kiaochow took place, in order not to give ground for misgiving on the part of the Chinese people. He took it that if the transfer of the administration was effected and the Japanese troops should fail to be withdrawn at the same time, if they were to remain longer, even by a few days, after the transfer had taken place, an awkward situation would present itself. There was another point — the responsibility of protecting the railway. That was, in the opinion of the Chinese delegates, more or less implied. When th^ Chinese authorities undertook to send Chinese forces to the railway, he thought they naturally Avould see that such protection would be given. He thought and felt certain that protection would be given independently of unj express under- taking in the agreement. Such protection was implied in all treaties subsisting between China and Japan. He was sure that the Japanese delegates would share his views on that point. The Chinese Gov- ernment would feel that absence of any provision in the agreement would not matter. On the other hand, as to the withdrawal by sections of the troops, if Baron Shidehara thought that it was advisable to insert a clause on that point, the Chinese delegates had no objection. The Chinese delegates only thought that that was a question of detail. Baron Shidehara said that the dates as proposed by him should offer absolutely no ground for suspicion that Japan desired to pro- tract the stay of the soldiers in Shantung. The Japanese delegates were as anxious as the Chinese delegates to have the troops with- drawn. However, when an understanding was made, he thought it most essential that it should be of such a nature as could be carried out without fail. So far as the withdrawal of the Japanese troops stationed outside the leased territory was concerned, it depended practically upon the time when the Chinese police would be ready to take over the protection of the railway. What Japan desired was that Chinese police forces should be on the spot. Should China send their men within two weeks, the withdrawal should take place within two weeks. Dr. Koo observed that the obligation rested on the Chinese Gov- ernment as well as upon the Japanese Government. It was recip- rocal. Baron Shidehara assured the Chinese delegates that Japan would undertake that as soon as the Chinese police force were on the spot the Japanese troops would at once be withdrawn. Dr. Koo said that if they were to have a longer period within which to effect such withdrawal it would only cause general mis- apprehension, because heretofore the Japanese Government had made it clear and the Chinese Government had understood that the Japanese troops stationed along the railway and in Tsingtao would be withdrawn as soon as the Chinese police forces were sent to take over the duty of protecting the railwa3\ and that such withdrawal could be effected even before an agreement was reached in regard 220 to the whole of the Shantung question. The Chinese delegates, on their part, had no desire to give rise to misapprehension that China desired to prolong sending such force to Shantung. He knew that Japan, on her part, did not desire to prolong the withdrawal either. I3aron Shidehara said that that was not the intention of Japan at all. He did not think, however, that there could be any misappre- hension on the part of the public if the agreement was reached in the form, he had drafted it. If it was signed now the troops would be withdrawn at the latest by July next. He thought that that was a short period of time. Dr. Koo said that he saw that, but he wondered whether his point had been made clear. The Chinese position was this: In the note sent to the Chinese Government by the Japanese minister in Peking on January 19, two years ago, the Japanese Government declared that they had no objection to effect the withdrawal of troops even before reaching an agreement on the Shantung question. That fact was widely known in China. Therefore if an insertion should be made in the agreement that the completion of the withdrawal would extend over six months after its signature, the withdrawal of the troops would be generally regarded as being unduly delayed. Baron Shidehara said that that was not the meaning of his draft. The Japanese delegates had no intention of unnecessarily prolong- ing the withdrawal of the troops. It was expressly stated in the draft that " as soon as the Chinese police force shall have been sent to take over the protection of the railway" the Japanese troops would be withdrawn. Dr. Koo asked wdiether it was then the suggestion of Baron Shide- hara to provide for the contingency that the Chinese police force might not be ready to take over the protection. Baron Shidehara said that some arrangement should be made in advance so that the Chinese police force should be on the spot when the withdrawal of the Japanese troops would take place. Such ar- rangement should be made locally; it could not be made here in Washington. He wondered whether that could be done before the coming into force of the agreement. He thought that there should be a sufficient margin of time. Dr. Koo said that really the shorter the period the greater would be the obligation to get the police forces ready to take over the pro- tection of the railway. Dr. Sze feared that the period of six months might be misinter- preted as a departure from the declared intention of the Japanese Government. Baron Shidehara said that that could not be taken as a departure. That would be clear from the first part of the draft. Dr. Sze said that it might be taken as if to provide a pretext to the Japanese commandant to remain six months longer. Baron Shidehara said that that was not at all the case. When the Chinese police force were sent the Japanese troops would at once be withdrawn. It would never prolong the departure of the Jap- anese troops. He thought that it would be better, in order to avoid any possibility of misunderstanding, that the dates should be ar- ranged in advance by the authorities of the two countries. He sup- posed that a period of six months was not too long. It only defined the end of the withdrawal. The public would never misunderstand. 221 Dr. Koo said that the Chinese Government were anxious to have a definite date stated because they had to provide the police force. If it was agreed that the complete withdrawal would be effected not later than the date of the coming into force of the present agree- ment, China, on her part, would see to it that necessary police force should be ready within a ver}' short period. He did not think that that would add any difficulty. As a matter of fact, he thought that there would be some time between the signature of the agreement and its coming into force. Baron Shidehara called the attention of the Chinese delegates to the fact that he had put it " signature " instead of " coming into force," because he could not depend so much upon the date of the latter as on that of the former. Dr. Sze said that if there were 1,800 men the period of six months would mean the withdrawal of nine men a day. Japan could do better than that. Baron Shidehara said he himself did not quite know what form this arrangement should finally take. If it was going to be a treaty, it would be necessary to exchange ratifications. It would take quite a long time to conclude such exchange. He wanted to make it clear that the withdrawal would not be dependent upon the coming into force of the agreement. Dr. Sze said, according to the understanding of the Chinese dele- gates, the Japanese Government had declared two years ago that the withdrawal of the troops could be effected without regard to the general agreement on the Shantung question. Dr. Koo said that the Chinese delegates had no particular prefer- ence for the " coming into force " if it was Baron Shidehara's idea to take " signature " as the starting point. The period could be fixed at two or three months from the date of the signature without giving rise to misapprehension in the popular mind. Dr. Sze thought that, in the nature of the case, the less qualifying clauses attached to the agreement the better the general effect. Baron Shidehara said that he really did not see why the period of six months would give rise to misapprehension. He did not know when the present arrangement could come into force. If it would take the form of a regular treaty, it would not be capable of coming into force before its ratification. It might take six months. Dr. Sze observed that should the withdrawal of troops be made to depend upon the signature of the agreement, it would be going counter to the undertaking Japan had made two j^ears ago that it would be effected independently of the arrangement of the whole Shantung question. Baron Shidehara said that the agreement stated that the with- drawal would be completed within six months, but that it could be effected any time as soon as the Chinese police force was ready to take over the protection. Dr. Sze remarked that even if they made the signature of the agreement the starting point, the date would still be uncertain. Baron Shidehara said that it could be said that the entire with- drawal of the Japanese troops should not extend longer than six months from such and such a date. And at the same time it could be said that the withdrawal would be effected independently of the 93042—22 15 222 a«i;reement. Tlien the nrianaininp:, but he did feel that six months was much too lon<>'. He wouhl ask 13aron Sliidehara to sii: offered to the consortium. But. as a' matter of general principle, the Cliinese (jovernment could not feel bound by any understanding or arrangement in Avhich the Chinese Govern- ment had not officially participated. Baron Shidehara asked if the Chinese delegates did not recognize that the Chinese Government was bound by an agreement which it had concluded with the Japanese banking group. Dr. Sze admitted that the Chinese Government was bound by any agreement properly entered into. He wondered, however, if Barorh Shidehara had not objected to Dr. Koo's draft formula. Baron Shidehara said that it was because the formula seemed tot convey the idea that concessions w^ere being newly created. Dr. Koo said that his draft had been made simply to incorporate the substance of paragraph 5 of the Japanese note w ithout trying to conceal any profound meaning. Baron Shidehara had pointed out that the Japanese banking group had already agreed to transfer their concessions to the international financial body. He considered it; appropriate to point out that such concessions originally granted by the Chinese Government could not be transferred to a third party without the consent of the Chinese Government. The Chinese Government had not so far given any such consent to the transfer. As far as the relationship between the Chinese Government and the international consortium was concerned in regard to this particular- question, he felt that some formality had to be gone through before this financial body could properly take over these concessions. When- it Avas said, in the Japanese note, that these rights Avould be thrown open, etc., the expression seemed so definite that it conveyed the impression as if there were no doubt w^hatever as to the ultimate destiny of these concessions. Baron Shidehara said that the Japanese banking group would, however, not be satisfied. The bankers would say that they had ob- tained special rights from the Chinese Government. Dr. Sze said that the fact of the present discussion being held was proof that the Japanese bankers had some interest in the projected railway. Baron Shidehara wondered whether the Chinese delegates' mean- ing was that, in turning over to the international consortium the rights held by the Japanese banking group, it would be necessary to obtain the consent of the Chinese Government. Dr. Koo replied that that was practically what they meant. Baron Shidehara said that with suitable changes in the present formula the idea could be clearly brought out. Dr. Koo said that the turning over to the international financial" body of tlie concessions should be done by both China and Japan. He understood that the Japanese bankers had already turned them over to the international body. The next step would be for the Chinese Government to turn over the concessions to the consortium ; hence, the term " granted " in his proposed formula. Baron Shidehara remarked that it was not the Chinese Govern- ment, but the Japanese bankers, that would turn the rights over tO' anybody. The rights had been in the possession of the Japanese bankers. Dr. Koo said that Japan had, nevertheless, already turned them, over to the international group. 235 Baron Sliidehara said that the Japanese ])ankeis had only under- taken to turn them oA^er, but no definite arrangement had been made. Mr. Hanihara stated that Japan had promised to hand over the rights, but so far no act of transfer, or " pooling," had as yet been, completed. Dr. Koo said that, so far as the Japanese capitalists were con- cerned, they had already offered to "pool" their rights. It only remained for the Chinese Government to agree to the transfer to the international group. Mr. Hanihara said that the Japanese capitalists had only made a promise. Dr. Koo said that in that case he could understand that the Jap- anese capitalists were only obligated to effect the transfer. In that, case the wording of his draft formula could be retained. The word " granted " implied that the act of granting would be effected con- jointly by Japan and China. The draft did not say " will be granted hy CMna.y Similar phraseology was used in the original Japanese^ proposal, the Avords " thrown open " being used absolutely. Baron Shidehara said that the meaning of the Japanese proposal w^as based on the assertion that the right of financing the railway had been held by the Japanese banking group. That right the Japanese bankers alone could turn over to anybody else, but not the Chinese Government. Dr. Koo stated that, unless the Chinese Government gave its con- sent, the transfer would not be valid. Baron Shidehara said that if China did not give her consent, the right would ren^ain with the Japanese bankers. Dr. Koo said he would suggest modification in his draft to meet: the Japanese wishes, so as to make it read : " It is agreed that the concessions to build the two extensions of the Kiaochow-Tsinanfu Railway, etc., will be thrown open for the- common activity of an international financial body, etc." Baron Shidehara inquired wliether by " an international financial body " the Chinese delegates had it it mind to refer to some other financial body than the existing international financial consortium. Dr. Sze remarked that " consortium " was a German word which he did not like to use. Baron Shidehara asked whether it Avas simply the phraseology that the Chinese delegates objected to. He added that, as the matter stood at present, the international financial consortium consisted of American, British, French, Japanese, and perhaps also Belgian bank- ing groups. Chinese capitalists were not represented on that body. He understood that an application had come from Chinese bankers to have themselves represented there, and the admittance of the Chinese representatiA'es had been, if he remembered right, under discussion by the representatives of banking groups already members of the consortium. It was difficult for Japan to commit herself in that respect pending decision by the consortium groups. Dr. Sze said that, iudging from Avhat Baron Shidehara had just said, he thought that he had been right in trying to avoid the use of the word "consortium." Its formation was still in a nebulous stage. Baron Shidehara said that the consortium was not in a nebulous form. The Belgian group had applied to become a member, and the 23() consortium had already expressed its readiness to admit it. But that was only the question of the membership. The consortium it- self had beeai lawfully oroanized. The question of allowing the participation of other groups would depend upon the decision of the groups already forming the international body, which was now a concrete entity. Dr. Sze wondered whether Baron Shidehara had meant that the consortium had been formed, but its members had not been decided upon. Baron Shidehara replied in the negative. The consortium had already been formed. Only new groups might be added to its membership. It might be likened to the League of Nations in that respect. Dr. Sze said that for the members of the League of Nations the formation of the league might have been complete, but for non- members it was not officially in existence and they would in no sense be bound by it. Baron Shidehara stated that it was quite clear that the consortium had been formed and Avas in existence. The question would be whether new members should be allowed to come in. That did not in any sense affect the organization of the consortium. Dr. Sze inquired whether it was the idea of Japan to exclude Chinese capitalists. Baron Shidehara said that he was not able to commit himself on that point Avithout the consent of the members of the consortium. Dr. Sze inquired what Baron Shidehara desired to propose. Dr. Koo said that the Avhole difficulty really appeared to be this : The Chinese Covernment had no particular objection to entering into relation with the consortium, but the question still remained outstanding and so far the conversations Avhich had taken place from time to time between the Chinese Government and the consortium had not led up to a definite agreement. The Chinese delegates did not feel justified to commit the Chinese Government in its relations with the consortium. On the other hand, the Chinese capitalists in- terested would at once raise the question, if the concession were to he turned over to the international financial group, why they shoijild not be included in the consortium. They desired to enter into the the international group, and his information was that the present members of the consortium Avere Avilling to invite the Chinese bankers to join. The relation between the Chinese bankers and the con- sortium was in the process of crystallization. He had had the above situation in mind Avhen he had adopted the phraseology, " an interna- tional financial body in which Chinese and Japanese capitalists are both represented, etc." Baron Shidehara wondered Avhether the Chinese delegates could not accede to the modified formula, reading as foUoAvs : " It is agreed that the rights granted by the Chinese Govern- ment to the Japanese financial group under the contract Avith the Chinese Government of September 28, 1918, relating to the two extensions of the Kiaochow-Tsinanfu Railway, namely, the Tsinan- Shunteh and the Kaomi-HsuchoAvfu lines, Avill be thrown open for the common activity of an international financial body, on terms to be arranged between the Chinese Government and the said financial body." 237 Dr, Koo wondered whether Baron Shidehara had added anything to his (Dr. Koo's) formula, except in one respect; that was, that Baron Shidehara had given nnich fuller description to the con- cessions. He was afraid that such full description might give rise to misapprehensions and misunderstandings. Both delegations were talking about the same thing. If so, there would be no need of de- scribing it as had been proposed by Baron Shidehara. As to the latter part of the formula just proposed, however, the Chinese dele- gates had no objection. Further, he wondered whether "conces- sions " would not better be substituted for the word " rights." The former was in more frequent use. Mr. Hanihara remarked that the contract referred to in the Japanese formula did not provide for concessions to build the rail- wars, but for the rights to finance it. Dr. Koo said that in that case such phraseology as " concessions relating to the building of the railway " might be used. Mr, Hanihara said that whatever word might be used, it did not .seem to him that the point he had mentioned could be made clear. The contract referred to had been published long ago. It was now public property. There was no use avoiding reference to it. Dr. Koo said that the Chinese delegates were now discussing the matter Avitli the Japanese representatives, and not with anybody else. That very fact would be sufficient indication. As a matter of fact, the Chinese delegates were adopting the whole Japanese paragraph excepting the one little word " rights," wdiich they sug- gested to make " concessions." Baron Shidehara said that, in order to meet the Chinese washes, he would suggest a new formula, avoiding special reference to the contract of 1918, reading as follows : " It is agreed that the concessions relatinq to the two extensions, «tc." He desired that at the same time it should be recorded in the minutes that the concessions as above referred to meant the rights which had been stipulated in the contract of September 28, 1918. Dr. Koo said that if the Japanese delegates desired to enter that point in the minutes he had no objection. He then suggested to substitute the word "group" for "body." The final agreement read as follows : " It is agreed that the concessions relating to the twx) extensions of the Tsingtao-Tsinanfu Railway, namely, the Tsinan-Shunteh and the Kaomi-Hsuchowfu lines, will be thrown open for the common activity of an international financial group on terms io be ar- ranged between the Chinese Government and the said group." TWENTY-FOXTRTH MEETING. The twenty- fourth meeting, held in governing board room, the Pan American Union Building, Washington. D. Cat 3 o'clock in the afternoon of Thursday, January 12, 1922. ' 93042—22 16 238 PRESENT. China. — Dr. Sao-Ke Alfred 8ze, Dr. V. K. Wellingrton Koo, Dr. Chung Hiii Wang. Secretaries : Mr. Hawkling Yen, Mr. T. C. Yen, Mr. T. F. Hsu, Mr. C. H. Zee, Mr. Chuan Chao, Mr. T. H. Koo. Japan. — Baron K. Shidehara, Mr. M. Haniliara, Mr. K. Debuchi. Secretaries: Mr. S. Saburi, Mr. ¥.. Kimura, Mr. H. Saito, Mr. T. Shiratori. Also present as observers : The United States of America. — Mr. John Van A. MacMurray, Mr. Edward Bell. The British Empire. — The Eight Hon. Sir John Jordan, G. C. I. E., K. C. B., G. C. M. G. ; Mr. M. W. Lampson, M. V. O. OPENIN(} OF THE PORT. Dr. Sze said that in regard to the opening of Tsingtao as a port of trade, it had been proposed in the Japanese note of September 7 that foreign nationals coming into China were not permitted to en- commerce, industry, and agriculture. He would point out, however, that foreign nationals in Tsingtao should be permitted to carry on gage in agriculture and that the same rule must apply to Tsingtao. As to the phrase '' other lawful pursuits "' in the said Japanese note, he desired to mention the fact that there might perhaps be pursuits which, while lawful, Avould have to be restricted either as a result of existing treaties or on account of the Chinese monopoly system. Baron Shidehara said that in the Chinese communication of Octo- ber 5. sent in reply to the Japanese note of September 7, it had been stated that agricultural pursuits concerned the fundamental means of existence of the people of a country and that according to the usual practice of all countries no foreigners were permitted to engage in agriculture. The Japanese delegates were not informed that there was such an- international practice of common acceptance. It was true that agriculture had intimate connection with the means of ex- istence, but it seemed to him that it ought to make no difference to China who supplied agricultural products to Chinese markets. He would suppose that China, with her cheap labor, would be able to compete successfully with foreign producers. But in any case the Japanese delegates had no intention of insisting upon the inclusion of agriculture among the rights of foreigners to be protected in this connection. As to Dr. Sze's question whether pursuits coming within the scope of the Chinese monopoly system were included in the term "lawful pursuits," he (Baron Shidehara) understood that as a matter of fact no Japanese Avere engaged in any such pursuits as belonged to Government monopoly in China. He could say, how- ever, that it was not the intention of the Japanese delegation to have such special kind of pursuits permitted to Japanese nationals in Tsingtao. In saying so, however, he would like to make it clear that this recognition on their part was entirely without prejudice to the position taken by them on the question of the salt industry. Dr. Koo inquired whether he was to understand that the Japanese delegates, while agreeing to his interpretation in regard to the terms " agriculture " and " lawful pursuits." desired not to prejudice their position in regard to the salt industry. 239 Baron Shidehara answered in the affirmative. Dr. Sze said that Japan, in asking the opening of Tsingtao as a port of international trade, wanted to have the entire extent of the leas3d territory inchided in the open port. As the Japanese dele- gates saw, the greater part of the leased territory was on the Tsingtao side, while there was only a small stretch of land on the left-hand side of the bay. For actual administrative purposes it would be in- convenient to include this small stretch on the left-hand side in the open port of Tsingtao. There was no road connecting this part Avith the main city district. As to the Tsingtao side, there was no ques- tion. He would only like to hear any observation the Japanese dele- gates might make as to what extent the undeveloped part of the leased territory should be included in the proposed Tsingtao open port. He assumed that they had no objection to the exclusion of the left-hand side, because it was not developed at all, the Germans having used it only for purposes of defense. Baron Shidehara said that he had no knowledge of the locality, but that it would seem that the left-hand side might become im- portant in future, when the right-hand side was still further devel- oped. It was true that the bay separated the two parts, but it was possible to cross the bay very easily by such means as ferryboats, etc. He hoped that the Chinese Government w^ould be able to include the left-hand side of the bay in the extent of the open port. Dr. Sze said that the left-hand side was only a small fraction com- pared to the right-hand side. Baron Shidehara said that with the development of the cit}^ dis- trict it might become necessary. Dr. Sze said that the development would be in the other direction, for there was no village at all on the left-hand side. It would entail extra expenditure upon the administration to liave to look after the left-hand side also. Baron Shidehara said that the leased territory itself was a small stretch of land all around the bay. It would be very easy to cross the narroM'Cst part of the bay. He thought it was about one-third of a mile. Dr. Sze said that it was more than 3 miles at the narrowest part. Baron Shidehara wondered if there were no houses on the left- hand side. If there were no people living on that side, it would cause no difficulty for the Tsingtao administration to take in that part. The entire district had beautiful climate, and Tsingtao might grow into a still more prosperous city. It was very possible that the left-hand side might also become quite important. Dr. Koo asked if Japan had any factories or industrial establish- ments on that side. Baron Shidehara had no local knowledge. Dr. Koo said that it seemed to him that with the groAvth of foreign trade the municipal district would naturally have to be extended to the left-hand side. So long as things now stood, the right-hand side would be sufficient for some time yet. Baron Sliidehara said that it might become important as trade grew. Dr. Koo said that naturally the question of extension would be taken into consideration by the Chinese Government when the 240 growth of fo-ei*rn trade required it. There would be no apprehen- sion on the part of the public on that score. Baron Shidehara said that he could not see any possible disad- vantage to China to have the left-hand side included. Dr. Koo said that there was no village on that side and it would not be advisable to extend administrative installations to that part. Dr. Sze said that originally the Germans had used that part only for naval base and not for trade. Baron Shidehara said that he should not wonder, because the Ger- mans had held the phice for strategic purposes. It was now going to be a port of trade, and it would be advisable to reserve that side for residential and trade purposes. Should that side become a pros- perous residential quarter, it would be entirely necessary to have the administration extended to this quarter. Dr. Sze said that when the Chinese delegates insisted upon the ex- clusion of tliat part it was not because of any desire on their part to limit the extent of the open port. Simply from the point of view of administrative expenditure, it would be advisable to open, for the time being, the right-hand side only, and later, when circumstances required, to open the left-hand side also. Baron Shidehara said that should there happen to be Japanese residents or factories, it would not be fair to cause them to remove to the right-hand side. Dr. Sze said that according to the Chinese information there were no residents at all. Baron Shidehara said that if there were no residents there ought to be no difficulty for the prospective administration, even if that part were to be included. Dr. Koo suggested to put in an added formula, in the following sense : '* Should the growth of Tsingtao require it, the Chinese Govern- ment will extend the municipal district to the left-hand side as well." Baron Shidehara asked if there was any practical necessity to ex- clude that part for the time being. Dr. Koo said that if that part was not developed and not needed for foreign trade, it would seem better to exclude it. It was simply a question of administrative expediency. Baron Shidehara said that he did not think the inclusion of that part would cause any inconvenience to the Chinese administration. Dr. Koo said that if it was included in the open port it would be open for foreign residents. Even if only half a dozen foreigners were to choose to reside in the part, the Chinese administration would be held responsible to extend adequate protection to them. Baron Shidehara said that under the German regime China had permitted foreign nationals to reside and carry on any pursuits on the left-hand side. He hoped that China would continue this same system, permitting foreign nationals to reside and carry on their trade within the entire area of the leased territory. Dr. Koo said that the right-hand side was a district of 193 square miles and he thought that it ought to be enough for the foreign resi- dents. It was simply a question of administrative expenses. Baron Shidehara said that at present the Tsingtao administration would not have to go to any extra expenses. Should that unde- 241 veloped part become prosperous it would be worth while to make administrative expenditure on that part. Dr. Sze said that the whole area of Hongkong was 29 square miles. Moreover, the Chinese delegates were readj^ to give assurance that if the growth of trade required it extension would be made to the left- hand side. Baron Shidehara said that the Chinese delegates must take into account the fact that formerly China had granted privileges to Ger- mans on the left-hand side of the bay. There would seem to be no good reason to now limit the area to a narrower extent. Dr. Koo said that he did not know if the Germans used that part for purposes of trade. Baron Shidehara said that he supposed not, but certainly the Ger- mans had the right to live in that part. It did not make any differ- ence whether they had really made use of that right. Dr. Koo said that if that part were included foreign nationals would be entitled to take up residence and start business there. If any large number of them were to go there it would be worth while to take proper administrative steps, but if only a handful should choose to go there the administrative expenditure incurred on their account would be out of proportion. Baron Shidehara said that if foreign nationals were to go to that part it would not be for the purpose of embarrassing the administ'-a- tion, but because of its being a better place to live in. He did not see why China should refuse to extend protection to them on the ground of expenditure. Dr. Sze said that the left-hand side was a barren stretch of land, and it would be very expensive to develop it. At the best it would become the abode of brigands, robbers, and other undesirable ele- ments. Baron Shidehara said that if the place was so lacking in wealth there would be no inducement for those robbers and brigands to go there. Dr. Koo suggested leaving that part aside for the moment. Baron Shidehara consented. Dr. Koo said that the Japanese proposal in regard to the opening of suitable cities and towns in Shantung coincided with the intention of the Chinese Government, because it was the purpose of the Chinese Government to select some suitable cities or towns in Shantung for the purpose of foreign trade. But the Japanese delegates would readily see why it was not advisable for the Chinese delegates to enter into any definite arrangement on this point. He would say that the same observation applied to the paragraph in the Japanese propo- sition with reference to the regulations concerning the opening of those places. In opening those places the Chinese Government would be animated mainly by their desire to promote foreign trade. It was naturally the purpose of the Chinese Government to so formu- late the regulations as might be most conducive to the promotion of foreign trade in Shantung. Tsinanfu was a city which had been opened by China on her own initiative. The Chinese delegates were not aware of any well-founded criticism leveled on the reG:uIations under which the city was being administered as a place of foreign trade. The foreign communitv were well satisfied with the muni ioal 242 government. He hoped that the Japanese delegates would be satis- fied with a declaration which China would make of her own accord along the line indicated above, and that they would not ask an express agreement on a matter which belonged to the domain of internal administration. Baron Shidehara said that the Japanese delegates were not much concerned about the form of the proposed agreement. What they were concerned about mainly was that actually the Chinese Govern- ment should open those places. If they would make a declaration of their own accord, signifying an intention to open suitable cities forthwith in Shantung, the Japanese delegates would not insist upon including the matter in the proposed agreement on Shantung. Dr. Koo stated that, as had been stated before, it was the intention of the Chinese Government to open such cities and towns. He did not know what more could the Chinese delegates say beyond what had been said. Baron Shidehara wondered if a declaration could not be given in a more formal way. He did not care about the form of the declara- tion if only it were a declaration of a little more formal character. Dr. Koo asked whether it was Baron Shidehara's idea that the formal declaration should be made in the minutes of the conver- sations. Baron Shidehara said that what he had in mind was something that could be published. Dr. Koo said that as he took it Baron Shidehara's observation in that respect applied also to the last paragraph of the Japanese proposal. Baron Shidehara said that with regard to the last paragraph of Article II of the Japanese proposal he gladly took note of Dr. Koo's statement that just and fair treatment would be accorded to all foreign residents. The purpose prompting that last paragraph was that with the best of intentions on the part of the Chinese Govern- ment there might be found some clause in the regulations to be made which might prove prejudicial to the legitimate interests of foreign- ers. Should any measure taken by the Chinese Government prove injurious to the interests of any foreign nationals, the Government of those nationals would have to lodge protest with the Chinese authori- ties. It was in order to avoid such unpleasant eventuality that the last paragraph had been inserted in Article II. but the Japanese delegates had no intention of insisting upon any clause which might cause embarrassment to the Chinpee Government, and they would be willing to strike out from the terms of the proposed agreement the last clause of paragraph 2. He wondered, however, if it would not be possible for the Chinese Government, as a matter of coui'tes3% to show the projected regulations to foreign Governments concerned. Dr. Koo said that he was not prepared to say anything in that respect. Any matter of courtesy might be more af)preciated if it came without being asked for. He was glad that the Japanese dele- gates consented to eliminate the last clause of paragraph 2. As to the opening of suitable cities and towns in Shantung, Baron Shide- hara had asked for a declaration which could be given publicity. To meet that desire, the Chinese delegates would make a recommenda- tion to their Government to make such a declaration as would answer the purpose. 243 Baron Shidehara wondered if it would not be possible that the said declaration should be made at the same time as the conclusion of the agreement which the two delegations proposed to sign here. Dr. Koo asked if it was Baron Shidehara's idea that a declaration here was preferable. Baron Shidehara said that it was in the nature of a supplementary declaration and might properly be published at the same time as the main body of the proposed treat}^ It happened very often that declarations were attached to treaties. Dr. Koo said that the Chinese delegates were disposed to make such a declaration at the same time as the proposed agreement, but that they could not see their way to making such declaration part of the agreement. Baron Shidehara said that a supplementary declaration was not part of the agreement. As would be remembered, the Chinese Gov- ernment had announced several times their intention to open suitable places in Shantung. The point was that China should now declare her intention to carry out that declaration. The actual fact was that close by the Shantung Railway and the Tsingtao leased territory there were already many Japanese residents. The Japanese Gov- ernment would like to obtain some assurance that these Japanese would not be expelled from their present places of residence. It was not proposed that that assurance should be contained in the body of the agreement itself, but in a supplementary declaration, so that those Japanese nationals might have a certain sense of assurance. Dr. Koo said that China was ready to make such a declaration, but she would like to make it as far as possible apart from the agree- ment. Baron Shidehara said that it must be made supplementary to the agreement. Dr. Koo said that the real value of such a declaration rested on the terms, and not necessarily on its being supplementary to the main agreement. Baron Shidehara said that the case in point was the supplementary declaration made by Japan in connection with the American- Japa- nese treaty of commerce. That declaration had been signed by Japan alone. It was not part of the treaty and had not gone for ratification. Still, that declaration concerning the Japanese emi- gration to America went with the said treaty. Dr. Koo said that the Chinese delegates agreed to draw up a declaration and, if desired, to attach it to the agreement. Baron Shidehara wondered if the wording of the proposed decla- ration might be shown to the Japanese delegates beforehand. Dr. Koo said that he hoped it was not Baron Shidehara's idea to name places to be opened. In making the choice of the cities and towns to be opened the Chinese Government would be guided by actual conditions in Shantung. Baron Shidehara said that he would not insist upon the inclusion in the declaration of the names of cities and towns to be opened, but he hoped that China would inform Japan what places were going to be opened. Dr. Koo said that the Chinese delegates were not able to give that information without consulting their Government. That would cause delay. The Japanese delegates apparently had in their mind 244 some suitable cities and toAvns. The Chinese delegates had a like idea. Baron Shidehara again asked whether the wording of the declara- tion the Chinese delegates AA'ere going to make could be shown to his delegation. Dr. Koo said that the Chinese delegates would draft something and send a copy, unofficially, to the Japanese delegation. Baron Shidehara signified assent. He added that he hoped it was not the intention or purpose of the Chinese Government to expel Japanese nationals actually living upon the railway. Dr. Koo asked if the point concerning the extent of the Tsingtao open port was to be taken up again. Baron Shidehara said that he hoped the Chinese delegates Avould be able to agree to the Japanese proposal. It was not disadvan- tageous at all to China to agree to having the entire leased territory opened to foreign trade. Dr. Koo said that in order to meet the Japanese viewpoint as far as possible the Chinese delegates did not wish to insist upon limiting the area to the Tsingtao side. They would agree to include the left- hand side of the bay as well, but in doing so he hoped that the Japa- nese Government would take some steps on their side to the end that the Japanese consular authorities Avould cooperate with the Chinese authorities in exercising special control over the Japanese who might desire to live in that part of the port. So long as that part remained undeveloped it would add to the anxiety of the Chi- nese authorities if any incidents should happen in that outlying district. It was not the Chinese idea in any way to throw special responsibility upon the Japanese consular authorities, but the Japa- nese consul would be better informed on the movements of his na- tionals. It was only asked that he should be good enough to exercise supervision on the movements of Japanese nationals who might desire to go there. General administrative authority as well as responsibility would, of course, remain in the hands of the Chinese authorities. Baron Shidehara said that the Japanese consul would be glad to do whatever lay in his power b}^ way of watching and supervising the movements of Japanese nationals on the other side of the ba3^ He wondered whether it was the intention of the Chinese delegates to have that engagement embodied in the proposed agreement on the Shantung question. Dr. Sze said that if that point was clearly set down in the minutes it would be sufficient. Some Japanese might choose to go to the other side to escape the vigilance of the authorities. They might set up such establishments as gambling houses and the like. Experience at other places indicated such a contingency. That was one of the principal reasons why the Chinese delegates had been proposing to limit the precincts of the open port to the right-hand side of the bay. He did not want to see the left-hand side turned into the home of undesirable establishments. Baron Shidehara said that the Japanese consul would surely see that the other side of the bay would not be made a base for either illegal or undesirable activities of Japanese nationals. 245 Dr. Koo said that as to the wording of the first sentence, the original Japanese wording had not been the final form of the agree- ment. It might be recast to read somewhat like this : " The Japanese Government hereby relinquishes its claim for the establishment of a Japanese exclusive settlement or of an inter- national settlement in Tsingtao. " The Chinese Government declares that the former leased terri- tory of Kiaochow will be opened to foreign trade in accordance with the established precedent of self-opened ports. In this port the nationals of treaty powers shall enjoy the same rights of trade and residence as are now enjoyed by them in self -opened ports of China." He (Dr. Koo) did not think his formula altered the sense of the original at all ; only it made the meaning clearer. Baron Shidehara said that he was not very well aware of the estab- lished precedents of the self -opened ports in China, but, considering the great number of foreigners already resident in the leased territory^ he desired to place importance on the point that China should insti- tute a special municipal system whereby the foreign community should be given a fair representation in the administration of Tsing- tao. The leased territory of Kiaochow was somewhat different from other self-opened ports in that respect. Before the opening of the port there actually were resident a great number of foreigners, and that quite legally. Therefore, in a concrete form, his (Baron Shide- hara's) proposal would be somewhat like this: '^ The Chinese Government declare that the entire area of the former leased territory of Kiaochow should be opened to foreign trade as a self-opened port, in which the foreign community shall be given a fair representation in the administration of the locality." Dr. Koo said that he saw Baron Shidehara's point of view, but he did not see in what way an arrangement could successfully be reached in the matter. While the question of establishing a satis- factory system of local government in China Avas now under study with a view to incorporating it in the general national constitution — that was, at least, the opinion prevailing in China — it would be very inadvisable to commit her to any definite system of local govern- ment in any part of China. He was not at all certain just what system would eventually be adopted in China. Baron Shidehara said that what he had in mind was this : China would eventually adopt a system — as in all countries in Europe and America, as well as Japan — ^^of opening the whole country for resi- dence and trade of foreigners. When that time came, of course, those foreign communities would merge into the Chinese local com- munities and form a part thereof. Until that time, however, it was hoped that a special municipal system, under which fair representa- tion would be given to the foreign community, would be instituted. That was not intended to be a permanent system; it was only to be a temporary arrangement pending the completion of the general Chinese municipal system. The peculiar municipal system now obtaining in Tientsin, Hankow, Shanghai, and other places would likewise eventually be merged into the Chinese municipal system when China opened the whole country to foreigners. The Chinese delegates would perhaps remember that the treaties between Japan and foreign powers abolishing the foreign settlements in Japan con- 246 tained provisions to the purpose that those settlements should merge in the