THE HUKUANG RAILWAY BONDS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000400800002-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 6
• Document Creation Date: December 22, 2016
• Document Release Date: July 22, 2010
• Sequence Number: 2
• Publication Date: February 28, 1983
• Content Type: MEMO

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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
28 February 1983
The Hukuang Railway Bonds
Duplicate of C05511562:
RIP
Bond issue.
/ This memorandum addresses the questions contained in State
outgoing 049362 of 23 February 1983, "Hukuang Railway Bonds:
Request for Background Information," and contains an appendix
providing additional details on the background of the Hukuang
The Beijing-Hankou section of the Beijing-Guangzhou railroad
was completed with Belgian funding in 1905. The Hankou-Guangzhou
section of the railroad, which was supposed to be funded by the
Hukuang bond issue, was completed between 1935 and July 1937.
Provincial Chinese authorities completed the southern portion
(Guangzhou-Shaoguan) of the Hankou-Guangzhou railway in 1915; the
northern section (Wuchang-Zhuzhou) was finished in 1918 probably
with local financing. The remaining central section of the
Hankou-Guangzhou railroad was completed between 1935 and 1937 by
the Chinese Nationalist government. Funding for completion of
the central section came from proceeds of new loans floated in
the London market and from the British portion of the Boxer
Hukuang (i.e., Beijing-Canton) railway?
A. Were proceeds of bond issue in fact used to construct
and ma be addressed to the Chief, Foreign Affairs Branch 25X1
25X1
EA M 83-10039
response to a request from Terry Fortune, Assistant Legal
Adviser, State Department. Comments and questions are welcome
This memorandum was prepared byl (Foreign 25X1
Affairs Branch, China Division, Office of East Asian Analysis, in
25X1
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Indemnity Fund beginning in 1933. We have no evidence that
proceeds from the Hukuang bond issue of 1911 were ever actually
used to construct the Hankou-Guangzhou railway. Some portion of
the proceeds of the bond issue apparently went into official
pockets while other portions were diverted to needs created by
the revolution of 1911.
B. What entity owned and controlled the railway when it was
completed? What changes of ownership and control have occurred
from the date to present?
The Chinese Nationalist government owned and controlled the
railway, except for the period of Japanese military operations in
central and south China during World War II, until 1949. In 1949
all Chinese railroads, including the Hankou-Guangzhou railway,
were taken over by the Chinese Communist government and
subsequently operated by the PRC Ministry of Railroads.
C. What portion of the original railway is still in
existence?
The alignment and right of way are probably the only
"original" portions of the railway in existence. Events
associated with the war against the Japanese, with the civil war
betwen 1945 and 1949, and the PRC reconstruction effort after
1949 probably led to replacement of most of the rail bed and rail
equipment in operation in the late 1930's.
D. From what source were payments of interest and principal
(which were paid until 1930) made?
Interest payments were met from year to year by the Chinese
Nationalist Ministries of Communication and Finance from their
general funds rather than from any specifically designated
sources of revenue. After 1929 one coupon was paid each year by
the Ministry of Finance out of salt revenues. After 1931
budgetary difficulties prevented any payment from either customs
or salt revenues. The amounts and dates of interest payments are
unknown; we are not aware of any payments of the principal.
E. What entity currently operates the railroad and how is
that entity integrated into the Chinese governmental and economic
structure?
The PRC Ministry of Railroad currently operates the
railroad. The Ministry is subordinate to and operates under the
direction of the State Council of the PRC, the principal organ
for governmental and economic administration in China.
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Appendix
Chronology on the Hukuang Railway
1900 - As part of a belated interest in furthering China's
modernization, the Qing government planned
construction of a railroad from Beijing to
Guangzhou. Belgium was given the rights to build the
Beijing-Hankou section, but the government wanted the
Hankou-Guangzhou section built by someone other than
the Belgians. The Qing government invited U. S.
participation. The American China Development
Company, New Jersey, an agent of American financial
interests, provided a loan of 4 million pounds
sterling and received concession rights from the
government. Article XVII of the agreement stipulated
that the company had to remain in US hands.
1902 - - July. The agreement was ratified by the Chinese.
US rights bought out by the Belgians, fronting for
French and Russian intersts. US officials told the
Chinese privately of this development, despite Article
company secretly to buy back the bonds.
same time, the State Department was pressing the
- June 10. The US informed the Chinese that this was a
private company and thus a private matter. At the
Beijing-Hankou section of the line completed by-the
Belgians.
hands.
- J.P. Morgan induces the Belgian king, Leopold II, to
sell him 1200 shares, and control reverted to US
type.)
- Qing Viceroy Chang Chih-tung encourages local gentry
to push for Chinese control of the railroad and
express dissatisfaction with US control. (This was
the first example of local Chinese officials
protesting the granting of concessions of this
purchase of the railroad.
- February. US-China negotiations begin for Chinese
- June 7. Agreement reached for Chinese purchase of the
railroad for US $6,750,000. Since little work on the
line had been done, the agreement essentially was one
for the rights to it. The Chinese leadership and the
gentry were pleased since they had regained
sovereignty in an unprecedented case. China borrowed
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money for the purchase from the Hong Kong
government.
- 6 September. Redemption agreement signed
- 9 September. Agreement on ldan reached.
1905-09 - Local officials who had pushed for redemption of, the
railroad tried to build it with locally-raised
funds. Funds were raised but most appears to have
been pocketed.
1909 - Qing government stepped in to reclaim the road from
local authorities. Negotiations were begun with
France, Germany, and Great Britain for 5,500,000
pounds sterling to begin construction. The US
government demanded participation.
- July. President Taft communicated personally with the
Prince Regent on the issue. The loan subsequently was
raised to 6,000,000 pounds and the US became a
participant.
1911 - May. Willard Straight signed on behalf of the
Americans, which included J. P. Morgan, Kuhn, Loeb &
Co., First National Bank, and National City Bank of
New York. The loan was to cover the unfinished 560
miles from Hankou to Guangzhou and a second railroad
from Hankou into Sichuan. The bonds issued for the
loan were to be guaranteed by revenue from the salt
and likin (taxes on local trade) taxes in the
provinces through which the railroad would rung
- July. Announcement of the agreement leads to riots
and other strong local reactions. The issue was one
of the main catalysts for the 1911 Revolution which
broke out in October and ended Qing imperial'rule.
There is no evidence that the money raised was ever
used on the railroad.
1915
- Southern section, Guangzhou - Shaoguan, of 139 miles
completed by local authorities.
1918 - Northern section, Hankou-Quzhou, of 259 miles
completed by local authorities. Central section,
Quzhou-Shaoguan, of 259 miles unfinished.
1933 - Chinese Nationalist government floats new bonds in the
London market and uses funds from the British portion
of the Boxer Indemnity Fund to resume construction of
the railroad.
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1935 - Chinese Nationalist government problems with payments
on bond issue, as well as on other railroad loans,
results in rescheduling discussions with lenders.
- Unpayed principal on the Hukuang bonds stands at
5,650,000 pounds; interest in arrears at 1,819,975
pounds.
1937 - 26 March. American bondholders accepted the latest
Chinese offer. Agreement published on 4 April
stipulates:
-- Interest to be paid at the rates of 2.5% per cent per
annum in 1937-1938 inclusive and 5 per cent per annum
thereafter. Payment of interest to be made out of net
earnings of the railroad and guaranteed out of the
salt revenues. Interest due'as from January 1, 1941,
to be guaranteed by customs revenues.
-- Amortization to begin in 1941 and to be completed in
39 years from 1937. Payment of amortization and of
the scrip to be issued to be made out of net earnings
of the railroad, and any deficiency to be made good
from revenues under control of the Ministry of
Finance.
-- Interest in arrears to be calculated at 2 per cent
annum simple interest, instead of 5 per cent.
Noninterest-bearing scrip to be issued from arrears of
interest so calculated and also for one-fifth of
interest unpaid during 1937-1938. This scrip to be
paid beginning in 1942 over approximately 20 years,
the annual installments to be substantially equal,
except that the government reserved the right of
transferring to the last three years of the
aforementioned period not over 50 per cent of payments
due in the first three years.
Thus, bondholders renounced 1,455,885 pounds sterling
in interest in arrears, and reduced half of the
interest for 1937 and 1938, amounting to 280,000.
Total of 1,735,885 pounds.
1937 - July. Last section of Hankou-Guangzhou railroad
completed. 25X1
Current status: In 1949, when the present government
came into power, it renounced the Hukuang bonds and
other obligations as "odious debt", wherein a
revolutionary regime, after overthrowing a previous
regime, refuses to assume such debts. The PRC
reiterated this position in the aide memoire presented
to the US on 3 February 1983.
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SUBJECT: The Hukuang Railway Bonds
Distribution:
Department of State
1 - Terry Fortune, Asst. Legal Adviser, Room 6427
1 - William Rope, Director, Office of Chinese Affairs,
Bureau of East Asian and Pacific Affairs, Room 4318
Central Intelligence Agency
3 - IOEA/CH/FOR, Room 4G24
1 - C/OEA/CH, 4G32
2 - Director, OEA, 4F18
1 - C/OEA/CH/FOR, 4G24
1 - C/OEA/CH/DOM, 4G32
1 - C/OEA/CH/DEV, 4G32
1 - C/OEA/CH/DEF, 4G24
1 - C/Production OEA, 4F38
1 - PDB, 7F30
1 - C/NIC, 7E62
1 - NIO/EA, 7E62
1 - Executive Director, 7D55
2 - OCR/ISG, 1H19
5 - OCO/IMD/CB, 7G07
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