The Chinese-Soviet negotiations which for a year have played so large a part in Peking politics were terminated on May 31 when the Foreign Office of the Chinese Government announced that it had resumed diplomatic relations with Soviet Russia. One of the most important provisions of the new arrangement covers the modus operandi of the Chinese Eastern Railway. Article IX, Section 5 specifies that "the Governments of the two contracting parties mutually agree that the future of the Chinese Eastern Railway shall be determined by the Republic of China and the Union of Soviet Socialist Republics to the exclusion of any third party or parties."

The status of this railway had been one of the two most important questions at issue between the two countries; and in the eyes of the foreign powers who had jealously watched the negotiations at Peking it had been the most important issue. French financiers interested in the railway, Japanese interests in Manchuria, interests of the Allied Powers in general consequent upon the Interallied control of the railway during the troublous days of the military operations in Siberia, have all combined to make the status of the Chinese Eastern one of the most involved problems of the Far East.

In Peking the affairs of Chinese Eastern Railway had always been considered a question of purely domestic concern, subject only to negotiations with Russia. The Powers, however, have felt differently, and at the Washington Conference the following resolutions were passed:

I

"Resolved, that the preservation of the Chinese Eastern Railway for those in interest requires that better protection be given to the railway and the persons engaged in its operation and use; a more careful selection of personnel to secure efficient service, and a more economical use of funds to prevent waste of property.

"That the subject should immediately be dealt with through the proper diplomatic channels."

II

"The Powers other than China in agreeing to the resolution regarding the Chinese Eastern Railway, reserve the right to insist hereafter upon the responsibility of China for the performance or non-performance of the obligations toward the foreign stockholders, bondholders, and creditors of the Chinese Eastern Railway Company, which the Powers deem to result from the contracts under which the railroad was built and the action of China thereunder and the obligations which they deem to be in the nature of a trust resulting from the exercise of power by the Chinese Government over the possession and the administration of the railroad."

Several of the Powers attempted later to take up the subject "through the proper diplomatic channels" in Peking and the American Legation addressed to the Chinese Government a note quoting the second resolution and stating that " the Government of the United States of America stands for the protection of all interests in the railway, including Russian, and could not approve a change in the status quo, by whomsoever initiated, unless the rights of all creditors and other parties in interest were adequately protected." To these advances the Chinese Government replied that it had nothing to do with the reservation of the Washington Conference, and that its "trusteeship" was based on the original contract for the construction of the railway and the supplement thereto, both of which agreements were entered into with the Russo-Asiatic (formerly Russo-Chinese) Bank, the holder of all the stock.

What are the merits of this controversy? A summary of the circumstances governing the construction of the road and its later operation may be enlightening.

China's disastrous war with Japan and the consequent Treaty of Shimoneseki (April 7, 1895) gave Russia much concern. The cession to Japan of the lower part of the Liaotung Peninsula, in Manchuria, was particularly disconcerting to Russia because her own ambitions in the Far East were endangered by the occupation of that region by another Power. Consequently, she assumed the role of China's friend. After an exchange of views with the European Powers (during the course of which an agreement was reached by Russia and Germany for a certain amount of future exploitation of China) support for Russian policy was promised by both France and Germany. Pressure was then brought on Japan to accept a money compensation in lieu of the lower part of the Liaotung Peninsula which had been ceded to her. Japan had to agree, and on November 8, 1895, signed the Peking Convention which returned to China the Manchurian territory.

Meanwhile, to enable China to meet her financial obligations, Russia arranged and guaranteed the Chinese Government 4 percent gold loan of 1895 (her first foreign loan), which was handled by a Franco-Russian banking syndicate. As compensation for their assistance the French banks requested the Russian Government to help them in extending French financial business in China and for this purpose the Russo-Chinese (now Russo-Asiatic) Bank was founded under Russian charter but with French capital predominant. By a special agreement, involving the construction of the Chinese Eastern Railway, the Chinese Government later acquired an interest in the bank, which she still retains; but the shares originally held by the Russian Government were subsequently sold to private holders.

During the progress of these negotiations the Trans-Siberian Railway was gradually approaching the Chinese frontier in Manchuria. The most direct route to Vladivostock, the eastern terminus, lay through Chinese territory. The "friendly" attitude of Russia in the matter of the retrocession of the Liaotung Peninsula was then made to bear fruit. Count Witte persuaded Li Hung Chang, who was representing his government at the coronation of the Tsar in 1896, to bring the Chinese Government into a secret treaty of alliance against Japan.

The official text of this treaty has never been published, but according to an English translation it contained a convention granting the Russo-Chinese Bank a concession for the construction and operation of a railway on Chinese territory, connecting the two sections of the Trans-Siberian. This concession was consummated that same year by a contract between the Chinese Government and the Russo-Chinese Bank.

The contract provided inter alia that the Chinese Government should purchase an interest amounting to 5,000,000 Kuping taels in the Russo-Chinese Bank; that the bank should establish a company to be known as the Chinese Eastern Railway Company, the statutes of which should be coordinated with those of the Russian Railways; that only Russian and Chinese subjects might be shareholders; that the Chinese Government should take measures to assure the safety of the railway and personnel; and that the line should pass to the Chinese Government free of charge at the end of eighty years from the date of completion. There was also a clause providing for the purchase of the road by the Chinese Government at the end of thirty-six years.

About a year and a half after the railway project was settled Russia secured a lease on the Liaotung Peninsula and the Chinese Eastern Railway was granted an extension to its original concession so that the leased territory might be connected with the Siberian system. But Russia was not permitted to keep all that she had gained by her devious diplomacy. The Russo-Japanese War despoiled her of the leased territory, which, together with the South Manchuria Railway (as the new extension had been named) was transferred to Japan by the Treaty of Portsmouth.

In spite of this the Chinese Eastern Railway itself was a constantly growing enterprise up to the time of the Russian Revolution in March, 1917. The Russo-Asiatic Bank remained the only stockholder and the Russian Government held all the bonds, estimated at 400,000,000 gold rubles. During the ensuing period of political chaos in Russia, however, the railroad became a very serious problem to the Chinese Government. In consequence, on October 2, 1920, the Chinese Government and the Russo-Asiatic Bank signed a supplement to the original construction agreement. In the supplement the Chinese Government announced its decision "to assume provisionally (pending an agreement which the Chinese Government will come to with the Russian Government recognized by China regarding the Chinese Eastern Railway) the supreme administration of the Railway."

Certain other factors, however, had meanwhile been introduced into the situation. In August, 1918, Japanese troops had appeared on the scene, in accordance with the secret military agreement between China and Japan aimed at stopping "the steady penetration of hostile influence into Russian territory." As the military situation became more involved the railway service became more disorganized, until it was no longer capable of satisfying even the military requirements of the Allied forces operating in Siberia. Under the circumstances the American Government offered the suggestion that "for the purpose of more efficient technical management, and without prejudice to any claims of financial or political interest, the Siberian Railway System, including therein the Chinese Eastern Railway, should, during the existing emergency, be entrusted to a Commission directed by Mr. Stevens." This suggestion resulted in an informal agreement by the governments interested, supplemented by an agreement with the Omsk Government, and in the appointment of a Technical Board and an Allied Military Transportation Board.

The accounts of the Chinese Eastern Railway on January I, 1922, show the following amounts of gold rubles as due to governments other than the Chinese and Russian:

To South Manchuria Railway (Japan) for coal 2,150,000
To Inter-Allied Technical Committee 2,815,000
To Inter-Allied Purchasing Committee 2,054,000
---------
   Total 7,019,000

These debits, with the possible exception of the item for coal, are obviously the result of Inter-Allied control and were incurred mainly to expedite the transportation of Allied troops. On the other side, we find the amounts due to the Chinese Eastern Railway by Allied Governments for transportation of troops during the intervention in Siberia totaling the sum of 10,648,000 gold rubles. The balance is in the railway's favor.

Now that China has recognized the de facto Russian Government and has agreed upon a joint settlement (to the exclusion of any third party) of the Chinese Eastern Railway problem, the reason for any further concern in the railway on the part of the Powers represented at the Washington Conference does not seem clear. Indeed, aside from the oft repeated "equal opportunity" policy which enters into all public undertakings in China, and unless the two governments definitely decide to repudiate the foreign obligations of the road, further "interest" may be looked upon as interference in China's sovereign rights. China is not likely to entertain the idea of repudiation even if it were suggested by the Soviet Government, unless she undertook to assume the obligations herself.

The French Government considers that it has a contingent interest in the affairs of the railway because of the preponderance of French capital in the Russo-Asiatic Bank,[i] but as the bank was (and is) a Russian concern, and as the contract for the construction of the road specifically stated that the shareholders in the Chinese Eastern Railway Company should be Russian and Chinese only, the natural assumption is that the two governments interested in the contract purposely limited the nationality of the stockholders to avoid any possible international complications. And the bank, in whose name the contract was signed, was presumably aware of the intentions of the two governments in making the restriction. From the premises it would seem natural that the Chinese Government should consider the status of the Chinese Eastern Railway as a question concerning only itself, the Russian Government, and the Russo-Asiatic Bank as a Russian company, not as a question requiring negotiation with the French or any other government.

However dissatisfied Washington may be with the recognition of the Soviets by the Chinese Government, it can hardly protest against the decision that the Chinese Eastern Railway shall be placed under joint Chinese-Russian control until the question of its future is definitely settled by the two governments. The fact that the road owes the American Government for materials purchased and monies advanced during the existence of the Interallied Commission is hardly sufficient ground for such interference. There are other Chinese Government Railways far more deeply obligated to American and other nationals, but the Powers concerned do not suggest interference in their control. Furthermore, the materials supplied and the funds advanced to the Chinese Eastern Railway were for the purpose of facilitating the Interallied military adventure into Siberia; and, in addition, the bill against the Allied Governments for the transportation of troops still remains unpaid. Finally, one might add, the sum of 5,000,000 Kuping taels, plus interest, which the original contract stipulated should be paid to the Chinese Government upon completion of construction (1905), has never been paid, and the road has little prospect of paying it in the near future. This claim gives the Chinese Government a further right to assume control of the road in conjunction with the Russian Government, to whom the road was hypothecated at its very inception, always provided, as the United States Government reiterated at the Washington Conference, that the railway is "maintained as an artery of commerce, with free opportunity to all and unfair discrimination against none."

[i] It has been recently reported (London Times, July 19) that the Soviet Government has acquired a dominant interest in the Russo-Asiatic Bank by the purchase of a large quantity of its shares through the intermediary of two Russian financiers in Paris.

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