Railway, has actually expended for permanent improvements on and additions to the railway properties, less a suitable allowance for depreciation. It is understood that no charge will be made for the transfer to China of wharves and warehouses and other similar properties mentioned in the preceding clause, except for such permanent improvements on and additions to them as may have been effected by Japan, less a suitable amount for depreciation.

Joint Railway Commission. It was also agreed that the Governments of China and Japan should each appoint three Commissioners to form a Joint Railway Commission, with power to appraise the actual value of the railway properties in accordance with the principles agreed upon. Furthermore, the understanding, to be embodied in an Exchange of Notes, was arrived at that should this Railway Commission fail to reach an agreement on any of the matters submitted to it, the points at issue would be taken up by the two Governments for discussion and adjustment by means of diplomacy.

In the Conversations the Chinese Delegation urged that these differences should be referred for discussion to a board of neutral experts to be chosen by mutual agreement upon the part of the two Governments, but this was declared unacceptable by the Japanese Delegation, the reason alleged being that this might produce the misgiving in the minds of the Japanese people that neutrals would be asked to settle differences between the two countries. In this connection it is interesting to note that, throughout the Conversations, the Japanese showed an unwillingness to accept any sort of procedure that savored of international arbitration. With regard, however, to the Joint Railway Commission they did agree that,

in reaching its decisions it might, if necessary, obtain recommendations of an expert or experts of a third Power who should be designated by the mutual agreement of the Chinese and Japanese Governments.

Mode of Payment and Conditions to be Attached Thereto. An agreement between the two Delegations upon the foregoing matters having been reached, the question of the manner in which China should pay for the Railway and its properties was taken up.

The Chinese Delegation asked whether it was the desire of the Japanese Government that China should discharge her obligations as quickly as possible. The reply was that that was not the desire of Japan; but that she wished to retain a certain amount of interest in the Railway as was the case with regard to other Chinese Railways operated with the help of foreign loans. Asked if Japan would object to a cash payment, the Japanese Delegation said that she would.

Mr. Sze stated that the Chinese bankers had offered the Chinese Government a loan with a view to the purchase of the Railway, and, if that offer were accepted there would be no need for a foreign loan. Baron Shidehara, however, said that the Japanese Government would consider it discriminatory against itself should the Chinese Government decline the offer of Japan to make a loan. Mr. Sze pointed out that it was difficult to see how the Japanese Government could consider itself discriminated against in the matter of railway loans when its financial interests already held so many Chinese Railway loans,loans aggregating 21,600,000 Yen in amount-an amount exceeded by the railway loans of only one

other country. Mr. Sze further observed that it would be exceedingly difficult to explain to the Chinese people why the offer of a loan from their own banks was not accepted. Baron Shidehara said that the purpose in retaining a Japanese interest in the railway was not only to safeguard the commercial interests of the Japanese people, but mostly for the purpose of escaping criticism that might otherwise be created in Japan: that Japan had made concession as to joint operation, but wished to retain at least an interest in the railway.

The Chinese Delegation then proposed that the payment for the railway should be made in six installments at intervals of six months each, so that by the end of three years total payment would be made. The first installment would be made in cash, and the remaining five in Treasury Notes secured by revenues of the railway. Interest at a reasonable rate would be paid upon the deferred payments. Furthermore, the Chinese Government would give an assurance that in the operation of the railway there would be no discrimination against traders of any foreign nationality.

Japanese Propose Loan by Japanese Capitalists and Employment of Japanese as Chief Engineer, Chief Accountant, and Traffic Manager. Commenting upon this proposal, the Japanese Delegation found it unsatisfactory since it made no provision for continuing Japanese interest in the railway. Now for the first time the proposition was advanced by the Japanese Delegation that, not only should the railway be paid for by China by a loan from Japan, but that,

during the currency of the loan, a Japanese Chief Engineer, a Japanese Traffic Manager and a Japanese Chief Accountant, nominated by the Japanese capitalists should be employed by the railway-these officials to be subject to supervision and control of the higher railway authorities. This arrangement, it was declared, would not interfere in any way with the complete ownership and operation or with the plan of unification of the Chinese Railways, which, it was understood, China was aiming at.

Some attempt was made by the Japanese to support this proposal upon the ground that the efficiency of the operation of the railway would thereby be advanced. This argument was, however, only mentioned, and no serious attempt made to sustain its validity. Indeed, as was later brought out, the statistics of the railways administered by the Chinese Government showed better results, viewed from the standpoint of efficiency, than those operated by the Japanese Government. The point more strongly pressed by the Japanese Delegation was that their proposal for the employment upon the Shantung Railway of a Japanese Chief Engineer, Traffic Manager and Chief Accountant was in conformity with conditions existing upon other Chinese railways and provided for in recent railway foreign loans.

As to this argument the Chinese Delegation had no difficulty in showing that the practice of employing foreign railway experts had grown up in China not because the nations had found any dissatisfaction with the management and administration of the Chinese railways, but because, at the time of the con

structing of the railways and in the course of construction, the Bankers had simply seized the opportunity thus given them to obtain for their nationals these appointments. The Shantung Railway stood upon a wholly different footing. It was not a projected railway which was to be built, but was already constructed and in operation. Furthermore, it was quite possible that the Shantung Railway after its return to China's control would be operated in conjunction with the Tientsin-Pukow line, in which case the Chief Engineer, Traffic Manager and Accountant of that line could take care of the Shantung line. In other words, that there would be an unnecessary and expensive duplication of these officials should separate ones be appointed for the Shantung line.

It thus developed that the Japanese Delegation was anxious that the loan which the Chinese Government should obtain from Japanese capitalists should be a long term one and without an option of redemption upon the part of China until a considerable number of years should elapse. Upon reference being made to other long term railway loans, the Chinese Delegation was able to point out that they had been made for the purpose of constructing the railways concerned and not for financing or for the purchase of roads already built.

The Japanese Delegation then stated that it was desirable that the right of option upon the part of China to redeem the entire loan should not arise until after ten years, and that the term of the loan should be twenty years, and that China should engage to