APPENDIX I
PRELIMINARY AGREEMENT PROVIDING FOR THE FINANCINGAND CONSTRUCTION OF THE RAILWAY FROM CANTON TO
CHUNGKING WITH EXTENSION TO LANCHOW
　This Agreement is made at Shanghai on the fourth day of theseventh month of the second year of the Republic of China beingthe fourth day of July, 1913, and the contracting parties are: TheChinese National Railway Corporation (hereinafter termed "theCorporation") duly authorized in virtue of the Presidential Man-date of the ninth day of the ninth month of the Republic of Chinabeing the ninth day of September, 1912, and in virtue of the Charterof th Corporation duly promulgated by a Presidential Mandate ofthe thirty-first day of the third month of the second year of the Re-public of China being the thirty-first day of March, 1913, on theone part and Messrs. Pauling and Company, Limited, of 26 VictoriaStreet, London, S. W. (hereinafter termed "the Contractors") onthe other part.
　Now it is hereby agreed by and between the parties hereto asfollows:

ARTICLE I
　The Contractors, or their Assigns, agree to issue on behalf ofthe Government of the Republic of China a sterling Loan, bearinginterest at the rate of five per cent per annum, (hereinafter refer-red to as "the Loan") for such an amount as may be mutually es-timated to be necessary for the completion of the Railway fromCanton to Chungking.
　The Loan shall be of the date on which the first series ofBonds are issued and shall be called "The Chinese National Rail-ways Government five per cent Gold Loan of 1912 for the Canton
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Chungking Railway."

ARTICLE II
　The proceeds of the Loan are designed for the construction andequipment of the Railway from Canton to Chungking (hereinaftercalled "the Railway") and for all necessary expenditure appertain-ing thereto as may be arranged in the Detailed Agreement, refer-red to in Article 17.

ARTICLE III
　The payment of the interest and the redemption of the Capitalof the Loan are guaranteed by the Government of the Republic ofChina and by a special lien upon the Canton Chungking Railway.This special lien constitutes a first mortgage in favour of theContractors, acting on behalf of the Bondholders, upon the Rail-way itself, as and when constructed, and on the revenue of all de-scriptions derivable therefrom, and upon all materials, rolling stockand buildings of every description purchased or to be purchasedfor the Railway.
　Should there be default in payments on the dates fixed of allor part of the half yearly interest or amortization payments, theContractors shall have the right to exercise on behalf of the Bond-holders all the rights of action which accrue to them from the spe-cial mortgage.

ARTICLE IV
　During the time of construction of the Railway the interest onthe Bonds and on any advances made by the Contractors shall bepaid from the proceeds of the Loan. The accruing interest from anyproceeds of the Loan not used during the period of construction,
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and the earnings derived by the Corporation from the working ofany sections of the Railway as they are built, are to be used to makeup the amount required for the payment of the said interest, andif any deficiency remains it is to be met from the proceeds of theLoan.
　When the construction of the Railway is wholly completed, theinterest on the Bonds is to be paid from the income or earningsof the Railway received by the Corporation, in such manner andon such dates as may be provided for in the Detailed Agreementprovided for in Article 17 of this Agreement.
　If, at any time, the earnings of the Railway, together with thefunds available from the proceeds of the Loan, are not sufficientto meet the interest on the Bonds and the repayment of the cap-ital in accordance with the Amortization Schedule to be attachedto the Detailed Agreement, the Government of the Republic ofChina, in approving of this Agreement, unconditionally undertakesand promises to pay the principal of the Loan and the interest ofthe Loan on the due dates to be fixed therefore in the DetailedAgreement provided for in Article 17 of this Agreement.
ARTICLE V
　The Bonds shall be Bonds of the Government of the Republicof China.

ARTICLE VI
　The Loan shall be issued to the public in two or more seriesof Bonds, the first issue to be made to the amount of from one totwo million pounds sterling as soon as possible after the signatureof the Detailed Agreement referred to in Article 17 of this Agree-ment. The issue price of the Bonds shall be fixed by the Corpo-ration and the Contractors sometime before the issue, taking the
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last price of similar Bonds as a basis for fixing the market price.The price payable to the Corporation shall be the actual rate ofissue to the public less a sufficient amount to cover the cost ofstamps on the Bonds in the various countries of issue, provided al-ways that at least fifty per cent of the Bonds shall be issued in Eng-land, plus floatation charges of four per cent retainable by theContractors (that is to say, a charge of four pounds for every onehundred pound Bond issued).
　After the Detailed Agreement referred to in Article 17 is set-tled, and pending the issue of the Loan, the Contractors shall de-posit the sum of fifty thousand pounds with the issuing Bank tothe Canton Chungking Railway account, and this amount can bedrawn on by the Corporation for survey and other necessary ex-penses authorized by the Managing Director against certificatessigned by the Chief Accountant and Chief Engineer. This sum offifty thousand pounds shall bear interest at the rate of five per centper annum and shall be refunded out of the proceeds of the Loan.
ARTICLE VII
　The proceeds of the Loan shall be deposited with the issuingBank, to be nominated and guaranteed by the Contractors, to thecredit of a Canton Chungking Railway Account on such terms asmay be mutually arranged in the Detailed Agreement referred toin Article 17.
　When the work of construction is ready to begin a sum equalto the estimated expenditure in China for six months shall be trans-ferred to a Bank in China to be mutually agreed upon and thereplaced to the credit of a Canton Chungking Railway Account tobe operated upon by the Corporation under certificates signed bythe Chief Accountant and the Chief Engineer. This amount of es-timated expenditure for six months shall be maintained by sub-sequent monthly transfers so that, as far as possible, there shall
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always be six months estimated expenditure in China on depositin a Bank in China to be mutually agreed upon.

ARTICLE VIII
　Immediately after the signing of the Detailed Agreement, theCorporation will establish a Head Office at Canton for the CantonChungking Railway. This Office will be under the direction of a Chi-nese Managing Director to be appointed by the Corporation, withwhom will be associated a British Engineer-in-Chief and a BritishFirm of Public Accountants, of recognized standing, whose repre-sentative shall be Chief Accountant (hereinafter called "the ChiefAccountant"). These British Employes shall be nominated by theCorporation and the Contractors, jointly, and shall be appointedby the Corporation. Their dismissal shall take place, only, with thejoint approval of the Corporation and the Contractors.It is understood that the duties to be performed by these em-ployes are intended to promote the mutual interests of the Cor-poration and the Bondholders respectively, and it is therefore agreedthat all cases of difference arising therefrom shall be referred foramicable adjustment between the Corporation and the Represen-tative of the Contractors. The salaries and other terms of Agree-ment of the Engineer-in-Chief and the Chief Accountant shall bearranged between the Corporation and the Contractors; and theamount of their salaries, etc., shall be paid out of the general ac-counts of the Railway.
　For all important technical appointments for the operation ofthe Railway, Europeans of experience and ability shall be engagedand wherever competent Chinese are available, they shall be em-ployed. All such appointments shall be made, and their functionsdefined, by the Managing Director and the Engineer-in-Chief in con-sultation, and shall be submitted for the approval of the Corpora-tion; similar procedure shall be followed in the case of Europeans
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employed in the Chief Accountant's department. In the event ofthe misconduct, or the incompetency of these European employes,their services may be dispensed with by the Managing Director,after consultation with the Engineer-in-Chief, and subject to the sanc-tion of the Corporation. The form of Agreements made with theseEuropean Employes shall conform to the usual practice.The accounts of the receipts and the disbursements of theRailway's construction and operation, shall be in Chinese and Eng-lish in the department of the Chief Accountant, whose duty it shallbe to organize and supervise the same, and to report thereon forthe information of the Corporation through the Managing Direc-tor, and of the Contractors as representing the Bondholders. Allreceipts and payments shall be certified by the Chief Accountantand authorized by the Managing Director.
　For the general technical staff of the Railway, after completionof construction, the necessary arrangements shall be made by theManaging. Director in consultation with the Engineer-in-Chief, andreported to the Corporation in due course.
The duties of the Engineer-in-Chief shall consist in the efficientand economical maintenance of the Railway, and the general su-pervision thereof in consultation with the Managing Director. Theduties of the Chief Engineer during construction shall be set forthin the Detailed Agreement, referred to in Article 17 of thisAgreement.
　The Engineer-in-Chief shall always give courteous considera-tion to the wishes and instructions of the Corporation, whether con-veyed directly or through the Managing Director, and shall alwayscomply therewith, having at the same time due regard to the ef-ficient construction and maintenance of the Railway.A school for the education of Chinese in Railway matters shall
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be established by the Managing Director subject to the approvalof the Corporation.

ARTICLE IX
　The Contractors shall construct and equip the Railway and shallreceive as remuneration a sum equal to seven per cent on the ac-tual cost of the construction and equipment of the Railway. Theterm "Equipment" shall be held to include in its meaning all re-quirements necessary for the operation of the Railway and shalltherefore include Rolling Stock and Locomotives sufficient foroperation.
　It is clearly understood that the term "Equipment" does notinclude any purchases made for the Railway after it has been com-pletely constructed and equipped and handed over ready foroperation.
　It is further clearly understood that the cost of land purchasedfor the Railway, the salaries of the Managing Director, Chief Ac-countants, Chief Engineer, and the cost of their offices and staffshall not be included in the meaning of the terms "constructionand equipment".
　The Contractors shall have the option of constructing on thesame terms the proposed extension of the Railway to Lanchow inthe Province of Kansu, or a Railway of similar milage in some otherpart of China to be mutually agreed upon, and this option shall befor seven years from the commencement of construction.All other arrangements in connection with the construction andequipment of the Railway shall be settled in the Detailed Agree-ment referred to in Article 17.

ARTICLE X

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All land that may be required along the whole course of theRailway within survey limits, and for the necessary sidings, stations,repairing shops and car sheds, to be provided for in accordance withthe detailed plans, shall be acquired by the Corporation at the ac-tual cost of the land, and shall be paid for out of the proceeds ofthe Loan.

ARTICLE XI
　The Contractors shall hand over to the Corporation each sec-tion of the Railway, when completed, for operation in accordancewith the provisions of the Detailed Agreement.

ARTICLE XII
　The Contractors shall be appointed Trustees for the Bondhold-ers and shall receive such remuneration as may be fixed in the De-tailed Agreement.

ARTICLE XIII
　The Government of the Republic of China, whenever neces-sary, will provide protection for the Railway while under construc-tion or when in operation, and all the properties of the Railwayas well as Chinese and foreigners employed thereon, are to enjoyprotection from the local officials.
　The Railway may maintain a force of Chinese Police with Chi-nese officers, their wages and maintenance to be wholly defrayedas part of the cost of the construction and maintenance of the Rail-way. In the event of the Railway requiring further protection bythe military forces of the Government, the same shall be duly ap-plied for by the Head Office and promptly afforded, it being under-stood that such military forces shall be maintained at the expenseof the Government.

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ARTICLE XIV
　All materials of any kind that are required for the constructionand working of the Railway, whether imported from abroad or fromthe Provinces to the scene of work, shall be exempted from Likinor other duties so long as such exemption remains in force in re-spect of other Chinese Railways. The Bonds of the Loan, togetherwith their coupons and the income of the Railway shall be free fromimposts of any kind by the Government of the Republic of China.
ARTICLE XV
　With a view to encouraging Chinese industries, Chinese ma-terials are to be preferred, provided price and quality are suitable. At equal rates and qualities, goods of British manufacture shallbe given preference over other goods of foreign origin.
ARTICLE XVI
The Contractors may, with the approval of the Corporation, andsubject to all their obligations, transfer or delegate all or any of theirrights, powers and discretions, to their successors or assigns.
ARTICLE XVII
　As soon as this Preliminary Agreement is signed it shall be for-warded to the Government of the Republic of China for approval.When it has met with the approval of the Government of the Re-public of China, a necessary Detailed Agreement shall be made em-bodying the principles of this Agreement with such amplificationsand additions as may be mutually agreed upon between the par-ties hereto.

ARTICLE XVIII

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On its approval of this Agreement, and acceptance of the ob-ligations set forth herein, the Government of the Republic of Chinashall officially notify the British Minister at Peking of the fact, andthis approval shall be taken as covering the Detailed Agreementreferred to in Article 17.

ARTICLE XIX
　This Agreemnt is executed in quadruplicate in English and Chi-nese, one copy to be retained by the Corporation, one to be for-warded to the Government of the Republic of China, one to beforwarded to the British Minister at Peking, and one to be retainedby the Contractors, and should any doubt arise as to the interpre-tation of the Agreement, the English text shall be accepted as thestandard.
　Signed at Shanghai by the contracting parties on this fourthday of the seventh month of the second year of the Republic ofChina being the fourth day of July nineteen hundred and thirteen.
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