The Secretary of State to Messrs. Sullivan & Cromwell

Gentlemen: The Department is in receipt of your letter of September 15, 1919, regarding the proposed subscription by American interests to one-half of the capital stock of the Chinese-American Bank at Peking, which you state has recently been chartered by the Chinese Government. You inquire as to the view of the Department with reference to the extent and nature of the protection which might be accorded to the American owned stock of the bank and particularly whether, in view of the fact that the charter acknowledges American owned stock, all matters pertaining to American rights in the bank, derived through such stock ownership, would come under American jurisdiction.

In reply you are informed that under the extraterritorial privileges enjoyed by the United States in China pursuant to treaty stipulations, all legal proceedings instituted against American citizens or American concerns must be brought in an American consular court or in the United States court for China. Actions against a Chinese citizen or concern in which an American citizen or firm is plaintiff are under Chinese jurisdiction, that is to say, the action is brought in a Chinese court though with an American assessor sitting with the court for the purpose of watching the proceedings on behalf of American interests.

It may be observed that a corporation organized under the laws of China in which one-half of the capital stock is owned by Chinese citizens is for all intents and purposes generally to be regarded as a Chinese corporation, and it apparently could not be successfully contended that the fact that the other half of the capital stock was owned by American citizens would, of itself, bring the corporation as such under American jurisdiction, since, as you are doubtless aware, the identity of individual stockholders is, generally speaking, lost sight of in corporations which for general purposes are considered to be legal entities. For the reason just indicated a distinction is to be made between actions by or against the corporation as such and those by or against the individual members or stockholders. While cases of the former character would apparently be outside the jurisdiction of this Government, it would not fail to use its good offices in appropriate cases in the protection of American interests involved. The extent and nature of such protection, however, would depend upon the facts of the particular case which might be presented for consideration and obviously cannot be indicated in advance.

I am [etc.]

For the Secretary of State:
Boaz W. Long
[Page 640]

[In the Legation’s last quarterly report for 1919, printed on page 396, the statement is made that: “Hayden, Stone & Company … the Chase National Bank; and … the Pacific Development Corporation, each … took one third of the American share of the capital. The Bank was formally organized in December, and commenced business in Peking the following month.”]