The Chargé in China (Gauss) to the Secretary of State

No. 3129

Sir: I have the honor to acknowledge the receipt of the Department’s instruction No. 1466, of October 3, 1934, in regard to the “Industrial Encouragement Act” which was promulgated by mandate of the National Government of China on April 20, 1934, and to enclose a copy of the formal note30 which the Legation has addressed to the Acting Minister for Foreign Affairs under the authorization given in that instruction.

The matter of the Industrial Encouragement Act was discussed with the British Legation and it was ascertained that the British Minister intends to address a formal communication on the subject to the National Government, citing various specific causes of complaint which the British Legation has in recent months made the subject of representations to the National Government and inviting attention to the fact that while it is stated to be the policy of the Chinese Government [Page 569] to encourage the investment of foreign capital in China, the action of the Government and of various provincial governments tends not only to discourage the investment of new British capital but also to place British capital already invested at a disadvantage as compared with Chinese capital. It was stated at the British Legation that it is the intention of the British Minister, who is now absent on a tour to South China, also to address an informal communication to Dr. Wang Ching-wei, the Acting Foreign Minister, directing his personal attention to the formal communication from the Legation and expressing the hope that the Chinese Government will take measures to conform its acts to its pronouncements in this matter, which he feels mean so much to British capital in China and which should also be vital to the improvement of the economic situation in this country.

Amongst the causes of complaint which the British note will cite are matters such as the kerosene taxes imposed in Fukien Province, and restrictions amounting substantially to a monopoly in the importation of sulphuric acid. But none of these complaints arise out of the Industrial Encouragement Act, and, so far as this Legation is aware, there has not yet arisen any case affecting foreign interests where that Act may be cited as the cause of unfair treatment or discrimination.

The outstanding instance of unfair treatment of foreign interests in China during the past few years has been the kerosene case at Canton,31 but that matter seems now to be in a fair way toward adjustment.

With reference to the matter of encouragement of foreign capital investment in China, I offer the comment that while from time to time officials of the National Government have been reported as encouraging such investments, the general attitude has been one of desiring foreign capital for Chinese enterprises, under Chinese control, and not for investments under foreign extraterritorial jurisdiction.

Having given consideration to the question as to whether it might be desirable to approach the National Government in connection with the Industrial Encouragement Act along the lines of the British plan, I concluded that the course originally proposed by the Legation and approved by the Department seemed the more desirable and I have followed that course in addressing my note to the Acting Foreign Minister.32

The Legation is circulating to the consular officers a translation of the Industrial Encouragement Act and informing them of the Legation’s [Page 570] note to the Minister of Foreign Affairs. The consuls are being instructed to inform the Legation of any developments in their district in the application of the Industrial Encouragement Act which may affect American interests.

Respectfully yours,

C. E. Gauss
  1. Not printed.
  2. See pp. 564 ff.
  3. The Minister in China in his despatch No. 3422, March 7, 1935, reported that the Chinese Foreign Office had replied to the effect that the Minister of Industry stated “there will be no discrimination” and “utilization of foreign capital and technical cooperation will in no way be affected by the operation of the Industrial Encouragement Act.” (893.60/39)