893.6359 Antimony/20

The Minister in China ( Johnson ) to the Secretary of State

No. 3619

Sir: I have the honor to refer to the Department’s telegram No. 138 of May 24, 4 p.m., regarding the Hunan Antimony Syndicate, and to outline below the views of the Legation on the subject.

The British policy, according to information obtained from the British Legation, contemplates the resisting of the establishment of monopolies similar to the Hunan Antimony Syndicate, even though the British authorities admit privately that there exists a reasonable doubt whether the treaty provisions cited in support of official protests were based upon an appreciation of modern commercial developments. The Japanese have thus far limited their protests to developments that they considered to be in violation of the pertinent provisions of the Washington Treaty of 1922. The American position has thus far been like the British with the perhaps important difference that the British Legation admits that, where British interests were connected with the establishment of such a monopoly, the particular instructions of the British Foreign Office would have to be asked as regards the procedure to be followed, if any.

It seems indubitable that the present “natural” tendency in China is toward the development of modern commercial and industrial structures by either private or governmental combinations of capital. The entrepreneurs who would be financially able to embark upon individual enterprises on a large scale are definitely limited in number, [Page 783] and, moreover, present conditions in China are not such as would stimulate the launching of projects that were not possessed of official connections to an extent guaranteeing their undisturbed functioning on a profitable basis. These observations apply with special force to the subject of mining enterprises, and railway financing and certain light industries.

In many cases, those enterprises projected by Government-sanctioned or governmental combinations of capital would constitute, in actual effect, monopoly combinations. It is true that such enterprises are not at present a prominent feature of the Chinese economic scene, but this fact represents more the National Government’s present lack of financial resources than the absence of such an economic conception. As regards the particular case of the Hunan Antimony Syndicate, for example, it is reported that the monopoly organization is weakening; this, however, reflects the deleterious economic situation that exists generally and the weakness of the financial structure on which the Syndicate rests, and is not to be considered an abandonment of the project because of the American protests or other political or theoretical reasons. Again, the establishment of match, sulphuric-acid, cigarette, and other monopolies is checked for the time being only by difficulties connected with the financing of such projects, and not by any consideration of the foreign interests that might be adversely affected.

It appears, in short, as if the tendency toward the establishment of official or officially-sanctioned monopolies is inherent in the present economic situation in China, but the actual implementation of such projects is deferred pending changes, as yet entirely hypothetical, that will strengthen the financial position of the Chinese Government. It is believed that the situation would be the same whatever group in China might be in power.

A policy of definite opposition to the establishment of monopolies would have little chance of success against a strong Chinese Government. It should be remarked, however, that China is in practical monopoly possession of only two commercial minerals, namely, antimony and tungsten. In both of these fields, monopolies have been established that have attempted to raise prices for the benefit of the producers. In the case of trade in both commodities, however, the opposition of the foreign market to an unreasonable price appreciation has made itself felt effectively, and there is no reason to believe that China would be able as a result of the establishment of monopoly control to maintain those two products at a quite unreasonable price-level in spite of the concerted opposition of foreign buyers. In any event, in other fields of production there is little or no chance of China’s effectively combatting fundamental world price-trends by means of monopoly control, by reason of the fact that it has monopoly [Page 784] resources in no other important field of basic production. As regards the monopoly production of such articles as cigarettes, matches, sulphuric-acid, and other products of light industry, foreign interests are affected more severely if monopoly sale accompanies such production. Nevertheless, the general trend here is felt to be as definite as in the case of the production of raw materials like antimony, and the tendency will be stimulated by any success that may attend like developments in “Manchukuo”.79 There has been no protest by foreign Governments against China’s official monopoly of salt-production, and it is improbable that the Chinese Government will in the long run view match-production, for instance, in any essentially different light. The chief check to an unfair use of the system of monopoly organization will probably rest finally with such commercial exigencies as profit-and-loss in connection with domestic-trade totals, and mutual benefit in international trade.

In these circumstances, the Legation would be inclined to suggest that there be followed a policy of general opposition to monopolies imposing unreasonable restraints on international trade, but that the policy be sufficiently flexible, and in accord with what are conceived to be the existing economic tendencies, to enable the United States Government to avoid the appearance of opposing fundamental trends in Chinese economic development. More specifically, it would seem to be advisable, for the present at any rate, to continue protesting against the establishment of purely official monopolies that might seem to be set up primarily for the purpose of directing commercial profits into the Government Treasury, with the aim of achieving the alteration of such official monopolies into more purely commercial enterprises if possible. The situation is such that a comparatively moderate amount of pressure, especially if supplemented by British action along the same lines, would upon occasion prevent the development of official monopolies in favor of commercial combines—if the latter were not opposed as well by foreign Governments. Commercial necessity might, in some instances, suffice to compel commercial groupings to adopt a reasonable attitude, and be inclined to compromise, in their dealings. It is not believed that much more can be expected in the existing situation.

Any monopoly combinations that gave foreign groups special interests in trade would naturally still be made the subject of determined protest.

As of possible interest in connection with this general subject, there are enclosed copies of two memoranda of conversations regarding the Hunan Antimony Syndicate, on May 30 and June 1, 1935, respectively.80

Respectfully yours,

Nelson Trusler Johnson
  1. For developments in “Manchoukuo” and Japan, see pp. 877 ff.
  2. Neither printed.