893.6583/2: Telegram

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

296. Department’s 144, May 27, 4 p.m. to Shanghai concerning proposed vegetable oil monopoly.

Hankow Consulate General has reported fully on reaction there to proposed monopoly.27 Josselyn28 states that wood oil exporters of all nationalities, including Chinese, are extremely apprehensive of the effect which the scheme will have upon their business. It is believed by them that the scheme involves a monopoly either of the trade as a whole or of the storage and preparation of wood oil. Josselyn states that American exporters at Hankow seem to be unanimously of the opinion that if the scheme goes through it will put them out of business. And that he is inclined to concur in this opinion. American investments in the wood oil trade appear to be substantial. The two American firms which handled nearly half of the 1935 exports which passed through Hankow (69,000 short tons valued at United States dollars 12,000,000) maintain installations and equipment at Hankow and at Chungking and Wanhsien in Szechuan and Changteh in Hunan. Indirectly the Socony Vacuum Oil Company with which the American companies have storage facilities and transportation arrangements, and the Hankow branch of the National City Bank of New York through which most of the transactions are cleared by American exporters may be expected also to suffer by the establishment of the proposed monopoly.
Peck reports from Nanking29 that he has received confirmatory reports of a great many features of scheme as contained in the press and that it is his opinion that in spite of the reluctance of officials in Nanking to discuss the details of the proposed plan, sufficient evidence has been accumulated to show beyond a doubt that the Chinese Government has the intention to monopolize the refining, storing and sale of wood oil, and possibly of other vegetable oils. I am instructing Peck to call on the Minister of Industry and make known to him the extent of American interests engaged in the wood oil trade and the opposition [Page 607] of the American Government to any restrictions placed in the way of American business enterprises in China under the treaties. Formal protest will be filed against the proposed vegetable oil monopoly if Peck’s interview with the Minister of Industry is unsatisfactory, and if such a course at the time appears desirable.
In discussing with Dr. Hsu Mo, the Vice Ministry for Foreign Affairs, on June 6 the matter of our positions the proposed leaf tobacco monopoly (see my 274, June 2, 3 [6] p.m.), Mr. Peck observed while the American Government had positive convictions in regard to its treaty rights as against Government monopolies in China, there were other considerations of great importance distinct from the legal aspect, such as the equilibrium in the trade between the two countries, which merited serious attention. Referring to the legal aspect of Government monopolies in China, Dr. Hsu said the Ministry of Foreign Affairs had in the past replied in detail to the arguments of the American Embassy against the principle embodied in the idea of Government monopolies in certain lines of activity, arguments based in part on article 14 [15] of the treaty with the United States of 1884 [1844], on the French Treaty of 185830 and on the Washington Conference Treaty31 on principles and policies. He recalled that the Chinese Government in these replies had taken the position that in the treaty of 1844 the Chinese Government had undertaken not to grant monopolistic rights to any Chinese individuals engaged in foreign trade, but to permit American citizens to enter into business relations with any Chinese citizen they might select. He reiterated that in the opinion of his Government this did not preclude the legality of Government monopolies such as the salt gabelle. He stated that it would be of advantage to various lines of business to receive guidance and improvement of those industries at the hands of the Government, as for example, in the tea export business which had fallen off badly of late, and that he thought it would be of general benefit if the Government took over control of the production and sale of certain important commodities. When Mr. Peck inquired whether it was to be inferred that China was tending to become a corporate state like Italy, Dr. Hsu replied that he would not undertake to say that this tendency existed in China but that it seemed to be the tendency in the world at large for governments to intervene in commercial matters in the way described.
Peck ventures the opinion based on recent conversations and observations in Nanking that the Chinese Government has deliberately embarked on a policy of controlling the production and sale of a number of important commodities in the belief that this will result in benefit [Page 608] to these industries and develop attractive revenues for the Government. I concur in Mr. Peck’s opinion.
Copy to Shanghai by mail.
  1. Despatches from the Consulate General at Hankow on this subject not printed.
  2. Paul R. Josselyn, Consul General at Hankow.
  3. Despatch No. 182, June 6, not printed.
  4. Signed at Tientsin, June 27, 1858, British and Foreign State Papers, vol. li, p. 636.
  5. Signed at Washington, February 6, 1922, Foreign Relations, 1922, vol. i, p. 276.