893.61331/57: Telegram

The Counselor of Embassy in China (Peck) to the Secretary of State

268. The Department’s 216, September 9, 6 p.m.

During informal conversation with Kung, Minister of Finance, September 16, 6 p.m., he confirmed plan to organize company to take over exclusive control of the raising and curing of tobacco leaf in China and its sale to cigarette manufacturers. He said that the Government’s objectives are to foster this domestic industry by the application of scientific methods and the elimination of harmful competition and to protect Government revenue derived from taxation of cigarettes by preventing leaf tobacco from falling into the hands of illicit cigarette manufacturers. He also confirmed that a majority of the stock in the new company would be offered to Chinese and foreign tobacco companies, thus placing the control of the operations of the company in the hands of the trade. He said that this proves that the Government has no hidden motive in organizing the company and aside from protection is giving revenue desired only to promote tobacco raising in China. He referred to complaints hitherto filed with him by the American Embassy on behalf of American tobacco companies against inroads on legitimate business by illicit manufacturers and pointed out that American sellers of cigarettes would benefit by this measure to suppress such unfair competition. He asserted that in principle he was personally opposed to taking away business enterprise from private initiative and vesting it in the hands of “politics” but he frankly stated that he hoped through the present measures to raise tobacco growing in China to a point where it would be able not only to supply domestic needs but would be able to compete in world markets.
I did not present any treaty arguments against this scheme and said that my instructions were merely to seek authoritative information. [Page 617] However, I anticipate that it may be difficult to apply article XV of the Treaty of 1844 prohibiting limitations on business in this connection because these measures seemed designed merely to foster a domestic industry and article XV specifically gives protection to merchants known to have been importing or exporting. The question presumably will arise whether we have treaty basis for objecting to protective tariffs on imported leaf if imposed (see my May 28, noon [11 a.m.?], to Peiping51).
In compliance with the Ambassador’s instruction September 12, noon,52 directing initial oral protest to the Foreign Office, if reports of a more precise project were found to be essentially correct, I have called today on the director of the Department of European and American Affairs of the Foreign Office and urged that reply be sent to the Embassy’s note of June 1st.53 I stated that the report that the change in plan whereby a semi-official company would be formed to monopolize handling of leaf tobacco raised in China did not allay fears of American tobacco companies that ultimately their business would be taken from them.
Since my conversation with the Minister of Finance was informal I suggest that his statements should not be quoted publicly.
Sent to the Department and Peiping. Copy to Shanghai by courier.
  1. See telegram No. 274, June 2, 6 p.m., from the Ambassador in China, p. 605.
  2. See supra.
  3. Not printed.