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

No. 435

Sir: I have the honor to refer to despatch No. 413 of April 6, 1937 from the Embassy, Nanking,58 on the subject “Trend to State Capitalism [Page 584] in China,” which gave some of the historical basis for the present tendency toward government control of certain lines of economic development and industry in China.

There is enclosed a memorandum60 of conversations held by the American Commercial Attaché and the Counselor of Embassy on April 15 with the Minister of Industries and the Director of the Department of Political Affairs of the Executive Yuan. It will be noted that the Minister of Industries said that, generally speaking, the Government intended to reserve for itself so-called “heavy industries” and to leave to private initiative those industries known as “light industries.” The Minister gave railways and factories for the manufacture of machinery as examples of “heavy industries” and textile industries as an example of “light industries.” Incidentally, he expressed the hope that the United States would follow the example set by Germany, Great Britain and France and would give credits for the purchase by China of materials necessary in the promoting of these heavy industries.

Dr. Franklin Ho, Director of the Department of Political Affairs of the Executive Yuan, threw an interesting side-light on the difference between heavy and light industries by indicating that the category of heavy industries, which the Government is reserving for itself, includes particularly those industries whose development is important in the process of bringing China to a condition of military effectiveness in defense.

Very truly yours,

Nelson Trusler Johnson
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