893.61331/297: Telegram

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

253. My 205, August 5, 1 p.m. Further negotiations between Takase, the Chief of the Economic Section of the China Affairs Board here, and the Director of the Yee Tsoong Tobacco Distributors Limited have been conducted for past 2 weeks. In letter September 2 Director informed Takase unwillingness to admit Japanese adviser to organization but of willingness to continue operations and pay new increased consolidated taxes, amounting to $9,000,000 local currency on undistributed manufactures and thereafter approximately 5,000,-000 monthly, otherwise company will reluctantly become compelled to close down.

Takase orally informed Director Japanese would then take over and operate plants. Director smilingly replied while company had a very elaborate organization it did not have an army. Takase evidently taken aback by company’s strong stand, said he would refer matter to higher officials of Board, army and diplomatic service in Tokyo.

Director informed me company now felt that time for resistance of Japanese infiltration methods has arrived and that it would rather have its business and properties taken by force than to lose them gradually by negotiations to which company would be a party.

Sent to the Department. Repeated to Chungking, Shanghai. Code text air mail to Tokyo.