893.61331/313: Telegram

The Acting Secretary of State to the Ambassador in China (Gauss)

235. Reference question of state monopolies of salt, tobacco, matches and sugar in China.

For your information the Department has prepared a brief memorandum40 in regard to the question of monopolies in China for possible use by concerned American officials in conversations here with representatives of the Chinese Government. There is pointed out in the memorandum the inevitable inflationary effect of the large expenditures that would be required for the purchase of properties and stocks and of the setting up of machinery necessary for the financing and functioning of monopolies at a time when every effort is being made to extend to China assistance in curbing inflation. There is also mentioned the fact that the use by China either directly or indirectly of any part of American credits for the establishment of a government monopoly in China covering a commodity prominent in the economy and export trade of the United States might cause embarrassment to the Government of the United States. In this connection it is stated that the experience of American leaf tobacco producers and exporters was that government monopolies inevitably tended to restrict imports and that such American leaf tobacco producers and exporters would be quick to criticize the Government of the United States if credits made available by it to China were used, directly or indirectly, in a manner resulting in increased restrictions on the exports of American tobacco to China. It is pointed out that such criticism would tend to place difficulties in the way of continuance of assistance by the United States to China in further constructive, possibly post-war, work. It is also pointed out that aside from the question of the inflationary effect which the establishment of the proposed monopolies would inevitably have, such monopolies would displace private agencies and enterprises which had been functioning for many years and that such displacement would subject to further strain China’s economy which is already being severely tested by China’s heroic war effort. It is finally suggested that in view of the fact that all of the United Nations are making every effort to streamline their activities and to subject every proposed new activity to the [Page 503]test whether such activity would contribute to the prosecution of the war there is offered for consideration the suggestion that the present time would seem most inopportune for the outlay of large sums of money and for the expenditure of considerable effort and thought in connection with the establishment of new government monopolies of the type under reference.

Notwithstanding the above, the Department considers it not desirable to adopt a too insistent attitude in regard to this matter. We intend to present our views of the matter in terms not of legal rights or of national or private economic interest but in terms of what we regard as a sound practice advantageous in the long swing to all concerned.

  1. Not printed.