The Chargé in China ( Atcheson ) to the Secretary of State

No. 1595

Sir: I have the honor to refer to the Embassy’s telegrams nos. 1728 and 1729, both of September 16, 1943, in regard to the C.E.C. resolutions on industrial reconstruction and foreign investments, and to transmit herewith a translation, taken from the English edition of the Central News Agency of September 11, 1943,31 of a resolution approved on that date by the Central Executive Committee of the Kuomintang, proposing a policy for the treatment of foreign investments in China.

An officer of the Embassy was recently informed by a responsible Chinese official that this resolution, which was introduced by Dr. H. H. Kung, Vice President of the Executive Yuan and Minister of Finance, was originally drafted by the Central Planning Board and [Page 868] was approved by the Executive Yuan before its introduction at the plenary session of the C.E.C. It is also said to have received the hearty approval of General Chiang Kai-shek. It may therefore be said to represent a declaration of official policy on the question of foreign investments. It will be sent by the Central Executive Committee to the Executive Yuan, according to the informant, which will recommend to the Legislative Yuan the legislation necessary to implement its provisions. It is not possible at this time to say when such legislation may be expected to be enacted.

The proposals made in the resolution, as interpreted by a Chinese official who was actively concerned in the drafting, are as follows:

The present limit of 49 per cent on foreign participation in companies jointly owned by Chinese and foreign investors should be removed and no limit placed on foreign financial participation, provided the investors agree and the approval of the government is obtained.
The present requirement that the general manager of such jointly owned companies must be a Chinese should be repealed. Sino-foreign companies should be permitted to choose foreign general managers, with governmental approval. The Chairman of the Board of Directors should be a Chinese, however.
Aliens, with the approval of the Chinese Government and subject to the provisions of Chinese laws and regulations, should be permitted to make direct investments in China.
Private individuals and firms should conduct their own negotiations for foreign loans, the arrangements arrived at to be subject to government approval.
Negotiations for foreign loans by state enterprises should be placed under unified control.
The government should decide at any early date which categories of state enterprises may be permitted to sell shares to foreign investors and which categories may invite foreign capital only in the form of loans.

According to the informant, the resolution as drafted by the Central Planning Board and approved by the Executive Yuan, was more detailed and specific than that adopted by the C.E.C. A committee of the C.E.C. preferred that it should be “a little more general” but did not alter the spirit of it. The informant did not care to say what specific points had been taken out but it is believed that there was originally some reference in the resolution to foreign concessions for the exploitation of natural resources.

The purpose of the resolution is said to be clarification of the situation caused by the abolition of extraterritoriality and assurance to foreign capital of protection and opportunity to invest in China. It is probable that an official declaration of a relatively liberal character was felt desirable as a means of counteracting the considerable volume of unofficial and semi-official articles of an ultra-nationalistic nature [Page 869] which have been published in China in recent months, in view of the recognized need for foreign capital in China. It will be noted that the concessions proposed in the resolution are in each case limited by a provision requiring government approval, which, in the hands of an illiberal administration, might conceivably be used to nullify those concessions. It is probable that foreign capital will place less confidence in resolutions, or even in such laws and regulations as may be passed to implement them, than in the manner in which they are enforced and the general attitude of Chinese officials toward foreigners and foreign business. It is believed, nevertheless, that the Kung resolution gives an encouraging indication of the recognition by key Chinese officials of the need for foreign capital and of the fact that such capital will not be attracted by chauvinistic pronouncements.

Respectfully yours,

For the Chargé d’Affaires a. i.:
J. Bartlett Richards

Commercial Attaché
  1. Not reprinted.