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

No. 1645

Sir: I have the honor to refer to the Embassy’s despatch no. 1595, September 18, 1943, on the subject of Chinese official policy in regard to investment of foreign capital, and to transmit herewith a copy of despatch no. 152, September 9, 1943, from the Embassy officer of Chengtu,34 with its enclosure, translations of articles from two Chengtu newspapers urging limitations on the employment of foreign capital in China. There are also enclosed three excerpts from Chungking newspapers, which are likewise concerned with this question.35

Mr. Smith’s despatch is summarized as follows: The Central News article urges that sufficient protection be given foreign capital to ensure its safety but that there be restrictions to prevent manipulation and abuses; utilization of foreign capital should be directed by the government and direct investment should not be permitted. An article in the May 1943 issue of The New Economics holds that “the key to the utilization of foreign capital is for us to hold the sovereignty and management control in our hands” and urges that direct investment not be permitted. The Hsinmin Evening News, placing the amount needed for industrial reconstruction at CN $5,000,000,000 plus US $5,000,000,000, suggests that the latter amount be raised abroad by a special committee in the form of long term credits to be refunded by installments. These articles give some support to statements that the trend in China is toward government monopoly of major economic enterprises and the exclusion of foreign influence, but it is believed that many influential Chinese financial leaders realize that there are limits to the advantages of such a policy. End of summary.

The enclosed excerpt from an article in the English edition of the Central News Agency Bulletin of August 25, 1943 urges that foreign [Page 871] capital be directed into the most useful channels by the government, with direct investments prohibited except by special permission, and that, where foreign management is permitted, there be a provision requiring training of Chinese personnel to take over the management after a specified period. Mr. Chang Ju-kiang, an economic writer in an article in the Hsin Min Pao of September 19, 1943, an excerpt from which is enclosed, argues for strict control of foreign enterprises but does not ask for prohibition of direct investments of foreign capital, the Central Executive Committee of the Kuomintang having already gone on record, before the publication of his article, as favoring direct investments. Mr. Kao Ping-shu, in an economic article in the Ta Kung Pao of September 12, 1943, reviewed in the Daily Bulletin of the China Information Committee of September 17, 1943 (a copy of which is enclosed), estimates that China will need US $6,500,000,000 of foreign capital in the first five years of reconstruction and sees no need for special restrictions on foreign investment, as foreign capital and foreign factories will be subject to Chinese laws and regulations. It is probable that Mr. Kao’s article was written after the announcement (September 11, 1943) of the CEC resolution favoring a liberal attitude toward foreign capital (Embassy’s despatch no. 1595, September 18, 1943).

The CEC resolution, favoring removal of restrictions against foreign control of Sino-foreign companies, permission for direct investments in China by aliens and permission for private firms to conduct their own negotiations for foreign capital (all subject to government approval), was apparently intended to counteract the effect of nationalistic articles such as most of the enclosed, and to reassure foreign investors. As a pronouncement of official and party policy, it should have a considerable effect on future articles in Chinese publications, on the subject of the utilization of foreign capital.

According to an official of the Ministry of Finance, a proposal for the organization of an insurance company to be controlled by the government banks, which would have been granted a monopoly of reinsurance on government properties, has been shelved because of the fear that it might be disturbing to foreign opinion. Embassy’s A–65, Sept. 27, 1943.36

Respectfully yours,

C. E. Gauss
  1. Horace H. Smith; despatch not printed.
  2. Enclosures not reprinted.
  3. Ante, p. 448. In a memorandum dated December 13, Granville O. Woodard of the Division of Far Eastern Affairs observed: “… in commenting on the press releases being transmitted with the despatch the reporting officer states that ‘These articles tend to give some support to the pessimistic prophecies made during the past ten years, by observers of the trend of the Chinese Central Government toward monopoly control of all major economic enterprise and the exclusion of foreigners from such enterprises, but it is believed that many of the most influential Chinese financial leaders realize that there are limits to the practical advantages of such a policy’.”