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

No. 2312

Sir: I have the honor to transmit herewith a memorandum13 prepared by an officer of the Embassy in regard to the attitude toward American participation in Chinese industry as expressed by certain Chinese Government officials and industrial representatives to Mr. Arthur Keane, representative of the U. S. Steel Export Company.

Summary: The Minister of Economic Affairs, Dr. Wong Wen-hao, and the Minister of Communications, Dr. Tseng Yang-fu, showed great interest in the possibility of participation of American private capital in Chinese industry and were quite prepared to accept participation on a 50–50 basis. Two projects were presented to Mr. Keane for consideration by his company, one of which involved the erection of a fairly large steel mill near Hankow, while the other envisaged participation by the U. S. Steel Export Company in the China Bridge Company. A third and rather surprising proposal, by Dr. Tseng, involved the organization of a private company, with 50% American capital, to own and operate all of China’s railways. It appears unlikely that the Chinese Government would countenance such a project. Mr. Keane found considerable jealousy among officials with whom he came into contact. He was given the impression that private Chinese capital will have no future in the iron and steel industry, which will be a monopoly of the Chinese Government in partnership with foreign capital. End of Summary.

The Central Executive Committee of the Kuomintang, at a plenary session in September 1943, adopted a resolution urging that the existing 49% limitation on foreign participation in Sino-foreign companies be repealed and that foreign investors be permitted to invest in such companies without limitation. (Embassy’s despatch no. 1595, September 18, 1943.14) The resolution provided, however, that the approval of the Chinese Government should be required in each case and there were intimations that approval might not be readily forthcoming in cases where the foreign participation exceeded 49%. It would [Page 1046] appear from the concrete proposals presented to Mr. Keane, that the Government is disposed to approve a 50% participation. The proposal that all the Chinese railways be owned and operated by a private company with American participation, coming from the Minister of Communications, is especially interesting, as it has always been indicated that railways would be a Government monopoly, in accordance with the plan of Dr. Sun Yat-sen. It does not seem probable that President Chiang or the Chinese Government would assent to such a project.

Respectfully yours,

C. E. Gauss