893.506/7–1444
The Ambassador in China (Gauss) to the Secretary of State
[Received August 1.]
Sir: I have the honor to enclose a copy of a memorandum of conversation dated July 8, 194429 in regard to an official reinsurance pool under organization by the Central Trust Company of China, an affiliate of the (Government) Central Bank of China. The reported formation of this pool has given rise to many rumors and much speculation among foreigners and Chinese at Chungking who view [Page 1059] with misgivings the trend toward monopolistic organizations by the Chinese Government.
Summary of Memorandum. The mushroom growth of fire and marine insurance companies at Chungking has greatly complicated the reinsurance business and many newly organized concerns have been unable to place their reinsurance business abroad. At the suggestion of Dr. H. H. Kung, Finance Minister, a number of Chinese officials was appointed to organize an official reinsurance pool, primarily to place reinsurance abroad for Chinese companies operated by Government banks but also to perform such services for privately-owned Chinese insurance companies, provided the latter choose to participate in the pool. Final decision regarding the scope of activities of the pool and time of establishment will be made by Dr. Kung. End of Summary.
It is believed by the Embassy that Dr. Kung and others interested in this project desire to have all reinsurance business placed under control of a single organization in order to enhance the Chinese position for obtaining reinsurance abroad and to conserve foreign exchange by demanding rates for reinsurance lower than the rates granted to individual Chinese companies. If the pool is successful in obtaining appreciably lower rates than those obtained by privately-owned companies, the latter may be forced eventually to participate in the pool in order to survive. The pool, supported by the four powerful Government banks, might possibly bring pressure to bear on non-participating private companies in various ways such as withholding credits and placing restrictions on obtainance of foreign exchange, and thus force them to join the official pool.
An officer of the Embassy on June 24, 1944 was informed by an official of a privately-owned Chinese fire and marine insurance company that in April 1944 seventeen local non-official Chinese companies had tentatively agreed to form a reinsurance pool of their own as a countermove against the establishment of an official reinsurance pool. The informant stated that the pool would be known as the Hwa Lee Insurance Company, that it would have an initial capital of NC$5,000,000 and that it had not yet been registered as action in that regard was being withheld pending the setting up of the official pool. This informant stated further that many of the privately-owned Chinese companies had no intention of participating in the official pool but that some would probably be forced to do so owing to their inability to obtain reinsurance elsewhere. He expressed the opinion that the insurance companies operated by the Government banks were inefficiently run and would be unable to compete against many private companies were it not for the fact that they depended largely upon business given to them by the respective banks which operate them.
It has not been possible to obtain definitive information regarding [Page 1060] the position of foreign insurance companies if and when the official pool is made operative. This point appears to be under discussion by those interested in setting up the pool but it is believed that final decision on this point will be made by Dr. Kung, who is now in the United States attending the United Nations Monetary and Financial Conference, and that nothing positive will be done here in regard to the formation of the pool until he returns to China.
The Embassy will expect to report again on this subject when new developments occur.
Respectfully yours,
- Not printed.↩