The Ambassador in China (Gauss) to the Secretary of State 43
Subject: Position of Foreign Banks in China.
Sir: I have the honor to refer to the Embassy’s despatch no. 2659, June 8, 1944 and telegram no. 1303, July 28, 11 a.m., in regard to the present and future position of foreign banks in China, and to enclose44 (1) copy of a memorandum of conversation of August 7, 1944 between an officer of the Embassy and Dr. Hsu K’an, Minister of Food and Chairman of the Financial Technical Commission of the Supreme National Defense Council, on the subject of legislation for control of foreign banks in China; (2) and (3) copies of telegrams dated August 8 and 10 exchanged between the New York and Chungking branches of the Hong Kong & Shanghai Banking Corporation; and (4) copy of a letter dated August 11, 1944 from the Bank’s Chungking branch to its New York branch, the original of which was forwarded by the Embassy by pouch leaving Chungking August 13 for forwarding by the Department to the addressee at New York.
It appears from Dr. Hsu’s remarks that the Chinese Government is considering revisions of the banking laws based upon a policy of treating branches of foreign banks in China in exactly the same manner as branches of Chinese banks are treated abroad. As a matter of principle, Dr. Hsu stated, it is proposed that foreign banks be prohibited from accepting deposits from others than their own nationals in order to prevent the accumulation of Chinese capital in such banks with subsequent “disturbing” effects on the Chinese national currency. Dr. Hsu indicated that if some provision could be made whereby such accumulation of capital would be prevented, the [Page 1068]Chinese Government might be willing to accord foreign banks more liberal treatment than is now being proposed. Dr. Hsu indicated, however, that final decision had not yet been reached in the matter. Meanwhile, the Embassy is communicating to him informally the substance of the National Foreign Trade Council’s letter dated March 30, 194445 enclosed with the Department’s airmail instruction no. 620, April 28, 1944.46
The Embassy’s telegram no. 1303, July 28, 11 a.m. contained the suggestion that interested American organizations, such as the National Foreign Trade Council and the China-America Council of Commerce and Industry, might wish to avail themselves of the opportunity afforded by the visit to the United States of Dr. H. H. Kung to discuss problems facing American business in China with a view to having the Chinese Government reconsider present and proposed legislation of a restrictive and discriminatory nature. Although press reports received here suggested that this was being done, nothing of a concrete nature has come to the Embassy’s attention until a few days ago when Mr. S. A. Gray, manager of the local branch of the Hong Kong & Shanghai Banking Corporation, stated to an officer of the Embassy that he had received a telegram dated August 8 from the manager of the New York branch of his bank indicating that the National City Bank of New York and the Chase National Bank had arranged a meeting with Dr. Kung’s party and that the meeting was “very cooperative”. The sender of the telegram stated further that he and the manager of the New York office of the Chartered Bank of India, Australia & China had been invited to participate in the discussions at which a Mr. Pei (assumably Mr. Tsuyee Pei, Acting General Manager of the Bank of China) had praised the two British banks for opening branches here and requested them to telegraph Chungking for any suggestions or complaints which the local managers of the two British banks might wish to make for reference to the next meeting with Dr. Kung’s party.
In the telegram to the Hong Kong & Shanghai Bank at New York, which was drafted jointly by the managers of the two British branch banks, comments and suggestions were made on the existing loan regulations, enforced investments and donations required as members of the Bankers’ Association, membership in the joint banks’ reserve board, foreign exchange control and proposed legislation which reportedly would limit deposits to a foreign banks’ nationals. Additional comments were made by Mr. Gray in his letter of August [Page 1069]11, the subjects discussed being the ultimate constitution of the Central Bank of China, certain features of the British bank’s membership in the Bankers’ Association and the deterioration in the exchange control situation.
It is believed that Mr. Gray has given a comprehensive and accurate report on the very unsatisfactory conditions encountered here by the two British banks and that he has provided some valuable material which the National City and Chase National Banks might use in attempting to obtain from Dr. Kung definite assurances of more liberal treatment for foreign banks.
As indicated in previous reports, the Embassy has been pointing out informally to responsible Chinese officials and bankers that the Chinese Government does not appear to be serving its best interests in enacting restrictive legislation of the type proposed in view of the great need for foreign capital and banking assistance in the postwar period and that American capital generally could not be expected to find the Chinese field attractive if American banks should be unable to operate under liberal banking laws.