Memorandum by the Economic Adviser to the Embassy in China (Sumner)
During the month of April, Dr. Wong Wen-hao, Minister of Economic Affairs, conducted a series of seven informal conferences for the purpose of discussing various economic questions. The agenda included the following topics: (1) International aspects of reconstruction, (2) Methods and forms of foreign investment, (3) Economic policies of the Chinese Government, (4) Means of communication (two meetings), (5) Industrialization, (6) Agricultural problems.
Dr. Wong was chairman of the meetings which were also attended by Mr. Remer of the Department of State, and Mr. Sumner of the Embassy. Various Chinese were invited by Dr. Wong, the composition of each group depending on the subject of discussion. Mr. Remer has prepared notes concerning each meeting; these are available in mimeographed form from ED.31
This following summary contains a brief statement of opinions expressed by Chinese on economic matters of particular interest to the United States.
1. Economic planning: It was stated that while a good deal of progress has been made in developing an economic plan for China, much remains to be done before such a plan is completed. Dr. Wong Wen-hao stated that, in his opinion, the function of an economic plan would be that of a general guide, of particular use to the Government in planning its activities, rather than of a detailed blue print to which all phases of economic development must conform.
2. Government ownership: It was predicted by Dr. Wong that the Government would operate a number of factories after the war, but that companies in which the Government was interested would not enjoy special privileges vis-à-vis private companies. He also referred to a policy under which Government banks may become shareholders in private enterprise. While the general opinion was that the Government will be particularly concerned with the development of such areas as transportation and communication, it may enter other industries as well. No fixed lines can be drawn between areas in which the Government will operate and those reserved to private industry.
3. Position of foreign companies: It was clear that there is a difference of opinion among the Chinese as to the position of foreign companies in China under the statement of general post war economic policy issued some months ago by the Supreme National Defense [Page 1349] Council.32 In the view of Dr. Wong, all wholly foreign owned enterprises entering China would do so under special Government approval or franchise. Others apparently believed that it was intended in the policy statement freely to admit foreign companies in most fields of industry subject, of course, to Chinese laws and regulations.
Considerable doubt was expressed by Dr. Wong and others as to the desirability of a completely open door policy towards foreign companies in certain lines of enterprise. Representatives of the Communications Ministry made clear that river transportation must be entirely under Chinese ownership, and that Chinese must have effective control over coastal shipping. In the case of mining, Dr. Wong referred to the dangers of foreign companies becoming members of international cartels without reference to the interests of China. He spoke also of such fields as textiles, where Chinese have experience and may do the job profitably if not confronted by too much foreign competition. While not referred to in Mr. Remer’s notes, other Chinese opinion was to the effect that foreign business would be especially welcome in areas such as the manufacture of automotive equipment, where a high degree of technical experience is necessary and where the Chinese themselves have done little.
Dr. Wong referred at length to China’s desire for foreign investment after the first Sino-Japanese war, and to the unfortunate consequences for China which ensued.
It was pointed out that the Government has made a policy decision, to be implemented by legislation, removing the present restriction on foreign ownership in joint enterprises to 49 per cent of the capital stock. The only limitation to be retained is the requirement that the chairman of the board of directors shall be a Chinese.
4. Plans for economic reconstruction—communications: Representatives of the Communications Ministry outlined plans for rebuilding Chinese railways and constructing an additional 10,000 kilometers during the first five post war years. Imports of foreign materials and equipment for reconstruction of railways were estimated to cost US$800,000,000. (My own notes state that the cost of imports necessary for new railways was estimated at approximately US$700,000,000).
A five year program for river and coastal shipping was estimated to require US$1,000,000,000 for imports. The Ministry has in mind the establishment of an over all holding company, such a company to own and operate shore installations as well as to exercise general control over Chinese shipping. Limited foreign participation in the holding company may be allowed. (Dr. Wong discussed the problem [Page 1350] of ocean ports and proposed that there be four large ports located at Dairen, Tsingtao, Shanghai and Kowloon. He also suggested that a free port be developed on the Chusan Archipelago.) The post war program for aviation was estimated to cost US$303,000,000. The estimated cost of foreign imports for telecommunications was placed at US$145,000,000. Between US$50,000,000 and US$80,000,000 was believed to be necessary for a highway program involving the construction of 10,000 kilometers of main roads and 50,000 kilometers of secondary roads.
The total of the above estimated expenditures for foreign materials and equipment is approximately US$3,000,000,000.
5. Plans for economic reconstruction—industry: Dr. Wong outlined what he referred to as a “modest proposal” for the industrial development of China. He referred to the existence of numerous plans, but chose to outline one which, at the end of five years, would provide an annual production of 3,000,000 tons of iron and steel and 100,000,000 of coal. This plan would also provide 2,000,000 KW of electric power (exclusive of the Yangtze Gorge which, if developed, would involve from 4,000,000 to 10,500,000 KW), and 8,000,000 cotton spindles. Dr. Wong did not describe other elements of the plan.
He estimated the cost of imported materials to be equal to some US$4,480,000,000 including the cost of manufacturing enterprises associated with communications and transportation. This sum, he estimated, would represent approximately 40 per cent of the total expenditure on economic development during the five year period, whereas communications would require approximately 30 per cent of the total economic expenditure.
6. Foreign looms: Throughout the meetings most Chinese, including Dr. Wong, expressed more interest in loans from foreign governments, especially the American, than in foreign private investment in China. The hope was freely expressed that the United States would grant China a large long term loan at a low rate of interest. There was little support for, or confidence in, the idea of international economic assistance.
Dr. Wong expressed the view that China would be able to finance from one-half to two-thirds of the cost of necessary foreign imports. (It is not altogether clear to the writer whether this referred to the total foreign funds requirement, or only to funds required for conducting industrial reconstruction and development.)
7. Currency: A representative of the joint board for the four government banks referred to the importance of currency stabilization. This, he believed, would require a reserve fund of “several hundred million” United States dollars.[Page 1351]
8. Commercial policy: The view was expressed that China would employ a “reasonably high tariff”. There was also interest in the prohibition of imports of “luxuries” by agreement with foreign governments.
9. Agriculture: The needs of agriculture were outlined in relation to a number of topics. In the general discussion, Dr. Wong sharply criticized existing tax policy, and emphasized the need for a wider distribution of land ownership. He advocated a progressive tax policy under which the rate of taxation would increase in relation to the size of land holdings.