The Consul General at Shanghai ( Josselyn ) to the Secretary of State

No. 22

Sir: I have the honor to report recent developments with regard to the American-owned public utility companies in Shanghai, i. e. the Shanghai Power Company, a subsidiary of Electric Bond and Share, and the Shanghai Telephone Company, a subsidiary of the International Telephone and Telegraph.

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At the time of the Japanese surrender these two utility companies, together with other utilities in Shanghai, were in a very run-down and critical condition. The Japanese who were still in charge not only had paid little or no attention to repairs and upkeep, but also had permitted the financial condition of the companies to deteriorate owing, it is stated, to their unwillingness to raise rates to compensate for the depreciation of Central Reserve Bank notes. The result was that in September the monthly cost of a business phone using 200 calls was the equivalent of only 32 cents U. S. and the cost of lighting was US$0.0072 per kilowatt hour. Since that time the Chinese authorities have shown the same disinclination to raise rates, a subject which will be referred to later in this report.

During the early part of September the Shanghai Municipal Government was organized, and the Director of the Bureau of Public Utilities, Mr. T. C. Tsao, appointed officials for taking over the various public utilities. Mr. Paul S. Hopkins, President of the Shanghai Power Company, and a Mr. K. D. Lee were jointly appointed by the Director of the Public Utilities Bureau to take over (from the Japanese) the “Shanghai Power Branch Office of the Central China Water and Power Company” and were to be jointly responsible for its operation. There then ensued considerable negotiation between Mr. Hopkins and the Director of the Bureau of Public Utilities, the former pointing out that he could not share his responsibility for the operation of the Company with the Chinese appointee. The properties of the Shanghai Power Company were formally taken over on September 17 without this point having been settled, but during the course of the next few weeks, the Chinese appointee and his staff gradually withdrew into the background and at the present time Mr. Hopkins reports very little interference with the administration of the company’s affairs.

An even more determined effort was made by the Chinese to take over the Shanghai Telephone Company. This was prevented only by the personal intervention of Ambassador Hurley with Generalissimo Chiang Kai-shek. The Ambassador’s intervention doubtless also had a direct bearing on the treatment accorded the Shanghai Power Company. The circumstances were briefly that on September 15 the Shanghai Telephone Company was taken over from the Japanese by a Commissioner of the Ministry of Communications. The action of the Ministry was taken under an order from General Ho Ying-chin, Commander-in-Chief of the Chinese Army, to take over all tele-communications systems in China, Notices to this effect were posted on all the properties of the company, and it looked as if the Chinese Government had adopted the policy of nationalizing all telecommunications. I immediately protested to the Director of the [Page 1410] Bureau of Public Utilities, but it was obvious that the matter would have to be dealt with in Chungking. It was arranged for an officer of the G–5 Section of the Shanghai Base Command familiar with the circumstances to proceed at once by air to Chungking taking with him my letter to the Embassy explaining the situation as fully as possible. The prompt action taken by the Embassy, first with the Ministry of Foreign Affairs followed by the Ambassador’s direct representations to the Generalissimo, are doubtless already known to the Department. As a result the Generalissimo issued immediate orders for the release of the property to the Company. This was accomplished on September 19 under somewhat the same conditions as related above in connection with the Shanghai Power Company.

The most acute problem which confronted the management of the public utility companies immediately after their taking over was the question of meeting the not unreasonable demands of labor for justifiable increases in wages while at the same time their tariff was set by the Bureau of Public Utilities at an absurdly low level. The Shanghai Power Company’s rate which had been CRB$800 per kilowatt hour (US$0.0072) was set by the Bureau at CNC$4 per kwh, yielding the same equivalent in U. S. currency. This provided revenue barely sufficient to purchase the coal utilized in generation if coal costs were less than US$3 per metric ton. There was no coal to be had at that time at any price, but the company estimated that any coal they could obtain in future would cost approximately US$15 per ton delivered at their power plant.

The Public Utilities Bureau permitted the Power Company to treble its rate in CNC beginning November 10 to CNC$12 per kwh, but clue to the drop in CNC the equivalent in U. S. dollars remained practically the same (US$0,008). In order to keep down consumption for lighting purposes, this rate was permitted to be progressively increased as consumption increased. At the same time in order to permit industry to get started, previous restrictions on the use of electricity for industrial purposes were removed. However, even with these increases, the Shanghai Power Company for November expects to incur an operating loss of approximately CNC$137,500,000, or about $90,000 in U. S. currency. These rates will again come up for revision by the Bureau of Public Utilities on December 10, and it remains to be seen what will be the attitude of the Chinese authorities toward the Company’s requests for further increases.

A similar situation exists in connection with the rates permitted to be charged by the Shanghai Telephone Company, but in their case there is concrete evidence of discrimination in that the American-owned company has been held to a much lower rate than the Chinese Government Telephone Administration operating under the Ministry [Page 1411] of Communications which serves the adjoining area of Shanghai outside the former International Settlement and French Concession. For example, the present monthly rate which the Shanghai Telephone Company is permitted to charge for a business phone using 200 calls per month is CNC$880 (US$0.587) while a similar type of phone service in the areas served by the Chinese Government Telephone Administration is CNC$2330 (US$1.553) per month. The same type of service rendered by the Canton Telephone Administration (also operated by the Ministry of Communications) is CNC$2700 per month (US$1.80). The Shanghai Telephone Company also reports that it is incurring a monthly operating loss running into several tens of thousands of U.S. dollars.

I was informed on November 23 by Mr. Hopkins that the Shanghai British-owned utility companies (Shanghai Waterworks and Shanghai Tramways) had approached him with the suggestion that there should be a united British-American protest to the Chinese authorities at Chungking through consular and embassy channels, against the rate structure in general. Mr. Hopkins states he told the other utility representatives that he was not prepared to ask for diplomatic representations until he had exhausted all other remedies. He stated to me that in these matters the other utility companies have in the past followed the lead of the Power Company in taking action and that his impression was that after talking with him the representatives of the British utility companies would defer their representations at least until after the new rates had been set in December.

Respectfully yours,

Paul R. Josselyn