893.5034/8–945: Telegram

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

1309. Draft of the revised company law is scheduled for its second and third readings in the Legislative Yuan August 15 and 16 at which time final consideration will be given to possible amendments. It is urgently important therefore that the Department’s views and those of Commerce and business groups be received as promptly as possible (Deptel 1199, August 4, 2 p.m.31).

Lacking a legal adviser, Embassy has not been able to take advantage of the opportunities afforded it by Chinese legislators during the drafting of this law. No legal opinions have been expressed, but at meetings with Dr. Sun Fo and with S. Y. Wu, Secretary General of the Legislative Yuan, and with Robert [C. W.] Cheng and Chaoyuen C. Chang,32 members of the Legislative Yuan who have drafted revised legislation, the Embassy has endeavored to focus attention upon certain obvious difficulties relating to foreign corporations in chapter 7 of the present draft. It is now understood that the draft law will be revised in the following respects when presented for its second and third readings:

Article 264 (original draft), paragraph 3, provides inter alia that a foreign corporation must specify the amount of its total capital apportioned [Page 1226] for use in China. Article 276 (original draft) provides formula for apportioning capital if such is not fixed, and articles 291, 292, and 293 (chapter 8 original draft) specify the amount of registration fee to be paid on basis of capital figure. Practical difficulties in supplying this figure have been discussed with Legislative Committee. They now propose to omit this requirement and to impose a nominal fee for registration of branches of foreign companies irrespective of the amount of capital.

Article 265 (original draft) sets forth requirements for listing of shareholders. Embassy officers have pointed out practical impossibility of listing enumerated data for shareholders holding more than half of the total number GE [of?] shares of limited liability companies having more than 30 shareholders. Legislative Committee now proposes to require only the listing of the 30 largest shareholders of such corporations.

Article 275 (original draft) provides all documents and papers of foreign corporation sent to people “without the corporation” shall be in the Chinese language, et cetera. This provision is being revised to make clear its intended meaning, namely, that official correspondence with the Chinese Government will be in the Chinese language with provision that a copy may be attached in the language of the foreign company.

Article 281 (chapter 8, original draft) provides that filing and recording of matters of a corporation shall be applied for to the office of the general competent authority or through the office of the local competent authority to the central authority, i. e., the Ministry of Economic Affairs. Matters of the legislation intend that this provision will mean that a foreign company will be able to register all of its branches in China by a single application filed with the Ministry of Economic Affairs. It has been suggested that article 281 should be revised or supplemented to make explicit this understanding of its provisions.

Article 262 (original draft) provides that a foreign corporation shall not transact business in China without having a branch office and that no branch office shall be established without having been registered, et cetera. Unless qualified this provision would mean that foreign companies could not do business in China from time to time through traveling salesmen or representatives. It is understood that article 273 (original draft) is intended to provide for such non-regular business. Embassy understands there is some opposition to inclusion of article 273 (original draft) but that the Legislative Committee will press for its inclusion. Accordingly Department might well wish to emphasize this point if it agrees matter is of importance.

  1. Not printed.
  2. Also known as Chang Chao-yuan and Chang Chaoyuen.