893.5034 Registration/7–2545: Telegram

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

1244. Department has had insufficient time to study carefully text of proposed law or to obtain views of China–America and Foreign Trade Councils. (Urtel 1309, August 9 and 1122, July 7 and despatches No. 561, July 2033 and 573, July 25.) Department believes that, without pressing for such action, you should suggest that it would be in the mutual interest of China and the United States if Yuan delayed final consideration for a week or two.

The following comments which are in order of articles in the draft legislation are illustrative rather than expressive of all the suggestions Department and private organizations might make if time permitted:

Re Article 4, head office should be in state Qr political subdivision where organized, regardless of location of office from which principal business affairs are managed. See Appendix D, Part III, Section B, paragraph 2 of Department of Commerce memorandum of June 8 [9], 1945,34 re Registration of Foreign Companies in China.

We assume Article 15 refers to special laws as may concern, for example, banking, insurance, public utilities. We would appreciate further clarification.

It is our understanding that mutatis mutandis provision of Article 270 would limit to Chinese branches application of provisions such as Article 19.

In Article 143, we are not certain as to meaning of phrase “a special personal interest” and in paragraph 3 of Article 146, “notice and public announcement” should be more clearly defined.

We feel that Article 149 imposes an unreasonable time limit, and Articles 194 and 195 raise obvious difficulties. We presume that Article 263, Paragraph 2, will not take precedence over treaty provisions.

It is our understanding that Article 267 applies only to external activities of foreign corporations and does not affect foreign corporations in respect to internal matters. As reported by Ta Kung Pao, June 19, 1945, the internal organization of a registered foreign company would be governed by company by-laws and by the laws of its country, while external activities would be subject to Chinese law. We are not certain as to what other articles in draft legislation besides those in Chapter VII apply to foreign corporations. As an illustration, we direct attention to the provisions concerning supervisors.

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It is assumed that Article 268 does not preclude the grant of broader rights and privileges in other laws or in treaties.

The Department is concerned with the possibility that Article 269 might be applied by Chinese courts to prosecute responsible persons of corporations for acts committed outside China.

Re Section 1 of Article 272, we assume that penalty would only apply where untruth is wilful or due to negligence.

In view of the fact that Article 273, in connection with 262, does not clearly give permission to foreign corporations to transact business without branch office, it is our view that either Article 262 or 273 should be redrafted to assure such privilege.

We understand that Article 274, line 2, refers to public in China and for purposes of clarification suggest that the phrase “in China” be inserted.

Some assurance is heeded that Article 277 will be so interpreted and applied as to be accordant with the provisions of Article VII of the draft commercial treaty presented to the Chinese Government, April 2, 1945.35

The Department notes with satisfaction the remarks in the Embassy’s telegram No. 1309 in regard to registration fees, re Articles 291,292 and 293.

Apart from criticisms of provisions in draft law, Department may wish to suggest additions if final action on the draft legislation can be delayed as suggested in first paragraph above.

  1. Telegram No. 1122 and despatch No. 561 not printed.
  2. Entitled “Summary of Points of Agreement at Meeting of June 8, 1945”, not printed. A copy of this memorandum was transmitted to the Ambassador in China in instruction No. 207, July 18 (893.5034 Registration/7–1845).
  3. See telegram No. 567, April 3, 2 p.m., from the Chargé in China, p. 1314.