893.5034/9–845

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

No. 693

The Ambassador has the honor to report the substance of a conversation on September 5, 1945 between Dr. Chang Chaoyuen, Member of the Legislative Yuan, and Mr. M. H. Walker, Assistant Commercial Attaché, regarding matters relating to the revision of the Company Law, and the proposed visit to the United States and other countries of a committee of three members from the Legislative Yuan for the purpose of studying commercial legislation.

Perhaps the most important new information developed from this conversation was that Dr. Chang, Mr. S. Y. Wu, Secretary-General of the Legislative Yuan, and Mr. Robert C. W. Sheng, who together [Page 1235] constitute the committee which is being sent abroad to study commercial legislation, will not depart as soon as previously expected. They now plan to go first to Shanghai where each will take two or three weeks to put in order his personal affairs, after which they hope to proceed directly to the United States. (The original plan called for going first to Europe to spend several months before a stay in England and subsequent passage to the United States.) Dr. Chang said that they would spend about two months in the United States. During this time he planned to prepare, in collaboration with a friend who is a professor in the Columbia Law School, an annotation in English of the Revised Company Law. Such an annotation is already being prepared in the Chinese language.

Dr. Chang said that while in the United States he hoped to consult with officials of the Department of State and of the Department of Commerce regarding the company law. This law, it is expected, will be approved by the Legislative Yuan before the end of this month (September). The date of enforcement of the law, however, is set for January 1, 1946. In this event, Dr. Chang explained, should there be serious questions raised with respect to the provisions of the company law after its enactment, but prior to its enforcement, it would still be possible to amend the law before its effective date. He explained that such amendments could be introduced into the Legislative Yuan upon petition by five members.

During the course of the conversation, Dr. Chang revealed a difference in view as between Dr. Wong Wen-hao, Minister of Economic Affairs, and Dr. Sun Fo, President of the Legislative Yuan. Dr. Chang stated that after Dr. Wong read the first draft of the Revised Company Law, he criticised it as not providing for strict enough governmental control over corporations. About two weeks ago Dr. Sun Fo replied to a letter in which Dr. Wong set forth this criticism and “in very strong language” Dr. Sun argued in favor of a more liberal law.

In this conversation Dr. Chang took pains to mention the other elements in the Chinese Government with which it is necessary to deal on a practical political basis in the formulation of this law. He said that within the Legislative Yuan itself there were a number of “isolationist” or “nationalistic” elements who believed that the draft law went too far in providing for the interests of foreign companies. Also that the Ministry of Finance was chiefly responsible for the requirement that every company, foreign or domestic, submit a statement of its assets and liabilities and of profit and loss at the end of each year. These financial statements were required by the Finance Ministry as a basis for levying taxes. In reply to a question as to the need for a statement of total assets and liabilities (and after [Page 1236] pointing out the practical difficulties in apportioning the part of a foreign company’s total assets devoted to its business in China), Dr. Chang stated that this figure was necessary in order to know the percentage of return upon investment which would be represented by annual profits. If a company earned $1,000,000 on a total capital of $5,000,000, for example, it apparently would be expected to pay a higher tax than if its total capital were $10,000,000. Mr. Walker stated that while this percentage of capital basis might apply to an excess profits tax, he saw no need for a total capital figure to levy an ordinary income tax, and practical difficulties in supplying it. Dr. Chang is going to try to have this provision of the present draft law omitted, as it applies to foreign companies, but explained the problem he was up against with respect to the Ministry of Finance.

Dr. Chang asked Mr. Walker to express his views as to the reasonableness of the several provisions relating to foreign companies. Mr. Walker stated that he was not in a position to speak for his Government or for American business interests in this matter, that he expected to receive a statement of the views of the Department of State and/or the Department of Commerce within a few days, and that he would promptly make these available to Dr. Chang and his committee. Dr. Chang expressed the hope that the closest possible contact and exchange of views could be continued until the final passage of the law.

Dr. Chang left with Mr. Walker a copy in Chinese of the draft law as it now stands, a number of changes in the text having been made since the first draft of the law was completed and submitted for consideration early in July.