893.5034 Registration/9–345: Telegram

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

1435. Following supplements comments Deptel 1244 August 11 (Urtel 1507 Sept 3). Paragraph numbers correspond to those in Deptel 1331 August 25. No attempt has been made to cover all points in Deptel 1331.

Dept agrees Chapter VII should state specifically which articles in other chapters apply to foreign corporations and that no other articles apply. (See eight para[graph] Deptel 1244.)
Interpretation of Article 267 in Deptel 1244 if correct may be safeguarded by specification suggested in 9 above. Otherwise we should suggest clarification in the law of point made in Deptel 1244 or at least official confirmation of statement reported therein from Ta Kung Pao.
Dept suggests Chapter VII should state clearly the degree of personal liability for corporate obligations to which stockholders, officers or directors of foreign corporations will be held.
Dept agrees that Article 261 defining foreign corporation is inadequate. Term “head office” meaning office in state where organized should be used instead of “principal office”. See comment re Article 4 in Deptel 1244.
Regarding paragraph 3 of Article 264 and Articles 276, 291, 292 and 293 dealing with apportionment of capital for use in China and registration fees to be paid thereon, we assume that proposal of Legislative Committee to impose nominal fee regardless of amount of capital for use in China (Urtel 1309 August 9) involves cancellation of Article 276 and last clause of paragraph no. 3, Article 264. If not, this cancellation should be urged in view of impracticability of making such apportionment.
Article 264, paragraph 9, appears unnecessary, but there is no clear ground for objection.
Re Article 264, paragraph 10, and Article 265, proposal of Legislative Committee to require listing of only 30 largest shareholders of limited liability corporations is noted with satisfaction (Reurtel 1309).
Article 274 unobjectionable provided it concerns sale of shares to public in China only.
Dept assumes that Article 13 is designed to achieve purpose of Article 12 and that it will not prevent corporation from acting as guarantor in course of legitimate business.
Article 18 is ambiguous, since there is no definition of “business” as regards foreign corporations. Dept agrees with comment in Deptel 1331.
Assurance is needed that Article 20, in so far as applied by the operation of Article 270 to foreign corporations, as well as Article 277, accord with provisions of Article VII of proposed commercial treaty with China (See Deptel 1244).
Dept concurs in suggested amendment to Article 281 reported in Urtel 1309.
Suggest Article 289 be revised to apply only to official correspondence with Chinese Government as in Article 275 (Urtel 1309).

Dept is informed that China-America Council expects to have its views ready for transmission about Sept 17.

In speech on June 4 at China-American Council dinner in San Francisco Soong reportedly said China “has recently removed a number of restrictions on foreign capital such as limiting foreign investment to a minority share in joint enterprises, and requiring that general managers shall be of Chinese nationality”. Dept desires details of existing law relating to joint enterprises.

Please express to Chinese Government our appreciation of its cooperative spirit in affording this Government opportunity to comment on proposed corporation law and to suggest changes which we believe would be mutually beneficial.