893.5034 Registration/9–1845: Telegram
The Ambassador in China ( Hurley ) to the Secretary of State
[Received 9:30 p.m.]
1611. The supplementary comments of the Department regarding the revised company law were received and decoded by 2 p.m., September 13. Reference Department’s telegram 1435, September 11, 8 p.m. Inasmuch as Dr. Sun Fo and other members of the Legislative Yuan were leaving at 3 p.m. of the same day for Peipei to attend the next day’s session, it was not possible to do more than telephone Dr. Sun Fo informing him of the arrival of the message which confirmed points already made in informal conversations, and of the fact that a copy would be forwarded as promptly as possible.
As reported in despatch No. 693 of September 8, 1945, Dr. Chang Chao-yuan, principal member of drafting committee, supplied Embassy on September 5 with a Chinese language copy of third draft of revised company law and specified the provisions therein which relate to foreign companies. A translation of these provisions was made by Embassy staff members and they were analyzed by the Assistant Commercial Attaché49 in consultation with Dr. George Sellett, honorary legal adviser, China–America Council of Commerce and Industry, and Lieutenant Colonel Joseph K. Greenwood, United States Army headquarters, China Theater, and corporation lawyer formerly with Securities [and] Exchange Commission.
In the second reading of chapters 1 and 2 on August 31, the definition of a foreign company (third draft) was found to have been amended to provide that such a company must have been “engaged in business” in the country of its origin in order to qualify for registration in China. The meaning of “doing business” in this context would, of course, be a matter for interpretation. Dr. Chang explained that it was intended to go beyond age [the?] requirement merely for the maintaining of a legal head office and that it evidenced a definite desire to limit the granting of permission for establishment of branches in China to firms actually operating in their own countries. Dr. Sun Fo appears to share this attitude that foreign enterprise should incorporate in China under Chinese law rather than to register as branches of foreign companies. Also there is considerable opposition in the Legislative Yuan to any provision which would make it possible for Chinese to organize a company abroad to carry on business in China as a foreign corporation.
In an extended personal conversation with Dr. Chang on September 12 (fully reported in despatch No. 716, September 15, 194550) the [Page 1239] Assistant Commercial Attaché cautioned against the inclusion of any such requirement, pointing out that under it no single one of the four main American companies now operating in China, namely, Standard-Vacuum, Texas Oil Company, Shanghai Electric Power Company, and Shanghai Telephone Company could qualify for registration. In many instances, it was explained, American corporations form a subsidiary company to carry on their foreign business and this subsidiary company does not engage in business within the United States. The implication of this provision with respect to China Trade Act51 corporations would also be a matter of concern to the Department of Commerce and the American business community. Dr. Chang agreed to bring these points to the attention of Dr. Sun Fo and to give further consideration to this definition.
Following the second reading on September 14, of the entire law in the Legislative Yuan, Dr. Chang indicated to Mr. Walker that the definition of a foreign company was approved as follows:
Article 7. A foreign company within the meaning of this law is a profit-seeking corporation organized under the law of a foreign state or by special permission of a foreign government registered and doing business, and also admitted by the Chinese Government to do business.
Dr. Chang stated that under the interpretation of this article intended by Dr. Sun Fo and the Legislative Committee, a foreign company which merely maintains a legal head office in the state of its origin could qualify for registration in China.
Virtually all points in Department’s telegram No. 1435 were covered in the September 12 conversation or had been presented in earlier discussions. It is now possible to report that the Legislative Yuan on September 14 deleted any requirement that a foreign company apportion the amount of its capital to be used in China. Provision was made for a flat registration fee of CN52 dollars 1,000 and a CN dollar 500 license fee to apply to all companies. Also deleted for all, except companies with unlimited liability shareholders, was any requirement for listing shareholders. Added as article 308 was a provision authorizing foreign companies to do sporadic business without registration by filing certain minimum information with the Ministry of Economic Affairs, including designation of a legal agent in China to accept legal process. Also deleted was a requirement that foreign companies secure the approval of the Central Government authority for the lease of land needed in their business, but the requirement for such approval for purchases of land remains as part of the draft law. Articles 29 and 30 of the third revised draft which require the submission of [Page 1240] detailed financial statements at the end of each business year were made not to apply to foreign companies.
It is understood that the third and final reading of the law and its enactment are scheduled for September 29, and that the law will be enforced as from January 1.
Dr. Chang will provide the Embassy with a Chinese copy of the law as it is approved and will check the Embassy’s translation of the provisions thereof which apply to foreign companies. Copies of the Chinese text and of the Embassy’s translation of relevant sections can probably be forwarded shortly after October 1.