893.5034/10–1745
The Chargé in China (Robertson) to the Secretary of State
[Received October 31.]
The Chargé d’Affaires ad interim has the honor to forward herewith the Chinese text and an English translation of the table of contents of the Revised Company Law which was approved in the Legislative [Page 1244] Yuan on September 29, 1945.57 The law is now awaiting promulgation by the Executive Yuan and scheduled for enforcement from January 1, 1946. It is requested that no publication of this law be made until the date of its promulgation by the Chinese Government.
Also enclosed is the Embassy’s translation of Chapter II on Definitions and Chapter VIII relating to Foreign Companies together with those articles in Chapter II, General Provisions, which are stated in Article 299 to apply mutatis mutandis to foreign companies. Of the articles in Chapter IX on Registration and Authorization of Companies, only those which the text indicates are applicable to foreign companies have been translated.
The Department will observe that the Legislative Yuan did not include any article to enumerate the provisions which apply to foreign companies and/or to state explicitly that other articles do not so apply. In accordance with the Department’s instructions, the Embassy made the strongest appropriate recommendations on this point, but its suggestions were not accepted.
Dr. Sun Fo, President of the Legislative Yuan, has requested Dr. Chang Chao-yuan, committee member chiefly responsible for the drafting of this law, to prepare an English translation of its entire text to be ready in several weeks’ time. A copy of this translation will be forwarded to the Department by the Embassy as promptly as it is received.58 Dr. Chang also hopes to prepare an English annotation of the law for the benefit of foreign business interests. Preparation of this annotation, which Dr. Chang had intended to prepare in the United States (see despatches no. 693 September 8, 1945 and no. 716 September 15, 194559), may be delayed, however, since Dr. Chang has subsequently been appointed to serve on the Legislative Yuan committees which are to revise the Chinese banking and insurance laws. Dr. Chang states that this work must be completed before he or the other two members of the Legislative Yuan committee scheduled to go abroad for study of foreign commercial laws can leave China. (Note: It is probable that this visit actually has been “indefinitely postponed”. M[elville] H. W[alker])
[Here follows discussion of details.]
Evaluation of Company Law
As already reported (see despatch no. 716, September 15, 1945,60 and telegram no. 1738, October 6, 1945), the characteristic feature of [Page 1245] the present Company Law is the extent to which on important points discretionary power remains with the Ministry of Economic Affairs. Thus all foreign corporations seeking to do business in China must secure the approval of that Ministry. It has the power to decide what constitutes “doing business” in China, what companies can be regarded as “having transacted business” in the country of their origin, and whether or not authorization will be granted to do business within China. In this basic respect the Company Law reflects what many discern as a growing tendency in the Chinese Government towards a policy of state control of industry.
Under this law it would appear that a foreign company wishing to establish a branch in China for the assembly or manufacture, say, of automobiles, might meet every legal requirement set forth in the Company Law, but would have no assurances that by the fact of so doing it could qualify for the approval of the Ministry of Economic Affairs, especially if the Ministry were intent upon carrying out certain policies with respect to the number or location of factories to be admitted into that particular line of activity.
The further question remains, of course, as to the extent to which a revised company law, however carefully framed, can or will in practice actually be enforced. In this connection, the Embassy should make clear that while it has made every effort to convey the Department’s suggestions to the Legislative Yuan committee for the purpose of assisting the Chinese in the drafting of this law, there are those in Chungking who would not have taken a similar attitude. A leading British business representative, for example, expresses the view that no great concern should be displayed or efforts made to assist the Chinese in the modernization of their laws, since, in any event, the amended or revised laws cannot in practice be enforced. In this person’s opinion, they can probably be enforced to a greater extent with respect to foreign as compared with Chinese companies. His attitude quite frankly expressed is, “Let the law be as bad and unworkable as possible, and let us continue to do business by arrangements, as we have always done”.
Such a view is undoubtedly extreme, and of the sort which, if adopted as a basis of action, could only accentuate an equally extreme and nationalistic reaction on the part of the Chinese. It may not be expected, however, that China will this month or this year or next, come to adopt and enforce a legal system which is consistent in its philosophy, either with Anglo-Saxon or Continental traditions, or which is modern by the standards of advanced Western nations. Any idea of such a legal basis for trade and investment relations with China, it is believed, must remain a hope or a goal to be achieved. If American companies wait for this goal to be realized, or set its realization [Page 1246] as a necessary condition for trade or investment, they will do but little business for some time to come. A sustainable expansion of investment and trade can only be measured by the insight and judgment which American business can show in adapting to conditions, in China, as they actually exist.
The Embassy believes that in certain respects the Company Law has been improved by representations which have been made both by the Department of State, the Department of Commerce, and from representative American groups, such as the China–America Council of Commerce and Industry and the National Foreign Trade Council. Deletion of any requirement for listing of shareholders of limited liability companies and of the apportioning of the amount of the company’s capital to be used in China are cases in point. Also to be noted is the omission of any registration fee based upon the amount of capital intended for use in China, and the fixing of a uniform fee of CN$1,000 for registration of the branch of any foreign company. With reference to airgram A–338 from the Department of Commerce dated September 27, 1945,61 it may be indicated that the “certificate fee” provided for in Article 316 of the law as finally enacted is intended only to defray the expenses of issuing the actual certificate of authorization to do business (the translation “license fee” used in Embassy’s telegram no. 1161 [1611], September 18, 1945 was not a fortunate one).
Finally, for the information of the Department, the Embassy should report its apprehension as to the procedures by which the Legislative Yuan is now engaged in revising Chinese commercial and financial laws, and of the speed with which this is being attempted. The most complicated legislation, such as the company, banking, and insurance laws, is being amended without adequate study and preparation, and by lawyers who do not appear to be among China’s best in terms of practical experience. The results undoubtedly will be heralded as accomplishing the “modernization of China’s legal structure”. As a matter of fact, they will represent only the barest first steps in this direction.