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

484. Formation China Petroleum Co matter of concern to Dept (Embtel 1137 July 14). Following points considered important.

Possession Govt regulatory functions re rationing, price control and import licensing places Govt-owned Co which competes with American Cos in position dictate distribution products and terms market participation with potentialities discrimination and impairment American capital investment. American oil Cos express willingness invest 50 million dollars new construction and rehabilitation present facilities only if adequate assurances given of nondiscrimination in marketing. Such assurance would necessarily include transfer regulatory authority from competing Govt Co to impartial Govt agency. Dept considers this position American oil Cos only commercially tenable one in premises and appropriate Chinese authorities should be so informed.
Oil Cos being encouraged invest 50 million dollars rehabilitation pre-war marketing facilities plus 80 million or more for participation new indigenous producing refining industry. They state their reluctance proceed these heavy capital expenditures derives solely from uncertainty future status which results from apparent Chinese intention to nationalize large part oil industry. This reluctance will probably be shared by other prospective sources private foreign capital particularly in view newspaper reports re establishment Govt-owned enterprises in fields marine products, textiles, iron-steel, silk, shipyards, electric appliances (Emb requested verify these reports). While recognizing China’s sovereign right establish Govt-owned industrial units or nationalize existing enterprises, US regrets any Chinese economic policies which discourage sound inflow private capital on reasonable terms at time when total Chinese capital requirements for economic recovery and expanding industrialization exceed available supplies U. S. public funds.
Oil Cos believe Chinese plans for extensive Govt participation oil industry which they feel directed to gradual exclusion private [Page 1381] Cos predicated on assumption US public funds for financing nationalized oil industry projects will be made available. This Govt’s view is that high risk enterprises such as oil development should be financed by private capital. Dept understands private capital is available in this case if proper assurances forthcoming. Purpose provision US public funds is create net increment economy beyond that possible private channels. Funds not designed (a) replace or substitute private capital where available and willing participate on reasonable terms, (b) finance projects purpose or result of which is acquisition or displacement existing and economic private enterprises. US assistance specific projects will be determined on basis economic soundness. On foregoing grounds unlikely US public funds available (Chinese) Govt development indigenous oil resources or refining marketing indigenous or imported crude or products.

Therefore, you authorized communicate point 1 and any or all of points 2 and 3 to appropriate Chinese authorities in your and Gen Marshall’s11 discretion and with due regard considerations of timing mentioned but not elaborated last para Embtel 1137.

  1. General of the Army George C. Marshall, President Truman’s Special Representative in China.