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

1303. Substance of Deptel 484, July 19 regarding Chinese Petroleum Corp (CPC) and negotiations with American oil companies, has been conveyed to Dr. Wong Wen-hao, Vice President Executive Yuan and President CPC. In conversation with Butterworth13 and Walker14 August 8 Wong added no new information (to that already reported in Embtel 1137, July 14 and Shanghai Contel 751, July 2715) but was at pains to review course of negotiations from Chinese standpoint. He did state that under present circumstances Chinese Govt regards control of movement petroleum products necessary to assure supplies [Page 1383] not going to Communist hands, citing measures Communists have taken to block flow of products to urban centers.

We did not attempt to pass on particular merits of negotiations with oil companies, except to state Dept’s support their view regarding potentialities for discrimination in situation in which state-owned enterprise functions both as business competitor and govt regulator. After emphasizing in general but strong terms our Govt’s concern at trend towards state monopolies in China, of which CPC is not an isolated example, we made clear in a memo left with Dr. Wong that on grounds mentioned sections 2 and 3 Deptel 484 it was unlikely US public funds would be available (Chinese) Govt development indigenous oil resources or refining marketing indigenous or imported crude products.

In above connection, we referred specifically to apparent refusal Chinese to accept US private investment for rehabilitation Takao refinery and to application for $5,000,000 loan from Export-Import Bank for this purpose. Because Dr. Wong had mentioned $3,700,000 as estimated cost Takao rehabilitation, he explained above 5,000,000 was to cover also cost of certain drilling equipment for use Szechuan province, as well as initial purchases crude petroleum for Takao plant.

Dr. Wong said that, in view their established position and investments in China, he hoped it would be possible to reach agreement with Standard-Vacuum, Texas Co. and Shell, but that he would have to feel free to talk with representatives of Anglo-Iranian Oil Co. who shortly are coming China, and with “other American oil companies”.

  1. W. Walton Butterworth, Minister-Counselor of Embassy.
  2. Melville H. Walker, Assistant Commercial Attaché in China.
  3. See last sentence of telegram No. 1353, supra.