893.6363/8–2646: Airgram

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

A–[89]. As a result of the interview reported in the Embassy’s telegram no. 1303, August 13, 9 a.m., 1946, Dr. Wong Wen-hao, Vice President of the Executive Yuan and the Chinese Petroleum Corporation (CPC), addressed to Mr. Butterworth a letter dated August 20, 1946 which is transcribed below:

“I beg to acknowledge receipt of your informal memorandum which you kindly handed to me on August 8th. I have already explained to you in our last conversation the preliminary principles on the joint enterprise of the petroleum fields in Western Kansu and Tsinghai provinces which have been reached last year with Mr. C. E. Meyer on behalf of the three oil companies. When the delegates of these companies [Page 1384]came last month, they asked for the joint ownership of the refineries of Formosa as well. As these refineries originally established by the Japanese require only small amount of capital for completion, it was thought on the Chinese side not desirable to agree on the joint ownership on the equal condition although cooperation in other way such as to supply crude oil by the three companies is to welcome [be welcomed]. It was also made clear to these delegates that with the increasing demand of oil products in China there will be still good market for imported oils. And foreign companies are being offered same facilities of trade as before the war with Japan.

“I wish now [to] offer some explanation on the economic policy of the Chinese Government which seems to be main concern of your memorandum.

“The National Government of China since its existence paid equal attention to the encouragement of private enterprises as well as the organisation of some few state undertakings which refer chiefly to basic industries. Such was the spirit of the Mining Law promulgated in 1929 in which it was provided a number of minerals such as petroleum, iron ores etc. to be operated by the state while many other minerals are open to private interest.

“The National Resources Commission was established in 1935 as an organisation responsible for operating state enterprises on basic minerals and industries. It is not at all a new organisation created just at present.

“These policies and related laws were already in existence a number of years before the present period. At the same time however due effort was made by the Government to help the private work. That was specially clear when I was in charge of the Ministry of Economic Affairs, Industrial and Mining Adjustment Commission and the War Production Board. During the long war period, cotton mills, paper factories, machine works, metallurgical plants, chemical plants etc. of private ownership were moved in, reinstalled, and encouraged to produce largely through the material help of the Government in supplying them with electric power, tools, materials, revolving fund and orders on their products. Such Government help on the private industry must still be remembered by the Chinese industrialists as well as members of the American Production Group who worked hard with me. The same policy remains valid today. The present administrative regime is at least equally anxious as before to help the private undertakings.

“In order to express such fundamental view by some formal text there was the resolution of the Supreme National Defence Council in 1944 on the policy of the first period economic reconstruction. According to that resolution the number of state enterprises to be operated by the Government alone should be limited to post and public telegraph services, arsenals, trunk railroads and large hydro-electric stations while all the other enterprises should be open to private interest. It was also provided that some enterprises of large scale such as petroleum works, iron and steel works, navigations etc. which are not within the available capacity of private efforts, the Government can undertake alone or in cooperation with private of [or?] foreign capital. Whenever such cooperation is to exist, corporation should [Page 1385]be established in which government shareholder will deal with the business administration as ordinary shareholder although the Government retains its rights of supervision according to law.

“According to our policy, cotton mills are not to be state enterprise. The fact that all the textile equipment left by Japanese are now being operated by the Government owned Textile Corporation is a temporary measure in order to hasten the recoveries of the work in view of the urgency of the requirement and the large number of labours ready at work. It has been officially announced that such measure will last only for 2 years after which shares will be offered to private interest.

“It is clear therefore that Chinese Government never intends to establish unnecessary state monopoly. It is earnestly hoped that the United States Government realize the necessity for China to improve the whole economic situation after the long war with Japan and it is the sincere determination of the Chinese Government to enforce measure practically required in this period although the fundamental policy remains fully respected. With such understandings, I hope that we shall continue to receive sympathetic cooperation from America.”

I may add that Dr. Wong’s reference to cotton textile industry arose from the fact that it was used by Mr. Butterworth as an illustration of what may happen to private enterprise in China when the government puts itself in a position to act both as a regulator and a competitor.

Needless to say, I shall be glad to pass on to Dr. Wong any comments that the Department may offer on his letter. For my part, I think it a good thing to keep this subject alive so that key Chinese officials will be aware of our interest in it. I am reliably informed that Dr. Wong’s letter received Dr. T. V. Soong’s approval before it was despatched.

Stuart