102.81/3–746: Telegram
The Counselor of Embassy in China (Smyth) to the Secretary of State
[Received March 8—5:15 p.m.]
446. Please inform Commerce and Treasury. Minister of Finance, O. K. Yui, reported to Central Executive Committee, Kuomintang, March 4, outlining in detail Govt policy regarding financial, monetary and economic affairs. Part I outlined general objectives of Govt in field financial policy, stressing need for stabilization [of] currency and balancing national budget during present “transitional period” and need for coordinated financial and economic policy. Yui stated that to raise living standards, equalize distribution of wealth, foster certain types of economic development, and develop local finance, Government is taking measures to reform tax and rent systems, define and divide scope of central and local finance, stabilize currency—utilizing gold and foreign exchange, and balance budget. Under part II, Improvement of Taxation, Yui indicated taxes will vary with nature of industry—e. g., may be lower for basic industries; progressive principle will be more widely applied; private and Government enterprises to [Page 960] be taxed on equal basis; and tax structure will be simplified. Wartime excess profits to [sic] tax already abolished; tax on income from sale of property to be abolished; income tax on business and tax on appreciation value of land to be increased (to offset loss of revenue from reductions and abolishment other taxes); business tax to be reduced 50 percent (as already approved by National Govt); land tax and inheritance tax to be increased on progressive principle; stamp tax to be reduced to ¼ original levels, and begin on higher base; consolidated commodity-taxes already simplified and promulgated (see Embassy’s despatch 1096, February 7, 194693). In discussing import and export tariffs, Yui stated import duties to be adjusted with development domestic infant and heavy industry in view, some necessities to be dutiable, but not at high rates; export duties not to be levied on most goods, some will be reduced, others increased to conserve for self-supply.
Part III—Control of Imports and Exports—includes summary of temporary regulations outlined in Embtel 413 of March 2, 1946, and stressed need for such measures to concentrate foreign exchange under government control to aid in stabilization of currency and limit outflow of exchange.
Under part IV—Financial and Monetary Control—and part V—Stabilization of the Value of the Currency—were discussed: The new “temporary regulations with regard to foreign exchange transactions” (as outlined in Embtel 377, February 27, 1946) including the abolition of official rate of exchange and the concentration of exclusive control in Central Bank of China. Additional ruling to be enforced under the regulations is requirement all foreign currency deposited in banks in China must be sold to Government at current rate by end September if not previously used by owners for purchases specified in new regulations governing foreign exchange and import and export trade. In addition, calling in puppet notes in South, Central, and North China and issuance temporary scrip in Northeast and new notes in Taiwan were mentioned by Yui as facilitating currency stabilization. Government control [of] banks to be relaxed, but must assure, said Yui, that bank capital used for production. Revised Bank Law has been approved by Executive Yuan and sent to Legislative Yuan; wartime bank regulations are to be abolished. When new laws and regulations promulgated, Embassy will forward details.
Part VI of address stressed importance development sources revenue for local governments to promote self-government, suggested that revenues from salt, direct taxes, commodity taxes, customs duties go to National Govt, all other revenues revert to local. Part VII covered [Page 961] budgetary situation. Current fiscal year budget, largest China has ever had (approximately CN dollars 2,500 billion), includes item for military expenditures equivalent to 43.52% of total and for relief and rehabilitation 19.21 %. Present estimates indicate deficit of 25%. Yui said Govt plans temporarily to offset this amount with gold reserves and by accumulated foreign exchange resulting from implementation new regulations governing foreign exchange and trade. Long-range intention is to offset deficits with reparations from Japan and puppet assets taken over.
Complete text of this detailed address is now in process translation; if Embassy considers additional information therein justifies, text will be forwarded airmail.
Part II above includes more detailed statement than has heretofore been available outlining Govt’s future policy in field taxation. As new fiscal laws are promulgated along lines mentioned therein, summaries will be cabled.
- Not printed.↩