893.50/8–247: Telegram

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

1646. Chinese text of statement approved August 1 by State Council received from Foreign Office (reference Embassy’s telegram 1615, July 30, 1 p.m., repeated Shanghai 657, Tientsin 107) after being approved July 29 by National Economic Council not by Executive Yuan as previously reported.15 Following is translation prepared by Embassy of answers to questions raised Embassy’s February 19 aide-mémoire:

A. Industrial policies:

With exception those industries specified under point 2 of present statement which are to be operated by state and those which, as provided for in Chinese law, are to be operated by Chinese nationals or Chinese juristic persons, direct investment may be made by American capital in the manufacture of such products as large-scale prime movers, machine tools, motor vehicles, rolling stock aircraft and comparatively large steam vessels, etc., investment in which fields is especially welcomed.
Fields of industry which will be wholly reserved as monopolies of Chinese Government shall include, in accordance with item (b) of article 2 of the principles of economic reconstruction for the initial period,16 arsenals, mints, principal railways, large-scale hydraulic power plants, etc., and according to articles 9 and 10 [of] the mining enterprises statute, various mineral products. Nevertheless such nationally operated mining enterprises may be operated jointly with private or foreign capital participation in accordance with law or leased for private operation.
Concrete provisions have been laid down in article 2 of the principles of economic reconstruction for the initial period. Following are extracts of relevant items therefrom:
‘Unless otherwise restricted by law’ those enterprises which have not been designated to be operated solely by Government may in all cases be operated by private civilian interests;
In case of those enterprises, the operation of which is beyond civilian capability or those which Government considers especially important, such as large-scale petroleum mines, iron and steel works and shipping enterprises, the Government may still undertake sole operation thereof or operate them jointly with private or with foreign capital participation.
Enterprises operated jointly by Government with civilian capital or foreign capital participation shall adopt the system [Page 1375] of corporations. Apart from exercising power of supervision in accordance with law, Government shall exercise its power of control of business operation and personnel in its status of shareholder;
With exception of those enterprises operated by Government as monopolies, other enterprises operated by Government, no matter whether solely operated by Government or operated jointly with civilian capital or with foreign capital participation and which are of a commercial enterprise character, shall enjoy same treatment as civilian operated enterprises of same kind with respect to rights and obligations.
In addition to above, nationally-operated and civilian-operated enterprises shall invariably be dealt with in the same manner as regards shares, allocations of foreign exchange and of raw materials, loans and import quotas in accordance with provisions of existing measures for control of foreign exchange17 and the revised provisional measures governing import and export trades promulgated in 1946.18
Answer to this question19 included under point 3.
In accordance with provisions of section II of paragraph 1 of article 293 of Chinese company law20 restrictions may be imposed upon the localities where foreign companies may carry on business operations and the categories of such operations.

B. Financial policies:

Taxation laws’ enaction by China provide that amounts of taxes collectable from foreign interests engaged in business operations within this country shall be same as those levied on Chinese nationals; they will of course not hinder industries from acquiring reasonable profits.
In principle, profits obtained by American interests from investments in industries may be remitted to United States. During present period when China controls its foreign exchange (such remittances) are, [as] a matter of course, subject to restrictions. However, Government is now drawing up measures permitting foreign interests to remit an appropriate portion of their profits obtained from investments in industries to their own countries. As to operating goods and services which must be imported from United States (application therefor) will be examined and approved in accordance with the revised provisional measures governing import-export trade during the period when foreign exchange under control.
As promulgation various existing important local laws and regulations have invariably been approved by Central Government, they will of course not contravene Chinese Government policy of welcoming foreign capital and preventing merchants to operate their business activities on a sound basis.” End of translation.
[Page 1376]

Re “principles of economic reconstruction for initial period”, reference obviously made to Supreme National Defense Council statement of general principles governing economic enterprises issued at Chungking, December 1944 (Embassy despatch 53, January 3, 194520a).

Although local Associated Press July 30 filed article giving summary foregoing statement before approved by State Council, text complete statement being withheld from press until Embassy had time to translate and transmit to Department. Embassy suggesting to Foreign Office that full text may be released here at noon, August 3. Embassy assuming Department will make substance this telegram available immediately to two councils concerned and otherwise to permit publication thereof.

Embassy requesting Foreign Office to check its translation of statement and will advise if any corrections required. Corrected translation being airmailed.21

Sent Department 1646; repeated Shanghai 675; Tientsin 111.

  1. On August 13, the President of the Chinese Executive Yuan (Chang) made an almost identical statement, the text of which was transmitted to the Department with despatch No. 958, August 29, not printed.
  2. See “Chinese Statement on Postwar Economic Policy,” section II (1), Foreign Relations, 1945, vol. vii, p. 1333.
  3. See telegram No. 299, February 17, from the Ambassador in China, p. 1071.
  4. See telegram No. 1910, November 19, 1946, 4 p.m., from the Ambassador in China, Foreign Relations, 1946, vol. x, p. 1024.
  5. “In which fields will there be joint Government and private operations?”
  6. For correspondence on representations by the United States regarding registration of American business firms in China, see Foreign Relations, 1946, vol. x, pp. 1296 ff.
  7. Foreign Relations, 1945, vol. vii, p. 1332.
  8. Copy transmitted in despatch No. 958, August 29; not printed.