FOREIGN TRADE: The Old Order Changeth

In Manhattan’s swank Waldorf-Astoria hotel, some 2,000 foreign traders last week were told a fact of postwar life that old China hands already knew. The teller was Clarence Edward Gauss, ex-ambassador to China. Said Mr. Gauss: “China has emerged from the war a fully sovereign state. The vexatious issues relating to special foreign privileges existing in China under the old ‘unequal’ treaties having been swept away, we must enter upon our postwar trade relations on a new basis.

“We cannot expect for Americans and American interests in China . . . any more extensive rights and privileges or any more favorable treatment than that accorded to Chinese and Chinese interests in the United States. All plans [of the Chinese] foreshadow a trend toward close government control in all industry . . . establishment of an economy somewhere between the Soviet pattern and free enterprise.”

What this meant, said Mr. Gauss, was that Sino-American business relations were on a new—and as yet largely unknown— basis. Until the new basis is clear, he warned: the U.S. should go slow in making loans lest it foster “projects which cut across lines of our own interests.” Nevertheless, he concluded: the manner in which those new relations are worked out will determine how many U.S. companies will want to invest money in China. “[While] mistakes may be made . . . the climate for American participation in the development of China will be … healthful and encouraging.”

Umpire Needed. At this point, many a trader was inclined to keep his fingers crossed. The first taste of the new rules, the revised Chinese corporation laws, had shocked U.S. businessmen. The trouble about the laws, scheduled to go into effect on Jan. 1, was their ambiguous definition of a “foreign” company.

In the past, a “foreign” company was one organized under non-Chinese laws to do business in China, regardless of whether or not it also did business in its home country. Under the new definition, a company could qualify as “foreign” only if it also does business in its home country. At one sweep, this would force the reorganization of hundreds of companies formed to do business exclusively in China—such as I.T. & T.’s Shanghai Telephone Co., the British-owned Shanghai Waterworks Co., Ltd., etc. They would be required to 1) have a Chinese chairman of the board of directors, 2) have half of their owners living in China, 3) submit to an inspection of their books. Commented Manhattan’s China-American Council of Commerce & Industry, Inc.: “This would certainly discourage American companies from doing business in China.”