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COMPANIES TO PROMOTE TRADE IN CHINA.
bridge materials, and timber, dyes and chemicals, kerosene, tobacco products, and products of our mittes such as iron and steel which are used for construction purposes. China at her present state of undevelopment constitutes a market for practically everything produced in America and her markets are expanding rapidly.
The difficulties of these American firms now engaged in the China trade may be summarized as follows: China is an ex-territorial coun- try, which means that all foreign merchants doing business in China must, by treaty, do so under their own laws and regulations.
For example: Americans must do business under American laws: British under British laws; French under French laws; Japanese under Japanese laws; and so on. This is due to the fact that the young Republic of China has not yet codified her laws and modern- ized her courts to the extent that foreigners may become subject to them. Practically every country interested in the China trade, and this applies especially to our strong competitors, has adapted special laws for the control and promotion of its business in China. America has never done this, and as a result American companies doing business in China are subject to the conflicting corporate regulations of the various 48 States and our Territories. This factor handicaps us specifically as follows:
First, there is no uniformity, none of the State laws being adapted to foreign trade purposes, and several of the State incorporation laws being lax, permits the promotion of a great deal of undesirable busi- ness, such as fly-by-night promotions that are very damaging to our prestige with the Chinese business men.
Second, our chief competitors in China are the British, Japanese and French, the French competition not being so serious. The British, Japanese, and French have enacted special regulations governing their companies in China, exempting them from the operation of home income and excess-profits taxation. This places the American firm at a distinct disadvantage, since it can not build up the necessary reserve to carry over the years of depression and uncertainty. In prosperous years the American firm can meet the competition, but in slack times such as the present the American firms are going bankrupt, while our competitors are going along and getting the business.
Third, the operation of the home income and excess-profits taxation under the various State regulations, upon our companies in China. prevents the Chinese business men from forming joint enterprises with American business men. The Chinese are now striving to develop their country industrially and are anxious to cooperate with American merchants who are experienced in the management of industries on a modern basis. Since this Chinese capital coming into an American company is taxed the same as the American capital, the Chinese are thus prevented from cooperating with us and are forced to invest in British and Japanese companies, thus throwing the resulting purchases of equipment and other business to those countries instead of the United States. The British have taken advantage of this desire of Chinese business men for western experience and management and have built up much of their great business in China in this way; that is, by attracting Chinese capital. The lack of uniform high standard American corporation law governing our business in China debars us from these partnerships with the Chinese
COMPANIES TO PROMOTE TRADE IN CHINA.
and this cooperation is the outstanding element in the new develop- ment of China.
Hundreds of Chinese young men who have been educated in our colleges and universities and engineering schools are anxious to cooperate with Americans in the development of China, using Ameri- can materials, but they are debarred by our failure to enact legisla- tion providing the machinery for cooperation. In short we have educated these young men in our ways of doing business, but when it comes to actually doing the business we shortsightedly permit them to go to the British and Japanese.
Since China is the only country where we operate to any great extent under ex-territorial treaties, a general law will not and can not solve the problem of American business development in China. Furthermore the present period of depression combined with famine conditions in China will not permit delay if we are to hold our position and take advantage of Chinese friendship for Americans and American institutions. If we can not obtain the assistance our trade is certain to recede to the unimportant position it occupied before the war.
The recent revival of American trade with China may mislead some to think commercial relations with that country are of short stand- ing. Such a supposition is not borne out by history. One hundred and thirty-six years ago an American ship visited Canton, China, with such good results that a regular trade followed. American clip- per ships were an important factor in the commerce of China from the visit of that first vessel in 1778 to 1860 when our commerce was driven from the seas by the development of the British merchant marine. During the height of the period along about 1825 American shipping and trade led in the Far East. This serves to show that Chinese-American relations are not of recent origin, but have existed on a friendly basis, to the mutual advantage of the two peoples, during practically the entire national life of the United States. With legislation that will remove our technical handicaps, most Americans familiar with present developments in the Orient, believe that we may in a comparatively few years regain our old position in this trade occupied before the Civil War.
China occupies a stretch of territory one-sixth larger than conti- nental United States. Her population is four times as large as our population and her climatic conditions and natural resources are quite similar to ours. For years through the work of our mission- aries and educators and the operation of our "open door" policy we have been building up a great asset of good will toward America on the part of the Chinese people. They know that America has no designs on their territory and that the close commercial relations of the two Republies will do much to strengthen China and enable her to more successfully cope with aggressors who do have designs on her territory.
The China trade act has the full support of our American officials who have worked so long and faithfully to cement the relations of the two countries. Dr. Reinsch, for six years our minister to Peking. has supported this legislation constantly in dispatches to the State Department and quite recently appeared before the Treasury Depart- ment and gave testimony in its support.