COPY
CHINA
ASSOCIATION
HS
Excl
54 Old Broad Street,
E.C. 2. 4th June 1948.
Sir:
Co
This Association has been asked by the Hong Kong General Chamber of ree to take up with His Majesty's Government the question of Claims outstanding by some of their member firms in Hong Kong, in respect of con- tracts for War Supplies entered into prior to the outbreak of the war with Japan.
You will be aware that during 1940 an organisation was set up under the title of the "War Supplies Board", with headquarters in Delhi, to procure, and develop sources of, war supplies from the East and Far East. So far as Hong Kong and China were concerned, the local headquarters of this organisa- tion were in Hong Kong, with Dr. Sloss, the Vice-Chancellor of the Hong Kong University, in charge. This Hong Kong office placed orders for execution both there and in China for such things as machine tools, webbing equipment, boots and so on. Most of these supplies, as delivered, were despatched to India for the equipment of the British Forces there.
In the beginning the Hong Kong office of the War Supplies Board placed orders direct with local manufacturers, most of whom were Chinese, but, as the scheme developed, the Chinese manufacturers were unable to cope with the orders being offered because their resources were not sufficient to finance the necessary purchases of raw material, and additional machinery and, in some cases, the construction of new buildings. The War Supplies Board, to meet this situation, decided to use the services of established British merchant houses so that they, with the assistance of the banks, could arrange finance to assist the Chinese contractors. Thus, in the later stages, the system was for the War Supplies Board to place orders with British merchant firms who, in turn, sub-contracted to Chinese manufacturers, and made money advances to those sub-contractors as appeared necessary. The merchant houses also bought and held stocks of raw materials in their own names. finance these activities the British firms normally had to borrow from the British banks, pledging their own credit. The commission allowed to the merchant houses was, I understand, 3%, and this percentage could clearly not have been intended to cover any risk of loss arising from war: in fact, no commission would at that time have sufficed to insure against such risks.
To
As to the wording of the contracts used in Hong Kong, I understand that this followed the standard form then in use in Great Britain, but this did not, of course, make provision for the kind of eventuality which was to be anticipated in the Far East. Representations on this point were made by the merchant houses to responsible members of the War Supplies Board at the time, and they were given verbal assurances that they would be protected. They were urged not to delay production of War Supplies by discussion of the word- ing of the standard contract and, in view of the urgency of the situation, the need for everything to be done to expedite production of War Supplies and the assurances they had received, the firms naturally complied.
In due course war came to Hong Kong, and all this activity ended abrupt- ly. The position was that the merchants had large sums out in the form of advances to the Chinese contractors and in stocks of raw materials: the loans incurred by the merchant houses with the banks remained, and still re- main.
Since the end of the war, the merchants have sought to recover their losses. For obvious reasons they cannot do so from the sub-contractors so they look to the authority which sponsored the War Supplies Board, and they have, therefore, submitted their claims through the Colonial Government. So far, however, they have been vouchsafed no response, and I am now instructed by my Committee to request that the Secretary of State for the Colonies will expedite the settlement. The question has become urgent because although, thanks to the existence of a moratorium in Hong Kong, the merchants have not been pressed for settlement hitherto, the moratorium is expected to end at an early date so the banks will then look to the merchants not only to meet the debts but also to pay interest charges.
The Under Secretary of State,
Colonial Office,
S.W. 1.
I have the honour to be, Sir,
Your obedient Servant >
(Signed): G.E. MITCHELL. Secretary & Vice-Chairman.