CO129-470 - Public Offices - 1921 — Page 639

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COMPANIES TO PROMOTE TRADE IN CHINA.

serve the good will of the people of China who may share with them in their enterprises, and thus aid in building up and maintaining our foreign commerce with China.

Mr. Carl L. Seitz, an American engaged in business in China for the past 20 years, on the 17th of January, 1921, appeared before the Committee on Ways and Means in favor of the taxation feature of this bill, which had been referred to the Committee on Ways and Means by the Judiciary Committee. Mr. Seitz, in his testimony before the Committee on Ways and Means, went into the necessity for this legislation and for the exemption of these proposed corpors- tions from corporation taxes. At the conclusion of his testimony he submitted the following additional statement, which is printeil in the hearings of that date, and which is as follows:

The following additional statement is submitted on behalf of the American business interests of China as represented by the American Chamber of Commerce of China and the American Association of China:

Bill II. R. 7204 is to provide "A Federal law covering incorporation for companies in China. so that such companies will be recognized in foreign trade as 'América. companies," thereby helping to put American companies operating in China on s equal footing with trade competitors. British businem predominates in China, bein operated under the British Hongkong Co. ordinances which have been extended cover operations of British companies throughout China under the extraterritori... jurisdiction privileges which foreign powers enjoy in China.

The essential necessity to complete the purpose of Federal incorporation bill (11. R. 7201) is to cover therein a provision exempting American companies incorporated thereunder from income taxation.

In America such taxes apply on all business. In China the American merchant alone is taxed. British merchants, na also French. Japanese, and Chinese, pay no income or excess-profits tax. Consequently. American business can not survive in active competition, and existing trade conditions in China show that relief is urgently

necessary.

So long as this handicap exists it is not possible for American business in China to interest Chinese capital in building up joint enterprises.

America has the good will of the Chinese, and all things bring equal, American and Chinese merchants will get together to build up trade between the two countrie Chines merchants, however. will not make a sacrifice in joining with American enterprise under American law if the business is going to be taxed under the American income and excess-profits tax laws, thereby causing to be paid to the Lnited States Treasury taxes on profits made purely and exclusively in China.

The thinee merchant can do better by putting his money in with his Brith friends or with French or Japanese friends operating in China free from taxation even if he must accept the drawback of having to purchase for joint industrial under- takings foreign machinery and equipment when he would prefer American machinery. China posesses no adequate laws for control of Chine è corporations. Therefore i! is customary in the building of industrial plants in China for Chinese (apital to join with foreign capital in such development under some foreign corporation law. The exi-ting favorable British laws induce Chinese to cooperate almost exclusively with British merchants in such enterprises. Companies aro irmed under the Hoogkez ordinances free from taxation. In these companies the management and dire ton are Briti h and the custom is for the management to be paid a substantial eum annually for its services. The control of the company being in British hands, it naturally i lows that mahinery employed in the fatories is British; the supplies and equipmen for the regular running of the works are British; the skilled staff of engineers foremen are al- British.

In some British firms as much as three-fourths of their business is based on aurk operatione. No such development in working between Chinese and Americans mer chants is possible, on account of the handicap in connection with income tax and excess profits tax laws which are applied on American trade operations in China.

If American shipping is to win on the reas it must be supported by American trade development in foreign countries, so as to provide cargoes for American ships so canį, China is on the verge of great industrial development, and America, with laws framed to meet competition on an equal footing, will undoubtedly have her fair share possibly more than a fair share-in the trade posibilities offering.

COMPANIES TO PROMOTE TRADE IN CHINA.

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In putting the American merchant in China on an equal footing with the British merchant in freedoin from income and exces profits taxation, the direct result will be that America will, in cooperative working with China, sell to the Orient machinery and produce in large quantities. Profits accruing to our manufacturers in America and resulting bencfits in the national balance of trade will be out of all proportion in erasing national prosperity compared with the small sacrifice by the United State divasury in income taxation on the profits which American corporations in China may make.

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