THE PROGRAMME FOR ECONOMIC DEVELOPMENT OF CHINA
BOARD OF PLANNING
I
NOW that Canton and the Wuhan district, two of the most important military and political bases of the Kuomintang Government, have been captured by Japanese forces, the immediate action necessary to consolidate the achievements of military triumph is the work of assisting in economic reconstruction and development in the occupied areas. In certain areas, the part of Central China with Shanghai as its centre and in the Shantung district where severe fighting took place and where devastation caused by retreating Chinese forces was sweeping, public utility enterprises such as transportation services, communications, power stations and water works as well as industries in general have been utterly dislocated—in a word, the economic structure as a whole has been destroyed. Even in North China and in towns and villages in rural districts in Central China, where damages caused by battles were comparatively slight, conditions of impoverishment, although in varying degrees, also prevail.
On the other hand, there are enormous quantities of natural resources lying undeveloped in these areas, which might have been exploited for the promotion of industries and consequently for the happiness and prosperity of the people. In trying to aid the new China, which is emerging under the rule of the new régimes established in Peking and Nanking, in the work of economic development, Japan must not confine its activities within the domain of reconstruction in its narrower sense. The undeveloped natural resources must be utilized.
The main reasons for the failure of China under the Kuomintang Government to develop the resources lay in its lack of capital and technique and of stability in the political situation. Japan can now bring these qualifications to the new China so that resources necessary for the promotion of economic power and improvement of the general standard of living may be developed in full. And when this state of affairs is realized, the purchasing power of the Chinese people will naturally be increased, bringing about in turn the
increase of Japanese exports to China. Thus, development of natural resources in China has far-reaching consequences in realizing the ideal of economic collaboration not only between Japan and China but between the three neighbouring countries including Manchoukuo, which is the basic step for achieving the national purpose of establishing a new, ideal order in East Asia.
It has also an important bearing upon the life of the Japanese nation as the stabilizing force of East Asia in that it can supply Japan with materials such as iron, coal, salt and cotton, for strengthening its national defence and augmenting its productive power. The necessity of reconstructing and readjusting transportation, harbours, communications and electrical enterprises can be understood in this connection. Sufficient supply of those necessary materials from a country within the Yen bloc will, to a considerable extent, decrease Japan's overseas payments, while the coordinated adjustment of industries within the three countries of Japan, Manchoukuo and China, eliminating unnecessary competition and friction between them, will work greatly toward the adjustment of supply and demand of materials and the balancing of international payments.
These reconstruction activities, again, should not be considered only as post bellum measures. They are as vital and urgent as military operations and political activities ; they are measures which must be carried out even while the hostilities are going on. For success in these measures will doubtless prove, on the one hand, to consolidate the new régimes and, on the other, to crush the Kuomintang Government.
Establishment of Special Companies
As a concrete step for carrying out measures aiding reconstruction and development in China two special companies, the North China Development Company, Limited and the Central China Promotion Company, Limited, have now been established. They are holding companies for investing in and financing subsidiary companies directly engaging in reconstruction and development undertakings, as provided for in the Law concerning the North China Development Co., Ltd., and the Law concerning the Central China Promotion Co., Ltd., promulgated on April 30, 1938.
The purposes for which the two companies have been established are not the same. The company for North China is designed, as provided for in Article 1 of the special law concerned, to function in accelerating economic development in North China and in
coordination and adjustment of related undertakings ; while the other company is designed, according to Article 1 of the Law, to function in promoting economic reconstruction and development in Central China.
Thus, in North China, where destructions caused by the hostilities have not been so heavy as in Central China and where an abundance of natural resources, such as iron, coal, salt, cotton, and wool is still undeveloped, Japanese aid is to be mainly for economic development. In Central China, forming the centre for Western investments and Chinese industries and the heart of the economic structure of China, where such development has already been made to a considerable extent, and where devastation has been as sweeping as that in the Tokyo-Yokohama districts after the great earthquake of 1923, the immediate necessity is reconstruction of industries and public utility enterprises, without which peace and order cannot be established, not to speak of starting construction and development activities. This is especially true of the need in Shanghai districts. Accordingly, Japanese aid in that part of China is to be for the rehabilitation and reconstruction of industries and public utility enterprises as well as for the further development of natural resources.
These differences are also reflected in the estimates for funds needed for their respective undertakings of the two companies. The North China Company is capitalized at 350,000,000 yen in view of the vastness of its development programme, while the Central China Company is capitalized at no more than 100,000,000 yen in view of its main objective which is the work of rehabilitation and reconstruction. Both concerns are also authorized to issue debentures up to an amount five times their paid-up capital. These funds together with the capital to be invested in subsidiary companies by the Chinese both in money and goods and that to be invested in them by private Japanese, amount to several billion yen.
Subsidiary Companies
As has been previously stated, the two companies, being holding companies, do not in principle operate directly any business enterprises. Their business will be to organize many subsidiary companies, to invest in and finance them and to coordinate and adjust their operations. In the case of the concern for Central China, however, it can, under some special circumstances, operate business enterprises directly.
What will be the enterprises of those subsidiary companies ?
Article 14 of the Law concerning the North China Development Company, Ltd., provides :
That the North China Development Company, Limited, shall invest in and finance enterprises named below, and coordinate and adjust their operations :
1. Enterprises relating to transportation and harbour and port improvements. 2. Enterprises relating to communications. 3. Enterprises relating to generation and transmission of electricity. 4. Enterprises relating to mining. 5. Enterprises relating to manufacture, sale and utilization of salt. 6. Enterprises other than the above-named whose coordination and adjustment are particularly necessary for accelerating economic development in North China.
Likewise, Article 12 of the Law concerning the Central China Promotion Company, Limited, provides :
That the Central China Promotion Company, Limited, shall invest in and finance enterprises named below :
1. Enterprises relating to transportation. 2. Enterprises relating to communications. 3. Enterprises relating to electricity, gas and waterworks. 4. Enterprises relating to mining. 5. Enterprises relating to fisheries. 6. Enterprises other than the above-named which are necessary for promotion of public utilities or industries in Central China.
The Central China Promotion Company, Limited, may, under special circumstances, directly operate the above-named enterprises, on approval by the Government.
These subsidiary companies, since they are the concerns operating directly in China, are expected to be established as corporations of Chinese registry under Sino-Japanese joint management. The question as to whether the principle of one company for one class of undertakings will be applied here will depend upon the classes of undertakings. As a matter of fact, decision has not been made on this matter.
Coordination and adjustment of the operation of subsidiary companies, as provided in the Law concerning the North China Company, is designed to eliminate the possible occurrence of circumstances which may hinder synthesized growth of various enterprises relating to development of natural resources and other industries which will be started in that area. In the case of the concern for Central China, however, there is no such provision in
the Law. This can be accounted for by the fact that in this area Japanese aid, except in a few cases of enterprises to be started, will be mainly directed toward rehabilitation, replenishment and extension of the existing enterprises, which can be effected by controlling important matters of investment and financing and by thus regulating their operation. In both cases, a certain degree of guidance will invariably be given through the power of capital in the hands of holding companies.
Privileges Granted to the Two Companies
The missions of the two companies are highly important from the point of view of the current national purposes. Moreover, their business may not be profitable from the first and many serious difficulties may stand in the way of their successful operation. In view of these positive and negative factors which render the undertakings extremely momentous, the Government, besides making necessary investments in them, grants the two Companies many privileges by way of protection as provided in their respective Laws.
Hence the Government invests in the concern for North China 175,000,000 yen, representing half the total amount of authorized capital of 350,000,000 yen ; and in the concern for Central China 50,000,000 yen, representing also half the total amount of its authorized capital of 100,000,000 yen. Of these governmental investments, certain amounts will be in forms of goods, which consist mainly of materials necessary for repair and construction of rolling stock, bridges and rails which have either been destroyed or taken away by the Kuomintang Government.
Recognition of the right of these two companies to declare preferential dividends on shares owned by private interests, by which dividends of 6 per cent per annum are assured, is another important privilege to be granted to them. For this purpose the Government will grant them subsidies of a certain fixed amount for the period of 5 years, beginning with the first year of their operation. As for the debenture issue, it has already been explained. A privilege to be granted here is that payment of both principal and interest will be guaranteed by the Government.
Privileges generally entail supervision. The two companies do not constitute exceptions to this rule. They are required to get the approval of the Government with regard to raising loans, making changes in the articles of association, carrying out resolutions of merger and dissolution, and disposal of profits. With regard to plans for investment and financing for each fiscal year, also, they are
to get governmental approval. Furthermore, the Government may give the companies such orders as are deemed necessary for the purpose of their supervision and of national defence. These and other supervisory measures are provided for in the Laws.
All necessary steps for establishment of the two companies were completed on November 7th. Messrs. Sonyu Otani and Kenji Kodama were appointed Governors of the North China Development Company and the Central China Promotion Company respectively by the Government. The fact that shares offered for public subscription were over-subscribed indicates the enthusiastic support given to the whole programme of economic reconstruction and development of China by the Japanese people at large. As for the capital paid up, it represents one-fourth of the authorized capital, ¥12.50 per share of ¥50, in the case either of the North China or the Central China Company.
The most vital as well as most interesting part of the whole programme is perhaps the detailed account of how and where reconstruction and development undertakings will be operated—in other words, detailed programmes for the activities of subsidiary companies. These will be given in the January issue of TOKYO GAZETTE in full.