British trading connections with China has been built up over a century, and the value of immovable properties of British firms in China has been estimated at between 200 and 250 million pounds.(l) When the Chinese Communists gained power in 1949, all British firms decided to stay on, in the hope that it would be possible to reestablish trade relations with the new regime. It was these traders who brought pressure on the Labour Government for diplomatic recognition of the Communist regime on January 6, 1950. It was believed that British recognition would be followed by a free flow of commodities and a rapid recovery of trade.
However, in spite of the one-sided recognition, strangulation of British trade in Communist territories has been in progress and many British firms have shrunk considerably. This deteriorating situation was made more deplorable by the American embargo in December, 1950, followed by a U. N. resolution on May 18, 1951, for rigid controls on exports to the Chinese Communists. Although the Government of Hong Kong imposed certain prohibitions such as that on petroleum in August 1950, the Exportation and Importation Prohibition Orders were not fully introduced until June, 1951. As a result of these restrictions, Hong Kong's trade with the Chinese Communists began to decline, resulting in serious depression in the British colony.
According to official statistics, the volume of exports from Hong Kong to the Chinese mainland and Macao for the month of December, 1951—the month of the American embargo—was 680.6 percent of the monthly average for 1947. Imports from the Chinese mainland and Macao for the same month were 274.5 percent of the monthly average for 1947. In terms of Hong Kong dollars, Hong Kong exported to the Chinese mainland and Macao $192 million worth of merchandise during the month of December, 1950. Imports to Hong Kong from the Chinese mainland and Macao during the same month were $106 million. Macao is here included as part of the mainland for the reason that almost all exports from Hong Kong to Macao are intended for transshipment to the Chinese mainland and not for local consumption.
The effect of the American embargo, however, was not felt until the fifth month of its implementation. In May, 1951, the total volume of trade fell to $836 million from $997 million in January of that year. With the introduction of the Exportation and Importation Prohibition Orders in June, 1951, there began a heavy fall in the volume of Hong Kong's exports to the Communists. The export figures declined every month, and by the end of the year had dwindled to $52 million, or 22 percent of the January figure of $235 million. In February, 1952, it further dropped to $18 million, while the total volume of trade with the Chinese mainland dropped from $303 million in January, 1951, to $68 million in March, 1952.(2)
To offset the U. N. embargo, the Chinese Communists directed more and more of their exports toward the Soviet Union and its satellites. Since the beginning of 1951, the Peiping regime's export trade had increased by 126 percent over that of 1950. Exports exceeded imports by 9.34 percent. In the course of 1952, barter trade with Japan, India, Ceylon, France, Germany and Chile was further developed, Starting from 26 percent in value in 1950, Peiping's trade with these countries jumped to 77 percent in 1951 and about 80 percent in 1952,(3) within her total volume of trade.
Meanwhile, the pattern of the "China trade" had undergone a fundamental change. Many functions formerly fulfilled by foreign firms have, been taken over by Communist trading organizations. The Communist regime further claims that as it is no longer a source a raw materials, it needs only machinery and heavy equipment which, however, are covered by the U. N. strategic embargo. As they are not licensed by the Board of Trade in London, only a limited range of goods can be carried by British traders. Furthermore, the Chinese Communists insist that all imports must have actually arrived before they grant permits for compensating exports. This regulation alone has had a serious effect on British trade.
The position of British firms in Communist territory was made doubly difficult by the exorbitant taxation demands, compulsion to pay labor when there was no business to be done, the increasing restrictions on entry and exit of foreign staff, and the threat of Communist seizure. In view of these obstacles, it seems rather obvious that the Communists have adopted a policy of "squeezing" the British firms out of the country.
In answer to a question from J. Amery (M. P. for Preston, N.), Mr. Eden stated that "one British firm in Shanghai, in last year alone, had to pay £100,000 in addition to £20,000 in taxation and which was unable to get a single penny out of (Red) China". (4)
Under these circumstances, many firms reluctantly reached the decision to wind up their interests. The announcement made in May was a public declaration of their plight for a long time. Since British firms could no longer operate on the Chinese mainland, it was felt that the time had come to arrange the disposal of their investments anti assets.
"British firms in China have always been distinguished for their acumen and realism. They have never lacked an ability to read the trend of the times, or the courage to adapt their outlook accordingly". (5) After the Moscow Economic Conference in the course of which an agreement for £10 million on either side was signed by Chinese Communist and British delegations, these firms, through the "China Association," immediately pressed the British Government for suitable action. On April 18, British Note No. 53 was delivered inquiring about the alleged Peiping desire to trade as agreed upon in Moscow. The decision of British firms to wind up their business and to set up a new organization to establish direct relationship with Peiping's state trading companies forms the subject of British Note No. 69 dated May 19. Both Notes were handed to Chang Han-fu, the puppet Vice-Minister of Foreign Affairs, by Henry Lamb who since his arrival on March 6, 1951, has been trying to obtain diplomatic recognition from the puppet Peiping regime.
The two British Notes mentioned above remained unacknowledged until July 5, when a statement was issued by Chang Han-fu covering the following points: (1) Peiping is always willing to develop international trade relations on a basis of equality and mutual benefit, (2) the fall of British trade on the Chinese mainland is due to British support of U. S. proposal for an embargo against the Communists. British policy of trade control and embargo has brought difficulties to British firms at home and abroad. By following the United States, the British Government not only contravenes, but also jeopardizes the interests of the British people, (3) due protection shall be accorded to British companies and manufacturing firms that abide by the laws of the Peiping regime. If they wish to wind up their business, they may apply to the "government" in their respective localities, and (4) any British company or manufacturing firm, as well as any organization jointly formed by them, willing to trade with Peiping, may approach the private and state trading organizations of the Communist regime and establish contact with them, provided they do not harbor monopolistic designs. (6)
While the outcome of negotiation was by no means encouraging, the initiative taken by the Chinese Communists during the Moscow Conference gave British traders a new ray of hope. According to an eye-witness, "it was the British who were pressing the Chinese (Communists) for some concrete indication of the scale on which they were prepared to do business. The Chinese (Communists) at first were reluctant to quote a figure, but asked for some indication of the scale on which they might expect British exports. The following day, however, the Chinese (Communists) were able, not only to put forward the figure of £10 million, but to give details of the main constituents in the total for imports and exports and to quote the proportion in which they wanted metals, chemicals and textiles".(7)
On the subject of the above agreement, the Board of Trade issued on April 9 a statement to the effect that the President of the Board Peter Thorneycroft, in reply to a telegram from Lord Boyd-Orr, the spokesman for the British delegation, pointed out that "the United Kingdom is, and has been, perfectly willing to increase its trade with (Red) China, and that established British merchants in Hong Kong and Shanghai have been active in looking for such trade. If the Chinese (Communists) were prepared to do business, they have only to approach these merchants or, if they prefer, the United Kingdom Government through official channels."
In the official British view, the Moscow Economic Conference was purely a political stunt which should not be supported in any way by British nationals. The British knew perfectly well that the true purpose of the Conference was to organize popular pressure in non-communist countries against the present restrictions on the export of strategic materials to Russia and her satellites. But, in spite of this official objection, a British delegation, some 30 strong, went to Moscow. Aside from signing trade agreements with the Cominform countries, Mr. William Lorimer on behalf of the delegation entered into agreement with the Chinese Communists. The British sales to the Chinese Reds would consist of 35 percent of textiles, 30 percent of chemicals, and 35 percent of metals. The Chinese Communists sales to the United Kingdom would consist of coal, bristles, and hog casings amounting to 25 percent, eggs in various forms amounting to 20 percent, and certain agreed Chinese produce, which was not defined, amounting to 55 percent.(8)
During recent months, £4,500,000 of British exports and £4,000,000 of Chinese imports have been negotiated with the Chinese Communists including £2,500,000 of textile exports. It is in the textile industry that the British are particularly anxious to obtain the "China trade". Speaking on the subject on April 22 before the House of Commons, Charles Fletcher-Cooke (M. P. for Darwen) had this to say: "The textile industry is, of course, suffering at the moment, and when it sees these large sums mentioned and the language of contract being used, the thirsty mouths look upward"! In reply, the Secretary for Overseas Trade (Henry Hopkinson) stated: "Her Majesty's Government are perfectly ready to take advantage of any genuine arrangements for exporting more of our textiles, no matter how unorthodox the method of negotiation may have been."(9)
For detailed figures for each category of British exports, another source revealed that the Chinese Communists wanted to buy £1,500,000 worth of textile machinery, £3,000,000 worth of engines and pumps, £2,750,000 of electrical equipment, £1,000,000 each of mining equipment and of building machinery, £500,000 of office equipment, and £250,000 of refrigerator equipment for hospitals.(10) Under this arrangement, the first consignment of textiles, mainly wool tops, valued at £568,000 left Yorkshire for the Chinese mainland early in October, while chemicals and drugs have been going, to the Communists since July. When Chinese Communists placed an order for £500,000 worth of sulfa drugs and antibiotics indicating that this would be the first, installment of an order for £2,000,000 worth of drugs, the Board of Trade refused to grant an export license which drew angry protests from various traders.(11)
In order to foster trade with the Cominform countries, three separate organizations have been set up in London since the Moscow Conference: (1) London Export Corporation, headed by Jack Perry and Bernard Buckman on their return from Moscow, has confined itself to activities on behalf of the Chinese Communists; (2) International Trade Association, Ltd., is solely concerned with technical aspects of East-West trade and with the actual export routine to communist countries; and (3) British Council for the Promotion of International Trade is designed primarily to persuade the Board of Trade to relax its rigid interpretation of the existing export regulations,(12) This liaison is not without significance, as the Council is presided over by no less important a figure than Lord Boyd-Orr, former Director-General of F. A. O. and Nobel Peace Prize winner in 1949.
In view of the ban on strategic materials, it is in the category of machinery and heavy equipment that considerable difficulties have arisen. On October 2, the London Export Corporation submitted a list of some 70 items to the Board of Trade to get a ruling on whether British manufacturers would be allowed to export them to the Chinese Communists. (13) As a large part of the items are for goods already on the Board's list of strategic materials, no action has so far been taken. The British Council for the Promotion of International Trade, therefore, joined the above-mentioned Corporation in lodging a strong protest to the Board and declared that the Board had gone far beyond the U. N. resolution of May 18, 1951, and "even beyond the terms of the embargo list published by the Board in June 1951". Maintaining that it had caused a loss of millions of pounds of order for British firms, Leslie Hale (M. P. for Oldham) called for a government trade delegation to be sent immediately to Peiping to open trade negotiations.(14)
In the course of recent political and economic talks between Messrs. Eden and Dulles, the British promised to close loopholes in her trade with the Chinese Communists in two ways: (1) a licensing system for ships registered in the United Kingdom or its colonies would bar such vessels from carrying strategic materials to the Chinese Communists even from non-Communist ports; (2) no ships from the Soviet bloc or other country that are bound for the Chinese mainland with strategic cargos will be allowed to refuel in British ports. These measures will hit hardest at many exporters and it would be of interest to watch future steps to be taken by the above-mentioned Corporation and Council.
While the British have done everything possible to foster trade with the Chinese Communists and while an impressive number of British traders have visited the Chinese Communist Trade Mission with its office in East Berlin, they have met only with impossible offers and unrealistic prices.(15) The British sought to persuade the Chinese Communists to open an office in London, but the puppet Peiping regime has consistently spurned the British efforts.
To the British traders the prospect does not appear very bright. In the first place, Chinese Communists are still relentlessly "squeezing" such British concerns as are in their grip. At present, there are some 250 Britons in Shanghai keeping their offices open and continuing to pay their staffs when they are doing no business. Adopting a policy of deliberate boycott, the Communists only use some of these firms as export channels. Secondly, since the puppet Peiping regime confines its foreign trade only to official institutions, there is no hope for private foreign enterprise on the Chinese mainland. Although this is evident to every casual observer, British traders are still inclined to think that the puppet regime "appreciates the importance of the Western, and primarily, the British connection. Chinese order for woolen goods are regarded as a gesture that (Red) China is willing to buy from Britain even though she could obtain them from other sources".(16) So says an official of the London Export Corporation: "The advantages of securing the initial orders in a new and expanding market need no emphasis. Firms satisfactorily meeting these early Chinese requirements can confidently look forward to a steady flow of orders growing in volume year by year"! (17)
Aside from the various difficulties mentioned above, Chinese Communists have taken advantage of every opportunity to "take over" British commercial property on the mainland. After the British authorities in Hong Kong seized the Red oil tanker YUNG HAO lying in Hong Kong docks for repair, Chinese Communists immediately requisitioned all the properties of the British-owned Shell Co. of China Ltd. on April 30, 1951.(18) The British Delegation then visiting Peiping issued the following statement: "The British Delegation to (Red) China declares that it regards the action of the Chinese People's Government in requisitioning all the properties in (Red) China of the British-owned Shell Co. of China as entirely justified ..... Such provocative actions of the British Government as the seizure of the oil tanker can only injure friendly relations between Britain and (Red) China, hamstring the establishment of full diplomatic relations and cripple trade between Britain and (Red) China which Britain so urgently needs".(19)
In July 1952, when the Privy Council in London, reversing the previous decision of the Hong Kong courts, awarded the 40 planes of CATC to General Chennault's Civil Air Transport Inc., the Shanghai Military Control Commission ordered on August 15 the requisition of all the properties of the Shanghai Dockyards, Ltd. and the Mollers Shipbuilding and Engineering Works, Ltd. While this action was tantamount to seizure, the order concluded with the following sentences: "The responsible personnel of these two requisitioned shipbuilding companies must immediately draw up inventories of all the properties and must be responsible for their protection and handing over. Any pilfering, destruction, transfer, concealment and other unlawful acts will be severely punished".(20)
In retaliation for the verdict pronounced by the British Supreme Court in Hong Kong in October, adjudging the 31 planes of the CNAC to the Civil Air Transport Inc., the same Commission in Shanghai on November 20 requisitioned four more British firms, viz. the Shanghai Gas Co., Shanghai Water Works Co., Shanghai Electric Construction Co. and a private shipping firm, Mackenzie & Co. The seized companies are estimated to be worth £31 million. (21) On the same day, all the moveable and immovable properties of Mackenzie tot Co. in Tientsin and Hankow were also taken over by the Communists. In answer to an inquiry from Thomas Reid (M. P. for Swindon), the Under Secretary of Foreign Affairs (Harold A. Nutting) stated on October 22 that the value of British property seized by Chinese Communists was about £9 million. (22)
As the number of British nationals on the Chinese mainland was greatly reduced, six British consulates had been closed by May, 1951, while the consulate in Canton was closed in February and that in Tientsin in December, 1952. Owing to the importance of Macao for the transhipment of cargoes, the British consulate in Macao reopened in November, one month before the closing of the Tientsin consulate.
While Hong Kong, right under the nose of the Chinese Communists, has beep suffering from the curtailment of the Chinese mainland outlet, strategic materials (23) have been reaching the Chinese mainland from the trade entrepot of Macao. As British sacrifices are being made to no purpose, some British interests have taken the view that if Peiping is getting strategic materials despite the U. N. embargo, then it would be as well if the position Was reconsidered in order to develop Sino-British trade through normal channels. Other traders maintain that "if (Red) China were merged again in the world trade stream, her influence would be devoted to ending the Korean War and that her solid trade connections with Britain might be the way to separate her from the present link-up with the ideological group of countries" ! (24)
With such wishful thinking on the part of British merchants, it is only natural that increasing pressure is being brought on the Board of. Trade for relaxing its control of exports and for broadening the present basis of trade. While the success of these efforts still remains to be seen, both British official and commercial circles are agreed that contact with official Communist trading organizations should be maintained by an unofficial body whose desire to expand trade is not suspect to the Communists. Although British policy is dictated by a sense of "realism", it is well to keep in mind that it is not normally considered a mark of statesmanship to send British soldiers to fight the Reds in Korea and at the same time engage in a lucrative trade supplying that enemy with the sinews of war.
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(1) Great Britain and the East, June 1952.
(2) Far Eastern Economic Review. May 8, 1952.
(3) Private communication.
(4) Parliamentary Debates: Commons, May 20, 1953, p. 261.
(5) Far Eastern Economic Review (Editorial), May 29; 1952.
(6) "People's China," August 1, 1952.
(7) A. Cairncross: Moscow Economic Conference. Soviet Studies, October 1952, p. 116.
(8) Parliamentary Debates: Commons, April 22, 1952, p.367.
(9) Parliamentary Debates: Commons, April 22, 1952, p.362.
(10) Manchester Guardian Weekly, October 23, 1952.
(11) Ibid,. January 8, 1953, p. 13; also. New Statesman and Nation, January 3, 1953, p. l3.
(12) Manchester Guardian Weekly, January 8, 1953.
(13) Ibid,. October 23, 1952.
(14) Hsinhua News Agency Release, December 23, 1952.
(15) The Economist, December 20, 1952.
(16) Great Britain and the East, November 1952.
(17) Manchester Guardian Weekly, October 23, 1952,
(18) Hsinhua News Agency Release, May 2, 1951.
(19) Ibid., May 5, 1951.
(20) Far Eastern Economic Review, August 28, 1952.
(21) Ibid,. November 27, 1952.
(22) Parliamentary Debates: Commons, October 22, 1952. p. 1007.
(23) For items subject to embargo against the Chinese Communists, see Board of Trade Journal, June 23, 1951 p. 1321-1322.
(24) Great Britain and the East, November 1952.