China Blues

In Hong Kong's South China Morning Post last week, the three British banks still technically doing business on the Communist-ruled Chinese mainland ran an important ad: they would pay off all their depositors in local currencies on a sliding scale, depending on the dates when their cities were "liberated" by the Communists. The payment would be liberal--and with reason: the Red government had ordered the banks to refund not only the original deposits, but what they would be worth in terms of China's grossly inflated currency. The move would also be a windfall for the government. Unclaimed deposits, said the notice, would be turned over to the national treasury. Under the deal, the banks expect to lose between $5.5 million and $8.5 million.

The bank notice, with its ignominious reference to "liberation" by the Communists, was the latest example of the squeeze by which the Communists have choked to death the West's once mighty business empire in China. Eight years ago, some 600 Western enterprises had investments in China totaling about $1.3 billion. Since the Communists took over, the attrition rate has been tremendous. In some cases, "to safeguard China's security," the Reds have simply seized foreign assets, e.g., Britain's Shell Co. of China and the U.S.'s Standard Vacuum and Caltex oil companies. In China today, only about 15 Western companies still operate, with fewer than 250 Westerners running them. Almost all are located in Shanghai.

Plumb Crazy. Most of the companies still trying to operate are British, e.g., Traders Jardine, Matheson & Cox, and Butterfield & Swire, and the British-American Tobacco Co. There are a few American interests still functioning, but they are under the same pressures. Example: the Communists are trying to make four U.S. banks pay off their depositors in the same way as the British banks. But in this the Reds will probably fail, since the dollar deposits are in America and the U.S. Treasury refuses to permit delivery of the funds to Chinese mainland branches. The only Western firm in Shanghai that is still making a profit is Britain's China Engineers, which is busily importing textile machinery from Britain, and talking about how easy it is to do business with the Communists. Said one British businessman in Hong Kong: "They're plumb crazy. That kind of talk is hurting the rest of us."

For more than a year, the Chinese Communists have been using a shrewd technique to extort foreign exchange from the hard core of remaining companies, and provide jobs for some 5,000 Chinese employees. Shanghai's Ewo (translation: Happy Harmony) Breweries Ltd., for instance, once as famed in the Far East as Schlitz in Milwaukee, is an economic hostage. Ewo survived for a time under the Communists. But last year the Reds boosted the prices that Ewo had to pay for raw materials, then ruled that all its production must be sold through a state monopoly at a price cut of 17%. The company lost $4,000,000 in a year, and stockholders voted to dissolve it, offering all assets to the Communists as settlement of its debts. The Communists refused, and Ewo is still going along at a loss.

What's the Hurry? Last summer, when all the British firms in China decided to throw in the towel (TIME, June 2), the British diplomatic mission in Peking asked the Communist Foreign Ministry for permission to liquidate all remaining business interests. Replied the Communists : "Facilities will be granted according to the laws of China." But nothing more ever happened. "It's just like Panmun-jom," said one British businessman last week. "Every time we ask the Communists why they delay action, they say they cannot understand what is troubling us. All they say is: 'We have received all your complaints, haven't we?' "

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