THE PROBLEM OF PUBLIC AND PRIVATE RELATIONSHIPS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-00809A000600340323-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 4
• Document Creation Date: December 22, 2016
• Document Release Date: August 16, 2011
• Sequence Number: 323
• Publication Date: September 6, 1950
• Content Type: REPORT

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CLASSIFICATION CONFIDENTIAL CON
CENTRAL INTELLIGENCE AGENCY REPORT
INFORMATION FROM
FOREIGN DOCUMENTS OP R.',DIO BROADCASTS CD NO.
COUNTRY China
SUBJECT Economic; Sociological
HOW
PUBLISHED Daily newspaper
WHERE
PUBLISHED Nanking
DATE
22 Jul 1950
PUBLISHED
LANGUAGE
CC"yAIM
TIO OF THE C UN11TED STATESS M INFORIP THIN AT N TN N AFFECTING E MA1IOFAL NEANINO OP ESPIONAGE DEFENSE NED
THE REVELATION ARSON ED P A
U. S. C.. $1 AND Il? AN AMENDED. ITS TRANSNISIION RIZOR IS
NIIIT[DC ET TLA1131REPRODUCTIOM OR THIS PORMN IISI PROM NIITED. PRO?
DATE OF
INFORMATION 1950
DATE DIST. Z Sep 1950
SUPPLEMENT TO
REPORT NO.
THIS IS UNEVALUATED INFORMATION
THE PROBLEM OF PUBLIC AND PRIVATE RELATIONSHIPS
Chi Yin (1) numbers refer to
appended character)
The Central People's government believes in a policy of mutual benefit and
.dir dealing in the relationships between government, civil, and military
agencies and private business. While many private concerns and individuals are
conducting their business with the government sincerely and honestly, unfortu-
nately some ere dishonestly enriching themselves and defrauding the government
and the people by resorting to the corrupt practices that were common :.nder the
reactionary KMT regime. As a result, the country has been subjected to as-I
toundi3,' large losses.
Last fall (1949) the Nanking branch of the China Foodstuffs Corporation
(then operating under the name of the First Branch Company of the General Trad-
ing Corporation), in order to adjust the supply and demand for foodstuffs in
Ranking and to get currency into circulation in the rural areas, engaged the
services of private grain merchants to buy up to 15 million cattier of grain In
the producing regions. Among these merchants were some unprincipled men who
took this opportunity to withhold payment of funds advanced to them. Sixteen
graIs shops held up delivery of some 2 million catties of grain; one of them was
the Jung-feng Mi-ch'ang. This shop took theflmds. advanced to them for the pur-
chase of rice and with them bought salt, transported it to Anhwei, and there ex-
changed it for rice; they brought the rice to Nanking and sold it at a huge
profit, refusing to deliver 4,000 piculs of the rice which they were commissioned
to buy.
The Hsiang-t'ai and Yung-feng grain shops, both in Wu-hu, took grain-pur-
chase money but delayed the delivery of over 7,400 piculs, using the govern-
ment's money for illegal and economically disturbing speculation. Also, the
Sheng-ch'eng Company, a private transport company 'n P'u-k'ou, Kiangsu, which
began business in September 1949, by means of large bribes bought over Chu Wei-
hua (2) and Wang Pao-nien (3) end others, clerks in the employ of the P'u-k'ou
forwarding office of the government-operated East China Trade Bureau, and in
CLASSIFICATION CONFIDENTIAL
STATE
ARMY
MAVY
AIR
1FBI
wwrlrlncuir 1
IiUr1rWL rL
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league with them, carried on avaricious practices resulting in losses to the
People's government equivalent to about 10,000 piculs of rice, In February
1950 alone, in connection with the transport of rice, they took dishonest and
illegitimate profits of 226 million yuan.,
The committee charged with the urgent repair of the wharves and river em-
bankments at P'u-k'ou, Kiangsu, contracted with a private concern for the sup-
ply of a large quantity of willow wither, This private concern used a portion
of the funds advanced for commercial speculation, So far, they have not made
delivery of a portion of the withes and are in default by 267,800,000 yuan.
This malfe.sance delayed the commencement of the work 16 days, and, beginning
mid-March 1950, caused a 24-day interruption of wo:i,
In January and February 1950, the Second Field Army, in a transaction for
the purchase of fuel, was swindled out of 4,500,000 yuan. Units of the Third
Field Army were repeatedly defrauded in connection with fuel. In one case,
the fuel was to be stored for the army by the supplier end delivered as requi-
sitioned, but the supplier unfaithfully stole and sold some of the army's fuel.
In another case, some individuals posing as fuel merchants took funds for the
purchase of fuel for the army and then decamped for parts unknown, thus en-
tailing to the army a loss equivalent to 100,000 catties of rice.
The government-operated Chang-chiang Rice Company in September 1949 ar-
ranged with the private Kung-ta Grain Shop to turn over to the latter 300,000
catti,es of over-old rice with the provision that 3 months later the Kung-ta
Graiq.Shop was to return the same amount of new rice. But the grain shop
failed to deliver the new rice at the time agreed on. They had used the pro-
ceeds of the old rice as capital for operating a new company under the name
Chang-ta Grain Shop, which has done a large and profitable business. Up to
now, it is still in default by over 900 piculs of rice. The private Hou-feng
Grain Shop of Wu-hu similarly defrauded the Chang-chiang Rice Company to the
extent of over 300 piculs of rice.
These cases are merely typical examples of the nature and proportions of
the losses which the country has sustained, These malpractices not only de-
fraud the ,government but alco damage the interests of law-abiding private
business concerns by injuring the relationships between public and private
agencies. The government has already placed under arrest the parties guilty
of the most flagrant fraudulence and they will be dealt with severely accord-
ing to law to protect the financial interests of the country.
How is it that actions causing such vast losses could be perpetrated?
What questions do they raise? What lessons do they teach us? The first ob-
servation to be made is that there are in Nanking a.number of unprincipled
scoundrels left behind by the reactionary and corrupt XMT regime, men who have
no loyalty to the People's government and who cannot give up the dishonest
tricks and corrupt practices to which they have been accustomed.
An analysis of the cases of corrupt practices points to weakness in our
own cadres. Many of our cadres, especially those in the government's commer-
cial and industrial offices, have never learned how to conduct business in big
cities. They come from the simple life of the rural areas into the complex
economic activities of the great cities and they are lacking in sufficient
knowledge and experience to cope with them. They are not able to accommodate
themselves quickly to new conditions. This kind of weakness is clearly seen in
the cases mentioned above. Government agents have made contracts, and without
any guarantee whatever, have turned over large sums of money. In too many
cases, with money in hand, the contractors then treat the contracts as mere,
"scraps of paper." The deceptions and losses 'sy which the military gr-ups in
particular have been victimized are principally due to this weakness.
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CONFIDENTIAL
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In connection with the Plu-k'ou cases, on unguaranteed contracts, and with-
out knowledge of the trustworthiness of the other parties to the contracts,
cadres have handed over in advance 80 and 90 percent of the funds for large un-
dertakings, only to find that the contractors fail to live up to the terms of
the contracts., Allied to such ineptness as mentioned above is the lack of per-
spicacity on the part of many cadres concerning the affairs and businessmen with
which they have to deal, A case in point is the loss of 620,000 catties of
grain by the China Foodstuffs Cor>oration through incautiously relying on a cer-
tainNanking private commercial company for the storage and custody of a large
consignment of grain,
out having contacted or ne?otiated with the China Merchants Steamship Company
or the Railway Bureau, with the result that a huge loss was sustained.
In connection with the procurement of materials for the urgent repair of
the wharves at P'u-k'ou, cadre. were of the opinion that private concerns were
more reliably than government agencies, and they split the contracts between
public and private parties. The result was that the private company, after 3
months' delay, delivered only 20.9 percent of the order, chile the local gov-
ernmental agency on its contract, in only 1111 months, delivered 70.4 percent,
and the Yang-chung (San-mao?chen) local government delivered 122,2 percent of
its order.. The private concern, furthermore, was in default to the extent of
over 300 million yuan,.
The above case clearly proves that cadres who consider private firms bet-
ter to deal with than government agencies are completely mistaken. They do
not appreciate the importance of the principle that in protecting the interests
of both public and private agencies, it is necessary to discriminate between
good and bad private concerns. It is still more important to give preference
to public enterprises over private enterprises there must not be the
slightest uncertainty on this point.
A further practice which accounts for extensive losses is the resort by
private operators to bribery of our cadres. The weakness in knowledge and ex-
perience of many of our cadres furnishes an opportunity for gouging the govern-
ment. A rather large number of cadres are men who have not been sufficiently
trained for their duties and responsibilities. Chu Wei-hua and Wang Pao-nien,
mentioned above, are cases in point, Merchants entertain such men socially,
present gifts, and finally offer bribes. These practices of the old society
surround and attack our men. The majority of the cadres resist these blandish-
ments and temptations, but a minority, because of weak ideological defenses,
yield to the attacks.
How to put this matter of public-private relationships on a right and
proper basi.s? The government, military, and business circles ought quickly
to give serious consideration to this problem; otherwise, the consequences will
be extremely damaging to both government and business. Private business con-
cerns should be exhorted to abandon these sharp practices and cooperate sin-
cerely with the government for their on beet interests as well as for the coun-
try. Those who persist in the old perfidious practices should be severely ,un-
ished according to law. Budiness circles should purge themselves from their
unprincipled elements and illegitimate practices, and do business with honesty
Cadres engaged in government unde- takings, trade agencies, and military
supply services ought to take to heart the lessons to be learned from such bit-
ter experiences. They should intensify their study of the best methods of con-
ducting business dealings. However, they must be on guard against another
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danger., turning away completely from doirg business with all private concerns,
even those of good repute, because of being cheated by s few dishonest private
merchants. Thtt would be a great mistake.
Cadres handling economic mattors,- particularly new men, should diligently
cultivate proper political and economic ideologies, rid themselves of loose
standards of business conduct, and strive continuously to improve their com-
petency. We men who are doing the work of the revolution are supposed to reform
the old society and its ways, We have two tasks,?o:e is to properly discharge
our own personal duties, and the other is, by our exemplary conduct, to seek to
influence and reform the business world, and not be captivated by its old ideas
and crooked practices.
COXFIDENTIAL
OONFIIFMTIAL
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