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bidders were unsuccessful. The reported higher cost of Japanese materials and high royalties on engine installations may account for this. It has been estimated that in September 1934 an 18-knot, 10,000-deadweight-ton motor-powered freighter would cost approximately 300 yen per ton which, at the then exchange, would work out at about $90 per deadweight-ton.
Now, Mr. Chairman, I will submit for the record a table which shows the owning companies, the names or, in lieu of the names, the number of hulls laid down under contract; the designed tonnage, and designed speed, the date the keel was laid, the date of proposed completion, the subsidy per ton, the total subsidy on the ship, and the constructing yard, for the record. The ChairmAN. Without objection, that may be incorporated.
Tonnage to be built-details of new construction
394, 200 Yokohama.
bishi). 410, 400 Tama (Mitsui).
Mitsui Bussan Kaisha:
No. 1. Azumasan
No. 6. (Undecided).
No. 1. Uyo Maru...
No.4. (Undecided). Kokusai Kisen:
No. 1. Shikano
No. 3. Kongo Maru
No. 1. Toa Maru...
No. 2. Kyokuto Ma-
No. 1. (Undecided)
No. 3. (Undecided)
No. 1. (Undecided)
No. 2. (Undecided) Takachiho Shosen: Ta.
kaei Maru Shinko Shosen (unde
cided). Shimaya Kisen (unde
4, 185 4, 150
220, 800 Tama (Mitsui). 209, 250
bishi). 207, 500 Do.
1 The builders are: Nagasaki and Kobe works of the Mitsubishi Heavy Industrial Co., Ltd; Tama works of the Mitsui Shipbuilding Yard; Yokohama Dockyard Co., Ltd.; Uraga Dockyard Co., Ltd.; Kawasaki Dockyard Co., Ltd.; Harima Shipbuilding Yard. Ltd.
EFFECT ON SHIPBUILDING INDUSTRY OF JAPAN
Mr. SAUGSTAD. The prosperity of Japanese shipbuilding resulting from the scrap-and-build plan and from naval construction has been such that the Finance Ministry demanded that the unit cost of construction on naval vessels be reduced, and indicated that it might be advisable to impose extra taxes on shipbuilding as coming within the category of a war industry. The Ministry pointed out that owing to navy construction and the Government's encouragement of construction of commercial tonnage, the shipbuilding industry had been doing an excellent business. To this, the Japanese Shipbuilders Association replied in a memorandum to the Navy, in September, that since general commodity prices maintained high levels and since steel and iron prices were soaring, it was difficult for shipbuilders to reduce the per-ton cost of construction and that, if reduced cost of construction was to be effected, it should be carried out in individual items and not through fixed percentage reduction from total costs. It was stated that the industry had not been as prosperous as indicated and that the industry's books were open to naval authorities in verification of that assertion.
When the Mitsubishi Heavy Industries Co. offered 400,000 shares of stock for public sale on August 1, 1934, the block was oversubscribed 50 times. The selling price was 65 yen per share, representing 50 yen paid-up capital. The oversubscription was cited as an indication of the public confidence in the future of shipbuilding in Japan. The sale of shares in the Mitsubishi Heavy Industries Co. followed the formation of that company in April through amalgamation of the former Mitsubishi Shipbuilding Co. with the Mitsubishi Aircraft Co. The, Mitsubishi Shipbuilding Co. bad its principal shipyards at Nagasaki and Kobe, and was Japan's largest and oldest private shipyard. In celebration of the amalgamation of these companies and of the fiftieth anniversary of the shipbuilding company, 800 officers and 20,000 workers on June 20, 1934, received a bonus equal to 2 months' salary.
The eight principal shipyards declared dividends of more than 2 percent for the latter half of 1933 and more than 4 percent for the first half of 1934. The consolidated results are shown in an analytical table covering the situation, which I will submit for the record. The CHAIRMAN. Without objection, it may be incorporated. (The table referred to follows:)
Income and expenditure (1,000 yen) 8 principal shipyards in Japan
1931: Second half. 1932:
Second half. 1933:
29, 268 38, 569 37, 593
28, 612 37, 073 34, 823
656 1, 496 2, 770
480 529 295
Second half. 1934: First hall.
903 1, 441
4 2.6 4.2
Mr. SAUGSTAD. I might say, in substantiation of the claims of Japanese shipbuilders, that the price of materials had soared, that a statement made in the Analytical and Statistical Survey of Economic Conditions in Japan, by the Mitsubishi Economic Research Bureau, monthly circular for December 1934, showed pig iron, round bar steel, steel plates, and other types of metals, as having doubled in a period of 3 years. I would like to submit a statement for the record.
The CHAIRMAN. Any statement of that kind will be inserted, without objection.
(The statement referred to follows:)
Pig iron (Kamaishi no. 3) advanced from 36 yen per metric ton in 1931 to 50 yen in October 1934; round bar steel (12 mm) from 60.56 to 125.67 yen (131 yen in September); steel plate (4 by 8 feet by 48 inch) from 77.46 in 1931 to 168.33 in October 1934, following a high of 197.33 yen in September. Imported steel bar (base) advanced from 62.23 yen in 1931 to 121.68 yen in October 1934, and plate (4.5 mm) from 68.01 in 1931 to 145.90 in October 1934.
Mr. Saugstad. Japanese subsidies for steel production have a bearing on the cost of materials used in shipbuilding. According to imperial ordinance of April 9, 1926, revised June 1932 and January 1934, 15 to 18 percent of the value of ingots, pipes, and tubes is allowed as a subsidy to the manufacturer, with an allowance of 24 to 31 yen per metric ton on plates, bars, and rods.
That, Mr. Chairman, is a brief résumé of the scrap-and-build plan of Japan which comes to an end on the 31st of March, this year.
The CHAIRMAN. Are there any questions?
Mr. WELCH. May I ask what percentage of the materials used in the construction of ships in Japan are imported by that country?
Mr. Saugstad. I do not know that, sir; I have no knowledge of that.
Mr. Hamlin. May I ask if you are able and willing to give us, as between England and Japan, which of those two countries seems to be subsidizing its merchant marine more, say, in the last 2 years?
Mr. SAUGSTAD. Undeniably, if we include the new program in Great Britain which came into existence in 1934, Great Britain far outranks Japan. In the liner services—that is what, for a better classification, we call “contract" services—the British system costs about 750,000 pounds annually, while on the contract system of Japan the annual cost is about 10,000,000 yen--a little more than the British. But in the construction of ships, the total authorization for the 31 Japanese ships analyzed in this statement was only 11,000,000 yen as compared with the British law to create a public loan fund of 10,000,000 pounds for cargo ships, in addition to 9,500,000 pounds which the British Treasury is authorized to advance to the Cunard-White Star merger.
(There is a report on Japan which has been made available, and which is contained in the Annual Trade and Economic Report on Japan for 1934, submitted by the American Attaché to the Bureau of Foreign and Domestic Commerce.
This report contains a statement that contrary to the seemingly common view held abroad that shipbuilding in Japan is cheap, construction costs are rather high, estimated at 20 yen per gross ton higher than in the United States and England, due to the higher costs of imported materials. This is one reason, it is stated, why Japanese shipyards are forced to depend entirely on domestic demand, and so far they have been unable to compete in world markets for foreign orders. This verifies testimony previously given in connection with tenders to build two French tankers.
The report states that the construction costs per gross ton are increased about 50 yen per ton to 250 yen since the beginning of the ship construction law in 1932, which is increased by certain other charges as, for instance, 12.50 yen for ships for scrapping, a seaman's unemployment relief fund tax of 2.50 yen per ton, and commission to the Ship Improvement Society, which is the committee that handles the operation of the ship replacement fund under the Communications Ministry, 1 yen per ton. This has brought prices up to about 280 to 300 yen per ton. Two hundred and eighty yen would amount to $139 at par rate of exchange, whereas the rate that gorerned at the time of this testimony would make the price about $79. If the ships cost 300 yen per ton, the two figures would be $149 and $85.
During the past year the new ships commissioned and placed on the Japan-New York route succeeded in taking a very large percentage of United States transcontinental freight traffic in raw silk, as these up-to-date 18-knot vessels make the trip from Yokohama to New York in 27 days and charge less than ocean-rail rates; that is, the combination of trans-Pacific rates and transcontinental rail haul.
At the end of the year 1934 there were 42 Japanese ships in the Japan-New York run and 15 on irregular runs, bringing the total to 57 as compared with 15 American and British vessels.
During 1933 Japan ranked third in trade between the Philippines and the United States, but for the first 6 months of 1934 the order was changed, with Japan leading.
That is all I have to say, Mr. Chairman.
Mr. MANSFIELD. Did I understand you to say that the cost of construction was higher in Japan than in this country on account of the high cost of material?
Mr. Saugstad. That is the report we have, Mr. Mansfield. I have no technical knowledge of that, but I do know there has been a great deal of complaint in Japan at the high cost of ships, so much so that the Government some time ago asked the shipbuilders to consider reduction of prices on the Navy construction program.
Mr. MANSFIELD. It occurs to me that such a large proportion of the cost being for labor, the material would bave to be very much higher to change the status of the cost of construction.
Mr. Saugstad. In previous testimony on the Japanese shipbuilding program you will find a good deal of detail as to the cost of materials in Japan and what causes those costs, and further, considerable reference to the high royalties they have to pay on imported engines and machinery that they use in those ships.
Mr. MANSFIELD. That is all, Mr. Chairman, thank you.)'
The CHAIRMAN. Before you go further, Mr. Saugstad, I would like to ask what general observations you may have to make as a result of your study of the subsidies in other countries, and in our own country, and the benefits, if any, of the policies we have adopted.
Mr. SAUGSTAD. Before I answer that, Mr. Chairman, I have a few things I would like to state for the record which will review some omissions and will complete the testimony. May I go ahead on that first?
The CHAIRMAN. Yes; proceed.
Mr. SAUGSTAD. We have now covered five countries. There are two more countries in the larger category of nations having about 3,000,000 gross tons registry of shipping. Those countries are the Netherlands and Norway. I do not believe that the programs of those two countries have any particular bearing on the problems that we have under consideration at this time.
The CHAIRMAN. You will prepare a statement, however, on that?
Mr. SAUGSTAD. If you would like to have a statement, I might do this: I might submit a statement covering the ship mortgage bank system of the Netherlands, showing the total mortgages taken up and the total collections made thereon up to, I think, 1931, from the beginning of the history of those banks. It is a very interesting summary of the financing of ship tonnage in the Netherlands.
The CHAIRMAN. We will be glad to have it. (The statement referred to follows:)
NETHERLANDS SHIP MORTGAGE BANK SYSTEM
As a result of long experience in domestic and foreign shipping, the Netherlands' banking system offers adequate facilities for shipping finance, principally through the system of bottomry banks. These are peculiarly Netherland institutions, some of which have assumed the title of “ship mortgage bank.” The share capital of the Netherland ship mortgage banks is relatively small; they rely mainly on the sale to the public of their own mortgage bonds for the purpose of applying the proceeds on ship mortgages. At the end of 1931 there were eight such institutions which specialized in ship mortgages.
The possibility of obtaining mortgages on ships has existed since 1836 as the new commercial code which became effective on June 21 of that year provided for registration of inland and sea-going vessels at offices established for that purpose. This prevented vessels from being offered as security for several loans and became therefore in effect a central vessel credit registry office.
Little advantage was taken of the early possibility of credit facilities by banks and private individuals due to the inherent risks to investments in floating property. Thus, the Netherlands şhipbuilders were the only interests which took advantage of such credit facilities. When they sold a ship on credit or part credit, they took advantage of the available legal provisions and transformed the debt due them for the cost of construction into a long-term credit covered by a bond on the ship. The general situation was then usually of such a nature that shipowners who had a new ship built and were unable to pay cash for it, became the debtors of the shipbuilders.
This situation made the shipowners largely dependent upon the builders, and they were often obliged to accept ships which were most profitable to the latter without being the most economical for their main purposes. Moreover, they often had to pay too high a price for the ship, while the conditions under which money was loaned were very onerous for them, there being no competition among the lenders. The builders, on the other hand, in addition to their real calling, had to act as bankers, which was the cause of much of their capital being locked up in long-term credits.
This situation was changed with the institution of ship-mortgage banks. About 1897 a concern was established at the initiative of the head of an insurance firm which loaned money to shipowners on mortgage bonds. The object of this concern was originally to insure also the vessels of the shipowners to whom money had been loaned. Lending money was thus not the chief business. The concern, meeting with much success, was turned into a limited liability company in 1899 and thus came the Netherlands Ships Mortgage Bank into existence as the Nederlandsche Scheepshypotheekbank. A month later a similar institution, the Eerste Nederlandsche Scheepsverband Maatschappij, was founded at Dordrecht, near Rotterdam.
These banks, following the example of ordinary mortgage banks, obtained the money they loaned out on the mortgage by issuing debentures in the form of mortgage bonds to the public. As security, these mortgage-bond holders had a claim on the capital of the bank besides on the mortgage moneys loaned by the