861.01/745: Telegram

The Minister in China (Schurman) to the Secretary of State

[Paraphrase]

66. Karakhan seriously intended to go to Canton but the trip was suddenly canceled, probably because the Chinese Government used its influence against his going. The two parties have since been conducting negotiations with more hope. The Chinese wanted settlement of outstanding questions to precede recognition, while Karakhan demanded just the opposite. They are proceeding now on the basis of a new formula, which is that the establishment of principles for the settlement of their national differences shall come first, then China shall recognize the Soviet Union, and after that the difficulties between the two countries will be actually adjusted.

The problem of the Chinese Eastern Railway is the one fundamental obstacle. China wishes to gain ownership by purchase before the date fixed in the original agreement. The Chinese are prepared to accept in the meantime cooperative management on a 50ā€“50 plan. The Soviet Union is holding out for Russian rights in accordance with the provisions of the agreement.

Karakhan and the Japanese Minister here are also holding conversations.

Schurman