840.51 Frozen Credits/2820: Telegram

The Consul General at Shanghai ( Lockhart ) to the Secretary of State

987. 1. One effect of the freezing order5 has been to bring to Shanghai much sooner than was expected the export permit system which has been in use in North China for about 2 years. This system worked, in the end, as a serious retarding factor in trade between North China and non-Axis countries and the same will prove to be the case here. The imposition of similar restrictions in this area creates in effect, as it did in the north, a monopoly in favor of Japan on many items of trade. Fear is entertained that the restrictions may also be employed against American ships seeking stores and supplies while here. American shipping companies have expressed concern on this point as well as regards possible interference with the taking on of cargo already booked and already cleared through the customs. The list of items requiring export permits already includes practically all items of major importance except cotton yarn and cotton piece goods, raw silk embroideries, bristles, and sausage casings. The setting up of a committee to administer the permit system will be tedious and delays and irritations such as those experienced in North China are certain to occur.

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2. It is doubtful whether the economic position of Shanghai has ever before been so profoundly shaken as it was by the freezing order. Although the shock is gradually wearing off, there are many who look to the future with grave forebodings because they believe that rigid restrictions will further reduce the already greatly shrunken shipping facilities available [here?], [great]ly handicap export trade, prevent the importation of needed raw materials for [which?] manufacturers command [clamor?], thus contributing to unemployment, and divert a previously profitable trade between China and the United States from American into Japanese hands. The pessimism prevalent in business circles has, [however,?] become slightly relaxed by reports that the “freezing” rules will be administered more liberally than was believed at first would be the case. At least a [short time?] more will be required before the full effect on the port can be reasonably well estimated.

3. Notwithstanding repeated newspaper reports from Washington and London that one of the retaliatory measures which the Japanese intend to employ would be the taking over of the International Settlement, there have been no outward signs of any such present intention. The dissemination of such reports does great harm and creates needless anxiety among the Chinese.

Sent to the Department, repeated to Chungking, Peiping. Code text by air mail to Tokyo.

  1. Executive Order No. 8832 of July 26, 1941, Foreign Relations, Japan, 1931–1941, Vol. ii, p. 267.