Foreign Relations of the United States, Diplomatic Papers, 1945, The Far East, China, Volume VII

893.51/11–1345: Telegram

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

Shanghai, November 13, 1945—11 a.m.
[Received November 15—5:56 p.m.]

206. From Commercial Attaché.⁶⁸

1. Articles in local press state that an Export-Import Bank loan for China is being considered. Strong local rumors in Chinese official circles are to the effect that the deal has been closed, that the amount is U. S. dollars 600 million and that further credits may be expected later. Kindly inform Embassy and Consulate General whether this rumor is correct and state terms and conditions. In connection with this reported transaction, were there any undertakings on the part of the Chinese in the nature of quid pro quo?

2. If there were no such undertakings and if it is not too late to introduce stipulations, is it not high time that the Departments of State and Commerce inject themselves into such negotiations and transactions in a manner to assure more equitable U. S. trading rights in China and the removal of past and present abuses?

3. For example, would it not be proper at this time in connection with the advancement of a loan of such proportions to expect from the Chinese an undertaking to stop pirating our books and periodicals and to establish copyright, patent and trade mark laws which will respect American ownership rights? The facts with regard to the pirating of books and periodicals are well known in Washington. Not too well known is the fact that machine making plants in Shanghai in the years prior to December 7, 1941, were actually and increasingly engaged in copying many kinds of American industrial equipment including machine tools, not only for domestic use in China but for export to Australia, the Netherlands Indies, Malay States, and India. Some machine tools were even exported to the United States. At that time such activity was regarded in a favorable light as contributory to the war effort of certain of the countries and to preparedness programs of others. But, if these activities are to be resumed in the post-war period they are bound to produce constant friction. Lack of an understanding on these points will simply encourage in China repetition of Japan’s performance which was not to our liking.

4. It would also appear high time to expect from China an undertaking in principle, details to be worked out later, for a reciprocal trade agreement which would reduce inequalities which now exist in the U. S. trading position and to arrest a tendency toward further introduction by China of measures restrictive of our trade.

5. Right now undercurrents indicate that regulations are in the making which will involve all import exchange being turned over to the Ministry of Finance or to Chinese Government banks. This implies that a strict control over the release of import exchange is also planned. There is some talk and apprehension that an import prohibition list of “luxury” or “non-essential” items will be set up. The contention will doubtless be that China, in view of its monetary inflation, of the desire to stabilize exchange, and of the need to provide for meeting old and new foreign monetary obligations, cannot afford to import “non-essentials”. A prohibited list of imports or of items, upon which prohibitive import tariffs might be levied, may embrace such items as cosmetics, toiletries, passenger automobiles for private use, canned goods and other food “luxuries”, and foreign motion pictures, thus to avoid royalty remittances abroad of same, etc., etc. Such policies will tend to deter foreigners including Americans from living in China where living costs may thus be inordinately high because of excessive tariff rates on the articles used by them daily.

6. On the basis of pre-war performance the balance of payments in Sino-American relations should formally [normally?] be favorable to China to a degree sufficient to provide for a fairly good volume of exports from the U. S. to China and for a reasonably good flow of funds for China debt liquidation as well. When China can possess Manchuria and can benefit from its large exportable surpluses, its position in this respect should be even better. However, the amortization schedules for servicing very large American loans are quite likely to involve the setting aside annually of such large portions of China’s cash in cash payments as to necessitate the severe curtailment of imports.

Thus, unless China’s paying power can be augmented in some unforseeable way and particularly unless understanding and agreement are achieved in advance and the extent of loans regulated accordingly, the very act of extending large credits appears likely to react in such a manner that our exports to China (except for initial shipments of capital equipment under the credits) will not expand as anticipated, but will suffer contraction under increasing Chinese import trade restrictions.

7. As China’s best single customer, and as a principal creditor and a source of remittances and philanthropic funds, the U. S. should be in position to regulate this situation to its own satisfaction. It would thus be of interest to know whether these points are being given consideration in connection with the granting of Chinese requests for large advances for financing its plans for industrial expansion [and?] modernization.

Sent Department, repeated to Chungking.

Josselyn

68. Alonzo Bland Calder.