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

893.85/12–2945: Telegram

The Acting Secretary of State to the Chargé in China (Robertson)

Washington, December 29, 1945—3 p.m.

2079. For General Marshall from Davis⁵ (Personal).

1. Information re cotton, small ships referred to in your Radio 260805Z, dated 26 December⁶ to AGWar,⁷ is subject.

2. Negotiations in general with Chinese representatives with respect to extension of any type of economic assistance to China have been terminated in Washington except as you may otherwise recommend. This termination was accomplished by letter from the President to governmental agencies named in State Department cable to AmEmbassy, Chungking, number 2022, dated 19 December.^7a This cable also contained text of White House directive.

3. a. Situation re negotiations for delivery to China of U. S. cotton. As stated Paragraph 4, State Department cable number 2057, dated 24 December to you from Acheson, a contract, covering extension of 30 million dollar credit repayable over 24 months at two and one-half percent interest for the purpose of purchasing cotton, has been agreed to by the Chinese. Negotiations on U. S. side are complete except for formal approval of the arrangement by Board of Directors, ExImBank. Pursuant to President’s letter terminating negotiations, further action by ExImBank with Chinese awaits your recommendation. Meanwhile, Board ExImBank will be asked to formally approve credit so that if you approve, arrangements can be consummated promptly with Chinese. Cotton is available if funds are approved.

b. In addition to above 30 million dollar credit, ExImBank now has outstanding unused line of credit to Chinese amounting to more than 12 million dollars. These credits while available may be used for purchase of cotton if Chinese so elect, and use of funds for this purpose is approved by ExImBank. These credits, however, expire 31 December 1945. This particular line of credit has been renewed annually in the past so long as any portion thereof remained unexpended. ExImBank would ordinarily renew this credit as matter of routine. In light of President’s directive on Chinese negotiations, renewal will be made only with your approval, which is recommended be given.

c. Prior to suspension of negotiations, Chinese were represented by Tsu-yee Pei, General Manager of the Bank of China, as representative, T. V. Soong. Chinese Embassy advises Pei returned China within last week.

4. Situation with respect transfer of ships.

a. Two groups of ships have been the subject of negotiations. One group consists of ten ships of approximately 2800 dead-weight tons each. The other group consists of 15 ships approximately 4,000 dead-weight tons each.

b. The 10 ships approximately 2800 tons dead-weight each were offered for competitive bidding by the Maritime Commission. The only bidder was China. The Chinese bid has been accepted and the ships awarded by the Maritime Commission to the Chinese Government at a price of approximately $400,000 apiece. These ships are presently located on the Pacific Coast of the United States.

c. Of the 15 ships of approximately 4,000 ton dead-weight each, 10 are owned by private owners in the United States, and 5 are owned by the United States Government.

d. Negotiations with respect to the 10 ships owned privately have been conducted by War Shipping Administration and the Maritime Commission with Chinese Supply Commission, of which S. C. Wang is Chairman. Terms of sale of these 10 ships have been agreed with following exceptions:

(1) Chinese arrangements to finance purchase have not been completed. Current Chinese financial situation is discussed in State Department cable 2057 to you from Acheson. Believed here that Chinese, if they so elect, can finance purchase out of existing assets. However, Chinese may desire to include cost of these ships in proposed ExImBank loan referred to Paragraph 45, State Department cable 2057. It is not necessary, however, that this loan of ExImBank be approved in order to enable Chinese to make purchase.

(2) Maritime Commission has not yet formally approved sale. In view President’s letter respect Chinese negotiations, Maritime Commission has delayed consideration originally scheduled for 29 December to 3 January 1946, to permit you to express your views. Recom mend you approve sale.

(3) Some of these ships are armed. War Shipping Administration is arranging with Army and Navy to accomplish delivery and disarmament if sale approved.

e. The 5 ships owned by United States Government can legally be transferred to China either through sale on competitive bids or by transfer under the Lend Lease Act. Lend Lease transfer may legally be accomplished either against immediate cash reimbursement or against deferred payments under Section 3c, Lend Lease Act.⁸ In any case Presidential approval will be required. Admiral Land requires Presidential approval if sale be made on competitive bids because of previous commitments he has made that shipping of this type will not be sold to foreign governments but will merely be chartered. Further objection to this procedure flows from fact that Chinese may not be successful in bidding. Lend Lease authorities desire Presidential approval before any transfer under any provision of Lend Lease Act because of President’s announced termination of Lend Lease assistance. State Department view is that if transfer is to be accomplished under Lend Lease, it should be against immediate cash reimbursement rather than under payment terms under Section 3c of the Act. This by reason that as matter of policy, similar extension of Lend Lease credit to other nations not now available. If you desire transfer these 5 ships to Chinese be accomplished, recommend you notify your approval Lend Lease transfer against cash reimbursement.

f. No formal negotiations for transfer 5 ships Government-owned to Chinese have taken place because of lack of decision as to ability to accomplish transfer or procedure therefor. Informal discussions have been held by War Shipping Administration with representative Chinese Supply Commission. No such discussions are currently in progress.

New Subject:

Refer your CLO 1285, dated 26 December to AGWar.⁹ Direct reply is being made by War Department. No outright transfer to Chinese of 6 Liberty ships is under discussion here; therefore, it has been assumed you refer to 6 Liberty ships involved in program discussed between General Wedemeyer and General MacArthur, implementation of which is subject your approval. However, authority has been issued to transfer these 6 ships from War Shipping Administration to General MacArthur. [Davis.]

Acheson

5. Col. James C. Davis, representative of General Marshall in Washington.
6. Not found in Department files.
7. Adjutant General, War Department.
8. Post, p. 1376.
8. Approved March 11, 1941; 55 Stat. 31, 32.
9. The last paragraph of this message stated: “I do not desire that transfer to the Chinese of 6 Liberty ships which was under discussion when I departed Washington be delayed by requesting my approval before final consummation. This transfer has my approval.”