The Counselor of Embassy in China ( Smyth ) to the Secretary of State

619. Settlements and Diplomatic Quarter. Dr. Wang Hua-cheng, Director Treaty Dept FonOff, discussed question assets and liabilities with me yesterday (see Embassy’s 590, Mar 29, repeated Shanghai 226). He said that, while desiring to retain, as matter of “face”, organic regulations already promulgated, FonOff wishes to facilitate settlement of assets and liabilities and is accordingly making certain suggestions (confidential) for approval of Executive Yuan in summary as follows:

Further veto formal transfer of administration and control of settlements and concessions shall be dropped. (Dr. Wang commented that we had not raised this question, but British had, although they were now more or less dropping matter.)
Provisions for organization of liquidation commissions as promulgated shall remain unchanged.
Each liquidation commission to be instructed to invite foreign advisers to sit on commission and to assist commission in determining official assets and official obligations and liabilities of area concerned. (Sent Dept 619, April 3, 6 p.m.; repeated Shanghai 244.)
Foreign advisers shall be designated by Embassy or Embassies concerned. In case of International Settlements at Shanghai and Amoy, foreign advisers shall be limited to nationals of those countries represented on official council of area prior to enemy taking over.
In event of disagreement between commission on one hand and advisers on other as to any item, matter shall be referred to a higher level for final settlement.
Upon final determination of official assets and official obligations and liabilities to satisfaction of all concerned, possession [results?] shall be confirmed by, and details of transfer of such assets, obligations and liabilities shall be specified in, an exchange of notes between Ministry Foreign Affairs and Embassy or Embassies concerned.

Dr. Wang said he would inform us when action on suggestions is taken by Executive Yuan.

These suggestions represent a marked change for better in attitude of Chinese authorities and in our opinion would provide means for [Page 1360] reaching a mutually satisfactory and just settlement of assets and liabilities. We recommend that we be authorized to agree to proposed procedure whereupon we will press for early setting up of liquidation commissions.

British Embassy, which has been similarly informed by Foreign Office, feels that suggestions represent the most that can be expected from Chinese and is recommending to London agreement to contemplated procedure.

Under suggestion 4, we would have an American adviser on Shanghai International Settlement Liquidation Commission. We are unable to ascertain from records available here whether there was an American representative on Amoy Municipal Council and would appreciate being informed from Dept’s records.