893.51/2–2246: Telegram
The Counselor of Embassy in China (Smyth) to the Secretary of State
[Received 11:15 a.m.]
348. From General Marshall to Colonel Davis. Clear that T. V. Soong was misinformed by his representative in Washington as to conclusion of agreement.
Soong, while indicating he is strongly in favor of private enterprise, defends Government taking over of enemy mills on grounds that (a) they cannot be economically disposed of in present disturbed conditions, (b) when there is so much speculation in cotton, it is better to use production of Government-owned mills to help meet budgetary deficit, and (c) Government is going to dispose of these mills within a maximum period of 3 years, Government liquidation to start much earlier if conditions permit.
Finally, he says he is already being unjustly criticized for creating Government monopolies, and public announcement in the United States and China on lines required by Eximbank (see Urtel 297, of Feb 15) would add fuel to such criticism. I suspect this point disturbs him most. In order to avoid such criticism, he is willing to accept a compromise by which in an exchange of letters (to be telegraphed with the written documents following) between Eximbank and China, China would indicate that “with reference to the cotton credit, it is the Chinese Government’s policy to make the cotton available to private mills of sound standing and engaged in legitimate business on the same terms as it will by Government-owned or operated mills”. He also expressed feeling that US is being too “paternalistic” about China.
Soong in addition added that 70,000 bales of cotton exported by Anderson, Clayton either en route to China or already in godowns in Shanghai be purchased by China with part of Eximbank’s credit.
[Page 949]Please inform Eximbank I endorse its position that its credit should not be used to foster monopolization by Chinese Government in general manufacturing industry. At same time without sufficient background to pass judgment on Soong’s request re 70,000 bales, the compromise proposal would be a convenient way out of the present impasse. Please sound out Eximbank of its response on this compromise proposal. [Marshall.]