Marshall Mission Files, Lot 54–D270: Telegram

General Marshall to Colonel Marshall S. Carter

712. Please deliver following to Mr. McCabe, head of Foreign Liquidation Commission.

“Dear McCabe: Yesterday I had a long conference with your Mr. Howard and General Johnson. Howard’s 10–page letter to me of [Page 1038] May 1418 was basis of discussion. Copy of this letter is en route to you by hand of Wendell Endicott who is due Washington in a few days. Crux of proposition of Howard is price of 30% of cost less scrap, vessels, aircraft and fixed installations provided China takes all such surplus in the Western Pacific except UNRRA and Philippine quotas.

One necessary condition precedent to agreement is availability of sufficient U. S. credit to enable China to complete overall purchase, and the other condition is necessity to secure memo of agreement of other governments where material is now stored and inadequate labor is available to permit Chinese to land labor to carry out task of guarding, sorting, packing and lading items. This would involve Australia for New Guinea, Bismarcks, Solomons, etc., French, possibly New Zealand and Great Britain.

Availability of credit will depend on total price. At present unexpended U. S. dollar equivalent of yuan debit owed China will now probably total 80,000,000. Credit already granted is 150,000,000 and extendable to 250,000,000, making total of 330,000,000.

At a sale price of 30% of cost, necessary credit would be from 370 to 500 millions.

A 25% of cost would require a credit of from 300 to 420 millions. (All figures approximate)

I understand that the average price of previous sales has been 37% of cost. Howard expresses willingness to go down to 30% of cost for China. This to me is too high for these reasons:

We have far more than merely a financial interest in the transaction. Our position if not our future security in Pacific is involved. The Chinese economic crisis and inflation present a threat to our desires and hopes. Such considerations were not involved to any material extent in case of other countries. Furthermore in most other cases I believe surplus property was on the ground of country making purchase. China will have to import practically all of her purchases over long ocean distances and at considerable expense from her limited cash resources.

I think 25% would be the maximum we should be logically justified in charging unless we plan to charge higher prices for war surpluses and then offset the procedure by loaning more money than we plan to do. Incidentally I do not understand that there is any competition for this overall purchase.

Howard feels that Foreign Liquidation Commission should be cleared to negotiate with definite assurances as to U.S. credits available which he hopes will permit cleanup of surplus property in Pacific.

We have the problem out here of deciding whether or not China can absorb purchase of entire lot, and how long a period will be involved in importation and distribution, and the effect on American business interests. Howard thinks last mentioned would profit if given opportunity with Chinese in marketing items. Also sale would promote demand for spare parts and replacements.”

Another subject for Carter: Please give copy of this to proper official in State Department and any one else you think advisable. Howard [Page 1039] plans to talk to McCabe by telephone from Manila tomorrow Sunday evening—your Saturday. So get this to McCabe as quickly as possible.

  1. The text of this letter is included in an unnumbered telegram of May 20 from Mr. Howard to Mr. McCabe, not printed.