893.24/8–2746: Telegram

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

For Acheson from McCabe; info General Connolly.35 Communist public press protest against sale of surplus property as conducive to prolonging civil war and charging ammunition and weapons included in surplus sale with part of consideration China ceding civil air sovereignty to US. Communist member of Committee of Three, General Chou En-lai,36 lodged formal protest with General Marshall which is as follows:

“Learned from our last conversation and other sources that Minister Petersen and United States Foreign Liquidation Commission and Navy Department representatives are conferring in Shanghai with high Chinese Government official for final settlement United States surplus properties transactions which are estimated as worth ranging between 350 million and 500 million dollars gold. Taking further into consideration high discount rate involved, actual worth certainly runs up to many times more. Further learned that Chinese Government contemplating sharing Chinese aerial sovereignty with United States, in order to secure in return more favorable discount rate and United States shipping facilities for transferred properties.

[Page 1053]

“Seeing that Chinese Government made full exploitation war materials previously turned over by United States in pursuing present civil war which is raging with full vigor, surplus properties transactions at this moment are tantamount to adding fuel to flame and might [probably result in frustration any final attempt to bring present fighting]37 under control. Though it cannot yet be ascertained whether or not munitions are included in transaction such materials are none the less war supplies that would tremendously enhance government war potentialities.

“In view of foregoing, am instructed to lodge protest with United States Government over negotiation for surplus properties transactions at this moment and to voice strong opposition to any infringement upon Chinese air sovereignty; cannot emphasize too strongly that Chinese Communist Party would never reconcile itself to such outcome negotiation and accept it as such. Nevertheless, should agreement to this effect be concluded between United States and Chinese Government, serious consequences may almost be foreseen instantly, to which United States Government could hardly shirk its share responsibility. In as much as outcome negotiation will most seriously jeopardize your peace-making effort, request that you would use your strong influence to secure United States Government’s approval deferring negotiations for surplus properties transactions until such time as when peace and unified coalition government is definitely ensured to China. Chou En-lai.”

With General Marshall’s concurrence, Mr. Petersen and I issued joint statement denying charges. This statement which you can release for press in US is as follows:

“Shanghai—Howard C. [Petersen, the Assistant Secretary of War, and Thomas B.] McCabe, Special Assistant to the Secretary of State and Foreign Liquidation Commissioner, today made the following joint statement through the office of the American Consul General:

“We have noted the charges appearing in the press to the effect that we are engaged here in ‘secret’ negotiations with representatives of the Chinese Government for the sale to China of large amounts of surplus ammunition, weapons and other purely military items and that as part of the consideration for this sale China is to cede to the United States valuable civil air rights. These statements are without foundation in fact.

“Discussions are in progress looking toward the sale to China of surplus property now on the islands of the western Pacific having an estimated original cost of approximately 500 million dollars.

“No ammunition, no weapons, no airplanes of any type, nor other purely military items are among the surplus now being offered to China. All of this surplus is civilian-type or civilian end use items. We are of the opinion that its acquisition by China will be of vast benefit to the rehabilitation of China and to its peace time economy.

“Chinese civil air rights have not been discussed as part of the consideration nor will this form any part of the consideration of the sale [Page 1054] of the surplus. Discussions on a civil air agreement,38 are being carried on by Mr. Boiling E. Powell39 of the U. S. Department of State, who was a passenger on the airplane which brought us to China but who is not a member of our surplus property mission. These discussions are completely separate from and unconnected with the surplus property negotiations.

“Mr. Powell stated that he is holding discussions with the Chinese Government on the question of a mutual bilateral civil air agreement of the type that has been successfully negotiated by the United States with about 18 other countries of the world, including France, Canada, Norway, Sweden, Holland, Portugal, and the United Kingdom. He also said that if a civil air agreement is successfully concluded its provisions will be publicly announced in a press statement.”

Mr. Petersen and Mr. McCabe further said:

“If a sale of surplus property to China is successfully concluded, it will not be a secret agreement, and a detailed press statement will be issued or a press conference held.”

Mr. Petersen and I are to discuss entire transaction with General Marshall tomorrow, 28th of August. [McCabe.]

  1. Maj. Gen. Donald H. Connolly, Deputy Foreign Liquidation Commissioner.
  2. Head of the Chinese Communist Party delegation at Nanking.
  3. Correction based on record copy of protest in Marshall Mission files, Lot 54–D270.
  4. For correspondence on this subject, see pp. 1228 ff.
  5. Adviser, Office of Transport and Communications.