Marshall Mission Files, Lot 54–D270: Telegram

The Treasury Representative in China (Adler) to the Secretary of the Treasury (Snyder)

3130. 1. McCabe Mission spent 3 days in Manila conferring with US armed forces and FLC on Pacific surplus property availabilities and with Roxas40 and McNutt on Philippine surplus property. Result of these conferences mission decided to withdraw surplus property in Philippines from offer to China because:

It was felt China could handle smaller amount of surplus property more effectively.
Roxas willing to negotiate purchase of this excess. McNutt indicated support of this position.

2. Accordingly McCabe prepared a proposal to T. V. Soong by which Western Pacific surplus property, excluding Philippines, estimated at $500,000,000.00 original value, together with approximately $134,000,000.00 of surplus property already sold to China (sales price [original cost?] $524,000,000.00), $90,000,000.00 (sales price $16,000,000.00) in balance of small ship program for China, and $85,000,000.00 of fixed installation (sales price $6,000,000.00) would be sold to China in consideration of cancellation of the yuan debt, plus aggregate amount equivalent to $25,000,000 to cover acquisition of real estate and a fund to establish for promoting cultural relations in accordance with Fulbright Act.41 In addition, China’s debt of $5,000,000.00 due as 20% cash down payment on her purchase of West China Surplus [Page 1056] property last December42 would be cancelled. Proposal includes condition.

McCabe decided to hold in reserve offer to China of US $25–30,000,000.00 against Yuan debt to finance shipping costs and contractors’ fees in return for which China would make available and equivalent for financing US government expenditures in China and for promoting cultural relations.

3. Mission arrived in Shanghai August 15. General Marshall returned to Nanking from Killing August 20th and Mission saw him and Ambassador Stuart August 21st. They fully approved McCabe mission proposal. Mission saw Dr. Soong August 23. He appointed General Kiang of Board of Supplies and Blandford43 to conduct negotiations for Chinese. Negotiations began August 23rd with Kiang and Blandford reporting current progress directly to Dr. Soong.

4. Chinese raised several objections to proposal, most important of which were:

Withdrawal of Philippine surplus from offer. This objection was overcome.
Absence of guarantees as to quality and quantity of surplus property. Objection on quality overcome, objection on quantity met by clause in contract providing for consultation to fix an appropriate adjustment in price paid, if there were material disparity between property turned over to China and the consideration given therefor by China.
Whereas tentative understanding reached in Nanking on June 21st provided for substantial credit to China for shipping costs, engineering contractors’ fees, and costs of materials and spare parts, etc., new proposal contained no such provision. McCabe at this stage made offer of $25,000,000.00 for shipping costs, raised in course of discussions to $30,000,000.00, $5,000,000.00 of which to be available for engineering contractors’ fees and for initial purchase of spare parts, Chinese in return to increase sum of $25,000,000.00 equivalent or purchase of real estate, etc., to $55,000,000.00 equivalent. Soong and Chinese negotiators insisted they still needed credit of $35,000,000.00 for acquisition of spare parts for rehabilitation of surplus property and proposed that commitment for Eximbank44 loan for this amount be made condition precedent to agreement. McCabe emphasized and reiterated that he was in no position to commit Eximbank and would be acting ultra vires if he did.

Question of the Eximbank loan because [became?] major obstacle in negotiations. Conference was held with Soong on August 26th. After a review of all difficulties in which it was emphatically reiterated that [McCabe Mission?] had no power or authority to commit [Page 1057] itself on Eximbank loan, Soong indicated he would be satisfied if General Marshall would recommend Eximbank loan for acquisition of spare parts. McCabe made no commitment on matter.

5. He and Petersen saw General Marshall on August 28th and General Marshall wrote to Soong agreeing to recommend an Eximbank loan of up to $25,000,000.00 for Chinese purchases of spare parts “with understanding that China will present a documented case to the Bank showing: (a) The quantity of new spare parts required; (b) The plan of sale and distribution in China of spare parts and evidence that the distributing agencies normally concerned with these spare parts are generally agreeable to the plan”. This letter overcame major Chinese objection and negotiations now proceeding rapidly.

6. McCabe has read and approved this cable. Possible that agreement could be signed tomorrow night and McCabe is anxious to avoid delay in signing lest Chinese raise further difficulties on small points. He would therefore appreciate flash reply from you in case you disapprove. He also asks that copy of this cable be given to General Connolly of FLC.

  1. Manuel A. Roxas, President of the Republic of the Philippines.
  2. Approved August 1, 1946; 60 Stat. 754.
  3. See Embassy telegram No. 2116, December 7, 1945, Foreign Relations, 1945, vol. vii, p. 1191.
  4. John B. Blandford, Financial Adviser to the Chinese Government.
  5. Export-Import Bank of Washington.