893.24/8–3146: Telegram

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

1615. Following statements were issued August 31 by Consulate Press Office on behalf of Foreign Liquidation Commissioner McCabe.

Dr. T. V. Soong, President of the Executive Yuan, and Mr. Thomas B. McCabe, United States Foreign Liquidation Commissioner and Special Assistant to the Secretary of State, announced today the signing of an over-all agreement49 for the bulk sale to China of certain US civilian type surplus property located in the Western Pacific and China in settlement of US-Chinese national currency indebtedness to China plus the equivalent of $55,000,000 dollars (US) for other considerations of value to the US in China.

“The surplus property, newly acquired under this agreement, originally cost the United States $500,000,000 (US) for the moveables in China, Okinawa, Guam, Saipan, Tinian, and other islands and $85,000,000 (US) for the fixed installations in China. In addition, as an offset of $74,000,000 (US) to the US indebtedness China is receiving approximately $130,000,000 (US) original cost of other surplus property, $90,000,000 (US) original cost of small ships, $20,000,000 (US) original cost of West China surplus property. In order to facilitate the prompt loading and shipment of the property and its reconditioning for sale, it was agreed that a fund of $30,000,000 (US) be created and set aside for the charter of US vessels, the payment of engineer services, and the initial purchase of spare parts as an additional offset against the US-Chinese national currency debt. This debt was incurred by the US Armed Forces in China in connection with the American war effort against Japan. In addition to the offsetting of this debt, the United States receives the equivalent of $35,000,000 (US) for the acquisition of Embassy and Consulate buildings [Page 1059] and sites, and for financing US Government expenditures in Chinese currency. China also agrees to establish a fund equivalent to $20,000,000 (US) for promoting research, cultural and educational exchange with the United States.

“The surplus property acquired is well suited to the needs of China’s economic rehabilitation program, and, therefore, will be of great benefit in combatting the forces of inflation through the realization of substantial revenues from the sale of urgently needed civilian items. It does not include aircraft, ammunition, weapons or [any?] non-demilitarized combat material. The United States, in turn, will be able to speed up the demobilization of its remaining troops and the clearance of surplus property from the Pacific. The absorption of this property by the Chinese economy also will create a steady market for American products. The Board of Supplies of the Executive Yuan will be responsible for receiving and handling this property and China expects to employ an established American engineering firm or firms to assist in the over-all operation. China will utilize to the greatest possible extent established commercial distribution channels for the resale of the property in China and will give US distributors, established in China, an equal opportunity to bid for the property. Normal distribution practices, including the marketing whenever practicable, of name-brand products through the established agencies for such products will be followed. China is given 22 months in which to remove the surplus. In addition to the financial assistance for facilitation [of] the prompt loading and shipment of the property, China will be accorded the full cooperation of US forces in the various bases in the accomplishment of this task. China intends to begin importing the surplus to China at any early date and is planning to move a considerable part before the end of 1946.”

Thomas B. McCabe, US Foreign Liquidation Commissioner and Special Assistant to the Secretary of State, made the following statement this afternoon upon the surplus property sale to China:

“The most significant features of the large bulk sale of the US surplus property in the Western Pacific to China are:

The incalculable benefits to China of the huge volume of civilian type items which can be immediately distributed among its 400,000,000 people to start the wheels of commerce turning among its multitude of small businesses where an acute shortage of materials exists. China needs thousands of miles of new roads and the road building equipment it will acquire in this surplus transaction will make work for great numbers of its people and the new roads will provide means of transportation which are so desperately needed. In a country which is undergoing acute inflation, the impact of 1½ million tons of additional items will have a profound effect. The US policy is to assist China in attaining peace and unity and its objectives can only be attained by assisting in the restoration of China’s economy. The surpluses which China has just purchased from US will go far in this direction, as they are promptly and efficiently distributed in all parts of the country.
The advantages to the United States of this sale to China are obvious, as it will relieve US in the near future of the large expenses [Page 1060] of care and custody of huge quantities of material scattered among numerous islands of the Pacific, where many thousands of our troops are employed in caring for the property and where the expenses of maintaining these troops are obviously high. Deterioration of the property is evident because of the tropical weather conditions, and unless it is disposed of promptly its value will progressively become less and less. The price which China is paying US for the surplus property is quite fair and reasonable and includes the unique features of settlement to date of many heretofore unsettled accounts, including a balancing of our debt to China under the so-called ‘Yuan Account’, as well as providing the equivalent of $55,000,000 (US) in Chinese currency for the acquisition of US Department of State property so acutely needed in China, providing certain funds for the payment of US expenses in China and a special fund for cultural, educational and scientific benefits to both countries. The total of all of the surplus property which China has purchased prior to this agreement, plus the new acquisitions amount to approximately $800,000,000 (US) at original cost, exclusive of the West China purchases last year. For this the United States will receive an estimated dollar equivalent of $175,000,000 (US), more than two thirds of which are cancellations of US dollar obligations to China. Therefore, the major proportion of this transaction has been made primarily for US dollars and not for credit.”

Repeated Nanking as 922.

  1. Signed at Shanghai, August 30, 1946, Department of State Publication No. 2655, Report to Congress on Foreign Surplus Disposal, October 1946, p. 40. Also signed in Shanghai on August 30 was a supplement to the bulk sale agreement “with approval of General Marshall”. Under its terms, China agreed to transfer to the United States specific real estate properties in Nanking and other Chinese cities “at prices to be determined by three recognized appraisers”; and to facilitate the transfer to the United States of other real estate properties “at mutually agreed prices”. These properties had been selected by the American Embassy and Consulates for official use. The text of the supplemental agreement is included in telegram No. 1420, September 4, from the Embassy in China, (124.931/9–446).