The Consul General at Shanghai (Davis) to the Secretary of State
[Received October 9—8:40 a.m.]
A–722. With reference to ConGen’s telegram 1783 of September 23  to Department, repeated to Nanking as 1006, paragraph 3, there is quoted below a letter sent to the American Chamber of Commerce in Shanghai under date of September 25, which was discussed fully in advance with the local FLC office and also with General P. Kiang of the Board of Supplies:
“The Consulate General has made inquiry as to the implications of the recent restriction, imposed by the Executive Yuan, on the import of surpluses through channels other than the Board of Supplies. This action was taken by the Chinese Government at the request of the Board of Supplies, and it is felt that the interpretation of the restriction as recently confirmed to us by General P. Kiang, Director of the Board, would be of interest to the American business community.
“General Kiang has informed us that surplus items procured for importation into China from sources in the Western Pacific subsequent to the latter part of June are covered by the new regulation unless specific permission from the Board of Supplies for their importation is obtained. It is the intent of the Board to block imports of any surplus commodities which would be resold in China in competition with its own program. It is contemplated that surplus property bought through the Foreign Liquidation Commission after being waived by the Board of Supplies and being imported for direct use by the purchaser will be admitted, however.
“General Kiang suggests that in the circumstances, it would be advisable for American firms to inquire as to availabilities from the Board of Supplies before making future purchases of surplus property outside of China, even when direct use is intended. Such a procedure would avoid any possible difficulty when an import clearance is sought later. He points out also that surplus items offered locally, which have been imported free of duty by U. S. agencies, will be subject to the new import restriction since they must be cleared through Customs.
“The foregoing summary of the Board of Supplies’ position is furnished for your information. This action of the Chinese authorities has been brought to the attention of the Embassy and the Department of State, and instructions are awaited as to whether the regulation should be protested as contrary to the Surplus Property Disposal Act9 in that it tends to create a monopoly in the sale of U. S. surplus property by the Board of Supplies. It will be helpful, in this connection, if the Chamber of Commerce will inform the Consulate General of the extent to which American business firms in China may suffer financial losses from the import restrictions described above.”
From preliminary discussions with representatives of the Chamber of Commerce, it does not appear that American business firms will be very much affected by the ban. General Kiang now states that he does not intend to interfere with imports of surplus property purchases for direct use by private interests which had previously been waived by the Board of Supplies in accordance with the instruction10 which General Kiang states was issued by General Marshall on June 21. This presumably provided that FLC would not offer Western Pacific surpluses, pending completion of the negotiations with China, without giving the Chinese Govt, an opportunity to bid first. Since there are no American firms in Shanghai which are known to have bought surplus for resale, and since it was the generally established practice to secure in advance a waiver of any Chinese Govt, priority, it is believed that any imports of surplus already contracted for by American business concerns will be exempt.
ConGen would like to be informed as promptly as possible either through the Embassy or direct from the Dept. whether this ban should be protested by the U. S. Govt, as tending to create a monopoly in the sale of U. S. surplus property in China by the Board of Supplies. Such practices are presumably contrary to the principles of the Surplus Property Disposal Act, and to the conditions of sale set forth in the preamble of the agreement between the U. S. and the Chinese Govts, on bulk sale of surplus property in China. The Dept. and the Embassy, in reaching a decision in this matter should bear in mind not only the stated policy of the Board of Supplies to remove competition by such actions as described above, but also the present price policies of BOSEY.
General Kiang has previously confirmed his intent to secure the highest possible prices in the open market for BOSEY’s sales as an anti-inflationary measure, and we were recently advised by Mr. John Blandford11 that General Kiang hoped to contribute more than CN12 $100,000,000,000 to the Govt, budget between now and the end of the year from his sales program. A representative of the ConGen was informed by General Kiang recently that he was attempting to get US$1,600 for jeeps which cost him US$300 with an additional $300 for repairs, and that he was allowing not more than a 7 percent commission to dealers. On the new 5–ton Dodge trucks which BOSEY took over from Lend-Lease, the sales price is established at CN$14,000,000 (approximately US$4,200) with a maximum commission of 7 percent to dealers. The question arises as to whether reputable distributors will be interested in handling [Page 1084]BOSEY’s supplies at such comparatively low service charges, and above all in carrying the spare parts and other supplies necessary for the continued repair and maintenance of these vehicles. There is also the possible problem of criticism being directed against the U. S. Govt, for permitting the Chinese Govt, to obtain such exorbitant profits on surplus property originating in the United States. It is, of course, not yet possible to gage the extent to which BOSEY sales may stifle normal distribution of commercial imports. It would appear that the policies being followed by BOSEY will not permit the implementation of the Surplus Property Contract which provides “That China shall utilize to the greatest extent possible established commercial distribution channels for the resale of property sold hereby.”
It is requested that this airgram and preceding references be made available to the Dept. of Commerce on behalf of the Commercial Attaché.13