Brigadier General Bernhard A. Johnson to General P. Kiang of the Chinese Executive Yuan

My Dear General Kiang: With reference to our conversation of 12 October, I wish to set forth my understanding of instruments preliminary to the signed Contract of August 30. These instruments are:

Exhibit 1— “The Nanking Agreements” dated 22 June 1946:28
Exhibit 2— “Memorandum to Dr. Soong on the Proposed Sale of Civilian End-use Surplus Property to China” dated 21 August 1946;29
Exhibit 3— Sheet showing commitments on August 20, 1946 by China, containing round figures;30
Exhibit 4— FLC Maritime Division’s sales of small ships up to August 30, 1946, to the Chinese Board of Supplies;
Exhibit 5— Recapitulation of the Chinese Government credit account on August 25, 1456.

It must be remembered that on Exhibits 3 and 5 the figures are not accurate; but for the purposes for which they were intended at that time, were accurate enough to arrive at figures for basic computations.

You will remember that during the days from June 15–21 that Dr. Soong and yourself, as well as Messrs. Howard, Vogelback and myself, were endeavoring to arrive at a meeting of minds upon which an overall sale to China could be consummated to the mutual benefit of both countries. The so-called “Nanking Agreements” was handed to yourself and Dr. Soong on 22 June by Mr. Vogelback as a prospectus only upon which we could later build an overall agreement upon approval by the United States Government in Washington.

Despite the wording of the memorandum Mr. Vogelback handed to you and Dr. Soong which were entitled “Nanking Agreements”, which [Page 1091]contain certain points which were not acceptable to the U. S. Government, I would like to emphasize that this was not an agreement but points tentatively agreed upon and were to be later used in formulating the ultimate agreement, and that the title “Nanking Agreements” is in reality a misnomer and should not be given any weight as being contractual in nature but as an agreement upon which later could be drawn the contract for execution by the representatives of both Governments being vested with authority to execute said contract.

I would like to take this opportunity to state that any other statements made in the so-called “Nanking Agreements” which were later not accepted by the U. S. Government and incorporated in the agreement executed 30 August 1946, are not binding in any respect and should not be considered in the construction of the contract finally consummated on 30 August 1946.

You will recall that Mr. McCabe and his party were originally due here in the last week in July or the first week in August. Around the middle of July, upon my hearing of the group’s coming out here to endeavor to close an overall surplus sale with China, I told you of their contemplated arrival and it was certainly understood by both of us that some of the points in the “Nanking Agreements” were not satisfactory to the United States. I call your attention to Paragraphs 2 and 3 of the Memorandum to Dr. Soong dated August 21, wherein it is recited that objections to the “Nanking Agreements” were raised in Washington—then in Paragraph 4 where it was determined in Washington that the mission should come to China to negotiate the sale of this property. The “Nanking Agreements” not being satisfactory to the Government of the United States, the Memorandum to Dr. Soong became the proposal and only a prospectus upon which we hoped an overall sale could be consummated.

I call your attention to Paragraph 12 of the Memorandum to Dr. Soong. You will notice that round figures are used throughout that paragraph, and the figures shown as “$150,000,000 ($53,000,000 in sales price) of property already sold” on August 21 was an estimation. On Exhibit 3 in the first paragraph you will notice that in the total of $158,000,000, Pasc30a fill-in of $13,000,000 and the Guam list of $11,000,000—total $24,000,000—is included. As you know, the Pasc fill-in was cancelled temporarily and the Guam list (the list which has been ordered by one of your men at 65% of cost on his recent trip to Guam) should come out of the $158,000,000 figure to get to a true American cost of what China had purchased up to August 20, 1946. That leaves the left-hand column in Exhibit 3 as $134,000,000, although it is referred to in Paragraph 12 of the Memorandum to Dr. Soong as [Page 1092]$150,000,000. In the sales price column in Exhibit 3, in order to arrive at a sales price total, the Pasc fill-in and the Guam totals should be deleted, leaving approximately $53,000,000 in sales price for this $134,000,000 U. S. cost.

On August 30, 1946, the United States had signed tickets from China or an agreement to sign the following:

Cost Price Sales Price
Calcutta Stockpile31 appro. $30,000,000 $24,800,000
Hogan Project32 $15,500,000 $5,700,000
Small Ship Program33 $70,700,000 $12,300,000
All Other $18,500,000 $11,300,000
$134,700,000 $54,100,000

You will notice that this U. S. cost runs reasonably close to the $134,000,000 in Exhibit 3 and also reasonably close to the sales price of $53,000,000 in Exhibit 3. These items are covered by Articles 6a (a), (b) and (e) and partially Article 6a (c) of the Overall Contract. Under Article 6a (c) of the Overall Contract, there remains to be delivered approximately $90,000,000 of small ships at a recovery of approximately $16,000,000 to the United States Government.

For a considerable number of weeks this office sold to the Chinese Board of Supplies surplus property according to our agreement of June 10 at 65% of depreciated cost, each individual contract carrying a proviso clause that when, as, and if an overall sale were completed or consummated contracts would be renegotiated at the precentage set by the overall contract. It is agreed that if the “Nanking Agreements” had been approved by the various interested U. S. Government Departments in Washington and an overall contract signed by the U. S. Government and China based on the “Nanking Agreements” and such approval, that the proviso sales would have been renegotiated to 22% of U. S. cost. However, the “Nanking Agreements” was not acceptable to the Department of the United States Government having capacity to contract, hence the overall percentage of 22% recited in that prospectus cannot become operable.

When the Overall Contract was consummated on August 30, no overall percentage was named, hence the proviso clause on 65% sales becomes inoperable. Actually, the money total of the SPBs involved with the proviso clause is small, because many of your purchases—like [Page 1093]the railroad equipment, engineer equipment, cement, rations, Oshkosh Victory, concrete barge, a total of some 7 or 8 million dollars—do not carry the proviso clause.

I remember very definitely during the discussions in August on Article 6 of the China Overall Contract that you were told that figures were approximate only, and one of the big reasons for Paragraphs (a), (b), (c), and (e) of Article 6a was to set out basically the amounts that China had already committed herself for against the Yuan debt. Actually, 65% of depreciated cost on the goods whose price you question, amounts to about 35% of U. S. cost. In each instance I feel certain that your located recovery on all those goods will very greatly exceed your cost.

The Overall Contract of August 30, to me, is very definite and it was certainly not anticipated nor considered by any of the negotiators that there would be any renegotiation on price of anything that China had committed herself for prior to August 30, 1946. The signing of the August 30th contract naturally supersedes and cancels all prior prospectuses or so-called agreements arrived at during the negotiation phase. Therefore, I inform you officially that no renegotiation of any SPBs sold at 65% is possible.

Please acknowledge receipt of this letter.

Sincerely yours,

B. A. Johnson

Field Commissioner
  1. Ante, p. 1041.
  2. Ante, p. 1049.
  3. Exhibits 3, 4, and 5 not printed.
  4. Presumably, “property already sold [to] China”.
  5. For correspondence on this subject,see pp. 1060 ff.
  6. The “Hogan Project” involved sale to China of U. S. Air Force property of a declared value of $15,436,564.97 which was in India at the end of the war. A verbal sales agreement was made by General Johnson and T. V. Soong on May 1; and a letter confirming the sale was sent by Johnson to the Director of BOSEY on May 13. Shipping tickets covering transfers of the property show a selling price of $5,726,965.60.
  7. For correspondence on this subject,see pp. 786 ff.