893.24/11–946: Telegram

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

2053. From Connolly,2 OFLC,3 for Davis,4 FLC. Reur A–858, Oct 17.5

Concern felt here re implementation Para B Article III Agreement Aug 306 which is considered of paramount importance. It is feared delays in consummation of adequate arrangements or failure to select a firm of high competence and equipped to move with all expedition may result in much disorder and confusion. In our view it is highly important that early decision be made and that choice fall to best equipped outfit. Our further opinion that job should be viewed whole and brought under direction of one, not several firms, or in any case that one firm be put in supreme charge as strongly urged by McCabe.7 We do not venture to suggest preference but suggest that you join with Monnett Davis8 in considering appropriateness of proffering a suggestion based on your knowledge of overall situation.
Wang, Chairman of Chinese Supply Commission here at Washington, has proposed that the $25,000,000 fund payable to China under Article III, paragraph C–1, be made available in part to discharge obligations to U. S. firms and citizens for supplies and services furnished by them for shipping under Chinese flags. Ostensible purpose of this is to augment available shipping to move property from islands to China, as well as to increase residue of fund which would finally be [Page 1243] payable to China in dollars. We are tentatively disposed to refuse this request on ground this would mean less provident use of resource and might easily dissipate substantial part of fund in less orderly loading and movements. Total amount was considered adequate only if U. S. flag vessels were employed and under efficient direction competent U. S. authorities. In short we feel that [this would] expedite rather than delay movement. Request your full views re this.
This office must determine at early date method and procedure for payments to China under said Art III, Para C–1. Your views requested best method safe-guarding this fund and providing necessary withdrawal restrictions. We are contemplating a proposal to deposit entire 30 million dollar fund in Federal Reserve Bank at New York City and making same subject to withdrawals only on certification of a competent board of three sitting at Shanghai representing Field Commissioner, OFLC, Consulate General and the Maritime Commission. It would be responsibility of this board to reach agreement with Chinese in advance of obligating fund as to character of expenditures to be honored under Article III, paragraph C–1 and 2, and to set up procedures at Shanghai for effective control and for validation of each specific withdrawal from the account. We will be glad for your full views re desirable protective procedure.

Sent to Shanghai at 2053; repeat to Manila as 641. [Connolly.]9

  1. Maj. Gen. Donald H. Connolly, Foreign Liquidation Commissioner.
  2. Office of the Foreign Liquidation Commissioner.
  3. Donald B. Davis, Field Commissioner, China and Eastern Area, OFLC.
  4. Not printed.
  5. Surplus Property Agreement signed at Shanghai, August 30, 1946; Department of State, Report to Congress on Foreign Surplus Disposal, October 1946, p. 40.
  6. Thomas B. McCabe, Foreign Liquidation Commissioner and Special Assistant to the Secretary of State, October 1945 to September 1946.
  7. Consul General at Shanghai.
  8. In telegram No. 2385, December 3, 5 p.m., the Consul General at Shanghai responded to the queries raised in paragraphs 2 and 3. He recommended that part of the shipping fund be made available for obligations other than charter of American flag vessels and approved the establishment of a Board of Three (893.24/12–346).