Mr. John B. Stetson, Jr., to Major General Donald H. Connolly

My Dear Gen. Connolly:—My last visit to China has left a gloomy impression on me.

The great speculative problem at present is whether or not the Chinese will complete the overall contract, and if they fail is it with design or because of natural ineptitude.

At first the bulk sale seemed to be received with enthusiasm. It looked as if the Chinese would acquire for little cash outlay consideration a very valuable block of goods which not only would help the country by supplying needed articles, but would also offer a chance by sales abroad to acquire foreign exchange. This latter idea was encouraged by the U. S. negotiators who pointed out that goods on Guam could be sold in U. S. and even some types of goods located elsewhere in the U. S. or in other hard money countries. Last January Bosey saw large and satisfactory prospects. Although Bosey had no funds of its own, by some quick sales it could finance itself providing money for renovation of certain heavy equipment at a period when such equipment had a worldwide demand at high prices. Several changes in the picture have occurred since January which completely changes it. The change of Government in China43 changed the function of Bosey and brought it from a semi-independent body to a body dominated by several ministries, creating a political atmosphere instead of the freedom of a dictatorship. Bosey was required to offer all goods received first to the government ministries before selling to private parties and it was required to turn over all proceeds of sales to the Minister of Finance44 and get its funds for operations from the Executive Yuan. The organization for taking over surplus lagged and is only now taking shape to adequately perform [Page 1255] its functions. But with the lag in setting up the machinery for handling, the sales picture changed. Heavy machinery was not in such demand as in January. Bosey’s very unbusiness like methods killed the enthusiasm of potential American buyers and the actual recovery of Bosey in terms of hard money is negligible. I know of one sale for dollars to Americans amounting to about $500,000 which looks firm but which is not quite consummated.

Today Bosey has to present its acquisition to its Board made up of representatives of five ministries, and each ministry has its priority. The question of inter-departmental needs and inter-departmental payments has slacked the pace of possible monetary recovery. At Djukon docks45 there has been lying a fine group of heavy machinery for at least three months. It was supposed that this group had been sold to an American concern who promised payment in dollars against shipping documents. Now I learn from Gen. P. Kiang that it has been earmarked with much more of the same type of machinery for the Ministry of War. Kiang dolefully remarked that not only was he losing the sale but was required to rehabilitate the machinery for the army at Bosey’s expense and he had no funds for the purpose. It is the story of Admiral Mar46 over again. Mar was required to repair vessels for the Chinese navy and there is no money forthcoming, which seriously cripples his operations. Unless one knows this part of the world it is difficult to understand the long delays which occur in China in settling these inter-departmental difficulties.

Hence the original enthusiasm for the Bulk sale is waning. One should recall that Mr. John Blandford, Financial Advisor to the Generalissimo was always of the opinion that the Bulk sale would be of little or no benefit to China. He held this opinion probably for realistic reasons. The Chinese are not clever in organization and he could foresee their inability to acquire, move, repair and turn into money such a mass of goods. Delays would cost money, their lack of adequate facilities and planning, and the general inertia would make the margin of tangible profits from the deal a very small one for a great amount of effort, or might actually result in a loss.

Bosey started out as a dictatorship under Gen. Kiang who has no knowledge of merchandising. Since his role has been diminished he has lost whatever enthusiasm he ever had. For the last month he has openly stated to me that China would make very little from the Bulk sale. Last week he asked me what my reaction would be if he requested [Page 1256] the cancellation of the Bulk sale contract. I treated his remark as a jest and made no comment but I fear that is his mood at present. This matter came up in connection with our cancellation of contract 1270.47 He claimed that if the U. S. could unilaterally cancel a contract after it was signed and money was paid, why could China not do the same thing.

In the meantime we move along in the old ruts toward the completion of the deliveries under the contract. We press Bosey to move more goods, we push Bosey to get on the Finschaffen deal, we urge movement of small ships from Manila and advise that Bosey is now owner and had better look after its property, but matters move at just the rate Bosey wants.

Commodore Erl Gould’s48 visit elicited many promises but nothing has changed. The change in policy by liberalizing the use of the shipping fund was hailed by Bosey but it will not cause freight to move any faster. The only gainers are American contracting firms who now see their refunds coming through. The activities of the contractors are still hampered and controlled by Bosey as before, and Bosey’s authorization to them to act must still be obtained and this authorization still takes as long as before.

All of the above, which could be much expanded with examples and cases, brings one back to the original question. Do the Chinese want this contract to proceed or not. Do they want to raise a big claim under the disparity clause and make the failure of the plan a political issue between the two governments. Are they doing their best and is the mess wholly due to incompetence. A good case could be made out for: either theory.

The failure of a satisfactory fulfillment of the contract is pregnant with repercussions at home and in China. The American Embassy is much worried. They see failure to realize any gold values from the deal.

Put this dim picture before the dimmer one of Chinese crises and there is little cheering to be found. Chiang Kai-shek’s government is losing favor and his armies are being beaten by the Communists. There is a proposal that Southern China secede. The CN dollar went down during my stay there from 36,000 to 50,000 to the U. S. dollar. It looks as if disorder of a widespread nature would soon occur.

Sincerely yours,

John B. Stetson, Jr.
  1. See pp. 47 ff., passim.
  2. O. K. Yui.
  3. In Shanghai.
  4. Rear Admiral Pellian T. Mar of the Chinese Navy; for correspondence regarding the rehabilitation of Chinese dockyards and shipyards, in which Admiral Mar played a key role, see Foreign Relations, 1946, vol. x, pp. 1069 ff.
  5. For a summary account, see telegram No. 1596, December 31, 8 p.m., to the Ambassador in China, p. 939.
  6. Of OFLC.