893.24 FLC/9–2647

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

No. 1715

Sir: I have the honor to refer to the over-all agreement of August 30, 1946, covering the sale of certain surplus war property, and to [Page 1259] transmit for the information of the Department and the Embassy, a memorandum prepared in the Commercial Section of the Consulate General, with attachments,54 which describes the current status of the surplus property program insofar as sales to foreign buyers for foreign currencies are concerned. Not unless this memorandum were coupled; with a formal request from the Chinese for foreign exchange assistance from the United States Government could there be a much more impressive illustration of the financial paradox that exists in Chinas today—on the one hand, an all-out governmental effort to conserve foreign exchange at the expense of essential imports vital to sustained or increased production, and on the other, failure to exploit even halfheartedly a pool of assets readily convertible into foreign exchange with very little material loss to China.

This failure of the Chinese to capitalize upon what was originally an important potential source of foreign exchange income to them, before deterioration and competing post-war production in the United States could dissipate these values to a large extent, is most logically attributed to the administration of the surplus property program in China through the Board of Supplies, and the policies and procedures developed by its Director, General P. Kiang. It is fair to state, however, that not a little of the responsibility for the present impasse can be attributed to higher officials of the Chinese Government, who have failed to clarify satisfactorily either the basic policies or objectives of the surplus property program since the retirement of Premier T. V. Soong last winter.

Dr. Soong’s demise was followed by a period of almost three months, duration of uncertainty for the Board of Supplies, during which time General Kiang tried repeatedly to either resign or establish a firm definition of his status. Finally a plan was evolved whereby other government agencies became priority claimants on surplus property instead of being made responsible for justifying their requirements through normal channels. This development was tantamount to withdrawal of the operating autonomy which General Kiang had insisted upon previously, and had obtained. He has carried on under the new system reluctantly and only because the Government could not, or would not, replace him.

The above-described tendency towards frustration which has become increasingly apparent within the Board of Supplies, and which has certainly tended to modify the zest with which the organization approached its problems, has been accompanied by other developments which contribute towards impairing operating efficiency. General Kiang’s failure to delegate authority and responsibility, and his reluctance, bordering on refusal, to accept advice or assistance from foreign technicians and specialists have combined to stunt his organization’s [Page 1260] growth personnel-wise. Nor is the General any exception to the almost universal rule among Chinese Government officials that it is no longer wise to make bold decisions in view of the political persecution that may result. Rather, his tendency is to refer all substantive matters to the highest levels where political necessity demands inviolability.

There is a growing similarity between the surplus property disposal program as a whole and the UNRRA55 program in its near-precipice stages of a year or eighteen months ago. The main effort on the part of the U. S. agencies actively concerned with operations, and on the part of the Board of Supplies, as the accompanying memorandum points out, is to move the property to China without adequate regard to the problems which are second in importance only from the standpoint of time—namely, inventorying, reconditioning, and disposal to qualified distributors or end users. There is now no doubt but that a reasonably satisfactory solution of these difficulties for either Government can only occur after a wholesale shake-up in the Board of Supplies administration, and in its relations with other agencies and departments of the Chinese Government.

Independently of, or as a step towards this objective, remonstrances can be made with the Chinese to develop more realistic sales policies in surplus property disposal, at least to apply to foreign buyers. This can be readily justified by reference to the stringency of the present foreign exchange position. It hardly seems advisable, however, for the United States Government to press at this late stage for attempts to rebuild only part of a foundation on which a dangerously rickety edifice now stands.

Respectfully yours,

Monnett B. Davis
  1. None printed.
  2. United Nations Relief and Rehabilitation Administration.