Memorandum by the Deputy Director of the Office of Far Eastern Affairs (Allison) to the Acting Secretary of State

The attached draft OFLC79 telegram80 would approve a Chinese proposal that $2 million of the Chinese Government’s $30 million [Page 275]surplus property shipping fund to be used to remove former U. S. surplus property from Tsingtao and Shanghai to Formosa and Canton. This fund was established by the U. S. in the name of the Chinese Government as a consideration under the bulk sale Surplus Property Agreement with China of August 30, 1946,81 and was to cover the cost of shipping to China and of technical services arising out of the property transfer. The fund has been held in trust for the Chinese Government by the U. S. and its use is being supervised by the OFLC. Any balance remaining in the fund after completion of surplus removals from the Pacific islands is to be turned over to the Chinese Government.

Although the proposed use of the fund for property movement within Chinese territory would deviate from the agreed purposes of the fund, it appears to be the most expeditious way of preventing valuable stocks from falling into the hands of the Chinese Communists. The stocks to be removed consist of large tonnages of vehicles, communications, maritime, industrial, and construction equipment, medical, clothing, and subsistence supplies; all in good condition. OFLC is satisfied that the fund is sufficient to finance these removals, and that they will not interfere with completion of Chinese operations on Pacific islands.

Mr. Butterworth82 and I agree that, under the circumstances, we should not let legal technicalities prevent Chinese use of their own resources for an operation of strategic importance to both the Chinese and the U. S. Governments. We recommend your approval of the telegram.83

  1. Office of Foreign Liquidation Commissioner.
  2. Not printed.
  3. Department of State, Report to Congress on Foreign Surplus Disposal, October, 1946, pp. 40–45.
  4. W. Walton Butterworth, Director of the Office of Far Eastern Affairs.
  5. Marginal notation by the Acting Secretary of State: “OK. L[ovett]”.