893.50 Recovery/8–1348: Telegram

The Ambassador in China (Stuart) to the Secretary of State

1501. Investigation trade circles by Consulate General Shanghai indicates substantial stocks aviation gas held in Canton, Shanghai, Hong Kong and Tientsin by Shell, Caltex and Standard-Vacuum. CAF has not taken delivery by payment for parts of old contracts where stock is actually held in drums in China.

On other hand AAG confirms that Chinese at highest level have stated that there is a critical shortage aviation gas for CAF.

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Answer foregoing anomaly presumably attributable to increasingly critical dollar exchange position Chinese Govt. Re Dept’s 1113 of August 3. This would explain failure CAF payment against old commercial contracts and failure of China to import full second-quarter quota. It would likewise explain extreme pressure to rush through contract job No. 9070 for payment with “other aid” funds moment latter were available.

Delay in delivery on CAF job No. 9070 has resulted in CAF’s successful persuasion of Central Bank to grant necessary dollar exchange to pay for 5600 drums (53 American gallons each) which was outstanding on old order with Caltex. Delivery will be made this week but this amount will carry CAF for only 3 or 4 days at present rate operations.

As of July 29 following stocks aviation gas stated in barrels of 42 American gallons held by oil companies: Shell 24,068 Shanghai, 32,064 Hong Kong; Texas 5,316 Shanghai, 3,200 Hong Kong; Standard-Vacuum 27,946 Shanghai, 17,362 Hong Kong, 5,034 Tientsin. These stocks would be available for release subject to issuance import licenses but most [must?] also care for civilian and international airlines. Further stocks aviation gasoline reported due to arrive within 2 weeks but delivery to CAF would depend on funds made available from “other aid”.

Sent Dept 1501, repeated Shanghai 721.