Nanking Embassy Files, Lot FY9—800 China Aid: Telegram

The Consul at Shanghai (Pilcher) to the Secretary of State

Toeca94 31. For Hoffman95 and Moore96 from Lapham. Have been reviewing since my arrival here the major policy questions involved in the successful inauguration and implementation of CAP.97 It seems to me that in this connection a point of real substance is involved in the wording of article IV of the bilateral agreement as proposed by Washington contrary to the recommendations of the Embassy and CRM here. Your reference invited in this connection to Deptels 773 and 774 of May 24 and 815 of May 29. The latter in turn refers to Nanking tels to Washington 846 and 850 of May 11.98

The main issue involved, as developed in conversations here since my arrival, is conviction among those who have had continuity and, above all, recent experience in observing or cooperating with local economic operations in China that a more definite understanding must be officially reached with Chinese as to extent of supervision and control over US supplies which will be exercised by ECA field mission. Specifically, opinion expressed in Deptel 875 [815] May 29 that language originally recommended by Embassy for article IV as “unnecessary and undesirable” in bilateral agreement runs directly counter to what I know to be unanimously held opinions on distribution controls in the field. I feel that those out here have developed their thinking on basis of practical experience and that we should heed their advice, especially since Chinese by their actions appear to welcome a considerable degree of supervision and control by US representatives in the handling of American aid. Further, I am persuaded [Page 547] that responsibilities of ECA as an administering agency will not be sufficiently protected under the wording of article IV as presently submitted from Washington. If this wording is adhered to, a real outcry can be expected from the American community and other observers here that US Govt has again ignored the lessons of the past and has refused to insist upon teeth in a control arrangement where need for control is greater than ever before. The blame for this will primarily fall on ECA, who will be charged with an unbusinesslike approach when a businesslike approach was anticipated and expected.
Urge you give utmost consideration to views expressed above, communicating my concern to State Dept, and attempting to secure agreement of latter to strengthening draft of bilateral agreement along following lines: Article IV, para 2 should be changed to read “all expendable commodities (such as food, cotton, petroleum, fertilizer, tobacco), supplied by the US of America shall be distributed by the Chinese Govt or through private agencies and commercial business channels as agreed upon between the two Govts. Representatives of the United States of America may exercise direct supervision and control of such supplies made available by the US Govt under this agreement.” Similarly article IV, section 3 “the Govt of China, in consultation with representatives of the US of America, will take all appropriate steps designed to achieve fair and equitable distribution within the areas under its control of commodities provided by the Govt of the US of America pursuant to this agreement and of similar commodities imported into China and other kinds produced locally. A distribution and price control system shall be inaugurated or maintained in such urban centers of China as circumstances and supply availabilities permit with the intent of insuring that all classes of the population shall receive a fair share of the imported or indigenously produced essential civilian supplies. In permitting US expendable commodities made available under this agreement to be utilized in support of the Chinese efforts to improve consumption and price controls, it is understood that the US Govt takes no responsibility for the success of these urban programs.” Finally, add a section 4 to the article reading as follows: “The prices at which supplies furnished by the United States of America under this agreement will be sold in China shall be agreed upon between the Chinese Govt and the US Govt. The overriding price policy consideration shall be the establishment of realistic prices on commodities supplied under this agreement, as a means of combatting inflation and balancing the internal budget”.
The revised wording suggested above, it will be noted, follows as closely as possible the text of the relief agreement executed October [Page 548] 27, 1947. It is felt here that the presentation of such revisions at this time will be more acceptable in the last analysis to Chinese since the text of a previously approved agreement is being followed rather than an application of terms and conditions which might more exactly fit the present situation.
Merchant has seen this telegram and agrees in principle but reserves possible Embassy comment regarding practical and political wisdom revising draft this late date. [Lapham.]
  1. Symbol used to identify messages sent by ECA missions in the field to the ECA in Washington.
  2. Paul G. Hoffman, Administrator of the ECA.
  3. China Aid Program.
  4. Latter not printed.