Memorandum by the Acting Assistant Chief of the Division of Economic-Property Policy (Shenefield)

In April 1947 the Chinese Ambassador32 in a note to the Department33 pursuant to instructions of the Minister for Foreign Affairs34 in Nanking indicated that he was agreeable to initiating at once negotiations for the final settlement of the war accounts outstanding between the two governments. The Ambassador stated that he had been directed to enter into these negotiations with the assistance of Dr. Shao-Hwa Tan, Minister of the Embassy, Mr. Hsi Te-Mou, Representative of the Ministry of Finance and Dr. Shou-chin Wang,35 Chairman of the Chinese Supply Commission. A note to the Ambassador from the Department of May 21, 194736 accepted the proposal and stated that the first meeting would be arranged informally with the Minister of the Chinese Embassy, Dr. Shao-Hwa Tan.

An early meeting was held in Ass’t. Secretary Thorp’s office with the Ambassador, Dr. Shao-Hwa Tan and Dr. Wang and several meetings of the American side steering committee and various working committees before General Wedemeyer was sent to China to survey conditions.37 Since the U. S. Executive Secretary of the negotiations and one or two other negotiators were included in the Wedemeyer mission the negotiations were inactive. With the return of General Wedemeyer and the need to deal with and formulate various proposals for a China Aid program as a part of ERP,38 negotiations were not resumed until June of this year. Meanwhile, considerable study had been given to the war accounts and a tentative [Page 698] proposal, drafted in February39 and revised in June, was prepared. This proposal, dealing with lend-lease only, but assuming settlement by cancellation of the $500,000,000 1942 loan, no liability to China under the bulk surplus sale of August 30, 1946, and mutual waiver of war claims, set a figure of $286,000,000 as the amount of Chinese liability on account of lend-lease aid. Admittedly there is considerable scope for bargaining in the figure and that has been the attitude of our negotiators.

At the meeting of June 9 Dr. Tan presented, and later supplemented, memoranda to the effect that lend-lease aid to China was altogether not more than approximately $200,000,000 due to diversions of material in India and to theater commanders in China, and also to the effect that local currency advances on account of the U. S. by China remained unsettled in the amount of $280,000,000. (The latest Treasury report on aid furnished to China shows $1,626,000,000 total aid and sec. 6 of the surplus property bulk sale of August 30, 1946, we think, settled all except minor amounts of local currency advances.)

In several informal conferences with Dr. Tan and Dr. Wang and three formal meetings since June 9, little progress towards a settlement has been made, if any. No response has been made to an informal overall approach to a simple one figure settlement and in detailed discussions of the more formal meetings the Chinese alternate between talking about a business approach, or, a political approach to a settlement, meanwhile, asking impossible documentation to a degree not furnished other countries with whom settlements have been concluded. More serious, even, they emphasize the need for us to explain things for the benefit of the Government in Nanking and emphasize that they have not yet received instructions from Nanking and that they wish merely to serve as a channel of information for Nanking and, in fact, give the impression generally that they wish to chiefly delay a settlement.

Meanwhile, the Office of the Foreign Liquidation Commissioner has been authorized to discuss with the Board of Supplies of the Executive Yuan in Nanking the improvement of the Chinese operations and the extension of the take-over of surpluses by the Chinese. Captain Luboshez, FLC commissioner in Nanking, reports that extreme division exists in the Chinese Government on these matters, deriving apparently from a diversity of motives ranging from desire to increase a claim for under-run40 to desire to maximize goods taken over and thus increase foreign exchange receipts from resale. Ambassador [Page 699] Stuart, it is represented by Captain Luboshez, is inclined to take the whole matter including the under-run claim to the Generalissimo and the Foreign Minister believing that a direct approach and a plan for good relations between our two countries would secure a satisfactory settlement of the surplus questions.

The main question that arises out of these negotiations is: Should not the Department ask the Ambassador, or request Ambassador Stuart to express to appropriate Chinese Government officials the Department’s request for giving its negotiators proper authority to make a prompt settlement.

If, because of division in their Government, or because it may seem more expeditious to our representative to do so, (and if they seem really ready to make a prompt and reasonable settlement), might it not be desirable to authorize transferring the negotiations to Nanking and joining more closely to the main negotiations those on surplus take-over and under-run.

  1. V. K. Wellington Koo.
  2. Dated April 29, 1947, Foreign Relations, 1947, vol. vii, p. 1109.
  3. Wang Shih-chieh.
  4. Dr. Wang became Counselor of the Chinese Embassy in Washington late in, 1947.
  5. Not printed.
  6. For correspondence on the survey, see Foreign Relations, 1947, vol. ii, pp. 635 ff.
  7. European Recovery Program.
  8. Memorandum of February 2, not printed.
  9. For correspondence on this and other aspects of surplus property problems, see pp. 704 ff.