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

Dr. Tan, Minister of the Chinese Embassy and in charge of war accounts settlement negotiations on the Chinese side, called at the office today to discuss progress and prospects of these negotiations. The appointment was a result of Dr. Tan’s suggestion at the end of our last meeting that we should discuss the negotiations, particularly the [Page 700] difficult items, i. e. maintenance—$130 million; inventories—$40 million; and West China sale—$20 million.

I emphasized to Dr. Tan that we were still expecting to secure a statement of uses of the $500 million loan, and inquired as to the prospects on the Chinese side for a conclusion of the negotiations.

Dr. Tan responded that there had yet been no adequate authority conveyed to the Chinese Ambassador to conclude a settlement. He added that the Ambassador was expecting to receive some more definite instruction in this regard, that the Ambassador wished to make a prompt settlement, and that he (Dr. Tan) would discuss the matter with the Ambassador again, emphasizing his own view that this should be most strongly recommended to the Chinese Government again. He stated he expected some instruction along this line next week and would call me as soon as word was received, but in any case would probably be discussing the matter further with the Ambassador and would call me early in the week.

In answer to Dr. Tan’s questions on the difficult items, I told him that I was prepared to recommend a settlement for the maintenance items on a nominal basis and indicated that something like $15 million would be a minimum figure. (This item does not need to be charged for under general lend-lease policy on maintenance charges, and, specifically as to China, as a result of the memorandum from Assistant Secretary Clayton to Under Secretary Acheson41 recommending that no charge be made, which was approved by Under Secretary Acheson.)

As to the inventory, I indicated that in the absence of adequate records on either side, while the charge was well within the range of charges of other countries in lend-lease settlement, i. e. 4%, there was some room for compromise here, and I indicated $25 million as a minimum figure.

As to the West China sale, I simply stated that while we would go further in discussing and exploring this matter in negotiations, our view was that this was a definite agreement which should be kept.

With regard to the surplus property negotiation now going on in Shanghai and Nanking, Dr. Tan indicated that the Chinese disposition on this was to await a settlement of it in the current negotiations and he seemed to think there might be some possibility of securing a cash dollar payment for the disparity. As to this, I conceded no disparity, and emphasized that I could not envisage any such possible cash dollar payment on any grounds whatsoever.

Dr. Tan again expressed his desire, and that of the Ambassador, to reach an early settlement of the war accounts.