893.50 Recovery/7–648: Telegram

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

1232. In compliance with Deptel 877, June 14, accompanied by Luboshez, and other OFLC personnel, we discussed at Foreign Office on June 29 improvement removal operations. After apparently satisfactory discussion that subject, Bosey representative, supported by Vice Minister Liu, raised question termination period within which surplus declarations could be made, maintaining June 30, 1948, definite deadline. Efforts Luboshez and OFLC personnel to maintain that June 30 was target only and not definite termination date were unsuccessful. We suggested that in view of unresolved difference in interpretation of agreement, Foreign Office might wish to place its interpretation on record in note to Embassy, adding that if Washington desired maintain position that June 30 was target date, it would have opportunity to do so with justification.

We have today received “very urgent” note from Foreign Office dated June 30, translation of which was delayed because July 4th intervened, in which Foreign Office refers to surplus property agreement and states:

“In article 3 of the agreement it provides ‘all of such property shall be removed within a period of 22 months from the date hereof, or a period of 6 months after China acquires right to possession of the property.’ According to an understanding reached by the two High Contracting Parties at the time of concluding the agreement, the Chinese Government assumes that the date June 30, 1948, i. e., the end of the period of 22 months after the signing of the agreement, shall be the final date for the United States authorities to declare and transfer the surplus property to China.

At the time when China and the US were holding discussions toward concluding the agreement, it was originally proposed by Mr. McCabe,16 the American representative, that within 18 months after the signing of the agreement, a total of 2 million shipping tons of surplus property be declared and transferred to China. As a result of a subsequent discussion, the two High Contracting Parties agreed to change this so that (the surplus property) be declared and the transfer be completed within a period of 22 months. Mr. Peterson, Assistant Secretary of the US Department of War, verbally promised that 8 percent of the surplus material of the US Army would be declared and transferred to China before the end of 1946. Subsequently, with a view to safeguarding China’s interests, the words ‘or (shall be removed within) a period of 6 months after China acquires right to the possession of the property’ were added to article 3 of the [Page 711] agreement. Therefore, the time limit of 22 months as provided in the agreement apparently means that all the surplus property should be made known and the transfer completed before the expiration of the 22-month period.

The movable property already declared surplus by the US and turned over to the possession of the Chinese Government now still falls far short of the total amount of US 500 million dollars originally provided for in the agreement. According to reports received from officers sent by the Chinese Government to the various islands in the Pacific, surplus property now held in stock by the US is limited, and the complete delivery of the prescribed amount before June 30, 1948, can hardly be expected. While arrangements will be made for action to be taken separately in connection with that portion of the surplus property which comprises fixed installations, it would appear that negotiations should be conducted between the Chinese and the US authorities at an early date, in accordance with the provisions of article 5 of the agreement, with a view to making appropriate adjustments with regard to, the discrepancy in that portion of the surplus property which comprises movable property.”

The note concludes with a request that a representative be designated to discuss the matter with Foreign Office.

We have been informed by Luboshez that differences in accounting procedures and other elements throw doubt on Chinese contention that there is real “underrun” of appreciable size. There is a possibility that by taking matter to highest Chinese source and using moral suasion on basis of broad principles, we may be able to persuade Chinese to withdraw request for detailed discussions involving attempt actually to balance books. Also it is possible Department may wish raise this general question in connection discussion in Washington [of] settlement lend-lease and other problems.

We shall take no action pending further instructions.

Repeated Shanghai for Luboshez as 581.

  1. Thomas B. McCabe, Foreign Liquidation Commissioner and Special Assistant to the Secretary of State, October 1945 to September 1946.