761.93/5–1449: Telegram

The Consul at Dairen (Paddock) to the Secretary of State

143. Local speculation that Soviets preparing withdraw to P[ort] A[rthur] Naval Base area, that Dairen port will be opened, and that Dairen will be incorporated into Manchuria administratively as well as politically reached point last week where merchants perturbed and gold price started to rise.

Such rumors recurrent since CCP emergence April 1 but had died down with government reorganization before May Day. Their strong revival now reputedly based on observations of overt actions of Soviets and CCP indicating arrangements under way for such a move. However, Consulate has not itself observed any such actions.

Any Soviet retreat, if only to position actually accorded them in 1945 Treaty, probably will be dressed up as voluntary renunciation of their “right”. Similar propaganda device in Kwantung when re-equipment of some factories (stripped by Soviets 1945) gave chance to pretend USSR had donated this equipment for sake Sino-Soviet friendship. Soviets also “donate” raw materials to Kwantung but export of goods to USSR not mentioned. Local Chinese Communist press supports these ruses.

If Soviet’s military forces do leave Dairen, Consulate assumes they leave behind effective organizations to guarantee continued economic control including bulk of large industries and port facilities.

Sent Nanking 101, repeated Department, Canton 48, Moscow 86, Shanghai 134, Peiping 14, Seoul 30.