393.1115/7–3149: Telegram

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

2976. Following memorial from Shanghai Chamber Commerce for Department and limited distribution to heads important American companies operating China through Chase National City, Bank America quoted verbatim without comment by ConGen. Please pass in paraphrase to these banks:

“Recommendations incorporated this report based following obvious considerations: [Page 1279]

1.
Until there is fundamental change US-Chinese (either Nationalist or Communist) relationships, atmosphere not conducive development American business in China. Situation American business is not necessarily rendered more difficult due need dealing with particular political party, fundamental problem is dealing with basic Chinese character, traditionally anti-foreign.
2.
For foreseeable future, Nationalist Government finished and Communist control rapidly weakening in all quarters except for army with result China is faced with chaos, anarchy.
3.
Due dishonesty, ineptitude Nationalists, US economic, military aid misused extent only result has been creation well-armed PLA10 and widespread hatred for America throughout all China.
4.
Last vestige Nationalist resistance taken form blockade Chinese ports and aerial bombardment Chinese cities made possible by American warships, planes, fuel, bombs, ammunition. One result these terroristic tactics is American residents China subjected further hazards by mobs inflamed with anti-foreigner propaganda.
5.
American businessmen in positions authority have stayed on in China in attempts salvage their respective companies’ assets with approval Department as conveyed through National Foreign Trade Council last autumn.
6.
American business subjected continuous destructive pressures exerted by Nationalists, Communists alike since 1945, such sabotage being exemplified by following:
(a)
Discriminatory import regulations and unrealistic foreign exchange rates.
(b)
Encouragement workers to make unreasonable wage demands, which cannot be resisted as police protection withheld from American nationals.
(c)
Refusal permit closing down unprofitable foreign enterprises and insistence under duress of payment wages to workers who perform no productive function and who cannot be discharged for any cause.
(d)
Discriminatory punitive taxes against foreign companies.
(e)
Establishment unrealistic utility rates designed force such foreign companies into debt to government banks with objective ultimate acquisition.
(f)
Demands for funds held by foreign companies against contracts entered into with Chinese companies taken over by Communist authorities.
(g)
Compulsory surrender hard currency assets held by American companies.
(h)
Insistence on sale imported stocks in worthless Chinese money.

General opinion many American businessmen who fought losing battle in China throughout postwar era is that continued resistance will be costly, dangerous, and that time liquidate and leave China over due. Before this conclusion can be implemented, we must bring to realization government and our respective companies following: [Page 1280]

(1)
There will be substantial if not total loss all physical assets, including properties, stocks, and in addition contracts covered by letters credit, etc.
(2)
There may be appreciable loss deposits held by private firms for account Chinese firms taken over by Communists.
(3)
Excessive demands severance pay certain.
(4)
Indications there will be demands payment substantial sums which literally definable only as “ransom” extorted either by guarantees, special taxes or some other form levy before exit visas will be granted foreign staff members.
(5)
Resident managers American firms hesitate order liquidation their respective companies without head office instructions and assurances key foreign personnel holding valid British [or] European passport can simultaneously be evacuated.
(6)
Entire American community without protection, due process law and faced with dangerous possibility food riots, cause for which distorted in terms American inspired, supported blockade by Communist propaganda.

Trend recent events indicates consideration safety foreign staffs American companies China dictates complete evacuation such persons. We therefore respectfully request Department take following action.

(1)
Acquaint head in USA American companies operating in China through media banks named first paragraph with facts, opinions stated herein so that positive instructions for evacuation may be given local staffs selected by managements concerned subject approval US ConGen.
(2)
Transportation with assurances against attack secured either through negotiation with Nationalists or threat reprisals. Noted that entry American ships [and] airlines to Shanghai approved by Communists; no handicap to operation such services should be countenanced.
(3)
Sever relations with Nationalists or in any case withhold further support until American residents in China no longer targets for Communist reprisal against such procedures. Department must realize implications further donations military supplies to Nationalists such as US $10,000,000 arms program announced yesterday.11
(4)
Seek avenues diplomatic approach, viz. International Red Cross, to Communists in order obtain approval mass evacuation of foreign staffs American firms from Communist areas and safe conduct evacuees to ships and planes. Cannot be too strongly emphasized safety Americans who are hostages in this hostile atmosphere depends on unpublicized negotiation directed toward acquisition at minimum cost in “ransom money” (possibly as face-saving gesture grant-in-aid through International Red Cross could be arranged) or Communist commitment grant exit permits with provisions for military protection against Chinese mobs. Bombastic name calling, meaningless threats will only serve make our situation more hazardous and demand unless carefully negotiated would make our position untenable.
(5)
Make provisions for evacuation small number selected British, European employees American companies. Particularly important if complete evacuation key American personnel is to be assured.
(6)
Indicate [to] pro-Nationalist Congressmen danger to which they are subjecting fellow Americans literally interned in China by diatribes against Chinese Communists.
(7)
Order evacuation Americans in Nationalist-held areas to avoid repetition our predicament.

Memo respectfully directed State Department for joint action with limited number companies concerned so that cognizance may be directed [to] inevitability substantial losses material assets more particularly avoid additional losses re personnel.

We particularly ask in development program resolve this problem, Department consult men with postwar experience in China, including John Mokrejs, International General Electric, P. N. Markert, Andersen Meyer, Chas. Ferguson, American Foreign Power, Al Bourne, Stanvac, Russel Smith, Bank America, all now resident USA.

Although complete picture Communist policy procedures yet to be developed, this request appeal forwarded this time as we believe opportunities transmitting confidential information may shortly cease. Urgency, sincerity, seriousness our request can be judged by fact this report is consensus group responsible American business leaders who consider their present difficulties incomparably more hazardous and disturbing than were faced December 8, 1941.

Preparation and transmission this memo unanimously approved by directors Shanghai American Chamber who make no pretense speaking for American missionary [or] other groups who are in similar position and whose administrative heads in USA should also be consulted re this situation.”

Sent Department, repeated Nanking 1663.

McConaughy
  1. People’s Liberation Army (Chinese Communist).
  2. See memorandum of August 15 from the Chinese Ambassador, p. 529.