393.1115/8–1849: Telegram
The Consul at Shanghai (McConaughy) to the Secretary of State
[Received August 18—12:58 p. m.]
3322. Following Consulate General’s comments regarding American Chamber Commerce memorandum sent telegram 3241, August 15.
Substance Deptel 1583, August 11 conveyed orally to Chamber’s Board of Directors August 14, also Department’s representatives [representations] at Canton regarding safe conduct Gordon and exchange messages regarding chartered flights Shanghai–Hong Kong.
Consulate General pointed out unlikelihood obtaining blanket permit Americans desiring leave Shanghai whether negotiations undertaken by UN, International Red Cross, other agencies mentioned, refusal Communists accept consular representations. Understand IRO [Page 1303] has arranged clearance IRO refugees [garble] 50 which might prove helpful precedent in emergency.
Consulate General impressed by need for quid pro quos to give case American evacuees bargaining strength. Understand about 30,000 tons freight destined Shanghai stranded Hong Kong alone plus substantial quantities raw cotton, other commodities off-loaded Japanese ports in addition to cargoes in USA paid for but unshipped. Setting aside legal questions regarding title, ownership or use foreign exchange provided by Kmt Central Bank China, Communists and people Shanghai look upon merchandise as belonging here since paid for out of Shanghai exports remittances here and essential keep Shanghai industry functioning. They feel delivery to Kmt would in very real sense deprive people Central China fruits their labors for private benefit privileged few Kmt-ers who abandoned Shanghai connections. This view particularly pertinent regarding CTII28 cotton/yarn exports financed by Central Bank in order buy raw cotton abroad to keep Shanghai cotton mills functioning. Pressure on foreign banks Shanghai to cancel drafts representing CTII cotton/yarn exports in favor fiscal agents abroad of Communist Bank China to pay for raw cotton very strong. Shanghai branch Chinese Banking Corporation Manila removed as “appointed bank” due refusal pay CTII draft cited paragraph 2 daily economic telegram 3218, August 13.29
As bargaining device encourage free issuance exit permits and facilitate entry Gordon, other evacuation ships, Department may wish encourage APL San Francisco to arrange pick up stranded American goods already paid for but off-loaded Hong Kong, Japanese ports, also goods USA awaiting shipment Shanghai whether paid for before or since Shanghai take-over. In view Chamber assurances regarding delivery stranded cargoes by evacuation ships probable essential prerequisite Communist clearance American nationals in wholesale lots.
As further “bait” to facilitate evacuation, Consulate General feels feasibility “rice allocation scheme” described ConGentel 3321, August 18, should be explored with British who would be chief beneficiaries as Jardine’s alone remitted some 100,000 lbs. sterling to cover July overhead. American public utilities deficits now covered by loans credits from Bank China and People’s Bank as head office not willing remit funds Shanghai cover operating losses. American oil companies subsisting by controlled sales Shanghai stocks. Other American firms feel imports rice on own account too complicated for use as currency in meeting payrolls. However, attitude American business might change once merchants’ stocks depleted and American mission organizations [Page 1304] believed interested. ConGentel 3137, August 930 suggests A. C. Pattison Fed. Inc. USA might be interested handling rice purchases deliveries Shanghai for other American firms, organizations with payment abroad if rice obtainable through IEFC.
In addition to Gordon, Consulate General feels APL should now apply Communists for entry President Wilson on normal schedule due Shanghai October 4 with intimation consideration would be given entry two scheduled American ships monthly depending on Communist attitude toward foreign nationals in interim and that American Association seeking British cooperation for minimum two British coastal ships monthly Shanghai in addition to NWA chartered flights to Hong Kong for which Communist approval granted. (Please note Rum River still in Hong Kong awaiting favorable opportunity deliver fuel oil badly needed by Shanghai Power Company. [)]
Consulate General appreciates concept “breaking blockade” psychologically bad but feels above proposals should not be viewed in that light as effects of such measures on economy Shanghai would be marginal only, entirely insufficient to meet Shanghai needs. Consulate General believes, however, such measures essential if evacuation is to succeed and safety remaining American nationals is to be assured and that program must be sold to Communists [as] “resumption normal communications with outside world” and to American public and Kmt as “temporary easing blockade for safety, welfare entire foreign community Shanghai and for humanitarian reasons”. Unless substance above proposals acceptable to all concerned, note British Chamber recommendation for “immediate evacuation ship like Americans”, ConGentel 3215, August 13.30 This conection Keswick, Jardine’s Tai-pan, recently expressed fear if lines communication Shanghai-Hong Kong not partially reestablished by periodic calls American, British ships prior fall Canton, position Hong Kong might be seriously jeopardized by Communist action similar Hong Kong boycott 1925–1926.
Some experienced American observers Shanghai doubt whether even above relatively generous inducements would be sufficient alter basic Communist anti-American policy or even to assure exit permits for all key American personnel desiring to leave. Hopkins [of] Shanghai Power and others feel modus vivendi can only be obtained, if at all, by high level talks in Peiping.
Consulate General feels Chamber slightly overstressed immediate gravity labor situation and observes only slight deterioration either [Page 1305] in economic or political conditions might rapidly lead to problems fully justifying Chamber’s fears.
Please pass Ambassador and Cabot.
Sent Department 3322, repeated Nanking 1791.