Foreign Relations of the United States, 1949, The Far East: China, Volume IX

811.503193/8–2449

Memorandum of Conversation, by Mr. John F. Shaw of the Division of Commercial Policy

[Washington,] August 24, 1949.

Participants:*	Ambassador Stuart
	Consul General Cabot
	Mr. Fosdick	}	Consultants to Ambassador Jessup on FE policy
	Dr. Case
	CA—Mr. Sprouse; Mr. Perkins; Mr. Magill
	CP—Mr. Shaw
	Business Representatives†

Mr. Sprouse stated that the meeting had been called to permit businessmen having interests in China to talk with Ambassador Stuart and Consul General Cabot concerning recent developments in China and to express such views as they might wish to Mr. Fosdick and Dr. Case, who are assisting Ambassador Jessup in reviewing the policy of this Government with respect to China and the Far East.

Ambassador Stuart reviewed the political and economic situation in China, pointing out that, while in the short run the interest of American business in China and the interest of their Government may not always be identical, in the long run the interests of both are the same. He stated that he felt that Communist control of China would continue for some time and that the Communist regimes would steadily increase their regulation of the economy and extend their monopolistic control over industry and commerce. On the other hand, the Communist program in China would very definitely be experimental and the Communists could be expected to make concessions where necessary; however, in the long run they could not be expected to deviate from the theory of Communism until that theory had been proved fallacious and impracticable. He noted that the policy followed by the Communists has released against foreign interests in China forces which are, and will continue to be, difficult to restrain. The Communist Party in China is committed to giving power to the proletariat and concessions to foreign business interests are obviously not consistent with this objective. With respect to representing the interests of this Government and its nationals he stated that the United States authorities in China have found it exceptionally difficult and often impossible to communicate with responsible Chinese Communist authorities. Each commanding military officer in an area appears to be exerting considerable autonomy with little attention being given to orders from central authorities. Under this situation the immediate outlook for the American business community is bleak, although China’s requirements for oil may mean that the oil companies will fare better than other American interests.

Mr. Cabot continued this background presentation by explaining that the immediate prospects for American business interests in China were bad and would continue to be so as long as the Nationalist “blockade” is effective. The closure of ports not only makes it impossible for American firms to operate profitably in China but also creates great hardship on the population and on foreigners, who having in the past lived better than the average Chinese, are readily singled out for attack. While this is in part a natural reaction on the part of a large group of Chinese people, it is also consistent with Communist philosophy; the propaganda attacks to which foreigners have been subjected are inflammatory and are most regrettable. The attitude of responsible party members, however, is believed to be one of wanting to use for their own purposes the business know-how of the foreign community. It is not believed that the Communists have deliberately fomented all of the current outrages against foreigners. Mr. Cabot stated that he believed the Communists would extend to certain private foreign interests a definite role for a period of years in China’s foreign economic development. The Department was not, however, in a position to judge whether American business enterprises would find the profits realizable during this intermediate period sufficient to warrant continuing their enterprises. He felt that a decision should be considered in the light of the avowed long range objective of the Communists to eliminate all private trade.

Mr. Sprouse read a confidential telegram³⁶ containing information from a Communist labor specialist with respect to new labor laws which have been issued by the East China authorities and which might tend to improve relations between management and labor. A number of the businessmen present expressed interest in receiving a copy of these laws.

As to evacuation plans, Mr. Perkins pointed out that there has been considerable demand on the part of American citizens in Shanghai to depart. The American President Lines is willing to send the SS General Gordon to pick up these individuals. Some 1,300 people have applied for passage on this vessel, of which 350 are understood to be Americans. Both the Nationalist Government and the Communist authorities have tentatively indicated their willingness for the ship to call at Shanghai. The Nationalists have also tentatively agreed to the shipment on this vessel of rice for use by foreigners in meeting payrolls but have stated that rice must not be shipped in commercial quantities. Mr. Perkins emphasized that this vessel, which may sail from San Francisco August 30, is not sponsored by the United States Government. According to information available to the Department, the Communist authorities in Shanghai have only recently begun accepting applications for exit permits; it is believed that a great mechanical problem will confront the Communist authorities in the processing of the applications thus far received even if the decision were to be made to permit the exodus of a large number of foreigners.

During the discussion of plans for evacuation, one of the businessmen said that he had learned the day before through conversation with his firm’s representative in Shanghai that applications were received from 3,500 people who desire to leave Shanghai and that requests are being received at the rate of about 100 a day; so far the Communists have approved only 45. On being questioned as to why Northwest Airlines and Alaska Airlines have been refused permission to fly to Shanghai, Departmental officers pointed out that the use of air facilities for evacuation purposes was being reexamined. The Department officers also pointed out that getting agreement from both the Nationalist Government and the Communist authorities with respect to such flights is extremely difficult.

During the general discussion of economic problems confronted by American business interests in China, a number of the business representatives raised the question as to whether the evacuation of United States nationals would serve the interest and objectives of this Government. Mr. Cabot explained that the national interest falls on “both sides of the fence” in China and that this Government could not decide for individual firms as to whether it is in their interest to remain or to evacuate. A representative of International Telephone and Telegraph said that his company had reached no decision as to whether American personnel should be removed. He felt that China’s need for communication equipment was very great and that in the long run it might pay them to remain in China. He anticipated, in particular, competition in the future from German manufacturers. He said that he had also been speculating as to whether it would be desirable to turn over the management of the company’s interests to Chinese nationals, with British employees remaining as advisers, or whether it would be more advisable to turn over the management to British employees who would turn the management over to the Chinese when eventually forced out. Mr. Sprouse replied that certain information received from China indicates that the Communists are generally prepared to see foreigners leave China if a few key personnel remain. Mr. Cabot felt that decisions as to whether American personnel should be kept in China would have to be decided on the basis of the issues involved in specific cases. Ambassador Stuart intimated that American interests in China might best be served in the immediate future by the adoption to the extent feasible of an indifferent attitude towards possible Communist overtures to trade. Mr. Cabot thought that American business might possibly find an indication of this Government’s thinking in the fact that plans are underway to close a number of offices and to reduce personnel in others. The observation was made, however, that the staff at Peiping might possibly be strengthened. Previously Mr. Sprouse had observed that the consulates at Tsingtao and Hankow would be closed as soon as arrangements had been made to satisfactorily care for American interests in these districts.

Some concern was expressed as to the probable British attitude toward evacuation. From information available to the various firms, it appeared that the British are not planning to leave Shanghai. Regarding the possibility of the British “making a deal” with the Communists, Ambassador Stuart was of the opinion that there was a large area of agreement between the British and United States Governments regarding their mutual interests in China. From conversations with the British Ambassador in China, he believed that British policy would not substantially deviate from our own. (Some business representatives appeared to receive this observation with some skepticism.) Departmental officers also pointed out that many individual Britishers consider Shanghai their home and that British investments in China are more sizable than American.

As to the Department’s view as to the continued effectiveness of the Nationalist blockade of Shanghai, Ambassador Stuart stated that as long as Chiang holds Formosa and retains the loyalty of the air and navy forces, the blockade will continue. In replying as to whether anything can be done to strengthen the protection accorded American nationals in Shanghai, Mr. Sprouse stated that a public statement is under consideration for release in connection with the arrival of the General Gordon, and that the Department is most anxious to assist those individuals who desire to leave Shanghai by making facilities available for their departure.

In replying to the interest expressed by a number of those present as to the conditions likely to prevail in China in the next twelve months, Ambassador Stuart said that drought in the north, floods in the south and economic paralysis throughout China have made life very difficult and had perhaps contributed to retarding the Communist timetable for operations in China. He said the Communists had planned to take Canton by August 15 and that a new government was to have been established October 10. This timetable had also been disrupted by the resistance met in South China. He believed that a central government could not be established until early next year. As to the permanance of the Communist regime, Ambassador Stuart reported that the Communist soldiers are better trained and disciplined than the Nationalist troops; the Communist leaders live simply and are free from graft. On the other hand, the Communists are faced with grave economic problems and with the maintenance of an army of 4 million men. He foresaw no immediate threat, however, to their control of China.

Mr. Fosdick was asked if he desired to make any comments on the activity of his group. During the course of remarks in which he explained their work, he invited the businessmen to submit in writing views which they might have on the policy which this Government should adopt in relation to China and the Far East.

In closing the meeting, Mr. Sprouse reiterated that any decision as to the future course of action which American business firms should take must be left to the individual firms since the Department has no authority to order American firms to stay or leave. He felt, however, that Chinese nationals left in charge of American interests would be more vulnerable to Communist pressure than United States nationals.

1. List is incomplete. [Footnote in the source text; Raymond B. Fosdick was a lawyer from New York, Dr. Everett Case was President of Colgate University.]
2. Business representatives understood to be present:

   1. Mr. E. J. Kavanaugh
   California-Texas Oil Co.

   2. Mr. A. C. Schermerhorn
   Chase National Bank

   3. Mr. T. D. Blake
   I. T. & T.

   4. Mr. S. T. Bitting
   National City Bank of New York

   5. Mr. H. F. Seitz
   Standard-Vacuum Oil Co.

   6. Mr. Roland Pierotti
   Bank of America

   7. Mr. P. M. Markert
   Anderson, Meyer and Co., Ltd.

   8. Mr. William B. Stafford
   American & Foreign Power Co.

   9. Mr. G. M. Rosse
   C. V. Starr

   10. Mr. Charles Behr
   National Foreign Trade Council

   11. Mrs. Florence Smith
   American Chamber of Commerce [Footnote in the source text.]

36. Telegram No. 3387, August 23, 9 a. m., from the Consul General at Shanghai, not printed.