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

893.50 Recovery/6–1949: Telegram

The Consul General at Shanghai (Cabot) to the Secretary of State

Shanghai, June 19, 1949—11 a. m.
[Received June 19—7:14 a. m.]

2350. Consul General [at] Shanghai strongly supports specific recommendations contained draft resolution ShaECA 261, June 16 [17] repeated Washington 3010 [2110]²⁵ regarding disposal ECA raw cotton and yarn cloth assets Shanghai.

Consul General emphasizes these assets delivered prior Communist take-over under 30 days supply policy to keep mills running as means contributing political [and] economic stability during interim period. Proposed method distribution raw cotton to mills and disposal yarn cloth processed therefrom follows substantially ECA policies [and] procedures in effect on their importation. Likewise proposed payments of counterpart funds whether by mills for delivery raw cotton or on sales yarn cloth may be regarded as compensation on ECA “sales” in which Communist authorities not directly involved as such. Similarly use counterpart funds meet administration expenses and distribution voluntary relief agencies also in line prior ECA policies.

Consul General believes draft resolution affords realistic solution to problem disposal of ECA assets which Communists will certainly confiscate if terms of disposal offered by ECA unacceptable to them, as to all intents [and] purposes Communists hold these assets under their control. Consul General believes prompt action necessary if confiscation to be avoided as on basis optimistic estimate Chinese coastal mills at present rate consumption have only 6 weeks raw cotton on hand, including mill and wharf stocks, ECA cotton, and foreign raw cotton contracted on yarn barter deals, assuming Communists will permit consummation outstanding contracts. Moreover, these mills will need 200,000 bales²⁶ foreign imports at least to carry mills over until availability Chinese crop late October. Pressure on Communists for effective use ECA cotton assets accordingly very heavy. ConGentel regarding comprehensive cotton report follows.²⁷

As Communists can confiscate these assets at will and may do so if we insist on stiff-necked adherence marching orders or other ECA instructions unacceptable to them, Consul General feels SRO²⁸ requires delegation authority deal promptly, effectively and flexibly with Communist proposals this subject. Consul General also regards draft resolution as satisfying specific mandate Congress to avoid continuance direct aid to Communist area on grounds (1) assets delivered prior take-over meet interim needs, (2) ECA receiving counterpart funds in “payment for sales”, proceeds of which usable advance US policy objectives, and (3) SRO has no control over assets other than Communists choose permit; therefore any plan disposing of them must be agreeable to Communists. Thus far Communist attitude toward ECA assets cautious, moderate, reasonable, justifying similar attitude our part. However, must emphasize amicable settlement this question important all American interests in China. Amicable solution this problem might materially strengthen hands any moderate elements among Communist leadership seeking more amicable relations with us and Atlantic Powers. Therefore most important we make no misstep this issue likely to jeopardize delicate balance here. Consul General believes SRO proceeding along sound lines to effect amicable solution in terms most likely serve (1) national interest USA, (2) American interests China and (3) salvage residual assets and goodwill of ECA program.

Repeated Nanking 1247, OffEmb Canton 743.

Cabot

25. ECA telegram not printed; it set forth two plans to dispose of ECA cotton and yarn in Shanghai. Plan one involved releasing cotton to Shanghai mills immediately; ECA yarn and yarn produced from ECA cotton were to be exported for sale or barter to ensure continuing supplies of cotton. Plan two provided for ECA to release its cotton and yarn to welfare agencies (893.50 Recovery/6–1749).
26. In telegram No. 2369, June 20, 7 p. m., the Consul General at Shanghai revised this figure to 300,000 bales (893.50 Recovery/6–2049).
27. No. 2352, June 19, 5 p. m., not printed.
28. Shanghai Regional Office of ECA China Mission.