893.50 Recovery/6–2749: Telegram
The Ambassador in China (Stuart) to the Secretary of State
[Received June 27—2:08 p. m.]
1388. ShaECA 261, repeated Washington Toeca 3010 [2110], June 17,39 for information has just reached Embassy.
At outset I should like emphasize my strong opinion that agreement should be reached on a method of disposal these assets acceptable to us as soon as possible. Our position will be far stronger and less vulnerable, if we put forward a reasonable solution meeting needs of mills and people of Shanghai. Communist confiscation of assets prior to US proposal would permit them to accompany such confiscation with much more public vilification of US than if we had present reasonable plan of which they refused to permit acceptance. In my judgment this issue is not large enough for us to risk confiscation and the ensuing bitterness and unfavorable influence it would continually exert on whatever informal relations we shall have with Communists in future.
As outlined in reftel, Plan One contains no promise of the early liquidation of SRO and would provide no counterpart proceeds.
On other hand, as I understand it, plan proposed in SAC resolution40 is the very type of reasonable solution we seek. We must face fact cotton and yarn exist in Shanghai today as foreign exchange asset which Communists in their present desperate economic straits will most likely insist upon acquiring with or without our consent to provide further raw cotton imports. Under draft resolution we make no gifts to Communists; rather we receive quid pro quo representing full local currency value of assets. It provides us with a continuing check on disposition of counterpart funds, raises no questions of future recognition of Communists by US, and more important it foresees time when SRO would conclude its work and ECA depart Communist [Page 656] China. Also, I have good reason to believe Communists would find this particular plan acceptable.
Suggest proposition Embassy and Consul General be provided with portion sales proceeds mentioned paragraph c reftel not be permitted interfere with early agreement general question cotton disposal.
I hope also that in approaching this problem SEO and authorities Washington require that adequate publicity locally accompany actual distribution of assets and of proceeds which come into hands of relief and welfare agencies.
Repeated Shanghai 770, Canton 486.