611.9331/8–949: Telegram

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

3142. ConGen would appreciate Department’s comments re Tientsin 562, August 4 [July 26] proposing application economic sanctions on Communists. Received Tientsin’s specific recommenations, ConGen Shanghai notes:

Termination GATT concessions on Chinese exports as proposed Shanghai telegram 2492, June 25.
Reference Chinese exports USA discussed ConGentels 2346, June 18 and 2538, June 29.11 Chinese press August 5 reports take-over Chinese Hog Bristle Co. by East China Foreign Trade Co. and announces shipment hog bristles after processing to USSR via Tientsin, presumably following policy and possibly in conformity prior commitments Central Trust to USSR. Continued indications received Communists paying premium prices for export goods in Central China interior which at present unrealistic foreign exchange rates can only be sold abroad below actual PN costs or through subsidies.
ConGen feels export licences should be withheld on shipments to Communist organizations in China proper taken over from Kmt such as China Petroleum Corp. (Deptel 1520, August 312) especially if foreign exchange paid by Kmt. That connection ConGen writing CPC asking information re status orders and end use. Understand CPC building Pol refinery Shanghai. ConGen will send specific reply Deptel 1520 when CPC response received.
In view reported USSR trade pact with “Manchurian People’s Government”, would it be feasible place Manchuria in same status European satellites [and] USSR re export controls with concurrence all other Atlantic powers if necessary using pressure obtain European, British cooperation and effective screening? As suggested ConGentel 2971, July 30, no effective substitute known for effective British export controls Hong Kong especially should Canton fall.

If possible ConGen suggests should public announcement this effect be made distinction between Manchuria and Communist areas China [Page 959] proper might be stressed due evident closer affiliation Manchuria to USSR (ConGentel 2338, June 18).

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