Memorandum by the Director of the Office of Far Eastern Affairs (Butterworth) to the Secretary of State and the Under Secretary of State (Webb)

Persistent reports have been received from our offices in China elaborating on the announced intention of the Chinese Government to negotiate a trade agreement with the Soviets over Sinkiang Province (in Northwest China). [Here follows information contained in telegrams from the Ambassador in China, Nos. 337, February 8, 10 a. m., page 1037, and 389, February 15, 9 a. m., page 1039, and from the Consul at Tihwa, No. 36, February 20, 7 p. m., page 1043.]

It would appear that while there would be certain temporary benefits to the National Government from the conclusion of a Sino-Soviet trade agreement over Sinkiang (although the long-term, Trojan horse aspects of such an agreement can hardly be overlooked), little advantage would accrue to the Chinese Communists. The reported haste of the Soviets in pressing for an agreement at this time would seem to indicate that they are anxious to legalize and fortify their status in Sinkiang while there is still a National Government with which to deal and, conversely, that they may wish to secure these special interests from a National Government which is fast dwindling in power and prestige rather than to risk waiting to deal with a Chinese Communist regime which is just beginning to flex its international muscles and in whose complete subservience the Kremlin may not have full confidence. [Page 1047]It may also be that Russia is being motivated in her actions by her traditional apprehension of a strong, united China to her south and is therefore not averse to bolstering the National Government (while at the same time securing additional concessions for herself) just at the time when the Communists appear to have the military capability of destroying the National Government on the Chinese mainland. Even if the Chinese Communists have been fully apprised of Soviet intentions in Sinkiang and have been cajoled or forced into acquiescing to the present negotiations, the action of the Soviets in negotiating at this time a long-term agreement with the National Government involving special rights to the USSR would seem to indicate something less than comradely trust between the Chinese Communists and Moscow.

W. W[alton] B[utterworth]