Memorandum of Conversation, by the Deputy Director of the Office of Chinese Affairs (Freeman)


Subject: Shipment of Petroleum Products to Communist China.

Participants: Mr. Hubert A. Graves, Counselor, British Embassy
Mr. Fulton Freeman, CA

Mr. Graves called this morning after having seen Mr. Merchant to inform me of the reaction of the Foreign Office to the Department’s suggestion that the British consider the advisability of persuading the Shell Oil Company to suspend all shipments of petroleum products to Communist China for the time being. He stated that the Foreign Office had prefaced its reply with the following figures showing Shell exports to the China mainland for the period from January 1 to May 31, 1950:

Aviation gasoline nil
Motor gasoline 13,000 tons
Light Diesel oil 5,000 tons
Kerosene 6,000 tons
Lubricants 1,000 tons
Total 25,000 tons
[Page 643]

Mr. Graves stated that Shell’s stocks in China at the end of May totaled something less than 25,000 tons. He pointed out, moreover, that of a total of 625,000 tons of petroleum products which had been exported to China during 1949, Shell’s share had been only 82,000 tons.

Mr. Graves then went on to say that the Foreign Office had not stated specifically that it was “persuading” or “instructing” Shell to suspend all further shipments to Communist China. He referred several times to Shell’s trade with Communist China as “an insignificant trickle”; he stated that “most careful scrutiny” would be given to all shipments going to Communist China; he assured me that Shell’s trade would not be expanded and that Shell would not take the business which would normally go to Caltex and Stanvac; and he pointed out that even if the present level of trade were continued it would mean an increment to the Communists of only 5,000 tons per month.

As an apology for not taking stronger steps in this regard, Mr. Graves pointed out the concern of his Government lest any precipitate steps aimed at the Chinese Communists might provoke retaliatory action against Hong Kong.

Mr. Graves stated that he had discussed this matter briefly with Mr. Merchant and that the latter had recommended that he bring two points to the attention of the Foreign Office: first, that there might be an unfortunate public reaction in the United States should it become known that a British company was continuing to supply the Chinese Communists with petroleum products while the two principal American companies had suspended all shipments; and secondly, that there was a “lively possibility” that the Chinese Communists might enter in Korea on the side of the North Koreans. Mr. Graves assured me that he would pass these two points on to his Government and that he would expect a further reply in the near future which he would then communicate to me.