222. Telegram From the Embassy in China to the Department of State1

1139. Dept pass NSC for Brzezinski. State for Vance. Subj: Claims/Assets Settlement Agreement.

1. PRC and we have now agreed on terms of settlement. PRC will pay $80.5 million in cash with initial payment of $30 million on October 1, 1979, and five equal annual installments of $10.1 million, commencing October 1, 1980. We will unblock Chinese assets by October 1, 1979.

2. You will notice that PRC increased initial payment to $30 million to meet the perception problem you raised last night.2 PRC met my request after they thought terms of a deal had been struck. This change represents a considerable political and personal effort by the Minister of Finance and the leadership. Failure to speedily accept the settlement would be seen as a severe political rebuff and would risk the opportunity to make any deal in near future.

3. I think this is an excellent deal in light of following considerations:

A. The negotiations were initiated against the background of the earlier KissingerZhou Enlai discussions which were confirmed by this administration in March 1977. Thus discussions established the principle that the U.S. would accept the blocked Chinese assets (which we estimate have a value of $80.5 million) in full settlement of the U.S. private claims.

B. The blocked assets themselves probably would yield the U.S. less than $30 million for distribution to claimants especially in light of today’s apparent admission of PRC that most of the assets blocked do not belong to it and that it therefore could not pass good title to the U.S.

C. This settlement guarantees the U.S. claimants $80.5 million in cash, or 41 pct of the amount unilaterally determined by the U.S. Foreign Claims Settlement Commission as the value of U.S. private claims.

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D. Under the settlement we avoid the lengthy and uncertain litigation otherwise needed to realize on an assignment of blocked assets.

E. The all-cash settlement does not require the U.S. to look to expropriation by PRC of assets owned by private persons as a source of funds for paying U.S. claimants.

F. In comparison to other settlements for expropriation of U.S. property this deal is very favorable.

—Poland paid $40 million over 20 years; a 40 percent return.

—The Romanians paid $24.6 million ($2.5 million over 6 years and $22.1 million from liquidated WWII blocked assets), again a 40 pct return.

—Hungary agreed to pay $21.1 million over 20 years; a 37 pct return.

—The Bulgarian settlement with respect to expropriation of assets provided a 65 pct payout but the settlement was only $400,000 and was paid out over 2 years.

—In the first Yugoslav settlement case the U.S. got $17 million in cash, which resulted in a payout of more than 98 cents on the dollar, but we returned to Yugoslavia $40 million in blocked gold. The second Yugoslav settlement case of $3.5 million produced 36 pct return.

—The $9 million assigned to the US by Soviet Foreign Minister Litvinov, in advance of a settlement which never took place, yielded a payout of 12 pct. It took 20 years of litigation to collect the $9 million.

3. I have read the reports of consultation with key Congressional figures in Washington, and in view of the limited information available in Washington, I regard the results as relatively favorable. My impression is confirmed by my conversation this afternoon with Senator Javits in which I explained the facts to him and he offered his support.

4. This settlement was made after many hours of negotiations, including a number of sessions which lasted until the early hours of the morning and included senior U.S. and PRC officials. I am convinced, and the Embassy concurs, that the PRC leadership has made a considerable effort to work out a satisfactory settlement. This is the most favorable time to conclude the settlement and the PRC expects that the settlement can be initialed and announced tomorrow. Failure to meet that expectation would set back prospects of concluding a settlement and also the progress we have made in our other discussions with the PRC. In my view, concurred in by the Embassy, it would cause significant damage to our relations with the leadership which has gone to considerable lengths to dispose of this issue.

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5. I will call between 8:00 and 9:00 A.M. (Washington time) to see if there are any further problems in recommending speedy authorization to initial.3

  1. Source: Carter Library, National Security Affairs, Staff Material, Far East, Oksenberg Subject File, Box 25, Blumenthal 2/79 Trip to China: 3/79. Secret; Flash; Nodis. On March 1, both the Liaison Office in Beijing and the PRC Liaison Office in Washington were raised to the status of Embassy.
  2. Backchannel message WH90308 to Beijing, February 28, reads, “Congratulations on a praiseworthy negotiation. We nonetheless feel that $30 million is the appropriate figure for the October 1, 1979, payment and $10.1 million for each of the following five years.” (Carter Library, National Security Affairs, Staff Material, Far East, Oksenberg Subject File, Box 24, Blumenthal 2/79 Trip to China: 12/78–2/79)
  3. Backchannel message WH90313 from Brzezinski to Blumenthal, March 1, 1510Z, declared, “The President authorizes you to proceed and initial the settlement. Congratulations!” (Carter Library, National Security Affairs, Staff Material, Far East, Oksenberg Subject File, Box 25, Blumenthal 2/79 Trip to China: 3/79)