[Page 821]

225. Memorandum of Conversation1

SUBJECT

  • Summary of the President’s Meeting with Secretary Blumenthal

PARTICIPANTS

  • The President
  • Michael Blumenthal, Treasury Secretary
  • David Aaron, Deputy Assistant to the President for National Security Affairs
  • Henry Owen, Staff Member, NSC
  • Michel Oksenberg, Staff Member, NSC (Notetaker)

President: It is good to see you. I understand that you had a good and successful trip.

Blumenthal: I think so. It is a habit of mine on such trips, while the impressions are fresh in my mind, to write a memo consisting of my reflections or ruminations on the trip. I would like to convey it to you through this channel.2

President: Thank you. I will enjoy reading it.

You carried out the tasks that I gave you. This was due to your own skill. In addition, the timing was propitious, and the Chinese were eager to move forward.

Blumenthal: Yes. The timing was lucky. I think that the Vietnamese situation also helped.3 The Chinese were most anxious to have a successful visit and for us to reach a successful agreement on the claims assets issue as an offset to the Vietnam situation. That placed great emphasis on the economic relationship and down played Vietnam.

President: In addition to the claims asset issue dealing with private claims, what other claims have to be resolved, public or private?

Blumenthal: In the public realm there are postal claims that reach less than $1 million. We talked about this and the Chinese will be sending a check through regular channels. Then there is a settlement of government property seized in 1949.

President: You mean property seized here?

[Page 822]

Blumenthal: No. I mean the U.S. government property in China that the Chinese confiscated. We should not put a value on that, although one has been placed on it. Rather, we should settle this as they give us facilities for our diplomatic activities in Peking, Shanghai, and Canton. We do need a lot of space.

Then there is the problem of export/import loans made to Chiang Kai-shek.

President: Did the Export/Import Bank exist back then? I didn’t know that.

Owen: Oh, yes. It loaned over $500 million to the Chinese.

Blumenthal: No. That was lend-lease. The sum extended by the Export/Import Bank was considerably less. We not set that the Peoples Republic of China owes Export/Import Bank $26 million. According to Bank regulations, any successor government which gets the use of assets financed by the Export/Import Bank is responsible for repaying the value of those assets. The Chinese, of course, do not recognize this claim and say that we should obtain the sum from the Nationalists on Taiwan.

But they may settle with the Export/Import Bank when they see that the Export/Import Bank has been authorized to extend loans to China and that there is money available for them. This will take time.

Finally, there are some private bond holders who have claims against private governments [companies?] in China, but bond holders take risks and this is not a matter of concern to us.

President: What is the role of Congress from here on, particularly with respect to the claims assets settlement?

Blumenthal: Congress need not play any direct role. I called Long 4 and Frank Church and both of them are happy with the settlement. The settlement does not need to be approved by Congress. Although if Congress wishes to disapprove it, it could pass a rider blocking the settlement.

However, we would need Congressional approval if we wish to follow a pattern of distribution different from that formerly legislated in the Foreign Claims Settlement Act. That act calls for full restitution to claimants with claims up to $1,000. Distribution for claims above that value would be on a pro rata basis. The bulk of the claims are held by four large claimants—Boise-Cascade, Exxon, Citibank, and another major corporation.

This would not be fair. For example if you look carefully at the Boise-Cascade claim, $30 million of the claim is held by China stock [Page 823]holders of Shanghai Power and Light. Yet Boise-Cascade has attempted successfully to declare that it does not owe these Chinese shareholders any restitution, and they have already succeeded in declaring $20 million of the $30 million obligation as worthless. They are now attempting to secure release from the other $10 million. Further, Boise-Cascade’s subsidiary, the Shanghai Power and Light, raised its capital in China by floating bonds and stock in Chinese currency, the Chinese “tael”, which became worthless during China’s higher inflation. So it is not fair for Boise-Cascade to receive a major portion of the sum of the claims assets settlement which the Chinese are paying.

President: Is Boise-Cascade a company in Church’s bailiwick?

Blumenthal: Yes, although they have never supported him and are strongly Republican.

President: Well, talk to Frank and see what you can work out.

Blumenthal: I will do what I can. But I think we will obtain more support if we .5 For example, a substantial number of Church’s clubs. It would be better for them to go on the Hill in support of the claims assets settlement. They say they would use these funds in a beneficial way, probably not in relation to China. So we are considering addressing a Congressional action to change the pattern of redistribution in a week or 10 days. I will make a recommendation to you.

President: I have another question. How serious is the Chinese cancellation of purchase orders placed with the Japanese?

Blumenthal: That is a misunderstanding. The Chinese have not cancelled orders but suspended them. The negotiations with Japanese firms were carried out by Chinese ministers and it was clear to the Japanese that the tentative agreements were subject to the approval of higher levels in China. Now the higher levels are saying that they want these renegotiated and the Chinese want better terms and conditions. They feel the Japanese take advantage of them.

Another thing must be said. The Chinese have no experience in foreign purchases, and they make coordination among their ministers as they develop a national economic plan.

President: I am glad we do not have that kind of a problem.

Blumenthal: Their problem is worse than ours! In addition, they are going to probably slow down their rate of foreign purchases, and I think this is a good idea.

President: Well, I am glad to hear what you say, because the impression that I have received was that the Chinese have made a deal and they have now welched on it, and that is not a good impression to leave.

[Page 824]

Blumenthal: Well, the Japanese do not have that impression. I talked to the highest levels in Tokyo, and they agree they will have to .

Another reason for the suspension is that the Chinese are clearly keen to expand their business with the U.S., and they will be trying to play off the Japanese and us.

President: Tell me about the joint economic committee you have established.

Blumenthal: This is an important mechanism, and we can now carefully think through how to use it.

I do have some concern that the modernization effort may fall to pieces, and they have similar concerns. They need to coordinate their efforts and obtain help.

And we need to coordinate our own efforts in dealing with them and their key economic Vice Premier in the fall—Yu Ch’iuli.6

President: How many Vice Premiers do they have? About 14?

Blumenthal: Yes. One Vice Premier is in charge of long term planning, and he is my counterpart, and Chairman of the Joint Economic Commission. Another Vice Premier is in charge of the execution of the plan. Both of these Vice Premiers then report to the number three remaining Vice Premier, Li Xianian, who has even broader responsibilities.

President: Then who is that other Vice Premier who came with Vice Premier Deng?

Oksenberg: He was Fang Yi, and he is in charge of their Science and Technology effort. As a result of Vice Premier Deng’s visit here and Blumenthal’s trip to China, we have now come in contact with all of their top leaders in the science and economic fields.

President: That is good.

Blumenthal: But there is also some confusion in their work; for example, I mentioned to them as a business executive that I have found it difficult to distinguish between planning and execution. If the planners are not involved in execution, then the plans are not realistic. When I made the observation, nervous laughter broke out.

President: What do you see as our next steps in our relations?

Blumenthal: We will continue to back a trade agreement. There will be a meeting at the Assistant Secretary level to discuss the trade agreement. Japan will go in May to make arrangements for business facilitations.

[Page 825]

President: What mechanism do we have for coordinating our policy here? What problems and opportunities do we have that we need to address?

Blumenthal: The mechanism is the NSC/PRC committee on Sino/U.S. economic relations which I chair. This committee coordinates our economic policy toward China.

Oksenberg: Mr. President, I believe that we should provide you with a report that lays out the sequence of steps we have in mind for developing our relations with China, outlining the options you face, and the choices we recommend you make.

President: I agree. I do not have a clear concept of the road ahead. I do not quite understand what the problems are likely to be or what the opportunities are. I would like to have a clearer concept.

Blumenthal: A lot of that will depend on the political situation in China. I would stress that it is not that assured. Their current commitment to their economic policies is tentative and uncertain.

This is something that I hope we can talk about.

In addition, they want a trade agreement because they want MFN and credits. If we do not reach an agreement with them and extend MFN and credits to them by the end of the year, there will be strains in our relationships.

President: What is the situation on MFN?

Blumenthal: MFN is JacksonVanik and JacksonVanik is related to the Soviets.7 The question is whether one should move in parallel toward the two. What you would have to do is declare that you are satisfied under the __________ that you should issue a waiver to extend MFN to both the Soviet Union and China in parallel, and both have satisfied the immigration requirements of JacksonVanik.

There are two views on this on the Hill. Cranston and Stevenson believe that you should move now and the chances of a Congressional override are small. A second school led by Senator Jackson desires action toward China but not the Soviet Union.

In my consultations with the Jewish group, I have learned that the Jews are willing to move now to grant MFN to both China and the Soviet Union. I suggested that they talk to Jackson which they were supposed to do while I was away. I talked to Cy about this and we agreed that we should give a recommendation to you when he comes back from his forthcoming trip. The idea is to grant a parallel waiver to SALT. My own view is to strike while the iron is hot.

[Page 826]

Blumenthal: Now let me turn to Japan. I was very impressed with Ohira. He makes a very good impression. He looks very oriental. He speaks with authority and knows what he wants.

President: I know him.

Blumenthal: I am jaded by the Japanese. I have talked with them for fifteen years, and they always say the same thing.

But now I believe they really recognize they have to change their economic policy. They fear unilateral Congressional action against them. As a result, they are really trying, but the political problems entailed in changing an economy are difficult. I recommend that we just keep up the pressure to do it quickly but consistently. A visit by Ohira would be useful. I made one suggestion in Japan as a personal idea: Before the summit8 Ohira deliver a national address on Japanese economic policy stating clearly that it is Japan’s policy to eliminate their trade surplus and to open up their imports. They have never made such a statement before and the delivery of such a statement would be interpreted as a victory for you.

I also recommended setting up a mechanism for bilateral consultations once or twice a year to state our goals in terms of reducing the trade deficit and opening imports, clearly stating how far each side would go in the coming time period to reach these goals. Efforts would be made to monitor the success. Completion of such a mechanism would be good as far as Congress is concerned.

If we fall short in realizing these goals, then the U.S. would have the right to apply restraints on the Japanese. The Japanese responded to these proposals in a ‘not uninterested’ way. In fact, they seemed ready to make a statement on their economic policy while I was there. They asked if you were willing to make a statement to the same effect.

Owen: If this could be pulled off, this would be a political success. I have drafted a memo which I will submit to you detailing the specifics. Setting up a commission to monitor our economic relations would help Congress, the public and labor.

Blumenthal: Yes. What we need is a clear political statement from the Japanese concerning their setting up targets and goals and establishing a monitoring device for these targets and goals.

Owen: I am going to Japan in 10 days, and we could begin to work on this.

President: That is a good idea.

Blumenthal: The Japanese are definitely afraid of us and believe that their economic problems could become political problems.

[Page 827]

President: Would you tell them that to the extent that they separate business from politics in Japan that we will do the same here.

President: Are there any remaining problems in our relations with the Peoples Republic of China which I should be concerned about?

Blumenthal: No. It would be nice if, in connection with your trip to China—at whatever time you take it—that we will have completed the establishment of our economic relationship and that several of the larger commercial deals should have been consummated.

Also, we need to discuss with them how much a development program—they really don’t know. For example, they are now discussing with seven different American oil companies ways of drawing upon American technology and capital. They know that they wish to go in that direction. But each oil company has given them a separate proposal. They don’t know whether to back the Brazilian or Indonesian model or to rely on Exxon or Pennzoil. I recommended that they hire consultants that are disinterested.

President: I am not so sure that that is good advice. Consultants and inevitably __________ are tied up with government agencies or companies.

Blumenthal: Well, Harvard has had development groups in various countries that have been helpful.

President: But if I were Deng, I would go to the University of Georgia or a state university and get them to send their five best people in agriculture. They need help in practicality. That is how Georgia developed. For example, the Georgia Power Company provided advice on water systems and community improvement.

If you bring in consultant firms and government experts, then you get abstract advice from planners and you don’t have the implementers involved.

Georgia Tech has been very successful in helping Latin American countries including Brazil.

Oksenberg: One province in China has just hired the University of Wisconsin to help develop their intermediate education system.

President: That is good.

Blumenthal: China is definitely open and is ready to be influenced by the United States.

They value their connections with us for economic reasons. It will be hard to influence their political system, for they remain inward-looking and maintain that China is the center of the universe. But if we can get to them economically, then we will be able to influence them politically.

(The group stands up.)

[Page 828]

President: Mike (speaking to Oksenberg), talk to Jim Mc——9 and ask him who in Georgia could be helpful to the Chinese.

Oksenberg: Yes, sir.

  1. Source: Carter Library, National Security Affairs, Staff Material, Far East, Oksenberg Subject File, Box 46, Meetings: 3/79. Secret. The meeting took place in the Oval Office.
  2. See Document 224.
  3. China announced on March 5 that it had begun withdrawing its troops from Vietnam. The statement was published in The New York Times, March 6, 1979, p. A10.
  4. There were three Longs in Congress in 1979; most likely Blumenthal is referring to Senator Russell Long (D–Louisiana).
  5. This and other underscores indicate omissions in the original.
  6. This official was Yu Qiuli.
  7. On the JacksonVanik amendment, to which the President possessed authority to grant a yearly waiver, see footnote 4, Document 189.
  8. Presumably a reference to the Tokyo Economic Summit scheduled for June.
  9. The person to whom Carter is referring is not further identified.