102.1/5–2147: Telegram
The Ambassador in China (Stuart) to the Secretary of State
[Received May 21—7:10 a.m.]
1109. To Secretary Treasury from Adler. Left Nanking for Shanghai May 12 expecting consummation of arrangement would take day or two, re urtel 571 of May 13 and Embtel 1022 of May 11, but found Chinese authorities evasive when it came to formalization. It was only late on May 15 after 4 days of lengthy negotiations that they again accepted formula agreed upon May 10. On afternoon of May 16 at my suggestion Butterworth and Monnett Davis, whose wholehearted cooperation has throughout been most helpful, saw Chang Kia-ngau, who had come up to Nanking for week-end to ensure no further attempts at evasion.
- [1.] I returned to Nanking late on May 16 and left again for Shanghai May 17. All major difficulties have now been ironed out with one exception. I proposed that exchange of letters should state that “arrangement is subject to review by both parties from time to time in light of changing circumstances”. Chinese proposed replace “by both parties” to “by either party”. While prepared to omit reference whether to both parties or to either party, am reluctant to accede to Chinese proposal, as it would leave them free to terminate arrangement unilaterally in event, for example, of adjustment in official rate, in which case appropriate arrangement would have to be renegotiated anew. I informed Central Bank that I would have to cable Treasury instructions on this point and recommend answer to effect that inclusion of “by both parties” would be preferred, failing which I am authorized to go ahead with compromise proposal of omission of reference whether to both parties or to either party. This compromise should be adequate protection against Chinese unilateral action.
- 2. For your information in proposed exchanges of letters, it is stated that arrangement is to go into effect as of May 15. Reason for this change is that at my request Army and Navy deferred making any CN dollars purchases in period when Chinese were being difficult, and only on May 15 when it was clear that they were accepting Hong Kong cross-rate formula did I tell Navy Disbursing Officer in Shanghai to proceed with his purchase of CN dollars. This and other subsequent transactions by U. S. Government agencies have been made on basis of Hong Kong cross-rate.
- 3. We have also agreed that Hong Kong cross-rate to be used is selling rate as of close of business on day prior to purchase of CN dollars. [Page 1123] Main advantage is that payment can be made for CN dollars immediately on purchase, and it is hoped to avoid use of no-rate advances. There have been one or two slight discrepancies between rate Central Bank as cabled from Hong Kong and rate Hong Kong Consul General62 cables U. S.; check is being made both by Central Bank and U. S. to ascertain cause of discrepancy, which should not be difficult as Hong Kong market wide. But if necessary Casaday or I will make short trip to Hong Kong to clear matter up.
- 4. Returned Nanking May 21. Your early reply to inquiry in 1. above would be appreciated, as I could then proceed Shanghai for completion of exchange of letters. [Adler.]
- George D. Hopper.↩