893.516/5–1649: Telegram
The Minister-Counselor of Embassy in China (Clark) to the Secretary of State
[Received May 16—6:43 a. m.]
Cantel 388. For State and Treasury from Clark and Parker. Headquarters including foreign exchange sections Central Bank moved Canton, but, owing opposition employees remaining Shanghai and of [Page 774] Shanghai military authorities, unable bring complete records and test keys here. Present intention attempt reconstruction foreign exchange accounts and contact correspondents abroad to establish new test keys and signing officials, telCan 167, May 13.
At moment Central Bank receiving requests or deposits and payments foreign exchange through Shanghai office, but all action taken by Canton. Will shortly require two certifying signatures, from official in Canton countersigned by official in Hong Kong.
Appears intention remaining employees Shanghai may be to continue exercise some operational control over accounts held US with or without consulting head office. This may be expected to be accentuated when Shanghai further cut off. Two offices already working cross purposes in settlement petroleum accounts, and instructions from Canton only infrequently carried out by Shanghai who also accepting instruction from Garrison Commander.79 This situation [to] continue so long as test keys and signatory authorities remain Shanghai. However, headquarters Central Bank desire no branch operate foreign exchange accounts.
Similar situation exists Government banks, particularly Bank of Communications and Postal Savings Bank.
Finance Minister greatly concerned over New York restricting use $12 million, but I consider action justified in view recent heavy drawings by Central Government on all foreign exchange accounts without regard to current liabilities. Since President Li prevented using Chinese Government gold stock, his only recourse has been unrestrained use dollar accounts held by quasi-official banks. Believe political repercussions broad freezing acting under TWE Act80 will offset advantages, but suggest Treasury and State should be prepared institute such action suddenly if situation worsens. Copy FEB Act not available at moment, but believe 25–B certification procedure would be desirable means centralizing operational controls.
Will reply further after discreet conversation Central Bank officials. [Clark and Parker.]