893.51/5–1246: Telegram
The Consul General at Shanghai (Davis) to the Secretary of State
[Received May 12—10:33 a.m.]
827. Special studies have been conducted here for past fortnight on cotton situation (ReDeptel 785, May 8, 5 p.m.). Information developed indicates that entire $33,000,000 is required and has been allocated for American commercial cotton arrived or afloat as of March 4 for which exchange had not been previously provided. All kinds of cotton in sight including prospective Chinese crop and UNRRA commitments will supply China’s needs possibly into second quarter of calendar year 1947 as presently estimated. The $6,670,000 commitments made by the Chinese Purchasing Commission are additional. The Chinese authorities here have advised merchants that no further exchange will be allocated for imports of cotton from any source until present stocks and commitments are reduced to reasonable proportions. Merchants have so telegraphed their offices in United States. It is understood that the Chinese authorities here have been aware for sometime that the entire $33,000,000 fund would probably be needed for financing the commercial commitments already made. Hence it is difficult to understand why the Purchasing Commission proceeded with new commitments when the adequacy of supply was well known.
Dawson and Calder express following opinion:
“Non-American cotton has arrived or been consigned or contracted in quantities greater than shipments of American cotton. Since the Purchasing Commission is already committed for American cotton, refusal to increase the loan total thus to $40,000,000 will not mean the sale of any less American cotton at this juncture. The extension of an additional $7,000,000 credit, however, would aid the trading houses supplying the Brazilian, Mexican and other cotton, some of which have admittedly indulged in ‘over-supply’ risks, since the Chinese authorities would presumably be more inclined to grant exchange cover by virtue of the loan. If this request for additional credit is readily granted, it may be regarded as a precedent and may encourage the Chinese Purchasing Commission to proceed similarly in other avenues of trade as related to prospective loans.
[Page 985]If, despite these considerations, the additional credit is extended, it would apparently have for its main purpose the easing of China’s foreign exchange position, but this too would seem unnecessary since there has thus far apparently been no great strain upon the $500,000,000 exchange stabilization fund.
If it is deemed inadvisable to refuse the request, then the additional credit could be granted on condition that American cotton will be given priority in exchange allocations to the extent of an equivalent of the Eximbank loan when new purchases are resumed. As Brazilian for quality and price is preferred here over American cotton, it may be advisable to give serious thought to the foregoing suggestion. Fred Taylor26 has been fully consulted and agrees in principle with these views.”
Sent Dept as Shanghai serial No. 827, May 12, 4 p.m., repeated Nanking as No. 473.
- Agricultural Commissioner at the Embassy in the United Kingdom.↩