893.50/5–749: Telegram
The Consul General at Shanghai (Cabot) to the Secretary of State
[Received May 7—8:20 a. m.]
1550. Economic situation in Shanghai continues grave with no evident signs of improvement regardless of military developments. Cash shortage slightly eased with Central Bank paying put only 25–35 percent overnight deposits in cashier’s checks not in DP [GY]91 or silver. Nevertheless business is steadily falling off with many firms operating at deficit, factory production dropping and unemployment increasing. Tendency accentuated by departure many Chinese industrial and business leaders. Public clamor has resulted in reduction of utility rates by 70 percent at which level utilities cannot even pay for fuel—yet at higher levels rates are ruinous to consumers.
Psychologically even conservative business men are now longing for Commie entry. They naturally consider it inevitable, do not want [Page 297] Shanghai made a battleground and think nothing could be worse than present situation.
It seems to us probable that situation will get worse rather than better in immediate future. We doubt continuing disintegration can be prevented so long as Shanghai remains in Nationalist hands. Entry of Commies even if peaceful is likely to cause further drop in business which will probably be even more serious in event of violent entry or important demolitions. After Commie entry it seems inevitable they will have grave problems to secure needed supplies of food, cotton and oil. It is possible they can get food and cotton in China but fuel oil essential to run utilities can only be secured from abroad and if it is not secured promptly a major catastrophe seems unavoidable. Moreover there is widespread conviction particularly among British that Generalissimo wants Shanghai laid waste and that he will destroy utilities and industries in order to (1) punish Shanghai which he has allegedly always hated, (2) give impression abroad of heroic resistance to Communism, (3) leave insoluble problem for Commies, (4) get even with foreigners for not helping him in his hour of need, (5) create a sort of Hitlerian Götterdämmerung.
I feel that Dept should earnestly consider following questions: (1) Should we take any action to prevent fighting within Shanghai; (2) should I be instructed to make firm representations on demolitions (our position re American utilities seems particularly strong); (3) should we take any constructive action to assure Shanghai of essential supplies particularly oil after takeover; (4) if Shanghai should be reduced to complete chaos by fighting, demolitions, economic prostration, power failure or epidemics, should we not be prepared as far as possible to remove Americans from Shanghai area even after takeover.
Re (1), I realize this is very delicate matter, yet on other hand strong humanitarian considerations favor action. Re (3), quite apart from problem of scheduling incoming shipments I think it unlikely Commies will have foreign exchange available for payments or adequate goods for sale or barter. Only other alternative would appear to be some credit arrangements which might perhaps be obtainable privately with our acquiescence. Despite strong objections to this we should also consider whether our interests would be advanced by chaos and suffering in Shanghai and whether we might not profit by agreeing to credit on strict conditions.
I should appreciate Dept’s views on above points. Dept may wish to discuss them with British. If Dept feels any action warranted, it might in view of great British interest be able to secure more British [Page 298] cooperation in other matters notably controls on exports to Commie China (see my immediately preceding telegram).
Sent Dept 1550, repeated Nanking 865, Canton 418.
- Gold yuan.↩