U.N.R.R.A. China Programme.

On 5th November, Central Committee [1] considered without reaching
decision Administration's proposal to close China office at end of
1947 and to transfer responsibility for completing programme to a
Rehabilitation [Com]mission [2], a Chinese Government agency
established by the Executive Yuan, and a Board of Trustees
composed of five Chinese Government representatives, five
independent Chinese and five International members nominated by
Director-General of U.N.R.R.A., the latter acting in individual
capacity and not as representatives of Governments.

2. Relevant documents, particularly CCFE [3] 47,126,127 and 128
were forwarded under PI 700 on 17th October and presume you have
received advice from Nanking that CCFE had recommended acceptance
of proposals.

3. Principal consideration is development of large term projects,
which are still in commencing stage and which will not be
satisfactorily established for several years. See CCFE 47, 126.

Full utilisation of equipment and materials now lying idle for
most part necessitates financing by Chinese currency proceeds of
sale of U.N.R.R.A. goods and substantial allotment of dollar
exchange.

4. Our informal discussions and Central Committee deliberations
point to unanimous opposition, with exception of China, to
transfer of U.N.R.R.A. responsibilities under arrangements which
would result in Chinese control of long-term projects, local
currency proceeds of sales of [UNRRA goods] and five million
United States dollars which is to be allocated from U.N.R.R.A.

residual funds largely for technical personnel procurement of
P.O.L. [4] and replacement parts, all required for development of
long-term projects.

5. Alternative proposal worked out in advance by United States of
America, United Kingdom and ourselves and put for-ward by United
Kingdom at meeting involved retention of China office up to 31st
March, 1948, continuation of CCFE beyond that date on reorganised
basis which would give powers specified to CCFE instead of Board
of Trustees.

6. United Kingdom were vague as to time CCFE would continue but
expressed hope it would in short period be able to recommend
transfer of powers to Chinese Government. United Kingdom
contemplates [5] transfer of responsibilities at that time, the
Rehabilitation Commission and any associate body being concern
solely of Chinese Government and U.N.R.R.A. having no right to
appoint International representatives in any capacity.

7. Whilst generally supporting United Kingdom proposals,
Australian member [6] suggested that in light of relatively
undeveloped stage of projects, Central Committee's responsibility
to U.N.R.R.A. nations and particularly the necessity of
encouraging fullest industrial development in China's own
interest, effective International participation might have to
continue for longer time than United Kingdom envisaged. He
suggested that the possibility of transfer of U.N.R.R.A. functions
to the U.N. Economic Commission for Asia and Far East should be
explored. This course was taken after consultation with Tange who
agreed that U.N. Commission's terms of reference were sufficiently
broad and undertaking of the work would probably give Commission
opportunity to become effective organisation.

8. China's attitude is that original proposals must stand
unchanged. If CCFE continues it must be solely in advisory
capacity and China reserved position entirely in regard to counter
proposals of United Kingdom and Australia.

9. Following the meeting, a compromise has been suggested which
would permit China to set up rehabilitation commission and Board
of Trustees without nominated international representatives which
would be dependent on [7] fund of Chinese and foreign currency on
the CCFE. This is likely to be acceptable to a majority of
members, but would appreciate instructions as to whether we should
[p]ress our suggestion. We could perhaps say that whilst we
believe transfer to U.N. Commission would afford the only
effective guarantee of satisfactory development of long-term
projects etc, we are forced to accept the compromise, but consider
the [8] should authorise the administration to test out the
position with Secretary General of the U.N. so as to be prepared
in the event that the compromise proposal should prove unworkable.

10. Next meeting of central committee scheduled for 13th November
will also consider distribution to Communist areas. Negotiations
with Chiang Kai-shek have failed completely. Whilst most members
appear now to favour re-allocation to Nationalist areas of
supplies intended for Communist areas, we feel we should maintain
our previous position and insist upon continuance of impounding
and storage except in regard to perishable and similar goods which
would otherwise be wasted. While International participation in
China programme continues, there should be chance of fulfilment of
undertaking in regard to Communist areas.