693.9431/4–1249
The Commercial Attaché in China (Hinke) to the Chief of the Division of Chinese Affairs (Sprouse)
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So far as I am aware, no direct trade has thus far developed between North China-Manchuria and Japan. Some commodities from Communist areas, notably soybeans and beancake, have been shipped to Japan via Hong Kong, where goods in exchange were acquired on a barter basis. To date, such transactions are understood to have been exclusively barter in the literal sense. I understand, however, that for some commodities for which the need is particularly urgent, the Communists are prepared to pay in gold or US currency on deposit in [Page 974] Hong Kong. You are, of course, aware that the term “North Korean products” is largely a euphemism to cover goods of Manchurian origin.
I have a feeling that a revival of direct trading between Communist areas and Japan will present exceptional difficulties for some time to come, largely because of the extraordinary (but somewhat similar) trade procedures followed in these two areas.
To illustrate one phase of the problem, I am told that, to date, the Kailan Mining Administration is being permitted to barter coal for flour only, and that the Communists have not allowed the company to exchange coal for other mine essentials such as mine timbers or machinery replacements. In fact, the new North China Foreign Trade Regulations exclude the entire timber category from the list of “permitted imports”. It is not known whether they hope to meet mine timber requirements from Manchuria, through barter deals with Siberia, or whether they are unaware of their needs for mine timbers. Aside from the considerable ignorance with which the Communists appear to be blessed, they may well wish as a matter of considered economic policy to avoid direct trading with Japan, even though such a development might prove mutually advantageous.
One possibility of indirect trade with Japan may arise in connection with the sale of North China wool and cashmere taken over from the Chinese-American Corporation (representing Nationalist “bureaucratic capital”), a concern which sought to make such a sale through the Chinese Mission in Japan (see USPolAd’s46 Operations Memorandum of March 26, 1949 to Shanghai, copy attached47). Tientsin’s telegram to the Department No. 419 of March 16, 9 a. m.48 indicates that the North China Communists evidently intend to use the facilities of the concern named as its “favored instrument” for selling wool, camel hair and cashmere abroad. I believe for the time being the North China authorities will seek to use Hong Kong as their exclusive trading base for transactions with Japan.
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