Telegram from Walter McConaughy to Secretary of State Dean Acheson

NCOMING TÉLEGRAM Department of State TELEGRAPH BRANCH SECRET SECURITY INFORMATION 5 Control: 9088 N Rec'd: December 20, 1951 FROM: Hong Kong 1:11 a ...... S TO: Secretary of State UR NO: 1968, December 19, 6 p.m. (SECTION TWO OF TWO) DEPT PASS LONDON. SENT DEPT 1968, RPTD LONDON 109. DCR Lyttelton also questioned our procurement activities at Hong Kong, stating our large bristle purchases from Chi Commies had made it difficult for other buyers to compete and had confused all elements here. They cld not unde stand how US cld engage in large-scale transactions with Commie Chi involving remittances of considerable sums US tween dollar exchange under Treasury license, at same time We were supposedly conducting vigorous econ warfare against Commie the Chi and influencing Brit to maintain far-reaching controls on its trade with Commie Chi. I told him bristle procure- ment was entirely in private hands up to now with no local US Govt participation and no US Govt approval of barter deal. Stated we had not attempted to interfere with Brit purchases of strategic materials from Commie Chi. Lyttelton indicated that he personally was inclined to agree with prevailing Hong Kong view as to Brit diplomatic policy toward Commie Chi. He quoted Hong Kong interests as being almost unanimously in favor of continued Brit recognition of Commie Chi. He admitted that when he was in Malaya he had heard Brit recognition policy severely criticized. Said if Malayan situation did not improve soon, pressure of Malayan interests might force Brit to recognition policy. He thought Malayan view of recognition was guided by emotional considerations in large measure, but said it had to be reckoned with nevertheless. Said Brit Cabinet anticipated that Brit policy toward Commie Chi wld figure rather largely in forthcoming conversations between President and PRIMIN. Lyttelton deplored divergence by US and UK policies toward Chi and indicated conviction they must be aligned. Said breakdown of liaison between Wash and London in late 1949 was partly responsible for policy cleavage. Asserted Brit FONOFF mistakenly assumed US Govt wld soon fol lead of Brit Govt when it recognized Chi Commie regime in Jan 1950. Lyttelton 77 SECRET SECURITY INFORMATION REPRODUCTION OF THIS MESSAGE IS PROHIBITED