Telegram from Walter McConaughy to Secretary of State Dean Acheson

NCOMING TELEGRAM Department of State TELEGRAPH BRANCH 4 H SECRET SECURITY INFORMATION Control: 8977 Rec'd: December 19, 1951 FE FROM: Hong Kong 6:30 p.m. ss TO: Secretary of State G EUR NO: 1968, December 19, 6 p.m. (SECTION ONE OF TWO) E P R DEPT PASS LONDON. SENT DEPT 1968, RPTD LONDON 109. DCR Re London's tel 54, Nov 17 rptd Dept 2399, CONGEN tel 1855 Dept Dec 7, rptd London 100. I had highly satisfactory talk with Lyttleton at Govt House Dec 13 in course of garden party in Lyttleton's honor. Governor arranged for us to go to Lyttelton's rooms for undisturbed private conversation of 30 minutes. Lyttelton seemed somewhat preoccupied with Malayan problem but showed informed interest in Hong Kong issues and profound desire to further complete Anglo-Amer cooperation here. Re size of US Govt establishment Hong Kong, after I had explain- ed functions of various sections of CONGEN and pointed out how govt "benefited from our Chi mainland polit and econ coverage Lyttelton said that if any other country had 100 reps here, UK Govt wld be "damned concerned, 11 but since it was US (approx 30 characters garbled), he was not worried and saw no reason why I shld be. He indicated that he was not rpt not) apprehensive about our USIS or intelligence work here so long as reasonable circumspection employed. Thruout interview he consistently took broad gauge viewpoint stating minor frictions wld not be allowed to become major issues. He said in his experience wherever two overlapping intelligence orgs were working, a little friction was always engendered, but it was nothing to get upset about. I commended Governor, Col Secy and other execs of Hong Kong Govt for having been cooperative with us in many ways, and expressed gratification that Hong Kong Govt had recently resumed interchange with us of classified info on maritime trade with Commie Chi. Lyttelton said full exchange of useful info at Hong Kong was desired by London. Said US cld make great contribution to econ and social stability of Hong Kong by allocating more raw materials for Hong Kong industries, expecially raw cotton. Said he had found Hong Kong Govt and business circles somewhat aggrieved at US export licensing policy and practice, particularly at long delays generally encountered. Mentioned liberal US cotton quota allocated to Japan, notwithstanding sizable Jap textile trade with Commie Chi authorized by SCAP. I reminded him that next move in raw cotton negot was up to Hong Kong Govt which had promised to come forward with control scheme which wld assure that no US cotton wld go into clothes REPRODUCTION OF THIS -75 exported MESSAGE IS PROHIBITED SECRET SECURITY INFORMATION