The Counselor of Legation in China (Peck) to the Secretary of State
[Received March 4—1:45 p.m.]
44. Reliable American news correspondent informs me that a responsible official of the Ministry of Finance in informal conversation this morning said that the monthly deficit of the Chinese Government for military and other expenses is now Chinese dollars 18,000,000 and that in the recent Hankow conference General Chiang insisted that military expenditures could not be reduced. Informant indicated that the principal drain at present is settling of accounts with different generals in Szechwan and prosecution of communist campaign there. The Chinese informant said the Government had made energetic efforts to obtain a large foreign loan from non-Japanese sources but that prospects of success are slight owing mainly to the inability of the Chinese Government to provide adequate security and pay high interest. He said that apparently the only sort of loan which the Government could hope for would be a “political loan”. He added that unless such loan were obtained the Chinese Government would have to “eat Japanese poison” (paraphrase of China proverb). American informant inferred from the remarks of the Chinese official that the Chinese Government would prefer to obtain aid from both Japanese and non-Japanese sources. The Chinese official thought that some decisive development in the financial situation of the Chinese Government would occur within 2 or 3 weeks.