893.51/7187
The Ambassador in China (Johnson) to the Secretary of State
[Received January 18.]
Subject: Opinion of Vice Minister of Finance Regarding China’s Financial Condition.
Sir: I have the honor to refer to a conversation between Mr. Y. C. Koo, Vice Minister of Finance, and an officer of the staff of this Embassy regarding the financial condition of the Chinese Government. During the interview the above-mentioned official expressed his personal opinion that China needs additional American financial advisers to assist the Government in utilizing the new loans and to aid the country in conducting economic warfare against Japan.
Mr. Koo expressed considerable satisfaction over the American and British loans and stated that it is his personal opinion that the financial position of Government is stronger now than it has been for some time. According to him the consistent attempts of Japan to weaken the national currency and undermine the Chinese economic system almost met with success and were as serious, if even not more so, than the military operations. The two new loans, in addition to the fact that China has been able to resist Japan for almost three years and a half, leaves no doubt in the Vice Minister’s opinion that the country is in an excellent position to hold out for another year.
[Page 591]In connection with this Anglo-American assistance he stressed, however, that Japan will undoubtedly direct new economic measures against China in the hope of nullifying any benefits which may be derived from the loans. It is therefore necessary that every effort be made by the Chinese Government to obtain the maximum advantage from the loans and at the same time combat Japan with economic warfare as well. He considers the establishment and early operation of the stabilization fund of utmost importance and stressed the necessity of American assistance and advice in this matter if the fund is going to be operated properly.
With regard to the Japanese economic warfare, Mr. Koo referred to German economic advisers in Japan and in particular to a person who recently arrived there who is believed to have been the second man in the Reichsbank and an expert on economic warfare. The presence of this official leads the Chinese Government to assume that Japan is contemplating additional economic measures against China. The Vice Minister felt that if additional measures are taken against this country his Government will not know how to retaliate and will have to depend solely on the recent financial assistance to help it survive which will weaken the nation’s financial position again. Rather than continually absorb these repeated Japanese attacks at the expense of weakening the financial and economic position of the country, he proposes that China retaliate by starting economic warfare against Japan which will help counteract all such enemy moves. At present he is convinced that China can accomplish something in that way and claims it is only along these lines that his country can win the struggle. The difficulty of conducting such a policy, however, rests in the fact that China lacks men with sufficient training to compete with the German experts who are directing Japanese policy. The Vice Minister elaborated at considerable length on this topic and said that he has been giving it closer attention than any official since the conflict started and as a result of his observations and studies he has reached the conclusion that China must have the assistance of expert economic advisers who can assist the country in counter economic warfare. He requested that his remarks be made known to the Department and that they be given serious consideration. The above statements are Mr. Koo’s personal views and as far as is known do not represent the official attitude of the Government. It is not at all improbable, however, that Mr. Koo intends to make suggestions along these lines to his superiors. Mr. Koo’s closing remark was: “We deeply appreciate the valuable assistance you have given us in the form of loans but unfortunately we need more. We now require American brains to show and to help us use the money to the best advantage.”
[Page 592]Mr. Koo is considered one of the ablest younger men in the Government and his opinion is highly regarded by the Generalissimo. In addition to holding the position of Vice Minister of Finance he is Manager of the Farmers Bank of China and Director of the Central Planning Board which is commonly referred to as the “Brain Trust of China.” Not only is he noted for his ability but also for his honesty and opposition to official graft and corruption.
It is felt that his opinions regarding the present financial position of the National Government present a clear and correct picture. He might be over optimistic in believing that American advisers would accomplish all he thinks they could in preserving China’s financial position and waging economic warfare against Japan. However, he is correct in feeling that the Chinese are rather dazed by some of Japan’s moves and the mere presence of foreign advisers with whom the Chinese could discuss some of their problems—would have a splendid psychological effect. On the other hand, there seems little doubt that foreign advice would be extremely helpful at this time when there is a certain amount of dissatisfaction with officials in high positions and an apparent lack of harmony.
Respectfully yours,