Foreign Relations of the United States Diplomatic Papers, 1941, The Far East, Volume V

893.51/7368: Telegram

The Ambassador in China (Gauss) to the Secretary of State

Chungking, December 21, 1941—10 a.m.
[Received 11:30 p.m.]

516. Reference my 515, December 21, 9 a.m.⁵⁶ Following is résumé of China’s financial position given orally by Sir Otto Niemeyer to Vincent⁵⁷ for my information:

Chinese Government expenditures during 1940 approximately 6 billion Chinese dollars; those for 1941 are reportedly about 7 billion but actually are nearer 10 billion dollars. Revenues from all sources amounted to about 10% of the expenditures this year. The 1941 deficit has been met almost wholly by issuance of new currency, roughly 7 billion dollars. In 1937 national currency in circulation amounted to about 2½ billions. At the end of 1940 it amounted to approximately 7 billion dollars; at the end of 1941 it will amount to about 14 billions. Rate of increase is obviously alarming.

Budget for the year 1942 called for 30,000,000,000 dollars; this is arbitrarily reduced to 16½ billion of which 1½ are for provincial as distinguished from National Government demands. Chinese estimate revenue from increased taxation and collection of land tax in kind (rice) at 5 billion. This will mean a deficit of 10 billions during 1942 if the budget estimates are maintained which is not expected. If deficit is met by further currency issue total note circulation will be close to 25 billion dollars.

It is known but not officially that the Chinese Government [is] contemplating a request to the American Government for a loan of half a billion U. S. dollars (equivalent at the stabilization rate roughly to the amount of the 1941 budgetary obligations). Niemeyer believes that a loan in that amount would be a mistake because it could not be utilized effectively and would therefore be misleading. He suggests considering a loan which would permit the issue of 2 billion Chinese dollars worth of bonds; half supported by British Government, half by American. (British Ambassador tells me this is being considered by British Treasury which may later approach the United States.)

Balance of report follows lines of memorandum⁵⁸ outlined in my telegram no. 515.

Gauss

56. Not printed.
57. John Carter Vincent, First Secretary of Embassy in China.
58. Copy transmitted to the Department by the Ambassador in China in his covering despatch No. 261, December 31; received January 19, 1942. Neither printed.