Sir Frederick Phillips of the British Purchasing Mission to the Secretary of the Treasury (Morgenthau)59
Dear Mr. Secretary:
Mr. Eden60 has now telegraphed that he and the Chancellor of the Exchequer have considered with every sympathy General Chiang Kai-shek’s recent request for financial assistance. They propose to inform him that His Majesty’s Government have decided to make available to China under a lend-lease arrangement all munitions and military equipment that it is possible for them to supply. In particular this proposal would apply to stores which are being supplied to Chinese forces now operating in Burma.
Before communicating this proposal to General Chiang Kai-shek His Majesty’s Government wish to make sure that it will fit in with any proposal which the United States Government have in mind.
As regards a further financial loan, His Majesty’s Government are ready to go forward with the scheme for a loan of £10 millions and $50 millions worked out by Sir Otto Niemeyer and Mr. Arthur Young61 if the United States Government are ready to take parallel action. But they do not feel able to offer a very large “psychological” sterling loan. Such a sterling loan would not be of actual help in present circumstances. After the war it would represent money available to China for the purchase either of goods or of gold and dollars and we should be deliberately adding to future difficulties in securing the equilibrium of our post-war balance of payments. The United States Government is in a position to take an independent decision, should they wish not only to take part in the Niemeyer-Young scheme, but also to offer further dollar loans. His Majesty’s Government are merely stating their own position.