893.51/7425
Memorandum of Conversation, by the Adviser on Political Relations (Hornbeck)
China Loan. Meeting at the Treasury
| Present for the Treasury | The Under Secretary, Mr. Daniel W. Bell; Dr. Jacob Viner; Mr. Harry D. White, Director of Monetary Research; Mr. Edward H. Foley, Jr., General Counsel; Mr. Bernard Bernstein, Assistant General Counsel and other Treasury officials. |
| Mr. Lauchlin Currie, Special Assistant to the President. | |
| Mr. A. Manuel Fox, American Member of the Chinese Stabilization Board. | |
| Dr. T. V. Soong, Foreign Minister of China, was present for only a few moments at the outset. | |
| Messrs. Hornbeck, Hamilton, Livesey, and Hiss.95 |
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[Page 471]Mr. Bell opened the meeting by stating to Dr. T. V. Soong that “we” had been considering the question of a loan for an hour96 and “we” wondered whether the best procedure would not be to follow the example of and act in the spirit of the Lease-Lend arrangements. Dr. Soong said that he thought that would be best. Mr. Bell then asked Dr. Soong if he (Dr. Soong) had come to any specific conclusions as to what might be put in the agreement. Dr. Soong stated that he had not and indicated that he would like to receive a draft of the proposals of the United States Government. Mr. Bell then suggested that in the next few days Dr. Soong might wish to be thinking over the matter of appropriate terms for the agreement and Dr. Soong said that he would do so. Mr. Bell thereupon indicated that the meeting was concluded. Everybody rose. Mr. Bell indicated to the officers from the Department of State that he wished we would remain behind. Dr. Soong moved to leave the room and shook hands with several persons nearest him and made his exit, escorted to the door by Mr. Hornbeck only.
2. Mr. Bell inquired whether the Department of State had any views regarding the manner in which the loan funds might be made available to China. He turned to Mr. Hornbeck.
Mr. Hornbeck said that he had a suggestion, which he would put forward purely as something to be discussed, a suggestion which would be unofficial and personal, a suggestion which he had not yet discussed in detail even with his own associates. He said that he felt that an immediate objective should be to make available to China promptly and “without strings” some part of the total sum. He would suggest for consideration: make a straight loan of from $50,000,000 to $100,000,000, at a low or no rate of interest, amortization to begin at some date after the war is ended and to extend over a long period; arrange for allocation of from $200,000,000 to $250,000,000 for broad purposes by agreement; and leave the remainder for future consideration and disposal as the situation unfolds and needs become apparent.
The Treasury officials, who had already discussed the matter at some length among themselves, said that in their opinion it was politically important to be able to say that the entire fund had been made immediately available to China. They explained that they had in mind the drafting of a very general loan agreement which would simply provide that the funds are available to China and set forth the general purposes—i.e., the furthering of the war effort—for which the loan is being granted. In addition a memorandum might be handed to Dr. Soong containing certain technical provisions as to interest (if any), methods for setting up the bookkeeping arrangements involved, methods for drawing on the fund by placing amounts in the Federal [Page 472] Reserve Bank, et cetera. The Treasury representatives and Mr. Currie also stated that their opinion was that there should be no attempt at this time to provide for the method of repayment or adjustment of the loan.
The representatives of the State Department expressed general agreement with the Treasury approach particularly with reference to assuring China that funds urgently needed could be obtained immediately and with reference to the wisdom of not attempting at this time to settle the terms of repayment or adjustment.
There then ensued some discussion as to what if any procedures might be effective toward the end of ensuring that the loan funds are in fact expended by China in such a way as to ensure maximum benefit to the war effort. The discussion on this point was rather inconclusive. There was, however, general agreement that it would be impossible to provide any detailed assurances as to projects for which the funds would be expended. Various of those present expressed views as to why it seemed likely that China would wish to obtain American advice on this expenditure. It was suggested that China will continue to need and to hope for further American assistance and so would naturally wish to satisfy the United States Government that these funds have been wisely used. It was also suggested that in connection with the proposed loan agreement Dr. Soong might address a letter to the Secretary of the Treasury in which the Chinese Government would express a desire for the collaboration and assistance of technical experts of the American Government in working out plans for the use of the funds; this suggestion was neither generally approved nor disapproved. It was also suggested that the policy of not specifying the terms of repayment or adjustment would also be likely to lead China to satisfy the United States that the funds had not been wasted in order to ensure liberal terms of repayment or adjustment. However, there was no detailed or consistent analysis of procedures which would be relied upon to bring about wise expenditure by China.
The Treasury officials had already informed Dr. Soong that they hoped to have a draft proposal97 for his consideration by Saturday morning (February 21) or by Monday. Dr. Soong had said that he hoped the draft could be ready by Saturday as he planned to go to Canada on Wednesday (February 25). At the conclusion of the meeting the Treasury officials suggested that we meet with them again at three o’clock on the following day (Friday, February 20) at which time they hope to have some written proposals for consideration.