893.51/73974/5
Document Prepared in the Department of State98
Notes on the Loan to China
It has been wise and entirely appropriate for the United States to make the full amount of the current loan to China available “without strings”. Nonetheless, the United States has a very significant interest in the uses to which this large loan is actually put.
In the first place, the whole concept of the relationships between the United Nations is one of common effort toward a common goal. Joint resources, military, economic and financial, are to be employed in such a way as to obtain maximum benefit for the war effort. There is no question but that in the use of any American military forces that may be sent to China we will not hesitate to express our views as to the purposes for which such forces should be used, whether the Allied commander under whom they serve be American, or Chinese or some other national. Indeed, it is to be assumed that we will not hesitate to make suggestions to the Chinese and to our other Allies as to how we consider they might best employ their own military forces. Consequently, it seems entirely appropriate that the United States Government make suggestions to the Chinese Government as to what uses of the loan funds would in the opinion of the Government of the United States be most beneficial to all concerned.
There is another persuasive reason for the United States to use its best efforts and to endeavor to see that the loan funds are expended for useful purposes. It cannot be too often recalled that the attitude of the American people has as yet by no means become permanently one of willingness to assume responsibilities abroad—one might say that this is especially true with respect to the Far East. There is every reason to assume that at some time in the not too distant future there will be a considerable reaction in American public sentiment from the present position of enthusiastic desire to cooperate with China. We have in the past few days had evidence, in connection with our relations with Great Britain, that even under present conditions there are important elements of public opinion which are reluctant to see the United States undertake necessary cooperation with other countries. [See in this connection the attached copy of a press report of February 2699 indicating the critical attitude which members of the Senate Foreign Relations Committee have taken [Page 474] toward the recent Lease-Lend Agreement with Great Britain,1 an agreement which was in fact used as a model in the draft of the agreement relating to the loan to China.]2 At the same time there is also every reason to believe that the present loan, large though it is, does not represent the last financial assistance which in our own interest, in China’s interest and indeed in the interest of the Far East as a whole, it will be wise for the United States to extend to China.
Consequently, it is believed that the current war efforts of the United Nations and the interest of the United States and of China in particular, both from an immediate and a long-range point of view, call for such efforts as may be practical and appropriate on the part of the United States to see that the funds made available to China are so expended that they will obviate so far as possible criticism of the loan and of our policy of giving full aid to China.
In this connection mention may be made of still another consideration. The loan to China is believed to be without exact precedent in our history. For the first time a substantial political loan has been made by the United States without security, without interest, and without retention of control by the United States of expenditure thereof. It is not unlikely that other countries, particularly Latin American countries, may, relying upon this precedent, ask for similar loans. It would seem to be important that arrangements be worked out in connection with the China loan which will give some measure of assurance that in the expenditure thereof the United States will be consulted and provision be made for careful and objective consideration of the objectives for which the funds are expended.
For the foregoing reasons it is recommended that consideration be promptly given to (1) establishing a procedure under which frank and friendly discussion between the United States and China can be assured with respect to the uses to which the loan will be put, and (2) the drawing up of a list of those projects which the United States would be prepared to recommend or suggest to China as desirable objectives in expending the funds made available.
Consideration should be given to the question of whether the most desirable and most practical procedure under the circumstances would be the creation by China of some type of “board of review” or “planning committee” composed of Chinese and American members (for example, the present Chinese and American members of the Stabilization Board might constitute such an agency). Perhaps it will be found that the only feasible procedure would be frequent conferences and consultation between Chinese and American representatives. This [Page 475] matter has been discussed with representatives of the Treasury in a preliminary and inconclusive way. It would seem desirable to take up the matter again in a more definitive manner.
With respect to the question of possible projects which this Government might wish to suggest or recommend to the Chinese Government, it would seem that the Treasury Department would be the appropriate clearing house and reviewing agency within this Government and that the Department of State and other interested agencies should feel free to call to the attention of the Treasury Department such projects as may seem to them worthy of consideration. In this connection attention is called to Mr. Gauss’s recent despatch3 in which a number of fields of activity are suggested by Mr. Gauss as warranting consideration for extension of financial aid under the loan.4