893.51/7520
Memorandum by the Adviser on Political Relations (Hornbeck)
Reference, Dr. T. V. Soong’s letter of March 19 to the Under Secretary of the Treasury, Mr. Bell, regarding the draft, in modified form, of Article II of the proposed loan agreement.
My surmise is that the Generalissimo is taking his position upon recommendation made to him by advisers (Chinese) who are making of this a political poker game; that they are trying to force the United States Government into a position assumption of which by it will not [Page 487] only give the Chinese the $500,000,000 “without strings” but will score for them a first-class diplomatic victory the consequences of which in the long run will be good neither for this country nor for China.
Chiang Kai-shek first asked, in December, for a loan. Now it would appear that he is asking for a gift. This is, in my conjecture, a product of clever maneuvering on the part of his advisers.
In evidence, witness excerpts from telegrams, herewith.
Mr. Gauss, on December 30, 1941, in telegram 548, December 30, 6 p.m.,14 stated that General Chiang had sent for him on that day and, after reviewing recent measures for military and political collaboration with the United States and Great Britain, had stated that America and Britain must help China financially. Mr. Gauss said, “he wants a credit of about $1,000,000,000 American dollars”; he has asked the British Government to provide about half of this; he said that the proposed loan would be used partially for a domestic bond issue designed to curb inflation. “The Generalissimo stated that plans for the use of the proposed loan or credit were being worked out by experts and advisers but meanwhile he desired me to make the proposal to my Government and when the loan is assured the proposals for its application can be put forward.”
On January 9, Mr. Fox telegraphed the Secretary of the Treasury (Chungking’s 29, January 9, 2 p.m.) transmitting a message from Dr. Kung. Kung stated that China had been fighting for four and a half years with untold sacrifices and heavy strain on her resources; her financial and economic situation was now in precarious state; it was necessary to keep control of prices and currency without curtailing production; “if financial and economic front, already very critical, should collapse, impossible to carry on war”; “therefore, I appeal to you for a $500,000,000 political war loan”.
On January 9 Mr. Fox telegraphed the Secretary of the Treasury (Chungking’s 30, January 9, 3 p.m.). Inter alia, he said: “If impracticable to tie up Stabilization Board with loan could American representation be provided not as a protection for the United States but in order to make certain that most effective use would be made of funds in strengthening financial and economic structure of China?”
Mr. Gauss, on March 1, 1942, in telegram 176, March 1, noon, states that he has learned in strict confidence that the Ministry of Finance had received from Washington a draft of a Sino-American loan agreement. He had been told that the Ministry of Finance resented the provision for consultation and that it was “disappointed to find that the loan is not granted as an absolute gift in recognition of …15 [Page 488] China’s contribution to the general war effort.” “One prominent and intelligent Chinese banker has stated privately that the loan was obtained too easily to be appreciated or to insure provision for its effective use.” In conclusion, Mr. Gauss says: “I am convinced that we should be firm in insisting upon retention of the provision for consultation with the object of having some degree of control over the manner in which the large loan is expended. As I have verified in previous telegrams and in my despatch number 266 of January 8, I am more of the opinion that controls and allocation of portions of the loan for specific purposes will prove to be in the best interests of China as well as in our best interests.”
The matter has gone so far (and so) that I must confess I am at a loss for an idea of anything to do that would put this Government in what I would regard as a satisfactory position. As a possible alternative to complete capitulation, we might turn the tables by taking a position that, in as much as the Congressional authorization provides for “a loan, a credit or other financial aid”, we are not prepared to make an unconditional gift in the amount of $500,000,000 but would be willing to enter upon an agreement for making $X available on the terms which China demands, leaving the remainder of the $500,000,000 for future consideration on the basis of a loan or a credit. Should it be decided that the Chinese demand must be acceded to, it is believed that consideration should be given to the possible desirability of consulting the chairmen of certain Congressional committees before casting the die.
- Foreign Relations, 1941, vol. v, p. 768.↩
- Omission indicated in the original.↩