893.51/7440: Telegram

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

244. From Adler for Fox, care Secretary of the Treasury:

“No. 22. 1. Y. C. Koo34 informed me on March 17 that Ministry of Finance has been placed in embarrassing position as a result of public criticism of Ministry for not having revealed its plans for use of loan. Moreover, adoption of agreement in final form may take some time, and there is urgent need for some Government action to deal with deteriorating economic situation here. Ministry has hopes for going ahead on its plans for as long as possible, but it must obtain governmental indorsement for them and make necessary preparations for their execution. Therefore Ministry hopes plans now being formulated for new Chinese Government flotations native backing of part of United States loan will not be misunderstood by Treasury. Such action, he assured me, is in no way intended to violate the spirit of cooperation existing between the two Allies nor to obviate discussion on best methods of using loan.

2. Ministry of Finance is now pushing for adoption of following measures:

Flotation of a United States dollar-backed bond issue with a 10-year maturity, paying 4 percent per annum, and to be redeemable in United States dollars. [It?] asserts the Executive Yuan has already endorsed this measure, but it has not yet been decided whether to give designated purchases a bonus by a flat discount in purchase price of bond or by selling bonds at an exchange rate more favorable than official rate. This measure has to go before Supreme Defense Council and its subcommittee on finance, and also the Legislative Yuan for ratification. Sale of bonds would probably not start before May.
The four Government banks to accept savings deposits of 1, 2 and 3 years duration, paying 3, 3½ and 4% per annum respectively, and to be repayable in United States dollars at a rate of 5 United States cents per National dollar. Ministry is apparently contemplating reduction in official exchange rate to 5 cents before plan is promulgated.

It is intended to back (a) and (b) with United States dollars 100,000,000 each from American loan.

3. In course of conversation with Doctor Kung on March 18 above was corroborated. Y. C. Koo was evidently reflecting Ministry’s attitude.”

  1. Chinese Vice Minister of Finance.