893.51/7640: Telegram
The Ambassador in China (Gauss) to the Secretary of State
[Received October 9—1:25 p.m.]
1147. For the Secretary of the Treasury from Adler.
TF–63. Had an informal conversation with Dr. Kung covering work of Board, current economic situation, and Sino-American financial relations.
1. Re work of Board, Dr. Kung expressed the hope that we were adopting as lenient a policy as possible in granting exchange for commercial imports.
I answered in the affirmative, pointing out that amounts involved were very small, as the only routes from India were by air and via Tibet. He raised possibility of Board’s granting exchange for commercial imports from Russia which is accepting United States dollars for its exports to China. I indicated Board was only too anxious to facilitate imports into China and was sure it would be willing to investigate this possibility. Before Board formally takes up the question, therefore, I should appreciate your letting me know whether you approve in principle the Board’s granting United States dollars exchange for commercial imports from Russia.
2. Re current economic situation, Dr. Kung agreed China’s main problem now not military or political but economic.
- (a)
- He felt drastic budgetary curtailment was essential. (In this connection, Dr. T. F. Tsiang, head of the Political Department of the Executive Yuan, informed me yesterday that cuts in expenditures to the extent of 6% to 8% could and should be made in the draft 1943 budget the Executive Yuan was now working on.[)]
- (b)
- He was inclined to think universal price ceiling scheme impractical in China.
- (c)
- In order to mop up fapi in pleasing of public, he was considering establishing a free gold market and reducing the maturity periods of the various United States dollar-backed securities the Chinese Government has issued.
3. Re Sino-American financial relations, Dr. Kung indicated that in accordance with his promise to consult you on the uses of the American loan to China, he would take no action on 2 (c) above until he had officially consulted you, which he intended doing shortly.
The amount of gold Dr. Kung is contemplating using for internal sale is about United States dollars 20,000,000 or roughly that amount, he informed me, as he had just repaid the Treasury in settlement of 1937 stabilization arrangement. Once he had obtained your consent he would purchase in such event gold from the Treasury—presumably with funds from the 1942 American loan.
[Page 540]He then raised the question referred to in part II (b) of your 834 of September 14, again indicating he intended officially consulting you on the matter in the near future before taking action.
(b) Finally Dr. Kung brought up the difficulties foreigners were experiencing as a result of rising prices. He was particularly anxious to alleviate the lot of the United States Army. The only special exchange rate he appeared to be considering was one for the United States currency the United States Army in China is in receipt of. [Adler.]