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Memorandum of Conversation, by Mr. Edward E. Rice of the Division of Far Eastern Affairs 36

Participants: Dr. Shuhsi Hsü of the Chinese Ministry of Foreign Affairs
Paul Chu of China Defense Supplies and
Mr. Edward E. Rice

Mr. Rice was introduced to Dr. Hsü, by Mr. Chu, at a small social function during the course of which they had the conversation related below.

Dr. Hsü said that the most imminent and serious danger faced by China is financial and economic and that he fears inflation may soon reach a point where the currency system will break down and governmental functions, including national defense, become impossible of performance. He professed to fear that with China out of the war, defeat of Japan by the United States might become impossible. He stated that the defeat of Germany at least in North Africa and possibly in Europe may be necessary or desirable before our full weight is thrown against Japan, but that meanwhile more effective action must be taken on China’s behalf if that country is to be kept in the war.

Mr. Rice asked Dr. Hsü how much longer he considers present inflationary tendencies can continue before a collapse in the money economy occurs. He replied that he does not believe it possible to judge this mathematically, that Germany’s position after the first war, for instance, cannot be taken as a basis for judgment because of differences in the economies of the two countries, but that he did think the position might become untenable by the time of the next budget. He added that the Chinese financial economy can be saved only by giving China access to physical goods needed by that country, [Page 32] and that such goods could not enter China in adequate quantities without the recapture of Burma and the reopening of the Burma Road.

Dr. Hsü expressed cynicism with regard to the possibility of Burma’s being reoccupied in time to save the situation. At this point Mr. Chu stated that the Chinese authorities hear much of General Stilwell’s plans, but that it seemed very doubtful that they would be implemented. Dr. Hsü held that the Indian situation would be at least materially eased if British troops now in India were to reoccupy Burma, for this would quiet those Indians who desire to be rid of rule by a power which appeared, in view of failure in nearby areas, unable to protect them and whose presence in India might serve to invite attack.

At no time did Dr. Hsü indicate a belief that the Chinese Government would consider surrendering to Japan. China, he appears to believe, will fight to the so-called bitter end, but he considers that end much nearer than Americans realize and much more bitter than he himself dares contemplate. He added that he considered that the responsible Chinese have been too reticent and too afraid of hurting American sensibilities and that greater frankness in presenting the true Chinese situation was needed. Mr. Rice stated that possibly Chinese officials have been too reticent with respect to revelation of conditions prevailing within China, but had not been reticent with regard to desire for greater aid from the United States. As an instance, he pointed out that several Chinese officials are lending their names to the China Monthly, which prints articles demanding increased aid to China and severely criticizing both the Department of State and American foreign policy. Dr. Hsü said he was glad to hear this, which he considered an encouraging manifestation.

Dr. Hsü said he considered the survival of China depends upon the infallibility of a few high American strategists. He criticized President Roosevelt, in this connection, for devoting attention to domestic politics and for leaving questions of strategy to the military. Mr. Rice gave the opinion that the President has devoted much attention to strategical and other questions related to the war, that his deep knowledge of and close attention to naval affairs is well known, and that concern with domestic administration must remain essential to winning the war so long as the United States is an economic and industrial base producing the means of waging war for ourselves and other United Nations.

In summary, it might be added that Dr. Hsü revealed an apparent depth of bitterness, with respect to presentday Sino-American relations, which is rarely encountered.

  1. Initialed by the Chief of the Division (Hamilton). Copy forwarded to the Embassy in China in instruction No. 261, March 23, not printed.