Foreign Relations of the United States: Diplomatic Papers, 1943, China

893.51/7725

Document Prepared in the Department of State

[Washington,] December 27, 1943.

Reference Mr. Gauss’ “Secret—Not for Distribution” telegram 2478, December 23, 3 p.m.; the Secretary of the Treasury’s letter to the Secretary of State of December 20, and Mr. Gauss’ “Strictly Confidential …¹⁰ Not for Distribution” telegram 2361, December 9, 3 p.m.: all bearing on the subject of an intimated request by the Chinese Government for a loan by the United States Government of $1,000,000,000.

The indications are that the Chinese Government has applied to this Government for a loan of $1,000,000,000, and this memorandum will be posited on an assumption that such is the fact.

The problem which is thus presented is one of very wide and very serious import. It is important in economic, in political and in psychological aspects. It calls for most careful consideration both as regards the substance of the decision at which this Government may arrive and as regards the handling of the decision in the field of diplomatic action. The economic features of the question presented are of substantial importance, but comparatively speaking the political and psychological features are capable of being, from the long-swing point of view, of considerably greater ultimate consequence.

In its telegram of December 9, the Embassy at Chungking, in anticipation, stated: “We here perceive no sound basis, political or economic, for supporting any such loan proposal at this time”; and the Embassy expressed itself vigorously and categorically in support of that view as regarded political and psychological considerations reflective of its appraisal of the present situation within China. In his memorandum for the President of December 18, the Secretary of the Treasury discussed the question from the economic point of view and, in the light especially of experience of recent years, advanced the opinion “that a loan is unnecessary at this time and would be undesirable from the point of view of China and the United States.”

In its telegram of December 23, the Embassy at Chungking, reporting on a conversation with President Chiang and Madame Chiang, reaffirms the position which it took in its telegram of December 9, expresses the opinion that “An American loan will not help the economic situation in China at this time”, and emphasizes the view that “extensive successful military operations alone will do so.”

There are indications that the subject of this loan was broached by Chiang at the Cairo Conference. There have been heard rumors to the effect that Chiang was given encouragement to believe that the requests by China for such a loan would meet with favorable response. There are indications, also, that Chiang strongly urged that a campaign for the reopening of the Burma Road be embarked upon at once; and rumors have been heard and have been seen in print to the effect that Chiang was told that this could not be done. Whatever the facts may be so far as the Cairo Conference is concerned, China’s desire for a loan has apparently been formally expressed and operations for the reopening of the Burma Road have not been embarked upon.

Granting that a loan by the United States to China at this time, if made, could not be defended and would not be justified on economic grounds, and accepting at face value—for purposes of this discussion—the appraisal given by the Embassy of the present political and military situation within China, there remains imperative need to consider the broad and the long-swing political and psychological aspects of the problem which is presented by President Chiang’s approach and China’s request.

During the past two years, and especially within recent months, the Chinese have been given, in appearance at least, a preferred position among the United Nations; they have been accorded a place as one of the four powers among and by whom leadership is assumed and of whom leadership is expected toward the winning of the war and establishing of an international organization for the safeguarding of the security and the advancing of the welfare of the United Nations. During a longer period, the Chinese, in their resistance to Japan have received encouragement and support from the United States. In the according to the Chinese by official action of their new position in world affairs the United States has taken a leading part. In regard to the problem of victory over Japan and the problem of security arrangements thereafter in Southeastern Asia and the Pacific, China and the united have, greater concern than have any other powers, and, the concepts and desires of China and of the United States more nearly coincide than do those of any other powers. China and the United States take china seriously and we evaluate China’s potentialities more highly than do any other powers. The Chinese have come to expect of the United States sympathy, friendly cooperation and generous support.

In the postwar world the attitude of and the position taken by the Chinese is going to be of importance in the alignment of the powers. In the relations of the United States, Great Britain and the Soviet Union there are bound to be stresses and strains. The Soviet Union is in all probability going to be powerful. The Soviet Union is in all probability going to create problems for Great Britain, create problems for the United States, and create problems for Great Britain and the United States. There is in all probability not going to be clear sailing in relations between Great Britain and the United States: there will be competition and controversy in regard to matters economic and in regard to matters political. The attitude of China vis-à-vis Great Britain and the United States and the Soviet Union will be of importance. That China be a well-disposed member of the “Big Four” combination is desirable. But, that, when there comes stresses and strains in the relations of the United States with, on the one hand Great Britain and with, on the other hand the Soviet Union, China be well disposed toward the United States is, from point of view of United States interests and concerns, even more imperatively desirable.

Notwithstanding the fact that Great Britain and the Soviet Union have assented—though somewhat grudgingly—to the giving to China of a place in the “Big Four” group, the Chinese have been and continue to be suspicious of Great Britain and apprehensive of the Soviet Union. The Chinese have been and are very little suspicious of the United States and not at all apprehensive of the United States; they have, comparatively speaking, confidence in us and they are, comparatively speaking, well disposed toward us. As friendship between nations goes, it can accurately be said that the United States and China are natural and actual friends and allies. As community of interest between nations goes, it can accurately be said that in regard to the defeat of Japan and in regard to establishing conditions of security and welfare in and around the Pacific Ocean the United States and China have a primacy of common interest.

It is important, especially for postwar purposes, that the present attitude of the Chinese toward the United States be maintained. It is important that nothing be allowed to develop from which it might result that China withdraw from confidence in and reliance upon the United States, and move into a position of reliance upon the Soviet Union or acceptance of the Japanese thesis that oriental peoples must-combine in opposition to the influence of occidental peoples. In the postwar period, the United States will need, in connection with relations with Great Britain and in connection with relations with the Soviet Union the good will of China toward her major associates and particularly toward the United States.

We and our allies are still at war. The military experts say that we have a considerable distance to go before victory over the Nazis and a long distance to go before victory over Japan. So long as we remain at war, military considerations come first, political considerations second and economic considerations third in order of assessed importance. That being the case, the military and political aspects of the question of a loan now to China take precedence over the economic aspects. In connection with the military and political considerations, psychological factors are of substantial importance.

It therefore is imperatively desirable that the military, the political and the psychological aspects of this Chinese request for a loan be examined from every angle and in all their bearings, both short-swing and long-swing.

Should a decision be made not to respond favorably to the Chinese request, the problem how most diplomatically to say “no” should be carefully considered and skillfully handled.

II

There is warrant for serious doubt whether we should under any circumstances give to this Chinese request a flat refusal. It is believed that we might to advantage explore and act upon the possibility of taking advantage of this request as a springboard or even a foundation for a negotiation with the Chinese envisaging a meeting by them of certain needs and desiderata of ours in exchange for a loan by us to them of a part at least of the amount which they request. We should keep in mind the fact that at the time when the loan which we made them some time ago of $500,000,000 was under discussion point was made on both sides that in all probability there would arise a need and a request on the part of the Chinese for another loan, and that then and subsequently there has been consideration of ways and means whereby further assistance by this country to China might be afforded. It should also be kept in mind that in order to be in position to grant such a loan to China, in any amount, the executive branch of this Government will have to go to the legislative branch—which fact gives us the basis on which to explain to the Chinese the necessity for taking time to consider the matter.

Even in this period of large financial outlays, a request by China for a loan of $1,000,000,000 is a large request and, as a proposal, should be scrutinized in a large way. Were a proposal comparable to this made to a private banking firm, it may be assumed that in all probability the firm thus approached would assign to several of its best men the task of making an exhaustive study of the proposal. Our problem is by no means exactly analogous to that with which those men would be dealing—for, they would be considering their problem almost exclusively from a financial point of view; yet, they would be taking into consideration political as well as economic factors; our concern, however, is broader than would be theirs and, for that reason, the study which we should make of the question should be even more careful than that which they would make were the problem theirs. This leads to a query of whether a practical way of going about dealing with this question might not be that of choosing and sending to China to look into this matter a commissioner or a group of commissioners who might confer with Chinese officials and with American authorities on the spot, make as thorough a study as time and conditions would permit of the situation, and make recommendations both to us and to the Chinese in the premises. A variant might be the establishing of a joint American-Chinese commission to study the question and make recommendations. An additional but very important function of a joint American-Chinese commission might be a study of China’s post-war reconstruction problems and a formulation of a detailed and balanced program containing an analysis of China’s transportation, industrial and agricultural needs and suggesting methods of providing funds and matériel to meet those needs. A loan, if granted, would thus be linked with the important objective of American collaboration in the post-war reconstruction of China, and the joint commission might perhaps be used as an agency for initiating such collaboration.

In any event, from the political point of view, it is strongly urged that in our consideration of this Chinese request we go beyond mere consideration of the question whether China at this moment needs such a loan and whether such a loan now would serve useful immediate economic and political ends, and that we address ourselves to the question whether we might not make the fact of this Chinese approach become of service to us in pursuit of important ends which are both of short-swing and of long-swing concern to us; and that we by all means endeavor to avoid having to give the Chinese anything in the nature of a flat refusal.

10. Omission indicated in the original.