893.24/1492a: Telegram

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

76. 1. Consideration has been given by officers of this Department, of the War Department, and of the Lend-Lease Administration to the possibility of concluding a so-called reverse Lend-Lease agreement with China similar to those already concluded with Great Britain, Australia and New Zealand. There have been some informal indications reported to the Department that the Chinese Government is itself desirous of entering into such an agreement. The Department has, however, itself received no such intimations and would be glad to have your comments on this matter.

2. In communications that have been exchanged between the War Department and General Stilwell on this subject, General Stilwell has indicated his view that any arrangement in the reverse lend-lease field should not affect his freedom to procure equipment, services and supplies by methods other than reverse lend-lease process or interfere with continuation of various military works now being undertaken by the Chinese Government. We are in complete agreement with General Stilwell on the foregoing matters and would certainly ensure that his wishes be observed in any agreement that is negotiated. Would you please talk with General Stilwell and ascertain whether if his interests in these phases of the subject were ensured he would have any objection to the conclusion of a reverse lend-lease agreement. Will you also please point out to him that among the possible specific advantages which might be derived from such an agreement, consideration would be given to obtaining the agreement of the Chinese Government that it would undertake to pay to our military establishment [Page 523] in China, as a credit on reverse lend lease, sufficient fapi to make up for the present disparity of the dollar at the official rate of exchange. It is also quite possible that we might propose to the Chinese Government that they cover other official establishments in China of this Government on the same basis. We wish to be sure that General Stilwell would see no objection to such action from a military point of view.

3. Our own thought on this matter has been along the lines that a reverse lend-lease agreement might be politically desirable. Such an agreement it seems to us would have the advantage of bringing about an increased measure of Chinese participation with us in joint war effort. If the Chinese themselves are desirous that such an agreement be entered into we would be inclined to welcome any suggestion from them to that effect.

4. Will you please send us such information as is available to you on the above matters together with your views and recommendations.