893.24/1575: Telegram

The Chargé in China (Vincent) to the Secretary of State

492. Department’s 313, March 9, 6 p.m.

Army authorities have handed me copy of draft reverse Lend-Lease agreement. They have discussed matter with me and shown me General Stilwell’s telegram to War Department. It is assumed that War Department has made substance of the telegram available to the Department.19 Stilwell and other army officers here are not favorably impressed by proposed agreement although Stilwell does not reject it. He states that in its present form it will have little effect on situation and that only an agreement which provides a realistic rate of exchange will obtain practical relief for the military.
It is advisable and advantageous, Embassy believes, to have a reverse Lend-Lease agreement with China and the draft agreement would seem to serve the ends desired. Firstly, for political reasons we should have such an agreement with China. Secondly, the American Treasury and tax payer should be relieved of the financial charge which the present unreasonable rate of exchange imposes—I refer to our Government’s expenditures here in the form of allowances and per diems to officers and employees and to excessive charges for rent and other services which derive from the disparity between the actual purchasing value of the Chinese dollar (less than 1 cent United States) and the exchange value of 5 cents.
There would seem to be two practical ways in which the above mentioned charges could be transferred from the American Treasury [Page 531] to the Chinese Government under the contemplated reverse Lend-Lease agreement without the necessity of fixing a special rate. All allowances, per diems and charges for services in Chinese currency could be paid from fund to be established by Chinese Government and accounted for separately; that is, separately from such basic charges as United States dollar salaries of officers and employees, rent allowances and allowances for support of families in United States, which would continue to be paid by American Government. The Department and other civilian agencies of Government would continue to grant allowances and per diems, stating them in Chinese currency, and increase them as the purchasing power of Chinese dollar falls, as will inevitably be the case. Payments for rent and other services in Chinese currency would in a similar manner become a direct charge against Chinese Government funds. Neither now nor later would there by [be] any necessity to establish a special rate of exchange. The other manner of handling the matter would be to charge all payments made locally in Chinese currency, including salaries et cetera to the Chinese Government fund, as I recall Dr. Soong suggesting, and decide upon some equitable rate for settlement after termination of the war.
I have discussed the matter with civilian officers of their branches of the Government here and find them in general accord with Embassy’s views. If practical the agreement should be made retroactive to January 1, 1942. The Embassy is preparing a proposed sliding scale to provide a systematic basis for determining special allowances to meet rises in cost of living.
I am not familiar with the Army’s problems, but it seems to me that a system of allowances or per diems such as we and other civilian agencies of the Government here have adopted could be adopted to the requirements of army personnel in such a way as to obviate the necessity of fixing a definite rate of exchange. I have not had an opportunity to discuss the matter with General Stilwell who is in India.
A reverse Lend-Lease agreement would of course leave unsolved the problem of American eleemosynary remittances and remittances from overseas Chinese and also financing problems of other officials in China. The Department knows of the suggestion that the Ministry of Finance match remittances dollar for dollar. There are rumors in Chungking that Dr. Kung20 plans to lower the rate of exchange (30 to 1 is mentioned), but these rumors may derive from the circumstance that the Ministry of Finance, I am confidentially informed, is giving some consideration to the matter of granting a special rate for diplomatic and foreign government establishments in China. [Page 532] There is no assurance, however, that such consideration will be translated into action.
  1. The War Department informed the Department of State of General Stilwell’s views in a letter dated April 5, 1943 (893.24/1579).
  2. H. H, Kung, Chinese Minister of Finance.