893.24/1672: Telegram
The Ambassador in China (Gauss) to the Secretary of State
[Received 11:15 p.m.]
2085. Reference my 2005, October 22 and previous on reverse Lend-Lease. On October 26 Foreign Minister informed me he had discussed matter with Finance Minister and had no objection to my seeing latter personally. I was unable obtain appointment till yesterday when Atcheson and I saw Kung and carefully outlined situation, referring [Page 570] to basic Lend-Lease agreement, proposals for reverse Lend-Lease, needs for our Army stated by Somervell now to be approaching 500,000,000 Chinese dollars monthly, situation arising out of official exchange rate which finds cost of airport and other facilities provided by our Army 8 to 10 times costs in United States, reaction and criticism likely to result from this situation, needs of American civilian agencies in China, and necessity of Chinese cooperation in establishing equitable and realistic basis for meeting financial needs of American military and civilian agencies in China either by implementation of proposed reverse Lend-Lease or by adequate special exchange adjustments (see your 1565, October 31, 3 [1] p.m.).
Kung was affable and friendly but, while assuring me that he and Gissimo55 and Chinese Government are disposed to do anything possible to help American Government, he gave no indication that matter has in fact had serious study or that any realistic and satisfactory solution will soon be forthcoming. He made it plain, he has no intention of changing present artificial exchange rate, and as to reverse Lend-Lease said he had been surprised that American Army expenditures were of such magnitude as suggested by Somervell, commented that while China would study whether it could give financial aid to us in present situation China might have to turn again to United States for further financial assistance (tending to confirm a suspicion I have had for some time that before long China will be asking for another loan), and as to my intimation (see your 1565) that authorization has been given for our civil agencies temporarily to make use of same facilities as our Army in obtaining Chinese currency, that is by use of U. S. currency in China, said he had no objection but queried whether this might not lead to Congressional criticism and also intimated that U. S. currency [from?] Army forces is finding its way to Shanghai and to the Japs.
Kung talked away from every point made by us and while repeating assurances of desire to be of assistance to American Government gave no indication that any realistic or substantial arrangement is likely soon to be proposed.
I intend to have a further conversation on subject with Foreign Minister but we understand confidentially that latter has been having family trouble with his brothers-in-law and sisters56 and his influence in financial matters in which Kung has support of the Gissimo is limited.
I do not anticipate that any proposal from Chinese side, even if forthcoming, will offer substantial relief for our financial problems in China. Our approach heretofore has been informal. I now suggest [Page 571] for consideration a formal approach in precise terms as from our Government following consultations between State, Treasury, War and other agencies concerned.