893.5151/975: Telegram
The Ambassador in China (Gauss) to the Secretary of State
[Received 1:35 p.m.]
2365. Re matter of reverse Lend-Lease or some other arrangement re exchange financing of United States Army and other expenditures in China (re your 1751, December 6), Kung’s reaction to Treasury proposals has certainly not been encouraging (see our 2228, November 24, noon and 2235, November 25, 10 a.m.). Adler is awaiting comment from Treasury before pressing matter further, but is far from sanguine that further informal approaches will be productive.
Our proposals for reverse Lend-Lease equally received little satisfactory reaction from Kung (see our 2085, November 5, 2 p.m.) and within production [sic] of Treasury proposals I have not felt that I should press the Lend-Lease suggestion.
War Department’s tentative proposal in event of failure Treasury negotiations is merely a repetition of proposal put forward by General Somervell (see our 1990, October 20, 6 p.m.) except that it raises amount required monthly from 5 to 600 million Chinese dollars. Kung’s reaction to Somervell plan was plainly adverse. New War Department proposal will certainly meet cold reception.
Treasury may wish to push its negotiations further. If they do not succeed, I recommend that State, Treasury, War, FEA and other interested war agencies should consult and a strong formal approach should then be made to Chinese Government for reasonable equitable financial exchange arrangements preferable within the general framework of reverse Lend-Lease but assuring China of some reasonable accumulations of United States dollars resources.
[Page 582]I feel that, as China is highly sensitive to United States public opinion and criticism, some carefully controlled publicity on existing arbitrary exchange situation in China as affecting costs we must pay for financing war effort here—costs 8 to 10 times those payable for comparable services and facilities in United States—and possible suggestion of Congressional interest in the matter would have beneficial effect here in lighting a fire under those inclined to be non-cooperative and evasive and desirous of continuing to exploit the situation to accumulate large United States dollars reserves out of our war expenditures.