811.20 Defense (M)/14170: Telegram

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

1494. Reference your letter July 13.20 I am convinced that we cannot expect official rate of exchange to be changed to cover purchase strategic materials or in land transportation charges inasmuch as on August 14, after an hour’s frank and friendly conversation with Minister of Finance, during which he read above letter, he stated that if the official rate should be changed to 40 to 1 he was certain costs and prices would immediately double.

I am convinced that the only way to avoid payment for strategic materials at increasingly higher prices is to decide definitely that U. S. dollar costs cannot be increased to keep pace with the inflationary Chinese dollar, to inform the Chinese officially to this effect, in future to buy at an air field delivery price in U. S. dollars, and to urge that the Minister of Finance provide a subsidy to Chinese Government agencies handling commodities if required by them to cover increased costs because of Chinese dollar inflation. The above conviction is based on Washington’s official attitude that these costs will not be covered under a reciprocal Lend-Lease agreement21 if and when made. In all my conversations with Chinese officials during the past three [Page 657] months I have urged that the foregoing be done and will continue to do so but if objective is to be obtained pressure from your end must also be applied.

If the suggestion had been followed that we make a supplemental contract with NRC to pay a transportation bonus of from 35 cents to 70 cents per pound, as contained in Embassy’s telegram No. 670 of May 822 and which would have been payable at 20 to 1, we would have been expected to increase that bonus just as we are now being asked to do for bristles so as to meet increased inflationary costs. That suggestion was opposed by us, but, as I have already reported to you, tungsten kept moving, probably under a subsidy.

In order to meet deficits caused by inflationary increases in costs and transportation charges, the Minister of Finance on August 14, so I am reliably informed, allotted a further sum of CN 120,000,000 as a subsidy for the Ministry of Economics and NRC.

So as to pay for upkeep of highways at inflationary wages, there is included in the truck freight rate of CN 35.70 per ton kilometer a highway tax of CN 12. The American Army is paying all these charges for its eastbound tonnage, which it states will increase monthly to from 2 to 3000 tons, at a rate of 20 to 1. Therefore we are in effect paying inflationary costs and China is not making any contribution toward supplying for the war effort these badly needed materials to the United Nations or war supplies to her own front lines.

Fooshing22a cannot lose if we pay them one United States dollar per each on 20 of their increasing inflationary cost of materials and transport charges; they have a certain sum to operate on and are not expected to lose money nor make money. In respect to transport charges this was agreed to, thus making it more difficult, under the terms of that agreement, to urge a subsidy for cargo covered therein. On August 16 we conferred with Fooshing and showed them a copy of your July 13 letter which they had not yet received. They promised to recheck cost and for this year’s cargo to quote lower if possible. They also promised, in regard to transport costs, to confer with Government officials although they were not optimistic of accomplishing much if anything. They are powerless themselves to do anything although they agree reasonableness our viewpoint.

Inform Currie.

OEW’s23 35 for Rosenthal, Goldberg from Fowler.

  1. Not found in Department files.
  2. For correspondence on this subject, see pp. 515 ff.
  3. Not printed.
  4. Foo Shing Trading Corporation.
  5. Office of Economic Warfare, successor to Board of Economic Warfare.