811.20 Defense (M)/14225: Telegram

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

1520. Embassy’s 1194 [1494], August 17, (OEW’s 35). Mr. Fowler has asked us to express an opinion in this matter.

We do not favor the bringing of pressure upon the Ministry of Finance to provide subsidies to Government agencies which handle the commodities and we concur in the view of OEW (Department’s 752, June 14) that we should not be concerned with the Chinese Government’s interdepartmental financial arrangements.

We also concur in the view of OEW, as we understand it, that endeavor should be made to arrange for purchase of strategic materials at fixed prices in United States dollars independent of Chinese exchange fluctuations for delivery at specified air fields. As presumably the Chinese Government does not profit from our loss in exchange under the present arrangement we believe that it is correct to say that no actual financial loss to the Chinese Government would be involved if it accepted payment in United States dollars credited to its account in the United States.

The entire problem seems to resolve itself into the question of how badly we need the materials or need to keep them from the enemy, and consequently the question of how much we are willing to pay for them. If as indicated in Department’s 1092, August 12,24 we are in position to set a limit upon what we consider desirable to pay in terms of U. S. dollars, and if we inform the Chinese that we will not pay more it is not unlikely that direct pressure upon the Chinese Government would not be required to cause the Chinese Government to make more or less suitable interdepartmental financial arrangements to ensure the procurement transportation, et cetera of the materials. The Chinese Government would probably feel that cessation of the purchases would involve so much loss of face on its part (that is, China might appear to the world as having failed to do its share in connection with one aspect of the war effort in which China is capable of doing its share) that the Chinese Government would feel it necessary to take steps to avoid such ill appearance.

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