893.00/8–1544
Memorandum for President Roosevelt Prepared in the Department of State49
It is probable that Dr. H. H. Kung will wish to call on you soon. There are suggested below certain topics which you may wish to discuss with Dr. Kung.
[Page 142]The Department has recently received a somewhat encouraging report that the Generalissimo has taken steps to form a committee of high ranking officials to study the Chinese Communist problem with a view to arranging a settlement. You may wish in this connection to mention your telegram50 of several weeks ago to Chiang in which, on the basis of Vice President Wallace’s report of his conversations in Chungking, you telegraphed Chiang expressing satisfaction over his statement that only political means would be used to settle with the Communists and his statement that he desired a betterment of relations between China and the USSR. You may recall that you expressed the belief to Chiang that a settlement with the Chinese Communists might facilitate any move toward better understanding with the USSR.
In the foregoing connection it is believed that, not only a settlement with the Communists is urgently desirable but that the Chinese Government should take steps to broaden the base of its support by bringing into the government influential non-Kuomintang elements. Ambassador Gauss has suggested the convocation of a national convention, representative of all elements in the country, with broad powers to direct national policy and to achieve a greater degree of unity and popular support than now exists in prosecuting the war. It is not believed that such action would radically change the situation in China with respect to the prosecution of the war but it would probably prevent further deterioration in the situation and might in some degree strengthen Chinese military resistance.
Dr. Kung in recent addresses in this country adopted an encouraging and liberal viewpoint with regard to post-war commercial relations between China and American business interests.51 You may wish to mention to Dr. Kung that reports from China indicate an unsatisfactory situation with regard to Chinese laws and regulations to govern foreign enterprise in China, Americans find the regulations unnecessarily restrictive and lacking in clarity. For instance, it is understood that contemplated regulations for the establishment of foreign banks are so restrictive that it is unlikely that American banking institutions will attempt to establish branches in China. Furthermore, regulations governing restriction of foreign firms are found to be complicated and onerous. There is also a seeming Chinese conception that the principal task of the Government is to regulate and control the flow of American capital to China rather than to encourage that flow. In this connection Dr. Kung might be reminded of the famous statement of Li Ping, the ancient Chinese who constructed the irrigation works at Kwanhsien, Szechwan, several thousand years [Page 143] ago. He said: “Keep your dikes low and dig deep your ditches”. In general, you might wish to express the hope to Kung that China will at an early date initiate concrete measures to clarify to American businessmen the basis upon which they may be able to operate in China, pointing out that the breadth and liberality of the basis upon which they may be able to operate will have much to do with the degree to which economic collaboration in the post war period, so much desired by both Americans and Chinese, will develop in a mutually beneficial manner.
Dr. Kung may mention the discussions at Bretton Woods52 regarding accounting and settlement for our military expenses in China for the period February–June 1944. (Mr. Morgenthau53 sent you an account of the discussions). Kung was offered US$25,000,000 a month for the five month period and told that, although we consider this amount covered all expenditures on our behalf (except those for troop maintenance which Kung said China wished to bear), he might feel free to include a disputed four billion Chinese dollars for air field construction in a reverse Lend-Lease agreement which China might wish to negotiate with us. The question of rates of exchange was avoided in the discussions. It is suggested that you inform Kung that we consider that the foregoing terms are generous and that they are the best we intend to offer.54
- Drafted by the Chief of the Division of Chinese Affairs (Vincent) and submitted to the Under Secretary of State. On August 11 Mr. Stettinius had suggested to the Director of the Office of Far Eastern Affairs (Grew) that such a memorandum be prepared.↩
- See telegram No. 955, July 14, 4 p.m., to the Ambassador in China, p. 245.↩
- For correspondence on this subject, see pp. 1040 ff.↩
- For correspondence on the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 1–22, 1944, see vol. ii, pp. 106 ff.↩
- Henry Morgenthau, Jr., Secretary of the Treasury.↩
- For correspondence on this subject, see pp. 824 ff.↩