Foreign Relations of the United States: Diplomatic Papers, 1944, China, Volume VI

893.00/10–1244

The Ambassador in China (Gauss) to the Secretary of State

No. 3053

Chungking, October 12, 1944.
[Received November 1.]

Subject: Conversations of September 19, 1944 between President Chiang Kai-shek and Mr. Donald Nelson

Sir: In compliance with the Department’s secret telegram 1293, October 5, 6 p.m.³³ on the above subject, I have the honor to enclose copies of the record of two conversations between the Generalissimo and Mr. Nelson on September 19, 1944 as recorded by Dr. K. C. Wu, Political Vice Minister for Foreign Affairs, who furnished the Embassy such copies in response to a request for the record of the conversations of the final two days of discussion.

Incidentally, Dr. Wu states that his arrangement with Mr. Nelson was that copies of the record would be sent to Mr. Nelson direct and that this had been done.

Respectfully yours,

C. E. Gauss

[Enclosure 1]

Memorandum by the Chinese Political Vice Minister for Foreign Affairs (Wu) of a Conversation Between President Chiang Kai-shek and Mr. Donald Nelson

Time: September 19, 1944, 10–12 a.m.

Others present: Minister T. V. Soong and Maj. Gen. Patrick Hurley

Recorder: Dr. K. C. Wu

President: What is your opinion of China’s present economic conditions?

Mr. Nelson: I have already talked with the heads of the various ministries, the foreign businessmen in Chungking, and a number of Chinese businessmen; and in addition I have read over different kinds of economic data. I feel that China’s economic situation is very serious, but not hopeless. As I have previously said to Your Excellency, the present condition of gradually declining production should be changed so as to produce the necessary munitions, military supplies and civilian goods. In all quarters I have discovered that the will to work has by no means diminished. However, since Your Excellency wants me to speak frankly, I am of the opinion that certain policies of the Chinese Government interfere with production.

In the first place, the present financial policy is marked by over-tightening with the result that expansion of production has become impossible. Let us take the production of munitions for example. General Yu Ta-wei, Director of the Ordnance Department, is a very capable man. However, owing to budgetary restrictions, he is unable to buy from the National Resources Commission products urgently needed by him. Owing to the effect of inflation, the prices of the products of the National Resources Commission have increased so much that the Ordnance Department, with only limited funds at its disposal, is unable to buy what it needs. The result is that the production of munitions has dropped to 55% of its former volume. This situation has compelled Director Yu to advocate that these products should be brought in from India. However, in view of the limited air tonnage and the fact that these things can all be produced in China, I propose that China ought to produce within her own territory all military supplies and civilian goods that she is able to make. To this proposal Your Excellency has previously already consented.

President: It shall be so in the future. But in the past only products not made in China were brought in by air.

Mr. Nelson: I beg to differ with Your Excellency in opinion. I can name a few things which can be produced in China.

President: Please name them.

Mr. Nelson: Take copper for example. China does produce some copper although it is not much. The American Foreign Economic Administration told me that the Chinese Ministry of Economic Affairs has excellent copper in its possession, but its price is too high so that Director Yu cannot buy it. Also, steel casings for bombs can be made in China, but imported casings are still being used owing to the high cost of making them in this country. The same thing is true of many other kinds of products.

President: The examples you have given are all facts, but the amount imported is very small. The men sent to China by the American Government in the past, whether military or political personnel, never proposed any ways and means of improving Chinese products and increasing Chinese production. Hereafter, if the United States will give us concrete assistance with respect to technique and personnel, China will surely carry out the principles you have mentioned.

Mr. Nelson: After my return to the United States I propose to send a few experts to China. One of them will be in charge of the work of making steel, another will be experienced in the management of steel works, while two others will be ordnance experts. Heretofore Chinese products were not standardized. From now on they must be standardized. Besides, there are important spare parts which China cannot manufacture such as fire-bricks needed by steel works and a small part of machinery, which must be imported from abroad. I agree that China needs technical assistance. The various ministries have also told me that they would like to see American technicians come to China. I want Your Excellency to be assured that I will see to it that this is done.

President: I thank you.

Mr. Nelson: The second factor hindering the development of production is the problem of transportation. The situation is worse than what has been reported by Americans.

China needs trucks and needs them very badly. If transportation cannot be improved, China’s economy is really in danger of collapsing. China now has only 6,000 trucks, which is even less than that of a small city in the United States. A single American army uses no less than 6,000 trucks. Owing to the shortage of spare parts, only one half of China’s 6,000 trucks can be used.

I now propose to send experts to China to assist in the repairing of trucks. The American personnel thus far sent to China only know the technique of repairing trucks but are unable to organize a repairing network. The duty of the United States is to send more trucks and spare parts to China and send experts here to organize a repairing network.

President: This is really the central point of economic reconstruction.

Mr. Nelson: If transportation is improved, it will help to force down commodity prices and check inflation. For example, the price of potato at one place is $100 per lb. while the price at another place is $22 per lb. If there is free flow of goods, the price of potato at the former place will naturally go down.

President: Quite true.

Mr. Nelson: The United States should also help China to solve the problem of fuel. Without fuel the trucks cannot move. I propose to send an alcohol expert to China. To increase the production of alcohol is to increase motive power.

I am well aware that alcohol is made from foodstuffs. But the improvement of the method of distillation will result in a higher percentage of production.

I know that fuel can also be obtained from tung oil. I shall make American research institutes study methods of obtaining fuel from tung oil. These men need not come to China as they can carry on their research and experiments in the United States. The Chinese Ministry of Economic Affairs may send tung oil experts to the United States to assist in the work.

I hope China can help herself. The United States has no ulterior motives; she only hopes that China will help herself. China should take the initiative while the United States will help her to push the work.

President: Of course I am in favor of it.

Mr. Nelson: In the process of economic development there can be no distinction between wartime and postwar period; it is really a continuous growth. The various Chinese ministries have the notion that wartime economy and postwar economy are entirely two different things and that conditions existing during the war can be completely changed in the postwar period. I wish to remind Your Excellency that there will be a way out after the war only when there is a way out during the war.

President: Yes, I agree with you. If we cannot do much during the war, we shall be able to do even less after the war.

Mr. Nelson: This is a point to which I have been paying most attention, and I know that Your Excellency concurs in my opinion. Unfortunately, the various ministries have this erroneous notion.

President: Your visit to China will correct their notion.

Mr. Nelson: This I quite understand. China has been in a state of siege for a long time. As a result of her eight years’ war of resistance and four years’ blockade by the enemy, there have been many disappointments and this phenomenon is quite natural. After my conferences with the various ministries I know they are willing to work. I only hope to correct their psychology and make them try to do better. When I come again next time, I shall make further efforts in this direction.

President: When you come again next time, this notion will surely have been corrected. This phenomenon may be attributed to two causes. First, the financial policy has been marked by over-tightening in the past. Secondly, our allies, for instance the United States, failed to give us any concrete help in the past. Our American friends merely said that China was unable to solve her problems but never suggested any means whereby the situation could be improved. I am quite hopeful that following your visit to China the situation will change for the better.

Mr. Nelson: I, too, do not despair. However, as both China and the United States are laboring under great handicaps, the improvement will perhaps be rather slow. But I shall bring experts to China to assist in the work. Under Your Excellency’s leadership progress will surely be made, and the accumulation of small improvements will result in a big improvement.

President: Yes, I think so.

Mr. Nelson: Now I wish to propose another thing which has a great deal to do with both China’s future and Sino-American cooperation: that is, the question of the Chinese Government’s attitude toward private enterprises.

In time of war, the Government of course should not give any help to merchants manufacturing luxury goods and other products not essential to the prosecution of the war. However, to those businessmen who are willing to assist in the production of wartime goods support should be given. At present it seems that Chinese businessmen are adopting a deeply apprehensive attitude toward the Government.

Chinese businessmen seem to feel that the Government has not been paying enough attention to them. Owing to inflation of the currency, the restrictions placed by the Government on the prices of Chinese businessmen’s products have often made it impossible for them to safeguard the capital they have invested. For businessmen to lose their invested capital is as serious as for the nation to lose its armed forces.

I shall not discuss the problem of commodity prices for the time being. But if the businessmen are engaged in businesses to which no objections can be raised and their efficiency is good, the Government has the duty to protect their invested capital in order to enable them to produce military supplies and necessary civilian goods while the war is going on and to preserve their vitality so that it may serve as a sort of reserve strength for postwar development.

I know this problem is very difficult. And I know of no way to bring about its solution. When I come next time, I shall study it again if Your Excellency should so desire. In the United States there are several ways of helping legitimate businessmen, such as to give them subsidies, or to buy their products at high prices, or to give them technical assistance, or even to send Government personnel to help them handle their business. For this reason, commodity prices in the United States, as compared with the prewar period, have gone up by only 20 or 40 per cent. Chinese commodity prices, on the other hand, are 500 times as high as the prewar prices.

Ever since the time of President Hoover there has been established in the United States a Reconstruction Financial [Finance] Corporation, of which I am also a member of the Board of Directors. The object of the Corporation is to check the rise of commodity prices. For instance, there are steel works whose cost of production is too high because their machinery is too old. Since the American Government needs an increased production of steel, it buys their products at high prices. So far as prices of steel are concerned, the products of larger works are sold at $54 per ton while the small works have to sell their products at $70 per ton in order to make both ends meet. Accordingly the Reconstruction Financial [Finance] Corporation buys steel from these small works at the price of $70 per ton but sells it to the munition factories at the price of $54 per ton.

When I return to China, I shall study this problem again. I wish to propose to Your Excellency that attention should be paid to legitimate private businesses which should be treated in the same way as Government enterprises in order to enable them to produce as much as possible. This bears a very close relation to China’s war of resistance and national reconstruction.

President: This is quite true. The Chinese Government has always been pursuing such a policy in the past, but it has never been strictly carried out. During the last few months we have been trying to enforce this policy. Chinese business accounting has been so backward that it is sometimes very difficult to determine whether a businessman really loses money. If a business is really losing money, it must be given protection. Please be assured that I will do as you have suggested.

Mr. Nelson: This has a great deal to do with China’s future. American bureaucrats are just like Chinese bureaucrats, but Chinese bureaucrats seem to be a little more experienced.

President: (Smiles) There are also good Chinese officials.

Mr. Nelson: So much for the first part of what I wish to say. Now I propose to discuss the problem of a War Production Board. Minister Tseng Yang-fu has asked me to map out a plan for him. As I am not familiar with conditions in China, I can only propose the following tentative plan. First of all, the War Production Board should be placed directly under Your Excellency’s control so that its policy may be decided by you from time to time.

President: That can be done.

Mr. Nelson: The object of the War Production Board is to increase the production needed in wartime. It should be responsible for directing, supervising and coordinating the various public and private production agencies, but it does not directly take part in the management.

Minister Tseng is thinking of placing the Ordnance Department and the National Resources Commission under the control of the War Production Board. This should not be done. The War Production Board is a coordinating and not an executing organ. Otherwise it is bound to get into trouble.

President: Your views are perfectly sound.

Mr. Nelson: For it is likely to lead to undesirable confusion and personal friction. For instance, Director Yu of the Ordnance Department is a very good man and his Department is a part of the Ministry of War. So we cannot very well make any changes.

President: I agree with you.

Mr. Nelson: The scope of the work of the War Production Board includes, first of all, matters concerning the production of munitions and necessary civilian goods.

The second point concerns the transportation of the aforesaid products. However, it does not mean that transportation should be directly handled by the Board; this should still be handled by the Ministry of Communications. But the War Production Board has the right to decide what things should be transported first and what things later. Suppose there are two steel works, one making munitions and the other making rails, and both obtaining their material from the same source. Although rails are very important, they are after all not as important as munitions. So our decision ought to be in favor of first transporting the material needed for producing munitions.

The third point concerns the allocation of materials. Suppose there are two munition factories, one Government-owned and the other private, but the private factory turns out munitions at a greater speed. In such a case the private factory should be given priority in the distribution of materials.

The fourth point concerns the standardization of wartime products and the improvement of technique. For instance, if the American experts sent to China recommend to the National Resources Commission a certain kind of technical improvement and the Commission ignores the suggestion, the Director of the War Production Board should have the power to compel the Commission to effect the improvement. Let us take another example. The United States originally had many firms making paints and varnishes, and their products were of many varieties. The War Production Board ordered them to standardize their products; and all firms, with the exception of those which had good reasons for making paints and varnishes for special uses, had to obey that order. In this way we were able to promote large-scale production.

The fifth point concerns the commandeering of materials. This is something very important in the United States, but I do not know whether it should be done in China. In the United States, if it is found that a certain kind of product is needed, the War Production Board may at once commandeer it from the people. If the people do not agree to the price fixed by the Government, they can bring the case before the court which will then decide upon the price. This process, however, does not interfere with the immediate commandeering of the said product by the Government.

The sixth point concerns the conservation of materials for military uses. For instance, if a man is planning to build a house but the materials are needed for the war, the War Production Board can stop him. Let us take another example. Since a great deal of steel is needed in time of war, the War Production Board can order the businessmen to use substitutes for unimportant construction. By means of the two methods mentioned above the United States has been able to save several million tons of steel.

Moreover, there should be the closest cooperation between the Director of the War Production Board and the Minister of Finance. Whenever by Your Excellency’s order there is a necessity of assisting Government-owned and private enterprises, funds should immediately be available for giving such assistance.

The War Production Board should have a Director and a Vice Director. Under them an administrative organization is necessary.

President: What organization should there be under them?

Mr. Nelson: I have prepared a chart indicating its organization. In accordance with Your Excellency’s instructions and in order to bring about effective Sino-American cooperation, I propose that following the Anglo-American precedent a “Sino-American Combined Production Committee” be established and placed on an equal footing with the Director of the Board, and that if necessary China may send representatives to join the American War Production Board.

President: Very good.

Mr. Nelson: Besides, there should be a “Wartime Production Advisory Committee” to coordinate the work of the various ministries concerned. This committee should be headed by the Director of the War Production Board and should include among its members the heads of the various ministries such as the Ministries of War, Finance, Economics, etc.

Under the Director of the War Production Board there should be seven departments: (1) Priorities department, which determines the relative urgency of the various kinds of products; (2) Manufacturing department, which is merely a coordinating organ and does not actually engage in manufacturing; (3) Raw Materials department, which controls the distribution of materials; (4) Munitions department; (5) Procurement department, which does not do any purchasing itself but is an organ for coordinating the purchasing of the various ministries; (6) Transportation department; and (7) Civilian Supplies department. This is the outline. I do not know whether it is applicable in China or not.

President: If we wish to readjust wartime production and enable it to make progress, we must do it this way. I entirely agree with you. But I think Minister Tseng is not possessed of enough prestige. You ought to be in charge of the Board.

Mr. Nelson: I am willing to help out, hoping that Minister Tseng will be able to develop the work as time goes on.

President: Minister Tseng may be the Director, but I hope you will be the one actually taking charge of the work.

Mr. Nelson: I am willing to assume the responsibility.

President: The organization of the Board presents no problem. To find the right man to do the work is the real problem. You must come to take charge of the work. The success or failure of the project entirely depends upon this.

Mr. Nelson: I hope China will gradually be able to make progress. I am willing to do the work for Your Excellency by remaining behind the scene.

President: Whether behind the scene or not, I want you to be in charge of it.

Mr. Nelson: Does Your Excellency regard the War Production Board as something of the greatest importance?

President. China should have established such a Board a long time ago. Too bad we did not have the right man to do the work.

Mr. Nelson: I shall do as much as is humanly possible to make it a success. I shall send over as many men as are required to help Minister Tseng.

This is something which not only concerns wartime; it is also closely related to the postwar period. The various ministries ought to cooperate with each other. I am willing to help Your Excellency in the training of the necessary talents who will be able to take up the work. The most important point about the training of talents is that they must be men who have will power.

President: If you can come back to China to take charge of the work, success is assured; otherwise it is rather doubtful. The various ministries are each working for their own interests and have no wartime conceptions. For this reason it is necessary for you to come here to take charge of the work. This is the foundation for postwar economic reconstruction and will serve to cultivate the conception of coordination between the various ministries.

Mr. Nelson: I am greatly inspired to hear this. After my return to the United States I shall consult with the President.

President: It cannot be successful unless you take charge of it.

Mr. Nelson: I shall ask the President to permit me to do so.

President: In my opinion, you should not only be chief adviser to the War Production Board but should also serve as chief economic adviser to the Chairman of the National Government. Only in this way can we make it a success.

Mr. Nelson: Although I have met Your Excellency only for a short time, I will do my best to help you when I have obtained the permission of the President. I believe the peace of Asia needs a strong China playing the leading role in Asiatic affairs and the United States should help you. When I return to the United States I shall tell the President that the situation in China is not hopeless. If we all do our best, progress can be made every day.

President: Your return to China will give us the greatest hope. If you do not come, then it would appear that China is hopeless. Your work in the field of American war production has already been completed. If you can come to take charge of China’s economic development, it will be a historic event. I hope you can come to take charge of it.

Mr. Nelson: I thank Your Excellency. The peace of the world requires the reconstruction of China as its basis. I shall try to impress this conception upon the American Congress.

President: In our talks of the last few days we have found our views to be entirely the same. I regard you as a Chinese citizen and wish to entrust to you the entire responsibility for China’s economic reconstruction.

Mr. Nelson: This is the highest compliment that has ever been paid to me in my life.

President: Only if American military officers are like you …

Mr. Nelson: I understand.

President: I will unconditionally invest in you all China’s economic powers.

Mr. Nelson: I do not know yet what is the next appointment the President will give me. At any rate, I am immensely interested in the conditions in China. You have such wonderful opportunities in this country—opportunities which anybody would be glad to have.

[Enclosure 2]

Memorandum by the Chinese Political Vice Minister for Foreign Affairs (Wu) of a Conversation Between President Chiang Kai-shek and Mr. Donald Nelson

Time: September 19, 1944, 4–5:30 p.m.

Others present: Minister T. V. Soong and Maj. General Patrick Hurley
(General Hurley withdrew upon the arrival of General Stilwell)

Recorder: Dr. K. C. Wu

Mr. Nelson: As I have already told Your Excellency, postwar economic problems really represent a continued development of the various kinds of wartime problems. China’s postwar reconstruction requires close Sino-American cooperation. The United States can supply China with capital, including products and money, and this is purely a business proposition. American readiness to supply China with capital is predicated upon the supposition that China will be able to pay it back in the future.

I already have in mind many enterprises for the promotion of which Chinese private individuals can at once cooperate with American industrialists. The parties concerned may start by discussing how they can best cooperate with each other, with what industries they should begin, where they should first launch their project, and other problems of this kind. The sooner such arrangements are made, the better will it be. Steps can be taken even before the conclusion of the war against Japan.

After the conclusion of the war against Germany, the United States will have a great deal of productive power to be devoted to the establishment of textile factories, including such processes as spinning, weaving, dyeing, printing, etc. If China has a full-fledged textile industry, she will be able not only to supply her own needs but also to sell her goods in such places as the South Sea Islands, Burma and North Africa. For this reason we must make a start right now. As the Japanese gradually fall back before the Allied advance, we can proceed with the erection of buildings and other arrangements in order to lay a general foundation for China’s textile industry. This will give the Chinese people new hopes. If Your Excellency agrees to it, I shall report to President Roosevelt upon my return to the United States, summon a conference of the leading American textile experts, and also send experts to China to make arrangements.

Besides, there are many small industries for which we can at once start to make plans. One example which may be cited here is new ceramic products. The markets which the Japanese had in the South Seas region and the Near East in the past can all be taken over by China. The reason why I pay attention to small industries is that they are things in which we can make a start right now and are unlike steel works and machine shops which require a much longer time for their completion.

As I have told Your Excellency before, I shall report to President Roosevelt and ask him to despatch a seven-man committee to China. Among these seven men there will be one textile expert, one steel expert, one motive power expert, one enlightened banker, one consumer goods expert. For instance, China was formerly a producer of novel bronze articles. This market can be regained. On her part, China can at once designate the heads of seven ministries to consult these seven men on the steps to be taken. In the meantime, the financial authorities ought to effect co-ordination with private capital and help the development of various enterprises by means of long-term loans.

President: What experts will be the other two members of this seven-man committee?

Mr. Nelson: One will be an authority on export trade and the other a railroad expert.

President: How about a machinery expert?

Mr. Nelson: I have not yet thought of this point. There are so many different kinds of machinery that it is impossible for one man to know everything. The railroad expert I mentioned is a man who knows everything about railroad equipment.

The development of machinery depends upon the production of steel. China now can try to manufacture agricultural implements and simple machinery for loading goods. Such machinery as cranes cannot be made for the time being. In my opinion, machinery of this kind cannot be manufactured until four or five years from now.

President: How about automobile plants and the production of spare parts?

Mr. Nelson: The manufacture of automobiles requires many kinds of special products such as a special kind of steel, glass and textile. In the United States an automobile plant requires around five hundred different kinds of finely made products. These things China is not yet in a position to make at present.

I am thinking of establishing a truck assembling plant in China. China can make the body of the truck while the United States can supply the spare parts. Later on China can make everything by herself.

Furthermore, even an automobile plant of the smallest scale requires from five hundred thousand to one million dollars in American currency from the very beginning. And its products will not be able to compete with American products. Every year the United States turns out more than one million trucks which are sold all over the world. Even in Great Britain, American trucks are generally used. I am therefore of the opinion that China would do well to start with small industries.

Besides, China needs motive power. Unless China can discover new coal mines, the coal now produced by China is far from being enough to meet the requirements of motive power. Hydroelectric power, however, is the easiest as well as the best. An American expert in China has talked to me about a gigantic scheme. He is Dr. Savage, who is now working with the National Resources Commission. Dr. Savage is the best hydroelectric expert in the world. He is now drawing up a plan for the construction of a huge dam on the Yangtze River. This project is very economical and easy to carry out. The volume of water will be very big, and yet the land to be submerged will be extremely small in area.

If this project is carried out, it will be able to do many things for China. Ships of 3,000 tons can directly sail to Chungking, the floods of the Yangtze River can be prevented, and the farms of Central China can be irrigated. The electric power to be generated will double that of the Boulder Dam in the United States. In the beginning there will be 1,000,000 kilowatts, but finally it will reach 10,000,000 kilowatts.

The cost of construction of this project will be $800,000,000 in American currency, which can be obtained in the form of long-term loans. The loans can be paid back in the following three ways: (1) up-river ships should be required to pay a passage fee; (2) owners of the fields irrigated should pay an increment tax in view of the increased production; and (3) sale of electricity. Owing to the cheapness of the electricity generated, different kinds of industries such as aluminum plants will spring up. Since China produces very little copper, she can use aluminum to take its place, and aluminum is a much better conductor of electricity than copper. Plants for the manufacturing of chemical products such as bleaching powder and sulphuric acid can also be set up by making use of this hydroelectric power. Their products will not only be used in China but can also be sold abroad. In addition, many kinds of steel products can be manufactured, electric heaters, furnaces and stoves being one of them.

I have not yet been able to find time to study this project in detail, but I have very seldom come across any project as good as this. What is more, this project does not require too much time as it can be completed in six years.

As to the organization for carrying out this project, I think it can be managed along the lines of the Tennessee Valley Administration (TVA) in the United States. The Government can entirely entrust to it the management of the dam until all the loans have been paid back. At the same time, the Administration should be responsible for raising funds for the establishment of different kinds of factories and should also secure and develop markets for them.

During the period when the Soviet Union first began her work of reconstruction, she built a huge dam at Dnepropetrovsk to give her people new hopes and to show her inclination toward industrialization. After the outbreak of the war, this dam was voluntarily destroyed. But she is now buying the necessary equipment in preparation for the repairs to be made when the war is over. The great Yangtze dam cannot fail to give the Chinese people new hopes.

By utilizing the electric power thus generated China can start to establish many small industries, making them self-sufficient as they continue to develop and thereby helping to increase the Chinese people’s income.

For instance, it will make possible the establishment of a full-fledged textile industry. The establishment of such an industry is very easy and at the same time it can be co-ordinated with agricultural products. Moreover, their products can be sold in the markets of the world.

Silk, hemp, linen and rayon industries can also be developed. Mr. K. P. Chen has told me that China is planning to buy textile machinery from Great Britain. This kind of machinery can also be supplied by the United States.

I have had long talks with officials of the various ministries. Many of them are in favor of following the example of the Soviet Union in carrying out China’s reconstruction. The Soviet method, however, has to be ruthless in the beginning to the total disregard of the people’s interests. Some of them are in favor of Government operation of the industries, which has a tinge of socialism. But I have asked them: Where can the necessary funds be obtained? According to my estimate, $3,000,000,000 in American currency will be required at the beginning if the Government is to operate the industries. I do not believe the American Congress will approve of the extension of such a huge loan to China.

I am therefore of the opinion that only public utilities and the trunk lines of the railroads should be owned by the Government. The other industries, like those which I mentioned a moment ago, should be operated by private individuals as the management will be easier and quicker results will be obtained. Shipping, branch lines of railroads and highway transportation can all be operated by private individuals. In the case of highway transportation, the Government can repair the highways while the transportation companies should be required to bear the expenses.

President: Railroads are of the greatest importance. President Roosevelt has said that the old railroads in the United States can be sold to China.

Mr. Nelson: The dismantling of railroads is very difficult in the United States owing to the unwillingness of the people living in the neighborhood. During this war, the American Government did plan to remove a certain railroad to another place to meet the needs of the war, but the plan was very strongly opposed by the neighboring cities.

The problem of communications is indeed the most important problem in the postwar period. Railroads, highways and water transportation should be closely co-ordinated into a network. This has not been done in the United States because of the independent development of these different forms of communication in the past. China should pay attention to this problem in the future.

After my return to the United States, I shall report to President Roosevelt and make it possible for the seven-man committee I mentioned before to come to China early next year. The different kinds of plans should be mapped out before the end of next year, and these plans should be definite instead of being vague and impracticable.

With regard to the Yangtze dam, I shall propose that the American Congress approve of the extension of a fifty-year long-term loan to China for its construction. Hydroelectric power is well-developed in Japan, but there has never been any project of this kind. If the great Yangtze dam is successfully completed, the electricity generated by it will be very cheap. In the United States, the cost of one kilowatt of hydroelectric power is $150 gold. In the case of the Yangtze dam, the cost should not be more than $100 gold per kilowatt. Moreover, the land to be submerged will be only fifty-six square miles.

33. Not printed; it requested a copy of the record of conversations made by the Chinese Vice Minister for Foreign Affairs. (893.00/10–544)