893.51/7733: Telegram

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

108. Following are our comments on our Nos. 105 and 106 of January 16:

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While we are not informed of military and other understandings reached at Cairo we have reason to believe Chiang’s attitude in part reflects his reported disappointment over changes in strategies related to Burma said to have been made subsequent to the Cairo meeting, involving further serious delay in reopening of gateway for inflow of goods into China, which offers only real hope of ameliorating China’s present desperate and rapidly deteriorating economic situation.

But there is no sound basis for threatening to let our Army here shift for itself if we do not give China a large loan, which cannot materially benefit her present economic situation. Nor is there any sound basis for refusing adamantly to consider revision of exchange rate for Army expenditures, either by outright reduction or through medium of reverse lend-lease. In our conversations over past few months with intelligent and informed Chinese on subject of economic situation, we have yet to find one who could suggest that a further American loan at this time would be of any present benefit to China. We know in strictest confidence that American Adviser to Ministry Finance31 recommended to Kung that a realistic approach to the matter of our Army expenditures should be made and that rate of 60 or 75 to I should be adopted, preferably by way of reverse lend-lease, but he got nowhere in his efforts.

While Chiang rejected the suggestion to send a commission to China to confer on the proposals made by our Treasury, he has not entirely closed the door to such a commission provided it comes to discuss his proposals, i. e., a loan or assumption by our Army of all [Page 840] its expenses in China theater without financial or material assistance from China.

If there were any possible means within our knowledge which we could provide to aid China at this time either to transform her contribution to the general war effort into something affirmative or to maintain the present economic situation without continuing rapid deterioration I would heartily advocate it. I would at all times prefer to see us operate in China without Chinese aid. We could entirely justify our heavy expenditures here on the basis of spiraling prices which China must at the same time meet in her own operations. But to have to increase those heavy expenditures another five times because of the unrealistic attitude on the exchange rate creates a situation which should it become known in United States would readily lead to the charge of exploitation and react unfavorably for China.

Not being informed on commitments or military and other plans, we cannot suggest how far if at all pressure might be brought on China, but we are of opinion that however unpleasant the present developments may be, and however unfortunate it may be that there should be disagreement with China over money matters, we should maintain a firm position, declining to be coerced by threats and petulant gestures.

I may add that our conversation last evening was calm and friendly on both sides and that both Generalissimo and Madame Chiang were most cordial throughout.

  1. Arthur N. Young.