893.51/7753: Telegram
The Ambassador in China (Gauss) to the Secretary of State
[Received 3:40 p.m.]
412. 1. Dr. Edward Acheson, Army Financial Adviser, and Counselor of the Embassy George Atcheson called on Dr. Kung by appointment evening February 29, former to lay before Kung estimated financial requirements of our military and latter to inform Kung as [we] were instructed in Department’s 251, February 19, that his counterproposals of February 3 were not considered by the U. S. Government to be reasonable or satisfactory and then to depart. While the call was to be very informal they found Kung had with him T. V. Soong, the two Vice Ministers of Finance, the General Manager of the Central Bank, the General Secretary of Exchange Control Commission and later the Chief of Aeronautical Commission (see Embassy’s 374, February 24).
2. Kung at first received the comment in regard to his counterproposals with ill grace and objected to the use of the term “not reasonable” but quickly resumed his usual affable role and asked Counselor Atcheson to remain for the ensuing discussion.
3. Dr. Acheson handed Kung an informal memo listing various military projects and indicating that Army’s needs including Chengtu are now estimated at about 5 billion Chinese per month for March, April, May and June (this is a modification of his previous estimate [Page 888] of 6 billion a month for this period. He says it is at present impossible to offer reasonable estimate for 6 months from July to December). He commented that the main question for the moment was how much China’s economy could stand by way of additional note issue for these expenditures and said that we did not of course wish to propose a financial burden which would break the economic front and in turn prevent the carrying out of our military program; that is, the problem was how much of our program could be effectuated without threatening economic collapse and there was the corollary problem for the American side of what projects and plans would have to be abandoned if Chinese Government considered that the financial part of the program could not be undertaken. Soong (who said very little throughout) remarked that Kung could not give immediate reply to a problem of such magnitude which would require careful study by the Government. In the course of discussion Kung said that it would greatly help China to bear the burden if the U. S. which was supplying “even food” to Russia and British could provide China with sufficient transport planes to bring in 2,000 tons of commodities per month (chemical spare parts for motor trucks, medicines, cloth). Atcheson said he did not know the transportation requirements of our force in South Pacific and elsewhere but we would be glad to refer the matter to Washington and Dr. Acheson made similar comments. (It is understood HQS will communicate with War Department in this matter). The tenor of Kung’s remarks was that this would be something of a necessary quid pro quo and Embassy feels it is important that it be given the most favorable consideration which is practicable under the circumstances.
Dr. Acheson raised questions in regard to various projects approved by Gmo which have not gone forward since November, 1943, for lack of allocation of funds by Chinese Government. Kung, his Vice Ministers, and General Manager of Central Bank said they knew nothing of any failure to allocate funds; the Chief of Aeronautical Commission also professed ignorance and did not have knowledge of even the existence of one of the most urgently necessary projects which have suffered delay. Kung called on Minister of Communications but could not locate him and said he would look into the matter. As regards question of providing 5 billion for March (March 1 has been set by the Gmo as the day the U. S. Army would have to look after itself—Embassy’s 106, January 16), Kung indicated that advance of funds would be made but said the Army should have to fly in notes from the U. S., an arrangement for which Army is seeking approval of War Department. While during conversation there was general discussion of question of rate of exchange, specific discussion ensued in regard to a rate of conversion for this particular advance.
[Page 889]4. We understand War Department has deposited $25,000,000 U. S. currency with Chase Bank as payment on account of advances received or to be received from Chinese Government (rate of conversion to be decided by present negotiations) and is arranging to ship 20,000,000 U. S. currency by air to meet Kung’s request for funds with which to endeavor to control Chinese currency market, 5,000,000 thereof to be brought into China as experiment and remainder to be held in India until satisfactory agreement is reached on question of exchange rate.