893.51/7756
The Ambassador in China (Gauss) to the Secretary of State
[Received March 20.]
Sir: I have the honor to refer to the Embassy’s secret telegram no. 412, March 3, 9 a.m., in regard to a conversation between Dr. Edward C. Acheson, financial adviser to General Stilwell’s Headquarters, the Counselor of Embassy and Dr. H. H. Kung, Chinese Minister of Finance, on February 29, 1944, on the question of the [Page 891] financing of U. S. Army expenditures in China, and to enclose,76 for purposes of detailed record, a memorandum of that conversation, which was summarized in the telegram under reference. Attached to this enclosure is a copy of an informal memorandum (addressed by Dr. Acheson to General Hearn), tabulating the Army’s financial requirements, which was handed by Dr. Acheson to Dr. Kung during the conversation in question. At first Dr. Acheson had included therein figures for the six months July–December 1944 totaling approximately CN$9,000,000,000 but as these figures were largely conjectural and as it is impossible to chart with any degree of accuracy the course of the inflationary spiral Dr. Acheson has since discarded those figures.
With reference to Dr. Kung’s request that the American Government provide China sufficient transport planes to bring into this country 2,000 tons monthly of certain commodities to assist in retarding the sharply increasing inflation (paragraph 3 of Embassy’s 412, March 3), there are enclosed76 list of goods which might be so imported with detailed descriptions of them prepared under date of February 26, 1944 by Dr. Arthur N. Young, American adviser to the Ministry of Finance, together with a recapitulation dated March 2 also prepared by Dr. Young.
Dr. Young has compiled his lists on the basis of two units of 100 tons each and from the recapitulation it will be noted that, according to his reckoning, the approximate value per ton of the 1st unit is slightly over CN$5 million; that the value of the 2nd unit is slightly over CN$4 million; and that there is drawn an interesting comparison with importations of banknotes: CN$5.00 denomination (which it is understood, are not now being printed) being worth CN$3,500,000 a ton or almost CN$1,500,000 less than the 1st unit of goods and $10,000 denomination being worth CN$7,000,000 a ton or less than the value of two tons (1st and 2nd units) of commodities. The value of the commodities as stated is, of course, the present open market value; importations would force these prices down. (Dr. Young has included in his lists a few “luxury items” which could—and should—be eliminated; assumably they are listed for the purpose of indicating the fantastic open market prices.)
While Dr. Young and Dr. Kung admit that importation of goods on so small a scale will not halt the inflationary process, it is their contention that the commencement and maintenance of regular importations would have definite result in retarding inflation by reason of the psychological effect which the resumption of importation of commercial commodities would have both upon merchants and upon [Page 892] consumers—and that as one of the principal immediate benefits it would cause hoarders to disgorge their hoardings and at once bring down prices.
This proposal, we believe, was initiated by Dr. T. V. Soong. Dr. Soong, Dr. Kung and Dr. Young put considerable store by it. As Dr. Kung indicated during the conversation of February 29 that provision of such transport facilities into China was in the nature of a necessary quid pro quo to the Chinese Government endeavoring to undertake the huge economic burden which effectuation of our military plans would place upon it, and as provision of such transport would constitute a new earnest of our desire to help in every practicable way to alleviate that burden, we stated in our telegram 412 that we considered it important that the proposal be given the most favorable consideration practicable. It may be added here that should it be found feasible to approve the proposal, its implementation would go far, in the Embassy’s opinion, to offset the deep resentment felt by General Chiang Kai-shek and other officials over the continuing postponement of a Burma campaign and over the Chinese Government’s failure to obtain a new loan from the United States. We do not, of course, believe that implementation of the proposal would by any means come near to solving China’s problems in regard to inflation. We consider (and Mr. Adler of the Treasury concurs) that it would have to an appreciable extent the effects predicted by Dr. Young and that it would thereby tend to offset in part the adverse impact of our military expenditures upon China’s economy—an impact which may indeed become disastrous and which should be counteracted by all means that may be found available if only because, as mentioned in our telegram no. 374, February 24, economic collapse would of itself prevent the carrying out of our military plans.
Respectfully yours,