893.24/1716
The Ambassador in China (Gauss) to the Secretary of State
[Received May 23.]
Sir: I have the honor to enclose copy of a memorandum dated May 4th, 1944,97 prepared by Dr. Arthur N. Young, (American) adviser to the Ministry of Finance, advocating as a major policy the importation of goods into China, to sustain China’s economy, check inflation, add to the supply of goods directly, indirectly to induce hoarders to sell, to permit sale of goods on Chinese Government account to raise revenue without fresh note issues, to serve as payment in kind for carrying out military projects, and to effect rehabilitation immediately after the military phase of the war operations.
I understand that Dr. Young has made copies of the memorandum (prepared for the Minister of Finance) available to the U. S. Army headquarters, and to the military lend-lease officer (Colonel Gaud); and that he is also in contact with Messrs. Dawson and Staley of UNRRA.97a
The memorandum advocates importation of goods in substantial quantities as soon as sea communication is open. It states that as soon as surface transport is opened there should be large scale imports. Meanwhile, it is maintained, some goods should be brought by air at the earliest possible moment.
It is proposed that C–46 planes (capable of carrying heavier loads than the present C–47’s) should be made available to the China National Aviation Corporation at the rate of 10 planes monthly, to provide the needed increase in airborne tonnage.
[Page 920]The memorandum seeks to show the types of goods which might be brought in; goods necessary to meet immediate requirements, as well as for purposes of rehabilitation.
The Department will recall from the Embassy’s telegram No. 412, March 3, 9 a.m., and its despatch No. 2264, March 4, 1944 (regarding the financing of U. S. Army expenditures in China), that the Minister of Finance and other officers in the Chinese Government have recently been giving emphasis to the need for importation of goods as a major measure to sustain China’s economy and to check inflation.
The Ministry of Finance has been anxious to increase the air tonnage into China from Assam in order to provide approximately 2,000 tons a month of commercial goods. Through the Ministry of Communications, it was requested that C–46 planes be substituted for the C–47 planes at present being flown by the China National Aviation Corporation, so as to increase the “hump” tonnage. It is my understanding that this request was referred through military lend-lease channels to the War Department and that a reply was received to the effect that all allocations of C–46 planes for 1944 have already been made and none are available for the Assam–China service of C. N. A. C.
The question of increased air tonnage into China is not dependent only on the provision of additional planes. There are involved such additional problems as (1) the limitations on the present “air corridor” between Kunming and Assam, (2) air base facilities in Assam, (3) shortage of gasoline stocks and spare parts, and (4) limitations on the haulage capacity of the Assam railway, and of the water route up the Brahmaputra, et cetera.
And, of course, of overwhelming importance is the need for all available air tonnage to supply our air force in China, as well as the transportation of arms and munitions for the Chinese military establishment.
It is my understanding that Lieutenant General Joseph Stilwell, commanding the American forces in this theater, is firmly opposed to the use of air tonnage for the purpose of importing commercial goods into China, insisting that all available tonnage and any possible increased tonnage must be used for military purposes.
The Chinese, however, persist in emphasizing the need for commercial goods to aid China’s rapidly deteriorating economy and to check the runaway inflation.
On the overall problem, no one can dispute the soundness of the Chinese argument for the early and rapid development of means of supply of consumer goods for China. On the problem of air transport for such goods, no intelligent observer can deny that some attention must be given to the rapidly deteriorating economic position. [Page 921] The military attitude on the subject should be tempered by intelligent consideration of the difficult and rapidly deteriorating economic position. I am not inclined to agree with Minister of Finance Kung that the importation of say 2,000 tons of commercial cargo monthly would have a marked effect on the economic situation and serve to steady and improve the price situation. In my conversations with Dr. Young he has not advanced such an idea, but he does insist that the psychological effect of importations by air would be encouraging. On page 2 of his memorandum he speaks of “suitable publicity to obtain the maximum psychological effect” of importations by air in the effort to combat inflation. One wonders whether such publicity regarding the movement of commercial cargo would have a beneficial effect on the public attitude in regard to the war.
It is likely that the Chinese pressure for the provision of some measure of increased air transport—by providing C–46 planes to C. N. A. C. in lieu of C–47’s—will be persistent and increasing. I believe that consideration should be given to the possibility of gradually allocating such C–46’s to the C. N. A. C. service. On the other hand, I feel that a more cooperative attitude on the part of the Minister of Finance in the matter of U. S. Army financing arrangements in China—a more realistic attitude on this vital problem—should precede any announcement of intention to increase the air tonnage for the purpose of providing transport for commercial goods.
Respectfully yours,