893.51/7–1944: Telegram
The Secretary of State to the Ambassador in China (Gauss)
Washington, July 19,
1944—8 p.m.
985. Following is the substance of a message from Secretary Morgenthau to the President:
- (1)
- We held lengthy discussions at Bretton Woods Sunday (July 16) with Dr. Kung in an endeavor to reach agreement regarding payment for expenditures in China by and on behalf of U. S. Army. State was represented by Vincent and Luthringer. War was represented by Major General Clay, Director of Materials, Army Service Forces, and Major General Carter, Fiscal Director.
- (2)
- Clay offered cash settlement of US$125 million (25 million of which has already been paid) for 5–month period February–June covering outlay for that period of approximately 12½ billion yuan. Clay also offered to pay for maintenance and housing construction costs of U. S. troops but Kung stated that Chinese Government would prefer to bear this cost because U. S. troops were “guests” in China.
- (3)
- The figure of US$25 million a month for 5 months is based upon your telegram of January 26 to Generalissimo Chiang11 in which you stated that “our Army expenditures in China during the next few months can be expected to be somewhere in the neighborhood of 25 million U. S. dollars each month.” Without reference to the artificial rate of 20 to 1 and without suggesting a realistic rate of exchange, Clay argued that US $125 million had a close relation to what it would have cost our Army in the United States to obtain services and construction similar to those obtained in China.
- (4)
- Disagreement arose over whether the figure of US$25 million a month was intended to include construction costs of airfields (in particular those in the Chengtu area). We maintained that it did. Kung maintained that it did not, arguing that the 25 million mentioned by you was for “ordinary” Army expenditures. He mentioned your conversation with Chiang at Cairo in support of his position but presented no written evidence. We pointed out that we were not informed regarding those conversations but that your telegram to Chiang in January was subsequent to the Cairo meeting.
- (5)
- In conclusion, Clay suggested, with my concurrence, that Kung might wish to make a claim for cost of airfield construction (Kung had mentioned the figure of 4 billion yuan) under reverse lend-lease if and when a reverse lend-lease agreement is reached with China. I pointed out that this suggestion, while agreeable to me as a generous gesture, did not prejudice our position that the lump sum offer of 125 million, according to our knowledge of the matter, should be considered as full payment for all expenditures by and on behalf of the U. S. Army in China for the period February–June.
- (6)
- Clay repeated his offer of a lump sum payment and also requested, as he had done earlier in the conversation, that the Chinese Government agree to a payment of US$20 million per month for the period July–September to cover all expenditures in Chinese yuan by and on behalf of the Army for that period exclusive of troop maintenance costs.
- (7)
- Kung said that he would have to refer the matter to the Generalissimo.
- (8)
- We feel that the terms offered are more than fair, are generous in fact, and we recommend a firm stand. We do not feel that there will be political repercussions in China which would warrant material deviation from the stand we have taken.
Hull