893.51/10–1144
Memorandum of Conversation, by Mr. Edwin F. Stanton, Special Assistant to the Director of the Office of Far Eastern Affairs (Grew)17
Colonel Pforzheimer18 called this afternoon and said that General Richards, Chief of the Budget Bureau of the General Staff, had now become involved in the matter of a settlement with the Chinese of the question of United States military expenditures in China. Mr. Stanton inquired what developments had taken place since the Bretton Woods conference, at which time it was his recollection that General Clay had made an offer to Dr. Kung, Minister of Finance, to settle this question by payment of a lump sum of $100,000,000.
Colonel Pforzheimer stated that General Clay’s offer had been rejected by the Chinese; that the Treasury, which had been conducting negotiations in behalf of the Army, offered to increase the amount to $125,000,000; that the Chinese refusal of that offer had resulted in a further offer by the Army in the the amount of $150,000,000 to cover all expenditures up to June 30, 1944; that this offer had also been turned down by Dr. Kung; and that finally the sum of $210,000,000 lad been offered to cover all expenditures up to September 30, 1944 ($150,000,000 plus $60,000,000 for the period July 1–September 30). According to Colonel Pforzheimer, the most recent offer was made on October 6 and was made on the basis of a Chinese figure of CN$22,000,000,000, covering expenditures up to September 30, 1944. Colonel Pforzheimer pointed out that this would work out at a rate of approximately CN$100 to US$1.00, which was considerably more favorable to the Chinese than the rate of approximately CN$140 to US$1.00, which would have been realized on the basis of the settlement offered at Bretton Woods.
Colonel Pforzheimer stated that General Richards was concerned with two phases of this problem, firstly, whether any serious political repercussions were likely in China in the event that the Army stood firm on the last offer; and, secondly, whether the Army would be able to justify to the Congress the exceedingly high cost of the supplies furnished and services rendered by the Chinese. As regards the latter point, he stated that the Army felt it would have great difficulty in justifying these expenditures and that it could not go beyond the last proposal made to the Chinese without getting into serious difficulties with the Congress and perhaps stirring up undesirable publicity. With respect to the other problem, Colonel Pforzheimer [Page 942] stated that General Richards felt that the political implications of the settlement should be given careful consideration by the War Department. In this connection, he inquired whether in Mr. Stanton’s opinion the last offer was reasonable and whether the adoption of a firm position by the Army on the basis of the most recent proposal would be likely to have any serious political repercussions in China. Mr. Stanton said it appeared to him that the offer in question was reasonable and that he did not believe a firm stand by the War Department on the basis of the last offer would cause any serious political repercussions in China. It was pointed out, however, that the Department at one time had been concerned over the possibility that the very large expenditures connected with construction of airfields and the utilization of several hundred thousand Chinese farmers and laborers might have a serious effect upon China’s precarious internal economy but that reports received from our Embassy at Chungking, from Treasury representatives in China and from other sources indicated that such expenditures had not had a disastrous effect upon internal economic conditions. Mr. Stanton added it was his understanding that the Department was anxious to see this question settled at an early date along lines reasonably satisfactory both to the Chinese and to the War Department.
Colonel Pforzheimer was requested to keep the Department currently informed of developments. He said that he would be glad to do so.