033.1193 Nelson, Donald M./6–645

The Ambassador in China (Hurley) to the Secretary of State

No. 460

Sir: Supplementing my telegram no. 876 of May 30, 3 p.m. I have the honor to enclose for the information of the Department a copy of [Page 1429]a secret memorandum dated May 2919 entitled “The 1945 Objectives of the Chinese War Production Board” prepared by Mr. A. T. Kearney, ranking officer of the Nelson Mission.

This report was discussed at a meeting at my house on May 29 attended by Messrs. Kearney and Brooks of the Nelson Mission, Brigadier General George Olmsted, and representatives of the FEA and of the Embassy. As stated in my telegram it was agreed that if it is possible to obtain a more effective degree of cooperation from the Chinese Government, it will be recommended that the Mission be retained in approximately its present form at least until a port and corridor for the supply of China have been opened.

A study of the report indicates that the principal obstacle to success has been the Chinese Government itself, which has not in the opinion of those present at the meeting extended the degree of support to the Mission which that group could legitimately have expected to receive, and in fact must receive if war production in this country is to be substantially increased. As pointed out by Mr. Kearney in his memorandum, production for the four months, January to April 1945, has not risen to the extent anticipated for the reason that the Chinese Government (Executive Yuan) has not provided the requisite funds, in which connection Mr. Kearney states that “one of our main tasks is to help the WPB get the appropriation it needs to purchase munitions and essential civilian supplies in quantities equal to the productive capacity of Free China’s industries”. A second problem is to help the Chinese WPB obtain the authority necessary to establish the ceiling price on coal and other commodities. Mr. Kearney continued:

“These are issues that even the Chinese chairman of the Board cannot resolve. They are so fundamental, so far-reaching in their economic and political effects, that they can be decided only by the Generalissimo. And since we are convinced that the whole Chinese war production effort will continue to limp along in second gear unless these issues are settled once and for all, it is planned to present them to him as persuasively and as promptly as possible.”

In regard to the problem of obtaining funds, General Olmsted made the suggestion, which I understand is still under study, that an arrangement be made with the Chinese Government whereby Army Headquarters would make the necessary advances in Chinese currency (thus short circuiting the cumbersome proceedings involving appropriations by the Executive Yuan). The amount so advanced would be deducted in whole or in part (depending on end use of the commodity produced) from the total in Chinese currency, in the liquidation of our Army accounts of a given quarter.

[Page 1430]

As stated in my telegram no. 876 I shall seek an early opportunity to discuss the problem with Generalissimo Chiang Kai-shek, first ascertaining the views of General Wedemeyer and General Olmsted in the light of the then prevailing situation.

Although the achievement of the Nelson Mission has not measured up to the goal which they set for themselves at the beginning of the year, I wish to record that in my opinion the Mission has nevertheless accomplished an extremely valuable piece of work in ascertaining facts, and in determining exactly what is the productive capacity of Free China at the present time in such essential commodities as coal and coke, iron and steel, electric power, alcohol, textiles, etc. The technical advisors attached to the Mission have impressed me as being thoroughly competent and their findings have practically eliminated the possibility of any substantial margin of error in estimating such capacity. This in itself is a very important contribution since without such information no accurate analysis of the economic picture of Free China would be possible, and moreover no reply would have been possible to somewhat extravagant statements which Chinese producers have been prone to make in the past. In other words, the area of uncertainty has been reduced to a minimum and our military authorities have been able to ascertain exactly where they stand with regard to the Chinese war production potential. I consider that this has been a very substantial achievement, for which all the present members of the Mission and Messrs. Kearney and Brooks in particular, are entitled to full credit.

I shall report further as developments occur. In the meantime the Department may care to make this despatch available to Mr. Edwin A. Locke.

Respectfully yours,

Patrick J. Hurley
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