Foreign Relations of the United States: Diplomatic Papers, 1945, The Far East, China, Volume VII

893.51/12–2445: Telegram

The Acting Secretary of State to the Chargé in China (Robertson)

Washington, December 24, 1945—11 a.m.

2057. For General Marshall. In accordance with our conversation of December 14,⁹⁷ you will receive a series of telegrams on:

a. Settlement of war accounts including sales of surplus property, lend-lease settlement, settlement of yuan advances from the Chinese Government and eventual settlement of the $500 million loan account.

b. Consideration affecting interim and long-term credits for reconstruction and development.

c. The furnishing of coastal and river ships.

d. The furnishing of transport planes.

e. The proposed treaty of friendship, commerce and navigation.

f. UNRRA programs.

The above topics are of course in addition to the general political aims of your mission. The present message contains certain information and expresses the views of the Department with regard to category b. Matters relating primarily to further financial assistance to China will generally require review by the National Advisory Council on International Monetary and Financial Problems before they can be regarded as the position of this Government. They will be taken up by the Council in the immediate future. The Council was established by Congress to coordinate the policy of agencies of the Government with regard to foreign loans and financial transactions.

Your reaction to any aspects of this message will be most useful.

(1) The Chinese Government has requested ExImBank to advance an immediate credit of $560 million toward a 3-year program of reconstruction requiring about $2 billion. The Chinese allege that certain U. S. officials have promised the former amount, but neither the Department, the ExImBank, nor the National Advisory Council on International Monetary and Financial Problems recognize such a commitment.

(2) For your general information the existing Chinese financial situation may be described as follows:

(a) Present holdings of the Chinese Government are estimated at approximately $862,000,000. This estimate includes gold in United States, 79; dollar balances and other short-term assets in United States, 668; amount intended by China for textile purchases, 15; gold in China, 100. Private Chinese holdings of approximately $433 million include New York balances of 160 held by the Chinese Government as reserve against its outstanding dollar bonds and savings certificates; estimated gold in China, 60; private Chinese balances in United States, 90; securities and other property in United States, 98; estimated United States currency in China, 25. Adler can supplement above from current Treasury telegrams.

Treasury in the past has estimated that no more than approximately $500 million dollars are needed by Chinese Government as a reserve for the future stabilization of a new currency. It appears, therefore, that Chinese Government, without reference to private holdings, has more than $350 million in gold or dollar balances in excess of probable currency stabilization requirements. This estimate excludes additional funds to be derived from United States settlement of yuan advances during 1945, and costs to China of acquiring lend-lease or surplus property.

(b) In addition to the foregoing, prospective UNRRA contribution to Chinese relief and rehabilitation should be noted. UNRRA now has under consideration $560 million of materials for delivery by March 15, 1947. It is now determining allocations for the next 6 months, some small part of which is going forward.

(c) Credits now available: the Eximbank has outstanding 2 lines of credit, one to the Central Bank of China and one to the Universal Trading Corporation,⁹⁸ for the purchase of agricultural and industrial products. Unused portions of these credits amount to more than $12 million. These credits expire December 31, 1945. The Bank would ordinarily renew credits of this character on request, and will do so in this case unless you should recommend delay.

The Bank is also committed to a credit of $16 million to Yungli Chemical Industries for the purchase of equipment and services. This credit would become effective only upon guarantee by Chinese Government or Government bank. Such guarantee appears not to have been given. Yungli is a private company in which Government is understood to be financially interested.

(3) The situation described in (2) above indicates that China herself is in a position to meet costs of imports necessary in the immediate future, particularly if account is taken of UNRRA assistance She is not however, in a strong enough position to relieve her of the longer run necessity of foreign financial assistance.

(4) The Department believes that upon your recommendation prompt action can be taken by the Eximbank to make the following credits immediately available:

(a) A $30 million cotton credit repayable over 24 months at 2½% interest. The contract has been agreed to by the Chinese and awaits approval of directors of Bank.

(b) A credit of $30 to $50 million at long term to cover procurement in the U. S. of such urgently needed transportation and telecommunications equipment as is not available as surplus. This credit is not ready for approval by directors, but could be completed soon. (Separate telegrams will be sent you in near future regarding acquisition by China of ships and aircraft as surplus property.)

(c) You will observe that credits just mentioned are exclusive of credits now available described in 2(c) above.

(5) The United States believes that the reconstruction and industrial development of China is in the best interests of world peace and prosperity. While such reconstruction and development will necessitate substantial additional credits from this Government and from the International Bank, it is clear that such credits need not be advanced until political and economic developments are such as to give reasonable assurance that the credits would serve a purpose useful to both China and the United States. It is believed, therefore, that loans other than those referred to in paragraph (4) above, which you may wish to recommend for bargaining purposes, should be preceded by appropriate Chinese actions or assurances in the following fields:

(a) Political improvements along lines already discussed with you.

(b) The prompt negotiation of a treaty of friendship and commerce. A draft treaty was given the Chinese Government in February 1945.⁹⁹ China has agreed to begin negotiations in January 1946. Continuing negotiations without prospect of early conclusion would be harmful to the economic interests of both countries.

(c) The retention of completely unrealistic official rates of exchange has compelled foreign companies and individuals to resort to the black market. This practice is highly undesirable even though it is followed with the full knowledge and the tacit acquiescence of Chinese authorities. The Chinese Government should provide either for the transfer of funds through official channels at reasonable rates, or give the Embassy an adequate waiver of penalties against such individuals or companies.

(d) Economic progress and the beneficial use of foreign credits are contingent upon currency stabilization at the earliest practicable date. While it may not be possible to effect such stabilization for some months to come, it is essential that China, in the near future, determine a satisfactory plan for stabilization and earmark a sufficient sum of foreign exchange to implement that program.

(6) The basic economic objectives of the United States are the expansion of trade, investment and employment. The attainment of these ultimate objectives and of a satisfactory basis for continuing U. S. and international public and private investment in China, as well as this Government’s desire that as wide a field for private trade and investment as practicable be speedily opened, presupposes Chinese action in the following fields:

(a) Commercial policy, including the avoidance of discriminatory measures.

(b) Tariff policy adapted to China’s resources and markets rather than to the attainment of a self-sufficient economy.

(c) Clarification of the conditions under which foreign companies may operate in China and adjustment of those conditions to such as are commonly imposed by other commercial countries. See Deptel 1932, December 4, 1 p.m.¹

(d) Admission of foreign companies to various fields of business enterprise on a basis of most-favored-nation treatment, adequate protection of property rights, and assurance against discrimination.

(e) Clarification and extension of the field of private trade and enterprise, both Chinese and foreign.

(f) Avoidance of unduly burdensome effects on existing enterprises, whether Chinese or foreign, in planning and executing projects for the development of China’s economy.

The attitude of the United States with respect to the timing and magnitude of U. S. Government and International Bank credits will necessarily be related to the progress made by the Chinese Government in the above and related matters.

(7) For your information, China has been invited, as one of selected countries (Depcirtel, Dec. 7²) to participate in preliminary meeting preparatory to proposed International Conference on Trade and Employment, and urged to reply by December 31, 1945. It is assumed that China will cooperate in the proposed trade and employment program. Her doing so will be an important consideration in our attitude toward long-range financial assistance. Department suggests, however, not unduly emphasizing such participation in sense of distinct quid pro quo for financial assistance lest China assume initiative and insist on understanding regarding financial assistance as prerequisite to cooperation in commercial policy program.

Acheson

97. For a summary of the conversation, see “Notes on Meeting with the President and the Under Secretary of State”, December 14, prepared by General Marshall, p. 770.
98. An official Chinese agency incorporated under the laws of the State of New York on October 18, 1938. Its chief functions were to market tung oil and other Chinese products in the United States and to act as purchasing agency in the United States against Export-Import credits to China.
99. The draft treaty was presented to the Chinese Government on April 2; see telegram No. 567, April 3, 2 p.m., from the Chargé in China, p. 1314.
1. Post, p. 1251.
2. Not printed.