893.51/5–1346: Telegram
The Counselor of Embassy in China (Smyth) to the Secretary of State
[Received 9:40 p.m.]
793. From Adler to Secretary Treasury. Conference of high Government officials presided over by T. V. Soong met Nanking May 7–9 to discuss monetary, financial and economic situation. Governor Pei who attended conference informed me its aim to institute retrenchment of expenditures for at least next 6 months and that he was going to advise Generalissimo that priority in rehabilitation program should be assigned to rehabilitation of currency. O. K. Yui also informed me that he was making himself unpopular with the various ministries by proposing curtailment of expenditure estimates.
Pei did have a long talk with the Generalissimo, but there have been so many commitments for additional expenditures that the prospects of any really significant reduction in expenditures or even of holding the line against further encroachments of [hyperinflation] as advocated by Soong and Pei are not bright. Thus it would appear at this time that an increase in military and quasi-military expenditures is more probable than a diminution.
2. Pei again defended the Central Bank policy of maintaining the exchange repeated to me. It was originally contemplated that the rate should be allowed to depreciate, but fear that exchange fluctuations would be blamed for rising prices seems to have curbed Central [Page 986] Bank’s initiative. Chinese private imports in first 2 months of exchange control were at rate of US dollars 30 million a month, cover for just over a third of which was provided by Central Bank. [Adler.]