Foreign Relations of the United States, 1946, The Far East: China, Volume X

893.51/7–1246: Airgram

The Acting Secretary of State to the Embassy in China

Washington, July 12, 1946.

A–131. For General Marshall: Dept considering steps which might appropriately be taken at time deemed opportune by you to assist China in dealing more effectively problems of economic stabilization, reconstruction and development. Would appreciate your comments re tentative views expressed below, as well as information you may already have as to probable Chinese attitude.

A. China confronted with tremendous task of absorbing and making effective use imports of equipment and materials far greater than amounts received at any past time. UNRRA supplies include substantial amounts capital equipment. Large amounts factory equipment may be received as reparations from Japan. Such imports, plus those obtainable existing Chinese dollar assets and FLC and Eximbank credits already granted present major problem regardless of any additional credits.

B. Effective use of this large import potential requires inter alia adequate technical services, in connection with which foreign assistance could make substantial contribution.

1. Important to obtain engineering and managerial services of sort needed to plan location, and carry out construction and operation factory, mining, transportation, and other projects. Such technical assistance can be provided by retaining American (and other) foreign companies and individuals with necessary technical qualifications. Understand China has already retained services about one dozen American industrial and engineering companies, but doubtless needs to go further along these lines. Their services, aside from being useful to China, could be definite safeguard to such agencies as Eximbank which might require China to take adequate steps this direction where U. S. credits are involved.

2. Advisory group referred to below may be useful in calling attention to need for further technical services in appropriate cases.

C. At least as important as problem referred to in “B” is obtaining highly competent foreign personnel to advise concerning questions of basic policy. Such questions include extent to which China should emphasize development heavy industries such as iron and steel, as contrasted with consumer goods industries. Other questions include emphasis on development of export industries, use of foreign credits and other resources to improve agriculture, extent of nationalization various types of industry, development of more adequate tax system, improvement fiscal policies and related matters.

1. Now and for years past, China has engaged numerous foreign advisors or experts in different fields, such as customs, finance, taxation, etc. While such experts have sometimes been employed for period long enough to be effective and have sometimes been given group status, results have often been minimized by brevity of appointments or lack of effective coordination. Joint knowledge and coordinated efforts of advisers can be far more effective than individual contributions in unrelated assignments.

2. May be desirable, therefore, for Chinese Govt not only to retain highly competent expert advisors on continuing basis, but to associate all principal advisors in small group under foreign chairman or moderator. Such group might report directly to President of China, or his designee. It should not have administrative responsibility.

3. Advisory group should not be limited to Americans. Could properly include Chinese or other foreigners. Regular members, whether Chinese or foreign, should not have other governmental positions. Panel members nominated by and called upon by full-time advisory group for advice or assistance on particular problems would include Chinese or other foreign experts employed by ministries of finance, economic affairs, agriculture, communications, etc.

4. Foreign members of such group should be regarded by Chinese Govt and their own Govts as solely within employ of and responsible to Chinese Govt. However, this would not prevent Eximbank, for example, from requesting Chinese Govt, through Emb, to make available studies or materials prepared by advisory group’s regular or panel members on matters relevant to Eximbank credits. Such requests could also appropriately be made for materials prepared elsewhere in Chinese Govt which are relevant to credit applications.

5. As you doubtless know, US representatives have at times discussed with Generalissimo and other high Chinese officials idea of US economic advisory mission to be sent China, and Chinese are said to have reacted favorably. Dept, however, inclined to believe such an approach definitely inferior to general plan outlined above.

D. Dept recognizes Emb and consular staffs insufficient to conduct necessary economic investigations and reports concerning such matters as proposed uses Eximbank credits, plans for industrial and agricultural development, Chinese attitudes towards position of Chinese and foreign private enterprise, etc. While attention being given increase of staffs, and your comments desired, you and Emb will appreciate that under ForServ budget such increases are possible only by transfers from existing foreign and home Dept positions.

Acheson