811.42700 SE/7–847: Telegram

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

939. Dept authorizes Emb negotiate educational foundation agreement China (Embtel 1483 July 8) eliminating further discussions here. However Dept points out Emb been informed all negotiations thus far undertaken Washington and no conversations held with Chinese this subject except re points raised Embtel 1350 June 20.

Dept reemphasizes that program is to be financed with US funds which US has agreed to accept in local currency and which Chinese would otherwise have to pay in dollars, and that US must control their expenditure. Agrees with Emb most workable arrangement is for US board directors to direct program assisted by Chinese advisers whom Dept willing have appointed and dismissed by Min of Education. No objection making chief of mission chairman rather than honorary chairman but Dept resolutely opposed appointment more than two Chinese board members, if inclusion board members only alternative acceptable Chinese.

Because of US financing believe name Sino-American Educational Foundation inappropriate misleading. Agreeable to U. S. Educational Foundation in China or U. S. China Educational Foundation.

For Embs info in carrying on negotiations, Depts thinking Reftel as follows: Suggest we [are] seeking right acquisition real property with view to donating it Chinese later, but no strong objection deleting Sec 5 Art 2.

Agreeable using full million as far as possible each year and will make every reasonable effort expend entire 20 million within 20 years. However language of Act prohibits expenditure more than 1 million any 1 year. Possible Act be amended later to permit increase if circumstances warrant.

No objection amending Art XI if contrary to Chinese law. Suggest following alternative: “The rate of exchange between currency of [Page 1282] the Government of the Republic of China and United States currency to be used in determining the amount of currency of the Government, of the Republic of China to be deposited from time to time hereunder, shall be at the par value between Chinese dollars and US dollars established in conformity with procedures of the International Monetary Fund or at an equitable rate upon which Governments of China and US may mutually agree.”

Dept suggests adding following para Art XI “The Government of China shall guarantee the United States of America against exchange loss resulting from any alteration in the above rate of exchange with respect to any currency of the Government of China received hereunder and held by the Treasurer of the USA or by the Foundation by undertaking to pay to the Government of the USA such amounts of currency of the Government of China as are necessary to maintain the dollar value of such currency of the Government of China as is held by the Treasurer of the US or the Foundation. The purpose of this provision is to assure that the operations of the Foundation will not be interrupted or restricted by any deficits resulting from alterations in the above rate of exchange.”

Re Chinese Govt objection Art XII Dept feels strong effort should be made to secure customary tax exemption for programs this character; and that in any event privileges requested Art XIII are reciprocated by US in case of Chinese citizens in US.

While Foundation would undertake no projects objectionable Chinese, Dept reiterates necessity complete US control these US funds and program projects. Agrees Emb opinion this accomplished more smoothly expeditiously board directors composed USA citizens.