Memorandum by Mr. C. Tyler Wood, Deputy to the Assistant Secretary of State for Economic Affairs (Thorp), to the Under Secretary of State for Economic Affairs (Clayton)

China’s 1947 International Financial Position With Reference to Need for Post-UNRRA Relief

In view of unsettled conditions in China, only a tenuous basis exists for prediction of that country’s 1947 balance-of-payments position. According to the Department’s estimates, however, China’s imports [Page 1295] in 1947 should total $943 million (CIF), of which UNRRA will probably supply about $280 million, leaving some $663 million to be purchased commercially. Estimating probable commodity exports at $275 million, and taking into account invisible exports (and imports), China’s deficit in the current accounts of its balance-of-payments should be no larger than $203 million.2 China’s limited distribution capacity, which will be burdened in any case by import of UNRRA goods, surplus property,3 capital equipment obtained under 1946 credits, and some Japanese reparations goods, may require a reduction of projected commercial imports and thereby reduce the current account deficit.

Unlike European countries included in the Department’s Post-UNRRA program, China possesses foreign exchange in an amount greater than its estimated maximum 1947 deficit. To meet this deficit China presently has available official holdings of foreign exchange of approximately $400 million (including $118 million in gold). In addition, private Chinese holdings abroad of sterling and dollar balances, not now subject to control, are estimated at slightly over $100 million. Undisbursed Export-Import Bank4 and Canadian credits amounting approximately to $50 million may in part be used to meet the 1947 deficit. Under negotiation also, are Maritime Commission credits totalling $76 million for purchase of 159 vessels5 (over 1500 tons) under the Merchant Ship Sales Act of 1946.6 Such coastal vessels, together with smaller craft and facilities acquired under Surplus Property account may meet the main part of China’s estimated water transport needs, and reduce the deficit by at least $50 million.

The Chinese maintain that their present holdings should not be drawn down to meet the expected 1947 deficit, but should be retained as a reserve for monetary stabilization. It is not the Department’s or Treasury’s view, however, that China’s exchange holdings should be so regarded; and it is believed that for currency stabilization to become a practical possibility, China must first take effective steps toward political accord, increase of revenue, reduction of military expenditure, et cetera.

China must retain some working foreign exchange reserve, and should not be expected to completely dissipate its foreign exchange holdings to meet 1947 essential needs. In addition China has urgent [Page 1296] needs for foreign exchange for such purposes as shipment and installation of equipment to be received as reparations from Japan, and for purchases of repair parts to make usable the surpluses recently acquired from the United States. The Chinese have indicated informally that in view of the pressure to maintain imports of commercial and rehabilitation items it is not likely that a sufficient amount of official gold and dollar holdings would in fact be released for purchases to cover all imports of food needed for relief purposes.

Access to new loans or credits, including the $500 million earmarked by the Export-Import Bank, to meet the drain on its resources in 1947 will be difficult for China as long as its unsettled political and inflationary situation remains without improvement.

If it were concluded that some amount should be included in the Congressional relief bill for possible use in China, an amount of $40 million would be appropriate. This would be intended to meet possible food relief requirements in food deficit areas in China which may not be met from indigenous sources. An amount of $40 million compares with $55 million food imports required for 1947, excluding UNRRA receipts.7

  1. Attached to this memorandum is a statistical estimate of China’s 1947 balance of payments, not printed.
  2. For correspondence on this subject, see pp. 1242 ff.
  3. For correspondence on Export-Import Bank credits to China, see pp. 1030 ff., passim.
  4. For correspondence on this subject, see pp. 942 ff.
  5. Approved March 8, 1946; 60 Stat. 41.
  6. In a memorandum of January 31 the Under Secretary of State (Acheson) requested the Director of the Office of Far Eastern Affairs (Vincent) to “look at this [memorandum] so that I can make a recommendation to the Secretary as to including or excluding $40,000,000 for China. At present such an amount is included in the $450,000,000 which the Budget Bureau is considering. The final figure includes $90,000,000 for Poland. It may be that either or both should be eliminated.”