121.893/8–2247
Memorandum for General Wedemeyer
Report on the Financial and Fiscal Situation in China
[Here follows report substantially as printed in United States Relations With China, pages 781–788.]
Conclusions on Financial Aid.
While the prospects for the emergence of a stable China in the foreseeable future are not bright, the Chinese Government, whether [Page 739] stable or unstable, will demand very large amounts of material and financial aid from abroad. The total amount of funds which will be available in the United States for foreign lending is not known. In view of the increasing demands from England and Europe for American assistance which those areas can effectively utilize, in the absence of further evidence of China’s ability to help itself there is a reasonable doubt concerning the availability of the amount needed by China to keep the present government a going concern for the next few years, let alone to set it on its feet and strengthen it to the point of full military control of Chinese territory. In the foreseeable future, the large but unskilled manpower resources of China are not likely to be of value to the United States, especially when they are compared with the much more skilled manpower of Europe and Japan. Heavy and large-scale investment in China might be a liability, since it would invite at a later date the diversion of scarce resources to China in order to preserve part of the original investment.
China has a place in United States interests in the Far East as an area where an example could be set for other areas in Asia. This consideration justifies the provision of some aid, but not on a scale which would be justified under the premise that China is a dependable ally of the United States. The necessity to make China a good example for Asia underlines the need for reform of the Government. Such reform is no less important an objective of American policy in China under the premise that China is being aided on ideological grounds than it would be under the military premise.
The part of China which is likely to have most influence on the rest of Asia is the part which has contact with Indo-China, Malaysia, Indonesia and India. This is precisely the part of China which has been least affected by the civil war and in which there are reasonable chances for the development of relative self-sufficiency. A reform of the government in Central and South China, with improved living standards, some industrialization and sufficient strength to hold the barrier against encroachment from the North, may be a practicable long-run policy. The economic developments required in this area are mainly those which serve agriculture, produce consumer goods for local consumption, and assist in developing foreign trade by processing agricultural raw materials. Specifically, they include fertilizer, manufacture, railroad, highway and coastal communications, and the local production of essential goods such as fibers and textile, fabricated metal products, and fuel. Development of these industries in Central and South China would strengthen the area by raising living standards. These industries are also susceptible of early development with the available personnel and without excessive expenditures of local currency.
[Page 740]Financial aid to China could be completely ineffectual due to a disintegrating government and hyperinflation. At the same time, an effort to sustain the present government on a limited basis may be in the interest of the United States, if the cost is not too great. The possibility that aid in any amount would have no effect in the long run, and would represent a total loss to the United States, cannot be entirely dismissed. Financial aid for specific Export-Import Bank projects, limited in amount and subject to increase upon satisfactory performance, may be considered appropriate. Advisors might be effective if they are attached to projects and assigned to see that there is proper utilization of funds. Advisors assigned to Government Ministries would face difficulties in achieving a satisfactory relationship with the nationalistic elements, and their presence might be considered a commitment and a channel of pressure for more aid than the United States is willing to give.
[Here follows section on “Immediate Steps To Strengthen the Economy” substantially the same as printed in United States Relations With China, pages 800–801.]