893.515/1–747: Telegram

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

32. It is agreed by Embassy that it is desirable that Chinese Government be advised informally that appropriations are inadequate to finance existing Army and Navy programs at official rate and that deficiency appropriations impracticable. Embassy is opposed to injecting question of curtailment of War and Navy programs into such a discussion. From incomplete information available here it would appear that appropriations involved amount to $1½ million a quarter. It would therefore be most unwise to allow major policy considerations to be affected by any such sum of money. General Marshall4 has expressed his concurrence with above. (Reference your telegram No. 13 of January 3.)

Further it would not be advisable to advise Chinese Government informally that unless arrangements can be completed by January 16 for War and Navy to procure yuan through official channels at rate approximating open market rate, War and Navy will begin sale of U. S. currency at open market rate as interim measure, as this would probably result in Chinese Government’s adopting a measure it has been contemplating for some time, viz., the imposition of complete ban on open market for U. S. currency, and thus do harm and no good.

It is proposed as an alternative that Embassy, possibly in conjunction with Army and Navy, put immediate pressure on Chinese Government either to grant special exchange rate for War and Navy purchases of CN5 dollars approximating open market rate as of date of purchase or based on selling price of gold, or to sell gold for our account. Many questions arising from discrepancy between official and open market rates continually being brought up by Embassy with Chinese Government. Embassy therefore believes that it will be most difficult for Chinese Government to resist such pressure for long, especially as United States Government can defer for instance making available the $30 million cash to be earmarked for shipping and other expenses under surplus property agreement of August 306 to the Chinese Government. (Embassy in any case wishes to be consulted before favorable [Page 1032] action on this $30 million is taken.) Furthermore, Chinese wish to receive favorable consideration on relief allocation for 1947 and on pending Export-Import Bank specific loan projects. Adler, who is in full accord with above, requests copy be passed to Treasury.

  1. General of the Army George C. Marshall, special representative of President Truman in China, December 1945–January 1947; he became Secretary of State, January 21, 1947.
  2. Chinese national currency.
  3. Signed at Shanghai, August 30, 1946; Department of State, Report to Congress on Foreign Surplus Disposal, October 1946, p. 40. For correspondence preceding the signing of this agreement, see Foreign Relations, 1946, vol. x, pp. 1033 ff. For correspondence on surplus property matters in 1947, see post, pp. 1242 ff.