The Ambassador in China (Stuart) to the Secretary of State
[Received February 4—10:16 a.m.]
204. Interview with Dr. T. V. Soong. As set forth in despatch No. 466 of January 31, Dr. Soong has expressed himself as having become [Page 1046] very anxious about the economic and financial situation, and he sent Blandford to discuss with Butterworth and me the position and to represent the need for helpful action. He also asked Butterworth to lunch alone with him and presented his views.
Dr. Soong maintained that he had refrained from burdening you and the Generalissimo during your political negotiations with his economic and financial preoccupations, but that since your departure the situation had abruptly deteriorated. China being an agricultural country, he had felt that foreigners attached exaggerated importance to the happenings in large coastal cities, but since the Chinese New Year prices had risen so precipitously, particularly in provincial areas, as to cause him genuine alarm. He summarized the position somewhat as follows:
- that the economic-financial situation was very precarious and the recent rise in prices showed that the Government’s ability to hold the situation in check was waning and might at any time slip away;
- that there was obviously no chance of obtaining Communist participation in a coalition government;
- that it was America’s right to determine whether or not its policy and its money would be directed towards preserving the authority and influence of the Government of China;
- that if adequate aid were withheld, it would not be Democratic League or the Social Democrats who would take power but the organized Communists who had armed forces to back them;
- that if, however, the U. S. proposed in its own and China’s interests to extend the need of aid to the Government, it was desirable that it should be forthcoming before the situation got out of hand and be employed in an ordered and considered fashion;
- that, furthermore, aid by the U. S. was the only means of upsetting the Communists’ calculations of bringing about economic chaos and making them more conciliatory; and
- that in any case it was his considered opinion that time was growing very, very short—that the situation was fast reaching the point where it could not be held by domestic improvisations.
Soong thereupon raised directly, as he had raised indirectly through Blandford, the question of the latter’s going to the U. S. to discuss Chinese situation and need for financial help. Pressed for an opinion, Butterworth pointed out that, although there had been abrupt rise in interior prices since you had left, no new or decisive element had been injected into the situation and, in fact, in the political field the inactivity had been all too apparent; that if there were facts or new information which you should have, Embassy would gladly transmit them.
This led Soong into a lengthy castigation of the futility and ineptness of the third party groups whom he accused of fluctuating in their attitudes with economic, military and international developments. [Page 1047] He suggested, by way of constructive proposal, immediate constitution of State Council of Progressive Kmt,42 eminent independent and other party representatives, leaving seats for Communists, that the Council be given very substantial power which would permit it to organize into subcommittees which would specialize on and assume policy responsibility for various aspects of the Government, each subcommittee having an American technical adviser. He also vouchsafed that he would favor a coalition Executive Yuan. Soong emphasized that this action in State Council and Executive Yuan in his own opinion should be taken whether or not American assistance were forthcoming to which Butterworth agreed, and in turn emphasized that since subcommittees of State Council even if immediately organized would have only 8 or 9 months to run, it was obviously impossible for new American advisers to be selected, brought to China and become effective before advent of new constitution, though it was highly desirable that public undertaking to organize State Council and coalition Executive Yuan be implemented.
The conversation reverted to the former theme with Soong reiterating in extremely strong terms his considered opinion that time was fast running out and that it was most unlikely that the position would be able to be held within reasonable bounds in the fairly near or intermediate future. This appeal was directed personally to Butterworth who was inclined to think the matter over and consult with Soong again.
Embassy will forward you a detailed analysis of economic-financial situation in due course.43 In brief, it is characterized by: (a) acute inflation which has not yet run its course. The rate of deterioration is thus bound to be cumulative, but there is no immediate evidence that it has reached catastrophic stage; (b) increasing pressure on official foreign exchange resources which Chinese authorities have been far from wisely husbanding.
The main danger in China, in our opinion, is not one of dramatic economic collapse—as in U. S. at beginning of 1933—but of insidious economic and political disintegration. This process has already set in, and political, military, economic deterioration mutually reinforce each other in accentuating it. As this process continues de facto authority of Central Govt and its ability to maintain its armies and and minimal apparatus of govt can be expected to become weaker. In these circumstances, the revival of regionalism and warlordism with decided increase of Communist activities, perhaps less in the direction of taking over the whole country than of spreading their [Page 1048] influence and power from the areas in which they are strongly based and heightening the unsettlement in the Central Govt area can be anticipated.
Embassy is inclined to regard Soong’s action in part as a facing up to the reality of your being in Washington which leaves him uncomfortably little room for maneuver. Both the Generalissimo and Soong seem unsure as to what the next move should be or at any rate would purport to be, though the latter, of course, has the additional problem of demonstrating the efficacy of his American connections at a time when the Government is being increasingly criticized both from within and without as its situation worsens appreciably.