711.93/2–647: Telegram

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

215. Reference Embassy’s 206, February 5, 10 p.m. Following are the questions which in Blandford’s opinion require clarification and the subsequent statement is his personal draft for confidential use reflecting Executive Yuan attitude:

Questions as to U. S. policy.

Is the prior participation of the Communist Party in the Government a condition of further assistance?
When the Government has established the State Council and reorganized the Executive Yuan, will substantial economic assistance and technical guidance immediately become available?
Assuming sound projects, is there any limitation as to the rate at which the proposed $500 million credit will be made available, or as to the term over which the funds may be utilized once they are committed?
Specifically what considerations will enter into the review of a project or in other terms what kinds of projects will be considered eligible for credit? In the interest of expediting the review of projects and of speeding China’s recovery, could the U. S. Government arrange for such review by representatives stationed in China?
To what extent can the U. S. Government aid in obtaining from the International Bank assistance for reconstruction and currency stabilization?
China desires immediate technical assistance and guidance for the initiation of constitutional government: Military reorganization, civil government reform, financial stabilization, reconstruction, agricultural adjustment, industrial development and foreign trade promotion. To what extent is the cooperation of the U. S. Government immediately available?

Appraisal of the current scene.

The Government intends to maintain a standing offer of reasonable terms for the participation of the Communist Party. However, it is unlikely that the Communists will participate in the near future except under terms which would mean the permanent economic and political disunity of China. The Communists are apparently finally set on a policy of reliance upon economic collapse of the Government or upon some form of international intervention which would include Russia. Any weakness in the Government’s position confirms them in this policy. Contrariwise, a progressive government, firmly established and supported, is probably the sole factor which would cause them to change their policy.
The Government is pressing vigorously for the immediate participation of other parties in the Government. Specifically it has in mind the establishment of a State Council composed of China’s outstanding citizens and fully representative of all possible parties—this [Page 1057] Council to be clothed with full power of policy during the current year of emergency and of preparation for constitutional government. It is also intended that there shall be, during this period, wider party participation in the execution of national policy through the Executive Yuan.
In the achievement of these objectives the Government is encountering a degree of delay because of a feeling of uncertainty. It is firmly believed that progress would be rapid if there were firm commitments as to the availability of substantial economic assistance and neutral technical guidance and reporting immediately upon the assumption of responsibility by the new State Council.
With the widest possible consultation the Government is waging a desperate battle on the economic front. Note issues are rapidly increasing due to large military and civilian expenditures for maintaining and restoring China’s arteries of commerce and productive capacity at rapidly inflating prices. Meanwhile, revenues recover slowly and [surplus] property and foreign exchange assets are being exhausted. The Government has determined its minimum needs for essential imports but there is no chance of achieving them without the help of foreign credit. Generally the Government is being forced into measures of control which are overtaxing its administrative capacity and which are contrary to its concept of the right role of government in business and foreign trade. The year 1947 is the critical year. The first few months of 1947 constitute the period of decision.”