The Ambassador in China (Stuart) to the Secretary of State
[Received February 7—9:22 a.m.]
223. From Adler to Secretary of Treasury. Re Emtels 179 of January 31 and 207 of February 6 and at Butterworth’s request to appropriate officials of Dept of State. Herewith my further comments on Chinese Govt announcement of export subsidy and import surcharge program transmitted in Embtels 210 and 21154 of February 6.
1. Manner in which program announced characterized by gross ineptitude. In my discussions with Soong and his advisers, main argument used to justify this program as alternative to exchange adjustment was that its announcement would contain or be accompanied by statement that no change in exchange rate would be made or was contemplated, and that such a statement would tend [Page 1058] to reassure public and thus relieve pressure on price of gold, U. S. currency open market rate and prices in general. Announcement of program on afternoon of February 5 was in fact made without any reference to exchange situation and thus “psychological” case for it fell to ground.
Shanghai open market rate for U. S. currency closed at 9300 on February 5 and at about the same on February 6, the rise can be ascribed to: (a) interpretation by market, which would be natural in absence of further clarification that program was prelude to exchange adjustment; or (b) insiders exploiting expectation that open market rate would fall soon afterwards with the absence of announcement of exchange adjustment; or (c) both.
In any case manner in which announcement was handled open to strong criticism. Blandford informs me he did not see announcement before it was made and does not know who drafted it.
2. Program has obviously undesirable implications from point of view of our international economic policy. Granted emergency character of Chinese economic-financial situation which can presumably be used to justify deviations from canons of long-term international economic policy, its inefficacy in achieving intended effects renders it doubly questionable. [Adler.]
- Latter not printed; it gave the text of the announcement of the functions and composition of the Board for the Development of Export Trade (600.939/2–647).↩