The Ambassador in China (Stuart) to the Secretary of State
[Received February 12—8:53 a.m.]
262. 1. Dr. T. V. Soong asked Butterworth, Adler and me to call upon him last evening. He began by referring to the break in prices of gold and U. S. currency in Shanghai and said as regards the general situation “this is it”. The price of wheat had risen precipitously in North China and it was only the Govt’s selling of its stocks in Shanghai which was preventing the price of rice from getting out of bounds there. Nevertheless, Soong seemed intent, despite pressure from some of his colleagues, on refraining from selling gold on significant scale in the Shanghai market and to harbor his foreign exchange assets for China’s essential import requirement. He emphasized that further drastic measures would have to be taken both qualitatively and quantitatively to curtail imports and wherever feasible, such [as in] allocation of newsprint, rationing would be under [Page 1059] taken. He expressed the hope that the U. S. Govt and American exporters would recognize the necessity for these unwelcome measures.
Soong reiterated that there was very real danger of a complete loss of confidence in China’s currency and that their main hope of preventing such loss of confidence was financial aid from the U. S. on the lines requested since such aid would also induce confidence in the Govt.
2. This morning Soong invited Butterworth and Adler to call upon him. Also present were Govt representatives [Governor Pei] of Central Bank, Kan Li55 and C. T. Chu, his Chinese advisers, and Blandford and Rogers, his foreign advisers. There was a long and disjointed discussion of the immediate situation and of the action that the Govt should take with respect to exchange and gold sales policy.
While Soong himself avowed awareness that financial and economic blizzard has only begun, his advisers, both foreign and Chinese, seem inclined to dissipate China’s existing gold assets in a futile attempt to arrest it. It is to be feared that their influence will prevail for the moment but that an inadequate adjustment will be made in the exchange rate, and that gold sales will be continued. There were obvious signs of panic in Soong’s entourage, and the only salvation he and they could see is American assistance. There was considerable talk of complete collapse of confidence in currency and of consequent collapse of Central Govt, partly inspired by genuine fear but also by desire for financial assistance. They have not yet faced up to the fact that such assistance would be a temporary palliative which would not change underlying situation and would not restore basic lack of confidence in currency.