893.50/2–1247: Telegram

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

264. Herewith Embassy recommendations on Soong memorandum on economic situation and plea for immediate economic aid (reEmtels 204, February 4, 10 p.m.; 206, February 5, 10 p.m.; 213, February [Page 1060] 6, 4 p.m.; 215, February 6, 6 p.m.; 259, February 12, 10 a.m.;57 and 263, February 1258).

Section I. 1. There is financial and economic crisis in China, and gravity of internal, financial and balance of payments position must not be underestimated. Real crisis only just begun, and the worst is yet to come. This is not the time for basic remedial measures and Govt has no real alternative but to sweat it out. Unquestionably a loan—not a necessarily large one—would be of immediate psychological and political assistance. Unless deputy director59 UNRRA’s recommendations60 transmitted as 259 February 12, [are accepted?] in whole or in part, Embassy would recommend for your consideration Eximbank 40–50 million dollar cotton loan.61 Action by UNRRA would, of course, hold definite advantages for us and Embassy suggests Dept’s active attention. Embassy believes that balance of payments situation not so desparate that in absence of UNRRA action loan cannot be deferred if over-all international policy considerations so require. Embassy assumes that timing of loan would be in light of Moscow Conference as well as Chinese economic and political situation. (Chinese ignore ramifications of Moscow Conference and are urgently pressing for loan of 150 million before conference.) Embassy also believes that Chinese should give further evidence of genuine cooperation in implementing article 6 (b) 2 of FLC agreement of August 30, 1946, prior to receiving any loan.

2. Disadvantages of a cotton loan stated in Embassy’s memo to you62 also contained in despatch 443, January 23, but, in view of general political situation, these disadvantages inescapable.

3. Blandford has already indicated that while China asked for a 10–year loan she would be content with a 5-year loan. Question arises as to whether ExImBank would care to make so long-term a commodity loan. It would probably prefer not to make a loan of more than 3 years maturity on cotton. Embassy would see no basic objection to such a reduction in period of loan. End Section I.63

  1. Telegram No. 259 not printed.
  2. Telegram No. 263 not printed; it reported a precipitate rise in prices of commodities and gold, particularly after the announcement of the Chinese Government’s export bonus scheme on February 7 (893.515/2–1247).
  3. Comdr. R. G. A. Jackson, Senior Deputy Director General of UNRRA.
  4. An informal Department of State–UNRRA discussion as to whether UNRRA’s program might be modified to meet China’s request for cotton and wheat.
  5. In telegram No. 211, February 20, 6 p.m., the Department informed the Embassy that it saw no immediate prospect for an Export-Import Bank cotton loan to China and that the UNRRA Central Committee had deferred action on the request to modify UNRRA’s program at its meeting on February 20 (840.50 UNRRA/2–2047).
  6. Dated January 6, p. 1040.
  7. Message continued in telegram No. 265, infra.