893.00/2–1447: Telegram

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

284. From Butterworth. In the early stages of the financial crisis the Gimo68 did not take a hand. Dr. Soong and his advisers began by trying to extract from us a panicky recommendation to you and then became genuinely panicky themselves, though refusing to face up to the necessity for strong and really drastic measures. Beside the reported loan requests, there was much loose talk of the impossibility of introducing democratization measures in the present situation unless American material assistance makes it possible. On all occasions we have reinforced Dr. Stuart’s advice to them to keep calm, to generate confidence and to get on with the political reorganization arrangements.

The Gimo has now stepped in and overruled Soong’s advice; it is clear that he is taking advice from sources other than Soong. His instructions given yesterday to Soong are to work out a scheme within the following framework: (1) To stop the sale of gold; (2) to announce an adjustment of the exchange rate; (3) to peg Shanghai wages at the January level and to institute a rigorous system of price control for rice, cotton and fuel for the factory workers, Government employees and teachers and students of Shanghai and Nanking. In Shanghai this scheme, if effectively carried out, would take care of one-seventh of total population.

Soong was instructed to have the scheme ready for presentation to Supreme National Defense Council on Sunday so that it could be announced Sunday night; it will probably be coupled with political [Page 1064] announcement. There is no doubt that the third party groups are now most reluctant to join the Government and share responsibility in crisis circumstances, but our belief is that Gimo can exert sufficient pressure on Youth and Social Democratic Party leaders to bring them in.

Soong’s advisers did not like the Gimo’s economic program and even talked of resignation, but when Soong stated their objections to the Gimo yesterday evening, the latter brushed them aside and told him to go ahead on the above lines. The Gimo said, “we are now paying for the mistakes of policy—such as selling gold—of the last few months, and we have to bear the consequences”. Soong is accepting the Gimo’s directive at present but his advisers may sap his will.

As I see it, the weakness of Dr. Soong and his technical advisers in this situation is that they are Shanghai-minded and see only difficulties and failures ahead; they fear the worst and do not know how to avert it. The Gimo’s strength is that he is China-minded and here his stubbornness is an unqualified asset. He has grasped the crux of the emergency as it will develop, which is to preserve as much as possible the Government’s power to govern by ensuring the maintenance of food supply to essential groups, if necessary on a barter basis, more clearly than Soong and his technicians. He may not appreciate the complicated means for carrying out correct policy, but at the moment this weakness is more than counterbalanced by his strength in facing up to the situation. [Butterworth.]

  1. Generalissimo Chiang Kai-shek.