Memorandum of Conversation, by the Secretary of State75

Participants: Dr. V. K. Wellington Koo, Chinese Ambassador Secretary Marshall
Mr. Vincent, FE

Ambassador Koo called at his request at 11:30.

The Ambassador referred to Generalissimo Chiang Kai-shek’s statement of yesterday76 in regard to the economic situation in China and went into some detail in explaining what Chiang had in mind and in describing the seriousness of the situation. I told him that we realized that the situation was serious and that, while a review of the past would not contribute towards a solution, it was well to remember that I had foreseen many months ago a development of this kind unless steps, well known to the Ambassador, were taken promptly. I also mentioned T. V. Soong’s program for conserving gold and foreign exchange resources for the government and said that this program seemed to act to discourage Chinese expenditures because they could not make a profit.

The Ambassador said that China was badly in need of cotton and wheat and suggested the possibility of getting cotton from UNRRA and of getting a cotton-wheat credit from the Export-Import Bank. I told him that the diversion of UNRRA funds from relief and rehabilitation purposes to purchases of cotton and wheat would raise a number of difficulties, but that if these difficulties could be overcome [Page 1067] I felt it might be desirable to carry out the suggestion. With regard to an Export-Import Bank credit for these purposes, I told him that as I saw it the possibilities of getting such a credit were limited. I also reminded him that conditions and developments in China would have a bearing on our attitude.

At this point Mr. Vincent said that he had been informed by Mr. Clayton recently that there was no surplus cotton in the United States and it would be very difficult to fulfil any commitment to ship large quantities of cotton to China. Mr. Vincent also referred to reports that there were approximately 1 million bales of cotton at Shanghai. The Ambassador said that it was true that there were approximately 1 million bales of cotton at Shanghai six months ago but that this figure had been greatly reduced and that China required 2 million bales of imported cotton annually. With regard to wheat, Mr. Vincent also pointed out that it was a commodity also in very short supply. The Ambassador said that he understood that in view of the reduction in the needs for occupied areas, there might be wheat available for China. He said China would like to have 200,000 tons of wheat, of which 50,000 tons should be made available in the very near future.

I told him that I would have Mr. Clayton’s office look into the matter of available supplies of cotton and wheat to determine exactly what was the situation.

Ambassador Koo again reverted to credits and said that there were certain projects such as the coal mines at Pehpiao and Fushin for development of which Export-Import credits might be made. I mentioned also the coal mines at Pinghsiang in central China.

I told him that I had last autumn recommended credits for the Canton–Hankow Railway and for the Yellow River Bridge77 but that my suggestions had not been acted upon by the Export-Import Bank.

The Ambassador said that China required credits now not only for material assistance but for the psychological effect that the issuance of such credits would have in China. He mentioned this phase of the matter several times during the conversation.

Changing the subject, the Ambassador asked whether I had in mind issuing any new policy statement on China. I told him that the issuance of such a statement was a possibility but I had nothing definite in mind. I reminded him that the course of events in China would of course have a bearing on whether such a statement would be in order. The Ambassador said that an encouraging statement with regard to China now might prove very helpful and asked whether [Page 1068] I might not make one before I went to Moscow. I repeated what I had said and told him I did not care to make a prediction.

The Ambassador brought up the question of the Military Advisory Group and asked whether we intended to have such a group in China. I told him we already had a group there under the President’s War Emergency power and that we were considering legislation of a general character to authorize the stationing of American military and naval missions abroad. We preferred, I said, general legislation to specific legislation for China. In this connection I expressed my disappointment that the Advisory Group in China had not been utilized by the government to bring about administrative reorganization of the Chinese Army in areas south of the Yangtze River. Ambassador Koo said that he would inform the Chinese Government of my comment.78

Ambasador Koo referred, as he had previously in a conversation with Mr. Acheson and in a note to this Government,79 to the question of whether China and the Far East were to be discussed at Moscow. He said that the Chinese Government would wish to be informed in advance if there were to be such discussions. I told him that I had no present intention of discussing Far Eastern matters at Moscow; that my hands would be pretty full discussing the matters on the agenda; and that discussion of the Far East there would be “jumping from the frying pan into the fire”. Ambassador Koo agreed, and Mr. Vincent reminded the Ambassador that in our reply80 to his note we had said that we would bear the Chinese Government’s request in mind in the unlikely event that the Far East were to be discussed at Moscow.

The Ambassador again mentioned reparations and expressed the hope that we could move rapidly in getting out a directive on advance withdrawals. I told him that we hoped matters would move quickly in the FEC81 and that if they did not we were prepared to issue an interim directive. The Ambassador mentioned the matter of shipping out of Japan for advance withdrawal of reparations and expressed the hope that we might find some way of making an exception for China from the rule that recipients would have to assume charge of cargo at shipside in Japan. I mentioned the 159 ship purchase program82 as a possible solution for China’s shipping difficulties in this respect but the Ambassador said that there was still some technical difficulty standing in the way of completing this project.

The interview began at 11:45 and terminated at 12:40.

  1. Memorandum drafted by the Director of the Office of Far Eastern Affairs (Vincent).
  2. See United States Relations With China, p. 704.
  3. See telegram No. 1548, September 27, 1946, 9 a.m., from the Ambassador in China, Foreign Relations, 1946, vol. x, p. 1009.
  4. For correspondence on this subject, see pp. 785 ff.
  5. Dated January 15, not printed.
  6. Dated February 5, not printed.
  7. Far Eastern Commission.
  8. For correspondence on this subject, see pp. 942 ff.