893.00/4–1247: Telegram
The Ambassador in China (Stuart) to the Secretary of State
[Received April 12—9:47 a.m.]
801. For Acting Secretary of State. Foreign Minister29 sent for Min[ister]-Coun[selor] (reEmbtel 800, April 12, 2 p.m.30) and in the course of the interview informed him, and for conveyance to me, that Chinese Govt had almost completed its assessment of its economic and financial situation and intended shortly to address a formal communication to our Govt, either through this Embassy or the Chinese Embassy in Washington, requesting financial assistance. Min-Coun inquired whether it was intended that such a communication should be dispatched before the Govt reorganization had been completed and before General Marshall returned from Moscow. Dr. Wang Shih-chieh indicated that it should be possible to make announcement of the reorganization of the Govt in a few days and that note would arrive a day or two before or day or two after, and a copy would be given General Marshall in Moscow.
Min-Coun stated that he was not in a position to make any official comment regarding any such formal and presumably well-considered action by Chinese Govt. Dr. Wang Shih-chieh indicated that he personally would like Min-Coun’s initial personal reaction. Min-Coun said that two queries immediately came to mind. After his year in China General Marshall had reported to the American people on his mission to China31 and the situation here as he saw it, and the information he had thus provided and the conclusions he had drawn had entered into the concept of China of the American people, on the support of whom American foreign policy rested. The query, therefore, immediately arose as to the desirability of Chinese Govt’s applying for financial assistance before it had completed the steps which [Page 1096] the Generalissimo had last December announced would be soon undertaken. The second query rose out of the fact that Secretary of State having just returned from a year in China would bear an unusually large share of the responsibility in advising the President in considering any such formal request of assistance and that at the moment he was preoccupied with the Moscow Conference.
Min-Coun received the impression that Foreign Minister was being pressed for action and that he was personally disposed not to present the issue at this time. The foregoing remarks may have furnished him sufficient ammunition to meet the situation when Generalissimo returns. It should not be difficult to ensure the postponement of such a request by an informal approach, and it is quite likely that this question was raised by the Foreign Minister for the purpose of obtaining an indication as to what our desires in the matter were. Your instructions are awaited.
The economic-financial situation at the moment is briefly as follows: There has been no basic change in unfavorable economic situation. While foreign exchange position has temporarily improved, fiscal situation continues to deteriorate and with it pressure on price structure increases.
Govt’s foreign exchange position has temporarily improved since promulgation of emergency economic regulations on February 1 as result largely of tighter import controls and immediate fillip to exports given by exchange adjustment, cessation of sale of gold and measures against foreign currency. Govt’s total foreign exchange assets now approximately $410,000,000, an increase of $70,000,000 over February 16; 75% of Govt’s foreign exchange assets consists of US dollars and gold, the remainder of sterling area currencies and silver. On the other hand, as the effect of the February 16 exchange adjustment wears off, the pickup in exports will decline while the loss of exchange necessitated by essential imports, however tightly controlled will be resumed.
Fiscal position continues to deteriorate. Note issue March 30 approximately CN $5.7 trillion, an increase of about one-sixth on February–March expenditures CN $1.5 trillion, or about 50% larger than February, while receipts (incomplete) barely 25% of expenditure. Over 50% of March expenditures were for direct military expenditures, and undoubtedly continued fiscal deterioration can be ascribed to extension military operations.
Price situation is delicate and precarious. For about first 6 weeks after promulgation of emergency economic regulations Govt was relatively successful in holding price line by its gold [bold?] show [Page 1097] of action and by fear of drastic penalties. More recently commodity holders and speculators have been testing out efficacy of Govt controls, and accumulation of idle funds in Shanghai and continued note emission inevitably impose heavy pressure on line Govt is trying to maintain. Whether Govt will be able temporarily to hold these pressures within reasonable bounds should be known in next week or so.
Embassy still of opinion that moderate ExImBank cotton loan judiciously timed and accompanied by steps by Chinese authorities to mobilize Chinese private foreign exchange holdings would be of considerable short-run psychological value to Govt in its efforts to contain dam against which waves of note issue are mounting.
Repeat to Moscow as 12 for personal attention of Marshall.32