Foreign Relations of the United States, 1947, The Far East: China, Volume VII

840.50 Recovery/11–1247: Telegram

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

Nanking, November 12, 1947—6 p.m.
[Received 7:19 p.m.]

2231. Young’s proposals which are admittedly designed to respond to an offer of aid such as Marshall’s proposals for Europe,⁶¹ or to invite such proposals, seem to us most timely. Coming as they do almost simultaneously with the Secretary’s new statement on China policy,⁶² some version of them should have possibility of implementation and success. The situation is beyond question critical. The views of one as well versed on the subject as Dr. Young should be given serious consideration. He was recalled to China with full personal approval of the Generalissimo, is here on temporary contract only, and should be in a position to impress the need for early and drastic action. He seems prepared to stay on in China if there is constructive work to be done but states categorically that he will return if constructive action is not taken.

Of course the military phase which he passes over is the crux. In this also, however, we are inclined to believe the time is right to strike. The Generalissimo has seemed reluctant to take drastic action required largely because he feared losing the support of his lifelong intimates who are largely reactionary in pursuing a military program which might fail because of the uncertainty of support from the U. S. If within the framework of the Secretary’s statement, such plans as those suggested by Young can be worked out and the implementation started, it is barely possible that the Generalissimo will be willing to take the requisite action in the military field. We shall appreciate the Department’s early comments and instructions. (For Butterworth⁶³ from Clark. The Ambassador asked me to stress that the above are my views as well as his own, the drafting being entirely mine.)

There follow our comments on the economic aspects of the proposals:

1. Summary of facts in section I of memo in essence unexceptionable though there is perhaps undue emphasis on importance of state of confidence which can only be created by continued availability of sustained and large-scale American help. Paragraph 4 of Section I would appear to be somewhat optimistic both in the absence of reference to danger that political considerations and pressures may prevent, if it is not already preventing, enforcement of realistic exchange policy, and in its estimate of China’s longer term balance of payments prospects.

2. We concur that a commodity credit “is the first priority to meet the emergency ahead” (paragraph 5 of Embtel 2223 of November 10). Young proposes that credit sharing should be “elastic within certain limits”. Believe degree of elasticity should depend on extent of American direct supervision; if there is American direct supervision, considerable elasticity could be allowed; if not, the limits should be strictly defined. With respect to cotton, the third quota Young refers to is the third quarter quota of $20,000,000 for 1947. Agricultural Attaché in previous estimate of China’s cotton needs also agreed that approximately 50,000 bales are needed as a top-off in the near future. As for the 350,000 bales mentioned by Young for the rest of 1948, Governor of Central Bank informed Embassy official that Shanghai cotton importers find that it takes approximately 5 months for order to be delivered; if this is correct, Young’s cotton proposal is quite reasonable as is his proposal concerning tobacco. It will be noted that total of proposed commodity credits is $202,000,000.

3. In light of past record of Chinese Govt. utilization of foreign credits and foreign exchange assets for specific purpose of combating inflation, we must express grave reservations about Young’s proposal for $150,000,000 for checking inflation in 1948 (paragraph 6 of Dr. Young’s memo). It is not clear how Young envisages this fund should be used. If it is to be used for import of commodities, as he proposes in one place, such a fund would not be differentiated from balance of payments commodity credits discussed above. If it is to be an all-purpose fund or a fund for specific purpose of withdrawing fapi from circulation, previous experience indicates that it would be rapidly dissipated with little to show for it, except increase in private Chinese foreign exchange assets, inaccessible whether abroad or in China. In any case, proposal that funds for checking inflation be obtained as an advance against China’s share of undistributed property looted by Japan would not appear to be feasible.

4. We concur with paragraph 7 of Dr. Young’s memo and suggest that a beginning should be made with United Power Company and Canton-Hankow Railroad and possibly coal mines in Hunan.

5. On the basis of the above apart from cost of military program, in 1948 $150,000,000–$200,000,000 would be needed for commodity credits and $50,000,000–$100,000,000 for rehabilitation projects. Fully concur that question should be considered whether part of aid should be non-repayable, especially as we take a more pessimistic view of China’s longer term balance of payment prospects than does Young.

6. With respect to 11a, Embassy feels that we should insist on opening to foreign trade of Hankow and Nanking as well as other river ports with appropriate facilities.

Stuart

61. Made on the occasion of commencement exercises at Harvard University on June 5. For text, see Department of State Bulletin, June 15, 1947, p. 1159.
62. November 10, 1947. For text, see Emergency Foreign Aid: Hearings before the House Committee on Foreign Affairs, 80th Cong., 1st sess., p. 2; or Department of State Bulletin, November 23, 1947, p. 970.
63. W. Walton Butterworth, Director of the Office of Far Eastern Affairs; lie succeeded John Carter Vincent on September 15.