893.50 Recovery/11–2548
The Acting Secretary of State to the Chinese Ambassador (Koo)
The [Acting] Secretary of State presents his compliments to His Excellency the Chinese Ambassador and has the honor to refer to the Chinese Embassy’s memorandum of November 25, 1948, requesting that the United States Government take certain steps to provide military assistance to the Chinese Government.
The National Military Establishment informs the Department that in accepting the Chinese Government’s request for equipment and ammunition for the seven armies and three reorganized divisions no commitment was made with respect to price. The military representatives of the Chinese Government in Washington charged with handling procurement under the $125 million grants were so informed by the Department of the Army in a letter dated September 30, 1948, prior to the transfer of funds. The National Military Establishment further notes that the Department of the Army in accepting the transfer of $37,783,386.68 from the $125 million grants took the position that prices charged would be in accord with standard pricing formulas applicable to all foreign aid programs.
The bulk of the equipment desired by the Chinese Government comprises items which will have to be replaced if the minimum stock requirements of the Army are to be maintained. For most of these transfers, therefore, standard pricing formulas necessitated the charging of current replacement costs. Whenever items did not fall in the above category, 1945 prices or surplus prices were established depending [Page 229] on the replacement requirement of the Army. Based on the above formulas, the cost of the program was computed to be $74,987,810. The National Military Establishment indicates that the Department of the Army has no authority to effect the expenditure of funds in excess of those allocated by the Chinese Government from the $125 million grants for this purpose.
The 80th Congress in its second session appropriated the funds on which this Government’s program of aid to China is based. Of the funds appropriated, $275 million were allocated for economic aid and $125 million were grants to be expended as desired by the Chinese Government. The only source, therefore, from which United States Government funds could be drawn to pay for the military equipment desired would be the $125 million grants.
The President in his letter of July 28, 1948, to the Secretary of Defense3 establishing procedures under the $125 million grants authorized him to “take such action as may be appropriate …4 to facilitate the acquisition by the Chinese Government of such military supplies as the Chinese Government may request either by making available existing stocks of the National Military Establishment or by arranging for the procurement of such supplies on behalf of that Government”. It was this authorization which permitted the Department of the Army to transfer from its own stocks the equipment already purchased by the Chinese Government for the seven armies and three divisions.
With respect to the equipment for the Chinese Air Force, the National Military Establishment has informed this Department that the planes requested, though not excess to United States Air Force or Navy needs, could be made available. Surplus prices will not apply either to the planes or any spare parts for them. The National Military Establishment notes that the United States Air Force maintenance facilities are overburdened with projects which preclude their use for the reconditioning of the B–26’s, but that the Navy is in a position to rehabilitate the PB4Y’s. These latter planes can be made acceptable to United States Navy fleet standards in three months at a reconditioning cost of $20,000 per plane, or can be rendered flyable at a reconditioning cost of an estimated $600 per plane. These figures do not include the basic cost of the planes.
With respect to the aerial bombs, the National Military Establishment informs this Department that the United States Air Force has taken steps to furnish the total number requested, the bulk of the requirement now being available in the United States Far East Command. Delivery of this material is being expedited.
[Page 230]With respect to the transfer of P–47N aircraft, fifty-one of which have been delivered, this Department has been informed that sixteen additional planes will be transferred prior to the end of this year.
The National Military Establishment informs this Department that the United States Navy is investigating as a matter of urgency the possibility of providing carriers to assist in the delivery of the fighter aircraft being reconditioned in this country under a commercial contract.