Memorandum of Conversation, by the Chief of the Division of Chinese Affairs (Sprouse)

Participants: Mr. Pei Tsu-yi, Chief of Chinese Technical Mission
Mr. Butterworth, Director for Far Eastern Affairs
Mr. Sprouse, Chief of Division of Chinese Affairs

Mr. Pei Tsu-yi called by appointment upon Mr. Butterworth this morning to discuss the possibility of an extension of the date of repayment of Chinese obligations under the Export-Import Bank cotton credit of $33 million.19

Mr. Pei stated that he had been requested by Mr. O. K. Yui, Minister of Finance,20 to explore here the possibility of such extension. He described the conversation that he had had with Mr. Clarence Gauss, Export-Import Bank, on this subject. Mr. Pei said that Mr. Gauss had given him no encouragement and had pointed out how serious it would be if the Chinese Government were to be placed in a position of defaulting if it failed to meet its payments under this credit. Mr. Pei explained that payments were due beginning with July and extending [Page 372]over a period until the end of the year, a $5 million payment being due in July, $10 million being due in August, and the other payments representing a total of $3 or $4 million per month. He further stated that in view of the serious foreign exchange position of the Chinese Government, the latter would find it difficult to meet these payments, particularly during the next two months before the Aid program for China should get completely under way. Mr. Pei said that he had suggested to Mr. Gauss the possibility of the Chinese concluding a sales contract for the export of tin to the U. S., which would logically fall within the provision of the Economic Cooperation Act21 with respect to the development of strategic materials and the export of such materials to the U. S. Mr. Gauss questioned him regarding the purpose of such an arrangement, pointing out that if it were for the purpose of meeting Chinese obligations under the cotton credits he could give no encouragement. Mr. Pei replied that such an arrangement could be made for the purpose of providing grounds for extension of the dates of Chinese payments.

Mr. Pei then asked Mr. Butterworth if he had any ideas on this subject which would meet the Chinese difficulties. Mr. Butterworth described to him the note which had recently been sent to the Chinese Ambassador22 in reply to the Chinese request23 for a postponement of payment of Chinese obligations totalling $2.8 or $2.9 million under lend-lease arrangements. Mr. Butterworth pointed out that the Department’s reply was based on two considerations: 1) In presenting the justification for the China Aid Program the Department had taken into consideration, in connection with the Chinese balance of payments position, Chinese Government obligations to U. S. Government agencies; and 2) the Congress had clearly indicated in its consideration of the various foreign aid programs the necessity of foreign governments meeting such obligations to the U. S. Government. The total amount of aid made available to foreign governments under the Foreign Assistance Act of 194821 had made provision for sufficient aid to enable these countries to meet such obligations. The Department had therefore found it impossible to accede to the Chinese Ambassador’s request. These same considerations would apply to the $33 million cotton credits.

Mr. Butterworth informed Mr. Pei that there will, however, be no objection to his exploring with ECA, the Export-Import Bank and the Treasury Department, as the stockpiling agency, the possibility of an arrangement for the export of tin to the United States as described by Mr. Pei.

  1. See Department’s telegram No. 493, March 19, 1946, 7 p.m., Foreign Relations, 1946, vol. x, p. 967.
  2. Mr. Yui was appointed Governor of the Central Bank of China on May 21 and was no longer Chinese Minister of Finance.
  3. Approved April 3, 1948; 62 Stat. 137.
  4. Dated July 1, p. 696.
  5. Dated June 28, p. 695.
  6. Approved April 3, 1948; 62 Stat. 137.