The Consul General at Shanghai (Cabot) to the Secretary of State
[Received July 12—4:02 a.m.]
1552. For Treasury and State from Casaday. Reourtel 1044, May 12, repeated Nanking 814. Cyril Rogers (who says K. P. Chen and Li Ming24 concur, although this concurrence rather late in developing) again expressed utmost pessimism and downright alarm re general financial situation. Rogers believes it is “50–50 toss-up” whether there will be complete collapse of fapi during next 3 to 6 months despite American aid program. He assumes such collapse would bring with it virtual disintegration Nanking regime and high probability of “shooting in streets” with prominent Government officials and all foreigners as most popular targets and scapegoats.
Rogers fervently repeated his hope that projects under aid program be cut to minimum and CNC proceeds from sales aid goods be sterilized maximum possible extent.
Although Rogers among those who denied in May (see mytels to Embassy 866 and 872, May 18, and Embtel 948, May 2625) that Chinese Government was seriously considering imminent conversion of currency, he now states that realization of seriousness of situation has finally seeped up to highest levels with result that near panic reigns on Olympus and Generalissimo is said to be seriously considering currency conversion before end 1948 with or without United States backing.
This possibility greatly adds to alarm already felt by Rogers and others who believe such plan could not be kept secret in China with result that fapi would completely blow up prior to conversion and that as soon as it became known (as it must immediately) that new currency also had no backing, it too would blow up within 3 months. And, as Rogers put it, “currency conversion is something you can’t try two or three times, it’s got to be made to work the first time”.
Generalissimo and Prime Minister,26 however, seem to have naive belief that because it took 11 years for fapi to reach its present plight a new currency issued at say 3 or 4 or 5 to the United States dollar would take at least another 5 or 6 years to travel the same course, even though unbacked.
Asked whether there is sufficient new currency on hand to effect a conversion, Rogers said yes, that “Sun” currency printed at various times beginning as far back as when Kung27 was Finance Minister [Page 374] is stored in Shanghai (Embassy see last paragraph mytel 866) and would be quantitatively sufficient in aggregate for conversion but not certain that enough of various denominations. He said this point and “thousand other details” likely to be overlooked until last minute if Nanking typically “goes off half cocked” on this enterprise. In regard reference telegrams, however, Rogers repeated that he knows of no recent printings of small denomination notes in Rangoon or elsewhere. Present stock of “Sun” currency has been on hand for at least 18 or 20 months.
Rogers asked whether there is any chance of getting stabilization aid (which he says should be recognized as straight political loan or grant) from United States during 1948. He feels Washington does riot fully appreciate seriousness Chinese situation, partly because Pei not given sufficient facts by Chinese Government nor instructions to present strong case. Rogers seeking permission Chinese Government to proceed Washington ostensibly confer with Pei but actually to talk straight from shoulder to key United States personnel and he doubts he will get such permission, however.
Assuming there is no chance of stabilization loan or grant from United States during 1948, Rogers is advising Chinese Government to hang on for dear life until new Congress in January 1949, trying best to make aid program do as much good and little harm as possible and then (if Chinese Government still here) to bend every effort obtain immediate stabilization loan. He admits this advice hard to give and still harder to take now that Nanking seems finally to realize regime has only about 50–50 chance surviving next 6 months.
Sent Department 1552, repeated Nanking 1260. [Casaday.]