893.5151/7–1248: Telegram

The Consul General at Shanghai (Cabot) to the Secretary of State

1559. For Treasury and State from Casaday. Reourtel 1552, July 12, repeated Nanking 1260. Chinese official (who wants this message held in highest secrecy as any Chinese hearing of it would likely be able identify its source) says he was member committee of three asked last week by Prime Minister, allegedly with Generalissimo’s concurrence, draw up technical details for immediate currency conversion. Committee made stab at task but appended notations as to difficulties and dangers attempting conversion at this time.

[Page 375]

Although committee members not present when report presented to Generalissimo, latter apparently took note of committee’s critical reservations (and presumably also Rogers’ strongly worded advice which must have reached him about same time, see reference telegram) and is said to have postponed idea of currency conversion for further consideration but with comment to effect that “something may have to be done soon nevertheless.”

Aforesaid Chinese official (my informant), realizing precariousness present situation and that events may force Generalissimo’s hand and precipitate ill-advised action, thereupon presented concurrently to Governor Central Bank and Minister Finance28 plan he has long had in mind for temporary but substantial contracting of visiting [existing] currency and consequent easing of present hyper-inflationary pressure. Plan proposes immediate forceful seizure by Government of all godowns and other inventory stocks in Shanghai, immediate dumping on market of 25 percent of seized goods, proceeds to be turned over to Issue Department of Central Bank for use in meeting regular demands thereon. Plan proposes goods so seized and sold be considered capital levy upon owners without recompense or as forced loan to be repaid by Government at some indefinite future. Informant says he has figures showing probable extent and duration of deflation which scheme would produce and that it would give “definite relief and breathing spell of at least 3 months.”

Plan said strongly favored by Finance Minister who congratulated author personally and said he would push it with Prime Minister and Generalissimo. But O. K. Yui (who my informant says more closely tied in with Shanghai business interests) equally strongly condemned plan and personally “bawled out” its author.

No report yet as to attitude of Prime Minister and Generalissimo.

Sent Department 1559, repeated Nanking as 1264. [Casaday.]

  1. Wang Yun-wu.