893.51/8–1148: Telegram

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

1488. We communicated to Wong Wen-hao August 11 gist of third paragraph Deptel 1132, August 5 (see also Embtel 1426, August 3). Prime Minister stated instructions of Pei Tsu-yee re attempt to negotiate loan under reference had not been transmitted to him and project is still in Cabinet discussion stage. Pei had, however, been instructed by Prime Minister to explore informally in Washington probable reaction to long-term US purchase contract for strategic materials which would provide security for loan covering modern mining machinery et cetera. According to Prime Minister, Pei had reported that informal discussions this subject with unidentified committee in Washington had been encouraging. In any event Wong Wen-hao is not now under any misapprehension in this matter.

In reply to question Prime Minister stated that projected economic and currency measures will probably be made public in next few days. In marked contrast to his customary buoyancy, Prime Minister discussed present situation in gloomy terms. He admitted currency reform measures contemplated do not touch root of matter which is massive budget imbalance caused by civil war expenditures. He expressed hope, however, rate of inflation might thereby be braked and period of some months relative stability of prices secured. At end he said he trusted Secretary fully appreciated seriousness of China’s situation with bankruptcy apparently only few months ahead.