The Ambassador in China (Stuart) to the Secretary of State
[Received August 14—4:50 a.m.]
1514. Merchant was invited by Gilpatric,38 Griffin39 and Sumner40 of ECA to attend meeting August 13 with Finance Minister Wang Yun-wu. ECA had arranged conference to query Finance Minister regarding economic and fiscal program widely touted as imminent by press. Existence such program, admittedly conceived in principle at Mokanshan conference, has been closely guarded secret of Prime Minister and exclusive handful his Cabinet.
Finance Minister Wang confirmed existence integrated program and left inference, without specifying, that its promulgation was imminent. Wang described the program in vague outline as consisting [Page 383]related measures (1) to increase taxes (2) to reduce Government expenditures (3) encourage exports, such as US needed strategic metals and (4) bring bullion and hard currency holdings both in China and abroad under Central Bank control. He mentioned proposed establishment supervisory board to watch over currency emission but made no reference to possibility recall of fapi and issuance new currency. Wang emphasized present lack of confidence in currency as important contributor to inflation.
In response to questions Wang stated (1) plans will be developed to control credit creation by Government banks and to place them regarding issuance cashiers checks under same rules and restraints as now apply ordinary commercial banks; (2) effort will be made to impose stricter budgetary controls and procedures on Ministry National Defense, though his facial expression indicated that his hopes in this direction were realistically modest; (3) he is aware personally ultimate necessity impose realistic real estate tax particularly in urban centers.
Projected increased taxes concentrated on custom duties (already announced and reported by Consulate General Shanghai) and commodities tax. Cabinet also next month will renew effort secure Legislative Yuan approval to increase salt tax. Time lag in calculation of taxes also to be greatly reduced, and rates for Government services such as railroads to be raised to realistic levels.
Approximate total annual expenditures stated to be equivalent 1 billion US dollars. Projected tax [revenues counted on providing 45 percent this figure. Additional 20 percent of total expenditures expected to be raised by sale Govt assets, such as former Jap properties and surplus property items.
Remaining gap amounting to 35 percent of total expenditures to be closed by 1st, in all realism, by resort to printing press; 2d, by development present nebulous plans for opening books for voluntary private subscription to new Govt bond issue; 3d, presumably by partial reliance on sterilization ECA special]41 account, although this was implied but not expressed explicitly by Wang; and 4th, one must assume large measure of hope.
ECA representatives noted unwillingness of Finance Minister to make available detailed information regarding economic and financial reform program on which neither Embassy nor ECA was consulted. ECA representatives disturbed by possibility program may contain significant currency action of character which done in haste may backfire and foredoom repetition to failure.[Page 384]
It was requested and Wang agreed that immediately following public announcement of program he will appoint small group trusted lieutenants to discuss with similar group ECA mission details execution program and future related measures to enable ECA fully to inform itself and to have opportunity to comment before rather than after the event.
Embassy believes forthcoming program will constitute supreme effort Wong Wen-hao Cabinet for self-help in economic areas. Its chances success unpredictable until full content and form known though we must admit T. V. Soong’s42 asserted lack of faith in it does not bode well for its efficacy. Moreover, Finance Minister’s presentation was not exactly confidence-inspiring. Embassy believes it would be a mistake for US Government to intervene at this point in effort to delay its public announcement to provide opportunity for constructive criticism by US. Accelerated pace of inflation clearly does require prompt Cabinet action. Moreover, having stressed these many months need for self-help by Chinese Government, we would place ourselves in vulnerable position in requesting delay. To do so would be to assume substantial participation in matter which is Chinese sovereign responsibility.
Evening of August 13 Wong Wen-hao confirmed to Lapham Govt intent to issue new currency and stated Generalissimo had that afternoon authorized him to proceed according to Cabinet over-all plan. Timing was not revealed.
Lapham and associates have seen this telegram. Sent Dept, pouched Shanghai.
- Donald S. Gilpatric, Deputy Chief of the Economic Cooperation Administration (ECA) China Mission and concurrently Attaché at the Consulate General at Shanghai.↩
- Robert A. Griffin, Special Assistant to Roger D. Lapham, Chief of the ECA China Mission.↩
- John D. Sumner, Chief Economic Adviser, ECA China Mission.↩
- Bracketed insertion based on Embassy file copy of telegram.↩
- Governor of Kwangtung and former Chinese Minister of Finance.↩