Memorandum of Conversation, by the Chief of the Division of Investment and Economic Development (Havlik)

Participants: The Chinese Ambassador
Mr. Willard L. Thorp–A-T
Mr. Walton Butterworth–FE
Mr. Norman T. Ness15–OFD
Mr. Hubert F. Havlik–ED

The Ambassador inquired as to: (1) the possibility of the immediate use of the $18 million recently appropriated by the Congress for aid to China;16 (2) the relationship of this amount to the funds previously authorized under the US Foreign Belief Act (P. L. 8417) and [Page 451] (3) the possible amounts which might be provided for China in the recent Interim Aid Legislation (P. L. 38918). Mr. Thorp explained that under P. L. 84 an amount of about $24 million was already programed and under way but might not yet have been committed. He further explained that the $18 million recently appropriated by Congress for China aid was within the authority of P. L. 84, and that this brought the total appropriations to the limit of the full $350 million authorized by this Act. He also pointed out that while the Congress had appropriated $522 million for France, Italy and Austria, as compared with $597 million authorized in the enabling act, it was not likely that the remaining $75 million appropriated probably would not [sic] be appropriated, except perhaps in connection with European Recovery Plan. Mr. Thorp also explained that an amount of approximately $25 million of U. S. Foreign Relief Funds appropriated in 1947 was earmarked by the U. S. to be held against matching contributions of other countries to the Children’s Fund in accordance with a ruling of the Controller General.19 Consequently no part of these funds would be available for aid to any country under P. L. 84 unless at the last moment it appeared that some part had not been matched by contributions of foreign government.

The Ambassador then said that he would like to obtain information about the longer-term aid program, particularly as to the amounts proposed and the uses to which the funds could be put. Mr. Butterworth stated that Dr. Kan Lee had raised the same question with him and that the only reply that could be given at this time was that while the Department was anxious to place the program before the Chinese Government, it could not do so at present because the preliminary draft of the program was in the process of clearance within the Department and with other interested agencies of the US government such as the National Advisory Council and the Bureau of the Budget. Some decisions remained to be made, and until further progress was made, details could not yet be disclosed. The Ambassador inquired as to when the plan might be submitted to the Congress. Mr. Thorp indicated that this was uncertain, but that there was hope that it would be sent to Congress within the next two weeks. Members of Congress had indicated that in considering the European Recovery Program, and before finally acting on it, they would want to see the Chinese Aid Program. Consequently there was considerable pressure to have the program for China forwarded to the Congress for consideration.

The Ambassador inquired as to what kind of information the forthcoming [Page 452] two-man technical mission should voice to this country. Mr. Butterworth referred to a previous conversation between the Ambassador and the Secretary20 concerning the various aspects of the program, and emphasized that it would be most helpful if the Chinese Government could specify the measures of self-help that it would be willing to take, and the time table of such action. The Ambassador said that the Chinese Government was willing to outline a program looking toward financial and economic improvement, but it wanted particularly to be able to specify steps which could be taken promptly and effectively rather than a list of vague general aims. There followed a considerable discussion in which Mr. Thorp and Mr. Butterworth emphasized that in the case of aid to Europe, the US government expects the European countries to undertake steps of self-help which they have outlined in the CEEC report21 and that similarly we now desire to relate aid to a constructive program by the Chinese Government in all fields affecting the success of the program; that while the Chinese Government probably knew best what steps could be taken quickly and effectively, the provision of aid by the US would better enable it to undertake such steps. Mr. Butterworth referred to the problem of opening the Port of Hankow to foreign ocean transportation in order to make the most effective use of China’s internal resources, and to maximize the use of available transportation facilities; this matter had been cited in a recent cable22 reporting in [on] a conversation between American officials and General Yu Ta-wei, Minister of Communications; and was an illustration of what might be looked into and suggested by the Chinese government. Mr. Thorp pointed out that there might be resistance to the Administration’s proposals for aid to Chinese in some quarters of Congress, and that resistance which might arise because of doubts as to the economic prospects of China could be overcome in part by examples of constructive actions proposed and taken by the Chinese Government. The Ambassador referred to Dr. Kan Lee’s paper23 [Page 453] on the subject of measures which it might undertake in connection with aid from the US. Mr. Thorp and Mr. Butterworth stated that they could not discuss it with the Ambassador until it had been studied adequately.

The Ambassador stated that the Chinese Government hoped that something could be done toward the gradual stabilization of the Chinese currency by means of Aid Program. He suggested that if the aid funds were used directly to strengthen the currency reserves, the effect would be to promote confidence in the currency and the psychological effect would be beneficial. What was sought was to retard the rate of depreciation, rather than to achieve stability in value at present. Mr. Thorp indicated that from the economic point of view, we looked at the program somewhat differently. The US funds would be used to finance necessary imports for China. The US could not now consider the sizeable program that would be required to pay for such imports and in addition build up reserves that would be necessary for stabilization. He pointed out, however, that the Aid program would in fact provide an inflation offset by putting in necessary goods from abroad. He added that the fight against inflation would be more effective if direct anti-inflationary measures, such as taxation, were applied. The Ambassador pointed out that action to check price increases or decrease currency in circulation would be much more likely to be successful if accompanied immediately by action to increase currency reserves. Mr. Ness indicated that the use of aid funds directly to bolster reserves as proposed by the Ambassador would be a radical departure from the manner in which the US government had been administering its other foreign aid programs.

  1. Director of the Office of Financial and Development Policy.
  2. Public Law 393, approved December 23, 1947; 61 Stat. 941.
  3. Approved May 31, 1947; 61 Stat. 125. For correspondence regarding the foreign relief program under this act, see Foreign Relations, 1947, vol. vii, pp. 1293 ff.
  4. Approved December 17, 1947; 61 Stat. 934.
  5. This was in the form of an interpretation contained in letter B–71150 from Comptroller General Lindsay C. Warren to the Secretary of State, November 19, 1947 (800.48 FRP/11–1947).
  6. Presumably November 13, 1947. This was reported in a memorandum of the same date prepared by the Director of the Office of Far Eastern Affairs, Foreign Relations, 1947, vol. vii, p. 1214.
  7. Committee of European Economic Cooperation, General Report, vol. i (Washington, Government Printing Office, 1947).
  8. Telegram No. 24, January 5, 6 p.m., not printed.
  9. Draft statement of the Chinese Government on American aid to China, handed to Mr. Butterworth by Mr. Kan Lee on January 5, for Department comments (893.50 Recovery/1–548). In a memorandum of January 13 (893.00/1–1348), Mr. Butterworth informed the Secretary of State that changes recommended by the Department were being kept at a minimum “since it is important that the statement be issued entirely on the responsibility of the Chinese Government”. The more significant changes reflected the Department’s thinking that “(1) a public reference by the Chinese Government to its requests for American aid would be desirable at this time, and (2) the implication should be avoided that the accomplishment of internal reforms, including military reorganization, is dependent upon their integration with American aid.” The Secretary initialed the memorandum. For text of statement made by Premier Chang Chun on January 28, see note from the Chinese Embassy, p. 462.