893.50 Recovery/4–648: Telegram

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

614. [Emb has been devoting thought to future operations of China Aid Program with view to possible]76 assistance to Dept on decisions in Washington.

With respect to U. S. Aid Mission in China prime and overriding consideration is selection by ECA77 administrator of properly qualified China Mission head. Emb assumes Gilpatric78 not available for consideration by reason his firm personal plans; otherwise his experience and CRM record would correctly entitle him to foremost Washington consideration for post. There does not appear to Embassy to be now available in China another American carrying sufficient prestige as top flight executive and administrator. In such case, securing these qualifications appears to Embassy more important than longtime China experience or direct past participation in relief operation. Embassy accordingly recommends Dept urge ECA administrator to seek man of proven stature in US business or Government circles, possession some Far Eastern experience desirable but in Embassy’s judgment not essential.

On operating level Embassy believes CRM will bequeath to aid mission not only valuable experience and records but going concern in form of headquarters, logically located branches, certain equipment and nucleus of intermediate and supporting staff. In view, however, of tremendous importance aid program to our total relations with China, Embassy strongly recommends most careful security screening all personnel. Embassy also believes powerful burden of proof should rest on employment of any non-Americans, except Chinese at clerical level if Americans unavailable.

Embassy is unaware of any discussions which may have been held in Washington with Chinese representatives concerning organization to be established by Chinese Government for handling its part under aid program. Discussions here with high Chinese officials indicate no concrete plan yet developed. In fact, little consideration of problem evident at Cabinet level. (See, however, Mukden’s telegram of March 31, 4 p.m. to Dept,79 rptd Nanking 203, contents of which are as yet [Page 487] unconfirmed here.) Embassy recommends that, in line with original CRM decision which events have supported, Chinese be encouraged to utilize existing ministries concerned rather than establish new governmental structure exclusively for purpose receiving aid. Nevertheless there would be required a high level Chinese Coordinating Committee at Cabinet level to act as focal point with US administrator. This committee should be capable of enforcing its decisions on ministers. Hence Embassy believes it should be at higher level than present EYCARS80 but that it might usefully inherit all or part of EYCARS staff as its secretariat. In Embassy’s judgement, most logical chairman would be Premier with an outstanding vice-chairman (for example, Y. T. Miao81) who could devote full time to operation and speak confidently with Premier’s authority.

Apart from machinery, China aid program obviously falls into two major operations, (1) supplies to China and (2) disposition of local currency sale proceeds.

On first, Embassy strongly recommends use of American commercial channels wherever and to whatever extent practicable. Food presumably should be handled on Govt to Govt basis but cotton and petroleum in Embassy’s opinion should be channeled through existing commercial organizations. We should clearly insure that supplies made available by US taxpayer do not damage legitimate US commercial interests and on contrary where feasible they should be so handled as to support established US commercial interests. American businessmen in China can be invaluable in advising US aid administrator. Their help should be solicited and placed on organized basis.

Insofar as disposal of CNC82 proceeds are concerned, two broad choices apparently are open, requiring major policy decisions in Washington. The first would be in effect to substitute CNC sale proceeds for currency which otherwise would be freshly printed. Such a policy would attack Chinese economic problems at the printing press, leaving all other hopes for benefits to flow from an arresting of currency inflation. The arithmetic of the problem lends some appeal to this approach. On the other hand it could only be surely counted on as a long [one] shot remedy. It would not invite or encourage a budget balancing official mentality and any enduring benefit would seem doubtful.

The broad alternative would be to allocate local currency proceeds for meritorious projects and purposes, along lines CRM current operations. Selective benefits directly to Chinese on grand scale are thereby obviously possible. On other hand magnitude of sums involved opens green fields for WPA83 type of operation on scale which [Page 488] would invite chop-licking in every hamlet. The inflationary implications moreover are not to be overlooked.

Between these two extremes some sensible middle course may be possible. Moreover full text of act, as yet unseen here, may foreclose or limit one or other course.

Embassy recommends following:

In close collaboration with emitting authority, all of [allow] application substantial proportion CNC proceeds from sales to Chinese Government expenditures thereby reducing need to call on printing press. With this lever and possible provision of technical experts, which Chinese Govt has been asking for American [as] advisers, substantial reforms in budgeting and fiscal procedures might well result.
Maintain or increase present high CRM standards for qualification of individual projects to receive CNC grants.
Secure Chinese Government agreement to take advantage of inherent easing Governmental revenue problem realistically to adjust upward troop pay and salaries of civil servants. This is admittedly [anti-deflationary but action is necessary to prevent further decay in morale.]

[Embassy would appreciate guidance from Dept as to general directions in which Emb by informal talks might constructively influence Chinese Government thinking on any points discussed in this telegram.]

  1. Bracketed insertions made on basis of Embassy file copy of telegram.
  2. Economic Cooperation Administration.
  3. Donald S. Gilpatric, Attaché at the Consulate General at Shanghai and Director of the China Relief Mission (CRM) which administered post-UNRRA relief in that country.
  4. Telegram No. 144 reported the Premier had offered the position of national administrator of non-military American aid to Yang Cho-an, Mayor-designate of Harbin (893.50 Recovery/3–3148).
  5. Executive Yuan Commission for American Relief Supplies.
  6. Chairman of EYCARS.
  7. Chinese national currency.
  8. Works Progress Administration.