Foreign Relations of the United States, 1948, The Far East: China, Volume VIII

893.50 Recovery/4–648: Telegram

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

Washington, April 8, 1948—6 p.m.

519. 1. Dept believes bilateral agreement required by Sec 405 Title IV²¹ should apply only extension economic aid to be appropriated under Sec 404 (a). Grant authorized by Sec 404 (b)²² can be handled by separate exchange notes covering administrative terms withdrawal funds. Bilateral agreement per se should be primarily for purpose obtain Chinese commitments re control and disposal US aid goods and equivalent local currency account (including Joint Committee on Rural Reconstruction²³), and re improvement US commercial relations with China. In addition, it should incorporate, where applicable to China, provisions re general domestic economic and financial objectives along lines specified by Act for European countries.²⁴ In this connection, agreement could take cognizance Chinese undertakings re internal reforms indicated Chang Chun’s Jan 28 statement.²⁵ In view significance this instrument and necessity obtain decision highest levels Chinese Govt, Dept believes desirable bilateral agreement be negotiated Nanking. Instructions will follow.

2. Effectiveness aid program as more than stop-gap device obviously requires Chinese go from general commitments re internal reforms to specific undertakings re practical step necessary arrest economic and financial deterioration. China Aid Program has been justified in report of Senate Foreign Relations Committee²⁶ as effort to “give hard-working people of China chance to arrest rate of economic deterioration in China, and afford Chinese Government further opportunity to undertake vigorous program of self-help”. Purpose clause Act states “assistance provided by the US under this title should at all times be dependent upon cooperation by the Republic of China in furthering the program”. For your personal info, it was sense Congressional Committees that question future US aid to China would be greatly influenced by Chinese performance this regard. It is incumbent US Govt take this occasion vigorously renew efforts induce prompt and effective even though rough and ready measures.

3. Regard for Chinese sovereignty argues against inclusion detailed undertakings re internal reform [in] bilateral agreement. Dept considering desirability initiate conversations Chinese Govt on high level Nanking directed towards obtaining informally Chinese Govt undertakings as to specific actions and time such actions. This would carry forward discussions held here informally with Chinese Technical Mission based upon lengthy Chinese text²⁷ expounding plans implement Chang Chun’s Jan 28 statement. Problems to be dealt with may range from (1) basic but most difficult tasks, such as steps toward budget rationalization and control by Chinese fiscal authorities of total Govt expenditures, or implementation land reform policies, to (2) peripheral problems more susceptible of early solution which would result in some improvement tax revenues or foreign exchange earnings. In order achieve maximum effect, such conversations would be begun as part of discussion leading to signature bilateral agreement, although efforts encourage action would obviously have to be continued throughout period of aid program. As indicated in previous telegrams re Dr. Young’s program,²⁸ US Aid Mission might provide small number policy advisors and technicians to work closely with Chinese Govt agencies responsible carrying out proposals for which significant concrete action appears reasonable possibility.

4. Request your views re desirability, scope and form such conversations, including your advice as to practical steps that can realistically be expected from Chinese Govt in implementation Chang Chun statement. Embtel 614 April 6²⁹ noted. Copies plan submitted by Chinese Technical Mission being sent pouch,³⁰ but your comments should not await their arrival. You may be able obtain copies Chinese Govt.

Lovett

21. Foreign Assistance Act of 1948, approved April 3, 1948; 62 Stat. 137. Title IV was known as the “China Aid Act of 1948”; 62 Stat. 158.
22. For correspondence on this subject, see pp. 73 ff.
23. For correspondence on negotiation of agreement establishing Joint Commission on Rural Reconstruction in China, see pp. 601 ff.
24. Economic Cooperation Act of 1948, Title I of Foreign Assistance Act of 1948.
25. For text, see note from the Chinese Embassy, p. 462; Chang Chun was President of the Chinese Executive Yuan.
26. Senate Report No. 1026, March 25, 1948, 80th Cong., 2d sess., p. 7.
27. Ten reports submitted to the Department by Pei Tsu-yi, Chairman of the Chinese Technical Mission; see footnote 44, p. 464.
28. The program of Arthur Young, American financial adviser to the Chinese Government, is set forth in telegram No. 2223, November 10, 1947, 4 p.m., Foreign Relations, 1947, vol. vii, p. 1205.
29. Ante, p. 486.
30. Instruction No. 57, April 10, not printed. Its inclosures not found attached to either Department or Embassy file copies of instruction. Presumably, they are the Mission’s memorandum of January 23, p. 457, and the 10 reports submitted by Mr. Pei (not printed).