893.50 Recovery/5–1048: Telegram

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

843. Embassy agrees bilateral aid agreement should be negotiated Nanking (reference Deptel 694, May 7, 7 p.m.) and that period of its negotiation presents time and opportunity to continue to press Chinese Government for undertakings re self-help and tangible acts in execution of Premier’s January 28 statement. Pressures in these directions have been applied by Embassy whenever and wherever occasion offered. Embassy agrees they should be intensified now and during period of bilateral negotiation with implicit but not explicit link.

Two important factors, however, must be borne in mind in any advance estimate of progress which may be made with Chinese Government. In first place, any broad or powerful bargaining position vis-à-vis Chinese Government disappeared on date Congress passed China Aid Act of 1948. Our position rests basically now on more tenuous ground of Chinese hopes for continuation and expansion of aid beyond time period covered by present act. It is true, however, that we retain and should make full use of our bargaining position in the bilateral negotiations with respect to (a) methods of procurement for aid commodities, (b) methods of distribution of aid commodities in China and (c) utilization of CNC49 proceeds from sale of aid commodities provided under grant. On the broad front of governmental reform and positive, self-generated fiscal and economic action, we rely for all practical purposes today, in Embassy’s opinion, on effectiveness of moral pressure and not on trading position.

The second element to be considered is the limitation on the Chinese Government’s ability as opposed to its willingness to take bold, constructive and effective action. The economic and financial status is deteriorating with increased momentum, as witness the doubling within the past week of the black market CNC rate for the US dollar. The military situation shows no improvement nor signs of any in prospect. Politically, there is a paralysis of leadership at the top which has permitted, for example, the tangle over the membership [Page 516] of the Legislative Yuan to make it impossible, until a settlement has been reached, for the Generalissimo50 to appoint his new Cabinet.

Under these circumstances, Embassy strongly recommends that we display no haste in the negotiation or conclusion of the bilateral agreement. The exchange of interim letters51 provides an entirely satisfactory basis on which to operate in the coming weeks. Moreover, working out in practical terms with the Chinese officials the procedures and operational methods under which the new aid program is to be handled will make more meaningful the language finally agreed and imbedded in the bilateral agreement. Delay will give time, presumably, to learn at least what individuals will head the Ministries directly concerned. Finally, it will extend the period in which our pressures can be applied.

In Embassy’s opinion, Generalissimo under emergency powers granted him by National Assembly can sign bilateral agreement without necessity of ratification by Legislative Yuan. We believe it safe to proceed on this assumption though we are checking in various governmental quarters recognizing, however, that no one is in a position to give an authoritative answer in advance of announcement of Cabinet and membership of Judicial Yuan. Embassy, accordingly, recommends that opening of negotiations be deferred until June 1. Meanwhile, pressure for reform will be continued and discussions with Chinese operating officials of procedures, drawing on [CRM] experience, should be pushed.

With respect to topics to be covered in corollary discussions, Embassy believes Premier’s 10 points of January 28 provide comprehensive agenda with desirable emphasis to be placed on implementation land reform, on extension of rationing and on fiscal and economic measures to maximize exports. It is presumed that protection of private trade channels can be achieved in course of specific negotiations in bilateral on methods of procurement and distribution of aid commodities.

Embassy will telegraph separately (a) its comments52 on draft [Page 517] agreement contained in urtel 695, May 753 and (b) certain recommendations re operational policies54 for aid program.

Gilpatric believed to concur in substance this telegram but will telegraph any disagreements or elaborations on his part.

Sent Department as 843, repeated Shanghai as 359.

  1. Chinese national currency.
  2. Chiang Kai-shek. President of the National Government of the Republic of China; President-elect of the Republic of China.
  3. Dated April 30; for text, see Department of State Bulletin, May 16, 1948, pp. 647–648.
  4. The Embassy forwarded its comments in telegram No. 850, May 11 (893.50 Recovery/5–1148). Its key observations dealt with distribution of aid supplies in China. The Embassy held it “vital” that “representatives of the US Government shall have direct supervision and control of supplies made available by the US Government under this agreement”. It also sought insertion of a clause for the broadening of a rationing and price control system “for our aid to be effective”. Both of these points were borrowed substantially from the agreement of October 27, 1947. The Department’s draft provided that these goods “shall be imported, distributed and used in accordance with terms and prices agreed upon from time to time between ChiGovt and US Govt”. (893.50 Recovery/5–748)
  5. Not printed.
  6. See infra.