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

893.50 Recovery/5–1348: Telegram

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

Washington, May 15, 1948—1 p.m.

738. Dept fully agrees observations Embtel 843 May 10 and assumes Emb satisfied agreement along lines Deptel 695 May 7⁵⁹ can be negotiated beginning June 1 without undue difficulty to allow signature prior July 3. Adequate time negotiation China agreement must be allowed. Majority European drafts were presented yesterday for negotiation. Procedure indicated Embtel 864 May 13 would appear provide only 2 weeks negotiation if ratification requiring 2 weeks must be obtained by Jul 3 to make agreement effective by that date. Efforts being made to reach prompt US govt agreement China draft and text will be sent Emb⁶⁰ immediately thereafter in accordance comment Art 11, Embtel 850, May 11.⁶¹ Request Emb’s further comments re time factor.

Meanwhile, Dept suggests Emb initiate corollary discussions if not already undertaken, giving special emphasis objectives mentioned second para Deptel 694 May 7 with highest level ChiGovt officials, preferably including Premier, Chang Kia-ngau,⁶² FonMin and other responsible officials at appropriate stages discussion. Ambassador should emphasize to Gimo, when appropriate, significance discussions and importance Chinese informal and formal undertakings and concrete implementations thereof from point of view U.S., and should ensure Gimo informed more important points discussion and Chinese undertakings. Would it not be desirable also keep in touch Li Tsungjen⁶³ for same purpose?

Following comments re Section II Embtel 669, Apr 14:

1. Dept believes opening Hankow foreign shipping, even temporarily, should be emphasized as in Chinese economic self interest. However, if Chinese unwilling to go whole hog, Emb should certainly press for permission U. S. aid cargoes unload river ports and carry export cargo from such ports of discharge as necessary efficient implementation aid program and as test case general issue.

2. Unnecessary. Protocol already signed.

3. Unnecessary, in view adequate commitment this regard obtained minutes negotiation commercial treaty, in GATT and ITO,⁶⁴ and proposed Art. IV agreement Deptel 695, May 7.⁶⁵

4. Dept’s tentative view is that FonMin’s note of Nov. 27, 1947⁶⁶ this subject covers matter adequately if Chinese intentions as stated note carried out. Dept may make additional comment this regard after further consideration here.

5. Dept believes emphasis this field should follow lines indicated below. Reference “maximum freedom in commercial interchanges” raises a number of unresolved problems and appears indicate U. S. favors relaxation Chinese trade and exchange controls which, in view continuing emergency, cannot, in general, be considered practical possibility.

In addition point 1 above, following points intended indicate general scope and occasional substance corollary discussions, subject Emb’s discretion. Dept believes Emb in better position elaborate subjects appropriate for discussion. Emb should encourage Chinese set forth their own proposals and indicate concrete application in first instance, reserving Emb’s comments for emphasis or addition when significant points neglected by Chinese. In general, Dept believes Emb should stress general character problems and measures required, but should treat concrete and specific application as matter for Chinese judgment and responsibility, at same time pressing for informal Chinese undertakings of specific character. Dept has not included reference below to certain suggestions dealt with by Chinese technical mission here, discussion of which might be taken by Chinese to imply assistance not now anticipated by U. S., such as currency reform or control over private assets in U. S. Question undertaking re assets in U. S. should be avoided pending further study here. Also, reconstruction projects should not be included corollary discussion regarding self-help measures since projects are dependent primarily upon U. S. aid and will receive appropriate attention in due course.

1. Government Expenditures.

a) Establishment of budgetary control and standardization accounting, based on short-term projections, in hands of central fiscal authority with power to make allocations for all expenditures and with sufficient political strength to resist demands for unnecessary expenditures.

b) Elimination of non-productive expenditures not essential to efficient civil administration and prosecution of war, such as padded army rolls, troops garrisoned in sheltered areas, Kmt⁶⁷ activities and other purposes for which Emb can find supporting examples.

2. Govt Receipts.

a) Emphasis on administrative improvements taxation.

b) Expand measures to protect tax revenue from currency depreciation, such as use multiplication factors, ad valorem taxes and taxation at source.

c) Expedite sale of Govt assets which could be operated more appropriately and efficiently by private enterprise.

3. Civil and Military Administration.

a) Adoption or continuation of realistic cost of living index as standard for ensuring more adequate pay for civil employees and soldiers.

b) Drastic and impartial weeding out of civil and military officials guilty of gross inefficiency or corruption.

c) Conscientious reduction of civil and military rolls to eliminate unnecessary employees, combining this with arrangements for retraining severed employees to fit into projects or other productive activity.

d) Coordination and elimination of duplication in civil and military agencies.

4. Distribution of staple commodities.

Emphasis, where practicable in Emb’s views, on improved administration of, or extension of, distribution controls. Explain essentiality of applying controls or incentives to maintain and expand flow of consumer goods into rural areas as incentive production and movement agricultural goods for urban consumption and export.

5. Banking and credit.

Adjustment of banking system in order:

(a) to give Central Bank complete control of banking and credit policy for purpose of checking speculation and ensuring more adequate credit for essential productive economic activity.

(b) to establish clearer demarcation between functions of government and private banks and to prevent favoritism to government banks.

(c) to eliminate uneconomic banking operations, such as the Central Cooperative Bank.

6. Agricultural Improvement.

Emphasis on implementation of recommendations of Joint U. S.–China Agricultural Mission, with special reference land reform policy, where desirable in judgment Emb.

7. Foreign Trade and its Controls.

Emphasis on:

(a) Administrative improvements in import and exchange controls, including coordination throughout China of control procedures.

(b) More realistic exchange rate policies.

(c) Adequate credit for production and marketing of export goods.

(d) Improvement in quality and standardization of export goods.

8. Encouragement to private enterprise.

(a) Clarification, by action as well as by statement, of fields open to private enterprise without governmental intrusion.

(b) Elimination of special privilege in foreign trade and domestic enterprise if Emb feels it can appropriately press this point.

Marshall

59. Not printed.
60. See telegram No. 774, May 24, 8 p.m., p. 524.
61. Not printed; this telegram indicated the desirability of placing a draft agreement in the hands of the Chinese in the reasonably near future because of the time required for translating and checking the Chinese text (893.50 Recovery/5–1148).
62. Governor of the Central Bank of China.
63. Vice-President-elect of the Republic of China.
64. International Trade Organization.
65. Not printed.
66. Not printed; for summary of note, see Embassy’s telegram No. 2325, December 2, 1947, 3 p.m., Foreign Relations, 1947, vol. vii, p. 1382.
67. Kuomintang (Nationalist Party).