893.50 Recovery/11–2048

Memorandum by the Director of the Office of Far Eastern Affairs (Butterworth) to the Secretary of State

Attached is a summary (Tab A)60 of the report of D. Worth Clark, consultant to the Senate Appropriations Committee, on aid to China (Tab B),61 which was covered by the press on Sunday, November 21. An acknowledgment of the copy which Mr. Clark sent you personally is attached for your signature (Tab C).60

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The report concludes that only through large-scale aid to and participation in the National Government’s military-economic effort can the United States hope to prevent Communist domination of China. The most significant of the recommendations are for extensive direct military aid, assumption of actual administrative and combat authority by American military “advisors”, and financial aid to remove a major portion of the war cost from China’s internal budget and thus provide currency stabilization.

Although not indicated by the report, the recommendation for financial aid would involve U. S. contributions of goods, bullion or currency to underwrite both the foreign exchange as well as the internal budgetary deficit of the Chinese Government. China’s minimum foreign exchange deficit for 1948 was estimated by the Department at about $400 million. The internal budgetary deficit has been running at the equivalent of U. S. $600 to U. S. $700 million a year, and this might well be increased substantially as the result of an expanded military program.

Creation of a $200 million reserve fund for currency stabilization is proposed quite apart from aid to finance China’s internal budgetary deficit. It is difficult to visualize the need for such a fund if the U. S. were to provide funds sufficient to cover China’s internal and external deficits.

Aside from the currency stabilization fund, no estimates are provided of the quantitative requirements of the various types of aid proposed. However, it is not difficult to conceive of a comprehensive program of this type as involving a U. S. expenditure of approximately $2 billion during its first year of operation.

  1. Not printed.
  2. Mr. Clark’s report not printed; it was submitted to the Senate Appropriations Committee on November 19 and a copy sent to the Secretary of State by Mr. Clark on November 20. The Secretary acknowledged receipt of the report on November 24.
  3. Not printed.