893.50 Recovery/12–2448: Telegram

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

2618. ReDeptel 1555, November 5, 7 p.m., and 1847, December 17, 3 p.m.68 Preparation requested commentary under way despite hindrances slow communications other posts and general preoccupation with immediate problems on part ECA, Embassy, and Consulates. Preliminary survey along lines originally asked Deptel 1555 has been drafted in Embassy and summary submitted herewith for preliminary guidance of Department.

General introductory statement: China’s situation is unique among ECA recipient nations. Her civil war for survival must qualify judgments and evaluations ECA aid.
Foreign trade regulations and Export-Import Board and Central Bank procedures vis-à-vis article III.
Internal consistency of the regulations. The relative consistency of the regulations at any one point in time has usually been more than off-set by administrative stubbornness and inconsistencies and constant reversals and revisions of policy.
Effectiveness of the regulations. Reduction of imports according to plan has been accomplished. Stimulation of exports [Page 685] has generally failed. Exchange saved from import controls or other sources has not been effectively used to stabilize price[s] and encourage exports.
Equity of application of the regulations. It is believed that inequities which have occurred in administration of the measures have not been deliberate. Elimination of ex post facto aspects of new regulations in accordance with article III, paragraph 1, should be effected to a greater degree than they have.
Consistency of the regulations and procedures with the self-help principle. While through its import controls the Government has discriminatingly selected imports considered essential for China’s economy and reconstruction, in accordance with the self-help principle, in the administration of trade and foreign exchange regulations and in the over-all attitude of the Government exports and export industries have not only been neglected but have not been encouraged to the degree thought possible.
Significant modifications in regulations and administrative procedures—June 30 through November 1948. The modifications listed mostly indicate a continuing effort by the Government to devise measures which will keep astride the inflation and conserve exchange. The modifications were not related to article III, except for the effort to settle cases where commodities had arrived and were not permitted importation. The rationing measures, price and cost controls adopted were administered so inflexibly and Governmental incompetence in these and related fields was so glaring as almost to guarantee failures from the outset.
Problems of American business in China. General problems have had the background of inflation, poor transport, and the destruction of war. Importers in particular have been victims of China’s clear need to limit imports drastically. Beyond these factors, however, there has been incompetence, conflict and discrimination in the administration of complicated and voluminous regulations affecting all business. Other problems include lack of facilities or provision for removal of profits from China for certain purposes; the rise of cost faster than price coupled often with price control on a few goods or services; and uncertainties and inequities in taxation.
Progress made toward objectives of article III. Policy has generally adhered to paragraphs 2 and 3 of article III. Compliance with the provisions of paragraph 1 has been very weak. In general, minor improvement only has been noted in the conditions under which foreign trade by private enterprises is conducted in China. The refusal of the Government to grant operating privileges to the Commercial Pacific Cable Company is a case in point.

ECA has seen these comments and is in no major disagreement with them, but may comment separately.69 Sent Department 2618, repeated Shanghai for ECA 1310.

  1. Latter not printed.
  2. Telegrams Nos. Toeca 838, January 18, 1949, and 882, January 25, 1949, from Mr. Lapham to Mr. Hoffman, not printed.