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The Chargé in China (Strong) to the Secretary of State

Cantel 1218. Nationalist Government preparing plan sponsored by Premier Yen return part tax revenues to provinces. In turn provinces to maintain total 1,750,000 troops, serving only in native provinces. Central Government maintain 750,000 troops going from place to place to support provincial forces under Communist threat. Plan effective November 1. Minister Finance Kuan trying have total troops reduced to 2 million.

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To obtain revenue certain tax collection changes proposed. Plan use high grade men and pay them well. Also plan float loans and create more [garble] through compulsory methods in China persuasion overseas Chinese. Total government outgo under this military program approximately $38 million silver monthly. Kuan said “part can come from Taiwan” and observed that previous Minister Finance’s trouble was inadequate provisions for collection current revenues. Consequently Taiwan hoard dissipated faster than anticipated.

His remarks confirm other reports Hsu Kan spent Generalissimo’s advances at great rate instead trying meet expenditures from current taxes. High Foreign Office official said Hsu in three and half months spent 11 months’ allotment which was 200,000 ounces gold monthly from Generalissimo. Moreover, Hsu left deficit which wiped out 2 months’ allotment given Minister Finance Kuan.

Generalissimo’s reluctance release funds attributed to fiscal caution necessitated by diminishing gold and currency holdings.

[Strong]