893.50 Recovery/3–2349: Telegram

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

638. For Hoffman and Lapham, ECA, from Griffin. I have discussed contents Ecato 1169 and Ecato 117390 with Ambassador, Merchant, Jones and Parker91 who concur in following:

We are operating on basic assumption that it is in our vital interest to support Li Tsung-jen within our available means in forthcoming peace negotiations with Communists92 to permit Li to resist with some degree effectiveness overwhelming Communist demands which may be anticipated and to permit him maintain as intact as possible economy and morale on which to base resumption military resistance if peace talks fail. Refusal silver loan93 blow to Li. Decision reported Ecato 1169 merely to extend time limit but request no additional ECA funds for China, which decision I have communicated to Finance Minister S. Y. Liu, is not only blow to Li’s Government’s morale but in its and our view weakening of Li’s hand at peace table. In light of basic assumption stated above, we believe it of overriding importance that remaining uncommitted funds be utilized to provide maximum support to mainland economy through summer by which time outcome peace negotiations should be known. Such support at minimum will buy time for present government and thereby slow down pace Communist advance southward, with all implications of such advance in southeast Asian countries.

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Allocation these funds as suggested Ecato 1173 will not accomplish our objective. We recommend the following:

US $58,000,000 uncommitted as of April 2 be distributed over cotton, rice and POL94 in balanced ratio with small amount retained for administration liquidation and related expenses. All of above commodities to be distributed on mainland. We will send detailed recommendations in later message.
Consent Chinese Government be sought to programmed utilization up to $100,000,000 from Central Bank’s existing exchange and metallic reserves for purchase supplementary commodity imports.
Withdrawals from and commitments against special account be cut to bone, and Chinese Government pressed to maintain realistic prices ECA import commodities which steps in combination will maximize gold yuan sterilization. This will hit JCRR projects which sacrifice we believe warranted for larger aim.

Apart from belief all remaining funds required on mainland to support even semblance economic order during peace negotiations period, we have additional reasons for believing provision for any Formosan economic programs should be separate. Assuming it is later decided to support economy Formosa, we see little point in embarking on such program on basis provided for by Ecato 1173. The amount is too small and uncertainty of continuity too great to achieve any substantial result. In following telegram,95 based on Parker US fiscal and economic survey, we will develop character and dimensions of minimum program for Formosa which we believe would secure improvement sufficient to revive more stable economic order.

If ECA and Department accept foregoing recommendations, we believe program can be presented to Chinese Government in constructive form which will secure maximum self-help their part and reduce to minimum morale shock which is inevitable result realization further aid not forthcoming.

Please pass to Treasury. [Griffin.]

  1. March 18 and 21, respectively, neither printed; the former summarized Mr. Cleveland’s memorandum of March 10, p. 630.
  2. Paul C. Parker, Acting Treasury Representative in China and Financial Adviser to the ECA China Mission.
  3. For correspondence on this subject, see vol. viii, “Political and military situation in China”, chapter II.
  4. See telegram No. 336, February 23, 1 p. m., to the Consul General at Shanghai, p. 741.
  5. Petroleum, oil, lubricants.
  6. No. 639, March 23, 8 p. m., p. 302.