893.50 Recovery/3–3149

The Chinese Ambassador (Koo) to the Secretary of State

Dear Mr. Secretary of State: Referring to my conversation with Under-Secretary of State James E. Webb on March 3, 1949,57 and pursuant to the instructions of my Government, I have the honor to present for consideration and action by the United States Government a Memorandum on the Continuation of United States Aid to China with observations on interim aid for the period from April 3 to June 30, 1949 and a Proposed Aid Program for July 1949 through June 1950.58 These two documents have been prepared in the light of the existing conditions in China and with due regard to the need of flexibility and adjustment which may arise from new developments.

One of the serious difficulties confronting the Chinese economy is the continued depreciation of the gold yuan. In order to cope with this pressing problem which, among other things, is also undermining the stability of the Chinese economic system, the initiation of a sound currency program by stages appears indispensable. It is the hope of my Government to be able to propose in due course a program for consideration and discussion with a view to seeking the co-operation and assistance from the Government of the United States.59

I am [etc.]

V. K. Wellington Koo
[Page 672]

The Chinese Embassy to the Department of State

Memorandum on Continuation of United States Aid to China

The China Aid Act of 1948 authorized $338,000,000 for economic assistance to China, to be available for obligation from April 3, 1948 through April 2, 1949. However, Public Law 79360 appropriated only $275,000,000 for economic aid, which sum constitutes the current ECA61 China Aid Program.

The funds expended during the last twelve months of the China Aid Program have been instrumental in providing a large portion of the rice and flour requirements for 13 million inhabitants of seven major cities, the necessary raw cotton for four million spindles, virtually all the petroleum products for civilian consumption and most of the chemical fertilizers for increasing agricultural production. While the Aid Program was necessarily limited in scope and purpose, it helped maintain employment and normal channels of trade and mitigate economic distress of the people, morally to an extent considerably in excess of the physical benefits of the aid given.

Due to the suspension of reconstruction and replacement projects in December, 1948 and the comparatively slower implementation of the program during the first few months of its operation, when necessary organization and procedures had to be set up, a balance of funds is expected to remain unobligated by April 3, 1949. In view of the limited foreign exchange resources of the Chinese Government, the continuation of the Aid Program is urgently needed to forestall the critical dangers involved in a stoppage of the flow of essential supplies and services. To achieve this objective in the interim period pending consideration of the accompanying proposal for United States Aid for July, 1949 through June, 1950, it is necessary that action should be taken immediately to extend the expiration date for obligation of (a) the balance of unobligated funds appropriated by Public Law 793 and (b) the balance of funds authorized by the China Aid Act of 1948.

The extension of unobligated funds already appropriated will provide immediate resources to carry on the Aid Program uninterrupted for at least two months; the extension of the expiration date for China aid funds already authorized but not yet appropriated and the completion of Congressional action towards making such necessary appropriations will, firstly, provide further [Page 673] funds for the maintenance of an adequate economic aid program during the Stop-Gap period and, secondly, provide funds for the continuation of the program beyond the Stop-Gap period if authorization procedure for the proposed twelve-months aid program should not have been completed in time.

The Stop-Gap Program is based on actual requirements and at approximately the same rate of expenditure during the past months when the China Aid Program was in full operation. The details of a Stop-Gap Program, originally designed for the period from April 3, 1949 through the end of June, 1949, were discussed in various informal exchanges of views on the technical level between representatives of ECA and the Council of United States Aid in China.62 It had been the intention of the Chinese Government to propose a program in Washington for this Stop-Gap period. In view of the fact that ECA has already presented its proposed program for an interim period after April 2, 1949,63 the Chinese Government wishes to present instead the following observations and suggestions for consideration and incorporation in the said ECA program:

Due to the importance of the textile industry in the Chinese economy and the urgent need for increased importation of cotton to meet the shortage in supply created by the reduced availability of domestic cotton, it is believed that greater emphasis should be placed on cotton than contemplated in the interim program proposed by ECA. According to recent estimates, a minimum of 314,000 bales or $50,000,000 are needed for the aid program for April through June, 1949.
Amoy and Foochow should be included in the food rationing system and a substantial percentage of the requirements of these two cities should be provided for in the proposed ECA Aid Program for April through June, which is a period of seasonal shortage of indigenous supply.
$4 million should be used to lift approximately 35,000 tons of ammonium sulphate and ammonium phosphate, which will be distributed in South China and Taiwan. It is estimated that this tonnage will increase rice production in substantial quantities, which if calculated in terms of U.S. dollars would mean considerable savings in foreign exchange.
During the past year of ECA aid operations, preliminary allocations were made jointly by ECA and Chinese representatives for certain industrial replacement and reconstruction projects. Some pre-project engineering surveys were completed by qualified engineering firms, but actual procurement and installation of equipment were temporarily suspended in December, 1948. In order to avoid further delay in developing the industrial potentialities of accessible areas in South China and Taiwan, the Chinese Government proposes that implementation of selected replacement and reconstruction projects in [Page 674] such areas be initiated as soon as possible. It is believed that such implementation will help forestall the serious depreciation of existing railways, mines, power plants and other industrial establishments in accessible areas and to improve or expand these facilities wherever feasible.
The foregoing observations and suggestions relate specifically to items on which the ECA proposed program may be supplemented but of course they are not intended to reflect in any way on the appropriateness of the other parts of the proposed program.

It will be seen, however, that additional emphasis on cotton, food, fertilizer, replacement and reconstruction project requirements would necessitate larger expenditures than detailed in the ECA proposal. These requirements form in part the basis of our request for extension of the date of obligation for all funds authorized under the China Aid Act of 1948.

Before outlining the proposed Aid Program for a twelve-month period, which is designed to follow the Stop-Gap Program, it is necessary to emphasize several basic considerations on which both the Stop-Gap Program and the twelve-months Program are predicated:

In view of the urgent nature of the economic problems facing China in an environment of unsettled conditions, it is highly desirable for action to be taken by the United States to authorize a continuation of American Aid. Aside from the direct beneficial results flowing from implementation of further aid, the early enactment of enabling legislation for continued aid by the United States would in itself produce a salutary effect on the morale of the people and the course of events in China.
In recognition of the exceedingly great demands upon the United States economy, the proposed programs for continued aid to China have been pared to a minimum, amounting to about 1% of the current annual national budget of the United States and less than 1/10th of ERP64 requirements for the coming fiscal year. The programs proposed herewith envisage continuation of ECA aid on substantially the present scale in accessible areas with conditions generally remaining unchanged from the present time. The possible need of flexibility and adjustment in the present unsettled conditions has been given due consideration. It appears that the existing instruments of control available to ECA in the issuance, suspension or cancellation of Procurement Authorizations and Letters of Commitment, in control of schedules of contracting, delivery and installation, and in the power of diversion or curtailment of shipments should provide adequate safeguards against any aid being diverted for areas or purposes not within the intent of the enabling legislation.
One other basic consideration has also inspired the request for continued aid. In their desire to promote trade relations with the United States, the Chinese Government and people have been pleased to observe the stimulating effect of the China Aid Program upon trade [Page 675] between the two countries. Every bale of cotton financed by ECA under the China Aid Program was shipped by a United States exporter. Scores of United States cotton exporters were included in the Program. The petroleum program, from shipment to distribution, was largely handled by two major American oil companies. In a year of agricultural surpluses in the United States, all the wheat and flour shipped to China under the ECA Program, of which a large portion was in the form of flour processed in American mills, was from the United States. United States rice was also included in the aid program. The entire 1948–1949 IEFC65 allocation of United States fertilizer for China was lifted through ECA. Except for some Chinese ships carrying rice from Siam and Burma to China, practically all the above-mentioned ECA commodities were shipped in United States vessels. United States banking institutions played a large part in financing the transactions connected with procurement and shipment of commodities to China. While procurement and installation under reconstruction and replacement projects have been suspended, most of the pre-project engineering have been undertaken by well-known United States engineering firms, including J. G. White Engineering Corporation which serves as the technical consultant to the Joint ECA–CUSA Committee for Reconstruction and Rehabilitation. Technical personnel and consulting firms from the United States have also assisted in the Rural Reconstruction Program.

Thus a substantial volume of trade from the United States to China during the past year was maintained through the Aid Program at a time when the limited exchange resources of the Central Bank of China would have meant curtailment of normal imports to China. It is believed that continued aid, in addition to its beneficial effect upon the Chinese economy, will further promote the development of trade between China and the United States.

The detailed proposal for an aid program for the period from July, 1949 through June, 1950 is submitted herewith.66

  1. No memorandum of this conversation found in Department of State files.
  2. Latter enclosure not printed.
  3. Robert N. Magill, of the Division of Chinese Affairs, noted that “No reply was made to Ambassador Koo’s letter in view of fact that extension of authority of China Aid Act was already being considered by Congress.” Act approved April 3, 1948; 62 Stat. 158. For correspondence on its renewal, see pp. 599 ff.
  4. Approved June 28, 1948; 62 Stat. 1054.
  5. Economic Cooperation Administration.
  6. CUSA.
  7. See undated ECA memorandum, p. 606.
  8. European Recovery Program.
  9. International Emergency Food Council.
  10. Not printed; it suggested an aid program of $420,000,000 for this period, $320,000,000 for commodities and the remainder for replacement and reconstruction.