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
[Enclosure]
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:
- (1)
- 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.
- (2)
- 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.
- (3)
- $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.
- (4)
- 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.
- (5)
- 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:
- (A)
- 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.
- (B)
- 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.
- (C)
- 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
