Memorandum of Conversation, by the Assistant Chief of the Division of Chinese Affairs (Freeman)88

Participants: Dr. V. K. Wellington Koo, Chinese Ambassador
Mr. Rusk, G
Mr. Freeman, CA

Ambassador Koo called at his request this afternoon and stated that he had several matters he wished to discuss with Mr. Rusk.

To begin with, Koo mentioned some aspects of the recent scene in south China. He stated that, from a military point of view, the Nationalists had been having comparatively more success in the last three months than formerly and had managed to slow down the Communist drive and even halt it in some places, such as the Canton–Hankow railroad. Politically, he stated, progress was being made toward complete cooperation between the various factions within the Government which, although perhaps “too slow”, was nevertheless progress. From an economic and financial point of view, however, Koo indicated that the National Government was almost at the end of its rope. The establishment of a freely convertible silver currency, he explained, had done much to improve the morale of the troops and the people who had lost all faith in paper currency, but without the importation in the near future of additional silver the Government would go bankrupt. He stated that the Government had recently purchased 30 million ounces of silver, 20 million of which had been minted in the U.S. However, he added, the U.S. had found it necessary to charge the Chinese for minting costs while the Mexicans found it possible to avoid this charge and had also been able to arrange satisfactory terms of payment. The remaining 10 million ounces of silver had, therefore, according to Koo, been purchased in Mexico.

The Ambassador stated that the National Government budget was approximately C$45 million per month, only C$10 to 15 million of which was currently being derived from revenue and other sources of government income. He said that he had been instructed by his Government to inform the U.S. Government that the foreign exchange [Page 693] reserves of the National Government were sufficient to last only through October at the latest, and he indicated that, if no outside assistance were forthcoming by that time, the Government would have no choice but to give up to the Communists who would take control of the entire country. Koo referred, in this connection, to a previous request which he had made to the Secretary in August with which he had submitted memoranda outlining his Government’s need for economic and military aid. He stated that he was aware of the absence of any legislative provision for additional military aid to China but added that the. National Government was very appreciative of the $125 million grants in aid which had been used for the purchase of military supplies and which, in the Ambassador’s words, had made it possible for resistance to the Communists to be maintained as long as it had been. Koo was specifically interested, he stated, in the unexpended portion of the ECA appropriations for economic aid, totaling approximately $90 million, which could be used in any way that the President so desired. Koo stated that his request to the Secretary, which he indicated had been acknowledged but not answered, had contained a provision for the utilization of $40 million for the purchase of silver for stabilizing the currency and for paying the troops. He also memtioned the provision in the pending MAP89 resolution providing for $75 million to be spent in China and nearby areas at the discretion of the President. Koo pointed out in this regard that, although there would be no objection to the appointment by the U.S. of consultants or advisers to assure that any funds would be properly spent, his Government would consider it inappropriate for any funds to be given directly to individual armies or groups other than the National Government. He explained that this proviso was not just simply a matter of prestige and that the National Government was not anxious to handle the funds itself, but he indicated that his Government would be highly displeased if any aid funds were not channelled through the National Government. (This point of view contrasts sharply with that recently expressed by Dr. Kan Chieh-hou, speaking in behalf of Acting President Li, who stated that the Government would have no objection if aid were extended to individual armies who are resisting the Communists.90)

Ambassador Koo concluded his remarks on the question of financial assistance by stating that he realized that the National Government had been passing through a very unfortunate period; that it must accept the blame for many mistakes which have been made; but that the alternative was a completely Communist-dominated China, and surely [Page 694] none of the western nations would want to see that. He then inquired of Mr. Rusk, in behalf of the National Government, what aid if any could be expected and when.

Mr. Rusk stated that he could not reply specifically to the Ambassador’s query except to state that the question was receiving the Department’s thorough consideration. There were, Mr. Rusk indicated, two principal considerations in this matter: (1) what the basis for aid was with respect to need, effective utilization, et cetera, and (2) what the availability of funds was. With respect to (2), Mr. Rusk indicated that it would be perhaps ten days to two weeks before the discretionary $75 million appropriation would be passed by the Congress and somewhat longer before the bill appropriating the necessary funds would be passed. Mr. Rusk gave no indication that any decision had been taken with respect to how the $75 million fund would be used.

In response to Mr. Rusk’s question with regard to what group the Ambassador had in mind when he referred to “the” or “our” Government, Koo stated that he was referring to Acting President Li Tsung-jen, General Yen Hsi-shan91 and also to the Generalissimo who, he stated, continued to enjoy immense prestige in China as the head of the Kuomintang party.

In reply to Mr. Rusk’s question in regard to the situation in Formosa, Koo stated that there was great improvement being shown. He pointed out that Formosa had been contributing large monthly sums to help counterbalance the deficit of the National Government, but he indicated that the foreign exchange on Formosa was limited and that the authorities there had large silver obligations in supporting the Formosan silver currency and in paying the troops on the island. Koo implied, in effect, that Formosa’s financial assistance to the Government on the mainland was rapidly coming to an end.

Mr. Rusk also inquired with regard to the present situation in Yunnan, to which the Ambassador replied that a “satisfactory arrangement” had been reached. He added, as evidence of the increased National Government hold on that area, that Lu Han92 was now, since his talks in Chungking with the Generalissimo, busily rooting out all traces of Communist activity in Kunming.

Ambassador Koo then brought up the second subject which he had in mind and which he stated was a report that the Department had on occasion instructed our Consulate General in Taipei to take up matters of a diplomatic character with the Chinese Government. Koo indicated that such a practice would be highly undesirable and would [Page 695] merely serve to conflict with the established channels of diplomatic intercourse which were through the Ministry of Foreign Affairs at Canton. Mr. Freeman explained to the Ambassador that only on one or two occasions had the Department requested the Consulate General at Taipei to take up matters of a diplomatic character with the authorities on Formosa, and that in each case it had been parallel or supplementary action to that which had already been taken up in Canton. The purpose in these few cases, Mr. Freeman continued, had been to expedite action on urgent matters and had in no way constituted a by-passing of the established channels in Canton. The Ambassador appeared to be satisfied with this explanation.

Ambassador Koo then inquired of Mr. Rusk whether any definitive decision had been taken during the Acheson–Bevin93–Schuman94 talks95 with respect to a Japanese peace settlement. Mr. Rusk informed the Ambassador that the talks on this subject had been only of an exploratory nature; that no definite decision had been taken; but there had been general agreement that we should get along with the matter. Koo remarked that he had discussed the question with Mr. Bevin before the latter’s departure and had re-stated the compromise proposal which had been put forward by the Chinese some time ago. This proposal, as Koo explained, would call for a possible conference attended by all interested powers which would reach agreement on as many points as possible. On other points, he stated, there would undoubtedly be a wide area of disagreement between the western powers on the one hand and the USSR and its satellites on the other. These points on which no agreement could be reached would then be set aside, either for subsequent discussion or for agreement among the non-Communist powers. Such a proposal, according to Koo, would have the advantage of giving Russia every opportunity to discuss the question of Japan with the other interested powers, and would also permit an agreement on certain aspects of the situation even though full agreement could not be expected. Mr. Rusk said this was an interesting suggestion.

Ambassador Koo also touched upon the possibility that China might bring the case of Soviet violation of the Sino-Soviet Treaty96 before the UN.97 He reviewed the three objectives originally sought by China and asked Mr. Rusk’s opinion in the matter. Mr. Rusk said that Ambassador [Page 696] Jessup98 was in touch with Dr. T. F. Tsiang99 on the matter in New York but he went on to explain briefly the reasons why the U.S. Government felt it would be inadvisable for China to press for points two and three; namely, that member nations resolve to withhold recognition from any Chinese Communist regime and that they extend moral and material assistance to the National Government. Koo indicated that he was aware of the U.S. position, but stated that he understood there would be far less objection to a resolution calling for abstention from extending aid to the Chinese Communists. Mr. Rusk replied that such an objective might be easier to obtain, but that it would still not be easy. Koo stated that, although it had been decided that Tsiang would bring the matter up in his opening speech, the decision had not yet been taken to place the matter on the agenda. He added that the Chinese Government had requested information from all of the interested friendly governments in an endeavor to ascertain the amount of support which might be forthcoming in the event that the Chinese case was brought up. Of the replies received so far, he stated, about one-half had promised to support China in the UN while the other half wished further to consider the matter or consult with other powers before committing themselves. He went on to say that his Government did not wish to bring up the case in the UN if it could not be assured of a large measure of support. Otherwise, Koo indicated, China would merely be holding itself up to ridicule.1

In concluding the conversation, Ambassador Koo returned to the subject of financial assistance to the National Government and again emphasized the necessity of expeditious action on the part of the U.S. if anything were to be salvaged of the National Government and resistance to the Communists continued. Mr. Rusk again assured the Ambassador that the Department was giving full consideration to the needs of the National Government, but was otherwise non-committal.

  1. Approved by the Deputy Under Secretary of State (Rusk).
  2. Military Assistance Program.
  3. See memorandum of August 29 by the Deputy Under Secretary of State, p. 716.
  4. President of the Chinese Executive Yuan since June.
  5. Governor of Yunnan and Commander of Yunnan garrison forces.
  6. Ernest Bevin, British Secretary of State for Foreign Affairs.
  7. Robert Schuman, French Minister for Foreign Affairs.
  8. Held on September 15.
  9. Signed at Moscow, August 14, 1945, United Nations Treaty Series, vol. 10, p. 300. For correspondence on this subject, see Foreign Relations, 1945, vol. vii, pp. 851985.
  10. United Nations.
  11. Philip C. Jessup, Ambassador at Large.
  12. Chinese Permanent Representative at the UN (Security Council).
  13. For further correspondence on this subject, see volume i .