Taipei Consulate General Files, Lot F31, 350 [General]
The Acting Chief of the ECA China Mission (Griffin) to the Secretary of State
Toeca 1316. Rptd Nanking. For Lapham,45 Cleveland46 from Griffin, pass to Treasury from Parker. Fin[ance] Min[ister] Liu and Cent Bank Deputy Gov H J Shen called morning April 8 to request formally that $54 million remaining ECA balances be converted entirely gold, silver and delivered Cent Bank for use open market operations in support currency. Requested $20 million be made available immediately for use end of month with balance held US for call by ChiGovt. Proposal had been discussed President Li and PrimMin Ho who supported recommendation.
Meeting opened with statement that Comm[unist]s had last night demanded occupation Nanking without opposition as condition further peace talk conversations.47 FinMin then said financial position of Govt near collapse, and they were “at end of rope”. Chi Govt expenditures April will be at least GY800 billion, equivalent a fourfold increase note issue at end March. Estimated if no action taken prices would increase 6 to 8 times which considered unbearable. Revenues including taxes and customs equivalent only 5 percent expenditure with collection costs exceeding take.
Cent Bank foreign exchange resources, which FinMin flatly assured were total available to ChiGovt, less than US$300 million including just under 4 million ounces gold valued US$50 per ounce. Dollar exchange assets about US$50 million, silver exhausted with exception [Page 756]about 30 million Chinese silver dollars of which 20 million Amoy. Outstanding liabilities and commitments against these assets total approximately US$200 million including liabilities to Chinese banks. Admitted that unless necessary for resumption large scale military op[eratio]ns, access to gold held Taipei and Amoy not possible.
Proposed use gold made available from ECA balance for continuous contraction currency by sales in Shanghai market. Dumping proposed at rate of approximately US$20 million per month plus all available commodities in addition to contractive effect of ECA commodity imports. Expected this would enable withdrawal approximately half expansion in note issue. If commodity prices continued rise in face of gold dumping, currency would be used procure commodities from interior which would also be dumped to drive down commodity prices. This phase of operation, however, appeared incompletely thought out.
During period March 31 to April 7 net gold dumping CentBank 50,000 ounces gold.
Of greatest concern was problem of keeping Army loyal. Admitted much abuse military payrolls by generals. Hope that if United States agrees to proposal all troops could be paid wages 2 silver dollars per month. Since troop strength now reported at 4 million (and FinMin wryly admitted this was limit to which Defense Ministry would reduce paper figures) 8 million silver coins required per month for wages. Cent Bank currently delivering to Army 7 million coins each month for procurement food, supplies and auxiliary equipment. Chinese are willing commit 20 million silver dollars now held Amoy for combined wage and procurement if some assurance replenishing supply from silver supplied by ECA and minted United States. Silver from US might also be used as reserve for silver dollar certificates which are being printed now.
Specifically requested abandonment all alternative use by ECA of aid funds including what FinMin described as “fortification of Taiwan” and reduction to minimum of all ECA local currency expenditures. Stated specifically were concerned only to keep monetary structure intact next 2 months.
FinMin appeared obviously and physically distraught. It was evident the proposal being made now, with understanding of President, to determine whether US prepared change nature and timing of aid to see present Govt through crisis of coming few weeks.
We gave FinMin no encouragement stating only that proposal would be referred Washington and we not even able to determine whether new ECA authorization48 plus legislative history would permit use funds this manner.[Page 757]
Evaluation proposal will follow.49 Will discuss with Merchant arriving late afternoon, [Parker.]
- Roger D. Lapham, Chief of the ECA China Mission, in Washington for consultation.↩
- Harlan Cleveland, Director of the ECA China Program.↩
- For correspondence on this subject, see vol. viii, “Political and military situation in China”, chapter III.↩
- Public Law 47, approved April 19; 63 Stat. 50.↩
- See telegram No. 1130, April 9, 10 a. m., from the Consul General at Shanghai, p. 311.↩