893.00/2–1649: Telegram

The Consul at Tihwa (Paxton) to the Secretary of State

33. Following grist collected yesterday from several sources and cross-checked seems consistent though not officially confirmed: Burhan returned 12th leaving Garrison Commander Tao and army supply chief Hao in Lanchow. No publicity given to Hao’s presence at conference. Burhan took no part in general chairmen’s conference; only discussing with General Chang Chih-chung Sinkiang affairs, principally new currency plan.

This is to include new paper and copper currency issue, backed by 300,000 ounces of silver reserve, pegged at 4 to 1 with US dollar and supported by USSR under trade pact terms now being discussed here, [Page 1042]corroborating that no binding agreement yet signed even by General Chang, reference our A–2 to Embassy February 11.18

Over 100,000 Provisional [Provincial?] troops to be maintained by goods imported (Kansu supply being inadequate) from Central China via Chungking-Lanchow road for barter exchange. This would entail army monopoly of imports from China and probably currency exchange blockade rendering local money completely independent of National currency.

USSR hopes Sino-Soviet airline to be extended to Lanchow without competing service in Sinkiang. Soviet advisers to assist in development mineral and other economic resources.

Russia to seek no specific political concessions from Sinkiang if province not used as attack base and trade Sinkiang raw materials for Soviet manufactured goods continues beneficial. Although nothing yet heard from dissident zones, they are expected rejoin Provisional [Provincial?] Government after trade pacts signature without any open Soviet direction though obviously Russian influences still predominant these areas through 4 years full control, indoctrination and selection of officials as well as secret police cadre.

Although General Chang Chih-chung still in overall charge four northwest provinces, Tungkan’s, [of?] Sinkiansu [Sinkiang, Kansu], Ninghsia and Tsinghai implacably anti-CCP but could perhaps accept limited cooperation with Russians. Latter might prefer keep northwest out of Chinese Communist control. Chang probably could arrange for CP not to cut Chungking road but in any case Tsinghai would long continue economically self-sufficient and in time Ma Pu-fang might improve relations with Tibet enough for transit essentials from India. General Ma Chen-hsiang of Fifth Cavalry Army with anti-Communist Kazaks eager join Muslim forces in east but Chinese wish them remain to control natives and also perhaps counter Soviet influence.

Russians reluctant offend American and British Governments by precipitate action and likely proceed cautiously with political control area pending outcome China struggle. They feel time working for them and if border cooperation secured can afford delay.

CCP attack now proceeding in eastern Kansu.

Foregoing collected from five separate contacts significant despite strange currency plans. Other items quoted as received without comment or interpretation.

Repeated OffEmb Canton 4, Shanghai 49, Nanking 37, Chungking 10.

  1. Not found in Department of State files.