The Consul at Tihwa (Paxton) to the Secretary of State
[Received February 22—4:47 a. m.]
36. Foreign Affairs Delegate Liu today gave following further information regarding matters discussed ourtel to Department 33, February 16:
Soviet representatives at Alma Ata talks last summer did in fact suggest extension of Sino-Soviet line to Lanchow but Liu neatly countered by proposing go right through to Central China. Russians heartily welcomed idea until Liu mentioned that, of course, it would require reciprocal Chinese airline to Moscow. This they rejected as impossible so subject lapsed on Soviet refusal.
At same meeting Liu obtained Soviet consent to many appointments of Chinese personnel including copilots (but not pilots) and air field superintendent. However, Communications Ministry has not yet assigned qualified personnel.
Chinese refused renegotiation at Moscow and Russia unwilling have it at Nanking; so in January after 2 months’ delay Liu finally instructed by Foreign Office to discuss matter in Tihwa this month and now only awaits Soviet reply. He expects renewal airline agreement if USSR accepts Chinese minimum terms of which, of course, I could hardly press him for details.
Regarding trade pact, Liu promised information when agreement reached. He expected very simple written terms with details covered by oral understandings. Secretary General Liu,19 Vice Chairman Mohammed Imin and he have been busy conferring with Soviet representatives here for past week and anticipate further delay before full agreement reached. He positively declares nothing yet signed.
No change in currency can be effective in less than 2 months but divorce of provincial money from gold yuan now being planned with probability that if Sinkiang gold and silver, deposited in Nanking several years ago as backing for local currency at one to five rate with CNC20 can be retrieved (Liu claimed ignorance its present whereabouts) effort will be made to issue new currency for area, perhaps including all four NW Provinces, possibly partly silver and copper coins. Although Tsinghai rich, it will not easily part with its wealth and still maintains strict embargo on exports of silver coinage while Ninghsia and Kansu poor.[Page 1044]
Liu confirmed in general previous reports regarding amalgamation of dissident zones.
To protect my previous source, I did not discuss movements of troops or schemes for their payment.
Sent Department; repeated Nanking 40, Canton 5, Shanghai 54, Chungking 11.