Office of the Historian

893.5151/707: Telegram

The Counselor of Embassy in China (Peck) to the Secretary of State

Chungking, February 26, 1940—9 a.m.
[Received February 27—3:23 a.m.]

94. Following is supplied by a reliable informant.44

1.
Chinese currency still is in the ascendency even in North China where it is currently bought at a premium over Federal Reserve notes in order to effect non-controlled import trade and purchase of export goods. This is possible only because the Chinese dollar is maintained at Shanghai and linked with Tientsin.
2.
The shortage of foodstuffs in Hopei Province and Shanghai has grave financial consequences because the abnormal demand for food imports places a severe strain on the exchange and is a major factor in the adverse trade balance. Normally there is an adverse balance from March to July caused largely by food imports but this condition is greatly aggravated since 1937 by the grave North China crop shortage and by Japanese removal of larger amounts of rice from the Yangtze area to offset short crops in Japan. In 1939 imports of cereals and flour were United States dollars 67,000,000 compared with an average of United States dollars 17,000,000 in 1936–37. These financial consequences are additional to the prospective widespread starvation and much higher death rate from under-nourishment, and increased violence and riots which might afford a pretext for Japanese intervention in settlements and concessions.
3.
It is not perceived how the present shortage could be financed by American credits to China for food purchase if obtainable. Presumably the Japanese would prevent use of proceeds of such credits by the Chinese Government in occupied areas. Assuming that neither China nor Japan could be obligors in such transactions, the only apparent way would be a gift of surplus American wheat and flour if practicable, analogous to relief extended to Russia some years ago by special act of Congress. Administration could be directed by organizations like the International Famine Relief Commission or the Red Cross. [Page 641] The cereals could be used for free relief and for work relief in restoring future production of foodstuffs and to some extent could be sold at moderate prices to needy consumers, the proceeds of sales to cover overhead and expenses in Chinese currency but not foreign currency expenses.
4.
The quantity required would have to be determined after investigations on the spot but should not have to exceed the 15,000,000 bushels which were adequate in 1931 for flood relief (most of the loan for which has been repaid) and might be less. Transportation company could employ American ships not able to trade with Europe.
5.
The Japanese authorities might agree to such a scheme as it would save them from some consequences due to their acts. While incidentally helpful to Japan, the scheme would be even more beneficial to China not only on humanitarian grounds but by helping to support the currency and help China to hold out while Japan’s situation deteriorates.
6.
The plan is in harmony with the American tradition of persistently relieving suffering and should involve no political complications. Moreover it would show that the United States has the means to act effectively in this part of the world. There seems no other means to meet the great need existing as Japan will not or cannot act, China can do little and private contributions are insignificant. Apart from humanitarian motives, the plan would be a partial substitute for an American loan for currency support if such a comparison is necessary at present. As the need will be most acute in the next 4 or 5 months it is hoped that if action is feasible it can be expedited.

Sent to Department only.

Peck
  1. Identified as Arthur N. Young, American adviser to the Chinese Ministry of Finance.↩