Foreign Relations of the United States, 1948, The Far East: China, Volume VIII

893.50/2–648

Memorandum by the Chinese Technical Mission in the United States²⁸

The Chinese Technical Mission, in coming straight from Nanking to Washington, desires to convey, on behalf of the Chinese Government, a note of urgency of the need of American aid. The present serious economic situation has its root in the devastation and dislocation caused by long years of war and is accentuated by the Chinese Communist rebellion and by the destruction brought about by the Communist sabotage. The Chinese Government feels that, in its fight against the spreading of Communism in China, it is contributing to the cause of democracy and world stability. In this effort, substantial external aid will help to facilitate and hasten the achievement of its task.

It is, of course, realized that the effectiveness of external help is conditioned upon the continuance of the efforts which have been made in adopting measures of self-help. The maximum result can only be obtained when the two are properly integrated. On the other hand, reasonably adequate external aid, by itself creating a favorable psychological condition, will facilitate the operation of measures of self-help.

When General Wedemeyer’s mission²⁹ visited China in the summer of 1947, the Chinese Government made available to his mission certain reports outlining the serious efforts that the Government had undertaken in the fields of economic rehabilitation. The facts embodied in these reports still stand. In addition, the Chinese Technical Mission submits the following summary of significant measures recently undertaken by the Government:

1. In a period of unprecedented economic and military crisis, the Chinese Government has caused the new Constitution to be promulgated in its effort to promote democracy and democratic institutions, despite the many great difficulties hampering long-range political development. The election of the members of the National Assembly has recently been held, and the election of the members of the legislature will be completed shortly.

2. In formulating the 1948 budget, serious effort is made to cover the ordinary expenditures by usual kinds of revenue. Attempts are made toward the retrenchment of expenditures. The rate of indirect taxes has been raised to increase the yield. The income tax will be levied in advance in the form of tentative assessments, to be adjusted when final accounts are made available. It is hoped to enlist experienced American experts in the field of taxation to assist us in our effort to renovate and carry out a sound system of income tax and other forms of taxation. In the budget, the ordinary revenue and the ordinary expenditure are both estimated at $27 trillion. Extraordinary revenue is placed at $31 trillion, and extraordinary expenditures at $69 trillion. While further inflation may upset the budgetary estimates, the effort is made to cover as much expenditure as possible by revenue.

3. In agricultural production notable improvement has been made in 1947 to increase the yield of cotton, and the amount of cotton available for mill use is estimated to be around one million bales in 1947, representing a 20–30% increase over the corresponding figure for 1946, The production of food crops is encouraged through the introduction of better varieties, better seeds, and more effective methods of insect control. Industrial recovery is reflected in the steady increase of industrial consumption of electric power. The industrial power consumption in the Shanghai–Nanking area increased 9.6 times from September, 1945 to September, 1947; in Wuchang–Hankow area 6 times and in the Canton area 7.5 times. In Formosa, a region which is fortunately free from Communist disturbances, the increases in production during 1947 as compared with September 1945 are as follows: rice, 1.6; sugar, 3.5; electric power, 5.2; cement, 4.8; coal, 7.4; and fertilizer, 8.4 times. Most of the industrial plants which suffered severe damage through wartime bombing are being restored rapidly to normal production.

4. Rehabilitation of communication[s] since V–J Day has always been a struggle between the reconstruction effort of the Government and the destruction by the Communists. The ledger, however, has not been altogether in the red. In 1947, 1870 Km. of railways and 3000 Km of highways were restored to operation; 50,000 Km of new air routes were opened for service; merchant steam vessels of all types reached a total tonnage of nearly one million, and improvement was effected in the postal and tele-communication services. Above all, in all these fields, the concept of public service has been strengthened among the rank and file of government workers, which will greatly facilitate future reconstruction work.

5. During 1947, the foreign exchange policy has been directed toward facilitating the improvement of exports and effecting a better balance in China’s international payments. Since August, the exchange rate has not been pegged at a definite figure and has been allowed to move from time to time in accordance with market requirements. The trade situation has been brought nearer to balance than was previously possible. The adjustment of rates is made periodically to enable the movement of certain essential exports; notably, woodoil, minerals, and bristles. While the new policy has not proven wholly effective in eliminating the black market and in channeling China’s emigrants’ remittances through the Government, the new element of flexibility introduced in the system will, to some extent, prepare the way for the future adoption of a plan for currency stabilization. The conclusion of a financial and customs agreement with Hongkong in December, 1947, will, it is believed, substantially curtail inward and outward smuggling and the flight of capital.

6. To combat runaway inflation, the Government has, since November, severely restricted the granting of loans by both the governmental and commercial banks so as to contract credit. Such temporary measures of credit control are intended merely as the prelude to more fundamental reforms. A system of rationing of foodstuffs has been introduced in six major cities to combat the appreciation of prices.

7. The treatment of school teachers has been ameliorated in order to increase the efficiency of their work.

The Chinese Technical Mission is fully aware of the fact that, in spite of these efforts, the economic and financial conditions of the country have steadily deteriorated. Inflation is becoming more and more vicious and acute, and, with the continued drop in the value of the Chinese dollar, it is but natural that there goes a measure of political and social uneasiness which renders economic rehabilitation more difficult. But China is redoubling her efforts to cope with these various problems.

Washington, January 23, 1947 [1948].

28. Date of receipt in the Department not indicated.
29. For correspondence on the mission in China of Lt. Gen. Albert C. Wedemeyer, United States Army, see Foreign Relations, 1947, vol. vii, pp. 635 ff.