893.51/7725: Telegram
The Ambassador in China (Gauss) to the Secretary of State
[Received December 24—10:16 a.m.]
2478. At their request I called with Atcheson7 on President and Madame Chiang last evening. Wang Chung-hui8 who was with them at Cairo was also present but no others. Chiang asked significantly whether I had recently received any telegrams. I replied none of importance. He then inquired what I thought of situation in China, especially economic situation, and said he would be glad to receive my advice and to hear any plan I might propose. He spoke of seriousness of economic conditions, repeated suggestion that I offer any plan for improvement; and went on to say that the coming year will be most critical in China and that economic collapse has so far been avoided because of the faith of Chinese people in the national currency. He said it is essential that the Burma Road be opened soon and that so long as Burma Road remains closed China’s desperate economic condition makes it necessary to support value of Chinese currency and maintain the exchange rate.
He inquired whether I had studied problem of China’s financial difficulties. I replied that we endeavor to follow financial situation with such information as is available and that one aspect, from the American point of view, which had of late given me much concern was the effect of the exchange rate on American official expenditures to service the military forces with which we are aiding China; those expenditures are now reaching heavy figures and, converted at the [Page 483] artificial exchange rate, are costing our Government 20 or more million XL S. dollars monthly which, while beneficial to China in building up currency reserve in XL S. represent costs to XL S. from 8 to 10 times what we should have to pay in America or anywhere else for comparable facilities and services, such as urgently needed advance air base facilities for our forces. I expressed concern that this becoming known in the XL S. might lead to serious criticism that the American Army and Government are being exploited and such criticism would work to the harm of China as well as to the injury of our war effort in this country.
Chiang indicated with firmness that exchange rate for Chinese dollars cannot be changed. I said I fully appreciated his attitude on that question but suggested that other proposals looking to solution of the problem, such as reverse Lend-Lease or suggestion Morgenthau had made to Kung regarding sale of gold, might be adopted without necessitating a change in exchange rate. Mme. Chiang said that Chinese Government’s efforts to sell gold had been a failure; there was no market for gold. Chiang said he had been studying the matter) of reverse Lend-Lease, that he and Kung were much worried over whole financial situation, that it is impossible to alter exchange rate and imperative that value of national currency be supported. He requested me to see Kung again and, just before retiring from the room in his customary way, asked with a show of some emphasis and exasperation that I inform our military and Treasury people that failure to support China’s currency would result in both economic and military collapse of China.
During conversation Mme. Chiang indicated that Chiang’s views in regard to seriousness of the situation had been presented to the President at Cairo. After Chiang’s departure she spoke with great emphasis of China’s economic difficulties, said somewhat bitterly that China was paying about 200 Chinese dollars daily for maintaining every American soldier in China, indicated that as our forces increase the cost would become unbearable and added that it was becoming more and more impossible to find enough cows, pigs and chickens to feed American troops (to supplement the quantities of supplies we ourselves ship in). She said that it was absolutely essential that Chinese currency receive sufficient backing.
(2) I am of the opinion that stage had been set last evening for seeking State Department support for request for further American loan and that such request was not made because of the diversion to subject of our military expenditures. Stilwell informed me December 20 that Chiang had asked for a billion dollar loan9 and was [Page 484] expecting an answer that day. He told me that and no more. I assume request was made in connection with military discussions and through military channels.
It is unfortunate that Embassy is not kept fully informed of what transpires in Sino-American relations.
Embassy’s opinion regarding further loan to China at this time was carefully set out in my 2361, December 9. I am strongly of opinion that we should stand firm on the subject at this time.
(3) I have no information regarding military plans for a Burma campaign designed to restore land transportation to China which experts here consider the only possible measure for amelioration of fantastic economic situation. I am prepared to believe that while the masses of the people are not concerned by the foreign exchange rate, any substantial change therein would be availed of by hoarders and speculators still further to accelerate rising prices.
Chinese Government has actually done nothing substantial to seek out and deal with these hoarders and speculators. I believe, however, that China has substantial U.S. currency reserves at this time and that reasonable measure to meet the situation affecting our military expenditures in China might be taken without reference to Exchange rate as such, probably within the structure of reverse Lend-Lease and sale of gold.
While I do not pretend to pass judgment in military matters, I should emphasize what we have previously and repeatedly reported: that the military and economic situations in China are so fast deteriorating that early military measures to reopen the Burma Road and restore land transport to China are imperative to prevent collapse of this country in due course. An American loan will not help the economic situation in China at this time; extensive successful military operations alone will do so.
- George Atcheson, Jr., Counselor of Embassy in China.↩
- Secretary General of the Chinese Supreme National Defense Council.↩
- For President Roosevelt’s attitude on this subject at Cairo, see his conversation on December 6 with General Stilwell; Theodore White (ed.), The Stilwell Papers (New York, William Sloane Associates, Inc., 1948), pp. 251–254.↩