893.24/1681: Telegram
The Ambassador in China (Gauss) to the Secretary of State
[Received 2:35 p.m.]
2514. (This refers to our 2478, December 22 [23]).66
1. Pursuant to Chiang’s request, and by appointment I saw Kung December 29 accompanied by Atcheson. I mentioned to Kung that we had discussed with Generalissimo question reverse Lend-Lease and he had requested I see Kung again on the matter. I said I would be glad to communicate to Department any comment or proposal Kung might wish to make.
[Page 588]Kung indicated that Chinese Government was surprised American Government had not shown immediate favorable reaction to suggestion by Foreign Office that May 15 draft reverse Lend-Lease agreement now be signed at Chungking (our 2404, December 14) as draft had been proposed by the American Government, had been studied by Chinese Government which had dropped its suggested changes, and had been agreed to by Chinese Government. I said that we had not yet received instructions and place of signing was, of course, immaterial. Atcheson suggested that the draft had been proposed many months ago and since that time General Somervell had come here with his proposal in regard to U. S. Army expenditures and various related questions had come up for discussion. I inquired whether Chinese Government had any plans to implement reverse Lend-Lease agreement.
Kung replied in vague terms that China’s vital economic problem was maintenance of the currency, mentioning that Japan was waging economic as well as military warfare on China, and said that if currency did not stand up everything would collapse. He said he had proposed to Chinese Government that American Army expenditures here be matched dollar by dollar, with some of such expenditures matched by two dollars, and indicated that Chinese Government approved. (He referred to Chinese dollars, of course.) In response to inquiry he confirmed that such proposal involves provision of Chinese currency in ration equivalent to exchange rate of 40 to 60 to 1. He said that Chinese currency so provided would of course be credited to China’s reverse Lend-Lease account (assumably at 20 to 1 for currency provided over and above the official rate of 20 to 1). He showed us a letter to him from the President dated November 26,67 which he thought had been written in Cairo and mailed in Washington, mentioning that Generalissimo and Mme. Chiang had approached the President in regard to question of inflation in China and that the President had made some suggestion to them which he contemplated discussing with Treasury. Kung said that the President well understood China’s difficulties and I replied that we endeavored to keep him and our Government in general fully informed developments as they occurred.
In light of Department’s 1841, December 22, we were in no position to make comment other than that outlined above and I said merely that I would let Kung know as soon as instructions were received. Kung was most cordial and affable throughout.
2. We are informed by General Hearn68 that an Army “financial adviser named Acheson” is shortly coming here in connection with [Page 589] this matter and that accordingly “things will soon begin to happen”. Local representative of Chase National Bank states he has been instructed to remain Chungking until arrival of Professor Edward Acheson and has asked for information as to prospective date thereof—information which we could not, of course, furnish as we have not been advised. We hope that if Professor Acheson is being sent here by the [War Department?] for purpose indicated by Hearn he will have full authority to speak for all concerned agencies and thus tend to resolve the deplorable confusion which has resulted from the uncoordinated approaches made by representatives of the different departments interested in the matter.