893.51/12–2346: Telegram
The Ambassador in China (Stuart) to the Secretary of State
[Received December 24—9:25 a.m.]
2160. I. Dr. T. V. Soong handed following memorandum to Ambassador Stuart on eve of latter’s departure for Peiping.
“US administration is preparing to recommend to Congress approximately 300 to 400 million relief grant, probably including Austria, Italy and Greece and is considering China. Chinese Govt has sent through Treasury representative, Mr. Sol Adler, the itemized balance of payment accounts for 1947 which shows payment of US dollars 1238 million and receipt of US dollars 857 or a deficit of US dollars 381 million.
China has made minimum allowance for its food and textile needs. Even allowing for UNRRA [apparent garble] reports, it will be necessary to import US dollars 175 million of cotton and 80 million of food. These two items account for the major part of the deficit in foreign exchange requirements.
It is hoped that the US Embassy will support China’s case with the White House for an appropriate share of the relief grants. It is important that this support be made immediately as the US Administration emphasized that China’s balance of [payment] statement should reach the US Govt not later than December 25”.
II. Embassy comments are as follows:
- 1.
- Chinese estimate of a deficit in their 1947 balance of payment is about $70,000,000 larger estimate prepared by our experts in Washington. This difference is not substantial in relation to magnitudes involved. There are of course, some significant differences in specific items. Thus, Chinese estimate their 1947 cotton import requirements at $175,000,000, whereas according to our best data they should be only half that amount. There is also some question as to whether deferred arrival of UNRRA goods may not substantially diminish China’s 1947 import requirements.
- 2.
- Chinese statement on foreign exchange holdings reveals that her
net official foreign exchange assets as of December 18, 1946 were
approximately $423,000,000. She proposes to use her gold holdings
(about $118,000,000) for sale in China during 1947, which would
leave only 305,000,000 for meeting her 1947 deficit. It should be
noted that:
- (a)
- Use of gold for internal sale for anti-[in]flationary purposes has been seriously questioned, and rightly, in Washington. In last 2 months of 1946 Central Bank may have sold as much as US dollars 50 million worth of gold in Shanghai, at which rate her supply of gold cannot last very long. Chinese claim that this rate of sale is exceptional, but in any case dissipation of this important foreign exchange asset for internal anti-inflationary purposes cannot easily be defended in view of strain on Chinese foreign exchange resources and fact that anti-inflationary effects of such sales are extremely shortrun and tend to be lost in the general inflationary upsurge.
- (b)
- Chinese private foreign exchange assets, both abroad and within China, are quite substantial. In fact, they probably at least equal, if they do not exceed, her official foreign exchange holdings. Pressure on official holdings as a result of deficit in balance of payments would be greatly relieved if Chinese private foreign exchange assets could meet some of the burden. However, in view of weakness of Chinese control, it is doubtful whether drain on official assets will be significantly alleviated by use of private assets.
- 3.
- Undoubtedly the picture presented by Chinese statements is pretty
grim and can easily be used to justify a relief grant. Question of
whether we want to allocate by relief grant in 1947 to China depends
on:
- (a)
- Our general China policy.
- (b)
- On how much Dept wants to grant to Italy, Austria and Greece, and
- (c)
- On what total Congressional allocation for relief will be.
III. General Marshall recommends that as regards 3 (a) above, in approaching Congress for relief appropriation, a suitable amount be requested for possible use in China.