893.51/6–1747
Memorandum of Conversation, by the Director of the Office of Financial and Development Policy (Ness)
| Participants: | Dr. V. K. Wellington Koo, Chinese Ambassador |
| Dr. Shao-Hwa Tan, Minister Plenipotentiary, Chinese Embassy | |
| Mr. Clayton, State Department | |
| Mr. Ness, State Department |
During the course of his remarks the Ambassador referred to three matters: I. financial assistance; II. Japanese reparations; and III. Post-UNRRA relief.
I. Financial Assistance
The Ambassador, having been referred to Mr. Clayton by the Secretary, alluded to an earlier conversation with Mr. Marshall in which he had broached the subject of $1 billion of financial assistance for China.73 He said that he had subsequently been informed that while the United States Government was not in principle prepared to commit itself to such an undertaking, it was interested to have an outline of the way in which this sum would be employed.74 As a result, the Ambassador remarked, he had submitted to the Department his memorandum of May 27, 1947.
In this memorandum, the Ambassador continued, it was proposed that $500 million be made available for the purchase in the United States of equipment necessary for rehabilitation and reconstruction in China. The additional $500 million would be used to purchase raw materials, such as cotton, wheat and petroleum, which could be sold within China for yuan which would then be available for financing [Page 1137] the local costs associated with the installation and operation of the equipment first mentioned.
The Ambassador lay particular emphasis upon the urgent character of Chinese needs. He said there were three aspects of this urgency: the economic, the political and the international.
Mr. Koo said that the economic system was so far deteriorated as to require the sort of facilities for which the request was being made, and that the price-scarcity situation called for the raw material program involved within the second $500 million. He was inclined, in general, to emphasize this second aspect even more than the first.
The Ambassador then undertook to stress the point that the Chinese Government was dedicated to democracy. He spoke of the existing government as the only “coalition” government in Chinese experience, and described its role as that of preparing for elections to be held this fall with the purpose of establishing a new government under the constitution by the beginning of 1948. This consummation, which he implied we ought to promote, was said to be difficult if not impossible in the presence of an economic situation such as that which presently prevails in China.
He went on to pay attention to the disturbances occasioned by Communist activities in the North. He recalled that American financial policy toward China was contingent upon “unity and peace,” but observed that this was an outcome which required the cooperation of all elements within the population of China—a cooperation which the Communists were patently unwilling to give. In these circumstances, he said, it was necessary to urge financial assistance even with the present conditions prevailing in China.
The Ambassador having concluded his remarks, Mr. Clayton indicated that he was familiar with the memorandum to which reference had been made. He said it was his understanding that there was involved a proposal to re-earmark the $500 million presently set aside for possible credits to China at the Eximbank and that the second $500 million was, according to the Chinese suggestion, to be obtained from Congress either as a grant or as a loan. (It may be observed that at no time thereafter did the Ambassador recur to the idea of a grant, instead he consistently referred to it as a loan.)
Mr. Clayton indicated that, first of all, it had been decided, following conversations which included the Secretary, that it would not be appropriate at this time to request re-earmarking the $500 million at Eximbank. He said definitely that such a proposal was “out.” He added that in his opinion, China would in any case be unable to absorb as much as $500 million in projects within any such period as a year. In this opinion Mr. Ness concurred. Mr. Clayton went on to indicate. [Page 1138] however, that the Chinese knew well the solicitude and concern of this Government and of the Secretary for China. He indicated, in particular, that we would be prepared to confer with the Eximbank with the view of securing at an early juncture the grant of individual credits on a project basis.
Mr. Clayton then said that he was sure the Ambassador understood that the Congress of the United States would not, at this time, be prepared to consider a project for financial assistance of the sort mentioned in the memorandum. He pointed, in particular, to the concern of Congress that any such requests should be accompanied by reasonable assurance of the succesful attainment of the purposes set forth. He referred to the activity aroused in Europe as a result of the Secretary’s speech at Harvard,75 and indicated that it was incumbent upon any applicant for assistance to come forward with a reasonable plan which would (a) indicate the extent to which the country could, by the use of its own resources, accomplish its purposes, and (b) the minimum assistance required from the United States. He (in my opinion) left with the Chinese a reasonable basis for inference that this recourse was open to them provided they were able to meet the conditions he had indicated.
Following this statement of position by Mr. Clayton, the Ambassador made a number of specific inquiries. With respect to the granting of specific project credits by the Eximbank, he asked what the Chinese ought to do to expedite matters. It was suggested that Mr. S. C. Wang ought promptly to get in touch with Mr. Ness to consider procedures on this point. In this connection, the Ambassador asked whether it would be possible to secure action upon specific projects before June 30. He was told both by Mr. Clayton and Mr. Ness that this was extremely unlikely if not simply impossible.
This last reply led the Ambassador to observe that a cessation of earmark would have adverse psychological effects in China and to point out that the announcement of specific action on loan applications would go far to offset such an adverse effect. The significance of his observation was recognized both by Mr. Clayton and Mr. Ness, and it was indicated to the Ambassador that serious consideration would be given to means whereby such an event could be offset or counteracted.
The Ambassador then inquired whether the term “specific project” could be interpreted to include commodity credits. He recurred to his earlier emphasis upon the availability of raw materials to China, [Page 1139] including the sale of their products within the country for yuan, and questioned somewhat the adequacy of a project approach if narrowly interpreted. Mr. Clayton replied, first, that he doubted very much if the kinds of projects available for consideration by Eximbank would contribute greatly to China’s more immediate problem and, secondly, that as a matter of fact he had had in mind some provision of commodity credit, as, for example, the cotton. In this connection the Ambassador volunteered the observation that his government would be quite prepared to accept the requirement that some portion of the textiles produced from cotton imports should be sold abroad to obtain foreign exchange. Having heard Mr. Clayton’s observation on cotton, the Ambassador went on to inquire whether the same facilities could be available with respect to petroleum and wheat. He was answered in the negative, on the ground that neither of these products gave any promise of additional supply of exports.
Mr. Koo then turned to the possibility of Congressional action, and asked what China should do to anticipate the possibility of such assistance. Mr. Clayton reiterated his earlier observations concerning the necessity of preparing carefully a statement of what the country itself might do and what its remaining needs might be. Mr. Koo inquired whether there would be any objection to the retention of American technical experts to undertake this study, and was informed that there would be no objection provided such Americans were definitely technical experts only.
II. Reparations
Mr. Koo then turned to the first of two subjects which he wished to bring up incidentally. He referred to the reliance which China had placed upon the availability of reparations from Japan, and pointed out that the Far Eastern Commission had recently undertaken to allocate available reparations among the claimant nations. He pointed out that as a first step each claimant had been asked to indicate its idea of its own proper share of such reparations, and observed that the total came to something over 200% of what was available. He noted that the United States representatives, when putting forth their conception of a proper overall allocation of reparations, had set China down at 28 or 29%. The Ambassador reminded Mr. Clayton that China had long taken the position that it was entitled to 40%, and he urged upon the Under Secretary that the U. S. support this figure for China. Mr. Clayton indicated that he was not immediately familiar with the matter under discussion but would refer the Ambassador’s remarks to the appropriate authorities within the Department.
[Page 1140]III. Post-UNRRA Aid
Mr. Koo said that upon instructions of his government he was asking that $100 million be made available to China from the $350 million recently authorized by Congress for Post-UNRRA assistance.76 Mr. Clayton said that this figure was quite outside the range of possibility but added, upon inquiry, that to his knowledge there was no agreement in legislative form. The Ambassador asked whether the shares of the several recipient nations were in any sense frozen or pre-determined. Mr. Clayton answered in the negative. The Ambassador went on to report that there had been a meeting between Chinese Government and U. S. Embassy officials in China concerning Chinese relief needs. Out of this meeting, he reported, there had come the judgment that China needed 370 thousand tons of wheat and rice. It had been suggested by the U. S. Embassy, he went on to say, that China should request assistance for no more than 100 thousand tons, leaving the balance to be financed out of its own resources. Mr. Clayton again indicated that this was material with which he had not continued to keep in touch, and that he would undertake to refer the Ambassador’s remarks to the proper officials of the Department.