893.51/7407: Telegram
The Ambassador in China (Gauss) to the Secretary of State
[Received February 14—8:50 p.m.]
123. Editorial reaction to [recent?] credits has been more appreciative than enthusiastic. One leading paper advises that China should demonstrate that she merits the credits by the use she makes of them in strengthening her position and effectiveness as a partner in the United [Nations] front, adding that if the loans are used to expand the national budget or as reserves for issuing notes, then not only will there be no benefit but there will be harm. Another paper cannot forego the comment that the granting of such credits 4 years ago would have prevented the present serious situation in the Far East. There is general agreement that control of inflation with a view to reducing commodity prices should be the primary objective. Uniformity is lacking with regard to the precise means of accomplishing this end but the absorption of idle capital through internal loans secured on the credits is generally favored. Effective measures for price stabilization are demanded and an acceleration of production of essential commodities is advocated. Retrenchment to the point of deflation is urged by one paper but others warn against such a policy, suggesting that the idle capital absorbed should be used to encourage production.
Numerous proposals are being made in official and unofficial circles for the use of the loans, including the following: (1) import of actual United States currency for circulation in Free China; (2) unfreezing and direct free sale of foreign exchange; (3) sale of American Government bonds in China; (4) use for reconstruction projects as well as to encourage domestic production; (5) use as currency reserve. These are additional to the proposed sale of government bonds secured on foreign currency credits in order to recapture substantial sums of Chinese currency for government use.
Our information also indicates that China is going forward with proposals for state monopolies of salt, tobacco, matches and sugar.90
There is as yet no evidence here that a definite plan for the utilization of the American loan has been formulated.