893.51/7413: Telegram
The Ambassador in China (Gauss) to the Secretary of State
[Received February 18—10:41 a.m.]
132. Embassy’s No. 123, February 14, 9 p.m. Several days ago the Ministry of Finance convened an informal meeting of Chinese finance and banking experts to discuss flotation of an internal bond issue secured from the American and British credits. Niemeyer, Young and Adler92 were also present. The discussion centered around four main points:
- 1.
- The conversion rate between fapi and the dollar to be adopted in issuing bonds. Rates between five and six cents to the fapi were suggested, the latter being favored on the grounds that the higher rate would prove attractive and permit issuance at par. There was inconclusive discussion with regard to whether the bonds should bear on their face the dollar, as well as the fapi redemption value.
- 2.
- The rate of interest. Five and six per cent were mentioned, with the latter receiving principal support.
- 3.
- The amount of the first issue. A figure as high as 5,000,000,000 fapi was suggested, but two and one-half million was favored, the idea being to follow a limited first issue immediately with a second issue, if the first issue was readily subscribed.
- 4.
- The term of the bonds. The general feeling was that they should be short term—5 to 10 years. While no decisions were taken at the meeting, it is understood that the foregoing indicates along broad lines the general thought of the Ministry of Finance with regard to a bond issue. Suggestions with regard to lifting exchange restrictions, importing United States currency, and issuing new currency with dollar support met with no encouragement from Kung or from others present. There was no discussion at the meeting of possible other uses which might be made of the credits.
The degree of response which a dollar supported bond issue will meet continue to be largely a matter of conjecture. There was talk at the meeting of using various forms of compulsion if the response was inadequate. Unless very carefully handled it is believed that the adoption of such measures would prove to be unwise although the bonds might be used to induce hoarders to disgorge their commodity holdings. In implementing its avowed policy of agrarian reform, the Government might advantageously use bonds to finance more equitable land [distribution?] without increasing currency in circulation. The bonds might also be utilized to encourage the responsible banks [Page 470] to be more generous and more effective in their financing of production for immediate use and in making loans to farmers for small scale land reclamation and improvement work.
- Solomon Adler, Treasury Department representative and acting alternate American member of the Chinese Stabilization Board.↩