893.51/7422: Telegram
The Ambassador in China (Gauss) to the Secretary of State
[Received 8:25 p.m.]
176. The Embassy has learned in strict confidence that the Ministry of Finance has received from Washington and discussed a draft Sino-American loan agreement. The Ministry is said to resent the provision for consultation by the Chinese Government with the Treasury Department with respect to expenditures under the loan on the grounds that a measure of control is contemplated. It is disappointed to find that the loan is not granted as an absolute gift in recognition of, as the press has stated, China’s contribution to the general war effort.
Whether or not we should provide for some means of repayment is a question of policy upon which I am not prepared to express an opinion. One prominent and intelligent Chinese banker has stated privately that the loan was obtained too easily to be appreciated or to insure provision for its effective use. The Embassy can detect here an assumption on the part of officials and bankers that the credit is a due compensation to China for what the Chinese [regard as] our past and present shortcomings and for China’s past and present resistance to Japan.
I am convinced that we should be firm in insisting upon retention of the provision for consultation with the object of having some degree of control over the manner in which the large loan is expended. As I have verified in previous telegrams and in my despatch number [Page 476] 266 of January 8, I am more of the opinion that controls and allocation of portions of the loan for specific purposes will prove to be in the best interests of China as well as in our best interests.
[For letter of March 3 from the Chinese Minister for Foreign Affairs (Soong) to Under Secretary of the Treasury Bell, see Department of State, United States Relations With China, page 482. This letter enclosed a revised draft of the proposed loan agreement differing from the initial draft handed to Mr. Soong on February 21, ibid., page 479, only in omitting article II and revising article III (as new article II) to read as follows:
Article II
(Originally Article III)
The final determination of the terms upon which this financial aid is given, including the benefits to be rendered the United States in return, is deferred until the progress of events after the war makes clearer the final terms and benefits which will be in the mutual interest of the United States and China and will promote the establishment of lasting world peace and security. In determining the final terms and benefits the United States and China shall take full cognizance of the desirability of maintaining a healthy and stable economic and financial situation in China in the post-war period as well as during the war and to the desirability of promoting mutually advantageous economic and financial relations between the United States and China and the betterment of world-wide economic and financial relations. (893.51/7464.)]