893.51/7473
Memorandum by the Chief of the Division of Far Eastern Affairs (Hamilton)
Subject: Proposed Financial Agreement with China
The Chinese Government makes three substantive suggestions for changes in the proposed agreement.
The first such change is that Article II be eliminated. This Article contemplates that the Chinese Government will keep this Government informed as to the use of the funds and will consult this Government from time to time as to such usages.
The second change is the addition of the phrase “after the war”. This change, if accepted, would definitely postpone the period for final determination of the terms upon which aid is extended to China until after the termination of hostilities.
The third change is that there be deleted from Article III the words referring to interest charges. In this suggestion the Chinese Government obviously has in mind eliminating any indication that the financial aid extended by the Government of the United States will be repaid in money.
With regard to the suggested elimination of Article II, it seems desirable that there be kept in mind points as follows:
- (a)
- The Joint Resolution approved February 7 authorizes the Secretary of the Treasury “to loan or to extend credit or give other financial aid to China” and it would seem extremely doubtful that [Page 478] the Congress intended that the executive branch of the Government should make an agreement which would discard at the outset and in entirety the words “to loan or to extend credit”;
- (b)
- The Secretary of the Treasury will presumably make an accounting to the Congress of the ways in which the funds are expended;
- (c)
- Congress may be expected, as time goes by, to give increasingly careful scrutiny to reports of the ways in which the funds are expended;
- (d)
- Committees of Congress have already indicated in their attitude toward the lend-lease agreement with the British Government the accuracy of the comments made in (b) and (c) above;
- (e)
- The extension by the United States to China of financial aid is a cooperative enterprise to be regarded as an integral part of the common war effort of the two countries, and, as such, general consultation and the mutual offering of suggestions are normal, to be expected, and desirable;
- (f)
- The agreement with China will undoubtedly be looked to as a precedent in connection with proposals from other governments that similar financial aid be extended to them.
With regard to the suggested addition of the phrase “after the war”, there would seem to be no strong argument against such addition, although it does leave the United States Government comparatively empty-handed with respect to requiring the performance of “benefits to be rendered”.
In considering the desire of the Chinese Government for the elimination of mention of interest in the proposed agreement, the comment made under subparagraph (a) above would seem to be pertinent.
With the foregoing points in mind, it is recommended that it be suggested to Dr. Soong that Article II be eliminated from the agreement; that the first two sentences of the draft Article II be made the basis of an exchange of notes between representatives of the two Governments to be effected with conclusion of the agreement; and that, if the foregoing is acceptable to the Chinese Government, the other changes suggested by the Chinese Government be made.
It is suggested that it might be pointed out to Dr. Soong that in considering this whole matter this Government necessarily had to keep in mind the various considerations listed on page two7 and that we had given thought to other ways of proceeding in the light of those considerations but had discarded those other ways in the thought that they would not be so acceptable to China as the way suggested in the tentative draft handed to Dr. Soong. Dr. Soong might be told that among these other ways were (1) the drafting of a normal credit or loan agreement, with provision that no interest be paid and that payments of principal be made in accordance with an agreed schedule and an agreed date for the beginning of such payments; and (2) the [Page 479] including in an agreement of a provision for the setting up by the Chinese Government of some sort of a special body (possibly the Chinese member and the American member of the Chinese Stabilization Board) on which there would be one representative nominated by the Secretary of the Treasury, which special body would be charged with approval under the Chinese Government of projects for the use of the funds to be made available by the Government of the United States.
Dr. Soong might be informed further that if the Chinese Government has any suggestions which in its view would be preferable for meeting the responsibilities which this Government has in connection with the extension of the financial aid under reference to China, this Government would welcome such suggestions.
- Paragraphs (a) through (f).↩