[Enclosure]
Memorandum by the Chinese Ambassador (Koo)
In his interview with the Secretary of State on May 8th, the Chinese
Ambassador, pursuant to instructions from his Government, requested a
loan of U. S. $1,000,000,000 for China from the United States and
outlined the reasons for the request, the purpose which the loan would
serve, and the uses to which it would be devoted.
The Chinese Ambassador said that China, conscious of her important role
in promoting peace and stability in the Far East and the world, had been
anxious to embark upon a program to improve her political and economic
conditions which had become serious. In view of the general situation in
the Far East and the world, the Government deemed it inadvisable to wait
until a settlement was reached with the Chinese Communists but that it
was necessary to start the work of political and economic rehabilitation
as early as possible.
For this purpose, he informed the Secretary of State of the recent
reorganization of the Chinese Government by broadening the basis of
political representation in the several branches of the Government. The
new coalition Government had pledged itself to carry out a program of
national unification and economic rehabilitation agreed upon by all the
participating parties and groups in the Government.
It was for the purpose of starting this work of economic rehabilitation
that the Chinese Government desired to obtain financial aid from the
United States Government in the form of a loan. He was asked by his
Government to assure the United States Government that such financial
aid would not be utilized to meet the budget deficit. This deficit would
be and was being covered by the issuance of short-term treasury notes
and the flotation of a domestic loan, along with measures
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for increase of internal
revenue and a policy of retrenchment for non-productive
expenditures.
The proposed loan would be used exclusively for meeting the pressing
needs of economic rehabilitation. It is the plan of the Chinese
Government to confine the use of the loan to three categories of
projects: (1) restoration and development of communications; (2)
development of electric power and certain mining industries; and (3)
improvement of agriculture with special emphasis on irrigation and the
manufacture of fertilizers.
These projects, when carried out, would be a great help in improving the
general economic conditions and the standard of living of the people. In
order to achieve this purpose of economic rehabilitation, materials and
equipment would be purchased from the United States with the loan.
For these purchases and the necessary services for the implementation of
the projects, a loan of U. S. $500,000,000 had been earmarked by the
Export-Import Bank. But the Chinese Ambassador explained that his
Government felt that this amount would not be enough. The cost of
transporting these materials and equipment in China, their installation
and the initial operation would mean a further considerable amount of
money. In addition, the removal of reparations assets from Japan and
setting them up in China and operating them would also require a great
deal of capital.
All these expenses could not be met by China herself, except by issuing
more banknotes. Such a step, however, would again send prices up and
further depreciate the value of the Chinese dollar, thereby aggravating
the danger of inflation. To meet these requirements the Chinese
Government proposes to purchase in the United States such commodities as
cotton, food and gasoline and sell them in the Chinese market in order
to get the necessary funds in Chinese currency. Such a plan would also
have the beneficial effect of checking the danger of inflation by
withdrawing a large amount of Chinese currency from the market and
re-disbursing it in installments only as and when required to meet the
above-mentioned needs.
For these reasons and purposes, the Chinese Ambassador said that his
Government would like to have a loan of U. S. $1,000,000,000 from the
United States, one-half of which for financing the purchase of American
materials and equipment and the necessary services, and the other half
for financing the purchase of American commodities.
The Chinese Ambassador further stated that his Government was aware of
its responsibility, if the proposed loan was accorded, to see that the
proceeds of the loan were spent for the purposes which were outlined, so
that lasting benefit could be secured from it.
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It may be added that details of the plan for the proposed loan are being
prepared by the Chinese Government and will be submitted for the
consideration of the United States Government when it becomes clear that
the request for the loan is acceptable in principle to the United States
Government.
[Washington,] May 13, 1947.
