893.51/5–2747
Memorandum by the Chinese Embassy
The Chinese Government’s Plan Regarding Its Proposal for a Loan for China’s Economic Rehabilitation and Reconstruction
i. a fundamental consideration
Realizing fully that China’s own stability and progress are factors vital to the peace of the Far East and the world, the Chinese Government feels that steps must be taken to stabilize and improve both the political and economic conditions of the country, so that she may make her full contribution as a stabilizing force in world politics and peace. So strongly does the Government feel the necessity and urgency of such steps that it can no longer wait to take action until a settlement is reached with the Chinese Communists. It has accordingly embarked upon a political program which will lead to the early realization of full constitutional government as envisaged by Dr. Sun Yat-sen. While political changes are in progress, the Government must strive to launch, without delay, a program of economic rehabilitation and reconstruction in the vast areas where such work is necessary and feasible, so that the economic life of the people may be improved and made secure.
The United States today shoulders to an unprecedented degree the great responsibility for the promotion and preservation of world peace. Her relations with China are bound by ties of long friendship. [Page 1127] Stability and progress in the Far East are as much the concern of the United States as they are that of China. It is the earnest hope of the Chinese Government that the United States will extend to her at this formative stage of her political and economic reconstruction the necessary financial aid in the interest of world peace and prosperity as well as the furtherance of Sino-American friendship.
ii. nature of the proposed loan
As to the nature of the loan, which the Chinese Government is requesting, it will be used entirely for the rehabilitation and reconstruction of China’s post-war economy. It is not the intention of the Chinese Government to balance its current budget deficit with foreign loans. Such deficit will be met by internal loans, which are being launched, by the gradual increase of internal revenue, and by a policy of retrenchment in non-productive expenditures.
The loan of U. S. $500,000,000 for which preliminary arrangements were made with the Export-Import Bank in April last year through the good offices of the Honorable George C. Marshall in his capacity as the United States Special Envoy to China, was intended for the same purpose as the one here proposed. But the principal scope of that loan was only to cover the supply of American material and equipment. Under that plan, the Chinese Government would have to find considerable additional funds to meet the various costs to be incurred in China in the installation of the material and equipment supplied. This would heavily increase the expenditure of the Government and consequently its note issue, which in turn would bear most unfavorably upon commodity prices and further depreciate the value of the Chinese dollar. It is imperative, therefore, that while supplying China with the much-needed material and equipment, such a loan should not cause further inflation of the currency. In other words, the amount of the loan must be adequate to cover the entire expenditure of the program for which it is intended, including not only purchases from abroad but also such costs as wages and domestic purchases to be incurred in China. These internal costs can best be met by the government sale in China of commodities purchased in the United States with part of the loan.
iii. uses of the loan
It is the plan of the Chinese Government to confine the use of the proposed loan to:
- 1)
- the restoration and construction of communications;
- 2)
- the development of electric power, certain mines and industries; and
- 3)
- the improvement in agriculture with emphasis on river conservancy and the manufacture of fertilizers.
iv. total sum of the loan and its disbursements
In view of the foregoing considerations, the Chinese Government requests a loan of U. S. $1,000,000,000. Half of this sum will be used for the purchase of equipment and material required, while the remaining half will be used for the purchase in the United States of certain commodities such as cotton, wheat and petroleum.
These commodities will be sold by the Government in China to recover an amount of notes which otherwise would have to be further issued, in order to meet the necessary internal costs referred to above. It is believed that only by such an arrangement can full and prompt execution of the plans for rehabilitation and reconstruction under this proposed loan be ensured. It is certain that the importation of such commodities will also help to maintain and increase China’s current industrial production. Furthermore, this arrangement will serve to improve China’s position in regard to the balance of her international payments. In short, the proposed loan will not only give China the benefit of its futures fruits, but will have an immediate wholesome effect on the general economy of the country.
v. terms of the loan
It is proposed that the loan can be drawn upon within three years. As regards the terms governing the rate of interest and repayment, China hopes to be given the same treatment as was accorded to the United Kingdom in the Anglo-American Loan Agreement of December 1945.65
vi. suggested procedure for agreement
It is proposed that an immediate understanding be reached between the United States Government and the Chinese Government on the total sum of U. S. $1,000,000,000, including the U. S. $500,000,000 already earmarked for China in the Export-Import Bank. Should a formal agreement on the total sum require congressional authorization and therefore cause possible delay, it is suggested that a formal agreement on the earmarked sum of U. S. $500,000,000 shall be concluded before June 30, 1947, with the understanding that the United States Government will submit immediately the remaining half of the proposed loan for the consideration and approval of Congress.
[Page 1129]vii. enclosure
Attached herewith is a detailed plan.66 comprising:
- (1)
- Appendix A: List of specific projects for the utilization of the proposed loan (with estimated total cost of each project); and
- (2)
- Appendix B: List of commodities to be imported to cover internal costs (with estimated amount of each commodity required for 1947, 1948 and 1949).