Foreign Relations of the United States, 1947, The Far East: China, Volume VII

893.5151/8–947: Telegram

The Ambassador in China (Stuart) to the Secretary of State

Nanking, August 9, 1947—5 p.m.
[Received August 10—3 a.m.]

1679. To State and Treasury from Adler. Reference Embassy’s telegram 1562 of July 22,²⁰ Governor of Central Bank informed me that present plan with respect to “partial linking” scheme is as follows:

1. All importers with approved import licenses will be required to procure their exchange from current exchange proceeds of exports and inward remittances at prevailing market rate of exchange. Central Bank will, however, sell exchange at official rate for imports of raw cotton, rice and wheat, fertilizer and coal, total imports of which will be about $112 million.

2. Exchange from exports and inward remittances will be sold at prevailing market rate to appointed banks.

3. A committee of five consisting of representatives of Executive Yuan, Ministry of Finance, Central Bank, Import Control Board and Export Control Board will constitute exchange equalization committee, whose function it will be to bridge temporary and seasonal gaps between exchange outpayments and inpayments. Committee will receive advances from Central Bank for this purpose, to which the allocation of approximately $50 million is being considered.

4. It is hoped to achieve equilibrium in China’s balance of payments in one year. Deficit in China’s balance of payments for next 12 months, including imports of cotton, foodstuffs, coal and fertilizer, but not including Government expenditures and imports estimated at over $100 million, tentatively estimated at $100–125 million. Preliminary estimates for next 12 months are (all figures in dollars million):

(a) Out payments.

i. Imports. Cotton, food, coal and fertilizer 112; schedule I, 20; schedule II, 198; schedule III, 32.²¹

ii. Payments for financial services, et cetera, 55.

(b) Inpayments.

• Exports 165–180; overseas remittances 100; foreign government expenditures 25; philanthropic 12.

Governor and Pei indicated that the expected part of deficit to be met through $25 million of post-UNRRA relief food supplies and an Eximbank cotton loan.

5. Governor keenly aware of need for restricting smuggling and flight of capital (see 1 of Embassy’s telegram No. 1678 [A] of August 9²²). He is also anxious for political reasons that Central Bank should not assume responsibility for operation of plan or of exchange equalization committee. In fact his real reason for having five representatives on exchange equalization committee is to diffuse responsibility and avoid political vulnerability in fact [face?] of inevitable depreciation and [of?] CN dollar. In view of the C–C clique’s anxiety to encroach into economic and financial affairs and its demonstrated willingness to exploit economic situation to this end, of Political Science group’s delicate position and of fate of Pei in March, Governor’s attitude is not surprising. At same time it must be emphasized that ability of envisaged committee to carry out plan effectively must be seriously doubted; precisely because it will have to function in difficult and unfavorable circumstances it needs to be entrusted with real power and responsibility and to be protected from “political” pressures. Otherwise it will have to support the market heavily and thus dissipate large amounts of foreign exchange which will negate the whole point of the plan, or become the political scapegoat for depreciation of fapi and the inevitable continuance of hyperinflation.

Furthermore, with committee composed of five members on lines contemplated, danger of leaks and scandals is seriously enhanced. Finally, when I asked Pei about the degree to which cooperation of appointed banks could be relied upon, he was characteristically optimistic; Rogers, on the other hand, expressed grave doubts about such cooperation. [Adler.]

Stuart

20. Not printed.
21. For a description of the nature of these schedules, see telegram No. 1910, November 19, 1946, from the Ambassador in China, Foreign Relations, 1946, vol. x, p. 1024.
22. Not printed.