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

893.51/11–1847: Telegram

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

Nanking, November 18, 1947—8 p.m.
[Received November 18—1:19 p.m.]

2258. According to information made available by Dr. Young (re-Embtel 2223 of November 10 and Deptel 1388 of November 14⁷¹):

1. Central Bank balances in U. S. were $125,000,000 as of September 30 and $95,000,000 as of November 15. Bank of China’s net holdings for home and overseas offices $43,000,000 as of September 30. Other Government banks’ holdings totalled $27,000,000 in latter part of October. Apparently no substantial change in dollar holdings of approximately $70,000,000 of Bank of China and other Government banks since September 30; minimum of 30–40 percent of these holdings considered necessary working capital, especially since Bank of China has given various large guarantees, including $33,000,000 for Export-Import Bank cotton credit.

2. Total official gold holdings 2,452,000 ounces with 2,412,000 ounces in China and 40,000 ounces in the U. S.

3. Dollar equivalent sterling area currency holdings at par of Central Bank $13,000,000 on September 30 and $7,000,000 November 15, of Bank of China $25,000,000 September 30, and of other Government banks $9,000,000 toward end of October.

4. Silver holdings in China 39,700,000 ounces. In addition, China has 1,900,000 ounces in New York and 1,200,000 ounces in London.

5. Central Bank contractual commitments up to January 1 include (in U. S. dollars million) cotton imports under National City Bank credit⁷² 11, fertilizer 8, bank notes 10, munitions 7, military gasoline and fuel oil 6, gasoline and oil for Ministry of Communications 3, air forces training 2, diplomatic and consular costs 2, miscellaneous 3, or a total of 52. Further commitments for munitions, gasoline, and fuel oil, which have to be met early in 1948, total 20–25. In addition to these commitments:

(a) Total debt service for first half of 1948 $33,000,000, including $25,000,000 to Export-Import Bank, of which $18,000,000 for metal loan falls due on February 17, and for second half $37,000,000, including $27,000,000 for Export-Import Bank cotton credit.

(b) About $40,000,000 of import licenses were outstanding on August 18, of which an estimated $10,000,000 have already been taken up. A considerable portion of the remainder may lapse.

(c) Additional Central Bank liability as result of commitment to allow import of accumulated unlicensed goods expected to total not more than $5,000,000 before April 1, 1948.

A detailed estimate of Government foreign exchange requirements for first half 1948 now being drawn up and will be made available soonest. It should be noted China hopes to realize $15,000,000 from sale of U. S. surplus property outside China.

On basis of above U. S. dollar and gold assets of Central Bank, Bank of China, and other Government banks $281,000,000 as of September 30, and dollar equivalent of sterling area currency holdings $47,000,000 as of same date. No data available here on Chinese short term liabilities as of September 30. Thus Dr. Young’s figure of $281,000,000 official gold and dollar balances reconcilable with your estimate of $265,000,000. In Dr. Young’s opinion decline in Central Bank dollar and sterling area currency holdings of $36,000,000 between September 30 and November 15 is a reasonably conservative indication of rate of decline in official balances to be expected in future, although decline from now to January 1 will be faster because of commitments falling due by year end.

Following are Dr. Young’s conclusions based on above:

• “(a) Central Bank holdings of U. S. dollars, gold, and sterling currencies are now $189,000,000, and other Government bank holdings over and above necessary minimum working capital are $6070,000,000, making an over-all total of $250–260,000,000.
• (b) Up to January 1, 1948, Government commitments at least $52,000,000 and trade balance deficit estimated at $8,000,000, totaling $60,000,000. In unfavorable conditions, e. g., a disorderly price situation, the deficit might be more.
• (c) By January 1, 1948, over-all available resources, i. e., deducting $60,000,000 as per (b) and allowing for Government banks’ minimum working capital, now seem likely to be reduced to $190–200,000,000. This would include $86,000,000 in gold, perhaps $35,000,000 equivalent in sterling currencies, and perhaps dollar balances of $70–80,000,000.
• (d) The gold is mainly in China and could not be exported without public knowledge, which might be expected to have a serious effect upon confidence in the currency and the Government. Maintenance of the gold and of some foreign exchange reserves in addition is vital for confidence. Government holds silver for possible emergency use here.
• (e) For first half of 1948, deficit on Government account plus trade deficit is unlikely to be less than $25,000,000 monthly and might be more. That would exhaust most of the currency balances mentioned in (c) above by about April, 1948, on the basis of the estimates given.”

Stuart

71. Latter not printed; it requested information on China’s external assets (893.51/11–1447).
72. Reference is to a credit of $40,000,000 arranged by the Central Bank of China with the National City Bank of New York for the purchase of cotton. The announcement was released in Shanghai on April 14.