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PSF: China Jan. - June 1944
China folder
THE WHITE HOUSE
washington
Confidential
January 3, 1944.
MEMORANDUM FOR
THE SECRETARY OF STATE:
I am enclosing herewith a
message for the Generalissimo, which
I wish you would read and send.
I am also enclosing a copy for
your files.
F.D.R.
THE WHITE HOUSE
WASHINGTON
January 3, 1944.
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY:
FOR YOUR INFORMATION.
F.D.R.
January 3, 1944.
FOR: GENERALISSIMO CHIANG KAI*SHEK
I have had the "flu" for the past few days and am only
just able to attend to the vast amount of work.
The Secretary of the Treasury has sent me a recommendation
which I hereby quote to you just as it was written:
# 1. The facts regarding inflation in China and the possi-
bility of its control through the use of dollar resources are
as follows:
Inflation in China, as you well know, arises from the
grave inadequacy of production for war needs and essential
civilian consumption. Supplies have been drastically reduced
by enemy occupation and the cutting off of imports except the
small amounts that come by air or are smuggled from occupied
territory.
The Chinese Government cannot collect sufficient taxes
or borrow from the people in ádequate amounts. As a consequence,
the Government has been issuing 3.5 billion yuan a month, twice
the rate of a year ago.
The official exchange rate for yuan is now 5 cents;
before China entered the war it was 30 cents. The open market
rate for yuan in U. S. paper currency is one cent and in terms
of gold one-third of a cent.
You have suggested the possibility of our selling
dollar currency for yuan to be resold to China after the war at
no profit to us. No doubt something could be done to alleviate
inflation through the sale of gold or dollar currency in China.
I have received the following message from Dr. Kung dated
December 14:
I You will be pleased to hear that the recent
gold shipment is one of the outstanding factors
contributing to the strengthening of fapi, because
people believe that the arrival of gold has in-
creased the much needed reserve of our currency,
thereby influencing the stability of prices.
-2-
The action of the United States Government
re-affirms to the Chinese people that, despite
difficulties arising from the blockade and the
cumulative effects of over six years of war
against the invasion, China has a powerful
friend desirous of strengthening China's
economy as conditions permit'.
However, while something could be done to retard the
rise in prices, the only real hope of controlling inflation is
by getting more goods into China. This, you know better than I,
depends on future military operations.
2. China has tried two similar monetary remedies for
alleviating inflation without marked success:
1. The Chinese Government issued and sold dollar
securities for yuan, setting aside $200 million of the aid granted
by this country for the redemption of the securities. (These
securities were sold at exorbitant profit to the buyers. For
instance, a person holding $100 in U. S. currency could have
quadrupled his money in less than two years by selling the
currency for yuan on the open market and buying the dollar
securities issued by the Chinese Government.) I believe that
the program made no significant contribution to the control of
inflation.
2. The Chinese Government has recently been selling
gold at a price in yuan equivalent to $550 an ounce, about
fifteen times the official rate. We have shipped to China more
than $10 million of gold and they have sold about $2 million of
gold for yuan. This program has not been tried sufficiently
to warrant any definite conclusion as to its possible effect.
China now has $460 million of unpledged funds in the
United States and is getting about $20 million a month as a result
of our expenditures. China could use these funds in selling gold
or dollar assets for yuan, although in my opinion such schemes
in the past have had little effect except to give additional
profits to insiders, speculators and hoarders and dissipate
foreign exchange resources that could be better used by China
for reconstruction.
Under the circumstances, a loan to China for these
purposes could not be justified by the results that have been
obtained. It is my opinion that a loan is unnecessary at this
time and would be undesirable from the point of view of China
and the United States. Large expenditures on ineffective measures
for controlling inflation in China would be an unwise use of her
borrowing capacity which should be reserved for productive uses
-3-
in other ways. On reconstruction, it is too soon for us to know the
best use or the best form of the aid we might give to China.
Recommendations
For the past five years I have had a deep admiration for
the valiant fight that the Chinese people, under the leadership
of Chiang Kai-shek, have waged against Japanese aggression.
Therefore, I am in complete sympathy with your position that no
stone be left unturned to retard the rise in prices. Using the
tools we have at hand, I recommend the following:
1. All U. S. expenditures in China, currently $400
million yuan & month and rising rapidly, be met through the
purchase of yuan with gold or dollar currency at whatever price
we can get them for in the open market. This is equal to more
than 10 per cent of the present rate of issue.
2. Accelerate the shipment of gold purchased by China
to twice the amount we have previously planned to send. It
should be possible to raise gold shipments from $6 million a
month to about $12 million. At the present price for gold in
the open market this would be equal to the present 3.5 billion
of yuan currency that is being issued.
The impact of this two-fold program should contribute
to retarding inflation, always bearing in mind that the basic
reason for inflation in China is the shortage of goods."
I think, however, that in addition to this program we
should have a very high-class Commission visit Chungking and
confer with both you and Dr. Kung and try to work out a complete
meeting of the minds on this difficult matter.
This happens to be the first telegram I have sent in
1944 and it carries to you and to Madame Chiang very warm regards
from my wife and myself.
ROOSEVELT
to say C.H. suggests
Hm JV telephoned
that an important missim
be sent to Chna to stude
the situation agrees - NmW.
December 18, 1943
MEMORANDUM FOR THE PRESIDENT
You have spoken of the request of Generalissimo Chiang-
Kai-Shek for an additional 31 billion of financial aid to
China to be used to help control inflation and for postwar
reconstruction.
I
The facts regarding inflation in China and the possi-
bility of its control through the use of dollar resources
are as follows:
Inflation in China, as you well know, arises from the
grave inadequacy of production for war needs and essential
civilian consumption. Supplies have been drastically re-
duced by enemy occupation and the cutting off of imports
except the small amounts that come by air or are smuggled
from occupied territory.
The Chinese Government cannot collect sufficient taxes
or borrow from the people in adequate amounts. As a conse-
quence, the Government has been issuing 3.5 billion yuan 8.
month, twice the rate of a year ago.
The official exchange rate for yuan is now 5 cents;
before China entered the war it was 30 cents. The open
market rate for yuan in U. S. paper currency is one cent
and in terms of gold one-third of a cent.
You have suggested the possibility of our selling dol-
lar currency for yuan to be resold to China after the W ar
at no profit to us. No doubt something could be done to
alleviate inflation through the sale of gold or dollar cur-
rency in China. I have received the following message from
Dr. Kung dated December 14:
"You will be pleased to hear that the recent
gold shipment is one of the outstanding factors
contributing to the strengthening of fapi, because
people believe that the arrival of gold has in-
REGRADED UNCLASSIFIED
STRICTLY CONFIDENTIAL
- 2 -
creased the much needed reserve of our currency,
thereby influencing the stability of prices. / The
action of the United States Government re-affirms
to the Chinese people that, despite difficulties
arising from the blockade and the cumulative ef-
fects of over six years of war against the in-
vasion, China has a powerful friend desirous of
strengthening China's economy as conditions permit."
However, while something could be done to retard the
rise in prices, the only real hope of controlling inflation
is by getting more goods into China. This, you know better
than I, depends on future military operations.
II
China has tried two similar monetary remedies for
alleviating inflation without marked success.
1. The Chinese Government issued and sold dollar
securities for yuan, setting aside $200 million of the
aid granted by this country for the redemption of the
securities. (These securities were sold at exorbitant
profit to the buyers. For instance, a person holding
$100 in U. S. currency could have quadrupled his money
in less than two years by selling the currency for yuan
on the open market and buying the dollar securities
issued by the Chinese Government.) I believe that the
program made no significant contribution to the control
of inflation.
2. The Chinese Government has recently been selling
gold at a price in yuan equivalent to 9550 an ounce,
about fifteen times the official rate. We have shipped
to China more than $10 million of gold and they have
sold about $2 million of gold for yuan. This program has
not been tried sufficiently to warrant any definite con-
clusion as to its possible effect.
China now has $460 million of unpledged funds in the
United States and is getting about 820 million & month as
a result of our expenditures. China could use these funds
in selling gold or dollar assets for yuan, although in my
opinion such schemes in the past have had little effect
except to give additional profits to insiders, speculators
and hoarders and dissipate foreign exchange resources that
could be better used by China for reconstruction.
REGRADED UNCLASSIFIED
STRICTLY CONFIDENTIAL
- 3 -
Under the circumstances, a loan to China for these
purposes could not be justified by the results that have
been obtained. It is my opinion that a loan is unneces-
sary at this time and would be undesirable from the point
of view of China and the United States. Large expendi-
tures on ineffective measures for controlling inflation
in China would be an unwise use of her borrowing capacity
which should be reserved for productive uses/in other ways.
On reconstruction, it is too soon for us to know the best
use or the best form of the aid we might give to China.
Recommendations
For the past five years I have had a deep admiration
for the valiant fight that the Chinese people, under the
leadership of Chiang-Kai-Shek, have waged against Japanese
aggression. Therefore, I am in complete sympathy with
your position that no stone be left unturned to retard the
rise in prices. Using the tools we have at hand, I recom-
mend the following:
1. All U. S. expenditures in China, currently $400 mil-
lion yuan & month and rising rapidly, be met through the
purchase of yuan with gold or dollar currency at whatever
price we can get them for in the open market. This is
equal to more than 10 percent of the present rate of issue.
2. Accelerate the shipment of gold purchased by China
to twice the amount we have previously planned to send. It
should be possible to raise gold shipments from $6 million
a month to about $12 million. At the present price for
gold in the open market this would be equal to the present
3.5 billion of yuan currency that is being issued.
The impact of this two-fold program should contribute
to retarding inflation, always bearing in mind that the
basic reason for inflation in China is the shortage of
goods.
1/
12/19/43
REGRADED UNCLASSIFIED
STRICTLY CONFIDENTIAL
THE WHITE HOUSE
WASHINGTON
December 31, 1943.
MEMORANDUM FOR THE PRESIDENT:
The Secretary of the Treasury
called me this morning to ask:
(1) If you sent the message to
the Generalissimo which he gave to you
about a week ago and
(2) If so, have you had any
answer?
G.G.T.
Grace- -
any missage yet yet /
haven't sent
7AR
\
Attach tomeney 1/5/44
This is all me have
in our Ching Kai-shek
file since Jan. 1st
have any letter to him
map Room does not
as all -
china folder 1.44
file
THE SECRETARY OF STATE
Confidential
WASHINGTON
January 5, 1943
MEMORANDUM FOR THE PRESIDENT
We are sending off your message to President Chiang
Kai-shek regarding the question of the loan. It occurs
to me that it would be helpful were we to have Ambassa-
dor Gauss deliver the message by hand and accompany its
delivery with an oral statement. Toward putting into
effect such a procedure, we might give Gause an instruc-
tion such as is indicated in the draft here attached.
I would appreciate having an expression of your reaction
to this proposal. If you favor this can you have one of
your secretaries notify me 80 that I can have Ambassador
Gauss withhold the telegram for a few hours until the
proposed Section 2 1s received?
C. H.
O.K.
F. D. R.
Section II.
It 1s to be expected that this message will be dis-
appointing to the Chinese. The Department feels that it
would be well for you in your discretion to deliver it in
person and to accompany the delivery with an oral statement
to the effect that although on its face this message may
sound unresponsive to the Chinese request, it constitutes
in fact an evidence of the President's confidence in Presi-
dent Chiang and his feeling that there exists between Chiang
and himself so firm a relationship of mutual and reciprocal
friendly understanding that he is willing to lay before
Chiang the exact text of the opinion expressed to his by
his principal financial adviser, the Secretary of the Treas-
ury. This is a clear indication of 8. desire to discuss the
question involved on its merits and without reservations or
concealment. The many factors involved in the problem of
China's finances and of affording of financial assistance
by the United States to China make the whole question very
complicated. The President's expression of his desire to
send to China a commission of high quality for the purpose
of considering and discussing with the Chinese all angles
of this and related problems is clearly indicative of a
desire
desire to handle the whole matter in 8 manner which will be
to the real advantage both of China and of the United States.
PA/H:SKH:MKW
PA/H
FE
1-5-44
(2400)
China folder
hmo
DEPARTMENT OF STATE
THE SECRETARY
January 15, 1944
MEMORANDUM FOR THE PRESIDENT
In pursuance of your memo of
January 14, 1944 there is attached for
your consideration the draft of a tele-
gram which it is proposed to send to
the American Ambassador at Chungking
in reference to the Embassy's telegram
of January 13 communicating a message
from Mr. Adler to the Secretary of
the Treasury.
(H
Carbon
ok FIR
CH
XX
XX
"SC"
AMERICAN EMBASSY,
CHUNGKING (CHINA).
The Treasury Department having now signified to the
War Department and to us that it no longer desires that
the War Department withhold action on a financial agree-
ment with the Chinese Government, we have now reached an
understanding with the War Department on the basis of which
this Department will expect within two or three days to
issue you instructions concurrently with action by the War
Department in instructing General Stilwell. Those instruc-
tions relate to the problem presented by the difficulties
mentioned in Adlor's message to the Secretary of the Trea-
sury communicated in your number 87, January 13, 2 P.M.
In this connection please consider also our telegram
number 61, January 12, Midnight, reporting & conversation
which officers of the Department had with the Chinese Ambas-
sador on January 6.
PE:JWB:MKW
FE
PAIN
THE WHITE HOUSE
WASHINGTON
FE
E
January 14, 1944.
MEMORANDUM FOR
THE SECRETARY OF STATE:
Will you please let me see
the reply to this before it goes?
F.D.R.
ON POLITICAL MURABECT RELATIONS
14 1944
at
DEPARTMENT OF STATE
HEL
Chungking
This telegram must bE
closely paraphrased bE-
Dated January 13, 1944
fore being communicated
to anyone. (SC)
REc'd 1:50 p.m.
SECRETARY of State,
Washington.
U.S. URGENT.
87, January 13, 2 p.m.
SECRET.
I hear from a most reliable source that:
(A) Work is proceeding on only four of SEVEN
bases China promised to construct and for which WE
were to pay. Three bases on which work is not pro-
ceeding are much more urgently needed than the others;
in fact, delay in their construction will striously
impede war Effort this theatre. Reason China is
holding up work on them is that WE have not committed
ourselves to pay for them at official Exchange rate.
(FROM ADIER TO SECRETARY OF THE TREASURY ONLY)
(B) In addition China undertook to build other bases
for which she is to pay. No (repeat no) work being done
on these bases.
Understand White House will bE interested in this
information which should not bE communicated to other
sources in view of its delicate character.
GAUSS
REP
E.M. Bunstin
Del. 696 - Treas.
asst, they monitory T Research Dir.
China folder 1-44
THE WHITE HOUSE
washington
January 14, 1944.
MEMORANDUM FOR
THE SECRETARY OF STATE:
Will you please let me see
the reply to this before it goes?
F.D.R.
Secret telegram, 1-13-44 to Secretary of
State, from Ambassador Gauss, Chungking,
re work is proceeding on only 4 of 7
bases China promised to construct, for
which we were to pay, reason being that
we have not committed ourselves to pay
for them at official exchange rate. Tim-
bodied in telegram is message from Adler
to Secv. Treasury, saying that in addition
China undertook to build other bases for
which she is to pay - no work being done
on these.
/
china focher
THE WHITE HOUSE
washington
January 19, 1944.
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY
I find a delayed letter from
Madame Chiang which suggests that
the Generalissimo would be willing
to send Dr. Kung to Washington.
Don't you think that would be a
good idea and that we should accept
it?
F. D. R.
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
January 20, 1944
MEMORANDUM FOR THE PRESIDENT:
Your note of yesterday regarding the
delayed letter that you had received from
Madame Chiang with the suggestion that Dr. Kung
come to Washington, was received by me today
in the absence of Secretary Morgenthau.
I have talked to him on the telephone and
also to the State and War Departments, and we
all feel that Dr. Kung should come to Washington
to discuss the pending matters between China
and the United States. This, it would seem,
changes the draft of cable which the Secretary
read to you over the telephone yesterday. We
have, therefore, collaborated with the State
and War Departments on the attached draft of
new suggested cable for you to send to the
Generalissimo. The Secretary of State and the
action. Secretary of War have approved this course of
Dev Bill
FORVICTORY
BUY
UNITED
STATES
WAR
BONDS
AND
STAMPS
THE WHITE HOUSE
WASHINGTON
January 20, 1944.
WATCH OFFICER
CODE ROOM
STATE DEPARTMENT
The President would appreciate
it very much if this message could go
off immediately.
Grace C. Tully
PRIVATE SECRETARY
CABLE MESSAGE FROM THE PRESIDENT TO GENERALISSIMO CHIANG KAI-SHEK
I have carefully studied your recent message transmitted through
Ambassador Gauss, and I fully recognize the extent to which China's
resolute war stand has rendered her economic situation acute. I am
fully mindful of the importance of taking every practical cooperative
step to make possible the most active prosecution of the war as well
as to make possible an orderly development of industry and trade after
the war.
I think it important that you should understand our special problems
over here. I cannot escape the feeling that because of the distance
between us there may be danger that we may fail adequately to work out
our common problems and may rush into decisions which would not be in
the interests of either of our peoples.
I think that your suggestion transmitted to me by Madame Chiang
that Dr. Kung be sent to Mashington is a good one. If he were here the
various financial and economic problems involved in the situation could
be fully discussed to the mutual advantage of both countries.
Meahwhile, I should like to make this specific suggestion: Just
before receiving your message I had approved instructions to General
Stilwell and to Ambassador Gause to take up urgently with your Government
the question of our military expenditures in China. I should like to
suggest that an arrangement such as General Stilwell and Ambassador Gauss
are authorised to propose be adopted tentatively on the understanding
that our Army expenditures in China during the next few months can be
expected to be somewhere in the neighborhood of twenty-five million U. S.
dollars each month.
- 2 -
Recognising the validity of your claim that your Government is not
in a position to bear the financial burden of contributing to the maintenance
of American troops in China, this Government is fully prepared to bear all
costs of its war effort in China including housing as well as construction
under the general arrangements that will be suggested by General Stilwell
and the Ambassador.
ROOSEVELT
HOW
China forder-yo
confidential
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
January 24, 1944
SECURITY CONTROL
TO MISS TULLY:
The State Department received a cable from
Ambassador Gauss asking for a clarification of
the last paragraph in the President's cable of
last Thursday. Ambassador Gauss thought that
the Chinese might misinterpret that last paragraph
because of what he feels is an inconsistency
between the last paragraph and the immediately
preceding paragraph.
The State, War and Treasury representatives
have considered the matter and, while we do not
feel there is any inconsistency, we have drafted
the attached substitute for the last paragraph
of that cable and sent it to Ambassador Gauss.
We thought, in view of the fact that there is no
change in the sense of the paragraph, that you
were out of town, and that speed was important,
it was not necessary to bother the President with
this slight change.
This is merely for your records.
DwBree
FORVICTORY
BUY
UNITED
STATES
WAR
BONDS
AND
STAMPS
The following paragraph is to be cabled by the
State Department to Ambassador Gauss to be sub-
stituted for the last paragraph of the President's
cable that was sent out on January 20, 1944.
Furthermore, since you say that your Government
is not in a position to continue any direct main-
tenance of American troops in China, this Government,
in order to cover all of its military expenditures
in China, including such maintenance as well as
construction, is prepared to place to your account
the U. S. dollar equivalent of any Chinese funds
made available under general arrangements that will
be suggested by General Stilwell and the Ambassador.
Despatched January 24, 1944.
SECRET
China forder 1.00
fele 3 THE WHITE HOUSE
WASHINGTON
February 7, 1944
MEMORANDUM FOR THE PRESIDENT
Dear Mr. President:
Here is & very interesting private
letter from Joe Alsop to me.
I hope you will not give it to
anybody, because it would make an
ungodly amount of trouble for Joe,
to say nothing of Chennault.
H.L.H.
encl. letter
from Alsop dated
Jan. 14.
By Deputy DECLASSIFIED Archivist of the U.S.
By W. J. Stewart Date
FEB 7 1972
SECRET
January 14
Dear Harry:
I venture to hope you may spare time for a rather detailed report
of the current situation here, since it is extremely unsatisfactory, and
since I doubt if anything like the true picture can reach you, as they say,
through channels.
The central fact is that since certain of the commitments made
at Cairo had to be abandoned after Teheran, the Generalissimo has refused
to allow the Yunnan forces to participate in the Burma campaign. This
has automatically reduced the campaign, as a similar decision did last
year, to an operation of the Wingate type. It has also left an almost
complete vacuum, so far E.S future planning is concerned. Even before
the Generalissimo gave his final word, General Stilwell, seeing the signs
were bad, took off for Ledo and placed himself at the head of the Chinese
troops there. He has passed that last weeks in & series of petty skirmishes
with the Japanese, the object of which has been to demonstrate that the
Chinese troops trained by him are superior in quality and may be relied
on for an important effort. Ás the casualties have commonly been counted
in dozens, the two and three and four page telegrams which daily report
the Ledo operations have not been wholly convincing. But on the basis
of the demonstration at Ledo, he hopes to breathe life into the Burma
Campaign's corpse, by persuading the British (and I suppose the Generalissimo
also) that the project is feasible even after being shorn of the supporting
operations planned at Cairo. In my opinion, he has no more chance of
doing so than of flying over the moon, but as he is incapable of thinking
in any other terms than of marching somehow into Burma, his attempt was
to be expected.
The difficulty is that while General Stilwell is playing soldiers
at Ledo, the entire military machinery is peralyzed. There is much else
that can be done, besides the Burma campaign. Indeed, I think it possible
to demonstrate that the substitute operations will be more effective than
the original plan. But the substitute operations require careful planning
and some time for preparation, and every week passed in a fruitless
effort to breathe life into the corpse of the Burma project progressively
dinishes the chance of the substitute operations being prepared in time.
Thus we are now in grave danger of losing our opportunity in China more
or less completely. Stilwell's staff assert that he will return to
Chungking about the end of this month, and that he will continue to
interest himself only in the revival of the Burma Project until February
15. If, by then, he has not succeeded, the project will be given up ES
hopeless and substitutes will be reviewed. A loss of that much time will
be irreparable, if the existing military organization in this area is
to be relied on to pick up the pieces. For it is too unwieldy, inefficient
and unimaginative to work the near miracle which will then have to be
worked if preparations for other operations are to be completed in time
REGRADED UNCLASSIFIED
2
to take advantage of the good Chinese fighting weather next summer.
A similar paralysis afflicts the Chinese, but for & different
reason--money. You are, of course, familiar with the negotiations con-
cerning another American loan to China, and concerning the exchange rate
at which we acquire Chinese dollars for military expenditures here. Had
General Stilwell not flatly refused, in the first instance, to have anything
to do with reciprocal lend lease. By his refusal, the present exchange
racket was established, and the Chinese were accustomed to our paying
$1 U. S. for every $20 Chinese which they chose to print. The vistas
opened out by this arrangement were exquisitely delightful. At relatively
small cost, they could hope to end the war with B. kitty of around
$1,000,000,000 U. S., obtained at relatively small cost, and stashed
away for future use, either in Chinese internal politics, or to develop
their resources. Naturally, therefore, they are clinging to the arrange-
ment like grim death. At the present moment, construction of airfields
for the Very Long Range Bomber Project is being gravely impeded, because
the Generalissimo requested confirmation of the President's promise to
pay for these fields, and General Marshall replied that the U. S. would
indeed pay for them, but at & fair exchange rate which would have to be
negotiated. Desire of obtaining the loan and the best deal possible on
the exchange rate, or in other words, of taking care of their post-war
financial situation, is now uppermost in the minds of both Generalissimo
and Madame. The Generalissimo will not take the initiative in proposing
a revised military program because he fears that by involving him in
controversy with General Stilwell and his friends, so-doing will rock his
financial boat.
If TV were still in the picture, this story would, I think, be
quite different. He knows how matters stand, and, frankly, itches to
do something about it. But although there has now been a family recon-
ciliation, and he has seen the Generalissimo in a friendly, social way
three or four times, he is not in a position to intervene.
Thus the Very Long Range Bomber Project is now the only major
project which is officially planned to be undertaken in China during the
next twelve months. With respect to this, my worst fears have come true.
The Chinese Airforce, a couple of weeks ago, WES asked to submit its
plans for cooperating in the air defense of the Chengtu bases. It replied
by asking who was to command the project. After some embarrassed coughing,
General Stratemeyer answered from Delhi that personal responsibility for
executing the directives of the Joint Chiefs of Staff for this Project
would be vested in General Stilwell, and that he would delegate the re-
sponsibility of actual command to his air adviser, General Stratemeyer.
I hardly know whether the injustice or the military unsoundness of the
proposed arrangement is the more striking.
After all, you have in China & man who has devoted the last
seven years of his life to studying how to beat the Japanese in the air
3
here. For the past two years, he has consistently held the Japanese
at bay, inflicting serious damage on them also, with ridiculously inferior
forces. The record proves, I think, that he is one of the three or four
most brilliant air leaders of the war. Even I find it hard to keep in
mind the true dimensions of his achievement, except at moments when it
is brought squarely home by accident. (One of these occurred the other
day. A Polish Major, who led the Kusciusko Squadron, highest scorer in
the RAF, through the Battle of Britain, and has 17 German planes to his
credit, came out here to fight for a few months with the Fourteenth
Airforce. I saw him when he was leaving for home, after adding two Japs
to his bag, and asked him what he thought of the picture out here. "It's
the hardest air fighting in the world," he answered. "I've been seventeen
years & flying officer, and I SEW the worst weeks of the fight over
England, but it was nothing like this. I was glad to fly as & wingman
for a bearless second lieutenant until I learned the ropes. And now 1
want ton back and tell our people about the methods used here, because I
think they will be invaluable when we go into Europe." His name is
Urbanowicz; he has almost every British and Polish decoration, and he is
on his way to report to the RAF and his government in London, in case
you wish to check him up.) Yet although this is General Chennault's
record, he has been passed over in favor of an amiable military politician,
who happens to stand better with the powers that be, because he was not so
outspoken in criticizing their earlier errors of theory. He is quite
calm about it, having expected no better, but frankly, it makes me sick
at heart. Surely our supply of winning Generals is not so great that we
can afford to ignore and kick them round in this manner.
So much for the injustice. It is still worse as a military
arrangement. For ES I wrote you before, air operations here in China
are a sort of conjuring trick, needing the most careful coordination and
centralized planning. You can imagine what the results would be if two
conjurors, one of them grossly inexperienced, tried to take the same
rabbit out of the same hat. That is about the best parrallel I can give
you for the proposed division of air command here. The operations of the
Fourteenth Airforce proper and of the Very Long Range Bomber Project
ought to be like & boxer's right and left. The blows of one should
reinforce the blows of the other. Each should be timed in relation to
the other. Each should support the other. Under the proposed arrangement,
all that will be quite impossible; instead, the divided command will con-
stitute an open invitation to Japanese counter-operations. Counter-operations
can easily be prevented if the air effort is constantly planned to keep
the enemy off balance. But if you confide the heaviest artillery of the
air effort to an inexperienced theugh amiable man, working under rigid
directives from Washington planners who cannot even remotely conceive the
fighting conditions here, you virtually insure that it will be us and not
the enemy who are off balance most of the time.
Nor is that all. The directives themselves, from what I hear
of them, are dangerously theoretical, and written without due regard for
REGRADED UNCLASSIFIED
SECRET
4
the local proglem. More than half of the VLR Bomber strength is to be
based at Chengtu, in the remote interior of Free China, as & concession to
General Stilwell's oft-repented theory that the Japanese can capture
the forward airbases in East China whenever they have & mind to. The
extra distance which the Bombers will have to traverse to Japan will
materially reduce their bomb loads, thus weakening the military effective-
ness of the effort. Furthermore, on the way out they will be flying
relatively low, and heavily laden, and must pass over the entire belt
of Japanese held territory North of the Yangtsze, which is thickly inter-
spersed with fighter fields. The Japanese have a workable sort of Radar,
and bringing down the bombers will be like shooting sitting ducks, no
matter how powerful their armament. General Chennault pointed all this
out to General Stratemeyer when the project WES first proposed, but General
Stratemeyer quietly forgot the argument, so that at Cairo, when General
Chennault made the same points, several of the Washington planners present
expressed surprise to learn of the fighter fields north of the Yangtsze.
The Project was then revised to provide for basing a little less than half
the strength in East China. Now if East China can be used as E base at
all, despite General Stilwell's concern, there is no logical reason why,
being much the best base, it cannot be used for the whole Project.
You may wonder by now what the Substitute operations for the
Burma Campaign, mentioned above, may be. They are both simple and un-
attended by serious risk.
a. With strong air support from the Fourteenth Airforce, and
slight use of heavy bombers to pulverize the enemy positions, the Chinese
forces next summer should easily be able to recapture Ichang--the gateway
between the two productive areas of free China, whose repossession would
be the biggest single contribution to improving the Chinese economy. They
might also be able to clear the Japanese from Hankow and other Yangtseze
positions. They can GO this because Ichang and Hankow are entirely
dependent for supplies on the river line, and this supply line can be cut
by air action. With their supply line cut, and their positions pounded
from the air, the Japanese troops ought to cave in under relatively slight
pressure.
b. The Fourteenth Airforce proper should be prepared for a
serious offensive against Japanese shipping. with reasonable forces and
supplies, everyone who has had experience with the test attacks on Japanese
shipping to date, from the General down, agrees that a minimum of
200,000 tons monthly can be accounted for. It is downright criminal
stupidity that this opportunity has not yet been taken. when it is taken,
the day when the Japanese positions in the South must crumble for want
of support will not be far off. The same air offensive should account
for & great strength of Japanese airplanes, thus also hitting them in a
second vital spot. Two weeks ago, I at least persuaded the General to
REGRADED UNCLASSIFIED
5
expound this plan in full to Lord Louis Mountbutten, General Wedemeyer,
and the others of the SEAC group. They were so impressed by its potentia
ities that they immediately recommended it be given priority over every
other type of effort, including the longer range bombing of Japan. But
it needs preparation. It will be based in East China, and to divise
necessary transportation facilities between the Yunnan oir terminals and
the East China bases will alone be a work of months. The present facilit
are grossly inadequate, and General Stilwell's staff has so far refused
to lift & finger to improve them.
C. The Very Long Range Bomber Project, under unified commend
with the air offensive against shipping and air power, being used, as I
have said, as the boxer's left.
A program of this sort will not only contribute greatly to hast
ing the progress of the war. It will also provide a more than adequate
substitute, in the mind of the public, for the Burma campaign which has
failed to materialize. There are literally no obstacles to such a program
except those created by waste time, inefficiency and lack of imagination.
So much time has been wasted now that I am not sure whether the existing
bad machinery can put the program over. (July 1 is the date when readines
should be attained for the entire effort, since the best fighting weather
begins then, and is of such short duration--five months-that all of it
must be used to achieve maximum effect). Frankly, I don't believe the
job will now be done, unless the existing machinery is improved. The
easiest way to improve it would be to confide the top command to General
Wedemeyer, who knows how to work with everyone, has a real understanding
of the military problem here, and is & young efficient man. Forgive me
for making so impertiment a suggestion. I cannot document the kind of
situation which exists here in the present staff, because I lack space. B
I assure you, there never was an outfit in worse need of being pulled
sharply together.
I wish I could talk to you. I am sure that if I could quote
chapter and verse, ES it would be easy to do for every remark in this
letter, you would feel as I do. I' know how difficult it is to act in
these matters, in view of the various impediments to action. Yet it will
be so tragic, so wasteful, if no action is taken, that I cannot forebear
to play the busybody in this manner once more.
Yours as ever,
(s) Joe Alsop
P.S. One of the politicians' arguments against giving General
Chennault command of the VLR Bomber Project is that he "does not understand
heavy bomburdment. I suggest that you check this statement with General
Arnold's trusted subordinate, and one of the best heavy bomber men in the
Airforce, who commanded the 308th heavy bomb group in China under the Gener
RADED UNCLASSIFIED
THE WHITE HOUSE
Chena file folder 1-44
WASHINGTON
February 7, 1944
MEMORANDUM FOR THE PRESIDENT
My dear Mr. President:
Here is snother interesting letter
I got from Mr. John Davies, Jr.,
who was with our Embassy in China
and who is now with Stilwell and
Mountbatten.
H.L.H.
encl.
DECLASSIFIED
By Deputy Archivist of the U.S.
By 1. J. Stewart Date FEB 7 1972
T
SECRET
REAR ECHELON
HEADQUARTERS UNITED STATES ARMY FORCES
CHINA BURMA INDIA
December 31, 1943
The Honorable
Harry Hopkins,
The White House,
Washington.
Dear Mr. Hopkins:
Following up the conversations which General Stilwell
and I had with you and the President at Cairo, I enclose a
memorandum which I hope will be of interest.
From time to time I expect to prepare other brief memoranda
on various problems confronting us in East Asia and shall send
you copies.
Should you wish to discuss Far Eastern Questions with experts
in Washington, I have two names to suggest: John Carter Vincent
and Laurence Salisbury. Vincent's name, I recall, you knew. He
is now with FEA. Salisbury is a Japanese language officer, as
Bohlen is Russian and I Chinese. He has served in both Japan and
China, investigated on special orders from the State Department
the Japanese occupation of Manchuria and until a month or two be-
fore Pearl Harbor served as political adviser to Sayre in Manila.
He has since been Assistant Chief of the Far Eastern Division,
handling Japanese and Korean matters.
Sincerely yours,
(s) John Davies, Jr.
Second Secretary of Embassy
Detailed to General Stilwell
DECLASSIFIED.
State Dont Letter, 1-11-72
FEB
- 1972
By J. Scanuble waw
CHIANG AND SHEA AND CHINA
The Generalissimo is probably the only Chinese who shares the
popular American misconception that Chiang Kai-shek is China. This
congenial fiction is worth examining.
Japan's attack caught China in mid-passage between semi-feudalism
and modern statehood. External pressure in the form of Japanese
aggression imposed a temporary unity on the various elements struggling
to determine whether China was to develop along democratic or author-
itarian lines. Public pressure compelled Chiang, who was the strongest
of these elements, to become the symbol of & unified national will.
The internal conflict was suspended.
This situation continued so long as the Japanese attempted to
bring China to its knees by military means. But after the fall of
Hankow in 1938 the war entered & period of military stagnation
which has continued until now. Japan adopted instead a shrewd
policy of political and economic offensives designed to bring about
Chinese disintegration and collapse. Confronted with this new
Japanese tactic, which promised him some respite at the expense of
other Chinese elements, Chiang chose to abandon Chinese unity and
retrogressed to his pre-war position as & Chinese militarist seeking
to dominate rather than unify and lead.
The Generalissimo seeks to dominate because he has no appreciation
of what genuine democracy means. His philosophy is the unintegrated
product of his limited intelligence, his Japanese military education,
his former close contact with German military advisers, his alliance
DECLASSIFIED
State Dept. Letter, 1-11-72
FEB 7 1972
By J. Schauble Date
-2-
with the usurious banker-landlord class, and his reversion to the
sterile moralisms of the Chinese classics. The primitive power
complex which was his original motivation has developed into &
bigoted conviction that China can realize its destiny only under his
preceptorship.
Chiang's technique of domination is adroit political manipulatic
of the various elements of the Chinese political scene and, subsidiar
employment of a gangster secret police headed by Tai Li. He is the
leader of the Kuomintang, which he would wish to make his totalitaria
party. But the Kuomintang, once an expression of genuine nationalist
feeling, is now an uncertain equilibrium of decadent, competing facti
with neither dynamic principles nor a popular base. Such control
as Chiang has over the Kuomintang is achieved through playing the
factions within the party one against the other.
Likewise in the larger national scene Chiang, often utilizing
the Kuomintang, manipulates & political balance among the residual
warlords, dissident groups in his own army, provincial cliques, the
so-called "Communists", minor parties and even the Japanese-created
puppets. The unorganized liberals and intellectuals are a potential,
not an immediate threat.
Chiang's paramountcy is, therefore, insecure and unsound. His
reluctance to expend military strength against Japan, his anxious
preoccupation with securing domestic supremacy, his suspicion of every
one around him and his increasing emotional instability betray a
DECLASSIFIED
State Dept. Letter, 1-11-72
EV. Schauble Date FEB 7 1972
SE
-3-
subconscious realization of this.
Because his Kuomintang Government has no popular base, because
the centrifugal forces in China are growing under prolonged economic
strain and because the Soviet Union may join the war against Japan
and enter Manchuria and North China, the Generalissimo faces next
year the gravest crisis of his career.
What form and course the crisis will take is impossible to predict.
dertain contributory factors, however, are clear. One is the increas-
ingly independent attitude of the Chinese Communists, who now say
that they no longer fear Chungking. "If Chiang wants to commit
suicide on us, that suits us." Another is the accelerating economic
disintegration. A third is the growing restiveness of certain pro-
vincial and military factions. Any one or a combination of these
may be sufficient to accomplish Chiang's downfall.
By reversing his policy of sixteen years' standing, reforming
the Kuomintang and taking the lead in 8. genuine united front, Chiang
could surely survive the crisis. But the Generalissimo is not only
personally incapable of this, he is a hostage of the corrupt forces
he manipulates.
In this uncertain situation we should avoid committing ourselves
unalterably to Chiang. We should be ready during or after the war
to adjust ourselves to possible realignments in China. ne should
wish, for example, to avoid finding ourselves at the close of the
war backing & coalition of Chiang's Kuomintang and the degenerate
DECLASSIFIED
State Dept. Letter, 1-11-72
FEB 7 1972
By J. Schemble Date
-4-
puppets against a democratic coalition commanding Russian sympathy.
The adoption of a more realistic policy toward Chiang Kai-shek
does not mean abandonment of our objectives (1) to capitalize during
the war on China's position on the Japanese flank, and (2) to build
up after the war E. strong and independent China. On the contrary,
it will mean that we shall be more likely to achieve these objectives.
A realistic policy toward Chiang would be based on (1) recognition
by us that the Generalissimo is highly susceptible to firm coordinated
American pressure, (2) stern bargaining (in consultation
with American representatives in China) and (3) readiness to support
a strong new colition offering cooperation mutually more beneficial
to China and the United States.
New Delhi, India
December 31, 1943
DECLASSIFIED
State Dept. Letter, 1-11-72
By J. Schauble Date
FEB 7 1972
China folder
1-44
THE
WHITE HOUSE
WASHINGTON
February 8, 1944.
MEMORANDUM FOR THE PRESIDENT:
Re: Interview with T. F. Tsiang.
T. F. Tsiang, who is currently expected to be
the next Chinese Ambassador, called on me this
morning. He raised several points which may be of
interest to you:
1. The recent constitutional changes in Russia boded
111 for China. He intimated that this paved the
way for the setting up of puppet regimes in Manchuria
and Outer Mongolia, and even North China. I was
inclined to discount this possibility.
2. Korea. On Korea he made two points, (1) being
that we should extend aid to representatives of
Korea as soon as possible and (2) that America
should join with China in establishing and maintain-
ing the new government in Korea.
3. On the Chinese communists he expressed the fear
that uninformed American opinion might tend to
incite and encourage the Chinese communists and thus
make the task of the unification of China more
difficult. I observed that any outbreak of hostili-
ties between the Kuomintang and the communists would
undoubtedly be deplored by all sections of American
opinion.
Landline Sauchlin Currie
Hrice:
This is all that the File
Rom Generalissimo and I have P. to the niturn
Pelix
is
audrey
andrey
the Yor
Nor M he
President
the Gene
China folder
THE WHITE HOUSE
file
males
washington
February 21, 1944.
MEMORANDUM FOR
ADMIRAL LEAHY
I have carefully checked the
files and find that I have no
letter even remotely resembling
the information given out by
Ambassador Wei. Frankly, in view
of this, I think that we should
run down this story, verify it,
and get a denial from Ambassador
Wei.
F. D. R.
THE WHITE HOUSE
fill filedated
washington
February 24, 1944.
MEMORANDUM FOR
ADMIRAL LEAHY
ADMIRAL KING
I have only one amendment to Admiral
King's memorandum of February 22nd in
regard to Chinese naval requests.
I agree with (a) and (b) with the
understanding, of course, that the numbers
and types of vessels should be suitable
for Chinese needs, 1.0., small vessels
suitable for river and close-in-shore
work.
In regard to Chinese naval personnel
in our schools and on board ship, I agree
that we should not undertake this at this
time. I think, however, as soon as we
have & base on the China coast, we should
give both officers and men instructions
in a school to be organized there. In
other words, we can safely teach them
how to run Diesel engines and what might
be called preliminary instruction in boat
and patrol craft handling, omitting, of
course, any new things which are secret.
F. D. R.
Admiral King's memo referred to was
returned to Admiral Leahy to whom it was
addressed.
China folder
THE WHITE HOUSE
SECRET
WASHINGTON
CLS
11-9-66
February 23, 1944
MEMORANDUM FOR
The President.
The attached memorandum from Admiral
King in regard to assistance that we may safely
give at the present time to the Chinese Navy,
is forwarded for your information.
Williams Diahy
DECLASSIFIED
By Deputy Archivist of the U.S.
By W. J. Stewart Date
FEE
time
PSF: China
Sen Cones"C"
3-44
March 2, 1944.
My dear Carlson:-
Your letter of the twenty-third of
February has come at the very moment when I am
reading of your wedding in today's paper. My
hearty congratulations to you and your Missus.
You and Jimmy must have had a very
interesting time at Tarawa and Makin on this
last cruise. The careful preparation certainly
counts in the long run.
In regard to China, I think we are
going through a transition period -- especially
the part relating to North China. I have done
my best to keep some of the Chinese leaders
from taking more positive action against the
Eighth Route Army leaders, but it seems to go
hard with the Generalissimo. I am sure,
however, that the time will come when we will
all want you back there.
My best to you,
Always sincerely,
FRANKLIN D. ROOSEVELT
Lieutenant Colonel Evans F. Carlson,
4th Marine Division,
c/o Fleet Post Office,
San Francisco,
California.
Raider Carlson
On Honeymoon
SAN DIEGO, Calif., March 1
(U.P.).-Lieut. Col. Evans Carl-
son of Plymouth, Conn., leader of
the Marine Rangers, "Carlson's
t
Raiders," who made the now fa-
mous raid on Makin Island, and
Mrs. Peggy Whyte of La Jolla,
Calif., were believed honeymoon-
ing today. Carlson, who gave his
age as 41, and Mrs. Whyte, 31,
took out a license at the San
Diego county clerk's office yester-
S
day.
il
4th Marine Division,
c/o Fleet Post Office,
San Francisco, California,
23 February 1944.
Dear Mr. President:
1 am again taking advantage of your
gracious invitation to write to you.
Since 1 saw you last June I have not
written because nothing occurred within my experience which,
1 felt, you were not receiving from other sources. During
this period, as Planning Officer of this Division, 1 devoted
myself primarily to the task of solving the problem of
seizing atolls at a minimum cost in human life (to us). While
Jim was going in at Makin, last November, I went in at Tarawa.
We were both actuated by the same motive: to observe technique,
especially from the landing force angle, and to attempt to
perfect it. The essence of our observations was incorporated
in the Kwajalein plan, with gratifying results. Although I was
convinced, from the time we made our approach past Wotje with-
out submarine interference, that the Japanese high command had
decided to pull back to another defense line and cut his
losses in the Marshalls, 1 still feel that at Hoi-Namur we
effected a sound atoll-seizing formula.
The purpose of this letter is to suggest
that the time may be ripe for ground work to be done in
North China by someone with my experience, looking to the
time when we can link up East and West through our Pacific
operations. I have the confidence of the leaders in the
north, Mao Tze-tung, Chow En-lai, Chu Teh, and I have the
respect of the Chungking leaders, though my criticism in the
past has made me less popular with them. The fountain-head
of democratic action lies in the north, and it is in that
area that we will find our most reliable information and
our most devoted support.
This is merely a suggestion prompted by
my own intuitive feeling regarding the Western Pacific
situation, and passed on in the hope that it may fit in with
your own plans. As always, I am prepared to undertake any
mission which you may decide will advance our collective welfare.
with warm personal regards, and with
renewed assurance of my admiration and confidence, I am,
Sincerely,
The Honorable Franklin D. Roosevelt,
Hanlan
President of the United States.
4th Marine Division,
C/o Fleet Post Office,
San Francisco, California,
23 February 1944.
Dear Miss Tully:
I enclose a letter which, I would appreciate,
if you would hand to the President.
I hope that things are going well with you,
though I know that present conditions must impose an
extraordinarily heavy task on you.
The recent operation out here was a source
of deep gratification. At last we have a power house
with some drive in it, a power house which makes the Jap
scream "Uncle", and with a fraction of their losses to our
own forces. The democratic way may be slow, but it is
implacable and irresistable once in motion.
with kind personal regards,
Sincerely,
Marin Harlson
Lt. Col. E. F. Carlson,
4th Marine Division,
C/O Fle et Post Office,
U.S.
S
U.S.
San Francisco, Calif.
POSTA
FEB
24
PIIA AVIA
1944
P.M.
Eft
NAVY
Miss Grace Tully,
Washington, 1600 Pennsylvania Ave., N. W.,
Passed by
D. C.
Centel l
Navel Censor
T-257
China folder
1-44
THE WHITE HOUSE
WASHINGTON
March 16, 1944.
PERSONAL
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY:
To tell me what you suggest.
F.D.R.
Personal letter to the President from
Madame Chiang Kai-shek, Kweilin, Kwangsi,
2-17-44, re the financial arrangement between
the American troops and the Chinese Govt.
States that the Generalissimo would like the
Pres. to send to China a representative em-
powered with full authority to consult with
China Govt. methods for solving of China's
critical economic and financial problems as
suggested in one of the President's messages.
HEADQUARTERS OF THE GENERALISSIMO
CHINA
Personal
President Franklin D. Roosevelt
China folder J-WV
file
THE WHITE HOUSE
WASHINGTON
personal
lumpust
March 17, 1944.
MEMORANDUM FOR THE PRESIDENT:
This recounts an
interesting conversation
with Madame Sun Yat-sen.
of
Lauchlin Currie
&
Chungking, China,
14 February 1944.
MEMORANDUM:
SUBJECT:
Conversation with Madame Sun Yat-sen
TO
:
Assistant Chief of Staff, G-2. (Stiltwell's Commen,
I called on Madame Sun by appointment on the afternoon of
February 10th. She Was more outspoken and apparently nearer
to being bitter than on any of the previous four or five
times that I had met her.
The following briefly summerized notes of some of her re-
marks may be of interest. (Our conversation was a rambling
one and it is impossible to reconstruct the sequence of the
topics mentioned.)
She has recently been invited by "several organizations"
to visit the United States (she did not name these but I was
given the impression that they were relief bodies, particular-
ly those supporting her work in China, such as the American
counterpart of the China Defense League). She had planned
to accept this invitation and hoped to leave early in March.
She has, however, been bluntly told that she will not be per-
mitted to go abroad.
She believes the reason for this refusal 18 the violent
reaction of her family and high Kuomintang officials to the
publication in REYNOLD'S WEEKLY, R. British Labor magazine,
of a report that she had sent a message to bodies in the
United States, describing the blockade against the Communists
and calling for its removal so that medicines and other sup-
plies could reach the Communists and so that all Chinese could
be given an equal chance to fight Japan. Following the re-
ceipt in Chungking of copies of this article she was separately
visited by Wu Te-chen, Ho Ying-chin and Chang Chih-chung.
Their line, which she characterized as childist lecturing,
was to upbraid her for "spreading baseless rumors", "appealing
to foreigners", "washing China's dirty linen in the foreign
press" and 80 on. She admitted that she had written concern-
ing the blockade to American friends and supporters but
pointed out that everyone has always known that these are her
views and that her organization, the China Defense League, 1s
primarily interested in getting relief to the Communist con-
trolled areas. She mentioned that her family was "very annoyed".
Joking wryly about restrictions on movement, she mentioned
that even such a person a.8 Feng Yu-hsiang had to "request per-
mission" to visit Kunming and had not as yet, though the re-
quest had been made for some time, received permission.
She scornfully disposed of Kuomintang stories that the
recent officers' plot Was Communist inspired by saying that if
it was, the Kuomintang would not be willing to negotiate
with the Communists. She said that the plot had been wide-
spread, had not yet been completely uncovered, WAS "Fascist"
in spirit and objectives, and had caused considerable concern
in the "highest places".
Although she did not know the reason for the Generalissimo'
trip to Hengyang -- saying "my family doesn't discuss political
affairs with me" -- she mentioned that Hsueh Yueh was very
dissatisfied
-2-
dissatisfied and that Pai Chung-hei, even though he had no
happy. troops and hence had to profess loyalty to Chiang, WAS un-
She asked what foreigners knew and thought of T. V.
Soong's fall from grace. My ignorance beyond the current
rumors seemed to disappoint her; she said that she was just
as much in the dark because she wasn't taken into the family
councils. She mentioned, however, that T.V. was "terribly
demoralized", 9. statement which she asked me by personal note
on the following day to consider as having been "very dis-
couraged". At this and several points in the conversation she
spoke of Chiang as cold, hard, violent tempered, a werlord,
and "nothing but a dictator".
Discussing the war in China, she believed that those in
power encouraged the idea, pleasing to them, that the war
would be won by other powers and outside of China. She re-
marked that there were many who did not want to have to
prosecute the war actively and said that there was at present
a steady flow of people to and from "the other side". As an
instance she mentioned that the wife of an important Nanking
official (she gave the name in Shanghai dialect but the surname
was Wang) is now in Chungking staying at the home of Chu Chia-hua.
Also Chu Chin-hua's wife (who was living in Hongkong when the
Pacific War broke out) is now en route to Chungking. She has
recently been seen several times et Macao in the company of
high Japanese officers. In response to a question as to whom
these representatives could contact in Chungking, she replied:
"Anybody", and went on to say rather acidly that Wu Te-chen
would talk to anybody anywhere and would even go to the air-
field to meet them (undoubtedly a reference to the reception of
Wu Kai-hsien).
Regarding Sino-American relations, she said that Doctor
Kung was "very worried" over present frictions and the possibil-
ity of adverse American reaction toward China. She apparently
did not know the details of the present negotiations.
Sino-British relations, she categorically said, had
"deteriorated a great deal since the Cairo conference". She
expressed the opinion that British policy is "more colonial
than ever".
She did not know of any change in the Foreign Minister-
ship but said definitely that We1 Tao-ming was returning to
weeks. the United States and would leave Chungking in about three
As I was leaving, she apologized for having delayed my
call, saying that she has house guests and has difficulty in
gettin the living room alone. At the same time she thanked
me profusely for taking her some new books, remarking that she
has "lots of time for reading".
Madame Sun's relations with her own family and the leaders
of the Kuomintang can be considered a gauge of the trend of re-
lations between the Kuomintang and the liberal groups. I could
not help getting the impression that Madame Sun's position is
now a strained and difficult one and that she 18 more than ever
a prisoner. She implied this in a rather defiant remark when
discussing the displeasure over her efforts to have the anti-
Communist blockade lifted: "All they can do is to keep me
from traveling".
John S. Service
State Dept See. attached to Stilmell
PY)
Excerpt from Time of February 14, 1944
"Voice from Chungking
"Tiny, gentle Mme. Sun Yat-sen speaks rarely. But when
she does speak up for the liberal, democratic program of
her late great husband, her words can be strong as bitter
tea.
"In a message which reached the U.S. last week, this
independent member of the potent Soong Family (sisters,
Mmes. Chiang Kai-shek, H. H. Kung; brothers, T. V. and
T.L.) spoke in her sharpest vein. Said Mme. Sun:
"Reaction and fascism in China are strong ... This 1s
proved by the diversion of part of our national army
to the task of blockading and "guarding" the guerrilla
areas, by the fact that some still hold private profit
above the national interest, by the oppression of the
peasantry and by the absence of a true labor movement
Some Chinese reactionaries are preparing [civil war] to
destroy a democratic sector in our struggle. That sector
is the guerrilla bases in North Shens1 and behind the
enemy lines
"This statement amounted to a direct attack upon Gen-
eralissimo Chiang Kai-shek's policy toward China's Com-
munist Army, a demand that the U.S. supply the Communists
as well as Chungking's nationalist forces. In Chungking,
no one but the Generalissimo's revered sister-in-law
would have dared to raise China's most explosive problem
in such a. fashion, and even she must have had some pressing
urge to do 80.
"The Gissimo's Minister of War, bespectacled, anti-
Communist General Ho Ying-chin, told New York TIMES Cor-
respondent Brooks Atkinson: 'There will be no civil war
The Generalissimo's plan to solve the Chinese Com-
munist problem by pacific and political means is progressing
satisfactorily with every chance of succeeding.
PSF: China Folder
(COPY)
WAR DEPARTMENT
THE ADJUTANT GENERAL'S OFFICE
WASHINGTON
SECRET
Auth:
T.A.G.
Initials:
Date:
2.0 MAR 194
20 March 1944
MEMORANDUM for: Mr. Shipman
In the interest of public safety, it is recommended
that the papers on the attached list be appropriately
safeguarded and restricted from public view until the
termination of the present war.
JOHN W. MARTYN
Administrative Assistant.
1 Inol.
List w/attached papers.
Franklin D. Roosevelt Library
DECLASSIFIED
DOD DIR. 5200.9 (9/27/58)
Date- 3-2-59
Signature-
Carl I Spicer
SECRET
Subject and brief
File No.
description of paper
Date
381 Australia
Namo from President to Gen.
(6-9-42)
9 June 1942
Marshall with inclosure -
letter from Australian Legation
to President, 7 June 1942.
Memo for Gen. Marshall, Gen. Arnold
22 April 1942
and Harry Hopkins, from The President
Requests preparation of reply to send
to Chiang-Kai-Shek re Chinese require-
ments.
Receipt Acknowledged:
Signature
Date
CDO
THE WHITE HOUSE
WASHINGTON
April 22, 1942.
MEMORANDUM FOR
GENERAL MARSHALL
GENERAL ARNOLD
HARRY HOPKINS
Will you jointly prepare a
reply for me to send to Chiang Kai-shek?
F.D.R.
Send
Ind gul#9 CAN
Published in
Foreign Relations of the United States
1942 China
pages 33-34
SECRET
TELEGRAM TO DR. T. V. SOONG FROM THE GENERALISSIMO, CHUNCKING, APRIL 19th
[42]
With what has been happening lately, I em afraid you could no longer
avoid having a frank heart-to-heart talk with the President, which I am sure
he will not misunderstand. As you know, I have to fight continually against
demoralizing doubts on the part of my officers, who conclude that American
attitude towards China is in essence no different from that held by other nations,
that both in the all-important matters of joint-staff conferences and war
supplies, China is treated not as an equal like Britain and Russia, but 8.8 a
ward.
The President has consistently shown himself to be the one great friend
of China, and I may say on our part we have been loyally responsive. We have
placed Chinese armies under American command, and we have shown every readiness
to support American policies, sometimes even against our own judgment. All
that we have and all that we are, we truly and unreservedly contribute to the
cause of the United Nations.
What 8. contrast this is to the attitude of the British and Russians who,
whenever it concerns their own interests, will not make concessions in the
general interest, so that to this day they will not concede to the United States
the direction and the location of the Supreme Military Council. The result of
this non-cooperation is that there is in existence no organization to formulate
and execute over-all strategy, and every country looks to its own immediate
interests, so that the Axis is successfully imposing its grand strategy. What
a difference there is between our attitude towards the United States and that
of Britain and Russial
If in future the Anglo-American joint staff is not enlarged to include
China, and China is kept out of the Munitions Assignments Board, then China would
be just a pewn in the game. Gandhi told me when I visited India: "They will
never voluntarily treat us Indians 8.8 equals; why, they do not even admit your
country to their staff talks." If we are thus treated during the stress of war,
what becomes our position at the peace conference? You must insist that we have
our own stand, and we have our own independent position to uphold.
25
SECRET
SECRET
MEMORANDUM TO THE PRESIDENT
11-24-62
[4-19-42?]
With all the President's generous enthusiaam for China, and with the
immense fund of goodwill there is for her in this country, the Generalissimo's
message is one of despair. China has principally lacked artillery and planes,
and after one year of Lease-Lend activities her position in these respects
has hardly been improved.
In artillery, except for & few anti-tank guns, only 97 three-inch
howitzers have arrived in Burma, India and China with 6500 rounds of ammunition,
1.0., about 65 rounds per gun. These are the only guns available for the
Chinese armies in Burma.
In aircraft, since Lend-Lease started, no combat planes have arrived
in China although a handful has arrived for the American Volunteer Group.
Some pursuits for the Chinese airforce that arrived in India were taken over
by General Brereton's Tenth Pursuit Group. The Generalissimo has urgently
asked for 300 planes to save the situation in Burma. Instead the Tenth Pursuit
Group has been diverted to Wavell's command.
In shipping we sent three ships per month in January and February.
In March we sent only one shipload, and in April only 1500 tons.
The President has accorded generous recognition of China as one of
the four principal powers fighting against the Axis. But in the matter of
supplies, Russia is protected by a protocol. The U. S. and Britain are on
the Munitions Assignment Board, but they are interested parties, legitimately
anxious to build up their own armies. China, in effect, is thus in the lowest
priority rank, both for supplies and shipping.
When China's requirements are considered, frequently she is not even
consulted. When consultations are made, Chinese representatives appear for
6. hearing, and a verdict is arrived at without their knowing the basis for
the decision. Again, these decisions are frequently adversely changed without
consultation or even explanation.
There is no intention to lodge complaints against the personnel of
the War Department. They are but human. With this background and this set-up
in which China does not participate in the Munitions Assignment Board, she
must remain a forlorn client.
Then there is the question of Air Transport. The President was
anxious to maintain a route to China after the fall of Rangoon, and assigned
100 transport planes to the India-China air service. Only a handful of them
are in operation. The air transport staff on the spot has become over-cautious
and stated that before November only 25 could be placed in service. Experts
of the China National Avistion Corporation, a subsidiary of Pan-American
Airways, testify that the whole one hundred airplanes could be employed now
if a minimum of operation risks are taken. War does not admit perfectionism.
Finally, the Generalissimo feels himself entirely out of touch with
the main decisions of strategy, which profoundly affect China's future. Whether
an offensive will start from Australia, whether it is considered feasible to
hold Burma, what steps are taken to protect the Indian Ocean route, what air
forces will be sent to India, Burma and China, on all these vital questions his
role is that of an occasional listener. Also, be it remembered it is from
these decisions of strategy that stems the question of allocations of munitions.
Now that Burma and India are in danger and physical isolation threatens
China, the symbol of China as an active and full partner to the United States
becomes even more important to combat war weariness and the powerful propaganda
of the Japanese that theirs is a war for the vindication of Asia.
On these grounds the Generalissimo bases his two requests:
(1) That the Anglo-American Joint Staff be enlarged to include China,
(2) That China be represented on the sub-committees for Cround
and Air of the Munitions Assignment Board.
SECRET
HEADQUARTERS OF THE GENERALISSIMO
CHINA
(Translation)
Chungking, 10th March, 1942.
Dear President Roosevelt:
The bearer of this letter General Hsiung
Shih-Fei, a committee member of the Council of
Military Affairs, is coming to your country to
represent China on the Allied Military Council.
For many years General Hsiung has been one of my
closest colleagues and his ability is outstanding.
Regarding Japanese military and political problems,
he has not only expert knowledge but also penetrat-
ing insight. He is particularly well acquanted
with my views on political and military questions.
In my judgement he is the man for the post
to which he is now appointed. I hope you would
place confidence in him and give guidance for his
work. Any courtesy you show him will be deeply
appreciated. I trust that General Hsiung will
make whatever contribution he is capable of if
he is consulted.
Yours sincerely,
25
(signed) Chiang Kai-shek
PSF: China Gon Cones "C"
shil.
3-vv
Personal
4th Marine Division,
C/o Fleet Post Office
San Francisco, Valifornia,
25 March 1944.
Dear Mr. President:
Thank you for your very thoughtful note
of 2 March. it was very gracious of you to notice my
wedding. Peg and 1 are supremely happy, and 1 consider
myself most fortunate.
My trip to New York was unexpected, and
was arranged evidently by Pearl Buck with the Secretary,
to enable me to speak on the occasion of the Sun Yat-sen
memorial. I'm afraid my speech did not aid my case with
the Generalissimo for on such an occasion it was necessary
to emphasize the democratic features of Doctor Sun's
program. They tell me the Chinese Minister wiped his brow
profusely during the talk.
I gleaned from conversations with friends
in New York who have recently returned from the Far East
that the internal political situation there 18 critical.
It is most unfortunate that the Generalissimo has 80 many
undemocratic leaders around him. The democratic urge among
the people 18 strong, and if the democratic elements were
integrated and given sound support the effort against Japan
there would be tremendously augmented. For my part, those
democratic elements are the only ones I trust.
Thank you for your confidence. 1 shall
endeavor to be worthy of it.
with warm regards, I am,
Sincerely
The Honorable Franklin D. Hoosevelt,
President of the United States,
The White House,
washington, D.C.
4th Marine Division,
c/o Fleet Post Office,
San Francisco, California,
25 March 1944.
Dear Miss Tully:
I have had a number of surprises during the
past month. when 1 wrote in February 1 did not expect to
be able to return 80 soon for my wedding. And the New York
trip was a complete surprise. Pearl Buck had asked, early
in February, that I speak, and I had declined because of my
presence here in the Pacific. When I appeared in the States
for my marriage she apparently got busy with the Secretary,
with the result that my leave was extended for the purpose
of making the trip east.
it was good to hear your voice on the telephone,
and 1 appreciate your effort to make an appointment for me
to see the President. I had not expected to be able to do so,
both because I know how busy he 18, and because I could give
you no advance notice. 1 had more than my share of his time
last summer, though I must confess that it is always stimulating
to talk with him. I have supreme faith in him.
Thank you for your grand letter, which 1
received when I returned to La Jolla. Peg and I are very
happy. I hope you may meet her sometime.
1 returned here Monday, and began burning
the midnight oil immediately. when this war is over I shall
have had my fill of the Pacific. I've trudged it east and
west, north and south, by sea and by air, until I know
every telephone pole.
will you please hand the enclosed note to the
President?
With kind regards and best wishes, I am,
Sincerely,
Miss Grace Tully,
Bean Harlen
The white House,
Lt. Col. E. F. Carlson,
4th Marine Division,
U. S,
C/o Fleet Post Office,
MAR
San Francisco, Calif.
26
ROSTA
1944
)VIA
A
P.M.
NAVY
Passed by
Miss Grace Tully,
1600 Pennsylvania Avenue,
Washington,
D. C.
Naval AND Censor
China freder,
1-44
DEPARTMENT OF STATE
OFFICE OF
COORDINATION AND REVIEW
SECRET
MAR 28 1944
m. Latta:
This was sent
to the President for
approval oct march
Hid he decide
not to send il? ? It
has not been re- -
turned. B Halla
China freder 1-40
THE WHITE HOUSE
WASHINGTON
March 8, 1944.
MEMORANDUM FOR
THE ACTING SECRETARY OF STATE
I am inclined to think that
we ought to advise Chiang Kai-shek
of this (Stockholm #757). You
might prepare something for my
signature.
F. D. R.
Dispatch from Minister Johnson,
dated March 6, 1944, re German
officials interviewing scores of
English speaking men and women of
German and other nationalities for
voyage to China as pseudo missionaries.
Several persons interviewed came away
with impression that plot was being
hatched against Chiang Kai-shek and
his wife.
CArChase
SECRET
"SC"
NO DISTRIBUTION - NO STENCIL
Do not sand
AMEMBASSY,
CHUNGKING (CHINA).
Please communicate to President Chiang Kai-shek the sub-
stance of the following message from the President:
QUOTE According to a report received from a Danish
seaman, scores of English speaking men and women of German
and other nationalities have recently been interviewed at
Berlin by German officials in connection with a plan to
send pseudo missionaries to China. The officials appeared to
be seeking persons whose accent would enable them to pose as
mid-western Americans. Several of those interviewed received
the impression that the project involved a plot against you
and Madame Chiang.
While this report is unconfirmed and may well be without
foundation, I feel it my duty to inform you thereof.
FRANKLIN D. ROOSEVELT. UNQUOTE
CA:ASC:AIM
REGRADED UNCLASSIFIED
China forder 1-44
ADDRESS OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON, D.C. 25
File not sent
DEPARTMENT OF STATE
WASHINGTON
March 15, 1944
MEMORANDUM FOR THE PRESIDENT
In compliance with your instruction of March 8 to
the Acting Secretary of State there 18 hereunder draft
of a telegram to President Chiang Kai-shek. Before, how-
ever, decision 1s reached to dispatch the telegram, it
is urged that note be taken of the following considerations,
especially number (4):
(1) The source of the report and the
character of the "plot" both arouse a strong
belief that the whole thing 1s a fiction of
someone's imagination or at best a misinter-
pretation of a hearsay report.
(2) The possibilities of putting into
effect any such scheme are so remote as to be
well-nigh inconceivable.
(3) However, Chiang, receiving the infor-
mation from the President, will obviously be
inclined to give undue weight to it in spite
of the concluding sentence in the telegram.
(4) The position of many American mission-
aries in China even now is not enviable. They
are spied upon by local and party officials;
their movements are circumscribed; and their
work 1s subjected to unnecessary supervision.
The receipt by Chiang of the report in refer-
ence from the President may very probably
result in worsening this situation for the
missionaries, particularly those in regions
close to occupied China.
FORVICTORY
BUY
UNITED
Enclosure:
STATES
off
DEFENSE
BONDS
AND
STAMPS
To Chungking.
PREPARING OFFICE
TO BE TRANSMITTED
WILL INDICATE WHETHER
TELEGRAM SENT
X
SECRET
X
Full rate
Collect
{
CONFIDENTIAL
Day letter
RESTRICTED
Night letter
CLEAR
Charge Department:
Department of State
AIRGRAM
Full rate
"SC"
Day letter
Washington,
Night letter
Charge
$
mat to "sent
NO DISTRIBUTION - NO STENCIL
AMEMBASSY,
CHUNGKING (CHINA).
REGRADED UNCLASSIFIED
SECRET.
Please communicate to President Chiang Kai-shek the sub-
stance of the following message from the President:
QUOTE According to a report received from a Danish
seaman, scores of English speaking men and women of German
and other nationalities have recently been interviewed at
Berlin by German officials in connection with a plan to
send pseudo missionaries to China. The officials appeared to
be seeking persons whose accent would enable them to pose as
mid-western Americans. Several of those interviewed received
the impression that the project involved a plot against you
and Madame Chiang.
While this report is unconfirmed and may well be without
foundation, I feel it my duty to inform you thereof.
"47 MAR 15 1944P Am
/CR
FRANKLIN D. ROOSEVELT. UNQUOTE
CÉ
CA:ASC:AIM
FE
NOE
2028
Enciphered by
Jun.
wet
M
Sent by operator
M.,
. 19
1.1. GOVERNMENT PRINTING OFFICE 16-95399-1
Other
I
ariginal memo returned to Non Cordell Hull, 4/5/44.
focas.
10%
CH
ok
April 4, 1944
My dear Mr. Secretary:
With reference to the message from General Stilwell
to the War Department (CFB 15551, April 1, 1944), I fully
concur in the desirability of there being sent an ob-
servers' mission to the so-called Communist area. of
China. with regard to the contents of the proposed mes-
sage from the President to Generálissimo Chiang Kai-shek,
it is suggested that the last sentence of that proposed
message be revised along lines as follows:
"I feel that assent by you to extend this impor-
tant facility to the United States forces in the
China theatre will have a very helpful effect in
enhancing the good-will toward China of the
American people and in maintaining and strengthen-
ing their continued confidence in China's whole-
hearted cooperation in an all-out effort to defoat
our common enemy, Japan."
Sincerely yours,
0020011 Bulf
State
By J. Schauble Date FEB 7 1972
The Honorable
Henry L. Stimson,
Secretary of War.
ADDRESS OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON, D.C.
DEPARTMENT OF STATE
WASHINGTON
April 4, 1944
MEMORANDUM FOR THE PRESIDENT
I enclose for your information and consideration
a copy of a letter which I am forwarding to the Secre-
tary of War commenting upon a proposal by General Stil.
well, concurred in by Ambassador Gauss, that you send
8 message to the Generalissimo urging his assent to the
dispatch immediately of & military observers' mission
to the so-called Communist area in China.
CH
Enclosure:
To the Honorable
Henry L. Stimson,
Secretary of War.
DECLASSIFIED
State Dept. Letter, 1-11-72
By J. Schauble Date FEB - 1972
FORVICTORY
BUY
UNITED
STATES
DEFENSE
BONDS
AND
STAMPS
fullowe
Chicea folders
April 8, 1944
Dear Madame Chiang:
I am glad to receive your letter of February 17,
1944. I appreciate your visiting the several air
centers where American troops are stationed and, of
course, I am very pleased to learn of the progress
being made.
With regard to the magnitude and scope of American
army operations in China, I feel that this is prima-
rily a military matter which is to be settled among
the military leaders concerned. General Stilwell, as
my representative, will, I am sure, be able to work
out with the Generalissimo, as soldier to soldier, a
solution to the problem. In the discussions between
them, I am sure that due consideration will be given
to the ability of China's economy to support any
contemplated military program.
I am informed that during the last month progress
has been made in the discussions on the question of
providing the local currency for American military
operations in China, and we are looking forward to
an agreement being reached on this matter in the
very near future.
With regard to the other matters raised in your
letter, I am giving them the most careful consideration.
Please be assured that the American people con-
tinue to have the deepest sympathy with the desire of
the Chinese people for liberty and liberation and will
continue to do all possible to help them achieve these
aims in the shortest possible time.
Sincerely yours,
Madame Chiang Kai-shek,
Headquarters of the Generalissimo,
Chungking, China.
THE WHITE HOUSE
WASHINGTON
March 16, 1944.
PERSONAL
memorandum FOR
THE SECRETARY OF THE TREASURY:
To tell me what you suggest.
F.D.R.
Copy
HEADQUARTERS OF THE GENERALISSIMO
CHINA
Personal
Kweilin, Kwangsi
February 17, 1944
Dear Mr. President,
The Generalissimo and I have just completed an inspection
tour of the Hunan front and are now on our way home. The General-
issimo held a five day conference with the military commanders of
this area in spite of the fact that the "Island Dwarfs" bombed
our vicinity every night.
On this trip I visited several of the air centers where
American troops are stationed. I took every opportunity to talk
to your boys and to assure them of the importance of the task with
which they are grappling, and the concern which you personally
feel for their welfare. Some of these boys were rather lonely,
for they have been out here for over two years; and, as the ground
crew does not see action except when enemy planes are directly
overhead, naturally they wonder whether what they are doing is
worth anything at all. It is difficult to keep on working when
one doesn't see concrete and tangible results of one's work.
But the air force at Hengyang, for instance, has a re-
markable record, and in spite of the paucity of planes and equip-
ment during the past two years they have shot down 140 planes.
The officer in charge, however, told me that the new Japanese
planes - the Tojos -- are so superior to the P-40's that unless he
gets new equipment very soon he will have to pull out of that area
just as he had to pull out from the Lingling area a short time ago.
These boys are doing fine work; and so I hope that somehow new
equipment will be gotten to them.
Here in Kweilin there are several thousand men of the 14th
Air Force. The Chinese-American Composite Wing is also stationed
here and from every source I learned that the co-operation between
our air force is excellent. There is one squadron in the Composite
2.
Wing now being entirely manned by Chinese pilots and ground crew.
The American commanding of ficer is full of praise not only for
this squadron but also for the squadrons with mixed crews.
The Generalissimo and I had occasion to talk to the men
of the infantry training center also located at Kweilin. You
will be happy to hear that everything is going along beautifully
and that the commanding officer, General Branch, tells me that he
has no complaints of any sort whatever. Probably you know that
this center trains one thousand officers every four weeks.
These officers are selected from armies in active service.
They go through a course of training with American officers.
Upon the completion of their training they, with the American
officers, are sent back to the army group and there they establish
schools to train other officers. Unlike the air force, the results
are tangible and visible, and as a result, everybody's spirit is
high. This is the third group in training since the school started
in November. As time goes on, the cumulative effects of this system
of training will reach unforseen consumation. The only suggestion
that the Generalissimo had to make was that a part of the artillery
equipment in the Yunnan school should be brought to Kweilin so that
there could be a training in co-operation between the infantry and
the artillery.
Dr. Kung is still in consultation with Ambassador Gauss
and Mr. Acheson regarding the financial arrangement between the
American troops and the Chinese Government. It seems that the
amount needed by the American military in China is of such an
astronomical figure when translated into Chinese Yuan that China's
economy cannot withstand the strain and is imminently threatened
by collapse, for the more paper money is in circulation, the
greater the inflation with its attendant evils. Both the General-
issimo and Dr. Kung are studying this question, but it seems that
the conditions advanced by the Treasury Department as through Mr.
Acheson will affect China's ability to continue resistance to such
an extent that there is no way to comply to them. The Generalissimo
is very much worried, for he realizes so well the difficulties you
are facing, and he would so like to lighten your burden, but so
far there seems to be no solution.
Dr. Kung would like very much to go to America in response
to your invitation but both he and the Generalissimo feel that
unless there is tangible possibility of a loan the disappointment
of our people will be such that it would unfavorably affect the
3.
es ghting morale of the whole nation. The Generalissimo, therefore,
would greatly appreciate your sending to China a representative em-
powered with full authority to consult with our Government methods
for the solving of China's critical economic and financial problems
as suggested in one of your messages. Such a person would be greatly
welcomed.
Harassed as we are by the difficulties of our continued
resistance, the Generalissimo and I take comfort in the fact that
America and you are our friends who would do everything possible
to help us fight to victory.
With all good wishes,
Yours sincerely,
(signed) Mei-ling Soong Chiang
(Madame Chiang Kai-shek)
President Franklin D. Roosevelt
The White House
Washington, D. C.
THE WHITE HOUSE
WASHINGTON
March 16, 1944.
PERSONAL
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY:
To tell me what you suggest.
F.D.R.
Copy
HEADQUARTERS OF THE GENERALISSIMO
CHINA
Personal
Kweilin, Kwangsi
February 17, 1944
Dear Mr. President,
The Generalissimo and I have just completed an inspection
tour of the Hunan front and are now on our way home. The General-
issimo held a five day conference with the military comanders of
this area in spite of the fact that the "Island Dwarfs" bombed
our vicinity every night.
On this trip I visited several of the air centers where
American troops are stationed. I took every opportunity to talk
to your boys and to assure them of the importance of the task with
which they are grappling, and the concern which you personally
feel for their welfare. Some of these boys were rather lonely,
for they have been out here for over two years; and, as the ground
crew does not see action except when enemy planes are directly
overhead, naturally they wonder whether what they are doing is
worth anything at all. It is difficult to keep on working when
one doesn't see concrete and tangible results of one's work.
But the air force at Hengyang, for instance, has a re-
markable record, and in spite of the paucity of planes and equip-
ment during the past two years they have shot down 140 planes.
The officer in charge, however, told ne that the new Japanese
planes - the Tojos - are so superior to the P-40's that unless he
gets new equipment very soon he will have to pull out of that area
just as he had to pull out from the Lingling area a short time ago.
These boys are doing fine work; and so I hope that somehow new
equipment will be gotten to them.
Here in Kweilin there are several thousand men of the 14th
Air Force. The Chinese-American Composite Wing is also stationed
here and from every source I learned that the co-operation between
our air force is excellent. There is one squadron in the Composite
2.
Wing now being entirely manned by Chinese pilots and ground crew.
The American commanding officer is full of praise not only for
this squadron but also for the squadrons with mixed crews.
The Generalissimo and I had occasion to talk to the men
of the infantry training center also located at Kweilin. You
will be happy to hear that everything is going along beautifully
and that the commanding officer, General Branch, tells me that he
has no complaints of any sort whatever. Probably you know that
this center trains one thousand officers every four weeks.
These officers are selected from armies in active service.
They go through a course of training with American officers.
Upon the completion of their training they, with the American
officers, are sent back to the army group and there they establish
schools to train other officers. Unlike the air force, the results
are tangible and visible, and as a result, everybody's spirit is
high. This is the third group in training since the school started
in November. As time goes on, the cumulative effects of this system
of training will reach unforseen consumation. The only suggestion
that the Generalissimo had to make was that a part of the artillery
equipment in the Yunnan school should be brought to Kweilin so that
there could be a training in co-operation between the infantry and
the artillery.
Dr. Kung is still in consultation with Ambassador Gauss
and Mr. Acheson regarding the financial arrangement between the
American troops and the Chinese Government. It seems that the
amount needed by the American military in China is of such an
astronomical figure when translated into Chinese Yuan that China's
economy cannot withstand the strain and is imminently threatened
by collapse, for the more paper money is in circulation, the
greater the inflation with its attendant evils. Both the General-
issimo and Dr. Kung are studying this question, but it seems that
the conditions advanced by the Treasury Department as through Mr.
Acheson will affect China's ability to continue resistance to such
an extent that there is no way to comply to them. The Generalissimo
is very much worried, for he realizes 80 well the difficulties you
are facing, and he would 80 like to lighten your burden, but so
far there seems to be no solution.
Dr. Kung would like very much to go to America in response
to your invitation but both he and the Generalissimo feel that
unless there is tangible possibility of a loan the disappointment
of our people will be such that it would unfavorably affect the
3.
fighting morale of the whole nation. The Generalissimo, therefore,
would greatly appreciate your sending to China a representative em-
powered with full authority to consult with our Government methods
for the solving of China's critical economic and financial problems
as suggested in one of your messages. Such a person would be greatly
welcomed.
Harassed as we are by the difficulties of our continued
resistance, the Generalissimo and I take comfort in the fact that
America and you are our friends who would do everything possible
to help us fight to victory.
With all good wishes,
Yours sincerely,
(signed) Mei-ling Soong Chiang
(Madame Chiang Kai-shek)
President Franklin D. Roosevelt
The White House
Washington, D. C.
D 83
Will you ask Judge
Latta where he thinks
this should file ?
China fredu in S.
act files
- C54= = / Brermal Road freder
China 1-40
FOREIGN ECONOMIC ADMINISTRATION
WASHINGTON 25, D. C.
plc.
a months production of
C54 will give us
In reply refer to:
SU-974-MP
one Burma Road
April 29, 1944
MAY 2 1944
To:
Laurence J. Martin, Director
Transportation and Storage
From:
Max S. Polin
MR
Air Transport Division
Subject; C-54-A Cargo Carrying Capacities and Operating Cost Over
Various "Hump" Routes
May I bring to your attention the importance of allocating long range
big load earrying aircraft to commercial carriers presently or in future
operating over existing or new "hump" routes so that maximum quantities
of CDS and U.S. Army supplies may move into China and our strategic war
materials move out of China.
For instance, at present CNAC is operating about 30 air transports
(mostly C-47's with a few C-53's) between China and Assam airports under
an existing contract between the U.S. Army SOS and CNAC. Because of the
need to carry sufficient gasoline for the round trip, the Dinjan-Kunming
route represents the maximum range of these types of aircraft.
By utilizing C-54-A's, longer routes may be flown enabling a much speedier
and more economical movement of U.S. Army and CDS supplies into China and
our strategic materials out of China with direct deliveries to our Army
forward bases and direct cargo pickup from more distant areas eliminating
to a considerable extent the need for transshipment by slow, costly and
dwindling truok transportation.
Based on an on-the-spot study of air transport operating conditions of
the China-Assam areas, together with information gathered from commercial
airline operators and airoraft manufacturers in the U.S.A., I submit
below & statement of the monthly cargo carrying capacities of ten C-54-A's
over existing "hump" routes and other "hump" routes which may be established
in the near future together with flight hours and speed,
2--Laurence J. Martin
Length of Route
x500
xx600
700
800
950
miles
miles
miles
miles
miles
India Bound Tonnage
per month
3,030
2,910
2,790
2,640
2,460
China Bound Tonnage
per month
2,430
2,220
2,010
1,800
1,500
Flight Hours
per trip
2.52
3.
3.47
3.95
4.42
Speed - M.P.H.
197
200
201
202
204
All tonnage figures quoted above are based on only one round trip per
day and take-off weight of 65,000 pounds.
(x) On the Dinjan-Kumming route two round trips per day
may be flown increasing the above monthly tonnage
from 5,460 tons to 10,920 tons whereas on the Dinjan-
Suifu and/or the Dinjan-Chengtu routes two round trips
per day also may be flown thereby increasing the mon-
thly tonnage of routes from 5,130 tons to 10,260 tons.
(xx) On the Dinjan-Chungking route 1½ round trips may be
flown daily increasing the monthly tonnage from 4,800
tons to 7,200 tons.
500 miles represents the distance between Dinjan and Kunming.
600
If
#
If
er
If
"
If
Suifu
600
If
If
If
If
M
If
"
Chengtu
700
If
"
11
"
If
H
"
Chungking
800
If
"
"
"
If
"
"
Tushan
950
"
If
"
"
11
#
a
Kweilin
For ready reference, routes specified herein are sketched below.
CHENGTU
CHUNGKING
SUIFU
DINWAN
KUNMING
KWEILIN
TUSHAN
3--Laurence J. Martin
An estimate of the cost of operating C-54-A aircraft per ton, per ton
mile and per pound, is as follows:
Miles
500
600
700
800
950
India
China
India
China
India
China
India
China
India
China
Bound
Bound
Bound
Bound
Bound
Bound
Bound
Bound
Bound
Bound
Per Ton
$105.
$131.
$125.
$163.
$146.
$202.
$174.
$255.
$212.
$347
Per T/M
.212$
.262$
.207$
.272$
.209£
.289₫
.217$
.319£
.223₫
.365₫
Per Lb.
.0525₫
.0655€
.0625₫ .0815£
.073₫
.101$
.087₫
.1275₫
.106$
.17354
The bases of calculation for arriving at estimated cost of operating a
fleet of ten (10) C-54-A's over routes specified herein are as follows:
Value of plane; $400,000
Depreciation:
3 yrs. at 10 hrs. per day - $37 per flight hour.
Maintenance,
$32 per F/H.
Overhead:
$35 per F/H.
Crew:
$20 per F/H.
Gas:
$1 per gallon (approx. current India cost to
commercial operators).
011,
$2 per gallon.
Insurance Reserve: $22 per F/H (20%).
A statement showing pounds of cargo carried per pound of fuel consumed
is as follows:
Length of Route
500
600
700
800
950
miles
miles
miles
miles
miles
India Bound
5 lbs.
4.2 lbs. 3.6 lbs. 3.1 lbs. 2.5 lbs.
China Bound
4 lbs.
3.2 lbs. 2.6 lbs. 2.1 lbs. 1.5 lbs.
Of utmost importance is the fact that C-54-A's carry sufficient gascline
to fly from Assam to any of the China airports listed herein and return
to Assam without lifting any gasoline previously flown into China.
A brief resume of the comparative estimated performance characteristics
of the C-47 and the C-54-A as applicable to the 500 mile Dinjan-Kunming
(maximum range of the C-47 without China gas pickup) route, follows:
4--Laurence J. Martin
Aircraft
C-47
C-54-A
Tons per month per plane
x72
*273
Gals. fuel consumed per delivered ton
132
74
Cost per delivered ton
$279
$118
Flight orews-man hours per 5,000 tons
20,200
4158
(x) Based on one round trip per day. The C-47 is capable
of flying 12 round trips daily and the C-54-A two round
trips daily thereby increasing C-47 monthly tonnage to
108 tons per plane and the C-54-A monthly tonnage to
546 tons per plane.
The C-46 in the "hump" service has been handicapped by its inability
to carry heavy loads at high altitudes in consequence of which its
load factor is only moderately greater than the C-47.
It will be noted that fifty C-54-A's are capable of flying more than
12,000 tons of cargo per month from Dinjan to Kunming and over 15,000
tons per month from Kunming to Dinjan. Such quantities actually exceed
the prewar average monthly capacity of the Burma Road.
With the availability of C-54-A's for "hump" routes, of high importance
will be the Dinjan-Tushan route (800 air miles). Tushan is the western
terminus of free China's longest and best equipped railroad, serving the
important cities of Kweilin, Luichow, Hengyang and more eastern points.
This joint air-rail operation will completely eliminate our dependence
on trucks now used in the Tushan-Kunming service thereby removing a.
bottleneck which in the past has frequently seriously delayed the move-
ment of U. S. war supplies to east China. Such trucks released may then
be diverted to other areas where urgently needed.
The estimated tonnage figures submitted herein show that ten (10) C-54-A's
operated over the Dinjan-Tushan route are capable of transporting 1,800
tons per month to China and 2,640 tons to India, or a total of 4,400 tons
payload per month.
On the cost side it will be noted the C-54-A (all air) cost per delivered
ton from Dinjan to Tushan is U. S. $255 and from Tushan to Dinjan U. S.
$174 per ton, or an average of U. S. $214.50 whereas our present rail-truck-
air cost for the same hauls amount to U. S. $2,540 (20 to 1 exchange) per
ton. Summarized, the U. S. Government's present rail-truck-air cost to
transport 4,400 tons of cargo amounts to the astronomical figure of U. S.
$11,170,000, whereas the cost by C-54-A's is only about U. S. $918,000,
5--Laurence J. Martin
or a saving of over U.S. $10,000,000 on a monthly carriage of 4,400
tons which should be accomplished by the use of only ten C-54-A's in
the Dinjan-Tushan service.
The main advantages of the C-54-A are:
lo Expedite the movement of increased tonnage over longer
routes.
2. Carries adequate fuel for a round trip eliminating
pickup of gasoline previously flown into China.
3. Higher percentage of completed schedules because of its
ability to operate at higher altitudes with greater
safety for crews, planes and cargo.
4. Tremendous saving in transportation cost.
5. Permits diverting urgently needed motor trucks to other
China areas.
6. Relieves certain China airports of traffic congestion
and lessens flight collision hazards.
7. Requires less than half the flight personnel per delivered
ton as compared to other airoraft at present in the "hump"
service.
To augment ATC's China-Assam operations and make possible the maximum
movement of CDS and U.S. Army supplies into China and U.S. Government
strategic war material out of China, and in view of the conditions
recited herein, it appears highly important that CNAC's present fleet
of about 30 C-47's now operating on the 500 mile Dinjan-Kumming route
under a U.S. Army SOS and a CNAC contract, be replaced by C-54-A's
for operation on the 800 mile Dinjan-Tushan route under such contract.
Furthermore, it is recommended that when additional C-54-A's become
available such aircraft be allocated to other commercial carriers now
under contract to the U.S. Army for operation over important "hump"
routes.
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HEADQUARTERS OF THE GENERALISSIMO
CHINA
Chungking, Szechuan
May 7, 1944
My dear Mr. President,
General Shang Chen whom I have appointed
as head of the Chinese Military Mission is leaving
shortly for the United States. I give him this
letter so that after his arrival in Washington he
may present it to Your Excellency in person and
convey to you my best regards.
As a colleague of mine General Shang enjoys
my great confidence, being one of the officers who
accompanied me to the Cairo Conference. He has a rich
knowledge and experience of China's war of resistance
as well as a thorough understanding of the efforts
China has made in fighting shoulder to shoulder with
the other United Nations. It was especially during
his tenure of office as Director of the Foreign Affairs
Bureau of the National Military Council that he was
able to have a great deal of contact with the military
personnel of your country and other United Nations.
General Shang is therefore particularly fitted for the
new post to which I have appointed him.
I shall feel greatly obliged if Your Excellency
will receive him favorably and give him all necessary
guidance so that he may successfully discharge his
mission.
Wishing you the best of health, I remain,
Sincerely yours,
(Signed) Chiang Kai-shek
President Franklin D. Roosevelt
The White House
Washington, D. C.
file
China folder 1-XX
CHINESE EMBASSY
WASHINGTON
May 17, 1944
My dear Mr. President:
I beg to enclose a telegram from
President Chiang dated May 13, 1944, which I
was hoping to present to you in person. I
hope to have another early opportunity of
being received by you as you so kindly
suggested last week.
With high esteem, I remain
Yours sincerely,
Wei Tao-hing
Enclosure
President Franklin D. Roosevelt
The White House
TRANSLATION
Telegram to President Roosevelt from President Chiang Kai-shek
Chungking, May 13, 1944.
I am extremely glad to learn that you have fully regained
your good health.
The Chinese expeditionary force completed yesterday the
forcible crossing of the Salween River and is now vigorously
attacking the enemy. China is anxious to do the utmost within
her power to support the Allied Forces operating in India and
Burma, which I know is also your earnest desire. As you are
well aware, however, China is, to start with, a weak nation
financially and militarily, and after seven long years of war,
she is confronted with hardships and difficulties unequaled
by those besetting any other of the Allied Nations. Moreover,
the Chinese forces are at present engaged in operations which
are in the course of developing on a large scale in the middle
of the China theater, on the plains of Honan, and, at the
same time, are pressing forward with the operations on the
Salween River. China is, therefore, facing a more difficult
and critical situation than ever before when, in her present
state of weariness she is called upon to undertake the heavy
responsibility of fighting on two fronts. I hope you will
understand and appreciate the difficulties now confronting us.
(Signed) Chiang Kai-shek
China freder 1-44
(3016)
Time
THE WHITE HOUSE
WASHINGTON
May 29, 1944.
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY
What do you think?
F. D. R.
Letter from the Secretary of War, 5/26/44,
with enclosure, in re Resume of Chinese Exchange
Situation. Copies retained for our files.
SECRET
Franklin D. Roomovelt Library
DEBLASSIFIER
oon QIR. 5200.9 (8/27/68)
MAY 26 1944
Date- 2-13-70
The President,
Signature-
NW
The White House.
Dear Mr. President:
I submit herewith a chronological resume of the negotiations with the
Chinese Government with respect to the rates of exchange covering our expendi-
tures in China. Since the resume necessarily is somewhat long, I am also sus-
marizing herewith its context.
When our troops first arrived in China they found an agreed exchange rate
of $20 (Chinese) for $1 (U.S.), which even then had no realistic relationship
to the purchasing value of the Chinese yuan. However, our requirements for food
and housing were small and the expenditures were assumed by the Chinese Govern-
ment which also undertook the requisite airport construction. In the fall of
1943 when General Somervell visited Chungking, this situation had changed and
important construction was delayed, as the Chinese Government had not provided
sufficient funds. General Stilwell was making direct expenditures to obtain
necessary speed in completing urgently needed facilities.
General Somervell proposed to Dr. Kung the establishment of a more favor-
able exchange rate. He suggested a rate of 100 to 1 in comparison with the then
black market rate of 120 to 1. To save Chinese face, he proposed that we con-
tinue to procure $20 (Chinese) for each $1 (U.S.) with the Chinese either to
donate or to make available under reverse lend-lease $80 (Chinese) for each $1
(U.S.).
At the Cairo Conference the United States agreed to finance further con-
struction expenditures. However the exchange rate was not discussed. The Gen-
eralissimo on his return cabled you requesting either a loan of $1,000,000,000
(U.S.), or the payment of Chinese expenditures at a 20 to 1 rate. As this would
have made our expenditures in China astronomical, you disapproved the proposal
and urged the Generalissimo to accept proposals offered by our representatives.
The Chinese had been threatening to discontinue construction. With the
receipt of your message, they agreed to provide $2,500,000,000 (Chinese) and
we in turn agreed to deposit $25,000,000 to Chinese account in this country.
This was in effect a 100 to 1 rate, but the Chinese would not continue the
arrangement on a monthly basis. We also forwarded $20,000,000 (U.S.) at Chinese
request for purchase by the Chinese in the black market to lower the rate.
There was little confidence in this proposal and the money has not as yet been
turned over to the Chinese. Nevertheless, the Chinese continued to advance
funds for the construction program subject to our shipment of $5,000,000,000
(Chinese) per month into China. This is continuing and work to date has not
been held up.
BECRET-
SECRET
The Chinese have advanced us $7,000,000,000 (Chinese) and have received in
partial payment the one deposit of $25,000,000. Manifestly, they are worried
as to the rate for repayment. For the first time we occupy the favorable posi-
tion. We have advised the Chinese consistently of our willingness to bear these
expenditures at a reasonable exchange rate. The 60 to 1 rate recently proposed
by Dr. Kung with $20 (Chinese) to be purchased for each $1 (U.S.) and $40 (Chi-
nese) to be provided under reverse lend-lease is not realistic in view of the
present black market rate. We are not adverse to a reverse lend-lease arrange-
ment of this type, though we do object to an unrealistic rate; and although it
would result in the Chinese obtaining a greater credit for future settlement,
it would appear most unlikely that funds received under reverse lend-lease at
any rate approaching realism would at any time even closely approach the dollar
value of direct lend-lease aid.
Perhaps our war program in China has contributed somewhat to inflation.
However, the number of our troops and the magnitude of our construction are not
sufficient to have a major effect. The Chinese report expenditures at approxi-
mately $10,000,000,000 (Chinese) for support of our troops and for construction
prior to the Cairo Conference. They have advanced $7,000,000,000 (Chinese) for
construction authorized at Cario. In turn the United States has lend-leased
goods valued at $413,000,000 (U.S.). The Treasury Department granted a credit
to the Chinese Government of $500,000,000 (U.S.), against which it drew
$243,000,000. The FEA has purchased goods for $48,000,000 (U.S.) at a 20 to 1
rate. Our forces in China have expended through February 1944 a total of
$155,000,000 (U.S.) at the rate of 20 to 1. The financial contribution of the
United States has been most substnatial and greatly in excess of the Chinese
expenditures even at the 20 to 1 rate. A settlement of the $7,000,000,000 (Chi-
nese) construction advance alone at the 20 to 1 rate would involve a premium
payment of over $300,000,000 (U.S.) compared with a rate of 150 to 1, and the
latter is below current black market.
The black market is continuing to rise. The rate at the present time should
not be less than 150 to 1 and even this rate should be revised periodically un-
less the Chinese Government controls inflation.
The War Department believes that our representatives should continue to
stand firm for a realistic rate. In view of the effect of any rate on military
planning, commitments should not be made in Chungking without clearance in Wash-
ington by the Treasury Department and your approval.
Respectfully yours,
Franklin D. Receivelt Library HENRY L. STIMSON
BEGLASSIFIED
Inclosure (1) DOB DIR. 5200.9 (9/27/58)
Secretary of War.
Date- 2-13-70
Signature- JVD
- 2 -
SECRET
ent
SECRET
19 May 1944
RESUME OF CHINESE EXCHANGE SITUATION
1. The exchange situation in China first was brought to the attention of
the War Department by General Stilwell early in 1943, at which time he reported
that the official rate of exchange of 20 to 1 was not realistic, inasmuch as the
open market rate at that time was around 40 to 1 and increasing rapidly. He
called attention to the fact that with the large expenditures contemplated by the
Army, definite steps should be taken to have a new official rate established.
2. The official rate of exchange of 20 to 1 was established in August 1941
and has been supported by the U. S. Government as a measure of making effective
the stabilization agreement entered into with China at the same time. This
stabilization agreement expired in January 1944.
3. When the matter of the rate was first reported by General Stilwell
the Treasury Department was requested to give some consideration to having the
Chinese effect a change in the rate and during the latter part of 1943, that
department endeavored to obtain some relief in the matter. These efforts
included a change in the official rate, the granting of a special rate to the
United States or the sale of gold at an advantageous price to use the proceeds
to decrease the excessive costs of the Mar Department's expenditures in China
because of the unrealistic rate.
4. With a knowledge of the State and Treasury Department and undoubtedly
with the full knowledge of the Chinese Government, the War Department has been
paying its personnel in China U. S. currency and permitting that personnel to
go into the open or black market and purchase Chinese currency at any available
rate. Later, the State and Treasury Department requested the War Department
to ship United States currency to China for use in paying personnel and
operating expenses. The War Department has been reluctant to having its soldiers
dealing in black market operations, but for morale purposes, it could not do
other than authorize such a procedure in view of its failure to find other means
of giving its men in China sufficient local currency to offset the unrealistic
exchange rate. In addition to the morale factor, there has been the ever
increasing expenditures by the War Department for supplies and construction.
5. Failing to secure relief through a change in the official rate, the
War Department, early in 1943 felt the need for a reciprocal Lend-Lease agreement
with China and the Chinese Government indicated that they may be willing to enter
into such an agreement. Accordingly, an agreement was drafted for submission to
the Crinese. In view of the exchange situation and the fact that the Treasury
Department expressed the view that efforts up to that time to secure a better
official rate of exchange had proved fruitless, it was decided to include in
the reciprocal Lend-Lease agreement, in addition to the provisions to direct
aid in kind, a section to the effect that the Chinese Government would provide
funds in Chinese currency to be used by the U. S. in direct purchase of supplies,
materials, facilities and services in lieu of reciprocal aid in kind and to meet
the essential governmental and military needs for Chinese currency. The under-
standing was that this currency' received under the agreement could be used in
reducing the excessive cost to the U. S. of expenditures for personnel and other
purposes on account of the unrealistic Chinese exchange rate.
Franklin D. Roosevelt Library
DECLASSIFIED
2-13-70
N/AR
REGRET.
DOB DIR. 5200.9 (9/27/68)
SECRET
This reciprocal Lend-Lease agreement vas presented to Dr. Soong, Foreign Minister
of the Chinese government by the State Department in Washington in May 1943
with a memorandum explaining the purpose of the financial provisions thereof.
The agreement was submitted to General Stilwell in China and was concurred in by
him in view of the apparent impossibility of securing 6. proper exchange rate.
6. In October 1943 General Somervell visited Gungking. He was advised
by General Stilwell that elays occuring in construction necessitated direct
contractual expenditures by United States forces. The artificial exchange rate
of 20 to 1 as compared with a black market rate of 120 to 1 was resulting in
exorbitant costs. General Stilwell believed that a better arrangement was
essential to our planned opera ions. General Somervell, with the knowledge and
consent of the Ambassador, proposed to Dr. Kung, subject to ratification by the
U. S. authorities in Washington, that the Chinese Government make available to
our forces the requisite Chinese currency to support these forces and the military
construction under one of two alternatives:
The United States would deposit to Chinese account in the United
States $1 U.S. for each $100 CN furnished, this deposit to be credited against
an official exchange rate of 20 to 1, with the remaining $80 CN to be a contri-
bution of the Chinese Government to our joint war effort (this arrangement
would proect publicly the 20 to 1 artificial rate); or,
b. The C₁ inese Government would provide the requisite funds with the
United States depositing to Chinese account $1 U.S. for {20 CN of each $100 CN
made available, the remaining $80 CN to be provided under 8 reverse lend-lease
agreement.
Dr. Kung appeared to view these proposals as feasible and promised to place them
before the Generalissimo for approval.
7. Shortly after General Somervell's return to the United States in
November, and before the proposals could be carried further, the Cairo Conference
was held. The Generalissimo attended this conference. It is understood that he
was advised that the United States was prepared to bear the cost of its military
effort in China. It is not understood that the question of exchange rates was
considered. Subsequent to the conference, as indicated in the report of Ambassador
Gauss, January 16,1944, the Generalissimo in a message to the President urged
that a loan of $1,000,000,000 U.S. be made to China, or that, otherwise, the
United States assume full responsibility for its expenditures in G,ina at a 20
to 1 rate.
8. The Treasury Department was then negotiating with the Chimese Govern-
ment with a view to transporting gold to China for purchase of Chinese currency
in the open market to control inflation and to secure a better exchange rate.
These negotiations did not appear to be progressing rapidly. The Secretary of
Treasury recognizing the urgency of the airport construction program authorized
the Wor Department to proceed with its own nogotiations.
Franklin D. Receivelt Library
BECLASSIFIER
-2-
DOB 018. 5200.9 (9/27/58)
SECRET
2-13-70 SVR
SECRET
Representatives of the State Department concurred in this arrangement. Our
military representatives were authorized to advise the Chinese that the
United States was prepared to accept full responsibility for its military
expenditures subject to the establishment of & reasonable exchange rate which
would have some relationship to the actual purchasing power of the Chinese
dollar. On 15 January our Commanding General in China and S,ate Department
representatives were advised to press for an early completion of a reverse
lend-lease agreement concurrently with an agreement to be presented by military
representatives with respect to the funds to be made available by the Chinese
Government to cover our military expenditures. The military representatives
were advised to keep in constant touch with the State Department and Treasury
Department representatives so that any action taken in Chungking would be
jointly understood. Mr. Edward C. Acheson was sent to China to assist the
Commanding General in presenting the proposed fiscal arrangement.
9. In reply to the Generalissimo's request, referred to above, the President
urged the acceptance of the proposal submitted by our military and diplomatic
representatives. It is to be noted that the authorities in this country were
in agreement that there was little merit in the proposed loan to China.
10. Our military and diplomatic representa ives proceeded with the negotia-
tions. In the latter part of January estimates became available with respect to
the substantial construction costs involved in the new airport projects. Meanwhile
the black market exchange rate had continued to advance and payments in American
dollars at a 20 to 1 rate would have become astronomical in comparison to the
value received in work. The War Department would have found it necessary to have
requested additional funds for the purpose from Congress and was apprehensive
that the exorbitant costs would have serious repercussions. Again on 24 January
our military representatives were advised to maintain a firm stand, but to inform
the Chinese Government that the United States was prepared to place to Chinese
account the U. S. dollar equivalent of any Chinese funds made available under
general arrangements which they would suggest to the Chinese Government.
11. Dr. Kung was designated by the Generalissimo to receive the United
States' proposals. Our representatives proposed as an interim measure that the
United States would purchase $1,000,000,000 CN at the rate of 40 to 1 through
the deposit of $25,000,000 U.S. to Chinose account in this country. The Chinese
Government would add $1,500,000,000 CN to this account. This proposal would
have established an interim exchange rate of 100 to 1. The Chinese Covernment
did advance the first funds and the $25,000,000 U.S. in payment thereof was
deposited to Chinese account. However the Chinese Government did not accept
the proposal as a continuing measure. On 3 February Dr. Kung made a counter-
proposal to continue the official exchange rate of 20 to 1 with the Central
Government contributing $10 CN more for each $1 U.S. under reverse Lend-Lease.
Our representatives turned down this proposal. They advised us on 12 February
that they could see no benefit in further proposals. However, Dr. Kung was
asked to advance $1,000,000,000 CN per month during the remainder of the
negotiations with the repayment rate to be decided during negotiations.
Franklin D. Roopevelt Library
BECLASSIFIER
-3-
5800.9 (9/27/68)
SECRET
2-13-70 And
Date-
SECRET
12. Report of expenditures at this time indicated that our own expendi-
tures in China had increased from $400,000 in January 1943 to $23,000,000 in
December. Estimates for airport and other construction indicated a require-
ment of approximately $2,500,000,000 CN monthly. Payment for these funds at
a 20 to 1 rate as compared with the proposed 100 to 1 rate would have resulted
in an annual premium to the Chinese Government in excess of $1,000,000,000.
However, the proposed rate of 100 to 1 was still below the real purchasing
value which was more adequately expressed by the black market rate which had
reached 150 to 1. On February 20 General Stilwell was advised that he must
continue to take a firm stand while still expressing the willingness of the
United States to bear full costs at a reasonable exchange rate. On February 25
we were advised by our military representatives that Dr. Kung had asked for
$20,000,000 U.S. to be flown to China as an advance to the Chinese account
with the rate to be determined later. These funds Dr. Kung proposed to use for
the purchase of Chinese currency in the black market in an effort to drive
down the black market rate. At the suggestion of our representatives, and with
the approval of the Treasury Department, this money was flown to India in the
understanding that $5,000,000 U.S. was to be made available to the Chinese
Government to test the effect of the proposed purchases prior to utilizing the
full amount. These funds have not as yet been turned over to the Chinese
Government as our representatives on the ground felt that the transfer might
prove detrimental in view of the existing status of negotiations.
13. On March 2 our representatives advised us that the Chinese Govern-
ment had agreed to furnish not to exceed $5,000,000,000 CN per month to our
forces provided the requisite money in Chinese currency was shipped from the
United States, with March and April requirements to be shipped by air.
Arrangements were made to meet this request.
14. During the period of negotiations the construction work has been
proceeding satisfactorily. As our proposal with respect to the deposit of
$25,000,000 U.S. per month to the Chinese account in the United States in
exchange for $2,500,000,000 CN had not been accepted by the Chinese Govern-
ment, only the initial deposit was made. Since we were obtaining all of the
funds needed without an exchange commitment, our representatives in China
believed it undesirable to submit further proposals to the Chinese. They
awaited counter-proposals from the Chinese Government. On MAY 7 our repre-
sentatives advised us that the Chinese were pressing hard for a financial
agreement at a 60 to 1 rate, $40 CN of each $60 CN furnished to be credited as
reverse lend-lease. As the black market was continuing to rise, our represen-
tatives were unwilling to accept this offer and insisted on a three months'
agreement for a rate of 150 to 1. Our representatives in the field reported
that the Chinese Government would make a direct appeal to the United States.
Franklin D. Roosevelt Library
DECLASSIFIED
- 4 -
DOB DIR. 5200.9 (9/27/59)
Date- 2-13-70
SECRET
Signature- YOR
SECRET
15. It is important to note that the Chinese Government has receded
considerably from its stand taken in 1943, and from its even more adamant
stand taken in December 1943 and January 1944, as a result of the firm
position taken by the United States. While the work undertaken by the American
forces and payment therefor may aggravate the distress of the Chinese economy,
it is very doubtful if its influence on the inflation difficulties is a major
contributing factor. In local areas where work is being carried on, our
expenditures will have more serious effect on inflationary difficulties than
elsewhere, but even there our expenditures are not the primary cause of their
economic disturbance. In any event, it is difficult to understand the effect
of the rate of exchange on this economy as the United States funds made
available to China would accumulate as & credit to be drawn against after the
war. It would be difficult to justify an artificial exchange rate which would
make the cost of American participation in the war in China out of all pro-
portion to the actual value of the work received, particularly taking into
consideration the relatively low cost of labor in China as compared with the
United States.
16. The extent of United States aid to China must also be taken into
consideration in determining the-exchange rate which is to be accepted.
Lend-Lease aid to China has aggregated more than $400,000,000 U.S., although
some of the Lend-Lease material is still stock piled in India as transporta-
tion has not been available for its movement into China. At a realistic rate,
this Lend-Lease expenditure alone is equivalent to $60,000,000,000 CN.
In addition thereto, the Treasury Department granted a credit to the
Chinese Government of $500,000,000 U.S. in March 1942 against which
$243,000,000 has been drawn at the end of 1943.
The Foreign Economic Administration will have purchased in China
from 1941 through June 1944 approximately $48,000,000 U.S. which at the
official rate would purchase $960,000,000 CN worth of merchandise (strategic
materials). At a realistic rate of 100 to 1 as a conservative average for
the period, these purchases would have cost only $9,600,000 U.S. This means
that over the period the Chinese Government had been benefited as a result
of the unrealistic exchange rate by a premium of $38,400,000 U.S.
Likewise, our forces in China have expended for the period
1 January 1943 to include February 1944 a total of $155,550,000 U.S. which at
the official rate of exchange total $3,111,000,000 CN. Expenditures during
the month of March and April 1944 have been on the basis of the new agreement,
whereby the Chinese advanced to us the currency required for our needs and
we in turn deposited U. S. currency to the credit of the Chinese Government
in such amount as the Commanding General, U. S. forces reports as properly due.
Franklin D. Receivelt Library
BECLASSIFIED
DOB 018. 5800.9 (9/27/08)
- 5 -
Date- 2-13-70
SECRE
"Signature-
Mill
SEGRET
The total amount reported by the Commanding General, U. S. Forces under this
agreement to have been received up to April 23 is $7,680,000,000 CN. (How
much of this should be credited as a Chinese contribution to the war effort,
and how much the United States Government is expected to reimburse the
Chinese cannot be determined in Washington at this time in view of the fact
that negotiations in this respect are being carried on by General Stilwell
in China.) This is a total expenditure in Chinese currency to date of
$10,791,000,000 CN. This would cost the U. S. at the official rate of 20 to
1, $539,550,000 U. S. whereas at a realistic rate of 150 to 1 it would cost
only $72,000,000. This means that the U. S. pays a premium on these expendi-
tures of $467,550,000 due to the unrealistic rate.
Dr. Kung in a letter to the Secretary of War has reported Chinese
expenditures during part of February and all of March and April as aggregating
$7,016,000,000 CN. The Chinese state, however, in addition to this amount
the Chinese Government has paid out since September 1942 for construction of
airfields, barracks, air force supplies and improvement of roads at the
request of the United States authorities a total of $10,878,260,457 CN.
While the cost of the services furnished the United States Forces
in China cannot be vorified, his estimate of construction cost in 1944 of
$7,000,000,000 CN is in agreement with our own figures. The United States
has deposited against this advance of $7,000,000,000 CN the sum of
$25,000,000 U.S. to Chinese credit in the United States.
17. In view of the large sums involved and the continuing expenditures,
it is apparent that the agreed exchange rate may have a decided influence on
military operations and on military planning. While it is desirable for a
firm agreement to be effected at the earliest possible date, the importance
of such agreement to contemplated military operations warrants its careful
consideration in Washington before it is accepted formally. It is suggested,
therefore, that any arrangements which may be proposed in Chungking be tenta-
tive until their effect on military operations can be studied by our Govern-
ment in Washington 80 that all factors may be taken into consideration.
It is apparent that the American position has constantly improved during the
progress of the negotiations as a result of the firm stand taken by all of
our representatives working in close agreement. Meanwhile, military construc-
tion has proceeded without delay.
- 6 -
ranklin D. Roosevelt Library
ORCLASSIFIER
018. 5200.9 (8/27/68)
Date- 2-13-70
Signature- ND
SECRET
(3046)
Corbon 7 this memorandum returned s mr. Stettinuss,
hms 4/6/14
China folder 1.44
DEPARTMENT OF STATE
WASHINGTON
June 3, 1944
MEMORANDUM FOR THE PRESIDENT
The following telegraphic message from the President
of China has just been communicated to the Department by
the Chinese Ambassador:
"To President Roosevelt:
"The Ministry of Foreign Affairs has informed
me of Ambassador Wei's conversations with Secretary
Hull on the proposed conference at Washington to
discuss the creation of an international organiza-
tion for the maintenance of world peace. China has
always been an advocate of the early creation of such
an organization, if possible before the termination
of the war; and we are gratified that you are taking
the leadership in realizing this idea. I am particu-
larly grateful to you and Secretary Hull for the in-
sistence on the necessity of China's being represented
at the conference. Without the participation of
Asiatic peoples, the conference will have no meaning
for half of humanity.
(Signed) Chiang Kai-shek"
If the president perceives no objection, the substance
of President Chiang's message will be communicated to
Ambassador Gauss at Chungking.
O.K.
F.D.R.
china folder you
THE WHITE HOUSE
WASHINGTON
June 5, 1944
Dear Grace:
I think the President would
be interested in this bit of
scandal, forwarded to me from
China.
Sincerely,
Lanch
Lauchlin Currie
Miss Grace Tully,
The White House,
Washington, D. C.
Attachment
May 10, 1944
SUBJECT: Domestic Troubles in the Chiang Household
TO
: Assistant Chief of Staff, G-2
Chungking is literally seething with stories of the
domestic troubles of the Chiang household. Almost everyone has
new details and versions to add to the now generally accepted
story that the Generallissimo has taken a mistress and as a
result his relations with the Madame are -- to say the least --
strained. Where there is so much smoke, it would seem that
there must be some fire.
Normally such gossip about the private lives of govern-
ment leaders would not be considered as within the scope of poli-
tical reporting. This is hardly the case, however, in China where
the person concerned is a dictator and where the relationship be-
tween him and his wife's family is so all-important. That rela-
tionship is already weakened by the strained relations between the
Generalissimo and T. V. Soong. If the Madame, whose nature is both
proud and puritanical, should openly break with her husband, the
dynasty would be split and the effects both in China and abroad
might be serious. Even if the present situation becomes generally
known abroad, as it almost certainly and eventually will, there
will be a great loss of prestige to both the Generalissimo and the
Madame.
The stories generally agree that the Generalissimo
(whose early sexual life was not particularly monogamous -- there
is argument as to whether the Madame is his third or fourth wife,
and he is supposed to have been a gay blade in his Shanghai
broker days) took up with his present attachment while the Madame
was in the United States.
Stories of the lady's identity differ. The chief are:
that she is Miss CHEN Chieh-ju, the Generalissimo's
concubine just before his marriage to the Madame, who was supposedly
pensioned off and put out of sight;
that she is a cousin of CHEN L1-fu, of considerable
youth and beauty, introduced by him during the Madame's absence
in America as a not-very-original effort to solidify his own
and the C-C clique's position;
that she (or by some accounts a second gtrl) is a
beautiful Fukienese who found her way to the Generalissimo's
favor by introduction of the Cheng Hsueh Hsi (Political Science
Group) as their attempt to play petticoat politics.
There is, however, fairly general agreement that the
lady is pregnant and that the Generalissimo will be a father in
about two months.
Reports as to her present whereabouts agains differ.
Some say categorically that she has been sent "far away" to have
the child. Others that she is living at the Generalissimo's
house on the South Bank.. Another story, which seems circumstantial,
is that she is living in a house near the ChiuLungpod airfield
about 6 miles outside of Chungking.
One explanation of the story that there were two women
is that the second -- a Miss T'ao, Jao, or Yao -- is a friend of
the Generalissimo's eldest son, Ching Kuo, and has been at the
"palace" a number of times at his invitation.
DECLASSIFIED
OSD Letter, 5-3-72
APR 11 1974
-2-
The prevalence and belief of these stories, and the
humorous elaborations which are passed around, are at least
indications of the unpopularity of the Madame ( it is generally
regarded by Chinese as a joke at her expense) and the decline
in respect for both her and the Generalissimo (I have never
heard anyone try to deny the stories, or refuse to be a party to
such scandal mongering).
Typical of these anecdotal stories are:
"That Man.
The Madame now refers to the Generalissimo only as
The Madame complains that the Generalissimo now only
puts his teeth in when he is going to see "that woman".
The Madame went into the Generalissimo's bedroom one
day, found a pair of high heeled shoes under the bed, threw them
out of the window, and hit a guard on the head. (The guard's
supposed remark on the troublesomeness of women does not translate
well into English.)
The Generalissimo at one time did not receive callers
for four days because he had been bruised on the side of the head
with a flower vase in a spat with the Madame.
All these stories may be nothing more than malicious gossip.
But a number of surface indications might be interpreted as in-
dicating at least serious tension between the Generalissimo and
the Madame.
The Madame has spent much of the time since her return
from the United States living with her elder sister, Madame Kung.
She has avoided social life and public appearances. She
has been seen rarely with the Generalissimo and when together
they have seemed to observers to be very cool.
The Madame is not well: her complaint, a skin irritation,
is regarded medically as being a result of nervous strain. She
avoids photographers. And people who have seen her at close range
have remarked on the hardening of lines in her face and that she
seems irritable.
If the situation as reported is true, it has undoubtedly
been a great strain on the Madame -- because of her pride as a
woman, her puritanical Methodism (there are generally accepted
stories of several government officials in the past who have
suddenly lost their positions because their wives were able to
call the attention of the Madame to their husband(s peccadillos),
and her knowledge of the effect it will have on her prestige.
Nonetheless, most observers believe that the stakes of
power are so important to the Soong family that they (with the
exception of Madame Sun but the important addition of H.H. Kung)
will do everything possible to prevent an open break and that she
will swallow her pride and put up with the situation.
Critics of the Generalissimo regard it all as evidence
of the hollowness of his Christian and New Life moralizing, and
another indication that he is after all not far from being an
old-fashioned "warlord".
(3056)
I
china folder 1-44
hmo
THE WHITE HOUSE
WASHINGTON
June 7, 1944.
MEMORANDUM FOR
HON. E. R. STETTINIUS, JR.
ACTING SECRETARY OF STATE:
To prepare reply and inform
Secretary Morgenthau. I cannot be here
until about the 22nd of June.
F.D.R.
Memorandum from Mr. Stettinius, 6/6/44, a carbon
of which has been retained for our files, in re
visit of Dr. Kung to Washington.
June 6, 1944
MEMORANDUM FOR THE PRESIDENT
Subject: Dr. Kung
The Chinese Ambassador called upon me
this morning and advised me that he had
just received a message from Chungking
saying that Dr. Kung was now ready to
come to Washington, and, in all probability,
would leave Chungking approximately June 15th.
(Signed) E. R. Stettinus, Ir
china folder
3082)
Signed original of this letter sent to the Department of State
and
for delivery by pouch, 6/12/44.
hms
June 10, 1944
Dear Generalissimo Chiang:
I have been informed that the United States
military installations in China have now been prac-
tically completed, notwithstanding the monetary and
financial difficulties China has to contend with.
I wish to express my own deep appreciation to you
and to express the thanks of the American people
for this splendid achievement.
This manifestation of our common effort gives
to the world additional evidence of the good faith
and the high principles which motivate the United
Nations in their determination to destroy the forces
of aggression. You and the Chinese people have
fought valiantly the common enemy for seven long
years, and I know that you are heartened, as we
are, with the realization that the day draws ever
closer when our objective of final victory will be
won.
China's achievements in the face of tremendous
obstacles inspires faith and hope in free men of
all countries.
Sincerely yours,
FRANKLIN D. ROOSEVELT
Generalissimo Chiang Kai-shek,
Headquarters of the Generalissimo,
Chungking, China.
THE SECRETARY OF THE TREASURY
WASHINGTON
June 8, 1944.
My dear Mr. President:
I have received your memorandum of June 1, 1944 enclosing
the Aide-Memoire brought to you by General Shang Chen from the
Chinese Ambassador. This same Aide-Memoire was handed to me
by Ambassador Wei on May 19, 1944 and it suggests an arrange-
ment whereby we can sell gold and currency in China to meet
our financial problems there. This proposal is being seri-
ously considered by War, State and ourselves and may prove
to be of some assistance, although it cannot be a solution
to our financial problems in China.
I should like to take this opportunity to congratulate
you, as Commander-in-Chief of our Armed Forces, upon having
faced and passed an important military crisis. General
Somervell informs me that the U. S. Army installations in
China are now practically completed. Thus, the problem
which you faced in January has been overcome and your major
objective has been achieved.
The difficulties of financing our military program in
China began, you recall, at the Cairo Conference, where the
Chinese leader requested a $1 billion loan. You accepted
my recommendation that this loan be denied, and the General-
issimo in January threatened that the Government of China
would not make any further material contribution to the war
effort, including construction of military works, unless we
agreed to grant the loan, or alternatively, to purchase
Chinese currency at the official rate of exchange for our
military expenditures. We refused to accede to the General-
issimo and continued negotiations. However, during these
negotiations, construction activities on behalf of our Army
were going forward and have now been substantially completed,
and we are now in the favorable bargaining position. Dr.
Kung in a letter of April 19, 1944 informed me that the
Chinese Government is "resolutely determined that nothing
should be allowed to interfere with the present and con-
templated operations of the U. S. Army in the China Theatre",
and that the Chinese Government renounces "any request for a
new loan (i.e. the $1 billion loan requested by the General-
issimo at the Cairo Conference)". Thus a most difficult
FORVICTORY
BUY
UNITED
STATES
WAR
BONDS
AND
STAMPS
- 2 -
situation has been bridged and our military installations in
China stand ready for use.
The Secretary of War, in his letter dated May 26, 1944,
has submitted to you an excellent account of the negotiations
to date regarding the U. S. dollar costs of our military
expenditures in China.
As you know, we have been informed that Dr. Kung will
come to the United States soon as head of the Chinese dele-
gation to the United Nations Monetary and Financial Conference.
This will give us the opportunity to continue the financial
negotiations with him in the United States.
That the position we have taken in these negotiations
is justifie d is shown by the declining value of the Chinese
yuan. The official exchange rate for Chinese yuan has been
5 cents since 1941; before China entered the war it was 30
cents. The unofficial or black market rate for yuan was only
2 cents by the end of 1942 and by the end of 1943 only 1 cent.
At the present time the yuan is worth about one-half of a cent.
The rise in value of the U. S. dollar in terms of Chinese
yuan is shown by some typical foreign exchange quotations in
Kunming and Chungking since the latter part of 1942:
Chungking
Kunming
1942 August
36 yuan for $1
44 yuan for $1
December
45 yuan for $1
48 yuan for $1
1943 August
80 yuan for $1
88 yuan for $1
December
85 yuan for $1
95 yuan for 1
1944
February
175 yuan for $1
300 yuan for $1
March
250 yuan for $1
220 yuan for 81
April
200 yuan for $1
205 yuan for 1
May
175 yuan for $1
190 yuan for $1
Gold has always sold at a much higher value in terms of
Chinese yuan. Thus, at the end of 1943 a U. S. dollar note
sold for about 90 yuan while $1 worth of gold sold for about
300 yuan. In May, 1944, when the U. S. dollar sold for
about 175 yuan in Chungking, $1 worth of gold sold for ap-
proximately 450 yuan.
You may feel assured that despite the financial problems
which arose to disturb the cordial relations of this Govern-
ment with the Chinese Government, the course of the present
financial negotiations is satisfactory and moving in the
proper direction.
china folder 1-44
THE WHITE HOUSE
WASHINGTON
June 1, 1944.
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY:
This memorandum is from the
Chinese Ambassador and was brought to me
by General Shang Chen direct from Chungking.
I think you might have a talk with the
Chinese Ambassador in regard to the Chinese
exchange situation. I do not think he
feels 1t is much better.
F.D.R.
DECLASSIFIED Franklin D. Roosevelt Library
SECRET
000 WARDERATMENT
Date- 2-13-70 WASHINGTON
Signature-
May 26, 1944.
The President,
got
The White House.
Dear Mr. President:
I submit herewith a chronological resume of the negotiations with the
Chinese Government with respect to the rates of exchange covering our expendi-
tures in China. Since the resume necessarily is somewhat long, I am also sum-
marizing herewith its context.
When our troops first arrived in China they found an agreed exchange rate
of $20 (Chinese) for $1 (U.S.), which even then had no realistic relationship
to the purchasing value of the Chinese yuan. However, our requirements for food
and housing were small and the expenditures were assumed by the Chinese Govern-
ment which also undertook the requisite airport construction. In the fall of
1943 when General Somervell visited Chungking, this situation had changed and
important construction was delayed, as the Chinese Government had not provided
sufficient funds. General Stilwell was making direct expenditures to obtain
necessary speed in completing urgently needed facilities.
General Somervell proposed to Dr. Kung the establishment of a more favor-
able exchange rate. He suggested a rate of 100 to 1 in comparison with the then
black market rate of 120 to 1. To save Chinese face, he proposed that we con-
tinue to procure $20 (Chinese) for each $1 (U.S.) with the Chinese either to
donate or to make available under reverse lend-lease $80 (Chinese) for each $1
(U.S.).
At the Cairo Conference the United States agreed to finance further con-
struction expenditures. However the exchange rate was not discussed. The Gen-
eralissimo on his return cabled you requesting either a loan of $1,000,000,000
(U.S.), or the payment of Chinese expenditures at a 20 to 1 rate. As this would
have made our expenditures in China astronomical, you disapproved the proposal
and urged the Generalissimo to accept proposals offered by our representatives.
The Chinese had been threatening to discontinue construction. With the
receipt of your message, they agreed to provide $2,500,000,000 (Chinese) and
we in turn agreed to deposit $25,000,000 to Chinese account in this country.
This was in effect a 100 to 1 rate, but the Chinese would not continue the
arrangement on a monthly basis. We also forwarded $20,000,000 (U.S.) at Chinese
request for purchase by the Chinese in the black market to lower the rate.
There was little confidence in this proposal and the money has not as yet been
turned over to the Chinese. Nevertheless, the Chinese continued to advance
funds for the construction program subject to our shipment of $5,000,000,000
(Chinese) per month into China. This is continuing and work to date has not
been held up.
SECRET
SECRET
The Chinese have advanced us $7,000,000,000 (Chinese) and have received in
partial payment the one deposit of $25,000,000. Manifestly, they are worried
as to the rate for repayment. For the first time we occupy the favorable posi-
tion. We have advised the Chinese consistently of our willingness to bear these
expenditures at a reasonable exchange rate. The 60 to 1 rate recently proposed
by Dr. Kung with $20 (Chinese) to be purchased for each $1 (U.S.) and $40 (Chi-
nese) to be provided under reverse lend-lease is not realistic in view of the
present black market rate. We are not adverse to a reverse lend-lease arrange-
ment of this type, though we do object to an unrealistic rate; and although it
would result in the Chinese obtaining a greater credit for future settlement,
it would appear most unlikely that funds received under reverse lend-lease at
any rate approaching realism would at any time even closely approach the dollar
value of direct lend-lease aid.
Perhaps our war program in China has contributed somewhat to inflation.
However, the number of our troops and the magnitude of our construction are not
sufficient to have a major effect. The Chinese report expenditures at approxi-
mately $10,000,000,000 (Chinese) for support of our troops and for construction
prior to the Cairo Conference. They have advanced $7,000,000,000 (Chinese) for
construction authorized at Cairo. In turn the United States has lend-leased
goods valued at $413,000,000 (U.S.). The Treasury Department granted a credit
to the Chinese Government of $500,000,000 (U.S.), against which it drew
$243,000,000. The FEA has purchased goods for $48,000,000 (U.S.) at a 20 to 1
rate. Our forces in China have expended through February 1944 a total of
$155,000,000 (U.S.) at the rate of 20 to 1. The financial contribution of the
United States has been most substantial and greatly in excess of the Chinese
expenditures even at the 20 to 1 rate. A settlement of the $7,000,000,000 (Chi-
nese) construction advance alone at the 20 to 1 rate would involve a premium
payment of over $300,000,000 (U.S.) compared with a rate of 150 to 1, and the
latter is below current black market.
The black market is continuing to rise. The rate at the present time should
not be less than 150 to 1 and even this rate should be revised periodically un-
less the Chinese Government controls inflation.
The War Department believes that our representatives should continue to
stand firm for a realistic rate. In view of the effect of any rate on military
planning, commitments should not be made in Chungking without clearance in Wash-
ington by the Treasury Department and your approval.
Respectfully yours,
Franklin D. Roosevelt Library
DECLASSIFIED
000 DIR. 5200.9 (9/27/58)
Theiry h Stenson
Secretary of War.
Inclosure (1)
Date-
& 2-13-70
Signature- ml
- 2 -
SECRET
SECRET
19 May 1944
RESUME OF CHINESE EXCHANGE SITUATION
1. The exchange situation in China first was brought to the attention
of the War Department by General Stilwell early in 1943, at which time he re-
ported that the official rate of exchange of 20 to 1 was not realistic, inasmuch
as the open market rate at that time was around 40 to 1 and increasing rapidly.
He called attention to the fact that with the large expenditures contemplated
by the Army, definite steps should be taken to have a new official rate estab-
lished.
2. The official rate of exchange of 20 to 1 was established in August
1941 and has been supported by the U. S. Government as a measure of making
effective the stabilization agreement entered into with China at the same time.
This stabilization agreement expired in January 1944.
3. When the matter of the rate was first reported by General Stilwell
the Treasury Department was requested to give some consideration to having the
Chinese effect a change in the rate and during the letter part of 1943, that
department endeavored to obtain some relief in the matter. These efforts
included a change in the official rate, the granting of a special rate to the
United States or the sale of gold at an advantageous price to use the proceeds
to decrease the excessive costs of the War Department's expenditures in China
because of the unrealistic rate.
4. With à knowledge of the State and Treasury Department and undoubtedly
with the full knowledge of the Chinese Government, the War Department has been
paying its personnel in China U. S. currency and permitting that personnel to
go into the open or black market and purchase Chinese currency at any available
rate. Later, the State and Treasury Department requested the War Department
to ship United States currency to China for use in paying personnel and
operating expenses. The War Department has been reluctant to having its soldiers
dealing in black market operations, but for morale purposes, it could not do
other than authorize such a procedure in view of its failure to find other means
of giving its men in China sufficient local currency to offset the unrealistic
exchange rate. In addition to the morale factor, there has been the ever
increasing expenditures by the War Department for supplies and construction.
5. Failing to secure relief through a change in the official rate, the
War Department, early in 1943 felt the need for a reciprocal Lend-Lease agreement
with China and the Chinese Government indicated that they may be willing to enter
into such an agreement. Accordingly, an agreement was drafted for submission to
the Chinese. In view of the exchange situation and the fact that the Treasury
Department expressed the view that efforts up to that time to secure a better
official rate of exchange had proved fruitless, it was decided to include in
the reciprocal Lend-Lease agreement, in addition to the provisions to direct
aid in kind, a section to the effect that the Chinese Government would provide
funds in Chinese currency to be used by the U.S. in direct purchase of supplies,
materials, facilities and services in lieu of reciprocal aid in kind and to meet
the essential governmental and military needs for Chinese currency. The under-
standing was that this currency received under the agreement could be used in
reducing the excessive cost to the U.S. of expenditures for personnel and other
purposes on account of the unrealistic Chinese REGRADED exchange rate.
UNCLASSIFIED
SECRET
SECRET
This reciprocal Lend-Lease agreement was presented to Dr. Soong, Foreign Minister
of the Chinese government by the State Department in Washington in May 1943
with a memorandum explaining the purpose of the financial provisions thereof.
The agreement was submitted to General Stilwell in China and was concurred in by
him in view of the apparent impossibility of securing a proper exchange rate.
6. In October 1943 General Somervell visited Chungking. He was advised
by General Stilwell that delays occuring in construction necessitated direct
contractual expenditures by United States forces. The artificial exchange rate
of 20 to 1 as compared with a black market rate of 120 to 1 was resulting in
exorbitant costs. General Stilwell believed that 8. better arrangement was
essential to our planned operations. General Somervell, with the knowledge and
consent of the Ambassador, proposed to Dr. Kung, subject to ratification by the
U. S. authorities in Washington, that the Chinese Government make available to
our forces the requisite Chinese currency to support these forces and the military
construction under one of two alternatives:
of
The United States would deposit to Chinese account in the United
States $1 U.S. for each $100 CN furnished, this deposit to be credited against
an official exchange rate of 20 to 1, with the remaining $80 CN to be a contri-
bution of the Chinese Government to our joint war effort ( this arrangement
would proect publicly the 20 to 1 artificial rate); or,
b. The Chinese Government would provide the requisite funds with the
United States depositing to Chinese account $1 U.S. for $20 CN of each $100 CN
made available, the remaining $80 CN to be provided under a reverse lend-lease
agreement.
Dr. Kung appeared to view these proposals as feasible and promised to place
them before the Generalissimo for approval.
7. Shortly after General Somervell's return to the United States in
November, and before the proposals could be carried further, the Cairo Conference
was held. The Generalissimo attended this conference. It is understood that he
was advised that the United States was prepared to bear the cost of its military
effort in China. It is not understood that the question of exchange rates was
considered. Subsequent to the conference, as indicated in the report of
Ambassador Gauss, January 16,1944, the Generalissimo in 8. message to the President
urged that a loan of $1,000,000,000 U.S. be made to China, or that, otherwise,
the United States assume full responsibility for its expenditures in China at
a 20 to 1 rate.
8. The Treasury Department was then negotiating with the Chinese Govern-
ment with a view to transporting gold to China for purchase of Chinese currency
in the open market to control inflation and to secure a better exchange rate.
These negotiations did not appear to be progressing rapidly. The Secretary of
Treasury recognizing the urgency of the airport construction program authorized
the War Department to proceed with its own negotiations.
REGRADED UNCLASSIFIED
-2-
SECRET
SECRET
Representatives of the State Department concurred in this arrangement. Our
military representatives were authorized to advise the Chinese that the
United States was prepared to accept full responsibility for its military
expedenditures subject to the establishment of a reasonable exchange rate which
would have some relationship to the actual purchasing power of the Chinese
dollar. On 15 January our Commanding General in China and State Department
representatives were advised to press for an early completion of & reverse
lend-lease agreement concurently with an agreement to be presented by military
representatives with respect to the funds to be made available by the Chinese
Government to cover our military expenditures. The military representatives
were advised to keep in constant touch with the State Department and Treasury
Depa rtment representatives so that any action taken in Chungking would be
jointly understood. Mr. Edward C. Acheson was sent to China to assist the
Commanding General in presenting the proposed fiscal arrangement.
9. In reply to the Generalissimo's request, referred to above, the President
urged the acceptance of the proposal submitted by our military and diplomatic
representatives. It is to be noted that the authorities in this country were
in agreement that there was little merit in the proposed loan to China.
10. Our military and diplomatic representatives proceeded with the negotiations.
In the latter part of January estimates became available with respect to the
substantial construction costs involved in the new airport projects. Meanwhile
the black market exchange rate had continued to advance and payments in American
dollars at a 20 to 1 rate would have become astronomical in comparison to the
value received in work. The War Department would have found it necessary to have
requested additional funds for the purpose from Congress and was apprehensive
that the exorbitant costs would have serious repercussions. Again on 24 January
our military representatives were advised to maintain a firm stand, but to inform
the Chinese Government that the United States was prepared to place to Chinese
account the U. S. dollar equivalent of any Chinese funds made available under
general arrangements which they would suggest to the Chinese Government.
11. Dr. Kung was designated by the Generalissimo to receive the United
States' proposals. Our representatives proposed as an interim measure that the
United States would purchase $1,000,000,000 CN at the rate of 40 to 1 through
the deposit of $25,000,000 U.S. to Chinese account in this country. The Chinese
Government would add $1,500,000,000 CN to this account. This proposal would
have established an interim exchange rate of 100 to 1. The Chinese Government
did advance the first funds and the $25,000,000 U.S. in payment thereof was
deposited to Chinese account. However the Chinese Government did not accept
the proposal as a continuing measure. On 3 February Dr. Kung made a counter-
proposal to continue the official exchange rate of 20 to 1 with the Central
Government contributing $10 CN more for each $1 U.S. under reverse lend-lease.
Our representatives turned down this proposal. They advised us on 12 February
that they could see no benefit in further proposals. However, Dr. Kung was
asked to advance $1,000,000,000 CN per month during the remainder of the
negotiations with the repayment rate to be decided during negotiations.
REGRADED UNCLASSIFIED
-3-
SECRET
SECRET
12. Report of expenditures at this time indicated that our own expendi-
tures in China had increased from $400,000 in January 1943 to $23,000,000 in
December. Estimates for airport and other construction indicated a require-
ment of approximately $2,500,000,000 CN monthly. Payment for these funds at
a 20 to 1 rate as compared with the proposed 100 to 1 rate would have resulted
in an annual premium to the Chinese Government in excess of $1,000,000,000.
However, the proposed rate of 100 to 1 was still below the real purchasing
value which was more adequately expressed by the black market rate which had
reached 150 to 1. On February 20 General Stilwell was advised that he must
continue to take a firm stand while still expressing the willingness of the
United States to bear full costs at a reasonable exchange rate. On February 25
we were advised by our military req resentatives that Dr. Kung had asked for
$20,000,000 U.S. to be flown to China as an advance to the Chinese account
with the rate to be determined later. These funds Dr. Kung proposed to use for
the purchase of Chinese currency in the black market in an effort to drive
down the black market rate. At the suggestion of our representatives, and with
the approval of the Treasury Department, this money was flown to India in the
understanding that $5,000,000 U.S. was to be made available to the Chinese
Government to test the effect of the proposed purchases prior to utilizing the
full amount. These funds have not as yet been turned over to the Chinese
Government as our representatives on the ground felt that the transfer might
prove detrimental in view of the existing status of negotiations.
13. On March 2 our representatives advised us that the Chinese Govern-
ment had agreed to furnish not to exceed $5,000,000,000 CN per month to our
forces provided the requisite money in Chinese currency was shipped from the
United States, with March and April requirements to be shipped by air.
Arrangements were made to meet this request.
14. During theperiod of negotiations the construction work has been
proceeding satisfactorily. As our proposal with respect to the deposit of
$25,000,000 U.S. per month to the Chinese account in the United States in
exchange for $2,500,000,000 CN had not been accepted by the Chinese Govern-
ment, only the initial deposit was made. Since we were obtaining all of the
funds needed without an exchange commitment, our representatives in China
believed it undesirable to submit further proposals to the Chinese. They
awaited counter-proposals from the Chinese Government. On May 7 our repre-
sentatives advised us that the Chinese were pressing hard for a financial
agreement at a 60 to 1 rate, $40 CN of each $60 CN furnished to be credited as
reverse lend-lease. As the black market was continuing to rise, our represen-
tatives were unwilling to accept this offer and insisted on a three months'
agreement for a rate of 150 to 1. Our representatives in the field reported
that the Chinese Government would make a direct appeal to the United States.
-4-
REGRADED UNCLASSIFIED
SECRET
SECRET
15. It is important to note that the Chinese Government has receded
considerably from its stand taken in 1943, and from its even more adamant
stand taken in December 1943 and January 1944, as a result of the firm
position taken by the United States. While the work undertaken by the American
forces and payment therefor may aggravate the distress of the Chinese economy,
it is very doubtful if its influence on the inflation difficulties is a major
contributing factor. In local areas where work is being carried on, our
expenditures will have more ous effect on inflationary difficulties than
elsewhere, but even there our expenditures are not the primary cause of their
economic disturbance. In any event, it is difficult to understand the effect
of the rate of exchange on this economy as the United States funds made
available to China would accumulate as a credit to be drawn against after the
war. It would be difficult to justify an artificial exchange rate which would
make the cost of American participation in the war in China out of all pro-
portion to the actual value of the work received, particularly taking into
consideration the relatively low cost of labor in China as compared with the
United States.
16. The extent of United States aid to China must also be taken into
consideration in determining the exchange rate which is to be accepted.
Lend-Lease aid to China has aggregated more than $400,000,000 U.S., although
some of the Lend-Lease material is still stock piled in India as transporta-
tion has not been available for its movement into China. At a realistic rate,
this Lend-Lease expenditure alone is equivalent to $60,000,000,000 CN.
In addition thereto, the Treasury Department granted a credit to the
Chinese Government of $500,000,000 U.S. in March 1942 against which
$243,000,000 has been drawn at the end of 1943.
The Foreign Economic Administration will have purchased in China
from 1941 through June 1944 approximately $48,000,000 U.S. which at the
official rate would purchase $960,000,000 CN worth of merchandise (strategic
materials). At a realistic rate of 100 to 1 as a conservative average for
the period, these purchases would have cost only $9,600,000 U.S. This means
that over the period the Chinese Government had been banefited as a result
of the unrealistic exchange rate by a premium of $38,400,000 U.S.
Likewise, our forces in China have expended for the period
1 January 1943 to include February 1944 a total of $155,550,000 U.S. which at
the official rate of exchange total $3,111,000,000 CN. Expenditures during
the month of March and April 1944 have been on the basis of the new agreement,
whereby the Chinese advanced to us the currency required for our needs and
we in turn deposited U. S. currency to the credit of the Chinese Government
in such amount as the Commanding Ceneral, U. S. forces reports as properly due.
REGRADED UNCLASSIFIED
-5-
SECRET
SECRET
The total amount reported by the Commanding General, U. S. Forces under this
agreement to have been received up to April 23 is $7,680,000,000 CN. (How
much of this should be credited as a Chinese contribution to the war effort,
and how much the United States Government is expected to reimburse the
Chinese cannot be determined in Washington at this time in view of the fact
that negotiations in this respect are being carried on by General Stilwell
in China.) This is a total expenditure in Chinese currency to date of
$10,791,000,000 CN. This would cost the U. S. at the official rate of 20 to
1, $539,550,000 U.S. whereas at a realistic rate of 150 to 1 it would cost
only $72,000,000. This means that the U. S. Pays a premium on these expendi-
tures of $467,550,000 due to the unrealistic rate.
Dr. Kung in a letter to the Secretary of War has reported Chinese
expenditures during part of February and all of March and April as aggregating
$7,016,000,000 CN. The Chinese state, however, in addition to this amount
the Chinese Government has paid out since September 1942 for construction of
airfields, barracks, air force supplies and improvement of roads at the
request of the United States authorities a total of $10,878,260,457 CN.
While the cost of the services furnished the United States Forces
in China cannot be verified, his estimate of construction cost in 1944 of
$7,000,000,000 CN is in a greement with our own figures. The United States
has deposited against this advance of $7,000,000,000 CN the sum of
$25,000,000 U.S. to Chinese credit in the United States.
17. In view of the large sums involved and the continuing expenditures,
it is apparent that the agreed exchange rate may have a decided influence on
military operations and on military planning. While it is desirable for a
firm agreement to be effected at the earliest possible date, the importance
of such agreement to contemplated military operations warrants its careful
consideration in Washington before it is accepted formally. It is suggested,
therefore, that any arrangements which may be proposed in Chungking be tenta-
tive until their effect on military operations can be studied by our Govern-
ment in Washington sothat all factors may be taken into consideration.
It is apparent that the American position has constantly improved during the
progress of the negotiations as a result of the firm stand taken by all of
our representatives working in close agreement. Meanwhile, military construc-
tion has proceeded without delay.
-6-
REGRADED UNCLASSIFIED
SECRET
AIDE MEMOIRE
To meet the requirements of the united States Army in
China the Chinese Government has advanced in toto the sum of
eighteen billion yuan.
The United States Government has signified its intention
of paying for its military expenditure in China which is greatly
appreciated by the Chinese Government. As a basis of settlement
of the funds advanced by the Chinese Government, United States
Army representatives in China have made proposals at different
times since February for the conversion rate to be fixed variously
at; U.S. $1 to 100 yuan, 200 yuan, 120 yuan, and 150 yuan. The
Chinese Government, however, is unable to consider these proposals
to alter the exchange rate of 20 yuan to one U.S. dollar, because
the lowering of the exchange rate under the present circumstances
would further undermine confidence in Chinese currency, as well
as stimulate the rise in commodity prices.
The Chinese Government, therefore, suggests the following
solutions:
(a.) The agreement for Reverse Lend-Lease as
proposed by the United States and agreed to
by China shall be signed and implemented as
soon as possible.
(b.) China undertakes to pay for land needed for
the construction of air fields.
(c.) China
-2-
(c.) China undertakes to pay for the food and
lodging of the United States Army in China,
such payments to be credited under Reverse
Lend-Lease.
(d.) For United States Army expenses other than
those covered in (b) and (c) above, the Chinese
Government offers the following alternative
solutions:-
1.) China shall contribute twenty yuan
as Reverse Lend-Lease, in addition
to twenty yuan exchanged at official
rate for every United States dollar
credited to China. China is further
prepared to raise such Reverse Lend-
Lease contribution to forty yuan for
each United States dollar placed to
her credit.
2.) Alternatively, if the above arrange-
ment (d.1.) is considered not satis-
factory, the Chinese Government shall
be prepared to permit the United States
authorities in China to sell in open
market United States currency notes,
United States Government bonds, gold,
and commodities for the purpose of
securing
-3-
securing Chinese currency needed to
meet United States Army expenditure.
The Chinese Government also believes that the most
effective measure of controlling inflation in China is
increased importation of commodities for daily use,
especially if such importation is combined with the
arrangements under (d. - 1 or 2)
It is to be observed that for every yuan issued, the Chinese
Government and banks assume the obligation of its redemption accord-
ing to law. In comparing China's present foreign exchange accumu-
lation to the amount of yuan issued China's exchange reserve is
infinitesimal and far below her minimum requirements, not to mention
China's post-war needs for rehabilitation and reconstruction, and
her monetary stability which especially needs assistance. Hence
any appreciable increase in China's foreign exchange and reserve
would greatly mitigate her difficulties and be of vital importance
to development of American trade with China.
T-314
china folder
THE WHITE HOUSE
washington
June 12, 1944.
MEMORANDUM FOR
HON. HENRY MORGENTHAU, JR.
TO READ AND RETURN FOR MY
FILE.
F.D.R.
Private and Confidential letter to the Pres.
^pril 19, 1944 from Dr. H.H. Kung, Chungking,
in regard to China's financial situation, with
attached Table of Total Payments Made by the
Chinese Government at the Request of the U.S.
Army Authorities (from Sept. 1942 to April 19,
1944.)
HEADQUARTERS OF THE GENERALISSIMO
CHINA
(Translation)
April 18th, 1944.
My dear President:
Ambassador Wei Tao-ming is requested,
upon his return to Washington, to hand you this letter
with my cordial greetings.
He is charged to convey to you my
views on the latest developments in the Far East and
the fundamentals of our future strategy in the China
theater. I trust you will accord him a fairly long
interview 80 that he may tell you in detail all that
he has to say and to give you any information which
you may desire.
Wishing you the best of health.
Yours sincerely,
(signed) Chiang Kai-shek.
P&L F iú IT 40 BY 42
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PSF: came folder 1-44
THE WASHINGTON WHITE HOUSE file-1
June 15, 1944
MEMORANDUM FOR THE PRESIDENT:
I attach the gist of some
recent reports I have received
from China.
Landli Ame
Lauchlin Currie
MEMORANDUM FOR THE PRESIDENT
Confidential reports from Chungking are that Kuomintang-
Communist negotiations are getting nowhere because the Kuomintang
has no real desire to compromise and will not meet Communist requests
for relaxation of the anti-Communist blockade, reestablishment of
radio communication between Chungking and Yenan, and release of
Communist political prisoners.
American observers on the spot therefore reach the con-
clusion that the Kuomintang began negotiations with the Chinese
Communists primarily to put up a good front against foreign criticism.
Yenan. The same motive is behind the visit of foreign correspondents to
The Communist representatives in Chungking claim that their
economic and political strength has increased in the Communist area
and that there has even been an increase in their military strength.
Be that as it may, there seems to be little doubt that they are
genuinely interested in fighting Japanese and would like to have
American military delegations sent to their areas.
The session of the Central Executive Committee of the
Kuomintang which began May 20th was kept very secret. The trend of
the meetings was definitely reactionary and Dr. Sun Fo who had
voiced criticisms received no support.
Regarding American criticism of China, the Generalissimo
was reported to have said:
"As for foreign criticism, I at first paid some attention
to it but it has passed the point of being reasonable. Formerly if
the foreigners found 1% good about China, they said that China was
100% good. Now if they find 1% bad, they say that the other 99% is
also bad. We should stop worrying about such criticism just as I now
disregard it.
"Censorship must be maintained to protect us against these
unfair criticisms. All that is censored now, despite foreign
complaints, are false rumors and reports."
DECLASSIFIED
By Deputy Archivist of the U.S.
By W. J. Stewart Date FEB 7 1972,
PSF: China freder
1.44
THE SECRETARY OF THE TREASURY
WASHINGTON
June 28, 1944
My dear Mr. President:
In accordance with your wishes,
I am returning herewith, for your files,
the letter dated April 19 from Dr. Kung,
which you asked me to read.
Yours sincerely,
The President,
The White House.
NM2
THE EXECUTIVE YUAN.
Numar reil
NATIONAL GOVERNMENT.
11
CHINA.
Private & Confidential
Chungking, April 19, 1944.
for
The Honorable Franklin D. Roosevelt,
President of the United States,
The White House,
Washington, D.C., U.S.A.
Dear Mr. President,
I am taking the opportunity of Ambassador Wei's return to
the United States to send you my warmest personal greetings. I
would also like to thank you for your kind invitation to me to
visit your country. Although circumstances and the pressure of
urgent duties unfortunately prevent me from leaving, I do hope
that the day will soon come when I shall be able to do SO.
I was very glad to hear from President and Madame Chiang on
their return from Cairo of your great desire to assist us in the
solution of our current problems. Therefore, it would not be
amiss to bring you au courant with respect to current economic
and financial developments in China. Dr. Wei is supplied with
detailed information which he will be glad to provide in order to
supplement this letter. It is no exaggeration to state frankly
that, in the economic and financial sphere, China is experiencing
its most difficult year since the beginning of the war. The seven
years of uninterrupted warfare with its attendant devastation,
blockade and growing financial burden have taken their toll. As
you are certainly aware the National Government, under the leader-
ship of President Chiang, are doing everything within their power
DECLASINED
State Dept. ,105-72
By R H. Parks Date 10-10-72
THE EXECUTIVE YUAN.
NATIONAL GOVERNMENT.
CHINA.
- 2 -
to intensify the common war effort. But our financial and
economic problems are increasing in acuteness.
Had our position been less unfavorable, we should have
gladly undertaken the burden of financing all United States Army
expenditures in China as a voluntary contribution to the United
Nations' war effort. As it is, the activities of the United
States Army in the China Theatre, important and indispensable as
they are for intensifying our war effort, are dangerously accel-
erating our inflation. To date we have appropriated over 17
billion Yuan for airfields and other military outlays for the
American Army, of which 10 billion, a sum equivalent to the
US$500 million loan which was extended to us in 1942, was paid by
February. I am appending a detailed list of such expenditures
for your reference. The mere provision of currency notes for
U.S. Army expenditures has exhausted our currency reserves in
China and used up all notes shipped in from India. In order to
keep the U.S. Army supplied with notes so that their activities
can continue without interruption, we are compelled to restrict
temporarily cash outpayments by the banks for commercial and in-
dustrial purposes pending the further arrival of new supplies
of notes from America by air.
In order not to impair seriously China's effectiveness in
the common war effort, it is essential that confidence in our
currency be maintained. An essential precondition for the con-
EEREFRR
THE EXECUTIVE YUAN.
NATIONAL GOVERNMENT.
CHINA.
- 3 -
tinuation of confidence in our currency is the maintenance of a
minimum reserve of foreign exchange, gold or silver, against our
currency. It would be most dangerous for us to continue to issue
currency notes to cover current U.S. Army requirements without a
minimum replenishment of such reserves. Unfortunately, this ob-
vious consideration appears to have been overlooked by some who
apparently feel that we should provide the U.S. Army Yuan currency
on terms which would involve an actual rate of 100 Yuan to 1 U.S.
dollar. Such a course amounts to a depreciation of the external
value of our currency by 500 percent and would be fatal to us in
our present predicament.
Those who urge for a further depreciation of our currency
were obviously misled by the comparatively high price commanded
by U.S. dollar notes in the black market. It is important, however,
to grasp the fact that the supply for U.S. dollar notes in the
black market is very small and that the chief demand is created
by the hoarders and speculators who smuggled U.S. dollar notes
to Shanghai and by smugglers in China who find it profitable to
acquire U.S. dollar notes even at high prices for the purpose of
taking to India to buy rupees in order to bring contraband goods
and gold from India. Thus the price the U.S. dollar notes command
in the black market is fictitious and cannot be regarded as true
indicator of the external value of Chinese currency. The Chinese
Yuan was worth about 30 cents U.S. currency at the outbreak of
BERITAR
THE EXECUTIVE YUAN.
NATIONAL GOVERNMENT.
CHINA.
- 4 -
the war in 1937. We maintained that free market rate at con-
siderable sacrifice until March, 1938. Since then, it has gra-
dually depreciated until the Stabilization Board of China fixed
the rate at about 5 cents in August, 1941. Since the basic idea
behind the plan for a United Nations' Monetary Conference which
is being prepared under the leadership of the United States Trea-
sury, is sound money, I am sure you appreciate our reluctance in
taking steps to further depreciate our currency. I have explained
in detail in my messages to Secretary Morgenthau dated January 6
and February 25, about which I presume you were informed, the rea-
sons for not changing our exchange rate. The psychological effect
alone of such a drastic revision of the exchange rate as some
contemplate would be very serious and would, of necessity, lead to
an upward revision of internal prices and serious loss of confi-
dence in the Yuan.
It is not generally realized and we do not wish it to be
known that China has had to conduct her war effort with less aid
in the form of materials and supplies than any major member of
the United Nations, and this in spite of the fact that she is
confronted with difficulties such as beset the path of no other
belligerent country. The powers of endurance of the Chinese peo-
ple have proven themselves under the tremendous strain of the
seven long years of war. Since, according to this year's budget,
nearly 50% of the expenditures is already covered by taxation,
THE EXECUTIVE YUAN.
NATIONAL GOVERNMENT.
CHINA.
- 5 -
the National Government is extremely anxious to avoid taxing these
sacrificial powers beyond endurance, for the consequences might be
disastrous both to China herself and to the United Nations as a
whole. We had all been hoping for the removal of the blockade of
China some time in 1944. Now that appears to be a remote contin-
gency. If the present economic and financial difficulties continue
and if we take steps that would drastically depreciate our curren-
cy, thus bringing about further inflation, the consequences may
be grim indeed.
We are not making any request for a new loan because we are
well aware of the difficulties that may beset the path for the
granting of a loan at the present time. We are exerting our ut-
most to do our share in facilitating the activities of the U.S.
Army in China by providing land for the construction of airfields
and by advancing large sums for the payment of construction and
other activities. As you have kindly informed President Chiang,
the United States, in order to cover all of its military expen-
ditures in China, including such maintenance as well as construc-
tion, is prepared to place to China's account the U.S. dollar
equivalent of any Chinese funds made available under general
arrangement with U.S. representatives in China. The only dif-
ficulty that prevents us from reaching a complete understanding
with respect to this matter is the rate of conversion. On ac-
count of this difficulty, except for the US$25 million paid in
BERTTRR
THE EXECUTIVE YUAN.
NATIONAL GOVERNMENT.
CHINA.
- 6 -
March, none of the rest of the U.S. dollar counter-part of the bil-
lions advanced by China has yet been turned over to China. Since, for
reasons stated above, we cannot depreciate our currency further with-
out seriously jeopardizing our currency position, we have been try-
ing to find other ways of solving the problem. Some time ago, we
have informed your Government our agreement to the U.S. proposed
arrangement for Reverse Lend-Lease and I hope the arrangement will
soon be carried out. I am sure you will agree with me that this whole
matter is not a subject for bargaining. We have already fought
shoulder to shoulder for over two years. We have shared considerable
sacrifices and, it appears to me, we should each contribute according
to our capacity for the common victory.
It was with great pleasure that I learned of Vice-President
Wallace's forthcoming visit to China in which event I am sure he will
become fully acquainted with China's war effort and the problems
incidental thereto. We welcome such interchange of visits as a
valuable means of exchanging mutual information and understanding
between the Allies and also hope that some day in the not too distant
future Mrs. Roosevelt will allow us to repay the hospitality so gen-
erously extended to Madame Chiang by you and your people.
With best personal regards,
Yours sincerely,
4.
H. H. Kung
Table of Total Payments Made by the Chinese
Government at the Request of the United
States Army Authorities (From September, 1942
to April 19, 1944).
A) Paid out by the National Treasury,
Ministry of Finance.
1.- For construction of airfields.
Yuan 8,018,932,286.25
2.- For construction of barracks for
Composite Wing in Air Force.
355,580,500.00
3.- For War Area Service Corps expen-
ditures (mostly board and lodging
for U.S. Air Force in China).
1,483,407,953.78
4.- For transport of U.S. Air Force
supplies.
404,442,917.92
5.- For the improvement of roads at
specific request of U.S. Army
authorities.
615,896,800.00
Total
Yuan 10,878,260,457.95
B) Advanced by the Central Bank.
1.- Advanced for the construction of air bases:-
(a) March 11, 1944
Yuan 1,743,000,000.00
(b) April 7, 1944
1,000,000,000.00
(c) April 14, 1944
1,503,000,000.00
(d) April 19, 1944
520,000,000.00
2.- Advanced for the account of the U.S. Army:-
(a) February 10, 1944
Yuan 1,000,000,000.00
(b) March 6, 1944
1,000,000,000.00
(c) April 15, 1944
250,000,000.00
Total
Yuan 7,016,000,000.00
GRAND TOTAL --- Yuan 17,894,260,457.25