tion of such commodities and equipment as contemplated under this entire program: (For details see exhibit "E," p. 49, Extract from hearings before the Committee on Foreign Affairs House of Representatives, "A China Recovery Program" by W. Bruce Pirnie.) RECAPITULATION The grand total budgeted for the four programs aforementioned, which we recommend for appropriation of funds necessary for their implementation, will therefore be as follows: 1. Immediate Economic Assistance Program 2. Agriculture and Water Development Program. 3. Industrial Program__. 4. Transportation and Communication Program.... Grand total... $131, 927, 000 76, 000, 000 208, 450, 000 105, 000, 000 526, 480, 000 We have $388,000,000 for 1 year for these projects. The grand total called for $526,450,000. We argue that all of these projects should be negotiated and that if the Chinese will meet the requirement that they match about one-third of the total outlay called for, show good faith in attempting to carry out the projects, we will give consideration to continuing the projects. The most important principle here is the participating of the Chinese in the spirit of such a program which basically is one of self help. Out and out grants should be the exception. Loans should be the rule and they must and can be loans for which there will be repayment. the Chinese do not want to accept a pauper program. They want to go into business with us. There are enough who do to make this a success and consequently it is strongly recommended. SUMMARY The total program, therefore, requires an expenditure of approximately $526,000,000 or about 21⁄2 percent of what has been proposed for the European recovery program. Loans would be repaid in 20 to 25 years, with no payments required for the first 5 years. ADMINISTRATION To administer this program, a China corporation (the Deputy Administrator's corporate arm), patterned after the RFC, should be established. The operating principles and structure of this corporation and program should be agreed on in the bilateral agreement with China which must be signed. It should have a capital of at least $250,000,000 subscribed by the CCA, and authority to borrow up to $1,000,000,000 from the United States Treasury. Three Chinese and four Americans would compose the board of directors. Its over-all functions and duties would be to observe, direct, and give effect to all phases of this program, establishing individual commissions for each phase. Throughout the entire program, the principle of joint participation, both in men and resources, should be strictly adhered to. Where necessary, Central Government and Provincial Government departments in China will be used, but the Deputy Administrator should be under obligation to utilize to the utmost the free-enterprise system both here and in China, and to develop this program as a show-down between the American freeenterprise system and Soviet planned economy. To effectively implement this program and give force to democracy in China, the most progressive elements in Chinese society will have to be used. These elements are to be found in the private business class. Paradoxically enough, the United States (the most powerful free-enterprise nation in the world) has heretofore pursued policies which have completely bypassed this group of able and hardworking men. Previous policy has encouraged, strengthened, and actually built monstrous bureaucratic enterprises with our taxpayer's money. The jungle growth of these outdated appendages of New Deal policy have all but strangled private business in China and have won us the enmity of the best people in that country. It is these same fungus growths which have given truth to the charges of inefficiency and corruption-and we built them. The Universal Trading Corp., established at the suggestions of Mr. Morgenthau to act as the official purchasing agent of the Chinese Government, is an example. A New York corporation, with no American stockholders, capitalized at only $500,000, it nevertheless controls virtually all trade between the United States. and China, acting as a bank as well as a buyer and seller. It is reported that it. has reaped and is reaping a large harvest of profits with American public money.. In China its counterparts are the China Vegetable Oil Corp., the China Textile Corp., the Yangtse River Co., etc. The cure for these ills is to stop throwing money at them and to direct it to where it will do the most good-to the private business class. In competition with private enterprise, these monopolies will fall of their own weight. To eliminate these mistakes quietly and to preserve the principle of joint participation, the Commission for Transport, Agriculture and Industry, should be allowed to grant loans only to Sino-American management companies formed under the China Trade Act of 1922, as amended. Such companies must by law have a majority of United States citizens on the board of directors. By the China Trade Act, the president and treasurer must be United States citizens, resident in China. These management companies would in turn sign management contracts with operating companies (also to be formed under the China Trade Act) for each project within the management company's given area. These management. contracts would provide for the termination of each said contract when the principal and interest of all United States loans thereunder was repaid. An additional provision will be made in the management contract allowing for the purchase by Chinese of all the United States owned assets when the management contract is terminated as above. All companies (management and operating) must have a joint capital structure in the ratio of approximately United States $1,000 by Chinese to United States $2 American. This program, as a whole and in part, is uniquely American, since it affords an opportunity for mutual effort, sacrifice, and cooperation; provides for eventual full ownership of all projects by Chinese; insures proper training for the Chinese to run their economy, and above all, makes optimum use of the best elements in China and the most efficient in the United States. Foreign capital developed the United States and was bought out. The same can be done in China which is young in spirit, undeveloped, and eager to learn and work. The details are as important as the over-all plan; neither will work without the other and it is imperative that the United States adopt the workable policy and program now or we lose the battle of the Pacific. CONCLUSIONS 1. It should be understood that the "guiding principles" as suggested in A China Recovery Program by W. Bruce Pirnie, will be observed in the application and administration of all economic aid to China. 2. To facilitate the gradual extension of economic aid to central and north China during the first few years, it is concluded that the repayments of these project loans will be extended through a "revolving fund" for such extension work as needs to be carried out. 3. Since the reorganization of the present Chinese currency is of such importance to the entire economy of the country, and since most of the projects recommended above cannot be effectively and efficiently implemented without a stable currency in the country, it is here concluded that 4. The Chinese currency should be reorganized at once by a subcommittee from the Joint Committee on Foreign Economic Cooperation. It is recommended that: 1. The China Corporation with $250,000,000 as the corporate arm of the Deputy Administrator for China be formed immediately. 2. The remaining $88,000,000 will offset the $50,000,000 advanced by RFC for emergency food, supplies, etc., $38,000,000 a backlog for other worthy projects. 3. An alternate plan would place all funds in the Corporation. This would make the capital $338,000,000. 4. The China Corporation follow the administrative machinery described on page 19 of a China Recovery Program. Substitute the word "China Corporation" for China-American Reconstruction Authority. 5. An amendment to the present law be requested of Congress later to give the Corporation permission to borrow not more than $1,000,000,000. CHINESE CURRENCY REFORM (By W. Bruce Pirnie) The Chinese dollar which before the war was valued at CN$3 to US$1 is now valued at CN$750,000 to US$1. Inflationary spurts are occurring at shorter and shorter intervals causing a complete break-down of business and banking. The farmers refuse to sell and this normally self-sufficient country starves. Effective taxation is impossible. Wages are constantly behind prices. With no central banking system a managed deflation is impossible. While the average Chinese citizen is interested primarily in silver money and will demand silver rather than paper, it might be advisable to include gold along with silver in any plan for a new currency system for China. A silver standard would be entirely suitable and sufficient for China's future currency system and would operate as efficiently and as satisfactorily as a gold standard provided the United States Government would cooperate in maintaining a stable world price for silver. Fluctuations make difficult and intricate the settlement of foreign exchange transactions and balances of payment. It would not be difficult for the United States Government alone to maintain a stable world price for silver by following the same policy as it pursued in the case of gold. A bilateral agreement between the United States Government and the Republic of China designed to effectuate a stable world price for silver is desirable. Such an agreement could be extended multilaterally to include other Governments, such as India as signatories, and any other countries whose people prefer silver money to other kinds. In the absence of a means for stabilizing the world price of silver, the Republic of China would find it advantageous to use gold in the settlement of trade balances with other countries and in support of a portion of her domestic paper currency and central bank deposits. If both gold and silver are to be included in China's new currency system, a price for each metal should be established and maintained independently of the other metal. No attempt should be made at this time to establish prices for both metals on a basis of their production ratio. Silver as well as gold has a profound attraction for speculators and brings a higher price in foreign bullion markets than in United States. The United States market is dominated largely by industrial groups who depend almost entirely on silver imports for their supply of the metal. While 75 percent of the world's production of silver is produced in the Western Hemisphere there is not established anywhere in the hemisphere a free market where gold and silver may be bought and sold without restriction. Once restrictions are removed the true value of these metals could be determined. If both gold and silver are to be included in China's currency system, it would be desirable to set it upon a ratio of 3 to 1-that is, three times as much gold as silver. Paper money could be issued against some of the gold but not be made redeemable in gold. Contrarily, any paper currency issued against silver should be made redeemable in silver. All gold and silver currencies in the new system should be made legal tender for all debts, public and private. It is reliably reported that the Republic of China owns between $75,000,000 and $100,000,000 of gold and between 30,000,000 and 40,000,000 ounces of silver, and that something like $500,000,000 of gold and United States dollars may be owned by banks and individuals. These assets should be made available to the Republic of China for use in establishing a new currency system. The United States Government has on hand more than twice the amount of gold required to support Federal Reserve notes in circulation and Federal Reserve bank deposits. Not more than $1,000,000,000 of gold and silver will be needed for China's new currency system. If the new system is set up on a basis of $750,000,000 of gold and $250,000,000 of silver, the silver to be coined and its circulation guaranteed, the difference between the amount of gold now available in China and $750,000,000 should be earmarked in the nature of a loan by the United States Government and kept on deposit in the United States. The United States Government should also make available to China 150,000,000 ounces of nonmonetized silver, now in the Treasury and uncommitted, to be coined at a melting point of $1.2929 per fine Troy ounce and shipped to China on a lend-lease basis, and to be returned to the United States in kind (bullion) within 10 years. At this melting point 150,000,000 ounces will produce $198,985,000 equivalent United States currency. Assuming that China now has on hand 30,000,000 ounces of silver, according to reliable sources, that may be available for coinage purposes, this quantity would produce $38,787,000 equivalent of the United States currency, making a total of $237,772,000 of Chinese silver coinage, United States equivalent. Further requirements would be met by opening the Chinese mint to free coinage of silver. It is estimated that there are still in hiding in China at least 1,000,000,000 ounces of silver, which the peasants would willingly deliver to the mint on a free-coinage basis if the seigniorage charge is limited to only 2 or 3 percent. Colonel PIRNIE. One of the easiest and quickest ways to say it is with this chart. (The chart is as follows:) |