Kung's Credits

First thing anyone learns about plump, suave Dr. H. H. Kung, Vice President and Finance Minister of China, is that he is the 75th direct descendant of Confucius.

A more useful family connection, however, is Dr. Kung's wife, eldest of the three famed Soong girls who with their brother have long been the real power behind the Nanking Government. By marrying Ailing ("Pleasant") Soong, smart Dr. Kung became brother-in-law at one crack of China's late, sainted Dr. Sun Yatsen, President Chiang Kai-shek and Finance Minster T. V. Soong. It was logical in 1933 when T. V. Soong quarreled with Chiang that Dr. Kung should succeed to his job. Regarded then as second-rate compared to brilliant "T. V.", Dr. Kung has since done a whacking good job, currently sits high at China's council tables. When Chiang was kidnapped last winter, Dr. Kung became acting President, ran the country through that highly explosive situation with a minimum of trouble. Then he bustled off to Europe as China's delegate to the Coronation of George VI.

This ceremonial visit served as an excellent curtain for a tremendous amount of dickering with European bigwigs. Swinging through Germany, Austria, Switzerland, Czechoslovakia, Italy, France and Belgium, Dr. Kung was everywhere given the sort of excessively cordial reception he loves. This was because China's credit is better now than it has been for years and because Europe, notably Germany, desperately needs a market for exports. China's credit is currently high because Dr. Kung has begun to make good on a number of defaulted foreign loans, promises to take care of them all. Hitler, Goering and Dr. Schacht therefore licked their chops when he arrived in Berlin. They gave him an honorary degree, got an unnamed industrialist to cough up 100,000 Reichsmarks for Chinese students to visit Germany, finally hinted that Germany would love to export machinery and other goods to China if Dr. Kung would float another international loan to pay for them. But wily Dr. Kung shattered their hopes by saying that China has learned her lesson in international loans, is now interested only in commercial credits. Then he left for the U. S. where last week he speedily made a deal.

Dr. Kung's prime problem at the moment is to finance the five-year plan of railway building inaugurated by China in 1935. China has only about 6,000 miles of line and the inferiority of her transport systems is a major factor in retarding the nation's progress. The program seeks to add 1,000 more miles per year and its biggest achievement so far, made possible through the aid of the British Boxer Indemnity credit, has been the completion of the Canton-Hankow Ry. This growth of trackage has caused an acute shortage of rolling stock. President Warren Lee Pierson of the U. S. Export-Import Bank saw that for himself during a two-month visit to China from which he returned only , last fortnight. Last week he and Dr. Kung and Export-Import Bank Advisory Committee Chairman Jesse Jones sat down together in Washington, soon agreed on a bargain whereby China will get 20 U. S. locomotives and equipment costing $1,500,000. Baldwin Locomotive Works and American Locomotive, Sales Corp. split the order, which is to be delivered in seven months.* They will assume half the credits, the Export-Import Bank the other half. The debt, paying 6%, will be evidenced by notes of the Chinese Government and the Minister of Railways, guaranteed by a Chinese bank. While Dr. Kung went off to his 30th reunion at Oberlin College, Jesse Jones declared: "The participation in the credit is in accordance with the bank's policy of assisting American exporters to maintain and to expand foreign trade."

The Export-Import Bank was launched by Franklin Roosevelt in early 1934 as the nub of a "balanced foreign trade" which would eventually counteract the most fundamental change in U. S. economic history--the switch from a debtor to a creditor nation effected by the War. With almost every foreign nation in debt to the U. S., they no longer had money to buy U. S. products. The New Deal proposed to give them long-term commercial credits. But the established U. S. banking system, created for a debtor nation, provided no source for such long-term commitments. The first Export-Import Bank was created to fill the need in the case of Russia. Idea was that there would follow other Export-Import Banks, one for Cuba, one for Chile, etc. But the original bank could never fulfill its job and soon expired because of the Johnson Act which forbade extension of credits to nations refusing to pay their debts to the U. S. The second Export-Import Bank, and presumably the permanent one, followed with a plan embracing any or all nations. Recent deals include $3,500,000 to Italy to stabilize its cotton, $27,500,000 to Brazil to clear dollar exchange.

*The 20 will be freight locomotives of the Mikado type (2-8-2 wheel arrangement), are a relatively minor order for the two companies. Having sagged almost to zero production in 1932, U. S. locomotive works are now going at full speed. In the first five months this year 277 engines were ordered.

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