Foreign Relations of the United States, 1949, The Far East: China, Volume IX

711.93/11–1449

Memorandum by the Acting Secretary of State⁴⁴

[Washington,] November 14, 1949.

Possible Aid to the Forces Still Opposing the Chinese Communists

The President handed me the attached undated, unsigned memorandum with respect to possible aid to the forces still opposing the Chinese Communists. He asked that I read this and return it to him.

As the Secretary will have to discuss this matter with the President when he returns it on his next visit, please prepare an evaluation to form the basis of such discussion.

James E. Webb

[Annex]

Memorandum

I

Russia’s atomic bomb—Russian pressure for recognition of her acknowledged satellite, the Chinese Communist Government—the abandonment of Canton—all in a few weeks—force the United States again to decide what it is going to do about China.

Taken together, these events portend ominous consequences if the Chinese Communists are allowed to overrun all China for Russian account. If the Communists are allowed to consolidate all China—if no free space is left in which the liberal elements in China can find a base to reorganize—it is only a question of time when all Asia is beyond the possibility of cooperation with the West and is in the anti-American orbit.

With the highlands of South China in enemy hands, the lowlands of Burma, French Indo-China and Siam can not be held.

Without at least a year’s delay in the Soviet timetable in China, even India will not dare to take the side of the West and risk being a Poland. The back door to Russia will then be completely closed. She can strike toward Western Europe or toward Alaska, without her old fears of complications in the rear of her trans-Ural war production.

In order to secure this long-term objective, the Russians have been most persistently and painstakingly supporting the Chinese Communists. Besides turning their powerful propaganda machine in the U.S. to win support for the Chinese Communists as mere agrarian reformers, Russia has poured vast quantities of Japanese and Czech arms into the Communist armies, and has assigned numerous advisers to the staffs of the Communist Generals, besides planning out all their campaigns for them. They have also sent entire detachments of Mongolian, North Korean and Japanese artillery, cavalry and technical troops to support the Communists. Contrasted with that, since the end of the war, U.S. assistance to China had been by fits and starts, and American Military advisers were precluded by their directives from giving any operational advice to the Nationalists.

The recent abandonment of Canton without more of a fight was a necessary logistical decision on the assumption that the U.S. had not made up its mind whether to help. In three months an allotment of funds advanced from the Formosan reserve by agreement between Chiang Kai Shek and the Executive Yuan that it would be the budget for an entire year, had become exhausted (see footnote).^* This was due to the heavy fighting in the determined stand before Canton as the Communists pressed for a symbolical victory at the time of the Russian bid for the recognition of their puppet government.

To give up Canton was a terrifically cruel decision to take but the desperate Chinese leaders could only make their plans on the worst assumption; i.e. that U.S. aid might never arrive and that they would have to husband their remaining resources of money for last-ditch stands in more easily defendable locations. There they might have a better chance of surviving until any American help that might come would arrive.

Canton was not fought for—because at the going rate of attrition there would have been no money left to fight with anywhere—Canton or anywhere in a short while. Not to have defaulted would have been like the charge at Balaklava—“magnificent, but not war.” The abandonment of Canton rightly understood does not mean the Chinese are giving up the war. Rather it means that they are intelligently trying to continue it.

II

President Truman and Congress have stated their eagerness to help non-Communist China in any feasible way. With the fall of Canton it is time to resurvey the scene with a view to answering the following questions:

A. What areas can and should be held against the Communists?

B. What forces are available to hold such areas?

C. What leadership is available—civilian and military?

D. What assistance could the U.S. give?

E. What means are available for such assistance?

F. What are the prospects of success?

A. What areas can and should be held against the Communists?

The military situation in China today is comparable to that of the critical period during the war with Japan. The main objective was and is to defend the eastern boundaries of the provinces of Szechuan, Kweichow and Kwangsi. Attack and defense problems are expected to revolve around the familiar pattern of the previous struggle, but there is one major advantage to the Chinese Government that was not present during the war with Japan.

This is the possession of the islands of Taiwan and Hainan—the so called “twin eyes of the Chinese dragon.” The importance of Taiwan is recognized. Equally important is the island of Hainan, because it links the Nationalist mainland with the outside world. The beachhead of Hainan is the Laichow Peninsula, and running thence through the mountainous terrain to link up with South West and Western China, Southwestern tip of Kwangtung, Kwangsi, Kweichow, Szechuan, Sikang and Yunnan (see map⁴⁵). This bloc will be a barrier to the downhill infiltration of Chinese Communists into French Indo-China, Siam, Burma and India.

This bloc is economically self-sufficient, particularly in rice supply, as follows:

(1) Szechuan	—large surplus.
(2) Sikang	—small shortage, to be met from Szechuan surplus.
(3) Yunnan	—insufficiency, to be met from Szechuan surplus.
(4) Kwangsi	—self-supporting.
(5) Kweichow	—small shortage.
(6) Hainan Island	—short 40,000 tons a year, to be supplied from Taiwan.
(7) Taiwan	—self-supporting. It is proposed that an additional 150,000 tons of fertilizers shall be authorized for Taiwan under the E.C.A. economic aid program to increase the rice yield by some 150,000 tons for Hainan for military and other requirements.

B. What forces are available to hold such areas?

Troops of doubtful quality or loyalty have already been eliminated or have deserted, but there remains a loyal fighting force of over a million men:

Taiwan	250,000
Laichow Peninsula and Kwangsi	300,000
Hainan	50,000
Kweichow-Hunan border	100,000
Szechuan and Sikang	300,000
Yunnan	100,000
	1,100,000	men

In the mountainous areas to which they have retreated, if they are well paid and munitioned, they could easily hold their ground against any force the Communists could send against them.

In addition to the ground troops, there are intact the main body of the Air Force and the Navy, which the U.S. Government helped to develop and train.

The Air Force personnel number 100,000 men, which is far superior to anything the Communists possess.

The Navy personnel number 50,000 men, which has been conducting an astonishingly effective blockade of Communist ports.

C. What Leadership is available?

New dynamic leadership is required to infuse new life into the fighting forces. Any change of leadership which the U.S. wishes made in order to make aid effective will be acceptable. The U.S. only needs to “indicate” what its opinions are.

Very tentatively it is suggested that the Commander-in-Chief should be Lieutenant General Sun Li Jen, a Virginia Military Institute graduate in his late forties, trained in India with General Stilwell, who made an outstanding record both during the World War and in fighting the Communists. He is well and favorably known to Americans, and is now Commander-in-Chief of the troops in Taiwan. He is a relatively young man but enjoys general confidence and will be definitely acceptable to both the Generalissimo and Acting President Li Tsung Jen, who can be counted on to give their entire support. If, in addition, it is known that American support in the shape of a military mission and financial and material aid will be back of General Sun, he will have complete authority over all the fighting forces, and will not be interfered with.

Equally important is a new civilian leadership. To coordinate with military reorganization, the Western trained liberals in China, who are crystalizing around Dr. Hu Shih to form the new Chinese Liberal Party, should be given political power to form a new cabinet. This new cabinet will command the enthusiastic support of all anti-Communist elements. Again, whatever the U.S. “indicates” as desirable can be arranged. At this present juncture a “revolution by consent” could be obtained from the Kuomintang so that these liberals will be installed. It is the intent of the Chinese Liberal Party to inaugurate immediate military reforms, and to have a civilian as Minister of Defense.

D. What assistance could the U.S. give?

For the maintenance of troops, $40,000,000 a month is required. This is broken up into:

1. Procurement of military supplies, consisting of the following major items:		$10,000,000
Small arms	1.8 million
Small arms ammunition	3.0 million
Trench mortars and shells	.8 million
Petroleum products	1.2 million
Arsenal materials	.6 million
Air and Navy spare parts	.8 million
Air and Navy ammunition	.6 million
Vehicles and parts	.6 million
Miscellaneous	.6 million
2. Pay and maintenance for military personnel and operations:		$30,000,000
Army personnel (in combat areas)	numbering	1,100,000
Air Force personnel	numbering	100,000
Navy personnel	numbering	50,000
International Volunteers

The above are of course, only tentative estimates which may be modified after investigation by the U.S. Aid Field Mission mentioned below.

It is proposed that a budget should be made up for the five months up to and including February–1950, when the U.S. Congress will have been in new session for a month and will be in a position seriously to reconsider the China situation. This budget would amount to $200,000,000; i.e. the $40,000,000 per month detailed above.

To implement and supervise aid operations, it is proposed that a U.S. Aid Field Mission be created, to be headed by a high-ranking U.S officer appointed by the President.

The U.S. Aid Field Mission shall have broad powers covering allocation, disbursement, and supervision of the U.S. Aid Fund, under policy directives approved by the President. What is most important is that the Mission should be able to give operational advice to the new Commander-in-Chief.

E. What means are available for such assistance?

Fortunately the bulk of these funds are already available, if the U.S. Government decides to employ them.

They are:

(a) The $75,000,000 China Military Aid Fund recently authorized by Congress;

(b) Some $80,000,000 still available under the 1948 China Aid Act for which no current or expectant procurement authorizations are pending; and

(c) $45,000,000 of stockpiling appropriation which could be made available in a way later described.

Both (a) and (b)^† may be used in the manner and under terms and conditions to be determined by the President.

To provide the $45,000,000 in (c), China would be able to make available to the United States, for purposes of stockpiling of strategic materials, such export commodities as antimony, tin, tungsten, tung oil and bristles.

Under present conditions an annual export of U.S. $30,000,000 worth of the above-mentioned commodities can easily be made from the government-controlled area. The amount can be considerably increased if transportation facilities could be improved.

To be on the safe side, however, it is proposed that only $22,500,000 per year be delivered. It is therefore suggested that out of the fund made available to the Army and Munitions Board under the Stockpiling Act (Public Law 520, 79th Congress), $45,000,000 shall be allocated for the acquisition over the next two years of strategic materials in China. To assist in the military exigency and to stimulate China’s export and economic recovery, it is further suggested that a lump sum advance payment of such $45,000,000 should be made available to the new Chinese Government, through and under the supervision of the U.S. Aid Field Mission.

Against this payment, it is suggested that the Chinese Government undertake to make delivery as follows:

	Availability (Production per year)		Deliveries				Total Deliveries
			1st year		2nd year		Quantity		Value
Tin	6,000	tons	4,000	tons	4,000	tons	8,000	tons	$16,000,000
Tungsten	1,000	tons	500	tons	500	tons	1,000	tons	800,000
Bristles	15,000	cases	10,000	cases	10,000	cases	20,000	cases	7,400,000
Tung oil	50,000	tons	20,000	tons	20,000	tons	40,000	tons	20,800,000
							Total:		$45,000,000

From these three sources (a), (b) and (c), a total of $200,000,000 would be available for the resistance budget through February–1950.

There remains what may be left of the gold reserve in Taiwan, which, along with tax receipts, could be used to maintain the currency, defray administrative expenses, or be pooled for military purposes under the overall allocations of the U.S. Aid Field Mission.

F. What are the prospects of success?

The Chinese Communist troops are flung out on long lines, ill-served by transportation. They have now arrived at Chinese mountain positions which the Japanese Imperial Army, with much better organization, with sea transportation, and much better fighting qualities and morale, were never able to penetrate. The quality of the Chinese Communist troops has sharply deteriorated as repeated clashes recently have shown. In addition, the ideology and methods of the Communist leaders have alienated the population which at first welcomed them and believed in their impossible promises.

Canton could have held out indefinitely had it not been for the heavy cost of upkeep and the major decision to eke out the remaining reserves for the longest possible time without foreign aid.

Ensconced in such difficult terrain, the Nationalist troops—with pay assured—with new military and political leadership—and, above all, with the tremendous morale uplift given by definite U.S. support—have every reason to believe that these limited self-sufficient areas could be held:

A. As a maximum, until such time as the situation in Communist-controlled areas furnished a chance for successful military counter offensive from such free areas.

B. Probably worth just as much, until such time as the very existence of a free China in such free areas would lead to internal dissatisfaction arid a self-starting counter revolution in the Communist-controlled areas by the constant incitation of the inherent Chinese desire to be free of foreign domination.

C. At the very least, long enough—a year or two—to give a chance to organize a line of Asiatic resistance to Communism further back, by containing the military and revolutionary resources which a Soviet organization, having conquered and consolidated China, could turn loose, one by one, on much easier targets to the south. And finally, if Nationalist China completely collapses and the member nations in Asia change their alignment, the balance of power in the Assembly and in the Security Council of the United Nations will be changed to the lasting detriment of the U.S.

The Chinese people and army have been struggling against a disguised foreign invasion for many years. They have suffered from repeated reverses. Feeling isolated and frustrated, they need a new hope which only the restoration of U.S. aid will furnish. But time is of the essence.

44. Transmitted to the Assistant Secretary of State for Far Eastern Affairs (Butterworth).
45. Secret—Not to be published or quoted

    By the end of May the Central Bank reserves consisted of (a) 4,000,000 oz. of gold and (b) silver and foreign exchange to the total value of U.S. $20,000,000. During the last four and a half months, over and above any tax receipts which the long-exhausted countryside could furnish, the military and civilian expenditure of the Government absorbed all the silver and foreign exchange and nearly 2,000,000 oz. of gold, which latter, at the Chinese market rate of U.S. $40 per oz., was equivalent to U.S. $80,000,000. The drain on the reserves was therefore at the rate of U.S. $22,000,000 per month. Even at that the troops and civilian officials were poorly paid with consequent low morale. Computing at this rate of expenditure, the remaining 2,000,000 oz. of gold in reserve could only last the Government another three months.

    The above figures were never published despite insidious attacks against the Generalissimo for not giving the troops sufficient funds from Taiwan reserves, because knowledge of this rate of exhaustion would give comfort to the enemy. [Footnote in the source text.]

45. Map not attached to file copy.
46. In the case of (b), current legislation requires that the uses should be consistent with the purpose of the China Aid Act. To ensure that the President shall have a free hand to apply the fund in what he considers to be the most direct and effective way, it should be kept in mind that eventual action would be taken to secure supplementary Congressional authorization to the effect that the fund may be used “without regard to the provisions of the Economic Cooperative Act of 1949.” [Footnote in the source text.]