Foreign Relations of the United States, 1952–1954, China and Japan, Volume XIV, Part 1

S/S–NSC files, lot 63 D 351, NSC 5441 Series

No. 459
Draft Statement of Policy Prepared by the National Security Council Planning Board¹

top secret
NSC 5441

[Washington,] December 28, 1954.

U.S. Policy Toward Formosa and the Government of the Republic of China (GRC)

objectives

1. Maintenance of the security of Formosa and the Pescadores as a part of the Pacific off-shore island chain, which is an element essential to U.S. security.

2. An increasingly efficient Government of the Republic of China (GRC), evolving toward responsible representative government, capable of attracting growing support and allegiance from the people of mainland China and Formosa, and serving as the focal point of the free Chinese alternative to Communism.

3. Continued development of the military potential of GRC armed forces (a) to assist in the defense of Formosa and the Pescadores and (b) to take action in defense of the GRC-held off-shore islands, equipped and trained to contribute to collective non-Communist strength in the Far East and for such other action as may be mutually agreed upon under the terms of the Mutual Defense Treaty.

4. Use of GRC military potential, including the availability of Formosa and the Pescadores for the use of U.S. forces under the terms of the Mutual Defense Treaty, in accordance with U.S. national security policies.

5. Development of a stronger Formosan economy.

6. Improved relations between the GRC and other non-Communist nations.

7. Continued recognition and political support of the GRC as the only government of China and as the representative of China in the United Nations and other international bodies.

8. Increased support for the GRC by non-Communist Chinese outside mainland China and Formosa, especially the overseas Chinese of Southeast Asia, insofar as such support does not conflict with obligations to their local governments.

courses of action

9. Effectively implement the terms of the Mutual Defense Treaty, taking all necessary measures to defend Formosa and the Pescadores against armed attack.

10. Seek to preserve, through United Nations action, the status quo of the GRC-held off-shore islands, and, without committing U.S. forces except as militarily desirable in the event of Chinese Communist attack on Formosa and the Pescadores, provide to the GRC forces military equipment and training to assist them to defend such off-shore islands, using Formosa as a base.

11. Refrain from assisting or encouraging GRC offensive actions against Communist China, and restrain the GRC from such actions, except in response to Chinese Communist provocation judged adequate in each case by the President.

12. Continue covert operations.…

13. Continue military assistance and direct forces support for the GRC armed forces to enable them to assist in the defense of Formosa and the Pescadores, to take action in defense of the GRC-held off-shore islands, and so equip and train them as to enable them to contribute to non-Communist strength in the Far East and for such other action as may be mutually agreed upon under the terms of the Mutual Defense Treaty.

14. Continue coordinated military planning with the GRC designed to achieve maximum cooperation from it in furtherance of over-all U.S. military strategy in the Far East.

15. Encourage and assist the GRC, through such means as offshore procurement and technical advice, to construct and maintain on Formosa selected arsenals and other military support industries.

16. Exercise the right, as appropriate, under the terms of the Mutual Defense Treaty, to dispose such U.S. land, air and naval forces in and about Formosa and the Pescadores as may be required in U.S. interests.

17. Show continuing U.S. friendship for the GRC and the Chinese people, while avoiding any implication of an obligation to guarantee the former’s return to power on the mainland.

18. Encourage and assist the GRC to take steps leading toward more responsible representative government suited to the Chinese environment and having a constructive social and economic program, so as to deserve the support and allegiance of the people of Formosa and to serve as the focal point of the free Chinese alternative to Communism. So far as feasible, employ U.S. assistance as a lever to this end.

19. Continue to recognize the Government of the Republic of China as the only government of China and to support its right to represent China in the United Nations. Seek to persuade other non-Communist countries to do likewise.

20. To the extent feasible, encourage the GRC to establish closer contact with the Chinese communities outside mainland China and Formosa and to take steps to win their sympathy and support, insofar as such support does not conflict with obligations to their local governments. Encourage the leaders of these communities to reciprocate by extending sympathy and support to the GRC as the focal point of the free Chinese alternative to Communism and as a Free World partner in the defense against Communist expansion in Asia.

21. Maintain contact through U.S. officials with anti-Communist Chinese groups outside Formosa which continue to reject cooperation with the GRC, and, without making commitments of U.S. support, encourage such groups actively to oppose Communism.

22. Encourage conditions which will make possible the inclusion of the GRC in a Western Pacific collective defense arrangement comprising the United States, the Philippines, Japan, and the Republic of Korea, eventually to be linked with the Manila Pact and ANZUS.

23. Continue to provide such technical and economic assistance to Formosa as will promote U.S. objectives and will be consistent with other U.S. programs of economic and military aid for the Far East.

24. Encourage conditions which will make possible the eventual inclusion of the GRC in such economic grouping as may be organized among the free nations of Asia.

25. Take all feasible measures to increase the opportunities for the GRC to develop a well-balanced trade with the non-Communist nations of Asia and with other free world countries.

26. Continue to assist the GRC to plan the most productive use of Formosan resources in their own best interests, so as to complement the economies of other free countries, particularly Japan and the Philippines.

27. Continue to work with the GRC toward better fiscal procedures and the revision of programs which run counter to prudent U.S. advice.

28. Encourage the GRC to adopt policies which will stimulate the investment of Chinese and other private capital and skills for the development of the Formosan economy, under arrangements avoiding “exploitation” yet acceptable to private interests.

29. Consistent with the foregoing objectives and courses of action, continue programs in which Formosa serves as a base for psychological operations against the mainland.

30. Continue U.S.-sponsored information, cultural, education, and exchange programs; expand the program for training Chinese and Formosan leaders.

31. Seek to improve relations between the GRC and other non-Communist countries, and develop an appreciation on the part of these countries of the GRC and of the favorable conditions existing on Formosa, by such means as encouraging official and non-official visits to Formosa.

32. Attempt to convince other free world countries of the soundness of U.S. policy toward the Republic of China and of the advisability of their adopting similar policies.

Annex

Summary Statement of Current Military and Economic Assistance Programs for Formosa²

i. military assistance programs

1. The size and scope of U.S. military aid programs have a direct bearing on the rate and degree of GRC military development. In FY 1950–1954 the U.S. programmed some $942 million in matériel and training for the GRC forces, of which about half was delivered by June 30, 1954. This program plus economic assistance and direct forces support has made possible the development of a reorganized army of 21 infantry and 2 armored divisions, a small navy of 3 destroyers, 6 destroyer escorts, and 82 other combatant vessels, 2 marine brigades, a small air force of 8–⅓ combat wings, 2 jet equipped, and essential combat and service support forces—all with limited combat effectiveness.

2. Roughly two-thirds of the total military personnel strength of the GRC are supported directly through the MDA program. These are the personnel in the GRC forces recommended by the JCS for MDAP support. The remaining one-third of the total military strength, however, is supported by the U.S. indirectly through the economic and direct forces support programs. A breakdown of total GRC military personnel is shown below:

GRC Military Personnel Strengths

	MDAP Supported	Non-MDAP Supported	Total
Ministry of National Defense and non-Service Units		*110,000	110,000
Combined Service Forces		45,000	45,000
Army	291,000	†54,000	345,000
Navy	28,000		28,000
Marines	15,000		15,000
Air Force (including antiaircraft and security units)	68,000		68,000
Total	402,000	209,000	611,000

3. Completion of deliveries on the FY 1950–1954 programs plus the programs presently contemplated for FY 1955–1956 will provide the GRC with an army capable of assisting in the defense of Formosa and the Pescadores and of taking action in defense of the GRC-held off-shore islands, a small improved navy capable of conducting limited coastal patrol, antishipping, and commando operations and an air force of 8–⅓ wings, 4–⅓ jet equipped, designed to provide limited air defense, troop support, and interdiction capabilities. The planned forces would not enable the Government of the Republic of China, without U.S. air, naval and logistic support, to defend its territory successfully against full-scale Chinese Communist attack or to initiate large-scale amphibious operations against the mainland of China.

4. On September 24, 1954, the GRC was placed in the First Priority category of the U.S. Department of Defense priority system for the allocation of military equipment and supplies, for those items of matériel listed by the Chief of the MAAG as affecting present combat operations in defense of GRC-held territory. Included in this First Priority category are all “United States and associated allied forces engaged in active combat operations short of a general war …”³ This action was taken in order to assure the timely delivery of MDAP matériel within the framework of the presently approved MDA programs for Formosa.

5. The attached table sets forth the military assistance programs for Formosa for FY 1950–1956. The FY 55–56 figures are based on illustrative programs prepared by the Military Departments for the development of the FY 1956 budget request. These programs have no official status and are subject to change as development of the budget progresses. It should be noted that these programs are based on currently approved JCS force goals for Formosa, which, it is anticipated, will be reexamined in the light of the new policy statement. These programs, while permitting combat operations at the current level in defense of the off-shore islands, do not provide for any substantial increases in replacement of losses, logistical support, etc., which might be necessary in order for the GRC to take action in defense of the islands against significant increases in the scale of Chinese Communist attacks.

Military Assistance Programs for Formosa

Funds Programmed

(Millions of dollars)

	FY 1950–54	FY 1955–56	Total FY 1950–56
Military End-Items	887.8	169.9	1,057.7
Packing, Handling, Crating & Transportation	41.2	58.9	100.1
Training	13.3	10.0	23.3
Total Military Assistance	942.3	238.8	1,181.1

Actual and Projected Expenditures

(Millions of dollars)

	FY 1950–51	FY 1952	FY 1953	FY 1954	Total FY 1950–54	FY 1955 (est’d)
Military End-Items	9.3	38.5	188.6	175.4	411.8	290.9
Packing, Handling, Crating & Transportation	.9	3.9	18.9	17.5	41.2	29.1
Training	—	—	2.3	3.1	5.4	7.9
Total Military Assistance	10.2	42.4	209.8	196.0	458.4	327.9

ii. economic assistance

1. Magnitude of Program. Major economic assistance to Formosa began during FY 1951, shortly after the invasion of the Republic of Korea and the Presidential declaration of June 1950 to neutralize Formosa, using the Seventh Fleet. (Economic assistance to Formosa prior to FY 1951 amounted to only about $21.0 million as part of the larger ECA program for the mainland.) Of the total economic assistance and direct forces support programmed from FY 1951 through FY 1954, 71.6 per cent ($284.2 million) was delivered by June 30, 1954. Assistance to Formosa beginning in FY 1951 and projected through FY 1956 is tabulated below. The designation “Direct Forces Support” refers to common use items, i.e. commodity imports (other than MDAP end-items) consumed directly by the GRC military forces. For convenience, other forms of assistance (i.e. defense support and technical cooperation) have been combined in a single figure labeled “Economic Assistance”.

Program of Assistance to Formosa

(In millions of dollars)

Fiscal Year	Direct Forces Support (Common Use Items)	Economic Assistance (Saleable Commodities capital goods, technical assistance)	Total
1951	12.3	85.8	98.1
1952	13.3	68.2	81.5
1953	30.1	75.4	105.5
1954	29.0	82.6	111.6
1955	31.0	106.7	137.7
1956 (est’d)	37.0	64.7	101.7
Total	152.7	483.4	636.1

Economic Assistance Expenditures in Formosa

(in millions of dollars)

Fiscal Year	Amount
1951	25.6
1952	90.5
1953	89.6
1954	76.6
1955 (estimated)	101.3
1956 (estimated)	135.8

2. Objectives of Program. The program has been designed to meet the following objectives:

a. Support of the GRC military effort through MAAG-sponsored local currency projects and dollar imports.

b. Increasing Formosa’s capacity for self support through industrial and agricultural development.

c. Maintaining economic stability (i.e. keeping inflation within manageable proportions).

3. Nature of Program. Funds spent for direct forces support have financed the purchase of aviation gasoline, lubes, material to fabricate uniforms, construction material for airfields, barracks, roads, military schools, etc.—all directly consumed by the GRC military. Funds for economic assistance in the above table have been used for two principal purposes: (1) the importation of saleable commodities to meet normal import requirements and simultaneously to generate counterpart funds; (2) capital goods to rehabilitate the industrial plant left by the Japanese and to establish expanded industries. About 25% (i.e. $121.0 million out of $483.4 million) of the total has been programmed for this second purpose.

4. Program Trends.

a. Since FY 1951, there has been an increasing emphasis on the capital goods portion of the program, although the saleable commodity portion still represents the major segment of the total economic assistance program. This has been possible because inflation has gradually been checked, thereby permitting the use of more dollars and counterpart for development purposes.

b. For FY 1955 substantial increase in defense support funds is programmed to assist in meeting the problem of retiring ineffective troops and providing for trained replacements. Part of this program would require Presidential approval—now in process—of the release of funds originally authorized for Indochina under Section 121 of Public Law 665 (Mutual Security Act of 1954).⁴

1. This draft policy statement was sent to Council members with a covering note of Dec. 28 from Lay, stating that it was transmitted for consideration by the Council at its meeting on Jan. 13, 1955.
2. The source text includes several pages, encompassing Part I, which were revised on Jan. 5, 1955. Copies of the revised pages were sent to holders of NSC 5441 with a covering memorandum of Jan. 6, 1955, from Lay, with the request that they should be substituted for the appropriate pages of the annex and that the superseded pages should be destroyed; the unrevised pages appear, however, to be attached to the memorandum. (S/S–NSC files, lot 63 D 351, NSC 5441 Series)
3. Included in this total are about 42,000 ineffectives and unassigned, 18,000 guerrillas, and 30,000 reserve training forces. [Footnote in the source text.]
4. Comprises 3 infantry divisions and certain other forces. [Footnote in the source text.]
3. Ellipsis in the source text.
4. Approved Aug. 26, 1954; 68 Stat. 832.