740.0011 Pacific War/6–1244
The Ambassador in China (Gauss) to the Secretary of State
[Received June 27.]
Sir: Referring to the Embassy’s telegram no. 942 of May 31, 12 noon, in regard to the general military situation in China, I have the honor to enclose a copy of a memorandum dated June 2, 1944,95 by Second Secretary John S. Service, on detail to General Stilwell’s staff, on the subject of the probable economic and political effects of Japanese success in a major drive in southeast China.
Summary of the enclosure. The Chinese Government spokesman issued a statement on May 31 that the present Japanese drive in Hunan was the beginning of an attempt to seize the whole Canton–Hankow Railway. With the commencement of this nervously awaited drive, the Chinese mood has become one of great alarm, some Chinese even doubting whether the Chungking Government would survive Japanese success in such an effort. The Japanese appear now to be undertaking a major campaign. Assuming its objective to be the capture of the line as far south as Hengyang, the dispersal of the Chinese armies on both sides of it, and the destruction of American air bases in that area, it seems likely that these objectives can be attained.
Such success would entail the following economic effects: (1) two more of China’s four richest rice producing areas (those in Hunan and Kiangsi) would be lost; (2) the trade in goods from those areas would be disrupted as would also the very important transit trade with the occupied areas, with an immediate effect on the market in Chungking; (3) a large influx of refugees would further aggravate overcrowding into the constantly more restricted area of free China; (4) additional Chinese armies would be forced westward to subsist on poorer lands, increasing the burden on the farmers; (5) Chinese currency from the newly occupied areas would flow to free China; and (6) all of these factors would work to accelerate inflation in free China. Politically, Japanese success would (1) further lower morale; (2) weaken the Chinese Government; (3) increase the relative power of local regimes; (4) stimulate general unrest, as well as (5) greatly increase agrarian unrest.
The overall effect of a Japanese victory in this campaign if one were gained would be to hasten the disintegration of the Central Government; the collapse of that Government, even though it would not come soon, might become only a matter of time. End of Summary.
While Japanese success in the present drive along such lines as are being indicated by the course of their operations would without question have serious adverse economic as well as political effects upon free China and upon the Chinese Government, the Embassy is of the opinion that Mr. Service’s memorandum is excessively pessimistic in raising any question as to the possible collapse of the Chungking Government [Page 99] at this time. We continue to feel, as we have felt and have so reported in the past, that barring a major military disaster (such, for example, as might directly jeopardize Kunming or Chungking) and widespread crop failures, it seems likely that the Chinese Government will continue to hold out for some time to come, notwithstanding the continuing steady deterioration in the political as well as the military and economic situations. One recently encouraging factor is that the military construction projects in the Chengtu area have not had the sharply adverse effect upon economic conditions in the Chengtu plain which was generally anticipated.
Respectfully yours,
- Not printed.↩