Marshall Mission Files, Lot 54–D270

Mr. Edwin A. Locke, Jr., Personal Representative of President Truman, to President Truman57

Dear Mr. President: When I reported to you, immediately upon my return from China, you asked me to put my views on the Chinese situation in writing. This memorandum summarizes my work in [Page 1364] China this autumn and presents my findings and recommendations for further action.

In preparing it, and in the work which led up to it, I had the close collaboration of my Economic Adviser, Albert Z. Carr. Important contributions were also made by my Special Assistants, Colonel Harry A. Berk, A. U. S., and Michael E. Lee. All of these men were in China with me, and their help has been invaluable.

I. America’s Opportunity

China’s immediate future, as I see it, will be decided not only by what China does for herself, but also, and to a large extent, by what the United States helps her to do. I should like to make it clear that in my judgment what China needs from America in the way of aid is much more than loans and credits, much more than the physical materials of reconstruction and development, much more even than good advice. Above all else China needs help in making the political and economic changes and improvements which will provide a basis for her peaceful development. The government of China finds difficulty in getting many things done, even when it wants to do them, because of lack of the quality which America calls “know-how”. In order to progress rapidly toward democracy and rising living standards, China must have detailed knowledge of what to do and how to do it. I strongly feel that the chief ingredient of American aid to China at this time ought to be “know-how” which will be of practical help in changing basic governmental organization and policy and in assuring effective administration.

To let such aid depend on the achievement of political unity by the Chinese would be to put the cart before the horse. There is no chance for real unity in China unless she takes constructive action which will provide a basis for practical cooperation between the Central Government and the Communists. Even if the Chinese factions were to agree in principle to work together, whether through a central council representing all parties or through any other means, this appearance of cooperation could not last long or mean much without far-reaching changes in China’s political and economic institutions and practices.

It is through helping China make such changes that we can best contribute to her unity and so serve the cause of peace and democracy.

Through the presence of American troops sent to China to help disarm and repatriate the Japanese armies, China has been given a breathing spell from full-scale civil war. If, as a result of our influence and aid, she is able to use that breathing spell to reform, liberalize and revitalize herself from within, a real basis for national peace and unity can be established.

[Page 1365]

Our influence and aid need to go well beyond moral encouragement. It is my impression that most of China’s leaders desire to correct the conditions which are now tearing the country apart. Even highly conservative elements prefer liberalization, which they have long opposed, to the collapse which they anticipate, if American troops are withdrawn before internal unity has been secured. I found widespread agreement in principle on the desirability of reform and liberalization. But agreement in principle, by itself, has little practical meaning. The problem of the government leaders is promptly to formulate and carry out specific measures which will give China political and economic democracy; and they do not seem to know quite what to do or how to do it.

That is entirely understandable. The Chinese Government is inexperienced in the principles and techniques of modern democratic government. This inexperience, added to bureaucratic inertia, makes it exceptionally difficult for the government to act swiftly and effectively without help from outside. To a large extent, China’s present unrest grows out of these factors.

This then is the essence of America’s present opportunity in China: The current breathing spell in China gives us time to help China establish peace, unity and democracy, if we act vigorously and at once to give the Chinese government the benefit of American experience. To make the necessary “know-how” available to China would not impose any great burden on us. We have already made a practical beginning. The chief result of my recent mission to China was precisely the application of American ideas, experience and methods to China’s economic problems. While I was there the Chinese Government adopted the most advanced and liberal and specific economic program in its recent history, and established a new organization at the highest level of the government to carry out the program. This program aims at objectives which the entire Chinese people, including the Communists, can support.

A similar approach is needed at once to China’s political problems. China ought to be helped to put into effect a practical and specific program of democratic reform and development to which the whole people could rally and with which the Communists could cooperate. I am convinced that such a program is feasible, and that it could go far to ease China’s internal stresses and strains, and pave the way for peaceful progress.

China is today confronted with a revolutionary situation brought about in part by governmental inertia and inexperience in meeting the legitimate aspirations of the people, in part by the dislocations resulting from a long and terrible war, and in part by the effects of prolonged and advanced inflation. The Chinese cannot trade or [Page 1366] manipulate their way out of that situation. Political expedients are bound to fail as historically they have always failed under such conditions. The need is for fundamental economic and political action, taken voluntarily by the Chinese Government, to remove the main causes of popular unrest. Failure to take such action, I believe, accounts for the lack of success to date of recent attempts to establish peace between the two major parties of China.

Out of our enormous influence in China has come our present unique opportunity to help China act to preserve peace and assure progress. I believe the best way of making clear my views as to the specific steps needed to utilize this opportunity is through a plain factual statement of what I saw and did in China in carrying out my mission, and the conclusions that I reached as to China’s economic and political needs.

II. Observations on the Economic Situation

This was my third visit to China in the past fifteen months. En-route I stopped at Tokyo, where, as I informed you in my report of October 19,58 my information on China’s economic position was further supplemented by material made available to me from Japanese sources, through the generous cooperation of General MacArthur. Thereafter, I visited Chungking, Canton, Formosa, Shanghai, Hankow, Tsingtao, Tientsin and Peiping and observed economic conditions at firsthand. In accordance with your instructions, I did not go into Communist-held territory and I was unable to visit Manchuria because of the military situation; but what I have seen with my own eyes, added to extensive data accumulated during the last year and a half in Washington, has, I believe, given me a clear picture of the Chinese economy as a whole.

Of the many troubles and difficulties which now beset the Chinese economy, there are four which, in my judgment, are of crucial importance. The key to China’s economic future lies in the action or inaction of the Chinese Government with respect to:

Shortage of transportation. China has no real transportation system in the modern sense. Under present conditions, with Communist and guerrilla troops cutting key railroads, especially in the North, and with a shortage of rails and railroad ties for repairs, China’s railroads are more than ever inadequate. Her air transportation is a minor economic factor. Meagerness of existing river transportation and highway trucking facilities have caused fuel and food distribution to fall below the danger point in many areas. Primarily as a result of the transportation shortage, great cities like Canton and Hankow are now burning wood in place of coal in a desperate effort to keep their power plants running for just a few hours per day, and the people of these and other cities face the prospect of a coal-less winter.
Inadequate food production. Agricultural production is dangerously near bare subsistence levels for the Chinese people. Yields per acre and per farm family are wretchedly low. There is no margin of safety. A spell of bad weather can be a major catastrophe. In some areas shortage of fertilizers is now imperiling crops, while lack of insecticides makes plant diseases a constant threat. Bad agricultural practices are prevalent, resulting in part from ignorance of modern farming techniques, and in part from the difficult economic conditions—the excessive rents, taxes, and interest rates—under which most of China’s immense farm population works.
Idle Factories. As Generalissimo Chiang Kai-shek told the Chinese people on November 26, most of China’s industries are at a standstill. Businessmen and industrialists are unwilling to make commitments because of the uncertainties brought on by monetary inflation and financial instability. A large number of industrial workers are without employment. In Shanghai three workers out of four are idle. Manufactured goods such as textiles, are becoming increasingly scarce and costly. Difficulties in the way of getting industries back into early operation are enormous. Not only does the shortage of power and fuel constitute a major handicap but, in addition, the country is short of trained managers, technicians and skilled workers to replace Japanese personnel which operated most of China’s factories during the war. The extensive and painstaking removal by the Japanese of industrial machinery and equipment from West and South China have further dislocated the Chinese industrial economy.
Bad social conditions. The social foundations of the Chinese economy, never strong, have been further weakened during the Japanese occupation—especially sanitation, medical facilities, and education. The physical destruction of factories and houses by bombing and the fact that, aside from Japanese-owned industries, there has been virtually no new construction for eight years have produced a serious shortage of buildings of all kinds, becoming even more acute as vast numbers of refugees straggle back from the hinterland to their urban homes. In some cities, as in Canton, Chinese by the thousands are sleeping in the streets despite the onset of cold weather.

Viewed in proper perspective, these economic ills are no worse than might be expected after eight years of war in an under-developed country. In my judgment, a soundly conceived, systematic and energetic attack could yield quick results for China in increasing agricultural and industrial production and distribution, in overcoming inflation, and in improving mass conditions of life. China’s chief need just now is for the governmental will and know-how to overcome her economic problems. My main conclusion from what I saw of China is that she needs strong economic action, aimed squarely at a rise in the mass living standards of the people; and that such action, if coupled with sound democratic political reform and development, would offer real promise of internal peace and unity.

But I also concluded that the Chinese Government needs help and inspiration if it is to provide the nation with the leadership essential [Page 1368] to constructive action. Accordingly, in my capacity as Economic Adviser to the Chinese Government, I recommended to Generalissimo Chiang Kai-shek that a definite program of action be developed at once, designed to meet the actual economic needs of the people. As I cabled you on November 24,59 he accepted this recommendation, and at his request I aided him in preparing the actual program.

Announced by the Generalissimo personally on November 26, the new economic program calls for immediate action to strengthen Chinese transportation. As one phase of this activity, it puts into motion a national road building program employing Japanese prisoners, pending their repatriation. It provides for far-reaching social and economic improvements benefiting China’s agricultural masses, as well as for increased use of fertilizers, insecticides, and improved seed and free instruction of farmers in modern agricultural methods. It lays down the economic actions essential to early industrial revival and development, as well as expansion of China’s foreign trade, such as removal of wartime restrictions, recruitment of qualified industrial managers, technicians and skilled workers, importation of essential machinery and equipment, and stabilization of Chinese currency. It puts emphasis on the need to improve standards of housing, health, and free public education as a social base for further economic development. Finally, it opens the way for an organized and unified program of government encouragement and assistance to projects most useful to China’s economic development over the next five years, with special emphasis on the harnessing of China’s great rivers.

In announcing this program, the Generalissimo showed that he was interested above all in getting results. As to method, he appears to be thinking in terms not of a nationalized economy, but rather of vigorous governmental economic leadership and cooperation with the farmers, workers and industrial managers of China. The Central Government does not propose to assume detailed administration of the nation’s economic life, he stated plainly. Instead, its aim is to do everything possible to assure the well-being of private enterprise under honest and effective local government. Provincial, district and city officials, he announced, must assume direct responsibility for leadership in the economic reconstruction and development in their own areas. The Generalissimo also made it plain that China must not rely entirely on foreign aid to achieve her economic goals but must help herself.

At the same time that I recommended this program to the Generalissimo, I also recommended the creation by the Chinese Government of a Supreme Economic Council to lay down broad economic policy [Page 1369] and coordinate the economic activities of all departments of the government. The Generalissimo, who had already been thinking along similar lines, accepted this recommendation and invited my collaboration in preparing the necessary organic law.

The Supreme Economic Council was established on November 26 to function under the general direction of the President of the Republic. I believe it is unique among the organs of the Chinese Government in that its avowed goal is “a substantial and steady rise in the mass living standards of the people.” To attain this objective, it will “direct and assist the early, sound and vigorous economic reconstruction and development of China,” and will have full and final authority over the economic activities of all agencies of the Government.

If the Supreme Economic Council acts with energy, the political effects should be very far-reaching. One effect will be to ease the political tensions of China. There is little if anything in the program enunciated by the Generalissimo to which the Communist Party of China could take exception, in the light of their own announced economic programs. The work of the Supreme Economic Council can and should be a first step in providing an economic base for unity with the Communists.

It must be recognized, however, that the immediate program laid down by the Generalissimo for the Supreme Economic Council is as yet largely a statement of good intentions. What counts will be the action taken to make good the intentions.

Left to their own devices, the Chinese will find it exceedingly difficult if not impossible to carry out many important parts of this new economic program. China lacks the administrative and managerial experience and personnel necessary to get such a program soundly underway, not to mention shortages of essential materials and physical equipment.

The Generalissimo stated to me his view that foreign help is indispensable to China if her economic reconstruction and development are to make real and rapid progress. Recognizing as he does that America has no intention of exploiting China or trying to dominate her, he would like to see the American Government send to China an Economic Advisory Commission which would reside there for a considerable time and work closely with the Supreme Economic Council. This request is embodied in his letter on November 26th60 which I have handed to you.

In my opinion, the United States can properly grant this request. I recommend that an Economic Advisory Commission be sent to China [Page 1370] promptly to work with, help and advise the Chinese government in developing and putting into action policies and programs applicable to all parts of China, and to which Communists as well as Kuomintang adherents could give support.

Techniques for practical cooperation between an American economic mission and the Chinese government have already been established and have worked well in the relationship between the Chinese War Production Board and the American Production Mission sent there to aid China in 1944.61 Experience in this operation affords both a guide and a sound reason for believing that an American economic mission with an even broader purpose can be effective in China.

I pointed out to the Generalissimo the difficulties of recruiting highly qualified men in this country for residence in China. As a measure to help overcome this difficulty, I suggested to him that he explore the possibility of creating in this country a consultative board of leading Americans who would advise the Chinese government on economic matters primarily from the standpoint of representative American industry, and aid them in recruiting superior personnel for work in China. The Generalissimo and Premier Soong both expressed their approval of this suggestion and their intention to act upon it, if you have no objection.

During my stay in China I also carried out your instructions to terminate the American Production Mission, established in 1944 to aid China’s war production. All personnel of the Mission have now left China. This action, taken in conjunction with the formation of the Supreme Economic Council is considered in China as marking the end of the wartime phase of America’s economic cooperation with China and the beginning of postwar cooperation between the two countries.

III. Observations on the Political Situation

I strongly feel that if the action which the Generalissimo has taken in the economic field is paralleled by forward-looking political action, the result can be to end civil strife and speed up China’s reconstruction and development. Neither Chiang’s government nor the Communist party of China is committed to war. Both sides need peace in order to do anything constructive for China. Genuine peace in China is inconceivable while two authoritarian governments stand opposed. Their only hope of peaceful cooperation lies in a mutual and simultaneous ending of authoritarian government. Both sides could, I believe, be brought into a government which vigorously took the road toward true democracy, both political and economic. Given genuine [Page 1371] democratic government in China, the will of the peacefully-disposed Chinese masses could make itself felt; and I think the mutual distrust of the Communists and the National Government would in time be sufficiently removed to make possible a fusion of their two armies. In setting up a sound basis for democracy in China, it would, of course, be necessary to safeguard the country against authoritarianism in any form, be it from the left or from the right.

Although I had no contact with the Chinese Communist Party, the over-all political situation was made abundantly clear to me, not only by experienced American observers but also by loyal supporters of the present regime who are nevertheless sufficiently objective and aware to face the realities of Chinese political life. The outstanding fact is that the Central Government has been steadily losing the broad popular support which it had in its earlier years, and which it regained briefly as a result of the victorious ending of the war. The people in Kuomintang China feel that there is little to choose between the Central Government and the Communists so far as their welfare is concerned. That state of mind was so evident that I had no hesitation in speaking of it frankly to key officials of the Central Government who recognized the fact and its implications.

The dissatisfaction of the people, however, does not seem as yet to have seriously impaired the status of Chiang Kai-shek himself. Apparently most of the people still strongly believe in him and do not blame him personally for the deficiencies of his government. Here and there he is bitterly attacked—in Chungking I received anonymous communications through the mail warning me not to trust Chiang—but on the whole it is certain of the Generalissimo’s ministers and officials who bear the brunt of mounting criticism.

Recent relaxation of the censorship of the Chinese press now permits the publication of anti-government journals in Kuomintang China and these journals are hot in attacking the obvious abuses and failures of the government. Some conservative Chinese regard the left wing press with alarm as a harbinger of revolution, but the more progressive members of the government agree that it serves as an essential safety valve for public opinion and as a healthy influence on the government. Careful readings of the Chinese press, added to talks with Chinese in all walks of life, strongly suggest that the Chinese people today base most of their political criticism of the Central Government on three counts:

Failure to give democracy to China. Several times in recent years, the Central Government has promised to convene a constitutional assembly which would give China a democratic constitution, but each time the assembly has been postponed. The Chinese people want democracy. Psychologically they are ready for it. They resent [Page 1372] authoritarian practices. As matters stand, many essential operations of the government are under the direction of reactionaries who have no genuine feeling for the pressing needs of the people and who are consequently a dead weight on China’s progress in this critical time. There is no means by which popular opinion can get rid of incompetence in high places, or prod into action those government officials who are weltering in political and economic plans without doing anything constructive about them. Often governmental decisions of the greatest urgency are endlessly delayed. Even when such decisions are finally made, they are not carried out with sincerity or expedition because of a lack of a sense of responsibility among officials who feel themselves remote from the people and who cannot be called to account by the people.
Tolerance of pro-Japanese elements. In many places in the liberated provinces of China the Government is using the services of former “puppet” officials who collaborated with the Japanese. In some areas armed Japanese troops are employed by the Government. Officials of the Central Government state that the use of “puppets” and Japanese is a temporary expedient to enable the government to gain control of the mechanisms of political and economic administration with a minimum of disturbance. But the people see native traitors and enemy nationals accorded dignities and comforts while cold and hunger are the lot of millions of Chinese, and resentment is growing.
Widespread corruption. Official corruption is of course an old story in China. It is especially hard to eliminate because of the institutional quality which it has taken on as a result of centuries of “squeeze.” Government salaries in many cases are so small that government employees cannot exist without supplementing their incomes by whatever means come to hand; and political graft is taken for granted among them. The people, I was told, are becoming increasingly indignant as they see government and Kuomintang officials fattening their purses at the public expense, and without even providing efficient administration in return. I heard indignation particularly directed at provincial and municipal officials who, starved for political spoils during the war years, have now descended on the liberated provinces and cities like hungry locusts.

The Generalissimo has indicated his determination to bring about needed political reforms in China. For example, in establishing the Supreme Economic Council he promised the people that corrupt officials would be sought out, removed from the government and severely punished for their crimes. Moral reform would certainly help China greatly. But China’s primary need is for far-reaching action by the Central Government not only to reform but to transform itself into a government representative of the people and working for the true interests of the people.

There are of course many reactionaries in the Central Government who would oppose any such development. But I believe that key men of the government stand ready to make the fundamental political changes which China requires, if they are shown how to do it and given help in doing it by the United States. Just as they responded [Page 1373] to American inspiration and guidance first in organizing for war production, and now in taking the initial postwar steps looking toward a progressive economic program, so I believe they would respond to our inspiration and aid in bringing democracy and sound government to China.

If, with the help of the United States, China adopts political measures aimed at the early introduction of democracy while vigorously pursuing her new economic program, it should not take long to allay the violent political antagonisms which are now tearing her apart. The Communists have every reason to support a government in which they would share, and which would permit the peaceful political evolution of China.

If China wishes our help in establishing democracy and sound administration, I believe that this government ought without delay to work out methods of practical cooperation with the Chinese in efforts to prepare an effective democratic constitution, separate China’s Kuomintang party from the National Government, eliminate authoritarian practices, set up modern governmental organization and procedures, and create and protect the “grass-roots” institutions of local democracy in villages, towns, cities and provinces. This might be done in part by sending qualified American specialists in such fields as constitutional law, government, and public administration to China to give aid and counsel, and in part by arranging for visits to this country by Chinese officials for the purpose of observing the practical operations of democracy at first hand.

In addition to such arrangements, there is in my judgment strong need for full and frank discussions with the Russians and the British as to the nature and purposes of our cooperation and theirs with China in the economic and political sphere. Such discussions carried on against the background of American aid to China aimed at genuine political and economic democracy could, I believe, go far to assure Russian and British cooperation in encouraging a peaceful solution of the existing strife in China. It is conceivable that a common policy toward China by the great powers might result, and that constructive leadership by America in promoting needed political and economic changes in China could be of major importance in bringing about closer international cooperation generally.

IV. The Present “Breathing Spell” in China

As I said to you in my memorandum of August 20 (“A Proposal Aimed at Averting Civil War in China”).62

“If civil war comes to China I think that it will be long and costly. I feel sure that the Central Government cannot win a quick [Page 1374] victory.…63—Under circumstancess much more favorable to them than those existing today they tried consistently throughout the ten-year period preceding the Japanese war to destroy the Communists, and failed. The Communists, although at the present time probably even less well equipped than the Central Government’s troops, are highly disciplined, well entrenched in a relatively impregnable area, skilled in guerrilla warfare, and ably led.… If they can get hold of considerable quantities of Japanese arms—as seems likely—they will be even more formidable opponents.”

I was reliably informed in November that the Communists in Southern Manchuria have acquired large stores of Japanese munitions.

The effectiveness of Communist propaganda behind the Central Government lines must also be reckoned with in the event of full-scale civil war. Communist promises and some demonstrations of their policy in giving the people personal ownership of land, reduced rents, taxes and interest rates, better government and higher wages are attractive to the Chinese peasants and city workers. Because of prolonged blockade and lack of industries, people in Communist China on the average are probably even worse off than people in Kuomintang China, but at least the Communists have tried with some success to equalize the hardships of life in China—a fact which has great popular appeal.

Realistic men in the Central Government are keenly aware that civil war could only intensify China’s suffering over a period of years and might end by defeating the constructive aims of both the Central Government and of the Communists, leaving China in political anarchy and economic destitution.

I think it likely that in the event of full-scale fighting both sides would make use of Japanese troops now in China. This development is suggested by the Central Government’s current employment of armed Japanese soldiers for the protection of communications in some outlying areas of north China, and by the surprisingly good living conditions of Japanese prisoners, as observed in concentration camps. Troops of the Japanese puppet governments of the liberated provinces are also currently serving the Central Government. There is obvious danger that under these circumstances civil war would give the Japanese a rare opportunity to help keep China divided and weak.

The policy of this government is that our troops in China will not take part in China’s internal strife, and that they are to be brought home as soon as they have finished their job in helping to disarm and repatriate the Japanese. But to my mind it should also be made plain to the world that the presence of these troops is giving China an all-important “breathing spell”. It should be made plain that we are [Page 1375] using this opportunity to aid and encourage the adoption by the Chinese Government of economic and political measures designed to provide an enduring basis for peaceful settlement of the struggle with the Communists, and which will bring a fuller life to the Chinese people. The world would welcome such action on our part. It would be the clearest possible proof of the soundness of our present policy in China.

V. Summary of Recommendations

The aspirations of the United States for an expanding world economy in which we, like other peoples, can find security and rising living standards, demand a peaceful and developing Orient.

We now have an opportunity to utilize our influence in China to end civil war and speed China’s reconstruction, development and democratic evolution. We can do this by encouraging and assisting the Chinese Government to take constructive economic and political action, aimed at national peace and unity. The adoption by the Generalissimo of a liberal economic program and the establishment of the Supreme Economic Council are an encouraging sign of good intentions in the Central Government. We need to follow up this first step without delay.

If we fail to utilize our opportunity, if we confine our practical cooperation with China to the military sphere, we are bound to be confronted by what Walter Lippman has called a “horrid dilemma”: either we will become entangled in China’s civil war, or, when we get out of China, we will leave her hopelessly divided, dangerously weak, and an inviting prey for foreign imperialism.

As I see it, there is only one way to get off the horns of the dilemma. That is to aid the Chinese government to take immediate economic and political measures which can produce political unity before our troops leave China.

The Central Government is keenly aware of its need for good relations with Russia. Russia has reason to welcome American influence in China while that influence encourages political and economic democracy, and internal peace. Given the necessary aid and stimulation from this country, I feel that China could make great strides in its foreign relations, and that the international stresses and strains which now center there could be greatly eased in a short time.

The four specific recommendations for action by this country made in the preceding pages all have the single aim of assuring a peaceful, democratic and developing China, on good terms with the world. Summarized, these recommendations are:

That America send a qualified economic mission to China as soon as possible to aid China’s Supreme Economic Council to carry out its liberal program and generally to further China’s economic reconstruction and development.
That we give full practical cooperation to the Generalissimo and his Government in democratizing China’s political life and providing modern and efficient government.
That we discuss with Russia and England the nature and purposes of our cooperation and theirs with China in the economic and political sphere, and work out if possible a common policy toward China.
That we make it clear to the American people and to the world as a whole that the presence of our troops in China to assure the disarming and repatriating of the Japanese provides a breathing spell from civil warfare, during which we are encouraging and helping China to put into effect political and economic measures needed to provide a basis for lasting peace.

In my view, action openly taken along these four lines could be of enormous aid to China. It would end the dilemma of policy in which America now finds herself with respect to China and it would have the overwhelming approbation not only of the American and Chinese people but of world opinion as a whole. Out of these actions, if properly carried through, could emerge a democratic and peaceful China, contributing on an ever-increasing scale to the expanding world economy on which the world’s future, and America’s depends.

[File copy not signed.]
  1. Copy transmitted to General Marshall by Mr. Locke on December 19. Mr. Locke was also Economic Adviser to the Chinese Government.
  2. Not found in Department files.
  3. Not found in Department files.
  4. Not found in Department files.
  5. For mission of Donald M. Nelson, see Foreign Relations, 1944, vol. vi, pp. 247 ff.
  6. Ante, p. 448.
  7. Omissions indicated in the original.