Memorandum Prepared in the Embassy in China for the Minister-Counselor of Embassy (Butterworth)8

In face of continuing civil war and the current accelerated deterioration of the political, economic, and military position of the Central Government, it would seem that an examination of possible courses of American action vis-à-vis China is in order.

In any re-assessment of our position in China it would be unwise to ignore past American experience in dealing with the Chinese Government, particularly our experience during the war years. Furthermore, we must be prepared to accept the fact that the dominant political party, the Kuomintang, once an organization representative of the will of forward-looking Chinese to develop a stable and united nation capable of meeting its responsibilities in the modern world, has lost much of its original vitality. In the words of one well-known Chinese professor, the Kuomintang has become “a political mechanism for the preservation of vested interests”. It has now neither a dynamic program nor a wide popular base with which to meet the threat of militant communism, and its mainstay is largely the wasting asset of China’s social inertia.

Within the past twenty years the leadership of the Kuomintang has shown little, if any, fundamental change in personnel. In retrospect it seems clear that the dominant leaders of the Kuomintang have never been dissuaded from the conviction that internal political problems could be settled by military means without consideration of concomitant social and economic problems. Currently there is much to indicate that their actions are still governed by the same conviction and that it is reinforced by their interpretation of the current international situation, in spite of the increasing dissatisfaction with its [Page 223] leadership among groups traditionally supporting it. Perhaps one of the few encouraging features of the Chinese situation is that these groups, realizing that Kuomintang leadership is approaching bankruptcy, are seeking an alternative to both extremes of right and left and are hoping for American encouragement.

It can not be gainsaid that there exists in China an important and growing Communist problem. It is not necessary to establish proof that there is direct connection and liaison between the Chinese Communist Party and the Soviet Union. The ideological affinity between the Chinese Communists and their brethren of the Soviet Union is in itself sufficient to create a probable menace to the internal security of China. Judged by historical background and social structure, Chinese society is less likely than any society to accept Marxist tenets provided that the burden of economic and social depression is alleviated even in minor degree. It is unfortunate that during the past two decades the National Government of China has shown little aptitude for meeting political opposition other than by force of arms and at the present time the Government, in addition to suffering serious military reverses and the sustained attrition of hyperinflation, is losing the confidence of all classes who are reluctantly being pushed to the left. If present trends continue unchecked it seems inevitable that a dynamic Communist program will eventually submerge the static defeatism of the present Government.

If left entirely to its own devices, there would appear to be two broad alternative contingencies facing the Central Government: (1) the Government at some stage of its disintegration will recognize its weakness and decide upon compromise with the Communists; any such “compromise” will be on Communist terms resulting in the immediate emergence of the Communists as the dominant group in China; or (2) the Government will entertain no such settlement, in which case the Communists will become practical masters of Manchuria and important areas of north China while the area of Central Government control in central and south China will gradually contract through the development of autonomous areas under local “strong men” who will each in turn fall victim to the progressive spread of Communist control. In both cases the end result will be the same even though the process and timing by which the Communists emerge as the dominant group will not be identical. This end result is clearly opposed to American short and long-term interests and objectives in the Far East.

Aside from the question of financial cost to the United States, our own state of military preparedness and the state of American public opinion would probably preclude our using actual military force against the Chinese Communists within the foreseeable future. Furthermore, [Page 224] all-out aid to the present Government at this time would present the following major disadvantages: it would (1) critically heighten friction between the United States and Russia in the Far East; (2) gravely compromise our current political objectives in western Europe; (3) completely destroy the confidence of Asiatic peoples in American integrity and political objectives; (4) antagonize large sections of non-Communist Chinese opinion; (5) freeze the manifestly unpopular government in office; (6) set the stage for a situation similar to Spain of 1937,9 but on a far larger scale. On the other hand, all-out assistance to the present Government at this time would have the advantage of preventing, for a time at any rate, the probable loss to the Communists of Manchuria and important parts of north China.

Complete cessation of aid to the Central Government at this time and withdrawal from China of official American organizations except the regular Foreign Service establishment would have the disadvantages of: (1) insuring the early if not immediate collapse of the present Government and thus enhancing the probability of early Communist victory emerging from the ensuing chaos; (2) bolstering in other areas of Asia, especially in Korea and southeast Asia, the chances of Communist expansion; (3) removing an important obstacle to Soviet political expansionism in Asia. Conversely, our complete withdrawal at this time would have the advantages of cutting our losses, clarifying an admittedly awkward position for the United States, and permitting, if necessary, concentration upon a line of defense against Soviet expansionism removed from the complexities of the China scene.

China for the foreseeable future can not be a positive asset to the United States; the range of American choice is confined to whether it will be a minor or a major liability. The most important question is whether China would be a greater liability to us if we commit ourselves to the reduction of the Communist problem to tractable dimensions, no matter what the implications of such commitment, or whether China would be a greater liability if the Communists within the near future become the dominant group in China. This question can be answered only in terms of the rate of disintegration of the present Government.

Assuming that the process of Central Government disintegration will continue to be a gradual one, we can expect that at worst there will be a long period of disturbance verging on chaos during which period and for a long time thereafter China would be but an insignificant asset to Russia, while at best a middle group might be able to restore [Page 225] a modicum of stability in China. Even though the latter may appear to be a fairly remote possibility viewed in the light of recent events, it can not be dismissed and offers for the United States a constructive middle course between the extremes of all-out aid to the present Government and cessation of all aid thereto.

Judged in the light of Chinese Government experience in the last two decades and the continued existence of a social and economic system which offers fertile ground for the growth of Communism, it is highly improbable that Communism can be eliminated as a major factor in China even with substantial assistance to the Government in the form of military matériel, economic aid or a combination of the two. By a reasoned and coordinated program of conditional aid, however, an effort could be made to foster the emergence of a regime with an inclination to move along lines satisfactory to American political concepts and which would thus offer a reasonable risk for larger scale public and private financial and economic aid while at the same time engaging in a holding operation against the progressive spread of indigenous communism and its corollary, Soviet political expansionism.

Such a course of conditional assistance would offer the following advantages; (1) immediately bolster the prestige of the Government; (2) maintain our position and influence while encouraging middle groups in and out of the Government to embark on a program of national self-help; (3) demonstrate our willingness and ability to carry forward with specific and feasible reconstruction projects of mutual benefit to the United States and China; (4) preserve the rationale of our present policy in southeast Asia. Conversely, such a course could hardly be expected to be popular with the present Government, wherein there are already tendencies to blame the United States for the ills of China, and the delicacy of the operation offers considerable chance of failure in the event that Government deterioration moves at a faster pace than is now evident.

For the time being real political and economic stability in China is unattainable and the most to be expected is retarding the rate of disintegration of the National Government and propping it up for the time being. This objective can be attained at this juncture by the effective use of relatively limited means perhaps better than by large-scale assistance in view of past experience of the ability of China effectively to absorb American loans and UNRRA10 aid. Undoubtedly the over-all situation is much worse than in February. At the same time, it does not give signs of collapsing of and by itself; further serious military reverses would of course accentuate political and economic [Page 226] disintegration, but any American program must be based upon a Chinese willingness to achieve at least relative stabilization of military fronts by changes in command and regrouping of forces. Granting such stabilization, it is premature to expect early collapse on the economic front. The Government’s foreign exchange position is still adequate to meet basic requirements for about nine to twelve months and it appears that the 1947 crop will be tolerable.

At this time it would be unrealistic to continue to impose a negative character upon any American program. We are an important force in the internal politics of China and no government can survive in China without American assistance. Substantial Communist victory in China during the next year would have far-reaching effects throughout Asia and constitute a serious blow to American principles among all Asiatic peoples. In the past the United States has brought pressure to bear upon the Central Government in efforts to effect reform, but in all cases the pressure has not been sufficiently maintained until our objectives were obtained.

Currently the overall situation in China is governed predominately by military factors with the Communists enjoying substantial military success in Manchuria, in Shantung and Shansi. Given the ineptitude and incompetence of command which have been characteristic of recent operations, it is doubtful that we can hope to halt this situation merely by military aid. On an economic level we could probably prolong the life of the existing regime by periodic infusions of capital or commodities but unless there is improvement from within American support can not be expected materially to retard its final demise. Therefore any program of conditional American assistance to the existing regime must be predicated upon governmental change from within China and on the assumption that the expansion or eventual withdrawal of the former depends upon the progress of the latter.

In approaching the problem we should realize that the Kuomintang under its present leadership is a stagnant party, but containing within its ranks many capable individuals who would welcome removal of the stultifying leadership now prevailing in China. We should understand that the leaders of the Kuomintang, including the Generalissimo, have practical control over the political situation through the machinery of the CC Clique. Therefore, in view of their previous records and present position, there is no strong reason to suppose that pressure on them will immediately bring about any fundamental change in their basic philosophy, especially as they are firmly convinced that in the present international situation unconditional assistance from the United States will be forthcoming. We must therefore cease to consider them as indispensable to our objectives in China.

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The United States possesses no effective means of bringing pressure to bear upon the Chinese Communists except indirectly by fostering the emergence of a regime in China that can rally enough popular support in non-Communist areas to afford a check to further expansion of Communist control. Judging from our past experience in China we can not hope for the emergence of such a regime while the present leaders control the situation and continue to stymie the development of any loyal opposition to their policies.

A limited program of aid to commence immediately could include the following: (1) extension of small or moderate feasible project loans, such as for rehabilitation of the Canton–Hankow Railway or other lines removed from the area of active hostilities; the Shanghai Power Company project; the development of coal resources at points removed from combat areas; (2) extension of a moderate cotton loan to cover at least part, preferably a substantial part, of China’s cotton requirements for the second half of 1947; (3) extension of $60 million for post-UNRRA relief almost entirely in the form of rice, wheat and flour. The amount of cereals thus made available would go far to meet the needs of the larger coastal cities and serve the double purpose of preventing unrest in these cities and of relieving the pressure on food-deficient areas of the interior; (4) sympathetic consideration to Chinese proposals such as to utilize export subsidies or a differential exchange rate for exports, which would contribute to the maintenance of a minimal flow of exports and thus relieve partly the pressure on China’s foreign exchange assets.

Such a limited program would have similar effects to a larger scale economic program in that it would clearly indicate our continued support of a National Government in China, but at the same time it would indicate that the present National Government must show some initiative in its own handling of the economic situation and that it can not continue to expect blank-check or unlimited assistance from the United States if such assistance is to be to a great extent dissipated as has been the case in the past. Furthermore, aid on a moderate scale would preserve our initiative both in China and the Far East at the same time as it brought help to China at the points at which pressure is greatest and where aid can be effectively utilized immediately.

We should be prepared to face up to the fact, however, that no program of aid to China can be successful in the long run unless it is carried on in conjunction with a program of strong and coordinated pressure upon the existing regime for measures of reform to bring into being a government that can offer an effective bloc to Communist expansion. For example, we should single out a variety [Page 228] of key individuals in and out of the Government such as Chang Ch’un,11 Wang Shih-chieh,12 Chang Chih-chung,13 Li Tsung-jen,14 Chang Fa-kwei,15 Li Chi-shen,16 Hu Shih17 and make it clear to them that we can not long continue to support a government whose leadership functions as a stimulus to the progressive development of Communism, a situation which we can no longer regard with equanimity; that the effort to suppress the Communists by force having failed the Government must be prepared to meet the challenge by other means, in which case the continued support of the United States may be expected; that the United States is prepared to support extremism neither of the right nor the left, but believes that the best defense against either is broader participation in government by all classes and an energetic attack against social and economic evils.

Needless to say, in carrying forward such a coordinated program of conditional assistance, the USIS18 program would need to be strengthened and brought to full use in China. In making it clear that we are in active opposition to narrow rightist control as represented by the Kuomintang, and hence the Government, we would be making an appeal to enlightened Chinese of all political colorations and offering them a firm rallying point which has thus far failed to materialize from the United States and has thus made it difficult to realize upon the vast storehouse of good will for the United States which is still largely extant in China.

  1. Copy transmitted to the Department by the Ambassador in China in his despatch No. 908, August 1; received August 11. Mr. Butterworth was about to return to Washington for duty in the Department.
  2. See Foreign Relations, 1937, vol. i, pp. 215 ff.
  3. United Nations Relief and Rehabilitation Administration.
  4. President of the Chinese Executive Yuan.
  5. Chinese Minister for Foreign Affairs.
  6. Governor of Sinkiang Province.
  7. Director of Generalissimo Chiang Kai-shek’s Headquarters at Peiping.
  8. Director of Generalissimo Chiang’s Headquarters at Canton.
  9. Residing in Hong Kong.
  10. President of Peking National (Peita) University at Peiping, formerly Chinese Ambassador in the United States.
  11. United States Information Service.