893.00/3–1247: Telegram
The Ambassador in China (Stuart) to the Secretary of State
[Received March 12—5:55 a.m.]
531. Events have moved so rapidly in China during the past 10 days and have included so many complicating factors that it might be useful at this time to present a brief overall summary, drawing together and correlating previous telegrams. The two main aspects are, of course, the military and the political-economic, with the former giving a kind of desperate urgency to the need for political adjustment because the continuance of civil war is an increasing drain on the national economy making a mockery of attempts to move in the direction of normal economic development.
The current military campaigns have surpassed in scope anything seen in many months. The Government obviously wanted, and badly needed, a major military victory in Shantung. This it has failed to obtain. Communists took the initiative in Manchuria, managing to force their way to the very gates of Changchun. They have now [Page 59] been turned back by Nationalist reinforcements and in this sense have suffered a defeat if, as has been suggested, their objective was a territorial victory to strengthen the hand that they hope the Soviets will play for them at the Moscow meeting. If, on the other hand, the principal objective was further to sap Nationalist strength, then they have achieved a victory. The Military Attaché’s7 intelligent guess on casualties is 10,000 for the Government and 20,000 for the Communists in Manchuria and 40,000 for the Government and 20,000 for the Communists in other areas, mainly Shantung.
The establishment of general headquarters at Suchow seems to be a desirable and long-needed development from Government standpoint in that it puts it in a better position to direct and control operations. The Military Attaché also states he sees signs on both sides of a decreasing desire to fight and more particularly by Government force. Even high-ranking officers have said to him that whereas there seemed to be some point in endless fighting when the enemy was Japan, there is not much stomach for fighting when it is against Chinese. This lack of morale appears to be reflected among the troops who do not understand what the civil war is all about and who, in some instances, have been susceptible to Communist appeals to lay down their arms. The Gmo’s insistence on increased pay to improve troop morale played a part in Soong’s resignation.
Against this grim background have been the political changes of the last 10 days, which, so far, are inconclusive. The reorganization of the State Council and the Executive Yuan is still in the negotiation stage. The stumbling block is whether and on what terms the Social Democrats will participate. The reaction to the appointment of Chang Chia-ngao as governor of the Central Bank has not been received with disfavor though the attitude generally is that no radical improvement can be expected from it and the Political Science group, of which Chang is a member, hoped to consolidate its hold on the Finance Ministry and the Central Trust as well as the Central Bank. This appears to have failed with the reported appointment of a CC clique man as head of the Central Trust. This came simultaneously with the announcement that S. Y. Liu (a Political Science man) was transferred from the Central Trust to the post of deputy governor of the Central Bank. This evidence of CC clique expansion into the financial field will not increase banking and business confidence in the Government—it is also additional evidence of the Gmo’s tactics of not allowing any one group to gain exclusive control over the finances of the country.
On instructions from the Gmo, Control Yuan investigated causes [Page 60] of the gold manipulation in Shanghai. Its published report8 directly implicates several of T. V. Soong’s subordinates in highly questionable if not unsavory activities and at best suggests a sloppiness of operation and control for which Soong must, of course, bear the ultimate responsibility as well as for a general monetary policy which permits these activities. It is elsewhere reported that Tang En-po,9 Ku Chu-tung10 and Yen Hsi-shan11 made substantial gold purchases in Shanghai.
In the excitement of other events, the announcement by the Government of additional government, third party and non-partisan members to the Legislative and Control Yuan, the PPC, and the standing committee for the enforcement of the constitution caused only a minor ripple. Government stand that this development constitutes a significant step in the direction of relinquishing one-party control has received little attention and is not likely to do so pending reorganization of the State Council and the Executive Yuan.
The heightened tempo of repressive police activities all over the country, and particularly in areas where the Communists have been most active, has been widely reported and variously interpreted, depending on the political views of the commentator. This development has been strongly condemned in independent and left-wing circles. At the same time the attitude has been general that however reprehensible these activities may be, the Government can hardly be expected to loosen its controls as long as it is engaged in a life and death struggle. Concomitantly, there is a general belief that with the return of all Communist delegations to their own territory the possibility of peace negotiations and political settlement has been indefinitely postponed, making all the more improbable any prospect of halting economic deterioration.