893.00/5–847
Memorandum by the Chief of the Division of Chinese Affairs (Ringwalt) to the Director of the Office of Far Eastern Affairs (Vincent)
The following paragraphs comprise a résumé of Ambassador Stuart’s comments on recent trends in China6 which he has supplied as background for President Chiang’s request for (1) a cotton and wheat credit; (2) supply of ammunition; (3) completion of the 8⅓ Group Program; and, (4) assignment of a US military adviser.
The essence of the problem is whether the financial structure can endure until the Government achieves its military objectives, opening the way for a negotiated peace. President Chiang expects that they can be achieved by September, and the consensus is that there will be no financial collapse before then. However, President Chiang’s optimism is not generally shared. The Chinese high command is divided over questions of anti-communist military strategy, General Tu Yu-ming is proving dangerously incompetent and troop [Page 837] morale is deteriorating. In the worsening economic situation, mob violence may break out and spread; if it does, it may bring about a collapse.
While the Chinese Communists probably would still be willing to enter a coalition government upon terms favorable to themselves, little time is left for them to enter a coalition regime if the constitution is to be put into effect in December 1947 as planned. Meanwhile the Communists, despite popular revulsion against them in many localities, feel confident that the situation will work increasingly to their advantage. Chinese Government leaders, in their predicament, generally consider US aid essential if disaster is to be averted. However President Chiang, almost alone among them, is reconciled to paying the price of accompanying American control in the utilization of US credits or loans.