Memorandum by Mr. Charles R. Bennett of the Office of Far Eastern Affairs, to the Director of the Office (Vincent)

All close observers of the China situation agree that from both the economic and the political point of view one of the most fundamental needs is the restoration of trunk lines of transportation. Such restoration combined with the already augmented coastal and inland waterways shipping is necessary not only to the movement of exports and imports but also for the supply of consumption and manufacturing supplies to urban areas. The political situation, however, is such that for the time being the reconstruction and re-equipment of trunk lines should be confined as far as foreign funds are concerned to areas not in immediate contact with the Kuomintang–Communist struggle.

The Chinese have asked the Export-Import Bank for $103 million for six trunk lines and the Yellow River Bridge. It seems desirable however to avoid for political reasons financing rail lines in or leading into the Communist threatened areas. Three of the lines in the Chinese list might be considered [:] the Lung Hai which is the principal East–West line connecting West Central China with the sea, the Hankow–Canton–Kowloon line connecting the Yangtze River with the South Coast and the Hangchow-Shanghai-Nanking, traversing the rich provinces of Kiangsu and Chekiang and linking up with the war-dismantled line which connected with the Canton–Hankow near Changsha. For these three lines the Chinese ask for $64 million. Their estimate for the Hankow–Canton–Kowloon is $42,654,000. The total original cost of this line for bridge, track, signals, telephone and telegraph and rolling stock was roughly $20 million. Allowing for 50% destruction and deterioration and allowing for higher present day costs of materials and delivery $20 million would seem a liberal figure for rehabilitation especially as much of their rolling stock is adequate to Chinese needs. Using this analysis for judging the other [Page 1077] lines which have suffered more from deterioration than war destruction, consideration might be given to say:—

Hankow–Canton–Kowloon Ry. $20 million
Lung Hai 6
Hangchow–Shanghai–Nanking 5
Total Railway Credits $31 million


The new Tangku Harbor project has been almost fifty percent completed—40% by the Japanese. It already permits the passage of coast steamers up to 3,000 tons. A great deal more work must be done to permit of safe anchorage of ocean going steamers within the breakwater protected harbor. Foreign estimates of costs of lighterage and demurrage for ships lying outside the Taku Bar are more than one and one-half million dollars per annum. This project seems highly practical and undoubtedly of great benefit to domestic and foreign trade. It is one of the few North China projects free of interference from civil war, though of course its full usefulness cannot be attained until the back country is stabilized. The amount asked for is $16,750,000. In the absence of supporting technical data the need for such an amount is open to question. To complete the project which includes two shipyards an estimate of three or four years is given. It might be well to consider a two years allowance of $8,000,000 with the expectation that completion can be accomplished out of revenue.

The Shanghai Harbor facilities were inadequate even before the war and a harbor development in the Woosung area was begun. That such development is economically desirable has not been questioned so far as I am aware and certainly if Shanghai is to handle the commerce that may conservatively be expected a great deal of improvement in its facilities must be achieved. However, a cautious attitude in initial credits is wise in the interests of promoting essential improvements first. Suggest the requested $5,000,000 to be cut to $3,000,000.

Much the same line of reasoning would indicate a cut in the Tsingtao Harbor request to $1,000,000. Unless this harbor was badly damaged during the war, the Japanese development and equipment must have left pretty fair facilities. However, harbor improvement like transportation is generally desirable.

Coal Mines

While the great need of China is a restoration and development of her export trade to pay for essential imports, transportation and power are prior necessities. Coal therefore is of urgent importance. Before the war China exported more coal than she imported. Now [Page 1078] she can’t supply her domestic needs. For the restoration and modernization of accessible coal mines within areas controlled by the Central Government consideration might be given to a total credit of $10 million which is about the amount of the request for the Fuhsin and Peipiao and Chungshing Mines. The amount suggested might well, however, be allocated to a wider field than that of these three alone. For the immediate future a large increase in coal production is more important than the latest devices for future development. Modest equipment for more mines.


The possibilities for Formosa to develop a large export trade have been commented on by various independent observers. One of the growing needs of Chinese agriculture (the backbone of the Chinese economy) is artificial fertilizer. No fertilizer industry of this type existed to a significant degree in China before the war. A great development is possible in the demand for such.

China’s consumption of sugar is still relatively small but increasing and the sugar industry in China was assuming considerable importance before the Japanese attack. Formosan sugar would find a market however in foreign trade and in the domestic canning industry.

Sugar production requires fertilizer and sugar controls and fertilizer factories require power. Consideration might well be given to the three requests—Taiwan Electric Power Company $4,400,000, Taiwan Fertilizer Manufacturing Company $3,400,000 and Taiwan Sugar Industry $4,200,000. Specific amounts for industrial projects can only be determined after technical survey on the spot. However though the power plant suffered some from bombing recent reports indicate the damage much less than at first reported. In Formosa the Japanese promoted the use of artificial fertilizer and even in China the use of such is increasing and probably is essential to any extensive improvement in agriculture. In 1938 Formosa exported 700,000 tons of rice, 250,000 tons of bananas, 1,000,000 tons of sugar and 3,000,000 dozen canned pineapple. An early restoration and development of this trade will provide a large amount of foreign exchange. Suggest however a reduction of the total requested credit from $12 million to $8 million (Power $2,000,000, Sugar $3,000,000 and Fertilizer $3,000,000).

North China Industrial Restoration

The amount asked for is small but in view of the political situation there would seem no urgency for the projects listed with the possible exception of the Chi Pei Electric Power Company. Even this might better wait on more settled conditions.

[Page 1079]


Hankow–Canton–Kowloon Ry. $20 millions
Lung Hai Ry. 6
Hangchow–Shanghai–Nanking Ry. 5
Railway Credits $31
New Tangku Harbor 8
Shanghai Harbor 3
Tsingtao Harbor 1 “
Coal Mines 10
Taiwan Electric Power Co. 2
Taiwan Fertilizer Mfg. 3
Taiwan Sugar Industry 3
Total $61

In addition to the above serious consideration should be given to the Chinese request for a short term loan of $150 million for 1,100,000 bales of raw cotton. However whereas Dr. Soong estimates requirements at 1,100,000 bales to July 1, 1947, the Embassy estimates on the basis of 1947 native production being at least as high as 1946, is only 500,000 bales for the whole of 1947 and this includes a probable carry over December 31, 1947 of 500,000 bales. For the present then it would seem that 250,000 bales would fill all China’s effective needs. Unofficial reports indicate very large stocks of raw cotton hoarded by private individuals as well as textile companies and raw cotton production prospects are excellent. This would add $40 million to the above figure making a grand total of $101,000,000.