Foreign Relations of the United States, 1947, The Far East: China, Volume VII

893.50/4–2147

The Minister-Counselor of Embassy in China (Butterworth) to the Secretary of State

No. 652

Nanking, April 21, 1947.
[Received May 1.]

Sir: I have the honor to refer to several telegrams sent by the Embassy to the Department in late March and early April, 1947, regarding the meetings at Nanking of the Third Plenary Session of the Central Executive Committee (CEC) of the Kuomintang and referring, in part, to the proposals for economic reform made by Dr. Chen Li-fu, Minister of the Party’s Board of Organization and chairman of the CEC sub-committee on economic policy which drafted the Economic Reform Plan adopted March 23, with modifications, by the CEC.

There are now enclosed³⁶ copies of the following translations, memoranda of conversations and press articles which relate to this Plan:

1. Translation of the Economic Reform Plan prepared by the International Department of the (Kuomintang) Minister of Information;

2. Copy of a memorandum of conversation on March 28, 1947, with Dr. Kan Nai-kuang, Political Vice Minister for Foreign Affairs;

3. Copy of a memorandum of conversation on April 1, 1947, with Dr. Wong Wen-hao, Vice President of the Executive Yuan;

4. Copy of a memorandum of conversation on April 3, 1947, with, among others, Dr. Huang Yuan-ping, member of the CEC subcommittee on economic planning and one of the drafters of the Plan;

5. Copy of an article entitled “Important Economic Reform Plan adopted by Kuomintang Session”, issued March 24, 1947, by the official Central News Agency, Nanking;

6. Summary translations of three articles from the Chinese press regarding the Economic Reform Plan; and

7. Copy of an editorial entitled “Verbiage à la Mode” from the March 26, 1947 issue of the (American-owned) Shanghai Evening Post and Mercury, Shanghai.

Summary of the Plan. The Economic Reform Plan is a very elaborate and comprehensive document. Divided into two parts, Part I refers to the deteriorating economic situation and the failure of the economic measures thus far enacted to improve conditions; Part II is much more lengthy and contains an outline of the suggested policies and plans for economic reconstruction. In Part I are stated the following reasons why existing legislation has “brought but negligible results and frequently conspicuous disappointments”: (1) failure to follow the basic features of the “Principle of People’s Livelihood”;³⁷ (2) failure to make proper use of China’s manpower and other resources, and to map out plans for a sound economic foundation; (3) decline of confidence of the people in the Government caused by hasty and ill-advised economic and financial measures; (4) lack of clear demarcation between state-operated and privately-owned enterprises; (5) currency inflation and failure to lead floating capital into productive enterprises; (6) failure of past economic measures, which served no purpose other than providing “predatory merchants” with chances to accumulate more wealth, to meet the requirements of the majority of the people; and (7) irregularities in gold sales which caused further rises in commodity prices; and (8) lack of long-range plans.

Part II, entitled “Principles for the Future”, states that China’s economic problem “still rests on whether the Government has adequate policies to boost production and conserve the people’s economic power.” It is further stated that “if all economic problems are tackled in compliance with the spirit of the Principle of People’s Livelihood and its socialistic principles, suitable solutions will not be too difficult to find.” The suggested policies call for development of state capital and state operation of major enterprises; operation of minor enterprises by private capital; enactment of clear-cut measures to encourage foreign investments and privately-run enterprises; and rigid enforcement of laws, coupled with severe punishment for corruption and eradication of speculation and manipulation.

The Plan contains recommendations under 15 headings covering briefly the following: (1) full utilization of manpower to boost production; (2) increased production of goods to stabilize commodity prices; (3) stabilization of the value of currency; (4) reform of banking system; (5) rural reforms; (6) development of industries with recommendation that the Government should map out an over-all economic plan and specify the scope of state, provincial, municipal and private enterprises and fix annual production quotas; (7) development of commerce with a view to encouraging exports and restricting imports so as to attain a favorable trade balance; (8) development of communications by joint efforts of the Government and private enterprise; (9) financial measures aimed to increase production, to increase the Government’s revenue and prevent corruption, and to reduce expenditure; (10) reforms in food administration calling for abolition of compulsory borrowing of foodstuffs in 1947, more reasonable collection of land tax in kind, and adoption of a granary storage system to stabilize grain prices; (11) diversion of idle capital from speculation to productive channels; (12) encouragement of foreign capital, including measures to expedite remittances from overseas Chinese; (13) rational adjustment of treatment accorded public employees, school teachers and Army personnel; (14) severe punishment for persons who utilize political influence to benefit private enterprises; and (15) strengthening of the economic organization with over-all planning of the nation’s finance and economy. End of Summary.

Obviously, with the Economic Reform Plan in mind, the Central Executive Committee of the Kuomintang, in its manifesto issued March 24, 1947,³⁸ at the close of the Third Plenary Session, made the following recommendations under the heading “Carry out the Principle of People’s Livelihood and Stabilize the National Economy”:^*

“A serious obstacle to the development of our nation is economic maladjustment. This Plenary Session considers that the only way to remedy this situation is to carry into effect the Principle of People’s Livelihood by reforming our economic policies. Thus, all the economic policies of the Government must be aimed at promoting the welfare of the masses, including the farmers. Economic rehabilitation and reconstruction must not be confined to large cities but extensively pushed to all rural areas. Further, there should be rational administration of finance, improvement of procedures for extending loans to productive enterprises and extensive establishment of cooperatives. At the same time, the nation as a whole should sincerely observe all the laws and ordinances pertaining to the enforcement of emergency economic measures.”

In effect, the foregoing offers a brief and concise statement of the objectives of the Economic Reform Plan. It is couched in the same vague terms; it also contains reference to Dr. Sun Yat-sen’s Principle of the People’s Livelihood; and covers practically every economic ill that besets China today—and has for many years past. The Plan itself is an “omnibus” of plans, and many of the recommendations contained therein appear to be covered by laws already passed but never enforced. Implementation of all the recommendations contained in the Plan would result in an utopian, socialistic state of the type envisioned by Dr. Sun Yat-sen. The quandary faced by Chinese economic planners is summed up aptly in the following sentences from the article entitled “Trouble with China is Confucius,” which appeared in a recent issue of Fortune magazine:^†

“Dr. Sun said in effect: What we have won’t do; neither will capitalism, which smacks of imperialism, nor Russian Communism. There must be a middle-ground rallying-point for a social revolution. We cannot have big-business capitalists, who are foreign to Chinese tradition in any case (Confucius was a managed-economy, not free-enterprise man), but socialization will not fit the anarchistic strain in Chinese life. Therefore, we shall have socialism in heavy industry and we shall guarantee free enterprise elsewhere …”³⁹

The foregoing reflects the general atmosphere and statements of principle which feature the Economic Reform Plan. Moreover, the same contradictory economic objectives indicated above may also be found in the Plan.

It does not appear advisable to dismiss the Plan merely by stating that it “reaches the highest point in dreamy nebulosity,” as opined by a Shanghai newspaper (Enclosure No. 7). Neither does it seem advisable to say there is nothing new in it (Enclosure No. 2).

The Plan is believed to be of significance primarily because it was drawn up under the direction of Dr. Chen Li-fu, Minister of the Kuomintang Board of Organization and head of the so-called C–C Clique which dominated the Third Plenary Session of the Central Executive Committee of the Kuomintang, and because Dr. Chen is reportedly endeavoring to obtain control of several key economic posts⁴⁰ in the Chinese Government (Enclosures Nos. 2 and 3).

As stated by one of Dr. Chen’s associates⁴¹ (Enclosure No. 4), there is some question, in view of the present reorganization of the Chinese Government, whether the Plan will be approved by the Cabinet or, if approved, whether it would be substantially modified out of deference to non-Kuomintang parties participating in the Government. Another very definite possibility exists that the Plan, which appears to have little appeal to those members of the Kuomintang not affiliated with the C–C Clique, may subsequently be modified even by Party members.

If this Plan had been drawn up by the more liberal elements in the Kuomintang, there would appear to be reason to treat its recommendations with respect. In the present case, however, question arises over the motives which prompted the reactionary C–C Clique to sponsor seemingly liberal and much-needed sweeping reforms. The suggestion has been made, and apparently with good reason, that Dr. Chen cynically sponsored the drafting of the Plan as a move to enlist the support of unwary liberal elements in the Party and outside, and with no real desire to be called upon to implement the Plan. It remains to be seen whether this supposition proves to be correct.

Press reaction to the announcement of the Plan was scant and favorable comment was limited almost entirely to papers under control of the C–C Clique or of the Kuomintang. Examples of the type of comment made by three such papers are given in Enclosure No. 6. One of these papers, the Shun Pao, Shanghai, stated that as the new policy had been worked out solely by Dr. Chen, the responsibility for implementing it should be entrusted to him.

Detailed analysis of the Plan does not appear to be warranted at this time, especially because similar recommendations have frequently been made in resolutions adopted by the Central Executive Committee of the Kuomintang, without visible result in so far as actual reforms are concerned. Mr. Solomon Adler, the Treasury Attaché, for example, does not consider significant the recommendations for banking and other financial reforms. Attention is invited to the comments on the Plan made by Dr. Huang Yuan-ping, one of the drafters thereof, as given at some length in Enclosure No. 4. From this memorandum it will be seen that several errors in translation occurred in the English version of the Plan prepared and released by the Ministry of Information.

The reactions toward the Plan of Dr. Wong Wen-hao, Vice President of the Executive Yuan and one of China’s ablest officials in economic matters, and of Dr. Kan Nai-kuang, Political Vice Minister for Foreign Affairs and reportedly to be given the influential post of Secretary-General of the Executive Yuan under the present reorganization of the Chinese Government, seemingly represent the views generally held by the liberal Political Science Group in the Kuomintang, of which both are members. Dr. Wong stated to an officer of the Embassy that he would find it “extremely difficult” to have to work on important economic matters with members of the C–C Clique which he characterized as “too narrow-minded, dictatorial and essentially only anti-Communist”. In this connection, reference is made to the last paragraph of Enclosure No. 4 wherein Dr. Huang Yuan-ping is quoted to the effect that the Plan had not been drawn up primarily for the purpose of combating Communist influence although, if the recommendations contained therein were carried out, the Plan would have that effect.

Respectfully yours,

W. Walton Butterworth

36. Enclosures not printed.
37. One of the Three People’s Principles (San Min Chu I) taught by Dr. Sun Yat-sen, who was known as the Father of the Chinese Republic and who was its first Provisional President in 1912.
38. For summary, see United States Relations With China, p. 737.
39. As reported by the official Central News agency, Nanking on March 24, 1947. [Footnote in the original.]
40. As reported by the United States Information Service in a report from New York dated April 4, 1947. The issue of Fortune is believed to be that for April 1947, the USIS report stating that it was the “current” issue. [Footnote in the original.]
39. Omission indicated in the original despatch.
40. Namely, Minister for Economic Affairs, Chairman of the National Resources Commission, and Chairman of the National Economic Council.
41. Huang Yuan-ping.