893.00/7–648: Telegram
The Ambassador in China (Stuart) to the Secretary of State
[Received July 7—10:37 a. m.]
1239. Within past month prestige and authority of Central Government has sunk to all time low, emphasized by military debacle on Kaifeng front and collapse of Chinese dollar on commodity and foreign exchange markets. From information available to us, it appears that, with exception of Fu Tso-yi, Nationalist commanders are avoiding combat and abandoning their positions when combat threatens. Chinese Supreme Headquarters in Nanking admits that Kaifeng was taken by Communists without resistance from defending garrison and that attacking force was even joined by certain Nationalist units. Similar conditions appear to characterize recent military activities in southern Shantung and we are forced to conclusion that, except in isolated instances, Government armies can no longer be counted to fight.
Deterioration in economics sphere is also noteworthy. New cost of living index, issued just after depreciation in value of the dollar, is arousing protests of wage earners and salaried groups who argue correctly that their incomes, as based on this index, will be insufficient permit them to purchase necessities of life. While their argument is valid, an increase in index to point where their basic needs would be satisfied would bankrupt both Government and private enterprise. Commodity prices are stable at moment but there is little or nothing to prevent other spectacular jumps with consequent increase in discontent and civil unrest.
In this situation, and as has been the case previously, Government appears to have no remedies. Military appears unable to stabilize any of fighting fronts or restore situation there to Government’s advantage. Civil officials admit frankly that they do not know what to do to curb present violent inflation.
As we have reported, Generalissimo is generally and directly blamed for this state of affairs and is criticized for his inability to take any effective action to cope with situation. He is doubtless aware this criticism and of its implications. He responds to it only by trying to [Page 345] safeguard his own position thru placing individuals on whose loyalty he can personally count in position of trust, regardless of fact that these individuals have long records of incompetence or corruption or both.
It is this failure of Generalissimo to use his authority for improvement conditions that forces provincial military and civil leaders to consider adoption of regional understandings and formation of regional political associations against day when Government in Nanking either falls or loses last vestiges of its authority. We have received reports from two independent sources that purpose of General Li Tsung-jen’s present visit to north China is to consult with Fu Tso-yi, Wei Li-huang, Wang Yao-wu, and certain other northern leaders on formation of a third government which would control northern China. It has been reported that this government will be independent of both Nationalist and Communist control, that it will reach some sort of agreement with Communists and that if necessary it will include “some Communists.” We have reported statement of T. V. Soong that he is adopting military measures for protection of south and his determination to defend that area should disaster overtake Generalissimo. Also there are indications that provisional government which Marshal Li Chi-sen states he intends forming in near future may be essentially regional in character, comprising several provinces in southwest.
As we note above, regionalism and particularism is the natural response of those who would preserve, or make a new place for themselves as authority and power of present Government inevitably declines. It is impossible to say what event would precipitate break between Generalissimo and any potential regional leader. This could result from an overt move by the KmtEC or from any comparable occurrence detrimental to Generalissimo’s prestige. In any event our role in situation is not a happy one. In popular mind we are associated with Government and are regarded as principal means by which it keeps itself in power. We are asked with increasing frequency why we adopt policy of perpetuating in power a Governments seemingly bent on its own destruction and facile only in paving way for spread of Communism. While we answer such queries by referring to Generalissimo’s adamant stand against Communists, we are forced to admit that it is stand in name only. A continuation of his regime will almost certainly either plunge entire country into profound chaos whereupon Communists will seize power or result in seizure of power by local leaders anxious to safeguard themselves.