The Ambassador in China (Stuart) to the Secretary of State
[Received August 10—5:37 a. m.]
1472. The situation in China continues to deteriorate and even though there is a faint glimmer of hope the tide continues to run against the Government. Accordingly it is time we believe for us to survey the situation and determine our future course of action.
To summarize briefly:
- Military: The Communists continue to win the civil war. They have retained the initiative with all the advantage given by the offensive and Government troops just do not seem to have the will or the ability to fight. There are many reports of defections to the Communists but none from Communist ranks. Occupying as they do most of North China east of Sian and north of the Yangtze River except for a few scattered urban centers such as Peiping and Tientsin and certain lines of communication, the Communists now appear intent on removing the last vestiges of Government strength from Shantung Province, a prelude possibly to full-scale attack south to Nanking or possibly to an all-out attack on Peiping–Tientsin area. In Central China south of the Yangtze scattered Communist bands operate throughout the countryside creating confusion and disorder with the obvious intent of further weakening the Government and preparing the way for some future large-scale operation. In South China though less active Communist guerrilla units operate more or less at will and the Government has no forces to employ against them.
- It is a gloomy picture and one would expect the Government to clutch at any means of improving the situation. Nevertheless it ignores competent military advice and fails to take advantage of military opportunities offered. This is due in large part to the fact that Government and military leadership continue to deteriorate as the Generalissimo33 selects men on the basis of personal reliability rather than military competence. In the distribution of desperately needed military supplies men of proven military competence such as Fu Tso-yi34 are given low priority and are almost left to fend for [Page 406] themselves. Long contemplated plans for training new armies and replacements are not being implemented or are moving too slowly materially to affect the situation in the coming desperate months. There is an awareness of the desperateness of the military situation yet no evidence of a will or capability to cope with it.
- Economic: The inflationary spiral continues at an accelerated pace. Prices have become astronomical and their rise so rapid that the Government has been unable to print sufficient money to meet day-by-day needs with the result that barter is becoming more and more the rule. Prices increasingly are quoted either in U. S. dollars, silver or gold. In the interior silver dollars are coming back to use. Thus Government has introduced measures to control inflation but the effects have been only temporary and palliative. The fact is that the Government in the absence of assured continuing and massive loans from the U. S. cannot hope to find an answer as long as circumstances require the maintenance of the present military establishment. A renewed and concerted attack on the periphery of the central problem now impends but at best it can only provide a breathing spell.
- Psychological: After years of war and destruction the all-consuming urge of the people today, and this includes both low and high ranking members of the Government and Communist areas as well, is for peace. This urge becomes all the more insistent as most people can see no ray of hope under present conditions. A spirit of defeatism is prevalent throughout the country reaching even men of cabinet rank. Almost without exception there is no longer faith that the present Government can bring a return to even a bearable standard of living without some radical reorganization. With this frame of mind a cessation of hostilities is desired at almost any price. There is an overwhelming desire for peace yet the Generalissimo wants only military victory over the Communists and no one has yet found a way to surmount the Generalissimo’s objections and win out to peace.
- The Generalissimo himself: Universally the Generalissimo is criticized for his ineffective leadership and universally no one can suggest any one to take his place. He is the one who holds this vast country together. Without him disintegration seems inevitable yet long experience with him suggests that he is no longer capable of changing and reforming or of discarding inefficient associates in favor of competent ones and unless he can summon the resources to reverse the present trend he will inevitably and in time be discarded. Nevertheless the Generalissimo is a resourceful man and there are signs that he is trying to find a way to continue the fight against the Communists and at the same time prevent a return of the country to regionalism. He has sent former Prime Minister Chang Chun to the north and to the southwest offering regional autonomy in return for [Page 407] continued allegiance to Nanking and there is reason to believe Chang Chun’s trip has not been entirely unproductive of results. There is active and violent agitation for reorganization of the Kmt35 which will permit liberal voices greater weight in Government circles and there is evidence that under Wong Wen-hao36 the Government is making a valiant effort toward economic and financial reform which may be announced shortly. Unless, however, these drastic measures which are contemplated produce a miracle and result in the retention of the Generalissimo and the Kmt in control we may expect to see some kind of an accommodation with the Communists or a regional breakup or a combination of the two. The third possibility seems the most likely.
Even though at present some form of coalition seems most likely we believe that from the standpoint of the United States it would be most undesirable. We say this because the history of coalitions including Communists demonstrates all too clearly Communist ability by political means to take over complete control of the government and in the process to acquire some kind of international recognition. We question whether a Communist government can in the foreseeable future come to full power in all China by means other than coalition. We would recommend therefore that American efforts be designed to prevent the formation of a coalition government and our best means to that end is continued and, if possible, increased support to the present Government. Nevertheless deterioration has already progressed to the verge of collapse and it may already be too late for our support to change the course of events. To assure success we should likely have to involve ourselves in great responsibilities military, economic, political for we should have to undertake the direction of Chinese affairs on a large scale and a scale in fact that would likely involve responsibilities beyond our resources.
Should the march of events therefore as seems most likely result in some kind of accommodation with the Communists, then it is our conviction that our influence should be used to arrange a cessation of hostilities on a basis of a very loose federation with territorial division which would leave as large an area of China as possible with a government or governments free of Communist participation. While it is not impossible that such an accommodation could be made by the Generalissimo himself, it seems more likely that it would be made by regional leaders in the north, southeast, southwest and west China either following the overthrow of the Generalissimo or as one step in the process of his downfall when these regional leaders became convinced that the Nationalist Government was finished. It [Page 408] would then become incumbent upon us to support such regional groups as we were convinced would continue to struggle against the Communists and could give some promise of being able to maintain themselves in power. Such regional groups might supply a political beachhead from which some day a drive could be made to recover all China for democracy. Who these leaders will be can of course only be determined at the time the development takes place, but it is our conviction that we should be prepared to move quickly should it happen and to encourage whoever might emerge and give promise of effective anti-Communist stand.
If as seems likely the collapse of the present Government should result in a return to regionalism we could expect that such collapse would be followed by a period without hostilities but we could not expect that the mere development of regionalism would of itself cure the economic chaos which exists in China at present. This is precisely the point where we could make our influence felt. If we could strengthen those regional governments economically we could expect the drift toward communism to be checked particularly because there is increasing evidence that all is far from well economically in areas now under Communist control. A period of economic prosperity or even an easing of the economic situation in non-Communist areas should permit basic anti-Communist Chinese characteristics to reassert themselves and correspondingly weaken sympathy for the Communists even in their own areas and might develop that strength in non-Communist areas which in time would permit renewal of hostilities designed to eliminate Communist military strength from China. It would at least provide a breathing spell. Our first and principal problem would be to determine when the moment has arrived when we should shift our support from the present Government to the embryonic regional groups. We believe that moment has not arrived but we believe it quite likely that it may not be far off. Please see our immediately following telegram No. 1473.