Foreign Relations of the United States, 1948, The Far East: China, Volume VII

711.00/11–2948

The Secretary of State to the Ambassador in China (Stuart)

Washington, November 29, 1948

Dear Mr. Ambassador: There is enclosed a copy of the Department’s September 1948 Policy Statement on China. This Statement has been prepared, in continuation of the former Policy and Information Statements, under a revised set of directives designed to eliminate the purely informational aspects of the Statements and to place emphasis on a frank discussion of United States policy issues and problems.

As you know these Statements are intended not only to provide guidance to each Chief of Mission but also to serve as a coordinating instrument within the Department. It is our intention to revise each country Statement at least every six months, in the light of current developments and of discussions on the policy questions involved.

Will you, therefore, go over the enclosed Statement on China as soon as possible and transmit to the Department your frank comment and recommendations which can be used as a basis for subsequent revisions.

Faithfully yours,

G. C. Marshall

[Enclosure]

Department of State Policy Statement on China, September 27, 1948

A. Objectives

Our objectives in China derive from our over-all objectives of providing for the security of the United States, insuring peace among nations and creating and fostering mutually beneficial commercial and cultural relations between peoples. In China we seek the development of an independent, stable nation which can preserve its territorial integrity, which is willing and able to fulfill its obligations under international law and treaties, and which is friendly toward the US and generally in sympathy with our policies. Basic considerations of American security and American interest in peace and stability in the Far East have led us to assume an active role with respect to China and to seek positive means to foster our objectives.

B. Policy Issues

1. General

In striving to achieve our fundamental objectives we support and extend assistance to the present National Government as the only instrument now available which has any capability of bringing about an independent stable China friendly toward the US. The continuing Communist domination of large and important areas of China and the probability of further extension of Communist influence constitute a most serious obstacle to achieving our fundamental objectives. Although the present National Government is far from ideal as an instrument for opposing communism or as an avenue through which we may approach our objectives, we support it where appropriate and feasible because there has appeared no more promising alternative. Discontent, disillusionment and despair are widespread and increasing ominously within Nationalist territory. But as yet non-Communist forces of opposition to the National Government have not coalesced under leadership which would give reasonable promise of being determined and able to marshal the remaining strength of Nationalist China effectively against the Communist threat. Until this occurs, to aid and encourage any opposition movements would be to weaken the National Government and to hasten its disintegration without assurance that a more effective instrument would take its place. Obviously, to support and encourage opposition elements at the same time that we are supporting and extending aid to the National Government would be inconsistent and contradictory. However, we can and should exercise our influence with the National Government to the utmost to insure that American aid including military supplies which China receives under the China Aid Act⁷⁰ is distributed in such manner as to be of maximum effectiveness.

A coalition government including the Communists would likewise be unsuitable as an instrument for achieving American objectives in China. The Communists have now increased their strength to a point where they would probably insist upon decisive participation in the executive branch of the government rather than mere recognition as a legal party. We may, however, be faced with such a coalition government in China resulting from the phenomenal growth within recent months among all classes of the Chinese people of the desire for peace at any price and from the further disintegration of the National Government.

Although the US supports and extends assistance to the National Government, there are weighty considerations which argue against our expanding this assistance to the point of all-out aid or becoming committed to a course of action under which we would be compelled to assume responsibility for the continued existence of the National Government or the outcome of its efforts to restore its authority over all Chinese territory. Our own resources are limited; to underwrite unreservedly the National Government would commit our resources to an unpredictable but doubtless extremely high degree in a struggle, the outcome of which would still be dubious, to the detriment of programs in more vital areas in which it is probable that our resources could be decisive. Also, the administrative inefficiency of the National Government and the extent to which incompetent and corrupt officials occupy high positions make extremely questionable its capacity to utilize effectively American aid in anything approaching all-out proportions. Furthermore, a program of all-out aid would necessitate a high degree of American control in Chinese internal affairs. This control would result in widespread resentment and opposition both within and outside of the government as constituting a derogation of Chinese sovereignty. Finally, the failure of the present leadership of the National Government to undertake social, economic and political reforms which, responding to the aspirations of the Chinese people, would win to it a wide measure of popular support counsels against committing ourselves deeply or irrevocably to its support.

The China Aid Act of 1948, which is the basis of most of our present material aid to the Chinese Government, was drafted with the preceding considerations in mind. Under its terms, the National Government is receiving grants in aid of $125 million, subject only to administrative terms determined by the President, and economic aid administered by ECA⁷¹ in the amount of $275 million. The former sum was made available in order that it might, in the discretion of the Chinese Government, be used for procuring military supplies and equipment; present indications are that it will be so used in its entirety. The latter sum of $275 million will assist the Chinese Government to economize in the use of its own foreign exchange reserves, which are rapidly nearing exhaustion. In accordance with the Act, up to 10% of the total economic aid may be used for a program of rural reconstruction emphasizing improvement of agricultural techniques, basic education, civic training and land reform. ECA has thus far reserved approximately $70 million for high priority reconstruction projects and capital goods maintenance and replacement. The balance of the $275 million sum will be used to finance the importation of commodities essential for civilian consumption and industrial production. Proceeds from the sale of these commodities in China will assist in meeting the budgetary deficiency of the Chinese Government but these receipts will only take the place to some extent of income formerly received from the sale of surplus and ex-enemy property and net sales of government owned foreign exchange.

All of these programs have the immediate effect of reducing somewhat the severe pressure on Chinese foreign exchange reserves, but the full effects of the rural reconstruction program and the capital goods reconstruction program will become evident only over a considerable period of time. On the other hand, the commodity purchase program is of an emergency nature with more immediate benefits to the Chinese economy. While the long-range reconstruction programs have much to commend them, a continuation or an aggravation of the critical financial situation in which the Chinese Government now finds itself may make desirable the curtailing of these programs to allow increased purchase of basic commodities.

While the proceeds from the sale within China of commodities obtained under the aid program may be used by the Chinese Government in meeting its budgetary expenses, the terms of the agreement with China under which ECA operates in that country require the Chinese Government to credit by bookkeeping entry in the Central Bank a special account maintained in the name of the Ministry of Finance in amounts of Chinese currency commensurate with the US dollar-landed cost of the commodities. This account may be drawn upon, in general with the approval of the two governments, to finance the internal costs of a variety of operations under the aid program. However, it is anticipated that there will remain a large sum the disposition of which is subject to future agreement. Our policy with regard to the ultimate disposition of this account has not been finally determined, although there is general agreement within this government that it should not be utilized in such manner as to contribute significantly to inflation in China.

In addition to material assistance, the US is providing the National Government with advice in a variety of technical fields. At the request of the Chinese Government, the US has an Army Advisory Group (with an Air Division) and a Naval Advisory Group in China. For a considerable period following its establishment, the Army Advisory Group assisted the Chinese in an advisory capacity in connection with organizational and training matters at a high staff level and the training of general and special staff groups of the Ministry of National Defense and the Supreme Headquarters. Some training and technical assistance in the academies and service schools of the air and ground forces were also provided. Partially as a result of the steady deterioration of the Chinese Government’s military position and the suspension of peace negotiations between the Communists and Nationalists, the scope of activities of the Army Advisory Group was broadened to permit certain activities which would have a more immediate and direct effect upon the military capacity of the Nationalist armies to resist the Communists. Thus in October of 1947 it was permitted to assist in an advisory capacity in the training of combat troops on a divisional level, initially in Taiwan and subsequently in the Canton area as well. Furthermore, the Chief of the Army Advisory Group was subsequently authorized under certain carefully circumscribed conditions to give advice of a strategic nature to the highest Chinese military authorities. The Naval Advisory Group has assisted in the reorganization of the Chinese Navy, especially the personnel, communications and supply branches, and has established shore and fleet training schools at Tsingtao for the purpose of training Chinese crews in the operation and maintenance of US naval vessels, the transfer of which to China was authorized under Public Law 512.⁷² In addition, it maintains personnel at Chinese dock yards at Shanghai and Tsingtao to assist Chinese engineers. It has been a basic consideration in determining the scope of activities of the Advisory Groups that they should engage in no activities which would directly involve the US in hostilities. With this in mind they have been allowed to conduct no activities in areas of actual combat and they have not been allowed to engage in any activities which might place upon the US a responsibility for Chinese strategic plans and operations. This has been in accord with basic US policy of supporting the National Government while carefully avoiding any steps which might bring about our direct responsibility for the Chinese Government’s military effort.

American civilian advisers have gone to China either in a private capacity or under the sponsorship of various programs, of the US Government. It is anticipated that further American policy and technical advisers may be made available to the Chinese Government on a highly selective basis under US Government auspices. Such assignments should be made in such a way as to minimize the possibility for involvement of the US in basic policy developments in China and implicit responsibility therefor. The past record has shown the Chinese Government generally enthusiastic about accepting civilian advisers and adept at disregarding their advice. In general the US should supply civilian advisers only when there is reasonable evidence that the Chinese Government will be disposed to act upon their advice; even under these circumstances, it probably would be necessary to give the recommendations of such advisers persistent, informal diplomatic support.

The immediate threat to the existence of the National Government must be met by a combination of military and economic measures. But in a more fundamental sense, the weakness of the National Government is political and can be remedied only by sweeping reforms which will strengthen its popular support and increase its administrative efficiency. In formulating the present China Aid Program, it was not expected that such aid would bring about either economic recovery of the country or a permanent solution of the problems now besetting the National Government. It was expected, however, that by assisting it in meeting its most pressing economic and military problems, the government would enjoy a breathing spell during which it would have the opportunity to initiate those reforms essential to a long-range solution of its problems. In furtherance of this purpose, and in conformity with the China Aid Act, the Chinese Government is committed to a number of undertakings “necessary to insure efficient and practical use of economic resources available to it …”⁷³

But mere formal commitments of this nature are not enough. It is evident that to a large degree the success of our aid program hinges upon the concomitant adoption by the Chinese Government of sweeping administrative, political and economic reforms generally responsive to the aspirations of the Chinese people. The Chinese Government has evidenced extreme reluctance to implement a program of this nature, although the Prime Minister in January of 1948 announced specific measures of self-help. It therefore becomes one of the chief tasks of US Government representatives in China to convince the Chinese leaders that only through such reforms can our help be fully effective and their government survive. Our efforts have been devoted to this end and they should be continued unremittingly.

It has appeared logical in approaching this problem for us to concentrate our efforts upon those reform measures which appear within the capacity of the National Government to carry out and which would be most effective in winning to it popular support. Primary emphasis should be given to: (1) economic reforms designed to distribute more equitably the fruits of productive enterprise and the burdens of taxation; (2) administrative reforms looking toward a simplification of the administrative structure of the government, the establishment of budgetary control, the reduction of governmental expenditures and the elimination of corrupt and incompetent officials; and (3) military reforms resulting in a smaller, better equipped, better officered and better disciplined armed force which would impose a lighter burden on the national budget, which would arouse less civilian ill-will through undisciplined actions and arbitrary methods of conscription, and which above all would be better able to win significant victories. The full achievement of these objectives is obviously beyond the capabilities of the present National Government or any successor, government at this time, but even moderate advances along these lines would probably go far toward arresting the spread of unrest and winning to the government that popular support which it vitally needs. The dollar value of American aid made available to the Chinese Government during the period from VJ-Day until the end of this fiscal year is estimated to be in excess of US $2 billion, a sum roughly equivalent to one-half of the total monetary expenditures of the Chinese Government during that period. Notwithstanding this very substantial assistance, the government which we have supported has grown progressively weaker and the possibility of achieving our objectives in China has become steadily more remote. No amount of foreign material aid or advice can accomplish changes which must result from essentially Chinese decisions and actions and which, in the final analysis, must be a Chinese responsibility. The tactical problem confronting American diplomacy has been and is, therefore, to induce the Chinese themselves to take these steps without placing upon us responsibility for their success or failure or for the material means, apart from presently authorized aid programs, necessary to their implementation. If American diplomacy should be unable to accomplish this task, and the lack of significant success in the past suggests that this may be the case, the US may be forced to re-examine its entire aid program which is, in the last analysis, a marginal operation predicated upon the willingness and ability of the Chinese to help themselves.

2. Economic

Aside from our program of economic aid, which is of a temporary or emergency nature, it is the policy of the United States to encourage and assist, when appropriate and feasible, the development of a sound Chinese economy integrated into the world economic system of multilateral trade on an unconditional most-favored nation basis as envisioned in the International Trade Organization (ITO) Charter.⁷⁴ This policy is consonant with our objectives in China, for an independent, stable China can, in the long run, rest only upon a sound economy; it is also in accord with our over-all objective of fostering mutually beneficial commercial and cultural relations among nations.

Under more stable conditions, it might be expected that American private capital would play a significant part in restoring and expanding Chinese industry. However, during the present period of uncertainty regarding hostilities and the future status of private capital in China, it is doubtful that American private capital will be attracted in significant amount to China. It should be noted that China is passing not only through a period of civil strife but through a much larger and more profound social and economic revolution under which old economic and social patterns are being discarded and replaced by new ones. During this period the United States should exert its influence when appropriate to the end that, in so far as possible, new patterns being established in the economic and commercial fields are compatible with our own and will provide the means for mutually beneficial commercial relations. Accordingly, American commercial policy toward China since the end of hostilities with Japan has been concerned primarily with the establishment of principles which will at some future date direct China’s commercial relations with the US into constructive and mutually beneficial channels.

The pending bilateral Treaty of Friendship, Commerce and Navigation⁷⁵ and the General Agreement on Tariffs and Trade (GATT),⁷⁶ to which both China and the US are parties, embody the major principles of general United States commercial policy with respect to China. The provisions of GATT are confined to matters of trade and commerce and do not afford American nationals the right to engage in business in China or any of the personal and other rights conferred by the treaty. For this reason, the US regards Chinese acceptance of the treaty as necessary, notwithstanding the fact that GATT is already effective. The Senate, in ratifying the treaty, made a minor reservation which the Chinese Government finds itself obliged to submit to the Legislative Yuan for approval before exchanging ratifications. The US will continue to press for approval and exchange of ratifications when the Legislative Yuan reconvenes.

In connection with the exchange of ratifications, we seek an exchange of notes making it clear that: (1) the provisions of the treaty shall not preclude action by either party which is required or specifically permitted by GATT or by the Havana Charter for an ITO so long as such party is a member of either organization; (2) the Pacific Trust Territory shall be excepted from the territorial coverage of the Treaty; and (3) advantages which might be accorded that Territory by the United States shall be excepted from the most-favored-nation provisions of the treaty.

There is a tendency in China for the state, through the medium of commissions or corporations largely or wholly owned by it, to engage in business or industrial enterprises, often in direct competition with privately owned enterprises. American businessmen with interests in China have urged strongly that the US Government bring pressure to bear upon the Chinese Government to restrict or eliminate state trading. The extent to which the US can exert pressure on the Chinese Government in this field is limited by respect for Chinese sovereignty and by the need for consistency in our general commercial policy. When we could appropriately do so, we have endeavored to impress upon the Chinese the advantage which we consider inherent in the American system of private enterprise. In cases in which Chinese Government corporations are competing directly with American private enterprises, we have endeavored to prevent the latter from being placed at a competitive disadvantage. We have with some success taken the position that Chinese Government corporations should not be permitted to exercise regulatory powers over their private competitors in China. Efforts along these lines may affect the emerging pattern for China’s economic structure and, consequently, the extent to which mutually advantageous commercial relations may be developed between the two countries; these efforts should be continued.

With their country already suffering severely from inadequacy of transportation facilities, Chinese insistence upon banning foreign shipping from inland waterways constitutes an illogical and self-imposed handicap upon the Chinese Government’s efforts at economic reconstruction and our efforts to help the Chinese. We have pointed out to the Chinese Government that this restriction is not only contrary to general international practice but also against the best interest of China. We have taken the position that efficient implementation of the China Aid Program requires that foreign vessels carrying US aid goods be permitted to discharge and load cargoes at inland ports. However, the Chinese Government has not as yet agreed to grant this permission.

Our general efforts to open, even to a limited extent, China’s inland waterways to foreign shipping have been unsuccessful. It remains a task for American diplomacy to convince the Chinese Government that it can afford adequate protection to the developing Chinese merchant marine without depriving the Chinese economy at this critical time of badly needed shipping facilities which are beyond the capability of Chinese shipping interests to supply.

Consolidation of Communist control over all of China, or any of several important regions, would confront the United States with serious economic as well as political questions. In that event, we would have to decide whether our interests lie in excluding Communist China from important areas of world trade or whether more can be gained by encouraging all of China, without regard to political complexion, to participate in the international economy. The position of the United States in Japan, coupled with Japan’s important pre-war reliance upon China, including Manchuria, for markets and raw materials, will give this issue more than ordinary urgency.

For reasons already given, the US has assumed an active role with respect to China. Under such circumstances, it is to be expected that we shall be widely criticized for what we do and what we do not do; inevitably there will be honest misunderstanding and deliberate misconstruction by the Chinese of our policy and motives. While widespread criticism is inescapable, it is important to the furtherance of our policy that our aims and our motives be presented and interpreted continuously through public information media to the end, ideally, that honest misunderstanding may disappear and deliberate misconstruction may not receive popular credence. This formidable task has fallen largely upon the United States Information Service. Chinese within Communist-controlled territory are being constantly subjected to a campaign of vicious anti-American propaganda. Advantage should be taken of opportunities which arise to counteract this propaganda, either through the Information Service or other channels. Furthermore, American policy toward other countries, for example Japan, must be explained and, upon occasion, defended before the Chinese people. The importance and magnitude of these tasks warrant maintenance and, where possible, expansion of Information Service activities.

C. Relations With Other States

There are certain aspects of China’s role in the United Nations and its relation with other states which have a direct bearing upon American interests and policy. As one of the five permanent members of the Security Council, China is nominally a great power. Despite its internal weakness and disunity, China’s indirect, and at times direct, influence on international developments is sufficiently effective to require special consideration by the US. Its sophisticated and able diplomats, despite the weakness of their government, are capable of influencing international developments to an extent that can be either helpful or an obstacle to the implementation of US policy throughput the world. Though China seeks to play a conciliatory role on issues brought before the UN and its affiliated bodies, in the final analysis it tends, as a rule, to follow our lead in the Security Council and the General Assembly on important political issues. As long as the Chinese Government is dependent upon the US for economic and military aid and continues to receive that support, China is not likely to force the issues on which it does not agree with us to the point of serious embarrassment to this government. However, should the present Chinese Government be replaced by a Communist government or a Communist-dominated coalition government, the large measure of support which we now enjoy would in all probability become active opposition. A coalition government with Communist participation, should it succeed to power in China through ostensibly legal processes, would presumably be able to seat its representatives to the Security Council and the General Assembly as a matter of course.

In the Far Eastern Commission the Chinese have in general been somewhat less inclined to support the US; particularly, in considering questions affecting the future organization and level of Japan’s economy and reparations the Chinese have been unrealistic and have shown little disposition to compromise. They have been either unable to realize the burden which the present Japanese economy places upon the US, or unsympathetic to our efforts to lessen that burden. In respect of the convening of a preliminary conference to draft a Japanese peace treaty, China has taken a position intermediate between the US and USSR. Efforts to convene a conference without the veto, with or without Soviet participation, have been opposed; but China has favored an eleven-power rather than a four-power conference and has suggested the adoption of the Far Eastern Commission voting procedure (four-power veto plus two-thirds majority).

Within China our policy and various misconceptions of our policy toward Japan have been the object of a widespread and persistent propaganda campaign against us. The asserted basis for these attacks has been that we are abandoning China, our war-time ally, in favor of rebuilding Japan, a common enemy, as a bastion against the USSR. This opposition stems, in part, from a genuine fear of revival of Japanese military aggression. This fear is no doubt stimulated, in a large measure, by apprehension that Japan may recover economically and regain its prewar dominance of far eastern markets before China, crippled by internal strife, is able to take advantage of the opportunity of becoming the dominant economic power in Asia. The intensification of anti-Japanese sentiment in China, which already has led to demands for boycotting Japanese goods and limiting or preventing the export of coal and other raw materials to Japan and which plays into the hands of the Chinese Communists and USSR, needs to be carefully weighed. Efforts have been made to meet this situation by public statements of our aims and policies in. Japan including denials of any intention to rebuild Japan’s military power, by the citation of statistics to support these statements and by affording Chinese officials and press representatives in Japan an opportunity to confirm these statements. These efforts have to date not been altogether effective, partly because material for use in China to combat the campaign became available only after it had gained considerable momentum, partly because elements in China desiring to attack and embarrass the US for other reasons have found in our Japan policy a popular and permissible propaganda theme and partly because there is a positive will not to believe our statements. There is no completely satisfactory solution of this problem. A partial solution may be found in persistent efforts to explain to the Chinese our fundamental policy toward Japan through every available means.

The Chinese Government looks upon the USSR with fundamental distrust and ill-feeling, despite the announced desire of both countries to strengthen by means of the Sino-Soviet Treaty of August 1945⁷⁷ the friendly relations maintained during the war. This attitude derives from the conviction that the USSR is intervening in China, using as its instrument the Chinese Communist Party with which the Kuomintang has for almost two decades struggled for power, and from apprehension, based upon past and present Soviet penetration of Sinkiang Province, Outer Mongolia and Manchuria, that the USSR will continue expanding at China’s expense. Although the Chinese Government has been careful not to provoke its powerful northern neighbor, China has maintained toward the USSR an attitude of wary reserve and it has been generally unnecessary for us to emphasize the dangers of Soviet expansion.

There is considerable feeling in China that the National Government in its fight against the Chinese Communists is taking up one phase of the larger fight against the USSR which the US will later have to wage and that the US must have China as an ally in this struggle. The corollary of this, namely, the Chinese conviction that we must support the National Government at all costs, has been a serious handicap to us in our efforts to have that government initiate basic reform measures discussed earlier.

Persistent reports have been received of Soviet overtures to the National Government looking toward Soviet or joint Soviet-US mediation of the civil war. While confimation of these reports is lacking, there are such obvious advantages to the Chinese Communists and the USSR if the former should strengthen its position through political arrangements resulting from the mediation that careful consideration should be given these reports. It would appear that should important groups in the war-weary Chinese Government view such overtures favorably and should the reported Soviet offer be made in a more formal and public manner, the US would be placed in a difficult position. It seems doubtful that the US could view favorably USSR mediation efforts or could under any circumstances agree to joint Soviet-American mediation, but on the other hand open opposition to the move would place upon the US, particularly in the eyes of the Chinese people, a large measure of onus for continuing hostilities.

70. Approved April 3, 1948; 62 Stat. 158.
71. Economic Cooperation Administration.
72. Approved July 16, 1946; 60 Stat. 539.
73. Omission indicated in the original statement.
74. Department of State Commercial Policy Series No. 113: Havana Charier for an International Trade Organization, March 24, 1948.
75. Signed at Nanking. November 4, 1946; ratifications exchanged at Nanking, November 30, 1948; Department of State Treaties and Other International Acts Series no. 1871, or 63 Stat. (pt. 2) 1299.
76. Signed at Geneva, October 30, 1947; Department of State Treaties and Other International Acts Series no. 1700, or 61 Stat. (pt. 6) A2051.
77. Signed at Moscow, August 14, 1945: Department of State, United States Relations With China (Washington, Government Printing Office, 1949), p. 585, or United Nations Treaty Series, vol. 10, p. 300.