Executive Secretariat Files: NSC 22 folder
Memorandum by Mr. Paul H. Nitze, Deputy to the Assistant Secretary of State for Economic Affairs (Thorp), to the Secretary of State
Subject: Comments and recommendation concerning National Security Council paper circulated at request of the Secretary of the Army for discussion at the next meeting of the National Security Council concerning the current critical situation in China and outlining alternative courses of U. S. action.
Comments
While the attached memorandum94 primarily raises questions for decision on political and military grounds, the following comments are offered with respect to the analysis of the current situation in China, the critical questions which face the U. S. Government and the suggested courses of action.
- 1.
- Since promulgation by the National Government of its ten-point program of domestic self-help measures on January 28, 1948,95 the economic situation in China has deteriorated at an accelerated pace. The National Government has not in fact taken action to show that it will or can come to grips with the basic problems of budgetary and balance-of-payments deficits. The capacity of the government to initiate and cary through necessary reforms is declining as the military situation and prospects worsen, as rumors of defection and separatist movements increase, and as confidence in the present Nanking regime falls lower and lower.
- 2.
- Some constructive steps have been taken with U. S. assistance, for example, the inauguration of rice rationing in principal urban [Page 130] centers has proved a stabilizing factor and has undoubtedly contributed to maintenance of public order. It is too early to write off the possibility of any further constructive steps in connection with the present China Aid Program and this Program must be ably staffed and energetically carried thru by the United States. As matters now stand, however, it appears that at best the present aid program can only slow down the rate of deterioration in a worsening situation. There is no real basis for foreseeing improvement in economic and political prospects in China unless and until a Chinese Government itself can and will carry through energetically a program of rural and fiscal reforms.
- 3.
- The Chinese Government has now drawn down its official foreign dollar holdings until little remains uncommitted beyond minimum working balances of $25 to $35 million (officially-held gold in China amounts to approximately $84 million and official holdings of silver in China are around $28 million). Unless China can rapidly take steps to increase her exports and acquire for official use the dollars from foreign overseas remittances, the end of the present U. S. aid program in April 1949 will find her with foreign exchange assets completely depleted, and without means for acquiring the necessary amounts of imports of military supplies, raw materials, fuel and foodstuffs.
- 4.
- Even on the assumption that the present regime retains some degree of authority in Nanking during the next six months, the dependence of that regime on continuance of U. S. assistance will be completely apparent, and a decision will have to be reached in this Government at the latest by next February or March as to whether to continue to support the present Nanking regime. This decision may be required even sooner should there occur a collapse in the authority of the present regime from military reverses, from its currency becoming worthless, or because of separatist movements. It would be a decision vastly more difficult and far-reaching in its implications should the present regime remove itself from Nanking and still claim to function as the Government of Nationalist China.
- 5.
- In our view, even in the present serious situation which appears to be shaping up to a crisis, this Government stands committed to support in coming months, as much as possible, the present National Government of China. It should, however, be made finally and unmistakably clear to the leader of that Government that U. S. aid cannot in itself save a situation in which the Nationalist Government itself cannot or will not take the measures of self-help necessary to utilize that aid effectively, and to command the support of the Chinese people. No pledge of further U. S. aid should be made, except as it is contingent upon the record which the present regime makes in utilizing aid presently going forward.
- 6.
- As long as the U. S. recognizes the present National Government of China, in our view, it must deal through that Government and not by-pass Nanking to deal with individual military leaders or separatist groups. If it is the view of the U. S. Government that larger amounts of U. S. economic or military aid should go to areas or commanders now neglected by the Nationalist Government, it is appropriate to exert the strongest pressure on the Nationalist Government to have this done.
- 7.
- In the event of a collapse in the authority of the present regime in China, this Government should take all steps which circumstances permit to support new leadership pledged to maintain and develop an independent, non-Communist National Government. This would not only be consistent with our objectives and policies in the past, but it appears the course by which this Government can most effectively help to maintain China’s position in the family of nations, her role in the United Nations and other international bodies, the maintenance of her legal commitments from the standpoint of peace treaties, commercial treaties and other international obligations.
Recommendation
It is recommended that this Government should as a matter of urgent priority consider in the National Security Council possible courses of action in the event of collapse in the authority of the present regime in China, particularly with respect to its attitude towards support of other non-Communist regimes which may be established in various parts of China, and to the steps which it proposes to take under various foreseeable circumstances for protection of U. S. lives, property, and commercial interests in China.