893.50 Recovery/12–148

Memorandum by Messrs. Robert N. Magill and Richard E. Johnson, of the Division of Chinese Affairs 58

Subject: Summary of Cleveland’s Proposals Regarding New China Aid Legislation and Program (Memorandum of November 859 to Messrs. Hoffman and Bruce)

Cleveland lists the alternative political conditions which may exist in China during the period to be covered by the next aid to China Legislation:

Continuation of conditions prevailing during the last year—continuing costly warfare, further economic difficulties for the Chinese Government, but no conclusive developments in Communist-Government relations.
Political fragmentation, with outlying provinces assuming more or less autonomous authority.
Complete defeat of Nationalist forces, followed by the conclusion of some form of agreement between the Communists and the Government—presumably establishing a Communist dominated coalition.

Cleveland remarks that the first alternative seems highly unlikely, and that the most probable development would be some combination of the second and third alternatives. He argues that the present China legislation would be inadequate for the effective extension of American aid under such circumstances. In its present form, the China Aid Act does not permit direct operations by the U. S. Government, it requires that all aid be channelled through the National Government, and it provides for no real coordination between economic and military programs and no real supervision over military aid. Instead, the legislation should allow a high degree of flexibility for the executive branch to assist particular Chinese groups which offer promise of developing along lines favored by the U. S. Although acknowledging that the IT. S. presumably would not furnish aid to a Communist-dominated Government, Cleveland argues that “we should avoid any irrevocable step which would make it impossible for us to use potential economic aid as a lever in obtaining unmistakably advantageous concessions from such a government.” He continues that “the U. S. Government might conceivably wish to deal solely with the new government that emerges in China”, but that we “might also decide to assist anti-Communist fragments”.

Cleveland proposes specifically that the next China aid legislation be changed to provide for the following: [Page 682]

A broadening of the U. S. policy statement in the purpose clause (a) to cover the objective of preventing China from coming under the domination of any outside power, and (b) to indicate a permanent and continuing U. S. interest in China by authorizing aid for at least three years (although appropriations would be on an annual basis).
Unified administration of all types of aid to China: a joint political-economic-military mission in the field and a “joint chiefs of staff” for China in Washington.
Extension of aid at the discretion of the executive branch even in the absence of bilateral agreement with a foreign government.
Creation of a special corporation for flexible economic warfare operations with relations to ECA similar to those between the U. S. Commercial Company and Board of Economic Warfare during the war.
Use of U. S. dollars to finance imports needed by local authorities worthy of U. S. support, as currency support measures.
Acquisition of local currency by the Administrator or his corporation by direct sale or transfer of ECA supplies in China, or through special arrangement with local authorities.
Authority for public debt transactions (sale of notes to the Treasury) by the Administrator or his corporation to avoid the problem of the statute of limitations on U. S. Government appropriated funds. Funds so derived would be in addition to appropriations for commodities aid, and they should be available for guaranty of private investment as well as for direct aid.
Authority for ECA to direct or coordinate other economic programs related to China (e. g., purchase of strategic materials and Eximbank loans).
Creation of an ECA advisory group to assist the National Government or local authorities in the formulation and administration of economic and financial measures. Direct employment by ECA of technical assistance by contract with U. S. private or public firms and agencies.

  1. Undated memorandum transmitted to Mr. Butterworth by the Chief of the Division of Chinese Affairs (Sprouse) with his memorandum of December 1, not printed.
  2. Memorandum entitled “Aid-to-China Policy—IV”, not printed.