Foreign Relations of the United States, 1949, The Far East: China, Volume IX

811.24593/1–549

Memorandum by the Director of the Office of Far Eastern Affairs (Butterworth) to the Acting Secretary of State (Lovett)

[Washington,] January 5, 1949.

The following comments may be helpful to you in connection with the discussion scheduled for January 6, in the NSC,² at the President’s request, of the possibility of the United States retaining “a foothold” in Shanghai, should that city be taken over by the Chinese Communists.

A foothold in Shanghai might mean (1) American control, defense and administration of the entire city or selected areas thereof, (2) American control and defense of certain key port facilities and shore installations, or (3) the retention of the American Consulate General and, insofar as feasible, American private commercial, industrial, philanthropic, educational and religious enterprises in that city. It is believed that the position of American forces guarding all key installations within the city would become militarily and politically untenable in a Communist environment and that, consequently, if a foothold is to be retained in Shanghai, the real alternatives are (1) and (3) above.

Course (1) means that in effect the U.S. would assert rights similar to but more extensive than those existing under the pre-war system of extraterritoriality and foreign concessions—rights which the Chinese have always resented as a derogation of sovereignty and a stigma on the nation, which have been traditionally exploited by Chinese political groups to rally domestic support and which the U.S. formally renounced under the Sino-American Treaty of 1943,³ with other countries acting similarly. Even in that period, the United States had no concessions of its own and, in accordance with the Hay doctrine of the “open door”,⁴ limited itself to joint participation along with the other powers in the International Settlement at Shanghai and the Legation Quarter at Peiping. Without doubt any attempt by the U.S. to reestablish in any guise these rights pertaining to an era which has passed in China would meet with uncompromising hostility and opposition by Chinese in all walks of life, regardless of political affiliation. If they could be reestablished with the cooperation or connivance of the present Chinese Government, that government would probably lose a substantial portion of the public support remaining to it and would only be motivated so to do as a sure means of embroiling the U.S. Under these conditions, the Communists would be able to draw an effective if inaccurate parallel between Chiang Kai-shek⁵ and the United States on one hand and Wang Ching-wei⁶ and the Japanese on the other. In any case, the net result within China of such action by the U.S. would be increased support for the Chinese Communists and increased ill-will toward the U.S.

The present population of Shanghai is estimated at between 5 and 6 million persons. The number of Chinese refugees in the city is already large and would increase tremendously as soon as it became known that the U.S. had assumed responsibility for all or substantial areas of it. Should the Chinese Communists block the flow of essential commodities to Shanghai, or areas under American control, the U.S. would be faced with the alternatives of supporting to a large degree and for an indefinite period masses of humanity with little evident gain to ourselves or of withdrawing under pressure with serious loss of prestige. Furthermore, establishing an effective machinery for administering and governing the area under our control would, in the circumstances, present major problems.

From the standpoint of exerting pressure on the Communists, Shanghai in Communist hands would probably be more useful to us than in our own hands, for the Communists would then be responsible for the continued functioning of that city’s complex and highly integrated economy and would probably have to continue the importation of essential commodities and industrial supplies from the U.S. and other western sources to avoid economic chaos and attendant social unrest.

Finally, the defense of Shanghai, or substantial areas thereof, from Communist attack and infiltration would be a major task which might well draw us into active military operations with the Communists on an increasing and unpredictable scale. And organized Communist terrorism calculated to create chaos and provoke our forces to indiscriminate retaliatory action would be an ever-present danger.

From a broader standpoint, should the U.S. continue to occupy Shanghai following a collapse of the present Chinese Government, it is doubtful that any cloak of legality derived from that Government would protect us from charges in the UN⁷ and elsewhere of maintaining a base at Shanghai solely for reasons of power politics. These charges would no doubt seriously weaken the moral leadership of the U.S. in world affairs.

In view of the foregoing, it appears more desirable to limit our foothold in Shanghai to the retention of the American Consulate General and, insofar as possible, American private enterprise in that city. Present plans already call for the continuance of the American Consulate General at Shanghai, in the event that city falls to the Communists. American naval vessels with complements of Marines are now stationed at Shanghai to protect and, if necessary, evacuate American citizens if serious disorders should arise during any interregnum between the breakdown of Nationalist control and establishment o£ Communist control in the city. Evacuation warnings which have been issued in China have suggested that American citizens who have no compelling reason for remaining consider the advisability of evacuating. In amplification, Americans have been informed that they, themselves, should decide what constitutes “compelling reasons” and that it was not intended to suggest that key American personnel in commercial, industrial, religious, and philanthropic enterprises should leave or that Americans having substantial interests in China should abandon those interests. The question of the status of American businessmen in Shanghai and the conditions under which they may be able to continue operations under Communist control are but aspects of the larger problem of the nature of future commercial relations between the United States and Communist-controlled areas of China. This problem is being actively considered at the present time.

2. National Security Council.
3. Signed at Washington, January 11, 1943, Department of State, Treaty Series No. 984, or 57 Stat. (pt. 2) 767. For correspondence on negotiation of this treaty, see Foreign Relations, 1942, China, pp. 268 ff.
4. Doctrine regarding China set forth by Secretary of State John Hay in correspondence with certain foreign governments; see Foreign Relations, 1899 pp. 128 ff.
5. President of the Republic of China.
6. Head of the Japanese-sponsored regime at Nanking, 1940–44.
7. United Nations.