893.50 Recovery/1–749

The Director of the Economic Cooperation Administration China Program (Cleveland) to the Chief of the China Mission (Lapham)

Dear Roger: For the past ten days or so I have been occupied with a number of conferences and discussions, which are in effect a reprise of the earlier talks about Toeca 499,26 particularly paragraph 3 (a) thereof. The previous installments on this problem are contained in my letter of December 2 and my letter of December 18, with a short addendum in a letter dated January 6.27

The substance of Toeca 499 has been up at a couple of National Security Council meetings and at least one Cabinet meeting. In these meetings, it has been generally agreed that supplies already in China or in the ports being off-loaded, should be distributed under as effective supervision as can be arranged with the de facto authorities that may come into power in particular areas of China. However, at that point the State Department departs from the philosophy in Toeca 499, and is now taking quite firmly the line that the Chinese Communists should be left to stew in their own juice, with no help whatever from the U.S. for the people in the areas controlled by them.

Apparently as a result of this attitude, we have received from the State Department a Memorandum for the Record dated December 30, 1948,28 drafted by Butterworth29 after Mr. Lovett30 had passed on to him the substance of a conversation that he (Mr. Lovett) had had with the President on that day. The text of this memo is as follows:

[Here follows text of memorandum printed in Foreign Relations, 1948, volume VIII, page 667.]

[Page 611]

The sense of the above was communicated to Alec Henderson31 and myself while Paul Hoffman32 was still in California; and the text of the memo was sent over by Butterworth on January 3.

At the time this decision was first communicated to us, we took the position that this was so contrary to our understanding of the policy arrangements previously discussed by Mr. Hoffman with both Mr. Lovett and the President, that we did not think action should be taken on it prior to Mr. Hoffman’s return to Washington. Butterworth agreed that this was appropriate. He also indicated that he was not at all sure that the general policy should be communicated outside of our immediate office, not even to the Mission. I dissented strongly on that one, on the ground that it was impossible for ECA operations to be conducted sensibly unless the man responsible for ECA’s activities in China was informed of what the policy was.

On Monday, the third, we showed the above memo to Mr. Hoffman, who declared that he thought it was a mistaken policy and indicated his intention of raising the matter with the State Department, and possibly the President. He passed on these views very briefly to Mr. Lovett during the next day or so, but until today, Friday the seventh, it was not possible to get a meeting organized to discuss the matter at length.

Today’s meeting in Mr. Lovett’s office (a couple of hours after the announcement was made of his and General Marshall’s33 resignation, which was not referred to at all during the meeting) was attended by Lovett, Butterworth, Labouisse,34 Hoffman, Bruce,35 and myself. Mr. Hoffman led off by saying that the views he was about to state were held by 95% of the people he talked to in China—that, in fact, he thought that everybody agreed with them with the exception of one member of the American business community and two members of the American Embassy (Clark36 and Merchant37). He then launched into a concise and persuasive statement of the general philosophy in Toeca 499. I won’t try to restate that here, but I have tried to restate it at Mr. Hoffman’s request in a memo, a copy of which I will send you when it is typed.38

There followed a lengthy discussion (the meeting went on for about an hour and a half) about the merits of the problem. In the course of [Page 612]this discussion, it became clear that Mr. Hoffman and Mr. Lovett disagreed fundamentally on the basic approach to the problem—Mr. Hoffman speaking in favor of continuing to stay in China and try to prevent Russian-domination in China by demonstrating the continued friendship of America for the Chinese people, while Mr. Lovett generally believed such an approach to be unwise, reverting several times to the theme that such a policy was not in accordance with the China Aid Act39 or what he believed to be the consensus of opinion in Congress. On this latter point, Mr. Hoffman reiterated that he wanted to come to some real agreement within the Government on what was a sound thing to do, and he believed that once such a policy were adopted as being desirable, the problem became one of selling it to Congress, which is not too well informed on the whole problem.

In the course of the meeting, there were a number of exchanges between Messrs. Hoffman and Butterworth. Butterworth generally adopted the line that the Communists were going to be beset with economic troubles as soon as they assumed the responsibility of governing important seacoast areas of China. These areas inevitably look toward the West since they depend for their life on external trade. In his opinion, we should make it just as difficult for the Communists as possible, in order to force orientation toward the West. Mr. Hoffman, agreeing that these areas were forced by the economics of their position to have contact and trade with the West, emphasized that the best way to take advantage of this favorable factor was to conduct economic operations within China to the extent that the Communists will allow it.

Toward the end of the meeting, Mr. Hoffman summarized the disagreement between the two agencies in the following terms: “You want to walk out of China”, he said to Mr. Lovett; “but if we are going to be out of China, I want to be thrown out.” I haven’t yet had an opportunity to talk to Mr. Hoffman and figure out where we go from here. It seems clear that without the support of the State Department, no steps along the lines of paragraph 3(a) of Toeca 499 can really be carried forward; for without a united administration front, such a proposal would get nowhere in Congress. (I am just parroting here something that Hoffman said as we were coming back from the meeting.) But it also seems increasingly clear that much of the good effect of what ECA has done so far, in emphasizing the continuing friendship of the U.S. for the Chinese people, may be lost if the Program is cut off pretty soon as a result of a Communist-dominated coalition taking over.

[Page 613]

So, I am forced to end this week’s installment with Pauline hanging over the precipice as usual.40

Sincerely yours,

Harlan Cleveland
  1. November 26, 1948, ibid., p. 654.
  2. None found in Department of State files.
  3. Foreign Relations, 1948, vol. viii, p. 667.
  4. W. Walton Butterworth, Director of the Office of Far Eastern Affairs.
  5. Robert A. Lovett, Under Secretary of State.
  6. Alexander I. Henderson, General Counsel of the Economic Cooperation Administration (ECA).
  7. Administrator of ECA.
  8. Gen. George C. Marshall, Secretary of State since January 1947.
  9. Henry R. Labouisse, Coordinator of Foreign Aid and Assistance.
  10. Howard Bruce, Deputy ECA Administrator.
  11. Lewis Clark, Minister-Counselor of Embassy in China.
  12. Livingston T. Merchant, Counselor of Embassy in China.
  13. Copy not found in Department of State files.
  14. Approved April 3, 1948; 62 Stat. 158.
  15. Reference is to “Perils of Pauline”, a silent moving picture in serial form, with each installment ending with the heroine in grave danger.