893.50 Recovery/1–2949

Memorandum Prepared in the Office of Far Eastern Affairs

China: Effect of Further Communist Expansion on the ECA China Program

Problem:

To determine what policy should govern ECA operations in those areas of China that come under control of the Chinese Communists or of a Communist-dominated coalition government.

Background:

During November, 1948, as the Communists’ military advances made their control of cities receiving ECA aid appear imminent, Mr. Lapham, chief of the ECA China Mission, recommended to Mr. Hoffman that ECA continue its commodity assistance to such cities in the event of Communists’ control, provided present procedures governing distribution and publicity could be maintained. Shortly before his departure for China in December, Mr. Hoffman discussed the question inconclusively with the Acting Secretary and the President. The Acting Secretary expressed serious doubt that Mr. Lapham’s recommendation was appropriate or feasible. While in Shanghai, Mr. Hoffman made statements to the press which were widely interpreted as meaning that he favored continuation of U.S. aid to a Communist coalition government if that government permitted essential freedoms. After Mr. Hoffman’s return to Washington, he sought approval by the Acting Secretary and the President of Mr. Lapham’s proposal. The Acting Secretary, however, recommended that aid should be discontinued to areas that come under Communist control.

Action Taken:

On December 30, 1948, the President, in consultation with the Acting Secretary, made the following decision as set forth in Mr. Butter-worth’s memorandum of that date to the Acting Secretary:

[Here follows Mr. Butterworth’s memorandum printed in Foreign Relations, 1948, volume VIII, page 667.]

The second sentence of numbered paragraph 1 quoted above means, of course, that aid should cease to those areas that come under the control of a government in which the Communists participate.

This decision was communicated to Mr. Hoffman. However, subsequent conversations between Mr. Hoffman and the Acting Secretary indicated that some misunderstanding or disagreement remained. Therefore, on January 10, 1949, it was recommended to the Acting [Page 617]Secretary that the President’s decision be discussed by the Cabinet, with Mr. Hoffman present, to obtain its reaffirmation and clarification. This was done. At Mr. Hoffman’s request, however, it was agreed that stocks at Tsingtao of wheat and wheat flour which had been diverted from Tientsin and Peiping could be distributed in the latter cities when transportation became possible, provided that it was done by the request of the National Government at the highest level.

In accordance with the President’s decision, Mr. Lovett approved a recommendation “that ECA be requested immediately to regulate its commodity shipments to central China so as to ensure that stocks are not accumulated beyond the levels required for distribution during an estimated period of transition from Nationalist to Communist control”.