893.50 Recovery/3–1749

Memorandum by the Chief of the ECA China Mission (Lapham) to the ECA Administrator (Hoffman)

You have asked my recommendations as to what the United States, and more specifically ECA, might do with respect to:

Those areas in China occupied by the Communists;
Those areas in China not occupied by the Communists;
The Island of Formosa (Taiwan).

Before advancing any specific recommendations, I make these general comments:

Our primary objective must be to prevent the domination of China by any government actively or potentially hostile to the U.S.—in short to maintain “the Open Door”. It is particularly important to block a satellite relationship between China and the U.S.S.R.

We must check the deterioration of the traditional friendship of China and the U.S. and strengthen it. We should formulate and carry out the most effective program to minimize the adverse effect of recent Communist successes. We should maximize our Chinese contacts through educational, religious and commercial channels.

The over-all objective is self-evident, but the real problem is how to apply the specific measures best calculated to advance that objective. This is particularly difficult today because of the rapid changes currently taking place throughout China.

We must assume the worst—that the Communists can in the near future extend their military control south of the Yangtze and eventually to the southwest, the west, and northwest. Increasingly it becomes apparent that the great mass of the Chinese people desire peace at any cost and that the Nationalist will to resist on the military front is practically nil.

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Probably nothing can prevent Communist control of all or nearly all of the China mainland except direct, powerful and costly military intervention by the U.S. I am opposed to any such intervention even on a minor scale. It is in our interests and in the interests of the Chinese themselves that today the U.S. furnishes no further military assistance either directly or indirectly.

(A) Those areas in China occupied by the Communists: Inasmuch as ECA has been told to discontinue operating in these areas, how best then can the U.S. through other channels maintain as much contact as possible in Communist controlled China? How best can we prevent the lowering of the Iron Curtain and keep American contact with the peoples of those areas and through what channels?

Unfortunately the means of keeping our foot in the door in Communist China are limited indeed. To the extent that the Communists will allow, we should encourage American philanthropic and cultural activities by American private citizens financed by private funds. We want our missionaries, our teachers and our doctors to continue helping the Chinese people irrespective of political affiliations.

Our best bet to keep our foot in the door would appear to be through commercial channels. The Communists will need gateways through which to export and import. While there will be pressure to rigidly license and control U.S. exports to Communist areas, I believe we should interpose no limitations or restrictions upon our export trade to China other than supplies of military goods and definitely strategic materials. If American private interests, knowing the risks involved, are willing to trade in Communist areas they should be encouraged to do so with a minimum of U.S. restrictions.

(B) Those areas in China not occupied by the Communists: Let us take a look at those mainland areas in China in which ECA operates today:

Tsingtao is completely cut off from Nationalist China except by sea. This city of 1,300,000 population can probably be taken by the Communists overnight whenever they choose to do so. The American Navy there has gone afloat and will probably stand by only as long as ECA continues its food rationing program as well as its small scale cotton operations in that city. Presently ECA has sufficient food stocks to carry its rationing program through to June. My recommendation is that ECA should withdraw completely from Tsingtao when our present commodity stocks are exhausted.

Nanking probably will fall under Communist control whenever they choose to take it. My recommendation is we continue our aid program there only on a very minor scale.

Shanghai is by far ECA’s most important operating area, and if the Communists want to push forward on the military front it is [Page 628]quite possible they could take over Shanghai within a matter of a few weeks.

Canton—Most people seem to think this city will be free of Communist control long after Shanghai falls, but if the Communists really choose to push forward along the Canton–Hankow Railway it might possibly fall before Shanghai.

With respect to these two cities, I advocate no slackening off of commodity distribution—food, cotton and petroleum. If ECA is fearful of criticism of having too much commodity stockpiles in Shanghai or Canton, then ECA must guess and re-guess the dates these cities will fall. My recommendation is we give up trying to speculate and proceed on the basis that we will continue to operate in Shanghai and Canton in the usual way, using our best judgment from day to day.

From the over-all standpoint it is essential that both Shanghai and Canton be kept well stocked with food,—that we continue supplying about the same amount of raw cotton that we have been,—and that we continue furnishing petroleum products at about our past level. In short, my feeling is we should furnish aid to the people of these two cities right up to the time they are lost to the Communists.

Swatow is relatively not so important, but our food rationing program there should be continued as heretofore.

A good argument for continuance of present ECA operations in Shanghai and Canton is that it furnishes some bargaining strength for what remains of the Nationalist Government and may tend to defer Communist occupation of Shanghai and Canton.

In all non-Communist areas my recommendation is that we encourage the activities of the Joint Commission on Rural Reconstruction, especially in those areas most likely to remain free of Communist control. Encourage that Commission to emphasize land reform and to create, and as far as practicable endow, Chinese or Sino-American foundations which may be able to carry on even if such areas, either fully or nominally, are placed under Communist control. In brief, make hay while the sun shines.

Future consideration might be given to the possibility of revamping the JCRR, perhaps making it wholly an American commission or perhaps having the work of that commission directly taken over by ECA.

Also, in these areas provide economic and financial advice when requested to the extent that competent staff is available.

Further expedite tin procurement and development of tin production in Yunnan and Kwangsi along lines already recommended by our Mission,—i.e., complete tin purchase contract on behalf of RFC [Page 629]and fully carry out necessary engineering to improve the Yunnan tin mining industry.

I do not recommend going ahead on the China mainland with ECA’s Reconstruction and Replacement Program except possibly the airlines aid project and one or two other small projects.

(C) The Island of Formosa (Taiwan): I have recommended no capital expenditures for reconstruction and replacement on Taiwan unless the U.S. is fully prepared to go the limit in protecting such expenditures. However, if our policy does not contemplate other than political and economic assistance, I stand ready to proceed with the capital expenditures already recommended by the Mission, as long as everyone understands the calculated risk. To the extent possible we should see that Taiwan is governed for the benefit of the Taiwanese people and not for the favored few from the mainland. We should use our influence to prevent further exploitation of the island by the mainland people—the number of Nationalist refugees now pouring into that island should be restricted. And above all we should prevent the island becoming a Chinese military base to operate against the Communists on the mainland. And JCRR activities should go forward there.

No matter what we do our actions will be viewed with suspicion and the Chinese Communists will charge us with developing the island to further our own interests. But as actions speak louder than words, we can only hope that in due course our efforts to prevent further exploitation by the mainlanders will be recognized and appreciated not only by the native Taiwanese but other Asiatic peoples.

Summing up: The prospects of advancing American influence in China today are not rosy. One thing stands out: Our influence there today is far less than it was on V–J Day. I am not competent to analyze the reasons for the decline of our influence or to place responsibility for that decline. I simply state the fact and express the thought that when old methods have failed you lose nothing by trying new ones.

We are involved in a Chinese civil war and we have been actively supporting the losing side—not only with economic aid but with arms and ammunition. Let us abandon the thought of any further military aid at this time, either to what remains of the Nationalist Government or any anti-Communist group which may arise.

Our economic aid has been largely spent to help a limited number of people residing in the larger urban areas. It is well known that for years the great numbers of peasants and farmers, the backbone of China, have been exploited by the favored few and for the benefit of the larger cities. Let us concentrate hereafter on helping the real people of China—the great mass that live in the rural areas. Let us emphasize this by action—by American personnel working in the rural [Page 630]areas with no motive other than to improve the standard of living in those areas. Let us lead as many Chinese as we can along the lines proposed by the JCRR—land conservancy, improved agricultural methods, medical and sanitary instruction, schools for children and adults, mass education. Let us by our actions develop counterpropaganda to offset distorted Communist propaganda. Let us show that we Americans are intelligent and flexible enough to meet conditions as they are and not as we want them to be. What have we got to lose by stressing this approach.