Memorandum of Conversation, by the Director of the Office of Far Eastern Affairs (Butterworth)

Participants: Dr. Kan Chieh-hou, Personal Representative of Acting President Li Tsung-jen
Mr. W. Walton Butterworth, Director for Far Eastern Affairs
Mr. Philip D. Sprouse, Chief, Division of Chinese Affairs
Mr. Fulton Freeman, Assistant Chief, Division of Chinese Affairs

Dr. Kan Chieh-hou, who has just arrived in the U.S. from Canton, called by appointment this noon. He opened the conversation by stating emphatically that he did not represent Chiang Kai-shek,13 the CC Clique,14 the Soongs, the Kungs, or anyone other than Acting President Li Tsung-jen. He then described in some detail the events in China since the “retirement” of the Generalissimo leading up to the present situation confronting the Acting President in Canton. Referring to the peace negotiations between Li Tsung-jen and the Communists,15 Dr. Kan stated that it was the Communists’ insistence that the Generalissimo be handed over as a war criminal and Li’s refusal to comply therewith that led directly to the breakdown of negotiations and the crossing of the Yangtze. He stated that Li had attempted to convince the Communists that he could handle the Generalissimo and the CC Clique by political means if peace were assured, but that the Communists’ 24 point ultimatum put an end to any further negotiation.

When an attempted crossing of the Yangtze appeared inevitable, Dr. Kan stated that Li endeavored to obtain the Generalissimo’s support for establishing a strong defense line south of that natural barrier with the majority of the troops to be concentrated between Nanking and Anking, the most logical place for crossings. Chiang was insistent, however, that the Yangtze could not be defended, according to Dr. Kan, and he refused to order the necessary troops and air support for the task. Dr. Kan attributed Chiang’s reluctance to defend the Yangtze to the latter’s selfish desire to rid himself of Li through the breakdown of peace negotiations and Communist capture of Nanking.

On April 22, after Communist troops had begun to cross the Yangtze almost unopposed, Dr. Kan stated that he accompanied Li by air to [Page 702] Hangchow for a conference with Chiang to decide what next steps to take. Disregarding the question of the defense of Nanking or the Yangtze Valley area, the Generalissimo, according to Kan, proposed that an extraordinary committee of the Kuomintang be established with Chiang as Chairman and Sun Fo16 and Li Tsung-jen as Vice Chairmen—Sun Fo to take the chair in the event of the Generalissimo’s absence. Kan pointed out that this proposal, needless to say, was completely unacceptable to Li whose nominal title of Acting President would have thus carried even less power and authority than is presently the case with Chiang and Sun Fo again running the country.

The basis of Chiang’s defense plan, according to Kan, was to hold the coast line opposite Formosa from Wenchow to Amoy. The Generalissimo would then retire to Formosa to wait out World War III at which time, backed by American forces, he would hope to return to the mainland in the role of the supreme liberator. Kan stated that Li had endeavored to dissuade Chiang from following a plan based on the defense of Formosa by the Nationalists on the basis that the U.S. Government would never in any event permit Formosa to fall into the hands of the Communists17 and defense by the Chinese was therefore unnecessary. (This statement by Kan was received without comment.) Li had argued, therefore, that the Nationalists should concentrate their defensive strength on the mainland in the south and west of China and, in effect, leave Formosa for the U.S. to defend. Kan added that Chiang had nevertheless been obdurate in his expressed intention to withdraw to Formosa.

As described by Kan, Li’s plan for the defense of south China is based on the assured cooperation of General Pai Tsung-hsi18 and four Kwangtung generals, all of whom are bitterly opposed to Chiang: Chang Fa-kwei, Hsueh Yueh, Yu Han-mou and Chen Chi-t’ang. Kan also claims that the defense of west China will be facilitated by Hu Tsung-nan’s19 forces, who have withdrawn from the Sian area to the Szechuan border, and 80,000 of Fu Tso-yi’s20 troops who eluded the Communists in Kalgan and are now on their way to join the Moslem troops of Generals Ma Pu-fang21 and Ma Hung-Kwei22 in defending the northwest. The line which Kan stated that Li expects to hold in south China begins at Changsha in Hunan Province (now reportedly under heavy attack by the Communists), runs south along the Canton–Hankow railroad through Hengyang to Kukong and then turns south-east [Page 703] to include Canton and the majority of Kwangtung Province in the area to be defended. Kan insisted that every effort must and will be made to hold this line. He mentioned the possibility, however, that despite all efforts Canton might fall to the Communists and stated that in this event the line would be drawn to the south of Canton and Kwangchowwan would be used as the principal port. If Kwangchowwan should also be lost, Kan indicated that any further efforts to resist the Communists from south China would be futile.

Kan then came to what obviously constituted the principal reason for his trip to the U.S. While Li possessed the will to fight, the loyalty of capable generals and the necessary troops who would carry out their commands, Kan pointed out that he lacked sufficient arms and ammunition, silver to pay the troops and the sympathetic encouragement of the U.S. He readily admitted that the Generalissimo had sufficient materiel and funds for the job in Formosa, but he stated that the only way that these could be acquired for a defense of south China was if Chiang himself were to come to Canton and reassume charge of the government. This, Kan indicated, was unthinkable and could only end in disaster. He stated that Li was prepared to oust from south China all of the Generalissimo’s henchmen, CC Clique adherents and “reactionaries”; to institute immediately the “necessary reforms”; and to provide a stubborn and effective defense. But these things, he commented, could not be carried out without at least the moral support of the U.S. Kan stated that, for example, Li was prepared to have posters denouncing the Generalissimo put up all over the city of Canton some night with strict orders to the police that they were not to be removed before 10 a.m. the following day. This, he stated, would give the people an opportunity to see them before they were removed and would constitute a warning to Chiang and his crowd to keep out of Canton. (The still dominant position of Chiang Kai-shek was apparent in Kan’s statement that “of course such posters would have to be removed within a reasonable time”).

Referring to Dr. Kan’s indication that Li would require U.S. moral and perhaps material support for any concerted defense of south China, Mr. Butterworth stated that south China was continuing to receive substantial material support from the U.S. through the ECA23 food rationing program and added as his opinion that, were it not for this program, there would already have been famine conditions and food rioting in Canton. Mr. Butterworth described in some detail the genesis of the food rationing program in China and pointed out the double advantage to the Chinese Government of having 60 percent of the rice requirements supplied by the U.S. as well as enjoying the [Page 704] deflationary effect of the counterpart funds. He also informed Dr. Kan that the question of direct financial assistance to China through a grant or loan in silver24 to forestall further currency depreciation had been given serious consideration, but that the advice of financial experts had been that any such course would be wholly impracticable until means were found to bring China’s disbursements and receipts into balance. Gresham’s law, he stated, would continue to operate and the bad money would simply drive the good into hiding.25

At this point Dr. Kan stated that Li fully approved of the policy toward China which the U.S. had been following and believed that the fault was entirely China’s for failing to make judicious use of the aid which it had received. Kan added that it was not only useless but dangerous to send any further arms or ammunition to the Generalissimo because such materiel would eventually fall into the hands of the Communists. Kan urged, however, that the State Department or the President make some statement expressing sympathy for Li’s position and giving moral encouragement to further resistance to the Communists in order to give evidence that the U.S. had not forgotten China.

Mr. Butterworth responded that the U.S. Government applauded the courageous way in which Li had endeavored to carry out his responsibilities as Acting President and that the U.S. was in great sympathy with Li’s efforts to work out of the tremendous difficulties which confronted him. He stated, however, that our present and continuing aid would seem to constitute concrete evidence of our interest in and encouragement to the forces of resistance in China. There were, however, he pointed out, certain Chinese and other vocal exponents of aid to China who had followed the policy of minimizing the amount of aid which the U.S. had given to China instead of publicizing the extent of that aid. He added that such tactics had undoubtedly had the effect in China of lowering morale and giving the false impression that U.S. aid has been paltry.

Dr. Kan readily acknowledged that in this as well as other ways Li was having to pay for the Generalissimo’s mistakes, but at the same time he reiterated his request for a statement of sympathy and encouragement. In response to a question regarding the specific content of such a statement, Dr. Kan replied in vague generalities. It was implicit throughout the conversation, however, that agreement to issue a statement of the type that Kan and Li desired would be considered as the forerunner to a large silver grant or loan for troop pay and [Page 705] currency stabilization. It was also clear that Li did not consider himself in a strong enough position to oust the Generalissimo and the CC Clique singlehandedly and that he was eager to have the U.S. assume a large measure of the responsibility therefor.

In concluding the conversation Dr. Kan handed Mr. Butterworth a copy of a letter dated May 5 from Li to the Secretary26 explaining in general terms the purpose of Kan’s visit. Dr. Kan stated that he had a similar letter addressed to the President27 which he desired to present personally, but he indicated that on that occasion it would be necessary for Ambassador Koo to accompany him. Under such circumstances, he explained, it would be impossible for him to talk freely, particularly with regard to the Generalissimo, and he indicated that he would therefore be appreciative if Mr. Butterworth would make Kan’s real views known to the President. Kan also expressed the desire to have an appointment with the Acting Secretary at which time he indicated that Ambassador Koo would also probably be present. Mr. Butterworth assured Dr. Kan that he would discuss his proposals with his superiors in the Department and that he would communicate with him at a later date with regard to an appointment with the Acting Secretary.

  1. Generalissimo Chiang had retired January 21 as President in favor of Vice President Li Tsung-jen as Acting President.
  2. Faction headed by brothers Chen Li-fu and Chen Kuo-fu in the Kuomintang (Nationalist Party).
  3. For correspondence on this subject, see vol. viii, “Political and military situation in China”, chapter II.
  4. President of the Chinese Executive Yuan from December 1948 to March 1949.
  5. For correspondence on Formosa, see pp. 261 ff.
  6. Military and Political Affairs Director for Central China.
  7. Pacification Commissioner for Shensi.
  8. Commander in Chief of North China Bandit Suppression Forces at Peiping until its occupation by Chinese Communist forces in January.
  9. Military and Political Affairs Director for Northwest China.
  10. Governor of Ninghsia.
  11. Economic Cooperation Administration.
  12. For further correspondence on this subject, see pp. 729 ff., passim.
  13. Sir Thomas Gresham, English financier, had first propounded the economic principle as stated by Mr. Butterworth.
  14. Not printed; see footnote 10 to letter of May 5, supra.
  15. Supra.