Foreign Relations of the United States, 1955–1957, China, Volume III

280. National Intelligence Estimate¹

NIE 43–2–57

Washington, August 27, 1957.

THE PROSPECTS FOR THE GOVERNMENT OF THE REPUBLIC OF CHINA²

The Problem

To estimate the strengths, weaknesses, and prospects of the Government of the Republic of China, with particular reference to its staying power.

Summary and Conclusions

1. The Government of the Republic of China continues to hold as its central objective the recovery of power on the mainland. In fact it controls only Taiwan, the Penghus, and a few islands lying off the coast of China, and it holds its international position primarily because of US diplomatic support. It is able to support its present military establishment and the economy of Taiwan only with substantial US assistance.

2. The National Government remains politically stable and the economy of Taiwan continues gradually to improve. The military establishment is growing stronger, but Nationalist forces alone could not defend their territories against a full-scale Chinese Communist attack.

3. The staying power of the Republic of China will be determined by the ability of Nationalist leaders to adjust to life on Taiwan, by developments within Communist China, and particularly by the policies of the US. Major setbacks in Communist China or the Communist world would raise Nationalist morale and strength of purpose. However, developments interpreted by Nationalist leaders as indicating that the US was losing interest in supporting the National Government and that Communist China was gaining international prestige and internal strength and stability would foster divisive and defeatist tendencies in Taiwan. The death of President Chiang would probably be followed by a period of domestic uncertainties and a weakening of the government’s stability. Communist China’s admission to the UN would result in marked deterioration of the morale of Nationalist leaders.

4. Given continued US support, the National Government will probably maintain its position on Taiwan, although its international position will deteriorate. Continued emphasis on the objective of return to the mainland, however, would increase the need for US aid to prevent economic degeneration, particularly in view of the population growth expected over the next decade. In this situation there would be increased frustration and defeatism, especially among middle level elements, and there might be increased susceptibility to Communist inducements.

5. On the other hand, if a new generation of leaders in time were to accept a “two Chinas” arrangement and if they came to concentrate on long-term economic development, the island might become economically viable and morale tend to improve. In any event, US military guarantees and assistance would have to continue and economic aid would be required for the development of export industries.³

Discussion

Current Situation

6. The Republic of China on Taiwan remains politically stable, its military establishment is growing stronger,⁴ and the economy of the island continues modestly to improve. However, this appearance of well-being tends to be misleading. The Republic of China cannot survive without US support. Its position as the legal government of China is being increasingly threatened by Communist China. Its leaders are not satisfied with their prospects on Taiwan and continue to hold to the return to the mainland as a major objective, although many of them probably believe that the chances of attaining this objective are remote. Worries over their future, resentment over US lack of support for return to the mainland, and apprehension as to future US intentions toward Communist China have combined to produce a mood of frustration and concern among many Nationalist officials.

7. Throughout eight years on Taiwan the top Nationalist leadership, and particularly Chiang Kai-shek, has held firmly to the objective of a return to the mainland as the raison d’etre of the National Government. The Generalissimo is apparently concerned over the long-term pull of the mainland on his followers, and in addition believes that to abandon the objective of return would be a betrayal of his obligations to the people of China now enslaved by a foreign ideology and culture. Chiang has apparently not given up hope that the return would be realized in his lifetime. His own appraisal of developments of the past year, in the Bloc generally and in Communist China specifically, has almost certainly raised his estimate of the chances of a return. He may well read into current Communist difficulties on the mainland the early signs of that reaction against “alien rule” that his interpretation of Chinese history tells him is inevitable. The Generalissimo’s faith in the return will probably remain even though current troubles on the mainland fail to attain serious proportions and even if there is no apparent prospect of major hostilities between the US and the Chinese Communists. Furthermore, whatever the actual chances of a return, he will almost certainly continue to believe that it is essential to proclaim the objective in order to maintain morale and a sense of national purpose among his followers.

8. However important it may be for Nationalist morale to hold out promise of return, the continued emphasis on this theme in propaganda and policy constitutes a major vulnerability in the Nationalist position on Taiwan, if, as we believe likely, the realistic chances of a return are slim. The problem of finding constructive employment for Taiwan’s large numbers of educated and talented men is becoming increasingly serious. They are not able to utilize fully their talents on Taiwan, and are constantly subject to skillful appeals from the mainland to come home with honor to contribute to the building of “new” China. It is particularly with respect to mainlanders who are middle level officials, younger army officers, white collar workers, and intellectuals that indications of dissatisfaction have been in evidence. This group represents a potentially serious morale problem and a target for Communist subversion.

9. To date Communist efforts to subvert and to induce defections have had little success. The security measures of the National Government appear adequate to prevent any threat to the stability of the government. In addition, recent events on the mainland have somewhat lifted Nationalist spirits, particularly the current repression of the “rightist” nonparty figures which undercuts Communist attempts to persuade Nationalist leaders and officials that they can become important “democratic personages” in Communist China. However, it is impossible to estimate whether or to what extent frustration and the appeal of the mainland have undermined the loyalties of some Nationalists.

10. President Chiang Kai-shek, still vigorous at 70, continues to be the dominant figure in the government and the ruling Kuomintang. The chief political rivals at present, under the Generalissimo, are Ch’en Ch’eng, the constitutional successor to the presidency, and Chiang Ching-kuo, the elder son of President Chiang. The latter has acquired considerable power from his close relationship with his father and from his control of important elements within the secret police, the Political Department of the Army, the KMT Youth Corps, and the secondary levels of the Kuomintang organization. His growing power has been somewhat circumscribed, however, by distrust of him engendered by his long training in the USSR and his association with police activities.

11. The most striking event of the past year was the 24 May riot and the sacking of the US Embassy. We believe this incident did not reflect the existence in Taiwan of intense anti-Americanism, but did demonstrate resentment against what many Chinese believed to be a miscarriage of justice. The reaction was intensified by the existence of deep-seated frustrations and injured national pride. Although some officials probably knew that a demonstration was planned and some advantage was taken of the situation, the pillage of the Embassy was probably not premeditated. There was a long delay in controlling the mob after the demonstrations turned to violence, reflecting seriously on the ability of the government to take prompt action in the event of an emergency situation.

12. With US diplomatic support, the Republic of China continues to maintain its formal international position. The Nationalists gained from the hardening of world opinion toward the Bloc because of recent events in Hungary and the Middle East. Saudi Arabia, Paraguay, and Liberia have agreed to exchange ambassadors with the National Government, and Jordan may soon follow suit. Pressure, however, continues in favor of Communist China’s entry into the UN, and increases for further lowering of CHINCOM trade barriers. Moreover, Nationalist prestige has declined somewhat in Asia, and the National Government has lost face with the Overseas Chinese because of its inability to defend their interests in specific situations in Southeast Asia.

13. The current US aid program on Taiwan has contributed to significant economic improvement but the economy is still far from self-sustaining. The reorganized National Government has provided a reasonably strong and effective administration under which it has been possible to employ US aid deliveries efficiently. Productive investment has been limited, but has yielded a rather sizable increase in output through the rehabilitation of existing fixed plant and increased imported raw materials, much of which was made available through US aid. As a result, the economy has continued to expand during the past year, but at a decelerating rate. Taiwan’s GNP in 1957 will be about seven percent higher than in 1956, and about 72 percent higher than in 1951. However, the apparent economic progress is seriously overshadowed by the increasing pressure on resources, and inflationary forces continue to grow despite continued large scale US aid. Two basic problems plague the economy of Taiwan. One is the huge military establishment which is made necessary by defense requirements and by the objective of returning to the mainland. The other basic problem is that with limited natural resources the population is increasing at the rate of about three percent per annum, and government and social attitudes are hostile to any measure designed to control population growth.

Outlook

14. The prospects of the Republic of China will continue to depend critically upon US policies. Provided US military, economic, and diplomatic support continues at present levels, the National Government for the next few years will probably be able to maintain its position on Taiwan, prevent serious internal discontent, and promote some economic development. In the short term, the international status quo of the Republic of China can probably also be maintained with US support. Over the longer run, however, the international position of the Republic will probably deteriorate.

15. The Nationalist leaders will continue to be highly sensitive to US actions and statements which appear to affect the degree of US support of the National Government of China. There will be an increasing conviction that the US will eventually come to some arrangement with Peiping that will be to the detriment of the Republic of China. While fully recognizing Nationalist China’s dependence upon the US, Nationalist leaders will probably seek to exploit what they consider to be US strategic and political interests in Taiwan by attempting to gain US support on their own terms.

16. Nationalist leaders recognize the threat that incidents such as the 24 May sacking of the US Embassy present to Sino-US cooperation, and will probably take firm measures to prevent another such occurrence. However, there will probably be an increase in incidents manifesting frustrations and latent anti-Americanism, although we believe that open expression of such sentiments will not reach a dangerous pitch in the near future.

17. Beyond the next few years, economic prospects for Taiwan are poor, because of the rapid population growth and because Nationalist leadership does not consider seriously the possibility of a protracted exile on Taiwan. If present Nationalist policies continue with respect to military priority, economic development, and population control, Taiwan will have little if any hope of becoming economically viable over the long run and will gradually require increased outside assistance to maintain present economic levels. On the other hand, a fundamental change in these policies would improve Taiwan’s chances for economic viability.

18. So long as President Chiang remains in power no substantial change in Nationalist policy is likely to occur. Should he die prior to the expiration of his present term of office in 1960, Vice President Ch’en Ch’eng would probably succeed to the presidency without provoking internal disturbances. Ch’en would probably attempt to continue the Generalissimo’s policies, but would probably be a less effective leader. Moreover, Ch’en’s authority would probably be contested by the Generalissimo’s son, Chiang Ching-kuo, with adverse effects upon Nationalist morale and cohesion.

19. As Chiang and other senior officials eventually retire from the scene, the National Government will probably display more flexibility of policy. The majority of the new leaders would probably in time accept a “two Chinas” arrangement, provided the continued military defense of Taiwan was assured and there seemed to be some economic hope for Taiwan. They would probably remain skeptical of Chinese Communist promises, although certain Nationalists might come to believe that they could make a successful deal with Peiping. If some high-level defections occurred, there would be great danger that blocs of followers might go over en masse to the Communist cause.

20. Serious unrest on the mainland or a major Communist setback of some kind in China would greatly spark the morale of the Nationalists. They would probably begin to make active preparations for landings on the continent, and would exert pressure on the US to underwrite an invasion. They would probably not launch an actual attack without assurances of US support or at least acquiescence, unless the Nationalists believed that the difficulties on the mainland had assumed such proportions as to threaten the existence of the Peiping regime.

21. Any change in US policy suggesting a reduction of US support for the Republic of China would have highly adverse effects on morale. US efforts to obtain a Nationalist withdrawal from some of the offshore islands, increased US official contacts with the Chinese Communists, or US failure to actively oppose Chinese Communist membership in the UN would be viewed with alarm as moves toward formal US acceptance of “two Chinas.” Large cuts in US military or economic aid would have serious repercussions, whether or not the Nationalist military establishment and economy could sustain the reductions. Particularly if accompanied by seeming indications of a relaxation of US anti-Communist policies, such cuts would undermine morale to a point that might make maintenance of stability by the National Government difficult. The problem would be aggravated by the Government’s reluctance to accept economic reasons for cutting its military establishment. The difficulties caused by the above contingencies might increase anti-Americanism and the susceptibility of the Nationalists to Communist propaganda. Some defections might occur. It is possible that in an extreme situation the Nationalists might attempt to embroil the US in war by launching an attack on the mainland, but we regard such a development as unlikely.

22. However, provided most Nationalist leaders remained convinced that US defense of Taiwan was assured, we believe that, despite the strains mentioned above, they would accept the situation and become reconciled to the economic and psychological problems of a Taiwan future.

23. The admission of Communist China to the UN would be a serious psychological blow to the National Government. In the Nationalist view it would signify world acceptance of Communist victory in China, US unwillingness or inability to prevent this acceptance, and a consequent further weakening of prospects for a Nationalist return. While it would accelerate the forces of deterioration, we believe that for the immediate future there would be no collapse of National Government authority.

24. The long-term staying power of the Republic of China will be determined by the policies of the US, by developments within Communist China, and by the ability of Nationalist leaders to adjust to life on Taiwan. Indications that the US was losing interest in supporting the National Government, and that Communist China was gaining international prestige and internal strength and stability, would accelerate divisive and defeatist tendencies on Taiwan, Major setbacks or persistent terrorism on the mainland would raise Nationalist morale and purpose. Continued emphasis on the objective of return to the mainland would lead to political frustration and would require increasing levels of US support to prevent economic collapse. Conversely, a limiting of political ambitions to the horizons of Taiwan and a concentration on long-term economic development might make the island politically and economically viable, though it would still need some US support.

[Here follow Appendix A, a three-page assessment of the military services of the Republic of China; Appendix B, tables listing the Republic of China’s external accounts and key economic indicators for the 1951–1957 period; Appendix C, lists of the countries maintaining or in the process of establishing relations with either the Republic of China or the People’s Republic of China; and a military map of Taiwan, the offshore islands, and the adjacent provinces on the mainland.]

1. Source: Department of State, INR–NIE Files. Secret. NIE 43–2–57 superseded NIE 43–56, October 9, 1956. For the conclusions of NIE 43–56, see Document 213.
2. According to a note on the cover sheet, “The following intelligence organizations participated in the preparation of this estimate: The Central Intelligence Agency and the intelligence organizations of the Departments of State, the Army, the Navy, the Air Force, and The Joint Staff.” All members of the Intelligence Advisory Committee concurred in this estimate on August 27, except for the Atomic Energy Commission representative and the Assistant Director, Federal Bureau of Investigation, who abstained because the subject was outside of their jurisdiction.

3. Inserted inside the cover sheet of NIE 42–2–57 is a supplementary memorandum dated September 3 which reads as follows:

   “Pursuant to action by the Intelligence Advisory Committee at its meeting on 3 September 1957, the following is to be inserted as a footnote to paragraph 5, page 2, of subject estimate:

   “1. The Special Assistant, Intelligence, Department of State, believes paragraph 5 should read as follows:

   “On the other hand, if a new generation of leaders in time come to place major emphasis on long term economic development, the island’s economic prospects would improve, morale would be sustained, and the staying power of the GRC would be strengthened. In any event, US military guarantees and assistance would have to continue and economic aid would be required for the development of export industries.”

   On September 20, Assistant Secretary Robertson sent a memorandum to the Secretary which outlined FE’s objections to the conclusions of NIE 43–2–57 and to the assumptions upon which they were based:

   “The recently approved NIE on ‘The Prospects for the GRC’ (Tab A) presents a distorted picture of the present situation of the GRC and makes a number of questionable forecasts.

   “The most serious of these questionable forecasts is the allegation in paragraphs 4 and 5 that continued emphasis by the GRC on return to the mainland would lead to economic degeneration and declining morale, while, if a new generation of leaders were to ‘accept a two-Chinas arrangement,’ this would lead to economic viability and improved morale. This prediction ignores the fact that the hope of return to the mainland is an important element in morale on Taiwan, and is a key part of the very rationale of the GRC. The GRC could not abandon this hope, or acquiesce in a ‘two-Chinas’ arrangement, without relinquishing its claim to be the government of all China, and in fact ceasing to be the GRC, as that entity now figures in our policy. Such a change could not be made without very serious consequences. It is a dubious thesis that final acceptance by the GRC of Communist control of mainland China would lead to improved morale among the mainlanders on Taiwan or that continuation of economic progress on Taiwan is contingent on GRC acquiescence in abandonment of the mainland. State dissented from this line of reasoning and recommended alternative wording for paragraphs 5 (reproduced on separate sheet at front of NIE).

   “Another fundamental defect in the paper is an implicit assumption throughout much of the discussion of future developments, including long-term trends, that there will be no political crisis on the mainland of China severe enough for the GRC to again become an important factor in mainland developments. Any forecast extending over a generation, as parts of this one do, should not reject this possibility.

   “The paper also suffers from the absence of clear indication of the time period to which it is intended to apply. It shuttles back and forth from short-term to long-term predictions in a confusing manner.” (Department of State, S/S–NSC Files: Lot 63 D 351, NSC 5503 Series)

4. Military questions are discussed at length in Appendix A. [Footnote in the source text. Appendix A is attached but not printed.]