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

91. Letter From the Ambassador in the Republic of China (Rankin) to the Acting Director of the International Cooperation Administration Mission (Bowden)¹

Taipei, November 4, 1955.

Dear Bowden: With reference to our conversations of October 18 and 31, and to your letters of October 24 and 26,² I have made a preliminary study of the economic problems mentioned as illustrating our current differences with the Chinese Government. I appreciate the trouble that you have taken to assemble this material.

As of possible use to others in your mission, I shall cover in this letter more or less the same ground as in our recent conversations, with some elaboration on a few points. First, I would refer to a statement in your briefing for Mr. Hollister at the Embassy on October 9 that there has been a “steady decline in Chinese Government cooperation since the signing of the Mutual Defense Pact.” Again, in your report of October 31, “FY1957 Illustrative Program Narrative,”³ the discussion of Conflict of Objectives includes a reference to a “growing lack of cooperation by the Chinese Government and an increasing disregard of ICA and MAAG recommendations.” After the briefing on October 9 I remarked to Hollister and Moyer that while as far as I knew your presentation was factual, I myself would have dealt with the matter in a more optimistic tone.

After reexamining the material in question I want to call attention to certain implications as to cause and effect. For example, so far from having contributed to a deterioration of our working relations with the Chinese, I believe that the Mutual Defense Pact in all probability prevented a considerably more serious worsening in the field of cooperation. Developments of the past year, aggravating the longer term trend of events, might well have produced an all but disastrous situation here had it not been for the formal United States commitments in the Defense Pact.

As to the longer term trend, it is only prudent to expect a gradual deterioration of Chinese Nationalist morale and of the quality of their cooperation with us. This trend became evident some time after the Korean Armistice in July 1953. Prior to that time, the war in Korea was pinning down and draining a major part of Chinese Communist military strength, relieving the pressure on Taiwan accordingly, and while the fighting in the north continued there was at least a possibility of the internal collapse of the Peking regime and/or an extension of hostilities to South China under circumstances favorable to a successful Nationalist participation. The Korean Armistice changed all of that. It substantially reduced the drain on Red resources in Korea and permitted the redeployment of large Communist land and air forces to areas from which Taiwan (and other regions) could be threatened.

As it became apparent that the Korean Armistice marked the end of active hostilities in that area for the foreseeable future, it was borne in on the Free Chinese that the long term trend was once more against them. The enthusiasm generated by the renewal of large scale American aid in 1951 started to wear off when it became apparent that, despite the continuation of this aid, the disparity in military and other capabilities as between Red and Free China again began to widen rapidly after mid–1953. This meant not only that the possibility of liberating their homeland seemed to recede into the dim future, but also that the prospects of holding on to Taiwan itself for any considerable period became distinctly less bright. No matter what the Chinese Communists might conceivably promise by way of renouncing force, they would never give up their aim of possessing Taiwan and liquidating the Nationalist Government by whatever means they might choose. Under the circumstances obtaining since the Korean Armistice, only a continuation of the firmest and fullest United States support for Free China could postpone the evil day.

The Chinese on Taiwan are very much aware that the United States wrote them off once before; they do not exclude the possibility of our doing so again. They believe, with some justification, that important and influential elements inside and outside our Government would like nothing better than a plausible excuse to sell Free China down the river. These elements include isolationists, Europe-firsters, fellow-travelers and others who for one reason or another continue to hate the guts of Chiang Kai-shek. The Chinese believe that such elements are more numerous and influential among Democrats than among Republicans; hence their fear of a possible Democratic victory at some future election.

No intelligent Chinese personages of my acquaintance expect the United States to undertake a commitment to put the Nationalist Government back on the Mainland. They simply hope that future events will produce a situation in which we will want to do so in our own interest. (I believe that we also should not exclude this possibility entirely, however remote it may seem at present.) To reassure the Free Chinese as to United States intentions subsequent to the Korean Armistice, however, particularly after we had offered the Republic of Korea a Mutual Defense Pact to make the armistice less unpalatable, it appeared essential to conclude a similar agreement with the Republic of China. The first steps were taken late in 1953 and the pact materialized something more than a year later. Despite its limitations, this treaty commits the United States, both expressly and by implication, to a more definite and longer term policy toward Free China than we had ever acknowledged previously. Bi-partisan support in the Senate provided an earnest of overwhelming Democratic as well as Republican approval. Without this pact I believe that the present situation in and around Taiwan would be precarious indeed.

In the light of the foregoing, I consider it important that we should not exaggerate the conflict of objectives between the Chinese and ourselves. They and we have a common goal which lies on the road, but only part way, toward their ultimate ambition. We shall not reach this nearer, common goal for several years, during which time events may well require both countries to modify their policies and programs to an important degree. I see no evidence of deliberate intent on the part of the Chinese to neglect the development of Taiwan in order to speed a “return to the mainland”. Rather, they are much inclined to spend more money and other resources on both projects than they and we have available. I believe, therefore, that despite a probable further decline in Nationalist morale over the next two or three years, and a concurrent deterioration of their cooperative inclinations, our interests and theirs during this period will be similar enough to permit the successful prosecution of our aid programs.

With due allowance for the longer term factors which seem now to be working against us here, and for the unfortunate psychological effects on Free China of events at Geneva and elsewhere, I am inclined to believe that our recent difficulties are explained in large part by incidental and transitory developments. There have been a number of shifts in key American personnel in recent months, as well as changes on the Chinese side. There has been a very rapid increase in the total number of official Americans in Free China, to a point where our administrative, morale and indoctrination problems seem to have become really serious for the first time on Taiwan. There have been great delays in approving our FY1956 aid programs; the fiscal year may be half gone before we know how much we have to spend. United States funds made available by Congress well over a year ago to finance the separation of ineffectives, and to support a reserve training system, remain unspent because our study of the question, both military and economic, has involved long delays. Finally, the transfer of Direct Forces Support responsibility from ICA continues to tie up all counterpart funds needed for this essential purpose. Meanwhile, accelerated arrivals of MDAP equipment, emergency needs of USAF units and other factors have resulted in largely increased requirements for local currency. It is perhaps scarcely surprising that the Chinese are experiencing some frustration in recent months, and that they have been rather less than prompt in putting various parts of their own house in order.

I believe, therefore, that it will be necessary to tie up quite a number of loose ends before giving consideration to a “high level” approach to the Chinese on the general subject of cooperation with Americans. Such approaches are likely to be useful only when some broad question of policy can be solved thereby, which does not seem to fit the present case, or when officials dealing with some important and specific problem seem to require a push from above. In the near future, of course, something in this latter category may need to be done.

First, however, I suggest that we concentrate our efforts with the appropriate Chinese officials on certain specific matters of major importance mentioned in your letters, notably the financial problems of the Food Bureau and of the Power and Sugar Corporations; also the dispersal program. I propose to see the Finance Minister shortly in this connection and to follow up with calls on the Governor, the Prime Minister and the President if necessary. Meanwhile, I suggest that your mission select perhaps two or three of the most promising sources of tax revenue, from those mentioned in Arndt’s April 22 letter to the Finance Minister,⁴ which we can all press the Chinese to adopt.

On the subject of budget balancing, I fear the subject has become so complex that a fresh approach may be called for. Certainly, many of the loose ends mentioned in an earlier paragraph will have to be tied up before we know where we or the Chinese stand. I believe, however, that we should give consideration to the possibility of reverting to an earlier conception of financial aid. This would involve the elimination of any general budgetary support as such by the United States, and the placing of all counterpart expenditures on a strict project basis. I would go even further in an effort to get our fingers out of as many minor pies as possible, so that we might concentrate on the most important parts of our program. This should have the effect of fixing full responsibility, financial and other, on the Chinese themselves in most fields. As a partial offset we might have to assume a somewhat larger share of the burden in economic development, while continuing such technical assistance as seems to promise really worthwhile results.

On the military side, it may not be feasible for the near future, but I would favor working toward a situation where the Chinese would assume full responsibility for pay, food, clothing, general administration and maintenance in their military establishment. The United States contribution would be limited to equipment and supplies not available locally, plus the services of MAAG and the financing of any special projects which we considered essential. The latter would include all counterpart expenditures for military purposes.

In addition to simplifying our own operations, any steps which place responsibility squarely on the Chinese should be beneficial both to them and to the United States. At present, responsibility is so diffused in so many fields that unless the trend toward even greater complexity can be reversed, we cannot hope to deal effectively with the financial problems confronting us. As a part of any program to fix responsibility, it would seem essential that, once a budget had been fixed, no additional outlays at either American or Chinese instance would be undertaken without full prior consultation and the provision of new funds for the purpose. If additional sources of money from current revenues or additional American aid were not immediately available, joint consideration would be given to postponing projects already included in the budget so that the necessary funds could be transferred. As a corollary to the foregoing, Americans and Chinese would have to agree not to resort to additional bank loans except by mutual consent. If this sounds like too much American interference, it may be recalled that we are now covering about two-thirds of all public expenditures in and for Free China; also, that even after our present program of reequipping their Armed Forces (say, in 1958) is completed, the prospects are that we shall still be called upon to contribute at least half of the total during an indefinite future.

At the same time I am convinced that still larger numbers of American officials looking over Chinese shoulders and putting fingers into still more pies do not provide an answer to our problems. In fact, I believe that we have already too many official Americans in most agencies here, with the result that the law of diminishing returns has begun to operate and is responsible for a part of our increased difficulties during the past year. What we need is a simplification of our effort, with greater concentration on what is most important, and a concurrent plan to give the Chinese greater and more definite responsibility.

Sincerely yours,

K. L. Rankin

1. Source: Department of State, Central Files, 893.00/11–1755. Secret. The source text, a carbon copy bearing a typed signature, was sent to the Department as an enclosure to a letter of November 17 from Rankin to McConaughy. This letter stated that since Rankin’s return to Taipei, he had devoted much attention to determining what substance there might be to “last summer’s reports of slackening cooperation on the part of Chinese officials in their dealings with Americans” and had “found no evidence of any important or deliberate change in Chinese Government policy from the friendly and cooperative attitude of the past several years”. Rankin also enclosed a letter of November 8 to Finance Minister Hsu and memoranda of conversations on November 14 with Hsu and on November 15 with Foreign Minister Yeh and Vice President Ch’en. For Rankin’s letter to Hsu, see Document 96; the memoranda of conversations are not printed.
2. Neither found.
3. Not found.
4. Not found in Department of State files. Karl M. Arndt was an economic adviser with the ICA Mission.