Foreign Relations of the United States, 1958–1960, China, Volume XIX

325. Telegram From the Embassy in the Republic of China to the Department of State⁰

Taipei, January 8, 1960, noon.

553. Joint Embassy/ICA message. Embassy’s 537.¹

Haraldson and I met late yesterday with C.K. Yen, K.Y. Yin and K.T. Li to hear report of their conference earlier that afternoon with President Chiang, Vice President Chen and General Chang Chun on proposed program of accelerated economic development. Yen, Yin and Li reported that President was briefed on proposed program and was informed both orally and in writing of eight points set forth in paper discussed with Vice President on December 30 (see reference telegram) and which Vice President has agreed were measures which GRC should take as part of proposed program. After discussion, President confirmed Vice President’s agreement to all 8 points and gave his support to proposed program.

Discussion of first point, setting limit on resources devoted to military effort, led to President’s agreement to follow formula:

1. Assuming no change in overall situation, GRC military budget would be fixed at “present level” and would be increased only to compensate for price rises.

2. US military local currency programs would continue to be subject to “mutual agreement” and could therefore be increased to cover any increase in local currency costs caused by military modernization.

Chinese were unable to say whether President regarded military budget for current fiscal year as “present level” or had in mind ceiling set by Executive Yuan for FY 1961. They promised to obtain clarification. Haraldson and I congratulated Chinese on their success with President.

Concerning military budgetary formula, we indicated this approval might well be workable, but noted fact that various details need to be worked out with MAAG before firm proposal could be submitted to Washington for approval. Concurrence of President in proposed program clears way for early exchange of letters between Haraldson and Yin² proposed in reference telegram. Yin has indicated officially his willingness to engage in such exchange. Early instructions needed on desired content of exchange. We believe that it is most important to respond quickly to favorable developments on Chinese side and not lose momentum which has built up in support of new program.

Yager

0. Source: Department of State, Central Files, 793.5–MSP/1–860. Confidential.
1. Document 323.
2. Telegram 581 from Taipei, January 1 6, reported the receipt of a January 14 letter from Yin to Haraldson assuring him of GRC determination to carry out measures to accelerate economic growth, with an attached “Accelerated Economic Growth Program.” (Department of State, Central Files, 793.5–MSP/1–1660; see Supplement) Yin’s letter stated that the attachment had been approved by the cabinet and that the 19 measures that it listed had been approved in principle by President Chiang. The attachment, also dated January 14, included measures designed to encourage savings, establish a capital market, improve the climate for private investment, and reform the tax structure, the budget system, and banking system. One item called for holding defense spending at the current level, with allowance for inflation. (National Archives and Records Administration, RG 84, Taipei Embassy Files: FRC 66 A 878, 500—Accelerated Program for Taiwan)