PROBABLE DEVELOPMENTS IN TAIWAN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A000900040001-7
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 27, 2016
• Document Release Date: March 29, 2013
• Sequence Number: 1
• Publication Date: January 26, 1950
• Content Type: MEMO

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CF4TRAL INTELLIGEBCE AGENCY
IIMILIGMCE IMORAIIDULI NO 273
SUBJECT: .Probable Developments in Taiwan
SCOPE OF TIE PROBtal
. 58.
26 Janua..-wry 1950
A reappraise/ of the survival, potential of the Nationalist regime on
Taiwan in the light of US policy announced 5 January that US aid, over and
above economic assistance already granted, will not be forthcomingol
? The following conclusions we presented without prpjudice to those
contained in extant CIA estimates concern:Inn! Taiman?
Th?r?s Frarpe FreTogred in response to a r..,oecific request for an estimate
on this subject?
2/ Specifically., those broader conclusions concerning Taiwan contained in
DIZE 76449, namely-- that?,
liTeinsn resins the one non-Comunist area of: China whore
pasitiw U$ Militaltr action could be effective in preventing
Chinese Cormunist Control and thereby directly serve
important US strategic interostso Uithout major armed .
interveredon? US political/ economic, and logistic support
of the present Nationalist island reg.Lmo cannot insure its
indefinite survival, as a non-Communist basoo Communist
capabilities are such tilat only extended US military
occupation and control of Taiwan can prevent its eventual
capture, and subjugation by Chinese Communist forces.
Failing US miJitery occupation and control, a non-Comirdnist
regime on Taiwan, , probably will succumb to the Chinese
Communists by the end of 1950on
m--37-orandum. is in process of coordination with the intelligence
organizations of the 1.,Ispartments of States, Aravs. Navy, and tif
Air Force?
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? cpyamENTI A I.:
No Chinese Nationalist regtae on Taiwan will effect political and
military adjustments sufficiently realistic to make possible a successful
defense of Taiwan against a conbination of internal and external threats?
The basic economic situation on Taiwan is not of itself a source of
serious dissatisfaction, but visible and latent disaffection among both
the Taiwanese and Chinese, arising from a variety of other causes, is
emarent. Such disaffoction is a serious weakness in itself and 'provides
a great potentiality for widespread Communist subversion. Limited military
,defections are known to be occurring. Substantial defectione en bloc are
to be expected in the event of an external attack. Consider:1470M;
weaknesses of the Nationalist position on Tainan and the military
poten:tiality of the Chinese Commnists? the latter are estimated to possess
the capability for carrying out their frequently expressed intention of
seizing Tetuan during 1950.
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PROBLBI3 wri.a..OPIENTS 111 MUM ?
10 The Chinese Nationalist Political Situation in Taiwan.
Taiwan: restored to the Chinese in 1945 after a half-century of
Japanese rale l has been administered as a Chinese Nationalist province
since May 197. I/ It is nowalso the seat of the refugee National
Goeerement of Chinas which eas transferred to the island from Szedroma
on 8 December 1949* Although Chiang Kal-ehek had been preparing the
island as a final Nationalist refuge for more than a year: the tranefer
of the "pr ,visional capital" to "Taipei s China" has brought additional
rorments of Nation) 1st political and military units to Tait= and
places upon the defenders of that island virtually the whole burden of
continued Nationalist resistance to the Chinese Communists*
The position of the Nationalist Government an Tallman sd far as con-
teel of the Tairanese is concerned is relatively strange, Because of strong
forces of disintegration now at work nithin the government and. etnitory
establishments howevers au invasion could be expected to precipitate a
quick collapse*
The presence of the refugee Tational Government of China an Taiwan
prdbablyixEll augment the disunityn inefteleeuon. defeatinen and other
weaknesses nhida have spelled dleaater for the Nationalists on the maine-
land* Nationalist political control over the Taimaneses hawever: thich
has been dependent for the rnst part on the presence of Nationalist
garrison forces there, has been greatly augnented* Since the Conunnist
crossing of the Yangtze in April 1949s many additional Nationalist Army
netts, as well as the Nationalist Navy and Air Force: have been
17--SUEWWEEEMIT not nen regarded as a part of China* Honavars with
The? sanction of the principal powers s Tainan has been under Chinese Nationalist
administration since October 1945A in accord with the Cairo Declaration of
1 December 19430 in vdrich the USS the UK, and China announced that
"Lanchurias Formosa, and the Pescadores Shall be restored to the Republic
or Chinan" The three pouers reaffirmed the Cairo Declaration in the Potsdam
Proclamation of 26 Juin?. 1945s which the USSR subsequently endorsed. Neither
the US nor any other power s however: has formally recognized the annexation
of Taiwan by Chinas although the US has admitted and acquiesced in Chinals
de facto controls and the islandss legal status -- like that of other Jananesee
occupied territories in ethich the US and other participants in the war edth
Japan have an interest -- remains to be determined in the negotiation of the
Japanese peace treaty*
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%War
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concentrated on the island. The considerable weight of Nationalist armed
force on Taiwan assures the continuation of firm Nationalist political
control and the maintenance of satisfactory internal security so long as
factors'makimg for disruption do not combine and increase considerably in
strength?
Disunity, a major Obstacle in the path of IbtionAlist efforts toward
stability on Taiwan: has been demonstrated recently by conflicts over such
issues as reform, defense preparations and attempted shifts in the allotment
of military and political power* This factionalism: nhich is acute in both
military and political circles, probably will be concealed in the immediate
future in order to present a united Vationelist front for the solicitation
of US aid*
. The political maneuvering of Chiang Kai-shek to perpetuate his
personal control over the remaining National Government and Kuomintang
inaoninery has contributed greatly to disunityo The struggle for power
between the gold guard!' in the Kuomintang and the more moderate elements
probably will be intensified as Chiang attempts a? fiction of reform
without upsetting the balance among the adherents upon We= his personal
power depends. As affairs in 'Taiwan continue to degenerate: existing
factionalism can be expected to assume open forms*
Various reports during recent months, for eaample, have indicated, that
San Ii-jen, the US-educated general charged with TaiwanEs defense: has been
planning a coup dEetat aimPd at the preservation of Chiang as a figurehead
and the simultaneous liquidation of most of ChiaugEs close associates. A
number of factors militate against the probability of such an attempt at
present? Rumors of the contemplated move have been widely disseminated and
are knom to ChiangEs entourage. Also: SunEs political inexperience and his
lack of influence with important political and military leaders suggest his
probable inability to undertake such a revolt. FinaAyp Sun would be vnlikely
to attempt a coup in any case, without tangible assurance of US support.
The appointment of K. Co Wu: former mallor of Shanghais, as Provincial
Governor of Taiwan -- though advertised as evidence of intended reform of
the provincial administration under civilian control -- is expected neither
to lead to reforms nor to keep dorm the inevitable conflict between the '
Provincial and the National governments. Regardless of Wags administrative
o ability and axperience: he is seriously hampered by the opposition of the
former Governor, old-line generals, and Kuomintang leaders, all of Thom are
well entrenched in the National and Provincial governments. Wu has found
that his authority is limited to civilian affairs on the provincial level:
and he is also restricted by the presence in Tainan of the National Government
and the ruling NUT cliques*
Within even thin limited field of authority: Governor Wia is farther
restricted by the influence of Chiang Kai-shek. Chiang Es control of the
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ENT I Pl.
CO NG
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National Government ana Party maainery, now reduced to its met loyal cored
is still etrones nereover Chienc rill not nalineley rolinereile biz ective
role as leader of the ilationaliots, In additionvV&i has a long record of
loyalty to Ghiang, for nhom he has been an ardent apologist. It is
improbable, therefore, that Uu *ell be able to act independently of Chiang
in any matter of importance.
2. Economic Situation.
Despite the increase in the islands population daring the past year,
Taiean has a fool surplus and nill continuo to have so as long as fertilizer
imports continuo, Madeetnial recovery since VJ-Day has bean substantial.
If the government is to realize the full benefits of agricultural and
itarstrial recovery, honevere'favorable feral= trade relations and efficient
'eradind institutions nill have to be established.
The nationalist fiscal situation is deberioratingond eventually the
continuing budgetary deficits arc expected to wipe out the governmantts
holdings in specie and foreign exchange. Despite this fact v Nationalist
tinencial resources probably are adequate to permit continued operations
through 1950 and the basic ecqnonii.c situation in Taiwan offers no immediate
threat to internal security/vl
3.
th1iitio
a* Strength, osition of Nationalist Forces.
The present Nationalist rblitary strength reported to be under
the control of the Taiwan regime totals 431,000 mon, of whom 295,000 are
Amer, 100,000 Air Force, and 36,000 navy (including 4,600 Uarines), Of
the Amps 35 infantry divisions (5 to 10 thousand mon per division).
aperoramately one-half arc located in the Choue-shan Islands and an 61eaoy
Island? The remainder: including three Armored Force regiments and the
three regiments of the Artillery Connendp are located on Taiwan and the
Pescadoresg
The Vationelist navy has 17 vessels in openation (including 7
deployed between Shanghai and Foochow) and 21 vessels under repair. All naval
operations are based on Tainan. The largest units are former Japanese
destrayers4 In addition to these 38 chip ss the Nationalists have a compare-
tiNtly large number of smaller craft available for patrol operations.
The nationalist Alr Force is cemposed of teo Licht Buzber Groups,
four righter Groups% trio Transeort Grouns, and one Photo-reconnaissance
Sqeadron. All Air Force enits are based on Taiwan. Out of a total 1,080
aircraft, an estjnnted 515, vith a 50 percent serviceability ratee are
assigned to tactical unite. A fevifichter and bomber aircraft are rotated
for operations fron an advance base in the Chou-shan archipolaco?, era special
operaeions are conducted from other remaining Nationapist bases near Amoy and
on Hainan Island.
YThlaErFr7iae-757.niit of the current economic sitnetion on Taiwan is set
forth in the Appendix.
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FIDEN,AE:
t 41
In the present Chinese Nationalist ullitary organization no pro's
vision is made for inter-service coordination beim the level of the
Generalissimos Chiang jealously irds his control over subordinates,
even those of lesserrank. by playing one against another in competition
for his personal fauor Coor&thation can be obtained only t1irou41 Culang
those past record is one of constant inept meddling in. tactical operations
The possibility of achieving effective coordinated effort among Nationalist
=Ted forces through the supervisory direction of Chiang himself appears
unrealizable(' With or tithout Chiang, such cooriiurbion cannot be realized
so long as politics plays its traditionally dominant role in Chinese
military organizations
CO LIM,
Indivd.duellyo the troops commanded by the Cainese
Nationalist regime =Tetuan are good ran materiels Tho resources available
to the Nationalist regime (hich include substantial stocks of individual
arms, automatic weapons, light artillery, ammunition, other materiel, some
arsenal capacity, and monetary reserves) are potentially adequate to equip
and to mnintain these troops both for foreseeable internal security
requirements and fora major defensive operations Actually, honever,
Nationalist troops and units are inadequately equipped, 'Grained, and led.,
Needed material is held in disorganized depots and olueps, and there is no
system for the control and distribution of supplies
The Nationalist Officer corps is professionally insets
Advancement is by favor rather thanbl raorit3 and loyalties tend to be
personal rather than organizational or nationals
Factional splits in the Nationelist high command preclude
proper exercise of leadership in any of the services. The pattern of
divided respoesibility and overlapping authority, for eisairple? has blocked
the efforts of General Sun Li-jen ? regarded by some US observers to be the
most caeable Nationalist Arev,r officer .from a professional standpoint ?
conduct basic unit training prom= and otherwise bolster T.ainans military
clefensees -cal? nominally the Paramount commander of the islands s ground
defenses, am does not control all Tainants troops, deeded adequate rc
sources, and is disliked and distructed by the generals of the 110ernea
clique rho enjoy C-eneral 1 ssimo Chiangts confidences
There are iridicatiis of Chinese Communist efforts to infiltrate
and to disaffect Nationalist forces on Taiwan, and the chances are Good that
these efforts 1711.1 eventually succeeds Successive defeats on the mei v.aand
have lessened the Nationalist' niLl to fights Lbreover, 'the Nation.alist Army
is 37?1)0 for Comerued.st infiltration and eubversiono Diesa,ffection can be
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expected to 'appear araong a majority of the Nationalist troops, then .
confronted with the threat of attack, and military unit defections will
occur when,but not until.the? military leaders deem such action excecliento
(2) Na
So far as numbers of ships and personnel are concerned,
the nationalist Navy is presently adequate for a defense of Tail:Ian against
a major Chinese Ccomunist am2hibious assault., Fuel requirements could be
satisfied in an emergency; factional strife, which exists between the old
Navy clique and the Comander in Chief, an ex?Army man, does not conbtitute
an insoluble problem* For continuer; suzcess against -a Communist assault,'
however, the Nationalist Navy 17ialltb.ve to depend on four faetors, all, of
Wi-doh are uncertain:
(a) Adequate maintenance of vessels;
(b) Adequate planning and performance of operations;
(0) Coordination of efforts with ground and air forces,
especially in the matter of coordination with air
reconnaissance and ....,upport;
Individual loyalty and v.-illingness to fight,'
(d)
Nationalist vee_elb now on patrol stand. in need of maw
minor repairso If -current operations are continued, those minor requirements
will become serious problems within t3iX months, at which time the greater
part of the nationalist Navy will be immobilizede
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? COKEIDENTIA.
3. Air Force.
' Taationaliet Air Force .Operations are denendent Tireon fore. owceo
of logistic support, and. to a, degree upon these individne.Az in the Air
Force who received US training. Maintenance facilities are limited ond
the spare parte E3hOrtage? partially the result of an Inadequate ?.supnly
eystemehas led to the common practice of aircraft cannibalization.
Although siemificant arcraf.t reserves are now limited, to tra,nePort end
mosquito iober) aircraft, the F.'ecout receipt of forty...five
aircraft has improved. the immediate fighter capabilities of the CIT/0,4
Eight J?k-2.5.0t4 have also been deliivered to the Hationaliete since September
1949. lel on hand is estimator to be adequate for months? operations
at the current rate of expenditure9 and. air facilities on Taiwan are
for operations.
Mr Force operations daring the major Co nuiiiet MVP:11C6S on the
Chinese mainland. were generally ineffective. Alth.ough Weaknesses in
maintenance ead. supply were a.ttrileatable in large part to .administrative
ineptnese and Poor tactical techniereei; including reaatisfactore. pilot
and. crew briefings? weak command eirecture and. a lack of inter-service
cooperation were equally important. Host importFant of all- vas the lack
of will to fight.
ante June l94.9e ehen the Mr Fore sjithcireeral to Taiwan %lap
completed, the Nationalist Mr Force has ahem improvement in operations
against transport and industriai.targetee mostlyin the Shaugnaiellanking.
cereal, and ?ags.i.nst -other 'targets in the -blockade of Shanghai mad the
defense of the.r.lhou-shan Isiands. AS:to. the blockade, it, is probable
that the threat of air action rather than any -entstaading record of
actual interceptions has been the principal contribution of the Ar
FOVC00 hiLe renorte on effectivei air participation in the defens. e of
the Chow,shan Islands indicate a pots &. for local cooperation:, the
problems of cooperation involved, in a protracted deense of Taiwan
would not be comparable either '1.n the degree or continuity of inter-
service cooperation required.
The Mr Force.. under the learlersh.ip of a non lying ex-Ariny
officer., reports .directly to Gelleraliseliza Cang, but the tem *natty, .
commanders also enjoy the personal favor of Chian& .A.0 a resulec.
the event of disagreement within ,the Air Force high command:. contradictory
.orders reeortecily are often iseued by the -Comeanding Geneeeal and hie
operational deputy, as coining, directly from Generalissimo Chia, ?
, Past .defections in the Air :Force, though not largeeecale? Indicate
successful Communist ,egploitation of 'low morale among some OAF personnel.'
The present. limitation of missions to those flight perzonnel whose
families are resident in Taiwon.: indicates continued Air Force concern
over the ?prevention of further lefectiens. During the -oast ai montha.
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howeven, the morale of the flying crews is reported to have improved.
The operational air strengta consists of 174 fightere, 91 light
-
bombers, 13 reconnalseamepaanes? and 148 transports. Cnrrent National
Air Force capabilities against a Communist assault on Taiwan are con-
Siderea-Pod, It is estimated that with the present etooks of fuel and
ammunition, and current aircraft condition, the Mr Force is capable qf
conducting 12,230 sorties with combat aircraft and 2,500 sorties with
transport aircraft. At present rate of operations this total capability
will be heavily dissipated by mid-19500
4,0 Communist Intentions and Capabilities with Respect to Taiwan.
...110000.11.1?1*11.1.1.6.11MIOCIMMON.r.
eee Objectives?
The Chinese Communist intention to gain control over Taiwan was
announced in January 1949 when the Communists designated the island as
one of sixteen key areas eventually to be "liberated" from Nationalist
rule and the intention to take the island in 1950 has been strongly
reiterated. The mission has been assigned to the Commander of the
Beet China field forces. Commenistpropaganda has emphasized Taiwanas
involuntary role as Chiang Kai-sheklo last _fortress and has reiterated
that Communist forces must occupy the island both to endthe Nationalist
blockade of mainland, ports and to destroy the last vestige, of Chienes
regime? This propaganda has also exploited the theme of DS "imperialist
designs on Taiwan and has expressed concern lest action by some outside
power or group of powers interfere with the Communist occupation' end
administration of the island, :
b.
Capabilities
(1) Infiltration and Subversion.
. Although the Progress of Communist penetration in Taiwan
cannot be estimated with precision, it is believed to be at present still
in the early stages among the military and Civilian population? Although
the Taiwanese themselves are anti-Communist, their dislike for the
Nationaliets, together with their political immaturity, renders them
susceptible to Communist propaganda,
Communist penetration of Taiwan probably will increase as the
Communist military preparations progress. Low morale already prevails
in many Nationalist naval, air, and ground units. Nearly all the
Chinese have homes and families in mainland China, and there exists a
genera/1y hopeIese outlook for long-term Nationalist resistance, Moreover,
the Chinese population in Taiwan, military and civil,may perceive possible
advantages to be derived from accommodation with the Communists? For
C 0 ALl
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those. reasons, the Chinese population :Ls considered to be generally,
vulnerable to Communist infiltration and subversion. Likewise, many
Taiwanese may decide to assist in the overthrow of the Nationalists,
in the desperate hope of as improved lot under the Communists?
(2) Military Capabilities
(a) Strength, Composition and Disposition of Communist
--Forces.
The Army represents almost the matins Chineso Communist
Tailitry strength? For purposes of this discussions Communist army forces
of concern are those of the cast China Field Forces largely infantry
troops, supported by lightartillorYs roughly groupea in two sob-areas:,
Naskinc.Shangheisassgchow, Ningpo area:
2770000
Amoy area
.5120.
331000
TOTAL
In addition, Communist military manpower reserveE are sufficient to
allow any necessary reenforcesent of these forces
The Chinese Communist Navy:, made up of units and personnel
defected from the PatioLallat Navy possesses or can obtain three opera-
tional destroyer escorts, 70-75 landing craft of various types, numerous
barges and tugs, as well as 90 ex-UNRRA fishing traulers, all potentially
suitable for water-lift. Prospects for expansion are dependent on (1)
further Nationalist defections and (2) rehabilitation of the light cruiser
Ihmzliag which, although damaged by Nationalist air attack at Hulutaop
nay havcbcca refloated and now be undergoing repairs at Dairen There
is also the possibility of direct Soviet naval assistance, overt or covert,,
The Chincso Communist Air Force is an uncertain factor,
Although the CCAF has not been observed in tactical ouerations, resorts
of training activity in Manchuria since early 1947, Nationalist defections
of aircraft, pilots, and technicians, and the possibility of Soviet
advisory and logistical assistance all lesd to the conclusion that the
Chinese Communists have at least an air force uhich might be employed as
a "one shot". threat against Taiwan in actual, limited support of an
amphibious operation? As in the case of the ne770 the Communst sir Force
might be bolstered by further Nationalist defections or by more direct
Soviet support
Capabilities and Limitations of Communist korces.
Troop dispositions -of the Chinese Communist East China
Field Forces constitute a land force adequate in number and. fighting
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IDENTIA44--\)
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quality to overcome the Nationalist Army forces, on Taiwan once landings
in force kiad been made. Wea.pons and. ammunition do not constitute any
particular problem for the COMMUniste.
The most sivificant limitations are deficiencies in
supporting air and naval forces necessary for escort of an amphibious
forces Improvioed as well as conventional landing craft are available
to the Comosnists, and some ad.ditionel lending craft serf be purchase&
from abroad.. Communist amphibious limitations would be substantially
minimized in an operation against Taiwan, however, for the following
reSSOUS
10 Defense insta.11ations and troops on Taiwan are
sproaA relatively thin.
2. Current Nationalist reinforcement of the quemoy
and Ch.ou-Shau sectors we fp.rithor dissipating the resources of the Taiwan
commende while providing the T &ix ELD. defenders with a false sense of se-
curity.
in the case
woullhave
sr?"
by a sudden
3. While longer water distances? are involved. than
of previous Communist amphibious targets? an attacking force
eater fleiibility in selecting landing pointss
Taiwange defenses could be seriously weakened
well-timed. and well-eplaced outbreak of sabotages
5. The inherent es aseof the Eationalict
position, growing out of misting disunity, ineptness, and defectioniot
tend'encies (whether voluntary or incited by Communist subversive activi-
ties), render likely a quick collapse of TaiweWs defenses at the time
of a Communist ascault operations
In en operation against Taiwan, the Gomm:jets will
select the options timing consistent with political considerations and
relative military capabilities (a product of their own growing military
capabilities and a waning Nationalist military potential) s Unless Cola
muulet subversion end infiltration of the island have progressed sub-
atantially beyond. the extent presently estimated., this options period.
will extend from June to December 1950. Noteorological coniiderations
would indicate an operation either just before or after the June-September
typhoon seasons
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APPENDIX
THE ECONOMIC SITUATION
1* Agricultere.
Taiwan% 1949 harvests eliminate the possibility that a food
shortage will threaten the national Government. The rice crop in 1949 is
estimated at 1.2 million tons, approximately the same as in 1948.1 With
increaeed acreage rice ffroduction in 1950 is expected to exceed that of
1949. Sweet potatoes, the other basic foodstuff of the island, will also
be in ample eupply. Moreover, current Taiwanese food surpluses are not
being drained off to the mainland, a. fact that improves the island% foreign
trading position.
Continued agricultural surpluses are dependent0 however, on the
availability of fertilizer, and ECA has been supplying an important pro-
portion of Taiwauus fertilizer requirements. Although local fertilizer
peoduction is increaning, it is insufficient to meet these requiremente.
and. Taiwanus future agricultural prosperity will demand continued supplies
of foreign fertiliser.
While recent reports indicate so e improvement in Chinese administra-
tion. particularly in regard to the 1949 lard reform proeram, with a con-
sequent lessening of the burden on the farmpopulation.the National
Government of China is faced with the necessity of imposing heavy rice
requisitions on the farmers to feed the army and civilian additions to
the islandus ponulation.
2. Industry and Foreign Trade.
Despite evidences of Nationalist maladministration, industrial
productione which is almost entirely a government responsibility in
Taiwan has shown aesUbstantial recovery since ITJ-Day. All induatries,
including sugar, coal, salt, cement, electric power, and fertilizer e are
producing in. larger erantities now than they were in the yeere immediately
1/ The 1948 rice harvest provided an exportable surplus of 300,000 to
400,000 tons, most of which was smuggled to the mainland. Although the
islandue population has increased,. during the past year, the 1949 crop will
provide a. surplus over domestic food requirements.
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after the Japanese nurrender. Although over-all production is still
below wartime records, some industries have exceeded prewar levele and
the output of fertilizers exceeds even wartime levelo.
Industrial. output, like agricultural production, will probably
be maintained or increased in the coming year, if .Taiwan does not become
a theatre of war. ? Inr the present, Taiwan has adequate domestic reeources.
Beportable surpluees of many items like tea, coal, sugar, fruits and
t?together with ECA funds?will provide the means for importing such
essential supplies as fertiliser, raw cotton, textiles, netroleum, and
machinery.
Foreign trade, however, forms a large segment of the Taiwanese
economy, end the.productinity of this economy will depend upon the
establishment of favorable foreign trade relations. and of efficient
trading institutions. .Until this is accomplished?and only a start
in this direction has been made?the benefits to the Nationalist regime
resulting from the physical recovery of agricultural and industrial
.output must be regarded. as largely potential rather than realized.
3. Finance..
Tho most unfavorable aspeet of the economic situation on Taiwan
is the Nationalists financial plight. The island, with a population of
about seven million, offers a limited potential for tax revenues. In
order to support the increased civil staff transferred from the mainland,
as well as the islandlle heavy military establiehment, the National and
Provincial governments are necessarily incurring deficits. To meet these
deficits, the Nationalists are dipping into their specie and foreign
exchange reserves. Reports from the US Federal Reserve System on official
Chinese dollar holdings in the US, together with less reliable information
on the else of Generalissimo Chiangee gold hoard in Taiwan, indicate
that the Nationalists may have had as much as $100 million in specie and
foreign exchange reserves at the beginning of /950. With these financial
resources, the nationalist regime can probably continue through the
current year. Ultimatelyn however, these reserves will be dissipated.
The financial solvency of the National Government of China will thus
be threatened sad, In the event that Nationalist armies are engrned in
effective resistance over a prolonged. period, additional foreign
economic assistance may be required.
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CONLMENTIAL
Declassified and Approved For Release 2013/03/29: CIA-RDP78-01617A000900040001-7