CHINA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A001400090001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 171
• Document Creation Date: January 4, 2017
• Document Release Date: January 29, 2013
• Sequence Number: 1
• Publication Date: November 1, 1947
• Content Type: REPORT

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This (SR) series of CIG Situation Reports is designed to furnish to
authorized recipients, for their continuing use as a reference, analyses and
interpretations of the strategic or national policy aspects of foreign situations
which affect the national security of the United. States.
In the preparation of this report, the Central Intelligence Group has
made full use of material furnished by the intelligence agencies of the State,
War and Navy Departments and of the Army Air Forces. These agencies have
also concurred in this report unless otherwise noted.
It is suggested that the recipients retain this report, since it will be
reviewed and, if necessary, revised in whole or in part each month hereafter.
WARNING
THIS DOCUMENT CONTAINS INFORMATION AFFECTING THE NA-
TIONAL DEFENSE OF THE UNITED STATES WITHIN THE MEANING OF
THE ESPIONAGE ACT, 50 U.S.C., 31 AND 32, AS AMENDED. ITS TRANS-
MISSION OR THE REVELATION OF ITS CONTENTS IN ANY MANNER TO
AN UNAUTHORIZED PERSON IS PROHIBITED BY LAW.
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NOTICE TO RECIPIENTS OF CIA REPORT ON CHINA (SR-8)
SR-8 is complete with exception of the following sections which are in preparation
and will be distributed to all holders of the Report as soon as they are completed:
Section III
Section IV
Section V
Appendix A
Appendix B
Appendix C
Appendix D
- The Economic Situation
- Foreign Affairs
- The Military Situation
- Topography and Climate
- Communications Facilities
- Population Statistics and Characteristics
- Chronology of Important Events
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November 1947
SR - 8
CHINA
TABLE OF CONTENTS
SUMMARY
SECTION I - POLITICAL SITUATION IN NATIONALIST CHINA
1. GENESIS OF THE PRESENT POLITICAL SITUATION I - 1
a. Government under the Manchus I - 1
b. The New Republic ? A Period of Chaos 1911 - 1927 . I - 2
c. The National Government under the Kuomintang 1928 - 1945 1 - 3
d. Developments since V-J Day I - 3
2. PRESENT NATIONAL GOVERNMENT STRUCTURE . I - 5
a. The Theoretical Structure of the Government . I - 5
b. The Form and Operation of the Government in Practice I - 8
3. POLITICAL PARTIES . I - 12
a. The Kuomintang . 1-12
b. The Chinese Communist Party 1-16
c. Minor Parties I - 17
4. CURRENT DOMESTIC PROBLEMS AND ISSUES I - 19
a. Political Unrest Within Nationalist China I - 19
b. Coalition Government . I - 20
c. The New Constitution . I - 20
d. Military Reform . I - 21
e. Economic Deterioration I - 21
5. SEPARATISM AND WARLORDISM . I - 22
a. Separatist Movements Along the Northern Frontier I - 22
b. Discontent in Taiwan . I - 23
c. Secession Tendencies in South China I - 23
d. Revival of Warlordism . I - 24
6. STABILITY OF THE NATIONAL GOVERNMENT I - 24
a. Probable Developments If US Aid Is Withheld I - 25
b. Possible Developments If US Aid Is Forthcoming I - 27
c. USSR Reaction To a US Aid Program . . 1-28
SECTION II? POLITICAL SITUATION IN COMMUNIST CHINA
1. HISTORY OF THE CHINESE COMMUNIST PARTY II- 1
2. PARTY IDEOLOGY AND PROGRAM II - 3
a. Policies in Communist China II - 4
b. Policies vis-a-vis the National Government . II - 4
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3. PARTY ORGANIZATION II- 5
a. Organization on National Level . II- 5
b. Provincial and Local Party Organization II - 6
c. Party Membership II - 6
4. GOVERNMENT IN COMMUNIST CHINA II- 7
a. Structure of Regional Governments II - 7
b. Government in Practice II - 7
c. Civil Liberties II - 8
5. COMMUNIST ATTITUDE TOWARD FOREIGN POWERS II - 8
a. Friendly Policy Toward USSR II- 9
b. Critical Attitude Toward US II - 9
6. POSSIBLE CONFLICT WITHIN THE PARTY II - 9
7. STRENGTH AND INTENTIONS OF CHINESE COMMUNISTS II - 10
SECTION III ? ECONOMIC SITUATION (in preparation)
SECTION IV ? FOREIGN AFFAIRS (in preparation)
SECTION V ? MILITARY SITUATION (in preparation)
SECTION VI? STRATEGIC CONSIDERATIONS AFFECTING
UNITED STATES SECURITY
1. CHINA AS AN INTERNATIONAL PROBLEM
2. CHINA AS A THREAT TO US SECURITY
a. An Unstable China
b. A Communist China
c. A Unified Non-Communist China
3. CHINA AS A US ALLY
a. Political Factors
b. Economic Factors
c. Military Factors
SECTION VII? PROBABLE FUTURE DEVELOPMENTS AFFECTING
UNITED STATES SECURITY
APPENDIX A ? Topography and Climate (in preparation)
APPENDIX B ? Communications Facilities (in preparation)
APPENDIX C ? Population Statistics and Characteristics (in preparation)
APPENDIX D ? Chronology of Important Events (in preparation)
APPENDIX E ? Biographical Data
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VI - 1
VI -2
VI - 2
VI - 2
VI -3
VI -3
VI - 3
VI -4
VI -4
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MAP SUPPLEMENT
(Published as separate report)
Administrative Divisions Tab 1
Terrain and Transportation Tab 2
Agricultural Areas Tab 3
Mineral Resources Tab 4
Communist Controlled Areas, 1945 - 1947 . Tab 5
Areas of Politico - Military Control, 15 August 1947 Tab 6
Chinese Civil War Areas ? Railroads, 15 August 1947 Tab 7
Manchuria Tab 8
Mongolia Tab 9
Sinkiang Tab 10
Taiwan Tab 11
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SUMMARY
The center of gravity in the Far East lies in China, which is at once the largest state
and the base area of East Asia. The great majority of the people in the Far East are
Chinese, inhabiting over three million square miles of Chinese soil. Chinese culture?
ideas, social institutions, language?has for centuries been the dominant culture of the
Far East. Economically, China is an important factor in the life of its neighbors,
while politically and militarily China is potentially the greatest power in East Asia.
China is now passing through a critical period of social, economic, and political
instability brought on largely by the impact of Western civilization which began in the
early nineteenth century and has now been felt in almost every phase of Chinese life.
For more than 100 years the Far East has been an area of international friction, princi-
pally because of China's internal weakness, which has invited foreign encroachment on
Chinese sovereignty. Since the end of World War II, China has failed to derive much
profit from the defeat of Japan because it has been torn internally by the civil war
between the National Government and the Chinese Communists, while menaced on the
north by a revival of Russian imperialism.
Present trends in China are in the direction of increasing instability and extension
of Chinese Communist military and political influence. Without foreign assistance,
the National Government has little prospect of reversing or even materially checking
these trends because of its declining military strength, the maladministration and
corruption prevalent throughout the Government's civil and military structure, its
inability to cope with economic deterioration, and its lack of popular support. Scarcely
any positive factors are operating to promote the stability of the National Government
other than (a) prospects of economic and military assistance from the US, and (b)
promise of substantial internal reforms. There is, however, considerable doubt that
the present Government can or will accomplish the latter. Without such reforms,
moreover, it is extremely questionable whether any reasonable amount of US assistance
could achieve any long-term political and economic stabilization.
Within Nationalist territory the Nanking Government lacks popular support, and
the prestige of Chiang Kai-shek has greatly diminished. Unless in the near future he
demonstrates again a capacity for revolutionary leadership, it is unlikely that he can
recover the support of the great bulk of politically conscious Chinese. On the other
hand, there is no alternative leader or group of leaders in sight. Furthermore, oppo-
sition to the National Government, outside the ranks of the Chinese Communist Party,
is largely unorganized, lacking in armed strength, and therefore relatively ineffective.
If unchecked, present trends will lead to disintegration of the National Govern-
ment's authority, decisive military successes for the Chinese Communists, the spread
of warlordism, and the acceleration of tendencies toward separatism and rebellion which
are now manifest along the northern frontier, in South China and in Formosa. Such
general disintegration would facilitate the extension of Chinese Communist influence
into areas where it is now excluded or represented only by underground groups, and in
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time might result in the domination of China by the Chinese Communist Party. As a
last-resort alternative to disintegration, the National Government might seek a com-
promise settlement of its conflict with the Chinese Communists. But it is inconceivable
that the Chinese Communists would accede to such a settlement except on terms which
would give them a dominating position in the Government. In the case of either dis-
integration or compromise, however, it is probable that acute political and economic
disorganization would prevail in China for several years. This disorganization would
retard the development of a Communist China as an effective instrument of Soviet
policy.
Deteriorating economic conditions are exerting a cumulative impact on the political
structure of the National Government. While it is true that China's economy, pre-
dominantly agrarian, is not susceptible to sudden or complete paralysis, nevertheless
there is a real danger that without foreign aid, inflation might assume runaway propor-
tions and quickly lead to a virtually complete collapse of the national currency. Such
a collapse undoubtedly would seriously disrupt the economic activities of China's im-
portant coastal cities; more significantly, it would probably produce a political crisis
of the first magnitude and deprive the National Government of the means of providing
adequate financial or material support to the Nationalist military forces.
In foreign relations, questions concerning the neighboring states of Japan and the
USSR are of paramount interest to China. For reasons of security, China favors a
"hard" peace settlement with Japan, which would prevent the resurgence of the Island
Empire as a strong military and economic power. It is equally important for China to
establish a modus vivendi with the USSR, for in the period of present concern China
unaided cannot match Soviet power. With the US, China's relations have traditionally
been friendly, and now more than ever China looks to the US for assistance in solving
its internal and external problems. However, continuing deterioration in the National
Government's position might cause traditional Chinese cooperation with the US on
international issues to waver, inasmuch as Nanking would be inclined to a course of
opportunism in order to avoid direct conflict with the USSR.
The military advantage in the civil war is shifting to the Chinese Communists,
who for several months have been demonstrating that they possess the strategic initia-
tive. The military potential of the Nationalist forces has been seriously weakened by
attrition of trained manpower, munitions, and materiel; the present extensive military
commitments have almost exhausted Nationalist reserves. The forces of the National
Government in Manchuria are in a precarious position. The larger groupings of Na-
tionalist troops in North China now face increased threats to their communications,
as a consequence of recent Communist thrusts southward which have established
new base areas in Central China north of the Yangtze. The National Government has
little reserve troop strength with which to oppose a continuation of such Communist
thrusts in Central and even into South China, operations which appear to be within
Communist capabilities.
In the Chinese civil war, the USSR thus far has refrained from overt material
assistance to the Chinese Communists and, in accordance with the Sino-Soviet Treaty
of 1945, continues to recognize the National Government as sovereign in China. It is
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apparent, nevertheless, that Soviet sympathies lie with the Chinese Communists who,
because of their ideological affinity with Soviet Communists, are in effect an instrument
for the extension of Soviet influence. So long as conditions in China continue to
deteriorate according to the present pattern, which is favorable to the Chinese Commu-
nists, the USSR probably will refrain from open intervention. On the other hand,
should US aid be provided to the National Government, the USSR might adopt a more
conspicuous role in Chinese affairs. To the extent that US assistance tended to pro-
mote the stability of the National Government, such aid would in all probability be
countered by intensified activity on the part of the USSR both to further separatist
developments along China's northern frontier and to strengthen and encourage the
Chinese Communists. In the resultant ascending spiral of support and counter-support
by the US and the USSR, the advantage both in terms of cost and effectiveness of aid
would lie with the USSR, largely because of the vitality of the Chinese Communist move-
ment and the favorable geographic position of the USSR. Such a course of events
would also increase the possibility of a direct clash of interests in China between the
US and the USSR.
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SECTION I
POLITICAL SITUATION IN NATIONALIST CHINA
The present Government of China is an oligarchy, purportedly moving in the
direction of political democracy. Actual power rests in the hands of a few individuals
and groups, prominent as military men and as leaders in the Kuomintang or Nationalist
Party. Similarly, the Chinese Communist Party, which opposes the National Govern-
ment in civil war and controls approximately one-fifth of China, is dominated by a
small number of its Party elite and Chinese Red Army generals. In this oligarchical
setting, political power depends on military support. A party without its own armed
forces, or an individual who cannot command the support of an army, is relatively im-
potent.
1. GENESIS OF THE PRESENT POLITICAL SYSTEM.
The political system which is now evolving in China is in a fluid state, and is unlikely
to attain any real stability until the end of the present civil war. While it bears some
resemblance to Western democracy, it retains a strong element of authoritarianism,
which is consistent with traditional Chinese concepts and institutions.
a. Government under the Manchus.
The old imperial system under the Manchu dynasty survived into the twentieth
century and was finally overthrown only in 1911, within the lifetime of China's present
leaders. This old system was characterized by a hierarchical administrative structure,
with the Manchu emperor the sole source of authority at the top. He ruled through
a body of officials bound to him by ties of personal loyalty, indoctrinated in them by
their intensive study of the Confucian classics, which stressed loyalty to the ruler.
In the imperial system there was no government by the people, but the emperor
ruled for the people, and, according to Confucian teachings, in their interest and with
their tacit acquiescence. He bore complete responsibility for natural disasters and
other calamities which befell them, and when these became especially severe, it was
apparent that he had lost the mandate of heaven from which he derived his authority.
In such circumstances, Chinese political theory recognized the right of the people to
overthrow him by revolution.
During the nineteenth century, the Manchu empire went into a decline which
ushered in a revolutionary period comparable to those which, earlier in Chinese history,
had marked transition from the rule of one dynasty to another. This period of de-
terioration was marked in external relations by a series of unsuccessful wars, paralleled
by a steady encroachment by foreign powers on the territorial integrity and independ-
ence of China. The British victory over China in the Opium War of 1839-42 resulted
in the first unequal treaties imposed on China and opened the country to foreign trade.
In a subsequent conflict with the British and French in 1858-60, the Manchu dynasty
was temporarily driven from its capital in Peking, but the complete weakness of the
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Manchus was not revealed until China fell easily to Japan in the war of 1894-95. In
the immediately following years the foreign powers continued to broaden their spheres
of influence and nearly achieved the partition of China. This was prevented more by
mutual rivalry among the powers than by any resistance the monarchy could provide.
During this same period the Manchu dynasty was weakened internally by a
series of bloody insurrections, chief among which were the Taiping Rebellion that dis-
rupted South and Central China from 1849-64, and the Boxer Rebellion in 1900. The
Taiping Rebellion was primarily a peasant revolt directed against the Manchus whom
the Chinese had always considered as foreigners. It also took the form of an attack
on landlords and property owners and was characterized by confiscation of estates and
burning of land charters. The Boxer Rebellion originated as a secret society revolt
against the Manchus, but was diverted by the dynasty into an antiforeign movement.
It was suppressed by joint intervention of the foreign powers, which, as a consequence,
imposed further servitudes and a heavy indemnity on the Manchu regime.
b. The New Republic?A Period of Chaos 1911-1927.
The anti-Manchu movement, which achieved the overthrow of the dynasty
in 1911 and the founding of the Chinese Republic, was led chiefly by young Chinese
who looked hopefully to the West as, in part, the model for China. Their activities
began as early as 1894 under the leadership of Sun Yat-sen, a foreign-educated Canton-
ese, but his revolutionary Nationalist Party, subsequently known as the Kuomintang,
was unable to set up immediately a constitutional government over all of China, and
a period of internal chaos followed. Power in the new republic initially passed to Yuan
Shih-kai, a former Viceroy under the Manchus, who was not interested in developing
political democracy in China and actually tried in 1915-16 to revive the imperial regime
with himself as emperor. Following his death in 1916, there was no individual leader
sufficiently strong to command nation-wide support. Control over the government at
Peking passed into weak hands, with local military leaders holding the real power in
North China until 1927.
Meanwhile a secession government was set up in Canton by Sun Yat-sen and
his followers in 1917. Although lacking international recognition as the national
government of China, the southern group gradually increased in strength. Seeking
advice in reorganizing and strengthening the party, Sun Yat-sen in 1923 invited Soviet
advisers to Canton, and a period of close Soviet-Chinese cooperation ensued. The basis
for this cooperation had been established earlier in the year in a series of conversations
at Shanghai between Sun and Adolf Joffe, the chief Soviet representative to Far East-
ern countries. In a resulting joint memorandum Joffe concurred with the view of Sun
that neither Communism nor the Soviet system was suitable for China, whose problem
was primarily the attainment of unity and complete independence. In the solution
of this problem Sun was assured of Russian support.
The first National Congress of the Kuomintang, held in 1924, admitted Chi-
nese Communists into the Party. In the same year the Whampoa Military Academy,
under the direction of Chiang Kai-shek and with German and Russian military men
as instructors, was established to create an officer crops for the Nationalist Army.
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The death of Sun Yat-sen in 1925 did not impede the progress of the Nationalist revolu-
tion. The new army, under Nationalist and Communist leadership, marched north-
ward and by 1927 had seized control of Central China. The Nationalists, however, were
unwilling to inaugurate a program of class warfare, such as the Communists advocated.
Consequently the two groups split apart, and Chiang Kai-shek, in a bloody purge of
1927, expelled the Communists and Russian advisers from the Kuomintang.
c. The National Government under the Kuomintang 1928-1945.
By 1928 the Kuomintang armies had established control over North China and
completed the unification of the country. The new regime, which established its capital
at Nanking, was soon recognized as the National Government of China by all the major
powers except the USSR.
In its first years the new government successfully overcame both a movement
of warlords to dispute its authority and separatist tendencies in South China; how-
ever, the Chinese Communists, who in 1931 set up a Soviet Republic in Kiangsi, proved
a more formidable obstacle to unity. The National Government, in a series of military
campaigns was unable to exterminate the Communists, but in 1934 succeeded in driving
them from their stronghold in South China. After their famous "long march" the
Communists set up a new center of resistance in Shensi province in North China.
The expansionist activities of the Japanese, commencing with their invasion
of Manchuria in 1931 and gradually becoming an increasing threat to North China,
resulted in a temporary United Front agreement between the National Government
and the Communists in early 1937. This understanding was in effect when the Sino-
Japanese war began in July of that year; and limited cooperation against Japan con-
tinued until the end of 1940, when disagreement led to an open clash between Na-
tionalist forces and the Chinese Communist New Fourth Army. Thereafter, the Na-
tional Government maintained a tight blockade of Communist-held areas.
d. Developments since V-J Day.
At the close of the Japanese War a race developed between the Chinese Com-
munists and the National Government for control of areas occupied by Japan. The
National Government, aided by US air transport, succeeded in gaining possession of
major cities, but large areas of the North China countryside were occupied by the Com-
munists. In an effort to stop civil war, the National Government and the Chinese
Communists entered into negotiations in the late summer of 1945, and with the assist-
ance of General Marshall, reached a truce agreement on 10 January 1946. In the latter
part of February the National Government and the Communists signed an agreement
providing for the reduction and unification of their armed forces.
A Political Consultative Conference (PCC) , including representatives from the
Kuomintang, the Communist Party, the China Youth Party, the Democratic League, the
National Socialist Party and other groups, met in January 1946. On 31 January,
following concessions by both the Kuomintang and the Communist Party, a series of
resolutions concerning constitutional provisions were issued. It was agreed to convene
a National Assembly for the purpose of adopting a permanent constitution, a final
draft of which was to be prepared by a constitutional committee appointed by the PCC.
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In this short-lived atmosphere of harmony, the Communists and minor party leaders
began negotiations regarding representation in a coalition government.
The right wing of the Kuomintang, however, soon revealed its lack of sympathy
with the PCC resolutions, which it attempted to modify during the March 1946 plenary
session of the party's Central Executive Committee. The previous atmosphere of
harmony changed into one of suspicion, and thereafter opposition by extremists both
in the Kuomintang and the Communist Party wrecked these agreements. In January
1947 the US Government recalled General Marshall and withdrew from its mediatory
role.
Civil war was reintensified in the spring of 1946 when the withdrawal of Soviet
occupation forces from Manchuria opened a new war theater. During that year the
National Government made some headway against the Communists. Nevertheless, it
was unable to destroy any sizeable groups of Communist forces and made little progress
in its major aim, to gain control over the railroads of North China.
Chiang Kai-shek convened the National Constituent Assembly in November
1946 as planned, but the Communists and the Democratic League refused to attend.
The Assembly, which was composed of Kuomintang members, Social Democrats, mem-
bers of the China Youth Party, and some independents, adopted a new Constitution
which is scheduled to become effective 25 December 1947. After the adjournment of the
National Assembly in December 1946, the National Government commenced negotia-
tions with the China Youth Party and the Social Democratic Party, for the establish-
ment of a coalition government. These negotiations were finally completed in April
1947, under a new premier, Chang Chun, a leader from the moderate wing of the
Kuomintang. Each of the two minor parties was allotted four seats, as compared with
seventeen for the Kuomintang and four for nonpartisans, in the new State Council,
the highest organ of the Government. Three Youth Party members and two Social
Democrats were named to the Executive Yuan, while the less important Legislative
Yuan and Control Yuan were expanded to include non-Kuomintang members. The
new Interim Coalition Government announced a policy of seekig a "political solution"
of the "Communist problem," and initially held open several seats in the State Council
to permit subsequent participation in the government by the Communist Party and the
Democratic League.
Shortly after its inauguration, on 23 April 1947, the Interim Coalition Gov-
ernment was confronted by major problems. A wave of student demonstrations calling
for increased government subsidies and a cessation of civil war swept through univer-
sities and colleges. A new Communist offensive in the northeast threatened to dislodge
the National Government from its foothold in Manchuria, while additional military
reverses were suffered in Shantung. Financial assistance from the US, counted upon ?
to help achieve economic stability, was not forthcoming. The Export-Import Bank
had earmarked $500,000,000 to be held available until 30 June 1947 for loan to China
on a project by project basis, but the US Government allowed the time limit to expire
with no action. Casting aside all pretense of seeking a "political solution" of the "Com-
munist problem," the National Government in early July 1947 declared all-out war
against the Communists, who were classed as "rebels." The State Council then issued
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a Mobilization Decree designed to enlist the full resources of the nation in an effort
to crush the Communist "rebellion."
The arrival of an American "fact-finding" commission under General Wede-
meyer in the latter part of July was at first interpreted optimistically as a prelude to
active assistance on the part of the United States. This optimism, however, was
followed by a wave, of disillusionment when it became apparent that these expectations
lacked a basis in fact. The candid statement which General Wedemeyer delivered
before the State Council on 22 August 1947 and his briefer public announcement came
as a shock to government circles and to the Chinese people generally. The maladminis-
tration and official corruption, which the General stressed are generally admitted by
Chinese as true; however, they regarded it damaging to their self-respect that such
blunt criticism should be expressed publicly by a foreign emissary. In reply govern-
ment leaders have stressed that there can be no quick solution of the enormous problems
confronting China, and have called attention to actual remedial measures which have
recently been initiated. Meanwhile the National Government has continued arrange-
ments for national elections, to be held in November and December, in preparation for
the inauguration of a government under the new constitution on 25 December 1947.
2. PRESENT NATIONAL GOVERNMENT STRUCTURE.
a. The Theoretical Structure of the Government.
The new constitution outlines the theoretical structure of the government
which is scheduled to become effective in China on 25 December 1947. This charter gives
expression to the doctrines elaborated by Sun Yat-sen whose claim to originality lies
in his blending of Western democratic concepts with basic Chinese institutions. The
Father of the Chinese Republic organized and clarified his findings as (1) the Three
Principles of the People or San Min Chu I; (2) the Four Rights of the People; and (3)
the Five Powers of Government. While the Kuomintang in particular reveres Sun
Yat-sen as its founder, his ideas have in general been accepted throughout China by
all other political parties and factions, even the Communist Party claiming the San
Min Chu I as an integral part of its ideology. Such diverse acceptance is possible be-
cause Sun Yat-sen's ideas are such that they may be interpreted to please at once
both the ardent nationalist and the convinced socialist.
(1) Sun Yat-sen's Ideas on Government.
The Three Principles of the People are (a) the Principle of Nationalism,
(b) the Principle of Democracy, and (c) the Principle of the People's Livelihood. By
Nationalism, Sun meant government of the people, or freedom and equality for the
developing nation-state of China. It is this principle which has received most attention
from the Kuomintang, and supports its policy of primary emphasis on national unity.
The second principle, Democracy, signifies government by the people or the exercise of
sovereignty by the entire citizen body of China. The third principle, the People's Liveli-
hood, or government for the people, may be interpreted broadly as socialism. This prin-
ciple is not a denial of capitalism, but Sun believed that the concentration of capital
in the hands of the few should be made impossible by adoption of measures of equaliza-
tion in land ownership and regulation of capital. In Sun's view, however, these meas-
ures were to be carried out without recourse to violence.
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Sun Yat-sen maintained that the people had Four Rights, namely those
of election, recall, initiative and referendum. Under the control of the people, the gov-
ernment exercised Five Powers: the executive, legislative and judicial powers so well
established in Western political thought; supplemented by two others, peculiarly Chi-
nese and borrowed from the Imperial system. The first of these latter, the power of
examination, is concerned with the recruitment of civil officials through a system of
public examinations, while the other, the power of control or censorship, is essentially
supervision of the conduct of government officials.
(2) The Three Stages of the Revolution.
In the lifetime of Sun Yat-sen (1866-1925) the Chinese people obviously
were not ready for a democratic form of government, and in order that the people might
be prepared for the exercise of sovereign authority, Sun provided for three stages in
the transition from the political chaos which followed the fall of the Manchu empire
to a representative system. The first stage, a period of Military Operations, was de-
signed to eliminate the local warlords and to achieve the unification of China by force
of arms. The next was a period of Political Tutelage, during which the people, under
the leadership of the revolutionary party, would be educated politically to the end that
they could develop the ability to exercise their Four Rights. The third and final stage
in Sun's plan was to be the Constitutional Period itself, marked by the inauguration
of a democratic government under a permanent constitution based on Sun's doctrines.
Between 1926 and 1928, forceful unification of China was accomplished
by the Kuomintang armies. The period of Political Tutelage, under the Kuomintang
then began and still continues, even though initially it was not anticipated that it
would be so protracted. An Organic Law of 1928 and a Provisional Constitution,
adopted in 1931, established the five-Yuan system for the purpose of exercising the
Five Powers of Government, and it entrusted the Kuomintang with governing powers
on behalf of the people for the duration of the Political Tutelage. This constitution
originally was to be in effect for only five years, when it was to be replaced by a per-
manent constitution marking the end of the period of Tutelage and the commence-
ment of representative government. Difficulties in convening a National Constituent
Assembly, however, followed by the outbreak of war with Japan, forced postponement
of the third stage.
Since the close of the Japanese 'war, the Kuomintang has taken steps
to terminate the period of Political Tutelage. Under the leadership of that Party, a
new permanent Constitution was adopted on 25 December 1946. To assist in the
transition from Kuomintang Tutelage to representative government, the National
Government was reorganized in April 1947, as an Interim Coalition Government, in
which two minor parties were accorded some representation. This Interim Coalition
regime is to span the period until a new government is inaugurated under the per-
manent constitution.
(3) The New Constitution.
In the Constitution, sovereignty of the Republic of China is vested in
the whole body of citizens, with no qualifications for citizenship other than possession
of nationality of the Republic of China. The government established to exercise this
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sovereignty has six principal organs?a National Assembly and Five Yuan. Of these,
the National Assembly, the Legislative Yuan and the Control Yuan are elective bodies,
while the Executive, the Judicial and the Examination Yuans are appointive. A series
of checks and balances between one branch of the government and another is a notable
feature of the Constitution. (See chart facing 1-8.)
(a) Operation on the National Level.
The Constitution provides for a strong executive branch. The Presi-
dent, elected by the National Assembly for a six-year term and eligible for reelection,
has the power of appointing the president of the Executive Yuan, with the consent of
the Legislative Yuan, and of appointing the presidents of the Judicial and Examination
Yuans with the consent of the Control Yuan. In addition to powers normally belong-
ing to a chief executive, he has that of issuing decrees with the force of law in times
of emergency such as national calamities, epidemics, or serious financial or economic
crises. Such decrees, however, require the approval of the Legislative Yuan within
thirty days.
The Executive Yuan is, in effect, the Cabinet of the Chinese Govern-
ment, and its membership consists of a president or premier and more than 20 ministers.
The president of the Executive Yuan is made responsible to the popularly elected
Legislative Yuan by two provisions in the Constitution. The Executive Yuan must
report on its administrative policies to the Legislative Yuan, which has the right to
interpellate the premier and ministers. It may ask the Executive Yuan to alter an
important policy, and if such a resolution is upheld by a two-thirds vote, the premier
must abide by that decision or resign. While the Executive Yuan may veto legislation,
a two-thirds vote of the Legislative Yuan overrides such a veto, and the premier must
abide by that vote or resign. It is to be noted, however, that in view of the two-thirds
rule, so long as the executive branch can control a minority barely in excess of one-
third in the Legislative Yuan, these provisions by which the premier is responsible to
the legislature are ineffective.
(b) Central and Local Government.
To avoid excessive centralization of government, the Constitution
provides, in detail, for distribution of powers between the Central Government on the
one hand, and Provincial and Hsien (County) Governments on the other. Matters which
properly are of national concern, such as foreign affairs, international trade, currency,
and law codes are reserved for the Central Government. Matters which are essentially
local are reserved for the Provincial and Hsien governments, while a list of intermediate
matters may be delegated by the Central Government to Provincial and Hsien govern-
ments. If control over all these intermediate matters were delegated to Provincial
Governments, the resulting division of power would be somewhat comparable to that
between the Federal Government of the United States and the various state govern-
ments, whereas retention by the Central Government of control over these matters
would mean a highly centralized political system.
The establishment of government over a province is left to a Pro-
vincial Assembly, which is to be convened to enact a Provincial Self-Government Law.
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The Constitution imposes no limitations other than that each Provincial Govern-
ment have a Provincial Council and a Provincial Governor, both elected directly by
the people; and that the Provincial Self-Government Law conform with the Constitu-
tion. Similarly, each Hsien or County shall have an elected Council and Magistrate.
The Hsien Self-Government Law, enacted by the Hsien Assembly, must be in conformity
with both the Constitution and the Provincial Self-Government Law of the Province
within which the Hsien is situated.
(c) Civil Rights.
The Constitution insures to the citizens of China extensive civil
rights such as equality before the law, freedom of person and domicile, freedom of
speech, freedom of academic instruction, publication and correspondence; as well as
freedom of religious belief, assembly, and association. Rights of citizens include elec-
tion, recall, initiative and referendum, thus in theory providing the voters a con-
tinuous control over those who exercise the powers of government on their behalf.
Article 23 of the Constitution provides, however, that the enumerated rights and
liberties of citizens may be restricted under certain circumstances, such as "averting
an imminent crisis, maintaining social order or advancing public interst."
Citizens have duties as well as rights, these obligations being chiefly
to pay taxes and perform military service, in accordance with law; while it is both a
right and a duty for all persons to receive a "citizen's education."
b. The Form and Operation of the Government in Practice.
The Interim Coalition Government formed in April 1947 and empowered
to rule until the new Constitution becomes effective admittedly is not democratic, but
is an extension of Tutelage ostensibly under a coalition rather than under exclusively
Kuomintang leadership. Actually, non-Kuomintang participation in this government
is very limited both numerically and in influence. Despite numerous gestures in the
direction of reform, the present government has not yet demonstrated any ability to
carry out progressive policies, nor does it seem to have capacity for internal reform.
Maladministration and corruption are rife throughout the government, with little in-
dication that these weaknesses will be corrected in the near future.
(1) Concentration of Power in Executive Branch.
The Interim Government, in its outline (see chart facing page
I-10) bears some resemblance to the structure of government described in the new Con-
stitution. Its principal organs include five Yuan to exercise the Five Powers of Gov-
ernment, with a President above them as head of the state. In the present National
Government, however, there are no elective organs and no popularly elected National
Assembly. Instead, a State Council of some 20 to 40 members advises the President,
and, under his chairmanship, makes important policy decisions. The President,
elected for a three-year term by the Central Executive Committee of the Kuomintang,
selects and appoints the members of the State Council. Together with the State Council,
he also names the presidents and vice-presidents of the five Yuan. Since the President
actually dominates the State Council, there are scarcely any restrictions on his exercise
of power.
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The functions and powers of the five Yuan correspond in theory with
those attributed to them in the new Constitution. Among the five Yuan, however,
the Executive has in fact a primary position. While it does not determine policy?such
decisions being made in the State Council?it executes policy decisions, issues decrees
and mandates as necessary, and initiates law bills to be submitted to the Legislative
Yuan. The powers of the Legislative Yuan are quite limited. It is not a policy-deter-
mining organ, nor does it initiate legislation. A large share of its lawmaking function
is handled by the Executive Yuan in the form of executive decrees and mandates. The
Judicial, Control and Examination Yuan are even less significant and less active than
the Legislative Yuan. Their powers are largely theoretical.
(2) Continuation of Kuomintang Domination.
The present government is not really a coalition inasmuch as the Kuo-
mintang holds all the important posts and a far greater number of all government
posts than have been allotted to non-Kuomintang groups. The government does not
include representatives of the Communist Party or the Democratic League, both of
which refused to participate in the reorganization of the Government. Some seats
in the State Council, as well as a few posts in the Executive, Legislative and Control
Yuans, have been allotted to minor parties and independents. The Kuomintang pre-
dominates in the State Council, however, with 17 of the 29 positions, while the presidents
of the five Yuan and the heads of all important ministries and commissions are Kuo-
mintang members. The withdrawal of one or all of the non-Kuomintang representa-
tives in the present government would not affect its stability or cause the leading
ministers to resign. Furthermore, the president of the National Government is, in
fact, the Tsungtsai or leader of the Party. The Central Executive Committee of the
Kuomintang still has the legal right to elect the president of the National Govern-
ment, and Kuomintang members in the National Government are bound by Party
discipline to follow directives issued by the principal organs of the Party.
In spite of this Kuomintang predominance, there was some expectation
at first that the new government would pursue progressive policies. The new premier,
Chang Chun, is a leader of the moderate wing of the Party, while Sun Fo, reputedly its
leading liberal, is Vice-President. Party members chosen for the State Council and for
important posts in the Executive Yuan were almost without exception men of moderate
views. Within the Kuomintang, however, the position of the moderates is less strong.
Conservative elements hold a leading position in the Party's Central Executive Com-
mittee and in its Central Political Council, an advantage which has the effect of
balancing the increased strength of Kuomintang moderates in the National Govern-
ment.
Policy decisions in the National Government usually take the form of
resolutions passed by the State Council. In practice, this government organ, which
is dominated by Chiang Kai-shek, receives its inspiration from resolutions and direc-
tives emanating from the Kuomintang Central Political Council or the Standing
Committee of the Central Executive Committee. As a consequence, the Interim Coali-
tion Government, in spite of the progressive reputation of its leadership, has accom-
plished little political, economic or military reform.
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(3) Nonobservance of Civil Liberties.
Civil liberties, such as are enumerated in the new Constitution, are
largely nonexistent under the National Government. Close surveillance of the press
has achieved what, in effect, is tight censorship. Following Kuomintang directives,
newspapers show a marked uniformity in their editorial comments on current problems
and in the emphasis which they attach to various news items.
Freedom from arbitrary arrest, the sanctity of the home, and freedom of
association are widely disregarded by the secret police who are omnipresent throughout
Nationalist China. Such police, formerly operating under the Bureaus of Investigation
and Statistics of the Government and the Kuomintang, were supposedly abolished
together with these bureaus at the time of government reorganization, but no real
dissolution has taken place. The direction of secret police activities and related in-
telligence work probably comes under the Ministries of National Defense and Interior,
but at present the organization'al pattern is not clear. At any rate, the power of
secret police is widely felt, especially in South China, and its activity is expanding
just at the present time when preparations are in progress for national elections to
usher in constitutional government. During the summer months, repressive measures
have been intensified as a means of quelling popular discontent with the government
and its policies. In particular, members of the Democratic League and college and
university students charged with Communist affiliation or leanings have been the
victims.
The president of the Executive Yuan, Chang Chun, has indicated some
lack of sympathy with arbitrary action against students. He has disclaimed respon-
sibility on the grounds that these activities are not controlled by the Executive Yuan
but come directly under the supervision of the Generalissimo. In a statement on 28
July, however, Chiang Kai-shek also expressed regret that he cannot now accord to
the people all the civil liberties specified in the new Constitution. Blame, he stated,
falls on the Communists because of their appeal to arms and their subversive activities
against the National Government.
(4) Maladministration and Corruption.
Administration is disorderly and inefficient throughout the National Gov-
ernment, both in its central organs, and in its provincial and local branches. One
explanation is the complex structure of numerous bureaus and offices which have
overlapping functions and suffer from lack of clear delimitation of authority. Estab-
lishment of administrative efficiency would require wholesale reorganization, combining
some agencies and abolishing others, but this would be difficult to accomplish without
large-scale dismissals of personnel. Another reason for inefficiency is the prevalence
of incompetent officials. China is relatively weak in trained administrators, but the
National Government fails to make maximum use of those available. Incompetent
officials, and third-rate military men, instead of being permanently released or retired,
are reshuffled in posts both in national and provincial governments. An indication of
this weakness was open criticism of the Foreign Ministry in the May 1947 session of the
People's Political Council and in the press because the Ministry did not choose diplo-
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matic personnel on the basis of merit and ability, but filled posts with politicians ousted
from office and proteges of powerful political figures.
(a) Shanghai.
Chinese administration of the city of Shanghai has proved incapable
of providing orderly government, as exemplified recently by two unruly episodes. A
crowd of disgruntled employees seized possession of the French consulate in the former
French concession. An appeal by the owners of the premises for police intervention
was waived by the municipal authorities, on the grounds that no property damage
or personal injury had ensued. In midsummer, a minor dispute at one of the city's
theatres developed into a bloody clash between municipal police and military gen-
darmerie. This led to a city-wide police strike, causing traffic confusion and endanger-
ing the persons and property of both Chinese and foreign residents. In this instance,
the root of the conflict lay in the overlapping authority of the civilian municipal gov-
ernment and the military administration still superimposed over the city.
(b) Manchuria.
The attempt of the National Government to recover effective control
over Manchuria has been unsuccessful, not only because of Communist military op-
position but also because of maladministration and graft. A dual system of control,
under Tu Yu-ming and Hsiung Shih-hui, the highest military and political authorities
respectively, resulted in jealous rivalry and continual controversy. In August 1947,
after more than a year of maladministration, the National Government finally moved
to correct this situation by abolishing the Northeast military command and uniting
both military and civil administrations under the Chief-of-Staff Chen Cheng. This
corrective measure may have come too late, however, to repair the prestige of the Na-
tional Government in Manchuria where, instead of drawing upon native Manchurians
to fill government posts, the National Government brought in outsiders who have
treated the local population as inferiors and have exploited their positions for private
gain. There has been in effect a sort of "carpetbag rule," which has not only made
the National Government unpopular with the native population but has accelerated
economic deterioration in Manchuria.
(c) Taiwan.
The record of the National Government in Taiwan (Formosa) is
even more sordid. This island, which enjoyed a high degree of industrial development
under the Japanese, emerged from the war with little damage. Under Chinese ad-
ministration, however, the economy of Taiwan has disintegrated, and the Nationalist
regime has become intensely unpopular. The Chinese governor, Chen Yi, who had
compiled an unsavory record during previous governorships of Fukien and Chekiang,
placed mainland Chinese in all desirable positions, retained some Japanese technicians
as advisers, and awarded only very subordinate positions to Taiwanese. As a con-
sequence, the native population found it had merely exchanged Japanese domination
for subjugation under mainland Chinese.
Whereas Japanese exploitation of Taiwan had been orderly and
efficient, Chinese administration has been characterized by lawlessness, economic decay,
and industrial stagnation. Chinese officials, often unqualified for the posts they occupy,
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have been over-concerned with extracting personal profit from their tenure of office.
The unpopularity of the administration had grown to such an extent in late Febru-
ary 1947 that a series of rebellions broke out spontaneously in all the large cities.
The government, with the aid of military reinforcements from the mainland, drove
the insurrectionists underground, but only after several days of terrorism in which
thousands of Taiwanese lost their lives. The shocking nature of reports from Taiwan
led, in time, to the removal of Chen Yi from his post as governor. His influence, never-
theless, remains strong among Chinese officials on the island. On the surface, Taiwan
is quiet, but no substantial improvement, so far as Taiwanese are concerned, has de-
veloped under the new governor, Wei Tao-ming.
There are numerous other instances of corrupt practices in Nation-
alist China. Within the army, commanders have withheld money intended as pay for
troops in order to invest such funds in their personal interest. Conscription measures
are evaded by the rich, who are able to "buy off" their sons from military service.
UNRRA relief efforts in China, channeled through Chinese officials of the CNRRA, have
been dissipated by "squeeze" and by sale of supplies on the black market in Shanghai,,
Hankow, and other cities.
Dishonesty among government officials in the middle and lower
brackets is largely a result of their economic insecurity. Pay increases for civil servants
lag behind the deterioration of the currency and rise in the cost of living. Many of
these officials are forced into corrupt practices to avert papuperization.
Lack of integrity among top level officials, for whom economic secur-
ity is not at stake, is more deplorable, and is indicative of the low moral tone of the
whole regime. While there are undoubtedly some men of real integrity who occupy
prominent positions in Chinese political and economic life, there are others who show
no hesitation in disregarding the law and public interest, when that conflicts with per-
sonal profit. Even Sun Fo, the Vice-President of the National Government, who is
highly honored and respected among Chinese leaders, has demonstrated that he is not
above such conduct.
3. POLITICAL PARTIES.
a. The Kuomintang.
The Kuomintang (or Chinese Nationalist Party) is the largest and oldest of
Chinese political parties with a present membership of about 4,000,000. Founded by
Sun Yat-sen over 50 years ago, and dedicated to the realization of the San Min Chu I,
this party led, first, the overthrow of the Manchu regime in 1911, and, second, the
unification of the country in 1926-1928. For two decades it has enjoyed the unique
distinction of exercising governing powers on behalf of the Chinese people, and during
this period the National Government has been responsible to the Party. With the
reorganization of the National Government in April 1947, however, the Kuomintang
has proclaimed the end of the period of Political Tutelage. When a constitutional
government is inaugurated, the Kuomintang will cease to enjoy special distinctions and
will assume a position of legal equality with other Chinese political parties.
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While the Kuomintang still has a virtual monopoly control over the National
Government and its armies, it is gradually losing the sympathetic support of great
masses of Chinese who once saw in it Sun Yat-sen's revolutionary machine. The Party
no longer provides the inspirational leadership characteristic of its earlier years. Since
1928 there have been few changes in its high councils. Its youthful revolutionary
leaders of the 1920's have grown conservative as a consequence of long years in power
and are now hostile to ideas of change and to the introduction of liberal reforms which
might weaken their domination and jeopardize their personal interests.
(1) Ideology.
Three elements are blended in the ideology of the Kuomintang, (1) the
doctrines of Sun Yat-sen, (2) the teachings of the present Party leader, Chiang Kai-
shek, as set forth in his recent work, China's Destiny (1943), and (3) anti-Communist
sentiment, which to a greater or lesser degree pervades the whole Party and in some
factions has become an obsession.
The whole program of the Kuomintang has been designed to bring
fulfillment to the teachings of Sun Yat-sen. The national revolution, following the
pattern outlined by Sun, is now on the threshhold of the third and final stage, Con-
stitutional Government. The new Constitution, in the drafting and adoption of
which the Kuomintang played a leading role, features Sun's concepts of the Five
Powers of Government and the Four Rights of the People. In its attempts to realize
the Three Principles of the People, however, the Kuomintang has placed primary
emphasis on the first principle of Nationalism. The second principle of Democracy
will be realized in theory with the inauguration of the new constitutional government,
but relatively less attention has been given to the third principle of the People's Liveli-
hood.
In China's Destiny (1943), which has been widely circulated as required
reading within the Kuomintang, within its junior affiliate the San Min Chu I Youth
Corps, and in educational institutions, Chiang Kai-shek has revealed his ideas on recent
problems. Written in wartime and designed primarily for Chinese readers, the book
is both nationalistic and conservative in tone. In brief, Chiang chiefly attributes the
woes of China during the nineteenth and twentieth centuries to the former "unequal
treaties" imposed by foreign countries. The salvation of the country lies, not in slavish
imitation of the West, which has little to contribute except the great benefits of modern
science, but in holding to Chinese culture and in a return to Confucian virtues. Though
Chiang discusses at length projects for reconstruction, such as railways and highways,
harbor development, mining and electric power, agricultural improvement, and public
health, his critics deplore his essentially conservative outlook and his neglect of prob-
lems developing out of population increase and lack of agrarian reform.
Since the purge of 1927 which drove Communists out of the Party, anti-
communism has been a major motivating force in the Kuomintang. This sentiment
has flourished for two reasons: the leadership of the Party, aside from the purely mili-
tary element, has been composed to a large extent of landlords, industrialists and
financiers to whom the growth of communism is unpalatable; and the Chinese Com-
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munists, in establishing a "state within a state," have become a cancer in the body
politic, a continuous obstacle which has frustrated the efforts of the Kuomintang to
bring about complete unification of China under its tutelage. Anti-communism is not
shared with equal intensity by all factions within the Party, but this sentiment lies
near the heart of the Kuomintang and is a principal tenet in the ideology of the con-
servative "CC" clique, which forms the backbone of the Party's organization.
(2) Organization.
In the early 1920's the Kuomintang was organized along the lines of the
Russian Communist Party, with the help of Soviet advisers who had been invited to
Canton by Sun Yat-sen. In form, the present organization is a hierarchy, permeated
by "democratic centralism," which signifies directives descending from party leaders
on the top level to the masses of party members below; these directives, however, are
theoretically in sympathy with "democratic impulses," originating on the lowest level
and passing upward through the party hierarchy to the top. In actuality, the descend-
ing directives are all important, while the democratic impulses are infrequent and of
minor significance.
Organs of the Kuomintang are found on five levels: the nation, the
province, the hsien (county), the chu (district), and the sub-district. At each level
there is a party congress, with an executive committee to exercise authority when the
congress is not in session. Each organ of authority must take orders from the next
higher organ in the hierarchy and carry out its resolutions. (See chart facing page
1-16.)
(3) Cliques and Factions.
The solidarity of the Kuomintang is qualified by internal factions and
rival cliques which frequently are in conflict with each other in the struggle for power
within the Party. Central Executive Committee meetings regularly are the occasions
for vigorous verbal attacks by one faction against another. "Out" groups criticize the
"in" groups in a manner somewhat similar to parliamentary attacks and debates in
Western dual-party government. On other occasions one faction will attempt to dis-
credit another by underhanded methods. As an illustration, it is known that the "CC"
ultra-conservative group had some role in stirring up the student strikes and demon-
strations of May 1947, for the purpose of discrediting the moderate Kuomintang leaders
of the Interim Coalition Government.
Chiang Kai-shek, although he holds the position as Tsungtsai and is
chairman of the principal party organs, is not an absolute dictator over the Party,
but he does stand above these contending groups. His power derives largely from his
close relations with factional leaders who are bound to him by ties of personal loyalty
and opportunism, and from his ability to balance one group against another without
becoming totally dependent on any one in particular. Of these factions, the two
most important are known as the "CC" clique and the Political Science group.
The "CC" or "Central Clique" is the most powerful faction within the
Kuomintang. Led by the brothers, Chen Kuo-fu and Chen Li-fu, both of whom have
close personal ties with the Generalissimo, it is extremely conservative in its policies.
Strongly nationalistic and representing the landlord interests, it is passionately anti-
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Communist and favors a renewed emphasis on Confucianism. This clique is tightly
organized, strictly disciplined, and largely controls the organization of the Party.
Chen Li-fu is head of the Party's Bureau of Organization, and thus occupies a position
of power in determining Party membership and in dispensing patronage.
The "CC" is an active rival of the Political Science group, with which
it vied for important government posts at the time of the reorganization of the Na-
tional Government in March-April 1947. In the outcome, the "CC" was unsuccessful,
losing power in the National Government, where Chiang favored Kuomintang moderates
in his appointments. At the same time, however, "CC" strength in the Party was in-
creased when Chiang conferred on it a leading position in the important Central Po-
litical Council, to which Chen Li-fu was appointed as secretary. In the Central Ex-
ecutive Committee, the "CC" occupies a position stronger than that of any other faction;
approximately one-third of the members of the present Central Executive Committee
are attached to the "CC" clique.
In the financial and economic sphere the "CC" is gaining influence. It
has obtained control of the Farmer's Bank of China which sometimes acts as the
Generalissimo's personal disbursing agency, and through which the clique operates
rural and farm credit programs, thereby keeping close contact with landlords. In
addition, Chen Li-fu has become vice chairman of the National Economic Council,
on which several other members of the clique are represented.
The Political Science group* is a moderate right-wing faction, composed
chiefly of businessmen, professional men, and office holders, with rather high selective
standards for membership. Its leading figure is Chang Chun, who is President of the
Executive Yuan in the present government. It aims at securing major political posts
in the Government for its members. Unlike the "CC" it does not have rigid political
tenets nor does it have a large membership extending into the lower echelons of the
Party. It won a victory in the reorganization of the National Government in April,
in securing the premiership and other important political posts, while the "CC" was
forced to accept a subordinate role. This advantage, however, has been largely nullified
by "CC" opposition from within the Party.
Indicative of its moderate policies, the Political Science group has favored
the adoption of a liberal constitution, and until recently upheld the view that the
Kuomintang should find a political solution, through negotiation, of its conflict with
the Communist Party. Its prestige has suffered, however, because individual members
have been conspicuously identified with incompetence and corruption in the National
Government, as for example Chen Yi in Formosa, and Hsiung Shih-hui in Manchuria.
Within the Kuomintang, there are several other smaller cliques and
factions which have differing points of view on governmental affairs. The leaders in
these groups, as in the "CC" and the Political Science group, are loyal and responsive
*The Political Science Group was organized first in 1916, under Huang Hsin, a
revolutionary leader second only to Sun Yat-sen. It was so named because of the
admonitions of Huang that adherents to the Chinese revolutionary movement needed
more political training and study in the field of political science.
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to Chiang Kai-shek. Some of these are groups of military men, as, for example, the
Paoting clique, consisting of associates of Chiang in the old imperial military academy
at Paotingfu, and the Whampoa clique, composed of associates and pupils of Chiang
when he was director of the Whampoa Academy, at Canton, in the early 1920's. The
latter clique is the most powerful of the military groups. There are other military
groups which have a provincial basis, such as the Kweichow clique and the Kwangsi
clique. The military cliques are significant inasmuch as they are the principal sus-
taining force behind the Kuomintang. They are generally conservative in outlook and
disposed toward anti-communism, but with somewhat less fervor than the ultra-con-
servative "CC".
There are a variety of smaller and less significant groups, which in some
instances are groups of financiers and bankers, such as the Shanghai Bankers, the
Northern Bankers, the Shensi Clique and the Kwangtung Clique. In other cases, small
cliques have developed around individual Kuomintang leaders like Sun Fo, T. V. Soong,
Chu Chia-hua and others. It also should be noted that some members of the Kuomin-
tang stand apart from these groups, and are direct followers of the Tsungtsai without
personal allegiance to some intermediate figure.
(4) Program and Policies.
The program and policies of the Kuomintang tend to be identical with
those of the National Government, which it continues to control. Briefly summarized,
the chief policies at present are all-out war effort to exterminate the Communist
"bandits," there no longer being any hope of a "political solution" for the Communist
problem; inauguration of a new constitutional government as scheduled to carry to
completion the three-stage revolution outlined by Sun Yat-sen, and retention of a lead-
ing position for the Party in Chinese affairs, even after the Party is divested of the
special legal position it has enjoyed during the period of Tutelage.
Within the Party there is full realization of its present critical situation
in Chinese politics. The Kuomintang, in its Central Executive Committee meetings,
has not silenced self-criticism which flourishes because of the "rivalry between cliques
and factions. From the Generalissimo down there is a demand for reform and re-
juvenation of the Party. The likelihood that such internal reform could enable the
Kuomintang to recover the extensive popular support it once enjoyed is limited, how-
ever, by at least two factors: (a) The main source of new strength for the Party is the
San Min Chu I Youth Corps which, for years, has been dominated by extreme right-
wing Kuomintang leaders. Rejuvenation of the Party from this source would not
modify its essentially conservative outlook. (b) Because of the economic and social
strata from which its membership is drawn, the Party is not believed capable of actually
carrying out a broadly progressive program, such as would appeal to minor parties,
independent liberals, and the masses of people in the Chinese countryside.
b. The Chinese Communist Party.
The Kungchantang or Chinese Communist Party (see Section II?Political
Situation in Communist China) has recently been outlawed by the National Gov-
ernment. It is nevertheless the most effectively organized opposition party in China
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today, controlling approximately one-fifth of China's total area and some 130,000,000
people, and maintaining a well-trained and highly mobile army of more than 1,000,000
regular troops and 2,000,000 irregulars. The Communist Party has also greatly ex-
panded its membership in recent years and at present is reputed to have approximately
2,000,000 members.
The apparent success and support of the Communist Party is largely attribut-
able to its basic policies of agrarian reform and some freedom for individual expression
which have been designed to appeal to the poverty-stricken and oppressed peasant.
The immediate Chinese Communist aim, as announced by propaganda broadcasts,
is the creation of a democratic coalition government on a national scale, while the
announced plan for the future is to lead China ultimately to communism. However,
it is doubted that the Communist Party would participate in coalition government un-
less the Party can exercise a controlling influence with at least sufficient representa-
tion to enforce veto powers.
c. Minor Parties.
The development of minor parties in China has been restricted during the
period of Kuomintang tutelage, but in recent years some opportunity for political
activity has been permitted. A People's Political Council, formed in 1938 as a repre-
sentative advisory organ for the National Government, was composed, in part, of non-
Kuomintang members. A short time after the end of the Japanese war, a multi-
party Political Consultative Conference was convened to discuss constitutional ques-
tions. This Conference was attended by members of the China Youth Party, the Demo-
cratic League, the Social Democratic Party, and several lesser groups, as well as by
representatives of the Kuomnitang and the Communist Party. In the interparty nego-
tiations which have intervened between the PCC and the establishment of the Interim
Coalition Government, these three minority parties have played an active, although
relatively weak role. Unlike the Kuomintang and the Communist Party, these minor
groups have no armies, and because of this lack of military strength, they probably
will continue to play a very secondary role in China's politics.
The increasing bitterness of the Kuomintang-Communist conflict has weakened
the middle position of minor parties which tend to be driven to one side or the other.
The two right-wing minor groups, the China Youth Party and the Social Democrats,
have associated themselves with the Kuomintang in adopting the new Constitution
and in participating in the April 1947 reorganization of the National Government. By
so doing, they have assumed a very minor and ineffective position in the Interim
Coalition Government which the Kuomintang still dominates. On the other hand,
the left-wing Democratic League has been able to pursue no constructive course other
than political action parallel with the Communist Party. In so doing it has lost some
of its independence and influence, and?described by the Kuomintang as the "tail of
the Communist Party"?its members have been subjected to repressive measures by
the National Government.
(1) China Youth Party.
Founded in France in 1923 the China Youth Party (Young China Party)
originally advocated a national revolution in China to overthrow the warlords and
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establish a democratic state. At first, the Party was a secret organization but at its
Fourth National Congress in September 1929, it made public its existence. In- 1940,
the China Youth Party joined with other groups in forming the loose alliance of minor
parties which later became known as the Democratic League. The Party, however,
stood at the right, and after the end of the Japanese war, because of its conservative
views, regularly supported the Kuomintang in interparty negotiations. In 1946 and
1947, its break from the Democratic League became complete, when it joined with the
Kuomintang in adopting the new constitution and in participating in the Interim
Coalition Government. It gained four seats on the State Council; in the Executive
Yuan, it was allotted the Ministry of Economic Affairs, and the Ministry of Agriculture
and Forestry, as well as a third post without portfolio; in addition it received 13 seats
in the Legislative Yuan and six in the Control Yuan. These gains were not without
disadvantage. The Ministry of Economic Affairs is a position of limited power, liable
to be saddled with blame for deteriorating economic conditions. The first appointee,
Li Huang, a member of the People's Political Council, refused to accept the post, hence
it was conferred on Chen Chi-ten, the secretary-general of the Party. The Ministry
of Agriculture and Forestry has limited powers and little funds available for its work.
This post was filled by Tso Shun-sheng, the acknowledged leader of the Party.
(2) Social Democratic Party.
The Social Democratic Party was formed in September 1946, as a result
of a merger of the National Socialist Party and the Overseas Democratic Constitutional
Party. As compared with other minor parties, the Social Democrats are a right-wing
group, but less far to the right than the China Youth Party. Following the amalga-
mation, Carson Chang, the leader of the National Socialists, became president of the
Party. Initially, the new party pledged its full support to the Democratic League, but
in December 1946, owing to differences over the issue of participation in the National
Constituent Assembly, the League requested the Social Democratic Party to withdraw.
Together with the China Youth Party, the Social Democrats participated in the re-
organization of the National Government in April 1947. After a long period of negoti-
ation, the Party was awarded four seats in the State Council, two ministries without
portfolio, as well as twelve places in the Legislative Yuan, and seven in the Control Yuan.
It is noteworthy, however, that Carson Chang would not participate in person in the
coalition government.
During the period of government reorganization and after, factional
strife has developed within the new party, to such an extent that it has now split into
its component parts. One group, under the leadership of Carson Chang, held the First
National Congress of the Party in Shanghai at the end of July, but this meeting was
boycotted by an opposition group which met in a rival congress in Shanghai in mid-
August. The opposition group, which objects strenuously to the "dictatorial attitude"
of Carson Chang, consists of the overseas element and its associates, and claims to
represent three-fourths of the party strength. It courageously issued a manifesto call-
ing for restoration of peace between the Kuomintang and the Communists, and for
protection of civil rights. It blamed the National Government for China's recent mis-
fortunes and urged the Government to adopt an independent foreign policy directed
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toward building a bridge between the US and the USSR. Two of its leaders, Wu Hsien-
tzu and Li Ta-ming were recently removed from their seats in the State Council and
Executive Yuan respectively, for the announced reason of nonattendance.
(3) The Democratic League.
The Democratic League, which began with a grouping of minor political
parties and associations in 1940, was formally inaugurated under that title in 1944.
It was a loose alliance of individuals, groups, and political parties, the most conspicuous
of which were the China Youth Party, the National Socialist Party, the National Sal-
vation Association, the Rural Reconstruction Group, the Third Party, and the Voca-
tional Education group. The program of the League calls for national unification and
the realization of democracy. It advocates unification by joint action of all parties, as
a means of forcing the two major ones, the Kuomintang and the Communist Party,
into more harmonious relations. It is insistent that one-party rule should be ter-
minated and replaced by a real coalition government. The extremely liberal character
of the League has become more pronounced by the loss of its two right-wing elements,
the China Youth Party and the Social Democrats.
Since the time of the Political Consultative Conference of January 1946,
the League has been a political ally of the Communist Party in its relations with the
Kuomintang. Although the League does not adhere to communism as a doctrine, its
recent actions and statements closely parallel those of the Communist Party. It has
therefore been accused, in Kuomintang circles, of being a Chinese Communist front.
Some of its leaders have been assassinated by Kuomintang agents, and its members
frequently have been subject to arrest and investigation. The National Government
has recently intensified its repressive activities against League members (Lo Lung-chi,
a leading spokesman of the League, has accused the Government of using its Mobiliza-
tion Program as a cover for these measures of suppression).
4. CURRENT DOMESTIC PROBLEMS AND ISSUES.
The civil war dominates the Chinese domestic scene and has the effect both
of aggravating outstanding problems and of thwarting their solution. During the
past eighteen months, the conflict, which once appeared capable of solution by negoti-
ation, has developed into a war of extermination. Until recently, the leaders of the
National Government proclaimed publicly the policy of seeking a "political solution of
the Communist problem," although admitting privately the futility of such a course;
early in July 1947 however, it gave up any pretense of following this policy by openly
proclaiming its intention to crush the Communist "rebellion" by military force.
a. Political Unrest within Nationalist China.
While military operations have been almost entirely confined to North China
and Manchuria, the war has had serious repercussions throughout Central and South
China. Among politically-conscious Chinese, sentiment favoring peace is quite gen-
eral outside the ranks of the Kuomintang as is manifest in resolutions of the People's
Political Council, in declarations of minor parties and statements of independent
liberals, and in student demonstrations and strikes. These discontented moderate and
liberal groups blame the National Government as well as the Communists for the
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continuation of the war and deteriorating conditions. They also regard the Govern-
ment's suppression of civil liberties and its ruthless employment of secret police to
quell dissident elements as an integral part of its war policy. As a consequence, the
present government has, in effect, lost their allegiance.
These dissatisfied liberal elements are anti-Kuomintang rather than pro-Com-
munist, inasmuch as they are composed largely of persons who are intensely individual-
istic and therefore not attracted either by Marxism or by the totalitarian program of
the Chinese Communist Party. At present they offer little effective opposition to the
National Government because of their lack of organization and military strength. There
is no single political program to which they all subscribe; nevertheless, the conviction
is widespread among them that the present government is a form of gangster despotism,
directed by leaders who are hopelessly reactionary and corrupt, and who are interested
mainly in self-perpetuation. Many of them, to whom the Generalissimo himself is no
longer acceptable as a national leader, hope for the collapse of the National Government,
although they have no clear plan for the aftermath. They resent keenly any form of
assistance, domestic or foreign, to bolster its position and prolong its corrupt rule.
b. Coalition Government.
At the time of the Political Consultative Conference of January 1946, all
parties and factions were in agreement on the necessity of forming a coalition govern-
ment as the initial step in terminating the period of Kuomintang tutelage and ushering
in democratic constitutional government. In March and April 1947, the National Gov-
ernment took the initiative in organizing the present Interim Coalition Government,
but non-Kuomintang participation was limited to two of the minor parties and a
handful of independents, with the Kuomintang still monopolizing all the positions of
real power. Eleven seats in the State Council were originally left unfilled, however,
to permit the participation of members of the Communist Party, the Democratic League,
and other political elements, but none of these has shown any inclination to join the
interim government.
The Communist Party and the Democratic League followed a common policy
of standing aloof from the reorganization of the government on the announced grounds
that they favored a real united-front coalition, formed not by unilateral action of the
Kuomintang, but by joint action of all political groups. They wanted a share in the
important ministerial posts and sufficient numerical strength in the State Council,
at least one-third of the seats, in order that they might have the power of veto. The
major obstacle to their cooperation with the Kuomintang, however, has been the dis-
trust and suspicion with which each side regards the other. With the recent intensi-
fication of the war, the Kuomintang leaders of the National Government decided in
July no longer to hold positions in the government open for the Communist "rebels,"
while the Communists, in their propaganda broadcasts, now advocate the formation
of a coalition government from which the Kuomintang is to be excluded.
c. The New Constitution.
A relatively liberal document in neutral opinion, the new Constitution con-
forms quite closely in major respects with the resolutions of the Political Consultative
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Conference. It was adopted on 25 December 1946 by a multiparty National Constituent
Assembly which was convened by the National Government, but which the Com-
munists refused to attend. Plans for elections to the new National Government are
being carried through and apparently the Constitution will be put into effect on
schedule in the areas of China controlled by the National Government.
The Communists advocate that the new Constitution be abolished and urge
Chinese to boycott the coming elections. The Democratic League has announced that
it will not participate in the elections. Particular features of the Constitution are un-
palatable to the Communists, to members of the Democratic League, and to other
independents and liberals. There is, for example, no ironclad assurance that the
civil liberties enumerated will be upheld, inasmuch as Article 23 permits their sus-
pension under certain conditions. Liberal critics would like to see an extension of
the power of the legislative branch in relation to the executive branch and are ap-
prehensive that the President and the Executive Yuan may dominate the new govern-
ment. In the view of these critics, the distribution of powers between the Central
Government and the Provincial governments is weighted in favor of the former and may
lead to an unhealthy degree of central control over provincial affairs.
Even more strongly, however, the Communists have objected to the fact that
the Constituent Assembly was convened unilaterally by the National Government
rather than by joint action of all the political groups represented in the Political Con-
sultative Conference. The Communists and other opponents of the National Govern-
ment suspect its announced intention to inaugurate a liberal constitutional government
and fear that the Kuomintang will manipulate the coming elections to its own ad-
vantage, exploit the strong executive branch, and, under the guise of constitutional
government, continue its domination. There is substance for their fears in the known
view of some reactionary Kuomintang leaders that China still is not ready for ter-
mination of the period of Tutelage.
d. Military Reform.
The evils of excessive militarism, a persistent feature of Chinese political life
throughout the history of the Republic, have been particularly acute since the end of
the war with Japan. With approximately four million men under arms, the country
has a larger military establishment than its economy can sustain. Civil administra-
tion suffers from the prominence of military men in civil government posts, while
armed forces are used not for national interest so much as by parties, factions and in-
dividuals to enhance their political power. That these evils are recognized as such by
the Chinese themselves is shown in three articles of the new Constitution.
Article 138. The land, sea and air forces of the whole land shall, independent of
individual, regional or party affiliation, be loyal to the State and protect the people.
Article 139. No political party or faction or individual may make use of armed
forces as an instrument in the political struggle for power.
Article 140. No military man in active service may concurrently hold civil office.
e. Economic Deterioration.
Heavy military expenditures entailing inflationary expansion of the currency
are only one aspect of deteriorating economic conditions in China. The civil war has
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shelved reconstruction projects, while communications in North China and Manchuria
are constantly disrupted with attendant industrial stagnation in these areas. In
many parts of China supplies of raw materials and foods are short, largely because of
a faulty transportation and distribution system. Both internal and foreign trade have
declined sharply.
These weaknesses have resulted in general economic insecurity which is sap-
ping the strength of the National Government and undermining the morale both of
top officials and of the rank and file of civil servants. This feeling of insecurity, to-
gether with virtually uncontrolled inflation, is a major cause of the corruption which
is so prevalent throughout the government. Economic deterioration, evidenced by a
rapidly depreciating national currency, is also attacking the vitality and morale of
the Nationalist armed forces.
Material economic improvement appears to require a vigorous internal reform
program in the political, military and economic fields, together with substantial aid
from abroad to support the currency and to facilitate reconstruction. The National
Government eagerly seeks foreign aid from the US, but without effective implementa-
tion of proposed reforms. On the other hand, the Communist Party opposes all foreign
aid to the present National Government and threatens that any new loans, as well as
obligations incurred since January 1946, will be repudiated whenever a new non-Kuo-
mintang government comes to power. In a somewhat more moderate stand, the Demo-
cratic League through its spokesman, Lo Lung-chi, insists that any measures of foreign
aid be deferred until the end of the civil war.
5. SEPARATISM AND WARLORDISM.
As the power and prestige of the National Government declines, there is an increas-
ing tendency for areas on the periphery of China to achieve some degree of local auton-
omy or independence. Separatist developments among non-Chinese peoples have existed
for some time on the northern frontier of China. Nanking's preoccupation with its war
against the Communists precludes any vigorous action to check these developments.
Ultimate loss of such areas, however, would not in itself bring about the disintegration
of China, inasmuch as few if any Chinese are involved. On the other hand, potential
secession movements involving the Chinese populations in Taiwan (Formosa) and South
China are a much more serious concern for the National Government.
a. Separatist Movements along the Northern Frontier.
Among the Mongol and Turki peoples on the northern frontier of China, there
is quite general dissatisfaction with rule by the Chinese, who both in history and at
present have proved incapable of handling minority groups in a conciliatory manner.
After the revolution of 1911, Outer Mongolia broke away, in fact, from the control of
the new Republic, and in 1946, the Nanking Government formally recognized the exist-
ence of an independent Mongolian People's Republic. Independence for the Mongols in
Outer Mongolia in turn has had a strong attraction for other Mongols in northwest
Manchuria, in Inner Mongolia (the provinces of Chahar, Suiyuan and Ningsia) and
Jehol. In the eastern part of this area, autonomous Mongol movements are developing
with the friendly support of the Chinese Communists, who bar the National Govern-
ment from intervention in this region.
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Further westward, an acute minority problem exists in Sinkiang, where the
Chinese constitute no more than 10 percent of the population. The non-Chinese peoples
of Sinkiang, long oppressed by their Chinese rulers, are attracted to related peoples
across the border in the Soviet Union. That part of the province west of the Manass
River is controlled effectively by a rebel Turki group, and there has been extensive Soviet
economic and political penetration of this region, which is now, in effect, an autonomous
state with pro-Soviet orientation.
b. Discontent in Taiwan.
Insurrections on the island of Taiwan, in February and March 1947, were vig-
orously suppressed, but a revolutionary movement is brewing underground. Taiwanese
Chinese have developed an intense hatred for their mainland rulers, during two years
of inefficient and corrupt government. While at present the Taiwanese lack the arms
and organization necessary to stage a successful revolution, a further weakening of
the National Government, coupled with withdrawal of troops, would create a situation
favorable for an independence movement. A significant body of opinion in Taiwan,
Which is under de facto Chinese rule until the island's status is finally determined by
a Japanese peace treaty, hopes that the area will not be placed directly under Chinese
sovereignty but administered by the UN, the US, or a group of international powers.
?
c. Secession Tendencies in South China.
The South China provinces of Kwangtung and Kwangsi have repeatedly exhib-
ited revolutionary and secessionist tendencies. In 1931, the authority of the National
Government at Nanking was challenged by a new but short-lived independent govern-
ment at Canton. Again in 1936 an unsuccessful armed revolt was staged by the
Kwangsi generals, Li Tsung-jen and Pai Chung-hsi. After the allegiance of these two
generals to the National Government was re-established, they were removed from South
China by Chiang Kai-shek, and at present Li Tsung-jen is head of the Generalissimo's
headquarters at Peiping while Pai Chung-hsi is Minister of National Defense. Their
names, however, continue to be linked with possible separatist movements in Kwangsi
and Kwangtung.
In recent months, popular unrest has been on the increase in the South.
Nearby Hongkong, a refuge and a propaganda base for discontented elements, has be-
come the center of intense political activity. The most outspoken opposition to the
National Government stems from a disaffected group in Hongkong led by Marshal Li
Chi-shen, veteran Kwangtung military leader and once Kuomintang chief of staff.
Because of his public outbursts against the National Government, Li was expelled from
the Kuomintang in August 1947. Although the group led by Li Chi-shen does not con-
trol military forces of its own, it is reportedly in contact with surviving Communist
elements in Kwangtung and on Hainan Island.
The most powerful figure in South China is Chang Fa-kwei, director of the
Generalissimo's Canton Headquarters. While Chang has showed no outward signs
of disloyalty to the National Government, he was associated with separatist movements
in the past, and has been agitating for the return of his troops, sent to the north. He
is a potential leader of a South China independence movement.
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The vulnerability of South China to separatist revolts has been increased by
the withdrawal of troops for service in North China. At the present time, however,
the chief potential troublemakers have either been removed from South China or
stripped of troops which are personally loyal to them. These measures of the National
Government are still effective deterrents to rebellion, which is unlikely to occur unless
there is further weakening of the government at Nanking. The appointment in Sep-
tember 1947, of T. V. Soong as Governor of Kwangtung, appears to be a further move
on the part of the National Government to check separatist tendencies in the South.
d. Revival of Warlordism.
In addition to these separatist tendencies, a revival of warlordism elsewhere in
China is a disintegrating force. The warlord is a combination militarist and politician,
with control over a private army, his chief source of strength. Usually such a leader
finds a regional basis for his authority through holding the governorship of a province.
In this position he usurps functions and authority which really belong to the National
Government and rules in an autonomous manner, exercising complete control over
political and economic life in his area. Some warlords, who have been progressive in
outlook, have introduced reforms in their regions; but more frequently warlords are
reactionary military men who exploit the people for their personal profit.
Shansi province, since 1912, has been under the virtually autonomous rule of
the "Model Governor" Yen Hsi-shan, one of China's most powerful and influential war-
lords. At present his regime is threatened by Communist attacks on the one hand,
and the desire of the National Government to undermine his power on the other but he
at least has demonstrated sufficient strength to survive these unfavorable circum-
stances. Sikiang, since its establishment as a province in 1938, has been ruled by
General Liu Wen-hui, an outstanding example of the old-style warlord governor. Called
"the opium-vending governor," Liu encourages opium growing in his domain, but under
the noble-sounding doctrine of "opium suppression," prevents anyone but his own men
from handling the lucrative opium trade. In January 1947 a large-scale people's
rebellion broke out against his corrupt regime, but Liu was able to quell this uprising
by military force. The National Government has made no effort to remove him from
office.
In Szechuan the Government's control is far from strong. Ex-warlords,
although shorn of their military power, control the economy of the province and are
using rice, opium and private banks as weapons to undermine the position of the gov-
ernor, Teng Hsi-hou, also a former warlord. Rice has been withheld from the people,
and the result has been riots among the local population.
Ningsia and Chinghai Provinces have been governed for more than a decade
by General Ma Hung-kwei and General Ma Pu-fang, respectively, both of whom main-
tain regimes which are virtually independent of Nanking. In both the provinces of
Kweichow and Yunnan, in China's southwest, actual power is in the hands of local
warlords.
6. STABILITY OF THE NATIONAL GOVERNMENT.
National rule in China is due, in December 1947, to pass into the hands of a new
constitutional government, following general elections in November and December.
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These elections, if they take place as scheduled, will not appreciably modify the Kuo-
mintang control of the National Government, inasmuch as the Chinese electorate is
inexperienced, and the Kuomintang machine is still sufficiently powerful in local
politics to manipulate the elections more or less at will. Although the Kuomintang is
capable of exploiting the coming elections, the real power of the National Government
is steadily declining, and is approaching a critical stage.
A number of military, economic and political factors are operating against the
National Government. The Communist armies in the north are gaining in relative
strength and are assuming the strategic initiative in the civil war, while the military
potential of the National Government is weakening through attrition. Deteriorating
economic conditions are exerting a cumulative impact on the political structure of the
National Government. Within Nationalist territory, the regime lacks popular support,
although the dissatisfied elements are as yet unorganized and lack armed force. In its
foreign relations, the National Government has failed to solve satisfactorily outstanding
issues with the USSR, and has as yet been unsuccessful in its recent efforts to secure
substantial US military and economic aid.
The principal factors now tending to promote the stability of the National Govern-
ment are: the promise of far-reaching internal reforms, as to which a majority of
politically articulate Chinese entertain strong misgivings, and the prospect of large-
scale assistance from the US.
a. Probable Developments if US Aid Is Withheld.
The most likely prospects in the near future, if US aid is not forthcoming, are
(1) steady disintegration of the National Government, or (2) a compromise settlement
with the Chinese Communists. A third but less likely prospect would be for the National
Government to carry out a revolutionary reform program so as to rally popular support,
increase its military potential, obtain access to privately-held foreign assets, and achieve
greater budgetary balance.
(1) Political Disintegration and Expansion of Communist Influence.
Unless the decline of the National Government is checked by internal
reform and foreign aid, its authority will probably diminish to such a degree that
it will no longer be able to provide effective government for China on the present
national scale. As Nationalist power wanes, the Communists will solidify their control
over Manchuria and parts of north China, and probably extend their military opera-
tions into the rural areas of Central and South China. Separatist tendencies and
the growth of warlordism will accelerate, and the real authority of the National
Government would thus, in time, become limited to large cities in the Yangtze Valley.
Such political disintegration would facilitate the extension of Chinese Communist in-
fluence into areas where it is now excluded or represented only by underground groups.
Some obstacles would remain, however, which the Communists would have to overcome
before acquiring a dominant position over the entire country. (a) Popular sentiment
which now, as a reaction to the maladministration and corruption of the National Gov-
ernment, is inclined to be favorable to the Communists, probably would shift against
them. As the balance of power swung to the advantage of the Communist Party, more
attention would be focused on its totalitarian program and ruthless methods, as well as
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its presumed connection with the USSR. As a consequence, the Chinese Communists
might lose much of this sympathetic support. (b) Although warlord regimes, because
of their reactionary characteristics, would provide fertile soil for the spread of Com-
munist doctrines, these local military rulers would vigorously oppose Communist pene-
tration of their areas. (c) The Communists, experienced in the rule only of rural
sections and lacking political and economic administrators for urban industrial areas,
would of necessity be forced to turn to non-Communists for assistance when confronted
by problems such as providing an administration for the industrial areas of South
Manchuria, or for large cities like Peiping, Tientsin and Mukden. Alliances of this
nature would dilute the strength of the Party and tend to make it compromise its
program. Nevertheless, it is quite probable that over a period of years, the Chinese
Communist Party will succeed in overcoming these obstacles and attaining a position
of political supremacy.
(2) Compromise Settlement with the Chinese Communists.
Rather than passively accept political disintegration, the National Gov-
ernment may seek a compromise settlement of its conflict with the Chinese Communists.
The possibility of such a reversal of policy has been forecast already by prominent leaders
in the Government, although it is believed that their statements thus far have been
primarily intended to apply pressure on the US for assistance. In the absence of
obtaining this result, the Government may in desperation turn to the USSR for media-
tion of the civil war. In such a settlement, China's foreign policy would be oriented
toward Moscow, and within China a new coalition government with strong Chinese Com-
munist representation would result. The establishment of this government would be
followed by gradual penetration of Communist influence throughout the national
administration.
However, in the case of either political disintegration and expansion
of communist influence, or compromise settlement with the Chinese Communists,
it is believed that acute political and economic disorganization would prevail in China
for many years, preventing an effective consolidation of Soviet control.
(3) Internal Reform.
Recently the National Government has re-emphasized a program of
reforms and has taken some measures in that direction. An attempt has been made to
eliminate the inefficient and conflicting dual control by military and civil officials in
Manchuria, and in the municipality of Shanghai. As an initial measure to reform the
army, plans have been drawn up for a new training program to take place in Taiwan.
The Government itself calls attention to its continual planning with a view to improving
the internal administration of the country as evidenced by the adoption of the new
Constitution, the recent nation-wide anti-corruption campaign, and the program for
the reform of hsien (county) government.
Among both Chinese and foreigners, however, there is considerable doubt
that the present government can or will accomplish any fundamental reforms. Its
leadership is suspect because of its consistent record of incapacity to carry out pro-
gressive policies. It failed to grasp a favorable opportunity for reform, offered when
the government was reorganized in March and April 1947, and the opinion is wide-
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spread that the group of individuals now in power will not embark on a new course.
Prospects for reform seem to hinge on a drastic change of faces in the present regime,
a shake-up which would break the Kuomintang monopoly of power and install a re-
formed administration with leaders from the minor parties and from the ranks of
liberal independents in some of the positions of real power.
The reorganization of the Government on such a basis would scarcely
be acceptable to right-wing elements in the Kuomintang, but might find support and
leadership among Kuomintang moderates. The role which Chiang Kai-shek himself
might play in such developments is not clear. To a considerable extent his power rests
on the support he receives from the Kuomintang right wing, and it would be difficult
for him to dissociate himself from this group unless he were provided an alternative
basis of power. Moreover, there is some question as to whether or not he could adapt
himself to a broadly representative government with a progressive program. Chiang
has lost prestige among Chinese liberals, many of whom refuse to associate themselves
with a Government under his leadership. Unless in the near future he demonstrates
again a capacity for revolutionary leadership and a genuine inclination toward a pro-
gressive program, it is unlikely that he can win back the support of the great bulk of
politically conscious Chinese.
If Chiang proves incapable of this effort, his withdrawal from the politi-
cal scene would be a prerequisite for the formation, in Nationalist China, of a broadly
representative coalition. On the other hand, such a movement might founder without
his vigorous leadership, for Chiang stands as a giant among Chinese leaders. His de-
parture would inevitably be followed by a brief period of accelerated disintegration,
which might continue unchecked. It is true that, with his dominating personality
gone, the way would be open for the emergence of new non-Communist leadership, pos-
sessing both the freedom and will to accomplish reform. However, the availability of
such leadership as well as its capabilities is questionable.
b. Possible Developments if US Aid Is Forthcoming.
Substantial US aid, economic and military, could check the decline of the
National Government, but unless it was accompanied by internal reforms, it would be
wasted in its application and accomplish little constructive result. If administered
under strict foreign supervision, assistance would be widely opposed by Chinese, both
in Communist and Nationalist territories as compromising the national sovereignty
of China and prolonging the life of an unpopular and corrupt government. Rather
than strengthen the position of the National Government, it would widen the cleavage
between government and opposition groups.
Substantial aid would tend to promote real stability for the National Govern-
ment if it were accompanied by effective internal reforms to overcome maladministra-
tion and corruption, to reorganize the incompetent military establishment, and to
reduce the impact of the civil war on the country's economy.
The National Government, if US aid were forthcoming, would be deterred from
turning to the USSR for a compromise solution of its conflict with the Chinese
Communists.
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c. USSR Reaction to a US Aid Program.
To the extent that US assistance tended to promote the stability of the National
Government, such aid would in all probability be countered by intensified activity on
the part of the USSR, both to further separatist developments along China's northern
frontier and to strengthen and encourage the Chinese Communists. The USSR might
endeavor to establish independent regimes in Sinkiang and in Manchuria, which to-
gether with Outer Mongolia would form a protective line of buffer states from Central
Asia to the Yellow Sea. While the USSR would probably defer open action in support
of the Chinese Communists, which would be a clear violation of the Sino-Soviet Treaty
of 14 August 1945, it could continue to extend effective aid to them by inconspicuous
means. Even the provision of Soviet-made equipment could be effected circuitously
via Mongolian and North Korean forces; the former are undoubtedly supplied with such
material, and there is convincing evidence that the latter have also been so equipped.
In the resultant ascending spiral of support and counter-support by the US and the
USSR, the latter, by virtue of its favorable geographic position and the vitality of the
Chinese Communist movement, would enjoy the advantage in terms of cost and effec-
tiveness of aid.
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SECTION II
POLITICAL SITUATION IN COMMUNIST CHINA
The Chinese Communist Party, or Kungchantang, has provided the chief opposition
to the Kuomintang for 20 years. It has won a popular support far exceeding that of
any of the minor parties and at least comparable to that of the Kuomintang, largely
because of the political and military skill of its leaders, its superior organization, and its
relatively progressive attitude towards agrarian problems. The Party claims a member-
ship of approximately 2,000,000 and is supported by an army of 1,000,000 regular troops
supplemented by some 2,000,000 irregulars.
Outside the USSR, the Chinese Communists form the world's largest Communist
Party and the only one which has demonstrated sufficient strength to survive and
expand without Russian help. The Chinese Communists have a strong ideological
affinity toward the USSR, but for more than a decade they have formulated their plans
and policies apparently independent of Moscow. Because of the agrarian character of
China, they have changed Marxism from a European form to an Asiatic form, with the
peasantry rather than the industrial workers as the main force of the revolution. In
their fundamental philosophy, however, they differ very little from Communists the
world over. There are differences in method but no real difference in objective. At the
present time, they are in a nationalistic, united-front phase of revolution characterized
by a program which upholds agrarian reform and permits some political expression by
the individual. However, in the words of Party leader, Mao Tse-tung, "Our future
program is to push China forward to socialism and communism; that is definite and
beyond question."
Approximately one-fifth of the total area and at least one-fourth of the total popu-
lation of China is controlled by the Chinese Communists. Generally speaking, territory
under Communist rule includes most of Manchuria and a large section of North China,
extending from northwest Shensi province to the Shantung Peninsula, with the excep-
tion of major cities and corridors along rail lines which are held by the National Gov-
ernment. In addition, a Communist force several thousand strong remains unsubdued
on Hainan Island and the Luichow Peninsula in the south, while a sizeable underground
exists in most of the large cities in Nationalist China.
1. HISTORY OF THE CHINESE COMMUNIST PARTY.
The Chinese Communist Party was founded, with Russian guidance, in 1921. A
decision to organize the Communist movement in Asia had been taken by the Com-
munist Party in Russia in 1920, as a result of which Marin, Lenin's secretary, was sent
to China to organize secretly a Chinese branch of the Communist International. The
foundation meeting of the Party was held in Shanghai and was attended by 12 Chinese
delegates, including Mao Tse-tung. The Party commenced its activities by conducting
an intensive campaign among students in Peiping and laborers in Shanghai and
Hongkong.
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In 1924 the ranks of the Kuomintang were opened to Communists, and many
joined. Although these Communists agreed to support the revolutionary program of
the Kuomintang, by 1926 it had become apparent to Kuomintang leaders that the
Communists were gaining leadership over the revolution. By April of the following
year the differences between the two groups had widened into an open split. Kuomin-
tang leftists and Communists rallied under the Russian adviser, Borodin, at Hankow,
while Chiang Kai-shek with Kuomintang right-wing and moderate elements set up a
rival government in Nanking. Assured of financial support by Chinese banking groups
in Shanghai, and with the moral support of foreign powers which had been alarmed by
the anti-foreignism of the leftists, Chiang embarked on a bloody purge of Communists
from the Kuomintang. By the end of 1927, the Hankow Government was crushed, its
Russian advisers expelled, and the Chinese Communist Party dispersed and driven
underground.
After the repudiation of the Communist alliance by the Kuomintang, the Chinese
Communist movement wavered for a few years. One group under the leadership of
Li Li-san advocated a policy of occupying some of the larger cities and using them as
bases from which to fight the armed opposition of the Kuomintang. This policy of
"direct action" soon proved a complete failure. Li Li-san, made the scapegoat, fled to
Russia where he remained as a virtual exile until his return to Manchuria with the
Soviet army in 1945.
Meanwhile in another group attention had been shifted to the hitherto neglected
peasants, who from this time began to receive the primary attention of the Chinese
Communist movement. Emphasis was also on the strengthening of the Chinese Com-
munist Army, rather than the development of peasant and labor unions, and the
employment of that army to protect Communist rural areas rather than attack Kuo-
mintang strongholds in the cities. Mao Tse-tung emerged from this group as Party
leader in the early 1930's, but urged a policy of moderation towards the big landlords
and rich peasants. Until the Communists were strong enough to take charge of the
political and economic administration of the country themselves, in Mao's opinion, they
were still dependent on the landlords and merchants. Because he counseled a "go
slow policy," Mao earned the disfavor of Moscow. Thus the Chinese Soviet movement
and the Chinese Communist Army began under purely Chinese leadership. A central
government of Chinese Soviets was set up in the hills of southern Kiangsi, in November
1931, and a constitution was adopted. The capital was captured by National Govern-
ment forces three years later, but the Communist armies, retreating westward, made
their famous "long march" of some 2,000 miles (Oct. 1934-Oct. 1935) to northwest China.
Ultimately, the Communists set up a new capital at Yenan, in Shensi province, whence
their influence spread into the neighboring provinces of Kansu, Ningsia, Shansi, Sui-
yuan, and Hopeh.
In early 1937 the National Government accepted the idea of a united front with
the Communists in defense against Japan. The united-front idea, which applied to
Communists in all countries, had been developed in Moscow as a means for safeguarding
the Soviet Union against the threat of fascist aggression, and for expanding the influ-
ence of Communists in capitalistic democracies. Under the terms of the united-front
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agreement in China, the Chinese Communists pledged themselves to cease subversive
activities against the government, to abolish the Chinese Soviet Republic, to support
the National Government, and to integrate the Communist army with the armies of
the government. Consequently, China was united at the outbreak of the war with
Japan in July 1937.
The Communist forces, however, refused to stay within their assigned defense areas.
After three years of limited cooperation, disagreement led to a serious clash between the
Communist New Fourth Army and National Government forces in January 1941. There-
after the National Government restricted Communist activity and enforced a tight
blockade of Communist areas. With US entrance into the war against Japan, both
the Communists and the Kuomintang became more interested in their own status
vis-a-vis each other than in fighting the Japanese armies. A virtual truce existed with
the Japanese "puppet armies" while the National Government in Chungking and the
Communist forces continued their "war within a war." The Communists expanded
their areas of control, partly at the expense of the Japanese, but also at the expense of
Chungking-controlled areas.
Kuomintang-Communist strife was intensified at the close of the war when the
Communists took over from the Japanese a large part of rural China from the Yangtze
Valley north. Occupation of major cities like Peiping and Tientsin, however, was fore-
stalled by arrival of National Government troops, brought in by US air transport.
Communist leaders apparently welcomed General Marshall's arrival in China, and
the subsequent Political Consultative Conference resolutions and other agreements of
early 1946. These paper arrangements were only partially and tentatively put into
effect, however, and disagreements over their implementation, combined with Commu-
nist occupation of most of Manchuria, led to an intensification of civil war in April 1946.
Further attempts at a peaceful settlement in 1946 and early 1947 failed, and the breach
has continued to widen. On 28 June 1947 the National Government issued a mandate
for the arrest of Mao Tse-tung, and a few days later the State Council issued a resolution
branding the Communists as "rebels." Shortly thereafter the Communist Party retali-
ated with a list of political slogans which indicated that if the Chinese Communists came
to power, Kuomintang leaders would be tried as "war criminals."
2. PARTY IDEOLOGY AND PROGRAM.
The present or immediate goal of the Chinese Communist Partly, broadly stated, is
to establish a "New Democracy" based on an alliance of several revolutionary classes led
by a proletariat in which the peasantry is the main force. The future or maximum goal
is to establish a socialist society in China. In short, "democracy" is the means, socialism
the end, even though final achievement of this goal may lie in the very distant future.
The bases for Chinese Communist policy are the writings of Mao Tse-tung, through
whom the views of Marx and Lenin have been predigested and applied to China. Mao
has interpreted Sun Yat-sen's Three Principles of the People in the light of these doc-
trines in his chief works, New Democracy (1940) and On Coalition Government (1945).
Although available evidence indicates that Mao has never been abroad, Mao's thinking
has been subjected to Russian influence by Chinese Communists who have visited
Moscow and returned, and by other contacts.
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a. Policies in Communist China.
Communist policies in Communist-Occupied areas conform as a rule to Chinese
peasant desires. These policies place emphasis, in the political field, on democratic
reform which provides some opportunity for political expression by the individual, and
in the economic field, on agrarian reform.
In Communist-occupied areas it is Party policy that no more than one-third of
the government posts be filled by Communist Party members. Thus the Communists
have a basis for claiming that they uphold democratic, united-front government in those
parts of China which they control. In the selection of government officials some
emphasis is laid on participation from below rather than appointment from above.
Where it is deemed sufficiently safe to entrust governmental functions to the local
population, it is Communist policy to use the popular ballot. However, policy-making
positions are in most cases filled by appointment from above.
The Party policy of agrarian reform is of great political significance. In an
earlier period, the Chinese Communists, who are admittedly Marxists, attempted imme-
diate collectivism, but soon abandoned this course in favor of a more moderate policy of
land redistribution which permits private ownership of land and is designed to win the
support of the mass of the people. The impoverished and oppressed peasants in the
northern areas controlled by the Communists have responded with some enthusiasm
to this policy since it has the effect of somewhat increasing their small holdings at the
expense of more well-to-do land owners. Such measures, however, to the average
untutored peasant, have nothing to do with Communist ideology which to him is so
much meaningless verbiage.
b. Policies vis-a-vis the National Government.
Communist policy toward the National Government has been aimed at a con-
tinuation of hostilities in the hope that economic deterioration, military attrition, and
loss of the remainder of Manchuria and additional areas of North China to the Com-
munists, will render the National Government powerless or force it to negotiate on
Communist terms.
Besides attempting to break Kuomintang monopoly control over the Govern-
ment by military means, the Communists also are attempting to undermine the present
National Government by means of an active underground. Although all Communists
were ordered out of National Government territory after the breakdown of negotiations
in March 1947, a sizable Communist underground still exists. Owing to the extreme
secrecy of this organization, necessary because of the close surveillance exercised by
the Kuomintang, it is difficult to obtain even a rough estimate of its numerical strength.
A qualified observer has reported that in South China the Communists retain control
of central Hainan Island, and most of the Kwangtung coast from the Luichow Peninsula
to Canton. There are also sizable Communist underground groups in the industrial
centers of Canton, Hongkong, Peiping, and Shanghai.
There is no indication as yet that the Chinese Communists plan to establish
a separate sovereign government over the areas now under their control. The Chinese
Communist Party, even though now outlawed by the National Government still sup-
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ports the resolutions of the January 1946 Political Consultative Conference as a basis
for achieving the announced aim of a democratic coalition government. However,
it now rejects any possibility of cooperation with Chiang Kai-shek and his associates who
are classed as "war criminals." It denounces the new constitution as an instrument
designed to curb the people's liberties, eliminate provincial rights, and institute a dic-
tatorial presidential system. The Party also refuses to recognize any agreements or
treaties contracted by the National Government with foreign powers since January 1946.
In Communist-controlled areas, Communist rule is effected by a number of
separate governments over "Border Regions" and "Liberated Areas", paralleled by a
strong Party political and military organization.
3. PARTY ORGANIZATION.
The Chinese Communist Party is organized on the principle of "concentrated de-
mocracy" which stresses obedience, and submission of the individual to the will of the
majority. Theoretically, the democratically elected party organs are supreme, but
owing to the infrequent meetings of these representative organs, actual authority is
exercised by the party organs appointed from above. The Party was originally organ-
ized as a branch of the Third Communist International which was officially dissolved in
1943; however, since the Seventh Plenary Meeting of the Comintern, held in Moscow in
1936, there has been no visible working relationship between the Chinese Communists
and the Comintern. Similar to the Kuomintang in its organization, the Chinese
Communist Party in its structure resembles the Soviet Communist Party, which is the
prototype of both. (See chart facing page II-10.)
a. Organization on National Level.
Theoretically, the National Party Congress, elected by the Councils of Provin-
cial Delegates, is the supreme party organ and it elects the Central Party Committee.
The Congress is supposed to meet annually, but the Seventh National Congress, con-
vened in April 1945, was the first meeting since 1928. The Communists explain that
this lapse was owing to the exigencies of the Civil War.
The Central Party Committee, sometimes referred to as the Central Executive
Committee, is the supreme ruling Party organ in the intervals between National
Party Congresses, and directs all party activities on a national level. , This Committee
establishes and appoints the Political Bureau, the Department heads, and the Party
Secretariat. The present Central Committee, elected by the Seventh National Con-
gress, consists of 44 members and 23 alternates, with Mao Tse-tung the chairman. The
Party Statutes (1928) provide for Central Committee plenary meetings "at least once
every three months," but it is not known how often meetings are convened in practice.
The Political Bureau is probably of even greater strategic importance than the
Central Party Committee inasmuch as it supervises all political affairs when the latter
is not in session. Numerous branches of the Political Bureau extend through all Com-
munist-controlled areas down even to the village level. These branches appear to be a
link between the party organization, the army, and the government hierarchy. In
newly liberated or unstable areas, a branch of the Political Bureau constitutes the de
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facto policy-making organ for the government, party, and military units. Mao Tse-
tung is the chairman of the Bureau which is composed of 13 members.
The Central Committee establishes the Party Departments and appoints the
Department heads. These Departments correspond to the Kuomintang bureaus and
committees and, as far as can be ascertained, include Departments for Military Affairs,
Foreign Affairs, Finance and Taxes, Party Affairs, Organization, Publicity, Research,
Industry, Agriculture, and Minority Groups. The Party Secretariat is composed of
Mao Tse-tung, its chairman, and the heads of more important Departments, such as
Chu Te, Chou En-lai, Jen Pi-shih, and Liu Shao-chi.
b. Provincial and Local Party Organization.
Communist Party organs parallel government bodies at all levels. Two types
of organs are found at each level, directive organs called Party Committees, and popu-
lar or representative organs such as the Party Members' Mass Meetings and the Councils
of Party Delegates. According to the Party Constitution, both types of organs are
democratically elected, but in practice this is true only of the representative organs.
The basic unit of party organization is the party cell, established in factories,
workshops, schools, villages, and army units. All party members in a town or rural
district (chu) meet periodically in a Party Members' Mass Meeting which elects dele-
gates to the District Council of Party Delegates. This District Council of Party Dele-
gates, when in session, supervises party affairs within the town or district and elects
delegates to the Hsien, Municipal, and Provincial Councils of Party Delegates. These
Councils are the supreme organs at their respective levels. When not in session their
authority is exercised by the Party Committees, which, on all but the highest level, are
appointed by the next superior Party Committee.
c. Party Membership.
The Party has claimed a membership as high as 2,000,000 members. At least
90 percent of its present members joined after 1937, in the course of the anti-Japanese
war. This 90 percent presumably accepted communism in the sense of the more mod-
erate "New Democracy" and not in the sense of the extreme radicalism, characteristic
of the period prior to 1937. Therefore it would seem that continued adherence to the
general principles of "New Democracy" will be necessary in order to retain the coopera-
tion of these members.
Membership is open to persons from various classes but qualification g are
stringent and different according to class. No knowledge of the theories of Marx is
required of the applicant, but it is necessary that he sympathize with the general aims
of the Party and agree to obey Party leadership. When the Party was first formed,
membership was restricted to workers and peasants, but since the united front period
(1937) exceptions have been made to include members of the so-called capitalist class.
Party rules enjoin members to devote themselves to the best interests of the
masses and to make themselves models of good behavior. Whereas discussion in the
formulation of policy is encouraged among Party members, once the Party line is deter-
mined, a member must follow it or leave the Party.
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4. GOVERNMENT IN COMMUNIST CHINA.
On the national scale, the Chinese Communists have had no government and have
even denied the objective of establishing, at present, a national government for their
areas. The largest unit of government established by the Party is the Border Region
government. The Party has expressed, however, a desire for provincial autonomy and
legal recognition for Communist-controlled provinces.
The Communists have modified the traditional system of Chinese government by
innovations both in the formal structure and in the political processes. The chief
modification in the formal structure is the adoption of a new territorial unit which has
been set up where three or four provinces come together, away from the established
centers of power?hence the name "Border Region." The principal innovation in po-
litical processes is that some emphasis is laid on popular elections.
a. Structure of Regional Government.
Communist regional governments vary in complexity in direct proportion to the
stability of the areas. They are patterned after the government in the Shensi-Kansu-
Ningsia Border Region, which has been in operation for the longest period and has a
more highly developed political organization than the others. In the Shensi-Kansu-
Ningsia Border Region the governmental structure is determined by resolution of the
Border Region Council which consists of 288 members chosen by popular ballot. The
Council is theoretically elected for a period of three years, but the present Council has
been in office much longer. The chief function of the Council is legislative and its reso-
lutions have the force of law. The Council also has executive functions which are
mainly appointive. It names a Government Committee, a Standing Committee, the
Chief of the Supreme Court, and the Chairman and Vice-Chairman of the Government,
over which the Council has the power of recall. The Government Committee, composed
of 18 members, is the highest governmental body when the Council is not in session.
Apparently governments in other areas are not subordinate to the Shensi-
Kansu-Ningsia Border Region Government, and appear to have considerable local
autonomy. The integrating influence is supplied by the Communist army as an arm
of the Party. An important aspect of this integrating influence consists of use of army
radio communication facilities for government business. In newly liberated areas the
political structure is closely integrated with the military organization and the govern-
ments are under the tutelage of the political officers of the armies. As conditions
become more stable and as political processes become more clearly defined, the govern-
ments apparently come more directly under the leadership of the Party.
b. Government in Practice.
Despite the emphasis on elections, the governments are largely guided from
above by the Party and influenced from below by Party indoctrination of the masses.
The principal Communist leaders like Mao Tse-tung, Chou En-lai and Chu Te do not
hold positions in the governments but derive their authority from their positions in the
Party hierarchy. Most measures initiated by Border Region and local governments
are Party measures; and even non-Party measures must have Party approval to insure
their adoption. In general, the Party exerts its control through its personnel in the
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governments; the fact that it has only one-third of the representatives imposes no
difficulty in control because the Party is the only political organization which is strongly
organized and ably led. The Party's ability to get its "slate" elected in the Councils
results, at least in part, from the selection of a list which has sufficient appeal to draw
support from virtually all quarters. Popular approval of Party programs appears to
follow largely from the belief of many people that the programs are planned to further
their welfare.
In a legislative council, the Party can count on a solid one-third nucleus to back
its measures, and consequently needs to win the support of only a small fraction of the
remaining members to secure a majority. This support appears to be gained, not by
crude, browbeating tactics, but by the drafting of measures so as to win some non-
Party approval, and by the confinement of party-sponsored bills to fairly important
matters. Also, it is easy for the Party at present to control legislative councils, inas-
much as the non-Communist two-thirds is composed largely of unorganized and politi-
cally unsophisticated country people.
c. Civil Liberties.
Certain individual "freedoms," such as freedom of speech, freedom of press,
and the right of habeas corpus have been granted by Communist-inspired resolutions
of the Shensi-Kansu-Ningsia Border Region Council. Whether or not these freedoms
really exist is a controversial point. Popular criticism of the functioning of government
is encouraged in Communist areas, but such criticism may be applied only to particular
policies and their execution, not to basic Communist policies or the government's right
to exist. The Party line, once determined, must be followed. Owing to rigid Party
discipline and indoctrination, restrictions on freedom of speech are to a large extent
self-imposed.
In Communist areas there is no real freedom of the press inasmuch as the press
and radio are owned and operated by the Party and the Army. Staff members are
selected for proven loyalty to the existing regime, which implies their willingness to
conform to all official policies. The right of habeas corpus apparently is qualified by
considerations of public safety in time of war, particularly in cases of "traitorous activ-
ity," a term which may be subject to various interpretations.
5. CHINESE COMMUNIST ATTITUDE TOWARD FOREIGN POWERS.
Since the Chinese Communist Party is not a legal political entity in international
relations and has not set up a central government over its various Border Regions, it
does not have de jure foreign relations. Nevertheless, the Chinese Communists have
some external contacts, and from time to time have indicated their policies toward
various foreign powers.
One of the current keynotes of Chinese Communist foreign policy is self-sufficiency.
In February 1947 Chou En-lai, who is the principal party spokesman on matters of
foreign relations, stated that the Chinese Communists expect to work out their own
problems without the mediation of any foreign country. A subsequent statement by
another spokesman pointed out that the Communists never intended to request finan-
cial loans from foreign powers, as "Communist areas are trying to be self-sufficient."
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On the other hand there is reason to believe that under unfavorable circumstances the
Chinese Communists may look abroad for aid. Statements from Communist sources
of a less official nature have at various times, suggested that the Party might appeal to
the UN for a solution of its conflict with the National Government, or predicted that the
issues of civil war would be solved, not in China, but in negotiations between the US and
the USSR.
a. Friendly Policy toward USSR.
Throughout their history the Chinese Communists have consistently followed
a course parallel with the Soviet Party line. They have upheld every action of the
USSR, even though at times it has appeared difficult to reconcile these actions with the
interests of China. If the Chinese Communist Party ever gains control of the National
Government, it would presumably pursue a foreign policy friendly to and cooperative
with the USSR. There is no irrefutable evidence, however, of the extent to which the
USSR has extended material aid to the Chinese Communists nor of the extent to which
the Chinese Party has direct ties with the Soviet Party.
b. Critical Attitude toward US.
The Chinese Communist Party professes friendship for the American people
but insists that the policy of the US Government is imperialistic and hostile to the best
interests of China. It is harshly critical of every US step which may be interpreted as
a measure to bolster the National Government, such as the Wedemeyer mission to
China. In the event that a Communist-dominated regime comes to power, its attitude
toward the US may be expected to be governed by the actual state of foreign relations
between the US and the USSR.
6. POSSIBLE CONFLICT WITHIN THE PARTY.
There are recurring reports, chiefly from Nationalist sources that factional strife
exists within the Communist Party. The reported cliques appear to fall into four main
categories. (1) The International Clique (also known as Yang Kung or foreign-
returned Communists) consists of Soviet-educated persons. They have been opposed
by Mao Tse-tung, who criticizes them as too doctrinaire. This group is especially
prominent in Manchuria. (2) The Intimate or Mao Clique (also known as Tu Kung or
Indigenous Communists) includes Mao's most loyal supporters and is the real political
power of the Party. They believe in Mao's adaptation of Marxism to Chinese conditions
rather than in the pure Marxism of the International Clique. (3) The Military Clique
consists of the Army leaders who possess real military power. So long as the Commu-
nists continue to wage war this clique is expected to increase its power. Mao appears to
fear that these military men may become so powerful that eventually they may assume
political control over the Party. He places political commissioners in the Army as a
measure of control over them, but has to yield to them to some extent to carry on the
war. (4) The Elder Clique consists of elder Communist leaders. None of the members
of this clique holds real power. Their ideas resemble those of left-wing Kuomintang
members and are not strongly anti-American.
Of these cliques the first two are the most significant. The Intimate or Mao
Clique, sometimes referred to as "Yenan Communists," wants to become established as
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the controlling regime within China and is primarily interested in the growth of Com-
munism inside the country. This group is supported by a considerable number of
individuals who have become convinced that Communism offers a better hope for
democracy and reform in China than does the program of the National Government.
The other group, the "International" or "Manchurian Communists" is largely con-
trolled by Chinese Communists indoctrinated in the USSR and is the principal pro-
Soviet group. Li Li-san, who returned in 1945 from a 15-year sojourn in the USSR;
appears to be a leader of this group in Manchuria.
7. STRENGTH AND INTENTIONS OF THE CHINESE COMMUNISTS.
The Party, in extent of area controlled and in the number of its armed forces, is
stronger now than it has ever been. The basis of its strength in China is its program of
long-needed agrarian reforms, which has a great appeal to the impoverished peasantry;
its apparent unity of purpose; its politically astute indoctrination and treatment of its
troops; and the sympathy and support of the USSR. Perhaps its greatest strength, how-
ever, comes from the general disillusionment of the Chinese people with the corruption
and misgovernment of the Kuomintang.
The weakness of the Communist Party lies in its lack of administrative and techni-
cal personnel for organization and administration of complex urban areas; the suspicion
among the majority of politically conscious Chinese of its connection with Soviet
Russia; the general anti-Communist feeling of the Chinese people arising from the
early days of Communist excesses in China and the many years of anti-Communist
propaganda in the Chinese press; the war-induced necessity of heavy requisitions; and
the crude and ruthless execution of land confiscation and taxation which have antago-
nized large numbers of potentially valuable supporters.
At present the Party steadfastly refuses to enter into negotiations with the National
Government, whose Kuomintang leaders it distrusts. It appears to favor continuation
of hostilities, with the expectation that economic deterioration in Nationalist China,
military attrition in the Kuomintang armies, and territorial gains in Manchuria and
North China, will critically weaken the National Government or compel that Govern-
ment to negotiate for peace on Communist terms.
The Communists still maintain that they favor a coalition government, but now
reject the idea of a coalition which would include Chiang Kai-shek and Kuomintang
"war criminals." The coalition presently urged by the Communist Party would be com-
posed of Communists and members of minor parties and independents, with the possible
inclusion of Kuomintang moderates. On the basis of announced Party aims the Com-
munists intend eventually to dominate any coalition government in which they
participate.
Establishment of a separate government over all or part of Communist-held areas
does not appear to be favored by the Party at the present time. On the other hand, the
Chinese Communists may decide to take such action if conditions develop adversely for
them. In this event, however, they will probably still retain their long-range objective
of gaining political supremacy over all of China, and will seek to promote that end by
military and infiltration tactics.
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SECTION VI
STRATEGIC CONSIDERATIONS AFFECTING UNITED STATES SECURITY
1. CHINA AS AN INTERNATIONAL PROBLEM.
An independent China, ruled by an effective government, would tend to promote
stability in the Far East. For more than 100 years East Asia has been an area of
international friction, the principal cause being the incapability of various Chinese
governments to resist successfully encroachments upon China's sovereignty. Despite
the fact that the US has been more sensitive to disturbances in the Western Hemisphere
and in Western Europe than in the Far East, conflicts concerning China since the
latter part of the nineteenth century have, nevertheless, regularly involved the US
in major diplomatic or military activity.
From the economic viewpoint, China is an important factor in the life of its neigh-
bors, both Japan and the USSR. For Japan, China has a twofold significance, as a
market and as a source of raw materials, notably North China coking coal, which cannot
be obtained conveniently elsewhere. For the USSR, the most favorable communica-
tions from Siberia to the sea lie across Manchuria, to the warm-water ports of Dairen
and Port Arthur, and the economy of China's northeastern provinces is complementary
ito that of the Soviet Far East. From the political and military viewpoints, China is
potentially the greatest power in East Asia; consequently these neighboring states re-
gard apprehensively any developments which tend toward the realization of this
latent strength and seize upon periods of China's weakness to establish control over
Chinese territory.
Within China the region of greatest strategic significance in international dis-
putes of the past 50 years has been Manchuria and the adjacent parts of North China.
(Korea is an important appendage to this area.) Geographically Manchuria is the
natural crossroad of land communications linking Siberia, China, and Japan-Korea,
and has an extensive railroad network. It is an important source of food supplies, and
so long as the resources of North China are available to supplement those of Manchuria,
the latter area is a favorable location for the development of heavy industry. Histori-
cally, Manchuria has been the battleground between Japan and Russia, with the advan-
tage shifting from one to the other, dependent on which has been able to apply the
greater military force. In this struggle both powers have come into conflict with China,
the titular sovereign, but Chinese governments, because of their military weakness,
have not been able to play a decisive role. Nevertheless Chinese interest in establishing
effective control over Manchuria is persistent and real. More than 30 million Chinese
constitute the overwhelming majority of Manchuria's population and China has looked
hopefully to this area as a base for industrial development.
Currently, lack of stability in China provides an opportunity for foreign encroach-
ment. At the same time the defeat of Japan has placed the USSR in a position of
unmatched power among Far Eastern nations. Restoration of a balance in Far Eastern
power relationships has consequently fallen directly upon the US.
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2. CHINA AS A THREAT tO US SECURITY.
The possibilities that China might present a threat to US security would vary with
three circumstances: (a) an unstable, weakened, and divided China; (b) a Communist
regime in Manchuria and China proper north of the Yellow River or in all of China, in
which case, a de facto Sino-Soviet alliance can be assumed; and (c) a unified non-
Communist China under an effective central government.
a. An Unstable China.
China in isolation is no threat to any other area of the world at present, but
considered as an area in which international interests come into conflict, an unstable
China is a danger to peaceful conditions in the Far East. Chinese Communism is a
dynamic movement capable of expansion, and the Chinese Communists are ideologically
aligned with the Soviet Union. Under these circumstances, in view of the world-wide
divergence of US and Soviet interests, China must be looked upon as a potential source
of international friction.
b. A Communist China.
If a Communist state covering all or a large part of China were established,
the Soviet Union would acquire for practical purposes another Soviet republic. The
food surpluses and raw materials of Manchuria and resources of North China would be
available to the Soviet Far East; the Chinese Red Army would become a wing of the
Soviet military machine, with bases in China available for Soviet use. Communist
parties elsewhere in the Far East would gain in prestige and strength. Furthermore,
under Communist domination China's vote in international conferences and its veto
power in the United Nations would follow the Soviet line. These developments, without
doubt, would threaten the broad security interests of the US.
However, this threat would be qualified. The political influence of a Communist
China would be countered somewhat by the widespread distrust of Chinese ambitions
among the peoples of Southeast Asia and the hostility of native nationalist movements
to overseas Chinese communities.
The principal economic contributions that a Communist China might make
to Soviet economic strength would consist of critical raw materials?led by tungsten,
antimony, molybdenum, and mercury?some Manchurian food surpluses, and possibly
limited quantities of manufactured goods. Chinese port facilities would also provide
economic advantages to the Soviet Union. On the other hand, assuming a Communist
China closely associated with or subject to the direction of Moscow, the USSR might
also incur substantial liabilities in China: material, technical, and administrative re-
sponsibilities for supporting the economic life of that country. The USSR would
be faced with the need, for maximum political and economic exploitation of China,
of making long-range commitments to reconstruct and develop China's transportation,
mining and industrial facilities; moreover, foodstuffs might have to be supplied, partly
out of Manchurian surpluses, to Chinese urban deficit areas for a number of years,
perhaps indefinitely. Much of South China's great resources of tungsten and anti-
mony, furthermore, would probably continue to move, through legal or illegal channels,
in the direction of the highest bidder, regardless of the country with which China may
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be politically aligned. On balance, the net economic contribution that a Communist
China might make to the USSR in the foreseeable future would not be substantially
greater than the benefits that would accrue to the USSR by implementation of the Sino-
Soviet Treaty?whose terms give the Soviet Union a large interest in Manchurian
economic assets?and by the maintenance of friendly relations with the Chinese
National Government.
Militarily, the Chinese Red Army could not become a significant factor in an
international struggle, unless the USSR undertakes extensive training and makes
available substantial quantities of modern equipment.
c. A Unified Non-Communist China.
If it were possible for China to emerge from its current difficulties as a unified,
non-Communist state, the prospects for stability in the Far East would be generally
enhanced, and US security interests would thereby be strengthened. This would be
particularly the case if the unified China included Manchuria, for without that area a
Chinese irredentist movement would inevitably arise. The creation of a unified state
comprising all of China would not eliminate divergences of interest between the USSR
and China in Northeast Asia, but the development of a more even balance of power
between these two states would probably reduce the danger of real conflicts arising from
these divergences. If, in addition, both China and the USSR could be brought into a
multilateral trading community of the major nations, peaceful trade between China and
the Soviet Far East would also tend to reduce the possibility of Sino-Soviet friction over
the resources of Manchuria and North China.
Although it is unlikely that a unified China would directly threaten the US in
a military sense, Chinese ambitions in Southeast Asia might lead to Sino-US differences.
Once the internal problems of China were settled, Chinese imperialism, built around
the problems confronting the overseas Chinese communities, might arise. However,
although a possible irritant in international relations, this development would probably
not pose a threat to Asiatic peace that US or UN intervention could not meet.
3. CHINA AS A US ALLY.
As a prospective military ally of the US, China offers both advantages and liabilities.
a. Political Factors.
If political stability, in the sense that it exists in the US or the UK, is taken
to be a valuable characteristic in a potential ally, the case for China is not a strong one.
China has a tradition of sectional and provincial loyalties and is confronted with several
difficult minority problems. A majority of its population is illiterate, and the country
is inexperienced with political institutions that permit orderly and peaceful changes in
governing bodies.
On the other hand, the fact that the great majority of China's people are of a
common race and share in a unique cultural history is a powerful force toward political
unity, broadly conceived. As the nation-wide character of the resistance to Japanese
aggression showed, this fundamental tendency toward unity can have military signifi-
cance, particularly when China is endangered by a foreign invader.
Another political factor requires mention. China's geographic position, its
size and population, and its success in escaping colonial status give it great potential
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influence throughout Asia. Although developments in China need not necessarily be
decisive for the fate of other Asiatic nations, nevertheless, a non-Communist China,
allied with the US, would be a force tending to restrain the growth of Communism else-
where in Asia, and its emergence would be a blow to the prestige of Communism through-
out the world.
b. Economic Factors.
It is highly improbable that China can achieve status as an important industrial
power for many years. China might attain some of the essential requirements for
industrial expansion, but it would still be hampered by small reserves of iron ore, very
modest petroleum resources, and seriously deficient supplies of many other raw mate-
rials, notably timber. An additional limitation of considerable importance is China's
extreme shortage of technical personnel and an apparent inability to apply modern
technological practices in the more advanced industrial and scientific fields. On the
score of industrial potential, therefore, China is not a promising ally. Even with full
control of Manchuria, these generalities would still, for the most part, hold true. In a
war occurring within the foreseeable future, it is most unlikely that China could make
any net industrial contribution as an ally of the US.
China's major economic contribution would be in the field of strategic raw
materials, notably tungsten and antimony. Relative to Soviet needs for Chinese out-
put, the US needs for Chinese tungsten would probably be less and for Chinese anti-
mony probably greater in any prolonged period of expanded US and USSR industrial
production in preparation for a possible world conflict. However, in weighing the
significance of critical materials in terms of China's strategic importance, it should
be noted again that under almost any assumed political conditions in China, valuable
supplies of metals from South China would probably continue to flow directly or in-
directly toward the most profitable market.
In the field of agricultural production, China has relatively little to offer.
Total crop yields are very large, but surpluses above domestic requirements are produced
only in a few crops such as soybeans. The possibility that Chinese output could be
expanded to provide large exportable surpluses is remote. It is also unlikely that
Chinese food production could take care of the needs of a sizeable army based in China.
In terms of specialized facilities of great potential wartime value such as a large
commercial air transport industry, China may promise some advantages to the US.
Lack of land transportation facilities and China's vast distances make probable a fairly
steady growth of domestic air traffic and the requisite aircraft servicing facilities. On
the other hand, China does not possess a large ocean-going merchant fleet, and there is
little likelihood that one can be developed for many years.
Occurrences of fissionable ores in China, which are believed to be localized and
low-grade, are considered to be of only, minor importance to either the US or the USSR.
This conclusion takes into account the availability and accessibility to the latter two
countries of fissionable ores in other areas.
c. Military Factors,
China's principal military assets, as an ally, lie in its vast manpower and in its
geography.
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The Chinese soldier is poorly equipped, however, in terms of adaptability to the
technical requirements of modern warfare. In the great majority of cases, he is
illiterate and completely unacquainted with mechanical devices. Moreover, Chinese
industry is unable to supply him with the tools of modern war. Neither of these prob-
lems seems susceptible of solution in any period of present concern. It would be incum-
bent upon the US to equip and probably to train the Chinese Army if China's major
military potential were to be developed at all. Since the cost in US resources would
be substantial, the probable tendency would be to concentrate upon a small, highly
trained force. If this were done, the factor of greatest importance, China's manpower,
would be minimized.
Geographically, China's position in Asia makes it a potential site for bases from
which US aircraft could strike at otherwise remote areas of the USSR. If it can be
assumed that such bases could be kept in a state of readiness for the outbreak of war,
and great logistic difficulties overcome, they might be of significant value for at least
the early stages of the conflict, and the existence of such bases might make it necessary
for the USSR to divert manpower and military resources to the task of invading China.
However, it should be noted that US plans for use of Chinese air bases would entail
moral and practical responsibility either for equipping and supplying Chinese armies
or for placing US defensive forces in China. It is inconceivable that any Chinese gov-
ernment would grant bases to US aircraft without obtaining assurances that aid in
meeting a Soviet invasion would be forthcoming. In any event, the value of air bases
in China will tend to diminish with further development of long-range bombing.
Because of its great area, difficult terrain, and absence of vital targets, China
has the capacity to continue resistance against a foreign invader for an extended
period, as was demonstrated in its resistance against Japan. In this sense, China could
be an ally of considerable value to the US in a possible war against the USSR. The
advantages to the US, however, of a war front in China against the USSR would be
limited, because of the remoteness of that front from the centers of Soviet power.
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SECTION VII
PROBABLE FUTURE DEVELOPMENTS AFFECTING UNITED STATES SECURITY
Present trends within China are in the direction of further instability and an
extension of Communist military and political influence. Such developments would
adversely affect US security interests inasmuch as they would lead to political disinte-
gration, or to a compromise settlement between the National Government and the
Chinese Communists on terms favorable to the latter. In either case, however, acute
political and economic disorganization probably would prevail in China for several
years. This disorganization would retard the development of a Communist China
as an effective instrument of Soviet policy.
The National Government of China, because of its dwindling military strength and
resources, has little prospect of reversing or even checking the present trends toward
instability and extension of Communist influence unless it receives external assistance,
for which the US is the obvious source. Moreover, with continuing deterioration in
the Chinese Government's position traditional Chinese cooperation with the US on in-
ternational issues may waver, because the National Government would be inclined to
adhere to a course of opportunism to avoid direct conflict with the USSR. Extension
of US aid to the National Government as a means of checking or reversing these trends
involves a number of potential disadvantages. To the extent that such aid failed to
promote the stability of the National Government, Chinese resentment against the
Government and the US would increase. On the other hand, to the extent that US
aid succeeded in promoting stability, the prospects of Soviet counteraction would be
increased, and this course of events might lead to a direct clash of interests in China
between the US and the USSR. A third and related consideration is the drain upon
US resources that assistance to China would entail.
Although the probable cost of US aid to restore stability to the Chinese National
Government can be estimated only within wide ranges, it is considered likely that US
nonmilitary grants or credits of from one to two billion US dollars, extending over a
three-year period 1948-1950, would be required to bring about the minimum of internal
economic stability needed to support the National Government's military-political
position. Furthermore, in order to have a reasonable assurance of the re-establishment
of National Government control throughout China, excluding Manchuria, within this
three-year period, it has been tentatively estimated that the US would have to provide
military support for thirty Chinese divisions in the form of training and equipment, plus
continuing weapon and ammunition supplies. It is not realistic, however, to assume
that the National Government would accede to an aid program which does not include
Manchuria within its ultimate objectives. If Manchuria were so included, the costs of
aid would be considerably greater and might even double the above estimates.
Finally, it should be re-emphasized that the foregoing estimates depend on two
basic assumptions that are open to serious question: (a) that the National Government
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can carry out the necessary reforms to make such aid effective; and (b) that there will
be no significant Soviet counteraction. In considering measures to aid the Chinese
National Government, therefore, the US must face the real possibility that a one or two
billion dollar aid program may represent only the first of several installments which
would be required to restore stability to China.
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APPENDIX E
BIOGRAPHICAL DATA
CHANG CHIII-CHIJNG.
Director of the President's Northwest Head-
quarters; member of the Standing Committee
of the Central Executive Committee of the
Kuomintang; member, Political Science Group.
Born Anhwei Province, 1891; graduate of the
Paoting Military Academy, 1916. Served in
the Army of the Southern Military Govern-
ment under Sun Yat-sen, 1916-1918. Joined
the Northern Expedition as Chief of Staff of
the Second Division of the Nationalist Army,
1926. Studied abroad, 1927; visited Europe and
the United States. Dean of the Central Mili-
tary Academy, 1929; member of the Kuomin-
tang Central Executive Committee since 1937;
Governor of Hunan, 1939-1940; Secretary Gen-
eral of the San Min Chu I Youth Corps, 1943-
1946. Engaged in negotiations with the Chi-
nese Communists, 1944-1946, and was accepta-
ble to them as a negotiator. Governor of
Sinkiang, 1946-May 1947; during his tenure as
Governor of Sinkiang, he attempted to clean
up governmental corruption in the province.
His enlightened treatment of the minority
problem, as indicated by the part he played in
settling the Ining uprising of 1946, has earned
him the respect of the natives. Appointed Di-
rector of the Generalissimo's Northwest Head-
quarters in 1946.
Chang has enjoyed a long-time close rela-
tionship with Chiang Kai-shek to whose influ-
ence he owes his present position in Chinese
politics. Politically liberal with tolerance for
leftist views, he believes in friendly coopera-
tion with the Russians in Chinese areas con-
tiguous to Russia.
CHANG Cam
President of the Executive Yuan; member
of the State Council; chairman of the National
Economic Council; member of the Standing
Committee of the Central Executive Commit-
tee of the Kuomintang; member of the Politi-
cal Science Group. -
Born Szechuan Province, 1888; educated at
Paoting Military Academy and the Japanese
Military Staff College in Tokyo; first associ-
ated with the Generalissimo during the period
of his military training. Returned to China,
1910; active in the revolutionary movement in
Shanghai. Joined the Northern Expedition,
1926. One of the Nationalist staff officers and
part ? of the group which, with Chiang Kai-
shek, split from the left wing of the Kuomin-
E-1
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tang, 1927. Member of the Central Executive
Committee of the Kuomintang since 1929;
Mayor of Shanghai, 1929-1931; Governor of
Hupei Province, 1933-1935; Minister of Foreign
Affairs, 1935-1937, during which time he par-
ticipated in the Sino-Japanese negotiations
and won some slight concessions for China.
Speaks Japanese and some English. Vice
President of the Executive Yuan, 1937-1939;
Secretary-General of the Supreme National
Defense Council, 1939-1941; able Governor of
Szechuan Province, 1940-1947; Kuomintang
representative at the meetings of the Political
Consultative Conference (PCC) , January 1946.
Visited the US, September to November 1946;
President of the Executive Yuan since April 16,
1947.
Loyal friend and supporter of Chiang Kai-
shek, and as President of Executive Yuan,
holds a position of importance in the National
Government.
CHANG CHUN-NIAI (CARSON CHANG) .
Member of the People's Political Council
(PPC) ; chairman of one wing of the Social
Democratic Party.
Born Kiangsu Province, 1886; brother, of
Chang Kia-ngau, governor of the Central Bank
of China; educated at the Middle School
of Education at the Institute of Modern
Languages, Shanghai; then at Waseda Uni-
versity, Tokyo, 1904-1909, and Berlin Uni-
versity, 1913-1915; studied political science
in England, 1915-1916. Held various minor
government posts and was associated with
newspapers in Peiping and in Shanghai
prior to 1928. One of the organizers of the
Chinese National Socialist Party which first
met in Peiping, 1929. Was the most prominent
leader of the National Socialist Party and
represented his Party in the People's Political
Council (PPC) from 1938 until its merger into
the Social Democratic Party in 1946. Confined
to virtual house arrest during the war; was a
delegate to the Institute of Pacific Relations
Conference, Hot Springs, Virginia, January
1945; delegate to the World Security Confer-
ence, San Francisco, April 1945; attended the
Political Consultative Conference (FCC), Jan-
uary 1946, as representative of the Democratic
League; favored Social Democratic Party par-
ticipation in the National Assembly, November
1946, as a result of which his connections were
broken off with the Democratic League. In
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the last year has favored his Party's participa-
tion in the National Government but has re-
fused to hold government office himself. His
Party split its ranks in August 1947 and Chang
now controls the weaker faction which in-
cludes no prominent liberals and few well
known names.
CHANG FA-KIIEL
Military leader in South China.
Born Kwantung Province, 1896; after gradu-
ating from Wuchang Officers Academy, became
commander of an independent platoon of the
newly formed Nationalist Army. This later
became a brigade and was combined with the
4th Army of Li Chi-shen, 1925; participated in
the Northern Expedition, 1926 and after mili-
tary successes, promoted to Vice Commander
of the 4th Army. Became a leading figure of
the Hankow regime, 1927, his "Ironsides" Di-
vision having gained a good reputation in the
Northern Expedition; lost many of his troops
to the Chinese Communists at the time of the
Communist uprising at Nanchang, August
1927, then came south and seized Canton. In
control of the city when the Communist coup
d'etat took place there December 11-13, 1927;
subsequently his troops driven north. Broke
with Nanking and the forces of Chiang Kai-
shek, 1929, and marched his troops southward
from the Yangtze to join forces with the
Kwangsi warlords in an unsuccessful attack
upon Canton, 1931. Toured Europe and Amer-
ica several years, 1932-1935; returned to China,
1935; became commander of bandit suppres-
sion forces, Chekiang-Fukien-Anhwei-Kiangsi
border area, 1936. During the Sino-Japanese
war, was Commander-in-Chief of the 4th war
Area (Kwangsi and West Kwangtung) where
groups of Annamites were trained under his
command for the reoccupation of Indochina;
accepted the Japanese surrender at Canton,
September 1945, and was appointed Director of
the Generalissimo's Headquarters there but in
November 1947 was replaced in this position by
T. V. Soong, the new Governor of Kwangtung
Province. At this time Chang was appointed
to the Military Advisory Council in Nanking,
a sinecure. Chang also was designated as
future governor of Hainan Island in May 1947,
but Hainan has not yet been established as
a separate province.
Because of his strength in the south as well
as his record of past differences with the Gen-
eralissimo, Chang's name has been mentioned
in connection with a possible separatist move-
ment in South China. He has recently ex-
pressed himself as being anti-Communist.
CHANG HSIIEH-LIANG.
Popular Manchurian leader; since December
1936 a political prisoner of the Chinese Na-
tional Government.
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E-2
Born Liaoning Province, 1898; eldest son of
the late Chang Tso-lin, brother of Chang
Hsueh-ming of the Nationalist's Northeast
Headquarters and Chang Hsueh-shih, who is
now operating with the Chinese Communist
forces. Graduated, Military Training Acad-
emy, Mukden. Commander of Chang Tso-lin's
bodyguards, 1919; commander, 3rd Fengtien
Mixed Brigade, defeating the Anfu troops in
the Anfu-Chihli War, 1920; sent to Japan to
attend the Japanese autumn maneuvers, 1921;
took active part in the Chihli-Fengtien war of
1922 and 1924; Commander-in-chief, Peace
Preservation Forces, Manchuria, after the
death of his father, 1928; member, State Coun-
cil, Nationalist Government and Chairman
Northeastern Political Council, 1928; com-
manded defense forces during Sino-USSR
clashes in North Manchuria, 1929. Joined
forces with the National Government in the
struggle between the Generalissimo and the
Northern Coalition of Feng Yu-hsiang and
Yen Hsi-shan and became Vice-Commander-
in-Chief of Army, Naval and Air Forces of the
National Government, 1930; member, Standing
Committee, North China Political Council,
1931; ousted from Manchuria by Japanese in-
vasion of 1931; became Acting Chairman, Pei-
ping Branch Military Council, 1932; member,
Executive Committee, Central Military Acad-
emy, 1933; traveled abroad, 1933-1934; cured
himself of the narcotic habit and became
Deputy Commander-in-Chief, Bandit Sup-
pression Forces in Honan, Hupei and Anhwei,
1934; director, Administrative Department,
Provisional Headquarters of the President of
Military Affairs Commission, Wuchang, 1935;
Vice Commander, Bandit Suppression Forces
in Shensi, 1935-1936; joined with the Commu-
nists in kidnapping Chiang Kai-shek at Sian,
December 1936; dismissed from all posts. Now
under detention in Formosa.
Many Manchurians are agitating for his re-
turn to Manchuria where he symbolizes native
leadership.
CHANG KIA-NGAII.
Governor of the Central Bank of China;
Chairman, Board of Directors of the Joint
Board of the Four Government Banks; mem-
ber of the Central Executive Committee of the
Kuomintang; member of the Political Science
Group.
Born Kiangsu Province, 1888; brother of
Carson Chang, the leader of the Social Demo-
cratic Party. Educated at the Foreign Lan-
guage School, Shanghai, 1902-1905; at the
High Technical School, Peiping, 1906-1907; at
Keio University (Department of Economics) ,
Tokyo, 1907-1910. Participated in the Revolu-
tion, 1911, and made Secretary to the Governor
of Chekiang Province, 1912; clerk in the Bank
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of China, 1914, becoming Assistant Manager of
the Shanghai Branch of the Bank of China,
1917. General Manager and Director, Bank of
China, 1928-1935; Deputy Governor, Central
Bank of China, 1935-1947; Minister of Rail-
ways, 1935-1937; Minister of Communications,
1937-1942; traveled in the US and Europe,
1943-1945; adviser to the Chinese delegation,
Bretton Woods, and delegate to the Interna-
tional Civil Aviation Conference, Chicago,
1944. At the close of the Sino-Japanese war,
appointed Chairman of the Economic Commis-
sion of the Generalissimo's Headquarters for
the Northeast and concurrently Chairman of
the Board of Directors of the Chinese Chang-
chun Railway and Special Commissioner in the
Changchun office for the Central Bank of
China. In these positions was severely criti-
cized by the CC Clique. Resigned all previ-
ous positions on becoming Governor of the
Central Bank of China in March 1947.
A prominent banking and business executive
of Shanghai, Chiang Kia-ngau is an able ad-
ministrator with an understanding of Western
ideas and a sympathy for Western business
methods. Conservative in politics and busi-
ness, he recently urged curtailing of the mili-
tary control of Central and South China in
favor of establishing greater civilian authority.
CHEN HUI-TE (K. P. CHEN) .
Banker; member of the State Council.
Born Kiangsu Province, 1880; attended St.
John's University in Shanghai, and graduated
with a B. C. degree from the Wharton School
of Commerce, University of Pennsylvania,
1909. Returning to China, served for a short
while as Finance Commissioner of Kiangsu,
leaving his post to enter banking. Founded
the Shanghai Commercial and Savings Bank
and has served as general manager since 1915.
Founded the China Travel Service, an affiliate
of the Commercial and Savings Bank, and a
pioneer in its field in China. Member of the
Board of Directors of the Bank of Communi-
cations, Bank of China and the Central Bank
of China for many years. Serves numerous
commercial enterprises in an executive capac-
ity and has been a member of many govern-
ment bodies concerned with economic matters.
Headed the mission which successfully nego-
tiated the Sino-American silver purchase
agreement of 1936. At the time he impressed
his American counterparts with his outstand-
ing ability and integrity. Headed an economic
mission to Washington which negotiated a
credit loan to China, 1938. Attended the In-
ternational Business Conference held at Rye,
New York, in 1944, as chief of the Chinese dele-
gation and remained in the United States
until 1946. Was appointed a member of the
State Council in April 1947.
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Chen is a liberal, both in political and eco-
nomic ideology, and a sincere nationalist.
While not a member of the Kuomintang, his
best friends in the government are members of
the Political Science Group. One of the out-
standing private bankers in China, he is de-
scribed as the best type of constructive Chinese
businessman. He Laws the US and is, in turn,
liked and respected by Westerners.
CHEN LI-FU.
Vice-Chairman of the National Economic
Council; Minister of Organization of the Kuo-
mintang; member of the Kuomintang Political
Council; President of the Chung Yang Jih Pao
Corporation (official news organ of the Kuo-
mintang) ; leader of the CC Clique.
Born Chekiang Province, 1899; brother of
Chen Kuo-fu, Director of the Joint Board of
Four Government Banks; educated Peiyang
University, where he received his B. Sc., 1923,
and the University of Pittsburg where he re-
ceived an M. S. degree, 1924. Secretary, Head-
quarters of the Commander-in-Chief of the
Nationalist Army, 1927-1928; Chief, Intelli-
gence Section of the Kuomintang Central Or-
ganization, 1928; member of the Central Exec-
utive Committee of the Kuomintang since
1929; Director, Kuomintang Board of Organi-
zation and concurrently Secretary General of
Central Executive Committee and Central
Political Council of the Kuomintang, 1929-
1931; Minister of Organization of the Kuo-
mintang, 1932-1938; member of the State
Council, 1933; acting Director of the Central
Political Institute of the Kuomintang, 1937-
1938; Minister of Education, 1938-1944; reap-
pointed Minister of Organization of the Kuo-
mintang, 1944; member of the Presidium of the
Central Executive Committee of the Kuomin-
tang, 1947, and concurrently Vice Chairman of
the National Economic Council, 1947.
Important right-wing Party man and leader
of the CC Clique, Chen is a long-time loyal
friend of the Generalissimo, upon whom the
latter can count for important support through
his control of sections of the Kuomintang and
much of the secret police. An extreme na-
tionalist. Chen maintains a good deal of be-
hind-the-scenes political power in the KMT,
and has economic interests which have
strengthened his hold on both government and
party. He is strongly anti-foreign and anti-
Communist.
CHEN CHENG.
Chief of Staff of the Ministry of National
Defense; Director of the President's Head-
quarters in the Northeast; Secretary General
of the San Min Chu I Youth Corps; member
of the Presidium of the Central Executive Com-
mittee of the Kuomintang.
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Born Chekiang Province, 1900; graduate of
the Paoting Military Academy, 1922; became
instructor of the Whampoa Academy, 1924,
during the period when Chiang Kai-shek was
principal. As professional soldier, rose from
the ranks to become company commander,
1925. Kidnapped together with Chiang Kai-
shek at Sian, December 1936; subsequently
became administrative Vice-Minister of War
until 1938. Director of the Political Training
Department of the National Military Council
and concurrently Secretary-General of the
San Min Chu I Youth Corps, 1938-1940; Com-
mander-in-Chief of the Chinese Expeditionary
Forces in Yunnan, Burma, and India, 1943;
Minister of War, 1944-1946, succeeding Ho
Ying-chin. His relations with Ho, now Chief
of the Chinese Military Staff Committee dele-
gation to UN, have never been good and his
attempts at reorganization of the War Ministry
were stiffly opposed by Ho, then Commander-
in-Chief of the Chinese Armies. Chief of Staff
of the Ministry of National Defense since 1946;
reappointed Secretary-General of the San Min
Chu I Youth Corps, March 1946; since August
1947, overall political and military commander
in Manchuria.
A trusted lieutenant of the Generalissimo,
Chen has been associated with Chiang Kai-
shek since their days of military instruction at
Whampoa. He is highly regarded by US mili-
tary leaders who worked with him during the
war.
CHEN KIIO-FIJ.
Member of the Board of Directors of the
Joint Board of the Four Government Banks;
Chairman of the Board of Directors of the
Farmers Bank and of the Central Cooperative
Bank; Chairman of the Board of Directors of
the Ta Kang Pao (CC Clique paper) ; member
of the Standing Committee of the Central
Executive Committee of the Kuomintang and
of its Presidium; a leader in the CC Clique.
Born Chekiang Province, 1892; nephew of
the late Chen Chi-mei, associate of Sun Yat-
sen and brother of Chen Li-fu, Kuomintang
Minister of Organization. Educated in Nan-
king and studied at the Military Primary
School of Chekiang, 1908-1911; later promoted
to the Military Middle School, Nanking. Active
in the 1911 Revolution with his uncle, Chen
Chi-mei, working in Shanghai. Joined the
Kuomintang, 1926; Secretary to Chiang Kai-
shek and Chief of the Party Organization De-
partment, concurrently member of Kuomin-
tang Central Supervisory Committee. Vice
President of the Control Yuan, 1929-1931;
Governor of Kiangsu Province, 1933-1936;
member of the Standing Committee of the
Kuomintang Central Executive Committee,
since 1938. Dean of the Kuomintang Central
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Political Institute, 1938-1942. Minister of Or-
ganization (Kuomintang) , January-November
19, 1944; Chairman of the Board of Directors
of the Farmers Bank, appointed October 1945;
Chairman of the Board of Directors of the
Ta Kang Pao, elected November 1946.
Prominent right-wing party member and a
leader of the CC Clique, Chen Kuo-fu has long
been very close to Chiang Kai-shek and has
held important Kuomintang posts. Due to
poor health he has not been so conspicuous
a public figure as his brother, Chen Li-fu.
CHIANG KAI-SHEK.
President of the Republic of China; leader
of the Kuomintang; leader of the San Min
Chu I Youth Corps; Commander-in-Chief of
all military, naval, and air forces.
Born Chekiang Province, 1886; brought up
in modest circumstances; attended Paoting
Military Academy, 1906, and 1907 received mili-
tary training in Japan where he met Sun Yat-
sen and belonged to his revolutionary Tung
Meng-hui Party. Active in revolutionary
period, 1911-1920; one of the founders of the
Kuomintang, 1920; Principal of Whampoa
Military Academy, 1923, where he taught
many of the men later to become his generals
in the Chinese Army. Visited USSR for a
short period, 1924. Began to split from the
left wing of the Kuomintang, 1926, and did not
move his headquarters to Wuhan when the Na-
tionalist Government moved there in November
1926. His forces entered Shanghai, March
1927, and after an attempted Communist
"purge", established the National Government
at Nanking in April. At this time, broke com-
pletely with his USSR advisers, who had been
attached to the Government at Wuhan. Be-
cause of dissension in the ranks of his party,
retired to Japan from August 1927-January
1928. In Shanghai, 1927, married Soong Mei-
ling, daughter of the wealthy Soong family;
three years later he was converted to the
Methodist faith of his wife. Organized the
drive to take Peiping, 1928, and since that date
has been the virtual leader of China. Resigned
from the Government for a time, 1931, owing
to growing dissidence of the autonomous Can-
ton group. Returned to the Government
shortly after Japanese attack upon Shanghai,
1932, and has since been President of the Na-
tional Military Affairs Commission. President
of the Executive Yuan, 1935-1945, except for
a brief period in 1938, and Tsung Tsai leader
of the Kuomintang, since 1938. Kidnapped at
Sian, December 1936; following his release,
Communist Kuomintang forces were for a time
united to fight the war with Japan. Visited
New Delhi, India, to confer with Gandhi,
Nehru, British and US military leaders, 1942.
President of the Chinese Republic, 1943 to date;
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attended the Cairo Conference, November 1943
and conferred with President Roosevelt and
Winston Churchill. Author of China's Destiny
(1943) and Economic Theory.
Since 1927, Chiang has been undisputed
leader in Nationalist China. Chiang's strength
lies primarily in his leadership of the Kuo-
mintang and his control of the army and
secret police. In the Kuomintang he has
maintained his power through his ability to
preserve a balance between the opposing fac-
tions without being exclusively dependent upon
anyone. However, the great prestige which
he enjoyed during war years and before has
visibly diminished since V-J Day.
CHOU CHIH-JOU.
Lieutenant General; Commanding General,
Headquarters, Chinese Air Force; member,
Central Executive Committee, Kuomintang.
Born Chekiang Province, 1898. After gradu-
ating from Paoting Military Academy, 1922, be-
came a lieutenant in the 2nd Division, Cheki-
ang Forces, and later, 1924-1925, was instructor
at the Whampoa Military Academy. Served
on the General Staff of the 21st Division and
later as Chief of Staff of the 11th Division,
1930. Participated in Honan, Shantung, and
Hunan campaigns and in the Anti-Red Sup-
pression Campaign in Kiangsi, 1931-1933.
Traveled abroad to study aviation, 1933-1934.
Commandant, Central Aviation School, Hang-
chow, 1934-1938; chairman, Aeronautic Com-
Mission, National Military Council, 1936-1946;
member, Chinese Mission to Cairo Conference,
1943. As Commanding General, Headquarters,
Chinese Air Force, since 1946, has been con-
tending with the Ministry of Communications
for control over civil aviation.
CHOU EN-LAI.
Member of the Central Committee of the
Chinese Communist Party; member of the
Party politburo and of the Party Secretariat.
Born Kiangsu Province, 1898; graduated from
Nankai Middle School, Tientsin, 1917; attended
Waseda University, Japan. Returning from
Japan, enrolled at Nankai University, and was
there first associated with revolutionary ac-
tivities. Led student demonstrations and was
arrested in 1919; imprisoned for about one
year. Went to France for study 1920, and was
One of the organizers of the French branch
of the Chinese Communist Party, 1921. Later
went to Germany and with Chu Te formed a
Berlin branch of the Party. Returning from
Europe in 1924 joined the 'Chinese Communist
Party as secretary to the Kwangtung Pro-
vincial Party Committee. Director of the Po-
litical Training Department of the Whampoa
Military Academy, 1925, and also served as
secretary to. General Bluecher, Russian ad-
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viser at Whampoa. Appointed by the Chinese
Communist Party to head Party work in the
Kuomintang armies, 1926. Assigned to or-
ganize workers in Shanghai, led the uprising
of March 21, 1927, which failed when Chiang
Kai-shek entered the city. Arrested, was sen-
tenced to death, but later escaped. Went to
Moscow where he studied at the Chungshan
University from late 1927 until 1930 and during
this period served as the Chinese delegate to
the 6th Congress of the Comintern. Return-
ing to China 1931, joined the Kiangsi Soviet
and served as secretary of the Central Com-
munist Bureau. In 1932 became a political
commissioner under Chu Te. Participated in
the "Long March" and in 1935 was appointed
a member of the Politburo of the Chinese Com-
munist Party, and was elected to membership
of the Executive Committee of the Communist
International by the Seventh World Congress.
Chief Chinese Communist representative in
the negotiations at Sian during the kidnapping
of Chiang Kai-shek, December 1936. Chief
Chinese Communist representative in Chung-
king, 1937 to November 1946, and as such was
involved in all negotiations between the Com-
munists and the National Government. Vice-
Minister of Political Training of the National
Military Council of the Central Government,
1938-1940. Although appointed a member of
the 4th People's Political Council in 1945, did
not attend the meetings. Returned to Com-
munist territory in November 1946 after negoti-
ations with the National Government.
The Chinese Communist Party's number one
man in liaison with the National Government
and with foreigners, Chou is a skillful and able
negotiator.
CHU TE.
Commander-in-Chief of the Chinese Com-
munist Armies; Vice-Chairman of the Revo-
lutionary Military Council; member of the Cen-
tral Executive Committee of the Chinese Com-
munist Party; member of the Party Politburo
and of the Party Secretariat.
Born Szechuan Province, 1886. Received a
primary and middle-school education in
Szechuan before attending the Yunnan Mili-
tary Academy. Fought with the Nationalist
forces in Yunnan and Szechuan, 1911-1921.
Studied in Europe, 1922-1926. Founded the
Berlin branch of the Kuomintang, 1924. He
had previously formed a Berlin branch of the
Chinese Communist Party in collaboration with
Chou En-lai. Deported from Germany for sub-
versive activities, 1926. Returning to China
the same year, he organized Kuomintang
troops in ,Szechuan. In Nanchang With other
military leaders led an open revolt against
Chiang Kai-shek, 1927. Defeated at Nan-
chang, they attacked Canton and Swatow.
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without success and then retreated from the
Nationalists through southern Kiangsi and
western Fukien. Joined forces with Mao Tse-
tung, May 1928. Made commander of the 1st
Red Army Corps, 1930, and at the First All-
Soviet Congress of the Chinese Communists
was elected Commander-in-Chief of the Chi-
nese Communist Army, 1931, a post he still
holds. Named to the Politburo of the Chinese
Communist Party, January 1934. In charge
of military tactics on the "Long March" and
arrived in northwest Shensi in October 1935.
After the United Front was formed in 1936,
was appointed by Chiang Kai-shek as Com-
mander of the 8th Route Army, vice-com-
mander of the 2nd War Zone and a member
of the Supreme National Defense Council. In
Yenan during most of the Sino-Japanese War.
FU
Governor of Chahar Province, Director of
the Kalgan Pacification Area; member of the
Central Executive Committee of the Kuomin-
tang.
Born Shansi Province, 1895, of a middle-class
family in South Shansi; graduate of the Pao-
ting Military Academy, 1918. Served succes-
sively as a battalion commander, regimental
brigadier, and divisional commander in the
Army. First distinguished himself as an able
officer in the Shansi Army of Yen Hsi-shan.
Governor of Suiyuan Province, 1931-1946; Com-
mander of the 35th Army in Suiyuan, 1931.
During the Sino-Japanese war, fought the
Japanese in Suiyuan and Shansi; Vice-Com-
mander of the 8th War Zone, 1944-1945; Com-
mander-in-Chief of the 12th War Zone, 1945-
1946. His troops captured Kalgan from the
Communists in 1946. Appointed Governor
Chahar, October 1946, and Commander of the
Kalgan Pacification Headquarters early in
1947. He commands Nationalist troops in Sui-
yuan, Chahar, and the northern portions of
Shansi, Shensi, and Hopei.
Fu is the foremost Nationalist military and
political leader in Inner Mongolia today, al-
though he is fanatical in his hatred of the
Mongols.
Ho Y1NG-CHIN.
Chief, Chinese Military Mission to the US;
Chief, Chinese delegation to the United Nations
Military Staff Committee; Director, Strategy
Advisory Council; member, Central Political
Council, Kuomintang.
Born at Hsingi, Kweichow Province, 1889;
graduate of Tokyo Military Staff College. Par-
ticipated in the 1911 Revolution; dean and in-
structor, Whampoa Military Academy, 1924;
governor, Fukien Province and Commander-
in-Chief, Eastern Route Army, National Revo-
lutionary Army, 1926. Commander-in-Chief,
SECRET
E-6
National Revolutionary Army, 1927; governor,
Chekiang Province, 1928; Minister of War, 1930-
1944, but was retired in late 1944 because of
US and liberal Chinese pressure. State Coun-
cillor, 1931; acting president, Peiping Branch,
National Military Council, 1933; Chief of Gen-
eral Staff, National Military Council, 1937-
1946; member, Supreme National Defense
Council, 1941; director, San Min Chu I Youth
Corps, 1943; Chief, Chinese Military Mission
to the US and Chief, Chinese delegation to the
United Nations Military Staff Committee, since
1946; member of Kuomintang Central Execu-
tive Committee since 1926 and of the Central
Political Council, since April 1947.
A close personal friend of the Generalissimo,
Ho is strongly anti-Communist and maintains
a powerful influence in the army by virtue
of his association with members of the Wham-
poa clique.
HU TSUNG-NAIL
Commander of the Sian (Shensi) Pacifica-
tion Headquarters; member of the Central
Executive Committee of the Kuomintang.
Born Chekiang Province, 1902; recently
married to a returned US student who was a
teacher at Ginling College. Graduate of the
Whampoa Military Academy; upon gradua-
tion, became a protege of Chiang Kai-shek.
Took part in the East River engagement at
Waiyeung when the Nationalist forces fought
Chen Chiung-min for control of Canton, 1925
and 1926. Fought against the Communists,
1927-1929. Elected a member of the Kuomin-
tang Central Supervisory Committee, 1935.
Fought with Nationalist armies against
Kwangtung and Kwangsi forces in Southwest
China, 1936, and later the same year was
transferred to Southeastern Kansu. In De-
cember 1936 at the time of the kidnapping of
the Generalissimo at Sian, was stationed in
Kansu. During much of the Sino-Japanese
war was Deputy Commander of the Eighth
War Zone with headquarters at Sian, with
mission of blockading Communist areas. Ap-
pointed Commander of the 1st War Zone
with headquarters at Sian, July 1945. Ac-
cepted the Japanese surrender in Chengchow,
September 1945; his troops were used to pro-
tect the southern and northern section of the
Peiping-Hankow Railroad, November 1945.
Since the end of the war has fought the
Chinese Communists; his troops are now in
control of southern Shensi, and occupied Yenan
in March 1947.
Hu has a long-time record of loyalty to
Chiang Kai-shek, and is strongly anti-Com-
munist.
KU CHU-TUNG.
Commander-in-Chief of the Chinese ground
forces; member of the Central Executive Com-
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mittee of the Kuomintang; member of the
CC Clique.
Born Kiangsu Province, 1891, of a middle-
class family; graduated from the Paoting Mili-
tary Academy. Taught at the Whampoa Mili-
tary Academy where he became acquainted
with Chiang Kai-shek, 1924. Joined the Na-
tionalist forces in the Northern Expedition as
Chief of Staff of the 3rd Division. Fought for
the Nationalist Forces in suppression of the
northern warlords, Yen Hsi-shan and Feng
Yu-hsiang, and when they were defeated, was
made the Director of the Generalissimo's Head-
quarters at Loyang, 1930. Made a member of
the Central Executive Committee of the Kuo-
mintang, 1931. His troops fought the Com-
munists in Kiangsu, Kwangtung, Fukien, Hu-
nan, and Hupei in 1933 when he was Com-
mander-in-Chief of the Communist Suppres-
sion Forces. Governor of Kiangsu Province,
1931-1933; Vice Minister of the Ministry of
War, 1934-1936, and Pacification Commissioner
of Szechuan Province, 1936. During the Sino-
Japanese war he was Vice-Commander of the
Third War Zone (South Kiangsu, Chekiang
and South Anhwei, Northeast Kiangsi, and
North Fukien, with headquarters in Kiangsi) .
As commander of the Third War Zone he was
connected with the attack upon the Chinese
Communist New Fourth Army in January 1941.
He became Pacification Commissioner in Hsu-
chow, 1945. Appointed Commander-in-Chief
of the Chinese Army, May 1946.
Ku is a loyal supporter of the Generalissimo
and is said to have gained his recent appoint-
ment through the influence of Ho Ying-chin.
His military reputation is not very good. Dur-
ing the war he offered little serious opposition
to the Japanese and was accused of trading
with the enemy. He is strongly anti-Com-
munist but corrupt and inefficient.
KU WEI-CHUN (V. K. Wellington Koo) .
Ambassador to the United States; delegate
Second Session, United Nations General As-
sembly.
Born Shanghai, 1888, of wealthy family; at-
tended Chinese universities, and Cook Acad-
emy, Ithaca, New York, 1904-1905; Columbia
University, B.A., 1908; M.A., 1909; Ph. D.,1912.
Minister to Mexico, 1915; Minister to the United
States and Cuba, 1916-20. Chief Chinese dele-
gate to League of Nations and representative
on League Council, 1920. Minister, later Am-
bassador, to Great Britain, 1920-1921. Pleni-
potentiary to Washington Conference, 1921-
1922. Minister of Foreign Affairs, 1923-1924.
Minister of Finance, following two-year with-
drawal from politics, 1926-1927. Prime Minis-
ter, 1927. Minister of Foreign Affairs, 1931-
1932. Minister, later Ambassador, to France,
1932-1941. Represented China at League of
Nations and numerous international confer-
E-7
SECRET
ences while accredited to France. Ambassador
to Great Britain, 1941-1946. Appointed Am-
bassador to the United States, June 1946. At-
tended the Dumbarton Oaks and San Fran-
cisco Conferences and has attended all ses-
sions of the United Nations General Assembly
to date, heading the delegation to the second
part of the first session of the Assembly.
.Ku is recognized as being a quick-witted,
skillful negotiator and an accomplished diplo-
mat. He has functioned creditably for al-
most 30 years as a polished representative of
China abroad, despite changes in the home
government. He is reported to have a lack of
decisiveness in negotiation.
KUEI YUNG-CHING.
Acting Commander-in-Chief of the Chi-
nese Navy.
Born Kiangsi Province, 1901; graduate of the
Whampoa Military Academy; studied at the
Infantry School in Dresden, Germany. Rose
from the ranks to be Commander of the Cen-
tral Military Academy's "Model Brigade,"
which he led in battles around Shanghai, late
in 1937. Chief representative for China at
King George VI's Coronation, January 1938.
Military Attache in Berlin, 1941-1942; head of
the Chinese Military Mission to Great Britain,
December 1944; Chief, Chinese Military Mission
to the Allied Control Mission, Germany, 1945-
1946; member of the Chinese delegation to the
UN Chiefs of Staff Conference, London, Janu-
ary 1946.
Admiral Kuei is a man of ability whom mili-
tary sources feel will do much in the training
of naval personnel and the building up of a
Chinese navy. His relations with Americans
have been very friendly and he is considered
pro-British as well as pro-US.
KUNG HSIANG-HSI (H. H. Kung) .
Chairman of the Board of Directors, Bank
of China and several other important banks
and corporations; Chairman of the Board of
Directors, Yenching University; member of the
Kuomintang.
Born Shansi Province, 1881, of a prominent
Shansi pawnbroker-banking family; married
to the eldest of the Soong sisters. Educated
at Shansi Mission School; graduated from
Oberlin College, 1906; received M. A., Yale Uni-
versity, 1907. Participated in the Revolution,
1911, then became advisor to General Yen Hsi-
shan, Governor of Shansi Province; Resident
Director of Sino-Russian negotiations for re-
sumption of diplomatic relations, 1924; Com-
missioner of Finance for Kwangtung Province
and concurrently Minister of Finance and
Minister of Industry, Labor and Commerce in
the Nanking Government, 1927; when these
were amalgamated into the Ministry of In-
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dustry, became the Minister of Industry, 1930;
concurrently member of the State Council
and the Kuomintang Central Political Coun-
cil; resigned from Ministry of Industry,
1932, and appointed Special Industrial Com-
missioner to tour Europe. Returned to China,
1933, and appointed Governor of the Central
Bank of China which position he held until
1945; appointed Vice President of the Executive
Yuan, 1933:1937, and Minister of Finance, 1933-
1944; Special Envoy and Chief Delegate of the
Chinese Government to the Coronation of King
George VI of Great Britain, 1937; President of
the Executive Yuan, 1938; Vice President, 1939-
1945, during which time Chiang Kai-shek was
President of the Executive Yuan; State Coun-
cillor, 1943-1947; Chief of the Chinese Delega-
tion to Bretton Woods, 1944; appointed Chair-
man of the Board of Directors of the Bank of
China, 1946; Kuomintang Delegate to the Na-
tional Assembly, November 1946. Has been
visiting the US since August 1947.
Wealthy and prominent banker-industrialist,
brother-in-law of Madame Chiang Kai-shek
and T. V. Soong, Kung has many US business
associations. He has been in and out of the
government several times and rivalry for gov-
ernment posts has long existed between Kung
and Soong though they hold prominent execu-
tive positions in several business enterprises.
LI LI-SAN.
Political advisor to General Lin Piao, Chi-
nese Communist commander in Manchuria;
member of the Standing Committee of the
Central Executive Committee of the Chinese
Communist Party.
Born 1900, Hunan Province; reported to have
a Russian wife whom he married in the USSR
after 1931. Educated in Chinese elementary
schools; went to France to study as a member
of a worker student group organized by Mao
Tse-tung, 1919. One of the founders of the
French branch of the Chinese Communist
Party, 1921. Deported from France for activity
in student movements; returned to China and
worked in the Chinese labor movement, 1922.
Played a prominent part in Chinese Commu-
nist Party activities for a brief period after the
split of the Communists and Kuomintang, 1927.
During this period, 1927-1930, was closely allied
with Communist International, working to get
control of main Chinese industrial cities, a
tactic which was opposed by Mao Tse-tung and
his Chinese Communist followers; was ousted
from the Chinese Communist Party when the
Comintern agreed to support Mao Tse-tung in
1931. Went to the USSR supposedly because
his tactical policy was more extreme than that
of the Communist followers of Mao Tse-tung
and remained there until 1945. While in Rus-
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E-8
sia worked for Profintern (Red International
of Trade Unions) , 1932-1934; Editor of a USSR-
sponsored Chinese paper, 1934; from 1938-1945
was head of the Translation Department,
Moscow's foreign language publishing house.
Elected member of the Standing Committee of
the Chinese Communist Party in absentia in
April 1945; returned to Manchuria with the
USSR troops in September 1945; was Com-
munist representative at the Peiping Executive
Headquarters in 1946; now in Manchuria with
headquarters in Harbin.
Li Li-san is reported to be responsible for all
important political decisions in Communist
Manchuria. His return to Manchuria was in-
terpreted as a strengthening of Chinese Com-
munist ties with the Soviet Union, and it was
thought that a Party split might occur between
Chinese Communists in Manchuria, following
Li and Chinese Communists in China under
Mao Tse-tung. Despite all such reports, there
is as yet no evidence of differences in the Party
high command.
LI TSUNG-JEN.
Director of the Generalissimo's Peiping
Headquarters; member of the Kuomintang Po-
litical Council.
Born Kwangsi Province, 1890; graduate of
the Kweilin Military Academy. Served in pro-
vincial militia, gradually rising from the ranks;
subsequently joined the Nationalist forces
sometime prior to 1926. Commander of the
7th Army of the Nationalist forces and re-
sponsible for the capture of Kiukiang, Kiangsi,
from local warlords, 1926. Member of the
Northern Expedition as Commander of the 3rd
Route Army, 1927, concurrently member of the
Military Council. Chairman of the Wuhan Di-
vision of the Central Political Council and con-
currently Commander-in-Chief of the 4th
Group Army in control of Hunan and Hupei;
State Councillor, 1928. Opposed the National
Government and joined forces with the
Kwangsi generals at Wuhan, 1929; deprived
of all posts under National Government for
his connection with Kwangsi revolt, 1929, but
reinstated, 1931. Subsequently retired south-
ward and became Commander of Kwangsi Pro-
vincial Army and concurrently member of the
Southwest Political Commission at Canton.
Connected with the Kwangtung-Kwangsi
clique revolt, 1933; Commander-in-Chief of
Chinese forces in Shantung, Anhwei, and
Kiangsu, 1937-1938. Chairman of the Anhwei
Provincial Government, 1938; Commander of
the 5th War Zone (East and Central Hupei,
North Anhwei, and South Honan) , 1939-1945.
Director of the Generalissimo's Provisional
Headquarters at Hanchung (Nancheng) , Shen-
si, February-November 1945; appointed Direc-
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tor of the Generalissimo's Peiping Headquar-
ters, November 1945.
Prominent Kwangsi military leader, not close
to the Generalissimo, Li is dissatisfied with
his present post in Peiping inasmuch as he
feels that he has been "exiled" to the North.
His loyalty to the Generalissimo, should sepa-
ratist movements develop, is very questionable,
but his military power has been weakened
by the placing of many of his troops in areas
not under his control.
LIN PIAO.
Commander-in-Chief of the Chinese Com-
munist Northeastern United Democratic Army;
member of the Central Executive Committee
of the Chinese Communist Party; Chief of the
Military Department of the Chinese Commu-
nist Northeastern Political Bureau.
Born Hupei Province, 1908; graduate of the
Whampoa Military Academy, 1925. Joined the
Socialist Youth and the Kuomintang, 1924,
and became a member of the Chinese Com-
munist Party, 1925. Colonel in the 4th Kuo-
mintang Army under Chang Fa-kuei, 1927.
Played an important part in the Nanchang Up-
rising, 1927, after which he joined the Com-
munist 20th Army. Commander of the 1st
Army Corps, Red Army, 1932. Participated in
the "Long March" 1934-1935. In Yenan
founded and became President of the Anti-
Japanese Military and Political College (Kang-
Ta) . Commanded the 115th Division of the
8th Route Army which operated primarily in
Shansi and Shantung from 1937 to 1945. Elec-
ted a member of the Central Executive Com-
mittee of the Chinese Communist Party, 1940,
a post he still holds. Represented the Com-
munists in Chungking, along with Chou En-
lai, from 1942-1943. Has been in Manchuria
since the autumn of 1945.
? Regarded as a brilliant general, Lin is said
to be the top man of the Communist military
hierarchy in Manchuria, although political
decisions are left to his political advisers, Li Li-
san.
LO LUNG-CHI.
Liberal leader and member of the Demo-
cratic League.
Born Kiangsi Province, 1896; educated,
Tsinghua, 1921; University of Wisconsin, B. A.
and M. A., 1924-1925; studied under Harold
Laski, London, 1926-1927; Columbia, Ph. D.,
1927. As an intellectual and leader of student
movements, entered the Government as a
member of the People's Political Council (PPC) ,
1938, holding the position until 1942. Con-
nected with the Federation of Democratic
Parties, 1941. Took part in the organization
of this federation into the Democratic League,
1944. Represented the Democratic League at
SECRET
the meetings of the Political Consultative Con-
ference, January 1946, but refused to attend
the National Assembly, November 1946. Chief
spokesman for the Democratic League.
MAO TSE-TUNG.
Leader of the Chinese Communist Party;
Chairman of Central Committee, Political
Bureau, Secretariat, and Military Council of
the Chinese Communist Party.
Born Hunan Province, 1893, of a peasant
family; attended primary school. Enlisted in
Revolutionary Army, 1911; resigned and at-
tended Hunan Normal School, 1912-1918. As-
sistant librarian at Peiping National Univer-
sity, where met many early Communist lead-
ers. Became a Communist, 1921, and attended
foundation meeting of the Chinese Communist
Party in Shanghai. During period of Kuo-
mintang-Communist cooperation, worked for
both parties in Shanghai; organized peasant
unions and was forced to flee from irate Hunan
landlords to Canton; became editor of Kuo-
mintang Political Weekly and Kuomintang
Propaganda Agitator. After Kuomintang-
Communist split, 1927, was sent to Changsha,
Hunan; organized First Division of First
Peasants' and Workers' Army and Autumn
Crop Uprising; uprising not approved by Cen-
tral Committee, dismissed from Political Bu-
reau and Party Front Committee. Combined
forces with Chu Te, 1928; created 4th Red
Army. Founded Kiangsi Soviet, 1930, and be-
came chairman of Soviet government, 1931.
Participated in "Long March" (1934-1945)
from Kiangsi to Shensi. Elected member of
Executive Committee of Communist Interna-
tional by 7th World Congress, 1935. Remained
in Communist territory until August 1945 when
met with Chiang Kai-shek in Chungking.
Order for arrest issued by National Govern-
ment, June 1947. Author of New Democracy
(1940) and On Coalition Government (1945) .
In the development of Communism in China,
Mao has favored a program of internal ag-
rarian reform rather than one of international
revolution. In the post-war period Nationalist
rumors have suggested this might cause a con-
flict with Russian-returned Chinese Com-
munists. However, to date Mao's position as
number one in Chinese Communist leadership
appears to be uncontested.
PAI CHUNG-HSI.
Minister of National Defense; member of the
Presidium of the Central Executive Committee
of the Kuomintang.
Born Kwangsi Province, 1893; attended the
Paoting Military Academy prior to participat-
ing in the 1911 revolution against Manchu
regime. Joined Chiang Kai-shek's Northern
Expedition, 1926, and was appointed Cora-
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mander of the 13th Army and acting Chief of
Staff of the Nationalist Forces. Joined other
Kwangsi leaders who were among the Western
Hills Faction which withdrew from the Kuo-
mintang, because of their dissatisfaction with
the previous USSR orientation of the Party,
1929. Opposed the Kuomingtang both politi-
cally and militarily from 1929 to 1932, but was
reinstated in the Party, 1932. Supported the
anti-Japanese demands of the Southwest Po-
litical Council together with Li Tsung-jen, 1936,
and took command of an anti-Japanese ex-
peditionary force in defiance of Nanking; but
was brought back under Nanking later that
year and became a member of the Standing
Committee of the Military Affairs Commission.
Following outbreak of the Sino-Japanese War,
July 1937, offered his services to Chiang Kai-
shek and was made Deputy Chief of Staff and
sent into Shantung to fight the Japanese.
During the Sino-Japanese War was Director
of the Generalissimo's headquarters in Kwei-
lin and Director of the 4th War Zone. Re-
linquished the post of Deputy Chief of Staff
in May 1946 when he was appointed Minister
of National Defense.
Since the start of the Sino-Japanese War,
1937, Pai has been a loyal supporter of the
Kuomintang. Anti-Communist, he supports
the present military operations. As President
of the Chinese National Mohammedan Associ-
ation, he has considerable influence among
Mohammedans in China, particularly those in
military groups. An able strategist and a
forceful personality, he is something of an
ascetic and crusades against ostentation and
luxury.
SUN Fo.
Vice President of the Republic of China;
President of the Legislative Yuan; member of
the State Council; member of the Presidium of
the Central Executive Committee of the Kuo-
mintang.
Born Kwangtung Province, 1891; received his
basic education in Chinese classics; attended
high school in the Hawaiian Islands; B. A.,
University of California, 1916; M. A., Political
Science and Economics, Columbia University,
1917. Son of Sun Yat-sen, he started his
career as his father's private secretary; Mayor
of Canton, 1921-1922 but forced to flee by Chen
Chiung-ming rebellion; reappointed Mayor of
Canton, 1923-1924; Governor of Kwangtung
Province, Mayor of Canton, Minister of Com-
munications, 1926; member of the Military
Council, 1927; Minister of Finance in Wuhan
Government to August 1927, as long as it was
supported by the left-wing Kuomintang;
Minister of Reconstruction in the National
Government at Nanking, 1928, never assumed
the post but spent the year abroad as Chief
SECRET E-10
of the Political and Economic Mission to
Europe and the US; a leader in the autono-
mous government at Canton, 1931-1932; again
joined the Nationalists and became President
of the Legislative Yuan, 1932; negotiated with
the USSR for aid to China, 1938-1939; par-
ticipated in the Kuomintang-Communist nego-
tiations, 1945; Chairman of certain sessions of
the National Assembly, Kuomintang delegate
to the Political Consultative Council, 1946;
elected a member of the Presidium of the Cen-
tral Executive Committee of the Kuomintang;
member of the State Council and Vice Presi-
dent of the Republic of China, 1947.
As the son of Sun Yat-sen, he has enjoyed
a position of special prominence, and therefore,
although he has several times broken with
the National Government, he has always been
able torejoin it. He has often been a critic
of Kuomintang authoritarian tendencies but
he now supports the National Government
in its struggle with the Chinese Communists.
His prestige has suffered because of his vacil-
lating attitudes on important questions in
foreign relations.
SUN LI-JEN.
Deputy Commander of the Chinese Ground
Forces.
Born Anhui Province, 1900; graduated from
Tsinghua University, 1923; received a B. S. de-
gree in civil engineering from Purdue; studied
at Virginia Military Institute, 1924 to 1927, and
at various military institutions in Europe from
1927 to 1929. Starting his career in the Chi-
nese army as a corporal, he became an aide to
the Generalissimo, 1931. Participated in the
Shanghai campaigns against the Japanese,
1932 and 1937, and was engaged in troop train-
ing, 1938 to 1942. Fought under the late Gen-
eral Stilwell, and later under General Sultan
in the Ledo Road Campaign, 1943-1945. At the
invitation of General Eisenhower, visited
Europe after Germany's surrender and then
went to the US to inspect troop training.
Member of the Chinese delegation to the UN
Chiefs of Staff meetings in London, 1946.
Subsequently he commanded the New 1st Army
in the campaigns against the Chinese Com-
munists in Manchuria as Deputy Commander
of the Northeast China Command (NECC)
Due to jealousy of the NECC Commander, Tu
Li-ming, Sun was removed from the command
of the New First Army by Tu, April 1947.
Named Deputy Commander of the Chinese
Ground Forces, July 1947; has recently been
surveying potential training bases for the Chi-
nese Nationalist Army in Taiwan and South
China.
Sun is highly regarded by US military
specialists who welcome his recent appoint-
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ment to direct a Chinese army training pro-
gram in Taiwan.
SUNG TSE-WEN (T. V. Soong) .
Governor of Kwangtung Province; member
of the State Council; prominent businessman;
member of the Standing Committee of the
Central Executive Committee of the Kuomin-
tang.
Born Shanghai, Kiangsu Province, 1891;
son of a prominent Shanghai businessman
with many connections among business and
church groups in the US; educated, St. John's
University, Shanghai; B. A., Harvard Universi-
ty, 1915; honorary degrees from St. John's, Co-
lumbia, and Yale Universities. Connected
with Sun Yat-sen's revolutionary government
in Canton, 1923-1926; Minister of Finance in
this government, 1925-1927, member of the
Central Executive Committee of the Kuomin-
tang from 1928 and governor of the Central
Bank of China, 1930-1933; chief delegate, Chi-
nese delegation to the World Economic Con-
ference, London, 1933; Chairman of the Board
of Directors of the Bank of China, 1935-1943;
Minister of Foreign Affairs, 1941-1945, during
much of which time he was in the US where
he organized China Defense Supplies, China's
wartime Purchasing Commission in the US;
Acting President of the Executive Yuan, No-
vember 1944 to May 1945; State Councillor,
1944 to date; chief of the Chinese delegation
to the United Nations Conference on In-
ternational Organization, San Francisco,
April 1945; Chairman of the Supreme Economic
Council, 1945-1947, and concurrently acting
Chairman of the Joint Board of the Four Gov-
ernment Banks; President of the Executive
Yuan, 1945-1947; withdrew from all Govern-
ment posts in the spring of 1947 following
much criticism of his economic policies both
within and without the Kuomintang and the
Government. Appointed Governor of Kwang-
tung Province, September 1947.
Brother of the famous Soong sisters and
brother-in-law of Chiang Kai-shek, T. V.
Soong has long been outstanding as an impor-
tant Chinese financier who has played a prom-
inent part in government administration. He
speaks and reads English like a Westerner and
has often been regarded by Chinese as more
Western than Chinese. Belonging to no po-
litical clique he is a lone wolf in Chinese politics
where his strength depends upon his personal
relationship with the Generalissimo with whom
he has several times sharply disagreed. Dur-
ing these periods he has retired from govern-
ment. He is believed to possess large financial
holdings in US, as well as assets in China.
WANG SHIH-CHIEH.
Minister of Foreign Affairs; member of the
State Council; member of the People's Politi-
E-.11
cal Council (PPC) and of its Presidium; mem-
ber of the Central Executive Committee of the
Kuomintang; member of the Political Science
Group.
Born Hupei Province, 1891; graduate of Pei-
yang University; received B. S. from the Uni-
versity of London, 1917, and Docteur en droit
from the University of Paris, 1920. Professor
Comparative Law and later Dean of the Fac-
ulty of Law, National Peiping University, 1921-
1928. Member of the Permanent Court of
Arbitration, The Hague, 1928. President of
National Wuhan University, 1929-1934. Named
Minister of Education, 1933-1937, and Minister
of Information, 1934-1942; Secretary General
of the PPC, 1938-1943. Reappointed to the
post of Minister of Information, 1944, served
until he was made the Minister of Foreign
Affairs, July 1945. Kuomintang delegate to
the Political Consultative Conference, January
1946; with Chang Chun was instrumental in
formulating the plans of the Conference. In
1943 headed the Chinese Goodwill Mission to
Great Britain; as Minister of Foreign Affairs
represented China at the Paris Peace Confer-
ence, 1946, and the New York Conference of
Foreign Ministers, September 1947.
An able government official and a reputable
Kuomintang leader, Wang is one of the more
important men affiliated with the Political
Science Group. He is a moderate, well dis-
posed toward foreigners.
YEN Hsi-sHAN.
Civil Governor of Shansi Province; member
of the Central Political Council of the Kuo-
mintang.
Born Shansi Province, 1882; graduate of the
Tokyo Military College. Belonged to the Sun
Yat-sen Revolutionary Party, Tung Meng Hui.
When revolution broke out in China, declared
Shansi Province independent from the Manchu
Dynasty and joined the revolutionaries. Be-
came Military Governor of Shansi and Civil
Governor in 1917, and has been virtually the
independent ruler of the province for three
decades. Contributed troops for the successful
prosecution of the Northern Expedition, 1927,
and was consequently appointed garrison com-
mander of the Peiping and Tientsin area and
Vice-Commander of the National Army. Later
revolted and became the head of a short-lived
government at Peiping, but was defeated by
the Nationalists and forced to retreat to Shan-
si. Reinstated by the Nationalist Government,
1932, and appointed Pacification Commissioner
for Shansi and Suiyuan provinces, and placed
in charge of the 2nd War Zone; appointed
Vice-Chairman of the National Military Coun-
cil at the start of the Sino-Japanese War, 1937.
During the war his troops were confronted
with the Japanese on one side and the Chinese
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Communists on the other and did not carry
out any large-scale warfare with the Japa-
nese, who took the provincial capital, Taiyuan,
in 1937. Met Chiang Kai-shek, September 1945
and was subsequently officially reappointed
Civil Governor of Shansi Province.
Yen is one of China's old-style warlords,
who was, in the past, virtually independent in
his control of Shansi Province. Currently,
in spite of Communist and Nationalist inroads,
he has managed to maintain control of a re-
stricted area within that province where he
supports his own troops and arsenals. He is re-
ported to be utilizing Japanese and German
technicians. His record of wartime resistance
to the Japanese is dubious, and his loyalty to
Chiang Kai-shek is questionable.
YU TA-WET.
Minister of Communications; member of
the Political Committee of the Executive Yuan.
Born Chekiang Province, 1899; graduate of
St. John's University, Shanghai; M. A. degree
SECRET
E-12
in Philosophy, Harvard; attended, University
of Berlin on a Harvard scholarship, receiving
Ph. D. in mathematics. Entered military life
1927, when the Generalissimo called upon him
to act as liaison man with the German military
advisers then in China. Became Director of
the Ordnance Administration, Ministry of War,
1933. November 1944 appointed member of the
Advisory Committee of the War Production
Board. Became Vice Minister of War one
month later, concurrently heading the Ord-
nance Administration. Appointed Minister of
Communications on May 15, 1946; his efforts
to repair railroads under tremendous handi-
caps have been lauded. He was appointed a
non-partisan member of the Political Com-
mittee of the Executive Yuan in April 1947.
Yu is generally considered to be able, effi-
cient, and honest. Technically classified as a
non-partisan, he is close to both T. V. Soong
and the Generalissimo and can usually be
counted on to follow the government line.
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U. S. GOVERNMENT PRINTING OFFICE
1709-8-1947
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This (SR) series of CIA Situation Reports is designed to furnish to
authorized recipients, for their continuing use as a reference, analyses and
interpretations of the strategic or national policy aspects of foreign situations
which affect the national security of the United States.
In the preparation of this report, the Central Intelligence Agency has
'made full use of material furnished by the intelligence agencies of the State,
War and Navy Departments and of the Army Air Forces. These agencies have
also concurred in this report unless otherwise noted.
It is suggested that the recipients retain this report, since it will be
reviewed and, if necessary, revised in whole or in part each month hereafter.
WARNING
THIS DOCUMENT CONTAINS INFORMATION AFFECTING THE NA-
TIONAL DEFENSE OF THE UNITED STATES WITHIN THE MEANING OF
THE ESPIONAGE ACT, 50 U.S.C., 31 AND 32, AS AMENDED. ITS TRANS-
MISSION OR THE REVELATION OF ITS CONTENTS IN ANY MANNER TO
AN UNAUTHORIZED PERSON IS PROHIBITED BY LAW.
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CONFIDENTIAL
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NOTICE TO HOLDERS OF CIA REPORT ON CHINA (SR-8)
Section V: Military Situation, and Appendix D: Chronology of Important Events, are
forwarded herewith for insertion in the CIA Report on CHINA (SR-8). The informa-
tion in Section V is as of January 1948, and therefore should not be regarded as opera-
tional intelligence. Recipients are requested to make appropriate changes in the
Table of Contents of SR-8.
Published: April 1948
Document No. 00/
C:IAGE,'-'ass. Ej
D.=;C:213SIF:_D
C ass. C-.1A,22, TO: TS
DDA 11.-mo, 4 Apr 77
Auth: D 1 G. 77 1763
Date:
By:
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Published April 1948 SECRET
SR-8
CHINA
SECTION V AND APPENDIX D
TABLE OF CONTENTS
SECTION V ? MILITARY SITUATION
1. TiE Cum, WAR, 1945-1947 . . V- 1
2. ARMED FORCES OF THE CHINESE NATIONAL GOVERNMENT . V- 3
a. Genesis . . . . V- 3
b. Strength and Disposition . . V- 4
c. Quality of Personnel . . . . . V- 5
d. Transportation . . . V- 5
e. Weapons and Ammunition ? ? V- 6
f. Air Force . . V- 7
g. Navy . . . V-8
h. Potential . V- 9
3. ARMED FORCES OF THE CHINESE COMMUNISTS V-10
a. Genesis . . . V-10
b. Strength and Disposition . . V-11
c. Quality of Personnel . V-11
d. Weapons and Ammunition . . V-12
e. Transportation . V-12
f. Navy and Air Force . . V-13
g. Potential . . V-13
4. MISSIONS AND TACTICS OF THE NATIONALIST ARMED FORCES V-14
5. MISSION AND TACTICS OF THE COMMUNIST ARMED FORCES V-15
6. CAPABILITIES AND FUTURE TRENDS . V-16
APPENDIX D ? Chronology of Important Events
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SECTION V
MILITARY SITUATION
In almost two and a half years of civil war in China since VJ-day, the Army of
the National Government has passed from the offensive to the defensive in its struggle
against the Chinese Communists. The conviction once held by Nationalist leaders
that the Chinese Communists could be eradicated by force of arms has given way
to a realization that the National Government is now engaged in a fight for survival.
The Nationalists at the outset were able to occupy certain key points, but have
remained incapable of holding and exploiting all their gains, of opening and operating
the major rail lines, or of meeting and defeating major Communist units. Conversely
the Communists have freely evacuated certain areas without seriously lessening their
combat capabilities. Demonstrating a striking proficiency in guerrilla warfare, they
have been able to isolate and either destroy or capture sizable Nationalist units.
In doing this the Communists have capitalized on several outstanding weaknesses
of the Nationalists: a tendency to overestimate their own power, corrupt and often
professionally incompetent leadership, and a lack of industrial and transport support.
The Communists have been able to draw Nationalist units into extended and untenable
positions, to avoid pitched battles under circumstances unfavorable to themselves,
and, infiltrating between Nationalist lines, to set up operational areas behind them.
During 1947 the Communists seized the strategic initiative and spread the civil war
from Manchuria and North China into areas of Central China which the Nationalists
had previously considered pacified. The Communists now appear to possess the ability
to penetrate further into hitherto peaceful areas of China, while the Nationalists do
not appear to be able to do more than retard such movements. Deterioration in the
military strength of the National Government can be expected to continue as major
Nationalist-held areas and units are isolated from each other and from their bases
of supply.
1. THE CIVIL WAR, 1945-1947.*
Following the surrender of Japan on 14 August 1945, the National Government and
the Chinese Communists competed in a race to occupy the Japanese-held areas of
China. The Nationalists, in contact with the Japanese Army chiefly at the points of
its farthest advance into Central and South China, were at a geographic disadvantage
in comparison with the Communists who were dispersed throughout the Japanese-held
areas in Central and North China. With this initial positional advantage, the Com-
munists were able to receive the surrender of large numbers of Japanese troops and to
gain control of considerable portions of the provinces of Shantung, Kiangsu, Honan,
* See map supplement TABS 5, 6, and 7.
Note: This report has the concurrence of the intelligence organizations of the Departments of
State, Army, Navy, and Air Force.
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Anhui, Hopei, Shansi, Shensi, Chahar, and Jehol. The Nationalists, aided by US
transportation of their troops, gained control of the broad areas south of the Yangtze
River and the large urban centers to the north. During this period, Soviet forces
occupied Manchuria.
It was necessary then for the Nationalists to launch an offensive, based on the
Yangtze Valley, into the Communist areas to the north with the primary objective
of opening the main north-south rail lines to traffic and to dispose units in positions
favorable for a strong Nationalist bid to recover Manchuria's industrial and agricultural
riches. However, when the Soviets withdrew their occupation forces from Manchuria
in the spring of 1946, the Nationalists had not opened any of the north-south railways
and were confronted, moreover, with sizable Communist forces, built up in Man-
churia during the previous autumn and winter, apparently with at least Soviet sanction.
When the Nationalists drove into Manchuria sanguinary fighting broke out, par-
tucularly at Ssupingkai, but by May 1946 the National Government forces had suc-
ceeded in pushing the Communists north of the Sungari River, along which a fairly
stable front was established. As a result of these successes, the Nationalists were
able to open to traffic the Peiping-Mukden line and the old South Manchurian railway
as far north as the Sungari.
To the south, the Nationalists also scored some gains during this period. They
forced the Communists out of a pocket north of Hankow and gained control of the
area between the Yangtze River and the Lunghai railroad (China's principal east-west
rail link, running roughly along the 34th parallel), except for northern Kiangsu Prov-
ince. But while the Nationalists were able to operate the Lunghai railroad and to
open the Tsingtao-Tsinan line, they were still unable to achieve success in their chief
objective, the opening of the main north-south railroads between Tientsin and Pukow
and between Peiping and Hankow. The Communists, despite the fact that they were
mainly fighting defensively, were able to expand their broad belt of territory across
North China from Shensi Province to the coast of Shantung.
Nationalist offensive gains continued in the latter half of 1946. National Govern-
ment troops occupied the right-of-way along the alternate Peiping-Mukden railroad
via Chengteh, captured the Communist base of Kalgan, pushed to the Korean border
of Manchuria, and drove down the Liaoning Peninsula to the borders of the Soviet-held
Port Arthur naval base area. The Communists still continued to fight a defensive
war, falling back in the face of frontal assaults and conserving their fighting strength
by avoiding pitched battles, confident that the Nationalists were overextending and
seriously weakening themselves.
Since early 1947 the Nationalists have scored no major and lasting successes while
the Communists have gained the strategic initiative. This shift in the course of the
civil war was evidenced both by a series of increasingly powerful Communist drives
in Manchuria and also by the Communist blunting and turning of a costly Nationalist
offensive in Shantung. The first four Manchurian offensives, which took place during
the winter and spring of 1947, were confined to comparatively small-scale, localized
attacks on the Changchun-Kirin area and were designed to wear down the New First
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Army, key unit in the defense of the northern tip of the Nationalist salient. However,
the fifth offensive, mounted in early May, covered a larger area and extended over
a longer period. It engulfed most of Nationalist-held Manchuria, forced the Nationalist
armies to retreat into the larger cities, lowered their troop morale and fighting effective-
ness, and netted the Communists substantial amounts of food and war materiel. When
the Communists broke off the offensive in late June, they did not return as previously
to their established bases north of the Sungari River, but set up new bases on each
flank of the compressed Nationalist salient along the Mukden-Changchun railroad.
The Nationalists, after losing much of the ground they had won the previous year,
sent reinforcements to Manchuria during the summer of 1947 and changed the
command setup in anticipation of another Communist effort. However, the sixth
Communist offensive launched in late September, proved less sensational than the fifth.
Although little additional land was taken by the Communists, they did gather con-
siderable food stocks and seriously damaged the recently repaired Mukden-Changchun
railroad as well as the Peiping-Mukden line, initial target in this offensive. They in-
flicted additional heavy troop and materiel losses on the Nationalists, whose troop
loss alone was probably the equivalent of all reinforcements sent into the area since the
May offensive. When the sixth offensive terminated in mid-November the Nationalist
positions in Manchuria had been rendered still more insecure, but the Communists had
failed to dislodge them from any major stronghold.
A seventh Communist offensive was in progress during the last weeks of 1947.
Despite the severe cold, the Communists for the first time had brought their attacks
to the very outskirts of Mukden. The economic and military plight of the Nationalists,
confined to a few large urban areas and almost entirely dependent on supply by air,
was more marked than at any previous time.
Elsewhere in China during 1947, the Nationalists had occupied the Communists'
eastern China headquarters at Lini (southern Shantung Province) in February, the
Communist capital at Yena'n in March, and the chief Communist seaport, Chefoo, in
October. The capture of Chefoo marked the apex of the Nationalist offensive in Shan-
tung. The Nationalists, however, were not able to exploit these gains, because even
prior to the fall of Chefoo, the Communists had begun a movement into Central China
across the Lunghai railroad as far south as the Yangtze River. This new threat forced
the Nationalists to redeploy troops from Shantung, thus defaulting many of their
newly won positions. These southward thrusts soon developed into a general south-
ward movement and by the close of 1947 the Communists had become so securely
established in Central China that a major offensive by the Nationalists would be re-
quired to dislodge them. Such an offensive is probably beyond the present Nationalist
capabilities.
2. ARMED FORCES OF THE CHINESE NATIONAL GOVERNMENT.
a. Genesis.
The Chinese Nationalist Army originated at the small military academy found-
ed by the Kuomintang in 1924 at Whampoa, near Canton. This academy, headed by
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Chiang Kai-shek, trained the officer cadres for the Northern Expedition of 1926-28
which enabled the Kuomintang, under Chiang's leadership, to gain control of the
Government of China. Soviet and German military advisers made a considerable con-
tribution to the training of Chiang's new army, but in the spring of 1927, after the
Kuomintang had become firmly established in the Yangtze Valley, the Soviet advisers
were expelled as part of the bloody purge which drove the Chinese Communists from the
ranks of the Kuomintang.
The Soviet mission was followed at various times by German, British, Italian,
and US military missions. The persuasive and continued presence of these foreign
advisers, each conferring on the Nationalist troops the stamp of the military establish-
ments in their respective countries, is in a large part responsible for the variations which
give today's Nationalist Army the appearance of a complicated mosaic.
By far the most important of these foreign missions for present concern has
been that of the United States, the activities of which both during and subsequent to
the war with Japan, have wrought significant changes in the composition of the Nation-
alist forces. Under the terms of the Lend-Lease Agreement of 2 June 1942, the US
undertook to create out of China's manpower resources and US industrial power,
a compact and efficient military force to serve as the continental arm of a vast and
comprehensive pincer movement against Japan. Despite the efforts of Generals
Stilwell, Chennault, and Wedemeyer in India, Burma, and China, the program never
developed on a large scale because of the priority given to the defeat of Germany in
Europe and later because of the emphasis placed on amphibious warfare against Japan.
In 1945 the US did train and equip, to a greater or lesser degree, thirteen
triangular armies (3 divisions each) , a tactical and transport air force of eight and
one-third groups, and a small modern navy. Although these programs were not com-
pleted, the thirteen armies represented initially the best striking force in the National-
ist Army. However, combat attrition during the more than two years of civil war has
reduced these units to the same status of effectiveness as the best Chinese divisions.
The chain of command in the Nationalist Army, though nominally through
the Ministry of National Defense, often operates directly from Generalissimo Chiang
Kai-shek to his area commanders and sometimes directly to the field commander. Area
commands have been extremely cumbersome, but some effort currently is being made
to overcome this. In the lower echelons command is exercised through the orthodox
army breakdowns, but commanders in the field have sometimes been denied local
initiative by the pressure of the chain of command above them, with even the Gen-
eralissimo often interfering in tactical affairs.
b. Strength and Disposition.
As of 15 January 1948 the numerical strength of the Nationalist Army ground
forces was estimated to be 2,723,000, organized into 162 divisions; strength in the tactical
units was about 2,200,000 with about 1,900,000 in contact with the Communists. There
are approximately 1,000,000 tactical troops in the Central China theater between the
Yangtze and Yellow Rivers (including Shantung) , while in North China there are
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625,000, in Manchuria 285,000, and only about 70,000 tactical troops remain in the
areas south of the Yangtze.
Because no exact system of rolls exists in the Nationalist Army, and because
there is a long-standing and widespread custom among commanders of all echelons
to pad rolls and generally to falsify reports, it is extremely difficult to accumulate
accurate statistics.
c. Quality of Personnel.
The basic element of all armies in China is the peasant. Generally speaking,
the Chinese peasant is illiterate, poor in health, lacking in technical and mechanical
skills, and possesses low aptitudes for such skills. On the other hand he has a high
degree of native intelligence, is accustomed to hard work, and is inured to the hardships
which have been his lot since birth. To a colorful leader, who provides food, clothing,
and loot, he is loyal to the death. He is the raw material from which a good soldier can
be made. However, this potential has not been widely realized because his training has
not been sufficient, his equipment has not been adequate, and his leadership has gen-
erally been of a poor caliber.
Officers for the most part are drawn from the more fortunate classes, such
as agrarian landlords or city dwellers, who take into the army with them the prejudices
of their own superiority. Actually leadershp of the National Army is determined by
political expediency rather than military ability, and is saturated with graft and pro-
fessional incompetence.
The potential development of the Nationalist soldier is further retarded by
the absence of a well conceived program of indoctrination in the principles for which
he is expected to fight, by inadequate and outdated training methods, insufficient and
poor quality food and clothing, and by corrupt and brutal conscription methods.
d. Transportation.
The primary lines of communication of the Nationalist Army lie along the
railroads, highways, inland and coastal shipping routes, and air lanes. Eastern China
and Manchuria possess a rail and road network which in ordinary times would be ade-
quate to support this army. Since the Japanese surrender, however, only the rail lines
from Canton to Hankow and from Shanghai to Nanking have consistently remained
open to traffic. Rail lines north of the Yangtze have been either interdicted con-
tinually by the Chinese Communists or are subject to intermittent destructive raids.
Through traffic along the main north-south lines (1) from Fenglingtu (at the great
bend of the Yellow River) to Tatung, (2) from Hankow to Peiping, (3) from Pukou to
Tientsin, and (4) from Dairen to Harbin, has been denied to the Nationalists since VJ-
day. Other north-south lines and the connecting transverse lines have been cut
for periods of varying length?hours, days, or months?by the Communists, who blow
up bridges, destroy rolling stock, tear up rails, burn ties, and crisscross the roadbed
with trenches. The Ministry of Communications has found it increasingly difficult to
repair such destruction. Lack of rails, ties, bridge and ballast materials, and rolling
stock, becomes more acute with each successive Communist depredation, reducing the
utility of this means of communication, except over short distances.
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Highway transport, initially suffering because roads in China generally lack
all-weather surfacing, has been further crippled by Communist destructive activity,
and by the decreasing value of highway vehicles, because of shortage of gasoline, lubri-
cants, tires, and spare parts. These factors have increased the importance of water and
air transport. The Yangtze River, connecting the food-producing areas of Szechuan
and Hunan, as well as the arsenals of Chungking and the Hankow area with the coast,
is of vital importance, as is coastwise shipping, almost the sole channel for moving
troops and bulk supplies into North China and Manchuria. Junks and some larger
cargo and transport ships provide a limited supply of bottoms for this movement. Since
September 1947, however, shipping along the Yangtze, hitherto secure, has been subject
to Communist interruption by raids along the northern bank of the river.
The larger cities of China all have airports, most of which are capable of han-
dling transport aircraft. This is the means used to transport the leaders of the Na-
tionalist armies and in periods of great need, to lift troops into threatened areas. The
geratest value of air transport, aside from speed, lies in the fact that the Communists at
persent have no means of interfering with it except by seizing possession of the airfields.
e. Weapons and Ammunition.
The basic element of the Nationalist Army is the infantry; the basic weapons,
the rifle and the machine gun. These weapons are noteworthy for their heterogeneity
?Japanese, German, Danish, Czech, British, Soviet, US, and Chinese. Weapons from
each country have their own particular caliber, both for bore and bullet. In those units
equipped by the US in 1945, weapons included 30 caliber (M 1917) rifles, 30 and 50
caliber machine guns, Thompson submachine guns, 60 and 81 mm. mortars, 75 mm.
pack howitzers, rocket and grenade launchers, 37 mm. antitank guns and Boys (55
caliber) antitank rifles. Equipment in other units of the Nationalist Army is more
varied and includes 6.5 mm. (Japanese) and 7.92 mm. (German and Chinese) rifles,
6.5 and 7.7 mm. (Japanese) machine guns, '7.92 mm. (Chinese Maxim) machine guns, 70
mm. (Japanese) mortars, 82 mm. (Chinese) mortars, admixed with 75 mm. howitzers
from various sources. All units rely on flat trajectory weapons and mortars, with the
75 mm. howitzer being the largest artillery piece in general use.
Initially those units with US equipment provided the Nationalist Army its
greatest fire power. But because original supplies of ammunition have been largely
dissipated and because only one arsenal in China is equipped to produce US-type ammu-
nition, the combat effectiveness of units developed by the US and dependent on US
weapons is being reduced.
In units possessing Japanese, Chinese, and European-made weapons the
problem of ammunition, while not so acute as in the US-equipped units, is limited by
the absence of large-scale foreign sources of supply which necessitates a reliance on
inadequate home manufacture.
In view of the inadequacy of current production in Chinese arsenals and ex-
isting stockpiles, materiel in the hands of unit commanders is necessarily conserved
both by an individual commander's refusal to utilize completely his own fire power or
to expend supplies in assisting neighboring units even when tactically salutary to do
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so. Consequently, daily expenditure of ammunition in Nationalist Army units is con-
siderably less than in the US Army (estimated about 1 :2) . This in turn certainly has
an adverse effect on combat effectiveness.
f. Air Force.
The Chinese Nationalist Air Force, born in the early 1930's, has been continually
and wholly dependent on foreign countries for its materiel and personnel training.
Early Italian and Soviet influence was eclipsed by that of the US during World War II,
when a portion of the Nationalist Air Force was assigned to the Chinese-US composite
wing. Joint operations against the Japanese with US airmen, as well as training at
US air bases, provided Chinese personnel with a rich background of experience in
modern air corps technique.
Under the terms of a wartime agreement between the US and China, the US
was to assist in reconstituting the Nationalist Air Force as eight and one-third groups
of tactical and transport aircraft. The US was to provide the aircraft and train the
necessary flight and maintenance personnel. Prior to the summer of 1946, when the
shipment of combat and end-use items from the US to China was halted, the US had
delivered about 75 percent of the aircraft required to build up a tactical strength of
550. Since that time the Nationalist Air Force has been operating with little foreign
assistance, and consequently on a decreasing scale.
As of 1 January 1948, the Nationalist Air Force was estimated to have a total of
472 military aircraft with 201 in operational use. Among these aircraft were P-40's,
P-47's, P-51's, B-24's, B-25's, C-46's, and C-47's. In July 1947 the over-all strength
figure of the air force was 102,470 with about 1,473 pilots and 1,700 trained maintenance
personnel.
Air force personnel who had received US training were, at the completion
of their training, as competent as US air personnel with similar professional back-
grounds. However, because of the ever-present necessity to conserve operational air-
craft, the average combat pilot flies only about three hours a month. He flies in the
daytime, in fair weather, at a low altitude, and not in formation. His skills deteriorate
accordingly. Maintenance personnel lack the necessary repair facilities and replace-
ment parts to accomplish what would be regarded by US standards as efficient repair
work. The strength of the Nationalist Air Force was, until mid-1947, further at-
tenuated by the practice of spreading aircraft in outlying, poorly equipped airdromes,
sometimes without their service personnel, and often under a ground force commander
unfamiliar with and unsympathetic to air force problems. This difficulty was partially
overcome, however, when Chiang Kai-shek placed some air force units under the direct
command of air force officers.
The value of the present air force, while largely in transport functions, also
lies in the limited tactical support it can provide against Communist ground operations.
Although the number of casualties claimed by the air force have been grossly exagger-
ated, its activities have in some instances restricted the Communists to night move-
ments, and lowered their troop morale. Furthermore it has been used to prevent large
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concentrations of Communist troops and artillery, necessary for assault on strongly de-
fended cities.
China does not have at present either the resources or the technical skills to
maintain an air force such as contemplated in the eight and one-third group program.
It is estimated that, without further external aid, natural and combat attrition will
effectively neutralize the combat arm of the Nationalist Air Force by mid-1948. Trans-
port groups, in the absence of combat losses, will last longer.
g. Navy.
The comparatively weak navy of the National Government of China is cur-
rently being bolstered by the US and Great Britain, through training programs and
the transfer of ships. In July 1946 the US Congress authorized the transfer to China of
not more than 271 surplus naval vessels and small craft, and the establishment of a small
advisory group to assist China in training its personnel. A Sino-US Naval Agree-
ment formalizing this arrangement was signed on 8 December 1947, by which time a
major portion of the transfers, totaling over 75,000 tons, had been effected.
As of 8 December 1947 the total personnel strength of the Nationalist Navy
was 33,750, including marines. In October 1947 the Nationalist Navy stated it had
449 ships totaling 130,000 tons in actual service. Its best units are the vessels re-
ceived from the US. These make up the major part of the serviceable tonnage and
include 1 tanker, 2 destroyer escorts, 2 patrol craft (PCE's of 860 tons each) , 4 mine
sweepers (915 tons each) , 2 river gunboats, and 35 landing ships and landing craft
(ranging from 4,080-ton LST's to 144-ton LCT's) . The remaining elements are
composed mainly of small ex-Japanese ships and former vessels of the prewar Nation-
alist Navy taken by the Japanese and returned to the National Government at the end
of the war. Prior to September 1947, the National Government had received 6 de-
stroyers, 17 destroyer escorts, and 1 small troop transport of the demilitarized Japanese
fleet. Some of these ex-Japanese vessels have been rearmed from Japanese Navy stocks
in China and have already seen action.
The National Government has naval bases at Tsin,gtao, Shanghai, Canton,
Hankow, Amoy, and at Takao in Taiwan. The Kiangnan Shipyard at Shanghai has
seven building ways and can construct ships of 5,000 tons, and has drydock facilities
for vessels of 10,000 tons.
The efficiency of the small Nationalist Navy is initially limited by a shortage
of sufficiently skilled, trained, and experienced personnel. Although the US has trained
a limited number of personnel in US methods at Tsingtao, the Nationalists have been
unable to man all of the vessels already in their possession and probably will not be able
effectively to use those earmarked for future delivery. They are further handicapped by
the heterogeneity of their ships, greatly complicating maintenance, repair, and supply
problems.
In addition to its normal coastal and inland waterway patrol functions, dur-
ing the last quarter of 1947, the Chinese Navy began to play an active although limited
role in the civil war. It supported landing operations at Chefoo during September,
and during October and November provided naval gunfire in the defense of Yingkow
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against the Chinese Communists. In recent months it has also been active in patrolling
the Yangtze River where Nationalist shipping has been endangered by Communist raid-
ing groups along the north bank.
h. Potential.
(1) Manpower.
It is estimated that the Nationalist Army has still available a man-
power reservoir of 32,000,000 men. It is a completely untrained manpower reserve,
whose ultimate combat capabilities, under existing conditions, would be limited. It
is doubtful if Nationalist China has the ability to train any substantial number from
this additional manpower reserve, or to feed, clothe, and equip such additional troops
during and after training. In fact, Nationalist China has encountered great logistic
difficulties in supplying units already in uniform.
(2) Resources.
Even under the best of circumstances, the inadequacy of China's trans-
portation system has resulted in a condition where areas of food surplus exist side
by side with areas of food deficit. Therefore, it would always be necessary for the
Nationalist Army to rely on its supply system when operating in areas of food deficit.
Feeding the Nationalist Army is further complicated by Communist occupation of
certain food surplus areas. Moreover, interdiction of existing transport routes, result-
ing in the overloading of available facilities, places still further limitations on the
amount of produce which can be moved to support the operations of the Nationalist
forces. Nationalist troops are, therefore, forced to rely on local produce, even in regions
where the amount of food grown barely suffices for the local population. In addition,
the Nationalist Army, composed largely of rice-eating southern Chinese, is now fighting
in the wheat and kao/iang-producing areas of North China and Manchuria.
(3) Industry.
Nationalist China is not capable of sustaining a western-type army, and
cannot in point of fact sustain her partially westernized army of today. Its largest
industrial concentrations are too exposed to the war areas to be of full value. Since the
Japanese war, the textile mills have made the best recovery and, given sufficient raw
cotton, are capable of clothing the Nationalist Army. However, the Communists con-
trol about 75 percent of the cotton-producing areas of North China. Iron and steel
installations, limited at best, suffered not only from the Japanese war, but those in
Manchuria were extensively damaged by the Soviet occupation removals and accom-
panying looting. Operations in the present civil war lie in close proximity to the
main iron and steel concentrations and, in addition to extensive physical damage, a
lack of capital and skilled labor reduces the output of the iron and steel industry to a
point where it cannot even meet the minimum needs of the Nationalist Army. Com-
munist activities have denied the National Government most of China's coal mines
or continued use of the rail lines from the mines.
Of all the units listed by the National Government as arsenals, only the
Japanese-built plant at Mukden would have qualified as an arsenal by western stand-
ards, but it was critically stripped by Soviet forces during their occupation of Man-
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churia. All Nationalist arms plants suffer from lack of trained technicians, essential
materials, and modern equipment. They do, however, produce amounts of small
arms, grenades, and mortars, as well as ammunition for these weapons, but artillery
pieces and US-type equipment, except for limited quantities of 30 caliber ammunition
now being produced at Hankow, must be supplied from abroad. The ability of Nation-
alist arsenals to maintain their forces in the field will be somewhat enhanced by the
receipt of arsenal equipment as a part of Japanese reparations.
(4) Science.
Little is known definitely of Chinese research efforts in scientific warfare,
but it is believed to be negligible. Shortages not only of facilities but of trained per-
sonnel make it quite impossible that China will develop now or in the foreseeable future
any rocket, atomic, electronic, or bacteriological weapons. Instead, it will concentrate
its efforts on the production of the more traditional infantry materiel.
(5) Finance.
The purchasing power of the traditionally inadequate wages paid to the
rank and file of the Nationalist Army has been further reduced by currency inflation
and upward spiraling commodity prices. If the currency were to approach the point
of complete collapse, the National Government would be forced to rely entirely on the
comparatively inefficient and time-consuming procedure of direct requisitioning to keep
its army in the field, with a consequent further decline in Nationalist operational
capability.
3. ARMED FORCES OF THE CHINESE COMMUNISTS.
a. Genesis.
Originally a part of the Kuomintang armies, the Chinese Communist military
units, along with Soviet military advisers, were forced out in the great purge of 1927.
After this break, Communist troops withdrew into the mountains of Chekiang and
Kiangsi Provinces. Continued pressure by the Nationalist armies impelled the Com-
munists to undertake in 1934-35 the "long march" to Shensi Province, where a head-
quarters was ultimately established at Yenan. Except for the United Front briefly
established against the Japanese in 1937, the Communist forces have in fact remained
outside the military organization of the National Government and have been under
military pressure by the Nationalist Army.
Under the necessity of frequently engaging troops superior in training, equip-
ment, and numbers, and in the absence of firmly fortified bases and industrial backing,
the Communist armed forces have developed as a guerrilla-type organization. The con-
tinued existence of the Communists as a guerrilla force required a broad political,
military, and economic base in a partisan countryside. The Communists have been
quite successful in achieving this, partly by effecting long-needed agrarian and tax
reforms and partly by skillful propaganda.
The total strength of the Communist military forces consists of both regular
and irregular troops. The Regulars are divided between the Field Forces and the
Local Forces. Field Forces, usually under the command of the top Communist tacti-
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cal generals, possess the greatest degree of mobility, operating within a broad area
wherever the situation requires. Local Forces are limited to a specific and more re-
stricted area, and are recruited locally for action in their home area. The Field Forces
are relatively well equipped and clothed and their command organization most closely
approximates traditional army groupings. The same is true of the Local Forces, but
to a lesser degree. Irregulars, or the Peoples' Militia, have less equipment, have re-
ceived less training, and operate in a smaller area than the Regulars. They supply
valuable local intelligence and, when not engaged in productive work, can be used in
combat to increase fire power to the extent that weapons are available. This organiza-
tional breakdown permits easy concentration or decentralization of forces as the occa-
sion demands.
Command in the Communist forces is characterized by a great degree of
decentralization and fluidity, essential to guerrilla operations. The central Com-
munist military command is responsible for over-all coordination of strategy, but issues
only broad directives to its top field commanders who retain considerable freedom
in developing tactics to suit local conditions.
b. Strength and Disposition.
As of 15 January 1948 it is estimated that the strength of the Communist
Regular Forces was 1,150,000. Of these, 400,000 are in Manchuria and Jehol, 400,000
in North China, 270,000 in Central China, and about 30,000 in South China. The ac-
curacy of these general estimates is limited by the difficulty in distinguishing regular
from irregular Communist troops and by frequent movement between the areas of North
and Central China.
c. Quality of Personnel.
The basic element of the Communist armies is the peasant, who shares a
common background with his Nationalist counterpart and possesses the same general
potentialities. Under the Communists, however, he has realized a greater degree of
this potential. For the type of war he is expected to fight, the Communist soldier is
more adequately clothed, equipped and trained, and his food is better. He is given
an intensive, clever, and continued indoctrination which stresses that the cause for
which he fights is just and that ultimate victory is inevitable. His officers, who have
advanced on merit, are comparatively honest, diligent, and competent. A feeling of
comradeship between officers and men contrasts with the prejudices, brutal practices,
and lack of sympathy between officers and men so widespread in Nationalist armies.
Consequently, in the Communist armies morale is high and the Communist soldier
frequently fights with enthusiasm for his cause. Discipline is rigid and demands that
soldiers maintain good conduct and proper relationships with the civilian population.
Actually, use of guerrilla tactics by the Communist Army reduces the re-
quirements for training. The Communist Army does not have a complex system of
supply, makes only limited use of technical equipment, and operates largely in small
groups employing only small arms. Consequently training of Communist soldiers em-
phasizes stealth and night fighting, and the proper use of rifle, machine gun, mine,
mortar, and grenade. Unit training is adequate up to battalion and regimental levels
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and emphasizes the orthodox tactics of small units. However, training of officers in
staff functions has in the past been somewhat neglected.
d. Weapons and Ammunition.
In the Chinese Communist Army, as with any guerrilla force, weapons con-
sist almost entirely of those which can be carried on the human back?rifles, machine
guns, grenades, and mortars. Practically all the weapons and ammunition in use by
the Communist armies were acquired from secondary sources, from Japanese stores
captured during World War II, especially in Manchuria during the period of Soviet
occupation and in North China following the Japanese surrender. More recently the
source has been Nationalist units, through capture, or by defection of whole units with
their equipment. These weapons consequently reflect the same heterogeneity which
characterizes the arms of the Nationalist armies. Included among the weapons of
the Communist armies are: 30 cal. (US) , 6.5 mm. (Japanese) , 7.92 (Mauser and Chi-
nese) rifles; 6.5 and 7.7 mm. (Japanese) , 7.92 (Chinese Maxim) , 30 and 50 cal. (US)
machine guns; 50 mm. (Japanese) grenade dischargers; various makes of carbines and
pistols, Japanese and crude Communist-made bayonets, Communist-made potato-mash-
er type hand grenades; 70 mm. (Japanese) , 60 and 81 mm. (US) , 82 mm. (Chinese)
mortars, 75 mm. (mostly Japanese) howitzers, and some antitank guns.
The Communist forces make extremely efficient use of available weapons by
conditioning their tactics to them. However, a lack of trained artillerymen has re-
duced their use of supporting artillery, although it has been used effectively on occasion,
particularly in Manchuria.
Resupply of ammunition is accomplished chiefly by capture from Nationalist
units, except for a limited ability of small Communist arsenals to reload expended
casings, and from the considerable stockpiles of Japanese weapons.
Frequently reiterated charges by Nationalist sources that the Soviet Union
is aiding the Communists on a current basis remain without convincing substantiation.
e. Transportation.
The primary lines of communication supporting the Communists Army are the
railroads, highways, and inland and coastal shipping. However, the Communists do not
hold any considerable length of operating railroad except in northern Manchuria where
the old Chinese eastern railroad from Manchouli via Harbin to Suifenho, and various
transverse lines running southward to the combat zones are presently in operation.
In areas of actual conflict further south, Communist operations have been primarily
directed at denial of the rail lines to the Nationalists by destruction rather than at cap-
ture for subsequent use. It is believed that the Communists have rolling stock sufficient
for their own comparatively simple needs.
The chief means of transportation throughout the Communist-controlled areas
of North China and southern Manchuria are the highways. A limited number of
highway vehicles have come into Communist hands but the horse cart and the human
back are still the prime movers.
The Communists engage in a limited amount of river transportation, mainly
along the Sungari River in Manchuria, and some coastal trade, mainly between
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southern Liaoning and the north coast of the Shantung peninsula. This latter trade
has been partially curtailed since the Nationalist capture of Chefoo and the surrounding
coastal area.
Since guerrilla strategy is predicated on a condition of limited supply, the trans-
portation problems of the Communists are comparatively simple. During engagements,
resupply from outside areas is not considered a prerequisite. Because the Communists'
high degree of mobility demands a reliance on local procurement, Communist operations
have been concentrated in areas of high productivity. Furthermore, because they
possess the initiative they can go into profitable areas. These various factors limit
the necessity for extensive transport support. However, as Communist operations have
expanded in both time and area, the Communists have become more dependent on
conventional supply concepts, but enjoy, particularly in Manchuria, secure rear area
lines of communication.
f. Navy and Air Force.
The unarmed or partially-armed junks plying the waters of the Yellow Sea,
the Po Gulf and Korea Bay represent all that could be termed a Communist Navy.
These vessels provide a limited amount of produce and troop transport, as well as
liaison between separated units of the Communist Army.
It is possible that the Communist Army has a limited number (50 at the most)
of obsolete Russian and Japanese aircraft which fell into its hands after the Japanese
surrender and which may now be located at airfields in North Manchuria. It is not
known if such aircraft remain operational, or if the Communists have any personnel
trained to fly them. However, it is unlikely that the Communists have overcome, or
possess the capabilities of overcoming in the future, all of the difficulties relative to the
operation of a tactical air force, without external assistance.
g. Potential.
(1) Manpower.
Despite the fact that the Communist Army has operated for 20 years on
more or less of a war footing, it has not yet exhausted its ability to recruit additional
personnel. On the assumption that at least 20 percent of China's population live
in areas under Communist control, a reserve of about 5,000,000 males of military age
should be available. Actually most of the recruits for the Communist regulars come
either from the irregulars, from newly occupied areas, or from defecting Nationalist
troops. The Communist Army in the past has been quite capable of recruiting
soldiers as rapidly as they can obtain weapons to arm and food to sustain such new
recruits.
(2) Resources.
Agriculturally, the Communists control extensive sections of China's food-
producing countryside, including 90 percent of Manchuria, which is a major food
surplus area. These regions produce not only sufficient food for the Communist Army,
but in certain areas enough to create a surplus for barter. In addition, due to the local
character of large bodies of Communist troops, the rice-wheat culture conflict does
not pose the problem it does in the Nationalist Army.
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The Communist Army does not rely on the mining and processing of
mineral resources to support their military campaigns. Considerable mineral deposits
lie within the areas controlled by the Communists, but shortage of machinery, facilities,
trained administrators and technicians limit the ability of the Communists to exploit
these holdings. Moreover, Communist strategy has consistently dictated the destruc-
tion of mines and mine equipment, indicating that the use of these does not yet form
a part of Communist planning.
(3) Industry.
The Communists operate practically no heavy industry (again because of
lack of trained personnel) but do possess a number of widely scattered small arsenals,
antiquated by western standards and capable of producing only limited quantities of
small arms and ammunition, and of reloading expended casings. Such production is
responsible for only a very small percentage of the materiel used by the Communist
Army.
Cloth production by widely decentralized Communist textile industry
is probably sufficient.
(4) Scientific.
The Communists do not have the trained personnel or the facilities to
experiment upon, develop, and produce rocket, atomic, electronic, bacteriological or
other scientific weapons now or in the immediate future.
(5) Finance.
For the present, Communist-controlled areas are mostly rural, contain-
ing few large urban centers, so there is little need for extensive financial control
over rural-urban relations. Pay in the Communist Armies is extremely small, even
by Chinese standards, but soldiers are provided adequate rations and clothing. Trade
is carried on largely by barter agreement both within Communist-held areas and
between areas bordering upon Communist-held China and Manchuria.
4. MISSIONS AND TACTICS OF THE NATIONALIST ARMED FORCES.
The basic mission of the Nationalist Armed Forces is to maintain the control of
the National Government in presently held areas and to extend that control through-
out China by destroying the Communist Army.
In pursuance of this mission, the Nationalists initially attempted to employ the
orthodox offensive tactics of a modern, western army and by use of massed, frontal
assaults and enveloping movements to occupy key cities, industrial regions, and to open
the major lines of communication. However, the Nationalist Army had neither the
industrial backing nor the transport facilities, competent generalship, efficient chan-
nels of command, nor local command initiative required to successfully mount and
maintain such operations. In attempting to fight a conventional war without logistic
support against an opponent which did not present the necessary targets for such
tactics, the National Government has been singularly unsuccessful.
When the Nationalists have been forced to abandon offensive movements in the
face of Communist pressure on their flanks and rear, as in Manchuria, the Nationalist
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command has adopted defensive tactics designed to keep open lines of communication
and to retain its hold on urban centers. In carrying out such defensive tactics, Nation-
alist forces have built blockhouses, perimeter defenses around key rail points (stations,
switches, bridges) and established fortress defenses, including the old-fashioned moat,
around the cities. Displaying a lack of aggressive spirit, Nationalist forces have
retired within their defenses, allowing the Communists free reign throughout the coun-
tryside. Thus, outlying garrisons do not receive required tactical support, and have
been isolated and sacrificed to the Communists. This defensive mentality has con-
tributed considerably to the tenuous position of the Nationalist forces in Manchuria, and
progressively in various localities of North China. The Nationalist offensive in Shan-
tung has ground to a stop as the Nationalists have been placed on the defensive through-
out all the operating areas in the civil war.
Optimistic predictions of early 1947 in Nationalist circles that the Communists
would be forced to accept surrender have given way to a more realistic appraisal of the
difficulties facing the Nationalist cause, and a defeatist mentality has developed in some
Kuomintang circles.
5. MISSION AND TACTICS OF THE COMMUNIST ARMED FORCES.
The basic mission of the Communist Armed Forces is to provide military security
for the Chinese Communist Party and to extend its control throughout China by
annihilating the vital strength of the Nationalist Army.
In pursuance of this mission, Communist strategy is designed not only to sap the
strength of the Nationalist Army but also, by denying the National Government ready
access to industry and transport routes, to disrupt its economy. Tactical action is
directed against opposing units and lines of communication rather than directed toward
attacking and defending geographic points or urban areas. The formulation of Com-
munist strategy has taken into account Communist limitations in equipment, num-
bers, and industrial support, in arriving at broad variations of guerrilla tactics, which
the Communist continue to employ with great skill. The Communists have realized
the apogee of military effect from their limited resources by living off the countryside,
operating in small mobile units, avoiding the main strength of the enemy, and
joining battle only when they hold the tactical advantage. They have shown no
hesitation in withdrawing from areas which would have been costly to defend, but
have retained their hold on broad belts of land which isolate the Nationalist forces
in separated operational regions. In addition, Communist operations have sealed
off rural areas from Nationalist-held urban centers, thus cutting off the flow of
produce into cities. They have disrupted Nationalist lines of communication by
continuous raids; they have enveloped outlying strongholds, attacking and reduc-
ing isolated Nationalist units. Communist groups have retreated before major Na-
tionalist offensives, appearing to give ground, only to materialize suddenly on the
flanks or in the rear of the main Nationalist forces. The Communists are con-
vinced that time is operating in their favor and that constant harassment will weaken
their foe to the point of collapse, an assumption which appears to be supported by the
course of events.
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In fact, the balance of military power has shifted to the advantage of the Commu-
nists, and they have been able to seize the tactical initiative on an increasingly larger
scale. This more recent phase of the war has been characterized by short-term Com-
munist offensives, still following the guerrilla pattern, against certain points necessi-
tating redisposition of Nationalist troops to reinforce the threatened areas. Such troop
movements are of themselves valuable to the Communist strategy as they place an
additional strain on overworked Nationalist transportation routes, prevent the Nation-
alists from concentrating their forces or consolidating their positions, and force the
Nationalists to undertake troop movements through areas where superior Communist
intelligence allows them to ambush the troops in transit. As Communist military
strength in an area?such as Manchuria?increases, they have launched offensives over
increasingly larger areas and for more extended periods of time. These attacks, still
basically along guerrilla lines, make Nationalist reinforcement from within the particu-
lar theater impossible and require them to undertake major troop movements from
outside to the damage of over-all Nationalist capabilities. In these offensives, as
demonstrated in Manchuria, the Communists are inclined less to launch assaults on
strongly defended points than to encircle and immobilize them. Recent Communist
operations, including the strategic shift into Central China, have displayed an increas-
ing coordination between Communist units in Manchuria, North China, and Central
China.
A high Communist military source was quoted as saying in November 1947, "We
will hereafter struggle for the possession of large cities." If this proves correct, it means
that the Communists are launching upon the next progressive stage in the development
of their strategy.
6. CAPABILITIES AND FUTURE TRENDS.
The Nationalist Army does not have the capability, at present, of fulfilling its
mission. Not only is it unlikely that it can extend its control to the boundaries of
China, but it is also improbable that it can successfully defend its present territories.
In the past the Nationalist command demonstrated a tendency to overestimate its
own combat capabilities, to underestimate the Communists, and to fall into related
tactical errors, including overextension into thinly held salients. It was and is difficult
for the Nationalists to support units so disposed. With almost all of its tactical strength
already committed to battle areas, the Nationalist Army does not now have adequate
reserves to make replacements. Nor can it reinforce one theater of action from another
without weakening, to the point of defaulting, the first. Other limitations on combat
efficiency of the Nationalist Army include: a deteriorating supporting economy, lack of
adequate communications and industry, corrupt and often professionally incompetent
generalship, passive tactics, large and inefficient masses of men under arms, shortages
in trained military personnel and technicians, depressed morale among officers and
men, and a lack of popular support. On the other hand, the Nationalists hold local
advantages in fire power, which in strongly defended positions has deterred the Commu-
nists from general all-out efforts at these points. They also enjoy limited but valuable
air and naval support.
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The Communist Army possesses the capability of at least partially fulfilling its
mission. In addition to continuing to provide armed security to the Chinese Commu-
nist Party, it is capable of expanding the area it now controls.
At present the Communists hold the strategic and tactical initiative. This advan-
tage, together with Communist control of the countryside, permitting free mobility,
generally results in the initial advantage of tactical surprise. The Communists usually
have been extremely realistic in estimates of their own and Nationalist combat capa-
bilities. Their leaders, recognizing a situation of limited supply, have ably exploited
most available resources and personnel. In areas long under Communist control, they
have all but eliminated popular opposition, either by enlisting active support of their
land program from the peasants or by forcible means. They have a comparatively
honest and capable leadership. As a result of a shrewdly conceived and cleverly con-
ducted psychological campaign, Communist troop morale is very high. On the other
hand, the Communists have lacked the ability to sustain coordinated offensives
against strongly defended urban areas, and the scope and duration of past Com-
munist offensives have been restricted by limitations in transport, and in supplies
of ammunition and food. In addition, areas where the physical geography is best
suited to guerrilla activities are inherently not those best suited to support large-scale,
conventional military activity.
During the past year, the military strength of the Nationalists has been seriously
attenuated. In the absence of large-scale military aid from foreign sources, abetted by
internal reform of the Nationalists, the coming months will see a continued dissipation
of the Nationalist armed potential and a further reduction in its popular support.
Having already passed from the offensive to the defensive, the Nationalist forces now
appear to be incapable of preventing the Communists from containing them in separate
geographic areas, isolated from their source of supply and from each other. Nation-
alist units, without materiel or personnel support in these isolated areas, will suffer
the attrition of both time and combat, reducing the rice the Communists will have
to pay ultimately for the conquest of the area. It is probable that some of these
beleaguered and shut-off urban areas will fall to the Communists without an all-out
assault. Therefore, the Communists, although holding the upper hand in Manchuria,
may be inclined to suffer the Nationalists to retain their hold on certain urban areas
there, for, as the Nationalists continue to dissipate a not insignificant portion of their
strength in Manchuria, Communist capabilities in the rest of China are increased. Fur-
thermore, the conquest of these urban areas by the Communists might well prove pre-
mature at present, both because the cost in materiel and men would be high and because
the possession of a number of large cities would confront the Communists with admin-
istrative problems which they may not yet be prepared to assume.
Yet, in the absence of an abrupt change in the current military trends, the fall of
all of Manchuria to the Communists seems inevitable. Because the Nationalists will
probably defend their Manchurian positions to the end (for reasons of prestige as well
as policy), they stand to lose the food resources, the important industrial resources, and
all occupying troops. Containment of the Nationalists in separate geographic areas,
while currently most advanced in Manchuria and North China, can be expected to
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extend to the areas further south. As the southward trend develops, the Communists
will continue to make attacks designed to occupy maximum Nationalist garrisons in the
areas to the north.
The rate at which the military position of the Nationalist Government has deterio-
rated in the past year has been especially noteworthy. They have retrogressed from
an optimistic, offensive-minded strategy to a pessimistic, defensive state of mind. In
the coming months of 1948 Communist actions will probably be aimed at continued
offensive moves in Manchuria, harassment of Nationalist movements in North China
and along the Lunghai railroad and Yangtze River, a push into the areas south of the
Yangtze and possibly into Szechuan, and a resurgence of activity in the Canton area.
This will require the Nationalist forces to remain dangerously spread out and tied down
in individual garrisons, many of which will be lacking in adequate logistical backing.
The Nationalists are completely incapable of coping with Communists' actions on all
of these widely scattered fronts.
The sole mitigating factor in the Nationalist outlook is the prospect of further US
military and economic aid in the near future. Initially, such aid would only serve mili-
tarily to bolster sagging Nationalist morale. Over a longer period of time the effect of
such aid, while dependent on its quantity, would be chiefly to keep the Nationalists in
the field against the Communists. If such aid were on a large scale, offensives of
limited scope could be successfully undertaken; however, it is unlikely that such aid
would ever serve to create in the Nationalist Army the ability to eradicate the Com-
munist movement from China. Not only is the movement by now far too well estab-
lished to be erased by military means but there are great difficulties besetting the
effective use of any amounts of US assistance. Besides the great logistic difficulties
(production, great distances, and expensive shipment to China, and Nationalist China's
poverty in transport) which have to be overcome, it is absolutely necessary that
not only the make-up but also the leadership of the Nationalist Army undergo ex-
tensive reforms. This would mean that the Generalissimo would have to break
with a large number of those military leaders whose support has retained him in
the position of power he now holds. A further difficulty is a strong native Chinese
sentiment against any foreign intervention. If that intervention takes the form
of US aid to an unpopular government, it would provide an extremely effective propa-
ganda weapon to the Communists. Even in the unlikely prospect that these difficulties
were overcome, and the Nationalist Army were to give promise of fulfilling its mission,
there exists the possibility that the USSR, in those circumstances, would extend some
degree and type of countersupport to the Chinese Communists.
The Communists, fighting a war of economic attrition in time rather than a con-
ventional war for fixed points, would probably find the temporal process of Nationalist
economic deterioration retarded by the addition of US economic support, but it is not
probable that the Communists will be defeated on the battlefield.
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1850-1864
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APPENDIX D
CHRONOLOGY OF IMPORTANT EVENTS
British victory over China in the Opium War results in the first "un-
equal" treaties imposed on China and opens the country to foreign
trade.
Tai-ping Rebellion, a long and bloody revolt against the Manchus, is
finally put down with the help of British, French, and US leadership
and volunteer aid.
1899-1901 The Boxer Rebellion, an antiforeign revolt, is put down by the military
action of the Foreign Powers after the murder of the German Minister
and a siege of foreign legations in Peking.
10 Oct. 1911 The Manchu Dynasty is overthrown and the Republic is established.
1912-1916 Yuan Shih-kai assumes the Presidency of the Republic and centralizes
much of the power in his own hands. His endeavor to restore the
monarchy fails.
1916-1926 Period of regional warlordism.
1921 The Chinese Communist Party is founded in Shanghai.
1922 The Washington Conference draws up the Nine Power Treaty in which
the signatories agreed to respect the sovereignty, independence, and
territorial and administrative integrity of China.
1923 Soviet advisers come to China at the invitation of Sun Yat-sen, who is
in power in Kwantung, to assist the development of the Nationalist
(Kuomintang) Party and Army.
1924 The Kuomintang holds its First National Congress, and the Chinese
Communists are admitted into the Party.
Founding of Whampoa Military Academy.
12 March 1925 Sun Yat-sen dies.
Summer 1926 Chiang Kai-shek commands the northern expedition, which is
launched in an attempt to unify the country and abolish the influence
of the northern warlords.
1926 Chiang secures the support of the Chinese bankers and merchants in
Shanghai, gaining financial strength for the Kuomintang.
1927 The Customs Administration is returned to Chinese autonomy. Soviet
advisers are expelled and the Chinese Communists are driven out of
the Kuomintang in a bloody purge. Chiang's power is consolidated
with the establishment of the Nanking Government.
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6 July 1928 In theory the unification of China is completed with the taking of
Peking (now Peiping) by emissaries of Chiang Kai-shek.
18 Sept. 1931 "Mukden incident" begins the Japanese occupation of Manchuria.
18 Feb. 1932 The puppet state of Manchukuo declares its independence of China.
5 May 1932 Sino-Japanese Peace Agreement is signed, terminating hostilities in
the Shanghai area.
1934-1935 Chinese Communists, beset by the Kuomintang, undertake the "Long
March" overland from South China to Shensi Province, and entrench
there.
May 1935 Student demonstrations protest against Japanese expansion in China
and call for resistance.
1935 Japanese extend control over Hopei and Chahar.
12-25 Dec. 1936 Chiang Kai-shek is kidnapped by dissident generals at Sian. After
his freedom his position is stronger than ever.
1937 Nationalists and Communists form a "United Front" for resistance to
the Japanese.
7 July 1937 Incident of the Marco Polo bridge near Peiping intensifies Sino-Japa-
nese hostilities and touches off war, 1937-1945.
21 Aug. 1937 Treaty of Non-Aggression between the Chinese and the Soviet Govern-
ments is signed in Nanking.
10 Sept. 1937 The Chinese Red Army is reorganized under the National Military
Council to fight as part of the Chinese national army.
20 Nov. 1937 The National Government announces its removal to Hankow. It sub-
sequently moved to Chungking.
1 April 1938 As the Emergency National Congress of the Kuomintang closes,
Chiang Kai-shek is elected Tsungtsai (leader) of the Party.
30 March 1940 Puppet Nanking government is formed under Wang Ching-wei, with
Chen Kung-po as second in command.
18 Jan. 1941 The National Military Council orders the disbandment of the New
Fourth Army as a "measure of military discipline," marking the break-
down of the National Government-Chinese Communist United Front.
18 Jan. 1941 Sino-British Yunnan-Burma boundary Demarcation Agreement is
signed in Chungking.
9 Dec. 1941 China declares war on Japan, Germany, and Italy.
11 Jan. 1943 US and UK sign treaties with China renouncing extraterritorial
rights.
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1 Aug. 1943
10 Oct. 1943
1 Dec. 1943
17 Dec. 1943
29 Sept. 1944
9 Oct. 1944
11 Feb. 1945
25 April 1945
8 Aug. 1945
9 Aug. 1945
14 Aug. 1945
24 Aug. 1945
2 Sept. 1945
9 Sept. 1945
27 Nov. 1945
15 Dec. 1945
Lin Sen, Chairman of the National Government dies; Chiang Kai-shek
is appointed acting chairman.
Chiang Kai-shek assumes office as President of the National Govern-
ment.
The Joint Declaration of the Cairo Conference is issued by the US, UK,
and China. China is promised the return of all territories taken by
Japan from China.
Roosevelt signs legislation repealing the Chinese Exclusion Act.
Sino-British-US phase of Dumbarton Oaks Conference begins.
The Dumbarton Oaks agreement on international organization is
published.
Yalta secret agreement is signed by the US, USSR, and UK promising
the USSR the restoration of former Russian rights violated by the
Japanese attack of 1904.
The United Nations Conference on International Organization opens
in San Francisco, with China as one of the major participants.
USSR declares war on Japan.
Soviet Army enters Manchuria.
China and the USSR sign a Treaty of Friendship and Alliance in Mos-
cow. In these agreements the USSR pledges to recognize only the
National Government as central government of China, to respect
China's sovereignty in Manchuria, and to -refrain from interference in
Sinkiang, while China grants special rights to the USSR in Manchuria,
and agrees to recognize the independence of Outer Mongolia.
The National Government ratifies the UN Charter and the Sino-Soviet
Treaty. Chiang Kai-shek announces that China will not send forces
to occupy Hong Kong if the occupation will cause Allied misunder-
standing.
Instrument of Japanese surrender is signed on board the USS Missouri.
Surrender of the Japanese in China is signed at Nanking.
General Marshall is appointed as the President's special envoy to China
with ambassadorial rank.
President Truman issues statement of US policy in China calling for
cessation of civil strife in China and a united government under Presi-
dent Chiang Kai-shek, as a basis of US support.
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27 Dec. 1945
5 Jan. 1946
10 Jan. 1946
31 Jan. 1946
11 Feb. 1946
25 Feb. 1946
12 March
24 March
Big Three Foreign Ministers Conference in Moscow announces a series
of agreements on the creation of a Far Eastern Commission; an Allied
Council for Japan; ultimate re-establishment of a Free Korea, and the
reaffirmation of adherence to the policy of noninterference in the in-
ternal affairs of China. The USSR and the US announced complete
accord on the desirability of withdrawal of Soviet and US troops from
China.
China ;officially recognizes the independence of Outer Mongolian
Republic.
National Government and Communist representatives announce a
military truce. The Political Consultative Conference opens.
The Political Consultative Conference adopts general principles for the
reorganization and nationalization of the armies, the make-up of the
National Assembly to review the Draft Constitution, and the structure
of the new coalition government.
Washington and London publish the text of the secret Yalta Agree-
ment signed February 11, 1945.
An official Chinese statement of policy reasserts China's sovereignty
over Manchuria and respect for the Sino-Soviet Treaty of August 1945.
An agreement is signed in Chungking providing for a National Army of
60 divisions within 18 months, absorbing the Communist Army.
1946 Gen. Chiang Chih-chung reports contents of agreement to the Kuo-
mintang Central Executive Committee, granting self-government to
Kazakhs in Sinkiang.
1946 Moscow confirms announcement that the USSR will complete with-
drawal of Red troops from Manchuria by end of April.
Communist leader Chou En-lai, accusing the National Government of
violating the truce, declares a state of all-out hostilities to exist in
Manchuria.
15 April 1946
1 May 1946
16 May 1946
20 May 1946
9 July 1946
10 Aug. 1946
SECRET
The National Government officially returns from Chungking to Nan-
king.
The National Government is advised indirectly that all Russian troops
have been withdrawn from Manchuria except for some troops at Port
Arthur and Dairen.
Marshall accuses both sides of fomenting hate campaigns which en-
danger the interests of the nation.
John Leighton Stuart is named US Ambassador to China.
Marshall and Stuart issue a joint statement that peace in China ap-
pears impossible.
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13 Aug. 1946
19 Sept. 1946
28 Sept. 1946
4 Nov. 1946
15 Nov. 1946
18 Dec. 1946
31 Dec. 1946
Jan. 1947
7 Jan. 1947
29 Jan. 1947
1 March 1947
19 March 1947
12 April 1947
16 April 1947
23 April 1947
June 1947
July 1947
18 July 1947
24 Aug. 1947
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Chiang announces a 6-point policy including broadening of the Gov-
ernment and convocation of the National Assembly.
Chou En-lai announces that he has left the Nanking peace talks.
Marshall requests that all shipments of US military, supplies to China
be stopped until further notice from him.
China and the US sign a five-year treaty of friendship, commerce, and
navigation.
The National Assembly convenes to adopt a constitution. The Com-
munists and the Democratic League refuse to attend.
President Truman, in a statement outlining US policy toward China,
reiterates the main points in his declaration of 15 Dec. 1945.
Chiang signs an order promulgating the constitution.
Marshall is recalled from China and appointed Secretary of State.
Marshall makes a statement on return from China that both the Na-
tional Government and Communists are responsible for the breakdown
of peace efforts and that liberals in the Government and the minor
parties are the hope of China.
US announces conclusion of mediation efforts, withdrawal of troops
from China, and closing of the Peiping Executive Headquarters.
T. V. Soong resigns as premier following the economic crisis.
Government troops occupy Yenan, evacuated capital of the Chinese
Communists.
Soviet note to China reiterates stand that no Chinese National troops
may enter Dairen until the state of war is terminated by treaty with
Japan.
Chang Chun succeeds T. V. Soong as premier.
Interim Coalition Government is formed, allowing two minor parties,
the Youth Party and the Social Democrats, as well as nonpartisans,
seats in the Government.
Soviet Ambassador Petrov returns to Moscow without a successor being
named.
US sends fact-finding mission under Lt. Gen. Wedemeyer to China.
National Government declares all-out war against the Chinese Com-
munists classing them as rebels.
General Wedemeyer, on departure from China, makes statement
harshly critical of the National Government.
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20 Sept. 1947 T. V. Soong is appointed Governor of Kwangtung.
Sept. 1947 The 6th Communist offensive in Manchuria begins in latter part of
month. During this month Communist armies also begin to pene-
trate the area of Central China between the Lun-hai Railroad and the
Yangtze River.
1 Oct. 1947 National Army captures Chefoo.
27 Oct. 1947 US and China sign relief pact giving US wide supervisory power over
China's $30,000,000 share of the post-UNRRA appropriation.
28 Oct. 1947 Democratic League, accused of abetting the Communists, is outlawed
by the National Government.
11 Nov. 1947 Marshall proposes a program calling for $300,000,000 in new relief for
China.
14 Nov. 1947 Chinese Communists capture Shihchiachuang.
Nov. 1947
The 6th Communist offensive in Manchuria terminates in the middle
of the month with the Communists having made important gains in
the countryside, but having failed to dislodge Nationalist forces from
the major cities.
21-23 Nov. 1947 National elections are held for the first time in China to choose mem-
bers of the National Assembly.
8 Dec. 1947 An agreement is signed between the US and China concerning the
transfer of naval vessels from the US to China.
12 Dec. 1947 Meeting of National Assembly, scheduled for 25 December, is post-
poned.
17 Dec. 1947 General Wedemeyer, testifying before the US Senate Appropriations
Committee, urges aid to China.
19 Dec. 1947 Congress votes interim aid of $18,000,000 to China.
25 Dec. 1947 The new Constitution is "inaugurated," with the old laws continuing
in effect until the National Assembly elects a President of China. Date
of 29 March 1948 is set for convening of National Assembly.
Dec. 1947 The 7th Communist offensive in Manchuria begins in mid-December.
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NOTICE TO RECIPIENTS OF CIA REPORT ON CHINA (SR-8)
Holders of SR-8 are instructed to insert the attached table of contents (dated
March 1948) and to destroy, in accordance with security regulations, all other tables
of contents which have appeared with sections of SR-8. A new table of contents will
be issued when all sections of the report have been completed.
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Published May 1948 SECRET
SR-8
CHINA
TABLE OF CONTENTS
SUMMARY
SECTION I ? POLITICAL SITUATION IN NATIONALIST CHINA
(Information is as of September 1947)
1.
GENESIS OF THE PRESENT POLITICAL SITUATION
I- 1
a.
Government under the Manchus .
I- 1
b.
The New Republic?A Period of Chaos 1911-1927 . .
I- 2
c.
The National Government under the Kuomintang 1928-1945
I- 3
d.
Developments since V-J Day
I- 3
2.
PRESENT NATIONAL GOVERNMENT STRUCTURE
I- 5
a.
The Theoretical Structure of the Government .
I- 5
b.
The Form and Operation of the Government in Practice
I- 8
3.
POLITICAL PARTIES
1-12
a.
The Kuomintang . ? .
1-12
b.
The Chinese Communist Party
1-16
c.
Minor Parties ? ?
1-17
4.
CURRENT DOMESTIC PROBLEMS AND ISSUES
1-19
a.
Political Unrest within Nationalist China
1-19
b.
Coalition Government
1-20
c.
The New Constitution
1-20
d.
Military Reform .
1-21
e.
Economic Deterioration
1-21
5.
SEPARATISM AND WARLORDISM ?
1-22
a.
Separatist Movements along the Northern Frontier
1-22
b.
Discontent in Taiwan . . .
1-23
c.
Secession Tendencies in South China
1-23
d.
Revival of Warlordism .
1-24
6.
STABILITY OF THE NATIONAL GOVERNMENT .
1-24
a.
Probable Developments if US Aid Is Withheld .
1-25
b.
Possible Developments if US Aid Is Forthcoming
1-27
c.
USSR Reaction to a US Aid Program .
1-28
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SECTION II? POLITICAL SITUATION IN COMMUNIST CHINA
(Information is as of September 1947)
1. HISTORY OF THE CHINESE COMMUNIST PARTY II- 1
2. PARTY IDEOLOGY AND PROGRAM . II- 3
a. Policies in Communist China II- 4
b. Policies vis-a-vis the National Government II- 4
3. PARTY ORGANIZATION . . ? ? II- 5
a. Organization on National Level . . II- 5
b. Provincial and Local Party Organization . II- 6
c. Party Membership . II- 6
4. GOVERNMENT IN COMMUNIST CHINA . II- 7
a. Structure of Regional Governments II- 7
b. Government in Practice II- 7
c. Civil Liberties II- 8
5. COMMUNIST ATTITUDE TOWARD FOREIGN POWERS . II- 8
a. Friendly Policy toward USSR II- 9
b. Critical Attitude toward US II- 9
6. POSSIBLE CONFLICT WITHIN THE PARTY . II- 9
7. STRENGTH AND INTENTIONS OF CHINESE COMMUNISTS II-10
SECTION III ? THE ECONOMIC SITUATION
(Information is as of March 1948)
SUMMARY
1. CHINA'S ECONOMY: BACKGROUND AND DEVELOPMENT III- 1
a. Background of the Present Economy III- 1
(1) Contact with the West ? III- 1
(2) Internal Reforms and Modernization III- 2
b. China's Economic Balance Sheet III- 2
(1) China's Assets . III- 2
(2) China's Liabilities ? III- 3
(3) In Sum . III- 3
c. Dominant Factors in the Postwar Economy of China III- 4
(1) The Civil War III- 4
(2) The Inflation . III- 4
(3) Confusion in the Government III- 4
d. The Position of Private Enterprise in Postwar China III- 4
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2. THE SEGMENTS OF CHINA'S ECONOMY ?
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III- 5
a.
Agriculture . ? ?
III- 5
(1)
Importance to the Economy and General Characteristics
III- 5
(2)
Production Trends .
III- 6
(3)
Basic Deficiencies
III- 7
(4)
Effects of War and Civil Conflict .
III- 8
(5)
Government Reforms and Improvements
III- 8
(6)
Population ? A Basic Problem
III- 9
b.
Fuels and Power
III- 9
(1)
Coal .
III- 9
(2)
Oil ? ?
III-10
(3)
Electric Power.
III-11
c.
Mineral Resources and Mining
III-11
(1)
Iron Ore, Iron, and Steel
111-12
(2)
Tungsten .
111-12
(3)
Copper, Lead, and Zinc
111-12
(4)
Tin .
111-13
(5)
Antimony
111-13
(6)
Mercury
111-14
(7)
Salt .
111-14
d.
Manufacturing Industry .
111-14
(1)
General Industrial Pattern
111-14
(2)
Important Manufacturing Industries
111-15
(3)
The Chinese Industrial Cooperatives
111-16
e.
Labor . . .
111-16
(1)
Government Control of Labor
111-16
(2)
Labor Standards
111-17
(3)
The Chinese Association of Labor
111-17
(4)
The Shanghai General Labor. Union
111-18
f.
Finance
111-18
(1)
The Chinese Monetary Unit
111-18
(2)
The Banking System .
111-18
(3)
China's National Debt
111-19
(4)
China's National Budget
111-19
(5)
China's Official Gold and Dollar Assets
111-20
(6)
The Current Financial Situation
111-20
g.
Foreign Trade and Balance of Payments
111-21
(1)
Imports and Exports
111-21
(2)
Balance of Payments . .
111-22
(3)
Government Controls over Foreign Trade
111-24
(4)
The Strategic Importance of the China Trade
111-24
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3. STABILITY OF THE CHINESE ECONOMY . 111-24
a. Long-term Stability 111-24
b. Short-term Stability 111-25
c. US Aid . 111-25
4. THE ECONOMIC SITUATION IN COMMUNIST CHINA 111-27
a. Agriculture . 111-27
b. Industry and Mining ? ? 111-28
c. Finance 111-28
d. Trade . 111-29
e. Economic Potential of Communist China 111-29
SECTION IV ? FOREIGN AFFAIRS
(Information is as of March 1948)
1. GENESIS OF PRESENT FOREIGN POLICIES
2. RELATIONS WITH THE USSR .
IV-'
IV-2
3. RELATIONS WITH THE US . IV- 5
4. RELATIONS WITH JAPAN IV- 8
5. RELATIONS WITH UK . . IV-10
6. RELATIONS WITH INDIA AND PAKISTAN IV-12
7. RELATIONS WITH STATES OF SOUTHEAST ASIA IV-13
a. Indo-China ? ? IV-14
b. Siam . IV-14
c. Indonesia IV-15
d. Philippines IV-15
e. Malaya . IV-15
f. Burma . IV-16
8. CHINA'S PARTICIPATION IN INTERNATIONAL ORGANIZATION
IV-16
SECTION V ? MILITARY SITUATION
(Information is as of January 1948)
1. THE CIVIL WAR, 1945-1947 . V- 1
2. ARMED FORCES OF THE CHINESE NATIONAL GOVERNMENT V- 3
a. Genesis . V- 3
b. Strength and Disposition V- 4
c. Quality of Personnel . V- 5
d. Transportation V- 5
e. Weapons and Ammunition V- 6
f. Air Force V- 7
g. Navy . V- 8
h. Potential V- 9
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3. ARMED FORCES OF THE CHINESE COMMUNISTS
a. Genesis . . . V-10
b. Strength and Disposition V-11
c. Quality of Personnel . V-11
d. Weapons and Ammunition . . V-12
e. Transportation . V-12
f. Navy and Air Force . . V-13
g. Potential . . V-13
4. MISSIONS AND TACTICS OF THE NATIONALIST ARMED FORCES V-14
5. MISSION AND TACTICS OF THE COMMUNIST ARMED FORCES V-15
6. CAPABILITIES AND FUTURE TRENDS V-16
SECTION VI? STRATEGIC CONSIDERATIONS AFFECTING
UNITED STATES SECURITY
(Information is as of October 1947)
I. CHINA AS AN INTERNATIONAL PROBLEM . VI-1
2. CHINA AS A THREAT TO US SECURITY VI-2
a. An Unstable China . VI-2
b. A Communist China . VI-2
c. A Unified Non-Communist China VI-3
3. CHINA AS A US ALLY VI-3
a. Political Factors 11I-3
b. Economic Factors VI-4
c. Military Factors VI-4
SECTION VII ? PROBABLE FUTURE DEVELOPMENTS AFFECTING
UNITED STATES SECURITY
(Information is as of October 1947)
APPENDIX A ? Topography and Climate (March 1948)
APPENDIX B ? Communications Facilities (March 1948)
APPENDIX C ? Population Statistics and Characteristics (in preparation)
APPENDIX D ? Chronology of Important Events (Information is as of January 1948)
APPENDIX E ? Biographical Data (Information is as of November 1947)
APPENDIX F ? Manchuria (in preparation)
APPENDIX G ? Mongolia (in preparation)
APPENDIX H ? Sinkiang (in preparation)
APPENDIX I ? Taiwan (Formosa) (Information is as of March 1948)
APPENDIX J ? Tibet (in preparation)
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? SECTION III
THE ECONOMIC SITUATION
? SUMMARY
Economic ills are almost as significant a factor in China's present critical status as
the civil conflict which is itself both an outgrowth and the major cause of economic
instability.
Despite sporadic efforts at improvement extending over the past forty years, China
remains a vast, overpopulated region in which agricultural resources have been over-
exploited while natural and industrial potentialities have remained relatively unde-
veloped. The country's economic development, furthermore, has been constantly
interrupted by external and internal strife, and checked by the stubborn inertia of
traditionalism.
Had there been no civil conflict, and had the government been free of the various
handicaps that now hamper it (see Section I, pp. 10), China might have emerged from
the last war as a major power in fact, able to exploit its very considerable resources, to
make full use of its enormous labor force, to harness its great hydroelectric potential,
and in general to supplant Japan as the industrial leader of the Far East. As matters
stand, however, China's postwar weakness, the demands of present military operations,
4111 and the impotence of the government have combined to bring about: (a) conditions
preventing fundamental economic reform or improvement; (b) a decrease in the already
very low standard of living; (c) a virtual cessation of manufacture; (d) lower agricul-
tural production than might have been expected under normal conditions; and (e) an
unprecedented inflation which must have brought ultimate economic chaos long ago
had not the country been primarily agricultural and thus somewhat insulated from its
effects.
While Nationalist China has been thus imperiled by the consequences of unfulfilled
modernization, Communist China has hardly been disturbed by problems purely eco-
nomic. Where the Nationalists were in part dependent on industry, foreign trade, and
a stable medium of exchange, Communist areas were based exclusively upon agriculture
and an entirely primitive economy. With Manchurian factories stripped or inoperative,
the Communists have concentrated upon manufacture of arms in a few necessary
arsenals to supplement equipment, chiefly Japanese, left by the Soviets. Having little,
but needing little, they have been and will continue able to prosecute the war with
fluctuating degrees of success, unaided but unhindered by the usual necessities of
modern warfare.
Under present circumstances, there can be no economic future for Nationalist
China other than further and accelerated deterioration. Although the same inertia
NOTE: The information in this report is as of March 1948.
The intelligence organizations of the Departments of State, Army, Navy, and the Air
Force have concurred in this report.
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that withstood modernization has withstood and may for a time continue to withstand
the pressure of China's mounting inflation, the day must eventually come when the
national currency as a medium of exchange will be disclosed as an anachronism even
to the most dogged peasant. When confidence in the Government's currency is thus
lost, the possibility of military collapse would be appreciably enhanced, which as mat-
ters stand, can be of advantage to the Communists alone. Although it would be many
years before they, or an outside power, could consolidate sufficiently to exploit China's
economic potential, Communist forces would at least be in position, should the Govern-
ment of Nationalist China collapse, for ultimate economic control of one of the chief
strategic regions of the world.
Outside aid in the form of capital would be a prime necessity to Nationalist sur-
vival of the economic ruin it now faces, but more than monetary aid would be required.
Nothing of real value could be accomplished, in any event, until the Communist armies
had been defeated or at least rendered incapable of interfering with the means of
economic recovery. Even with this menace removed, however, there would remain for
China the pressing need for such measures as land reform (which always has been and
always will be resisted by powerful vested interests), exploitation of now inaccessible
mineral and hydroelectric resources, and construction of a modern transportation sys-
tem. The Government as constituted at present (Spring 1948) , left to its own devices,
would probably not carry out such reforms to the limit necessary to insure ultimate
economic stability.
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SECRET MARCH 1948
? SECTION III
?
?
THE ECONOMIC SITUATION
Any discussion of the economic situation in China is necessarily dominated by the
political implications of the current Civil War. Because of the large areas under direct
Chinese Communist control, such matters as economic policy and current economic
conditions must be reviewed separately for National China (roughly, the area south
of the Lunghai Railroad plus the Peiping-Tientsin-Mukden corridor) and Communist
China (the area north of the Lunghai including virtually all of Manchuria) .* The
economic history and the basic economic resources, of course, must be discussed from
the point of view of China as a whole (including Manchuria and Taiwan) . The organi-
zation of this Section is thus divided into four principal subsections. Of these, the first
three?China's Economy: Background and Development; The Segments of China's
Economy; and The Stability of China's Economy?deal with the basic resources of
China as a whole and treat the current situation from the point of view of Nationalist
China. The final subsection?The Economic Situation in Communist China?discusses
the economic policies and capabilities of the Chinese Communists.
1. CHINA'S ECONOMY: BACKGROUND AND DEVELOPMENT.
China is an undeveloped, overpopulated, loosely integrated, predominantly agri-
cultural country. Foreign aggression, political instability, and basic deficiencies in
resources have combined to withhold from the Chinese people the material advantages
of nineteenth and twentieth century Western civilization.
a. Background of the Present Economy.
(1) Contact with the West.
Relationships between China and the Western World in the modern
period were first established when Portuguese ships entered the harbor of Canton in the
sixteenth century. Trade with Europe fo,r many years afterward was rigidly con-
trolled by the rulers of China so that the exchange of European manufactures for
Chinese luxury goods was accomplished only under the greatest handicaps. China's
restrictions on its trade became particularly vexatious when, after the Industrial Revo-
lution, England and some other European countries were faced with the necessity of
securing additional markets and sources of raw materials.
The difficulties of establishing satisfactory economic relations with China
led directly to a series of wars, incidents, and uprisings between China, England, France,
Russia, and Japan. China came out the loser in all these engagements and was forced
to cede and lease sections of its territory and to grant special privileges, concessions, and
rights to foreigners residing in China.
* It should be recognized, of course, that the area under Chinese Communist control has been
increasing at the expense of Nationalist China, and to a certain extent this division of the country
is ephemeral and somewhat artificial for purposes of economic analysis.
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Alarmed by the special economic concessions which foreign powers
exacted from the Chinese Government, the United States in 1899 asked that the China
trade be open to all nations without discrimination by countries then established in
the China ports.
(2) Internal Reforms and Modernization.
After China's defeat in the Boxer Rebellion at the beginning of this cen-
tury, a movement toward modernization was started. Western ideas were introduced
in the schools; the army was reorganized, and efforts were made to modernize the admin-
istration of the government. A program of public works was started; foreign commerce
was expanded, and an attempt was made to introduce a representative assembly. All
these trends were temporarily interrupted by the overthrow of the reigning Manchu
dynasty and the establishment of a Chinese Republic in 1911.
The Sino-Japanese war interrupted the rather substantial progress which
the new republic had made toward the establishment of a modernized economy. China
managed to salvage some of its new industrial plant by moving it to Western China
beyond the reach of the Japanese armies. The Japanese, on the other hand, expanded
and developed the resources of Eastern China for their own use, which were inherited,
largely intact, by the Chinese after the surrender of Japan. Despite the ravages of
the war, China probably emerged from the conflict at about the same level of industriali-
zation it had reached in 1937.
b. China's Economic Balance Sheet.
(1) China's Assets.
A vast reservoir of labor. For maximum exploitation of this labor sup-
ply, however, a redistribution of population will be necessary. As a matter of fact, so
large is the population of China and so densely populated are those areas where the
land is fertile, that it is actually a moot question whether China's 450 million people
represent an asset or a liability in terms of the current state of the economy.
A relatively large proportion of land under cultivation. China has
approximately 27 percent of its land under cultivation (US has about 23 percent) . In
relation to the number of farmers, however, the amount of cultivable land is extremely
limited; the average size farm is approximately four acres.
A diverse climate. China has all the variations of climate that charac-
terize the United States?from the hot, humid weather of the south, to the cold and
dry weather of the north.
Several good ports and navigable inland waterways. The ports of
Shanghai, Tsingtao, Tientsin, and Canton now permit a large amount of foreign com-
merce. The Yangtze, the Yellow, and the West Rivers, and the Grand Canal, together
with many other navigable rivers and canals penetrate China's interior.
Some mineral resources. China has a substantial reserve of coal, anti-
mony, tungsten, tin, aluminous shale, magnesium, and molybdenum. Some iron ore
and petroleum are also available. To a considerable extent, however, all these deposits
are undeveloped and/or currently inaccessible.
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(2) China's Liabilities.
Lack of a modern, integrated industrial base. In the centuries when
other countries developed and expanded its economies, China's energies were spent in
buffeting the territorial demands and encroachments of foreign powers and coping with
internal political instability. It may be, of course, that even without the problems of
external and internal political pressures, China was too loosely integrated in terms of
its basic economic resources and too steeped in the philosophy of the past to have devel-
oped in the way that Japan, for example, did. In any event, the delay in the develop-
ment of the Industrial Revolution in China is clearly reflected in that country's
inadequate industrial plant, lack of a modern transportation system, and insufficient
flood control, water power, and irrigation projects.
An unsatisfactory relationship of population to arable land. Although
China is basically an agricultural country, the land has long since reached its population
saturation point. The Malthusian checks of war, disease, and famine have periodically
operated to reduce the population to that level which current agricultural production
could support.
(3) In Sum.
China, then, is a diffuse, loosely integrated, agricultural economy with
simple, relatively unimportant interregional trade ties and with little modern industry.
? The annual production of goods and services in the years 1931 to 1936
averaged slightly more than US $8 billion, approximately 12 percent of that of the
United States during the same period. Agriculture, on which 80 percent of the Chinese
population directly depends, contributed 70 percent to the total of all goods and services
produced in this period; manufacturing contributed less than 8 percent.
In 1937 the industry of China proper amounted to about 2 percent of the
industry in the United States in terms of electric power consumed and value of product.
This low level of industrial development is consistent with China's lack of large-scale
regional or occupational specialization, and is a resultant of a low volume of internal
trade.
China's imports in normal years approximated 5 percent of its total
output of goods and services. This is a slightly higher proportion than that of the
United States' economy. China is ordinarily dependent on outside sources for only a
few products essential to the operation of its economy at its present level. Although
food and cotton are important items of import, improved internal transportation and
a levelling off in population growth could make the Chinese economy self-sufficient (at
a low standard of living) in these commodities. Petroleum is the major producers'
good which must be imported in quantity.
It is clear that if China's economic problems are to be solved and if the
country is to achieve a dominant position in Asia, it must, in the matter of decades,
make the industrial strides that other countries have made over the course of a century.
China's future economic development must depend principally on imported equipment
and technical services which, in turn, are dependent on the availability of foreign
credits and, eventually, on greatly increased exports.
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c. Dominant Factors in the Postwar Economy of China.
(1) The Civil War.
All questions of China's inherent wealth or poverty aside, the most impor-
tant single influence in the economy of postwar China is the civil war. In addition
to creating the atmosphere of fear and uncertainty which dominates all economic
decisions in China today, the civil war has seriously and directly crippled production
and trade over wide areas of the country.
(2) The Inflation.
The inflation, caused in large measure by deficit financing of an almost
exclusively military budget and by the disruption of production and trade, has dis-
couraged productive economic activity by diverting capital into speculative channels
and by adding to the risks of legitimate and productive investments.
(3) Confusion in the Government.
Aside from difficulties of a physical nature such as the shortage of raw
materials and the disruption of transportation, the Chinese economy is suffering from
administrative uncertainty and confusion which have accompanied government control
over formerly occupied areas and seizure of large enemy properties.
d. The Position of Private Enterprise in Postwar China.
Private industrial capitalism has never been deeply entrenched in China. At
best, it has been either a foreign importation clinging to the shelter of the treaty ports
or a thin disguise for the economic activities of dominant political groups.
State control of industry has an historical and ideological justification in China:
Sun Yat-sen advocated nationalization of all basic industries, public utilities, and
communications facilities, together with governmental supervision over investment in
all other industry. Under Dr. Sun's plan, private investment and operation would be
permitted to an unspecified degree in those areas of economic activity outside the
government's immediate interest. The Kuomintang has interpreted this program in a
way which permits the maximum scope for national ownership and control. In addi-
tion, there have developed large industrial holdings and commercial trusts * which are
ostensibly privately controlled but which are, in fact, inseparable from the interests of
the dominant groups and personalities within the government.
By the time of the outbreak of hostilities with Japan in 1937, the government
dominated the railroads, coastal shipping, air transport, and telecommunications.
Large government investments had also been made in the electric power and iron and
steel industries. State monopolies had been established to control a number of impor-
tant export commodities. This trend of government control over major industries was
accelerated during the war. Upon the surrender of Japan almost all of the important
industrial activities established in the formerly occupied areas were seized by the gov-
ernment. Although some of these properties have been sold to private investors, the
government will undoubtedly retain control over a substantial number of those remain-
ing in its hands.
* The Universal Trading Corporation, the Chinese Purchasing Commission, and the Central
Trust are examples of such quasi-government organizations.
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?
There are many factors in the current economic scene which will permit the
government to expand its control over the country's economic activity. Already men-
tioned are the large holdings of former enemy assets. In addition, the government is
exercising tight control over the important sources of capital and has isolated domestic
private capital from foreign contact. Finally, the unstable economic environment
engendered by the inflation, the cumulative effects of government monopolies upon the
competitive position of private enterprise, and the development of industry by provin-
cial governments have all acted to accelerate the deterioration of private capitalism in
China.
Many of these factors are institutional in nature and could be eliminated by
a government with different economic objectives. There are some basic elements in the
Chinese economy, however, which would tend to dictate a large measure of government
control, whatever the philosophy of the government. An ambitious program for devel-
opment of industry and the closely linked improvement in agricultural efficiency may,
in the light of China's current poverty, recommend a policy of government control over
investment and regulation of foreign trade. Despite the necessity for government
supervision of national development, however, there would still remain a wide area of
decision: regulation can be substituted for government ownership; economic develop-
ment can proceed without new direct ventures by the state and without absolute state
control of private ventures or of foreign trade. Within this area of decision the course
followed in the future will depend largely on political factors.
2. THE SEGMENTS OF CHINA'S ECONOMY.
a. Agriculture.
(1) Importance to the Economy and General Characteristics.
Agriculture forms the foundation of China's economic and social struc-
ture, 80% of the Chinese people being engaged in agricultural pursuits, and providing
about 70% of China's national income. A similar percentage of China's total prewar
export trade came from agricultural commodities. China depends upon domestic agri-
culture for about 98% of its food and a predominant portion of its basic civilian
necessities.
Although a relatively large proportion of China's land is under cultiva-
tion, broad areas are unfit for any sort of farming activity. Farm land is concentrated
in the great river areas of East China, the North China Plain, Szechwan Province, and
the central plains of Manchuria. Virtually the only arable land not now being inten-
sively cultivated, except those where military operations prevent farming, lie in Man-
churia. Cultivation of submarginal land is widely practiced throughout the country.
The density of China's population has tended to conform to that of the
country's arable land area; nearly 74% of the population is located in eleven eastern
provinces that make up less than 22% of China's total area. The extreme concentra-
tion of agricultural production in eastern China, as well as the diversity of China's crops,
is shown in Tab 3, Map Supplement.
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Farming techniques are an outgrowth of the conditions of excess labor
and shortage of arable land. The irrigation systems, crop rotation, transplanting,
fertilization methods that have been developed in China are superior to primitive
methods used elsewhere. Crop yields, however, although relatively high, suffer from
backwardness in the use of insecticides, development of disease-resistant, high-yielding
strains and other modern advances in agriculture. Improvement along these lines
offer, perhaps, the best promise for expansion of agricultural production.
The bulk of China's agricultural output consists of food crops, princi-
pally rice in the southeast and wheat in the northeast. Other important food crops
include a wide range of cereals, potatoes, and pulses, the latter led by soy beans, a sig-
nificant food and industrial crop. In addition to the versatile soy bean, principal
commercial crops of importance to both domestic industry and export trade are: cotton,
ttmg oil, tobacco, and tea.
Livestock raising in China is largely incidental to farming, and only
about 5% of China's total area is devoted to pasture land. The raising of sheep, hogs,
and poultry provide four of China's more important export items: wool, bristles, hides,
and egg products. This entire phase of Chinese agriculture, however, has remained
underdeveloped. In contrast to the limited extent to which China's farming acreage
could be increased, the country's pasture land could be greatly expanded, especially in
southwestern and northwestern China. Increased emphasis on animal husbandry in
traditional Chinese agriculture would also be an important factor in the development
of a more balanced and productive farm program.
Fishing has been of minor importance to China's economy as a whole
although it plays a significant part in the economy of the coastal areas. The develop-
ment of processing facilities might well produce a lucrative export industry.
Forestry activities, except in Manchuria, are also relatively inconsequen-
tial, as the result of the deforestation of large areas by centuries of ruthless and indis-
criminate cutting. Less than 9% of China's total area consists of forest land.
(2) Production Trends.
In general, agricultural output as estimated for 1947 shows some recovery
from the 1946 level, but in most categories is still below the prewar average:
AGRICULTURAL PRODUCTION IN CHINA PROPER
(In millions of metric tons, unless otherwise noted)
PREWAR AVERAGE
(1931-37)
1946
1947
Cereals?Rice (rough)
50.6
47.4
48.1
Wheat
21.6
23.4
24.6
Other
29.4
29.4
28.0
Sweet Potatoes
18.0
25.0
25.5
Pulses (peas, soy beans, etc.)
12.2
10.6
11.1
Cotton (millions of 500 lb. bales)
2.9
1.8
2.0
Tung Oil (thousand metric tons)
120.0
60.0
80.0
Silk (million pounds)
38.5
6.8
11.3
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In Manchuria, where most of the agricultural areas are under Chinese Communist
control, output is not far below prewar levels and continues to provide substantial
surpluses of grain and soy beans above local needs. The Communists are reportedly
exporting large quantities of food to the USSR. Taiwan has typically exported food-
stuffs, particularly rice, sugar, and fruits. Agricultural production on Taiwan has
fallen off significantly, however, from prewar levels, largely as a consequence of misman-
agement by the Nationalist Government.
(3) Basic Deficiencies.
The 1947 improvement in agricultural production has been described as
"the only bright spot in an otherwise black economic picture." Actually, the agricul-
tural outlook is far from bright. In the first place, food stocks are low throughout the
country so that the improved 1947 crop still left many food shortage areas. Secondly,
even if agricultural production were fully restored to prewar levels, China would still
be far from self-sufficient in food unless the food surpluses of Manchuria were made
available. Prewar imports of food, averaging about 1,000,000 tons a year for China
proper, admittedly were small in comparison with domestic food production, and repre-
sented not more than 1% or 2% of total food requirements. However, the prewar level
of food consumption in China was submarginal, even according to the low standards
prevailing throughout most of the Far East, and each year millions of Chinese died of
starvation, or of epidemics to which food deficiencies were a major contributing factor.
The chronically heavy loss of life resulting from flood, famine, disease, and war in China
has come to be regarded as a necessary evil relieving the pressure of population, and
largely explains why the average life span in that country has been only 30 years.
(a) Evils Attending Land Distribution. Although the larger portion of
China's farmers are owner-operators and part-owners, and only about one-fifth are
tenants, it is estimated that approximately 50% of the cultivated area in China is in the
hands of 5% of the population. The proportion of tenancy and absentee ownership
tends to be greater in the southern areas of China. In itself, this disproportionate dis-
tribution of land need not constitute an evil, and it is questionable whether a more bal-
anced redistribution of land alone would materially improve the agricultural situation.
It is certain that such a redistribution would not greatly increase the average acreage
tilled by the peasant family. For example, statistics from an 11-province survey of
1934 show that, while fully 22% of the available acreage was then owned by 0.2% of
the farming families, an equal distribution of all acreage would increase the size of the
average family's farm from 2.6 to only 3.3 acres.
The heavy emphasis on landlordism and absentee ownership, how-
ever, has provided the means for large-scale and widespread exploitation of the peasant
and tenant farmer. This exploitation has traditionally taken the form of heavy land
rents in cash or in kind, and the extension of credit to the farmer by landlords or money-
lenders at what may be the world's most usurious interest rates. The small farmer has
thus been kept in a chronic state of impoverishment, near-bankruptcy, and general
hopelessness.
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Chinese farms are not only small, but are generally split up into
separate parcels, largely through continued subdivision of inherited land. The aver-
age farm contains an estimated 5.6 scattered parcels. Such fragmentation has con-
tributed to the traditional inefficiency of Chinese agricultural activities.
(b) Land Impoverishment and Floods. The strong Chinese need for
chemical fertilizers has by no means been fulfilled in past years, partly because of pro-
hibitive prices, partly because the average farmer has not been taught the value of their
use. Most commercial fertilizers, in the absence of domestic industrial facilities, have
been imported. The major rivers running through China's farming areas also pose
serious problems; the devastating floods that recur every year not only destroy crops
and farming facilities, but also result in serious soil erosion.
(c) Taxation. Taxes on farm land, which have been a major source of
national and provincial revenue in China, are levied in a highly unbalanced and inequi-
table manner. In addition to the usual maladministration and corruption, much land
has escaped taxation because land registration is far from complete. The resulting
unfair distribution of the tax burden has forced some land out of cultivation because
returns therefrom have been insufficient to cover both production costs and excessive
taxes.
(d) Transportation. The lack of a well developed system of transporta-
tion has disrupted the orderly flow of agricultural products. Occurrences of devastat-
ing famine in areas close to highly productive farming zones have been common.
(e) Marketing. The large number of middlemen in the channels of agri-
cultural marketing, and the general backwardness of marketing methods, have resulted
in pitifully low returns to the farmer and excessively high costs to the consumer. Profits
as high as 1,000% by middlemen have been reported.
(4) Effects of War and Civil Conflict.
The many years of war and civil conflict within China, accompanied by
inflation, heavy taxes, disruption of transportation, large-scale governmental requisi-
tions of food, and increased speculation, corruption, and hoarding, have compounded
the basic deficiencies in China's agricultural system. Even the increased production
in 1947 failed to improve general conditions materially.
(5) Government Reforms and Improvements.
Many creditable reform measures, bearing on all major deficiencies in
Chinese agricultural production and distribution, have been proposed over a period of
years by the Chinese National Government. Proposed reforms include a more equitable
distribution of land, the reduction of land rents, education in and promotion of more
modern farming methods, additional irrigation, soil conservation and flood control,
more equitable taxation, a national system of agricultural credit, and the improvement
of transportation.
Implementation of proposed reforms, however, has thus far not been
effected on any large scale. These reforms, rendered more difficult by the government's
preoccupation with civil war, tend to challenge the political basis of the government's
and Kuomintang's authority. Many local government and party officials, as well as
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influential private citizens, are in the landlord class and make a practice of transferring
the burden of taxes to the peasant in the form of rents and interest payments. The
government is obviously sensitive to the interests and demands of these local political
elements who are at the same time landowners.
(6) Population?A Basic Problem.
One of the recommendations made in November 1946 by the China-US
Agricultural Mission was for the Chinese Government to take "action to guard against
a rapid increase in the growth of population." Such action, which challenges the tra-
ditional social structure in that country and which is exceedingly difficult to enforce,
is not likely to be carried out in the foreseeable future. Failing population-control
measures, however, it is probable that the benefits of all other improvements in agri-
cultural activity will be largely nullified (in terms of an improved per capita standard
of living) by substantial increases in China's population as a result of declining death
and infant mortality rates. Because an increase in population will "tend to make the
poorhouse larger," China will continue to face a food problem of formidable propor-
tions, which in turn will continue to undermine stability and promote the very agrarian
unrest that now keynotes the Chinese Communist struggle for power.
b. Fuels and Power.
Coal has been the main source of power for China's relatively small industry
and rail system. Oil resources are not considered large, and the country's abundant
water power has yet to be harnessed. Even without Manchuria, China possesses suffi-
cient energy resources?if not raw materials, technology and capital?for large-scale
industrialization. However, the remoteness of the richest coal fields and sources Of
water power from the most developed industrial centers along the seaboard is a sig-
nificant adverse factor.
(1) Coal.
China is believed to possess one of the world's largest coal reserves,
although, thus far, they are mainly undeveloped. The most credible estimates place
China's coal reserves at 250 to 300 billion tons. Nearly 80% of these reserves are located
in the North China provinces of Shansi and Shensi. The reserves in other areas (Man-
churia, Hopei, Shantung, and Szechwan) where most of China's mining activity has
thus far been centered are' actually not very substantial. There are also scattered
reserves throughout southern and western China, and in northern Taiwan.
About 80% of China's coal is bituminous, but the country's total resources
of good coking coal probably do not exceed 15 billion tons. Well over half of these
reserves of coking coal is located in undeveloped and not readily accessible areas in
Shansi and Shensi. While the proportion of coking coal to total reserves is not high,
the coking coal output in North China is of considerable potential importance, not only
to China's domestic economy, but also to the economy of Japan and other Far East areas.
The disruptive effects of war and civil conflict have cut China's coal pro-
duction to a current (1947) annual rate of about 18 million tons, as against the prewar
level of about 34 million and the 1944 level of nearly 50 million. Mines in operation are
generally in poor condition and require machinery replacements. Moreover, most
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current output is coming from installations in or near active civil war theaters, notably
the Sino-British Kailan mines northeast of Tientsin, and the Chinese Government-
operated mines at Fushun and Fuhsin, respectively 30 miles east and 100 miles west of
Mukden. Production at the latter mines might be sharply curtailed or completely cut
off in early 1948. The Chinese in Nationalist China have experienced great difficulty
in moving this coal to key urban industrial centers because of the constant interruption
of rail communications and to the military priorities placed on available rolling stock.
As a result, the 1947 output available to the consumption areas was considerably less
than total production.
Current coal requirements for that part of China under Nationalist con-
trol are estimated at the annual rate of 20 million tons. Without substantial imports
of coal, urban industrial areas would be faced with serious shortages. It is believed
that the essential requirements of Shanghai can be met if the supply lines from the
Kailan mines are kept open, but without Kailan coal, Shanghai will have to depend
almost entirely on imports. The greatest repercussion of widespread coal shortages
will probably fall upon household consumers, small factories, and the iron industry;
but railroads and electric power plants, despite some conversions to oil, will also suffer.
Apparently as insurance against the loss of Manchuria, which, formerly
produced from one-third to one-half of China's total coal output, the National Govern-
ment is planning to accelerate coal production in areas farther south. In August 1947,
the government reportedly ordered the diversion of mining machinery at Tientsin,
originally destined for Manchuria, to mining areas south of the Yellow River. About
the same time, Premier Chang Chun advocated the importation of US $20 million worth
of mining machinery from the US, and the strong garrisoning of North China mines.
With such measures and an improvement in the Nationalist military position in North
China, it is probable that China's future coal requirements could be adequately met,
even if Manchuria's mining output were completely cut off.
(2) Oil.
On the basis of incomplete surveys, China's total oil resources are esti-
mated at only 500 million tons, of which 200 million consist of petroleum resources and
about 300 million (crude oil equivalent) are derivable from oil shale. Future explora-
tions may increase present estimates to some extent, but China is seriously deficient in
oil resources and will undoubtedly continue to depend on oil imports to meet the major
portion of domestic needs.
The inaccessibility and undeveloped state of the main petroleum fields,
located in the western provinces of Sinkiang, Kansu, and Shensi, limit possibilities for
commercial exploitation. Kansu has been the only producing center of any significance,
attaining a peak of 500,000 barrels, or about 70,000 tons, in 1944. Taiwan's production
of petroleum and natural gas yielded an average of only 50,000 barrels in oil production
yearly in 1940-45. In Manchuria, the major source of shale, the Japanese extracted
about 1,300,000 barrels of oil from shale in 1943, but Soviet removals of equipment from
the main plant at Fushun, and the disruptive effects of the civil war have all but elimi-
nated shale oil production prospects for the near future.
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The National Government has established itself in all phases of oil opera-
tion. While it has worked out plans for development of Kansu oil fields, its current
emphasis is on the restoration of the ex-Japanese Navy refinery in southern Taiwan, to
be used for refining imported crudes at an annual capacity rate of 5,000,000 barrels.
The government is also interested in oil storage and marketing, and already controls
one-third of China's oil storage capacity.
A sizable increase in the proportion of Chinese river and coastal craft
using oil, together with the substitution of fuel oil for coal in some thermal power
plants, have expanded China's annual requirements of oil products from about 8,000,000
barrels before the war to an estimated 1948 level of more than 17,000,000 barrels, virtu-
ally all of which must be imported.
(3) Electric Power.
The total operable electric power capacity in all China is estimated at
1,200,000 kw., considerably less than the peak capacity available during the -war (then
largely in Japanese hands) . Capacity in China proper, composed almost entirely of
thermal plants, was cut 25% by war damage to 430,000 kw. In Manchuria, where
the Japanese had built new hydroelectric facilities that replaced existing thermal
plants as the main wartime source of supply, extensive Soviet removals in late 1945
and early 1946 reduced total operable capacity to 285,000 kw. of thermal and 140,000 kw.
of hydroelectric capacity. Taiwan's electric power capacity was cut to less than one-
third of the mid-war level by Allied air attacks, but much of the damage has been
repaired; current capacity, largely hydroelectric, is estimated at about 200,000 kw.
China's electric power generating capacity has been generally adequate
to the relatively small needs of the country's industry and cities. However, the
shortage of coal, the cumulative effects of undermaintenance, and, especially in Man-
churia, disruptions in the transmission network, have combined to create recurring
power shortages in the major urban industrial centers.
China's untapped water power supply, located mainly in central and
south China, is very great and, if other factors permitted, could provide for large-scale
industrialization in areas that are relatively deficient in coal. The Chinese National
Government's most ambitious hydroelectric development project, a long-range plan,
that will probably not be activated for some time, centers around a 10,000,000 kw. instal-
lation in the Yangtze River's Ichang Gorge in Hupeh Province.
c. Mineral Resources and Mining.
Except for coal, and a few metals such as antimony, tungsten, and tin, China's
known resources of mineral wealth are not significant in terms of world supply. The
country has not been intensively surveyed, however, and it is possible that China's
mineral wealth has been underestimated. (For location of China's mineral deposits
see Tab 4, Map Supplement.)
There is little information available on the current status of China's mining
industries. It is reasonably clear, however, that the mining enterprises in the regions
controlled by the National Government are faced, on the one hand, with the unprofit-
ability of export trade, and on the other, with disrupted communications and an
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abnormally low level of domestic industrial activity. It would be surprising if opera-
tions in any mine approached capacity as long as these circumstances prevail.
(1) Iron Ore, Iron, and Steel.
China has many widely scattered iron ore deposits estimated at some-
what more than two billion tons. The greatest concentration of iron ore deposits
is in Liaoning Province, Manchuria, where the Japanese developed a large-scale iron
and steel industry based on the beneficiation of low-grade ores (30% to 40% iron,
and high in silica) and utilizing the extensive coking coal deposits of the province.
In central and southern China, the iron and steel industry has never been developed
to any large extent, principally because of the lack of transportation for assembling
raw materials and carrying finished products to market. Production of pig iron and
foundry iron in China proper has probably never exceeded 150,000 tons per year. Total
iron ore production in 1944 has been estimated at almost 12 million tons, the major part
of which was in Manchuria and Japanese-occupied North China.
The iron and steel industry, built up by the Japanese in North China
and Manchuria, has been almost completely paralyzed since the war. At the end
of the war the Anshan works had an annual capacity of about 2 million tons of pig
iron. The Pauley Reparations Commission estimated the 1946 pig iron capacity of all
Manchuria at not over 396,000 tons per year. The Anshan works, which on V-J day
had an annual capacity of about 2 million tons of pig iron, has been substantially dis-
mantled by the Soviet Army and, so far as is known, production is at a virtual stand-
still. The resumption of iron ore mining and the rehabilitation of the iron and steel
industry are dependent upon the achievement of political stability in North China and
Manchuria.
(2) Tungsten.
In the field of ferro-alloys and metals for ferro-alloys,. China is chiefly
noted for the production of tungsten. China has the greatest known reserve of wol-
framite (tungsten ore), calculated at over 2 million metric tons in terms of concen-
trates containing 65% W03. Production comes from 18 districts in the five southern
provinces of (in order of importance) Kiangsi, Hunan, Kwangtung, Kwangsi, and
Yunnan. The richest and most extensive deposits are in southern Kiangsi province.
Since the first World War, China has been a major supplier of tungsten concentrates
to the world market. In terms of 60% to 65% W03 concentrates, China has exported
the following amounts: in 1925, 5,963 tons; in 1930, 8,727 tons; in 1935, 7,383 tons; in
1937, 16,518 tons; in 1943, 10,320 tons; in 1944, 7,703 tons. During the last war, China
concentrates were in such demand that almost 6,000 tons of concentrates were flown
out of China to Assam and thence to world markets.
Present political instability in China is continuing to hamper tungsten
production and export. The USSR has been buying Chinese concentrates and it is
estimated that China can produce in 1948 not over 10,000 tons of concentrates, of
which as much as 4,000 tons may be exported to the USSR.
(3) Copper, Lead, and Zinc.
China has produced only small tonnages of the major nonferrous metals
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? copper, lead, and zinc ? and imports of these metals have supplied a large part of
the country's requirements. However, reports indicate that exploitation of deposits
of these metals has never been consistent with their full possibilities because of in-
efficient mining methods, a lack of technical guidance, and poor transportation facilities.
(4) Tin.
China has been an important producer of tin for several centuries,
but there is no record of output for earlier years and records for recent years are
confined mostly to export with little or nothing known as to the amounts of metal
involved in local consumption.
According to C.C. Pai, Geological Survey China, Special Report 7, Decem-
ber 1945, tin production in China was:
1935 11,009 metric tons
1936 12,954 ff
1937 13,424 It
1938 15,440 ff f)
1939 14,244 ff
1940 10,686
Prior to the Japanese war, China shipped some tin to the United States
and occasional shipments were made during the war. Normally the country possesses
the capacity to produce about 15,000 tons of tin per year, but the high inflation in China
has greatly reduced production. Until adequate food and other supplies are made
available at reasonable cost, it is unlikely that China will be able to get its production
of tin back to normal for some time, especially at mines that have required extensive
rehabilitation. Transportation difficulties have also limited exports of tin.
The tin reserves of China have generally been estimated at 1,500,000
tons (tin content of ore), although there have been other estimates ranging from
652,000 to 1,873,000 tons.
(5) Antimony.
Prior to the Japanese invasion in 1937, China was by far the largest
producer of antimony, mining almost two-thirds of the world's total. The deposits
in China are larger and higher grade than in other countries which together with low
wage rates have enabled China to dominate the world market. Production varied be-
tween 14,000 and more than 21,000 tons from 1925 to 1937. Output decreased substan-
tially when the Japanese armies seized the ports and the Burma Road. Operations
ceased entirely before the war ended, and have not been restored on a large scale, despite
efforts of the government to aid in rehabilitating antimony properties.
About 95 percent of the output comes from Hunan province where the
Hsi-kuan-shan mines, about 20 miles northeast of Hsin-hua, are by far the largest
producers. Antimony deposits also occur in Kwangsi, Kwangtung, Kweichou, Yunnan,
Anhui, Chekiang, Kiangsi, and Manchuria. The Chinese Geological Survey recently
estimated total antimony reserves at 3,803,000 metric tons which is more than the com-
bined estimated reserves of the rest of the world.
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As of early 1948 the United States and European countries are suffering
from a shortage of antimony. This shortage is expected to continue for at least two
years and probably longer if China does not resume large-scale production.
(6) Mercury.
Mercury deposits occur in Kweichou, Hunan, Kwangsi, Yunnan, Szech-
uan, Jehol, Hopeh, Sikang, and Formosa, but only Kweichou and Hunan have produced
important quantities. Production has varied from 4,931 flasks (of 76 pounds) in 1939
to 1,711 flasks in 1946. During World War II important quantities were shipped to
the USSR when that country's principal deposit was captured by the Germans. Re-
ports indicate that China can supply its own future needs and have a small surplus
for export.
(7) Salt.
Salt has been a government monopoly and an important source of
government revenue in China for centuries. About 80 percent of China's salt is pro-
duced from sea water, the remainder from rock salt deposits in the southwest and
from salt lakes in the northwest. Salt is the only mineral for which 1947 production is
expected to exceed prewar output; it is estimated that approximately 3 million tons
will be produced with an exportable surplus of at least 500,000 tons.
d. Manufacturing Industry.
(1) General Industrial Pattern.
Until the late twenties, manufacturing in China was confined to a few
relatively modern enterprises in the large port cities and to handicraft activities con-
ducted in homes and small native shops throughout China. In the decade between
the establishment of a centralized National Government in 1927 and the outbreak of
the Sino-Japanese war in 1937, a fair amount of progress was made toward the estab-
lishment of several industries in more or less modern plants. Among these were cotton
spinning, cigarette making, sugar refining, flour milling, vegetable oil processing, iron
and steel production, and the manufacture of light consumer goods such as soap,
candles, and glass. The more important enterprises were largely controlled by foreign
interests.
Before the war the important manufacturing industries were concen-
trated in south Manchuria, and in the cities of Tientsin, Tsingtao, Chefoo, Shanghai,
Changsha, Hankow, and Canton. During the war the Japanese expanded their indus-
trial plants in Manchuria. On the other hand, a substantial number of Chinese plants
were destroyed or removed to Japan. The Chinese moved some plants to west China,
destroyed many factories which could not be moved, and developed new wartime
industrial centers, the most important of which were Kunming and Chungking. In
sum, China probably came out of the war with about as much industrial equipment
as it had in 1937. Because of the civil war with its attendant economic chaos, postwar
production has been much lower than it was in 1937.
Chinese manufacturing industries are largely under the control of the
National Government either through actual ownership or through such indirect devices
as state control over the sources of capital and the close relationship between indi-
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vidual government policy-makers and important "private" enterprises. As of early
1948 the government had direct control over the iron and steel industry and the rail-
roads. In addition, it had extensive holdings in the cotton textile, food processing,
chemical, cement, engineering, shipping, electric power, coal, tungsten, and petroleum
industries.
(2) Important Manufacturing Industries.
The cotton textile industry is by far the most modern and important in
China from the point of view of both value and volume of production. In 1937 cotton
mills in China had a total of more than 5 million spindles. The industry was centered
around Shanghai, although there were large mills also in Tientsin, Hankow and Muk-
den. Although a great deal of cotton machinery was destroyed or moved to Japan
during the war, the industry made a remarkable postwar recovery and by 1947 more
than 3 million spindles had been restored to service.
Before the war China proper consumed approximately 4.3 billion square
yards of cotton textiles annually of which only 50 million yards were imported. Man-
churian requirements were much greater than production in that area and it had a
prewar deficit of 110 million yards. It is estimated that almost 4 billion yards were
produced in China proper during 1947 and 170 million square yards in Manchuria.
Because of growing production and marketing problems, however, it is expected that
there will be a decline in mill operations during 1948.
The iron and steel industry of China is discussed under Mineral Resources
and Mining on page III-11.
Although the chemical industry in China is relatively unimportant,
China has deposits of most of the minerals necessary for a chemical industry. Before
1937 progress had been made in the development of the industry. The more important
plants were concentrated east of Tientsin in Hopei Province. It is estimated that
75 percent of the chemical-producing and consuming industries were destroyed shortly
after the outbreak of hostilities in 1937. Production of essential chemicals was under-
taken to a limited extent as the country was cut off from foreign sources of supply.
During the war the Japanese built up a large chemical industry in
Manchuria which produced substantial quantities of soda ash and caustic soda, acids,
and chemical fertilizers. Chemical plants in Manchuria were subjected to Soviet
stripping, but the extent of the actual damage is unknown. In the course of the
Japanese occupation of Taiwan, they established many plants producing camphor and
chemical fertilizer.
The principal chemicals produced throughout China are alkalies (soda
ash and caustic soda), sulfuric and nitric acids, nitrogenous and phosphate fertilizers,
coke-oven by-products (benzol, toluol, naphthalene, creosote), various inorganic com-
pounds, and alcohol. The alkali, acid, and fertilizer industries are largely centered in
Manchuria, the Kwantung Peninsula, Shanghai, and Tientsin. Fertilizers and acids
are also produced in Canton, Kwangchow, and Nanking. Prewar production of ferti-
lizer nitrogen was about 38,000 tons annually; 10,700 tons is estimated for 1947/48.
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Other branches of the chemical industries which have been established
are pharmaceuticals (including quinine from native cinchona bark, camphor, and
penicillin), and insecticides. Related industries which have been developed in vary-
ing degrees include pulp and paper, starch, soap and glycerine, vaccines, crude drugs,
industrial gases, fuses and detonators, glass, rubber, and electrodes. Completion of
a new viscose rayon mill this year is expected to make China self-sufficient in this
product.
Food processing is an important manufacturing industry in China. Egg
products and vegetable oils were major items in China's prewar export trade. Flour
milling, sugar refining, and vegetable oil pressing are largely done in small plants and
by native methods. Taiwan, especially, is a food processing area and exports large
amounts of sugar and canned fruit.
Other industries of importance in China include the manufacture of
cigarettes, paper, matches, soap, candles, glass and ceramics.
(3) The Chinese Industrial Cooperatives.
The Chinese Industrial Cooperatives ("Indusco") were established during
the war and are based on traditional handicraft skills and home industry. There were
several thousand cooperative societies during the war years.
The future of the industrial cooperatives remains very much in doubt.
The current inflation, lack of government assistance, problems of production and mar-
keting, and the widespread difficulties caused by the civil war, have retarded their
growth and effectiveness.
e. Labor.
China's labor difficulties, both economic and political, have been mount-
ing steadily in response to general deterioration throughout the country's urban centers.
The primary contributing factor is the increasing gap between earnings and the cost
of living. Labor unrest has affected foreign and Chinese businesses, government-oper-
ated plants, and the government service itself. The government's wage policy, which
provides for monthly wage and adjustments based on the previous month's cost-of-living
index, has proved inadequate in the face of rapidly rising commodity prices.
(1) Government Control of Labor.
The government's control over labor goes farther than the wage deter-
mination formula described above. Discharge and, to some extent, hiring policies are
laid down in governmental regulations; arbitration of labor disputes is compulsory if
either party or the government so requests; the government also has the legal power
to outlaw all strikes and lockouts.
Under existing law in China, trade unions are agencies of the govern-
ment. The establishment of unions and membership in them is compulsory in all but
"war" industries and Civil Service. All unions come under the jurisdiction of a govern-
ment body which has the authority to regulate and direct their internal affairs.
The government's wartime policy of control measures over labor still
continues to play an important part in the current economic situation. The govern-
ment's postwar labor policy was planned in the face of a civil war and in the light of
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its effect upon the unstable political situation. Current labor controls reflect the desire
of the government to restrict labor activities which are inconsistent with political and
economic objectives. Strikes and lockouts have been outlawed because of their adverse
effect on economic rehabilitation and because of their threat to law and order. Despite
official bans, there were 1,700 strikes in 1946 as compared with 300 in 1936. The in-
creased labor disputes have been a concomitant of steady rises in living costs with no
comparable wage adjustments.
(2) Labor Standards.
No appreciable progress has been made in the postwar period with respect
to child labor, health insurance, or working hours. At present, the legal minimum age
for factory workers (13 years) is not rigidly enforced, and there is no maximum age
limit. The eight-hour day is common, but workers are often persuaded to work over-
time for time and a third compensation. Proposed labor legislation for 1947 includes
the following: "minimum wage scale, housing, vacations with full pay, cooperatives, pro-
tection of women in industry, establishment of political consciousness among workers,
standard collective bargaining procedures and rigid enforcement of existing factory
and mine inspection regulations." These forms of labor legislation have not been
implemented in fact, and improvement can hardly be expected until some measure of
political and economical stability has been reached.
(3) The Chinese Association of Labor.
The government's determination to control all aspects of labor in China,
and concurrently its failure or inability to achieve material improvements in labor con-
ditions, have led to the emergence of one dominant labor union, the Chinese Association
of Labor (CAL)-, and to the formation of an extensive underground labor movement.
The government-sponsored CAL, established in 1938, has been internationally accepted
as the representative of Chinese labor and has operated as a welfare organization under
Kuomintang .control. This organization got out of hand, however; it has cooperated
with Chinese Communists and has the support of the World Federation of Trade Unions.
The effect of this has been to give increased impetus to the anti-Kuomintang sentiment
among organized labor.
The underground labor movement began in 1926-27 when a political split
occurred in the Kuomintang and a purge was ordered by the conservative element who
feared infiltration of doctrines into their party. Those who escaped the purge went
underground until 1937 when they came to the surface to help in the war against the
Japanese. After the war the government's attempt to organize all industrial workers
into rigidly controlled unions was resented by this group. Of the half-million workers
now in Shanghai's underground organization, the Shanghai Workers' Association, many
were members of the earlier movement. Their members have infiltrated into every
government agency and hundreds who belong to government-controlled unions are
concurrently members of the Shanghai Workers' Association. Although the degree of
relationship between the Chinese Communists, the Chinese Association of Labor (CAL) ,
and underground groups in Nationalist areas cannot be fully determined, it is known
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that on several occasions the Chinese Communists have seized the opportunity to
encourage antigovernment labor demonstrations.
(4) The Shanghai General Labor Union.
The Shanghai General Labor Union, in contrast to the Chinese Associa-
tion of Labor, is identified as a Kuomintang organization and has attempted to regain
control over the entire labor movement in Shanghai. This union is subject to the
direction of the Bureau of Social Affairs, the Ministry of Social Affairs, and the Kuomin-
tang labor committee. Its attitude toward such matters as strikes and wages coincides
with that of the government. Communist infiltration among Shanghai workers is a
threat to the union.
f. Finance.
The formulation of broad economic policy for the Chinese National Government
is the responsibility of the National Economic Council which was organized in late 1945
to cope with the problems of reconstruction. The Council coordinates the activities of
such Executive Yuan Ministries as Interior, Economic Affairs, Communication, Food,
Agriculture, and Finance. The Ministry of Finance has general responsibility over the
following government activities: Chinese Maritime Customs, salt monopoly, internal
revenue, taxation, public loans, currency, the national treasury, and accounting.
(1) The Chinese Monetary Unit.
The old Chinese monetary system was based on the tael, a cumbersome
weight of silver. The tael measure was abolished in 1933 and was replaced by the yuan,
also silver, but a more practicable circulating currency. The common symbol for the
yuan is "CN $" (Chinese National Dollar).
In 1930 the Central Bank of China issued notes based on an accounting
gold currency, the Customs Gold Unit (CGU). This currency was used for customs
purposes only and was designed to protect customs revenue from fluctuations in the
value of silver. Import revenues were quoted in CGU but were payable in CN $. The
CGU notes were put in general circulation during and since the war and remain ex-
changeable for CN $ at the rate of 1:20. In addition, there have been other currencies
such as local and provincial notes circulating in various sections of China.
China went off the silver standard in 1935 and recalled all silver in circu-
lation. Paper currency in the form of Yuan and Custom Gold Units is now the
sole legal tender in China proper.
(2) The Banking System.
The functions of central banking were entrusted to a group of four public
banks in 1928 after the establishment of a centralized National Government. These
banks, the Central Bank of China, the Bank of China, the Bank of Communications,
and the Farmer's Bank of China, were capitalized chiefly from government funds.
Although each of the banks has certain peculiar responsibilities, the operations of a
central bank are divided rather indiscriminately among them: The Central Bank of
China was organized in 1928 and was given the power to issue currency, mint silver,
serve as the National Treasury, and direct the flotation of national loans and treasury
notes; the Bank of China is a prerevolution bank which was reorganized in 1928 and
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was given the responsibility of handling China's international financial affairs as well
as the power to issue currency; the Bank of Communications was organized in 1928 with
the responsibility for developing industry and trade and was also given currency-issu-
ance power; the Farmer's Bank of China was established in 1933 to handle agricultural
loans and a few years later was given currency-issuance privileges.
The private modern Chinese commercial banks finance a large share of
China's trade and industry. This group of banks is dominated by a small number of
powerful institutions, such as the Shanghai Commercial & Savings Bank, with head-
quarters in Shanghai where the bulk of the private banking resources are concentrated.
China has a large number of small "native" banks which operate on the
basis of traditional standards. The growing influence of the modern commercial banks
and their penetration into the interior during the war has led to a decline in the impor-
tance of the native banks.
(3) China's National Debt.
China's foreign and domestic debt amounted to approximately CN $3
billion (US $900 million at the June 1947 exchange rate) before the war with Japan.
The required annual service charges for interest and amortization exceeded CN $300
million (US $90 million) , or about 25 percent of the total annual government expendi-
tures. Debt servicing was relatively small as reflected in the 1947 budget. Although
the actual status of the government's current debt burden is not clear, it may be
assumed that the country's domestic debt has been largely cancelled out by the inflation.
It is estimated that China's foreign intergovernmental debt as of the end of 1947 has
grown to between US $2 and $3 billion which is owed chiefly to the United States, Great
Britain, and the USSR.
China has a history of default and readjustment of its foreign obligations.
In the spring of 1939 the Chinese government suspended service payments on its foreign
debt after the Japanese blockade prevented the collection of customs and salt revenues
on which China's foreign obligations were principally secured. In August 1947 the
government pledged itself to resume its services on prewar loans, but no specific date
was announced.
(4) China's National Budget.
The prewar Chinese budget was relatively small; in the fiscal year ending
30 June 1937, total outlays amounted to less than CN $1.4 billion, or approximately
US $450 million at the then prevailing exchange rate. Of this sum, military appropria-
tions amounted to about 40 percent. During the war both the level and the composition
of the budget were altered substantially. Thus, in terms of 1937 prices total expendi-
tures declined while the proportion of military outlays to the total increased.*
Although total government expenditures for 1947 were originally budg-
eted at CN $9.3 trillion (approximately 10 percent higher than total expenditures in
1937 on the basis of 1937 prices) , actual government outlays for the year approximated
* It is difficult to break down China's national budget into rigid categories according to the
ultimate purpose of expenditures. Thus, it is known that a substantial proportion of the proposed
outlays for "Communications" is actually, and more properly, a direct Military outlay.
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CN $42 trillion. Of this total, approximately 75 percent was spent directly or indirectly
for military purposes.
Principal current sources of revenue are: taxes from land, salt, business,
and incomes (of which land taxes are by far the most important) ; revenue from state-
owned enterprises; customs duties; proceeds from the sale of former enemy assets; and
receipts from public borrowing. None of these sources (nor all of them together) is as
important as the issuance of new currency. In June 1947, for example, approximately
18 percent of the month's receipts of the National Treasury came from taxes, 10 percent
from public borrowing, 63 percent from currency issuance, and 9 percent from other
sources.
It is apparent that taxes, together with profits from government-operated
enterprises, currently cover only about one-third of the total national budget. The
government anticipated making up the budget deficit in 1947 through the flotation
of two internal loans both in the United States currency, through sale of US surplus
property and former enemy assets, and through improvements in the tax system. None
of these measures was conspicuously successful as evidenced by an estimated deficit of
CN $29 trillion for the year which was met through printing additional paper money.
The government has announced that expenditures in the first half of
1948 will total CN $96 trillion; revenues are expected to amount to CN $58 trillion.
(5) China's Official Gold and Dollar Assets.
As of 1 January 1948, the total net foreign exchange assets of the Chinese
National Government are estimated to be between US $230 and $240 million. This
includes US $96.5 million in gold, approximately US $27.5 million equivalent in sterling
currencies, with US dollar balances accounting for the remainder. In addition, China
has silver holdings amounting to US $28 million.
China experienced a rapid dwindling in official foreign exchange assets
during 1947. If this drain remained unchecked, it would lead to a financial crisis which
might bring on a collapse of the present financial structure.
(6) The Current Financial Situation.
Primarily because of the Civil War, China is in a state of hyperinflation.
That the inflationary pressures have been gaining momentum is indicated by the fact
that currency in circulation increased from CN $13.7 trillion to more than CN $34 trillion
between September and December 1947. In this same period the value of the Chinese
dollar on the Shanghai black market in terms of US $1 depreciated from CN $45,000 to
CN $152,000. The wholesale price level, which in September 1947 was 43,000 times the
level prevailing during the first six months of 1937, more than doubled by December
1947.
The loosely integrated nature of the Chinese economy and its broad
agricultural base have acted to keep the country from an economic collapse which may
well have been the fate of more highly organized economies. In the large commercial
centers such as Shanghai, Tientsin, Hankow, and Canton, however, recent acceleration
in the rising trend of prices indicates that conditions are approaching the final stage of
inflation when the national currency ceases to be used as a medium of exchange.
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The following table giving the amount of currency in circulation and the
general wholesale price level in Shanghai by months from January 1946 through Decem-
ber 1947, shows clearly the acceleration in both, currency outstanding and prices in the
last half of 1947.
ON LAST DAY
OF MONTH
1946
NOTES OUT-
STANDING - CN $
BILLION
PERCENTAGE
INCREASE
OVER PREVI-
OUS MONTH
? WHOLESALE
PRICE INDEX,
SHANGHAI
(JAN. TO JUNE
1937=1)
PERCENTAGE
INCREASE
OVER PREVI-
OUS MONTH
January
1,100
12.8%
920
3.9%
February
1,230
11.8
1,750
90.2
March
1,359
10.5
2,560
46.3
April
1,528
12.4
2,580
0.8
May
1,674
9.6
3,800
47.3
June
2,113
26.2
3,720
2.1 (decrease)
July
2,167
2.5
4,070
9.4
August
2,376
9.6
4,280
5.2
September
2,677
12.6
5,092
19.0
October
2,900
8.3
5,360
5.3
November
3,296
13.6
5,317
0.8 (decrease)
December
3,726
13.0
5,713
7.4
1947
January
4,526
21.5
6,868
20.1
February
4,875
7.7
10,664
55.2
March
5,698
16.9
11,208
5.1
April
6,900
21.1
14,252
27.1
May
8,381
21.4
24,313
70.6
June
9,900
18.1
29,931
23.1
July
11,684
18.0
31,160
4.1
August
13,700
17.2
32,980
5.8
September
16,948
23.7
43,253
31.1
October
21,032
24.1
59,879
38.4
November
26,879
27.8
66,587
11.2
December
34,400 (est.)
28.0
95,900
44.0
g.
Foreign Trade and Balance of Payments.
China's foreign trade has never been highly developed. In 1936, for example,
China, with one-fifth of the world's population accounted for less than one-fiftieth of
the world's foreign trade.
(1) Imports and Exports.
In the prewar period 1930-1937, imports by China proper averaged
approximately US $418 million annually. About half of China's merchandise imports
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were in the form of manufactured goods (industrial and railway equipment, metal
manufactures, vehicles, petroleum products, chemicals), about a quarter in the form
of semimanufactured goods (iron and steel products) , and the remainder in foodstuffs
(cereals, flour, sugar, fish) and raw materials (raw cotton, wool, coal, lumber). Esti-
mated commercial imports for 1947 amount to US $470 million.* In addition, UNRRA
or Government imports for 1947 are estimated at US $200 million.
Exports from China proper during the period 1930-37 averaged US $257
million. About a third of these exports were raw materials (tung oil, tungsten, wool,
tin, antimony), with foodstuffs (egg products, peanuts, vegetable oils, fruits, nuts,
beans, tea) and semimanufactured goods (hides and skins, cotton yarn, bristles),
accounting for about a quarter each, and the remainder, manufactured goods (embroi-
deries, textiles, carpets). In 1947 commercial exports, principally foodstuffs and raw
materials, are estimated at US $225 million.*
In 1936 approximately 20 percent of China's imports came from the
United States and were largely in the form of petroleum products, iron and steel prod-
ucts, industrial and railroad equipment, and metal manufactures. Japan, Germany,
and Great Britain were other important prewar sources of supply for China proper. In
1946 (the latest year for which complete data are available) almost 60 percent of China's
imports (excluding UNRRA materials) came from the United States.
About 25 percent of China's total 1936 exports?principally tung oil, egg
products, hides, bristles, embroideries, and vegetable oils?went to the United States.
Japan, Hong Kong, and Great Britain were also important prewar markets. In 1946
almost 40 percent of China's exports went to the United States. Table on page 111-23
shows the source and destination of China's imports and exports in 1936 and 1946.
China's import-export statistics do not represent the actual condition
with respect to China's foreign trade. In the first place, there is large-scale smuggling
of goods (in 1936, for example, smuggling was estimated at US $50 million entering and
US $25 million leaving China). In the second place, data on the direction of trade
tends to be distorted because the exchange of goods with Hong Kong and Macao
which is recotded as originating from or destined to these colonies, even though a sub-
stantial proportion of this exchange is merely in transit to and from China. Finally,
the artificial official "open market" rate of exchange puts inaccurate values on export
and import trade.
(2) Balance of Payments.
China proper has had a chronic trade deficit. In the prewar period, 1930
to 1937, this deficit was not very serious, averaging approximately US $161 million annu-
ally. The difference between the value of China's imports and exports of merchandise
was covered to a large extent by remittances from overseas Chinese. Receipts from
* The conversion of China's foreign trade figures into US Dollars is complicated by the existence
of widely varying official and black-market rates and by the fact that each of these rates change
markedly from month to month. The conversion factor used in these data was the average official
open market exchange? rate that prevailed during 1947. A comparison of US Dollar imports and
exports in 1947 with the prewar period is also complicated by the decreasing value of the US Dollar
during the period.
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SOURCE AND DESTINATION OF CHINA IMPORTS AND EXPORTS
(In Millions US Dollars)
IMPORTS
Value %
1936
EXPORTS
Value %
IMPORTS
Value' %
1946
EXPORTS
Value %
USA
55.8
19.6
55.8
26.4
395.0
57.2
73.4
38.7
Japan
47.1
16.6
32.1
15.2
2.8
.4
5.9
3.1
Germany
45.0
15.9
11.7
5.5
2.6
.4
nil
nil
Great Britain
33.0
11.7
19.5
9.2
31.7
4.6
8.3
4.4
Netherlands
East Indies
22.2
7.8
1.5
.7
2.3
.4
.1
.1
Belgium
7.8
2.8
1.8
.9
7.3
1.0
2.3
1.2
British India
and Burma
7.5
2.6
5.7
2.7
60.4
8.8
10.0
5.3
Canada
6.0
2.1
1.5
.8
12.5
1.8
1.2
.6
France
5.7
2.0
12.0
4.3
1.4
.2
3.3
1.8
Hong Kong
5.4
1.9
32.1
15.1
30.9
4.5
53.6
28.3
Straits Set-
tlements
3.3
1.2
4.8
2.2
14.0
2.0
4.5
2.4
USSR
.3
.1
1.2
.6
4.5
.7
9.5
5.0
Other Countries
46.8
15.7
35.4
16.4
125.6
18.0
17.6
9.1
TOTAL
285.9
100.0
215.1
100.0
691.0
100.0
189.7
100.0
Converted from CN$ at average official open market rate for the year.
foreign expenditures in China usually exceeded China's out-payments on account of
foreign loans. China's net debit in current account was settled through in-payments
from the capital account.
Since VJ-Day China's trade deficit has assumed serious proportions.
This deficit is a symptom of, and has contributed substantially to, China's present eco-
nomic plight. A major portion of the deficit can be attributed to the shortage of domes-
tic raw cotton (which has necessitated large imports to meet the raw materials require-
ments of Chinese mills) and other raw material shortages, which have retarded the
production of exportable goods.
Based on dollar values in 1946, total in-payments for that year (including
recorded exports, UNRRA receipts, overseas remittances, and foreign expenditures
within China) amounted to an estimated US $715 million; total out-payments (includ-
ing recorded commercial, UNRRA, and government imports; debt servicing; and other
services) amounted to US $1,105 million. There was thus a deficit in China's interna-
tional balance of payments for 1946 of US $390 million. Because of a decrease in the
commercial import balance in 1947, the over-all international payments showed some
improvement, although the deficit was still substantial in light of China's depleted
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MARCH 1948 SECRET
exchange resources. The 1947 trade deficit itself is estimated between US $235 and
$255 million, or almost half that of 1946.
China's net gold and foreign currency assets (estimated between US $230
and $240 million as of 1 January 1948 (see page 111-20) has reached a critically low
level. The necessity for increased government imports of coal, cotton, and other criti-
cal items during 1948 places China's official external assets in jeopardy.
(3) Government Controls over Foreign Trade.
The critical nature of China's unfavorable balance of payments has
moved the government to establish rigid controls over imports. Quotas have been set
up limiting imports to the volume and type of goods the government considers most
essential to the prosecution of the civil war and to the alleviation of the economic crisis.
Controls have been exercised over foreign exchange and importers have been licensed.
Early in 1947 a policy of export "subsidy" was adopted, but was withdrawn shortly after
it became effective.
In August of 1947 China abandoned its policy of maintaining an official
rate of exchange for the CN$. The official rate of CN $12,000 to US $1, which was estab-
lished in February 1947, was retained until early 1948 for a limited list of commodities,
among them wheat, raw cotton, rice, and coal. Foreign exchange for other approved
imports, however, was to be furnished by appointed banks at an officially recognized
rate of exchange which, in the middle of April 1948 was CN $328,000 to US $1 (selling
rate), while the Shanghai black-market rate was about twice this figure.
(4) The Strategic Importance of the China Trade.
Although China is dependent on the outside world (almost exclusively on
the United States at the moment) for many of the goods it needs to sustain its economy,
there are several items produced in China which are even now of considerable impor-
tance to other countries. China's output of tungsten and antimony are most important
to the world's economy. Bristles, tung oil, egg products, hides and skins are other
products which a peaceful China could contribute in large quantities to world markets.
High on the program of the government's economic objectives on VJ-Day
was the hope that China could replace Japan as the leading trading country of the
Far East. Indeed, if the Civil War could have been avoided, China's textile industry
may well have been developed to a point where it could have supplied the needs of many
Asiatic countries. With Japan's economy in a. state ,of disorganization, it might have
been possible for a peaceful and United China to have developed such other light manu-
facturing industries as food Processing, glass and ceramic manufacture, and appliances
to a point where it could have captured at least some of Japan's prewar markets. That
all these hopes have been dashed for many years to come if not permanently is not the
least of China's current frustrations. To an appreciable degree this frustration explains
the intransigent attitude that the Chinese Government has been taking toward any
encouragement of Japanese industry by the occupying powers.
3. STABILITY OF THE CHINESE ECONOMY.
a. Long-term Stability.
From a long-term point of view, the chief source of stability in the economy of
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China is its tremendous inertia. This inertia is largely a product of the country's broad
agricultural base and the unintegrated character of the country's economy and geog-
raphy. In view of the overwhelming predominance of agricultural activity, the econ-
omy of the country is relatively insulated from the sharp cyclical fluctuations that have
traditionally affected the industrialized nations of the West.
Barring political upheavals or natural disasters, the Chinese agricultural vil-
lage typically supplies the greatest part of its own food requirements. Moreover, the
agricultural areas can attain a considerable degree of self-sufficiency, although at a
low level, in other consumer goods, building materials, fuel, and tools. The result is a
system in which the rate of economic activity changes only slowly and which tends
to perpetuate itself irrespective of external developments. This is illustrated by the
fact that the basic agricultural economy of China has changed little since the period
of the Manchu Dynasty.
China's basic inertia is also a source of fundamental weakness: it is difficult to
achieve changes for the better as well as changes for the worse. Thus, per capita pro-
ductivity in the vast agricultural segment of the economy has remained at a perilously
low level for centuries. This has resulted in grinding poverty for the mass of China's
population and a rigid limitation to the country's savings (and thus expansion)
potential.
b. Short-term Stability.
In the short-term economic picture there is little strength and great weakness:
internal communications, which at best are insufficient to serve the needs of China's
normal peacetime economy, are now hopelessly inadequate; the inflation, which has
already suffocated Chinese industry and productive commercial endeavor, is literally
getting worse every day; the National Government budget is almost exclusively devoted
to the financing of the Civil War, and the gap between government revenue and expend-
iture is met by vast issues of additional currency; the trade deficit has been too great
to be covered by any means other than drawing heavily upon already seriously depleted
foreign exchange reserves.
In brief, the Civil War and the inflation have pushed Nationalist China close
to the brink of financial collapse. While the breakdown of China's financial structure
would have less serious implications from the narrow economic point of view than a
similar catastrophe in more highly industrialized countries, it would seriously jeopardize
China's military and political position in the Civil War. Opinion is divided as to how
long the economy of Nationalist China would be able to withstand .the tremendous
inflationary pressures currently being exerted on it. That the life expectancy of the
present Chinese financial system is short without (and possibly despite) substantial ex-
ternal aid is, however, generally recognized.
O. US Aid.
A considerable amount of assistance .has already been extended the Chinese
Government by the United States. Thus, of the total foreign aid received or contracted
for by the Nationalist Government of China since VJ-Day, more than 80 percent was
contributed by the United States. US aid has been in the form of credits or direct
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grants, designed specifically to meet the most urgent relief and economic rehabilitation
needs. In addition, the United States has given a substantial amount of indirect mili-
tary aid. The fulfillment of US commitments was accomplished chiefly through serv-
ices and supplies to facilitate reoccupation of liberated areas by the National Govern-
ment, by distribution of food and other consumer goods, and by the shipment of
equipment and materials to further the recovery of China's industry and agriculture.
This assistance is summarized as follows:
(In Millions US Dollars)
Lend-lease:
Supplies and services, mainly of a military nature, for reoccupa-
tion of Japanese liberated areas (as of 30 June 1947)
$728.0
Civilian goods, credit
49.6
777.6
Surplus Property Credit:
US Foreign Liquidation Commission?West China sale
20.0
OFLC Dockyard sale (delivered)
4.0
US Maritime Commission, war-built ship sales
16.5
40.5
Export-Import Bank:
Rehabilitation credits for cargo vessels; equipment and services
for reconstruction of railways, coal mines, electric power and
chemical plants
49.8
Credit for raw cotton
33.0
82.8
UNRRA:
Over-all US contribution (72%) applied to authorized China pro-
gram (including about 25% for shipping and insurance)
470.5
US 1947 Foreign Relief Program (Public Law #84)
45.7
Naval aid, mainly ordnance and communication equipment
17.7
UN International Children's Emergency Fund
2.1
China Aid Act, authorized 3 April 1948 for 1 year:
For Economic Recovery Program
338.0
Optional grant, including military equipment
125.0
463.0
Total
1,899.9
In addition to these grants and credits, a surplus property agreement was con-
cluded on 31 August 1946 between the US and China covering civilian-type fixed and
movable property in China and Pacific islands orignally valued at US $824 million,
with the US to realize US $175 million on the sale. In addition, China is entitled to
SECRET 111-26
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draw on US $30 million set up to finance transfer costs. Progress made on deliveries
as of the end of 1947 has been reported as follows:
(In Millions US dollars, original value)
Turned over to China prior to conclusion of this agreement
$240.
Made available to 30 June 1947 ($128 million disposal value)
489.
Yet to be made available
95.
$824.
It is recognized that the latest aid grant of US $463 million will accomplish
little more than "buying time" for the National Government. Indeed, there is a real
question as to whether any aid program which does not include active military partici-
pation will have more than temporary salutary effect in China at this time.
4. THE ECONOMIC SITUATION IN COMMUNIST CHINA.
The Communist economy is almost wholly agrarian. There is some native indus-
try producing household needs, clothing, matches, cigarettes, soap, and lamp oil.
Small coal mines are exploited for the electric power plants still in operation and iron
deposits support the manufacture of small metal products. Little, if any, significant
postwar industrial reconstruction is known to have been undertaken. The Commu-
nists may well have sufficient food, clothing, and small arms to permit them to wage an
extended war against the Nationalist Government.
The economic strategy of the Chinese Communists is two-fold; to promote policies
such as land and tax reform and to accelerate the economic deterioration of Nation-
alist China. Doubts have been raised as to the effectiveness of their reforms, but the
?success of their economic war is all too evident.
a. Agriculture.
Land is the basic asset of the Chinese Communists. At least half of the North
China Plain, including the predominant part of the cotton acreage, and more than
three-fourths of the fertile Manchurian Plain are under control of the Communists.
Since the Communists control few urban areas, and since world markets are cut off,
any agricultural surplus from these areas will probably be available to the USSR in
exchange for petroleum and manufactured goods.
The evolution of Communist policies with respect to agrarian reform has had
very significant political implications that have been described in Section II, Politi-
cal Situation in Communist China (p. 11-4) . In addition to land reform, the
Chinese Communists have 'encouraged the development of rural cooperatives, adopted
a program of increased agricultural production through land reclamation and agricul-
tural education, organized farm labor brigades, and instituted a program of tax reform.
The actual effect of these reforms is hard to determine. There have been conflicting
reports on crop production, but visitors to Communist areas state that regions which
typically produce agricultural surpluses still do, while poor areas have in no way
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improved. On the whole, crop production is probably similar to the pattern existing in
adjacent Nationalist-held areas and it is still an open question as to whether agricul-
tural productivity has been raised or lowered by Communist agrarian reforms.
b. Industry and Mining.
Available information indicates that there is no large-scale production of min-
erals or manufactured goods in Communist territory. Except for a few large factories
and arsenals operated by the Communists to supply the army, the majority of the indus-
trial establishments are small workshops run by groups of workers or private individuals
who are required to turn in a certain percentage of their profits to the Communist
Party. In those cities occupied by the Communists, such as Harbin, where modern
industry once existed, production is reported at a virtual standstill. This is partly a
result of the removal of industrial equipment by the Russians and partly of the lack of
capital, technical and administrative knowledge, skilled workers, raw material, and
marketing facilities.
Although many of the largest coal mines in North China and Manchuria are
in Communist areas, output is low since much of the mining equipment has been
removed by the Russians or was destroyed during the Japanese or Civil War. The
equipment still remaining has deteriorated. Almost all the coal that is mined is used
for the railroads in Manchuria, for the few arsenals and forges, and for the power plants
still in operation.
Although the Communists now control areas containing substantial mineral
resources, they will be in no position to exploit them unless they acquire more invest-
ment capital, the necessary technical knowledge together with a large number of
skilled workers, and the ability to organize a well balanced economy. It is unlikely
that this can be done without substantial assistance from abroad.
c. Finance.
Although the Chinese Communists issue their own currency in the areas under
their control, there is no general circulating medium primarily because these areas are
not contiguous. Each regional government has its own central bank.
The rate of exchange between Communist currencies and the Chinese National
Currency is difficult to determine since neither side recognizes the currency of the
other. Nevertheless, exchange transactions as well as trade are carried on continuously
in the border areas. Gold purchase by private individuals is forbidden in Communist
areas, but it is believed that the Communist Government has carried on transactions in
Nationalist cities to obtain gold needed for the purchase of urgently required commodi-
ties. Although no official foreign exchange rate exists, brisk black market activity takes
place in Harbin, where there is a demand for US dollars and Russian gold rubles.
Prices have been rising steadily in the Communist-controlled areas, although
the inflation is by no means as extreme as in Nationalist China. The essentially
agrarian nature of the economy, and the fact that workers are often paid in kind, reduce
the impact of the inflation on a large segment of the population.
? The tax policy is characterized? by a rate which theoretically varies with the
amOunt of property or with the income of the taxpayer. To some extent, at least,
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according to reports from these areas, whatever benefits have accrued to the peasants
from tax as well as land reforms are often negated as a result of heavy requisitions of
grain and other produce for military purposes.
d. Trade.
There is substantial smuggling between Communist and Nationalist China, par-
ticularly in the border regions. It has been reported that businessmen in Nationalist
cities of Shantung send gold bars into Communist territory in exchange for cotton
badly needed for the mills of Tsingtao and Tientsin. There have also been reports of
lively trade in foodstuffs between Communist-held rural areas and the Nationalist
cities in North China. Urgently needed commodities such as paper and chemicals are
purchased in Tientsin and Shanghai by the Communists with gold originally acquired
from Nationalist sources.
Recent reports indicate significant trade between the Chinese Communists
and the USSR. It is believed that a barter agreement may have been reached in which
foodstuffs are exchanged for manufactured goods. The principal channels of Chinese
Communist-Soviet trade are the Manchouli-Suifenho Railroad and shipping between
Vladivostok, Dairen, and ports in North Korea. There is also some trade reported by
road between Manchuria and Siberia.
It is believed that Soviet objectives in Manchuria include the orientation of
trade in that area to the Soviet Far East. Since the industrial areas of Far Eastern
USSR must import foodstuffs, trade ties with agricultural Manchuria would be very
advantageous.
e. Economic Potential of Communist China.
Despite the fact that the Chinese Communists now control areas with substan-
tial mineral and industrial resources and may eventually gain control over all Man-
churia, it is highly unlikely that they can exploit the economic advantages inherent in
these areas for many years and perhaps decades. To a considerable extent the mining
and industrial plant which the Japanese developed in these areas has been removed,
destroyed, or is now so deteriorated as to be all but useless. In addition, the Commu-
nists lack the technical and administrative skills, the skilled labor force and the invest-
ment capital necessary to establish an industrial system. Obviously, however, the
advantages and resources could be exploited by the Communists upon receiving a sub-
stantial amount of assistance from abroad. To the extent that such aid is not avail-
able, the Chinese Communists may have to rely on the technical and administrative
abilities of persons who would ordinarily not be attracted to the Communist philosophy.
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SECTION IV
FOREIGN AFFAIRS
As one of the Big Five, China enjoys the status of a Great Power in international
relations, but this is more a matter of form than of fact. The claim of China to such
a position has some basis in its large area and population, its importance in history,
and its participation in the victory of World War II. On the other hand, its military
and industrial strength is merely potential with little prospect of realization in the
near future. Because of internal instability and civil war, the Chinese National Gov-
ernment is preoccupied with the question of its survival and therefore can play only
a relatively weak role in foreign affairs.
The present international position of China, nevertheless, represents a marked
advance as compared with its position in the decades preceding World War II. Helped
by US policy and support during the war with Japan, China rose from the rank of a
third-rate power to membership in the Big Five of the United Nations. Moreover,
during the past five years China has concluded a series of new "equal" treaties, which
have erased nearly all vestiges of the 100-year era of concessions and extraterritoriality.
The growth of Chinese nationalism was greatly stimulated during the war with Japan
and has since led to increased emphasis on national interests in relations with foreign
countries. China also has a great asset in its juridical position; in the United Nations
Security Council it is one of the five permanent members with the right of veto; in
the Far East, it is represented on the Allied Council in Japan and is recognized as one
of the Big Four for Far East-Pacific affairs. A less tangible factor in support of China's
prominence in international affairs is the rather widely held conviction that China,
no matter how dismal its immediate prospects, will eventually become in fact one
of the Great Powers of the world.
1. GENESIS OF PRESENT FOREIGN POLICIES.
In modern times, China's foreign policies have been shaped by the impact of
Western civilization upon its political, economic, social, and religious life. Encroach-
ment on Chinese territory by the Western powers began to take positive form in the
early nineteenth century, and the opening years of the twentieth century disclosed
China weak, militarily discredited, and internationally humiliated. Great Britain,
France, Germany, Russia, Japan, and Portugal all made incursions on Chinese terri-
torial sovereignty.
During this long period of exploitation, antiforeignism in China grew into an
almost universal sentiment. More recently, the organized resistance offered by China
to Japan, commencing in 1931 and continuing to the close of World War II, added
to the nationalistic feeling of patriotic Chinese. As a consequence, China's foreign
policy now is in general aimed principally at resumption and retention of sovereignty
over all Chinese soil. China is anxious to establish the inviolability of its frontiers
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and to eliminate any foreign control from its land not only because national security
requires it, but also because a sensitive national pride insists upon it. The agitation
for the return to Chinese control of Hong Kong and Macao, for example, springs not
solely from the belief that acquisition of these areas will materially bolster Chinese
economy, but from a conviction that Chinese land ought to be under Chinese adminis-
tration and control.
?At present, the most important questions in China's foreign affairs hinge upon
its relations with the two major powers, the US and the USSR. The Soviet Union
represents the chief threat to China's security interests, because of the long common
frontier between China and Soviet-controlled territory, the historic Russian strategic
and economic interests in Manchuria, and Soviet sympathy with the Chinese Com-
munists. The Nanking Government is striving to achieve friendly normal relations with
the USSR, and, as a weaker state endeavoring to establish a modus vivendi with a strong-
er neighboring power, has tried to settle outstanding issues by treaty. In so doing it
has made some concessions to the USSR, but in return has gained Soviet assurance
that it will continue to recognize the National Government's sovereignty over all of
China.
At the same time China wants to maintain its long-standing friendship with the
US, traditionally a natural ally of China because of its historic policy in support of
China's administrative and territorial integrity. The US is the most likely source for
that foreign aid which is essential both for China's economic recovery and successful
prosecution of the war against the Chinese Communists; therefore, the great bulk
of the relations of the National Government with the US are now directed at eliciting
US aid.
Of comparable significance in its foreign relations China fears that Japan will
once again rise to dominate the Far East. As the chief sufferer from Japanese im-
perialism, China is anxious that safeguards be established against the military and
industrial resurgence of Japan, and wants these safeguards to be guaranteed by both
the USSR and the US in a future peace treaty with Japan. China is apprehensive over
US policy in Japan, because of its fear that the US will concentrate on establishing
a strong Japan as the bulwark for stability in the Far East, while leaving China rela-
tively unsupported.
In the conduct of its foreign relations, China will be guided by expediency and
opportunism, since its internal weakness does not allow it to follow a firm and con-
sistent line. As in former years, it will continue its practice of playing one power
against another in an endeavor to preserve its territorial integrity and to further the
attainment of its chief objectives in foreign affairs.
2. RELATIONS WITH THE USSR.
The defeat of Japan upset power relationships in the Far East, with the USSR emerg-
ing as by far the strongest and also the only great power territorially speaking in that
part of the world. Chinese security interests, consequently, are affected more im-
mediately by Soviet policies and activities than by any other external factor.
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The long common frontier between China and Soviet-controlled territory and the
pressures along that frontier have been the basic factors determining the course of
Sino-Soviet relations through the years. Certain outstanding and recurring issues
have made it difficult for the two governments to maintain amicable relations; notably
independence of Outer Mongolia, the problem of Sinkiang, the Soviet interests in Man-
churia, and more recently, the presence within China of an armed Chinese Communist
party. The Sino-Soviet Treaty and Agreements of 14 August 1945 were designed to pro-
vide a satisfactory settlement of these issues. In view of the uneven power relationship
between the two governments, China was forced to give ground on many of the points
over which there has been disagreement with the USSR. However, China managed
to achieve, in a formal treaty, recognition of its National Government, a clear definition
of the Soviet position, and a statement of limitations beyond which the USSR has
pledged it will not go. As recently stated by the Chinese Premier, it is the consistent
policy of the Chinese Government to abide by the Treaty and to give the USSR no
ground whatever for such deviation from it as might seriously endanger the security
of China and the Far East.
The Agreements provide for a 30-year "alliance of good neighborliness" between
the USSR and China, joint ownership and management of the major railways of Man-
churia, a free port at Dairen under Chinese administration but with a Soviet port
director and with Soviet control over half the port facilities, and a joint naval base,
to be defended by the USSR, in the Port Arthur area comprising the southern extremity
of the Liaotung peninsula. All these concessions, according to the agreements, are
to revert to China after thirty years. The agreements also included assurances by the
USSR that Soviet assistance to China in "moral support and aid in military equip-
ment and other material resources" was to be limited to the National Government; that
the USSR recognized China's "full sovereignty over the Manchurian Provinces and
their territorial and administrative integrity"; and that the Soviet pledge of non-
interference in China's internal affairs specifically included the province of Sinkiang.
In return, China agreed to recognize the independence of Outer Mongolia if a plebiscite
confirmed the desire of the people for such a status.
The treaty was significant because it indicated quite clearly that the concerns of
the USSR, especially in such matters as transportation and defense in Manchuria, were
substantially the same interests as those of Tsarist Russia. Nevertheless, it was not
regarded unfavorably in Nationalist China at the time because, among other guaran-
tees, it constituted a pledge that the USSR would not lend material aid to the Chinese
Communists.
Not until six months later was it revealed that all the significant provisions of the
Sino-Soviet treaty, except the pledge of non-interference in Chinese affairs, had been
foreshadowed in the secret agreement of 11 February 1945 signed by President Roose-
velt, Prime Minister Churchill, and Marshall Stalin at Yalta. From the Chinese point
of view, the disclosure of the Yalta agreement altered the significance of the Sino-
Soviet treaty, which had been presented to the Chinese as a freely negotiated pact.
Particularly, the obvious incompatibility of the Soviet recognition of China's "full
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sovereignty over the Manchurian provinces and their territorial and administrative
integrity" with the concessions for joint control of facilities and fortifications in that
area, assumed a sinister significance, only too soon to be confirmed by the Soviet's in-
transigent conduct in Manchuria, Korea, and other border regions. These concessions
were clearly in derogation of China's sovereignty, against which it had fought so long
?and stubbornly. Thus Yalta came to be regarded as a humiliation to China, its revela-
tion coming as it did after the war's end, at a time when China hoped to achieve its
major aims, resumption of national sovereignty and independence in international
affairs.
Almost from the date of the treaty, Sino-Soviet relations have been unsatisfactory,
and Chinese fears over the intentions of the USSR have grown accordingly. More
than any other single factor, the increase of the influence of the Chinese Communists
has spurred these fears. The Communists, echoing the Soviet stand on almost every
issue, international or domestic, constitute a militant threat to the survival of the
present Nationalist regime. Further, the National Government is constantly plagued
by the possibility that the USSR may at some time lend considerable support to the
Chinese Communist cause, and has in fact accused the USSR of so doing. There has
been some basis for these complaints because the USSR, in withdrawing its troops from
Manchuria at a time when only the Chinese Communists could fill the vacuum, made
it possible not only for the Communist forces to take possession of the major part of
Manchuria but also for them to acquire large quantities of surrendered Japanese
materiel. The National Government has been hampered in its efforts to recover Man-
churia because the USSR has steadfastly prevented the use of Dairen as a port of entry
for Nationalist troops.
Other Soviet actions in Manchuria also caused concern in National Government
circles. The Soviet troops postponed their evacuation of Manchuria beyond the "three
month maximum" provided in the minutes of the treaty, and when they finally with-
drew, much of Manchurian heavy industrial equipment had been confiscated as "war
booty." One effect of the looting of Manchurian industry was to destroy, for an indefi-
nite period, an industrial war base which might be used against the USSR. The USSR
also appears to have the objective of making Manchuria again a producer of raw ma-
terials feeding into Soviet factories and a consumer of Soviet-manufactured goods.
Thus it would gradually build up the mutual indebtedness of Manchuria and Siberia,
making it progressively more difficult for the former area to break away except through
a major violent upheaval. The Chinese were doubly bitter over this stripping, as
it not only barred immediate resuscitation of Chinese industry, but also deprived
China of what it regarded as its rightful share of Japanese reparations. Maintaining
the legal fiction of war against Japan, the USSR closed the key port of Dairen to for-
eign shipping; as long as Dairen remains closed, such trade as exists must flow eastward
out of Vladivostok and northward into Siberia. Unless and until the National Govern-
ment armies occupy all of Manchuria and forcibly reorient the economy of the area,
nothing seems likely to change the trend initiated in August 1945.
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In areas other than Manchuria, relations between China and the USSR have been
uneasy. China recognized the independence of Outer Mongolia early in 1946, and the
new Mongolian People's Republic is effectively aligned with the USSR. The consensus
of available evidence suggests that the Outer Mongolians are being used as an instru-
ment for Soviet policy of furthering separatist tendencies among the Mongols of
Inner Mongolia and northwest Manchuria. Such separatist tendencies are promoted
by appeals to ties of blood, religion, and community of interest among all Mongols,
coupled with a gross ineptitude of the Chinese in dealing with minority peoples.
To the West, parts of the province of Sinkiang are economically allied with the
USSR. Chinese bungling throughout the province, Chinese inability to conciliate
native Turki groups, as well as Chinese preoccupation with more urgent problems
elsewhere, may ultimately permit the northwest portion of the province to drift under
Soviet control. The Chinese may protest developments in Sinkiang, but under present
circumstances can do little more than put their views on the record. To date, however,
the National Government has been unable to provide any convincing evidence that the
USSR has violated its 1945 pledge of non-intervention in Sinkiang affairs.
Another irritant in Sino-Soviet relations has been the presence in China of tens
of thousands of White Russian refugees. While the older members of this group are
bitterly anti-Soviet, many of the younger generation, born and brought up in China,
are willing to forget the past. This change has been effectively exploited, and
thousands of these individuals now possess Soviet citizenship. The recent announce-
ment that some 15,000 of them would be repatriated may have been motivated by the
desire of the USSR to extricate those citizens who may be useful at a later date. (It
appears from reliable reports that several thousands of these White Russians have
been already repatriated.)
Lacking any weapon against Soviet expansion into the peripheral areas of China,
and worried over the expansion of the Chinese Communist domains, the Chinese
National Government has often expressed its fears of the USSR to the US. However, the
National Government has shown reluctance to take action overtly which would strain
its relations with the USSR.
On its part, the USSR, at least for the time being, seems content to rest on the
concessions it won in the Sino-Soviet treaty, and at present maintains outwardly correct
relations with the National Government.
3. RELATIONS WITH THE US.
The single dominant aim of the National Government in its relations with the
US seems to be to obtain US financial and military assistance. Statements by govern-
ment officials on China's problems are almost invariably aimed at evoking US assist-
ance, and in some instances these statements have gone so far as to indicate that
if no US action materializes, China would be forced to a new accommodation with the
USSR. This veiled threat has been offered in spite of the traditional distrust and sus-
picion China feels toward the USSR and in spite of the fact that the war being waged
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by the National Government against the Chinese Communists makes such a rapproche-
ment almost inconceivable at this time, except as a desperation of compromise.
Evidence of China's anxiety to obtain aid from the US has found several expressions.
Surface changes have been made in the Chinese Government (at least partly) in
order to encourage favorable US opinion. The "reorganization" of the Chinese Gov-
ernment in April 1947 was doubtless directed toward that goal, but this reorganization
failed to bring about any alteration in the domination of the Kuomintang over the
National Government, and maladministration and corruption, as well as a flourishing
secret police, have continued as important characteristics of that government. Elec-
tions have been held on a national scale for the first time in Chinese history, but the
somewhat questionable results can only strengthen the rule of the Kuomintang. The
promulgation of the new Chinese constitution on 25 December 1947 was not accom-
panied by any operational changes because at the same time regulations were issued
prolonging the status of the present government until the National Assembly, which
convened on March 29, 1948, elects a new President of the Republic.
Further evidence of Chinese anxiety to obtain US help is a series of demarches
made by Chinese officials to the US Embassy in Nanking. The urgency of the situation
has been repeatedly impressed upon US Ambassador Stuart, and Chinese officials have
expressed willingness to accept US control over the administration of any aid rendered.
They have admitted the need for reform and promised its accomplishment, although
continuing to reiterate that immediate assistance is essential to China's survival. Pes-
simism and despondency have characterized their attitude. Indeed, any action de-
signed by the Chinese Government to combat or ameliorate China's increasingly grave
problems appears to have been submerged in the insistent cries for help from the US.
The present endeavors on the part of the Chinese National Government to secure
aid from the US are closely related to past events in China. The US had made several
amicable gestures toward China in recent years: in January 1943, for example, the
US relinquished all extraterritorial rights in China. At the same time, the US removed
another source of irritation to the Chinese when it ended the absolute prohibition on
Chinese immigration and substituted a quota calculated on the same basis as those
of other countries. In December 1943 the Cairo Declaration, issued after a conference
attended by the US, China, and the UK, stated that "all territories Japan has stolen
from the Chinese, such as Manchuria, Formosa, and the Pescadores, shall be restored
to the Republic of China." Finally the US took the lead in according to China one
of the five permanent seats in the UN Security Council, marking a great advance for
China over her position at the Paris Conference in 1919.
However, the Chinese Government wants more from the US than periodic payments
given with the view to sustaining China as a buffer against Communism. The Chinese
feel that such a policy could make China into a battleground of World War III, an
eventuality which they fear acutely. The hope of the National Government is not
merely that it will be granted sufficient aid to strengthen its present precarious domestic
situation ? although it does hope for that ? but also that the US and the USSR will
arrive at a solution of their basic disagreements which will permit China to establish
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normal relations with them and with the rest of the world. China does not want to
have its problems considered as part of the over-all conflict between the US and the
USSR, and fears that if the US takes this view China may be left on the firing line
against Communism, while the US takes up its stand in Japan, bolstering that nation
and leaving China to fight the threat as best it can.
The close association of the US with events in China at the end of the war with
Japan has also led the Chinese Government to the hope of US assistance at the present
time. After VJ-Day, when Nationalist and Communist troops rushed to reclaim the
areas which the Japanese were evacuating, US ships and planes transported Nationalist
armies ? many of which were US-trained and equipped ? to various key areas of
China to accept the Japanese surrenders locally. Some Nationalist forces were taken
to strategic places in North China, from which they advanced into central Manchuria.
Large numbers of US troops were maintained in China to repatriate a million and a
half Japanese soldiers, plus about the same number of Japanese civilians who were
scattered through hundreds of important cities and towns.
In December 1945, when the conflict being fought over the areas evacuated by
Japan threatened to spread to full-scale civil war, General Marshall was sent by the
US as special envoy to China to attempt to find a solution to China's internal problems.
This mission was undertaken, in the words of President Truman, to aid in the establish-
ment of a "strong, united, and democratic China." This mediation effort, in which
he was assisted by J. Leighton Stuart, who was appointed Ambassador on 12 July 1946,
met with failure. When leaving China in January 1947, General Marshall declared
that:
"the greatest obstacle to peace has been the complete, almost overwhelming
suspicion with which the Chinese Communist Party and the Kuomintang
regard each other . . . . On the side of the National Government, there is
a dominant group of reactionaries who have been opposed, in my opinion, to
almost every effort I have made to influence the formation of a genuine coali-
tion government. . . . The dyed-in-the-wool Communists do not hesitate at
the most drastic measure to gain their ends."
The Government and Communist rivalry reflected the difference between US and
Soviet policies in China. Soviet troops remained in Manchuria after 1 February 1946,
the agreed date for their withdrawal. On 26 February 1946, Secretary of State Byrnes
denied any knowledge of a Big Three agreement authorizing removal by the Soviets
of machinery in Manchuria, the direct loss of which was estimated at $858 million.
This removal in effect amounted to complete stripping of Manchurian heavy industry
by the USSR. When the Soviet troops withdrew from Manchuria, their movements
were timed so that the Chinese Communists would most benefit by them, and a con-
siderable amount of captured Japanese equipment was allowed to fall into Com-
munist hands.
Soon after General Marshall left China, all US troops except an Advisory Group
in Nanking and a Naval Training Station in Tsingtao, were withdrawn. In January
1947, also, the US gave up its efforts at mediation in China's internal affairs. In
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December 1946 the US signed a "Treaty of Friendship, Commerce and Navigation"
with China, a treaty described as the "first postwar comprehensive commercial treaty
to be signed by either government. . . including articles relating to establishment, land-
holding and industrial property, commercial articles similar in principle to the general
provisions of recent trade agreements, and more detailed coverage of exchange con-
trol, the activities of government monopolies, and other matters." The treaty based
on principles of reciprocity and most-favored nation treatment, has not yet been
ratified.
Some months after General Marshall's mediation effort, General A. C. Wedemeyer
headed a mission which toured China and reported on conditions there. Wedemeyer
issued a statement on 24 August 1947, which was very critical of the National Govern-
ment, and urged the Chinese to "seek solutions to the problems presented" themselves
rather than looking to outside nations for help. As a stop-gap measure, the US Congress
voted on 19 December 1947 $18 million in interim aid to China. The implementation of
that sum, however, as well as the formulation of a long-range plan to assist China, had
not been determined at the close of the year 1947.
In general, trends in 1947 placed Sino-US relations in a new light. In Europe
and the Middle East, the US took a firm stand against Soviet expansion, and this
stand has had reverberations on the China situation. The Chinese Communists had
a successful year, improving their military positions and expanding their holdings
in Manchuria, and in North and Central China at the expense of the National Gov-
ernment. These two developments clearly pose the present problem central to US-
Chinese relations: would the US take strong anti-Communist measures in China? If
so, granting the peculiar nature of the Chinese scene, what form would such measures
take? The intensely nationalistic Chinese resent foreign supervision (some evidence
of this was given in widespread anti-US feeling in China in late 1945 and 1946) and
already suspect the US of building up a strong Japan as a bulwark against the USSR,
leaving China unaided. These problems, and efforts made toward their solution,
may be expected to characterize US-China relations in the future.
4. RELATIONS WITH JAPAN.
China's policy toward Japan is motivated by the basic and deep-seated fear that
Japan will rise again to carry to China an aggressive war with all its concomitant evils.
This basic fear is inherent in China's covert apprehension of Japanese capacity for
discipline, unity, and progressive urgings, from which derive, in large measure, their
spectacular accomplishments during the modern era. At the same time China is acute-
ly conscious of its own failings in these essentials. This Chinese fear has found two
main expressions. The first of these is China's growing apprehension that the US
will turn from China to Japan as an alternative in the search for a friendly, strong,
stabilizing influence in Asia. China believes it sees a growing tendency in US official
circles toward this alternative, and intends if possible to dissuade the US from this
course in the hope that China may yet become heir to Japan's past position of dominance
in the Far East.
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The second motivating force behind China's policy toward Japan, closely related
to the first, is China's concern over the possibility that its once powerful neighbor will
again assert industrial preeminence in Asia. In this event, China feels it will be
relegated to a position of secondary economic importance in Asia. Fear of such a
consequence will probably lead China to use its influence, as far as possible, to prevent
Japan's recovery as a strong industrial power. Nevertheless, China well knows that
some trading with Japan, especially in the importation of cheap Japanese-made con-
sumer and industrial goods as they become progressively available, would operate
toward an amelioration of China's present desperate economic situation.
China is also aware that Japan's geographic position, dominating the exits and
entrances to the Sea of Japan and Yellow Sea, constitutes a threat to China's security.
The possibility of the establishment of a hostile government in Japan, either (a) because
of a resurgence of military power or (b) because of eventual Communist domination
of that country, continues to be a cause of concern to China. Press opinion in China
is overwhelmingly concerned with fear of renewed Japanese aggression, and has
recently warned that the power of the Zaibatsu remains unbroken, war criminals
remain unpunished, and Japan remains ambitious to regain her former status.
With regard to the question of a peace treaty for Japan, China is now caught
between the conflicting interests of the US and the USSR. The USSR proposed a
Foreign Ministers' Conference to initiate discussions with any of the four powers
present having the right to veto. The US, on the other hand, proposed an eleven-
nation conference, with a two-thirds majority sufficient to carry a motion and no
veto power. China, in an endeavor to find a common ground between the two po-
sitions, has suggested an eleven-power conference, with the USSR, the US, China, and
the UK maintaining the right to veto, an organization similar in structure to the
Far Eastern Commission. The UK, however, has rejected the Chinese suggestion, and
at present the situation is deadlocked, with China maintaining its insistence on the
right to veto. The present stalemate on the treaty issue may continue for some time.
China will doubtless continue to seek US aid in the future, and as long as the
possibility of obtaining such aid exists, China will be reluctant to oppose the US po-
sition on any major issue such as the Japan treaty. On the other hand, China is
very conscious of the strong Soviet position in Korea and Manchuria, and will exert
its efforts to bring about Soviet participation in the peace conference, in order to
have the treaty guaranteed by all the great powers. Chinese officials have stated that
the USSR has exercised "unremitting pressure" on the Chinese Government in respect
to the treaty negotiations.
Whether or not China will remain aloof from a conference not attended by the
Soviets appears to be in some measure contingent upon the prospects of long-range US
guarantees to China. However, China doubtless is aware that the nature of the
peace made with Japan is of deep concern to her well-being, involving as it does long-
range Chinese national security; consequently, China will proceed with caution.
Regardin.g Japan's future geographic limitations, China believes that Japan should
be reduced to the four main islands, as advocated by the Cairo Declaration. Without
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special interest in the Kuriles, China, for the Sake of consistency, will probably oppose
the return of the Southern Kuriles to Japan. China has already voiced her claim to
the Ryukyus and undoubtedly will press this claim at the Peace Conference. Other
Chinese contentions adduced in support of this claim are (a) that the Ryukyus are
essential to China for strategic purposes; and (b) that China has an historical and
ethnological claim to the islands. China, however, does not now have the capacity
to assume administrative nor protective responsibilities abroad, and the weight of
historical and ethnological evidence is more in favor of a Japanese claim for control
of the islands. The Chinese claims, therefore, may be ascribed to (a) motives of pres-
tige, and thus a desire to vindicate its status as a "Great Power"; (b) the desire to
distract Chinese popular attention from the domestic maladministration and corrup-
tion; and (c) use as a bargaining point in the Japanese Peace Conference.
China probably will also endeavor (a) to have its occupation of Taiwan (Formosa)
legalized by treaty; (b) to obtain specific renunciation of Japan's extraterritorial
rights, privileges, and concessions in China; and (c) to secure its present claims for
40 percent of reparations chiefly out of current Japanese production.
China has been apprehensive of Russian and Japanese designs on Korea since
the closing decades of the last century when all three were imperial powers, knowing
that a potentially, hostile control of the peninsula constituted a threat to Manchuria
and North China. Today, with the elimination of Japanese rule over Korea, China has
even greater misgivings regarding the designs of Soviet Russia in that territory because
of the greater ambition and potency of the USSR as compared with its imperial pred-
ecessor and its use of native Communists to further its schemes.
The Cairo Conference, Potsdam Declaration, and Foreign Ministers Agreement at
Moscow in December 1945, all predicated an independent Korea which would allay
China's fears. However, with the establishment of a Soviet-dominated North Korea
regime, and its ultimate recognition by the USSR, it is natural for China to be making
frantic efforts to keep at least southern Korea from being absorbed into the Soviet
sphere through insisting on elections in that area and requesting the retention of US
armed forces there to protect the duly elected government. China regards any action
by the UN as without practical value and as leading to indefinite delay which would
give the USSR time to improve its position in Korea. At the same time China wishes
to force the US to take a positive stand designed to check Soviet aims in Korea and
Manchuria.
5. RELATIONS WITH UK.
The single outstanding issue in the relations between China and the UK is the
question of the return of Hong Kong to Chinese rule, as part of an over-all campaign
for the resumption of sovereign rights over all of Chinese territory. While no formal
request has been made to the UK by China for Hong Kong's return, occasional agi-
tation in the press and speeches by officials keep the issue alive, and often serve to
distract public attention from domestic troubles.
At present Hong Kong is of considerable commercial importance to the UK, espe-
cially in view of its postwar hunger for foreign exchange, and the facilities which the
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open market at Hong Kong offers in these transactions and also because of the altered
pattern of the British Far Eastern empire. Moreover, Hong Kong has some value as
a naval base; it is a first-class shipping port, entrepOt, and distributing center; and,
under British administration, it has been a veritable oasis of security and stability in
the desert of Chinese ineptitude and misrule. Because of its economic prosperity, Hong
Kong may be of more value to China under British control than if it reverted to the
Chinese, who certainly could not continue the present honest and efficient adminis-
tration. This fact is recognized by Chinese interests to which Hong Kong presents
an opportunity, rarely found in the rest of China, to conduct normal business on a
profitable basis. The influence of those interests in the Chinese Government may
account, in part, for the failure of China to send a formal note to the UK urging the
restitution of Hong Kong.
There is, however, a considerable volume of smuggling from Hong Kong (which is
a free port, except for certain excises) into Chinese territory. Moreover, a very large
black market and illicit trading in exchange exists at Hong Kong beyond the reach
of? the Chinese Government. Hence that government has been endeavoring to nego-
tiate remedial and preventive measures with the Hong Kong authorities. In passing, it
may be safely predicted that if a free and secret ballot could be conducted among the
Chinese residents of Hong Kong (who constitute an overwhelming majority of its
inhabitants) the result would be an almost unanimous vote in favor of the retention
of British governance.
The role of the UK in China has become increasingly less influential since the
war years, until at present the UK has no longer the power nor resources necessary
to pursue a strong and independent policy in that part of the world. In general, the
UK proposes to keep in step with the China policy of the US. In 1943, at the same
time as the US, the UK relinquished extraterritorial rights in China. In 1945, the UK,
with the USSR and the US, signed the Moscow Declaration, recognizing the need for a
unified China under a National Government broadened to include democratic elements,
and pledging noninterference in Chinese internal affairs.
However, at present the UK fears involvement with the USSR, and this fear, along
with its commitments and anxieties elsewhere, coupled with straitened economic cir-
cumstances at home, would probably preclude the UK's active intervention in the
China scene. The UK desires a return to a normal trade relationship with China,
and is evidently restive over China's economic plight. Nevertheless, the UK is not
in a position to grant extensive credits to China at this time.
Notwithstanding the decline of British power in China, British business will con-
tinue to be a formidable competitor in that country. In a century of British trade
in China, its subjects have been pioneers, and were for long preeminent in the main
branches of business; in banking, shipping and shipbuilding, in the importation of
machinery and other capital goods, in textiles, insurance, and in the export of China
products. British firms thus have acquired a unique knowledge of the widely ramified
Chinese markets with their peculiarities and subtleties, and by honesty, accommodation,
and versatility have won the respect and confidence of their Chinese customers. As
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previously indicated, Hong Kong has been a valuable asset in promoting British eco-
nomic developments in China.
Another feature in Britain's favor is the fact that her factories are geared to the
production of limited quantities of goods of great variety in quality and pattern,
rather than to the mass production so common in the US. Hence Britain is able to
supply, at competitive prices, restricted quantities of commodities of wide diversity
to meet a demand which has been much in vogue in the China markets.
In the future, the Hong Kong issue and commercial problems will probably con-
tinue to dominate Sino-UK relations. Chinese agitation for the return of Hong Kong
may continue to break out periodically at inspired moments. However, whether or not
China will make a formal overture to the UK for the surrender of the Crown Colony will
depend, in large degree, on the broader question of China's internal stability, and on
the ability of the National Government to exercise an effective writ of authority through-
out the land. In any event, there is little possibility that the UK will give up Hong Kong
in the foreseeable future.
The first steps in the establishment of the UK's extensive prewar commercial re-
lations in China have already been taken. A commercial treaty, along the same lines
as that recently concluded between China and the US, is at present under discussion
between China and the UK. Problems such as inland navigational rights, coastal
shipping, restitution of UK property, and the extralegal activities at Hong Kong
previously mentioned, will probably be the major issues between the two nations for
some time. The UK has possessed very extensive economic interests in China, and the
refusal of the Chinese to allow any foreign vessels to conduct coastal and river trade,
as well as the restrictive measures on the operations of these interests, have been very
costly to British enterprises and investments. The UK may be expected to continue
its endeavors toward the resumption of regular coastal and riverine traffic.
6. RELATIONS WITH INDIA AND PAKISTAN.
China, as a so-called "Great Power", and the dominions of India and Pakistan
with their newly acquired independence, are alike conscious of the importance of pro-
moting international prestige. The first two are exponents of the kind of Pan-Asianism
which will assign them leading roles in the movement to keep Western nations from
resuming or maintaining domination in the Orient or of pursuing policies savoring of
racial prejudice. Pakistan undoubtedly is sympathetic to this doctrine but in a passive
way, believing that its cardinal interests demand a close working integration with the
policies of the Occidental Powers.
However, the prevailing and progressive weakening of China, and the internecine
strife between India and Pakistan, coupled with considerations of political, economic,
sociological, and military factors, will continue to impel the governments of all these
countries to orient themselves toward the Western Powers, especially toward the
policies of the US, even if it means at times the subordination of their own predilections,
and the adoption of different attitudes on questions of common interest.
Thus no marked development in the political and economic relations between
China and the Dominions of India and Pakistan can be expected in the foreseeable
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future. Embassies have been established in Nanking and New Delhi, and a Sino-Indian
Commercial Treaty is now under negotiation.
There is a report that in the Sinkiang Province of China, certain Moslem elements
favor a closer relationship with the bordering Moslem States of Afghanistan and
Pakistan, but these elements are believed to be tenuous and of no great political power.
7. RELATIONS WITH STATES OF SOUTHEAST ASIA.
A source of international friction in the Far East, which has gained new prominence
since VJ-Day, is the long-standing Chinese minority issue in Southeast Asia. This issue
centers about 4,500,000 Chinese, and millions more of part-Chinese strain, who for many
years have occupied an unusually strong economic position in Southeast Asia countries,
built largely about their domination of the entrepreneur trades. The Chinese main-
tained this strong position even through the long Japanese occupation.
The successful economic activities of overseas Chinese, as well as their disposition
to live in isolated political and cultural groups and retain strong ties with China, have
been a recurrent source of irritation to the natives of Southeast Asia and have on many
occasions led to the imposition of restrictive measures by the local governments. Since
VJ-Day, the upsurge of nationalism throughout this region has been accompanied by
revived resentment against the alien Chinese, who continue to cling to their own
nationality, customs, and language, stubbornly resisting assimilation. Anti-Chinese
riots and demonstrations have taken place in the Netherlands East Indies, Malaya, and
Siam; in the Philippines, there has been an increasingly spirited press campaign against
the Chinese since Independence Day. In all Southeast Asia countries, public opinion
has been demanding official restrictions on Chinese immigration, dual citizenship
rights, and economic and political activities.
Both in the prewar period and since VJ-Day, the Chinese Government has at-
tempted?by diplomatic representations, propaganda campaigns, and other ad hoc
measures?to defend its nationals abroad against discrimination and ill-treatment. Its
efforts, however, have been seriously undermined by its preoccupation with the adverse
political and military situation in China itself, and its failure, for this reason, to formu-
late and execute a well defined policy on behalf of Chinese minorities abroad. More-
over, these minorities themselves, vitally interested in affairs at home, have split into
much the same political factions as exist in China. The existence of strong rival Kuo-
mintang and Chinese Communist organizations in Southeast Asia not only has aggra-
vated native resentment there but also has prevented the overseas Chinese from forming
a united front against local pressures. The local governments' resentment against the
Chinese has lately been aggravated by a Chinese Government plan, based on the "dual
nationality" concept, to enable its nationals overseas to participate in China's first
national election, held in November 1947. The native governments in Southeast Asia
protested against any plan for Chinese to cast votes in this election as a violation of
national sovereignty in the country of residence.
Notwithstanding China's unfavorable internal situation, the National Government
can be expected to make greater efforts in the future on behalf of overseas minorities,
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who represent both a valuable economic asset and a potential tool for the extension of
China's influence in Southeast Asia. Undoubtedly, these efforts will be vigorously
opposed by nationalist groups in Southeast Asia and hindered by China's internal con-
flict and its overseas counterpart. Another complication is the basic dichotomy which
confronts the Chinese National Government: the desire on the one hand to lead the
countries of Southeast Asia to independence and freedom from colonial domination, and
the realization, on the other hand, that the Chinese nationals in these areas need the
protection of the homeland to carry on their business activities. This problem will
continue in the future to present the National Government with a dilemma of which
there can be no easy solution.
The foregoing premises are basically applicable to the Chinese communities
through Southeast Asia, but there are additional specific factors which add to the
minority problem, and are peculiar to the respective countries.
a. Indo-China.
Following the Japanese surrender, Chinese policy was directed toward the
establishment of a regime predominantly under Chinese influence, or even under some
form of direct Chinese control. One of the principal objectives of this move was to
block the expansion of Communist influence and the possible establishment of a Com-
munist-dominated regime under Ho Chi Minh, whose Viet Minh (League for the Inde-
pendence of Vietnam) had seized power following the Japanese surrender and who,
reportedly, had Communist affiliations.
However, subsequent to the withdrawal in mid-1946 of Chinese armed forces
which had been occupying the northern portion of the country and the development of
China's internal difficulties, the Chinese Government was not able to exercise the requi-
site pressure for the promotion of this policy, and at present it cannot exert much influ-
ence in support of any of the rival claimants for power in the country. Probably, the
Chinese Government would prefer Ho Chi Minh if he would declare himself openly
against the Communists and in favor of special economic privileges for China.
b. Siam.
Chinese policy toward Siam is predicated primarily on the presence in Siam of
a large number of relatively unassimilated Chinese who are mainly concentrated in
and around Bangkok. Their strong hold on the Siamese economy enables China to
bring heavy unofficial pressure to bear on the Siamese Government to promote the
social and economic well-being of Siam's Chinese and places China in an advantageous
bargaining position in the negotiation of Sino-Siamese agreements.
Until January 1946, when the Sino-Siamese Treaty of Amity was signed, Siam
consistently avoided the establishment of formal diplomatic relations with China for
fear that a duly accredited Chinese representative might be successful in uniting the
various Chinese factions into a body capable of creating serious trouble for the Siamese
Government. Siam's Chinese now have acquired an official spokesman and mentor in
the person of the Chinese Ambassador. Apart from exchanging Ambassadors and
establishing an immigration quota for China at 10,000 per year, however, neither coun-
try has attempted seriously to implement the Amity Agreement.
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The present Siamese regime, installed by the November 1947 coup d'etat, led by
Marshal Phibul, has confronted the Chinese Foreign Office with a most serious problem
because of Phibul's past record. His former regime (1938-44) was noted for anti-
Chinese legislation and open discrimination against Chinese business.
c. Indonesia.
Pending the settlement of Dutch Republican differences in Indonesia, the offi-
cial attitude of the Chinese Government has been chiefly one of concern over the fate of
at least a half million Chinese, and their vested interests, in Java and Sumatra. Dur-
ing the course of the Dutch "police action" and the application of the Republican
scorched-earth policy in the summer of 1947, Chinese appear to have borne the brunt
of the damage, both in loss of life and destruction of property. The Chinese Foreign
Office instructed its nationals in affected areas to observe a strict neutrality, while it
lodged formal protests with both Netherlands and Republican officials.
d. Philippines.
Postwar relations between China and the Philippines have been strained by a
series of nationalistic acts and proposals of the Philippine Congress and rulings of the
Philippine Supreme Court directed primarily against Chinese. One of the most drastic
has resulted in the termination of the licenses of about 1,000 Chinese stallholders in
the Manila markets. The Chinese Government formally protested the execution of
this law, which was considered the first of a series leading toward nationalization of the
retail trade and exclusion of the Chinese who are estimated to control 80 percent of all
commerce in the islands. Another proposed law, later vetoed by the President, would
have forced Chinese-owned enterprises to pay 60 percent of their pay rolls to Filipino
personnel.
The Philippine Congress also has threatened to make further reduction in
Chinese immigration, now limited to 500 annually, and the government has refused to
readmit several thousand former permanent Chinese residents who were detained in
China during the war in spite of appeals from UNRRA and the United Nations Refugee
Organization.
The effects of this legislative trend have been further aggravated by a recent
Philippine Supreme Court ruling that aliens are prohibited by the Philippine Constitu-
tion from acquiring residential lands. Despite this trend, China has extended recogni-
tion to the new Republic, has exchanged diplomatic missions and consular officers, has
ratified a Treaty of Friendship and Amity, and is continuing negotiations on bilateral
trade and economic agreements.
e. Malaya.
The Chinese form the largest single racial group in Malaya and also are the
most politically conscious population element therein, with correspondingly large eco-
nomic interests. At present the Chinese of all political factions are opposing the newly
established Malayan Federation on the grounds of its restrictive citizenship laws, its
failure to accord to the Chinese a representation in the government commensurate with
their numbers and vested interests, and because Singapore, with its large number of
Chinese inhabitants, has not been included in the Federation.
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f. Burma.
China and Burma have a long-standing border dispute, and in recent months
China has been active in preparing for surveys within the disputed territory, in install-
ing landmarks, and in establishing new customs posts therein. However, despite some-
what chauvinistic statements on both sides regarding the dispute, the ultimate result
probably will be a compromise slightly favoring the Chinese.
Chinese conciliation in this controversy probably will determine the Burmese
attitude on such other issues as (1) Burmese cooperation in preventing the smuggling
of contraband by Chinese in Burma across the northern borders; (2) Burmese recon-
sideration of measures to regulate and restrict the Chinese economic stake in Burma.
The recent establishment of diplomatic missions in Nanking and Rangoon should
facilitate amicable settlement of all these and any other issues.
8. CHINA'S PARTICIPATION IN INTERNATIONAL ORGANIZATION.
China has been an active participant in recent attempts at international organiza-
tion, seeking through international cooperation a more influential world role than its
own internal strength can sustain. It participated in the Dumbarton Oaks Conference
of 1944, and became an original member of the United Nations in 1945. Under the
terms of the United Nations Charter, China has permanent membership in the Security
Council, and, therefore, in the Trusteeship Council and the Military Staff Committee.
It also has important positions on the Atomic Energy Commission, the Economic and
Social Council, the Secretariat, the Specialized Agencies, and the International Court
of Justice.
As a member of the United Nations, China has favored revision of the veto power,
creation of an effective international police force, and extensive application of the trus-
teeship program. In the Second Annual Session of the General Assembly in the
autumn of 1947, China attempted to break the veto deadlock in the Security Council by
proposing to enlarge the scope of procedural matters, which are not subject to veto, and
to prevent the use of the veto to block a Security Council request for a special General
Assembly session. The "Little Assembly" also received active Chinese support. Chi-
nese international responsibilities were increased when Chinese representatives were
named to the six-nation working group for Jerusalem, to the Special Balkan Committee,
and to the Korean Independence Commission. In this session, China, for the most part,
voted with the US but took an independent stand on some controversial issues, including
the partitioning of Palestine, where the Chinese abstained from voting, and the resolu-
tion condemning the treatment of Indians in South Africa, which China supported.
China has also been participating in the international conferences of the various
UN Specialized Agencies. Both 1947 ECAFE meetings were presided over by a Chinese
chairman who worked for unity and harmony within the conference. However, China
has tended to take more of a passive role in these conferences rather than assume
initiative.
China's position as a member of the Big Five and a permanent member of the Se-
curity Council is out of proportion to its internal strength and effective power in inter-
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national affairs, and was obtained to a great extent through the good offices of the
United States. Its position and aspirations in relation to its allies and the world in
general is one of prestige rather than of true power. It cannot expect to enjoy the full
benefits of its newly won international position until it has solved the pressing internal
problems that have been brought about not only by Japanese aggression, but also by its
own failure to solve its internal political disputes, and to evolve honest and efficient
government.
China's alignment with the US in the UN is based on the hope that the US will
once more underwrite, and back with force, China's sovereignty and territorial integ-
rity. China was the only great power to accept without reserve the US plans that the
UN Atomic Energy Commission should retain complete jurisdiction over all weapons of
mass destruction. It also has acquiesced in the US request for a trusteeship over the
former Japanese island possessions in the Central Pacific.
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? APPENDIX A
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TOPOGRAPHY AND CLIMATE
China occupies 3,700,000 square miles in eastern Asia, an area about one-fourth
larger than that of the continental US. To the north lie Siberia and the Mongolian
People's Republic (formerly Outer Mongolia) ; to the west is Russian Turkestan; and to
the southwest and south the well-nigh impassable barrier of the Himalayas forms the
boundary between Tibet and India. Burma and French Indochina border it on the
south and the China and Yellow Seas on the east. China extends for 1,860 miles from
north to south and for more than 2,500 miles from east to west. Its coast line, including
indentations, is more than 5,000 miles long.
China has a wide latitude range. If the country were superimposed on North
America, it would reach from Puerto Rico to central Quebec. The island of Hainan is
about as far south as Puerto Rico, and Northern Manchuria is but 13? south of the
Arctic Circle. Canton and Hong Kong are within the tropics, in the latitude of Havana.
Shanghai is on the parallel of Savannah; and Chungking, farther west, is on that of
San Antonio. Tientsin and Peiping are in the latitude of Washington; Mukden in that
of Albany; and Harbin in that of Montreal. The most important areas of China are
somewhat farther south than the most populous parts of the US.
China is composed of 34 provinces (which include the nine that were formed from
the three provinces of Manchuria) and the special territory of Tibet. In addition, Tai-
wan (Formosa) is in effect a province of China, but de jure sovereignty over this island is
to be established by the Japanese Peace Treaty. Nanking is the seat of the National
Government.
In 1936 China's estimated population was 456,985,475, or more than three times
that of the US. Kiangsu Province, in which Shanghai is situated, is more densely popu-
lated than any comparable political unit in the world, having a population density of
872 to the square mile. China is essentially agricultural; but it is also potentially one
of the foremost coal countries in the world, with reserves estimated at 250 to 300 billion
tons.
a. Topography.
China may be divided into three primary geographic areas: (1) North of the
Yangtze River, (2) South of the Yangtze, and (3) West China. These comprise seven
great topographic regions that are discussed below under the primary area in which
they are contained.
(1) China North of the Yangtze River.
Region 1. The Manchurian Plain and Bordering Uplands.
The Manchurian Plain occupies central Manchuria and is 138,000 square
miles in area, with its greatest length from north to south measuring 600 miles and from
east to west 400 miles. It is an erosional plain with rolling topography, quite different
from the very flat Yellow River Plain of alluvial origin. Except for three narrow gaps
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the Manchurian Plain is everywhere surrounded by mountains. On the east are the
Long White Mountains, to the north is the Little Khingan Range, to the west is the
Great Khingan Range, and to the southwest are the mountains of Jehol Province.
The eastern Manchuria uplands, about 200 miles in width, extend northeast from the
Liaotung Peninsula for 850 miles, almost to the confluence of the Amur and Ussuri
Rivers. The highest elevations are along the Korean frontier, where the volcanic peak
of Paitou Shan rises to 8,990 feet. The uplands bordering the Manchurian Plain on the
north and west cover 168,000 square miles. The elevations are commonly about a mile
high, but the local relief is less than 1,000 feet. The Great Khingan Range area extends
along a north-south axis. Toward the south this is largely the upturned edge of the
Mongolian Plateau; farther north the region widens and is less perfectly known.
Region 2. The North China Plain includes Hopeh and Shantung Prov-
inces, most of Anhwei and Kiangsu, and part of Honan and Hupeh. This great plain
stretches south from Linyu on the east coast of Hopeh to the Yangtze River Delta. In-
land it is bordered on the northwest and west by the Great Wall and by Shansi Province
as far south as the Yellow River, then southward by the eastern slopes of the Funiushan
and the Tapashan. The Yangtze River and its lake region constitute the southern
limit. With the exception of the Shantung Peninsula and central Shantung, the entire
area is low-lying and flat, bare of trees, highly cultivated, and densely populated. In
northern Anhwei and eastern Honan the land is hilly. The southern and eastern sec-
tions contain numerous waterways and lakes. The only mountains in the North China
Plain are in central and eastern Shantung. These form more or less isolated blocks
and have no connection with the Chin-ling and other ranges to the west.
Region 3. The Gobi-Ordos Plateau includes the Provinces of Ningsia,
Suiyuan, Chahar, Shansi, and part of Shensi. It is an elevated arid region charac-
terized by desert conditions and by the presence of loess, or "yellow earth." It is
bounded by the Mongolian Republic on the north, by Kansu on the west, by the Wei
Valley and a small section of the Yellow River on the south, and by the Great Wall and
Hopeh Province on the east. The eastern strip of this great area is hilly, with moun-
tains that reach 8,200 feet in height flanking the Fen River. Because of frequent dust
storms, loess has been carried by the wind from the desert and deposited in deep pockets
and thin coverings all the way from Taiyuan down the Fen River to the Wei River
Valley in Shensi and to the east as far as Hopeh. The fertile /oess-covered uplands as a
whole form a broad semicircular belt from Jehol in the east to Kansu in the west, occu-
pying nearly one-third of the total area of Inner Mongolia.
Region 4. The Central China Basin includes most of the province of
Szechwan and parts of Shensi and Hunan. It comprises some of the most fertile
country in China, and the whole region is densely populated and self-contained. It
includes the Red Basin of Szechwan, which is a depression surrounded on all sides by
the high mountains of western China. Its main rivers are four left-bank tributaries of
the Yangtze, which give Szechwan its name, meaning Four Rivers. It is a vast basin
of red sandstone (whence its name, Red Basin) divided by river action into uplands
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and broad fertile valleys. The region is difficult of access; its only natural connection
with the eastern part of the country is by the Yangtze Valley.
(2) China South of the Yangtze River.
Region 5. The South China coastal region includes Chekiang, Fukien,
Kwangtung, and Kiangsi Provinces and parts of Hunan, Anhwei, Kiangsu, and eastern
Kwangsi. With the exception of the Canton Delta, the country is higher and hillier
than that north of the Yangtze, ranging in elevation from 1,600 to 3,300 feet. Extend-
ing diagonally across the coastal region southwest from Ningpo on the Chekiang coast
to southern Kiangsi and Hunan, is a series of ridges that, after crossing Chekiang and
Kiangsi, follow the Kiangsi-Kwangtung border until they meet the highlands of south-
western Hunan. From this point westward they continue their upward trend until
they reach the heights of the lofty Himalayas of northern India. The Yangtze and the
Hsi (West) are the two great rivers of this southern region, which, because of its abun-
dant water and good soil, is highly cultivated.
Region 6. The broken highlands of Southwest China include Kweichow
and Yunnan Provinces, western Kwangsi, and the southwestern tip of Szechwan. The
term "broken highlands" both describes the abrupt character of the land and empha-
sizes the average high level maintained. The over-all land level in southern Yunnan
slopes upward toward the north, from 6,500 feet to 8,200 feet. The many valleys in the
southern section are those of the headwaters of the Fuling (Red) and Hsi (West) Rivers.
Here, the general trend of the main blocks is southeast to northwest. Kweichow is also
very mountainous, with a great semicircular range extending from the western limit
of the province to the northeast corner around the broad curve of the Wu River on its
sweep to the Yangtze. Along the Yangtze in northeastern Yunnan the country is low
and damp and, in general, sparsely inhabited. On the high plateau along the shores
of the lakes, the climate is healthful and the country more thickly populated. Forests
and shrubbery cover most of the slopes.
(3) West China.
Region 7. The high mountain region of West China, which includes
Sikang, Tsinghai, Kansu, and Sinkiang Provinces, and Farther Tibet, occupies by far
the greater part of West China. It comprises the vast expanse of high plateau and
mountains north of the Yunnan border and west of the Central China Basin as far north
as Ningsia. Some of the highest mountains in the world?rugged, bare, and with many
peaks perpetually snow-covered?form part of this sparsely populated mountain system.
The central plateau of Tsinghai is occupied in its southern half by the great Tsaidam
marshes, the source of the Yellow River. The great lake of Koko Nor lies east
of the marshes. In Farther Tibet, to the west of Tsinghai and Sikang, lies a series
of rugged mountains and basins. The vast province of Sinkiang, in the northern part of
the region, consists of the broad desert plateau of Takla Makan, which is surrounded on
all sides by mountains?the western Kunlunshan on the south, the Altaishan on the
north, and the Pamirs and the Tienshan (9,800-16,400 feet) on the west. The latter
penetrate inward from the western border at its middle point and extend all the way
across the province.
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b. Climatology.
Inasmuch as China is situated on the eastern side of the Asiatic continent and
the prevailing air currents in winter are from the west, the climate in this season is not
greatly affected by the ocean. In summer the heating of the central land mass gives
rise to a low pressure area, which causes, to some extent, a reversal of the circulation.
This is known as a monsoon.
The average number of typhoons striking the coast of China is one every other
year in June; two a year in each of the months of July, August, and September; and
one a year in October. They are infrequent in May, November, and December. There
is reason to believe that typhoons are not destructive farther than about 200 miles
inland.
Thunderstorms occur mainly from April through September, on an average of
20 days in the south and of 5 in the north. Maximum frequency is in the warmer
months.
(1) Temperature.
In general, temperatures decrease from south to north and from the
coast inland. In winter, average temperatures decrease from 65? F. in the south to
about 20? F. in the extreme north. The lowest temperatures on record are about 32? F.
in the south and about ?45? F. in the north. In summer, average temperatures
decrease from about 85? F. in the south to 65? F. in the north. The highest recorded
temperatures are from 90? to 115? F.
(2) Precipitation.
In general, annual precipitation amounts decrease from southeast to
northwest, from about 80 inches to 7 or 8 inches. In winter, precipitation ranges from
about 10 inches in the southeast to an insignificant amount in the northwest; in sum-
mer, from about 50 inches in the southeast to less than 5 inches in the northwest. Most
areas have a maximum rainfall in June or July and minimum precipitation in Decem-
ber or January.
(3) Winds.
Surface winds are mainly from northerly directions in winter, when air
from the Asiatic High flows over China and out over the Pacific (winter monsoon) . In
summer a southerly flow prevails, with air flowing from the Pacific into the continental
low (summer monsoon) .
Winds at 10,000 feet are westerly in winter, with average speeds of about
17 knots. In summer they are from the northwest over north and central China and
from the southeast over southern China, with speeds of about 9 knots.
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? APPENDIX B
?
COMMUNICATIONS FACILITIES
1. ROADS.
a. China Exclusive of Manchuria.
Although China is traversed in all directions by numerous roads, they are gen-
erally of poor construction. National trunk lines and other main highways are sur-
faced and suitable for all-weather traffic, but a majority of these would break down
under military traffic. Earth-surfaced roads comprise about three-fourths of the total
road mileage, which in 1943 was approximately 78,580 miles. Much overland traffic is
still confined to cart roads and flagstone trails.
The construction of roads has gained? considerable impetus in recent years.
The shifting of the political and economical center of gravity of China to the west, as a
result of the Japanese invasion, necessitated the development of an overland road net
for transporting military supplies. Thus, Szechwan became the center of a new road
system linked with the Yellow River and Yangtze Valleys and extending to the borders
of the Soviet Union, Burma, and Indochina. Among the principal roads is the 700-mile
long Burma Road, which runs from Kunming in Yunnan to Lashio in Burma. A motor
road to the northwest is under construction. It is to connect Szechwan with Sinkiang
and extend through that province to the Turkestan-Siberian Railway.
? The Chinese road net is densest in the fertile lowlands of the northeast, in the
Yangtze Delta, and in southern Kwangtung. Roads throughout China are gradually
being improved, and new ones are under construction; but no progress is being made
in the area where civil strife is under way.
b. Manchuria.
In this part of China the roads are generally of poor construction and are used
mainly as an adjunct to the railroads. Most of the highways and roads are rendered
impassable by winter snows and spring and summer rains. The highway system is
weblike, radiating from important railway centers and major cities and in most in-
stances paralleling railroads. Outlying areas are reached by secondary roads. At
the end of 1937 there were 31,300 miles of roads, but only 6,560 miles were all-weather.
2. RAILWAYS.
China's inadequate transportation system has been largely responsible for the
undeveloped state of most of her natural resources and general backward condition of
her interior provinces. Prior to the war the total mileage of China's railways was
approximately 10,000 and that of Manchuria 6,700. After two years of war the total
operating network was reduced to 13,600 miles, of which nearly half was in Manchuria.
The inadequacy of China's railroads is illustrated by the fact that before the war China
had approximately 35 miles of track per million population compared to 1,780 in the
United States and 218 in Japan.
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As of January 1948, the operable railway mileage was as follows:
China 4,640 miles
Manchuria 4,174 miles
TOTAL 8,814 miles
Under Nationalist control:
Communist Control:
In China
4,295
(92%)
345
( )
In Manchuria
125
( 4%)
4,050
(96%)
Chinese railroads are mostly standard gauge and single track with the exception of
the Peiping-1VIukden and the Dairen-Changchun lines which are double track.
The railroads of China were almost all built by foreign companies and with foreign
capital, but they were normally under the direction of the Chinese Government, except
in Manchuria where after 1931 the South Manchurian Railway operated the lines for
the Japanese Government. The efficiency of Chinese railways has always been very
low. The equipment is old, schedules are irregular, service is poor, and accommoda-
tions dirty and overcrowded in most cases, the exception being the South Manchurian
Railway which, under the Japanese, had a very high rate of efficiency. One of the
primary objectives in the Chinese Communist war of economic attrition against the
Nationalists has been the destruction of railroads. Consequently, most railroads
around the operating war areas are either destroyed or rendered inoperable.
As shown in the Map Supplement, Tab 2, the best developed railway system in China
proper is in the northern part of the country where the three main north-south lines of
the basic railway net are connected by east-west lines. The heaviest concentration of
railroads is laid north of the Yangtze River serving most generally the provinces to the
east of Shensi Province. South of the Yangtze and roughly paralleling the river, rail-
roads serviced the provinces between Chekiang and Kweichow but have been inoperable
to through traffic since the war. Another line runs south from Hankow on the Yangtze
River to Canton on the southern coast of Kwangtung. The western provinces and Tibet
are without railways.
Of the North China lines, those of most importance are the (1) Tientsin-Pukou line
which connects by ferry with the Shanghai-Nanking railroad; (2) the Peiping-Hankow
line; and (3) the railway from Tatung in northern Shansi to Fenglingtu in southwest
Shansi. The three main east-west railroads in the north are: (1) the Peiping-Suiyuan
which runs from Peiping westward through Kalgan and Tatung to Paotou in Suiyuan;
(2) the Shantung railroad which is the link between Tsinan on the Tientsin-Pukou line
and the seaport of Tsingtao; and (3) the Lunghai railroad which is China's longest east-
west line and which, under normal conditions, provides through rail service between
Laoyao on the Kiangsu coast to Paochi in Shensi Province. Communist damage to these
rail lines has been extensive, and the only railroads in China Proper which have con-
sistently remained open to through traffic since the Japanese surrender are those from
Shanghai to Nanking and from Canton to Hankow.
The railroad system of Manchuria is based on two main lines: (1) the South Man-
churia Railroad which extends from Dairen on the southern tip of Kwangtung Peninsula
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north to Changchun via Mukden; and (2) the former Chinese Eastern Railway extend-
ing from Harbin west to Manchuli south to Changchun and eastward to Suifenho, where
a connection is made with the Soviet line running to Vladivostok. The old Chinese
Eastern Railroad with various transverse lines, has remained open from Manchouli to
Suif enho.
The lack of railway communications has contributed considerably to the slow
strangulation of the economy of Nationalist China. Coal cannot reach power plants
and industries of cities; the flow of exportable goods to the ports has been choked off
to a serious degree; imported goods, including relief supplies, have piled up on the
wharves of port cities. The long-term effect of the civil war on China's railway system,
in general, is incalculable.
3. PORTS.
From the border of French Indochina to Ningpo, the coast of China is highly in-
dented with many sheltered bays, rocky promontories, and offshore islands. From
Ningpo northward to Manchuria the coast, in general, is the low border of the Yangtze
and Yellow River Deltas, with mud fiats, negligible harbor facilities, and little of the
maritime activity that characterizes the southern coast.
The principal ports, proceeding from north to south are as follows: Dairen, Chin-
Wantao, Tientsin, Taku and Tangku, Chefoo, Tsingtao, Shanghai, Ningpo, Foochow,
Amoy, Swatow, Canton, and Hong Kong. There are many secondary ports, predomi-
nantly in the south, that are used by fishing boats, coastwise launch service, and trad-
ing junks.
Dairen is by far the largest port in Manchuria. Well sheltered and practically ice-
free, it provides the finest general cargo shipping facilities on the north mainland, as
well as the largest coal loading and fastest bunkering installations north of Hongay
in Indochina. It is the principal terminus of the south Manchurian transshipment
center for inbound and outbound cargo. Tsingtao has the best harbor in North China
and meets all the requirements for a fleet and supply base. Shanghai, the principal
port of Central China, is the natural outlet for the Yangtze Basin and so has become
one of the world's largest ports. Hong Kong, a British Crown colony, is the best port
in South China.
4. WATERWAYS.
a. China Exclusive of Manchuria.
Waterways, which in total mileage exceed the highway system, constitute the
principal means of communication in this part of China. Their great advantage is that
they extend far into the interior of the country where all other means of communication
are often inadequate. From north to south, the main river systems of China are the
Pei (Hai) , the Huang (Yellow), the Huai, the Yangtze, and the Hsi (West), respectively.
There are also numerous secondary waterways and coastal rivers. All five principal
rivers traverse the country in a general west-east direction from the highlands of the
interior to the sea, generally paralleling each other and forming adjoining drainage
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basis. The Yangtze, 3,100 miles in length, is by far the most important. Steamers of
2,000 tons can reach Hankow 600 miles up the river throughout the year; and Ichang,
965 miles west of Shanghai, can be reached most of the year by vessels drawing not more
than 10 feet of water. The Grand Canal is the only north-south waterway of im-
portance. It connects the northern four of the five principal river systems.
b. Manchuria.
The internal waterways here serve only as an adjunct to the railroad net. The
large navigable rivers freeze over in the winter months; but during their navigable
periods (April to October) most of the rivers serve as arteries for small-boat shipments.
During the winter some over-the-ice vehicular traffic is carried on. The three prin-
cipal river systems are the Hei Lung (Amur), which is deep and navigable by steamers;
the Liao, which is shallow and used principally by junks; and the Yalu, on which navi-
gation is confined to the lower sections.
5. CIVIL AVIATION.
a. Aviation Conventions.
China is a member of the International Civil Aviation Organization.
b. Bilateral Civil Aviation Agreements.
US?Signed at Nanking 20 December 1946. Fifth Freedom granted?no re-
striction on number of trips or rates.
US airlines are given three stops: Shanghai, Tientsin, and Canton. The fol-
lowing routes are specified:
US (1) US to Tientsin and Shanghai to the Philippines as well as beyond Shang-
hai via route 3.
(2) Over a Pacific route to Shanghai and Canton and beyond.
(3) Over an Atlantic route via intermediate points in Europe, Africa, Near
East, India, Burma, and Indochina to Canton and Shanghai and beyond. Chinese air
lines are given three stops in the US; San Francisco, New York, and Honolulu and the
following three routes:
China (1) over a Pacific route via Tokyo, Kurile Islands, Aleutian Islands, and
Alaska to San Francisco and beyond.
(2) Over a Pacific route via Guam, Wake to Honolulu, San Francisco, and
beyond.
(3) An Atlantic route via Indochina, Burma, India, Near East, Africa, and
Europe to New York and beyond.
The Chinese are seeking to amend the Sino-US bilateral agreement on the basis that
Hong Kong-Shanghai traffic is cabotage. The US will not give up the right to Fifth
Freedom traffic which it considers essential to US world routes. The Chinese say that
the fact that they allow Hong Kong-Shanghai traffic to US lines means that they will
have to grant the same privileges to Siamese and Dutch, and competition for Chinese
lines would be ruinous. In addition, China has bilateral agreements with France, the
Netherlands, UK, and Siam.
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C. Air Lines (Domestic).
(1) China National Aviation Corporation (CNAC).
Established in 1929, in 1930 the company was reorganized with the Chi-
nese Ministry of Communications owning 45% and the US-owned China Airways Fed-
eral Inc., 55%. In 1931, China Airways sold its interest to Pan American Airways.
From February 1943 to October 1945, CNAC flew lend-lease supplies for the Chinese
Government under contract to the US ATC. At the end of the war, American capital
in CNAC was reduced to 20%. However, American pilots and technicians still consti-
tute an important part of CNAC personnel.
(2) Central Air Transport Corporation (CATC).
The Eurasia Aviation Corporation, predecessor of CATC, was a Sino-Ger-
man organization, 662/3 % of the stock of which was owned by the Chinese Government
and the remainder, 33 1/3 % by Deutsche Lufthansa Gesellschaft. This corporation was
established in 1931 and on 1 March 1943, the Chinese Government officially took over
the German interest and renamed the Corporation the Central Air Transport Corpo-
ration.
(3) CNRRA Air Transport or Civil Air Transport.
CNRRA Air Transport or Civil Air Transport (CAT) does not operate on a
scheduled basis in China but is dependent upon the requirements of UNRRA, CNRRA,
or the National or Provincial Governments in determining the points in China which
the air line will serve.
Service initiated 3 February 1947. The line was set up by General
Chennault.
(4) Sino-Soviet Aviation Corporation.
Inaugurated in 1939 by a contract signed by the Chinese Ministry of Com-
munications and the Soviet Central Civil Aviation Administrator. The agreement gave
the Corporation a civil aviation monopoly in Sinkiang west of Hami for a 10-year period
and was to be extended to 1954 unless either party within 90 days prior to expiration
desired to terminate the agreement. The Board of Directors had not convened since
1941. At the end of the war with Japan, the Chinese Government informed the
Soviet Government that it desired to share in the management of the "joint company"
but since the Board has failed to meet, nothing has been accomplished. China then
proposed that the Soviet monopoly in Sinkiang be relaxed, but the USSR countered
with the proposal that the joint company be permitted to operate South as far as
Lanchow. CATC on 21 April 1947, however, inaugurated a Shanghai-Sinkiang service.
d. Air Policy.
China, feeling her position in civil aviation is weak, is forced to protect her
commercial air lines from competition and will seek to impose regional restrictions
wherever possible. There has been a tendency to press for rate controls and limitation
of frequencies and capacity. This attitude was evidenced in the negotiation of agree-
ments with France, Siam, the Netherlands, and the UK.
The Chinese Government policy on nonscheduled carriers is to recommend
approval of contract flights only when there is no regularly scheduled carrier available
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and only when the flights are contracted for by the Chinese Government. China
wishes to confine US commercial air rights to those granted under the bilateral air
agreement.
The Chinese Government is not in agreement with principles established at
the Bermuda Conference on 11 February 1946, and will probably not be satisfied with
a multilateral agreement incorporating Bermuda principles. The government also
opposes the article of the multilateral draft permitting foreign carriers to import duty-
free equipment required for maintenance of operations. China is not a producer of
such equipment and cannot benefit reciprocally from such an agreement.
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APPENDIX I
TAIWAN (FORMOSA)
1. INTRODUCTION.
Taiwan (Formosa), under Japanese rule for fifty years, reverted to de facto
Chinese control in October 1945, two months after the surrender of Japan. In the two
succeeding years, the Chinese administration, because of its inefficiency and corruption,
dissipated the economic resources of the island, and abused the industrial plant built
up by the Japanese, so that the very valuable contribution which the island could have
made to the Chinese economy has been unrealized. Consequently, discontent and
unrest have spread widely among the Taiwanese, and the strong sentiment against the
National Government of China has taken the form of a popular movement for local
independence. This movement can be expected to continue, and further uprisings and
violence may be anticipated.
2. THE BACKGROUND.
a. Geography.
Taiwan, a long oval-shaped island lying 70 to 100 miles off the Chinese coastal
province of Fukien, has an area of nearly 14,000 square miles, with two-thirds of that
area constituting a mountain barrier extending from the northern to the southern tip
throughout the eastern half of the island. The climate is tropical, with high rainfall
well distributed throughout the year. Between Taiwan and the Chinese coast lie the
Pescadores Islands, some 64 small islands administered as part of Taiwan proper. The
Pescadores have little economic importance, but were of some strategic significance to
Japan during the war.
b. Population.
The population of Taiwan is about six and a half million, made up mostly of
Taiwanese Chinese, who number about six million. Eighty peroent of the Taiwanese-
Chinese came originally from Fukien, with the majority of the remainder coming from
Kwangtung Province. Smaller elements of the population are Taiwanese aborigines
and Japanese. The aborigines, totaling about 225,000, live in the island's mountains
and maintain their own various tribal organizations and social systems. The present
Chinese administration has announced no policy toward these aborigines, but there is no
reason to believe that the administration will deal with the situation so wisely that the
traditional animosity of the aborigines toward the Chinese will be overcome. Japanese
civilians numbered about 400,000 at the time of surrender, and have now all been
repatriated except for a handful of technicians.
c. Agriculture.
Taiwan has largely an agricultural economy. Ninety percent of the arable
land, which lies chiefly along the west coast, is under cultivation, with most of the farm-
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pendence be established by the Japanese peace treaty, which must formally determine
the disposition of the island.
There is as yet little indication that the discontent of the Taiwanese has led any
considerable numbers of them to the Communist camp. There were no Communists
on Taiwan when the Japanese surrendered, and at the close of 1947 there were still no
considerable numbers of them, and no Communist military strength, on the island.
However, the opportunity for the spread of Communist influence, here as elsewhere in
China, has been created by Nationalist incompetence and greed, and the island is at
present a fertile field for Communist propaganda.
The US maintains part of its Army Advisory Group on Taiwan. The Chinese Com-
munists have launched a propaganda attack against the presence of US troops on the
island, alleging that the US has already "seized control of the economic life of Tai-
wan . . . with American capital having penetrated all important industries." Accu-
sations of a similar nature emanate from the Right also, apparently inspired by certain
groups within the National Government. This Nationalist propaganda effort is evi-
dently following a definite pattern and is systematically reflected in the organs of the
Government-controlled press.
This propaganda reflects one side of the dilemma now facing the National Govern-
ment in Taiwan: the desire that all Chinese territory be placed under immediate Chi-
nese control, with no foreign participation. The Chinese Government secured a pledge
in the form of the 1943 Cairo Declaration (reiterated in 1945 at Potsdam and in the
Japanese surrender terms) that Taiwan would be returned to the Chinese, and na-
tional sensitivity to issues of this kind demands that this pledge be carried out. The
National Government's fear?however baseless?that the US will encourage Taiwanese
opposition groups or has "imperialist" intentions toward Taiwan, has doubtless moti-
vated the propaganda effort to arouse popular opinion against the US in that area.
The other side of the dilemma is presented by the patent incompetence of the
Chinese regime and the need for US economic aid to prevent the island from eventually
drifting toward Communism or becoming the scene of a series of costly rebellions, espe-
cially dangerous because, with the precarious military situation on the mainland, the
government cannot afford to spare troops elsewhere. Realization of these possibilities
has led Chiang Kai-shek to hearty endorsement "in principle" of some form of joint
US-Chinese administration over Taiwan, with emphasis on economic rehabilitation.
US Ambassador Stuart has expressed the opinion that Chiang would be willing to act
in favor of such a plan because of his awareness of the growing Taiwanese autonomy
movement under capable leadership. However, although Chiang would welcome con-
crete proposals of US economic assistance in rebuilding Taiwan, he would also probably
balk at any far-reaching US controls over that assistance or at US insistence upon
political reforms.
4. FUTURE TRENDS.
With the rapidly weakening position of the National Government, there is little
possibility that the character of the administration of Taiwan will materially improve.
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Consequently, it is likely that the island will continue to be the scene of unrest and
occasional uprising. Discontent is at present reported to have led to the formation of
a sizable underground movement in Taiwan, although the extent of the organization of
this underground, and its military strength, cannot be determined. The discontent of
the Taiwanese will probably lead to future agitation for independence. Final decision
regarding the status of Taiwan will not be made until a peace treaty with Japan is con-
cluded. There seems at present little chance, however, that independence will be
attained inasmuch as the declarations of Cairo and Potsdam, as well as the terms of the
Japanese surrender, militate against it. There is a possibility that the islanders may
turn, for want of other alternatives, to the Chinese Communists, but in view of the
lack of the Communist strength on Taiwan at present, and the physical isolation of
the island from the mainland, Communist penetration of the island is not an imme-
diate threat. The most likely eventuality is that Taiwan's present uneasy status will
continue unrelieved in the near future, with the island's final fate depending on the
outcome of the struggle on the mainland.
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NOTICE TO HOLDERS OF CIA REPORT ON CHINA (SR-8)
Appendix J: Tibet, is forwarded herewith for insertion in the CIA Report on China
(SR-8) . Recipients are requested to make appropriate changes in the Table of Contents
of SR-8.
Published: December 1948
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December 1948
? APPENDIX J
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TIBET
1. INTRODUCTION.
Tibet, situated in the far western part of China and nominally part of the Chinese
Republic, is in fact a virtually independent and economically self-sufficient region. The
Chinese officially define Tibet as a "special territory"; it remains the only part of China
not organized as a province. Tibet Proper, or Outer Tibet, lies to the west of the
Chinese provinces of Sikang and Tsinghai, sometimes called Inner Tibet. For purposes
of this discussion, "Tibet" is used to denote Outer Tibet.
Owing to its extremely mountainous terrain and geographic inaccessibility, Tibet
would have little strategic value in war, though control of Tibet by a foreign power
could facilitate subversive activities in western China and northern India. With regard
to the security interests of the US, Tibet is relatively unimportant.
2. THE BACKGROUND.
a. Geography.
Tibet, with an area of about 350,000 square miles, is bordered by Bhutan,
India, Nepal, the disputed area of Kashmir, and the Chinese provinces of Sinkiang,
Tsinghai, and Sikang. The entire region is a mass of folding mountains with a height
generally over 13,000 feet. The Kunlun and Himalaya ranges rise along the northern
and southern boundaries, respectively. Lhasa, in the upper Brahmaputra River valley,
is the capital.
b. History.
The religious bond of Lamaism was the original tie between Tibet and China,
beginning in the 13th century when the Mongol Emperor Kublai Khan adopted Lama-
ism as the state religion, and established the Tibetan Grand Lama as temporal ruler of
Tibet. From the 13th to the 17th centuries the Mongol emperors of China and the
Mongol Khans of Central Asia supported the Grand Lamas of Tibet in much the same
way as the kings of Europe supported the Popes of Rome. Thus the Dalai Lama of
Tibet, as the final authority on Lamaism, achieved a mysterious hold over followers of
the Lamaist form of Buddhism in Mongolia and west and northwest China. The suc-
ceeding Manchu emperors of China could not afford to ignore the personal stabilizing
influence of the Dalai Lama over the inhabitants of so large a portion of their domain.
Hence during the 18th and 19th centuries there was maintained a politico-religious
partnership between the Manchu emperors of China and the Dalai Lama of Tibet: the
Note: The intelligence organizations of the Departments of State, Navy, and the Air Force have
concurred in this report; the Intelligence Division, Department of the Army had no com-
ment. The information herein is as of 1 November 1948.
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Declassified in Part - Sanitized Copy Approved for Release 2013/01/29: CIA-RDP78-01617A001400090001-6
December 1948 SECRET
Manchus helped the Dalai Lama consolidate his political and religious influence, and
exercised the prerogatives of guardianship over Tibet, though Tibetans did not consider
themselves as subjects of the Chinese emperor.
British influence, exerted from India, became strong in Tibet in the early
1900's, when it became evident that the tottering Manchu dynasty could no longer dis-
charge the role of guardian. Since 1904 the British policy toward Tibet?based on
concern for the security of India vis-?is Russia?has been to strengthen Tibetan
autonomy, in order that it might serve as a buffer state.
The Lhasa Convention of 1904 established a precedent for direct negotiations
between England and Tibet and set forth British claims to "special interests" in Tibet.
After the fall of the Manchus the Chinese Republic, whose exact position in Tibet was
unclear, tried to secure for itself the prerogatives of the Manchus and thus clashed with
British policy and with Tibetan separatism. In 1914 a conference was held under
British auspices at Simla in an attempt to settle Sino-Tibetan differences. This resulted
in a tentative agreement (1) to divide Tibet into Outer Tibet (the part nearer India)
and Inner Tibet, and (2) for Chinese recognition of the de jure autonomy of Outer
Tibet. Though China refused to permit full signature of this agreement, Inner Tibet
was subsequently organized as the Chinese provinces of Tsinghai and Sikang, and Outer
Tibet has since 1914 enjoyed de facto autonomy.
c. Population.
The population of Tibet is estimated to be about 1,000,000, almost entirely of
Tibetan stock, which modern anthropologists classify as Mongoloid. The Chinese
within this area constitute only a small fraction of the inhabitants. The average
density is about three persons per square mile. The greatest concentration is found
in the south, along the headwaters of the Brahmaputra.
d. Economy and Trade.
Generally speaking, Tibet, in its primitive mode of living, might be called self-
sufficient. A long static social organization has helped stifle economic growth. The
region is undeveloped and completely lacking in any modern means of exploitation.
Tibetan economy is based on agriculture (barley and wheat) and animal husbandry
(sheep and yak) . The chief manufactures, woolen goods and pottery, are produced by
cottage industry.
The extent of mineral resources is undetermined, as no surveys have ever been
undertaken. A considerable quantity of gold is produced, as well as small quantities
of silver, mica, borax, and salt. Oil deposits have been reported.
The geographic isolation of Tibet accounts in large part for its economic back-
wardness. The main center of population in the upper Brahmaputra valley of Tibet
is about twenty days' journey from the railhead at Darjeeling, and about sixty days'
journey from the nearest Chinese center in eastern Sikang. These routes are almost
impassable during a good part of the year. Railroads and automotive transportation
are non-existent. All transportation is by pack animal or manpower. There is tele-
graphic communication with India.
SECRET J-2
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Declassified in Part - Sanitized Copy Approved for Release 2013/01/29: CIA-RDP78-01617A001400090001-6
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SECRET December 1948
The trade of Tibet may be divided into two classes, that with India and that
with China; the Indian trade is the more extensive.
With India: Tibet imports sugar, rice, cotton goods, hardware, tea, coral, pre-
cious stones, tobacco, dried fruits, needles, soap, and matches. Tibet exports wool,
hides, live animals, yak tails, salt, musk, borax, and medicinal herbs.
With China: Tibet imports a great deal of tea, and some silk. Tibet exports
musk, wool and woolen handicrafts, furs, medicinal herbs, mica, gold, silver, borax,
amber, and Buddhist ritual articles.
e. Government.
Although China claims full sovereignty over Tibet, the de facto relationship of
Tibet to China is to all practical purposes one of independence. Although the Chinese
National Government maintains in Lhasa an office entitled "Tibet Office of the Com-
mission of Mongolian and Tibetan Affairs of the Executive Yuan," Tibetans hold the
function of this office to be the fostering of friendly relations between the two coun-
tries. The status of the Chinese Government's envoy in Lhasa is hardly distinguish-
able from that of the Indian Government's (formerly the British Government's) envoy.
Tibet has its own currency and customs, its own telegraph and postal services.
It also has its own civil service which is organized along a different line from that of
any part of China and of which the personnel is appointed and dismissed by Tibetans
without any supervision from the Chinese National Government. Tibet even keeps its
own army, numbering less than 20,000; there are no Chinese forces in Tibet.
The Dalai Lama of Tibet is the supreme ruler both in civil and religious affairs.
He is not only the temporal ruler of Tibet but also the spiritual leader of all Buddhists
who practice the Lamaist form of that religion in China, Mongolia, Nepal, Bhutan, and
northern India. When a Dalai Lama dies he is succeeded by an infant chosen as the
reincarnation of the deceased ruler. Such a child Dalai Lama is represented by a regent
chosen from one of the Tibetan monasteries.
Under the Dalai Lama is pyramided the hierarchy of ecclesiastical and lay
officials, headed by the Grand Council and the Monks' Cabinet. Power is largely in the
hands of the ecclesiastical officials and the aristocratic families, and Tibet may properly
be termed a feudal theocracy. More than 4,000 monasteries own a large proportion
of the best land.
3. CURRENT SITUATION.
For the past thirty-five years relations between China and Tibet have been tanta-
mount to relations between two sovereign states, though China officially claims sov-
ereignty over Tibet. British influence has risen, and Chinese influence has correspond-
ingly declined.
Tibetan political alignments reflect current attitudes toward Great Britain and
China. Because of the feudal social structure of the country, only the very small
group of aristocrats and ecclesiastical hierarchs can be politically active. Among these,
however, it is possible to distinguish two main groups, generally described as the "New
Faction" and the "Old Faction."
J-3 SECRET
Declassified in Part - Sanitized Copy Approved for Release 2013/01/29: CIA-RDP78-01617A001400090001-6
Declassified in Part - Sanitized Copy Approved for Release 2013/01/29: CIA-RDP78-01617A001400090001-6
December 1948 SECRET
The New Faction, which is now in power at Lhasa, is strongly anti-Chinese and
stands for, the strengthening of Tibetan autonomy. A tacit understanding has existed
between this group and the British for Tibetan-British "special relations," i.e., the
direct megotiation of trade agreements between Tibet and British India, by-passing the
Chinese National Government.
The Old Faction stands for a closer relationship with China, and a revival in some
form of the old politico-religious partnership which existed before the formation of the
Chinese Republic. In the spring of 1947 the leader of the Old Faction was put to death
by members of the New Faction for allegedly plotting against the life of the regent.
Pro-Chinese sentiment thus suffered a setback, and the movement for autonomy and
even independence has been intensified in Tibet.
4. FUTURE TRENDS.
British influence in Tibet remains predominant, and the British withdrawal from
India has not affected British strategic interest in Tibetan autonomy, based on concern
for the security of India and Pakistan vis-?is the USSR. India and Pakistan, in
turn, have no reasons for not maintaining "special relations" with Tibet (i.e., the direct
negotiation of trade agreements with Tibet).
Tibet, however, is no longer disposed to rely entirely on British support, after the
British withdrawal from India and the subsequent Indian-Pakistan turmoil. Lhasa
would very much like to secure even a quasi-political recognition from the US, and
perhaps UN membership, in order to offset Chinese claims and the Soviet threat. An
illustration of this trend was the despatch in 1948 of a Tibetan "Trade Mission" to the
US. The Mission's request for a two-million-dollar loan to buy gold for currency
stabilization was turned down by the US at the insistence of the Chinese.
The Tibetan hierarchy distrusts the USSR as a country opposed to religion; this
feeling has been fostered by the manner in which the Soviets suppressed Lamaism in
Outer Mongolia. During the past year, however, a number of Soviet agents, posing as
lamas from the Mongolian Peoples Republic, have reportedly visited Tibetan monas-
teries. If the Soviets could succeed in gaining influence over the Tibetan hierarchy, it
might be exploited to facilitate the expansion of Soviet influence among those peoples
of western China and northern India who look to the Dalai Lama as their spiritual head.
Aside from using Tibet as a point from which to penetrate adjacent regions, the USSR
appears to have no objectives in Tibet itself, and Soviet action in that country will
depend upon the Kremlin's policy toward China, and, to a lesser extent, India.
SECRET? J-4
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Declassified in Part - Sanitized Copy Approved for Release 2013/01/29: CIA-RDP78-01617A001400090001-6
SECRET
.1. L.:0; 4. J.41
242 fitrct.? H.
517on 2
APR 1 4 1948
SUBJECT: Adden(la tci 3eution 7, SR'3, itha
lo Attachs1 heroith is 7sp 3.7J96 (Ohna: ConqnLi.
Areas 1 Jarm4ry 193) i.i to bc :iJ1,3rted in the co; of
sent you uncle.? ;.npars cofee
2. Attach:id olit ci1 b iGl in Section V -
SituaLionl, facing pge V-2.
FOR THE ASAISTXTT PITILT. F01 C1L.I.,ECTION AND DI38EIECNTION:
Chic, Dissemination Branch
InclosLre Ip Vo.
STAT
Declassified in Part - Sanitized Copy Approved for Release 2013/01/29: CIA-RDP78-01617A001400090001-6
Declassified in Part - Sanitized Copy Approved for Release 2013/01/29: CIA-RDP78-01617A001400090001-6
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CONFIDENTIAL CHINA: COMMUNIST CONTROLLED AREAS 1 JAN. 1948 :
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Declassified in Part - Sanitized Copy Approved for Release 2013/01/29: CIA-RDP78-01617A001400090001-6