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PROBABLE DEVELOPMENTS IN CHINA
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PROBABLE DEVELOPMENTS IN CHINA SUMMARY
Note: The purpose of thediscussion Is to present probableIn China which will affect US Interests during the next sis: to twelve months.
Communist military forces are capable during the summer months9 ofnil semblance of unity in the Nationalof Crdna; and before the year Is out, the Communists will haveentral government which will seek International
Tbe OS cannot reverse or slgnlflcantly check this course of events, nor Is there any prospect that tho Soviet orientation of the Chinese Communists can be altered tn thefuture. However, during the coming months, developments In China willumber of problems on which the US may either take action advancing, or avoid action compromising, its Interests In China andChief among these arc tbe formationommunist central government claiming mternatlonal recognition. Communist alms regarding Taiwan and Bong Kong, theneed for foreign trade, and US aid to anti-Communist groups in China. InUS Interests probably will be affectedby the expansion of Communistthroughout the Far East, particularlyhinese communist regime gains seats on the Far Eastern Corcmlssion and the Allied Council for Japan, and acquires China's claimsuture Japanese peace treaty.
Tbe government to be organized by the Chinese Communists will be proclaimedut actually willommunist dictatorship. In foreign affairs theduring the coming months will continue to be solidly aligned with the USSR. The new regime will honoro-Sovtet Treaty5 and Its attitude In mtematlorial relations will be governed by the Moscow line. It wd probably maintain an unfriendly attitudethen particular and all otherthat Impede tho world Communist movement, as well as denounce China'sInternational agreements with those
Communist armed forces, now decisively superior to the KaUoriallsts, will continue their program of area-by-area actrulsltion. They are capable of eliminating all effective military resistance In the south, southwest, andby tbe end
Chinese Communists willbe faced with serious food shortagesthe next year. Some progress willIn reviving transportation andthe Communists will have acurrency. The Communists'problem In the coming monthsthat of acquiring petroleum,perhaps cotton. There Is littlesubstantial Soviet aid, and domesticmust be supplemented by theseImports. Therefore, China's economicduring the nextUI probablyon active Western trade and closeoccupied Japan.
Hole: The Intelligence orRaniiaUons ol the Departments ot Army, Wavy, and the Air Force have concurred Io uus report;issent of the InMlllsjence OrganlsaUan o( the Department of State, see Enclosure A.his report contains In (or mat Ionto CIA asune IMS
PROBABLE DEVELOPMENTS IN CHINA
he purpose of thediscussion Is to present probableIn China, which will affect US Interests during the next slz to twelve months-
ioblarni for the US Arising out ot* Developments in Chlno.
The Chinese Communist armies have theduring tha summer monthsf completing their campaign In the Yangtte Valley, from the eastern border of Szechwan to the sea, and of dislodging the Nationalists from Canton and other ports on the southeast coast during <m< same period. Their military operations ln this period will destroy allof unity ln the present Nationalthe remnants of which will seekba Taiwan, southwest and northwest China, or In Bight abroad. In late summer or early autumn, the Chinese Commcmist Party willolitical Consultativeto form and proclaim agovernment for all China before the endt that time, Communist China will contain more than half of China's people, and, if sot more than half of China's territory, at least the larger part of Its most productive areas. The Communist Government then will seek recognition as the national government of China-
The US cannot reverse the course of thecivil confixt nor Induce ine Chineseto modify their Intention toommunist dJcUlorshlp over China. Also, there is no prospect that the US can alter the Soviet orientation of the Chinese Communists ln the Immediate future. During the next few months, however, there willumber of developments In China affecting US Interests suchossible Incidents Involving US armed forces, officials, andharpening of the Communist-Nation alls', struggle for Taiwan, where US strategicarehinese Communiston Hong Kong andS aid to an ti-Communist groups In, the
Communist need for foreignommunist central regime seeking International recognition,he expansion of Chinese Communist Influence throughout the Far East.
It Is known that the leaders of tbe Chinese Communists desire International recognition for their regime, and that they also desire commercial relations with the West and with Japan. These facts may permit the US. ba the course of the next several months, either to take action advancing or to avoid action compromising certain of lis Interests In China and elsewhere In the Far East.
assible Incidents.
In firing upon British warships bi the Yangtze, the Communists derrionstrated that they are prepared lo risk reprisals In order to substantiate their promise to protect China from "Imperialisthe Chinese Communist Party (CCP) undoubtedly gained face within China and elsewhere in Asia by this action, and It Is possible that thewill again take advantage of anywhich arise for military action against foreign armed forces. The opportunities for local incidents Involving foreign officials and nationals have become much more numerous with the CCP occupation of raa,orsuggested by the forced entry of the USresidence by Communist soldiers during their occupation of Nanking.involving the mistreatment of foreign nationals and the destruction or seizure of foreign property are Ukely. If the Communist regime should request, and be refusedII is highly probable that such Incidents will multiply, with CCP connivance. If the US should extend further support to thesuch Incidents can reach serious proportions.
b. Taiioan.
There is no doubt that the CCP desires to extend Its control over the Island of Taiwan
where Chiang Kai-shek is preparingast stand, hoping to survive until reinforced by the OS at the outbreakorld coriflict which he believes Inevitable. The Cornmu-rslstNatlonalist coolest for control of the island will become more sharply drawn In the near future, when Chiang rtaiahelc and bis nationalist followers will be forced toheadquarters there.
Tbe CCP Is not capable, at the present time, of successfully undertaking an amphibious operation against Taiwan. Ia the next few mocthj. however, the CCP wtD not onlytbe nuiniifii* coastal ports and shipping to make such an operation possible but also wUl be able to trinitrate the island, attempt to subvert NeUonallst officials there, and exploit the widespread native resentment ofrule These developments will improve CCP chances of taking control of Taiwan. The Communlst-conttoned regime certainly will assert sovereignty over Taiwan, and tne leaders of Taiwanese native groups In time may support them In that claim. While civil disorders on Taiwan will probably not be suffl-cientiy serious to wrest the is bind fromcontrol, any insurrection whichon Taiwan is likely to further theof the CCP. Thererospect of lengthy propaganda warfare, withsuccessful subversion of Nationalistand armed forces, and Increasinglycivil disorders, which may set the stage for Communist military occupation.
D3 economic and military aid. shortintervention, would probably notassist the Nationalists Inany more than such aid basNationalist cause onof
China Taiwan's cconornic problem Isthat of Nationalist Inefficiency innot deficiency In resources; andstocks of military equipment arestored on the island. Furthermore, such an aid program would make It difficult. If not Impossible, to establish normaland consular relationships with the Communists. In the event that tbe OS should decideolicy of recognitionentral government established by the Communists on the mainland.
c. Western Posses sums of Hong Song and Macao.
Although Hong Kong, under Britishoners Communist China certainin foreign trade, rationalistic sentiment will almost certainly impel tbe CCP to press for the return of this colony, as well asMacao. Tbe British Government, determined to defend Hong Kongossible Communist military assault, Isconsiderable reinforcements to the colony, thus reducing Its capability to meet military commitments In Europe andand totrategic reserve in Great Britain. In addition, the UK isat least moral support from the OS for Its Hong Kong defense plans. However,military action against Hong Kong and Macao, while possible. Is not likely. It Is more probable that one of the early acts of the Communist readme will ba that of Initiating discussions with the British and Portuguese governments In regard to the transfer ofIn Hong Kong aod Macao. If the OK and Portugal should withhold de factofrom the Communist Government, or In some other mannar refuse to enter Into such negotUOons, the CCP win retaliate. The CCP, which presumably does not fearmay choose to exert military pressure on Macao, as well as to work through tbeunderground. In Hong Kong, rather lhan taking military action, the CCP will propably choose to operate through the strong Cornraunist underground, which alreadya serious threat to the colony and which will become Increasingly active: The Communists could cripple Hong Kong by fomenting strikes in transportation com-munlcaUon facilities, ceroid restrict or cut off food supplies from the Chinese mainland, could sabotage water supplies, could resort to unrestricted piracy ar^lnst shipping, and could create an exchange rate between the currencies of Hong Kong and Communist China to weaken the economy of Hong Kong. The eventual return of Hong Kong to China, thereby depriving the UK (end Indirectly the OS)aluable but vulnerable Far Eastern naval base, appears probable, but not within tbe calendar year of 1MB.
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US Aid lo .lnti-Co"imunuI Coups.
The US is the best available source for lhe small arms, artillery and ammunition desired by the remaining antl-Communist forces, and it may be anticipated that such forces. Indi-ndually or In the name of the Nationalanil appeal to the US to supply such materiel. However, major anU-Communist forces controlled by Chiang Kal-ehek, Chang Chun, and the Moslem leaders of theMa Pu-fang and Ma Hung-kuei, even now are located either off the mainland or In the peripheral areas of China. In addition, there Is some doubt as to whether any of those forces, except those of the two Mas, could usefully employ further US aid. Chiang's forces on Taiwan already have extensiveand economic resources. Chang Chun's forces ln Srechwan do not need economic aid. Moreover. It Is Improbable that military aid to these forces can prevent the Communists from extending their control over Sxechwan at any time they choose to do so.
The Mas of the Northwest (the provinces of Nlngsla, Kansu, and Tsinghal) with the advantages of forbidding terrain, excellent ccganlsatloo, and hardy troops, are In the strongest defensive position of any of theantl-Communlst forces In China. Moreover, on the basis of past performance, the Mas, as compared with othergroups, would make the most effective use of any aid which they might be given. However, their bases In the provinces of Tsinghal and Nlnghsla are the most difficult lo reach with US aid, which probably would have to be transported by air. The Northwest area is self-sufficient In food, and may hold out for several years even without US aid. either because the Cornmunists will beto attack or wtl) favor Its developmentuffer against the expansion of the USSR Into China through Sinklang
Overt US aid to antl Communist forces In China would compromise the maintenance of normal diplomatic and commercial relations with the Communist-controlled regime. In the event that the US should choose toolicy of rreogTUxtngegime.US military aid to any anU-Communist forces olher than the Mas. might well go the
i the suiic oi US aio supplied lo itc Nationalists in thethe Communists. Aid of the type and proportions extended hitherto to the National Government, at best, could delay but will fail to prevent tee ejrtenston of Communist rule through aa China.
A further consideration is the continuance of US aid to Nationalist China, as provided for In the China Aid Program, with Ns-Uonallst-held areas soon to be limited toand the western provinces ofill be difficult to Justify the US program on humanitarian grounds as aid to the Chinese peoplehole. Thus the US wouldIncreasingly vulnerable to Communist propaganda, attacking tbe US aid program as designed solely to bolster and prolongon tbe part ol anU-Cooununlst remnants.
e. Communis* Need for foreign Trade.
Communist Import requirements provide the USossible weapon againstChina. Depriving the Communists of essential Imports would retard thaof China and Increase the difficulties that will confront tha CCP. Some ewnhal Un porta, chiefly petroleum products and items of capital equipment, can beIn quantity only from the US or UK. Tbe USSR, without some sacrifices In liseconomy, will be unable to supply many kinds of equipment, will provide Inferior goods In other cases, and will probably make heavy demands on China in exchange for its assistance.
The controls to be used would probably nc; be effective If they were so severe as lo be in fact an embargo. It Is doubtful If the US could arrange for concerted support for an embargo among the Western Powers, and the Communis ta would gain sympathy andwithin China by representing an embargo asersecution. Limited expon controls on selected cornmodities such asand capital goods probably would be acceptable to the UK. which has the targes: economic interests of any Western Power ir China, and mould probably serve US purposes Just as wellomplete embargo. .
Oa the other hand, there are advantages the US may gain from free trade with Communist China. Quid pro quo concessions, such as regularizaUon ol the position of US consulates in Communist-held areas of China, might be obtained. The promotion of commerceCommunist China and Japan,In addition to being valuable to China, would significantly assist Japan ecooomicaily and thereby reduce the drain of US support of the Japanese economy.
he Communist Desire for Interruxtional Recognition*
Tbe Communist-controlled regime will seek International recognition as the Nationalof China as soon as it Is formed andevent which will probablynear the endhe attitude of this regime toward the US will be unfriendly, if not frankly and actively hostile. For theof this discussion. It Is assumed that the US. when confronted with the Communist regime's request for recognition, will pursue one of threeon-recognition,either de facto nor de jure recognition for an mdennlte period;mmediate de jure recognition, which the Communistsdesire;elayed de jurearly de facto recognition,elay of several monthsear or more In according de jure recognition. The consequences of each of these three courses of action arebriefly below.
Obviously, the international act of granting or withholding recognition would not effect any genuine change in the Ideologicalof the CCP toward the mn-Commurust world. So long as the Chinese Communists regard the USSR as the leader of worldand tbe USSR regards the US as its principal enemy, the conduct of the CCP toward the US will continue to be governed by the International Communist line, asby the USSR.
on-Recognition.
For the US to refuse recognition to aChina wouldumber ofconsequences. There Is no prospect that the Nationalists can be restored toover any large part of Cnlna; theleaders, their authority progressively restricted to their place of refuge, are doomed to exile or extinction. In addition, it Isthat many foreign governments will withholdrolonged period recognition of the Communist regime in China; thus, tbe official representatives and private citizens of governments withholding recognition would find themselvesisadvantage aswith the nationals oforeover, theregime, sticrigthened by recognition by one or rnore major powers, would claim seats in the UN, other Internationaland on tbe Far Eastern Council, and would be supported In Its claim by members of such bodies. It Is further prcoable that the Communist regime. If the US were toreco coition, would In turn refuse tothe position of US consulates in China, and would even force them out of China.
mmediate De Jure Recognition.
Immediate de jure recognition of theregime, which almost certainly is the COP's objective, would avoid certain of the advene consequences of non-recognition. The CCP presumably would be opposed to anyrelations short of full do jurebecause mere de facto recognition would permit the Western Powers openly to support anti-Communist elements In China, and because de facto recognition has beenIn Chinese eyes witheriod of warlordlsm. Immediatehowever, would not alter the basicof the CCP toward the US. and might even encourage the Chinese Communists in their arrogant and mtransigent attitude toward the US and toward other powers which followed the US lead, perhaps to the* extent that they would follow the Soviet lead in restricting the number and location of US consular offices, particularly in Manchuria. In addition, immediate recognition would probably not cause the Communists totheir threat to repudiate existing Sino-US treaties, or to refrain from obstructing US policies on International issues such as the Japanese Dcaco settlement.
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Delayed Recognition.
Should the US delay,eriod of several mouthsear or more, in according de jure recognition to the Communist regime In China, some of the disadvantages of both non-recognition and Immediate recognition might be obviated. Since the Communists are Interested In obtaining de fare recognition as soon as possible, they might be inclined to discuss, and to reach some priorwith the US regarding rsresent and future treaties and the number and location of US consular offices tn China This period would also afford other Western governments anto bring political and economicon the Communist regime. Concerted action by Atlantic Pact powers, which haveesire toommon front, can be anticipated if the delay inde jure recognition is not prolonged to the point where it would become mlmlcable to their Interests. Through the periodommon front, however, there would always be the risk that other governments, seeking special advantage by early action, wouldunilaterally to extend de jureThe Communists can be expected to follow, and probably to Improve upon, the traditional Chinese diplomatic practice of playing one power against another.
g. Chinese Communist Influencethe Tar East.
The CCP has Indicated its interest Inone billion Orientalsommunist Asia. To this end, the CCP Industriously propagates the view that Communism Is inevitable in Asia, and that only the Communists are the champions of Asianhe prestige of Communism will Increaseas the CCP extends Its control over all of China.
apart and Korea. The CCP has stated that China and Japan "can and should establish close friendship" and has warned that Japan musteace treatyommunist-controlled government of China. The CCP Isto open trade with Japan, and theCommunist Party echoes the CCP line that only "democratic" forces can successfully conduct commercial and political relations with China. In Korea, tbe CCP's successes have contributed greatly to the confidence of the North Korean regime and to the feeling of defeatism In the Republic of Korea. Through its relationship with North Korean leaders, the CCP is capable of providing significantand economic aid to North Korea. The opportunity of South Korean leaders to offset the development of such an adverse trend has largely passed and tt now appears that South Korea can do little to forestall such aRecognition by tbe Western Powers of the CCP's regime would be to the advantage of Communist China both politically andInsofar as It permitted tradeChina and Japan. De jure recognition would give the Chinese Cornmunists further opportunity to claim seats on the Fax Eastern Corrimlssion and on the Allied Council for Japan, as well as weaken further the position of the Korean Republic's gorerriment
outheast Asia.
The CCP Is extending Its InfluenceSoutheast Asia by Identifying Itself with native Independence movements, by"reactionary" colonial governments, by threateningn-colonialand by promising protection toChinese communities. De factoof the Communist regime by thePowers would tend to Increase theand economic influence of the CCP In Southeast Asia. To withhold de jurewould make the CCP's work In Southeast Asia somewhat more difficult, but theand the Chinese overseas communities in that area would pay little heed toegalism Tbe Chinese communities will tend to orient themselves toward the CCP as itcontrol of China although there may be slgrUflcant resistance elements among the overseas Chinese. likewise the governments in Southeast Asia wijl adjust themselves to these new circumstances, whether foror resistance. The CCP willnot employ nfllltary force to gain itsIn Southeast Asia and it has noeconomic resources with which to maneuver. Its success In China, however, will
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strong and unremitting poliitcalon Southeast Asia.
2. Politicolommunistf Control.
Prcsenf Extent of Communist China. Communist China now Is divided Intoortheast China,an Adrnlnlstratlve Council but as vet no "People'sJ) Inner Mongolia with an Inner Mongolianorth China (Hoped, southeast corner oi Chabar. eaatern Sharua, western Shantung)orth China People'sentral Plains (Hooan, most of Anhuel, northeast corner of Hupeh)entral Plains People'sast China (Elangsu and eastern Shantung) with as yet no People'sorthwest China (western Shansl. eastern Shensi, east-em Sulyuan. eastern tips of Kansu and Nlng-iU) with as yet no People's Government. The Communists do not yetentralso that whatever centralized control there Is, Is exercised by the Centralof the Chinese Communist Party, atlocated in Pelping,
Intended Extent of Communist China. In Its New Year's Messagehe CCP stated that Its armies would cross the Yangtze9 and that the Party wouldolilical Consultative Conference to form andomm unlit-con trolledWithout pretending that thiswould actually control all China by the end ofhe CCP statement strongly Implied that the new regime wouldseek recognition as the nationalSubsequent statements havethat it Is the CCP's arm intention to extend its control over all China and toall significant political and militaryTbe CCP has announced that. In the interest of preserving the manpower and material resources of the nation, it prefers toeaceful transfer of military and polilical power wherever possible; but lhat the Communist armies arc prepared to effect such transfer of power by mllllary force where Na-
Uonalist leaders and forces refuseeaceful transfer ot power.
(c) Lack of Popular Resistance. Theof the military offensive by thearmies has forced the CCP to offer the war-weary people of China some justification for this action. Before and during the April peace negotiations Ln Pelping, the CCPaccused the Nationalists ofat the same time claiming that the people of China did not desire an uneasy truce with the Yangtzeoundary-line. In their order to continue the drive Into South China, Chairman Mao Tse-tung andChu Teh again accused theof negotiating only to gain timeomeback designed "to destroy theAlthough no amount of propaganda ean persuade the people of China that the Communists are everything they pretend to be, tbe bulk of the people ln Nationalist China are probably not dismayed by the prospecthange of government, and may eventhe prospect of Communist rule,that It willreater degree of securityesser degree of exploitation.
ransfer of Political Authority.
ew Central Government. Because the CCP has not formed or proclaimed agovernment asserting authority over all of China, decisions on the question ofrecognition ofovernment thus far nave been postponed. Diplomatic officials In Nanking and consular officialsIn Communist China are regarded by the local Communist authorities as private citizens rather than as the representatives of their governments. This situation Is likely to continue until the proclamation of agoveirunenl, at which time the question of de facto recogxltion will arise. For tbe next few months, the CCP will be absorbing large numbers of lower and middle echelon National Governmentfar the greater part of these officials stay onomplete break in continuity with the old order. The CCPwill take the stand that. If foreign powers wish to continue operations in China, either through official representatives or as private
citizens, Uioy must give at least de facto recog-nition to Use regime.
(b) The "Coalxiion" Pattern. Tbe CCP has promised tooliticalConference9 to form andcoalition" government The Kuomlntangart* will be excluded from this newbe CCP has frankly stated that the Intended "coalition" government will be "under the firm leadership of thehe concept ofderives from the larger concept of Chairman Mao's "newhe name given to the transitional stage from today's "capitalist" society to the latersociety. In structure, the "coalition" will Include three majorbeon-Communist "democratic parties" which follow the CCP line, such as tbeLeague and the KuomlntangCommitteedemocraticoccupational and functional groups which Invariably support the CCP's position. While this government will permit someof popular participation, in the election of representative bodies, all real power wUi be concentrated In the CCP, whose function It Is to "guide" the backward
(c) Political Consultative Conlerence. The Political Consultative Conference will be the medium forew constitutionaland for obtaining some degree ofsanction for the new regime. Just as the Political Consultative Conference held6ymbol of potential National unity. The Chinese Communist Party will convoke this Conference In Its own name and in the name of minority parties and functional groups which follow the Communist line,in the late summer or early autumnfter they have consolidated theirof the Yangtze valley. It is not known whether the Conference will consistew dozen or several hundred persons; In either case, the Communists will control It firmly. The Conference will either draft andonstitution, or, possibly workingommittee established for that purpose,onstitution andate for electionsconstitutionaln the latter, event, promulgation of the constitution and formal establishmentonstitutionalwould be delayeda any case, the Conference will simplyubber-stamp congress summoned to approve ha the name of "tbe people" policies predetermined by the Communists while Its constitution,providing for various rights, will, in fact bestow no rights Which the Communists cannot take away.
(d) Domestic Sanction for the Sen Order. In order to gain domestic sanction for the Oommontrolkd regime, the CCP, In conjunction with the Political Consultative Conlerence, will probably exploit the alleged am nl ties of Communist doctrine and practice with tbe theories of Sun Yat-sen, generally regarded within China as the "father" of the Republic The CCP claims that Sun's famous Three People'sbeen more closely followed by the Communists than by theIt points to Sun's advocacy. Ins. of "alliance with the Soviet Union,with the Communists, alliance with tbe workers andhe CCP may also citeeriod, when the Communists were admitted to the Kuomlntang by Sun himself, and insist that only the CCP bas truly carried out the terms of Sun's win by ushering in the constitutional stage of government which he demanded. The CCP will by no means deify Sun Yat-seo, but bis tradition can be very useful In smoothing the Party's path.
oreign Relations. fa) Sino-Asian.
(I) Japan and Korea, The CCP,roadcast attempting to Influence theelections oftated that China and Japan "can and should establish closend pointed out that Japan musteace tieaty with agovernment of China and establish economic and political relations with it More recently, the CCP has beento open trade with Japan. There Is little doubt that China will exert economic pressure and political Influence on both Japan and Korea, possiblyiew to subordinating those countries to itselfommunist Asia, The CCP maintains close relations with Com-
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leaders in Japan and Korea, and there is reason to believe that at least some of those leaders are oriented as much towardChina as toward the USSR.
(il) Southeast Asia, In recent months, thej has told the Indonesianleaders that they cannot succeedCommunistas denounced the British and French governments for thelr aetlviriea In China, Malaya, and Indochina;as threatened retaliation against the "fascist" governments of the Philippines and Slam for "persecuting* overseas Chinese. Assistance to revoluticinary movements throughout Southeast Asia, pressure upon the colonial governments concerned, andwithin overseas Chinese communities will certainly Increase as the CCP extends Itsthroughout China and obtainsrecognition of Its "coalition"However, the extension of CCPin southeast Asia will not be unopposed, because of the deep-seated fear of "Chinese Imperialism" In these countries.
(b) Sino-Soviet. Chinese Communistwith the USSR should continue to be extremely cordial. In major policyof the past year, the CCP has endorsed the Comlnform's denunciation of Tito, called upon "revolutionary, forces" throughout the world to unite under Soviet leadership against "American imperialism" and promised that China will be the ally of the USSR In any West-provoked war. The CCP's tacticalhave found orthodox Justification In Lenin's and Stalin's expositions of thegoverning "colonial" revolutions, and the CCP Is now bringing Its policies more nearly Into accord with those of more "advanced" revolutions. There are points of potential conflict between the USSR and theas possible Soviet Inability to assist In China's industrialization, Soviet designs In China's border regions, the CCP's Intentions toward Communist movements In Asia, and theissue of subservience tonone of these issues seems Ukely to cause serious friction In the near future. Tbe "coalition" government will certainly give tbe USSR preferential status In China, perhaps by expanding the Slno-Sovlet Treaty of
the CCP has repeatedlyprovideigh degree ofand economic Integration between the USSR and China's border regions. For the present, CCP leadership appears genuinely to feel that China's best interests will be served by close Slno-Sovlet cooperation.
(c) Siao-US.
-Txaiforoiir- Treaties. The CCPIn regard to treaties concluded by the National Government sinceas been that such treaties were concludedthe knowledge and consent of thethem thein the Political Consultative Conferencend that the CCP therefore does not recognize their validity and "absolutely will not bear any obligation" for them Tbe CCP bas stated that "all those (treaties anddetrimental to the Chinese people and nation, especially those which sell outrights, should be abrogated, revised or reconciuded. according to thehe Sino-Soviet Treaty5 has beenexcluded by the CCP from thosewhich "sell out rsatlonalhe Sino-U3 treaties which the CCP regards as "traitorous" are those which provide forand military aid to the Nationalaod tha stationing of US armed forces In China. The CCP view appears to be that, first, theIno-Americanare "traitorous" simply because they were concluded with the US, the principal enemy of world Communism, and, second, that US economic and military aid to the National Government was employed principally in the struggle against the Communists. Inthe CCP has Indicated Its Intention of repudiating the existing Slno-US "Treaty of Friendship. Commerce andn the grounds that this agreement is an instrument of US "imperialism" In China In order to develop trade with the US, however, the CCP may come to see the desirability ofew agreement of this nature.
The US as an Snemy. As the CCP has proclaimed the USSR as China's principal friend, tho US has been portrayed with equal
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firing upon British warships in the Yangtze. Neither wall It prevent the CCP fromthe return of Hong Kong to China nor will it obviate the possibility of giving supper, to terrorist bands operating against tbe British ln Malaya.
The CCP undoubtedly Intends to deprive Portugal of the colony of Macao, byIf possible, but by military action If necessary. The French Government has been denounced by lhe CCP for encouraging US "imperialism'* in China and for Its actio as in Indochina. The Netherlands Government has been similarly castigated by the CCP In regard to Indonesia. All other Atlantic Pact states have been the targets of CCPabuse, both for Joining the Pact and for other "reactionary" activities. India, which is probably recognized by the CCP as Itsrival for leadership In Asia, Isas remaining under tbe Influence of British "lmr>erixlism.**
Representatives of the Commonwealth countries andumber of Europeanrnments In China haveesire to become accredited to the Communist regime soon after It Is proclaimed. Thesewould like to regularise their status by early recognition of tbe Communists tn order ta protect and perhaps expand their present Interests In China. They have not regarded the prospect of applying economic sauxrUona to China with favor and they apparenUyprofitable commercial relations with the new regime In varying degrees. At the same time, the governments of mostand Atlantic Pact nations havethe desirability ofnited front on the question of recognition.aticmalijf China.
Nationalist China Is virtually bankrupt and the National Government is In Its death-throes. The process of disintegration and fragmentation Is so far advanced as to render almost Impossible the establishmentunctioning government orooselycoalition capable of offering resistance to the Communists.
The National Government no longer func-Uoru as an organized administration even oc
fervor as China's ouWanding enemy. The CCP has represented the US as the leader and supporter of allimperialist" andforces In the world, as forcingtreaties upon China ln exchange for tmanclng tbe KaUonalists In the civil conflict, as directing the military operations of theUonalbrts and encouraging them to reject the Communist-dictated "peacend as plotting with forces Inside and outside China to deztroy the CCP and keep the Orient ln permanent slavery.
While the CCP has understandable grounds for resenting tbe US contribution to themilitary operations, the CCP'sanU-Americanism Is rMmarlly dictated by the opposite CCP and US positions regarding tbe USSR and world Communism. US official representatives and private dtlrens InChina, although not subjected to physical violence, hare been restricted In their movements and In the discharge of their consuisr. commercial, or educational functions, while the CCP la exploiting the US loss of prestige ln China andts ownby an Intransigent attitude toward the Western Powers- The "coalition" will presumably Invite- US recognition and attempt to conclude commercial treaties with the US but Use CCP can be expected to give aggressive support to Soviet and satellite diplomacy, to continue Its vigorous andant: American propaganda, to bring pressure upon the US to withdraw Itsto Nationalist remnants on Taiwan and to make tbe work of US diplomatic missions difficult At present, there Is little chance of orienting the CCP away from the USSR
(d) Olher foreign Relations. The CCP has adopted an attitude toward foreignhostile ln proportion to the degree that those governments are Impeding the world Communist movement, regardless of whether such governments have or have not supported the Nationalists In the Chinese civil conflict. The fact that the UK has been of service to tbe CCP, in affording sanctuary and an operating base to CCP leaders In Hong Kong, did not restrain Communist force* from
a i'h-ioriaI basis. Since Chiang Kai-sivsifrom tbe presidency In January, there has been little evidence of leadership ordirection of the Government (Acting President LI Tsung-Jen has little power and his efiectlveness has been Uttle greater than thaten-meaning warlord.) The Executive Yuan has accomplished Uttle for months; even the basic ministries are limping alongThe legislative. Control and Judicial Yuan to Canton are rump organs with slight influence. Political power Is largely in the hands of provincial or regional bodies. and other basic governmental functions are localised.
The Nationalist spilt into factions headed by Quantas hastened the process of disintegration and fragmentation. Although Chiang retired as President without resigning, he has continued to control armies, military and financial resources, tbe secret police, the party agencies, and many leading officials Actingominally beads thebut, In his weakness and frustration, has done little else than conduct the abortive peace rsegoUatJons which ended onprD. Tbe struggle between LI and Chiang Is sothat any significant rapprochement or compromise appears improbable. LI controls Kwangsl and has the support of Pall. various southern warlords, and many pcaoe-eeeking officials He wtO probablyhis nominal leadership of the Canton Government until Communist militarycompels Nationalist leaders to seek refuge elsewhere, at which time Li will probably try toovernment In Southwest China.
Chiang Kai-shek controls Taiwan andareas on the southeast coast, andiminishing Influence lo the southwestern provinces. Chiang has been transferringresources systematically to Taiwan, which Is being prepared as the final refuge to which many Nationalist officials In Canton will flee when the city Is threatened by theLarge numbers of refugees from mainland China are already lo Taiwan and the provincial administration is headed by Chiang's appointee. General Chen ChengNationalist rule Is increasinglywith the oppressed, unorganisedpopulation, the Nationalists probably win ba able toegional regime la Taj-wan for at least the remainder of thehe major threat to their position will come from mainland Communist forces rather than from the local people.
As In tbe recent past, tbe Nationalforeign relations during corning months wfll be dominated by issues concerning the OS and the USSR. Nationalist China basgreatly on US eCTaXsnric and military aid, which still continues In diminishingalthougb no future US militaryare in prospect. Despite repeatedto obtain additional aid, the National Government and Nationalist regional regime will continue their appeals to the US and claim that such aid will be used to resist the
In Taiwan, the Nationalists have anbargaining point. Aware of US Interest In that Island, they will present themselveseans and perhaps the sole means ofIts communication, and will offer various inducements and assurances in return for US aid and U3 moral supportegionalregime They will also argue the legality ofhinese administration despite the fact that Taiwan's status has not beenby conclusioneace treaty with Japan.
The National Government will strive to keep Its International status despite Its growing weakness. Impending chiefly on what future Communist policies may be. that status might not be seriously challenged for several months aod foreign recognition of the Nationalwill probably continue so long as it stays in Canton.
Chiang Kai-shek and other Nationalistare embittered toward the USSR, which they feel Is at least partly responsible for their misfortunes. The Idea of appealing to the UN has been seriously considered Incircles and the matter may be brought up again before the Nationalists lose their inter national status. If made, this maneuver would be accompanied by denunciation of the Slno-Sovlet Treatyoverning the status of Manchuria and Outer Mongolia.
IT
will be limited to some dearrtw h.bullies of tbe CCP poliucal org^tloVut assume^ additional administrative
r^ent CCF victories have brought 1th them the ne. responsibility ofban lire, and tadrartry.CorSonsiderable portion of CCF must be utilized lo garrison "liberated- areas and maintain lines of rommunlcaUon.
tA"TUar forces comprised of the field forces and MUltary District trocus now total1see Table,. thus giving theecirirel5 merical superiority over theombat strrmgth. These regular forces. pa7 Ocularly the field forces. are>naracteS^r
morale and discipline, as weu as exceCcnce to tolelij-pnee and the employment of props panda.
is aes
nown as the People's Militia, gtssoafiv tocal to character .function. haps^OWnco. Such foreea, on HK the past, have suppierraented the regulars est*.In the future, they win
the task of
policing CCPbtrd potential source of manpower comes from NaHoaiaiiat troops which hare faUen Into Communisthese,0 have beenInto the CCF. Communist regulars *U) ISO be great* assisted In toelTdrlS south by dissidents. bandlU. and irregular Communistlready ln control of ftE rural stretches In their Force.
The Chinese Communist Air Force made Its first public appearance0 May Day
ea. Boil ZlI type aircraft raarticipated to thenlsts are known to have obtained by cJefectlon or capture at leastoperauooal aircraft Including bombers, fight-era, transports, and trainers. The actual number of pilot defections is believed to be substantially greater than thenown cases although the Cotxunrmist claims con-
BKCJrfT
OROANITATICW Of" CHINESE COMMUNISTAT IMS
Fovxs
VaU Drilg nation 1st rl.ld Army
2nd Field Army
ield Array
llll rUld army
3tb Fluid Amur
RecoUn In Couth CMne
Old VnU Dertflna(lon Northwest Peoples
IJbmUoB Amy Centre! Plain* People "i
EAeretlaa Array East China People'*
laberaUeo Armj Northeast Paople'i
libera Uoo Army North Ctuna People'*
Uberelioo Army
Commander Pens Tea-anal
Uu Po-eheoc
Cheo Yl
Un Plao
Nkh June-then
ai/m
4 CO.OX TM.COO
n.ouo aoooxoo
Arias Sheosl-dharul
lna Karartu
and
North China North China
l us Chlat
to be greatly exaggerated. There la no evidence that Soriet aircraft observed tn CCP areas of Manchuria have been there la anyransient capacity. No Communist aircraft have been used in the combat areas and lack of aviation fuel will drastically limit the CCP capability for air operations.
(3)
The CCP has acquired by defection andupwards ofationalist naval vessels. The followingreakdown, as to types, that may be operational In Communist hands as of
3 Destroyer escorts
1 Mine-sweeperunboatsepair Ship, lightcebreakeranding Ship, mediumanding Craft, Infantry (LCI)gnaifg bargesrmed mo tor boatsmall patrol boats For the moat part, crews of the foregoing craft and those of other naval craft Which have been disabled or destroyed are available lo theThese craft, plus merchantwhich may be captured or otherwisewill provide the Communistsrowing capability for short over-water
ogistic*.
The CCP. hitherto almost solely dependent on animal transport, makeshift machine-shop arsenals, and captured Nationalist stores for logistic support, bas now overcome this earlier handicap. In addition to substantialstockpiles turned over to them, the CCF, havingtremendous Nationalist stocks which were largelyenjoysin materiel over the Nauonallsla In addition, the CCP has acquired most of thecenters of North and Central China-Including the Mukden arsenal, which alone producedjcrcent of the total Na-Uonallst ordnance output. This and othertaken over by the CCF can supply an the materiel needed for future mainland operations. In place of horae-cart methods of supply, the Communists now control and are rapidly rehabilitating most of China's rail and
SRC.
trength and Disposition ofround Forces.
The strength of tho rnnainlng anti-Commu-rusthina totals apprtjximatelyegular combat troops. In addlBosi*then areervice troops ^rscd throughout the remaining areas of SatW 1st operation (see Table,.
Tbe "combat- forces listed In Ibe aocom-PWJtog tableigh percentl-Tof
'"f H* ^tided are an imdetermined number of local (Peace Preservation Corns)
At present, there are basically four separate centers of potcoUal anU-Cornmunist resistance to China. Thesehe scx.thcls, a" chiding Taiwan) directly under Chiangshek^pproximatehe southern provinces of Kwangtungn7 si.sung-Jen and Palrrodmatehe southwest, under Chang Chunn. eluding the troops of Hu Tsungnanlian-proximate;he north,under Ma Pu-fang and Ma Hung-kwei-appronmate.
r Force.
The Nationalist Air Force has0 men and0 eSZ ofe reportedly ceseVaConai Tne
po>ntial of th. CAP has also been reduced b, losses through defection and capture. Fire! "rths of the CATs totalircraft hare been transferred to Taiwan, Because ol maintenance difficulties and operattonaionlyercent Of the operationalare effective. The morale of the air forces although somewhat higher than the ground forces due to differences in oav scale* tscry low. Consequently. CCP props, ganda has found and continues tot ceptlve audience In the ranks of the airavy.
lately weakened by
ight cruiser, destroyer escort,unboat have been destroyed or disabled) haships, not including harbor craft, and0 men. Navy morale, as
1-3
TU| Ca-po Pal CSunt-fm Ho Tsudc-daii Ma* a lionr-KwelJ Chaos; CHaa naoeh Yueb Clicne Ub Ao-chl
Tcial Coca Oat Force* Service aod MkrUaoeoui Troops
0
StS.QQO iOO.OOO
Kai-shek
U
CTuaxur Kai-shek Self
Chlaiuj Kal-ahea-UndeterminedH-tVthefc
Unknowa Hunan. Kwangil South Gbrosi
Nortbsrest
Taiwan
Kaantung
Taiwan
TOngUo
*tve tn
FUUea. Taiwan Kwanga
North irest
Tali Swan tone Taiwan
Number eeuM be aognMOted b, Naacoalut withdrawal* from the toainlaod.
the other services. Is extremely low and Communist Infiltration ot the nary continues.
W LogUUci.
The Nationalist field forces bare beentn numbers and deprived of tbe larger part of their weapons, transportation, and equipment. Their central supply orpuUza Hon is now defunct and, more Important, their central supply base, from which unit materiel replacements bad previously been obtained. Is now non-existent. The Nationalist fieldfind themselves faxing logisticsto those encountered by Communist fieldear ago. Tbe Nationalists must now depend largely upon their ownresources and Ingenuity for logisticThe ant:-Communist forces, largely confined to marginal regions, will hold only two areas which can presently contributelogistic support. These axe Szeeh-wan. with someajor arsenals as well as rich agricultural resources, and Taiwan. Taiwan, which produces an agriculturalhas lately received US military aidas well as arsenal Installationsfrom the lower Yangtze Valley.
The northwest, hi contrast, requires air supply, and tbe entire sweep of southern China Is Incapable of supporting large armies and brood-scale military operations over an extended period. Long-term resistance In these areas, therefore, wouldteady flow of supplies, both military and economic, from outside China. Communication In tbe south and southwest can be kept open only so long as tbe loyalty of the people in those areas is letained.
d. Present and futurehe objective of the latest Chineseoffensive, begun onpril, la to secure the lower Yangtze Valley from Stechwan to tbe sea and at tbe same timeedge deep Into south China In order to separate tbe forces of Pal Chung-hat and LI Tsung-Jen In Kwangsi from those of Chiang Keiahek la theTbe southern drive on Canton andadditionally, will accelerateof the Nationalist Government by forcing further flight to Taiwan or Chung king ortbly to both.
The primary Communist objective probably win be realized by tbe end of August. At no time from now on can the Nationalists beto put up more than token resistance, since their first concern will be withdrawal of their remaining troops Intact to Taiwan and the more remote areas of the southwest By the endn consequence, the Chinese Communists probably will exercise military control over all of mainland China from Man-
SECetE r
south to Kwangtung and Irom the eastern bolder o( Siechwan to the sea.
(I)ary Problems
Although the Communist lorces have all lhe advantages at present, when tbey more to eliminate the Last areas of resistance they will face certain entirely new problems. The Communist armies will be moving intorough mountainous terrain ln their drive to the southwest and the north west In order to support their occupation armiestbey must of necessity greatly extend their lines of supply and communication into these food-deficit areas. Althoughforces wilt be greatly assisted bybandits, and Irregular CCP bands ln the south and southwest provinces, they will, particularly ln the northwest, be movingreat expanse of territory where the local populace Is either actively or potentiallyThe expanding Communist armies will also face the problem of how to feed, clothe. Indoctrinate, and otherwise dispose of captured or defected anU-Ccmmunist forces.
Tbe acquisition of Taiwan is anotherfor the CCP: The Communist armies have no amphibious experience or training. At present, they laek the requisite shipping to undertake an assault on Taiwan. The lack of amphibious esrperlence, moreover, may force the CCP to be satisfied with the much slower political methods of underground action to accomplish thetr conquest of the island.
Perhaps the largest problem facing the CCP lies ln preventing the military machine from outrunning their abilities for politicalTo halt their victorious armies would not only belle CCP propaganda but would probably shake troop morale from top to bottom. Over all success, therefore,upon the maintenanceery delicate balance between CCP military acquisitions and political preparedness.
ationalist Problems.
Problems currently facing the remaining Nationalist Armed Forces appear to be Insur-mountaule. The present centrifugal tendency in Nationalist Chinaecreation ofonce almost nation-wide, which thewarlords understand well, but which makes central planning and control virtually impossible The remaining Nationalist troops are desperately in need of re-equipping, re-tralning, re-ritaiinog, and re-organixlngompetent and effective central cornmand. It appears unlikely that these basteneeds wOl be fulfilled. Consequently, antt-Communist forces ln fining when threatened by the Cotnmnnlrt armies, must furthercapitulate, or beettmateof CapabCttu-s
NoMonalttt. Remaining Nationalist! or anti-Communist forces cannot. In thefuture, effectively resist the Communist military machine Even If It were possible to cure existing military IDs by means of outside assistance, superficial reforms would beunless the aliment Is alsotroops must be re-ins tilled with the will to fight This can only be accomplished bythe troops ln accordance with tbe cost of living, by feeding and clothing them properly and, above all, by giving them something to fight for. This obviously ts im possible under present conditions. The CCP, therefore, can and probably will eradicate any andommunist armed resistance whenever it chooses to do so.
Communist. The CCP Is eirrreotly capable of launching simultaneous operations lo the south, southwest, and northwest and ri:MdnaUng all effective military resistance by the endowever. In view oflogistic and morale problems whichwould result from too fast athe CCP will probably continue Itsarea-by-area conquest and It mayears before the final liquidation of all antl-Conununist resistance In China. The south and southwest will probably be thewo entries on the CCP military time-table and the coup de crocs reserved for the Mas Ln the Northwest
w
4. Economic Siloolion. a. Nationalist China.
The economic activities of thevetrunent in Canton and of each provincial government (except Taiwan and Siechwanl are largely confined to the search for sufficient
revenue to maintain their military andpower. Economic and commercialthroughout most of non-Communist China has pauperized both tbe National and most provincial governments.
The financial position of the National Oov-ernment at Canton Is desperate. Iterious decrease In revenueof Its inability to collect taxes, therepudiation of the national currency, and the virtual elimination of customs duties. In addition. State-owned industries andhave largely ceased to operate and the profits of many remaining plants are no longer available to any but local political ad-rrunlstratlons. Reserves of gold and silver still under Canton's control are very Umited and most provincial governments are reported to beimilarly serious fiscal situation.
While most of non-Communist China IsSzechwan and Taiwan areBoth areaselatively sound economy. Other Importantonsiderable amount of coastal and ocean shipping and tho gold bullion In
b. Communist China,
fl) Infernal Problems.
(a) Economic Obfeetioes. The first eco-nomlc objectives of the Communists willhe acquisition of all assets owned by the National Government andhe preservation offinancial and commercial Institutions; and ii) obtaining the support of productive elements of society. The Nationalist assets least accessible to the CorturrurUstt are the three mill ion odd ounces of gold controlled by Chiang Kai-shek, the overseas assets and holdings of the Government and Its "warofficials, private holdings and the million tons of shipping now In Nationalist hands It Is unlikely that an appreciable amount of Industrial plant will be removed lo Nationalist areas, and the Communists should Inheritindustries largely Intact.
<b) Food Problems. While the possibility exists lhat the Communists may not be able to overcome the war's disruption of marketing facilitieshort time and that Manchurian surpluses may be pre-empted by the USSR no starvation is expected in Communist areas before tbe June harvests, except in some Hooded or war-desolated localities.
Although tbe coastal cities long haverice, grains and vegetable oils, because of the high costs of transport from Inland areas of production to coastal consumption centers, there Is probably enough food In the Yangtze Valley to supply these cities. If the CCP can solve the problems of collection and distribution.
(c) DeveXojrment of Trastspcefofion and In dxtstry. That some progress In Industrialhas begun is Indicated by reports from Manchuria, Tsmtn. Peiping, Tientsin, and many towns in North China which show that tbef Industries and railroad reconstruction in liberated townsigh-priority task. Shortages of raw material, power, gBdlabor will continue to Limit Communist development of Industry after control over Central China Is consolidated but, with the exception of petroleum andcotton which must be imported, there will be sufficient resources to run mostIndustryigh level of capacity.
The need for petroleum In Central China will decrease as coal becomes available in larger quantities and as such large oilas power companies are reconverted to coal. Domestic collection of cotton for textiles. Chinas chief Industry, will be large and, together with present slocks inshould be nearly adequate for this year's needs Rehabilitated railroads, together with captured junks and barges on the Yangtze River and its tributaries, should provideinternal transportation for essential marketing purposes.
(d> Cal nine; Support of ProductiveThe CCP will try to gain the active support of productive elements in the middle classes who may not yet be entirely convinced of the bountiful life which is promised under the Communist order. The Communists huve declared that taxes must not be confiscatory, that governmental enterprises harmful toenterprises shall not be permitted, that workers must not demand excessively high wages, and generally that all means will be utilized to encourage private Industrial
ductlon. While these promises have largely remained unfulfilled, they have gained wide support foe the CCP among Shanghai and Nanking businessmen. Among the middle classes, those most actively wooed by theare the technicians. They arehigh pay (In Mukden reportedly twice that of government officials) and the chance to be leaders In China's reconstruction. The CCP has apparently gained the support oftechnical and managerial groups ln other Communbtt areas ln China and may do so ln Central China as well-Urban workers and the farmers may not be as strenuously recruited, both because their support b> already assumed and becauserewards to tha middle classes must frequently be made at the expense of the lower Income groups. While continued lip service will be paid to better living standards, workers will be told that, as the 'leading" political group, they must carry the burden of ecooociuc reconstruction and development. Similarly, few promises, other than reduced rents and Interest rales, may be made to the tenant farmers, since landlords have already been promised that the country Is tooeconomically" for Immediate drastic land redistribution.
(e) Financial ond Commercial Problems. The CCP has shown cceulderable concern over tbe establishment of Internal financialand the resumption of domesticThe lack of financial experts willhinder the Communists In the estab-lishmenttable and flexible currency which will be adequate for tbe cornmercial and industrial needs of North and Central China. Conditioned by the recentexperience with paper currency, thein the immediate present mayto relyess flexible exchangebased on barter and tax payments in grain and other commodities. To date, the Communists have been sufficiently successful in collecting agricultural output, which has provided themubstantial source of revenue.
Although transportation and marketing difficulties will hinder domestic trade, both stale and,esser degree, private commerce has been encouraged by the CCP's conuner-cial policy and probably will continue to be. "Liberation" of the Yangtze Valley willyield to the Communists the huge eol-lection-and sale apparatus of the Central Trust and olher National Governmentthus reenforcing and firmly establishing the Communist state trading base.
Further, CCP acquisition of tbe Yangtzewill be an Important factor in curing the present paralysis of Internal commerce by restoring the normal Integration of the Central and North China economies.
xternal Problems. (a) Re<ruirTm/mls tn Foreign Trade. cotton, and the railroad, factory, and power equipment needed for reconstruction, are the principal imports that thewill require during tbe next year. amounts of any of these items will seriously hamper economic recovery Fuel-oll requiremenU can be met In part by the substllution of coal, which should bein quantity to the1 But kerosene, gasoline, lubricants and otherproducts which have no substitutes must be Imported. Current Chineseincluding aviation gasoline,illion barrels annuallyillion barrels would probablyinimumannual requirement, with fullof coal and with no Increase In the level of economic activity.
Reconstruction requirements for China areinimum reconstructioncalling for rebuilding China's prewar industry and railroads and perhaps one-half of Manchuria's peak industrial capacity, would require imports ofSQ0 million In Chinaimilar amount in Manchuria The bulk of the expense would be for railroad equipment; the remainder would largely be textde. mining, and power machinery and equipment. Reconstruction ofTen specialto the Communists since substantial credits or investments from the USSR areand there are severe political obstacles in the way of Western investments ln the next few years, the Chinese Communists will be confronted with the problem of paying for
their rehabilitation through their own efforts.
(h) Trade with (he USSR Sovietof Manchuria willajor fee tor in directing the course ol China's foreign trade In the next year. The Soviet Union willto take most of Manchuria's grain and soybean crops to meet the deficits of edible oils throughout the USSR and of food In the Soviet Far East Tbe total value of thesefrom Manchuria may well be In excess of US SKO minion annually, at world market prices. In China Proper, the USSR does not have the same dominant position with respect to foreign trade that It enjoys In Manchuria. Tbe foreign trade of China Proper Is more likely to be directed to the noo-Sonetbecause of tbe limited market In the USSR for such Important Chinese exports as bristles, processed eggs, handicrafts, and coal.
The disadvantages to China of the Man-churtan trade with the USSR derive largely from the cheap monopoly price that thehave been able to obtain on soybeans, the chief Manchurian export. Through Its control of the Manchurian railroads and the port of Dalren. the USSR has been able to prevent tbe export of Manchurian products to world markets. Necessarily, trade with the Soviet Union on such unfavorable terms tends to impair China's abUity to finance her essential Import requirements. In China Proper, the Communists will be freer totheir return by directing their exports to whatever country offers the highest prices. Exports to non-Soviet countries will provide the Chinese directly with the means needed to obtain essential Imports, such as petroleum, railroad equipment electrical and othermachinery, andwhich can be obtained from these countries more readily than from th* USSR
(c) Trade with the VS. The advantage of CCP trade with the West and with Japan lies in the character of China's Importand her exporl markets Theseparticularly apply to US trade, which, in the postwar period, has been the largest of any country's with China.
The US wouldajor source foecertain types of capital equipment, and vehidea li the US alone were excluded from trade, Japan, the UK. and othercountries mightortion of China's reconstruction needs but It te unlikely that these countries can make sufficient capital goods exports In the next year to satisfy all of China's requirements.
Not only will China probably be forced to depend on tbe US for essential Imports, but tbe market for many Chinese commodities, such as handicrafts, tung otl, and animal products Is determined by US demand. Were the US market eliminated. Chinas exports would be reduced substantially, her exportdepressed, and her ability to pay for needed imports greatly restricted. Chinas chances for economic recovery In suchwould be small.
(d) Prods with Japan, Smallercosts would permit Japan to outbid the world marlcet for many of China's exports. In the case of China's export of such bulk commodities as coal. Iron ore, and salt Japan would bt the only commercially Important feasible market In return, Japan could sell to China machinery and railroad equlpmaat which significantly would aid the CCP re-liabilitaudn program Trade, profitable to both countries, couldew years total0 annually, an amount which wouldubstantial portion of China's total foreign trade.
Although Chinese antipathy toward the In dustrial revival of Japanolitical factor rnilitatlng against such large-scale trade, it Is very likely that the urgent economicof recovery will override such an ob-jeeuon. Indeed, the CCP's Ministry ofand Commerce in Tientsin suggestedof Japan trade In April and Premier Yozhida has repeatedly declared that Japan "will and must" trade with China. Japan's market as well as that of the US, Is veryin the long run for the achievement of Chinese economic independence and
EMCIOSURE A
DISSENT OF THE INIEU (GENCE ORGANIZATION, DEPARTMENT
OF STATE
IntcJJJgmce organization of the Dcpart. ment of State dissents from the subject report on the grounds that It does not give adequate treatment to the Implications of thedesireommunist China for in-ternaUonal recognition. The treatment cero-
In accorded this highly complex and technical subject rcaxes for an orer-elmpllflcatlon which is considered unsatisfactory In view of thepolicy decisions Inevitably Involved In the present Chinese situation.
Original document.
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