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CiA HISTORICAL REVIEW PROGRAM RELEASE IN FULL
LIMITATIONS OF SOUTH CHINA AS AN ANTI-COMMUNIST BASE
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LIMITATIONS OP SOUTH CHINA AS AN ANTI-COMMUNIST BASE
SUMMARY
Thc deteriorating military situation of tlic Nationalist Armies In North China and Manchuria has faced the Chinese Government with the necessity of making plansuture base of operations. Aside from the remote districts ot the far west which are unsuitable for the purpose, the only area with relative stability to which the Nationalists could withdraw would be South China, Including Taiwan. It Is Inevitable, therefore,urther worsening of the military situation would force the Government to makeithdrawal in order to survive In its present form. That Chiang Kai-shek attaches great importance to this area is evidenced in thc assignment of ex-Premier T. V. Soong to the post of Governor of Kwangtung. Soong's principal mission in this office is to convert agricultural South Chinaegion which will be relatively self-sufficient and defensible from Communist attacks.
Although the South China region includes one of China's principal "rice bowls" and has many important natural resources such as coal, iron, and other strategic metals, which could make the present goal theoretically attainable, seeminglyobstacles stand In the way of its attainment for current Nationalist purposes.
Chief among them arc:
Time, Even with ideal conditions, it would lake at least several years to build all the necessary installations and to create an industrial organization which could efficiently make use of them. It is doubtful, as matters stand, that more than one year would remain of uninterrupted Nationalist activity after withdrawal from the North.
Food. South China, where the most intensive agriculture has been practiced for generations, isarginal area In food production. Willi the necessity of relying on the food resources of this region for thc maintenancearge army plus the enormous influx of refugees which would follow the Nationalist withdrawal from North China, famine wouldhronic threat. The food problem in South China may be mitigated, however, by rice Imports from Southeast Asia.
Overly Ambitious Planning. Rather than concentrateimited program which would deal with such basic elements as transportation, exploitation of valuable mineral deposits, and the full utilization of plants already built by lhe Japanese on Taiwan, the Government has seen fit to embark on overly ambitious programs and projects such as the "Five-Year Reconstruction Plan of Kwangtung Province" which have little possibility of success even though peace and prosperity attend the effort.
Disunity. The internal security of South China is threatened both by dissension within the Kuomintang and by the hostility of anti-Kuoniintang elements.
Note: The information in this report is as ofB.
The intelligence organizations of the Departments of Stale. Army, ami the Navy havein ihis report, the Air Intelligence Division, Air Intelligence Directorate. Department ol the An Fo:cc. had no comment.
CivU Conflict. Cessation of hostilities In the North would only move thebattlefield to Central China whence, despite distance and poor communications, it would eventually move to the South.
Capital, la the long run, the economic development of South China willa substantial volume of capital. South China does not have nor could It create the savings from which capital needed for development would have to be drawn. Foreign investments certainly could not be expected in sufficient amounts for the purpose, nor is contemplated US aid (much of widen the National Government intends to divert for the purpose) adequate under the present circumstances. Although thereossibility that some Investment capital from North China may be madeto South China, there is as yet no evidence that this has taken place.
In short, assuming maximum Communist capabilities, any contemplated retreat of Nationalist China Into the southern area wouldeasure of desperation which, under present circumstances, would offer little future safeguard from eventual defeat and collapse. Aid In the form of capital, food, equipment, and Intelligent direction could probably give the National Government reasonable chance of carrying onantl-Communist resistance from South China.
UMITATIONS OF SOUTH CHINA AS AN ANTI-COMMUNIST BASE
1. South Chinaational Government Refuge.
Since7 the economic and political stabilization of China south of the Yangtze has ranked high among the National Government's non-military objectives. Aside from the general advantages that Nationalist China would ordinarily derive from the stabilization of South China, this area assumes special significancease for continued operations of the National Government and from which Nationalist Armies can be supported in the event that North China should be lost to the Communists and Central China become an active military theater. The possibility that thefoothold In Manchuria and North China would be lost has, during the early monthsdded impetusense of urgency to the Government's plans for this region, which Includes the provinces of Yunnan, Kwelchow, Kwangsl, Kwang-tung, Kiangsi, Hunan, and Fukicn. Taiwan, although not on the mainland, plays an important and strategic role In the planning for this region.
Control over thc development of the most important area of South China has been placed largely in the hands of T. V. Soong. He Is not only governor of Kwangtung Province but, concurrently, is head of the military forces of South China, thus having authority which extends beyond the boundaries of the province.
The present discussion of South Chinaefuge for the National Government is based on the assumption that North China and Manchuria will be lost to theCertain concomitants of such an assumption will have an importanton thc potentialities of economic development, political stability, and military security:
the Communists take over North China, there is reason to believe thatwill continue with increasing Intensity against the National Governmentfarther south. This would mean that Central China would become theof the civil conflict, that Southheretofore operating pretty much onas-usual bastshave to be developed according to thc needs of aand that thc Government would have to continue its policy of deficitall the Inflationary results thatolicy implies. If thc area were toat all, the Government would have toarge share of the combatnow has north of the Yangtze. Although the present resources of the Southare probably insufficient to supply an army of adequate size to protect thatimports could be financed through the export of minerals and lung oil asthrough the use of overseas remittances.
Government would be faced with the serious problem of caring fornumber of refugees who would inevitably find their way intoThis influxarge group of unemployed, poverty-stricken, restlessstrain the existing delicate balance between food supply and populationcharacterizes South China and would intensify the problem of maintainingstability and internal security.
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Thc effort would require time, much of which has already been wasted. The National Government's efforts ofear have produced little more than schemes on paper. Even with continued military deterioration and the prospect that by the end8 the National capital may well have to be moved Into South China, nopart of the conversion plan has yet been carried out.
2. Economic Potential.
a. The Present Condition of South China's Economy.
Resources.
South China has ample deposits of many Important minerals. Itsdeficiency is In coal, the region having butf China's total.f the country's iron deposits are located in the area. Hainan Island's substantial deposits of high-grade Iron ore as well as small deposits of Iron andreserves of coxing coal close to the rich antimony, tungsten, and manganese deposits of Hunan and Kiangsi Provinces provide basic conditions for the developmentteel industry. In addition to the above, South China has plentiful tinewly discovered small supply of bauxite accessible to the aluminum production plants on Taiwan. There have been unsubstantiated reports of uranium deposits in Kwangsi.
In contrast, however, to this favorable mineral position Is the production recordetric tons ofetric tons ofetric tons of antimony; negligible output ofons of coal, all from the Hunan mines; and insufficient iron to support even minor industrial activity.
Although Hunan Province is one of the great "rice bowls" of China, its surplus barely makes up for the food deficit of Kwangtung Province. Even in times of peace and relative plenty, the food output in the other provinces of the region is barely sufficient to maintain the populationubsistence level.
Should the Nationalists retreat from the North, however, the richland of northern Hunan, Kiangsi, and Chckiang, although south of the Yangtze, would be exposed to the Central China battle zone and would thus be beyond theof peaceful territory under Nationalist control. The pressure of population against the food supply would also be aggravated by an influx of refugees. Thc region's foodwould furthermore have to supply the Nationalist military forces thathave been primarily maintained by the output from Central China. The resultant food deficit would be catastrophic, unless large-scale food imports from Southeast Asia could be obtained.
To mitigate this prospective disaster the National Government would have to make attart on the institution of land reforms, the construction of large-scale flood control and irrigation projects, the Increase in the production of chemical fertilirer, and the utilisation of hitherto neglected but arable land in the western part of the region. II is very improbable that such reforms could be achieved during the period of present concern.
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ransportation.
Although waterborne traffic is often Interrupted by bandit operations, the rivers and canals present the greatest Immediate possibility for the large-scale movement of persons and food.
There arciles of rail lines in operation on the mainland of South China. The Canton-Hankow Railway Is in very poor condition, but Is In limited service throughout its length; the Chcklang-Kiangst line is operating through most of Its length; the Hunan-Kwangsi-Kwelchow line Istate ofand is operating over approximately three-fourths Its length. Taiwaniles of operating railroads. The shortage of fuel, the deteriorated rolling stock, and thc continuing bandit activity, however,onstant threat to the operation of all lines.
(c) Highways.
Most of the roads in South China are primitive and still bear the scars of the extensive damage suffered during thc war. The high cost of highwayand the lack of motor vehicles characteristic of the whole region, limit the usefulness of whatever highways exist.
anufacturing.
Although thereide variety of manufacturing activity in South China, most industrial operations aremall scale and utilise Utile or no power-driven machinery. Electric power output is barely adequate to supply the needs of existing Industry. Throughout thc region there are few plants now in operation that are large by Western standards. By far the greatest proportion of manufacturing plants In the region produce consumers' goods.
Hunan, Kwangsi, Kwelchow, and Yunnan Provinces became centers of wartime industrial operations as the Japanese penetrated deeper into China's interior. Many of the factories established in South China were moved from the east coast, many others were constructedakeshift fashion from salvaged machinery and equipment. These plants are high-cost, inefficient producers which probably cannot operate without continued government subsidies.
There has been little actual improvement, if any, in the general industrial situation since VJ-Day. Many of the factories in this region have had increasing difficulties in obtaining raw materials and power. Funds that may otherwise have been invested in industrial expansion have been attracted into lhe profitable black-markets for US Dollars and gold.
One step toward increasing the output of important manufactured goods In South China Is the recent agreement between the Reynolds Metals Company and the National Governmentesult of which the contracting parlies will Jointly operate the aluminum plants of Taiwan. The efficient operation and expansion of these plants In conjunction with the exploitation of the readily accessible Fukien
bauxite reserve should permit the operationrofitable aluminum processingIn South China. Thc lack of fabricating capacity to this region, however,erious handicap in the development of an integrated aluminumoreign Trade.
Current exports from South China are considerably below the prewar level, although tung oil and strategic minerals, such as tin, antimony, and tungsten are In world-wide demand. Clearly, any program of economic development shouldthe reconstruction of those industries which could be Important suppliers of foreign exchange
Overseas remittances were the key factor In compensating for China's chronically adverse balance of trade before the war. In some prewar years totalreached an equivalent of0 million per year. Since most overseas Chinese emigrated from South China, the largest share of the funds flowed into this region and represented an important factor in South China's economy. Alter thcof war tht value of remittances declined. All in all, however. South China's situation with respect to International trade is probably better than that of Chinahole.
he Future Possibilities of South China's Economy.
In addition to the improbability of Increasing food output to an adequate level and the bankrupt position of the National Government, South China sufferserious lack of investment funds. Private Chinese savings cannot furnish such funds; foreign investment Inrecarious project is unlikely (recent investment by the Reynolds Metals Company and the Weslinghousc loan for the production of aluminum in Taiwan areemittances from overseas Chinese have fallen off from the prewar level. Thc only substantial amounts of capital which thecon now count on for the development of South China are reconstruction funds earmarked from the US Aid Program. Movement of many industrial plants from Shanghai to Hong Kong rather than to South China Is symptomatic of the general lack of confidence in thc future of the Chinese National Government. In short, future possibilities of South China's economy are dubious.
3. PaospxcTS roa Political Stability.
T. V. Soong was appointed Governor of Kwangtung Province and Director of the President's Canton Headquarters inresumably, his objective Is toodel administration which will not only serve the National Government In its military activities against the Communists, but will also counteract the Communist program's appeal to the underprivileged and Impoverished masses of thc region
Allhough Soong has been granted extensive military as well as civil authority, there Is some doubt as to his actual power. Aside from the presence of armed bandits and Communist guerrillas In Soulhuthority is threatened byof the Provincial administration which he superseded, by dissident Na-
See Scclionspkcts ion Military Sreupuiv. lor dlMusslon ol bandit and Communist elements.
Uonallst elements who have refuge in Hong Kong, and by the machinations of anti-Soong cliques within the Kuomlntang itself. Tendencies toward separatism are deeply rooted in South China, especially ln Kwangtung and Kwangsi.
Soong has experienced some difficulty with old officials, who have continued to occupy posts in the new Provincial administration. Many of these have obstructed Soong's efforts toward reform and bandit suppression. In addition Chang Fa-kuei. the superseded Headquarter^ Director, has endeavored lo undermine Soong's position. Chiang Kai-shek has attempted to placate Chang Fa-kuei and recently has induced him to leave South China for an honorary, albeit ineffectual, post in Nanking.
Hong Kong hasenter of anti-Kuomintang propaganda and operations. The political refugees of Hong Kong havetrong influence on powerful elements ln South China. That Soong regards the activities of these groups as troublesome is disclosed in the fact that he recently initiated calls on two former Kuomlntang leaders who are powerful advocatesoalition government composed of liberal elements and Communists. Subsequent activities of those persons indicate that Soong wasln his efforts to bring them back into thc Natlonahst fold. It is also possible that Soong, In his contacts with these dissident leaders, was endeavoring to secure their cooperation and support,iew toward thc establishment of an Independent regime ln South China in tlic event of the collapse of the National Government. It is unlikely, however, that Soong will be disloyal to the Nanking regime so long as itfairly effective and is the Internationally recognized government of China.
A serious obstacle In the way of political stability in South China stems from power politics within the Kuomintang. The ultra-conservative CC Clique is active Inand has been Interfering with Soong's Provincial administration. The recent anti-British disorders in Canton are reliably reported lo have been Inspired, at least in part, by representatives of the CC Clique for the purpose of embarrassing Soong. This group has also been exerting pressure for economic advantages In connection with Soong's plans for Industrial development of the region.
Another source of difficulty with which Soong must cope is the attitude of the other provincial governors In South China In particular, the governors of Hunan. Kiangsi. and Kweichow are supporters of General Chen Cheng, former Nationalist Chief of Staff, who has been unsympathetic toward Soong's activities in lhe South.
The establishment of close ties between the economies of Kwangsi and Kwangtung Is pari of Soong's plans for lhe economic development of the region, but leaders of the former province have always been characterizedarge degree of independence and intractability, thc present Governorarry-over from the old war-lord regime and has been reported hostile toward the National Governmeni In Yunnan the war lord Im Han is once more In authority and is unlikely to cooperate In any plan which will sacrifice his provincial powers to the National Government
The possibility of maintaining political stability in South China in the event that active fighting spreads to areas throughout the Yangltc Valley cannot be appraised without consideration of lhe refugee problem that would inevitablyommunlsl military advance Into Central China. onsiderable number of home-
V
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less, restless, and unemployed people, with dialects and customs strange lo the South, woulderious problem of Internal security to Soong and the National
Even though Soong possesses uncommon talents for business and administration, It seems most doubtful that he can go far enough toward reconciling the Interests of thc many diverse groups now working against each other and consequently against the National Government
4. Prospkcts fob MlLITABY SrCUWTT.
The basic reason for the Chinese Government's present emphasis on the economic possibilities of South China is Its isolation. In terms of distance and poorfrom currently active theaters of civil hostilities. In planning for the economic development of South China, the Government Is undoubtedly assuming that it can continue to exist even If North China were lost to the Communists and Central China becomes the principal combat zone. Yet, in addition lo thc economic and political weaknesses described above, military limitations make It questionable whether the National Government could assemble and maintain In South China sufficient armed power to effect continued resistance against the Communists. Internal securityposed by bandits and malcontents combined with pressure from the Communist Army would require that the National Government support in Southilitary establishment quite beyond the sustaining capabilities of the area.
That this region even now has serious problems In maintaining internal order can be seen in the fact that In several provinces Gov. Soong has had to place "bandit suppression" before industrial development. These bandits, some of whom are already oriented toward thc Communists, represent the nuclei of valuable potential Communist troop strength It Is believed that Communist organizational cadres and fifthhave already infiltrated the area and have begun to lay the groundwork foractions. The Nationalists, who at the beginningad0 tactical troops In this sector, have been largely unsuccessful In recent local conscription drives.
It Is obvious that if the National Government Is to mobilize South Chinaastion of anti-Communist resistance. It will be necessary for them to evacuate into theonsiderable portion of theationalist combat troopsin the area between the Yangtze and the Yellow Rivers, as well as part ofombat troops in North China. Several factors militate against this. In the first place. Nationalist military command has typically shown reluctance to abandon any city or region occupied by Nationalist troops oven when it is tactically feasible to do so. This reluctance stems, at least partially, from the belief that the denial of these places to the Communists fulfills astrategic end as could be served by the deployment of these troops in other sectors of China Secondly, the difficulties involved in either overland or waterborne transportation would place severe limits on the number of men and the amount of materiel that could be transferred. Thirdly, the maintenancearge active army Is, as indicated, beyond the present or anticipated food and in-
Sj^ET^'
dustrlal capacity of SouthThis is especially true If South China Is deprived of the resources from the rest of China which, conversely, become available to theTherefore, It Is unlikely that the Nationalists will choose to evacuate or, when pressed, be able lo evacuate, any significant number of tactical troops from present combat zones. They will probably continue to garrison important cities and main rail lines while the Communists envelop such pockets. Isolate and destroyunits, disrupt communications, and continue their economic pressure on the Nationalists, thereby gradually reducing the latter's capabilities of resistanceChina.
On the other hand, the continued and effective resistance of Nationalist armies supplied from South China depends on substantial shipments from overseas: rice from Southeast Asia, coal from Indochina, food and Industrial materials from Taiwan, raw materials, manufactured goods, and possibly military supplies from the United Stales. It Is likely, then, that Uie NaUonalists will attempt, at all costs, to control the areas along the South China coast
If the Communists should halt their advance north of the Yangtze In order to consolidate their gains beforeeneral military movement Into South China, the Nationalists In South China, because they possess very limited capabilities of sustaining resistance to existing Internal pressures and Inevitable Communist attack, would still require external support.
RET
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Tho
Secretary of
Chief ol Staff lo Commander la Chief
Secretary ot Defense
Secretary of tbe Army
Secretary of tbe Navy
Secretary of tbe Air Force
Executive Secretary, National Security Council
Chairman, National Security Resources Board
Chief of Staff, US Army
Chief of Naval Operations
Chief of Staff, US Air Force
Director ot Plans and Operations. General Staff, US Army
Deputy Chief of Naval Operation* (Operations)
Director of Plana andB Air Force
Special Assistant to tho Secretary of State, Research and Intelligence
Director of Intelligence, General staff, tjs Army
Chief of Naval Intelligence
Director of Intelligence, US Air Force
Secretary, Joint Chiefs of Staff
Secretary, Joint Intelligence Oroup
Secretary. Btate-Army-Navy-Atr Force Coordinating Committee
Ex ecu tiro Secretary, Military Liaison Committee to tha Atomic Energy Commission
Director of Security and Intelligence, Atomic Energy Commission
Chief, Acquisition and Distribution. OICD. Department of Stats
Original document.
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