Created: 3/11/1964

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Proipecti for the Government




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of me soro-el tenrtfy Agency


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Thli material contain! Information affecting the Natfonol Defenia of the United Statei within the meaning of the etplonage Lawi, Tlrle IB. UK, lea. 7P3, the tram-mliilon or revelation of which In anynpereen li prohibited.


Prospects for the Government of the Republic of China







The ORC vi. Communist China

Economic Problem*


Internal Security Problem*


The Problem of

Foreign Relatione










Inventory of Aircraft and Miss

by Configuration and


Chines* Air Force, ORC. a




To analyze the problem* facing the Government of theof China (QRC) and to estimate ita prospects, withconsideration of implications for the US.


recognition of Communist China, togetherabout the strength of the US position in the Far Eastfirmness of US Far Eastern policy have further damagedand confidence of the Government of theowever, we believe that, unless the ORCbecomes convinced that the US la abandoning Taiwan andcausa in the Far East, the ORC will livesetback relatively intact and that It is also Ukely toblows arising from recognition of Pelplng bypowers anditter struggle over the UNThe possibility cannot be excluded, however, thatadical change in the makeup or policiesORC. )

setbacks, however, will reduce the elan andthe regime. Mistrust and misunderstanding between thethe US are likely to Increase, and It will be increasinglyfor the US to influence the ORC toward building upof Taiwan. The QRC will continue to maintain aestablishment and to proclaim its status as solegovernment of all China. )

C. The ORC's internal security Is generally good and is likely to continue effective. There has been rapid economic growth and continued progress is likely, although it will fall considerably short of its potential, and unemployment la likely to be anserious problem. There will almost certainly be strong pressure from the ORC for sustained or even increased USand military aid. )

D. There Is likely toontinuing decline In the ORC's International status with more states establishing economic and diplomatic relations with the mainland regime. As this process goes on, there will be an Increasing tendency for the US to be isolated In its support for the ORC as the government of all China. Much of the world will condemn the ORC's effort* to press its claim to the mainland as endangering peace and order in the Far East.



For many man tha thi leader* of ths Government of the Republic of China (QRC) have been depressed by the prolonged frustration of their hopeseturn to ths mainland andeeling that aopportunity may have been missedors recently their gloom has been increasedonviction that tha US anti-Communist position Is deteriorating dangerously In Southeast Asiaoncern that US policy la shiftingeduced US commitment in Asia and to the acceptance of twoommunist Chinese mainlandree Chinese Taiwan.

French recognition of the Chinese Communist regime, which was announced rather abruptly onerious blow to the ORC. Ths line against recognition of Pelplng, which had generally been held effectivelyas for ths first time ruptured by aWesternNATO ally of thathe face of what the world Knew as strenuous US opposition The ORC's International status was undermined and the specterritical shift of worldto Pelplng was raised. Leadership confidence was further shaken1 January incident Inrominent major general exhorted, albeit unsuccessfully, the First Armored Division to move on Taipei and seise the government.

ths past several years the situation on Taiwan has beenstable; changes have come only slowly. There appeared tofor tha ORC gradually to adjust, If necessary, to an Indefiniteof Its hops* of reluming to tha mainland and to aor its claims to be the legal government of all China.particularly the French recognition of Pelplng, havepace of events and reduced drastically ths time for adaptationcircumstance*

hafew weeks have depressed the morale and confidence of the leadership and for the first time In several years have raised the possibilityramatic change In ths makeup of the reglm* or in Its basic policies. We believe, however, that, unless the ORC leadership becomes convinced that the US Is abandoning Taiwan and the antl-Communltt cause in the Far East, the ORC will weather this setback without radical changes Over the year* the ORC ha*apacity to adjust to serious blows to It* hope* and ita prestige, and we believe It will continue to do so as long a* It has the Ann backing and support of the US. Discouraging as the leaders may find their current

situation on Taiwan, they probably cannot realistically perceive any alternativea more attractive than their present couree of hanging on and making the beat of it.

ven though we believe that the ORC will aucceeafully weather the current situation, more nations will recognise Peiplng and there are likely to be bitter and possibly humiliating battles over ths UN seat. The possibility cannot be ruled outrisis might precipitate some drastic action that would basically alter the situation on Taiwan. It Is unlikely that Chiang would withdraw, either retiring on Taiwan or moving to some foreign haven. If, however, for any reason Chiang were removed from the scene he would almost certainly be succeeded bymainlander regime, since the Taiwanese lack the organisation or leadership to make an affective bid far power.oup should occur, It would almost certainly come from within the mainlander military leadership. Other possibilitiesove to accommodateesperation attack upon the mainland. We believe both these last alternatives highly unlikely, although support for such moves could develop among mainlander groups should they coma to believe that all hopeeturn to the mainland seemed otherwise lost.

while drastic action of some sort must be considered aIn some future crisis, we believe it more likely that thecontinue basically intact and carry on essentially alongSuccessive crises wilt take their toll, however, from the Alanof the regime. Its problems will be Increased and lisbe less curtain than It has appeared over the past decade or so.


The Confinuinp cipfl War. The unfinished Chinese civU war has dominated tha thinking of the ORC leadership for two decades and it will continue to do so. Tha ORC tenda to evaluate international and domeattc events according to their effect on the relative poaltlons of tho ORC and the Communist regime. The ORC's claim to be the legitimate government of all China sustains Its morale, givesense of purpose, andustification forational government over the provincial government of Taiwan and formaximum military forces. We do not believe that Chiang Kai-shek or any of those In line to succeed him will openly accept for the ORC tha statusovernment of Taiwan without claims to thsbut they may in practice adjust to an indefinitely prolonged existence In Taiwan.

Ofjihort 'stands. The Klnmen and Matsu Island groups areas early warning outpost In the defense of Taiwan, but their greatest

Importance for the QRC isink with the mainlandymbol of successful defiance of Communist power, since they are historically part of mainland Fuklen Province.hird of the army'sstrength Is stationed on these Islands, the forces are well dug In, and morale appears high. The QRC uses Klnmenhowplace for visiting American officials and overseas Chinese and for youth leaders from Taiwan. The QRC by Itself could noteterminedeffort from taking the offshore islands, but It could make the action very costly to the attackers. Under present circumstances, It Is not certain that the Ufl could Induce the QRC to abandon these Islands even by the use of measures so drastic as to risk wrecking UB-GRC cooperation and destroying the morale of the QRC.

elation* with Communut China, The QRC maintains no official contacts with the Communist regime, which It considers an Illegal and temporary usurper of power. Taipei Is as nationalisthinese as Is Pelplng, and It finds Itself In basic agreement with some of Pelplng's Internationally unpopular policies such as the assertion of Chinese authority In Tibet and the defense of Chinese border claims on the Indian frontier.

The Pelplng regime hasort of informalwith the ORC leaders through radio broadcasts and open and secret letters. Hong Kong Intermediaries claiming to represent Pelplng have also been In touch with Taipei authorities. Up to the present time, we have no evidence that Chinese Communist offers have elicited any positive response from QRC leaders. In spite of the Increased sense of frustration and discouragement that has developed in recent months, there Is no evidence that any significant number of malnlanders in Taiwan have been led to consider Joining the Communists as analternative. While the Communists have tried to exploitbetween the Taiwanese and the Kuomlntanghey have had little or no success in converting the Taiwanese to their causefeeling against the QRC is not pro-Communist butentiment pelplng haa no wish to encourage.

ajor change in UB policy, we do not believe that malnlander susceptibility to Chinese Communist blandishments will increase significantly. Even the detonationuclear device by the Chinese Communists would probably not change things greatly. The chief effect on the QRC would likely be demands for renewed assurances of US protection and an Insistence that the imminenceommunist nuclear capability makes Inescapably clear the need for prompt action against the Communist regime. Although the QRC would continue to rely primarily on the US for protection. It mightequest for nuclear weapons.

Small Operation* Agatrut the Mainland. For tome time to come the chief form of contact between the twoside from thewar, la Ukaly to remain amall-untt raids and penetration attempts by the ORC. The latter have failed totally toew minor sue ceeaea have been scored by small raids In the near future, at least, raids upon Chinese Communist shipping and Isolated coastal outposts are likely to receive Increased emphasis.

Invasion Attempt. In the past two or three years, Chiang haa stepped up preparationsarge-scale attack on the mainland and talked publicly of launching an Invasion very soon.2 even the Chinese Communlata took hla threats seriously enough to deploy large reinforcements into the area near the Strait. (The magnitude and vigor of their reaction indicates they believe the US was backing Chiang'shiang's past record of military conservatism and histo the US. however, argue against the likelihood of hisan Invasion attempt without L'8 support. On the whole we con-alder It highly unlikely that he will do ao. Nevertheless, we cannot rule out the possibility of an Invasion If Chiang should come to feel that conditions on the mainland had reachedoint that he could make enough headway either to enlist US support or carry the day without it.

ilitary Capability. The ORC has available armed forces ofRC ambitions notwithstanding. USaid has been designed to ehape this force along defensive lines for the protection of Taiwan and the Panghua The ORC's capability to lift forces across the Strait by sea and air la limited and it lack* bombers and other Important offensive weapons. The ORC has sought tofor these limitations by domestic production of such items as landing craft and by trying to buy abroad parachutes, landing-craft components, and possibly helicopters. It has further given training to special forces beyond those supported by tha US. Although aome progress has been made In Increasing lift capacity, we believe the sum total of these efforts has not made any significant Increase in Its) Invasion capability.

IB. Implication! for Economic Development. Preparation for anof the mainland and the economic development of Taiwanfor the regime's limitedhiang Ksl-shek is reluctant to divert hi* interest from military preparations to economic problems, Primary responsibility for the economy devolved until recently upon Premier Chen Cheng and his Cabinet and technicians. Uany of tha policies which have helped economic growth are the result of patient and persistent urging by American advisers, working with such officials

' This ftaurearae number of Doncombeunt personnel. See Annex for further InformaUon on the armed forces.

os C. K. Yen, formerly the Finance Minister and now the new Premier. Yen's appointment as Premier would appear on the surface to bode well for future economic policy, but the net effect of his appointment may be the oppoalte. Yenechnician with no independent political strength, and he la probably less able than Chen Cheng to push crucial economic programs.

fl. Economic Problems

conomic Growtn to Date. The economy's performance over the past decade has been generally Impressive. Industrial production more than trebled33 and agricultural production was up aboutercent. Heal national Income doubled and per capitarose at an average annual rateercent, reachingigh by Asian standards. Exports doubled while Import* rose by less thanecently favorable world sugar market helped build up gold and foreign exchange reserves, which reached2 million by the endaiwan'sillion peopleupply of hard working, low costnd considerable managerial skills and enterprise are available.

Trouble Spots. Continued economic progress Is threatenedopulation Increase of about threeear. Witheople per square mile, Taiwan Is already one of the most denselyareas of theituation rendered worse by the fact that onlyhird of the Island la arable. The regime has madeentative approach to population control and such programs as may be undertaken are unlikely to have much Impact in the next several years.

Directly related to the population problem la that ofwhich laerious problem. Even If the hoped-for six percent annual growth In Gross National Product (QNP) continues, unemployment will probably get worse.4ill enter the labor force with jobs expected for leas than half this number.Indicate that8 only one-third of the new employables will find regular work. Large Increases In the labor force over the next five years reflect the fact thatercent of the population Is now underears of age. In addition to unemployment, underemployment Is widespread, with resultant low labor productivity and raised production costs. Any effort to alleviate unemployment by spreading the work among more employees would raise production costs and thus make Taiwanese products less competitive on the world markets.

There has also recentlylowdown in the Investment growth rate. Total gross Investment3 was aboutercent of QNP, compared withercentumber of factors tend todomestic investment,izable amount of domestic capital

Ii lying Idle. The antiquated financial system ia adapted to the old family system of enterprise and lacks the suppleness to cope with modern corporate business. It la difficult to obtain loans for private Industrial expansion: gaining bank and government approval is time consuming and entails considerable petty graft, unreasonably highIs demanded, and interest rates are very high. The administration of taxation, allocation of raw materials and Import permits, and various bureaucratic regulations, tend to favor government enterprises and handicap private Initiative. Although the tax system has beenInefficiencies remain which tend to discourage expansion and long-range development.

80 the ORC tried to raise the previous low level of foreign private Investment by passing very liberal laws on foreign Investment. Such Investment had begun to rise markedly In response to the liberalization,hen the ORC temporarily adopted the Special Defense Assessment (Increased taxes and utilityhese, along with signs of st*pped-up military preparedness and the developmentar psychology, contributed0 percent drop In foreign Investmentompared. There was an Increase In Investment In the last half

0 the US has extended aboutillion In aid, some of which Is stUl In the pipeline. Of this amount, military aid haa accounted for6he ORC has made effective use of US aid, which has been an essential Ingredient In Taiwan's economic growth.he US began to shift to long-term loans at Interest and away from grants and "soft"S decision to phase out the latter completely over the next few yearshis decision was based on the belief that by then Taiwan could sustain Its economic growth by relying on International lending organisation* and private foreign investment. Military aid andhipments were to be continued, although at unspecified levels.

Over the past several years military expenditures have accounted for overercent of the total national, provincial, and local budget* and overercent of the national budget. The current defense-budget of6 million Isillion leas than last year's. It remains, however, at about the same percentage of governmentsince the overall budget was smalleresult of reduced domestic revenues (chiefly the ending of the special defenseand reductions In US aid. It is unlikely that the share of QNP devoted to the military over the next few years can be decreased, even If QNP should Increase rapidly. Military expenditure* are likely to increase at least as rapidly as national Income, primarily becausetrongly felt need for maximum militaryut also for other reasons, chiefly the widely held view that force cuts would add to the already serious unemployment problem.

Hypersensitivity on the subject of Communist China has Involved the ORC In damaging disputes with Its trading partners. This problem has been greatest in the case of Japan, whose Increasing contacts with Communist China greatly agitate the ORC. Exchange of tradeand Increased Japanese sales to Peiplng, especially thatomplete vinylon plant, led In3 to the stoning of the Japanese Ambassador's home In Taipei, recall of the ORC Ambassador,RC threat to break relationsermanent Chinese Communist trade mission were accepted by Japan.upture of Japanese-ORC trade relations, the ORC would be the chief loser.rade with Japan accounted forercent of the ORC's imports andercent of Its exports. (The US Is the ORC's only other trading partner of comparablerade with the ORC, however, only accounts for about two and one-half percent of Japan's exports. Already Japanese Investment inof ths largest sources of private foreignbeen practically stopped by anti-Japanese pressures there. In recent weeks, since Prance's recognition of Peiplng, the QRC has begun to value Japanese friendship more highly, and Japan's protestations against ths recognition action were greatly appreciated in Taipei. Nevertheless, It Is almost certain that trade and otherbetween Tokyo and Peiplng will grow In the near future and willource of troubles.

Economic Proapacta. In spite of the economic problems facing the ORC, Its economy has sufficient momentum and basic strength to continue growth for some time even In the absence of economic reform. If certain economic reforms were made, notably those which wouldthe financial system and Improve government administration and the tax structure, thus encouraging foreign and domesticTaiwan's prospects for rapid economic growth would be good. However, even under the best circumstances there will be seriousarising out of ths high rate of population growth and increasing unemployment.

aiwan's resources are proportionally comparable to those on which the Japanese economy Is based. Toelf-sustaining growth along Japanese lines, however, it would be necessary to give economicore Important place in the nation's planning and to take vigorous action to remove some of the Inhibiting factorsabove. The danger is that the ORC leadership, for essentially political reasons, may not only fall to do this but may actually take steps that will further slow down growth, such as the devotion of an even greater share of resources to the military, Imposition of new taxesto Investment, or actions in the international sphereto Its foreign trade and the flow of foreign Investment.

hui. the future of the economy laonsiderableolitical question. Tha allocation of sufficient resources to economic Investment and the achievement of the needed reforms would require changes In some long-held views of the top leaders, as well a* the over-comlng of considerable bureaucratic Inertia Olven these factors, we believe that tha ORC will not make the moat effective use of ItsIn meeting tha demands placed upon Its economy by rapidgrowth, the rlalng expectations of Its people, and reduced US aid.

C. Internal Security Problem!

nt&Tnal Security. Chiang Kai-shek haa shown extraordinary virtuosity in manipulating Internal security oontrols. Despite the fact that his Is.ense, an alien rule Imposedative majority, he has kept the situation on Taiwan completely under control without resorting to mass arrests or open terror. Although he has been ruthlessumber of Individual cases. Indirect means have generally been adequate to correct any worrisome deviations from authorised behavior. For example, editors who stray from the line suddenly find newsprint impossible to acquire, or they become entanglederiea of paralysing lawaulu. Only the most flagrant violators are liable to be Jailed, and even then it is for some other charge than the actual crime ofviolation. The various security forces are ubiquitous andany sort of organisation that threatens even remotely toeal opposition to the regime is found out and neutralised before It can gather momentum. Neither Communist subversion nor Taiwanese separatism has made any significant headway.

his lack of organised opposition testifies more to the regime's skillful controls than to Ita popularity. The Taiwanese who form nearlyercent of the population, continue dissatisfied under maln-lander domination At present their political role is pretty wellto local offices and the lower branches of the bureaucracy. As time paasee, the political aspirations of the Taiwanese are likely to Whether to try to control these aspirations by Increasedor by providing for greater Taiwanese participationrowing problem for tha ORC leadership. Chiang reststa any suggestions that the Taiwanese should bereater role, probably feeling that such action might whet rather than satisfy the Taiwanese appetite, and, more especially, that It would undermine the back-to-the-malnland rationale. For these reasons, further concessions to thawill be very limited and carefully hedged. There Is some danger that growing protest will bring forth more severe, less veiled suppression which In tum might breed more bitter opposition.

he drop in leadership morale and aelf-confidence which hasdeveloped may give rise to security problem* Increased sus-

plclon and sensitivity to poulble opposition Is likely to result In tighter, leu subtle repression, which In tum may Increase antipathy toward the regime. If the sense of frustration and hopelessness among the main-landers, especially In the military, continues tooup attempt willossibility even after the Immediate crisis has passed.

D. Tha Problem of Succession

The effect on the QRC of the demise of Chiang Kai-shek lato estimate.onsiderable degree Chiang Kai-shek Is the ORC. both to his own people and to the world at large. No one else has had final responsibility in the KMT. the government, or the armed forces for the pastears. During this time Chiang haa learned much and has perfected his skillsubtle and generally benign dictator. His regime has been an extremely personal one built upon personal loyalties rather than upon forms and institutions. Even If the succession takes placeegular and orderly manner, the teak of his successor,ha is. will be extremely difficult.

President Chiang is in exceptional healthannd he haa not revealed any plans for his eventual replacement. Nevertheless, the quaatlon of succession has alreadyactor in current politics. Until the latter part oft was generally considered that Chen Cheng, who was both Vice President and Premier, would aucceed Chiang Kai-shek with the letter's powerful son, Chiang Chlng-kuo, biding his time while nominally supporting the more elderly and ailing Chen. During the past few months, however, Chen's status has undergone conspicuous decline, spotlighted In early December by the president's acceptance of his resignation as Premier and, more recently by his being Ignored inesponse to French recognition of Pelplng. At the same time. Chiang Chlng-kuo, has com* mors into the foreground. In the late lummar3 Chiang Chlng-kuo made an official trip towhich was followed by considerable and unaccustomed publicity upon his return. During the ninth KMT party congress In November, the younger Chiang played an Important rot* and arranged the election or appointment of many of his followers to the KMT Central Committee,

he Generalissimo appears now to be grooming hie son more openly a* nil eventual successor. However, with Chan Cheng ctllias Vice President and Deputy Director of the KMT, hetlll likely to be at least titular successor should Chiang Kal-ahek die before hi*term expire* inn any case, tha passing of the Qenarausiimo will sharply Increase the danger ofhe ORC. The extent of this danger and the direction from which It might come will depend upon how the regime survives and how morals and unity are affected by external events In the months ahead.

E. r' Relations

Oeneral. The dominant theme of QRC foreign relatione has been the ttruggle to preserve as far as possible the regime's status as the legitimate government of all China Essentially, this has entailedInternational recognition of the Communist Chinese regime and protecting the ORC's title to the China seat In tha UN Oeneral Assembly and on the Security Council.idely held feeling thatChina should be recognisedact"esire to try to bring It Into the society of nations, the majority of nations has withheld recognition. This has beenesult of US pressure, aided attimes by blatant aggressiveness on the part of Peiplng Voting on the China Issue, posed In various forms In the UN. has roughly followed the pattern of recognition.

Pelplng's recent breakthrough In winning recognition from Prance has seriously threatened the ORC's prospects for holding on to Its position. There has notush to follow the French precedent, but It haaumber of countries to consider recognition of Peiplng, and erosion of the ORC position has been almost certainly accelerated.

SB. Africa, Taipei's chief successes In the put few years haveIn Africa. Until recentlyfrican nations have had diplomatic relations with the ORC as against IB with the Chinese Communlata. This record result* from an energetic diplomatic offensive, which has been supportedmall, but effective, agricultural assistance program. Success ha* been most notable among the former French colonies In contrast with tha former British areas, which have generally followed London's example In recognising Peiplng. Only one of the former French colonies (Congoas as yet followed the French example.umber of others are considering recognition and Dahomey appears headed In that direction.

he United Xalums. In ths past three years, ths UN has voted on resolutions which have combined the demanda that the Chinese Communlata be seated and that the ORC be expelled. Over the three years Peiplng haa won only four new votes In the Oeneral Assembly comparedain of nine for the ORC. This strengthening of the ORC position represent* very largely the vote* of nsw African nations. French recognition has improved Pelplng's proapacta for4 session or the Oeneral Assembly, but it Is not certain that Communist China can win majority support even then If, aa la likely, the question I* put In term* of denying representation to Taiwan. The growing sentiment for "two Chinas" is such, however,esolution which Invited Peiplng without expelling Taiwan would probablyood chance of getting majority support. Although Peiplng would slmost certainly not accept an Invitation on such terms, serious complications would enaue,the possibility that the QRC might quit tha UN In protest. In any

cue, future action In the UN on the China queatlon will be greatlyby what happen* betwsan now and the next General Aaaembly uuion, including the behavior of Communlet China and the ORC.

ST. southeast Asia The QRC ha* had little Impact, either economic or political, ona, although It ha* been active In Thailand, South Vietnam, and among th* rightist* in Lao* Continued contact with the remainingrregular* In the Thai-Hunna-Laos-Yunnan border ana* hold* little prospect for gain and considerable danger to US relation* with Burma. The overthrow and assassination of Diem andn South Vietnam. Ilk* the earlier overthrow of Rhea in South Korea, caused discomfort and worry In the ORC and Increased itsof the US. Southeast Asia Is now leu important to the ORC as an area of operation for ORC foreign policy thanarometer of anti-Cornmuniat effectivenau and US determination.

3B. Relations usith the VS. Because the ORC is heavily dependent upon the US. It maintains an intensive watch on US politics and policy. ORC leaders display an extreme touchlneuS official men-lions policy toward either ths Chinese Communist* or the ORC. Taipei fears that the US may be embarkingtwo Chlnu" policy and even that the US may be planning to cut Its commitments sharply In Asia. Continued US preunce in South Vietnam ha*nything to assure tha ORC leaders that the US Is willing to commit Its troop* and assume risks to stop the spread of communism In the area.

aipei Is disturbed by any apparent improvement of US-Soviet relations, and only reluctantly Joined In signing the Test Ban Treaty. The ORC leaders felt that they should not be associated with the Soviet Communlsta in any treaty, and that US initiative In drawing up the treaty reflected naivete In trusting the Communists. They may have feared that the treaty would leadessening of tensions, which would adversely affect the ORC hope of regaining control over the mainland.

he US and the ORC differed over the proper response to French recognition of Communist China. Chiang took the "position thatpriderompt aevaranc* of relatione with France and had decided to do so. Strong US urging ledemporary reversal of policy with the aim of forcing Pelplng to expose its unwlllingneu to establish relationstwo Chinas" basis and forcing France publicly to sever relations with Taiwan in response toemand. The Arst aim wa* achieved, but two week* later the ORC's prideo respond to an oral representation by the French charge at Taipei, which amounted to severance of relations, by publicly announcing the ORC* break with France, thus relieving the French of the need to make the open break. This divergence of view a* to proper policy hu abraded ORC-USn effect which wu increued by Taipei'* public

announcement of Its break with France before notifying thendconsulting on the form of the announcement.


hs UB Is likely to find the ORC increasingly difficult to work with. UB motives will be suspect and ORC responsiveness will be decreased. In the present atmosphere, reductions in UB economic and military aid will probably takssw significance, It will b* Increasinglyto convince ORC leaders that such cuts are not steps toward reducing the US stake In the area in Unaecreasing US presence In the Far East.

ncertainty as to tha future and lack of confidence in tha direction of US policy In the Far East are likely to reinforce the ORC's desire toaximum military capability of Its own Thus long-range economic needs on Taiwan are likely tooor second to an Increase In military capabilities. Tha ORC leaders are confident that the UB cannot afford to let the ORC soUapee and that the UB will therefore act to save Taiwan's economy even from troubles caused In large part by the further allocation of resources to ths military against US advice. Thus the ORC may expand Its offshore procurement and domesticof material needed for the military at the cost of more rapid economic growth. What the US la moat likely to face, therefore, is an economy which Is growing, but not as fast as It should, and which Is saddled with Increasing unemployment and popular discontent. The ORC will seek further us aid and point to economic difficulties as US sfTorts to limit military expenditures will be reeented, and substantial further cuta In US military aid or Intensified efforts to bringignificant reduction In tha ORC military establishment would be looked upon aa deraatlame facto support of the "two Chinas" policy.

The loss of confidence and elan In the ORC leadership and the decreased certainty of the regime's stability present ths UBuch less steady situation than has prevailed on Taiwan for the past IS years Ths US now has to be prepared to respond to any oneumber of different forms of Internal crises which were not considered serious possibilities before.

On the International acene, France'a new Initiative will multiply US difficulties in holding the line against recognition of Communist China and In protecting the ORC's position In the UN. If present trendsmore nations will sooner or later recognise Peiplng as the only legitimate government of China. As this process goes on, there will be an Increasing tendency for the UB to be Isolated In Its support of the ORG as the government of all China. Much of the world will condemn the ORC's efforts to press Its claim to tha mainland as endangering peace and order In the Far East.



the US rnllitary aid program Is timed atdeveloping the ORC armed forces for the defanae of Taiwan and

Penghui' the ORC'e own philosophy of preparation for attacking

the mainlandremium on developing ofTenalve capabilities. Limitation of US support to defensive requirements huenae of frustration In ths ORC leadership, which hss led to various efforts to get around the US restriction. For example, the utilisation of MAP-supported training facilities for the training of non-MAP-tupported unitsommon occurrence. The purpose for which the ORC hopes to use Its forces also dictates that they be kept at maximum strength. The ORC has thsrefore resisted US pressures for any significantand maintains the largest per capita armed force In the world. It will probably continue to strive to keep MAP-tupported forces as large as It can while maintaining and perhaps Increasing its non-MAP-eup-ported unconventional warfare force*.

The fact that such large numbers of military personnel cannot be replenished from the mainlander sector of the population alone ha* necessitated an ever-Increasing ratio of Taiwanese In tha forces. At present Taiwanese comprise about 3fl percent of the personnel and the ratio la increasing about threeore algnlflcant fact ia tha extent to which Taiwanese have been kept from position* of au-thorlty: they form about SB percent of the lower enllated rank* but only aboutercent of the non-commissioned officers and about fourot the commissioned officers. While there would be doubt about the reliability of the Taiwanese troops for an Invasion of the mainland, we believe that they would perform effectively In the defense ofterritory.

In recent years the ORC has sought to Increase its military strength, especially It* offensive capabilities, through effort* uncoordinated with tha MAP- To this and It levied temporary defense2 throughune 1BBS In supportillion specialBudget. In that period the ORC's self-financed defenseroseercent of ONP in FYercentSIn FYndespectively. The figure Is estimated

In An essential reason for the Special Budget was to

'Under the US-orc Mutual Defense Treatyecember IBM. the US. Is committed to the defense of Taiwan and the Penghusresolution of 1BB5 gives the President discretionary power to extend tha defense to the offshore Islands "as he Judges to be required or appropriate In assuring the defense of Formosa end the Pescadores"

accelerate Ita covert activities on the mainland and acquirewarfare equipment additional to that supplied under MAP.


In general the capability of the ORC armed forces appears to be at oreak. Morale ia fair to good and hai been at Ita best on the oflshor* islands. However, morals, particularly among the malnlander leaders of thsloeely tied to the objective of recovering the mainland, and recent evanta may have had aeffect among the leaders Although only about ana-fifth the else of the Communist Chinese farces In terms of manpower, the ORC forces probably compare well qualitatively, but grounds for comparison are extremely scarce. In the last major meeting of the two forces during the offshore Island crisis of IBM. the ORCtrikingsuperiority In tha air. In tha two minor air skirmishes since that time, the Communists demonstrated somewhat Improved tactics, but their aircraft are now becoming Increasingly aged and obsolescent. Additionally, their insufficiencies In pilot flight time and training In all-weather operations, and the lack of air-to-air missiles all contributeelatively low degree of combat effectiveness

On defense, the armed forces of the ORC could notustained military effort by tha Chinese Communist against either the offshore islands or Taiwan and the Penghus without US naval and air support. Offensively the ORC's capabilities are limited. It can droproopa on the mainland and follow up with limited resupply If allB aircraft are employed.upported amphibious assaultostile beach against limited to moderate enemy resistance the ORC Navy could provide sufficient amphibious ships and craft toman tactically balanced force with full allowance of tanks, guns, LVTs, wheeled vehicles and supplies. If the number of troops to be transported were the primary consideration without regard to unit and tactical Integrity, orheavy equipment, the same vessels could lift0 troopa Additional forces could be transported Inombat loaded merchant ship*ift capabilityons (Cargo DWT) or approximately seven infantry division*0 troop* withequipment Thee* figure* are all baaedingle operation with no turn around.

fl. The QRC ha* been exercising It* capability of landing small group*oen on the long mainland coast with the stated objective of moving inland to establish contact with "resistanceumber of team* have *ucceeded in getting ashore In the put year or so but all or nearly all participant* were killed or capturedew hour* of landing. Publicly, however, the QRC ha* claimed success for Its opera-tlona. saying the great majority of thetr infiltrators ar* at large on the mainland.

row of (he raids, In contrast to ths infiltration attempts,minor success, but they have so far produced little Intelligenceelse of value. Nevertheless, the leadership believes that thethe raids and Infiltration efforts and even the Communist publicityand executions serveseminder that ths ORC Is stillenemy of Communist domination. The ORC plans tosmall landings, perhaps Incrsasing the slsa of the forcesit plans to place more emphasis on raids on CommunistIsolated outposts with smsll teams In plastic boats launchedcraft. Sabotage attempts out of Hong Kong and MacaoIn winning publicity out of ail proportion to the smalldone, and thsy have brought forth the wrath of the colonialand precipitated local police action against ORC agents,In Hong Kong.


ORCotal military force ofas follows:

Ministry of National Defense (MND)


0 Marines)

Air O

Combined Service Force


Of this0 consistingn the MND0 In the Army do not receive MAP support.ND personnel In general serve In an overhead capacity.0 In the Army however, form an integral part of that force and include such units as two Special Forces groupsnd tha Anti-Communist National Salvation Corps (ACNSC). Thau two Special Forces groups, along with tha two MAP-supported Special Forcss groups, are subordinate to the Special Warfare Center. The ACNSCeteran force of ex-maln-lander guerrillas under direct control of the Army OKQ which garrisons the minor offshore Islands of Tung-yln and Wu-chiu. Not included inigurehysically disabled or over age troopsthree Oarrlson Regiments of ths Taiwan Garrisonhe TOOK, an internal security organisation, also has one regular MAP-supported Army division assignedotational basis.

he Army. The ORC ground forcss consisteneral3 fieldorps.nfantry divisionsrmor centerrmoredpecialcenterpecial forcesir defense artillery (ADA) missile group,irborne Infantry regiment. These forces are com-

bat ready, Increasingly wall trained and equipped, andubatan-Ual raterve and replacement manpower pool. The Army muit have foreign aupport to maintain It* armed force* att level* ofr to conduct sustained militarytep* are being taken to remedy equipment ihortage* and penonnel management deficiencies and Improvement Is continuing.

In the Taiwan Strait area, ORC forces are now more formidable thanhe Army has0 troops on the Matau Islands group facing an0 Chinas* Communist ground troop* on the nearby mainland (the vicinity ofm ths Kinmen Island group, there are0 ORChe Chinese Com-munlit* have an0 ground troops nearby In the Amoy area and withinays, could reinforce their troop strength in the Amoy-Fcochow area with tha additional force* already In East Chinaroopa. Including three airborne division* which total0hese forces are conveniently astride main lines of communication and would most probably enter the coastal area by way of the Nanping-Foochow rail Una In the north and/or the Ylngtan-Halamen (Amoy) rail Una in the south. Such redeployment possibly could be accompUahed without detection, but It la believed that any sizable concentration of forces or amphibious craft would be detected If current US-ORC survelUancs Is continued.

Chinese Communist artillery strength In the Mattu-Klnmen areas totalsieces, as comparedRCmprovement* In fortification* and covered artillery emplacement* have Increased the defensive capability of both the Kinmen and Matau garrisons. Food, ammunition, and other supplies in abundance ars stockpiled in tunnels on ths major offshore islands.

Navy. The QRC Navymall fleet compceed ofships, the largest combat type being destroyers. The totalis as follows:

Dsatrorer 4

Escort Bblp iDBi a

Patrol BsoortII)

Escort (PCI) 7

Submarine Chaaer IS

Motor Gunboat

Motor TorpadO Boat

Coaital Minelayer

Fleet Minesweeper . I

Coastal Minesweeper

Amphibious Warfare(4)


figures in parantheiee are additional ships In reserve

ORC Naval forces afloat, except email patrol and harbor craft assigned to naval districts, are organised Into the Fleet Commend (comprising Aven Amphibious Force Command,leet Training Command.

ORG Navy isefensive force with theof maintaining sea control of ths Taiwan Strait and ofthe naval defense of Taiwan. It Is only moderately effective, but

MAAO ea*latar.ce Its stats of readiness and Its combat potential are being steadily Improved. Proficiency in surface gunnery Isto be good, and antisubmarine warfareir defense,

and mlnseweeplng capabilities are Improving.

an elite Marino Corps is organised Into aa supporting establishment, and the Fleet Marine Force.forces consistVT,VTAorganised and equipped under modified US Marine Corp*Marine Corps has ths training and combat readiness whichIt to execute an amphibious sasault engaging ths divisionbrigade against light to moderate resistance if adequate airsupport. Including amphibious shipping, ware available.

Air Force. The Chinese Air Force (CAF)actical fighteromposite wing,transport wing.actical fighter wingsompositea total ofactical fighter squadrons,ll-weatheractical reconnaissance1 search and rescue squadron. The transport wing consists ofsquadrons. All squadrons are considered to beexcept those preparing for conversion to higher performanceThe majority of tactical fighters have been modified tothe SIDEWINDERissile. Personnel strengthincludesrained pilot*.

he capabilities of the CAF have been improved by theCentury-series supersonic fighters, and it could provideair defense of Taiwan under daylight or clear air massdefense of the Taipei area Is bolsteredike-Hercule*awk missile battalion scheduled to becomeyear. The early warning radar coverage from groundTaiwan and In the Penghus is fairly good and is being Improvedmodernisation of present equipment. Radars on Klnmenprovide valuable early warning information. The main weak-

ness In air defense Is the limited number of all-weather aircraft which are available. At present, only one squadron Is equipped for all-weather defense. With the addition ofQ squadrons programmed tooperational In the near future, this weakness will be somewhat reduced. There are also Important limitations In air control capa-

bllUles as air-defense communications still have Inadequate capacity and quality to link air-defense weapons and control centers effectively. Althoughmall number of photo-reconnaissance aircraft are available, CAP reconnaissance operations In regular missions against the mainland have proved to be outstanding. This capability will be further Improved ast aircraft replace the's which are scheduled for early phaseout.

n the eventORC strategy should call for air defense of Taiwan and the Penghua by US airumber ofay fighter aircraft could perform Important tactical missions against mainland targets along withG'a., equipped with two aoo-gallon drop tanks andound bombs, wouldombat radius.l-lo-hl mission profile.A aircraft, equipped withallon drop tanks andound bombs, flying the same profile, wouldombat radius. The combat radius ofO in theounds of bombs and ammunition, Is. Mainland targets within these radii would be primarilycontrol centers, radara, lines of communication, militaryand targets of opportunity.






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r. In launabinif nth of (our QaUerlee. Sb mieelle* In etoreaeone under raprcaveeliif ai each battery. Ten imeMlee In iterate ai ordneneoCj.

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etflmate woi dlitemlnoted by the Ctntrol Intelligence Agmcy. Thlifor Hit Informationa of the recipient and of penem under hit jurltdktlon onre know beeH. AaWHIenal eetentlal (Suemlnatton may be authorised byofflclflli within their reapectht deportment*

of Intelligence end Sewcrch, far tha Deportment of 5'oie

Detente Intelligence Agency, for the OWee of (ha Sacratory of

Detente end the organisation of the Joint Chteft of Stat!

Chief of Staff for Intalllganco. Deportment of tha Army, for tha

Department of the Anrry e. AtaWant Chief of rfaeoi Operation.or lha Deportment of tha Navy

Chief olntelligence, USAF. for the Daportmant of tha Air


ACC, tor the Atomic Energy Commlialen

Pal, for lha Federal lurtou ofDirector of NIA, far (he Nottonol Security Agency

. Aetlwure Director for Central Reference, OA, far arty other Deportment or Agency

copy may a* rtlolntd, or deetroyed by burning In oocordancateevrtty regulationi, or returned ta tho Central Intelligence Agencywith the Office of Central laftrance, CIA.

hen en estimate Ii dluamlnoted ovanaoe.rtaai raclpltntt moy retain Iteriod not In una at one year. At the end of tha period, the estimate ehould efthir be deerroyed, returned to the forwarding agency, er permleeton thould beof the forwarding agency lan accordanceune 1MJ.

he tWe of thli- =when uud leparataty from the .. ihould be ilfledi POt OFFICIAL USE ONLY


WhSe Kouee

Nottorwl Socvrttv Covndl

Department of Stott

Department of Def onse

Atemk enerey Commlialen

Pederel kreou of ImieSflhiii



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