Foreign Relations of the United States, 1946, The Far East: China, Volume X

893.51/8–3046: Airgram

The Ambassador in China (Stuart) to the Secretary of State

Nanking, August 30, 1946.
[Received September 25—11:39 a.m.]

A–90. General Marshall has authorized the Embassy to make the following comments on the Department’s A–131 of July 12, 1946 which was addressed to him:

Paragraphs A and B

Suggest the need for engineering and managerial services regarding particular projects in order to utilize effectively the expected large volume of imported equipment and materials for the rehabilitation and expansion of the Chinese economy.

Comments

While there are many capable engineers and managers in China, unquestionably the demands caused by taking over the operation of the Chinese and former Japanese installations in East and North China has already created a shortage of these types of skills. At present, due to the low level of production in most industries, this shortage is spotty. Demands which may arise from increased production, from the needs of Manchurian industry, and from any imported plants or equipment, particularly under the envisaged large-scale Japanese reparations program, will severely intensify and generalize this shortage.

The Chinese clearly recognize this problem and, in my opinion, do expect to call increasingly on foreign (mostly American) engineers to make up this deficiency in large measure. It is my belief that the Chinese, conscious as they are of this problem, would accept as reasonable, requirements that adequate engineering and managerial services be retained and utilized as a condition of any loans that might be made. Our interest in this would also be understood and accepted as good business. An illustration of this will be found in the surplus property agreement⁴⁵ which requires such American technical assistance.

At the same time the proposal for increased technical assistance deserves the closest consideration from the standpoint of its effect upon investment opportunities for private American capital in China, especially when considered in relation to the Export–Import Bank lending program. If China can borrow from the Export-Import Bank and hire necessary technicians from American engineering or industrial consultant organizations, the opportunities for established American manufacturers to set up plants in China or sell in this market may be adversely affected. For example, the Chinese have turned down the request of American oil companies to participate in the rehabilitation and operation of the Takao (Formosa) refinery. They have, however, hired American engineers to provide the “know-how” and applied for an Export–Import Bank loan.

While it is true, therefore, that Export–Import Bank loans in China should be closely supervised, there is a positive danger that an extended program for technical assistance, plus public loans, might adversely affect the rights of broader segments of American private enterprise and thus be inconsistent with the avowed policies of our Government in support of private enterprise.

Paragraph C

Suggests the need for foreign and Chinese personnel to be hired by the Chinese Government to advise on basic economic planning policy:

1. On a continuing basis

2. Associated in a small group under foreign chairman or moderator and reporting to the President of China or his appointee

3. Group to be composed of regular members having no other jobs and panel members nominated and called upon by the group for particular jobs.

Comment

The Department’s suggestion is apparently for a full-time advisory committee, the members of which would work not with the various ministries but as a separate group relying for accomplishment on reports transmitted through a chairman to the President of China which would influence his executive decisions. This places the group in the difficult position of a super staff agency divorced from the administrative agencies which have the responsibility for recommendations and action and competing with them instead of working through them in making recommendations.

The only condition under which this could work, it seems to me, would be if the Generalissimo was sincerely convinced of the need for such a group and personally took the initiative to have it formed. It would have to be a highly personalized relationship to be successful.

A basic difficulty is that there is no effective Chinese Government administrative or staff counterpart for the group proposed. The Central Planning Board, reporting to the Supreme National Defense Council and working under the nominal chairmanship of the Generalissimo, is the only counterpart now existing in the Government. This Board, in the opinion of various officials in the ministries who are in a position to know, has been ineffective as a national planning agency and at best has only served to prompt the various ministries and commissions to study their own planning problems. China still seems to make her planning decisions by personal fiat, and the effectiveness of any super-board of advisers must depend on personal relationships.

If the Generalissimo is not sincerely convinced of the need and does not personally act to fill it, it is not clear how the United States can prompt the formation of such a group, even if it was deemed advisable to do so. The suggestion does not propose that we provide funds to pay advisers, and the only other method would seem to be to make the formation of the group a condition of some general understanding on aid to China. Even if this were done, the group would, in my opinion, be ineffective unless the Generalissimo wanted to use it.

It is my observation that the Chinese distinguish in their own minds between economic and political decisions on the one hand, and engineering and technical organizational decisions on the other. The first they feel capable of handling themselves; the second they feel they need a great deal of help from foreign advisers to handle effectively. Furthermore, they have been naturally hesitant in giving foreigners access to complete information regarding decisions of high economic policy in process, except in a few cases where there has been a very close personal relationship between the individual in power and his personal foreign adviser. The American Production Mission⁴⁶ was most successful on the technical and organizational level and least successful on the level of influencing broad policy.

To my knowledge there is no evidence to support the idea that such an advisory group on high economic policy would be considered favorably, and my own opinion is that the only advice of this kind that would be welcome just now is from personal advisors invited personally by those currently holding the power of decision. Furthermore, I believe that our interest in promoting such an arrangement might, unless handled with extreme care, be construed by the Chinese as resulting from a desire to gain a trade advantage rather than solely to aid in the sound development of the Chinese economy.

The large share of industrial equipment which will accrue to China from Japanese reparations to China will constitute an enormous problem. It was apparent in the discussions during Ambassador Pauley’s⁴⁷ visit that the Chinese had not faced up to its magnitude. I sense that in due course this problem will present us with an opportunity to afford assistance, but it should be rendered without offending Chinese sensitivities or curtailing their sense of responsibility for that which in the end must be solely theirs—for better or for worse. In such an endeavor, the part that could be played by the Economic and Social Council of the UNO⁴⁸ should be carefully considered.

The need is to establish a joint approach with agreed upon commitments by both parties and determined objectives. A good test case with respect to the questions in point is provided by the recently constituted Mission for Agricultural Collaboration⁴⁹ now actively at work in China on both technical and policy making levels. It should shortly be possible to see how effective, under present conditions, such a Mission can be (1) in making policy recommendations and (2) in getting these recommendations translated into action.

Stuart

45. Signed at Shanghai, August 30, 1946, Department of State Publication No. 2655, Report to Congress on Foreign Surplus Disposal, October 1946, p. 40.
46. See Foreign Relations, 1944, vol. vi, p. 247 ff.
47. Edwin W. Pauley, personal representative of President Truman on reparations.
48. United Nations Organization.
49. For correspondence on this subject, see pp. 1268 ff.