893.00/3–1747: Telegram
The Consul General at Shanghai (Davis) to the Secretary of State
[Received 9:58 p.m.]
659. Source close to Generalissimo recently informed officer of Consulate General that Government’s military situation is critical (reference Tsingtao’s 12, March 14 to Embassy and Department as 19). He said Generalissimo extremely worried over military situation in Shantung and recent developments in Formosa25 are presently very irritable.
This source confirmed report that Government lost 7 American-trained and -equipped divisions in recent battle southeast of Tsinan. He also confirmed reports of loss of two divisions in first battle for [Page 69] Linyi. He said these divisions were not disseminated [decimated?] but taken over almost intact by Communists and that these captures have greatly strengthened the Communists in Shantung.
Source stated that he recently met Director of Chiao-Tsi26 Railway in Nanking who informed him that after devoting a year’s effort to opening up railway he had now come to Nanking to obtain funds to dismantle that part of the railway not destroyed by the Communists. Railway equipment thus obtained is to be used to rehabilitate other lines under Government control.
Source stated he did not see any possibility of Government forces liquidating Communist-held areas in northeastern and central and southeastern sections of Shantung. He also mentioned one division of Government troops equipped with Japanese materials in the neighborhood of Lungkow against the Communists.
Shanghai’s 476, March 17, 2 p.m. to Nanking, repeated to Department, to Tsingtao as 40.