Foreign Relations of the United States, 1951, Korea and China, Volume VII, Part 2

Rankin Files: Lot 66 D 84

The Chargé in the Republic of China (Rankin) to the Assistant Secretary of State for Far Eastern Affairs (Rusk)

secret   official–informal

Taipei, August 13, 1951.

Dear Dean: Nearly five months have gone by since I saw you in Washington¹ and it may be time for an informal review of the past as well as a look ahead.

I recall that one of the points you emphasized was the importance of the Chinese keeping out of American politics. Both before and since that time I have worked on this problem; at least a number of the leading Chinese here can no longer be in doubt as to how we stand on this point and where their own best interest lies. In actual fact, I am fairly well persuaded that nothing of consequence is now being done in this field except by persons over whom the Chinese Government has little or no control. The latter include various Americans in and out of public life as well as certain unofficial Chinese residing in the United States. Such material as we have unearthed at this end has been reported to the Department (see, for example, mytel 1717 of June 17, which also referred to previous communications; also our despatches 11 and 28 of July 7 and 13,² respectively). In the absence of comments from the Department I am unable to determine how any or all of this may complement information available in Washington.

Incidentally, one of my earlier efforts to discourage the Chinese from a partisan demonstration seems to have backfired, but I hope without doing any harm. I refer to my confidential despatch 84 of November 27, 1950, on Senator Knowland’s visit to Formosa, which the Department supplied to the Senate Committee during the MacArthur hearings.³

A second point which you brought up was that the Nationalists should do a better job of winning the support of overseas Chinese in various parts of the world. This subject naturally has had some attention from all of us right along, but I asked Rinden⁴ to review it in a comprehensive despatch. The result is No. 330 of June 21, 1951,⁵ which seems to me a very workmanlike job; it is entitled “Overseas Chinese and Nationalist China”. Foreign Minister Yeh, who is specifically responsible for cultivating relations with the overseas Chinese, has discussed the matter with me on numerous occasions. He and others seem to be making a genuine effort, and I believe that this effort should be continued. Frankly, however, I do not expect much to be accomplished of a tangible nature except as this island takes on more and more of the appearance of a band wagon as a result of our military and economic aid. Promoting trips to Formosa, inviting individuals of some prominence to come here and take official positions, and exchanging basketball teams and bands may be about as far as we can expect the Chinese Government to go for the time being. Yeh tells me that they are particularly avoiding the solicitation of financial assistance from the overseas Chinese living in various parts of Asia; they fear that such action would scare many of them off at the present time. On the other hand, they would welcome suggestions from us as to how they might collect taxes from Chinese residing in the United States.

I agree that we should not put all of our eggs in the Formosa basket, but I still feel that we should not expect very much from any “Third Force” in China. If I recall correctly, this term was first used in France. At any rate, for a number of years we have been looking around in various countries for nice, clean, honest, “democratic”, middle-of-the-road groups to which we could give our support. We have at least something substantial to work with in Western Europe, although even there our search has not been notably successful. One basic difficulty is that where Communism is an immediate and serious threat there seems to be no place for middle-of-the-roaders. People have to choose one side or the other; neutrality becomes an anachronism.

The so-called Third Force in Hong Kong seems to have neither organization, program nor money, except for what financial support some of our people may be giving them. The relatively large committee set up in an effort to coordinate matters has proved unwieldy and could scarcely have been expected to unite such disparate and even mutually hostile elements. In any case, the British seem to be putting on the heat, with the result that our most prominent worthies reportedly are moving to Manila. (The British also have clamped down on various Nationalist operations in Hong Kong to date; eight of the leaders are said to be in jail). Just what we are doing in Singapore, Bangkok and elsewhere I do not know, but I have been somewhat disturbed by vague rumors that we are reviving Wang Ching-wei⁶ remnants in Japan for Third Force purposes. I assume, however, that all of this is being coordinated somewhere along the line.

The encouragement of any and all anti-Communist elements is justified up to a point where the law of diminishing returns begins to operate. It is not a bad idea at all to keep the Nationalists and the others on their toes by giving appropriate support to all of them, but when they begin to feel that we intend to play them against each other in any important respect, we shall begin to lose not only their confidence but their cooperation. We are already noticing that here to some degree.

The third point you made was, as I recall, that the Chinese Government must put its economic house in order. In this field they have done rather well during the past year. Ray Moyer will have discussed this with you in Washington, but I might refer to a recent ECA telegram from Taipei (No. 701, July 26),⁷ which summarizes the situation and a considerable part of which I drafted myself. The essential considerations are that little more can be done in the way of raising revenues or reducing expenditures, and that if we are going to do a job here it will cost a lot of money. Assuming that all of our best efforts are exerted, the more funds we have, within reason, the better job we can do. And $50 million additional now may be worth $100 million more a year or two hence.

Seen from Washington, as a comparatively minor part of a global problem, our insistence on the need for more economic aid for Formosa may seem exaggerated. I assure you that it is not. Our present military-economic program for this island is considerably larger than that for which $350 million was spent in Greece during the first year of the Truman Doctrine when world prices were appreciably lower. The size of the civil population is about the same in each case, but the military establishment on Formosa today is nearly three times as large as that of Greece in 1947–48. I would be willing to settle for a smaller military program here in FY52 if the savings could be diverted to economic support (see mytel 1458 of April 20): the latter is more urgent.

In the absence of MDAP Formosa would require outside economic assistance for FY52 of approximately $75 million to keep the economy afloat, assuming no further drafts on the modest gold reserves still held by the Central Bank. I understand that we now propose to allocate military “hardware” valued at $217 million in the current year. Our best estimate here is that $75 million should be added to the total for purely military items to cover additional imports (POL, etc.) for military purposes and to prevent monetary inflation as a result of increased local currency expenditures incidental to the military program. To make a $217 million military hardware program fully effective, therefore, we should have approximately $150 million additional for all other categories of aid. Yet $90 million is all that Congress was asked for, and even this figure may be reduced.

It is true that ECA allocated a substantial sum to Formosa toward the end of FY51 which will be reflected in commodity imports during FY52. However, there will be a partially offsetting carry-over into FY53. The ECA Mission tells me that, assuming the $90 million allocation is adhered to, Formosa will have, in effect, about $38 million less than they requested for FY52. This figure is only 12 percent of what we propose to spend in any case, but it may well represent the difference between a balanced, full scale operation, and one involving severe limitations.

The possibility of modifying our military program in the light of matériel availabilities and the amount of economic aid authorized should, it seems to me, be looked into immediately. Whatever the sum made available for strictly military purposes in FY52, it presumably would be fully obligated during the year. It is more than likely, however, that many of the military items so ordered could not be delivered until FY53 or even 54. This is particularly true of artillery, tanks and communications equipment. American productive capacity for all such critical items doubtless will be used to the full in any case, and there would seem to be obvious advantages in not allotting them to individual foreign countries so far in advance. The situation a year or more hence may be quite different from that today. In any event, a substantially smaller sum than $217 million, plus the carryover of $71 million from FY51, should cover everything that Formosa could expect actually to receive in the way of matériel during the next 12 months and still provide a normal carry-over into FY53. Such savings would have no practical effect on our FY52 military program and might be used to justify the larger economic aid without which both programs may be seriously curtailed. I hope that flexibility of this order will be maintained in the interest of optimum results.

There is also the more fundamental question of the standards to be followed in arming “underdeveloped” countries. This is in large part a technical military matter, but it is one that deserves the best thought of all of us if we are to get the most out of our resources. Of course, we are not going to provide battleships or super-bombers to such countries as China, Thailand, Iran or even to Turkey, Greece or Yugoslavia. But lines should be drawn very much lower than this. Whenever I see Chinese soldiers riding about in American trucks, I think we would do better to provide them with good shoes and more proteins in their rations. When I see tanks go by—or stand in junk yards—it makes me wonder what will happen to the new and highly complicated Pattons which we have planned to furnish them at a cost to the taxpayers of $240,000 each. Moreover, by the time the Chinese are ready to maintain and operate such weapons properly, the Patton may well be obsolete.

It seems all too evident that for countries where there is plenty of manpower, but a shortage of technical skill and manufacturing facilities, we should provide as a matter of policy the simplest possible arms. I am thinking of light automatic weapons, bazookas, mortars, rockets, recoilless rifles, hand grenades, mines, etc. Often these, and any needed ammunition, can also be manufactured by simple methods in such places as Formosa. Going a step higher, it may be questioned seriously whether any countries outside Western Europe (probably excluding Japan also for the visible future but for different reasons) should be furnished with aircraft larger than fighter-bombers, or artillery above 105 mm, or naval vessels for other than patrol needs. If we go appreciably beyond such standards we shall not only be spending excessive sums at the outset but also burdening these countries with equipment which they can never afford to maintain or renew with their own resources.

In summary, it seems to me that our underdeveloped friends should be armed primarily for defense. If this is well done, further Communist aggression will be discouraged and we shall also have useful allies in case of trouble. We, with some help from Western Europe, would be compelled in any case to provide the highly modern striking forces of bombers, carriers, submarines, tanks, etc., without which victory could not be ours in a large conflict.

Along these lines I believe that we could make out very well with a substantial reduction in military expenditures for Formosa. However, this would not permit of a proportionate decrease in economic and quasi-military outlays. The chief explanation is that many quasi-military expenditures are essential features of the first year during which MDAP will operate. As a rough estimate, the additional $38 million mentioned above would also be a measure of the non-recurring expenditures incidental to inaugurating the military aid program, including additions and repairs to docks, airfields, roads, warehouses, etc. Most of this should not be postponed. We are already very late and such construction work takes time.

Any way we look at it there is a great deal of money involved, and the end is not in sight. I believe, therefore, that we should project our thinking well beyond the current fiscal year. Of course, a general conflict might break out at any time, in which case we should have to revise much of our planning in Formosa and elsewhere. But I take it that our policy is to prevent such an outbreak if at all possible and, by implication, to preserve more or less the status quo in anti-Communist countries around the Curtain. I take it also that we expect to succeed in carrying out this policy. If so, we should be looking ahead five or even 10 years in Formosa. We should then come face to face with basic problems which we have tended to avoid because of their medium to long-term character. Among these problems are the future of the Chinese military establishment on this island, the reorientation of export and import trade, and a related shift in agricultural and industrial production.

Without going into great detail in this letter, I believe that we should undertake studies to determine how much the armed forces could be reduced over a period of years while maintaining or actually increasing their total combat effectiveness. Other export commodities probably should be developed to replace sugar, which now accounts for 80 percent of Formosa’s export trade and yet apparently cannot be produced economically under local climatic conditions. Domestic production of certain essential items, notably chemical fertilizer, should be expanded and imports reduced accordingly. This short list will illustrate what should be done if Formosa is to enjoy increasing stability and the burden on the American taxpayer gradually reduced.

I believe, too, that when we take a longer range viewpoint the political situation falls into better perspective. Whatever the shortcomings of the regime on Formosa, it is evolving and, on balance, improving. Certainly it differs enormously, both in theory and practice, from the Communist strait jacket which holds the Mainland. And individuals do not live forever! Now that the United States is again taking a decisive part in supporting Free China’s economy and its armed forces, we can use these channels to influence other developments. China has the oldest civil service system in the world but it needs to be modernized. Governor Wu would welcome American help in this field, particularly in devising methods of job analysis which would gradually weed out unnecessary employees. Paralleling this, better systems of pay and promotion should be introduced in both civil and military services as a prerequisite to eliminating squeeze and promoting general efficiency. There will always be squeeze in any country where government employees cannot live on their pay! Budgetary, accounting and tax procedures also need attention and are already receiving it from ECA specialists who have recently arrived.

In summary, I believe that we could well adopt a simple formula for our effort here: improve efficiency while retaining enough individual liberty so that a genuine Chinese democracy can evolve.

In the process of looking ahead it is also important to keep our thinking clear on the fundamental problem of overpopulation in so much of the Far East. The Communists have promised higher living standards without caring whether these promises could be kept. Americans have tended to outbid them in this regard, with the best of intentions but without realizing the full implications of such promises. During the current fiscal year we are by way of assuming at least a degree of responsibility for the economic welfare of nearly 700 million people in Asia and its nearby islands. For this program we propose to spend an average of about 54 cents a head. A great deal of good can be done with this money, but no one can pretend that it will produce any discernible rise in general living standards. As a matter of fact, we shall be doing very well indeed if we can prevent present standards from declining in the face of fears and dislocations caused by the Communist menace.

Of course we can and should push on with our programs of technical assistance and of direct economic aid to meet emergency conditions. But we know that improvements in the fields of agriculture and public health will be offset by a net increase in population as regards any general effect on living standards in most of Asia, including Formosa. Only when such efforts are complemented by wide scale industrialization and birth control will the economic lot of the common man in Asia begin to improve. This is not only a very long term conception, transcending any aid program we have ever envisaged, but it also involves fundamental questions of economic security. Elimination of colonialism also did away very largely with sound currencies, reasonable credit facilities and a conception of property rights essential to private enterprise. However much the colonial powers may have profited in the past, a very large number of Asiatics benefited economically from colonial rule. Now all of them are being thrown back upon the oldest of all forms of economic security: breeding the largest possible number of children. The Communists could not have ordered matters better toward the attainment of their ends.

We are feeling all of this here in Formosa. The population is increasing rapidly from an excess of births over deaths. Due to this fact, and to the much more rigorous collection of taxes from the largely agricultural population, some of our best American experts have become convinced that the average inhabitant of this island is worse off economically than he was a year or two ago. Yet during this period there have been very real improvements in agricultural production and in marketing methods, largely as a result of the assistance of ECA and its affiliated JCRR. Now we are complicating this problem enormously, although quite properly, by a large scale program of military aid. It is none too soon to undertake a careful study as to where all of this is leading us. Such a project is worthy of the attention of two or three of the best men the Department and ECA can find. Several months probably would be required to complete such a study, during which time those participating should be free from any operational or administrative responsibilities. Their findings might well provide not only a blueprint for the future of Formosa but also a useful guide in developing our Mutual Security Program for other countries of Asia and the Pacific area.⁸

Sincerely yours,

K. L. Rankin

1. Rankin had visited Washington for consultations in late February and early March 1951.
2. None printed.
3. See Karl Lott Rankin, China Assignment (Seattle: University of Washington Press, 1964), pp. 75–78.
4. Robert W. Rinden, Second Secretary at the Embassy in Taipei.
5. Not printed.
6. Head of the Japanese-sponsored regime at Nanking, 1940–1944.
7. Not printed.
8. Rusk replied in a letter of November 16, 1951, thanking Rankin for this letter and for letters of October 1 and November 1, neither printed, which dealt primarily with the question of how U.S. forces on Formosa should fit into the U.S. military chain of command. A postscript to Rusk’s letter, in his handwriting, read as follows: “Karl: This is not a routine brush-off; your letters raised some extremely fundamental points which will take considerable time to go over. The command question is particularly tough. DR” (Rankin Files: Lot 66 D 84).