I. Political and Military

There are strong indications that China, will be politically and militarily disunited. The Kuomintang-controlled National Government will likely exercise a varying measure of control over western China and portions of northwestern, central, eastern and southeastern China. In certain of these areas the control of the National Government will be limited by the semi-independent status of local military elements. The National Government’s control of Sinkiang (Chinese Turkestan) is likely to be impaired and, in some areas at least, may be completely lost either before or after termination of the present Far Eastern war.

The end of the war in the Far East seems likely, in the absence of internal political and military unity, to find the Chinese Communists exercising control over large areas in northern, northeastern, central and eastern China. Such control in areas lying north and east of the Yellow River and up to the vicinity of the Great Wall is likely to be relatively secure. The Communists are, moreover, strongly entrenched in northern Kiangsu and. in portions of Anhwei, Honan and Hupeh. They have also established bases in areas south of the Yangtze River, notably in Kiangsu, Chekiang and Kwangtung, and are at present endeavoring to consolidate and expand these bases. The Chinese Communists are almost certain to seize the opportunity to expand into Manchuria when Japanese control comes to an end there, and they may also seek control of Inner Mongolia and possibly Sinkiang.

Failure of the Kuomintang and the Chinese Communists to unite will in all probability lead to the formal establishment of two distinct political and military entities in the areas described above, the Kuomintang controlling one and the Communists the other. Large-scale internal strife is likely to be the product of this division–probably after the defeat of Japan. As the military power of the two contending groups appears to be relatively well balanced, a long, devastating and perhaps indecisive struggle is likely to develop. Should external assistance be accorded both groups the severity of the struggle will doubtless be intensified. The granting of external assistance to one of the contending factions and the withholding of it from the other will without doubt tip the scales decisively to the faction accorded aid.

It seems clear that the Kuomintang-controlled National Government is looking to the United States and Great Britain for support. It seems equally clear that the Chinese Communists hope to receive aid from the Soviet Union. Russian participation in the Far Eastern war would likely lead to Soviet military penetration of Manchuria and the probable establishment in that area of a Chinese governing regime–possibly Chinese Communist–friendly and receptive to the desires and interests of the Soviet Union. Should such a Russian-sponsored regime be set up in Manchuria, it would be in a position to exercise a profound influence over political, military and economic developments in areas lying south of the Great Wall. It seems obvious that Anglo-American support of the National Government and Soviet support of the Chinese Communists would lead to a situation pregnant with explosive possibilities for the future peace of the Far East and the world.

A China torn by internecine strife obviously cannot take its place as one of the major stabilizing powers of the world; on the contrary, civil war in China will invite external intervention which will in turn directly threaten the future peace of the world.

II. Economics

The termination of the war in the Far East will find China sapped economically and financially. It will find China enmeshed in the throes of virulent inflation and possessed of a worthless currency. It will find China’s nascent industry and transport system largely destroyed and utterly dislocated. Japanese implementation of their oft-repeated threat to carry out the “scorched-earth” policy would add to the destruction of China’s economy. Substantial foreign assistance and guidance will be needed if China’s industry and transport system are to be rehabilitated. Political instability and/or civil strife will of course seriously hinder, if not render impossible, the industrial and financial rehabilitation of China, and can only lead to the further disintegration and dislocation of China’s economy with disastrous results to the Chinese people.

III. United States Policy with respect to China

United States policy is directed toward the development of a strong, independent, stable, peaceful and united China and of a government representative of the wishes of the people and able effectively to discharge its internal and external responsibilities. In pursuance of this policy, we would expect to continue to support the existing National Government of China, headed by Chiang Kai-shek, as the central authority which offers the best hope for unification and avoidance of chaos. However, as a safeguard against the possible disintegration of the authority of the existing Government, it is our purpose to maintain a degree of flexibility of policy to permit cooperation with any other leadership in China which may give greater promise of achieving our policy with respect to China. While our present military policy is devoted to the immediate objective of effective joint prosecution of the war, we would logically expect to assist China to develop a modern and effective post-war military force to contribute to world peace and security. We are not prepared to commit ourselves to assist China in the creation of such a military force, however, until we are convinced that China is making substantial progress toward the implementation of the policy enunciated above and until China has developed her resources and economy to such an extent as will, in our opinion, enable China to maintain and support a modern and effective post-war military force.

In pursuance of our policy toward China, as enunciated above, we seek the active aid, understanding and cooperation of other interested nations, particularly the Soviet Union and Great Britain. We believe that such aid, understanding and cooperation are vital to the end that China may be enabled to become a bulwark of peace and security on the Far East.