SECRET
C.P. (49) 180
23rd August, 1949
Printed for the Cabinet. August 1949
Page 473
226
Copy No. 31
CABINET
CHINA
MEMORANDUM BY THE SECRETARY OF STATE FOR FOREIGN AFFAIRS
I invite my colleagues to consider certain developments which have taken place in China since this question was last considered by the Cabinet, and to concur in the recommendations made in this paper.
2. The United States Ambassador called on me on 21st July and stated that the United States Secretary of State had expressed a desire to consult with me about China. I told him that I would be prepared to do this when I visited Washington in September and that meanwhile I was quite willing that conversa- tions should take place at the official level. Certain departmental views on the China situation, which will be found at Annex A, have been communicated to the American Embassy in London for transmission to the State Department in fulfilment of this undertaking, and on the understanding that they were without commitment to Ministers. I concur in these views and consider they should now be endorsed.
3. The position is thus that I am under an obligation to discuss our policy towards China during my forthcoming visit to Washington. It is complicated by the fact that, as will be shown below, United States policy has tended in recent weeks to diverge from the policy outlined in C.P. (48) 299 of 9th Decem- ber, 1948, and approved by the Cabinet on 13th December (C.M. (48) 80th Conclusions, Minute 3).
Present Situation in China
4. The Communist advance in China continues. The port of Foochow, in the province of Fukien opposite Formosa, has fallen and it is suspected that Canton will be overrun by the Communists in September. There is evidence that the authorities of the province of Kwangtung in which Canton is situated are making arrangements to come to terms with the Communists. In addition to the southward drive, there is a drive westwards towards Chungking, which may also be expected to fall before very long. In the province of Yunnan, which adjoins Burma and Indo-China, the position is confused, but there is a distinct prospect that this province too will go over to the Communists in the comparatively near future. To all intents and purposes, therefore, the Communists will shortly be in control of the greater part of China and will have extended to the borders of the New Territories of Hong Kong.
5. The political future is still obscure. In broadcasts and public pronounce- ments the Chinese Communists reiterate the orthodoxy of their Marxist-Leninist ideology, their support of the Soviet Union and the Cominform and their opposition to British and American imperialism." In the field of practical politics, little has been done to remedy the ills of China to which the Communists have become heirs, and there is as yet no evidence of a co-ordinated economic policy. It appears probable that a Central Government will be set up in the autumn. A message from a high Communist authority to His Majesty's Govern- ment, received at third hand after some delay, suggests that there is a conflict
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between those 4Cofmomists who are fanatical supporters 406f the 2Soviet Union, and, believing in the imminence of a third world war, consider it not worth while to seek an arrangement with the Western Powers; and those who, while 100 per cent. Communist, consider that the consolidation of their position must be a slow process and that it is necessary to enter into relations and to trade with the West. The extreme faction is said to control the propaganda machine, and this is said to explain why Communist publicity is wholly hostile to the Western Powers. That there is a conflict within the Chinese Communist Party is believed to be a fact; for the rest it remains to be seen how a Communist Central Govern- ment, when it is set up, will behave towards the Western Powers.
Position of British Trading Interests in Communist China
6. The position of our trading communities in Communist China gives cause for serious concern. There has been no physical molestation on the part of the Communists, though their attitude has on the whole been unco-operative and aloof. The threat of crippling taxation is already causing British trading interests to wonder whether they will be able to continue in such circumstances. The Communists continue to have no dealings with our Embassy at Nanking or with our Consulates in Communist China.
Nationalist Blockade
7. The chief cause for the present serious situation has, however, been the Nationalist blockade of Shanghai and Tientsin. The latter may now become ineffective as a result of the occupation by Communist forces of some of the Miao Islands at the entrance to the Gulf of Pechili. But the blockade of Shanghai has been effective in preventing the entry or exit of merchant vessels (with the exception of one small ship which managed to run the blockade). The Blue Funnel Steamship Anchises was bombed and machine-gunned by Nationalist aircraft and became a casualty for which compensation is being claimed.
8. The result of this blockade now is that British firms in Shanghai are in a parlous condition. The exchange is entirely fictitious and is tied to the price of rice. Firms are without funds to pay wages, and in order to avoid labour troubles it is proving necessary, according to the China Association (which represents the London offices of British firms in China), to remit sterling from London to the extent of some £350,000 or more a month. It has been represented to me that this drain cannot continue and that many firms will be forced to close down before long. Some of them who have stocks can carry on until these are exhausted, but even of these some have decided to close down if the situation does not improve.
9. This very serious situation could be at any rate alleviated if it were found possible to send ships to Shanghai which could bring in relief supplies (e.g., Inter- national Refugee Organisation stores, household and medical supplies). As one means of doing this, an approach was made to the United States Government suggesting that parallel representations be made to the Nationalist Government to permit the passage of ships for relief purposes. The United States Govern- ment at first returned a negative reply to this suggestion, but eventually agreed to make a parallel approach on the understanding that their emphasis would be upon the evacuation of their nationals rather than upon relief. Since ships bringing in supplies could be used for evacuation, we saw no reason to argue this point, and representations were accordingly made by the United Kingdom and United States representatives at Canton on 15th August.
10. The United States Government have now received a reply to the effect that the National Government agree in principle to a repatriation vessel calling at Shanghai. They would not permit carriage of cargo which might be of direct value to the Communists, but would allow other inward cargo provided it is limited to the minimum amount regarded as essential to secure Communist permission for the ship's entry." They will not permit the carriage of any cargo from Shanghai. No reply has yet been made to the United Kingdom Government.
The National Government's reply to the United States Government does not appear to meet the requirements of British merchants in Shanghai, since a single ship will not be sufficient for the purposes of relief. It may, on the other hand, muge United States requirements for evacuatge. 474 noted States needs
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are satisfied, Res 4t5impobable that the National Governhage 4715 NE 1967 to lift the blockade any further in order to meet United Kingdom needs.
11. In the meantime the Shanghai situation continues to deteriorate, and the attitude of the British community there is indicated in Shanghai telegram No. 694 of 18th August (Annex B). I consider that the time has come when we must make up our minds to follow one of two courses. The first would be to reverse the policy we have so far adopted and indicate to the British communities in Communist China that they can count on no support or relief and should make up their own minds whether in the circumstances they will remain. The second would be, if the Nationalists fail to meet our request to give safe-conduct to our ships to proceed to Shanghai with relief supplies, to decide to escort ships through the blockade. As a first step we should inform the United States Government of our intention and express the hope that even if they felt unable to subscribe to this policy, they would not publicly oppose it. Having already represented formally to the Nationalist Government our view that the blockade which they are conducting is illegal, we should then proceed to carry out our intention to escort ships. Before doing so, it would of course be necessary to secure an undertaking of safe-conduct and speedy turn-round from the Com- munist authorities at Shanghai, which should not prove impossible. The views of His Majesty's Ambassador in China on the blockade will be found at Annex C.
Divergence between the United Kingdom and United States Policies in China
12. It is desirable to consider here the extent to which United Kingdom policy is tending to diverge from that of the United States. The United States Government were informed in December last year of the general sense of the view which the Cabinet then took of the situation in China (C.P. (48) 299 of 9th December, 1948) and were invited to consult with us. Since then, consultation has taken place between His Majesty's Embassy in Washington and the State Department, but beyond indicating their anxiety about the control of the flow of strategic raw materials to Communist China the United States Government have never given any clear indication of their policy, though on the whole they have seemed disposed to concur in our view that our nationals should remain in China and that we should jointly follow a policy of keeping "a foot in the door."
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13. Recently, however, without any prior warning, United States policy seems to have taken a sharp turn in the direction of retreat. While on the one hand the State Department issued a White Paper of some 1,100 pages which sought to justify the past policy of the United States in China and liberally castigated the Nationalist Government of China, on the other they appear to have decided that it is no longer desirable that they should keep a foot in the door, and to be desirous of evacuating their nationals from China as soon as possible (it is for this purpose that they want ships to pass through the blockade). The State Department have decided to close their Consulates at Canton, Kunming, Chungking and Tihwa, and drastically to reduce their staffs at Nanking and Shanghai. They have asked His Majesty's Government to take charge, not only of their consular properties, but also of American interests. To this I have agreed, since, in spite of the embarrassment which it may cause, the resentment which would be aroused in the United States were we to refuse would be likely to affect our relations adversely at this critical time.
14. The fact that the United States have asked our Consuls to take charge of their interests suggests that they do not intend to quarrel with our intention to remain in China. It is difficult to understand what the present trend of American policy denotes, but there is understood to be a school of thought which considers that Communist China should be allowed to relapse into complete chaos, which will encourage the Chinese people to overthrow the Communist régime. This is diametrically opposite to our own view as outlined in Annex A to this memorandum, namely, that if we are not to drive Communist China into the arms of Moscow we must do our utmost to maintain Western contacts.
15. It is easier for the United States to cut their losses in China than for the United Kingdom to do so. Their trading interests are fewer and not so deep-rooted and their communities are smaller. Moreover, the total loss of their trading interesagendas defs6 62 the United States than a simila bossamgaof 66 the United Kingdom in our present economic and financial condition.
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We are faced with the dilemma that unless we coiffer and pursue
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16 persuade the United States our own policy in China of keeping a foot in the door, or abandon the whole of our interests in China in order to follow in the American wake. The fact that the United States have asked us to take charge of their interests in China suggests that they are not unwilling that we should adopt a different course from their own, and in the circumstances I recommend that we should adhere to the policy of remaining in China as long as we can.
The Extent of our Commitments ··
17. It is necessary to examine whether, by adopting a different policy from that of the United States, we are entering into commitments which are in excess of our capabilities in our present straitened circumstances. The answer, I think, is that we should, in fact, be entering into no major commitments. The only step which His Majesty's Government are being asked to take at present is to ensure that merchant vessels are able to enter the port of Shanghai in order to bring relief to our merchant communities. If, in the event, there is no relief and British firms decide to close down, we shall be asked to provide facilities for evacuation, and this we should be prepared to do. Apart from the fact that the escorting of British merchant ships might entail a "clash with the rapidly disintegrating Nationalist Government of China, we are not likely to be called upon to accept any major risks or to incur any vast expenditure. If in the event our policy of keeping a foot in the door proves to be a failure and we have to withdraw from China altogether, we shall be no worse off than if we withdraw now.
Position of His Majesty's Ambassador in China
18. I pass now to the position of our Ambassador in China. The United States Government, who at one time advocated that like-minded Powers should take concerted action, withdrew their Ambassador from Nanking for consultation without waiting for other Powers. The French Ambassador, who is ill in Shanghai, has received instructions to return as soon as he is fit to travel. The Netherlands Ambassador, who has reached retiring age, has been recalled. The Indian Ambassador at Nanking has recommended that he should be recalled to New Delhi for consultation before the formation of a coalition Government. The lack of shipping and air transport renders it unlikely that any heads of foreign missions at Nanking will be able to leave for the time being.
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19. Sir Ralph Stevenson remains at Nanking. But when it appears likely that a Communist Central Government is about to be set up, I consider it will be desirable to withdraw him for consultation. For if he then remains at Nanking the Communist Government may demand either immediate recognition or his immediate withdrawal, which might place us in an embarrassing position and force us to make a decision before we are ready to do so. As indicated in Annex A, the question of recognition of a Communist Government is closely connected with the question of Chinese representation in the United Nations Organisation, and it will clearly be necessary to consult with other Commonwealth Governments and with the United States and France before deciding upon an act of recognition.
20. In the above circumstances I propose to authorise Sir Ralph Stevenson to withdraw when it appears likely that a Communist Central Government is about to be set up. On present information this may be in September or October of this year. We should notify other Commonwealth Governments and the United States of our intention.
Control of Strategic Materials
21. At their meeting on 22nd July (S.A.C. (49) 6th Meeting, Minute 1) the China and South-East Asia Committee decided the terms of the reply to be made to the United States Government's representations on the subject of the control of the flow of strategic materials to China. This reply did not satisfy the United States Government, and a memorandum on the subject, which will be foundget 446ef was handed to the Ministerpa State Uf Sigh August.
22. Though it is not clear that the United States have any grounds for their apparent anxiety on this question, it is clear that they attach great
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importance topito and I have been warned that the matter pill be raised during my forthcoming visit to Washington. I recommend that I should be authorised to reply in the terms of the draft which will be found at Annex E.
Summary of Recommendations
I recommend that :-
(1) If a satisfactory reply is received from the Nationalist Government about the passage of relief ships, immediate steps should be taken to arrange for their passage to Shanghai with the necessary relief stores. (2) If, as appears probable, the Nationalists only agree to the passage of single vessels for repatriation purposes, the decision be taken in principle to escort British merchant vessels past the blockade to Shanghai; and that the United States Government be informed of this decision, which should not be put into effect until their reaction is known.
(3) I be authorised to discuss our policy towards China with Mr. Acheson on the basis of this paper and in particular of Annex A; that I should seek to persuade him that this policy is the right one; but that if the United States do not feel able to follow it themselves, they should not criticise us for so doing.
(4) His Majesty's Ambassador at Nanking be instructed to withdraw for consultation when it becomes apparent that a Central Communist Government of China is about to be set up; and that the other members of the Commonwealth, the United States, France and other friendly Powers be informed of our intention.
(5) I be authorised to reply to the State Department on the lines of Annex E
on the control of the flow of strategic materials to China.
(6) Other Commonwealth Governments also be informed of our intentions as
regards recommendations (1), (2), (3) and (5).
23rd August, 1949.
·E. B.
General
ANNEX A
CHINA REPORT BY OFFICIALS
There do not seem to be any further grounds for hope that the Communists will fail in their bid for complete power in China. Effective or prolonged resis- tance cannot be expected from the discredited Nationalist Government, which can no longer hope for large-scale outside assistance, nor, a fortiori, from any splinter factions into which the Nationalist Government may disintegrate. Planning must therefore be on the assumption of Communist domination of the whole of China in the near future.
2. There is no doubt that the present leaders of the Chinese Communist Party are orthodox Marxists-Leninists and that their present strongly pro-Soviet policy constitutes a serious threat to Western political and economic interests not only in China but also in South-East Asia.
3. As regards South-East Asia, it would appear of cardinal importance to encourage the establishment of an effective anti-Communist front to prevent Communist encroachment beyond the borders of China. As regards China itself, it is considered that at the present stage any outside attempt to prevent the Com- munists from attaining complete power would not only be bound to fail but would rally the traditionally xenophobe Chinese behind their new rulers, and that to display a general and avowed hostility to the new régime is calculated to drive it further into the arms of Moscow.
4. It is therefore considered that the only hope of encouraging the emergence in China of a less anti-Western tendency is to give the new régime time to realise both the necessity of Western help in overcoming its economic difficulties, and the natural incompatibility of Soviet imperialism with Chinese national interests (e.g., in Manchaga)477 of 662