Beyond the carrot and stick: the political economy of US military aid to China, 1945–1951

Abstract

By applying the rent-seeking assumption and sifting through both the archival materials and published historical documents, this article revisits the US–China relationship during the Chinese Civil War (1946–1949) and the early Cold War period, when the United States was caught in the conundrum of aiding the Chinese Nationalists led by Chiang Kai-shek. As military aid is usually regarded as an important representation of broader economic aid, this research mainly concentrates on the US military assistance to postwar Nationalist China. This topic is important, as it signifies a direct American involvement in the Chinese Civil War, when the influence of the United States in postwar world politics was overwhelmingly predominant. As a result, postwar Chinese history might be reevaluated in a broader global postwar context. In addition, this article also tells the story about rent-seeking behaviors in the complicated US–China military relations during the early Cold War period at both micro and macro levels. When it came to US military assistance to China, the formulation of policy was perennially in the name of one's best interest.

Keywords:

• Chiang Kai-shek
• George Marshall
• Charles M. Cooke
• models

Acknowledgements

This research project was sponsored by a research grant from Taiwan's National Science Council (98-2410-H-007-015). The authors also wish to express their deep appreciation to the staff of the Hoover Institution Archives, Stanford University, and the US National Archives and Records Administration II (College Park, Maryland), for their most helpful assistance while this research was undertaken.

Notes

¹See, for example, Lloyd Eastman, Seeds of Destruction: Nationalist China in War and Revolution, 1937–1949 (Stanford: Stanford University Press, 2000); Suzanne Pepper, Civil War in China: The Political Struggle, 1945–1949 (Berkeley: University of California Press, 1978); Dorothy Borg and Waldo Henrichs, eds., Uncertain Years: Chinese–American Relations, 1947–1950 (New York: Columbia University Press, 1973).

²On the RAM and its theory, see Graham T. Allison, Essence of Decision: Explaining the Cuban Missile Crisis (Boston: Little, Brown and co., 1971).

³Ibid., 264–66.

⁴This is referred to as “bounded rationality” in economic and management science, attributed to the Nobel Laureate of economics Herbert A. Simon. See Herbert A. Simon, Models of Bounded Rationality, 2 vols. (Cambridge, MA: MIT Press, 1987).

⁵See Chen Tsun-Kung, Lieqiang dui zhongguo de junhuo jinyun─minguo banian zhi shibanian [The China Arms Embargo, 1919–1929] (Taipei: Institute of Modern History, Academia Sinica, 1983).

⁶See Ramon H. Myers, “Frustration, Fortitude, and Friendship: Chiang Kai-shek's Reactions to Marshall's Mission” in George C. Marshall's Mediation Mission to China: December 1945–January 1947, ed. Larry I. Bland (Lexington, VA: George C. Marshall Foundation, 1998), 149–72; Herbert Feis, From Trust to Terror: The Onset of the Cold War, 1945–1950 (New York: Norton, 1970), 74–76.

⁷Odd Arne Westad, Decisive Encounters: The Chinese Civil War, 1946–1950 (Stanford: Stanford University Press, 2003), 35–40.

⁸For the estimate of Lend-Lease aid, see United States Department of State, ed., Foreign Relations of the United States: 1946, vol. 10 [Hereafter, FRUS] (Washington, DC: US Government Printing Office) 731. For President Truman's approval of the extension, see ibid., 727–28.

¹⁰Statement by President Truman on United States Policy toward China, December 15, 1945, in The China White Paper: August 1949, ed. Lyman Van Slyke (Stanford: Stanford University Press), 607–9.

⁹See Qin Xiaoyi, ed., Zhonghua minguo zhongyao shiliao chubian─dui ri kangzhan shiqi [First Selection of Historical Materials on the Republic of China – the Period of the War against Japan] (Taipei: KMT Party Historical Committee, 1981), 7: 3, 48.

¹¹United States Department of State, ed., FRUS: 1945, vol. 7, 745–70.

¹²Memorandum of Conversation, by Lieutenant General John E. Hull, War Department General Staff, in United States Department of State, ed., FRUS: 1945, vol. 7, 762.

¹³Ibid., 762–63.

¹⁴Memorandum of Conversation, by General Marshall, in United States Department of State, ed., FRUS: 1945, vol. 7, 769.

¹⁵For a further discussion on the Chinese domestic scene at the early stage of Marshall's mission in China, see Larry N. Shyu, “In Search of Peace in Postwar China: The Domestic Agenda” in George C. Marshall's Mediation Mission to China, 275–92.

¹⁹Chiang's diary entries for 22 and 23 January 1946, Chiang Kai-shek Diaries, Box 45.

¹⁶Charter for the Interim Government of the Republic of China, in United States Department of State, ed., FRUS: 1946, vol. 9, 139–41.

¹⁷See Chiang's diary entry for 22 January 1946, Chiang Kai-shek Diaries, Hoover Institution Archives, Stanford University, Box 45.

¹⁸Marshall to President Truman, 23 January 1946, FRUS: 1946, vol. 9, 142.

²⁰Marshall to President Truman, 23 January 1946, FRUS: 1946, vol. 9, 143.

²¹Westad, Decisive Encounters, 40–45.

²²Van Slyke, ed., The China White Paper, 356.

²³Marshall to Lieutenant General Alvin C. Gillem, Jr., 27 September 1946, in FRUS: 1946, vol. 10, 761. See also George C. Marshall, Marshall's Mission to China, Volume 1: The Report (Arlington, VA: University Publications of America, 1976), 395.

²⁴Freda Utley, The China Story (Chicago: Henry Regnery, 1951), 13.

²⁶Marshall's testimony before the House Committee on Foreign Affairs on 20 February 1948, quoted in Van Slyke, ed., The China White Paper, 355.

²⁵According to Dean Acheson, the embargo was lifted on 26 May 1947. See Dean Acheson, Present at the Creation: My Year in the State Department (New York: Prentice-Hall, 1951), 304. See also Grace M. Hawes, The Marshall Plan for China: Economic Cooperation Administration 1948–1949 (Cambridge, MA: Schenkman, 1977), 13.

²⁷William Adams Brown Jr. and Redvers Opie, American Foreign Assistance (Washington, DC: The Brookings Institution, 1953), 324.

²⁸Ibid., 321–26; Marc Gallicchio, “About Face: General Marshall's Plan for the Amalgamation of Communist and Nationalist Armies in China” in George C. Marshall's Mediation Mission to China, 391–408.

²⁹Colonel Marshall Carter to Marshall, dated 5 December 1946, in FRUS: 1946, vol. 10, 806–7.

³⁰Memorandum by the Assistant Chief of Naval Operations (Dennison) to the Director of the Office of Far Eastern Affairs (John Vincent), 6 December 1946, FRUS: 1946, vol. 10, 801–2; Marshall to Colonel Marshall S. Carter, 8 December 1946, FRUS: 1946, vol. 10, 807.

³¹Marshall to Colonel Carter, 8 December 1946, FRUS: 1946, vol. 10, 809; Colonel Carter to Marshall, 10 December 1946, FRUS: 1946, vol. 10, 807–8.

³²State Department memorandum, 29 April 1946, FRUS: 1946, vol. 10, 835.

³³Byrnes to John Leighton Stuart, 30 October 1946, FRUS: 1946, vol. 10, 803.

³⁴United Kingdom of Great Britain and North Ireland and China, Exchange of Notes Constituting an Agreement for the Transfer of Certain British Naval Vessels to China and the Mutual Waiver of Claims in Respect of the Loss of Other Vessels, dated 18 May 1948, in Treaty Series: Treaties and International Agreements Registered or Filed and Recorded with the Secretariat of the United Nations, ed. The United Nations, vol. 66 (New York: The United Nations, 1950), 113–18.

³⁵Byrnes to Stuart, 30 October 1946, in FRUS: 1946, vol. 10, 803.

³⁶On the US–British competition in postwar China, see Lanxin Xiang, Recasting the Imperial Far East: Britain and America in China, 1945–1950 (New York: M.E. Sharpe, 1995).

³⁷State Department to British Embassy in Washington, 6 January 1947, FRUS: 1946, vol. 10, 785–86.

³⁸John Lewis Gaddis, We Now Know: Rethinking Cold War History (Oxford: Clarendon Press, 1997), 43–48.

³⁹V.K. Wellington Koo, Gu Weijun huiyilu [The Memoirs of Mr. V.K. Wellington Koo] (Beijing: Zhonghua shuju, 1988), vol. 6, 90–91.

⁴⁰China Aid Act of 1948 in Van Slyke, ed., The China White Paper, 991–93.

⁴¹Ibid., 387–90; June M. Grasso, Truman's Two China Policy (New York: M.E. Sharpe, 1987), 20–27.

⁴²Brown and Opie, American Foreign Assistance, 334.

⁴³Ibid.

⁴⁴Ibid., 334–5.

⁴⁵See “Categories of American Military Aid Extended to China Since V-J Day” in Van Slyke, ed., The China White Paper, 972; “Report Received from the Chinese Embassy on the Use of Funds Obtained under the $125 Million Grants” in ibid., 952–53.

⁴⁶Arnold A. Offner, Another Such Victory: President Truman and the Cold War, 1945–1953 (Stanford: Stanford University Press, 2002), 307–46.

⁴⁷US National Archives and Records Administration (NARA) II (College Park, Maryland), Record Group (RG) 59, Records of the Department of State, Decimal Files, 794A.00/1-3050, Robert Strong to Dean Acheson, 30 January 1950; 794A.551/2-250, State Department Office Memorandum, 2 February 1950.

⁴⁸NARA, RG 59, 794A.00/1-3150, Strong to State Department, 31 January 1950; 794A.5511/2-350, State Department Memorandum of Conversation, Subject: Visits by Air Force Intelligence Personnel to Taiwan, 2 February 1950.

⁴⁹Academia Historica (Taipei), Chiang Kai-shek Papers (CKSP), Specially submitted archives (S)/Foreign affairs (F)/Relations with the United States-7 (US-7), No. 54506, General Zhu Shiming (head of Chinese Mission in Japan) to Foreign Ministry, 2 February 1950.

⁵⁰NARA, RG 59, 794A.00(W)/2-2450, Strong to State Department, 24 February 1950.

⁵¹Koo, Gu Weijun huiyilu, vol. 7, 709.

⁵²Ibid.

⁵³Maochun Yu, OSS in China: Prelude to Cold War (New Haven: Yale University Press, 1996), 256–60.

⁵⁴Edward J. Marolda, “The U.S. Navy and the ‘Loss of China’, 1945–1950” in George C. Marshall's Mediation Mission to China, 409–20.

⁵⁵K.C. Shah (aide, Office of the President, Republic of China) to Charles Cooke, 25 March 1950, Charles M. Cooke Papers, Hoover Institution Archives, Box 2; Cooke's personal memorandum entitled “How Formosa was Dropped but Did Not Fall”, 1953, Charles M. Cooke Papers, Box 11.

⁵⁶Personal memorandum from A.E. Gates of Commerce International China to Cooke, 6 December 1954, Charles M. Cooke Papers, Box 26.

⁵⁷John Lewis Gaddis, “Defensive Perimeter Concept, 1947–1951” in Uncertain Years, 88–89; Peter Dale Scott, Drugs, Oil, and War: The United States in Afghanistan, Colombia, and Indochina (New York: Rowman & Littlefield, 2003), 109–17.

⁵⁸“Internal Security”, Copy of Transcript of the Congressional Hearing on Admiral Charles M. Cooke, dated 19 October 1951, Alfred Kohlberg Papers, Hoover Institution Archives, Box 42.

⁵⁹Jiang Biao to James A. Gray (executive vice-president, CIC), 4 April 1950, Charles M. Cooke Papers, Box 26.

⁶⁰Agreement between the Board of Supplies, Executive Yuan, ROC and Commerce International China, Incorporated, 10 April 1950, Charles M. Cooke Papers, Box 26; Jiang Biao to Cooke, 15 April 1950, ibid.

⁶¹Cooke to Knowland, 10 April 1950, Charles M. Cooke Papers, Box 4.

⁶²NARA, RG 59, 794A.56/3-2950, Strong to State Department, 29 March 1950; 794A.56/4-1950, US Embassy (Manila) to State Department, 19 April 1950.

⁶³NARA, RG 59, 794A.56/4-150, US Embassy (London) to State Department, 1 April 1950; 794A.56/4-150, Dean Acheson to US Embassy (Manila), 1 April 1950; 794A.56/4-1950, US Embassy (Manila) to State Department, 19 April 1950.

⁶⁴Cooke to Fassoulis, 14 April 1950, Charles M. Cooke Papers, Box 26; Fassoulis to James Gray (executive president of CIC), 10 June 1950, Charles M. Cooke Papers.

⁶⁵Cooke to Forrest Sherman, 14 April 1950, Charles M. Cooke Papers, Box 8; “Basis of request by the Chinese Government April 1950 for Transfer of Surplus U.S. Vessels and Boats to China as authorized in U.S. Public Law 512”, April 1950, Charles M. Cooke Papers, Box 35.

⁶⁶Sherman to Cooke, 3 May 1950, Charles M. Cooke Papers, Box 8; Cooke's memorandum for Chiang Kai-shek, 10 June 1950, Charles M. Cooke Papers, Box 26; NARA, RG 59, 794A.00(W)/6-2450, Strong to State Department, 24 June 1950.

⁶⁷Memorandum for Chiang Kai-shek, 10 June 1950, Charles M. Cooke Papers, Box 26.

⁶⁸James Cray to Cooke, 21 June 1950, Charles M. Cooke Papers; Fassoulis to Gray, 24 June 1950, Charles M. Cooke Papers.

⁶⁹K.C. Shah to Cooke, 7 April 1950, Charles M. Cooke Papers, Box 2.

⁷⁰NARA, RG 59, 794A.022/8-1450, Memorandum by Lt. Col. Carl Poston (assistant army attaché in Taipei), Subject: Irving Ritchie Short, 14 August 1950.

⁷¹Cooke to General Zhou Zhirou (chief of the General Staff), 6 July 1950, Charles M. Cooke Papers, Box 27.

⁷²Robert Stairs (radar field engineer of CIC) to General Zhou Zhirou, 1 August 1950, Charles M. Cooke Papers.

⁷³S.G. Fassoulis to James Gray, 22 October 1950, Charles M. Cooke Papers, Box 26; Koo, Gu Weijun huiyilu, vol. 8, 436–39.

⁷⁴NARA, RG 59, 794A.561/11-1750, State Department Memorandum entitled “Radar and P-51’s for Formosa”, 17 November 1950.

⁷⁵Fassoulis to Gray, 28 November 1950, Charles M. Cooke Paper, Box 26.

⁷⁶Fassoulis to Gray, 23 and 26 January 1951, ibid.; Memorandum by Cooke, 1951 (n.d.), Charles M. Cooke Papers.

⁷⁷NARA, RG 59, 794A.561/2-1551, C.W. Jack (former chief account of CIC) to F.T. Murphy (Division of Economic Property Policy, State Department), 15 February 1951; Fassoulis to Gray, 23 January 1951, Charles M. Cooke Paper, Box 26.

⁷⁸Memorandum by Cooke to Chiang Kai-shek, 23 January 1951, Charles M. Cooke Papers; Koo, Gu Weijun huiyilu, vol. 8, 443–48.

⁷⁹Judd to Chiang Kai-shek, 20 March 1951, Walter Judd H. Papers, Hoover Institution Archives, Box 83; Chiang Kai-shek diary entries for 9, 10 and 11 March 1951, Chiang Kai-shek Diaries, Box 48.

⁸⁰See, for example, Time Magazine, September 3, 1951, 11–12.

⁸¹“Announcement by Chinese Embassy”, 1951 (n.d.), Charles M. Cooke Papers, Box 26.

⁸²Koo, Gu Weijun huiyilu, vol. 8, 540–42.

⁸³Memoranda from Cooke to Chiang Kai-shek, 8 June and 30 September 1951, Charles M. Cooke Paper, Box 27; Gray to Yin Zhongrong, 1 September 1951, Charles M. Cooke Papers, Box 26.

⁸⁴Quoted in June M. Grasso, Truman's Two-China Policy (New York: M.E. Sharpe, 1987), 25.

⁸⁵Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, NJ: Princeton University Press, 1963), 460.

⁸⁶In April 1949 alone, the amount of fabi issued was 15,483,720,000,000 million, while for the entire year of 1945, 1,031,900 million fabi were issued. See Richard C.K. Burdekin and Hsin-hui I.H. Whited, “Exporting Hyperinflation: The Long Arm of Chiang Kai-shek”, China Economic Review 16, no. 1 (2005): 71–89.

⁸⁷For a detailed investigation of the secret transfer of Nationalist gold reserves to Taiwan in 1948–1949, see Wu Xingyong, Huangjin dang'an—guofu huangjin yun Tai 1949 nian [Gold File: Transfer of Nationalist China's Gold Reserve from Shanghai to Taiwan in 1949] (Taipei: Taiwan Elite, 2007).

⁸⁸US Consul General Shanghai to the Secretary of State, 18 February 1949, FRUS: 1949, vol. 9, 737.

⁸⁹Acheson to Consulate General at Shanghai, 31 March 1949, FRUS: 1949, vol. 9, 752.

⁹⁰Prior to June 1946, the Nationalist government had secured a deal for purchasing more than 10 million ounces of silver from Mexico. See Koo, Gu Weijun huiyilu, vol. 7, 125.

⁹¹Lewis Clark (US minister–counselor of embassy in China) to Acheson, 29 May 1949, FRUS: 1949, vol. 9, 783.