Memorandum from W. Walton Butterworth to the Acting Secretary of State

STANDARD FORM NO. 64 Office Memorandum UNITED STATES GOVERNMENT TO : The Acting Secretary DATE: June 7, 1949. FROM : FE, Mr. Butterworth WWB ARCHIVES RECORDS NATIONAL AND DECLASSIFIED SERVICE E. O. 11652, Sec. 3(E) and S(D) or (E) SUBJECT: Situation in China Depr. of State letter, Aug 9, 1973 3-15-25 STORET HC , NARS Date 7-20-76 Following are the high points of the current si tuation in China as reported by the Embassy in its JOINT WEEKA No. 20 of June 3: The center of gravity in China is now well within the Communist lines. In the remaining areas of Nationalist China the Nationalist leaders still continue to flounder about vainly seeking formulae which would enable them to continue resistance. However, not only are they failing in this, but they have so far failed to achieve unity even among themselves. The moribundity of the Nati onalist Government is so far advanced that present signs indicate that the move of the capital from Canton to Chungking by the group support- ing Acting President Li Tsung-jen is destined to failure and that the move to Formosa by elements supporting the Generalissimo is doomed by the discredited record of the Nationalists. The break between Acting President Li and the Generalissimo still remains the greatest single obstacle to unified Nationalist resistance in South China and the rift between them is widening, further reducing the possibility of military and political cooperation. Over-all Na- tionalist military policy for resistance is nonexistent with the result that individual Nationalist forces are ripe to be picked off by the Communists. After reviewing the Generalissimo's actions since his "retirement" in January, it is inconceivable that any measurable portion of his military forces or his financial hoard- ings would be released to Acting President Li; it seems rather that the Generalissimo will continue to jockey for position as the ultimate saviour of China by offering Li only that which will not jeopardize the Generalissimo's own position and at the same time give the impression of full cooperation with the National Government. The Chinese Communists' take-over of Shanghai is proceeding along customary lines of the Communist pattern, although apparently with greater respect for foreign interests than they have hitherto shown. Communicati ons and transport with Shanghai are being rapidly restored and the Communists apparently are endeavoring to get inter- national shipping moving into the port as rapidly as possible. There are a number of signs that Manchuria, as distinct from North China and especially Central China, will be a separate economic and financial unit operating under Sovit guidance, if not direct manage- ment. The Communi: sts may be expected to follo a reasonably lenient policy vis-a-vis commercial and business interests at Shanghai for the time being to reduce the shock of the turnover on the economy. While the Chinese Communist press continues to follow the Soviet line by moderating attacks on Western Powers, there is no sign that the change is permanent, much less genuine. FE: CA: PDSprouse: hst