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    "label": "Report, Central Intelligence Agency, China, Situation Report 8",
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    "id": "486499023",
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    "title": "Report, Central Intelligence Agency, China, Situation Report 8",
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        "President's Secretary's Files (Truman Administration)",
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{
    "seq": 8,
    "pageIndex": 0,
    "type": "photo",
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    "ocrText": "SECRET\ntime might result in the domination of China by the Chinese Communist Party. As a\nlast-resort alternative to disintegration, the National Government might seek a com-\npromise settlement of its conflict with the Chinese Communists. But it is inconceivable\nthat the Chinese Communists would accede to such a settlement except on terms which\nwould give them a dominating position in the Government. In the case of either dis-\nintegration or compromise, however, it is probable that acute political and economic\ndisorganization would prevail in China for several years. This disorganization would\nretard the development of a Communist China as an effective instrument of Soviet\npolicy.\nDeteriorating economic conditions are exerting a cumulative impact on the political\nstructure of the National Government. While it is true that China's economy, pre-\ndominantly agrarian, is not susceptible to sudden or complete paralysis, nevertheless\nthere is a real danger that without foreign aid, inflation might assume runaway propor-\ntions and quickly lead to a virtually complete collapse of the national currency. Such\na collapse undoubtedly would seriously disrupt the economic activities of China's im-\nportant coastal cities; more significantly, it would probably produce a political crisis\nof the first magnitude and deprive the National Government of the means of providing\nadequate financial or material support to the Nationalist military forces.\nIn foreign relations, questions concerning the neighboring states of Japan and the\nUSSR are of paramount interest to China. For reasons of security, China favors a\n\"hard\" peace settlement with Japan, which would prevent the resurgence of the Island\nEmpire as a strong military and economic power. It is equally important for China to\nestablish a modus vivendi with the USSR, for in the period of present concern China\nunaided cannot match Soviet power. With the US, China's relations have traditionally\nbeen friendly, and now more than ever China looks to the US for assistance in solving\nits internal and external problems. However, continuing deterioration in the National\nGovernment's position might cause traditional Chinese cooperation with the US on\ninternational issues to waver, inasmuch as Nanking would be inclined to a course of\nopportunism in order to avoid direct conflict with the USSR.\nThe military advantage in the civil war is shifting to the Chinese Communists,\nwho for several months have been demonstrating that they possess the strategic initia-\ntive. The military potential of the Nationalist forces has been seriously weakened by\nattrition of trained manpower, munitions, and materiel; the present extensive military\ncommitments have almost exhausted Nationalist reserves. The forces of the National\nGovernment in Manchuria are in a precarious position. The larger groupings of Na-\ntionalist troops in North China now face increased threats to their communications,\nas a consequence of recent Communist thrusts southward which have established\nnew base areas in Central China north of the Yangtze. The National Government has\nlittle reserve troop strength with which to oppose a continuation of such Communist\nthrusts in Central and even into South China, operations which appear to be within\nCommunist capabilities.\nIn the Chinese civil war, the USSR thus far has refrained from overt material\nassistance to the Chinese Communists and, in accordance with the Sino-Soviet Treaty\nof 1945, continues to recognize the National Government as sovereign in China. It is\nSECRET\nii"
}