. F It/1

T 13

GOVERNMENT

FUTURE IMPORTANCE OF TAIWAN AND THE

REPUBLIC OF CHINA TO U.S. SECU RITY AND

' ECONOMIC INTER ESTS

Storage = = = = =

> M E N T S 

nuV 20 1973

. cl i—I cz> ire/- * rx i 

K A N S A S S T A T E U N IV E R S IT Y

H E A R I N G S

BEFORE (THE

SUBCOMMITTEE ON 

ASIA N AND PACIFIC AFF AIR S

OF THE

COMMITTEE ON FO REIGN AF FA IRS 

HOU SE OF RE PR ES EN TA TIVE S

NINE TY -TH IRD CONGRESS 

FIRST SESSION

JULY 25; AUGU ST 1, 1973

Printed for the use of the Committee on Foreign Affairs

21-846

U.S. GOV ERNMEN T PRINT ING OFFICE

WASHINGTO N : 1973
^2 ’

CO M M IT TEE ON FO R EIG N A F F A IR S

TH OM AS E. M OR GAN , Pe nnsy lv an ia , Chai rm an

CLEM EN T J. Z A B L O C K I, Wisc on sin

W A YN E L. H A YS, Ohio

L. H. FO U N TA IN , North Car ol in a 

DA N TE B. F A S C E L L , Fl or id a 

C H A R LE S C. DIG G S, J r., M ichiga n 

R O BERT N. C. NIX , Pen nsy lv an ia 

DONAL D M. F R A SE R , Minne so ta 

BEN JA M IN S. R O SE N TH AL, New Yor k 

JO HN C. CU LV ER , Iow a 

LEE II. H AM IL TO N , In dian a 

ABRA H AM K A Z E N , J r., Te xa s 

LE ST E R L. W O LFF, New Yo rk 

JO N ATH A N B. BIN GHAM , Ne w Yor k 

GU S YATR O N , Pen ns yl va ni a 

RO Y A. T A Y LO R , No rth Ca ro lin a 

JO HN W. D A V IS , Ge orgia 

OG DE N R. REID . New Yo rk 

M IC H AEL H AR RIN GTON, M as sa ch us et ts 

LE O J. R YA N , Cal ifor nia 

C H A R LE S W IL SO N, Te xa s 

DON ALD W. R IE G L E , J r., M ichiga n

W IL LIA M S. M A IL LIA R D , Cal if or nia 

P E T E R H. B. F R E LIN G H U Y SE N , New Je rsey 

W IL LIA M S. BRO O M FIE LD , Mich iga n 

H. R. GROSS , Io wa

ED W A R D J. D ER W IN SK I, Illin oi s 

VER NON W. TH OM SO N, Wisc on sin 

P A U L F IN D L E Y , Illin oi s 

JO HN H. BU CH AN AN , J r., Al ab am a 

J. H E R B E R T B U R K E, Flo ri da 

GU Y VAN D ER JA GT, M ichiga n 

R O B E R T H. ST E E L E , Co nn ec ticu t 

P IE R R E S. do PO NT, Delaw ar e 

C H A R LE S W. W H ALE N , J r., Ohio 

R O B E R T B. (B OB) M A TH IA S, Ca lif or ni a 

E D W AR D G. B IE ST E R , J r., Pen ns yl va ni a 

LA R R Y W IN N, JR., K an sa s 

B EN JA M IN A. GIL M AN , Ne w Yo rk 

TE N N YSO N GU YER, Ohio

Mar ia n A. Cz a r n e c k i, C h ie f o f S ta ff

Subc om mitte e on A sia n an d P a c if ic Af fa ir s

R O B E R T N. C. N IX , P en nsy lv an ia , C hai rm an

L E E H. H AM IL TO N , In di an a 

L E S T E R L. W O LFF, Ne w Yo rk 

JO HN W. D A V IS , Ge or gia 

RO Y A. TA YLO R , North Ca ro lin a 

LE O J. R YAN , Cal ifor nia 

DO N ALD W. R IE G L E , J r., M ichiga n

W IL LIA M S. BR O O M FIE LD , Mich iga n 

VER NON W. TH OM SO N, Wisc on sin 

J. H E R B E R T B U R K E , Flo ri da 

P IE R R E S. DtJ PO NT, Delaw ar e 

TEN N YSO N GU YE R, Oh io

A

T h om as R. K e n n ed y, S u b co m m it te e S ta ff C o n su lt a n t

Don na Ga il Wy n n , S ta ff A ss is ta n t

(I I)
C O N T E N T S

L IS T OF W IT N ESSES

W ed ne sd ay , J uly 25, 1972 : Page

K ea rn s, H en ry , P re si d en t an d C ha irm an of th e B oar d of D irec to rs, E xport-I m port B an k of th e U nited S ta te s------------------------------------- 1 W’ilb ur , C. M ar tin, Pro fe ss or of Chine se H is to ry , E a st Asia In st it ute , Co lum bia U niv er si ty _____________________________________________ 23

W ed ne sd ay , A ug us t 1, 19 73: Ciccole lla, M aj or G en er al R ic har d G. (R et. ), fo rm er Co mm an ding Gen eral, U.S. M ilitar y A ss ista nc e an d Adv iso ry Gr ou p, Rep ub lic of C h in a ___________________________________________________________ 49 Mi chael, Fra nz , pr of es so r, In sti tu te fo r Sino -S ov iet Stu di es , Georg e W as hi ng to n U niv er si ty ---------------------------------------------------------------- 35

M ATER IA L SU BM IT TED FO R T H E RE CO RD

Re pu blic of C hi na 's ati onal Bud ge t, 196 9-1972 ___________________________ 3 T aiw an’s E xports to Ja p a n an d U.S., 1971 an d 1972____________________ 17 S ta te m en t of A dm iral Je ra u ld W righ t, U.S .N. (R et. ), fo rm er Amba ss ad or to th e Rep ub lic of C hin a_____________________________________________ 31 Sta te m en t of Pro fe ss or R al ph Po well , School of In te rn ati o n al Servi ce, American U ni ve rs ity , W as hi ng to n, D.C ----------------------------------------------- 33

A PPEN D IX

L ett er from E vere tt F. D ru m ri ght, fo rm er A m ba ss ad or to th e Rep ub lic of Chi na ______________________________________________________________ 61 L ett er from K arl L ot t R an kin , fo rm er A m ba ss ad or to th e Rep ub lic of Chi na ______________________________________________________________ 63

(i n)

FUTURE IMPORT ANC E OF TAIWA N AND THE REP UBLIC OF CHIN A TO U.S. SECU RIT Y AND ECONO MIC 

INT ERE STS

W E D N E SD A Y , JU L Y 25, 19 73

H ouse of R ep re se nt at iv es ,

C ommit te e on F oreig n A ff air s,

S ubc om mit te e on A si an an d P a cif ic A ff air s,

Washin gto n, D.C.

The subcommittee met at 11 a.m. in room 2255, Rayburn House Office Building, Hon. Robert N. C. Nix (chairman of the subcommittee) 

presiding.

Mr. Nix. The subcommittee will come to order. The purpose of these 2 days of hearings is tha t of providing infor­ mation for the subcommittee members and the public. No one would deny that this area of the world is of crucial importance to the United 

States and to the peace of the world. We have gathered together some of the finest witnesses available on / 

the subject of Taiwan and the important questions American policy 

planners must face in the area. We look forward to their testimony and we expect to find it most 

useful. The first witness for today is the Honorable Henry Kearns, President, Export-Import, Bank of the United States. We welcome you, sir. Please introduce your colleagues.

STATEMENT OF HENRY KEARNS, PRESIDE NT AND CHAIRMAN OF

THE BOARD OF DIRECTORS, EXPORT-IMPORT BANK OF THE

UNITED STATES

Mr. Kearns. Thank you very much, Mr. Chairman. I am delighted to appear before you and your committee and to dis­ cuss this important subject. I am pleased that I have with me Mr. Don Bostwick, the Executive Vice President of the Exp ort-Import Bank, and Mrs. Nancy Pigman who is our Congressional Liaison officer.

Mr. Nix. Thank you.

Mi-. Kearns. With your permission, Mr. Chairman, I have a brief statement and it will take me about 11 minutes to read it. The reason for reading it is that there is a lot of detail in it, and then I will of course be pleased to answer any questions you may have.

Mr. Nix. You may proceed, sir.

Mr. Kearns. Mr. Chairman and members of the committee, it is a privilege to respond to the invitation of Chairman Nix to discuss with

(1)
2

you current economic developments in the Republic of China. I his is 

one of 124 countries served by the Export-Im port Bank of the I nited 

States. As you know, the purpose of the Bank is to assist in the export 

of U.S. goods and services, and we do so through a variety of facilities, 

including direct loans, guarantees of loans made by others, repayment 

insurance to exporters and certain subsidiary support activities.

For several years Eximbank has followed the policy of examining 

each transaction upon its merits. It is considered to be unwise to 

establish credit allocations to any country. Therefore, we have no goals 

or minimums in the amount of business to be done and no maximum 

amounts per se for any country. Each transaction, however, is evaluated on the basis of three criteria : first, tha t the credit to be extended 

must be for the purpose of paying for U.S. exports of goods and 

services; second, the project or operation in which a purchase is made 

must be economically viable to the borrower and to the borrower s 

country; and third, Eximbank must achieve reasonable assurance of 

repayment in U.S. dollars. It is obvious tha t in conducting a worldwide enterprise such as 

Eximbank it is essential that economic surveillance be maintained on 

each of the countries served. Fortunately, an excellent research department provides the Board of Directors with up-to-date factual 

data and evaluation. Our sources of information include the United 

States Foreign Service, international organizations, private banks, 

and extensive travel and communication by the Eximbank staff itself. 

Perspective and understanding of current and future trends is significantly enhanced through discussions with suppliers and buyers from 

all over the world. In this context, I will discuss the Republic of 

China, or Taiwan as it is sometimes known, as Eximbank sees it today.

Although recent international political developments surrounding 

the “China issue” have caused some uncertainties, visible effects on 

Taiwan’s economy have thus far been small. Elimination of certain 

exchanges in diplomatic representation and expulsion from membership in some international organizations have reduced the intercourse 

between the Republic of China and other countries. However, we must 

observe that internal economic development seems to have suffered 

little from these changes. They do not seem to have deterred the 

dynamic export tren d; rather they have undoubtedly been responsible 

for increased production and marketing effort. Despite foreign policy 

uncertainties, Taiwan's economy is continuing its vigorous growth 

with nearly all sectors of the economy sharing in the rapid expansion.

During the 10 years from 19G2 through 1971, real gross national 

product increased at an average annual rate of approximately 10 percent. The increase was 11 percent in 1971, and somewhat higher in 

1972.

To be sure, there exist uncertainties in the international political 

sphere which eventually could affect the country’s economy. Nonetheless, a strong record of economic growth, general good monetary 

and fiscal management, continued excellent performance in the external sector, and moderate external debt service requirements all 

indicate the Republic of China’s basic economic vitality and creditworthiness.

The country has a population of 15.2 million, with a current per 

capita GXP of approximately $474. By comparison, Thailand, with
3

a population of 39 m illion, lias a p er capital GXP of $174; t he P hil ip ­

pines, with a po pu lat ion of 40 millio n, has a pe r capit a GXP of $200; 

and Korea, wi th a po pu lat ion of 33 million , lias a pe r ca pita GXP of 

$302.

Ta iw an 's six th 4-ye ar plan, 1973-1976. became o perat ive in Ja nuar y 

1973 and calls fo r an ave rage an nu al g row th rat e fo r GXP in constant 

terms of 9i/o perce nt, with exports of goods and services to increase 

by 12.9 percen t and im po rts by 15 p ercent. While in worldwid e com ­

parison these rat es wou ld ap pe ar to be h igh , whe n viewed in the lig ht 

of past performance they ap pe ar to he somewh at con serv ativ e. Mo reover, the Go vernm ent tra di tio na lly has ten ded tow ard con servatism 

in its pro jections o f economic perform anc e.

Th e pla n calls fo r gro ss na tio na l prod uct to increase in ter ms of 

curre nt prices fro m $7.2 b illion in 1972 to $11.6 billion in 1976, with a 

pe r c apita income g oal o f a t least $550. Tota l exter nal trad e in cu rre nt 

prices would increase fro m $5.6 billion in 1972 to $11 billion in 1976. 

To tal fixed capital inv est me nt in indu str y fo r the six th pla n period 

is set at $5.9 billion, wi th the largest am oun ts sla ted for metal and 

metal pro ducts (in clud ing iron an d steel, alum inu m, mach ine ry, tra nspo rta tio n equ ipm ent, and elec trical and elec tronics equip me nt) $1.8 

billion ; chem icals, $1.5 billion, and manmade fibers $0.6 billion.

Gover nm ent fiscal policy has been con serv ativ e. As a result, the 

Republic of Ch ina’s n ati onal budget has been in surplus for the pas t 

several yea rs. I have a ch art indica tin g this. In 1969 the surplus was 

$76.3 million, in 1970 the surplus was $33.4 million, in 1971 th e surplus 

was $38.3 million , an d in 1972 the surplus was $85 million , on a con ­

secutive basis. Th at seems like a n enviable position.

[The ch art follow s:]

REPUBLIC OF CHINA’S NATIONAL BUDGET, 1969 72

[In millions of U.S. dollars)

Fiscal year ending June 30—

1969 1970 1971 1972

Total receipts____________ ___ ........................ 1,067.7 1,217.9 1, 342.1 1,620.0

Total expenditures ( —) ________ ........................ 991.4 1,184.5 1, 303. 8 1, 535. 0

Surplus or deficit ( —) ___ ....................... 76.3 33.4 38.3 85.0

Mr. Kearns. The balance-o f-payme nts pe rformance has been s tro ng , 

with a s urplus of $582 million r egistere d in 1972, up f rom $219 m illion 

in 1971, the increase resu lting lar gely from a trad e su rplus which in ­

creased fro m $291 million to $643 million on an f.o.b. basis in the same 

period.

Xet foreign assets of the ba nk ing syste m on Ju ne 30, 1973, are estima ted at $1.7 billion, up from $1.6 billion at the end of 1972.

It is obvious th at Ta iw an 's conti nued economic grow th dep end s to 

a very larg e exten t on expansion of its foreig n tra de . Fo r the fore seeable future, the pro spe cts ap pe ar to be exc eedingly fav ora ble , even 

thou gh the country is ove rly dependent upon the U.S. marke t which 

absorbed about 44 perce nt of Ta iw an 's exports, wo rth $1.3 billio n in 

1971.
t

4

With unusually large foreign orders already on the books for most 

industries, it appears tha t real growth in calendar year 1973 may reach 

12 percent. However, severe international monetary developments, 

such as price increases of primary commodities, and shortages may 

somewhat lower this growth record.

During the 7-year period of 1965-72, exports grew at an average 

annual rate of 32 percent against 26 percent for imports, and Taiwan’s 

labor-intensive manufacturers, particularly electronic components and 

textiles, continue to enjoy high demand. The recent 5.3 percent upward 

valuation of its currency vis-a-vis the U.S. dollar will increase the cost 

of its products exported to the United States while reducing the cost 

of imports, thus tending to reduce the substantial trade surplus with 

the United States. One factor that has influenced industry on Taiwan to 

diversify its production has been the negotiated textile export quota 

arrangements. Even so, textile exports reached $860 million in 1972, 

up 40 percent from 1971, and are expected to pass the billion-dollar 

mark in 1973.

While the United States is the most im portant market for Taiwan's 

exports, Japa n has been the source for most of its imports. But this 

is changing; and while Japa n accounted for 41 percent of Taiwan's 

imports in 1968, it was reduced to 38 percent in 1972, and the trend 

continues downward. At the same time, the U.S. participation has 

expanded from $22 million in 1970 to $663 million in 1972, and the 

U.S. share of Taiwan’s imports will probably exceed 30 percent in 

1973.

"VAs a result of the sharp increase in the exchange rate of the Japanese 

yen and the apparent focus of Japanese attention upon mainland 

China, there has been a conscious effort in Taiwan to direct trade from 

Japan to the United States to the fullest extent possible. However, 

there is still a very substantial built-in demand for Japanese machinery, equipment, and replacement parts resulting from past trade 

relationships.

Prelim inary data suggest that first quarter 1973 exports were more 

than 50 percent above the 1972 level, with greater diversification of 

products and penetration of more world markets. I t would not appear, 

therefore, that recent international setbacks of a political nature have 

been effective in slowing Taiwan’s export drive. The outlook for its 

foreign trade, and hence its economic growth, appears at this time to 

be exceedingly favorable.

At the end of 1972, Taiwan’s disbursed public and private external 

debt, including short-term debt of $335 million, totaled $1,152 million, 

up $266 million from 1971. The structure of the debt at the end of 

1972 was short term, 21.5 percent; medium term, 37.3 percent; and 

long term, 41.1 percent; which is really a most enviable relationship 

with most other countries. Debt service payments on medium- and 

long-term debt in 1973 are estimated at $236 million, or perhaps less 

than 5 percent of foreign exchange income.

During the past 4 years, Eximbank's exposure in the Republic of 

China has expanded from $72.2 million on December 31, 1968. to 

$890 million (estimated) on June 30, 1973. We believe that this 

expansion is eminently justified when compared to the growing economy, balance-of-payments surplus, and available convertible reserves.
a

The problems facin g the Republic of China are: Its limited size geographically, its high dependence upon imported primary products, possible political difficulties, and the reduction in its international association with the rest of the world. Its assets appear to be. among other things, the quality of its economic leadership; a strong, well-disciplined, active, energetic, re­ sourceful labor force; excellent cooperation and coordination among the various elements of the country; superb money management; ex­ cellent marketing ability, including maintenance of quality and expan­ sive effort; the modest incomes and standard of living of its leaders; and a generally favorable location on the trade routes of the world. Even with a growing economy and substantial reserves, it is evident that financing is essential in the continuing growth of Taiwan's econ­ omy. All industries, private or public, are expected to proceed on a 

pay-as-you-earn basis. The Government is undertaking development of a sound, adequate infrastructure, including expansion and distribution of its electrical power generation; improvement of its railways, highways, and ports; extensive efforts in education and health; and the maintenance of a standard policy of sending its bright young people abroad for study with the expectation of their return to assist in their country's growth. Attached are a series of charts that indicate Eximbank participation in the Republic of China, which I can explain in detail if they are not self-explanatory, and summaries of conversations t hat resulted from my recent visit and extensive examination of that country.

Thank you for giving me this opportunity. | The prepared statement of Mr. Kearns follows:]

Prepared Statem ent of H enry Kearns, P resident and Chair man of th e Board

of Directors, E xport-I mport Bank of th e United States

Mr. Chairman, Members of the Committee, it is a privilege to respond to the invitation of Chairman Nix to discuss with you curre nt economic developments in (he Republic of China. This is one of 124 countrie s served by the Export- Import Bank of the United State s. As you know, the purpose of the Bank is to ass ist in the export of United States goods and services, and we do so through a variety of facilitie s, including direct loans, gua rantees of loans made by others, repayment insurance to exporte rs and certain subs idiary support 

activities. For several years Exim bank has followed the policy of examining each tran s­ actio n upon its merits. It is considered to be unwise to establish credit allo ca­ tions to any country. Therefore, we have no goals or minimums in the amount of business to be done and no maximum amounts per se for any country. Eac h tran saction, however, is evaluated on the basis of three criteria : first, th at the credit to be extended must be for the purpose of paying for U.S. exjiorts of goods and service s; second, the project or operation in which a purchase is made must be economically viable to the borrower and to the borrower's co un try ; and third, Exim bank must achieve reasonable assurance of repay ment 

in U.S. dollars. It is obvious that in conducting a worldwide enterprise such as Eximbank, it is essential that economic surveillan ce be maintained on each of the countries served. Fortunately, an excellent research departm ent provides the Board of Directors with up-to-date factual data and evalu ation. Our sources o f information include the United States Foreign Service, intern ational organization s, private banks, and extensive trav el and communication by the Eximbank staff. Perspective and und erstanding of current and fut ure tren ds is significantly enhanced through discussions with suppliers and buyers from all over the world. In this context, I will discuss the Republic of China (Ta iwa n) as Exim bank 

sees it today.

21- S4C — '
Although recent internatio nal political developments surround ing the “China 

issue” have caused some uncerta inties, visible effects on Taiwan’s economy 

have thus fa r been small. Elim ination of certain exchanges in diplom atic representation and expulsion from membership in some intern ational organizations 

have reduced the intercourse between the Republic of China and other countries. 

However, we must observe that intern al economic development seems to have 

suffered litt le from these changes. They do not seem to have dete rred the 

dynamic export trend ; rather they have undoubtedly been responsible for increased production and marketing effort. Despite foreign policy uncertainties , 

Taiwan 's economy is contin uing its vigorous growth with nearly all sectors of 

the economy sharing in the rapid expansion.

During the ten years from 1962 through 1971, real Gross National Produ ct 

increased at an average annual rate of approxim ately 10 percent. The increase 

was 11 percent in 1971, and somewhat higher in 1972.

To be sure, there exist uncer tainties in the inte rna tional political sphere 

which eventually could affect the cou ntry 's economy. Nonetheless, a stron g record of economic growth, general good monetary and fiscal management, continued excellent performance in the extern al sector and moderate exte rnal debt 

service requirements all indicate the Republic of China’s basic economic vitality 

and creditworthiness.

The country has a population of 15.2 million, with a current per capita income 

of approxim ately $474. By comparison, Thailand, with a population of 39 million, has a per capita income of $174; the Philippines, with a population of 40 

million has a per capita income of $200; and Korea, with a population of 33 

million has a pe r capita income of $302.

Taiwa n’s sixth 4-year plan, 1973-1976, became operative in Jan uary, 1973, and 

calls for an average ann ual growth rate for GNP of 9y2

 percent, with exports of 

goods and services to inc rease by 12.9 percent an d imports by 15 percent. While in 

worldwide comparison, these rates would app ear to be high, when viewed in the 

light of past performance, they app ear to be somewhat conservative. Moreover, 

the Government tradition ally has tended toward conservatism in its projections 

of economic performance. The plan calls for Gross Natio nal Prod uct to increase 

in term s of current prices from U.S. $7.2 billion in 1972 to $11.6 billion in 1976, 

with a per capita income goal of at lea st $550. Total external tra de in current 

prices would increase from U.S. $5.6 billion in 1972 to $11 billion in 1976. Total 

fixed cap ital investment in ind ust ry for the sixth plan period is set at U.S. $5.9 

billion, with the larg est amounts slated for metal and metal products (including iron and steel, aluminum, machinery, transp ortation equipm ent and electric al and electronics equipment) U.S. $1.8 billion; chemicals, $1.5 billion, and 

man-made fibers $0.6 billion.

Government fiscal policy has been conservative. As a result the Republic of 

China's national budget has been in surplus for the past several years.

,1 n millions of U.S. dollars]

Fiscal year ending June 30—

1969 1970 1971 1972

Total rece ipts..................................................... _________ 1,067.7 1,217.9 1,342.1 1.620.0

Total expenditures ( —)_______________ _ 991.4 1,184.5 1,3 03.8 1,535.0

Surplus or deficit ( —) ..... ...................... .................. 76.3 33.4 38.3 85.0

The balance of p ayments performance has been strong, with a surplus of $582 

million registered in 1972, up from $219 million in 1971, the increase resu lting 

largely from a tra de surplus which increased from $291 million to $643 million on 

an f.o.b. basis in the same period.

Net foreign assets of the banking system on Jun e 30, 1973, are estim ated at 

$1.7 billion, up from $1.6 billion a t the end of 1972.

It is obvious th at Taiwan’s continued economic growth depends to a large 

extent on expansion of its foreign trade. For the foreseeable futu re, the prospects app ear to be exceedingly favorable, even though the country is overly dependent upon the United Sta tes market which absorbed about 44 percent of 

Taiwan's exports, worth $1.3 billion in 1971.
7

With unusually large foreign orders already on the books for most industries, it appears that real growth in calendar year 1973 may reach 12 percent. However, severe international monetary developments, such as price increases of primary commodities, and shortages may somewhat lower this growth record. During the 7-year period of 1965-1972, exports grew at an average annual rate of 32 percent against 26 percent for imports, and Taiwan’s labor-intensive manufacturers, particularly electronic components and textiles, continue to enjoy high demand. The recent 5.3 percent upward valuation of its currency vis-a- vis the U.S. dollar will increase the cost of its products exported to the United States while reducing the cost of imports, thus tending to reduce the substantial trade surplus with the United States. One factor that has influenced industry on Taiwan to diversify its production has been the negotiated textile export quota arrangements. Even so, textile exports reached $860 million in 1972, up 40 per­ cent from 1971, and are expected to pass the billion dollar mark in 1973. While the United States is the most important market for Taiwan’s exports, Japan has been the source for most of its imports. But this is changing, and while Japan accounted for 41 percent of Taiwan’s imports in 1968, it was re­ duced to 38 percent in 1972, and the trend continues downward. At the same time, the U.S. participation has expanded from $22 million in 1970 to $663 million in 1972, and the U.S. share of Taiwan’s imports will probably exceed 30 percent in 1973. As a result of the sharp increase in the 'exchange rate of the Japanese yen and the apparent focus of Japanese attention upon mainland China, there has been a conscious effort in Taiwan to direct trade from Japan to the United States to the fullest extent possible. However, there is a very substantial built-in de­ mand for Japanese machinery, equipment and replacement parts resulting from 

past trade relationships. Preliminary data suggest tha t first quarter 1973 exports were more than 50 percent above the 1972 level, with greater diversification of products and pene­ tratio n of more world markets. It would not appear, therefore, that recent inter­ national setbacks of a political nature have been effective in slowing Taiwan’s export drive. The outlook for its foreign trade, and hence its economic growth, appears at this time to be exceedingly favorable. At the end of 1972, Taiwan’s disbursed public and private external debt, in­ cluding short-term debt of $335 million, totaled $1,152 million, up $266 million from 1971. The structure of the debt a t the end of 1972 was short-term, 21.5 j»er- cent; medium-term, 37.3 percent, and long-term, 41.1 percent, an enviable rela­ tionship. Debt service payments on medium and long-term debt in 1973 are esti­ mated a t $236 million, or perhaps less than 5 percent of foreign exchange income. During the past four years, Eximbank's exposure in the Republic of China has expanded from US $72.2 million on December 31, 1968, to US $890 million (esti­ mated) on June 30, 1973. We believe that this expansion is eminently justified when compared to the growing economy, balance of payments surplus and available convertible reserves. The problems facing the Republic of China are : its limited size geographically, its high dependence upon imported primary products, possible political difficulties, and the reduction in its international association with the rest of the world. Its assets appear to be, among other things, the quality of its economic leader­ ship; a strong, well-disciplined, active, energetic, resourceful labor force; excel­ lent cooperation and coordination among the various elements of the country; superb money management; excellent marketing ability, including maintenance 

of quality and expansive eff ort ; the modest incomes and standard of living of its leaders; and a generally favorable location on the trade routes of the world. Even with a growing economy and substantial reserves, it is evident that financ­ ing is essential in the continuing growth of Taiwan’s economy. All industries, private or public are expected to proceed on a pay-as-you-earn basis. The Government is undertaking development of a sound, adequate infrastruc­ ture, including expansion and distribution of its electrical power generation, improvement of its railways, highways and ports, extensive efforts in education and health, and the maintenance of a standard policy of sending its bright young people abroad for study with the expectation of their return to assist in their 

country’s growth. Attached are a series of charts that indicate Eximbank participation in the Republic of China and summaries of conversations that resulted from my recent visit and extensive examination of that country. Thank you for giving me this opportunity to meet with you.
REPUBLIC OF CHINA, CUMULATIVE AUTHORIZATIONS FROM INCEPTION IN 1934 THROUGH JUNE 30, 1973 

(ESTIMATE)

[In millions of dollars]

Gross

authorizations

Disbursements or 

shipments

Outstanding 

balances1

Total

outstanding

or

comm itte d3

U.S. exports 

resulting 

from direct 

loans

(estimate)

Direct lo an s,................................................ $750.9 $305.1 $85.8 $500.7 $1,300

Guarantees........ ......................... .............. 501.8 22.2 16.0 378.7 ..

Medium-term insurance...... ....................... 24.7 9.0 4.2 7.0 ..

Short-term ins ura nce................................. 19.7 19.7 3.8 3.6 ..

Total.................................................. 1, 297.1 357.0 109.8 890 .0 ..

i Disbursements or shipments less repayments.

3

 Undisbursed or unshipped balances plus outstanding balances.

REPUBLIC OF CHINA, GROSS AUTHORIZATIONS, FISCAL YEARS 1968 73

[In millions of dollars]

Fiscal year

Direct

loans Guarantees

Medium-term

insurance

Short-term

insurance

Total authorizations 1

1968. $6.2 $0.2 $1.1 $7.5

1969. ..................................... $9.5 7.5 . 1 .9 18.1

1970. ...................................... 82.7 13.3 10.6 1.1 107.6

1971. ................. .............. 52.9 55.4 6.7 1.7 116.7

1972. 187.8 192.6 1.9 2.9 335.2

1973 (es tim ate )___ .................................... 159.1 215.3 3.6 6.7 384.7

Total______ ................................... 492.0 490.3 23.1 14.4 1,019.8

1

 Totals may not add due to rounding.

Source: Eximbank annual reports and authorizations reports; fiscal 1973, Eximbank staff estimate.

REPUBLIC OF CHINA, GROSS AUTHORIZATIONS OF ACTIVE LOANS AND GUARANTEES BY MAJOR SECTORS

[Estimated as of June 30,1973—in millions of dollars]

Column (3)

as percent U.S. exports

Total loan/ of H. (total resulting from

guarantees active author- active loans

Loans Guarantees (l) + ( 2 ) izations) (estimated)

(1 ) (2 ) (3 ) (4 ) (5 )

A. Power1

. . ................... .......................... $404.6 $365. 1 $769. 7 75.4 $763. 9

Therm al............... . ......................... 128.3 89.2 217.5 21.3 238.5

Nu clear.......................................... 276.3 275.9 552.2 54.1 525.4

B. Chemicals and petrochemicals3 _____ 58.6 49.7 108.3 10.6 127.1

C. A ircra ft.. . . . ....................................... 23.3 3.7 27.0 2.6 51. 3

D. CFF and relending_______ ____ ___ 23.0 2.2 25.2 2.5 38. 7

F Textile3

........ ........... . ............... ............. 16.5 13.7 30.2 3.0 34. 5

F. Communications..................................... 12.1 11.0 23.1 2.3 25.7

G. Other.............. ......... . ............................. 14.5 22.4 36.9 3.6 30.0

H. Total active au thoriza tions.... 552.6 467.8 1,020. 4 100.0 1,071.2

1

 Plants and equipment for power.

2

 Plants and related equipm ent.

3

 Plants and equipment.

LIST OF MAJOR ACTIVE BORROWERS, AS OF JUNE 30. 1973

A. Power: 1. Taiwan Power Co.

B. Petrochemical: 1. Chinese Petroleum Corp.

C. Chemical:

1. USI Far East Corp.

2. China Phosphate Industries Corp.

3. Taiwan Fertilizer Co.

D. Textile:

1. Shinkong Synthetic Fiber Corp.

2. Ta Shing Chemical Fiber Co., Ltd.

3. Tungtex Fiber Co., Ltd.

4. United Nylon Corp.

E. Transportation:

1. China Airlines, Ltd.

2. Taiwan Railway Administration.
9

REPUBLIC OF CHINA— EXIMBANK EXPOSURE, 1969, JUNE 30. 1973 

[In millions of dollars]

End of December—

—----------------------------------------------------------------------------------------- June 30,1973

1969 1970 1971 1972 (estimate)

Short term insurance................................. 0.4 0.5 0.5 3.6 3.6

Medium term insurance........ . ......... ......... 6.5 12.9 8.3 6.3 7.0

Guarantees'________________________ 8.4 63.6 57.4 286.6 378.7

Loans 2........................................................... 132.5 181.7 175.9 383.9 500.7

Total exposure3

................................ 147.8 258 .8 242.1 680.4 890.0

1

 Bank guarantees, guarantees to exporters and financial guarantees.

3

 Regular loans, CFF and relending loans and loans sold with recourse.

^Totals may not add due to rounding.

Source: Monthly summary ol Exim ban k's exposure statements and Eximbank staff estim ate for June 30, 1973.

REPUBLIC OF CH INA-SU MM AR Y OF EIB ’S EXPOSURE AND POTENTIAL EXPOSURE

Millions

ElB’ s exposure as of June 30, 1973 (estimate)............................................................................... ........................... .. $890.0

S hirt term lia bili ty ...................................................................................................................... ................................. 3.6 Med.um term lia bili ty ................ ........................... .............. ........................................................ ............................ .. 36.4 Long term lia b ilit y .. ............................................................................................ ......................................................... 850.0

Additional potential exposure as of J uly 18, 1973............................................................................................................. 468.6

Loan/guarantee applications, not yet approved, but pending ................ . ........................................................... 44. 3 Outstanding preliminary com mitm ents, authorized, but not finalized.................................................................. 155.0 Pending prelim inary com mitments, not yet approved but pending........................................................................ 269.3

Tot al ............................................................................................................................................................................ 1,3 58.6

J uly 18, 1973.

Chairman Ke arn s: Eximbank’s potential exposure is broken down into loans/ 

financial guarantees/local costs guarantees as follows:

[In thousands of dollars]

U.S. content

Financial Local costs 

Loans guarantees guarantees

Potential Eximbank exposure as of July 18, 1973:

Applications pending......................................................

Outstanding preliminary com mitments........................

Pending preliminary comm itm ents..... .........................

$70, 400 $28.160 $16,160 . . .

187. 465 75.140 67,270 $12,600

262,930 118,175 118,175 33, 000

REPUBLIC OF CHINA—LOAN/GUARANTEE APPLICATIONS, PENDING (AS OF JULY 18,1973) 

[In thousands of dollars]

Control No. and obligor Product/project U.S. value

Potential

Eximbank

exposure

4500002'—Chinese Petroleum Corp 

4500005—Chia Hsin Cement Corp ..

Olefin and aromatic complex. 

Cement plant expansion........

60,000 36,000

10,400 8,320

Total..................................................................................................................................... 70,400 44,320

i To NAC on July 12, 1973.
10

REPUBLIC OF CHINA

OUTSTANDING PRELIMINARY COMMITMENTS (AS OF JULY 18, 1973) 

[In thousands of dollars]

P C. No. and buyer Applicant Product/project

Potential 

U.S. Eximbank

content exposure Expiry date

1298- China Steel Corp----------

1671A i —Taiwan Ry. Administration.

1788— China Phosphate Industries Corp.

2074 2— Taiwan Machinery

Manufacturing Co.

2074A------Taiwan Machinery

Manufacturing Co.

2117—Taiwan Synthetic Rubber Corp.

2145—Kuan HSI Cement Co rp..

2158—Ming Chow Industries 

Co., Ltd.

2190—Government.......... .........

2227—Chung Tai Fertilizer Co..

2239—Sin Kong Spinning Co., 

Ltd.

2254—Taiwan Metal Mining 

Corp.

China Steel Corp...........

International Engineering Co.

China Phosphate In ­

dustries Corp.

Wean United_________

Aetna Standard Engi- . 

neering Co.

The Badger Co...............

Kuan HSI Cement 

Corp.

Leesona Corp.................

Mining Equipment 

Manufacturing Corp.

McKee Engineers & 

Constructors.

Amatex...........................

McKee Mining C o rp ....

Integrated steel m il l. .. 

Railway electrifica tion.. 

Phosphate production.. 

Electrolytic tin nin g line . 

........do.............................

Styrene-butadiene 

rubber plant.

Cement plan t.................

Stretch yarn machines.

Engineering stu dy: 

Taipei subway.

50,000 MT/year 

caprolactam plant.

Textile machinery.........

Feasibility study: 

copper smelter & 

refinery.

$63, 700

20,000 

8, 800 

(2,800 ) 

2,000 

8, 500 

30,000 

1,215 

750 

34,000 

18,600 

200

$57, 330 Aug. 31,1973 

19,000 Oct. 31,1973 

7,920 Sept. 30,1973 

(2 ,2 40 ) Aug. 31,1973

3,000 Do.

5,100 Sept. 30,1973

22,500 Do.

972 Do.

638 Oct. 31,1973

32,300 Nov. 30, 1973

6,080 Oct. 30,1973

170 Oct. 31,1973

Total____________________________________ ______ _______ _______ 187,765 155,010

* See pending P.C. No. 1671B. 

< Not included in totals.

PENDING PRELIMINARY COMMITMENTS (AS OF JULY 18, 1973) 

[In thousands of dollars)

PC No. and buyer Applicant

Potential 

U.S. Eximbank

Product/project content exposure

1926B—Taiwan Power C o..............Westinghouse..............................4 gas turb ine pow er plan ts .... 29,050 26,146

2242—Formosa Plastics Corp.........Western Pennsylvania Na- Plastics plant expansion............ 11,000 9,900

tional Bank.

1671B1—Taiwan Ry. Administra- Morrison-Knudsen Co., In c ... Railway electrifica tion proje ct. 220,000 231,000

tion.

2293—US1 Far East Corp................ National Distillers & Ciem ical Polyethylene plant expans ion. 2,800 2,304

Corp.

Total..................................................................................................................................................... 262,930 269,350

* See outstanding preliminary com mitm ent No. 1671 A.

REPUBLIC OF CHINA

EXIMBANK POTENTIAL EXPOSURE BY LOANS, FINANCIAL GUARANTEES AND LOCAL COSTS GUARANTEES (AS OF 

JULY 18, 1973)

[In thousands of dollars]

U.S. content

Financial Local costs 

Loans guarantees guarantees

Potential Eximbank exposure as of July 18,1973 :

Applications pending1............ .......................................

Outstanding preliminary com mitments........ ...............

Pending preliminary com m itm en ts ............................

$70, 400 $28,160

187,465 75,140

262,930 118,175

$16 ,1 60 ...........................

67,270 $12,600

118,175 33,000

i Approved as of July 19,1973.
11

LOAN/GUARANTEE APPLICATIONS, PENDING' (AS OF JULY 18, 1973) 

[In thousands of dollars]

Control No. and obligor Product/project U.S. value

Potential

Eximbank

exposure

45000021 2—Chinese Petroleum Corp. 

4500005—Chia Hsin Cement Corp..

Olefin and aromatic complex 

Cement plant expansion___

60,000 36, 000

10, 400 8, 320

To tal.................................................................................................................................... 70, 400 44, 320

1

 Approved as of July 19, 1973.

2

 To NAC on July 12, 1973.

R epu bli c of C h in a (T a iw a n )

TAIP EI— MARCH 1 6 -2 0 , 19 73

March 16

Reception by Ambassador McConaughy, approximately 75 Chinese business anti government leaders. Discussion centered around the relative competitiveness of U.S. products, especially as they relate to the Japanese, and the general belief that the United States now has the advantage. Tai Power will request more credits. The communications program offered by ITT will be supplied from Belgium. We can expect a broadening use of the C FF as more small businesses find it desirable to purchase modern equipment. Taiwan is gradually changing from a laborsurplus to a balanced-labor market.

March 11

Embassy briefing by Ambassador McConaughy and economic officers. There is some question about the China Steel project, partic ularly its involvement with the European partne r. It is believed th at this is a project of highest priority and tha t the government is determined to proceed with it. They would prefer U.S. equipment, if financing can be arranged. We discussed the possibility of request­ ing the Chinese to pay 20 percent down instead of 10 percent, and to add some of the financing portion so long as they have a surplus in the reserve account. The importance of Eximbank credits and attitude was outlined by the Ambassador with the belief t ha t this is considered to be symbolic of U.S. government policy.

CENTRAL BANK OF CH INA----GOVERNOR YO KUO-H UA

Discussed the current economic situat ion of the ROC. Reserves exceed $1.5 billion. It was generally agreed tha t the Central Bank would authoriz e a 20 per­ cent down payment in most cases b ut would ask for Eximbank consideration in such situations as Tai Power and the steel mill. It is government policy to encour­ age purchases from the United States, particularly so since prices are now com­ petitive where a year ago in most equipment, U.S. prices were 20 to 30 percent higher. Ocean freight is still a major problem due to high westbound rates and infrequency of service. For example, apples that are dearly loved in Taiwan are approximately the same price as those available from Japan or other countries, but the freight is more than double. Apples cost as much as $1.20 each. The ROC is attempting to narrow the trade gap. They comment tha t 40 percent of their exports are to the United States, and they hope to protect this market. The C entral Bank will provide m atching funds with Eximbank under the CFF, and in some large transactions will provide a t least 25 percent of the financing portion from Central Bank funds. This cannot be universal, but will refer to those cases 

which would seem to be appropriate.

MIN ISTER OF ECONOMIC AFFAIRS----Y. S. SU N

We reviewed past Eximbank support. The Ministry had prepared a detailed summary. The Minister explained th at the proposed steel mill was a matter of greatest urgency and No. 1 priority in overall economic development planning, followed closely by chemicals and petrochemicals. He assured me th at the ROC would honor its commitments. In the case of the steel mill, lie would hope th at the United States could become the supplier and tha t a U.S. company would partic-
12

ip ate. Th e ob lig atio ns wou ld be guar an te ed by th e go ve rnmen t. Sh ipbu ild in g will 

be ex pa nd ed as we ll as el ec tric al po wer gen er at io n. Sm all bu sine ss will be suppo rted , an d t he C FF is con side red to be a u se fu l tool.

C H IN A DE VE LO PM EN T CO RPO RATIO N---- I)R. SH E N Y EN , PR ES ID EN T

Thi s co rp or at io n rece ives 50 per ce nt of it s mo ney from th e C en tral Ban k an d 

un der C FF will us e Exi m ba nk . Dr. Sh en re qu es te d th a t we att em pt to secu re a 

bl an ke t 50 pe rc en t w ai ver on sh ip ping so th a t he c an pa ck ag e tr an sa ct io ns, av oi ding un ne ce ss ar y co st an d delay .

He sa id th a t in hi s op inion m ar itim e re st ri cti ons were th e gre ate st det err ent 

to in cr ea se d us e of Exi m ba nk to max im ize U.S . pu rc ha se s. Also th e go ve rnmen t 

of th e ROC re qu ir es th a t 50 per ce nt of th e inco ming ca rg o will be unde r 

Ch inese flag. Th e C en tral Ban k lo an s mo ney to th e CDC fo r th e C FF at a 6.5 

pe rc en t ra te . It is to be re loan ed a t 7.5 pe rc en t. It is pre pa re d to ha nd le sm all 

tr an sa ct io ns, and whe ne ve r th er e are la rg e tr an sa cti ons, a pre lim in ar y com ­

m itm en t will be used . He ex pr es se d th e op inion th a t U.S. m ar ke ting effo rt does 

no t co mpa re w ith th a t of Eur op e an d shou ld be im prov ed .

EC ON OM IC DAILY’ N EW S LU N CHEON

I was th e gu es t sp ea ke r a t a lunc he on an d pr es en te d a spe ech en titled . “T he 

Cha ng ing W orld T ra de Scene.” Thi s w as fol low ed by qu es tio ns an d an sw er s. 

The re was a qu es tio n re gar din g E xi m ba nk w ill ingn es s an d ab ility to fin ance 

co mmod ities an d ra w m ate ri als on a sh ort term . It w as an sw er ed in th e 

affir mati ve . Im po rt re st ri ct io ns ha ve been rem oved on 2,300 ite ms of in te re st 

to th e United St at es . Th ose att endin g th e lunc he on were re po rted to sym bolize 

th e ROC ev olution in to pri vate bu sine ss, with g re ate r di ve rsificat io n an d in ­

cr ea si ng em ph as is on th e in te rn ati onal m ar ke t. Th e im po rtan ce of cr ed it was 

stre ss ed , es pe ci ally th e im po rtan ce of m ai nta in in g th e su pp or t of th e United 

Sta te s. The Ch inese ob serve th e fifth da y of th e firs t mon th as Mo ney Da y.

TV IN TER V IE W S

I was requ es ted to co mm ent up on th e world m on et ar y crisis, w ha t it mea ns 

an d th e pr os pe cts of th e fu tu re , th e m ea ni ng of th e Eur op ea n flo at, pr os pe cts fo r 

U.S. tr ad e an d th e su pp or t of Exi m ba nk .

U .S . HANKS

A mee tin g w ith th e ch ief officers of th e five U.S. ba nk s op er at in g in Tai w an — 

Ch ase , Ir vi ng , F ir st N at io nal t'it y , Ban k of Ame ric a an d American Exp ress . Th e 

ba nk s w er e un ha pp y ov er w hat th ey belie ved to be ROC di sc rim in at io n in th eir 

op er at ions . Th ey claimed th a t th e go ve rn m en t w as fo rc in g down in te re st ra te s, 

mak in g lo an s un pr of ita bl e. The Chine se ba nk s are giving ve ry fierce co mpe tit ion, 

an d U.S. ba nk s are re st ri cte d in th e type of bu sine ss they ca n co nd uc t. I wa s 

qu er ie d as to w he th er or no t E xi m ba nk is re tr eati n g from its fo rm er po sitio n 

of su pp or t fo r Tai w an . Th e view w as t h a t to d o so wo uld h av e a ba d psyc ho logical 

effect. The re was in te re st in ex te nd in g lo ng er te rm s an d a be lie f th a t oth er 

co un tr ie s are offerin g bett er te rm s th an Exi m ba nk . Th e sh ip pi ng prob lem wa s 

em ph as ized , an d th e us ef ul nes s of a DIS C w as qu estio ne d. It was sugg ested 

th a t th e Web b-Po mere ne Ac t sh ou ld be st re ng th en ed . The re was th e be lie f th at 

th ere is op po rtun ity to in cr ea se ex po rts by fin an cin g co mmod ities an d ra w 

m at er ia ls .

CHEN G TA I C EM EN T CORPOR ATION---- C H A IR M A N H . Y. KAN

Ther e is a pl an to ex pa nd pr od uc tion in cl ud in g th e pur ch as e of ap pr ox im at el y 

$5 mill ion in U.S. eq ui pm en t. Ch eng Tai h as ar ra nged fo r Ch inese ba nk s to 

guara nte e 70 pe rc en t of E xim ban k’s cr ed it ex po su re on pe nd ing cases . Th e 

co mpa ny ha s eq ui ty of $2.5 mill ion as show n in an audited st at em en t. It has 

been in su cc essful oper at io n fo r tw elve ye ar s, mak ing mo ney each yea r an d 

pr od uc in g 100.000 to ns of ce men t pe r ye ar . It has pai d 20 pe rc en t down pa ymen t an d co mmitm en t fees on Exi m ba nk cr ed it. It is urg en t th a t th e tr ansa cti on 

be mad e op er ative.
13

TA IW AN RA ILWAY ADM IN ISTR AT IO N— T. N . CHEN, MAN AG ING DIRECTOR

The pe nd ing tr an sa cti o n fo r loc om otives will be co nc lude d duri ng th is vi sit.

Pro gr es s was mad e to w ard th e m as sive el ec trific at io n pr ogra m which will ru n 

from $70 -$100 mi llion . I t is ho pe d th a t U.S. su ppl ie rs ca n ac hiev e th is bu sine ss. 

The ra ilw ay de si re s fif teen year s re pay m en t aft e r de live ry . E xim ba nk has comm itte d fo r tw elve years and has asc er ta in ed th a t oth er co un tr ie s will no t ex te nd 

beyo nd th a t pe rio d. I ex pla in ed th is to th e m an ag em en t. Th e ra ilw ay bu sine ss 

is good, in cr ea sing a t 9 per ce nt a ye ar . The pr of it in 1972 w as U.S. $1.5 million. 

Th ey ex pe ct to buy U.S. en gi ne s to repl ac e th e e ng ines in th e H itachi loco motives 

pr ev io us ly pu rc ha se d th a t are now co mplete ly wor n ou t. I t was co mmen ted 

th a t U.S. loc om oti ves purc has ed a t th e same tim e an d oper at in g on th e sa m e 

sche du les are st il l oper at in g su cc es sfully. On e of th e pr ob lems th a t m ust be 

face d in th e ne w el ec trific at io n pro gr am is th e tr ain in g of pe rson ne l. Th ey 

wo uld lik e to m ak e th is p a rt of a fin an cing co nt ra ct .

DI NN ER BY MIN IS TER OF ECONOM IC AFF AIR S— Y. S. SU N

Fou rtee n in at te ndan ce . Discu ss ion re la te d to th e pr op os ed Ch ina Stee l Compa ny , espe cially th e diffi cu lty w ith th e Eur opea ns an d th e Eur op ea n pr om ot er . 

Als o disc us se d th e te rm s as prop os ed fo r th e el ec trific at io n of th e ra ilw ay . Th e 

M in iste r ag re ed to 12 -y ea r re pa ym en t.

M ar ek 18

Go lf w ith Gov erno r K. II. Yu, G en er al Pe ng Me ng-ch i, ItO C A m ba ss ad or to 

Ja pan, an d Dr. Yen Ch en -hsin g, P re si dent of th e N at io na l T ai w an U ni ve rs ity . 

Th e U ni ve rs ity has 12,000 st ud en ts , six colleges , 46 m ajo r stud ie s, plus a g ra d u ate 

sch ool an d ba sic re se ar ch . 96 pe rc en t of t he ch ildr en of T ai w an a tt end th e sch ool.

LU NC H BY GOVERNOR K. H . Y U

Si xt ee n in at te ndan ce . G en er al “g et ting to kn ow yo u b ett er” co nv er sa tio n. 

M ar ek 19

Th e Pri m e M in is te r ex pr es se d th e det er m in at io n to in cr ea se im po rts from th e 

United S ta te s w ith la rg e purc ha se s pl an ne d fo r gra in s and oth er ag ri cu lt u ra l 

pr od uc ts. He ex pe ct s th a t th e eco nomy will co nt in ue to grow a t a sa ti sf acto ry 

ra te t h a t in flat io n co nt ro l will be m ai nta in ed . He ap pre cia te s th e su ppor t give n by 

Exim ba nk , no t on ly fo r it s dir ec t co ntr ib ution bu t fo r th e confi dence th a t it give s 

th e Ch inese peo ple. H e en do rs ed th e pla n of Gov erno r Yu and th e C en tral B an k 

to part ic ip ate w ith Exi m ban k in fina nc ing th ro ugh th e C F F an d in la rg er 

tr an sa ct io ns.

VICE PR ES IDEN T C. K. YE N

Th e Vic e Pre si dent em ph as ized th e im po rtan ce of t ra d e w ith th e U ni ted S ta te s 

an d th e de te rm in at io n to dir ec t im po rt s from th is co un try. He sa id th a t th e p a tte rn of Ch inese li fe is ch an gi ng w ith Pro du ct s th a t wer e her et ofo re co ns id er ed 

lu xu ry or dis cr et io nar y no w co ns id ered to be ne ce ss iti es . Ther e has bee n a m as ­

sive libe ra liza tion of im po rt re str ic ti ons an d a sh if t in pu rc ha se s from Ja p a n to 

th e United Sta te s. Ja p a n cu st om ar ily purc ha se s al l pro du ct s an d se rv ices deno min ated in U.S. doll ars an d is now re quir in g th a t it s pr oduct s de nom in at e 

, tr an sa ct io ns in yen.

CIECD---- PH IL IP C. C. CH AN G, VICE CHAI RM AN

Disc us sed th e ra il w ay elec tri fic at ion. An ag re em en t w as re ac he d th a t 12 -yea r 

1

re pl ac em en t pl an s co uld be ap prov ed . We disc us se d th e s upport of s m al l bu sine ss

th ro ug h th e C FF and how th e CIE CD co uld co op erate. Th ey as ke d th a t we pre ­

par e th e B uy er s Guide in Ch inese which co uld be ge ne ra lly dis tr ib ute d th ro u g h ­

ou t the co un try. T ai Pow er m us t co nt in ue its long -ran ge ex pa ns io n to m ee t cu rre nt an d gr ow ing ne eds. Th e pre lim in ar y c om m itm en t is a ve ry u se fu l devic e, an d 

th e ROC ca n in cr ea se it s part ic ip ati on in ea ch tr ansa cti on. Th ey ca n do so if we 

allow re pa ym en t to th em in th e earl y m atu ri ti es. Th ey wou ld lik e to re ce iv e o u r 

pri nt ou t of our m on th ly r ec or ds to th e CI EC D.

21 -S 46 — 73------3
14

AMERICAN CHAM BER OF COMMERCE

Luncheon of approximately 152 Americans and Chinese. After formal remarks, question and answer period indicated a lively interest in U.S. competitiveness, internal inflation rate, shipping, marketing effort, increase in U.S. investment, use of the CFF program, Preliminary Commitment and the attitud e of the United States to the Republic of China policy of encouraging purchases from our 

country.

BANK OF COMM UN ICA TIO NS— CH AIRM AN MA AND GENERAL MANAGER T. C. PAN

This bank has been a participant in the CFF since it was inaugurated. They have completed the second $3 million line of credit and are requesting an addi­ tional line. The 50 percent matching funds will he provided by the Central Bank of China at 614 percent interest. There are seven projects in process totaling slightly over $3 million. One of the principal problems is the requirement of U.S. shipping. This could be alleviated if a blanket waiver and packaging program could be adopted so tha t 50 percent of the total combined purchases could be shipped on U.S. bottoms rather than the 50 percent of each transaction.

CHIN A STEEL COM PAN Y— CH AIR MA N Y. T. CHAO

The original feasibility study for an integrated steel mill (one million tons) was made by U.S. Steel, who a t the conclusion of the study determined that they would not participate. At tha t time U.S. Steel informed me tha t they had con­ cluded the project was economically sound but at tha t time (1971) U.S. Steel did not have available management personnel. After the U.S. Steel turndown, an agreement was reached with Voist of Austria to design, construct, equip and operate the mill. However, Chairman Chao informed me that they intended to cancel the contract and arrange for U.S. supplied material, equipment and tech­ nology, if possible. The obligations of the steel company will be guaranteed by the Republic of China. Eximbank financing will be essential if U.S. equipment and materials are to be used. It was Chairman Chao’s view th at U.S. equipment was better and not at lower cost, and tha t his company would feel more comfortable doing business with the United States. As soon as the decision has been made, a request for a preliminary commitment will be made to Eximbank.

FIRS T COMM ERCIAL BA NK OF TA IW AN ----MR. C. S. LO

This is a CFF participating bank. They are now processing five applications for approximately $500 thousand. They are charging th eir customers 8 percent. They 

have not as yet made an arrangement with the Central Bank of China for the 50 pe rcent; this is coming from the Bank’s own funds at this time. It is their view tha t imports from the United States will increase and that the CFF program provides a vehicle for broadening services and export opportunities.

CIECD

Participated in the signing of two loan agreements—one for locomotives and spare engines and the other for fertilizer plant equipment. The locomotive case is interesting inasmuch as the spare engines are to be installed in Hitachi loco­ motives purchased some five years ago and now completely worn out. This com­ pares with U.S. locomotives purchased at the same time t hat are still operating efficiently. The signing was witnessed by Minister of Economic Affairs Sun, Vice Chairman and Secretary-General of CIECD, Philip C. C. Chang, and the press 

and others.

DINN ER FOR CHIN ES E OFFICIAL S

I was host at a dinner for sixteen Chinese officials including Governor Yu. Minister Sun, Minister Kao, the Deputy Minister of Finance Wang, Philip Chang 

and others.

March 20 Breakfast given by Prime Minister Chiang Ching-kuo. In attendance were Minister Sun, Governor Yu and Secretary General of the Executive Yuan. Walter Fei. The current and futu re plans of the Republic of China were discussed in
15

de ta il, w ith em ph as is up on th e im po rtan ce of E xi m ha nk an d th e pro ce du re s th a t 

a re fol low ed to ass ure th e ability to re pa y al l ob lig atio ns . The re w as es pe ci al 

in te re st in en co ur ag in g an d as si st in g sm all bu sine ss an d in de ve loping th e stee l 

mi ll, sh ip ya rd s, pe troc he m ic al s an d ag ri cu lt u ra l pro duct pr oc essin g.

C H IN E S E PE TR OLE UM — PR ES ID ENT JE R O M E H U

China Pe trol eu m , a go ve rn m en t co rp or at io n, is pr of ita bl y ru n w ith a ca pa bl e 

m an ag em en t an d a fu ll long -te rm pl an which in clud es ex pa ns io n of th e n o rt h ern 

refine ry —a ppro xim at el y .$25 mi llion . The co ntr act has been le t to L u m m u s; a 

cr ud e oil sk im m ing unit, napth a cr ac ke r, a ca ta ly ti c r ef orm er , an a ro m at ic e x tr a c ­

to r, an d a tr an sa lk y la ti o n unit fo r benzine . Th ey in te nd to let th e contr acts 

be fore th e en d of 1973. In ad ditio n th ey are pl an ni ng a po lypr op ylen e pro je ct as 

a jo in t ve nt ur e w ith Her cu les, an d an acry lo nitrile pro je ct fo r pr od uc in g or lo n 

mo no me r. The y a re al so co ns id er in g th re e l ar ge u re a pl an ts . In ad di tion , of fsho re 

dri llin g unit s are co nt em pl at ed , an d a t le ast one offsho re dr illing ship. It is th e 

de si re of the Chi na Pet ro le um Com pa ny to purc has e al l of th e eq ui pm en t in th e 

United Sta te s, if po ssible. Pre si den t llu is high ly re gar ded in th e U.S. pe trole um 

in du st ry .

M IN IS T E R OF CO M M U NIC A TIO N S— H EN R Y KA O

Mr. Kao w as fo rm er m ay or of Tai pe i, do ing a sp ec ta cula r jo b in im pr ov in g 

th e cit y. R eg ar di ng th e prop os ed T ai pe i sewag e dis po sa l pla nt, he sa id th ey pla n 

to proceed but do not ex pe ct to us e U.S. eq uipm en t. R eg ar din g th e pr op os ed 

w ate r sy stem , it is ex pe cted th a t th is pro je ct will proc ee d an d th a t U.S. su ppli er s 

will ha ve an ex ce llen t opp or tu ni ty . U nd er th e M in is try of Com m un ications , th e 

follo wing pro je ct s a re co nt em pl at ed invo lving pote nti al U.S. export s: a teleco mm un ic at io ns op er at io n, ten new loc om oti ves, el ec trific at io n of th e C en tral R ail ­

way Sy ste m, Taicl iin H ar bor , a m as sive fr ee w ay pr og ra m , oth er harb or fa ci lities , 

a new T ai w an in te rn ati o n al air p o rt , an d a m as sive im pr ov em en t of th e in te rn al 

teleph on e sy ste m. I t w as his view th a t U.S. pr od uct s are att ra cti v e pri ce w is e 

and m os t a tt ra c ti v e in qual ity and de sig n. In th e teleph on e sy stem , IT T has 

mad e a pr op os al whi ch wi ll be su pp lie d from Be lgi um . Pre fe re nc e, ho wev er, 

will be giv en to GT &E an d pr od uct s from th e U ni ted S ta te s if a re as on ab le pro ­

po sal is receiv ed.

T A IW A N PO WER CO M PA NY— CH A IR M A N L. K . C H EN

C hai rm an Ch en an d his st af f ga ve a co mplete re port of th e po wer de ve lo pmen t, in cl ud in g pr oj ec tion s. Dem an d is up 15.5 iie rc en t ov er 1972. I t is ex pe ct ed 

th a t w ith th e ne w eq uipm en t in proc es s th a t th ey will ca tc h up to de m an d by th e 

en d of 1973. In ad dit io n to pe nd in g pro je ct s, th ey ex pe ct to ad d five se ts of ga s 

tu rb in es ne ed ed by th e end of 1973. Th ey hope to contr ac t fo r a 500 MW th erm al 

pla nt an d next y ear to contr ac t fo r tw o 500 MW th erm al pla nts . In sp ite of v er y 

ra pid bu ildu p of pr od uc tio n, th ey ha ve ne ve r re ac he d a ba lan ce . Mr. Che n ex ­

pl ai ne d th e difficu lty of th e T ai Pow er pr od uc in g 20 per ce nt down pay m en t a t 

th is tim e. Th ey ca n ag ree, ho wev er, to som e su bst anti al offsh ore fin an cin g.

M IN IS TR Y ’ OF FIN A N C E— AC TING M IN IS T E R WAN G S H A 0-Y U

He ex pl ai ne d th a t th e ne wly en ac te d ta x la w specifically ex em pt s al l Exi m - 

ba nk cre dit s from th e w ith ho ld in g ta x, in cl ud in g th e CE E. Im port co ntr ols ha ve 

been remov ed on 2,300 item s— al l ex ce pt m ilitar y. Cus to m er han dling c harg es on 

im po rts ha ve be en redu ce d 50 pe rc en t. C urr ent de bt serv ice ra ti o is no w 4.36, 

down fro m 5.39 in 1972. Th e C en tr al Ban k of China is pre par ed to p art ic ip ate in 

tr ansa cti ons in vo lv in g U.S. ex po rts. The re will be an ad ditio nal ef fo rt m ad e to 

im prov e ed uc at io n, hea lth and in te rn al tr ansp ort ati on. It is th e po lic y of th e 

Pri m e M in iste r to en co ur ag e sm al l bu sine ss an d to giv e op por tu ni ty to yo un g 

men. Thre e m or e U.S. ba nk s hav e been ap pr ov ed fo r op er at io n. F ord M otor 

Com pa ny h as in st all ed a ne w pr od uc tion f ac ility. The M in is tr y is w ork in g t o m od ­

er ni ze th e ba nkin g syste m. A pro gr am is in op er at io n to co nv er t some of th e 

go ve rn m en t co rp or at io ns to pri vat e. As th e ca pit al fo rm at io n in cr ea se s, m or e 

peop le are ab le to buy sh ar es , an d th ey are en co ur ag ed to do so. A stoc k m ark et 

has been e st ab lish ed , ad eq uat el y r eg ula te d to a vo id sp ec ul atio n.
16

BANK OF CO MMUN ICAT IO NS

Lu nc he on at te nded by re pre se nta ti ves of six C FF bo rrow ers. Th e Ch eng Ta i 

Ch em ica l Filte r Co mpa ny as ke d if E xim ban k could ta ke th e la te m at uri ties . I 

ex pl ai ne d th a t we could no t under th e CFF. The re w as ge ne ra l disc us sion re ­

ga rd in g th e U.S. ex po rt po stur e w ith th e un an im ou s op ini on th a t U.S. pr od uc ts 

were now ve ry att ra cti v e pr ic ew ise and th a t qua lity was th e be st in th e wo rld . 

Ho we ver, se rv ice an d in te re st in export tr ansa cti ons fro m th e United Sta te s 

appea r to ha ve low pr io rity . Ther e w as a re qu es t th a t m ar itim e re gu la tions be 

sim plified fo r C FF bo rr ow er s of re la tive ly sm all am ou nt s. We disc us se d the 

do cu m en tatio n, which w as g en er al ly u nd er stoo d.

UNIO N CARBIDE CORPORATION

Met w ith th e re pre se nta tive from Tai w an who ex pl ai ne d th a t hi s co mpa ny is 

pre pa re d to pro ceed w ith a pe troc he m ic al pla nt on a jo in t ve nt ur e. Th ey wo uld 

ex pe ct Exi m ba nk par tici pat io n.

B. F. GOODRICH

Ca ll from Mr. Pau l B ry an t. H is co mpa ny ex pe ct s to bu ild a ti re pla nt an d wi ll 

ap ply th ro ug h th e P re lim in ar y Com m itm en t pr oc ed ur e.

Mr. Nix. Thank you, Mr. Kearns. You stated on page 3 of the statement, and I quote, “To be sure, there exist uncertainties in the international political sphere which eventually could affect the country’s 

economy.”

What are those matters which might affect the economy ?

Mr. Kearns.' Well, I think it becomes more difficult for a country 

to engage in trade as its diplomatic exchanges are reduced, and if there 

is severe reduction in its diplomatic exchanges T think it is safe to 

say that, could lie one negative factor. There has been little indication 

that this has affected the trade so far, but it could. There could be, I 

suppose, some disruption of their tra de if political difficulties arose in 

that area where there was harassment of the trade routes, or such as 

that. I think that could possibly be a negative factor. We don’t anticipate it but it could be.

Mr. Nix. What effect has the loss of diplomatic representation in the 

United Nations had on the economic situation?

Mr. Kearns. There is little indication tha t it has had any effect up 

to this po int; but, as I say, any time you reduce the free flow of d iplomatic exchanges there could be a tendency to inhibit the trade somewhat although I have seen no indication tha t there has been an effect 

on Taiwan as yet.

Mr. Nix. What types of items are sold by the United States to 

Taiwan and what types of items are sold by Taiwan to the United 

States ?

Mr. Kearns/ Well, in general, the kinds of things that the United 

States exports to the Republic of China are equipment, machinery, 

particula rly electrical production, refinery equipment, all kinds of 

manufacturing equipment. We do sell a good bit of agricultural products. about 30 percent of our total exports to this market. We sell little 

in the way of minerals. As the Taiwan economy diversifies into more 

products I think it is safe to say tha t components of various manufactured products would be sold from the United States to be incorporated in Taiwan finished products.
Coming the other way, the principal things so far have been textiles, 

which I mentioned, all the way from the actual woven goods to made 

up garments, electronic components for products made in the United States such as television, radios, computers, and such as th at. There 

is a plan to expand chemical industries to produce a wide range of chemicals, including fertilizers, and also to more actively engage in 

shipbuilding. I think those will gradually become important factors 

in the exports of Taiwan.

Mr. Nix. Now will you state again as to what percentage of Taiwan's 

trade is with Japan and what percentage of such trade is with the 

United States?

Mr. Kearns. Well, I have some figures here. Forty-fo ur percent 

of Taiwan's exports today are to the United States, and we expect about 30 percent of their imports to be from the United States this year. I don't have the figure for Taiwan's exports to Jap an, but their imports from J apa n were 40 percent in 1968, reduced to 38 percent in 1972 and are going downward, so it could be somewhere between 30 

and 35 percent possibly this year.

I don't have their exports to Japan at this moment; we could get if. It is a relatively much smaller figure than Taiwan's exports to the 

United States.

Mr. Nix. Could that be supplied for the record ?

Mr. Kearns. Yes, sir.

[The material follows:]

T a iw a n ’s E xp or ts to J ap an an o U.S., 1971 an o 1972

T aiw an's ex po rts to Ja p a n wer e $244 mill ion in 1971 an d $356 mill ion in 197 2; 

to th e United Sta te s, $857 m ill ion an d $1,220 m illion.

Mr. Nix. Does the Government of Taiwan receive any financial aid 

from any other nation in the form of grants ?

Mr. Kearns. Not to my knowledge, although I may not be aware 

of all such assistance. They are not receiving any grants at all from the 

United States-: I am not privy to any information on m ilitary but I think that all military aid was terminated at the beginning of this 

month and that all economic grant assistance was terminated in 1965. We don't consider Eximbank as aid, of course; we consider that as a part of assistance to U.S. exports. There are some computations tha t 

do place our credits in the aid column and we think that is an error.

Mr. Nix. Is the Government of Taiwan dependent on any other 

nation for its capitalization needs?

Mr. Kearns. No, I thin k not. I would say that their capital resources today are exceedingly strong. That does not necessarily mean 

that an individual private enterprise would not need to arrange fi­ nancing from outside of Taiwan for a p art of its capital, but the country itself is now on very solid financial ground.

Mr. Nix. Mr. du Pont.

Mr. nu Pont. I have no questions.

Mr. Nix. Mr. Wolff.

Mr. Wolff. Thank you. Mr. Chairman.

Mr. Kearns, it is a great pleasure for me personally to welcome von 

liefore this subcommittee, having known you and your work in the 

field of international economic affairs for so many years.
18

Mr. Ke arn s, I tak e it th at as head of th e Ex im ba nk th at you are 

pr iv y to certa in economic as well as dip lom atic intelligence.

Mr. Kearns. On an as-needed basis we do main tai n economic su rveillanc e and evalu ation of the 124 cou ntries wi th which we do 

business.

Mr. Wolff. I tak e it you do ge t some in pu t fro m U.S . Government 

agen cies ?

Mr. Kf.arns. Ou r in pu t wou ld come in th is w ay: If we bed a t ra ns ­

act ion of conside rable importance it would be sub mitted for con cur ­

rence to the othe r int ere ste d Gover nm ent agencies. I f there is some 

problem, political or oth erw ise, the rea ctions wou ld come hack to us 

as a neg ativ e. Th roug h regu lar coun try rep orts we have a total contin ui ng positive inflow; bu t we use the clearan ce pro ced ure more as 

a n egative soundin g measure.

Mr. Wolff. I noticed in line w ith t ha t, on page 8 you say, “ Dur in g 

the pa st 4 y ears, Exi mba nk ’s exp osu re in the Republic of Ch ina has 

expanded from U.S . $72.2 million on December 31, 1968, to U.S . $890 

million (es tim ate d) on .Tune 30, 1973.” Tha t would ind ica te th at you 

based upo n yo ur own “in tell ige nce sources” had some fa ith in the 

continu ance of Ta iw an or the Republic of Ch ina as a going a nd contin ui ng e nti ty.

Mr. Kearns. Yes. I w ould say you could i nt er pr et it th at way.

Mr. Wolff. W ith th e cu rre nt sit ua tio n being wh at it is wi th the 

PR C, how do you feel th at will affect the U.S . rel ati on ship with the 

Republic of C hin a?

Mr. K earns. So f ar I ca n’t say th at we ha ve disc erned any problems 

on th at . We have publi cly reporte d the extension of cre dits th at we 

are m aking co nstan tly to th e Republic o f China. We have had no in di ­

cation th at this is a ffecting the d iscussions with the Pe ople’s Rep ublic. 

W e ag ain get hack to the p oin t t hat we make th e decision on any tr an saction on its m erits a t that ime.

Mr. W olffABut th is expos ure th at you do have now, is an indica tio n 

this contem plates a lo ng-term exp osu re, does it not ?

Mr. Kearns. Th at is mo st of i t ; yes.

Mr. Wolff. An d th is is made wi th the con curr ence of the U.S . 

Government.

Air. K earns. Th at is c orre ct.

Mr. Wolff. I wo nder wh at role you feel Ta iw an pla ys rel ati ve to 

ou r balance of pa ym ents in our total economic p ict ure ?

Air. Kearns. W ell, it is becoming an inc rea sin gly impo rta nt m ark et. 

I wou ld sav th at of all the countrie s whe re we observe the rate of 

grow th as a custom er, Taiwan ’s grow th ra te can ma tch any. Now, t here 

are two reasons fo r th at . One is t hat t he economic level of the co un try 

is inc rea sin g at a ste ady bu t ra th er su bstan tia l ra te ; and the othe r is 

th at here is an incre asing influence to purch ase from the United 

Sta tes.

Air. Wolff. W hy is th is ?

Air. Kearns.\W el l, I believe th at the Government and business 

leader s in Ta iw an feel th at th ei r fu tu re is closely linked with th at 

of the Un ite d St ates and they wou ld like to have as many in te rchanges as they can get. At the same tim e I th in k there may be a 

lit tle dissa tisfac tio n wi th the acti ons of Ja pa n, which has been th ei r
19

historical major trading partn er. This tends to encourage a buyer, public or private, to look to the United States as a supplier, and it is being reflected in the rather dramatic increase in sales tha t are 

being made by U.S. suppliers.

Mr. Wolff. In your statements you seem to indicate tha t we are, in reality, engaged in a two-China policy^ Would you say tha t would 

be true?

Mr. Kearns. Well, I can only speak from the standpoint of Exim­ bank. We are only engaged in financing trade with the Republic of China. There are others who are selling and financing products to the People’s Republic, tha t is, mainland China. I think it is safe to say that, from Eximbank’s view, there are two Chinas.

Mr. Wolff. Are you curre ntly financing any sales to the Peoples 

Republic ?

Mr. Kearns. No. Our legislation which authorizes Eximbank to operate includes a provision th at prohibits Eximbank from providing any financing support for a Communist country until or unless the President of the United States makes the determination tha t it is in the national interest for us to do so. President Johnson made that determination in the case of Yugoslavia and President Nixon did in the case of Romania, the Soviet Union, and Poland. Those are the only Communist countries for which we are authorized to provide any financing for U.S. exports. So we do not consider any financing 

for mainland China at this time.

Mi-. Wolff. I understand there is a chance that we might be talking about “most-favored-nations” status for the People’s Republic. Are 

you aware of this?

Mr. Kearns. Only by rumor, and most-favored-nations treatm ent would not affect us. The thin g that would affect us would be a P resi­ dential determination of national interest, which could be without MFN as it was in the other eastern countries.

Air. Wolff. You know, there is one thing, in the operation of Exim and all of our other functions of aid, tha t I might differ with you whether or not you consider Exim assistance. I do feel tha t Exim is assistance, one area seems to be overlooked by a number of agencies and I should like to quote from the act itself. Contrary to the point tha t was made just a moment ago the act says:

No assistance shall be furnished under thi s cha pter or any other Act and no sales shall be made under the Agricultural Tra de Development and Assistance Act of 1954 in or to any country which has severed or here aft er severs diplomatic relations with the United States or with which the United States has severed or herea fter severs diplomatic rela tion s unless diplomatic relatio ns have been resumed with such countrie s and agreements for the furnishin g of such ass ist­ ance or the making of such sales, as the case may be, have been negotiated and ente red into after the resumption of diplomatic relations with such country.

Now one of the th ings that concerns our activities with the PRC as well as other assistance activities throughout the world is that there are certain nations—Cuba and North Vietnam and other nations which have been working closely with the PRC th at come under the restric­ tions of the act. The other day when we questioned a witness, I believe it was Mr. Hannah, we asked down the line whether he envisioned the idea of most-favored-nation treatm ent for Cuba and he said, “Well,
20

maybe not now but in the future.” I am wondering whether or not this 

provision guides you in any of the determinations that you make in 

tlie extension of any loans.

Mr. K earns. 1 would appreciate the reference so that we can check 

that. As you know, our act has been amended several times.

Mr. Wolff. Your act has been amended but the Foreign Aid Act 

itself, the enabling legislation, has not been amended to that extent.

Mr. K earns. I am not aware tha t this provision affects Eximbank 

because our General Counsel, on whom we depend for legal opinions, 

has-----

Mr. Wolff. I am th inking of a country like Algeria to whom you 4

have just made a loan. Now that is a country with whom we do not 

have diplomatic relations. The same situation is true as regards the 

People’s Republic. We are engaged in new advances for trade with the 

People’s Republic, and they do not have diplomatic relations with this 

country.

M r. K earns. Well, T am of the opinion, and subject to reversal of 

that opinion, that we are exempt from the act that you read. We operate under the Exp ort-Import Bank Act and authorizations by the 

Congress in certain other legislation applicable to the Bank.

Mr. Wolff. With funds appropriated by the Congress, is that 

correct ?

Mr. Kearns. We don't use appropriated funds.

Mr. Wolff. With guarantees ?

Mr. Kearns. Backed by authority approved by the Congress.

Now understand, I am not arguing the legality but I can only tell 

you tha t we operate under the advice of our General Counsel, and we 

will be very happy to reexamine this. But it has been previously examined and we have found that we are not subject to tha t restriction, 

tha t we are not restricted to doing business only with a country with 

which we have diplomatic relations. The major restriction that we 

have is the one that was included in our act in 1968 with respect to 

Communist countries, but subject to a review tha t would indicate we 

are wrong I believe we would proceed on the basis that we are exempt 

from the act which you cite.

Mr. Wolff. Well, I thank you. Mr. Kearns. I know th at your activities in the past have always been guided bv what is in the best inte rests of this Nation. If there are no limitations on Exim activities.

I think that this committee should look toward limitations to be 

placed upon all agencies of Government that render assistance. I think 

tha t the national interest of this country is far superior to any trade 

interests of the country.

Mr. Kearns. Well, I can assure you that we will respond and act 

entirely within the instructions of Congress as we understand them. ,

Now if there is something we don't understand, then we have to be 

brought to task and educated on it. Of course within this fiscal year 

we will have legislation before the Congress to extend the life of the 

Bank beyond June 30, 1974, so if there is any restriction that is not 

included in our legislation there will be a chance to consider it. Of 

course we would like to see as few restrictions as possible because the 

changing course of world trade is such that you really need a maximum of flexibility. Conditions are constantly changing every day in 

every place, and the more flexibility you have the more you are able 

to serve our basic interest which is to expand U.S. export.
21

Mr. Wolff. Excuse me, Mr. Chairman. I just would like to end by saying our basic interest is the national interest our security interests, 

more than just the interest of expanding exports.

Mr. Kearns. Well, I am just talking to Eximbank’s role as we 

understand it from our legislation.

Mr. Wolff. Thank you.

Mr. Nix. Mr. Burke.

Mr. Burke. I am sorry, Mr. Chairman. I was late so I didn't have 

a chance to hear the testimony.

Mr. Nix. Mr. Ryan.

Mr. Ryan. The only question I have, Mr. Chairman, has to do with the rather rapidly changing position of the two Chinas and the sur­ rounding area and perimeter of the Asian side. I think economics is the determinant very often to what later becomes political questions. I)o you have any comment DHas your board or have you made any determination in regard to the survival, or the continuation of Taiwan as a separate and independent government, or do you think that there 

will be eventual return to a single nation ?"

Mr. Kearns. Well, it is not our role, of course, to make political determinations. Our role is purely in the m atter of making decisions on 

credit. However, it does become-----

Mr. Ryan. Inevitably one comes from the other.

Mr. Kearns. Yes. It does become incumbent upon us to make 

changes, particularly when we consider long-term financing where 

terms extend out 10 or 15 years.

Air. R yan. Precisely.

Mr. Kearns. Which we do. Of course you can contemplate all kinds 

of actions that could take place. I think it is very safe to say today that Taiwan can continue within itself as a viable nation without any association with anyone else; it has proven tha t it can do so. I think that it would be possible to contemplate the possibility tha t it could be a viable part of another nation if that were the way the 

course of events proceeded. In looking at the total picture, you always have to take into account the possibilities and the probabilities. There might be a possibility that they would be put out of business militarily. We see very little prospect of that because it would accomplish little for anyone. So what we try to do is to anticipate those things tha t might happen and the probabilities, and we come up with the conclusion that Taiwan is a viable economic unit and will continue to be so—sufficiently long to repay the obligations.' You see, we are charged by our charter to achieve reasonable assurance of repavment, not absolute but reason­ able assurance. Reasonable assurance is a review of all the facts and a conclusion reached, and that is the conclusion we reach today.

Mr. R yan. And a judgment.

Now could you comment on the relative economic strength of Na­ tionalist China today in comparison to other Asian nations, especially those in Southeast Asia, and make any kind of prediction or comment or sense of prediction regarding the next. say. 10 years as to where they will be? How do they rank with J apa n and with Indonesia, with 

other nations of Southeast Asia?

Mr. Kearns. Well, I will give you general statements, and we could 

submit for the record the actual standing.

21 -8 46 — 73----- 4
22

Air. R yan. All ri ght.

Mr. Kearns. Th ere are seve ral ways to measu re this. In the first 

place you c ould tak e th ei r gross natio nal pro duct.

Mr. R yan. Righ t.

Air. Kearns. Of course Ja pan outshado ws everyone. It is i n a class 

by itself , so I don’t th in k the re is any p oint in co mp ari ng Ja pan to any 

of the res t of th em.

I th in k th at in the matter of gro ss natio nal prod uc t Taiwan wou ld 

ra nk very high on the scale as comp are d with othe r countries of the 

western Pacific.

If you tak e the actua l pe r ca pita income, it wou ld rank eit he r first 

or second in t ha t.

Wh en you tak e in its foreign trad e— its exports and im ports—it 

wou ld r an k exc eedingly high.

Or you could tak e one th at we con sider is a most im po rta nt fac tor , 

its deb t servic ing cap acity. Now I sta ted here th at Ta iw an ’s debtservicing, in spite of the fact th ey have been doing a treme ndous 

amount of purchasing in th e l ast 4 o r 5 ye ars, is still less th an 5 perc ent 

of its ex po rt and services ear nin gs. Th is is low er th an all bu t one of 

the o ther co untries in th at area.

So you can tak e all of these things , and I th in k th at if you took a 

com posite you would hav e to conclude th at Ta iw an is an exceedingly 

viab le economic u nit today .

GNP in Ta iw an is about $7.2 billion ; in Th ailan d. $7.5 billion ; in 

the Ph ilipp ines, $8 b illion; and in Ind onesi a, $10-$12.5 billion. On a 

per cap ita basis, T aiw an is well in fron t w ith $474, co mpared with $200 

in the Ph ilipp ines, $174 in Th ailand , and $80-$100 in Indonesia . It s 

annual grow th rate of some 10 p erc ent o ver a num ber of years is much 

high er than these other countries hav e achieved .

Ta iw an ’s f ore ign t rade is imp ressive, especially taki ng into account 

its size an d population . In 1972 its exports totaled $2.8 billion, and 

im po rts $2.4 billion. Th is com pares with $1.9 a nd $1.8 billio n in In do ­

nesia ; $1.1 and $1.5 billion in T hai la nd; an d $1.1 and $1.1 billion in t he 

Ph ilipp ines.

Ta iw an ’s deb t service in relati on to foreign exchange ear nin gs is 

a litt le less tha n 5 pe rcen t; Tha ilan d’s is even lowe r a t about 3 p ercent, 

but Indo ne sia ’s is about 14 perce nt, and the Ph ilipp ines, about 25 

percen t.

In short, the data p oint up Ta iw an's economic s tren gth and pro gre ss 

rel ati ve to other ma jor countries in the region.

Air. R yan. Then fro m an economic stan dp oint Ta iw an would have 

to be one o f the most influe ntial nations in the wes tern Pacific?

Air. K earns. Well, I don 't kno w ho w influentia l it is. I t is m ore selfcon tained than m ost of th e oth ers, and it is ra th er small in po pulat ion 

and geogra phic size. B ut as it would ra te as a b uyer, i f you were loo kin g 

at 100 bu yers of pr od uc t and th eir ab ility to pay, you would rank it 

high in th at cap ac ity .’

Air. R yan. I do n’t kno w if Isr ae l, fo r example, which is small in 

size, small in po pu lat ion , and h as its own c apacity to r emain pr et tv indep endent and pre tty str on g wou ld com pare fav orably with Ta iw an 

and Na tio na lis t C hin a in th e Pacific.
23

Mr. Kearns. I think there would be some parallels although I don’t 

think you could say tha t Taiwan is in quite as hostile an atmosphere.

Mr. Ryan. No.

Thank you, Mr. Chairman.

Mr. Nix. Mr. Guyer.

Mr. Guyer. Mr. Chairman, I am sorry. I missed much of the testimony. I am trying to catch up.

I am concerned about the apparent reluctance of China to want to 

be a trad ing country. There seems to be a contradiction in style as 

compared to Taiwan. You just mentioned the difference here because of the thriving economy and many of the things such as freedom of 

religion, the social reforms and so on but you say there is a collision 

force down that road ?

Mr. Kearns. Well, we have not really made much of an effort to understand the People's Republic of China because it is off limits to us. Now if it were on limits, it would be incumbent on us to really make a 

thorough study of these factors and where it would go. As I mentioned 

a little earlier, I don’t see why there would be any foregone conclusion of a collision course. It could, but I don’t think of it in t hat way.

Mr. Gu yer. Is it your judgment tha t we can comfortably maintain 

the dual relationship in areas such as culture and foreign exchange and 

trade, possibly the exchange of techniques and agriculture transporta­ tion and so on, and still one not be injurious to the other as far as 

relationship is concerned?

Mr. Kearns. I think it is possible if you look upon the two as you 

would look upon Korea or the Philippines or any of the other countries as a separate country. I think that it is entirely possible they could be compatible. Now whether they will look at it tha t way, I 

would not know at this time.

Mr. Guyer. I think that is all, Mr. Chairman.

Mr. Nix. Just one last thing. Mr. Kearns. The United States of 

America has commitments to Taiwan and the United States of Amer­ ica intends to live up to its commitments, whatever those commitments 

are, and the United States of America is comfortable in its relationship with Taiwan at this time. That is correct, is it not?

Mr. K earns. Yes, sir?

Mr. Nix. Thank you very much.

M e want to thank Mr. Kearns, Mr. Bostwick, and Mrs. Pigman 

for appearing to have vou.

Mr. Kearns. Thank you. It is a pleasure to meet with your 

committee.

Mp

- Nix. Our next witness is Prof. C. Martin Wilbur, professor 

of Chinese History, East Asia Institute, Columbia University of New 

York City.

W e are very pleased to have you here, sir.

STATEMENT OF C. MAR TIN WILBUR. PROFESSOR OF CHINESE 

HISTORY, EAST ASIA INSTITUTE, COLUMBIA UNIVER SITY

Mr. Wilbur. Thank you, sir.

Mr. Nix. Are you accompanied by anyone ?

Mr. Wilbur. No, sir.
24

Air. Nix. You may proceed, sir.

Mr. Wilbur. Mr. Chairman, I have a statement which was sent in 

advance to the committee. I t is not a very long statement and I wrote 

it up very carefully.

Air. Nix. We would he happy to have you read it.

Mr. Wilbur. Thank you.

Although I have specialized in the field of Chinese studies, in this 

presentation I am attempting to think about relations with China as 

an American concerned with his Nation's long-run interests, viewed 

in worldwide perspective. To state my thoughts in the simplest way. 

I advocate the following points as a basic American policy toward 

China in the coming decade :

~1. Cultivate friendly relations with the People’s Republic of China 

and the Chinese people on the continent, while maintaining our present close ties with the Government of the Republic of China and the 

Chinese on Taiwan.

2. Continue to assist the people on Taiwan to develop for themselves the form of government and socioeconomic system they prefer, 

while being perfectly ready to assist continental China in its own 

economic, technical, and social development.

To aim for a balanced relationship with two rival regimes and 

friendship for the entire Chinese nation entails many difficulties. Obviously. the leadership of each regime will try to manipulate the 

United States for that regime’s advantage. While being as sensitive 

as we can to the aspirations and feelings of both, we need not be 

dictated to by either. Our policymakers need not choose between one 

Chinese Government and one people or the other; nothing short of 

war can force us into such a choice. However, there is a wide range of 

modalities and adjustments possible within a policy tha t seeks to 

develop improved relations with one government of a divided nation 

while not abandoning the government with which our relations have 

long been close.

These relations are only part of our complex of international relations. The policy we follow toward the Republic of China on Taiwan 

is related to our policies with respect to Israel and West Berlin. Ilow 

we deal with the People’s Republic will affect our relations with Japan, 

Russia. India, and all other states along her border.

The Governments of the United States and of the People’s Republic 

have both contributed to the recently improved relations. The easing 

of tensions and the renewed contacts—limited though they are—seem 

miraculous in the perspective of 20 years of isolation and hostility. 

Great credit is due to President Nixon, I)r. Kissinger, and the Republican administration for seizing and cultivating the opportunity for 

a new approach which came with the ending of the cultural revolution 

as well as from intensified Sino-Russian hostility.

One immediate benefit has been the opportunity for Americans to 

visit China in considerable numbers and gain a clearer picture of the 

revolutionary society. Their reports are nearly universally favorable. 

This has contributed to a lessening of suspension of Communist China, 

which successfully projects the image of a peaceful, humanitarian, 

energetic, and problem-solving society. Our governments have estab-
lished wo rking r ela tions w hich are lit tle sho rt of full diplo ma tic re la ­

tions. Ea ch side, clearly, perceiv es gr ea t advanta ges in the new 

situatio n.

If prese nt tre nd s co ntin ue, a use ful tw o-w ay trad e w ill develop , with 

Ch ina in the marke t fo r indu stria l ma chi ner y, com municatio ns and 

elec tronic equ ipm ent, and food grain s, and the Am erican side purchasing indu str ial raw m ate ria ls and man y dis tin ctively Chinese p ro ducts. Th e economists I rea d do not pro jec t t his as a lar ge t rade by o ur 

sta nd ards. There m ay be a wide ran ge of exchanges in the p erform ing 

arts and cu ltu ral exh ibits. Chi nese and Am erican s may join in a v ar iety of conferences and com pet itions, and spe cialists m ay 'stu dy each 

othe r’s technologies. Chi na ’s new leaders will hav e t he o pp or tunity to 

ga in a c lea rer p ict ure of the U nited Sta tes , whi le our peop le can le arn 

more about trad iti on al Ch ina an d its conte mp ora ry a ccomplishmen ts. 

As a scholar , I welcome such a d evelopment whole hea rtedly . A decade 

of peacefu l rel ations betw een Am erica and Ch ina would be of large 

ad va ntag e to both .

Th ere are serious pro ble ms and many un certa intie s, however. The 

for eig n and domestic policies of t he Pe ople’s R epu blic of China have 

shift ed wildly in the pa st 20-odd years. Scholars and the attenti ve 

pub lic are famili ar w ith these quick changes in policy lineAVe should 

not be s urprise d by fu rt her shi fts in Ch ina’s foreign p olicy o n the ta ctical level and must no t rule out more profou nd cha nge s th at migh t 

follow an abate me nt of the Sin o-S oviet cold war or rene wed pow er 

str ug gles a mong th e Comm unist leadership*

Pro ble ms between Ch ina and Am erica can arise from the gr ea t 

diffe rences between our two societies an d value systems. Th e dif fer ­

ences ru n very deep and are not the resu lt of the pa st two decades 

of ho stility. Ex am ple s are the un endin g Wester n str ug gle fo r civil 

libe rties, ou r g lorific ation o f i ndivi du ali sm a nd freed om of th ou gh t, as 

contr asted with the Chinese empha sis upon subm issio n to au thor ity , 

subordi natio n of the in dividu al to the need s of the group, and ins ist ­

ence upon a stan da rd ortho doxy.

Co nti nenta l Ch ina has a “closed society,’’ tigh tly con trolled by a 

regi me sub scr ibing to an ideolog ical system which few Am erican s com ­

prehen d. Th e lea dersh ip is suspicious of exter nal influences upo n the 

peop le, an d this was ch arac teris tic of pa st Chin ese ru ling groups as 

well. Th e trad itio na l ide al of stat ec ra ft seemed to be a government 

com pletely in contro l o f its own te rritor y and a pe ople unconta mi nated 

by forei gn influences.

Ye t Ch ina is mu ch more dyn amic th an it was a centu ry or more 

ago. Th e lea dersh ip is deter mi ned th at the country sha ll possess in ­

du strial techn ology to ass ure wealth and pow er, and to proje ct Ch ina 's 

influence in the o uter w orl d th roug h dip lom acy , prop ag an da , inv olvement in intern ationa l bodies, and, recently, th roug h foreign aid. The 

pr ev ailin g mood is one of determined independence, suspicious of 

alli anc es with gr ea t pow ers, and intense sensitivit y about national 

pre stige. As a dynam ic rev olutiona ry society, Ch ina will strive to be 

a ma jor forc e in th e w orld. Ch ina a nd the U nited States ar e like ly to be 

in opposition to each othe r on ma ny in tern ationa l issues. The Ar abIsr aeli conflict is me rely one exam ple.
26

The fundamental antagonism which China’s leaders hold toward 

“American imperialism” is muted at present because of a deeper hostility toward Russia, but the antagonism may e rupt again at any time. 

These are merely cautionary remarks. It may be decades before 

America and continental China achieve a degree of mutual understanding and an ease of relationships such as those we casually enjoy 

with Canada and Western Europe, or even the closeness we have already achieved with Jap an and Taiwan.

The chief issue between the People’s Republic of China and the 

United States concerns Taiwan. During the present phase of enticement the issue is being played down, but it is still knotty and divisive. 

The leaders of the People’s Republic claim tha t theirs is the only 

legitimate government of the whole of China, that Taiwan is unquestionably a province of China, and that incorporation of Taiwan into 

the People’s Republic is purely a Chinese domestic matter in which no 

outside power has the righ t to intervene. They try to picture the Government of the Republic of China as a bogus regime; they insisted 

upon its expulsion from the United Nations, ancrhave refused diplomatic relations with any government which recognizes that governme nt Presumably most adult Chinese on the continent share this 

view.

From an American perspective the matter appears differently. The 

Government of the Republic of China effectively controls Taiwan, 

a land the size of Holland with 15 million people. There are at least 

80 nations with smaller populations. The United States has recognized this Government continuously since 1928. It was our wartime 

ally and a founding member of the United Nations. In December 1954 

the United States and the Republic of China entered into a mutual 

defense treaty which is still in effect.

For geographic and historic reasons the Chinese on Taiwan developed a regional variation of Chinese culture. Then came 50 years of 

Japanese colonial administration. Aft er 1949 when mainland China 

underwent a socialist revolution, the differences between Taiwan and 

the mainland became even more marked. The island has a thriv ing 

economy marked by private ownership of property, a considerably 

higher per capita standard of living than continental China has yet 

achieved, and many of the inequities—as well as the dynamism—of a 

capitalist system.

The people enjoy virtu ally universal education, excellent health 

services, freedom of religious practice, and considerable social freedom.There are many fully functioning colleges and universities, public 

and private, with intellectual freedom in most fields except ideological 

and political. The Republic of China is a going concern that is developing in a direction quite different from what is taking place on the 

continent.

Americans would not describe Taiwan’s Government as democratic 

in our W estern European tradition. Which of the two Chinese regimes 

is the more humane toward the population it controls is a highly 

subjective question. The administration on Taiwan does not glorify 

class struggle nor pit classes against each other in forcing social 

change. Nor has i t so relentlessly used psychological and social pres-
27

sures upo n every indiv idual to comp el ideological confo rm ity . La nd 

ref orm was ess ent ially bloo dles s in Ta iw an, br ingi ng about pr ivate 

sma ll holding, wi th most of th e fa rm land owned by nativ es of the 

island.

Tw enty-ei gh t years af te r the end of the Pacific war the major ity 

on th e island has no direct kno wledge of ea rli er c ond itions, either of 

Japanese rule or main lan d turm oil . A generat ion of child ren o f mainlan d refu gee s know only Taiwan as home. Th e isl an d’s po pu lat ion 

has been sub ject to continuous anti-Co mm unist indo ctr ina tio n. T o r 

these reason s it is my belief th at the vast major ity on Ta iw an do 

not wish to come un de r the rule of the main land regime. Th ey prob ­

ably wou ld fig ht bi tter ly to preven t a takeov er.

Am erican s now enjoy frie nd ly relation s w ith the Chinese on T aiw an. 

Chinese stu dents come to the United State s in large n umber s to atte nd 

our colleges and gr ad ua te schools, while Am erican stu dents and 

scholars are welcomed there fo r lan gu age stu dy and researc h. Am ericans are ra th er free to ca rry on missionary and ph ila nthr op ic ac tiv ities in Ta iw an so lon g as th ei r acts are no t perceiv ed as subv ersiv e 

of the existing order. Th ere are many thou sand o f Chinese C hrist ians 

there and well established ind ige nous chu rche s. (T he re are also Bud ­

dhists, Taoists, Confu cians, an d Moslems.)

T rade betw een the Re publi c of Ch ina an d the Un ite d States is on 

the or de r of $2 billion a ye ar, and pr ivate Am erican inv estme nt in 

Ta iw an presently exceeds $400 million . Th e be au tiful island attrac ts 

hu nd reds of tho usands of tourists each year, of whom tho usa nds are 

Am eric ans. The island is the ref uge of t he wo rld ’s g reatest colle ction 

of Chinese ar t, splen didly exhib ite d at the Sun Ya t-sen Museum in 

la ip ei. Tr ad iti on al Chi nese opera con tinu es to be pe rfo rm ed expe rtly. Va st archiv es reco rding Ch ina’s pa st and recent his tory are 

open to Chinese s cho lars an d ma ny fro m abroad . A t hr iv in g pu blish ­

ing indu stry has made it possible fo r Am eri can unive rsitie s to build 

fine Chi nese collections. Am erican and Chinese scient ists an d medical 

men con duct j oint res earch, as do sch olars in m any fields. Ma ny Americans live in Ta iw an to d evelop trad e and ot he r business.

In short, Am erican s an d Chin ese in the Republic of Ch ina alr eady 

have achieve d a degree of cu ltu ral interaction we have lea rned to expect in ou r rel ations wi th fri en dly cou ntri es. I t is well to rem ember 

this as we now t ry to develop fri en dly rel ati on s wi th th e people of the 

Pe op le’s Repu blic of C hin a.

Th e U nited State s an d the Republic of C hin a are bound by a defense 

trea ty signed on Decem ber 2, 1954. Ea ch country is bound “to act to 

meet t he common da ng er ” o f an a tta ck on the te rrito ries of e ither, “ in 

accordance with its co nstitution al processe s.” Th e trea ty is to rem ain 

in forc e ind efinitely bu t eith er p ar ty may ter minate it in 1 ye ar af te r 

giving notice to the o ther p ar ty . Th is trea ty was a product of th e cold 

war whe n the possi bil ity of att ack on Ta iw an fro m the main lan d 

seemed re al and when the worldwid e con fro ntation betwe en the U nited 

State s an d Sovie t Ru ssi a was intense. Th e relatio ns hip is sim ila r to 

th at we hav e with Ja pan , the Republic of Ko rea , an d many othe r 

countries. It is a pr od uc t of our po stw ar h istory, a part of o ur collective sec uri ty system. In short, the Uni ted State s an d the Republic of 

Ch ina are allies, an d we g ua rantee Ta iw an ’s security.
28

Should the United States continue to do so? This is the political, 

strategic, and moral issue for us.

I cannot pretend to judge how significant Taiwan and its military 

forces are from the perspective of global strategy. I suspect that in 

cold calculations its autonomy is not worth a war with China. (Most 

Americans probably would now reject even the thought of war with 

China.) ^The international political costs of abandoning an ally are «

also difficult to calculate. Japan, I suppose, would immediately remilitarize and develop nuclear capabilities. The smaller Asian powers 

would .have to accommodate themselves to the People’s Republic of 

China. '

The moral issues are complicated, too. On one side is our desire to 

improve relations with Communist China—for detente. Also there is 

deep reluctance to intervene in China’s internal affairs, essentially in 

her continuing civil war.'On the other side is the issue of freedom. This 

is particularly poignant in respect to the 13 million natives of Taiwan, 

who had no part in the civil war and as yet have had very little voice 

in determining th eir own future. F or 20 years we have helped Taiwan 

to defend itself and develop a society free of Communist coercion. We 

have done the same for West Berlin and for the German Federal Republic in alliance with most of Western Europe. There is no difference in principle, though there are differences in the historic details 

as to how the lines came to be drawn.

-•Seen from the Chinese side, the question of national unity is also 

deeply moral and intensely emotional. It has the explosive qualities 

of irredentism. It cannot be treated lightly.

It is not easy to see a way through the diametrically opposed claims 

and intentions of the Chinese People’s Republic and the Republic of 

China, our ally. For the present, the issue, as it affects the United 

States, has been set aside by Premier Chou En-lai while he develops 

the policy of rapprochement. China’s leaders purp ort to believe the 

future of Taiwan was settled by the “Shanghai Communique,” which 

marked the end of President Nixon’s visit to China.

Unless there were secret understandings, the American side merely 

acknowledged#‘tha t all Chinese on either side of the Taiwan Strait 

maintain there is but one China and that Taiwan is a pa rt of China.”

(“All Chinese” is a rather sweeping phrase and I ask, “Did anyone 

poll the Taiwanese?” )* The communique stated that the U.S. Government did not challenge the Chinese position; reaffirmed its interest in 

a peaceful settlement of the Taiwan question by the Chinese themselves; stated as its ultimate objective the withdrawal of all U.S.

Forces and military installations from the islan d; and agreed to reduce 

these progressively as tension in the area diminishes.

I do not know what resolutions of the Taiwan issue are being ex- •

plored by American and Chinese officials in Peking and Washington.

Possibly Taiwan is not now being discussed while more technical questions are being cleared away. I n an era of detente the Taiwan problem might somehow seem to resolve itself. But I doubt it. It is more 

Mikely tha t after the People’s Republic has achieved its objective of a 

strong international position as assurance against war with Russia, 

it will again bend its energies toward the acquisition of Taiwan. *
29

Since the en din g of the cu ltu ral rev olu tion, the Pe op le’s Re publi c 

has gone a long way in iso latin g i ts riva l d ipl om ati c a lly, a nd d ra win g 

in the U ni ted St ates is part of that atte mpt. I t ma y also try to we aken 

Ta iw an e conomicallv in a t ra de w ar.

Presu ma bly Mao T se-tu ng ’s colleagu es a re offerin g to Ta iw an ’s lead ­

ers va rious in ducem ents f or pe ace ful reun ific atio n. If so, I su spect t hat 

I the fund am en tal sti cking po ints will be precise ly the two which pr evented a peace ful settleme nt of the Chinese civil war back in 1945 

and 1946.cAt th at time the w eak er s ide, the Chin ese Comm unist Par ty ,

* insiste d upon autono mous control of arm ed forces and te rr itor y. To-

* day the position s a re reverse d a nd the N ati on ali sts must insist up on the 

same fo r the survival of th ei r dreams? Pe rh ap s some Chinese-style 

accommodation can be wor ked ou t in which the forms of n ationa l u nity 

are manife ste d bu t the rea lities of reg ion al autonom y are preser ved . 

Th is is the only hop e I see fo r avoidan ce of res um ption of the civil 

war.

As Taiwan ’s p rin cipa l all y, the stance w hich A me rica ta kes on m any 

different que stio ns in dis pute wi th Ch ina will influe nce the resolu tion 

of t ha t na tio n’s m ain intern al politi cal problem . Ev en an effort n ot to 

exert influence wo uld have weig hty effect.

A person o utside th e stream of diplo ma tic negotiations c anno t k now 

th eir rea l tempe r no r un de rstand the practic al details . Th erefore, I 

wish only to say th at the policy line we are e mb ark ed upon u nd er P re side nt Nix on an d Dr. Ki ssing er, if I un de rst an d it cor rec tly, seems a 

sound one. In essence, this en tails ?^ 1) Im prov em ent o f r elati on s with 

the People’s Republic of Ch ina so fa r as possib le, b ut (2) wi thou t f undame nta l sacrifice of th e independe nce of ou r friend a nd ally , the Re ­

public of China on Ta iwan.

Th an k yo u.

Mr. Nix. Tha nk you, Dr . W ilb ur.

Th e bells ha ve r un g and the House is now in session.

I want to than k yo u very much fo r a very excellent sta tem ent, Doctor . We will have to defer the in terro ga tio n th at usually follows the 

presentat ion o f t he s tatem ent because o f t he f ac t th at we are in session 

in the Hou se, bu t at some fu tu re tim e I would be m ost ha pp y to have 

you re tu rn to th e comm ittee.

Now we hav e an ad ditio na l witness, Dr . Fr an z Michael. I un de rsta nd, Dr. Micha el, yo u a re f rom Wash ing ton .

Mr. Michael. Wash ington , D.C., yes.

* Mr. Nix . Yes. We are g oing to ask i f it is possible fo r you t o come 

back tom orrow mo rni ng. We will beg in at 10 o’clock an d we will put 

you on as the first witness.

Mr. Michael. Yes, Mr. Ch air ma n. I would be deligh ted .

Mr. Nix . I s t hat agreeab le ?

Air. Michael. At 10 o’clock tomo rrow m orn ing .

Mr. Nix. Tha nk you so much.

The committee will s tan d in recess.

[W hereu pon, a t 12 :03 p.m. th e su bcommittee adjou rned.]

21-84 6— 73------ 5
‘ h ' 7 •!«•» '{ ; ,K<>i )j !.■ . • it ’ -b h ' -• " .•» 9 jii <

. •. . ,V , • <>’ j r ■ ' • - Jff - 1 ■■ •

- ■ o : . . •
FUTURE IMP ORT ANC E OF TAIWAN AND THE RE PU BLIC OF CHINA TO U.S. SE CU RIT Y AND ECONO MIC 

INT ERE STS

T H U R SD A Y , AUG UST 1, 19 73

H ouse of R epresentatives,

Committee on F oreign Affairs,

Subcommittee on Asian and P acific Affairs,

Washington. D.C.

The subcommittee met at 2 p.m., in room H-227 of the Capitol, 

Hon. Robert N. C. Nix (chairm an) presiding.

Mr. Nix. The subcommittee will be in order. Fir st we have the statement of Admiral Jerauld Wrig ht, retired, U.S. Navy, former Ambassador to the Republic of China. Without objection his statement will be made a part of the record.

[The statement follows:]

Prepared Statement of Adm. Jerauld Wright, Retired, U.S. Navy, Former

Ambassador to the Republic of China

I am very pleased to be invited to express to this Committee my views on fu­ ture U.S. policy toward the Republic of China? I must first call your attention to the fact t hat I terminated my official duties as Ambassador in 1965 and my knowledge since then has been gained only through 

news sources. There is no need for me to comment on the rising importance of the Fa r East to the foreign relations of the United States. The combination of great national resources and unstable political conditions make this a focal point of interest 

of all nations of both the East and West.

historical

The defeat of Japan in World War II put a decisive end to Japanese domina­ tion of the area through military force. Since tha t event Japan has arisen to be the strongest economic power in the East and Mainland China has emerged as 

one of the “Big World Powers”. Against this general background it is well to examine the emergence of Taiwan from its original position as a Chinese province; then as a Japanese vassal State and finally to its present position of economic development surpassing t hat of all other underdeveloped smaller nations of the world. For the 50 years of Japanese domination, economic, political and military leadership was provided by the Japanese government through the medium of their nationals in all fields of organizational and administrative responsibility. The exit of the Japanese left a vacuum of leadership in every field of endeavor. This vacuum was filled by the mainlander government of Chiang Kai-Shek which occupied Taiwan in the late ’40s and provided the critically needed experience and know-how in the fields of agriculture and industry. In the past 25 years this leadership has provided military security from en­ croachment by the mainland, political stability and above all the economic know­ how under which the Taiwanese have been free to develop the resources of the 

country. (31)
32

TAIW ANESE ECONOMY

The rise in the Taiw anese economy has been nothing sho rt of phenomenal. In 

the sho rt period of 20 years, ending in 1965, they rose from a position of heavy 

dependence on U.S. Aid to a condition of complete independence of all outside 

assistance. The economy, in 1965 was such t ha t all U.S. economic aid could be, and 

was, term inated. At th at time the per cap ita G.N.P. was second only to that of 

Japan among the nations of the area. Taiw an had become a leading exporter, 

among underdeveloped nations, of agr icu ltural and indu strial products. This rise 

in ecoonmic capacity was matched nowhere among other small nations nor on 

mainland China.

This rise in Taiwanese economy can be attributed to these 4 facto rs: (1) 

United States economic aid, (2) a stable government dedicated to the Island’s 

development and to the best use of U.S. Aid, (3) initial technical experience and 

know-how brought over from the main land, and (4) las t and most imp orta nt of 

all. the intelligence, industry and determination of the Taiw anese people.

I am not qualified to comment on the economic progress of the last eight 

years but it has been my personal observation th at the upwa rd trend has not only 

continued but has increased.

WORLD WA R II CON FER ENC ES

The delibera tions of the Cairo and Yalta Conferences resulted in the Allied 

agreement that “Formosa” should rev ert to Mainland China. I believe that this 

decision w’as based to a larg e exten t on the former history of the Isla nd before 

its seizure by Jap an in 1895 and by the underdeveloped conditions left by the 

Jap ans e in 1945. But the following 25 years have seen dra stic changes in the 

are a and unprecedented economic developments on the Island. This combination 

should lead to a more ration al approach to the problem of its future.

FO RM UL AT ION OF U .S . POLICY

The form ulation of th e U.S. foreign policy toward the futur e of T aiwa n should 

be based on certain key considerations.

Military considerations

The milita ry security of the United States rests not on our shore line but 

overseas, as has been amply demonstrated , partic ularly during the present 

cenutry. In the Pacific the line of friendly nations from Japa n to Australia, of 

which Taiwan could be considered a vita l link, is of distinct milita ry importance. 

In the las t wa r countless lives and resources were expended in our efforts to 

reach this Pacific perimeter. The importance to us has been furth er demonstrate d in the last 20 years of milita ry operation s in the Far Eastern area.

The neare st U.S. Territory where our forces can be based is Guam. Here the 

port capacity is meagre and the ai r and naval facilities are not only dis tan t but 

severely limited.

The willingness of the government of Taiw an to supp ort and ass ist the United 

States has been in marked contr ast to the att itu des of cer tain adjace nt natio ns 

who, although frien dly, are increasin gly reserv ed in making milita ry facilities 

available to the U.S.

Other potential assets on Taiwa n in addition to base facilities , are the ready 

ava ilab ility of labor and of skills in militar y technology.

The United States has done more tha n all other nations combined to assist 

the development of the island of Taiwan and maintain its economy. This expenditure of wealth and effort should be lost in response to the demands of any 

foreign power based on the possible political advantage of agreement with them. 

1In this unse ttled part of the world the m ilitary advanta ge of association with 

Taiw an could, in the long run, be of inestimable value to the U.S?"

We have on the island of Taiwan a staunch frie nd and ally in a pa rt of the 

world where f riends are of gre at importance.

Shanghai stateme nt

A contemporary event of supreme impo rtance was the recent visit of the 

President of the United States to Peking, the resulta nt thaw ing of our relations 

with Communist China and the feelings of euphoria gene rated among many 

Americans. One subject unresolved in the conference was the f uture of Taiwan.
33

Th e de sire of th e U.S . to reco gn ize an d, if po ssible, ac co mmod ate th e view s of 

Com mun ist Ch ina wer e ex pr es se d in th e P re si d en t’s Sha ng ha i st ate m ent which 

w as ce nt er ed on a pe ac ef ul so lu tion of th e prob lem ag re ea bl e to bo th th e Comm uni st s an d N at io na list s.

27/c U.S. In te re st s

By reas on of ou r po litica l and econom ic su ppo rt of th e Rep ub lic of Ch ina an d 

th e va lu e of th e m il it ary in st all ati ons and reso ur ce s av ai la ble to us on Tai w an , 

th e U.S. is ke en ly in te re st ed in a pe ac ef ul so lu tio n of th is prob lem .

In an y m il it ary ba se a t a long di st an ce fr om ou r sh or es a st ab le an d sy m pa ­

th eti c go ve rn m en t and p art ic u la rl y a st ro ng econom y are es se nt ia l as se ts . T her efo re , th e co ntin ue d de ve lopm en t of th e econom y alon g it s pre se nt lin es an d und er 

a fr ie ndly le ad er sh ip a re m att ers of p ri m ary im po rtan ce to us.

A so lu tion alon g th e line s of th e Cairo an d Y alta co nf er en ce s wo uld in te gra te 

th e Tai w an es e econo my w it h th a t of Com m un ist Ch ina an d te nd to nul lify its 

co nt in ue d deve lopm en t. Of ev en gre ate r im po rtan ce it wou ld im po se a pol itic al 

prob lem in th e avail abil it y t o th e U.S. of the re so ur ce s of th e Isl an d.

Th e eco nomic st re ngth of th e is la nd is abundan tly ev id en t in its mot or tr a n spo rt, teleco mm un ications , adeq uat e ho us in g an d am pl e food, al l as se ts which th e 

Tai w an es e de si re to re ta in and which co ns id er ab ly en ha nc e th e us ef ul ne ss of th e 

is la nd a s a ba se of U ni ted S ta te s op er at io ns .

We shou ld, th er ef or e, su pport th e peop le of T ai w an in th eir de sire to co ntin ue 

th e de ve lopm en t of t h eir econom y in de pe nd en t of o ut side do m in at io n an d in th eir 

para ll el an d ju st if ia bl e desi re to con trol th eir ow n fo re ig n re la ti ons?

The su pp or t o f th e U nite d S ta te s alon g th es e lin es wi ll co ntr ib ut e to a pe ac efu l an d a gr ee d solutio n.

Mr. Nix. We also have a second statement which is the testimony of 

Prof. Ralph L. Powell. We will place that in the record, if there is no 

objection.

[The statement follows:]

P repared Sta teme nt of I’rof. R alp h L. P owell, American Unive rs ity, 

School of I nterna tio na l Service, Was hi ng to n, D.C.

Mr. C ha irm an an d mem be rs of th e Com mittee , it is a pr iv ileg e and a re sp onsi ­

bility to te st if y be fore yo u on a qu es tio n th a t is as im port ant an d as co mp lex as 

th a t of th e Rep ub lic of C hi na an d th e fu tu re of Tai w an . May I first pr es en t a 

bri ef pr ep ar ed stat em en t.

Th e ear ly Por tu gu es e accu ra te ly ca lle d Tai w an , Il h a Fo rm os a, the B ea uti fu l 

Is la nd . It is also a st ra te gic all y im port ant isla nd . As yo u know , Tai w an is now 

in ha bi te d by some 15 mill ion in dust ri ous an d ente rp ri si ng peo ple. Th e econom ic 

gr ow th of Tai w an is m at ch ed by ve ry few na tion s. For ei gn tr ad e is booming. 

Edu ca tion al , so cial an d ag ra ri an re fo rm s ha ve been co mm endable . Rec en tly poli ti cal re fo rm s ha ve in vo lv ed more an d mor e nat iv e Tai w an es e in th e ru ling 

K uo m in ta ng P art y an d in th e go ve rn m en t a t all levels . Nor m al ly an are a th a t 

de m ons trat ed re al pr og re ss in so man y fie lds could be ex pe cted to ha ve a la rg el y 

clou dless fu tu re . U nfo rt unat el y, th e fu tu re o f th e peop le on T ai w an will pr ob ab ly 

de pe nd on ly in p a rt on th e ir pr og re ss and th eir de sires. In p a rt it will cert ain ly 

de pe nd on th e po lic ies th e gre at po wers, es pe cially of th e Pe op le’s Rep ub lic of 

Ch ina. Ho we ve r, th e g re at po wers do not ag re e am on g them selves.^Ta iw an is im ­

p o rt an t ec on om ica lly , st ra te gic all y an d psyc ho logica lly and it wou ld be unre ali st ic fo r eit h er Com m un ist China or th e U ni ted S ta te s to fo rg et th a t all of 

th e g re at po wers of th e P ac ific h av e a sign ific an t i n te re st in it s future ."

I su pp or t th e official po lic y of t he U ni te d Sta te s, whi ch ho lds th a t th e ult im ate 

fu tu re of Tai w an sh ou ld be de te rm in ed by th e Ch inese an d in a pe ac ef ul m an ne r. 

Thi s may ha pp en , but it is we ll to re m em be r th a t oth er po w er s may al so play 

rol es.

A dm iral W righ t, wh o has bee n our am bas sa do r to th e Rep ub lic of China , an d 

Gen er al Ci ccole lla, wh o w as ch ie f of our M ilitar y Adv isor y Group on Tai w an , 

are bet te r in fo rm ed th an I co nc erni ng th e in te re st s of th e U ni ted S ta te s re gard ­

ing Tai w an an d th e Rep ub lic of China . I wou ld lik e to co mmen t on th e in te re st s 

of th e oth er g re at Pa cific po we rs. Thi s is an im port ant topi c on which I ha ve 

som e spec ializ ed kn ow led ge . I ha ve m ad e pr of es sion al tr ip s to Jap an tw ice d u rin g th e la st yea r an d hav e ju st re tu rn ed fro m t he So viet Un ion .
34

Jap an has imp ortant historical, economic and stra tegic interests in Taiwan.

Jap an acquired Taiw an by war in 1895 and ruled the island as a colony until 

1945. In some respects the Jap ane se were bru tal colonists, but they did build up 

an economic inf ras tru ctu re tied of course to Jap an. They also trained a litera te 

and skilled labor force. In both of these fields Taiw an was more advanced than 

Mainland China. Since World Wa r II, Japan has built up a major trade with 

Taiw an and sells more to the Isla nd tha n to the whole Mainland of China. The 

Japanese have also made significant investments on Taiwan.^When the Government of Japan recognized the People’s Republic of China in late 1972 and closed 

its embassy in Taipei, that ins titu tion was reopened the next day as an “unofficial” tra de missioii? ^Strate gic Taiw an lies astride Ja pa n’s vital tra de and communications routes 

to Southeast Asia and to the oil of the Middle East* I t was from Taiwan, the 

unsinkable aircraft carrier, th at Japa n launched her attack s aga inst the Philippines in 1941. Now Japa n’s own vital north -south life lines of tra de can be 

dominated from Taiwan, d iscu ss io ns with influential Jap ane se leave the impression th at the official and business elite s of Japan would like to see Taiw an 

remain a sep arate political and economic entit.v^That entity could tak e various 

forms as long as it was not fully inco rporated into Communist China. However, 

one also gains the impression th at 'Jap an has no inten tion of fighting over that 

issue and hopes that Taiwan 's sep ara te sta tus will be preserved by others, i.e. 

the United States! Nevertheless, Taiw an might become ano ther source of fri ction between Jap an and Communist China, at a time when it is important to 

Peking to preserve good rela tions with Jap an, due to the Soviet threat.

The Soviet Union’s intere st in Taiwan is esse ntially negative. Its policy is 

essentially one of denial. Russia does not have close h istorical, political, or economic ties to Taiwan. However, the U.S.S.R. seeks wherever possible to prevent 

its rival, Communist China, from incre asing its power or influence. Apparently 

the Soviet Union has not yet developed an official party line or policy regarding 

the futur e of Taiwan. Its official organs point out different aspects. Some speak 

of historical Chinese ties, others of self-determination and still othe rs of what 

is best for th e security interests of the great powers.

In keeping with the ir general policies tow ard Communist China,“*it is judged 

th at fo r the foreseeable f uture the Soviet Union would not want to see the industries and skilled labor of Taiwan pass under the dire ct control of Peking. Nor 

would Russia wan t to see the People’s Republic tak e over the stra tegic islan d of 

Taiw an and thus extend its power out into the Pacific, where it would be in a 

position to control north-south sea lanesTRussia has its own interests in South 

and Southea st Asia. Furthe rmore, some believe th at the U.S.S.R. is just looking 

for an imp orta nt excuse to attack China. This is very doubtful and it is most 

doubtful th at the Soviet Union considers Tai wan’s independence imp orta nt 

enough to fight a major wa r over. Nevertheless, Moscow is well aware of the 

fac t th at its massive militar y confrontation on China’s fron tiers would prevent 

the People’s Republic from concentrating its land, sea and air forces opposite 

Taiwan, in the very unlikely case th at Peking should contemplate solving the 

Taiw an problem by military means. The Chinese Communists have no faith in 

the Soviet Union. As long as Russia maintains about fifty divisions, with their 

associated air wings and missile battalions, on China’s fro ntiers the Chinese 

could not risk solving the Taiwan problem by m ilitary means.

The question of what government represe nts the Chinese aside, China as a 

nation has the best and most impressive claims to Taiwan. The gre at majority 

of the inh abitants are ethnic Chinese, although many of the ir ancestors have 

lived on T aiwan for thre e centu ries. Pri or to the Sino-Japanese wa r in 1894-95, 

Taiw an was a province of China and the proud Chinese resent losing the island 

to Jap an. Although the official view is evidently not shared by all residents of the 

island, both the Government of the Republic of China in Taipei and the Government of the People’s Republic of China in Peking agree th at Taiwan is a province 

of China. <The Chinese Communists would like to control the industry, agr iculture and 

skilled manpower of Taiw an. These would benefit the Mainland economy. Along 

with the larg e armed forces and weapons systems of Taiwan, these economic 

increments should they pass to Peking, would considerably increase the power 

of the People’s Repub lic/4t is believed th at for the same stra tegic reasons th at 

Japa n and Russia would like to se« Taiw an maintain an independent status,
35

Peking would like to control the strategic island. Last, but not least the Maoists 

see on Taiwan an opposition and competitor regime. Thus they have an addi­ tional ideological and emotional reason for desiring to “liberate” Taiwan. Their 

present strategy is to attempt to destroy the Chinese Nationalists—The Republic of China—by political, economic and psychological measures, not by military means/T he ideological or revolutionary factor may decline somewhat in impor­ tance with the deaths of the elderly protagonists, Chairman Mao Tse-tuug and 

President Chiang K’ai-shek.

It would be naive and probably dangerous to assume th at the Chinese Commu­ nists will not ultimately seek to “liberate” Taiwan, even by military means if necessary. However, due to internal problems and foreign obstacles, Peking has 

tolerated a separate existence for Taiwan for more than twenty ye ars; j ust as the existence of the crown colony of Hong Kong has been tolerated because it is 

economically advantageous. With the shift in Peking’s foreign policy toward greater flexibility and moderation, following the radicalism of the Cultural Revolution; tolerance and patience have again become Chinese v irtu e^ This is tru e because these virtues are par­ tially motivated by major international considerations or obstacles. Thus it appears tha t the final settlement of the Taiwan problem may be long in coming. 

In the meantime the present (le facto situation may continue essentially as it is, 

with no Chinese government claiming that there are two Chinas, but with Taiwan 

existing separate from the Mainland.

Mr. Nix. Now wc have as our first witness, Dr. Fran z Michael of 

the Sino-Soviet Institute, George Washington University. We are 

extremely pleased th at you could come here today, Doctor. You may 

proceed.

STATEMENT OP PEANZ MICHAEL, PEOPESSOE, INSTITUTE FOE 

SINO-SOVIET STUDIES, GEOEGE WASHINGTON UNI VEE SITY

Mr. Michael. Mr. Chairman, it is always a privilege to appear before your distinguished committee. I thank you for the invitation to 

appear again before this committee and to testify as I have done several 

times before.

I have a statement which was handed in last week. May I begin 

with the statement, Mr. Chairman.

Mr. Nix. You may proceed, sir.

Mr. Michael. It would be unwise to underrate the importance of 

the shift in U.S. policy toward normalization of relations with the 

People's Republic of China for the future of the National Government 

on Taiwan. The exchange of liaison missions between Peking and 

Washington—the offspring of our new China policy, has thus far not 

officially affected our relations and trea ty commitments to the National 

Government. There is no question that the United States move toward 

Peking came as a shock to our allies on Taiwan, underscored by T aiwan's expulsion from the United Nations. Yet, the National Government has shown no panic and appears to have accepted this serious 

blow to its position with dignity and without disruption of its political 

course.

In judging the position and strength of the National Government 

of Taiwan, which I think is part of your concern here, one factor, too 

often disregarded, is the success story of the National Government 

under the leadership of Chiang Kai-shek in the decade when it was 

in power on the mainland before the outbreak of the war with Jap an 

in 1937.
36

In retrospect. this decade of 1927-37 was a period of extraordinary 

accomplishment in securing the Government against attack from 

within and without and rebuilding and modernizing the social, political, and economic order of the country. The image of the National 

Government has been much affected bv the tragic story of the disintegration during the final phase of World War I I and the years of civil 

war that followed, a time of demoralization and decline resulting 

from China’s long years of devastation and isolation.

The story before 1937 is quite different. Those who lived in China 

during tha t time observed the rapid growth of a new order under a 

legal system based on over 100 modern codes of civil, criminal, procedural, and commercial laws which affected the whole Chinese way 

of life.

Before the interruption of the war with Jap an, these codes were beginning to build a modern nation state. The economic progress in the 

Central Yangtse area under direct Government control was impressive 

and the Government’s authority was expanding westward. Warlordism was disappearing and the Communist threat was reduced to negligible proportions. Indeed, I believe that had it not been for the war 

with Jap an, this promising beginning would have led to that united, 

strong, and democratic China which Truman described as the goal of 

our policy in the postwar years. The Japanese attack destroyed all 

these accomplishments and gave the Communists a new chance for 

victory.

Today, in assessing the future of the National Government on I aiwan it is important to remember this promising development of bygone days.

Once on Taiwan, the Nationalists demonstrated tha t they had 

learned from defeat. Their successful agrarian reform program on 

Taiwan revived plans originally drawn up in the thirties on the mainland. The whole economic development in agriculture, industrialization, and communications followed precedents from the past. The 

laws on which the social order was based were the modern codes 

adopted in the thirties. They were not so different from the Japanese 

legal system and became the basis of a stable Chinese society. The development of this society within a framework of law and free economic enterprise was greatly strengthened by one heritage left by the 

Japanese administration, the general literacy of the Chinese population on Taiwan expanded by the National Government into higher 

education.

All this made possible the building on Taiwan of an alternative 

model of Chinese development which demonstrates what the Chinese 

people can accomplish economically, socially, and intellectually if they 

are not handicapped by doctrinal necessities.

As a result, Taiwan has today a living standard so totally different 

from that in the People’s Republic of China that the stark contrast 

speaks for itself. The living standard of the farming population on 

Taiwan is about six times that on the mainland, and within Asia, second only to th at of Ja pan .

The major drawback in this picture was the problem of the relationship of the Taiwanese Chinese and the Chinese who came over
37

from th e ma inl and af te r the Comm unist vic tory the re. Fir st received 

as libera tor s, the Na tio na lists ha d th ro ug h the co rrup t and savage actions of the first Go verno r—e ventu ally executed by the Go vern­ ment—c rea ted a ho sti lit y whi ch lingered on, lea ding eventua lly to a Taiwan libera tio n mov eme nt ma inly sponso red b y political ad ve ntur ­

ers and the naiv e academ ic wor ld in Ja pan and the Un ite d Sta tes . In view of the new c ordiality between the Un ite d State s a nd P eking , this s up po rt h as now become discre dited an d emb arr assin g to some who 

form erl y pro moted it. I would like to add a com ment on this. La st week, M r. C hairm an, my colle ague. Pr of . M ar tin W ilb ur o f Columbia Un iversity, testified and introd uced his s tat em ent to yo ur comm ittee. I do no t wa nt to disagr ee with his view, which is also s hared by oth ers in the field such as P ro ­ fessor Scala pin o in Berkeley, who favo r an ind epe ndent Ta iw an fo r both Taiwan ese C hinese, and those w ho have come from th e ma inl and. So wh eth er Ta iw an can be reg arde d as a na tio na l en tit y in its elf , 

th at is a nothe r m at te r an d this v iew could be defined. In my comment I referre d to the view of people like Pr of . Allen 

W hitin g at the Unive rsity of Mich iga n who active ly supp orted anti ­ natio nalist Ta iw an ind epe ndent leader s and now as a res ult of th e new 

course o f U.S . policy seem quickly to h ave sh ifted. But on the issue of Taiwan Chi nese I wou ld like to con tinue here. Tt should also be kept in mind th at the Ta iw an Chin ese are composed of gro ups from di fie ren t regional origin s, ma inl y Ilak ka . Fukie nes e, and Cantone se, each maintaining a clannish standoffishness, opposin g interm arria ge , e t cetera. Indeed t here has been more interm arria ge b e­ twee n members of each of these grou ps and main lan de rs th an among the Taiwan grou ps them selves. Th is in term arria ge between Ta iw an Chinese and main lan ders, and more im po rta nt, the common up -b ring ­ ing in the schools and colleges has gone a lon g wav to bridg e the ga p between main lan d an d Taiwan Chin ese.^Toda y the common da ng er o f the new in tern ationa l sit ua tio n has brou gh t the Ta iw an Chin ese and 

the M ain lan d C hine se closer toge ther again! The result of th is closeness has been the accelerati on of certai n tre nd s and reform s whi ch were a lre ady in motion. Fi rs t, it sho uld be stre ssed th at in c ontra st to the People’s Re publi c th ere is no succession que stio n 

on T aiw an. Indeed, th e succession h as practic all y tak en place. Altho ugh Ch iang Kai-shek was reelected in 1972 fo r a fifth term as Presiden t, presum ably as a symbol of Na tio nalist un ity , the direc tio n of affairs was tak en over by his son Ch ian g Ching -ku o, who was ap ­

poi nted Pr em ier on May 30.1972. Ch ian g Ch ing-ku o’s new Cabin et add ed 12 new faces to a tot al of 19 ministers , and 6 o f the new Cabin et members are Taiwan Chinese. The Go ver nor of Ta iw an and the Mayor of Ta ipe i, both appo inted officials, are also Ta iw an Chinese. In th ese as well as in lesser a pp oi nt ­

ments, the em phasi s is on youth and on p ar tic ip atio n by Chinese fro m 

Taiwan in the politi cal str uc ture.

A ma jor pro blem for the National Gover nment on Ta iw an was to ma intain the co ntinuity of its national rep res entat ive system. When the Na tio na lists lef t the main lan d, about tw o-third s of the memb er­ ship of the leg islatu res , the legisla tive Yuan and the Na tional Assembly went along. These rep res entat ive s fro m main lan d pro vin ces
38

continued to function as members of a national political structure. 

They could not of course be replaced through mainland elections, and 

time and age have taken their toll.

In December 1972 the first elections were held to fill some vacancies 

in these national representative bodies. Of the 89 members newly 

elected to these bodies, all but 10 were Taiwan Chinese and most of 

them were quite young. The new election, held for the national legislature, must not be confused with the provincial and district representative bodies on Taiwan locally elected over the last years.

Of more lasting importance perhaps is the extension of free public 

education from 6 to 9 years, a measure designed to broaden the popular 

base of the system both in economic and political terms to benefit 

especially the Taiwan Chinese by increasing their proportional role 

among the educated leadership of the province.

The continued economic growth of Taiwan despite the adverse international development is as remarkable as its political stability. 

Since 1965 when American aid came to an end, the economy has 

flourished at a growth rate averaging over 9 percent per year and 

reaching in 1972, 11.4 percent in real terms.

In the same year, per capita income rose 13 percent, industrial 

growth was up 21 percent, and the rate of inflation remained low. 

Trade and foreign investment are of special importance in this economic development.

In 1972, following the shift in United States policy, expulsion from 

the United Nations, and the dramatic abrogation of diplomatic ties 

between the Republic of China and some 20 nations, overall foreign 

trade rose 48 percent and reached a total value of $5.8 billion. Taiwan 

trade with Japan has tradition ally outstripped Japanese trade with 

the whole of Mainland China.

During 1973 this trade increased so dramatically tha t the estimate 

now stands at $2 billion, about double t hat for Japanese trade with 

the mainland. There has been thus no adverse economic effect from 

the diplomatic setback, but indeed an amazing and dynamic growth 

of Taiwan’s economic potential. A similar growth of trade has occurred between Taiwan and the United States. The volume of twoway trade exceeded $2 billion in 1972 and is expected to reach $3 

billion this year. Last year Taiwan was the 12th largest trading partner of the United States and it is expected to improve this position 

during 1973.

I would like to say tha t much more on this has been said, Mr. Chairman, in a statement and questions answered by Mr. Henry Kearns, 

president of the E xport-Import Bank, at your last hearing.

However, the economic relationship of Taiwan with the United 

States cannot be separated from the diplomatic and political relationship. Taiwan’s political and social survival has to be guaranteed not 

by lesser states but by secure U.S. backing if her independent existence 

is to continue, without which no economic growth and trade relations with others are possible.

It is time to state the obvious. W ithout diplomatic recognition by 

us, Taiwan could rapidly find herself at the mercy of Peking, as Tibet 

was at the time of Peking’s invasion. The future of the National Government and the question of a free Taiwan is therefore the issue before 

us.
39

To j udge thi s issue, we m ust assess the prese nt a nd the fu ture no t on ly 

of the Na tio nal Governm ent on T aiw an but indeed o f the P eo ple’s Republic on the m ainlan d as it affects w orld peace and Am erican n ationa l 

security.

Th ere is no que stio n of the viab ility of Ta iw an as anoth er China . 

Th e issue rem ains, however , th at o f the relatio ns hip and the co nfrontatio n between the two China s in the future. Th e view, occasio nally 

he ard now, t h at t he re can be a comprom ise betw een the Chin ese on th e 

ma inl and an d the Chinese on Ta iw an, since both are Chinese, demo nstrate s, in my view, an inab ility to un de rst an d the differences in the 

intellectua l and social frame wo rk, indeed of the tw o dif fer ent way s of 

life th at div ide the Republic of Ch ina fro m th e Pe op le’s Re publi c of 

China.

In the Comm unist world—and it c ann ot be str essed enough that it is 

still the C om mu nist wo rld —moti vatio ns and g oals are deter mi ned no t 

by eth ica l bu t by Marxist- Le ninist or M aoist do ctr inal con sidera tions. 

In orde r to reun ite the two China s, it wou ld be necessa ry to hav e a 

Com munist tak eover on Ta iwan, or an anti-Co mm unist rev olu tio n on 

the m ain lan d. A s of now, n either appe ars likely.

Th is is n ot t he place to deal in detail with th e sit ua tio n in the Pe ople’s Republic . W ha t mu st be str essed, however, is th e basic u nc ertainty 

and insta bility of t he fu ture of the People's Rep ublic.

Over the la st 15 years and even befo re, there h as been in Comm unist 

Ch ina a succession of con tinuous uph eav els and majo r purge s, “th e 

str ug gle betwee n th e tw o lines ” in Mao's w ords. A ccord ing to Mao, this 

str ug gle is to continue. I t has br ou gh t abo ut t he most a br up t a nd sweeping changes wi thin the Chinese Comm unist system.

The cultural rev olu tion, for instance, at a cost o f o ver 4 million live s 

acc ord ing to Lin Piao , des troyed the tra di tion al Marxist- Le ninist 

double hierarch y of pa rty and governm ent str uc tures and rep lac ed 

them as of today wi th a new system dominated by the military. Ho w 

pre carious this new s tru ctur e is was demo nstra ted again by the pu rg e 

in 1971 of the lead ing m ili tary m an and M ao’s successor, Li n Pia o, an d 

of a large g roup o f Li n's m ili ta ry a nd political followers at the cente r 

an d in the pr ov ince sfTh e pu rge of this mili tary fac tio n may well be 

com pared with St al in 's purge of the Tukhach evs ky grou p and comes 

at a sim ila rly crucial time.

The man who has come to the top du rin g the cu ltu ral rev olu tion 

and af te r Li n's pu rg e is Chou En -la i, who at present ap pe ars to be 

the chief dec isionma ker in Chi nese Comm unist dom estic and in te rna tio na l affairs.

Chou En -la i, pe rh ap s the most br ill ia nt Comm unist lea der of ou r 

time, has been an ex tra or di na rily skillful politi cal opera tor . Cho u is 

not the “m odera te” he is sometimes pictu red to be by West ern in te rpre ters. His early caree r af te r sec ret police trai ni ng demo nstra ted a 

ruthl ess and stee ly na tu re b ehind the suave and urbane o uter ap pe ar ­

ance.

Once upon a tim e, Ja w ah ar la l Ne hru's misplaced trus t in Chou's 

assu rances re ga rd in g In dia ’s fr on tier with Ti be t des troyed Ne hru, 

both politi cally an d phy sically .

Dur in g the cu ltu ra l rev olu tion, Cho u En -la i bu ilt up his own m ili ­

ta ry s up po rt and, following the pu rge of Li n Piao . he is c learly in the 

strongest position to reb uil d th is dis joi nte d politica l, economic, and
40

m ili ta ry stru ctur e of the Pe op le’s Repub lic of China . Today , Chou 

ap pe ars to be inc rea sin gly in con trol of t he Central Government and 

the m ilitar y/ in du st rial establishm ent. Chin ese policy may the ref ore 

depen d on Chou’s politic al goa ls a nd mo tivatio ns.

Th ere is no sign how ever th at u nd er Chou the basic C ommunist p urpose has in any way been cha nged by the exigencies of the co nfrontatio n wi th the Sov iet Un ion . Not only in domestic an d inter na tio na l 

pr op ag an da does Pe king main tain its Com munist aims, it continues 

to prep are, prop agate , and direct “re vo lutio nary wa rs” and “w ars of 

national lib erati on .”

There is com petition but no basic disagreement betwee n Moscow and 

Pe king on this major stra tegy of tod ay. On the day of the vis it of 

the Burmes e Pr esiden t, Ne Win, t o Pe king , for instanc e, the fri en dly 

wor ds ex tended by C hou E n- lai to the Bur mes e guest coincid ed with an 

artic le in the P eople ’s Da ily r ep rint in g a vicious Bur mese Com munist 

att ack again st the “F as cist” Ne W in, an d pro mi sin g his ove rthr ow. 

Pe ki ng ’s “Voice of the People of Bu rm a,” “Voice of the Peo ple of 

Th ailand ," and “Voice of the Ma lay Re volution ” and other rad io st ations pro vid e not only pr op ag an da bu t opera tio nal directive s to the 

insurgen t movements in the respective countries. It may be th at at 

the moment this r evolutiona ry po licy is on the back b urner, b ut there is 

no ind ication whatsoev er th at a simple s hi ft in empha sis cann ot aga in 

br ing it to the fore.

Beyond the questio n of policy goa ls and mo tivations, there is a 

much dee per un ce rta inty rega rd ing the fu ture course of the Pe ople’s 

Repub lic of Ch ina caused by the question of succession and future 

leadership. Chou is 75 a nd Mao is 79. An y political system depending 

on the lifesp an of two old men is obviously shaky. We do not know 

wh eth er Chou will survi ve M ao, no r who th e fu ture successor will be.

W ha t is at stake is more th an person alit ies. Today, “Maoism,” 

thou gh in eclipse, is s till the d oc trinal frame wo rk fo r policy fo rm ulation and action. Bu t Maoism has been dilute d and there is no way of 

pred ictin g wh eth er t he cu lt will su rvive the lea der. Th ere could indeed 

be a de-Maoizatio n an d one may spe culate on a re tu rn to orthodox 

Ma rxism-Le nin ism a ft er th e dis appeara nce of Mao'*"

W ith or witho ut Chou En -lai. th is could very well mean a realine - 

ment between Moscow and Pe king pa rti cu larly if Moscow should be 

generou s in ils c onditions.

An othe r not less pla usi ble alt erna tiv e would be a gro wing trend t owa rd a trul y ind ependent natio nalist develop ment on the ma inland. 

Bu t in view of the un ce rta inty of fu ture lea dersh ip, these con flicting 

alter nativ es could very well lead to an inter nal pow er str ug gle and 

policy conflict affecting the u nity of the state.

It is such a possi bil ity which app eal's to be the main reason fo r the 

continu ed Soviet m ili ta ry co ncentration w aitin g a t the Chinese bo rde r.

Our policy towa rd no rm ali zin g relati ons with Pe king and deali ng 

separat ely w ith the t wo m ajo r C ommunist powers has been predica ted 

on the Sino-S oviet conflict. The end of t his conflict would create a totallv new situatio n. No thing we can do can gu aran tee th at the tw ain 

shall never meet.

Our policy ap pe ars to be designed to boost Pe ki ng ’s position in the 

intra -C om mu nis t str ug gle, but we c ann ot wi thin the rules of We stern
41

international relations decisively change the rules of the intra-Communist game. The notion, sometimes expressed, that improved economic relations and assistance in economic development will transform the Commu­ nists to capitalist thinking shows nothing but an extraordinary lack of understanding of any form of totalitarian thinking. It should be un­ derstood by now tha t totalitarians of either color cannot be bought 

and that applies to China no less than to the Soviet Union. Whatever the fluctuations in the Communist world, we must there­ fore maintain our security treaties with our Asian allies so as to be able to fall back on safe positions and, while reaching into the uncer­ tain world of intra-Communist conflicts, not lose our footing in the 

system of alliances which has served us so well. It has been stated again and again that our security treaty with Jap an is the anchor on which our Asian position rests. The Japanese alliance, however, cannot be strong in isolation. During his recent visit to Jap an, Secretary of State William Rogers assured his Japanese counterparts that the United States will not take any action with re­ gard to South Korea or Taiwan without consulting our Japanese ally. Both these countries are thus clearly recognized as being of crucial importance to the national security of Jap an as well as the United States. South Korea is the bridge toward Japan and any Communist control over this territory would be regarded in Jap an as a most serious threat.

Taiwan, on the vital searoute to the main Japanese oil and other raw material resources is of equally crucial importance. A look at a physi­ cal map will demonstrate the special location of Taiwan at the outer fringe of the Continental Shelf along China's coast. Submarines of the Peoples Republic based on Taiwan’s east coast would have free ac­ cess to the deep waters of the Pacific without having to cross the shal­ lower waters of the Continental Shelf. This alone would greatly ag­ gravate the existing difficulties of the defense of the vital supply 

routes on which Ja pan's security depends. Our relationship to Taiwan, however, rests on more than the im­ portance of the strategic position of tha t Chinese island province. The National Government is our oldest ally in Asia. The credibility of all our commitments in Asia will be measured by our political decisions 

concerning Taiwan and the National Government. This vital aspect has been somewhat overshadowed by an attitude of euphoria following in the wake of our new China policy and our attempts to replace confrontation with negotiation in all areas of the world. Even should the Sino-Soviet conflict continue in its present form, there is little likelihood that we will be faced in the coming years 

by a People’s Republic which has abandoned its revolutionary aspira­ tions. The continuing military build up in the People's Republic on the foundation of a disciplined and indoctrinated population would be ominous in itself. Uncertainty about future unity in Mainland China and possible potential Soviet intervention, increase the odds against a 

stable future.

Our policy of detente and of normalization of relations with the Communist world can only be maintained if we do not let down our guard, but rather maintain our strength, our commitments and our 

integrity.
42

Durin g Pr esiden t Nixon’s vis it to Pe king in Fe br ua ry 1972, we 

ma nag ed to begin the “normaliza tio n” of rel ations with the Pe op le’s 

Republic witho ut, i n the Pr esiden t’s wo rds, “ ab andonin g old fri en ds.” 

In the Sh an gh ai communique, the United State s accepted only the 

assertion th at Ta iw an was par t of Ch ina , an ass ertion held by both 

Chin ese pa rti es and no t to be “ chall enged” by the Un ite d States.

Whil e de cla rin g oftr inte res t in a p eac eful settlem ent o f th e “ Taiwan 

que stio n” and pro misin g the with draw al of our forces from Taiwan, 

“as the tension in the a rea d iminishes” we did not succeed in ins ertin g 

int o the communique our tre aty com mitments to t he Na tio nal Go vernment.

How ever, th is omission was repa ire d by the Kissing er press in te rview in Sh an gh ai, in whi ch he rea sse rted the con tinued va lid ity of 

our com mitm ent.

As a res ult, we h ave gaine d a mutua l dip lom atic exchange throug h 

the liaison offices in Pe king an d W ashing ton whi ch ap pe ar to be embassies in all but name. An d all th is has been accomp lished witho ut 

bre aking ou r forma l dip lom ati c ties with the National Gov ernment, 

whose A mb assado r contin ues to functio n here in the capital.

Bu t we must not go fa rthe r, otherw ise we may lose fa r more than 

we can p ossibly gain. Our Vietnam success is based on the acquiescence 

of Pe king and Moscow in the str on g mili tary position we h ave take n 

in the final stag e o f b arga ining. T he outcome is sti ll in t he balance a nd 

will in the end dep end on th e con tinued demo nstration of ou r s tre ng th 

as much as on the continued c om pet itio n betw een Moscow and Pek ing .

The question of i ntr a-Co mmun ist conflict or rec onc iliation can only 

be marg inally affected by the Un ite d State s, bu t the str en gth of our 

military and po litical stand is in o ur hands.

^S ho uld we follow the counsel of ab an do nin g ou r di plo ma tic ties w ith 

the Na tional Government ou r whole position in Asi a wou ld be un de rmined. We can not lim it ourselves to mere economic rel ations with 

Taiwan, as the Japa ne se seem to hav e done, witho ut losing t he legal 

internationa l basis fo r assis tin g Ta iw an ag ains t fu tu re possible milita ry coercion by Pe king ^

In wea ken ing our position , we may tempt ou r po tential opponen ts 

to fu rthe r probe ou r weaknesses and undermine the f ai th o f o ur allies. 

Th is, of all times, is not the mom ent fo r ab andonin g Ta iw an and our 

na tio na lis t allies if we wan t to m ain tain the peace in A sia.

Th e ad minist ratio n h as ha nd led th e com plexities of the C hina pr ob ­

lem bold ly. It wou ld be tra gi c if we would become victim s of over 

optimism resu lting fro m our diplo ma tic success. In the view of th is 

observer, the continued su pp ort of the Na tional Government on T aiwan is as cruci al to the success of o ur po licy in Asia and to the m aintenance of peace as is ou r security trea ty wi th Ja pa n. Ind eed , the two 

policies are inseparab ly inter tw ine d.

Mr. Ch air ma n, if I may ad d a footnote, last week I had a len gthy 

discuss'on w ith a lea ding Ja pane se a utho r, and politi cal com me nta tor, 

Pr of . Fu ku da T suneari . who asked question s abou t o ur policy vis- a-vi s 

the National Go vernm ent of Ta iw an, whi ch, of course, I could not 

answ er. I could on ly give m y opinio n.

Bu t his ve ry stro ng po int, whi ch he pe rm itted me to quote, was th at 

fjftnv aba ndonme nt of Ta iw an on our side wou ld be very serious in 

rel ati on to o ur sec urity tre at y w ith Ja pa n.
43

So, this, in a way, underlines this last point which I have made here 

in my statement.

Thank you very much, Mr. Chairman.

Mr. Nix. Thank you very much. Dr. Michael.

I would like to have your opinion. You say th at the administration 

has handled the complexities of the China problem boldly. Would you 

go into that at some length ?

Mr. Michael. Well, in my view, the visit first by Dr. Kissinger and 

then by President Nixon himself to Peking and the normalization of 

our relations with Peking was not only really an improvement in the 

situation in Asia as a whole, but was the basis of our whole policy 

toward Southeast Asia and toward Vietnam.

Of course, the visit was followed by President Nixon's visit to 

Moscow and we have carefully avoided siding with either of the two 

antagonists in the Sino-Soviet conflict.

On the basis of these visits we have been able to demonstrate strength 

in Southeast Asia and to again obtain from Hanoi, without Moscow’s 

or Peking's objection, the agreement which permitted us at least to 

remove our active participation in the combat in South Vietnam w ithout abandoning our ally, t hat is, the South Vietnamese Government.

We have been able to blockade the Port of Hanoi. We have been able 

to use the very effective bombing of Hanoi which was the main factor, 

in my view, tha t brought Hanoi to agree to a genuine compromise 

settlement.

So. T think all of these questions are what you wanted me to discuss. 

I think they are interrelated. I regard this as a very bold initiative 

on our side which has created a new situation. We have reached into 

this Communist world which T regard as a very extraordinary and 

successful move on our side, if it does not lead to the weakening of our 

own strength.

Mr. Ntx. Now. Dr. Kissinger, at his press interview in Shanghai, 

reasserted the continued validity of our commitment to Taiwan. I 

would like to know whether or not you see any immediate prospects 

of an erosion of that commitment.

Mr. Michael. Well, I am not privy to the thinking of Mr. Kissinger. 

All T can say is tha t T trust the assurances that we have not changed 

our policy. My strong statement in this regard, of course, is based on 

the fact that if we ever should s hift our stand this would be a very 

grave issue and would, in my view, be disastrous.

Mr. Ntx. Now, would you again indicate the advantages to the 

United States to continue to strengthen, to enlarge its dealings with 

Taiwan ?

Mr. Michael. Well, our dealings with Taiwan are, first of all, the 

recognition of the National Government, as you know. Mr. Chairm an; 

secondly, a trea ty which provides the m ilitary guarantee for the security of Taiwan.

Beyond that, of course, is a strong link economically, as I have indicated here and as was indicated to you at your last session.

So this has been really a major part of our policy.

Now. if von ask fo r the advantages of this. I see this in relation to 

our whole position in Asia. Tf we abandon a commitment and abandon 

an ally, that is a very serious danger to our credibility? Having been 

many times over the last years in Japa n and having discussed this with
44

many Japanese, both in government and the academic world, I know 

their grave concern with the question of whether our security treaty 

with Japa n, for instance, can be trusted, whether our nuclear umbrella 

is really reliable.

That alone would, to me, be enough reason not to abandon Taiwan; 

it would endanger our whole position in Asia. But I do believe, Mr. 

Chairman, that there is an issue of our word and of our integrity 

involved and of our prestige, which has been high. We have so fa r not 

run away from responsibilities and I don't think that we should start 

to do so.

Furthermore, I have mentioned, and perhaps your other witnesses 

know more about it then I, the actual strategic situation of Taiwan. 

There is also, and this 1 have referred to here, great uncertainty about 

the future in the People’s Republic. We really don’t know in which 

direction developments there will go. Taiwan, which, is stable, is a 

Chinese world and, in fact, a Chinese province on which there is an 

alternative development.

Xow. I have never believed in the idea that there will be a Normandy 

landing and a reconquest of the mainland, but the model of Taiwan 

and the preservation of a Chinese order that is based on law and some 

of the principles of the free world may be very crucial at a time when 

the future of mainland China is at stake.

Mr. Nix. Thank you.

Mr. Broomfield.

Mr. Broomfield. T find your statement extremely interesting. T am 

somewhat puzzled, however, at your feeling that we might abandon 

our commitment to Taiwan. I don't sense that myself. The Nationalist 

Chinese have very many friends in the Congress of the United States. 

I think we all appreciate the way they handled the situation as far 

as our establishing a counsel office in Peking and the President's visit 

to the Soviet Union very much.

T wonder if you would give us your reasons for the questions tha t 

you raised.

Mr. Michael. Thank you very much. Mr. Broomfield. I am very 

happy, first of all, to hear you say that about the attitude here toward 

the National Government which, of course. I share. I have been worried or have begun to worry on two accounts.

I don't belong to either the Republican or Democratic Party, so I 

am looking at it from a neutral point of view, but I have been startled 

by the statement of Senator Jackson before the liaison offices opened, 

when he said we should abandon our relationship with Nationalist 

China and establish full diplomatic relations with the People's Republic of China.

This startled me from a man for whom I have had a high regard. 

Now 1 am hearing about this a great deal in my discussions with 

friends in Asia and particularly in Japan. Many Japanese and several 

people from Southeast Asian countries at international conferences, 

have raised this question.

So, in view of the fact that it has been rumored about and talked 

about. I wanted to come out as strongly as possible with my conviction 

of how important it is to maintain our commitment, from the point of 

view of integrity as T say. but also from the point of view of our 

national securitv.
Th at is why I came out th at way. I have no reason to di stru st ou r 

sta tem ents and the policy of our admi nistr ation. I only wante d to 

an tic ipa te any que stio ns th at some time s come fro m friends.

Mr. Broomfield. I th in k th at is a leg itima te concern. W ith the 

cha nge s th at have occ urred in the las t few yea rs, I th in k there has been a fai lure, if you can call it th at, in keepi ng ou r str on g allies abreast of the new positions th at ou r Gov ernment is t ak ing. 1 do feel 

very str on gly, how ever, th at the Presiden t is pro cee ding very ca utiously with the Pe op le’s Republic and stil l not abandonin g or even giv ing any ind ica tio n of doing an ythi ng th at would change ou r re la ­

tionship with the N ation alist Cliinese.

Mr. Michael. I am very g lad to h ea r you say t ha t.

Mr. Broomfield. T he point I am wondering about is: How do you 

view an increase in shipm ent of food to the People’s R epu blic? How would this affect the Na tio na list Chinese? Obv iously, it is in the 

making.

Mr. Michael. W ell , I am en tir ely in agr eem ent wi th our policy of 

opening up rel ati ons w ith the P eo ple’s Republic.

Mr. B roomfield. C ertai nly , if we ar e going to h ave any peace in the 

world, we cannot igno re a c ou ntr y with a q ua rter of th e wo rld ’s p op ulation . I th in k it is abs olutely esse ntia l th at we open the do ors; in 

othe r words, where th ere is at least com munica tion.

Mr. Michael. I en tir ely agree with you, Mr. Broomfield. I wou ld 

like to say th at if this sit uatio n, called the bala nce of terror , is to be 

cha nge d, it can only be cha nged throug h conta cts and not rem ain 

sim ply a m ili ta ry m atter.

Bu t it is no t en tir ely an economic m atter eit he r. I don’t believe in the idea th at you can mak e ca pitalis ts ou t of Comm unists by giving them gr ain or wh ate ver, bu t it does mean th at con tac t and exc han ge 

of idea s especially is vi ta l; th at is my po int, because I see the ma in 

problem o f t hese relatio nship s in th e wo rld of ideas and concepts, a nd 

th at means openin g up the door. Of course, th at goes to ge ther w ith every othe r kind o f rel ati onship.

Mr. Broomfield. I f there is an a rea th at both ers me, it is the atti tu de 

of some M embers of C ongress. W e ha d a pe rfe ct exa mple las t ni gh t in 

an ill-adv ised move t o tak e a meat ax to our tro op c ommitments o ver­ seas. W e h ad one M ember prop osing a cut of nearly 300,000, and he w as no t su re w here they wo uld come from , but he th ou gh t we oug ht to do it. 

Th is is an are a th at bothe rs me, th at we do hav e, in my judg me nt, a tre nd , and I th in k it is a very small num ber, fo rtu na tely, who are becom ing str on g isolation ists. Th ey are rea lly no t concerned th at th e 

Un ite d S tates sho uld even h ave a role in wo rld affairs. I th in k it is absolute ly esse ntial. A t lea st we sho uld share in the responsibilitie s to pro vid e sta bility. I rea lly believe th at the ad minis­ trat ion is ha nd lin g its foreig n policy extrem ely well. I only wish as a 

mem ber of th e par ty t hat it would handle some of the d omestic thing s 

as well.

Mr. Michael. I quite agree with you, M r. Con gressm an. I do believe 

th at th is has been ha nd led e xtrem ely well. B ut there are p ressures, and as you say, there is the idea of with draw al which, in my view, wou ld 

be very dangero us to peace—disas trous, in fact—nonnegoti ate d withdraw al, p ar tic ul ar ly . A ft er a ll, and speak ing now of Ch ina , there has 

been no t only no chang e in the polic ies of th e Pe ople’s Republic, at
46

least as f ar as the motivations and goals are professed, but there has 

also been a continued armingffThere is the buildup of nuclear power, 

there is the buildup of other military power; so if we consider the 

future potential of a well-disciplined and controlled and indoctrinated 

Chinese population, as I say here, we should never let our guard down.

Therefore, I couldn’t agree more with you tha t we must not be 

reckless on this count.

Mr. Broomfield. One final comment. I was pleased that you mentioned the elections in 1972 and the fact that they are b ringing more 

Taiwanese into it. I thin k this is absolutely essential, but again, I am 

a firm believer that this is an internal problem for the government over 

there. It only pleases me to see that they are recognizing the importance 

of bringing their people into their government. I do want to compliment you. I think this is one of the finest assessments th at I have 

ever read of the situation in th at part of the world.

Mr. Michael. Thank you very much.

Mr. Nix. Mr. Wolff.

Mr. Wolff. Thank you, Mr. Chairman.

Professor Michael, I unfortunately was not here to hear your statement. I have read it, however. I should like to make a few comments 

before I ask you some questions.

One element th at I should like you to know is my views regarding 

the question that was offered on food shipments. I think this Nation 

today is suffering as a result of food shipments th at were made to the 

Soviet Union only some time back, the result of which is tha t we are 

now faced with a problem of being unable to feed our own people.

Regarding the shipment of further food to the People’s Republic 

of China, if they pay in gold, fine. But if they want to get some of our 

food on credit. I would say tha t I think it is about time we took care 

of our own. not that T am by any means an isolationist, but I think it 

is time we took care of some of our own problems rath er than give 

credits to the People’s Republic or to the Soviet Union. I find that one 

of the errors of our policy in the past has been to try to buy our way 

into the hearts of people, and tha t has not been very successful.

As to the question of withdrawal of our forces, I did not vote for 

the amendment last night; however. T do believe tha t there is an opportunity to withdraw some of our forces from around the world. I 

don’t think we need the number of people we have if we do have people like the Republic of China who are standing by us, because if 

there ever was a representative of the Nixon doctrine, it is the Republic of China, who have taken care of their own defense with our 

assistance.

Mr. Broomfield. You mean the N ationalist Chinese.

Mr. Wolff. Yes. the Republic of China. There is the People’s Republic of China and the Republic of China.

Mr. Broomfield. T didn ’t catch the first part.

Mr. Wolff. I notice tha t you are professor of Sino-Soviet studies. 

The fact, however, is that when we talk about the question of Asia, 

the one element that I did notice missing in your statement to the 

committee here, was the question of relations between the Soviets and 

the People’s Republic of China. What effect has this had upon the 

total situation?
47

Air. Michael. Thank you very much, Air. Wolff, for your comment and question. I couldn’t agree more with what you said first tha t the food shipments—of course, I am speaking of them in general terms and not on the question of credit—can only be related to other things. 

They are not a major th ing by themselves.

Air. Wolff. I would say tha t one of the big things we have to sell for the future is food. This is an area where we have the ability to produce. Aly problem with what has happened of recent date is th at we curtailed production and then shipped out of reduced output. If we waited until such time as we had the production, I would not have 

questioned it.

Air. AIiciiael. The soybean export restriction is a typical case which 

was not handled in the best way, as you mentioned. I quite agree with you, of course, on the question of the Nixon doc­ trine. In essence, it has helped those who have helped themselves. The only danger would arise from a one-sided American military 

withdrawal without previous preparation. In connection with the Republic of China, even a small U.S. force on Taiwan today strengthens our commitment to Taiwan. The actual size is a matter which depends on a given military situation. I am strongly in favor of and believe that the Nixon doctrine has reasserted a principle of U.S. policy which goes back to the 19th century. So I quite agree with you that we do not want to do it all ourselves, but would rather cooperate with our allies and share the 

burden in all aspects. Now, you want me to say more on the Sino-Soviet conflict; I have 

testified on that before.

Air. Wolff. Suppose you update it because I do feel it heavily weighs upon the future, not only of our relations with the People’s Re­ public of China, but of our relations with the Republic of China and the position th at we have in the entire world, the continual conflict that exists in the m ilitary presence of both sides of the border. I wonder if you have an update you can give us on this.

Air. AIiciiael. As you know, of course, and as your question also implies, this is really the key factor in the whole situation in Asia. With out this conflict our new policy in Asia would not have been possible. The conflict has led to a situation in which the Soviets have concentrated their major forces all along the border of C hina rl have heard different figures but it is usually given now as a million and a quarter men in fully equipped military units t hat are stationed along 

the Chinese border. The question is, of course, what for? I have never regarded this as a question of war between two nations, or a frontier conflict—the frontier, to me, has been entirely secondary. Nor have I shared the view tha t the Soviet policy might be to destroy the Chinese nuclear ability in a rapid strike ?! have always regarded this as a policy of using the military together with political action to bring a frate rnal socialist country back into the family5Of course the Sino-Soviet con­ flict contained all the familiar aspects of Communist infighting, the insults, the ideological arguments. It became serious from the Chinese point, of view, when the Soviets moved into Czechoslovakia. This Soviet action in Czechoslovakia strongly affected the Chinese leader-
48

ship in Peking. That was the moment when Peking turned toward 

the West.

Mr. Wolff. I)o you think the problem is as acute today as it was 

2 years ago?

Mr. Michael. In 1969 I think there was a serious possibility of 

Soviet military-political action against China. 1 think at the moment 

it is not that acute. P ut obviously the Soviet concentration of strength 

remains. So the situation is very serious.

I could give more details but in the interest of time I will simply 

say that one possibility tha t we should never preclude, and tha t I have 

not precluded from the very beginning, is the possibility tha t the 

conflict might end and there may be cooperation again. When the 

major obstacle, Mao himself, is gone—the Mao cult has already declined—and the possibility that the conflict may be over has to be 

taken very seriously.

Mr. Wolff. I don’t want to take any more time. I am very much 

interested in hearing what you have to say. One thing I would like to 

find out from you is, in talking about the conflict ending, with the 

serious split that exists between the People’s Republic of China and 

the Soviets, in the event that we had difficulty with one or the other, do 

you think that that difficulty would he solved as occurred between the 

Germans and the Russians at the time of World War II , or do you 

think that one or the other would actually stand off and wait and see 

what happened ?

Mr. Michael. I am not quite getting the question.

Mr. W olff. What I am saying to you is that in World War II 

Stalin and Hitler were opponents, yet they got together because they 

had, they felt, a common enemy at the time in the United States. What 

would happen today if either the Soviets got embroiled with us, or 

the Chinese Communists got involved with us, would they join together again? Would tha t be a stronger tie to bind them than the 

ideological struggle they are having with each other?

Mr. Michael. I would say yes, tha t the common basis of policy is 

stronger than any antagonism.

Mr. Wolff. In other words, we can’t count on it continuing between the two ?

Mr. Michael. Oh. no. I certainly think we cannot.

Mr. Wolff. Thank you.

Thank you, Mr. Chairman.

Air. Xix. Mr. Broomfield, do you want to ask any more questions ?

Mr. Broomfield. Yes.

I would like to follow up Congressman Wolff’s question and also I 

have another question who deals with the People’s Republic and the 

Republic of China.

Since our new initiatives, do you see any accommodation between 

the two areas and what do you view in the future? Do you think th at 

there is any basis to the speculation tha t within 10 years tha t they 

will get together?

Mr. Michael. Who is “they” now ?

Mr. Broomfield. I am talk ing now about the People’s Republic and 

the Republic of China.

Mr. Michael. As I said in niy paper,'Amiess you have an antiCommunist revolution on the mainland or a Communist takeover in
49

Taiwan, beyond that, I do not think that because they are both Chinese they will get together* There has been, of course, the relationship be­ tween East and West Germany, and now North and South Korea, the idea of having both in the United Nations, an idea not accepted by North Korea but now the policy of South Korea. But that requires as a precondition the acceptance of each other's existence. Now, that would mean that Peking would have to accept Taiwan as an independent entity, together with the principle of one country, two governments. This would be the two-China policy. On th at basis there would be a possibility of limited contact, I would think, but only on tha t basis. However, the defeat which we suffered in the United Na­ tions during our attempt to create a two-China policy has aggravated 

tha t problem. On the other hand, that is why I feel it is so crucial, far more cru­ cial than the two-China issue in the United Nations, that we give full support and continued diplomatic relations to the National Government on Taiwan?

Mr. Broomfield. If the People’s Republic did assault Taiwan, where 

would our line of defense be in the Pacific ?

Mr. Michael. You will have more expert testimony on that. I am not a military man. Therefore, I can only say what 1 have been told, not only here but by Japanese friends who would take that very seri­ ously. The location of Taiwan at the outer edge of the Continental Shelf, combined with the fact that the People’s Republic is building submarines now. in fact probably nuclear submarines would endanger the Pacific sealanes if Taiwan was in hostile hands? In case of Sino- Soviet reconciliation the threat would even become more serious, especially for Japan, which is our most important ally. So I do regard this as a very major issue from the point of view of our national 

security.

Mr. Broomfield. T hank you.

Mr. Nix. Dr. Michael, I want to thank you on behalf of the sub­ committee for a most excellent and informative presentation.

Mr. Michael. Thank you very much, Mr. Chairman and members 

of the committee. It is a great honor to me. Mr. Nix. Our next -witness is Maj. Gen. Richard G. Ciccolella, re­ tired, former Commanding General of the U.S. Military Assistance and Advisory Group with the Republic of China. We welcome you to the committee. We are very pleased that you 

were able to come.

STATEM ENT OE MAJ. GEN. RIC HARD G. CICCOLELLA (R et .), EORMER

COMMANDING GENERAL, U.S. MI LITA RY ASSISTANCE AND ADVISO RY GROUP. REPUBL IC OF CHINA

General Ciccolella. Thank you, Mr. Chairman. May I read my 

statement ?

Mr. Nix. Yes.

General Ciccolella. Before I start I would like to ask Mr. Broom­ field if I might respond to his last question at the completion of my 

statement. Early this year, afte r 33 years of service. I retired from the U.S. Army. Immediately prior to my last assignment, I served for 3 years
50

as Ch ief of the U .S. M ili tary As sistance A dvisory Gr oup to the R epublic of Ch ina . In the course of th at du ty, I assisted the arm ed forces 

an d the Government of th at na tio n effect significant changes in the 

capabilities and str uc ture of th eir arm ed forces. Th is resulted in 

unusually close person al associatio n with most of the co un try ’s milita ry an d civil leaders, an d provide d a unique insig ht int o th ei r ap ­

proaches, th eir exercise of com mand, and their outlook. Th is experience has left me wi th a pr ofou nd respec t fo r the philosophy and 

aspiratio ns w hich mo tivate the Gover nm ent a nd th e Ar me d For ces of 

the Republic of China. Pr io r to my du ty in Ta iw an , I was the senior membe r o f the United 

Na tio ns Com mand M ili tary Armistice Commission at Pa nm un jon; 

an d in 1956 and 1957,1 wa s th e Ch ief of O perat ion s fo r the U.S. Milita ry Ass ista nce Gr oup in Cam bod ia. Dur in g the 3 years I serv ed in 

Ta iwan, I also ha d occasion to visit Vietn am on num erous occasions 

an d became quite fa m ili ar with th at co un try ’s sit uatio n and its pos ition among the free nati ons o f Asia. These assignm ents afforded exte nsive exposure t o the m ili ta ry a nd rela ted poli tical con sidera tions in the 

F ar Ea st, wh ich affect ou r ow n sec ur ity; a nd it is these—as I perceiv ed 

the m—wi th which this sta teme nt is concerned.

Fi rs t, I believe it essential th at any con sidera tion of the Repub lic 

of Ch ina be mad e in the conte xt of th at na tio n’s place among th e free 

countrie s of Asia. Th is is necessa ry if we are to assess rea listic all y 

where our own int ere sts lie in th is im po rtan t geograp hic are a of the 

globe. Am ong the viable free na tio ns of the F ar E as t—w hich inc lud e South 

Vietn am , So uth Ko rea , the Ph ili pp in e Repub lic, Th ailand , Malaysia, 

Singapore , Ind onesia, an d Ja pan—the Republic of Ch ina occupies a 

place of respec t and lea dersh ip. Th is pos itio n was gai ned by th at 

co un try ’s impressive economic gr ow th, its enc ourage ment of in div idu al 

initiative and enter pri se fol low ing a n ex tra or di na ry lan d ref orm , and 

its wid ely recognized and respec ted arm ed forces. Th roug ho ut Asia. 

Comm unist prop ag an da no tw ith stan ding , the Republic of Ch ina is 

kno wn as a n Am erican ally a nd em ph ati cally not as a n A me rican pu ppet. As an ally , it has been a sta unch an d con sistent su pp orter of our 

aim s an d policies. Tho se in th is co untry who might ha rb or the ill usion th at its fri en dship has only been bought with Am erican aid are 

oblivious to the re ality th at our own ha rd experience has ta ught; 

nam ely, t hat n eit he r economic no r m ili tary assistanc e ca n assu re du ra ­

ble fri en ds hip among nations. I view th is friend sh ip as being more 

firm ly roo ted in philosophy an d int ere sts th at are share d by our two 

Governments. In any e ven t, we hav e in the R epu blic of C hin a a va luable all y th at is str ateg ically situated .

W ith resp ect to our pro vision of m ili tary assistance, I believe th at 

there is a tend enc y in the United State s toda y—u nders tan dable in the 

lig ht of ou r Vietnam experience bu t nonethe less i mpo rtan t—to be un ­

du ly app reh ensiv e over the pro spe ct of being draw n into a military 

inv olvement in th e d efense o f T aiw an. A ctu all y, t he Repub lic o f C hina 

is well abl e to tak e care of its elf in combat in defense of Taiwan on 

its own, pro vid ed th at its a rm ed forces are furnish ed with the m odest 

assistance it needs. The na tu re of its military capabilitie s tod ay and 

the will of its peop le are such as to discou rage mili tary aggression 

ag ains t its ter rito ry . An y atte m pt to u nd ert ake a m ili tary conquest of
51

Taiwan, including the offshore island groups of Kinmen (Quemoy) and Matsu, would be an enormous undertaking and a military adven­ ture offering unacceptable odds to an aggressor. It appears to me to be highly improbable that Communist China would embark on such an undertaking so long as the Republic of China continues to field the kind of military forces it currently possesses. With the help of our military assistance programs, the Republic of China not only has developed a highly respectable capacity to defend itself, it also has developed a capability of providing essential support for other friendly Asian countries. Of particular importance is the capability for repa iring military hardware which it is prepared to offer other free Asian nations, proved through extensive ongoing programs for Vietnam and Thailand. These capabilities would be of little value in the absence of internal support and political stability. The Republic of China possesses these qualities. The unique position of the Republic of China as a stronghold of Asian freedom reflects the integrity of its leaders and the prestige that they enjoy among the free nations of Asia. In my dealings with that Government, I always found the highest order of honesty, compe­ tence, and regard for ethics. In my view, the Government of the Repub­ lic of China is a monument to President Chiang Kai-shek whom I regard as one of history's rare leaders to whom people give their loy­ alty and in whom they can safely place th eir trust. Premier Chiang Ching-kuo, with whom 1 worked closely when lie was Minister of De­ fense, shows the same qualities which give further assurance of con­ tinued political stability. The leadership of the armed forces from senior ranks to junior officers is outstanding. American interests require th at in the Fa r East, as elsewhere, a rea­ sonable balance of power be maintained to permit the development of peace and political stability. This means th at an American presence in the area is required to preclude creation of a power vacuum tha t would destroy any hope of such a balance. And it means that depend­ able American allies there must be supported to the degree th at sup­ port is needed to insure their independence. Mr. Nix. General, may I interrup t you a moment. The bells rang a moment ago. We will have to go and vote but we 

will return very shortly.

General Ciccolella. Fine.

Mr. Nix. We will recess for a few minutes.

[Brief recess.] Mr. Nix. The subcommittee will be in order.

You may continue, General.

General Ciccolella. For without such allies, we could not main­ tain our essential position in the F ar East. In this connection, it is re­ assuring to know that the leaders of the Republic of China are tho r­ oughly fam iliar with the problems of collective security in this region and that they possess a sound perspective of strategic considerations that are of utmost importance to the United States. Today our country is following a policy in the Fa r East known as the Nixon doctrine which essentially provides that minimum necessary U.S. assistance will be provided to those nations willing and capable of helping themselves. Its fundamental premise is sound for it spurs
the develop ing nati ons to do for them selves w hat they sho uld do and reduces th ei r depe nden ce on the United Sta tes. In th is connection, it is 

interesti ng to note th at the Republic of China was practic ing thi s 

doctrine for several years before it was prom ulga ted by President 

Nix on in Gua m in 1969. U.S. economic aid was ter mina ted for 

the Republic of China in 1965 and du rin g my 3 years as Chief of 

the M ilitary Assistance Adviso ry Gr oup f rom 1967 to 1970 the tot al an ­

nual U.S. contr ibu tion to the arm ed forces of the Republic of China, 

fun ded by the U.S . Congres s, amounted to less th an 10 perc ent of the 

ann ual defense budget of th at country . In other words, the Rep ublic 

of China has for a long tim e been pa ying more th an 90 perc ent of its 

own defense requirements. T od ay , the U.S . contr ibuti on is less than 3 

per cent o f the tot al defense bud get.

While we are c urrently in the process of no rm alizatio n of relations 

with Com munist China it is im perative th at we realize the need to 

str en gthe n our ties w ith ou r Asian allies. I f recent histo ry has taug ht 

us an ythi ng abou t dealings with Com munist nation s, it is th at any 

such dea lings must proc eed fro m a pos itio n of stre ng th—otherwise 

they will be useless. An essential elem ent of our st reng th reposes in the 

dependability of o ur allies. I t is there foi e both distu rb ing and fr ig ht en ­

ing to rea d and hear of pro posal s to aba ndo n some o f o ur most tru ste d 

allie s in the F ar E ast to ing ra tia te ourselves g ratuito us ly with Comm unist China . Ab andonm ent of any of our allie s in the F ar Ea st is un ­

necessary and would be self-d efe ating. It would also deny us the poten tia l benefits th at our own cu rre nt negotia tio ns wi th Com munist 

China now ap pe ar to offer. I f we were to tu rn our back s upon the Re ­

pub lic of Ch ina , we would do ourselves i rre pa rable harm in our future 

relations with Comm unist China . Th at natio n certa inly would lose 

respect fo r our rel iab ility an d lose confidence in the exten t to which 

we could be tru ste d. The Chin ese Comm unists are prag matic—they 

do not expect us to aba ndon ou r lon g-time ally. Ce rta inly the y have 

not aba ndoned their No rth Vietnamese and No rth Ko rea n allies on 

our account, no r are the y redu cing th ei r con side rable su pp ort to the 

Comm unist ins urg ents in Laos, Cam bod ia, and Th ailand . It is my 

conside red view th at the r esult s of negoti ati ons with Communist C hin a 

cu rre ntly under wav—an d which will con tinue fo r a conside rable 

tim e—will depend signif ica ntly upon how well we can main tai n our 

position in the F ar Eas t wi th the coo per ation of our As ian allies. In 

this conn ection. I wa nt to reemphasize th at one of ou r most tru ste d 

and most reliable Asian allies is the Republic of Chi na. Our failu re to provide a deq uat e assistan ce to the R epublic of C hin a 

would have serious rep ercussions fa r beyond Asia. I f it became ap ­

pa rent to o ur allies that th e R epublic of C hin a could not re ly on us afte r 

years of close collaboration , they would, righ tful ly , ask them selves 

if they were wise in placing th ei r tr ust in us origi nally . I believe th at 

we would find our fri en ds in othe r pa rts of the world tu rn in g away 

fro m us and seeking firm er anchors. Ce rta inly we w ould lose the confidence of fri en dly Asian natio ns whi ch now look to us fo r su pp ort 

in the que st fo r peace and secur ity. Wh en a na tio n’s saf ety an d sur viv al are at stake, th at nation will 

seek help from wh ate ver source may be ava ilab le, irresp ective of ideology. History is rep lete with exam ple s: Sp ain, Fi nlan d, and Yug o-
53

slavia were obliged to accept help from Nazi Germany. Our former 

staunch ally, Pakistan, once the most anti-Communist nation in South 

Asia, more recently had to turn to Communist China for assistance. 

Turkey has made some overtures in this direction also through negotiations with the Soviet Union.

To assure continued independence, the Republic of China requires 

limited military assistance th at only a major power can provide. For 

more than 20 years the United States has provided that assistance.

At present, the Republic of China constitutes a bastion of strength 

for the free nations of the Far East. She is a food surplus country. She 

has technical, scientific, and educational resources in abundance. H er 

armed forces can provide vital repair and rebuild services for maintaining military and naval equipment. In joint cooperative programs with U.S. firms, she produces jeeps, %-ton trucks, 2i£-ton 

trucks, all types of ammunition, and small arms. She has an ongoing 

coproduction program with the Bell Helicopter Co. producing the 

IIU1H helicopter and a coproduction program for F-5 aircraft with 

the Northrop Corp.

With the exception of Japan, the Republic of China possesses the 

only capability in the Pacific to rebuild and repair helicopters—a capability of enormous importance in view of modern military requirements. Her airfields are modern, secure, and strategically important. 

Taiwan offers two deepwater ports—one in the north and one in the 

south—that can accommodate any ship in our fleet. These assets and 

resources must appear enormously attractive to the military planners 

in the Kremlin anxious to extend Soviet power in Asia. These capabilities must be viewed in the strategic sense. Since World W ar II , we have 

been relying on Ja pan , including Okinawa, as major bases for repair 

and rebuild of U.S. and Allied air. ground, and naval equipment. The 

political vagaries of the Japanese Diet and social instability in Japan 

may cause the United States to lose these strategically important bases 

on the advent of another conflict in the Far East not directly involving Japan.

The Republic of China does not seek a U.S. military presence on 

Taiwan to help in its defense. But it does need modest military assistance and some technical aid—and we can be sure that it will obtain 

what it needs from some source. With the exception of advanced fighter 

aircraft, much of what the Republic of China needs can be provided 

from surplus U.S. military stocks as the levels of our own forces taper 

down. While they can provide most of their military requirements 

from local resources, they cannot produce the advanced fighter air ­

craft. modern tanks, modern destroyers, missiles, and radar needed 

to keep their military forces modern and capable of defending their 

country. We can assure the viability of a valuable and truly reliable 

ally at very little cost. More importantly, we can fulfill our obligations 

to a loyal friend. Both self-interest and morality demand that we do 

no less.

Tha t the Republic of China is a loyal and reliable U.S. ally there 

can be no doubt. During the Vietnam conflict, the Republic of China 

provided the use of its huge airfield complex to base our C-130 

fleet which provided essential logistical support to our forces in 

Vietnam. When political pressures in Okinawa forced the evacuation
54

of our B-52 operations from that country, the Republic of China 

promptly offered its own airbase facilities, free of charge, to meet our 

requirement. Our KC-135 tanker a ircraft operated from Taiwan bases 

to refuel our fighter and bomber aircra ft operating over Vietnam. T he 

rebuild and repair facilities of her armed forces were placed at our 

disposal during the Vietnam war and hundreds upon hundreds of 

war-damaged trucks, tanks, and assorted military equipment were 

rapidly and efficiently repaired anti rebuilt at a fraction of what we 

had been paying Jap an previously for the same services. Savings to 

the U.S. Government under this arrangement amounted to several 

millions of dollars. When we ran into a shortage of AI-60 mortars for 

the Vietnamese force, the Republic of China promptly furnished these, 

taking them from her own military forces. More recently when the 

United States sought to quickly increase the airpower of South Vietnam, the Republic of China unhesitatingly transferred to Vietnam 

48 F-5 fighters—just about half of her most modern aircraft. The 

fact that she did not have combat forces operating alongside our own 

in Vietnam was due in no way to a reluctance on his part to provide 

them.

Proposals tha t we reduce our military assistance to the Republic 

of China to levels which would make it virtually ineffective or to 

eliminate it entirely are shortsighted, would sabotage American policy, 

and dangerously undermine our security if they were adopted. Our 

best interests in Asia are served if we live up to our treaty obligations 

and moral commitments by standing firm alongside the Republic of 

China and by providing to th at gallant country the military assistance 

it needs for its defense.

I thank you, Air. Chairman, for this opportunity to present this 

statement and I am prepared for any further discussion you and members of the committee desire.

Mr. Nix. Thank you very much, General, for a most constructive 

statement.

You say th at:

Proposals tha t we reduce our military assistance to the Republic of China to 

levels which would make it virtually ineffective, or to eliminate it entirely, are 

shortsighted and would sabotage American policy and dangerously undermine 

our security if they were adopted.

Now, which security are you speaking of? How would it dangerously undermine our security ?

General Ciccolella. If we found. Air. Chairman, that our aid to 

the Republic of China were eliminated and as a consequence of that 

the Republic of China had to seek military aid elsewhere and became 

associated or allied with a power which was hostile to the United 

States, obviously then our position in that part of the world would 

have to be abandoned.

If her armed forces were so weakened as a result of a lack or inability to obtain modern military equipment such as advance fighter 

aircraft which are vital to her defense, it would invite or tempt the 

Communist Chinese to undertake a military operation against the 

Republic of China. This could possibly draw us into something.

Air. Nix. The recently so-called detente tha t we arrived at with the 

People’s Republic of China, does that in your opinion in any way 

affect our position with the Republic of China ?
55

General Ciccolella. I don't think so. I am not too familiar with it but I know that it eases the tensions. It certainly has eased some of the tensions that existed in some potential areas tha t could have developed into possible conflict. I would not think tha t tha t would pose a difficulty. I think it would be helpful.

Mr. Nix. Is it your opinion that Taiwan could be used as a standby base should the presence of American bases in Jap an and Okinawa prove embarrassing to either one of those countries ?

General Ciccolella. Yes, there is no question about that. As a matter of fact, we are using some of them now, as you probably know. They are very adequate, too. We moved almost all of our repair facil­ ities' out of Jap an and they are in Taiwan now. Tha t was done and 

completed about a year or so ago.

Mr. Nix. Mr. Broomfield.

Mr. Broomfield. General, I want to compliment you on your state­ ment. too. It is a very fine assessment of the situation. Of course I could not agree with you more on our need to continually make sure tha t the Republic of China remains strong. I thin k tha t this is an important part of the Nixon doctrine and again I have to say tha t I am fearful that there are Members of Congress who are trying to undermine this by not providing adequate assistance. Our military aid presently and the number of military personnel we have there is a very minimum number. It is absolutely essential, even though we are entering a new phase of negotiations with the People's Republic, tha t we maintain some of these areas, particularly Taiwan, in a position to defend themselves. I am concerned about the situation as fa r as Okinawa is concerned. Congressman Nix mentioned the possibility that either through Tai­ wan or Korea we may still be able to maintain adequate bases up in that part of the world. Let me ask you this : If by some strange reason Communist China did move against Taiwan and was success­ ful, which I contend and I agree with your statement, is highly doubtful because the cost would be so heavy, where would our line 

of defense be in the pacific?

General Ciccolella.4In my opinion we would have to withdraw 

back to Hawaii. There would be absolutely no alternative. It would mean essentially, Mr. Broomfield, that we fought World War II to no avail. It was clear to our country at the time of World Wa r II tha t our vital national interests could not permit a major power hostile to the United States to dominate all of Asia. Our standard of living and our way of life are dependent in large 

measure on our trade and our commerce. If we ever found ourselves in a position where all of Asia was taken over by nations hostile to us bent on undermining us or dam­ aging us in any number of ways it would be very, very serious to the United States. Our security would be threatened and certainly we would have to change our wav of living. If we lose Taiwan and you know it is not always a question of do we ourselves need the bases in Taiwan but it is also essential to us to deny these bases to potential aggressors. That is extremely important. M e don t care really what kind of government these other countries have so long as they are not hostile to the United States
and so lon g as the y are relat ively ind ependent, make th ei r own ]udgments, and are no t used by the Sov iet Un ion or Com mun ist China 

to plot and org anize aggre ssion ag ain st some oth er nations or again st 

ou r own interests.

So our intere sts are to i nsure th at th ese cou ntries can sta nd on th eir 

own feet and be rea son abl y ind epe ndent and deny th ei r te rritor y and 

th ei r resou rces to the c onc erted effo rts of p owers hos tile to th e I nited 

Sta tes.

Mr. Broomfield. Tha t is why I am sure th at we are not goi ng to 

abandon our com mitmen t.

Gen eral Ciccolella. I do n’t think so. I hope not. As I say, I get 

conc erned abou t the th ings 1 he ar in the rad io and on TV and rea d 

in the new spapers, sta tem ents of variou s Senator s and some Members 

of the House.

Mr. Broomfield. W e get dis turbed at some of the statem ents.

Mr. Nix. We have 435.

Mr. Broomfield. Th e las t tim e I was in Ta iw an was a number of 

years ago. I was treme ndously imp ress ed with th ei r military capabilities. T think at th at time they h ad in excess of 500.000 men. I even h ad 

an op po rtu nity to fly out to Quemov and Matsu. T could n't help but 

think of th at when you were g iving your state me nt. It would be very , 

very difficult, there is no question about it. to assau lt Taiwan.

General Ciccoi.ella. Su re, and the Comm unists are never goi ng to 

attack a nation and em barra ss th emselves with a long, d raw nout cam ­

pai gn. They will attack or commit an agg ression only when the y are 

reasonably sure it will res ult in a quick victory . Bu t to att ack the offshore isla nds would be quite an u nd ertaking .

Mr. Broomfield. Le t me ask you an oth er que stio n, General. To n 

must h ave a lot o f co nta cts in Taiwan at the presen t time. W ha t is the ir 

attitu de abou t main lan d Ch ina ? O f cours e, for many, man y yea rs it 

was the desire of Gen. Ch iang Ka i-shek for an invasion. I th in k in 

toda y's world th at would be absolutely ridiculous. Ha s th at chan ged ?

General Ciccolella. T here is no responsible person on the island of 

Taiwan who envisions a military inva sion of Com munist China for 

the obvio us reason th at they are intell ige nt peop le who know how to 

add and assess rel ati ve military cap abi lities. Bu t the re is the hope, 

as Professor M ichael sai d, there is rea lly the honest hope in the h earts 

o f many of the m ain lan d Chinese and they numb er 2 or 3 million now, 

th at th ere can come ab out on the main lan d of Chin a some change which 

wou ld affect th at gover nm ent somehow which wou ld pe rm it some 

sort of a reconcili atio n. Th is is a hope they have. Bu t in the meantim e the Na tio na lis t Chi nese are very hard-w orking people and very 

sm art people. They ju st go ahead bu ild ing up th ei r little isla nd of 

Taiwan and making mon ey and ma kin g be tte r homes and im prov ing 

th ei r way of life, incre asing th eir tra de and doing ev ery thing to im ­

pro ve th eir sta nd ard of living . Th ey have a very fine sta nd ard of 

liv ing in Taiwan. So they just go right ahead p lugg ing along and doing 

what the y should be doing.

Mr. B roomfield. Th ey deserve a great deal of cre dit for the ir devel ­

opm ent and c ertainly fo r t he ir co ntr ibu tio n in solv ing the problem s o f 

Indochina . Ce rta inly, they have done fa r more than you have ela borate d on in yo ur speech. Tt is deeply appre cia ted by those of us who 

know o f the ir gr ea t contr ibu tio n.
57

General Ciccolelijk. I surely hope so. I always have appreciated it.

Mr. Broomfield. That is all I have, Mr. Chairman.

Mr. Nix. Mr. Wolff.

Mr. Wolff. General, with the situation being what it is in Korea 

today, with the advancing situation with President Park indicating 

tha t he has no objection to No rth Korea being a member of the United 

Nations, this would call for a pretty heavy burden to keep a United 

Nations force in South Korea, would it not? It might change the complexion of the force?

r General Ciccolella. There is no question about that, Air. Wolff. It

would have to change. If North Korea were admitted to the United 

Nations then other than the United States, which has a unilateral 

agreement with South Korea, as well as its commitment to the United 

Nations Command, there would be no other United Nations forces. 

Of course they amount to nothing now anyway. They are just a bunch 

of flagholders with some colors.

Mr. Wolff. However, this umbrella is used in order to maintain our 

forces, is it not?

General Ciccolella. That is true, no question about it.

Mr. Wolff. What I am getting at is that there may be a question

as to whether or not we would be able to maintain a force in Korea. 

General Ciccolella. Th at question would arise but we can arrange

that through a unilateral trea ty with South Korea which is perfectly 

legitimate.

Mr. Wolff. Of course it would be hard to satisfy some people in 

this country to maintain a force in Korea to protect against another 

member state of the United Nations.

General Ciccolella. It most assuredly would.

South Korea is not what it was in 1951. They have very strong 

military forces. North Korea, while they may be predominant in some 

weapons systems, could not in any way achieve the success that it 

achieved in its surprise attack in early 1951. Tha t is just out of the 

question.

Mr. Wolff. Of course, they have great superiority in airpower.

General Ciccolella. Yes they do.

Mr. Wolff. This is one of the defense questions that exists.

General Ciccolella. It certainly does.

Mr. Wolff. Until such time as a modernization program is completed in Korea, they stand in a fairly vulnerable position?

General Ciccolella. They do. That is the reason for this country to 

maintain its presence in that part of the world. Our presence is importan t in that respect. These people from North Korea are very cognizant and feel very strongly the military presence of the United States 

in tha t area. They respect it; while they are contemptuous to your 

face they respect it very much.

Mr. Wolff. What I am trying to determine from you hinges on the 

event that forces us to move from Korea 2 years ago. I spoke to 

the Governor of Okinawa. He indicated that he felt that within 

5 years there would not be a U.S. presence in Okinawa any longer. 

I spoke to some of the people in Japan and they indicated as well, 

that they felt in 5 to 10 years there would no longer lie a U.S. presence. I f there is no presence in that area, if we are forced to move our 

presence out of Korea, where is our fallback position?

General Ciccolella. Hawaii. There is no other place.
58

Mr. Woijt. Guam would not suffice?

General Ciccolella. I t is an intermediate base offering very limited 

facilities.

Mr. Wolff. How would the Republic of China be as a base for our 

operations if we could get them to provide us with base facilities?

General Ciccolella. I think th at we would certainly want to maintain Taiwan precisely for tha t purpose but we would not need to withdraw the division-plus that we have in Korea now. I don’t think it is 

necessary. If we have to withdraw from Korea I think we ought to 

make a clean break and bring our forces back to this country. We don’t 

need to take that division and move it to Taiwan or Okinawa or the 

Philippines. They could come straight home.

Mr. Wolff. If we look at the map. if we move out of Japan and move 

out of Korea. Korea presents a certain vulnerability under any circumstance to air. There doesn't seem to be any around there, and the 

present problems we are having with the Philippines, if we intend to 

maintain a presence in Asia, we have to find some place for it.

General Ciccoi.ella. We need the availability of these bases when 

we want them. That is the reason we have to insure th at these countries 

retain their independence and their flexibility and that they don't come 

under the domination of a hostile power that would operate to the 

detriment of our country. We don't need to occupy. Our m ilitary presence doesn't entirely mean that we have to physically occupy these 

bases with military forces. We can visit them with our ships. We can 

flv our squadrons of fighter aircraft in. They can fly across the ocean. 

We can have joint exercises.

Mr. Wolff. Isn't that sort of a gunboat diplomacy, and doesn't that 

bring us to the “paper tiger1

' label ?

General Ciccolella. The Communists give all kinds of names to 

these things. I don't pay much attention to them. They can call it what 

thev want but these are very effective means of demonstrating the intentions of a country. You have a port that your naval ships can go in 

and refuel and make calls there, that is fine. That does a lot for the 

morale of the people. I f you can fly your aircra ft in and out and check 

your logistical supplies and requirements in the event of an emergency, 

if you can run joint exercises in order to tie in communications and 

command relationship procedures, these are the essential things tha t 

we really want now. We don't really need to maintain forces, large 

forces in being in all of these places. We need them in many places, 

there is no question about that, in my mind, but I don't think we need 

to have them everywhere now.

Mr. Wolff. ITow about the removal of our naval forces from the 

straits?

General Ciccolella. In Singapore?

Mr. Wolff. Not in Singapore necessarily, but the Taiwan Straits.

General Ciccolella. Well, of course we removed that, you know, 

back in 1969 or 1970. We used to run a destroyer up and down the 

straits almost every day. Then we cut the frequency of it down. Then 

we eliminated it entirely and the Republic of China has taken that 

responsibility over. They run one or two of their destroyers up and 

down the straits. There is no tremendous significance to that. The
59

purpose there was really to demonstrate the intention of the I nited 

States to honor its treaty commitment. It had a very strong psychological impact on the Republic of China when we did withdraw it for 

a while but I think they have been reassured since then that we intend 

to honor our treaty commitment.

Mr. Wolff. ITow do you look at the statement that was made that 

we will let the People’s Republic of China and Taiwan resolve their 

differences together?

General Ciccolella. Well, you know, you hear that every so often. 

These are people who really don't know the people on Taiwan. There 

is such a world of difference between living conditions on Taiwan 

and living conditions on the mainland. These people are smart. I hey 

are not fooled by pictures tha t the Chinese Communists put out for 

propaganda purposes showing all the kids dressed up nicely and 

parading around and being happy. They can look across the shore 

from Quemoy and see what the difference is. They know what communism is. You know, 2 million of them came over there to escape 

that type of regime.

There is no way, in my opinion, no possibility that these people 

would come together under these circumstances that they are living 

under now, under these two types of governments they are living in.

Mr. Broomfield. Wouldn't you agree that our policy ought to be 

tha t we ought to keep our nose out of it, anyway? If there is any 

accommodation it ought to be by Taiwan and the People’s Republic.

General Ciccolella. Sure. Absolutely. It is a Chinese problem.

Mr. Broomfield. Jus t as with our policy in the Middle East, if 

there is a settlement there it has to-be on a negotiated basis with 

Israel and the Arab States. I thin k our policy should be th at if there 

is an accommodation between Taiwan and the mainland they must 

do it bv themselves and not through any outside intervention.

General Ciccolella. Absolutely. If we tried to intervene we would 

be very foolish, indeed.

Mr. Broomfield. I agree.

Mr. Wolff. I can attest to one part of your statement, having visited 

Taiwan, but they won't let me into Communist China so I can't tell 

you anything about that.

Mr. Broomfield. They will let you in soon.

Mr. Wolff. I asked to go three times. I was turned down three 

times. As a member of the Foreign Affairs Committee I have been 

turned down. If they don't want our people over there, I certainly 

don’t want their people over here.

General Ciccolella. I see some of your friends on the Senate side 

don't have any trouble.

Mr. Wolff. That is the Senate—another body.

I thank you very much.

Mr. Nix. Don't you think. General, th at the presence in the People’s 

Republic of China, and I am speaking of the leadership, the age of 

tha t leadership, the tensions between the Soviet Union and the 

People’s Republic of China, all indicate th at the relationship between 

that country and the Republic of China will remain as it is for a 

considerable time into the future?

General Ciccolella. Yes, sir; I agree with that premise entirely.
60

It is going to be a long, long time before you see any significant 

changes in either the relationships between Mainland China and the 

Republic of China. Communist China and the Republic of China, and 

even before you see any major changes in the substantive relations 

between this country and Communist China despite our current efforts 

at normalization of relations that we are going through now. Tt is a 

slow business.

Mr. Nix. Wouldn’t you say that not only because we have given 

our word to the Republic of China, we have a solemn commitment, 

but, in addition, because of the economic advantage to the United 

States of America the prospects of our relationship remaining as it 

is and improving would be good ?

General Ciccolella. Absolutely. It is very much to our advantage. 

Now, I happen to live in a part of Virginia where they raise a lot of 

soybeans. I was astounded to find out the other day that the Republic 

of China buys over $300 million worth of soybeans from our country 

alone. Tha t is a lot. They pay for it in hard cash.

Mr. Nix. And another consideration, would you not say, is the fact 

tha t the Soviet Union is seeking to expand its presence in tha t part of 

the world, makes it imperative on our part to maintain this relationship ?

General Ciccolella. There can be no doubt of that, Mr. Chairman. 

Wha t gives emphasis to tha t particu lar fear is the present Soviet 

construction program of a ircraft carriers and large ships of the line; 

yes, sir.

Mr. Nix. Thank you very much.

By the way, I might make this observation: When we were about to 

introduce the second witness we expected a man of greater years. We 

concluded, as we walked over to the floor, that you must have gone to 

the military school when you were 15.

General Ciccolella. No, I came in at the regular time. I came in 

through Brooklyn College in New York.

Mr. Nix. The subcommittee is adjourned.

[Whereupon, at 3:52 p.m. the subcommittee was adjourned.]
A P P E N D I X

L et te r F ro m E ver et t F. D r u m r ig h t, F or mer A mb assado r to t h e

R epu b lic of C h in a

Poway, Calif., July 18,1973.

Hon. Robert N. C. Nix,

Chairman, Asian and Pacific Affairs Subcommittee, House of Representatives,

Washinyton, D.C.

Dear Mr. Nix : I appreciate and am glad to respond to your letter of July 10th 

soliciting my views on the importance of the Republic of China to the Free 

World today.

In my judgment, it is highly important and advantageous to us to protect and 

support the freedom and independence of the Republic of China. Not only have 

we been allies since World War II, but we have in being a defense treaty that 

lends invaluable moral and implied military support to the Republic of China.

In view of the strategic importance of Taiwan, its value as a repository of the 

age-old Chinese culture (which Mao Tse-tung is trying to extirpate on the mainland), in view of the political and economic stability achieved on the island 

in the past two decades, and in view of the repeatedly demonstrated friendship 

of the Chinese Government and people to us (despite Yalta, the tragic era of 

1945-49 and the Nixon visit to mainland China), it would be a travesty of 

justice and an incalculable blow to our security (already in retreat in East 

Asia) to repudiate and turn our backs on these reliable allies. In passing, I 

might say tha t our trad e with Taiwan is approaching $2 billion per year and 

our investments on the island now run to about $350 million. Economic and 

trade development is continuing to expand at a phenomenal pace. It is safe to 

say no Chinese in history have had the economic prosperity of Taiwan. Moreover, significant educational advances are being made in a free atmosphere, and 

the freedom of the people to make individual decisions is making rapid strides. 

The new Prime Minister, Chiang Ching-kuo, is bringing a new, creative and 

more youthful approach to the arts of government in Taiwan. In my view, the 

Government of Taiwan (Republic of China) is solidly supported by the citizenry. 

And it should be with its fai r and sufficient administration and the remarkable 

ongoing prosperity of the country in an atmosphere of general stability unknown 

25 years ago. And all this notwithstanding the political rebuffs represented by 

the loss of its United N ations’ seat and the international fallout incident to the 

detente between the United States and Red China.

I have never opposed the concept that we should strive for better relations with 

the authorities on the mainland of China, but I am strongly of the view that in 

cultivating such an improved relationship, we should act most carefully to safeguard and protect the security and interests of our allies on Taiwan. After all, 

the Republic of China has proved its loyalty, reliability and friendship, whereas 

the mainland Red authorities have yet to prove that they enjoy these attributes. 

On the contrary, they continue to regiment the hapless Chinese people in an 

utterly ruthless way and they have not, so fa r as I know, renounced their revolutionary adventurism abroad. My own judgment is that the Chinese Reds are seeking reapproachment with us because of their overweening fear of Soviet Russia 

and also because they consider they may be able to drive a wedge between us and 

the Republic of China. We must always bear in mind tha t a major preoccupation of the Chinse Communists is to eliminate the Republic of China. The 

Communists know they cannot consolidate any position with the Chinese i>eople 

as long as the desirable alternative of Taiwan (with its stability, freedom, cul-

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62

tur e and pro spe rity ) remains out of reach. And the t hinese Communists know tha t Taiw an will remain out of reach so long as it is actively safeg uarded by the United State s. If we should, on the contrary, repudiate our support oi Taiwan, it may he safely predict ed th at a grave era of inst ability will ensue in East Asia. If necessary, the Chinese on Taiwan will fight with all the ir resources to mainta in the ir integrity. . . .

All in all, I thin k th at the Communists are looking f or tactica l gains in their opening up to us: Taiwan, technical and economic help, credits, facilities to infilt rate, and, of course, help in ward ing off Soviet Russia. In other words, their approach is neither genuine or relia ble and cannot be depended upon for the long run. Unless our Admin istration acts upon some such assum ption and moves with the utm ost care, I am afrai d we shall he taken in by the wily, foxy Chou 

En-lai (w7hom I knew well over 30 years ago). I think the Communists are in deep trouble on many fronts—economic, political, succession, etc. Above all, they have not been able to win over the people to th at foreign importa tion —Marxism. I definitely thi nk we should go very slow7

 in bailing these erst-wliile enemies out 

of t hei r man ifest difficulties. I would hope, in light of the views expressed above, th at your Committee would enjoin the utmos t circumspection on th e Administr ation as it moves ahead in its rela tion s with the Communists. Above all, I would hope you would press the Adm inistration to avoid any fu rth er measures at the expense of the Republic 

of China.

Sincerely, Everett F. Dru mr ight, 

Former Ambassador to the Republic of China.
L etter F rom K arl L ott R a n k in , F orm er A mbassador to t h e

R ep ubl ic of C h in a

J uly 13, 1973.

Hon. Robert N. C. Nix,

Congress of the United States,

Washington, D.C.

Dear Mr. Congressman: Thank you for your lette r of July 10 inviting me to 

testify on the value of a continuing alliance with the Republic of China. Much to my regret, it will not be possible for me to attend the hearings on July 25 

and 26. Presumablj’ the question of a treaty of mutual defense with the Republic of China is being considered along with simil ar agreements, such as those with Japan, Korea, and the Philippines. Changes in any of these and others, could 

have far reaching effects throughout East Asia. I would proceed with the utmost 

caution in modifying our trea ty relations with the Republic of China, which have avoided any serious military confrontation between the United States and the 

Peking regime for nearly 20 years. Taiwan represents one of the outstanding successes of American foreign policy. With our aid, progress on the island in economic, social and political fields has been truly remarkable during the past two decades. Some day there will be a rapprochement between the two Chinas. We cannot force it, and probably can­ not hasten it. But we can avoid actions which w’ould upset the present stable situation, and thus encourage such ventures by either of the two Chinese regimes.

Sincerely,

Karl L. Rankin,

Former Ambassado r to the Republic of China.

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