THE PROSPECTS OF THE GOVERNMENT OF THE REPUBLIC OF CHINA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A007800030001-4
• Release Decision: RIFPUB
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• Document Page Count: 12
• Document Creation Date: December 27, 2016
• Document Release Date: August 12, 2013
• Sequence Number: 1
• Publication Date: October 9, 1956
• Content Type: NIE

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NIE 4 3 ? 5 6
9 October 1956
----110111111E
N? 221
NATIONAL INTELLIGENCE ESTIMATE
NUMBER 43-56
(Supersedes NIE 43-55)
THE PROSPECTS OF THE GOVERNMENT OF
THE REPUBLIC OF CHINA
Submitted by the
DIRECTOR OF CENTRAL INTELLIGENCE
The following intelligence organizations participated in the
preparation of this estimate: The Central Intelligence Agency
and the intelligence organizations of the Departments of
State, the Army, the Navy, the Air Force, and The Joint Staff.
Concurred in by the
INTELLIGENCE ADVISORY COMMITTEE
on 9 October 1956. Concurring were the Special Assistant,
Intelligence, Department of State; the Assistant Chief of
Staff, Intelligence, Department of the Army; the Director of
Naval Intelligence; the Director of Intelligence, USAF; and
the Deputy Director for Intelligence, The Joint Staff. The
Atomic Energy Commission Representative to the IAC, and the
Assistant Director, Federal Bureau of Investigation, abstained,
the subject being outside of their jurisdiction.
DOCUMENT NO.
NO CLASS.
TO: TS S C
VrE .8.1111./IIMMID
AUP1: i0-2
DAIL:1(3701,RJ_ REVIEWER;
1
Flat 3
- ? 7474
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3/4?4111
41'
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'1"itger
THE PROSPECTS OF THE GOVERNMENT OF THE
REPUBLIC OF CHINA
THE PROBLEM
To estimate the present strength and weakness of the Government of the Republic
of China and its prospects.
CONCLUSIONS
1. The Government of the Republic of
China continues to exercise firm political
control on Taiwan. With US assistance,
an -expanding economy has been main-
tained and the strength of the armed
forces has been increased. At the same
time, however, the international position
of the National Government has declined,
causing an increased feeling of insecurity
and concern for the future.
2. So long as President Chiang remains in
power no substantial change in National-
ist policy is likely to occur. Should he
die prior to the expiration of his present
term of office in 1960, Vice President
Ch'en Ch'eng would probably succeed to
the presidency without provoking inter-
nal disturbances. However, the difficul-
ties that would confront the National
Government internationally would be
substantially increased and domestically
Ch'en's authority would probably be in-
creasingly contested by Chiang Ching-
kuo, the elder son of President Chiang.
3. If present international trends persist,
international acceptance of the National
Government as the government of China
and the prospects of realizing the objec-
tive of a return to the mainland will al-
most certainly continue to decline. Al-
though the Chinese Nationalists almost
certainly believe that the US will not as-
sist them in an attempt to return to the
mainland by force, the morale on Taiwan
probably will not weaken critically so long
as the people there remain confident of
firm US support for the defense of Tai-
wan.
4. In the longer run, it is likely that evi-
dence of growing prestige and material
progress on the part of the Chinese Com-
munists will have a serious impact upon
the attitude of the people on Taiwan.
Were this situation compounded by in-
creased uncertainty on Taiwan over con-
tinued US support, the task of sustain-
ing morale and loyalty might exceed the
capabilities of Chiang or his eventual suc-
cessor.
400811111M
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Emigiaigrafr? 2
DISCUSSION
I. OBJECTIVES OF THE NATIONAL
GOVERNMENT
5. The fundamental objectives of the National
Government continue to be: (a) the recovery
of power on the mainland and the destruction
of the Chinese Communist regime, and (b)
the preservation of its position as the legal
government of China. The domestic and for-
eign policies of the National Government are
strongly conditioned by these objectives and
the Nationalist leadership continues to con-
centrate on matters which it considers to be
directly related to these policies. The Na-
tional Government recognizes, however, that
the achievement of these objectives, as well as
its very existence, depends on US support and
assistance. Moreover, Chiang and his govern-
ment almost certainly believe that it is un-
likely the US could be persuaded to support a
return to the mainland by force unless other
circumstances impel the US to engage Com-
munist China or the Communist Bloc in a
major war.
6. Until such time as the situation becomes
favorable for an invasion of the mainland, the
National Government will continue to con-
centrate on the preservation of its position as
the legal government of China and on the
development of its military strength. To
these ends, the National Government will seek
to retain membership in the UN and other
international bodies to the exclusion of the
Chinese Communist representatives, to per-
petuate the US alliance and obtain a US com-
mitment for the defense of the offshore is-
lands, and to maintain internal security.
II. RECENT DEVELOPMENTS
Political
7. There have been no recent significant
changes in the domestic political scene on Tai-
wan. Chiang Kai-shek remains vigorous and
continues to be the dominant figure in the
government both as President and as the
leader of the Kuomintang. His term as Pres-
ident- will expire in 1960, and thus far he has
made no effort to have the constitution in-
terpreted to make a third term legally possible.
Even if Chiang should retire from the presi-
dency it is unlikely that he will release ef-
fective control of the government so long as
he retains his vigor.
8. Vice President Ch'en Ch'eng is the con-
stitutional successor to the office of President
in the event of the death of the Generalissimo.
In this event, Ch'en Ch'eng, who has a strong
personal following in the Kuomintang and the
army, would probably succeed to the presi-
dency without internal disturbance. However,
no possible successor is likely to command
either the internal or international prestige
and influence that Chiang Kai-shek has
wielded.
9. Ch'en's chief rival for power is Chiang
Ching-kuo. In addition to his status as the
elder son of President Chiang, he has a strong
following in the army, the KMT, the Youth
Corps, and in particular in the secret police.
Chiang Ching-kuo would probably not contest
Ch'en's succession as he would probably have
difficulty in enlisting support from other Na-
tionalist leaders in an attempt which would
seriously weaken the domestic and interna-
tional position of the National Government.
He will, however, enjoy increased personal
prestige as the natural successor to some of
his father's personal power.
10. The Taiwanese exercise no appreciable
influence in the making or execution of gov-
ernment policy and very few hold other than
subordinate positions in the National Govern-
ment or central KMT organization. With the
countryside relatively prosperous and no spe-
cific grievances to serve as an incitement, and
because of efficient security measures, the Tai-
wanese do not at present threaten internal
security or the continued stability of the Na-
tional Government. The induction of Tai-
411111111110IF
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59111_1111:1;2LT 3
wanese youth into the army has not provoked
serious discontent. Although through the
process of education and living together, in-
dividual relations between the Taiwanese and
mainlanders have gradually improved, the
development of active Taiwanese support for
the National Government continues to be
retarded by an emotional antipathy for main-
lander control and by restrictions on Tai-
wanese political opportunities.
11. Stringent security measures have pre-
vented Communist subversion from developing
as a threat to the stability of the government.
Despite increased Chinese Communist prop-
aganda efforts, during the past year known
defectors to the mainland from Taiwan and
the offshore islands have been few and gen-
erally of low rank.
12. Although morale on Taiwan is reasonably
good because of the internal stability of the
government and a standard of living high in
Asian terms, it is tempered by an underlying
uncertainty with regard to the future. De-
spite the National Government's continued
public affirmation of its determination to re-
turn to the mainland, many mainlanders,
probably including high officials, have become
pessimistic over the prospects for continued
international acceptance of their position as
the legal government of China and for their
ultimate return to the mainland. In part,
this has resulted from the erosion of the in-
ternational position of the National Govern-
ment and from uncertainty with regard to
future US support which has been fostered by
events such as the continuation of the Geneva
talks and by Chinese Communist propaganda.
Moreover, there are indications of growing
discontent and anti-American feeling among
lower grade officials, younger army officers,
white collar workers, and the intellectuals,
most of whom have felt an economic pinch
resulting from low salaries and diminishing
savings. A number of mainlanders have also
been experiencing a growing frustration over
the lack of opportunity to improve their pros-
pects on Taiwan, leading some of them to
contrast conditions on the island unfavorably
with Communist achievements on the main-
land. However, there are no indications that
these factors have impaired the will of Na-
tionalist leaders to resist Communism, or have
reduced their ability to maintain firm control
of Taiwan.
13. Although the National Government still
maintains official relations with 41 countries
and the Holy See (38 of which are UN mem-
bers) the international position of the GRC
suffered setbacks during the past year.' Since
mid-1955, Egypt has withdrawn recognition of
Nationalist China and together with Nepal,
Syria, and Yemen, which had not established
diplomatic relations with Nationalist China,
has recognized the Peiping regime. This
brings the total number of UN member states
which recognize Communist China to 25 (of
which eight are Communist states) . Further-
more, there has been a considerable increase
in the exchange of official and unofficial dele-
gations between Communist China and many
of the nations with which she does not have
diplomatic ties. Moreover, support for the
National Government among the overseas
Chinese has, on balance, probably declined, in
part because of lack of an effective, coordi-
nated program to counter the large scale and
energetically promoted Communist campaign
to gain the support of the overseas Chinese.
During the next few years, the Chinese Com-
munists, at the expense of the Nationalists,
will probably be recognized by additional
countries and will probably gain further sup-
port from overseas Chinese.
The Taiwan Economy
14. The economy of Taiwan has expanded by
62 percent over the five year period since 1951
when US economic aid began being extended
on a large scale. Taiwan's GNP in 1956 will
probably rise by about eight percent over 1955,
to US $1.2 billion of which 89 percent will be
domestic output and 11 percent US economic
aid. 2
1 See Appendix A for a list of the countries recog-
nizing Nationalist China and Communist China.
2 In addition, the Nationalists received in FY 1956
under the MDAP Program military equipment
valued at approximately $200 million.
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ZOIMMOPwr 4
ECONOMIC INDICATORS
Category 1951
1952
1953
1954
1955
Agricultural pro-
duction index
100
122
119
120
120
Industrial pro-
duction index
100
124
152
168
189
GNP in 1955
prices (millions
of US dollars)
764
905
958
1,079
1,144
Per capita GNP
(US dollars)
81
93
96
105
109
Wholesale price
index
100
122
133
135
155
1956
Esti-
mate
129
209
1,236
114
173 b
Sharp changes in the exchange rate during 1955
to correct the overvaluation of the Taiwan dollar
have led to a reconsideration and a lowering of
the US dollar values from those used in the eco-
nomic indicators in NIE 43-55.
" The wholesale price index has leveled off since
December 1955, with the index for specific months
moving as follows:
1955
1956
January
140
January
171
April
149
April
173
?
July
150
July
171
October
159
December
176
4,
15. Although a severe spring drought in 1955
held farm output to the 1954 level, production
in 1956 is expected to rise by seven percent,
led by a 13 percent increase in rice. Indus-
trial output in 1955 rose by 12.2 percent over
1954 and is expected to rise at a similar rate
in 1956. Electric power availability is cur-
rently a limiting factor, but the shortage is
being alleviated by the increase in installed
capacity during 1955 from 392,000 KW to
493,000 KW, and the planned increase during
1956 and 1957 to 630,000 KW. In the past
year there was little or no advance either in
fertilizer or aluminum output owing to power
restrictions, or in sugar and cotton textiles
owing to lack of markets, but considerable
progress was registered in petroleum refining,
cement, pineapple canning, beverages, and to-
bacco products. Industrial output became
more diversified with the inauguration of pro-
duction of such products as window glass,
high octane gasoline, fluorescent lamps, ma-
rine diesel engines, and aluminum foil.
16. Over the past five years Taiwan's exports
have been little more than half of its imports,
and its imports 3 could not be greatly reduced
without risking the disruption of domestic
production. In 1955, owing to the depletion
of foreign exchange reserves, it was necessary
to impose stricter import controls and expand
exports with special sales from rice stocks.
With a record farm output in prospect, ex-
ports are being maintained in 1956, and with
exchange reserves restored, a higher level of
imports is in prospect.
TAIWAN'S EXTERNAL ACCOUNTS a
(in millions of US dollars)
1951
1952
1953
1954
1955
1956"
(Jan-
May)
Exports, f.o.b. 90
119
125
94
131
57
Imports, c.i.f. 150
217
200
211
193
99
Trade
balance ?60
?98
?75
?117
?62
?42
Balance on
current
account ?60
?98
?85
?119
?71
n a
Grants from
the US +61
+92
+83
+85
+91
n a
Changes in gold ?11
and foreign
exchange
reserves
(increase)
?4
?17
+23
?25
2 e
Other trans-
actions d +10
+10
+19
+11
+5
n a
NOTE: From exchange settlement statistics ad-
justed to include aid imports. Calendar
year data.
Sharp changes in the exchange rate during 1955
to correct the overvaluation of the Taiwan dollar
have led to a reconsideration and a lowering of
the US dollar values from those used in the eco-
nomic indicators in NIE 43-55.
"Unadjusted data as reported by Chinese govern-
ment agencies to ICA.
January-April.
d Including all capital transactions and errors and
omissions.
17. Despite certain gains, the Taiwan econ-
omy continues to be under substantial strain
primarily as a result of the large Nationalist
military establishment. Inflationary pres-
sures exist, in large part because of the diver-
sion of nearly 40 percent of the gross national
product to investment, military expenditures,
and other government expenditures. The gov-
ernment's fiscal and credit controls have con-
tinued to improve, however, enabling the gov-
ernment to contain the sharp increase in price
levels which occurred in 1955.
a This does not refer to imports financed under
MDAP.
?ONMEneir
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18. Government expenditures increased sharp-
ly in the past year, but the government, with
US prodding, has taken measures to expand
its revenues, and with increased US counter-
part aid, has kept the budget substantially in
balance. During FY 1956 national and pro-
vincial expenditures increased by 32 percent
over FY 1955, with military costs rising 46
percent and constituting 63 percent of the
total. However, revenues rose 29 percent as
the government increased tax rates, strength-
ened tax collection procedures, and developed
new sources of revenue. The initial FY 1957
budget contemplates increased expenditures
but provides for additional revenues, and it
appears that the government is in a stronger
fiscal position than it was a year ago.
19. Taiwan's inability to finance its import
requirements from its own resources will con-
tinue to be the fundamental weakness of the
Taiwan economy. Prospects for an increase
in the traditional agricultural exports are
limited for the near future. Moreover, while
the industrialization program aims at replac-
ing certain import requirements, the needs
of a growing population and a rising standard
of living will continue to keep the import
demand high. Furthermore, the economic
drain of the large modern military establish-
ment places such an additional burden as to
preclude the possibility of the economy be-
coming self-sustaining. The high rate of eco-
nomic expansion maintained in the past five
years stemmed in large part from rehabilita-
tion measures and the drawing of idle capac-
ity into production. Future increases in out-
put are likely to be more expensive in terms
of required investments. In this situation,
the National Government can probably sus-
tain an annual growth rate of four-five per-
cent (the annual population growth rate is
2.75 percent) over the next few years but only
if US economic and military assistance is
maintained at approximately present levels,
the total investment continues at about the
present rate, and inflationary pressures are
effectively contained.
Military Progress
20. The personnel strength of the Chinese Na-
tionalist army is now 416,000.4 It is organized
into two field armies, six corps headquarters,
21 infantry divisions, two light armored divi-
sions, and miscellaneous units.
21. The army has continued to improve its
capabilities. In the spring and summer of
1956 the army for the first time conducted
two combined arms exercises at corps level.
Army morale appears to be good generally
and is not a limiting factor to army combat
capabilities. A new conscription and retire-
ment program is relieving the problem of over-
age and ineffective soldiers. Approximately
34,000 ineffectives have been retired or re-
moved from the army rolls, and an additional
36,000 ineffectives are due for retirement. Un-
der the new program, conscripts will serve
two years in the army and five years in a
reserve division.
22. The military leaders realize the difficul-
ties which might arise from increased use of
Taiwanese in their forces, and have given spe-
cial attention to problems caused by the in-
crease in the ratio of Taiwanese to mainland
troops. Taiwanese recruits have been treated
fairly and considerable efforts have been made
to eliminate differences between them and the
mainlanders.
23. The Chinese Nationalist air force has
about 750 aircraft, the principal combat com-
ponent being 270 jet aircraft (F86F fighters
and F84G fighter-bombers) organized into five
fighter-bomber groups, one light-bomber pa-
trol group, two transport groups, one tactical
reconnaissance squadron and one air-sea res-
cue squadron. The personnel strength is
about 80,000, including about 1,560 pilots.5
Chinese Nationalist airfields and other facili-
ties are capable of supporting any operations
of the CNAF as presently constituted.
4 This is an increase of 91,000 over the figure for
1955. This increase is largely due to a reduction
of the Combined Service Forces and their trans-
fer into the regular army and to the activation
of the Reserve Command.
5 This number is a decrease of 340 from the num-
ber of pilots accepted in 1955, due to reclassifi-
tion by a USAF personnel evaluation team.
19111:111100N-
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24. Steady progress continues to be made to-
ward the development of a small but well-
trained modern air force. The capabilities of
the jet fighter units are improving rapidly,
as indicated by CNAF performance in recent
combat operations with Chinese Communist
fighters. The CNAF photo reconnaissance
capability is excellent within a radius of about
400 nautical miles for the RF86F and about
800 nautical miles for the RF84F and the
strength of the photo reconnaissance element
is increasing. Nationalist radar capability
has been extended to provide full search,
height-finding, and tracking coverage of Tai-
wan and the Penghus, with supplementary
search and surveillance of adjacent parts of
the mainland from offshore islands. All
phases of air defense have been integrated
under the direct control of the Joint Opera-
tions Center which, in turn, is closely super-
vised by the US 13th Air Task Force (Provi-
sional) . The CNAF's capability and effective-
ness for air support of amphibious operations,
while recently improved, is still unsatisfactory.
25. The personnel strength of the Nationalist
naval establishment totals about 55,000 in-
cluding approximately 25,000 marines. The
navy has three destroyers (DD) , five escort
vessels (DE), 28 other patrol-type craft, 10
mine vessels, 43 amphibious vessels, 17 auxili-
aries, and 54 service craft. There is no naval
air arm.
26. The GRC navy is primarily a defensive
force with limited capabilities. Morale is rated
only fair; discipline is weak. Over-all condi-
tion of material is satisfactory. The reorgan-
ization currently in progress should remove
many of the past ills of the supply system.
Both the ability to effect engineering, ord-
nance, and electronic repairs, and the quality
of work of the shipyards have shown steady
improvement. Equipment modernization is
proceeding smoothly according to orderly
plan. Technical and professional competence
are improving. Progress in the basic training
program is deemed highly satisfactory, but
the navy is only now developing the sorely
needed more advanced specialist training.
Operational training has and will probably
continue to increase over-all effectiveness at
6
a steady moderate pace. Principal GRC navy
accomplishments of the past year were in the
areas of organization and training; principal
shortcomings are still in the areas of person-
nel management and in command. The ma-
rine corps is capable of planning and success-
fully executing an amphibious landing of
full marine corps strength of one division and
one brigade against light to moderate resist-
ance, providing the necessary naval and air
support could be provided.
27. The effectiveness of the GRC military
establishment has been adversely affected by
interference of political officers, and subordi-
nation of military plans and objectives to
political considerations. There has also been
too great a degree of centralization of author-
ity. As a result, many military commanders
have proven unwilling to assume responsibil-
ity for initiating action.
28. The Nationalist military establishment
will probably continue to show some improve-
ment during the next few years. While its
present manpower levels will be maintained,
there will be a considerable increase in the
proportion of Taiwanese recruited for service,
and a parity between Taiwanese and main-
landers will probably be reached by 1965. The
increasing number of Taiwanese will probably
improve the quality of the armed forces in
terms of age, physical fitness, and education.
However, despite continued improvement in
military capabilities the Nationalists will con-
tinue to require US logistical, air, and naval
support to successfully defend Taiwan and the
Penghus.
III. THE OUTLOOK FOR THE GOVERNMENT
OF THE REPUBLIC OF CHINA
29. The prospects of the National Government
depend vitally upon US foreign policy. Pro-
vided the present US policy of support con-
tinues and the international situation re-
mains substantially unchanged, the National
Government at least for the next few years
will probably be able to maintain its
position on Taiwan, prevent the development
of serious internal discontent, and promote
gradual development of the island's economy.
However, even with US support, the interna-
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7
tional position of the National Government
will probably continue to deteriorate.
30. So long as President Chiang remains in
power no substantial change in Nationalist
policy is likely to occur. Should he die prior
to the expiration of his present term of office
in 1960, Vice President Ch'en Ch'eng would
probably succeed to the presidency without
provoking internal disturbances. As Ch'en
does not possess Chiang's prestige, however,
the difficulties that would confront the Na-
tional Government internationally would be
substantially increased and domestically
Ch'en's authority would probably be increas-
ingly contested by Chiang Ching-kuo.
31. With continued US aid at existing levels,
the prospects appear good for sustaining a rate
of economic growth of four to five percent an-
nually, although the economy will continue
under strain and will require effective man-
agement to maintain stability. The popula-
tion probably will increase by 30 percent over
the next decade and Taiwan will become far
more urbanized and industrialized, and in-
creasingly concerned with its foreign economic
relations.
32. Belief in the reliability and efficacy of the
US guarantees of the military defense of Tai-
wan against the Chinese Communists will
continue to be basic to the will of the Na-
tionalists to maintain their position on Tai-
wan and to the maintenance of internal secu-
rity. Morale, however, may fluctuate greatly
depending primarily on international develop-
ments. It would be seriously affected by the
admission of Communist China to the UN, or
a serious military defeat resulting from a suc-
cessful Communist seizure of the major off-
shore islands or to a lesser extent by a cease-
fire in the Taiwan Strait imposed upon the
Nationalists. Should one or more of these
events occur, there would result serious dam-
age to the prestige of the National Govern-
ment and receptivity, particularly among the
mainlanders, to Chinese Communist propa-
ganda and the danger of disaffection would
increase. In the short run, however, even the
adverse effects of such developments would
probably not destroy the will of the National-
ists td maintain their position on Taiwan pro-
vided Nationalist leaders do not lose faith in
US guarantees.
33. The prospects of the National Government
will in the future be increasingly affected by
the image of Communist China and the life
on the mainland that will develop on Taiwan.
If Communist China continues its peaceful
pose, avoids serious internal tensions, contin-
ues to make substantial domestic economic
progress, and attains increased international
recognition, an increasing number of main-
land Chinese on Taiwan will be conditioned to
look more favorably upon the Communist
regime and upon the possibility of reaching
some accommodation with it, particularly
should social and economic strains on Taiwan
increase. In the longer run, this would fa-
cilitate the growth of an organized subversive
movement, which could severely test the Na-
tional Government's security apparatus.
411ftwea.
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Declassified and Approved For Release @50-Yr 2013/08/12 : CIA-RDP79R01012A007800030001-4
8
APPENDIX A
DIPLOMATIC STATUS OF THE REPUBLIC OF CHINA AND OF COMMUNIST CHINA
UN Members
1 Recognizing National Government Recognizing Communist China
Argentina Iran Afghanistan Israel
Australia Iraq Albania Nepal
Belgium Italy Bulgaria Netherlands
Bolivia Lebanon Burma Norway
Brazil Luxembourg Ceylon Pakistan
Cambodia Mexico Czechoslovakia Poland
Canada New Zealand Egypt Rumania
Chile Nicaragua Denmark Sweden
Colombia Panama Finland Syria
Costa Rica Peru Hungary United Kingdom 1
Cuba Philippines India USSR
Dominican Republic Portugal Indonesia Yugoslavia
Ecuador Saudi Arabia Yemen
, El Salvador Spain
1 .). France Thailand
I i Greece Turkey
Guatemala Union of South Africa
Haiti Venezuela
Honduras United States
UN Members not recognizing either country
Austria Laos
Byelorussia Liberia 2
Ethiopia Libya
Iceland Paraguay
Irish Republic Ukraine
Jordan Uruguay '
Non-UN Members
Recognizing National Government Recognizing Communist China
? Holy See East Germany
Japan North Korea
Korea North Vietnam
Vietnam Outer Mongolia
Switzerland
Non-UN Members not recognizing either country
German Federal Republic
Morocco
Sudan
Tunisia
1 The UK maintains a consular post on Taiwan.
2 Liberia and the Republic of China signed a Treaty of Friendship in 1937 and have discussed an exchange
of diplomatic representation, but this has never taken place.
-411111111Fr
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Declassified and Approved For Release @ 50-Yr 2013/08/12: CIA-RDP79R01012A007800030001-4
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Declassified and Approved For Release @50-Yr 2013/08/12 : CIA-RDP79R01012A007800030001-4
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Declassified and Approved For Release @50-Yr 2013/08/12 : CIA-RDP79R01012A007800030001-4