PROGRESS REPORT ON NSC 146/2 (FORMOSA AND NATIONALIST CHINA)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80R01731R003000010001-1
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 20
• Document Creation Date: December 20, 2016
• Document Release Date: July 13, 2007
• Sequence Number: 1
• Publication Date: February 6, 1955
• Content Type: REPORT

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DATE
COPY NO.
OPERATIONS COORDINATING BOARD
Washington, D. C.
PROGRESS REPORT ON NSC 146/2
(FORMA AND NATIONALIST CHINA)
REFERENCE;
OCB FILE NO. 27
F. SECRET
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This document contains information affecting the national defense of the
united States, within the meaning of the eSfionage laws, Title 18, Sec-
tions 79.14 and 794, U.S.C., the transmzssior or revelations of which in
any manner to an unauthorized person is Prohibited by law.
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OPERATIONS COORDINATING BOARD
Washington 25, D. C.
MEMORANDUM FOR THE OPERATIONS COORDINATING BOARD
SUBJECT: Progress Report on NSC 146/2 (Formosa and
Nationalist China)
TOP SECRET
March 11, 1955
The attached second Operations Coordinating Board Progress
Report on NSC 146/2, "United States Objectives and Courses of
Action with Respect to Formosa and the Nationalist Government,"
dated February 16, 1955, was noted by the National Security
Council on March 3, 1955, Action No. 1346.
The previous draft of this report, dated February 4. 1955,
is obsolete and may be destroyed in accordance with the security
regulations of your agency.
Elmer B. Staats
Executive Officer
Attachment:
Executive Officer, OCB, Memo to
NSC, on above subject, dated
2/17/55, with attachment as listed.
0CB File No. 27
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OPERATIONS COORDINATING BOARD
Washington 25, D. C.
February 17, 1955
MEMORANDUM FOR: Mr. James S. Lay, Jr.
Executive Secretary
National Security Council
SUBJECT: Progress Report on NSC 146/2 (Formosa and Nationalist China)
(Policy Approved by the President, November 6, 1953)
There is attached the second Progress Report by the Operations
Coordinating Board on NSC 146/2, "United States Objectives and
Courses of Action With Respect to Formosa and The Nationalist
Government", covering the period June 22, 1954 through December 31,
1954. On February 16, 1954, the Operations Coordinating Board
concurred in the Progress Report for transmittal to the National
Security Council.
The Operations Coordinating Board wishes to bring the following
developments since the cut-off date to the attention of the
National Security Council:
1. NSC 146/2 has been superseded by NSC 5503, "U. S. Policy
Toward Formosa and the Government of the Republic of
China," which was approved by the President and assigned
to OCB on January 15, 1955. (Par. 7 Summary)
2. The Mutual Defense Treaty has been referred to the Senate
for advice and consent to ratification, which may be
forthcoming during February. (Par. 1 Summary, par, 9
Annex A)
3,, Additional demarches have been undertaken by our diplo-
matic representatives in Viet-Nam, Laos and Cambodia
regarding diplomatic relations with the GRC, without
concrete results to date. (Par. 3 Summary, par. 17
Annex A)
4. Pursuant to NSC Action No. 1312, January 21, 1955, the
President sought and obtained by Joint Resolution signed
January 29 authority from Congress for use of U.S. armed
forces, if necessary in his judgment, to secure and protect
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positions and areas closely related to the defense of
Formosa ar;d the Pescadores, and to assist the GRC to
regroup and consolidate its forces. The U. S. has
supported a cease-fire resolution in the UN Security
Council which, if successful, would have the immediate
effect of stabilizing the situation in the offshore
islands and, if unsuccessful, might nevertheless be
expected to improve the moral position of the U. S.
and the GRC in defensive actions which might then
become necessary.
5. Interagency agreement was reached on February 7, 1955
looking to the funding of '48 million from Section 121
funds. This will cover defense support and common use
programs in Formosa in connection with retiring ineffec-
tives from the military forces and their replacement by
new recruits. (Par. 12 Annex A)
6. In discussions with the GRC on the foreign exchange rate
of the National Taiwan dollar, the U. S. is not at present
pressing for changes in the rate. (Par. 26 Annex A)
f-" Elmer B. Staats
Executive Officer
Attachment:
Progress Report on NSC 146/2
(Formosa and Nationalist China),
dated February 16, 1955.
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February 16, 1955
6~2
PROGRESS REPORT ON NSC 14
"UNITED STATES OBJECTIVES AND COURSES OF ACTION
WITH RESPECT TO FORMOSA AND THE NATIONALIST G V NMENT"
(Policy Approved by the President November 6, 1953)
(Period of Report: June 22, 1954 - December 31, 1954)
A. SUMMARY OF MAJOR ACTIONS
1. Mutual Defense Treaty. On December 2, 1954, a Mutual Defense
Treaty between the U.S. a1 the GRC was signed. With the signing of
this Treaty, Formosa and the Pescadores were formally incorporated into
the offshore island defensive position which now stretches unbroken
from the Japanese island of Hokkaido south to include the Philippines,
(Annex A, para 9, page 5)
2. Military Aid. As a result of Chinese Communist activity
against the offshore islands of Formosa, the GRC was placed in first
priority to receive MDAP materiel required for operations in defense
of the Chinese Nationalist-held offshore islands. Diversions of equip-
ment from Indochina as a result of the Geneva Agreement and increased
shipments from the U.S. as a result of placing the GRC in priority one-
have significantly raised the military potential of the GRC armed
forces. (Annex A, para 10, page 5). FOA is now working on a project
aimed at improving the efficiency of the Chinese Nationalist military
force by resettlement of at least 73,600 ineffectives and their re-
placement by young, newly trained men, mostly native Formosans. The
GRC MDAP has been continued beyond FY 54 with an illustrative FY 55-56
materiel program totaling $169.9 million. (Annex A, para 12, page 6).
3. Recognition by Other Governments of the GRC on Formosa.
There has been no change in the number of governments recognizing
the GRC. In the UN, gratifying majority support was attracted for
the U.S. positions on three items relating to China: the condemra-
tion of Communist China's sentencing of 11 UNC airmen; a Soviet-
sponsored item accusing the U.S. of aggression against China; and a
Soviet-sponsored item charging the GRC with piracy. High government
officials of the UK, towards the end of the period under review, made
public statements reflecting somewhat stronger support for our p+vsi-
tion on Chinese questions. At the end of this period, both the GRC
and the U.S. were taking active steps aimed at promoting the formal
recognition of the GRC by the three Associated States. Despite these
encouraging signs that the GRC is holding its own, however, the en-
hancement of Communist China's power and prestige following the
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Geneva Conference continued, underscoring the urgent need for further
efforts to seek the understanding and support of our allies for our
policies toward the GRC. (Annex A, para 17, page 8).
4. Overseas Chinese Students. A Chinese-American Committee,
on which USIA and FOA have representation, has succeeded, with the
use of FOA counterpart funds, in increasing the facilities of the
universities and middle schools on Formosa to accommodate an addi-
tional 1,,000 Overseas Chinese students. By September 1955, it is
expected that this figure will reach 2,600. USIA books, magazines
and radio programs for overseas Chinese depicted the unfavorable
conditions in mainland universities (Annex A, para 19, pages 9, 10).
5. Repatriation to Formosa of Chinese Nationalist Personnel
from Burma. On October 23, 195'~forty-six Chinese stragglers remain-
ing in Burma were airlifted to Taipei, completing the evacuation pro-
gram. There are no others in the custody of either Burma or Thailand.
The GRC has stated that it would not participate in the evacuation of
any additional irregulars from Burma and this program can now be con-
sidered officially closed, although the Burmese Government is dis-
satisfied because some irregulars remain in Burma. (Annex A, pare 22,
page 11).
6a Improving Economic and Fiscal Procedures. An economic ad-
visory group of American financial and business experts went to Ft>r-
mosa in August 195)4, at the invitation of the Chinese Government, to
study outstanding economic problems and to chart an "economic blue-
print" for the future. The group submitted a report to the GRC in
December generally confirming and underlining FOA policies and add'ice.
It is expected that the report will result in improved fiscal and
exchange practices. (Annex A, para 26, page 13).
B. OPERATIONAL CONSIDERATIONS BEARING ON POLICY
7. The NSC Planning Board has already prepared a new policy
paper on Formosa and the Government of the Republic of China. This
draft paper reflects the changes in the situation since the adoption
of NSC 146/2 and also reflects Far East policy contained in NSC
5429/5 as it applies to Formosa and the GRC. When adopted by the eounci :L
and approved by the President, this paper will supersede NSC 1146/2.
C. EMERGING PROBLEMS AND FUTURE ACTIONS
8. Focusing of Chinese Communist Belligerency on Offshore islalr:33
The conclusion of the Sino-?U.S. Mutual Defense Treaty has dashed what-
ever hopes the Chinese Communist leadership may have had of pressuring
the U.S. out of its commitment to defend Formosa and confronts them
with the difficult choice of backing down on their "liberation" of
Formosa campaign or running serious risk of war with the U.S. It is
most probable that the Communists, in this situation, will vigorously
prosecute actions against the offshore islands. Such actions will
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be designed to provide successes which can be presented to the pub-
lic (at home and abroad) as victories, thus saving face for the regime
and compensating somewhat for the regime's inability to deliver on its
promises to "liberate" Formosa. Second, the Communists will hope., by
waging a campaign of attrition, and by seizing the islands one by one,
to damage the GRC's material and moral capacity to resist. They may
hope eventually to set in motion on Formosa itself the processes of
decay that accompanied the crumbling of Nationalist resistance in 39499
In the case of the Tachens, at least, isolated, hemmed in, and close
to Communist bases, it is quite possible that in the absence of stepped
up logistic support from the U.Se, which has just been requested by.,
the GRC, Chiang will decide to cut his losses and reduce the Tacker
garrison and its logistic support to a minimum. This would, in the
eyes of GRC forces and administrative personnel on Formosa, come
perilously close to repeating the pattern of the defeat on the mais-n-
land. A sizeable increment of free-world manpower., large quantities
of U.S. equipment and an important segment of U.S. national prestige
has been exposed to Communist attack in an area in which we, together
with the Chinese Nationalists, are at a great military disadvantage.
The U.S. is now in a position in which we may well lose military
equipment as well as national prestige. The Chinese Communists, on
the other hand, because of the military advantage they hold in the
area of the offshore islands, are in an excellent position to improve
their military position with respect to Formosa and gain in national
prestige.
The contrast between the limited objectives of the U.S. and the
larger objective sought by the GRC (i.e., return to the mainland by
force) continues to constitute a long-range problem, especially in
the light of our adoption of the policy set forth in NSC 5429/5 fur-
ther restricting the offensive mission of the GRC. For the immediate
future, however, the implication of restraint in this policy (which
presumably would not involve actual physical restraint in any evert)
will cause little trouble; this problem is overshadowed by the im-
mediate problem of preserving the security of the offshore island".
9. Growth of Chinese Communist Prestige as a Threat to the
Position 0 f t e GRC. The Geneva Conference signalized Communist
China's emergence, after a period of relative quiescence, into the
arena of international political affairs. This was followed by a marke".
effort to acquire prestige and international acceptance, which has
been pursued with vigor, persistence, flexibility, and considerable
success. The visits of the Attlee Mission, Nehru, and U Nu were
taken by the Chinese Communists as occasions for demonstrating their
willingness to coexist with nations of differing political systems;
the visit of UN Secretary General Hammarskjold brought an increment
of prestige, as did the continuing success of North Vietnam under
Chinese Communist tutelage, and the negotiation of a series of
agreements with the Soviet Union having the effect of making Com-
munist China appear to be the independent equal of the USSR. The
apparent willingness of Communist China to negotiate the issue of
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dual nationality with Indonesia on a reasonable basis improved the
standing of Communist China with various Asian Governments. At the
end of the period under review, the invitation of Communist China to
the Afro-Asian Conference scheduled for Bandung in April 1955, ap-
peared to offer Communist China not only prestige, but also a new
theater in which to pursue its objective of exploiting the desire for
peace and the nationalistic sentiments of the former colonial areas
in order to drive Western influence out of Asia and to isolate the
U.S. The immediate effect of these developments, as regards the GRC,
will be to undercut international support for that government, and to
make more difficult the maintenance of its position in the UN, seri-
ously complicating the tasks of the U.S. in this area. There is also
likely to be increased pressure from our allies and from certain sec-
tors of American public and official opinion for an attempt to reach
a comprehensive settlement with Communist China. Inasmuch as the
Chinese Communists have made it abundantly clear that they would r-
ject any terms on which the U.S. could conceivably negotiate a satis-
factory settlement, the ultimate resultant of these pressures could
only be to further complicate the task of maintaining support for
the GRC. Despite encouraging short-range prospects (see paragraph 3
above), the outlook for the remoter future remains unfavorable.
10. Increased Pressure on Government Budget from Military X-
penditures. If the accelerated operational activity the offshore
island area continues, military expenditures will almost certainly
rise above levels previously estimated for the current fiscal year
and ways and means of financing these additional expenditures wilL
be required.
11. Difficulty in the Development of Foreign Trade. Export
earnings in are expec ed o o a on y 4 0 ml lon as compared
with $126 million in 1953. This situation has largely resulted
from the world surplus of sugar and rice.
12. Possible Revision of U.S. Military Posture. The ques-
tion of whether the U.S. military posture in the Far East should
be reviewed,in the light of the conclusion of the Mutual Defense
Treaty, may arise after ratification of the Treaty.
D. EXTENT OF AGENCY INTERESTS
13. During the period of this report only departments and
agencies representated on the OCB have been involved in the implF!-
mentation of the security policies set forth in NSC 146/2.
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ANNEX A
DETAILED DEVELOPMENT OF MAJOR ACTIONS
Para 9: "Effectively incorporate Fo_mosa and the Pescadores within
UbSo Far Eat d::iens(,- positions by taking all necessary
measures to prevent hostile forces from gaining control
thereof, even at grave risk of ges:eral war, and by making
it clear that the UniteC States will so react to ary attack."
The First Progress Report stated that the State Department had
considered the negotiation of a bilateral security pact with the GRC
but had decided not to proceed with it a: that time, primarily be-
cause a defensive pact i)i_gha have the effect of tying the hands of
the GRC. However., oincs su nission of that report., which covered the
period through June 21, i 51i., ho Depart_ent has altered its thinking
and on December 2, 1954 a P Tutlial Defense Treaty between the U.S. and
the GRC was signed. Under the terms of this Treaty, the United States
recognizes that an armed attack against Taiwan and/or the Pescadores
would be dangerous to its own peace and safety "and declares that it
would act to meet the common danger in accordance with its constitu-
tional processes." With the signing of this Treaty, Formosa was for-
mally incorporated into the offshore island defensive position which
now stretches unbroken from the Japanese island of Hokkaido south to
include the Philippines
Para. 10: 'rnJithout committing U.S. forces, unless Formosa or the
Pescadores are attacked, encourage and assist the Chinese
National Government to defend the Nationalist-held off-
shore islands against communist attack and to raid Chinese
Communist territory and commerce."
On September 3, 1954 the Chinese Nationalist-held islands in
the Kinmen group were subjected to heavy artillery fire from Chinese
Communist artillery positions in the vicinity of Amoy. U.S. and Chi-
nese Nationalist reaction to this attack was prompt. A task group
of the U.S. Seventh Fleet was moved into position to conduct air patrf:ol=,3
over the Formosa Strait and the Chinese Nationalist Air Force attacked
Chinese Communist gun positions which had fired on Kinmen. CINCPAC
and Chief MAAG Formosa conducted inspections of the Chinese National
defensive positions on the offshore islands., and advised the Chinese
regarding troop dispouitions and defensive plans.
Chinese Communist nnil_i.tary action against the offshore islands
of Formosa has continued sporadically throughout the period of this
report. As a result,, the GRC was placed in first priority to receive
materiel required for operations against the Chinese Communists. Di-
versions of equipment from Indochina as a result of the Geneva Agree-
ment and increased shipments from the U.S. as a result of placing the
GRC in priority one have significantl raised the military potential
of the GRC armed forces., TL?se deliveries have included ammunition,
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1i 1 veh les, com=dcations equipment, and maintenance equipment for the
4rm and anti-aircraft ordnance and fire control equipment for the
Air Force AAA units.
Para. 12: a. Continue military assistance beyond Fiscal Year 19511. to
assure the completion of present programs designed to develop
an army of approximately 350,000 capable of limited offensive
operations; a small navy capable of conducting limited coastal.
patrol, anti-shipping, and commando operations; and an air
force designed to provide limited air defense, troop support
and interdiction capabilities. * * *
b. "Keep U.S. military assistance to Formosa under continuer
review in the light of the development of Japanese forces and
possible political settlements in Korea and Indochina.
The GRC NDAP has been continued beyond FY 54 with an illustrative
FY 55-56 materiel program totaling $169.9 million. In addition to this
program, FOA is working on a project aimed at the maintenance of an. effi-
cient Chinese Nationalist military force by resettlement of at least
73,600 ineffectives and their replacement by young, newly trained men,
mostly Formosan natives. Some of the funds needed for these purposes are
now being sought through a Presidential Determination from Section 121
(PL 665) to assist the Chinese in carrying out this project. At the sari
time., added funds through the Common Use (Direct Forces Support) program
are being sought to equip and train new troops drawn from an expanded
reserve training program in order to bring JCS-approved units up to full.
strength.
An analysis of the current combat effectiveness of the WC militar4,r
forces is as follows:
ARMY: Based on the existing state of training, equipment on hand
programmed and the status of personnel it is estimated that by 15 Vril 1955
the infantry divisions will be 81% trained, Corps troops 61% and Array troops
45%. By no later than April 1956, all Army units will have reached an
equipment level and state of training adequate for conducting truly sus-
tained defensive combat operations. Until the reorganization training of
the newly organized units is completed, giving Army, CRC those logistic?.l
elements required to conduct combat operations, Army CRC, can conduct ar,
effective, well organized defensive operation for an estimated five to fi_'-
teen days. The Nationalist ground forces are not capable of defending
Formosa against present Chinese Communist attack capabilities without out-
side logistical, air and naval support. At present, the offensive capa-
bility of the Army is lilted except for small scale patrols and raids
and the conduct of counter attacks in the execution of defense.
NAVY: There are certain limiting factors, which are receiving
constant attention, adversely affecting the efficiency of the Navy as
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a combat force. These are: (1) the caliber and motivation of senior
commanders; (2) command relationships; (3) lack of adequate communi-
cations; (4) lack of air support and logistic support; (5) inadequate
maintenance ability. Nonetheless, the Navy has improved steadily and
is probably superior to its most likely opponent, the Chinese Commu-
nist Navy.
AIR FORCE: The combat effectiveness of the Chinese Air Force is
presen limited. Due to lack of proper radar equipment, lack of
pilot ability to fly under poor weather conditions, and outdated
fighter aircraft, the defensive capability is limited. ?
Offensively, the potential is much greater provided no MIG reaction
is encountered. One fighter-bomber group is presently equipped
with F-84G aircraft and is considered operationally combat ready.
However, until the remaining 3 fighter-bomber groups are so equipped,
sustained day operations would not be feasible without U.S. Air Force
assistance and U.S. logistical support.
Para. 13: "Continue coordinated military planning with the Chinese
National Government designed to achieve maximum coopera-
tion from the Nationalists in furtherance of over-all
U.S. military strategy in the Far East, subject to the
commitment taken by the Chinese National Government that
its forces will not engage in offensive operations con-
sidered by the United States to be inimical to the best
interest of the United States."
Close coordination in military planning between the Ministry of
National Defense of the GRC and the U.S. Chief MAAG Formosa under the
supervision of CINCPAC continued. Throughout the operations involving
the Chinese-held offshore islands which began in early September 1954,
the Chinese Nationalists have cooperated fully with U.S. authorities
and have honored their previous commitment not to engage in operations
inimical to U.S. interests.
Para. 14: "Encourage and assist the Chinese National Government,
through such means as offshore procurement and technical
advice, to construct and maintain on Formosa selected
arsenals and other military support industries."
No offshore procurement contracts have been authorized in FY
1955. However, defense production in Formosa has continued to benefit
from FOA assistance in the form of dollar and counterpart financing
plus technical assistance. Smokeless powder and shell loading plants
have been completed and are in production. Work is continuing oh a
double base powder plant with technical assistance from Dupont. De-
fense production projects being financed by FOA in FY 55 include.
small arms cartridge plant, shell loading plant, double base powder
plant, shell forging plant, artillery shell case and fuse manufactur-
ing, mortar and gun tube manufacturing. FY 1955 defense production
projects are being financed at US$1.3 million and the counterpart,
equivalent of $3.8 million.
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Para. 15: "Maintain the right to develop facilities on Formosa for
use by U.S. forces and agencies in the event of need."
The right of the United States "to dispose such U.S. land, air,
and sea forces in and about Taiwan and the Pescadores as may be re-
quired for their defense, as determined by mutual agreement" is granted
in Article VII of the Mutual Defense Treaty between the U.S. and the
GRC. Meanwhile, facilities for use of U.S. aircraft are being de-
veloped under informal agreements"
Draft agreements have been submitted by the Embassy in Taipei
to the Ministry of Foreign Affairs of the GRC relating to the estab-
lishment of a USAF communications station on Formosa.
Para. 16: "Strive to make clear to the Chinese National Government
that its future depends primarily upon its own political
and economic efforts and upon its ability to command the
respect and support of the Chinese people. Meanwhile,
continue efforts to show our continuing friendship for
the Chinese National Government and the Chinese people,
while avoiding any implication of U.S. obligation to
underwrite the Government or to guarantee its return to
power on the mainland."
The US-GRC Mutual Defense Treaty underscored the fact that our
commitment in Taiwan and the Pescadores is purely defensive while re-
affirming the traditional friendship between the U.S. and the GRC.
extensive speculation in Formosa concerning U.S. intentions of pre-
venting military action against the mainland, while to some extent
exaggerated or unfounded, has further dispelled GRC illusions that
the U.S. would underwrite a reconquest of China. U.S. representatives
on Formosa have continued to make clear that United States assistance
can strengthen the military and economic potential of the GRC but can
provide no substitute for popular support. The GRC has been left
under no illusion as to its responsibility for developing and main-
taining this requisite element of national strength.
Para. 17: "Continue to recognize and encourage other governments to
recognize the Chinese National Government on Formosa as
the Government of China and to support its right to re-
present China in the UN and other international bodies."
During the period covered by this report the diplomatic position
of the Chinese Nationalist Government has continued to be maintained
with difficulty. With the enhancement of Communist China's power
and prestige as a result of the Geneva Conference there developed an
increased need for obtaining understanding and support of our policies
toward the GRC on the part of our allies.
The short-range prospects for success in this endeavor improved
slightly towards the end of the period under review. Not only did
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we continue to hold our own with an unchanged majority of UN member
states still recognizing the GRC, but also some heartening support
for our position in Chinese questions was manifested in public
statements by high British officials. This occurred partly as a
result of the UN's condemnation of Communist China's action in s