The Communists have the tactical initiative in the overall military situation. The Nationalist position in Manchuria is precarious, and in Shantung and Hopei Provinces strongly disputed. Continued deterioration of the situation may result in the early establishment of a Soviet satellite government in Manchuria and ultimately in the evolution of a Communist-dominated China.
China is suffering increasingly from disintegration. Her requirements for rehabilitation are large. Her most urgent needs include governmental reorganization and reforms, reduction of the military budget and external assistance.
A program of aid, if effectively employed, would bolster opposition to Communist expansion, and would contribute to gradual development of stability in China.
Due to excesses and oppressions by government police agencies basic freedoms of the people are being jeopardized. Maladministration and corruption cause a loss of confidence in the government. Until drastic political and economic reforms are undertaken United States aid cannot accomplish its purpose.
Even so, criticism of results achieved by the National Government in efforts for improvement should be tempered by a recognition of the handicaps imposed on China by eight years of war, the burden of her opposition to Communism, and her sacrifices for the Allied cause.
A United States program of assistance could best be implemented under the supervision of American advisors in specified economic and military fields. Such a program can be undertaken only if China requests advisory aid as well as material assistance.
KOREA
The situation in Korea, in its political, economic and psychological aspects, is strongly and adversely influenced by the artificial barrier of the 38° North parallel separating agricultural South Korea from the more industrialized North Korea.
The South Korean economic position is grave. Agriculture is debilitated and there are few other resources.
The establishment of a self-sustaining economy in South Korea is not feasible. Accordingly, United States aid should include a minimum of capital investment and should consist chiefly of items required for support on a relief basis.