Dr. McGovern. I would say that their income is approximately $600,000,000 and their expenditures about $1,000,000,000. It is on

that order.

Mr. VORYS. So, on a balance of payments basis, 450,000,000 people are only $400,000,000 out of balance. I might say that we have been considering some of the European countries where about one-tenth of that number of people have about the same deficit.

Dr. MCGOVERN. I think that is a very important thing, that the scale of China is so huge in numbers and area and really so small from the point of view of our economy. In other words, we could not run a sizeable city-New York, Chicago or Boston-on anything like what you run the whole Chinese National Government on.

Mr. VORYS. Is it not important in our thinking to bear in mind how far a dollar will go in the Orient?

Dr. MCGOVERN. That is right.

Mr. VORYS. As compared with the distance that it will go either in this country or in western Europe?

Dr. McGOVERN. Yes. I must say, in that connection, when you are talking about $12,000,000,000 or $15,000,000,000 for western Europe— whatever figure you arrive at here in the committee-it is rather remarkable that in connection with China, the whole of China, I think at the most what we would need would be about $1,000,000.000 or $1,500,000,000 to give the maximum aid that we want to over a long period of years.

Mr. VORYS. You speak of changing the nature of advice which the military missions are permitted to give. Is it not your understanding that the kind of advice which is now given by our military mission in Greece would be sufficient?

Dr. McGOVERN. Yes.

Mr. VORYS. It would be sufficient in China?

Dr. McGOVERN. Yes. Some of my Chinese friends remarked to me, “After all, you are willing to do this in Greece; why are you not willing to do it here in China?" And they are a little suprised at that relationship. All you need is exactly the same kind of thing.

Mr. VORYS. Would any interim aid in the next 4 months be of value, in your judgment?

Dr. McGOVERN. Of very great value indeed, small. If interim aid could be given in the nature of $60,000,000 or $70,000,000, a figure in that neighborhood, I think that that would have an enormous effect on China-largely psychological. So much of the trouble in China now is defeatism-the feeling that America has deserted her and that America is not concerned with her future. The net result is widespread defeatism. And in the higher circles there is more defeatism than I have ever known in China. They say, "Maybe we cannot make it; maybe this is the last year." I think even some token aid of $60,000,000 or $70,000,000, would have an enormous effect upon restoring China's confidence and morale and willingness to go and help them

selves.

Mr. VORYS. You mentioned that any aid that might be furnished should be closely supervised. Could you give us a suggestion as to how an interim aid program might best be directed?

Dr. McGOVERN. I would say probably the interim aid might well be made through one of our governmental organizations such as the

Export-Import Bank, or some other similar agency and I would say probably it might well be called "currency stabilization," an advance for currency stabilization. I think that that would be the best way of handling it.

Mr. MANSFIELD. You state in your opinion, if I understand you correctly, that advances should be made by the RFC, or the ExportImport Bank in the sum of $60,000,000 or $70,000,000 to tide over China temporarily; is that correct?

Dr. MCGOVERN. Yes.

Mr. MANSFIELD. Why do you think, on the basis of your experience, that the Chinese were not able to make use of the $500,000,000 which was placed at their disposal until June 30 of this year?

Dr. McGOVERN. As you know, Mr. Mansfield, we had arranged to lend China this money. That money was not advanced them because of the fact we said we would not advance it to them until they cleaned up their house and united with the Communists. That was the basis of it. Personally, I feel that was a mistake. I think to have tried to have forced the Chinese to let the Communists inside their own government was a very serious mistake, and still would be. In other words, our policy in Europe is now recognized that once Communists get into the Government they proceed to sabotage the Government. Yet we told China that we will not lend them the money unless they let the Communists into the Government.

Mr. MANSFIELD. Would you say that was the dominating factor which kept the Export-Import Bank from making that particular money available?

Dr. MCGOVERN. I think that was the most essential single factor. There was also the factor well known here of the inefficiency and corruption of the governmental circles.

Mr. MANSFIELD. Would you say then, Doctor, that the Export-Import Bank-which I understand is a business institution designed to make loans on a business-like basis with some degree of assurance that the loan will be repaid-was motivated by that one particular factorthe inclusion of the Communists in the Central Government?

Dr. McGOVERN. I think that is one of the main factors, because it was thought at the time that if you had a united China, with all parties represented in the Government, a loan to that Government would be on a better business basis than a loan to a government that represented only one party in China. Perfectly naturally, if we are going to lend money to any government, we want to know that that government has control over its own people, and the question was asked, Did the Government have sufficient control over its own people without the Communists?

Mr. MANSFIELD. You would not be in favor of this Government advancing money to China without any definite assurances in return that that money would be put to good use and would aid in the economic rehabilitation?

Dr. MCGOVERN. Absolutely. I would insist upon strict guaranties, not only verbal or written, but I would like to have American supervision all the way along.

Mr. MANSFIELD. Would you approve of the idea of a plan somewhat along the proposals which the 16 western European nations considered, by means of which they got together and looked over their

own resources and assets, found out what they wanted to do, and could do, to help get themselves on their feet, and then turn to the United States in the hope that we will fill the vacuum? Would you approve of such a program as that for China?

Dr. MCGOVERN. Yes; very much so.

Mr. MANSFIELD. And you think on that basis you would be taking a calculated risk with every possible assurance that could be given that our money would be well spent and not go down the drain?

Dr. McGOVERN. Absolutely. As I said before, I would be very much opposed to a blanket loan or gift to China, or any general loan. I would like to have any loan on a specific basis-on a specific-project basis.

Now, with this money we could do this: We could reopen the steel mills in Hankow. There are certain specific projects in the Canton area that might well be approved. I think that it should be on a specific basis, well supervised, and on a calculated-risk basis.

Mrs. BOLTON. Regarding the $500,000,000 and the fact that it never got there, did you find that the intelligent Chinese, or even the unintelligent ones, were questioning our logic and reason?

Dr. McGOVERN. Yes; I have found that very widespread and in all circles-top, middle, and bottom. I was rather surprised to find out that it affected the little merchant with whom I talked, as well as some of the Government officials. They said that they simply could not understand what our attitude was; that we seemed to be doing in Europe exactly the opposite of what we were doing in China. Here in Europe we have been trying to rescue those governments struggling against communism, and in China we seem to be trying to let down the one Government trying to suppress communism. They feel that much of the present power of communism in China is due to American action, or lack of action, as the case may be.

Mrs. BOLTON. So that our argument that we would be giving to a sounder government if both groups would join was far from sound? Dr. MCGOVERN. Very far from sound; I am certain.

Mrs. BOLTON. And they knew it?

Dr. McGOVERN. They knew it. I think they were more sensible than we. We have found that throughout the world a Communist is a Communist. Many of our magazine and book writers over here kept on telling us a Chinese Communist was not a Communist; he was an agrarian reformer. I heard that said in 1943. We now know that a Chinese Communist is a real Communist and is struggling tooth and nail against everything we stand for, in China as well as any place else. Incidentally, I might add that the Communist leaders, such as Mao Tse-tang and Chou En-lair are the first to admit that they are thoroughgoing Marxist Communists.

It is always curious to follow the pattern of Chinese Communists. I have had long talks with the Communists Mao Tse-tang and Chou En-lai. They admit that they are Communist leaders, and it is interesting to see them follow the party line, just exactly as our Communists over here.

When we had a popular front line, "all of the democracies had to fight against the Fascists," that was their line. Now, Chinese Communists, like other Communists, are working for world revolution.

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Mrs. BOLTON. Did we not have an adequate force over there with knowledge of the situation, and was the information relayed to the State Department?

Dr. MCGOVERN. Both the State Department and the Joint Chiefs of Staff did have adequate information, but I do not think that adequate attention was paid to it. I feel that there was a time when some of our people in the State Department, both here and in China, were very badly mistaken. That has now been changed. The present State Department situation is far better than it was, but I know that I was somewhat appalled during the latter part of the war and just after the war when I was working with the Joint Chiefs of Staff to find some of these statements and ideas coming from some officials in the State Department which might well have been uttered by a "fellow traveler."

Mrs. BOLTON. And there were some members of the Army who held that opinion, also?

Dr. McGOVERN. There is no question about that.

Mrs. BOLTON. We had one of them before us during that time, as I remember.

Dr. MCGOVERN. There is no question about it.

Mrs. BOLTON. And the attitude at that time was that the Communists were the forward-looking, modern Chinese.

Dr. McGOVERN. That is true. I am sorry, Mrs. Bolton, that in many cases that kind of advice and information was accepted. We had the other material coming in the whole time. As you know, I worked very closely in connection with the OSS, and I would see all of these reports coming in, both from the OSS, the Navy people and the State Department people. We had plenty evidence all along that the Chinese Communists were Communists, but unfortunately some of our people did not accept these things.

Mrs. BOLTON. Yes. What was the date of that loan, $500,000,000 that the Congress provided for?

Dr. MCGOVERN. That was in 1946-well, there were two $500,000,000 loans, one was in 1942, which they got, and the one in 1946 which they did not get.

Mrs. BOLTON. I think perhaps you do not want to go into the actual executive position on the question, which seems to be apparent. In other words, we came right up against a very serious and necessary study.

Dr. McGOVERN. Yes.

Mrs. BOLTON. Certainly the legislative end of the Government should secure knowledge concerning these conditions and I think wo do have first-hand knowledge. Do you not feel that a great deal more wisdom might be exercised by the executive department?

Dr. MCGOVERN. Yes.

Mrs. BOLTON. You would be in agreement with that?

Dr. McGOVERN. Yes. And, if I may just add one other thought, Mrs. Bolton: That we suddenly discovered that we are really a major power in the world. In the olden days when we were a second-rate power it did not matter very much what our foreign policy was. Now, we find curselves a first-rate power and I do think that it is very essential that we have a very adequate national policy and that we be able to take our place as a National Government in dealing with these matters.

Mrs. BOLTON. Now may I ask you a question a little off that line, but because of some studies I have recently made: Would it seem to you to be rather imperative that we increase the number of our consulates and our official contacts with the countries of the Far East? Dr. McGOVERN. I thoroughly agree that we should, yes.

Mrs. BOLTON. This would be more in keeping with our position as a first rate power. Do you feel that any reduction would have a tragic effect, particularly at this time, on our relations with China?

Dr. MCGOVERN. And in China, particularly. In other words, at this moment, there is no more important place than in the Far East, if we are going to live up to the position we have assumed.

Mrs. BOLTON. Do you feel that giving up the Far East, by whatever means we do it, would jeopardize everything we hold dear?

Dr. McGOVERN. I am thoroughly of that opinion; and if we lose. the Far East, Russia then takes control of the Far East, and you know what that means.

Mrs. BOLTON. You think doing some of the smaller things would help solve these various problems?

Dr. McGOVERN. Yes.

Mr. CHIPERFIELD. Dr. Judd.

Mr. JUDD. Dr. McGovern, did you get any information as to what or who held up, for example, this $500,000,000 loan?

Dr. McGOVERN. Well, I think it came from high places in the State Department; that is my understanding.

Mr. JUDD. You think it was held up on the basis of a decision in the State Department that China had not done all we wanted her to do in order to get the loan?

Dr. MCGOVERN. Yes.

Mr. JUDD. Do you know who held up the ammunition for the Chinese that was already in the lend-lease pipe lines on VJ-day? Dr. MCGOVERN. That was also the State Department.

Mr. JUDD. Do you have any knowledge or did you get any information as to who stopped the fulfillment of our commitments to supply eight and a third air groups with American planes?

Dr. MCGOVERN. That was also the State Department.

Mr. JUDD. Regardless of who did the stopping, the result was that while the American people thought we were being strictly neutral in China in carrying out a so-called nonintervention policy, we were in fact intervening against the Central Government by not fulfilling our part of the agreements or understandings with it.

Dr. MCGOVERN. I think the result was just that, and in fact we were more nearly implementing the plan of its opponents.

Mr. JUDD. Was there anything in the original loan agreement that required the Chinese to get along with the Communist Party!

Dr. MCGOVERN. It was the understanding when the loan was made that it would not go forward until they had made some kind of an agreement on national policy.

Mr. JUDD. That is, they must have achieved unity?

Dr. MCGOVERN. Yes.

Mr. JUDD. That was the understanding. Was there any written agreement requiring that the Chinese first get internal unity?

Dr. McGOVERN. That was what I was told in China; I do not know whether it was in the agreement; I did not see the agreement.