Accidental State

by Hsiao-ting Lin

  The first step toward a comprehensive Nationalist military institutional reform was Chiang’s effort to create a single chain of command. As described in Chapter 7, in late 1950 Charles Cooke urged Chiang to combine the two existing military commands, making the ground forces and the Defense Ministry into one and vesting the ground forces with full authority. Cooke’s suggestion led Chiang to restructure what had been a confusing command system. In April 1951, Chiang promulgated a statute aimed at organizing a new National Defense Council to coordinate disputes between the military command and the administration.70 But his inchoate policy planning gave rise to a fierce policy debate, if not power struggle, within Nationalist military quarters with no concrete results. In May 1952, pressured by the MAAG in Taipei to create a clearer chain of command in the defense establishment and to improve military efficiency, Chiang ordered that a new organic law be put into effect without benefit of the normal legislative procedures. Accordingly, the National Defense Council was officially established, patterned after the National Security Council in the United States. A reorganized Office of the Chief of General Staff was placed under the Defense Ministry for administration and policy matters but directly responsible to Chiang in matters of command.71

  In May 1954, the National Defense Council was reshaped into a formal meeting ground where top military and civilian officials could work on Taiwan’s key economic, mobilization, and strategy issues. The new hierarchy, said British consular personnel in Taiwan, was an admirable attempt to prevent any one individual from wielding too much power by putting a personal enemy or rival in a position in which his decision could be blocked.72 A correlated arrangement transferred hitherto undefined responsibility for the military budget and legal matters to the Defense Ministry. The Nationalist military and security policy planning was now institutionalized.73

  Both the American embassy and MAAG in Taipei welcomed these institutional changes. From Washington’s perspective, transferring control of the military budget to a Defense Ministry that was constitutionally under the Executive Yuan greatly strengthened the civil-executive segment of the government, making greater civilian participation in military budget matters possible. Indeed, when MAAG was officially launched in Taipei in May 1951, introducing sound control of the military budget into the Nationalist hierarchy was one of its major tasks.

  In February 1951, instead of accepting the $158.2 million aid recommended in the Fox report commissioned several months prior, the Pentagon was only willing to approve a total of $71.2 million in equipment and supplies for the Nationalist military for the fiscal year 1951.74 Before delivering this aid, chiefs in Washington were determined that the aid should be a lever to obtain the desired political readjustments in Taiwan. One target, therefore, was fostering Taiwan’s financial stability so as to create a productive, balanced economic system that would not be used solely for a return to the mainland. In addition, the Nationalists were required to implement “maximum self-help” and to realize that the United States would not foot the bill for any “reckless diversion” of the island’s resources to unjustified military expenditures. It was also decided in Washington that the MAAG in Taipei, to be established within weeks, would be responsible to administer the aid program and other related issues.75

  To bring Taiwan’s military budget under U.S. control, and to reduce the island’s unusually high military expenditures—70 percent of the total budget for the island—policy designers in Washington had shown little sympathy toward aid to the Nationalist authorities. Assistant Secretary of State for Far Eastern Affairs Dean Rusk argued that, to fulfill these goals some “serious arrangements” were necessary and justified, even if their implementation encroached on Nationalist Chinese sovereignty.76 By May 1951, a much more explicit demarché had been formulated in this regard as a result of a series of cross-department debates in Washington. In general, MAAG would be fully responsible for controlling U.S. military aid to Taiwan and the island’s military expenditures. The Economic Cooperation Administration (ECA) mission on Taiwan, backed by MAAG, would exert its influence vigorously and firmly in the recently established, U.S.-driven Economic Stabilization Board (ESB) to improve Nationalist fiscal policies and practices. If General Chase encountered obstacles in exercising necessary control, the State and Defense departments would join hands to pressure Taipei into concession.77

  A State Department aide-mémoire based on the above rationale was presented to the Nationalist Foreign Ministry on July 20, 1951. It requested that Taipei devise effective procedures for supervising and controlling budgets and spending by all levels of government for military and civilian purposes. It concluded by stating that no proposed U.S. military and economic aid would be forthcoming until such procedures were achieved.78 Chiang Kai-shek, infuriated at Washington’s intrusiveness, confided to his personal diary that he worried and wept at night at the thought that control of his military budget would henceforth be in the hands of the Americans. At one point, Chiang pondered rejecting U.S. aid so as to keep the nation’s sovereignty and autonomy intact.79

  8.3 Chiang Kai-shek’s first meeting with General William Chase (right), chief of the U.S. Military Assistance Advisory Group in Taiwan, in the spring of 1951. (Courtesy of the KMT Party History Institute)

  It soon turned out that the Nationalists had no choice but to yield. Ten days after the aide-mémoire, Karl Rankin expressed his deep concern to the Nationalist government over the proposed conscription of 15,000 local Formosans into the army. Rankin deemed the plan politically helpful to Taiwan’s defense but detrimental to the island’s already dangerous finances. The Nationalists grudgingly compromised by cutting the number of scheduled conscripts in half.80 Shortly afterward, when both Rankin and General Chase learned that the Nationalist government was planning to raise money and reduce deficits through compulsory savings (up to NTD 150 million) under a scheme in which local businessmen and the public would exchange cash for options on stock in government industries, they again jumped in with objections. Both Rankin and Chase worried that the new program would result in overall dissatisfaction, especially from the farmers, and might generate a serious economic drain on the public affecting its productive spirit.81 To halt the saving scheme, Rankin urged Washington to offer Taipei an alternative: the establishment by the ECA in Taipei in cooperation with the Bank of Taiwan of a fund of between $4 million and $7 million, taken from ECA appropriations. The new fund would enable an increase in the foreign exchange sales available to private importers and to industrialists in Taiwan for the importation of prescribed categories of commodities and industrial equipment. Such an action, Rankin trumpeted, would result in a total sales increase of approximately the same amount as put into the operation, with the result of a prompt increase in local currency availability, which would then be loaned by the Bank of Taiwan to the Nationalist government.82

  The State Department quickly approved Rankin’s idea, and sent the proposal to the Nationalists. In conjunction with this new formula was the delivery of another memorandum around the same time, officially requesting that MAAG be given full permission to participate in Taipei’s budget preparations, including the spending of Nationalist and American resources for military use.83 Having sensed that Washington was serious about its goals, as demonstrated by the sluggish flow of the promised materiel deliveries, a sober and pragmatic Chiang Kai-shek decided to compromise so as not to jeopardize Taiwan’s national defense interests and the desperately needed military aid. On October 12, 1951, despite dissenting voices among his subordinates, Chiang grudgingly agreed that Taiwan’s military budget would be prepared in consultation with MAAG and then referred to the U.S.-influenced ESB for further action. The Nationalist government would meanwhile seek MAAG’s “advisory assistance” in matters relative to its budgeting details at the national level. With regard to the government budgets at local (county and village) levels, Chiang also agreed that general principles would be worked out jointly by the ESB and the provincial government.84 As Rank
in revealed in his confidential dispatch to Washington about what he had heard from top Nationalist circles, although outwardly “stubborn and old-fashioned” and extremely unhappy about an increasing degree of U.S. control over Taiwan, Chiang was nevertheless “in a mood to secure almost anything” which might lead to better days for his anti-Communist maritime redoubt.85

  It was a crucial watershed for U.S. policy toward the Nationalist government and toward Chiang Kai-shek in particular. In a directive to U.S. representatives in Taipei, Dean Acheson, like it or not, had to acknowledge Chiang as the “paramount leader of Free China,” exercising strong influence.86 When the status of the once-abandoned and loathed Chiang had again been recognized, the security of the Taiwan-based Nationalist China could become more consolidated. And yet the price that the Nationalists had to pay was high: They would no longer enjoy absolute autonomy in deciding the nation’s outstanding issues, particularly those of the military. From a perspective of realpolitik, Chiang’s compromise in October 1951 provided the Americans with both the justification and the opportunity to participate in ESB and its subcommittees, making them able to influence and have access to records in the Nationalist government’s auditing and other agencies. From the American point of view, Chiang’s subdued response, as Karl Rankin had hoped, established the principles that would enable the further development of detailed mechanisms for effectively implementing policy on the island.87 Although Chiang gave up some sovereignty in control of Taiwan’s national budget, he regained American support. On the other hand, Washington probably had recognized that now only Chiang could guarantee compliance with its demands and also remain in control. This model of bilateral cooperation, although not always a perfect one, would continue for decades to come.

  Toward the end of 1954, Taiwan’s economic and monetary picture had noticeably improved. Local commodity prices had generally stabilized, government budgets were approximately in line with revenues, and production in most areas of the island had reached their highest levels since 1949.88 Still, the most salient transformation was in the military. By the autumn of 1952, at MAAG’s insistence, the Nationalist ground forces in Taiwan and the Pescadores were reorganized, from 10 armies of 31 relatively weak divisions into 10 armies of 21 combat-ready and better-equipped divisions.89 This military reorganization, as the British consular staff in Taiwan observed, the Nationalist leaders found “very hard to swallow.”90 In the eyes of the British, MAAG was the obvious winner in the strenuous seesaw battle with the Nationalists. Although Chiang Kai-shek’s officials might complain about American highhandedness, they may have been convinced that their government must toe the financial line by compiling and presenting a rational military budget.91

  The improvements in the Nationalist military institutions were also impressive. Following the creation of the National Defense Council in May 1952, the Nationalist authorities began instituting civil procedures to strengthen its internal auditing function in the military. By late 1953, with advisory assistance from MAAG, full responsibility and authority were vested in a single agency, the Defense Ministry’s Bureau of Budget, rather than divided among several independently operated military bodies.92 In the meantime, Chiang Kai-shek granted the ESB broader powers in matters relating to the budget. With the increased influence of MAAG, the U.S. embassy, and the ECA mission in Taipei, the ESB evolved into an efficient and powerful organ for establishing Taiwan’s economic policies.93

  In the early 1950s, as the Nationalist Chinese military underwent a dramatic transformation based on the American line, resistance from the Nationalist leadership was inevitable. A case in point is the controversy surrounding the political commissars overseen by Chiang Ching-kuo.94 MAAG decided that the commissars, who were also watchdogs and informers, had engendered fear, suspicion, and timidity within the Nationalist forces. In addition, MAAG believed that Ching-kuo directed not only the system but also the secret police throughout the island.95 When General Chase proposed abolishing the system, Chiang Kai-shek refused. But when Chase proposed a MAAG “advisory committee,” attached to the Taiwan Provincial Peace Preservation (Police) Corps, as a first step in checking Ching-kuo’s growing influence in the military, a reluctant Chiang consented to detailing MAAG “liaison officers” to the corps headquarters.96

  By the end of 1954, MAAG’s influence was such that, as Karl Rankin reckoned in a cable to the State Department, the idea of a detailed review by MAAG of Taiwan’s military budget and fiscal planning before it was submitted to the Nationalist legislative branch had been firmly rooted.97 In addition, with the arrangement of a series of ad hoc “MAAG agreements” between Taipei and Washington in 1951 and 1952, the Americans were given permission to use airfields and port installations on Taiwanese soil, and other necessary assistance and facilities. By 1954, these MAAG provisions had been rapidly extended to other U.S. military units assigned to Taiwan to assist in the joint defense of Nationalist China, including the shore-based elements of the Seventh Fleet, the Formosa Liaison Center, CINCPAC coordinating groups, and a squadron of U.S. Air Force fighters assigned on a rotational basis, all under the aegis and supervision of the powerful MAAG.98

  Chiang Kai-shek and his top aides, however, were resentful. And the feelings may have been mutual. During the last months of 1953, for example, the U.S. representatives in Taipei were angry when they learned that the Nationalist government had approved its military budget for the next fiscal year without a prior review by MAAG. From the U.S. point of view, that act constituted a serious breach of faith, and a series of protests were lodged with the Nationalists.99 To pacify the Americans, Chiang explained that the submitted budget was merely a formality at its early stage and that the figure could not in any event be finalized before he had had the chance to review and approve it. Chiang then agreed that a finalized and re-estimated military budget would be prepared for MAAG’s review within weeks.100 The result of this “re-estimation” was a budget cut (from the original New Taiwan Dollars 1,100 million to New Taiwan Dollars 919 million), plus an aide-mémoire from the State Department reminding Chiang that no additional budget items were permitted unless sufficient funds were available through increased revenues and that they must be preapproved by MAAG.101

  In retrospect, Chiang Kai-shek’s institutional changes in Taiwan’s military in the early 1950s, although largely driven by the United States, considerably enhanced the efficiency and transparency of a hitherto inadequate Nationalist military establishment. Chiang might have found it hard to accept the gradual “Americanization” of his military forces. In the long run, however, an “Americanized” Nationalist military establishment might best serve Taiwan’s security interests in the Cold War. Writing and publishing in 1961, ten years after MAAG was first set up in Taipei, Chiang’s senior defense officials wrote that General Chase and his staff had established a sound comptroller, auditing, and budgetary system in the Nationalist military.102 And yet, viewed from another angle, such changes also indicated that, henceforth, Chiang’s military strength and capability would be based largely on, if not confined to, resources from the United States. As shown in Chapter 9, Chiang’s dream of counterattacking and retaking the mainland was not entirely a fantasy: Military operations of varying degrees against Communist China were under consideration. The reality was, however, that a successful military operation could not be achieved without U.S. support and consent, ironically just as a permanent Taiwan-based Nationalist China was taking shape and the Nationalist military’s quality and policy formulation were at their highest levels since its disastrous defeat in the civil war and for the first time in China’s modern history.

  9

  Between Mainland and Maritime Strategies

  IN THE MONTHS immediately after the outbreak of armed conflict in Korea, Chiang Kai-shek was busy inspecting military forces and lecturing his officers throughout Taiwan, a sort of muscle flexing aimed at boosting public morale and readying the people on the island for a military recovery of the mainland. Although in earl
y July 1950 the Truman administration turned down his offer of 33,000 Nationalist forces to fight in Korea under General MacArthur, Chiang was deeply convinced that the fate of his government was now closely bound with the situation on the Korean Peninsula. Shortly after the UN crossed the 38th parallel in the first week of October, Chiang learned from his own intelligence sources and the SCAP headquarters that Beijing had begun mobilizing some 400,000 soldiers in Manchuria to be transferred to the North Korean border. Chiang sensed that an armed clash between the PRC and the United States was inevitable, although he was still unsure whether such a clash would eventually result in a general war.1

  In early November, when the news confirming Chinese Communist intervention reached Taipei, Chiang deliberated on follow-up strategies. For the Nationalists in Taiwan, the best case scenario seemed to be their participation in the Korean War, thereby placing them in a stronger and more advantageous position vis-à-vis future development in the Far East.2 Chiang outlined several key demands in the event that Washington wanted the Nationalists to join the war effort. Among the most crucial points was an American guarantee that the Nationalist troops would be allowed to enter Northeast China via the Korean Peninsula, and that territorial and administrative integrity be respected after the Nationalists regained control on the mainland. Meanwhile, Chiang also found it important to secure a promise from Washington that the U.S. government would cease their support of the Third Force Chinese in Hong Kong, which had been undermining his political legitimacy.3

  Indeed, as Communist China entered the Korean War, Chiang Kai-shek’s bargaining position was momentarily strengthened. At the Pentagon, the idea of throwing 33,000 Nationalist troops into the battle field resurfaced, and Taiwan’s geopolitical significance once again became a focal point of discussion, if not debate, in Washington’s Far Eastern military and security strategy formulation.4 But in Taipei, Chiang Kai-shek had a surprisingly sober estimate of the overall situation. He prophesied rather precisely that Washington would in its final analysis reject using his ground forces in Korea, let alone their entry into Manchuria. Writing in his personal diary around early November, Chiang foresaw that undertaking a limited degree of Nationalist naval or air operations along China’s coastal provinces as a way to distract the Communists might be the only practical way for the island-based Nationalists to contribute to the war effort.5