in all probability, not be possible until security conditions are less uncertain, and until military expenditures can be substantially reduced or grant aid for developmental purposes expanded. A substantial level of developmental aid will be necessary merely to maintain present per capita production. II. Aid to China Mainland While not strictly pertinent to United States aid to Formosa, it may serve to bring that aid in more accurate perspective to note that from 1937 to 1949 some $3.5 billion of all forms of aid including military were expended in or on behalf of the then Chinese Government. From V-J Day to March 1949 somewhere between $2 and $2.5 billion in aid in the form of grants and credits were extended to China. Of this amount $411 million was in the form of credits, $125.0 million for direct military aid, and the balance in grant aid. This amount does not include the sale or transfer of surplus military equipment and supplies having a procurement cost of approximately $1 billion which were sold to the Chinese Government for $232.0 million of which $95.0 million was in the form of credit. III. Economic Aid 1948-50 Inclusive Economic aid to Formosa started in 1948 under the China Aid Act of 1948, Public Law No. 492, Title IV, Eightieth Congress, at which time Formosa was treated as a province of the Chinese Republic. Between 1948 and 1950, preceding aid furnished directly to Formosa under ECA, careful estimates indicate that approximately $21.0 million net of economic aid was received in Formosa. Fertilizer was the major item furnished followed by crude oil and wheat flour. Sizable sums were utilized to support the Joint Commission on Rural Rehabilitation and the engineering services of the J. G. White Organization, both of which transferred to Formosa from the mainland. IV. Economic Aid Cumulative Fiscal Years 1951-541 In this period a total of $396,639,200 was disbursed for aid to Formosa subdivided by major project categories as follows: Prior to fiscal year 1954, the danger of inflation made it necessary to use the bulk of available FOA funds for imports of consumer goods and industrial raw materials. These imports served the dual purpose of (a) supplying needed consumer goods and raw materials for industry, which the Chinese could not finance out of their own foreign exchange and (b) generating counterpart funds to help the Government finance certain local currency expenditures without excessive inflation. This aid succeeded in mitigating the serious inflation found at the time the program began. During 1953 wholesale prices rose 16 percent, as contrasted with 91 percent increase during 1950. Other beneficial effects are seen in the substantial increases in the production of rice and other agricultural products, and in the output of industries operating at or near capacity during 1953. These have reduced the need to import essential consumer goods and have increased exports. In absolute terms, production has risen above prewar levels. In 1953, industrial production rose to an index figure of 140 as compared with 100 in 1941. Agricultural production in 1952–53 rose to an index of 102 as compared with prewar. In per capita terms, however, production is below prewar because of the influx of a million and a half troops and civilians from the mainland plus an increase in the local Formosan population of nearly two and a half million. These increased have raised the population from 5.7 million persons in 1937 to nearly 10.0 million in 1953. Compared to levels in 1949 striking gains, both absolute and per capita, have been achieved in production. Firm power capacity has increased from 149,000 kw. in 1949 to 271,000 kw. in 1953, 52 percent above the prewar Japanese peak. Rice production has increased steadily and in 1953 reached an alltime record of about 1.7 million tons. The production of textiles has increased fivefold since 1950, permitting Formosa to meet its entire current requirements for military uniforms as well as to satisfy nearly all civilian requirements. The improved economic situations-higher production levels, rising exports, and a retarded price inflation-made it possible in fiscal year 1954 to increase substantially the allocation of FOA aid funds for development of power, transportation, and industrial facilities. Outside assistance for capital development is required because (a) a faster rate of investment is the only means of further increasing per capita production and thereby achieving progress toward self-support (even of keeping abreast of the rapid population growth and increasing military requirements), and (b) available Chinese resources for this purpose are inadequate. Counterpart funds and dollar aid have been used to improve the clothing, equipment and rations of the Chinese armed forces. Over $5 million in offshore procurement contracts were placed with Chinese arsenals during 1953 for the production of small arms and ammunition. Technical Cooperation has assisted the program of the Joint Commission on Rural Reconstruction (JCRR) and other programs improving agriculture, public health, education and public administration. Surveys have shown that approximately 95 percent of the rural people of Formosa know of American assistance to these programs and have felt their benefit. These programs have contributed materially to the peace and order now prevailing within Formosa, as well as to the marked increase in production that has benefited so materially the overall economy and the defense effort. 2 V. United States Aid-Fiscal Year 1955 2 For fiscal year 1955 approximately $90 million will be made available for the Formosa program. These funds will be used as follows: Direct Forces Support, $25.0 million; Mutual Defense Support, $62.6 million; and Technical Cooperation, $2.4 million. As described in greater detail below, all activities-irrespective of functional category-also will receive considerable support from counterpart funds, as a local currency supplement to the direct dollar aid shown above. Direct Forces Support-$25.0 Million Funds in this category are being used to finance civilian-type imports required by the Formosan forces to supplement the military equipment and technical assistance furnished under the MDAP, and to assure its effective utilization. Items to be included will be used in the construction of warehouses, barracks, training centers, transportation facilities, airfields and revetments for jet and conventional aircraft. Also included will be imports of raw materials for the local manufacture of certain types of ammunition and small arms. Petroleum products for aircraft, ships, and combat vehicles will be supplied. 2 From FOA Sources. Mutual Defense Support-$62.6 Million These funds will supplement foreign exchange resources of the Chinese Government. They will be used to assure an adequate supply of consumer goods, industrial raw materials and capital goods and services. Of the total funds requested within this category, $38.2 million will be used to finance industrial raw materials, such as phosphate rock to manufacture calcium superphosphate, soy beans for cake and edible oils, raw cotton to manufacture textiles, and lubricating oils for manufacturing industries, railways, buses, and power generation. A small amount, $0.5 million will be used to improve harbor, railway, and telecommunications systems, which are essential to effective support of the military establishment. The balance will be used as follows: $0.3 million for improved irrigation and fishing facilities, $4.0 million for power and shipbuilding, and $15.5 million for the expansion of industries already established. (These are chemical fertilizer, paper and pulp, lumbering, sugar refining chemicals, rubber processing and metals, and the mining of copper, gold, bituminous coal and coke.) A further $0.7 million is for the services of a United States firm of consulting engineers. The balance of $3.4 million is for rehabilitation and replacement equipment. FOA aid to industrial development in fiscal year 1955, provided in this program, is expected to be particularly effective because it is geared to Chinese assurances, which FOA believes are within their capabilities, that the Government will further improve its economic planning, take steps to establish a favorable climate for private foreign and domestic investment, and increase the efficiency of presently Government-owned industries. Technical Cooperation $2.4 Million The funds requested in this category will finance the cost of experts in the fields of agriculture, public health, education and public administration; small quantities of supplies and equipment for demonstration purposes; and a trainee program in the United States for about 145 persons. In addition to the dollar funds indicated above for the technical cooperation component, a substantial amount of counterpart funds is made available in support of its activities, as detailed later. An important purpose of this program is to help the Government and the people of Formosa to help themselves, by giving aid to their efforts to establish fundamental programs affecting the general welfare in such fields as agriculture, health, education, public administration, and industry. Help in specific projects has been given to improve agricultural production through the adoption of better |