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1 Very substantial increases are presently under consideration and in all probability will be approved.

Counterpart Funds

FOA-financed commodity imports develop counterpart funds which augment Chinese Government resources for essential military and civilian expenditures. For such expenditures during fiscal year 1955, it is estimated that a total equivalent of $93.7 million in counterpart funds will be needed. Part of these funds will be developed through the sale of commodities financed by FOA in fiscal year 1955. Part will be derived from corresponding programs of prior fiscal years, and from repayment of loans previously made from counterpart funds. The $93.7 million equivalent in local currency will be used during fiscal year 1955 as follows:

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The Chinese are devoting 80 percent of their national budget and nearly 60 percent of the combined National Provincial Government's budgetary resources to the military effort. They are increasingly assuming the administration and costs of American-sponsored technical assistance projects in such fields as health, education and rural development. A new foreign investment law is nearing enactment which, it is hoped, will improve the climate for private investment sufficiently to attract United States and other private capital.

Relationship of the Program to UN Projects in Formosa

Several projects are being carried out in Formosa by certain U. N. specialized agencies-the U. N. Educational, Scientific and Cultural Organization (UNESCO); the World Health Organization (WHO); and the United Nations Children's Welfare Fund (UNICEF). These projects are coordinated with the United States assisted education and health programs. Two of the U. N. projects in the fields of malaria and tuberculosis control are conducted jointly with the Joint Commission on Rural Reconstruction (JCRR).

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Some idea of the character and magnitude of major projects approved and sponsored by United States aid programs in Formosa during recent years is suggested by the following tabulation provided by Foreign Operations Administration:

3 From FOA sources.

FOA Industrial Projects Approved, Procurement Authorization Amount, and Status of Projects as of June 30, 1954

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Description

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Installation of 2 generating units of 26,500-kw. capacity each in power station con-
structed by Japanese. First unit has been in operation since September 1952,
and second unit since September 1953. Awaiting final procurement report from
contractor, William Hunt & Co. During past 6 months total monthly genera-
tion of this station reached one-fifth of total power system output.
Rehabilitation of Li-wu first 16,000-kw. unit and installation of a second 16,000-kw.
unit. First unit placed in service in December 1951, and second unit in March
1954. Construction of first and second circuits of East-West cross-island trans-
mission tie-line. First circuit put in service December 1951 and second circuit
in November 1953.

Rehabilitation of station heavily damaged by floods. Station is now being lo-
cated underground and requires a new diversion dam, powerhouse, and tail-
race tunnel. Capacity of rehabilitated station will be 21,000 kw. Civil con-
struction work is 70 percent completed.

Increasing dry season peaking capacity of this station by 59,300 kw., through
installation of crest gates on the diversion dam and addition of a third generation
unit.

Development of 40,000-kv-a steam power to meet growing demand for power in
Kaohsiung industrial area. Supplies and equipment include turbo-generator
and steam generating unit, electrical apparatus, structural steel and insulating
materials. Technical services of Gibbs & Hill, Inc., are being employed to per-
form engineering design and construction in connection with installation of
generator.

Completion of 31-span, 2-km. bridge to eliminate highway gap at the center of
the west coast highway system. Concrete piers and abutments were built by
Japanese. FOA supplied structural steel, tools, and materials. Design and
fabrication of steel work done by American Bridge Co. Placed in operation
January 1953.

Expansion of plant capacity from 7,200 tons to 60,000 tons annually. Technical
design and engineering work done by Wah Chang Engineering Corp. of New
York has been completed. Installation of delivered equipment is awaiting
completion of buildings.

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FOA Industrial Projects Approved, Procurement Authorization Amount, and Status of Projects as of June 30, 1954—Con.

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Establishment of a 70,000-ton annual capacity nitro-chalk plant on original site of a
bombed-out former Japanese aluminum factory. Equipment beginning to
arrive. Plant construction expected to be completed by December 1955. De-
sign work is being done by Wah Chang Engineering Corp. and Chemical Con-
struction Corp.
Establishment of 85,800-ton annual capacity plant for manufacturing urea con-
taining 44 percent nitrogen. This will make Formosa nearly self-sufficient in
nitrogenous fertilizer. Hydrocarbon Research has been awarded the contract
for engineering design, procurement, and supervision of construction.
Establishment of 4,300-ton annual capacity nitrophosphate production through
construction of a nitric acid plant and an acidulation process plant for treating
imported phosphate rock with nitric acid and subsequently with ammonia.
This will permit the start of an extensive program in the use of mixed fertilizers
in Formosa.
Installation of equipment for production of byproduct coke and oven gas, together
with organic byproduct crudes which will result in annual foreign exchange sav-
ings of $1.5 million. Plant capacity will be 131,400 tons per year. Gas and other
valuable byproducts, such as naphthalene and anthracene oil, will be utilized
locally or exported. Represents largest individual venture in private enterprise
to date in Formosa.

Installation of equipment to rehabilitate and modernize paper mills so as to increase
production, manufacture better quality products, and reduce costs.

Installation of equipment to convert the Hsinying Pulp Mill from a sodium sul-
phite to a kraft process, in order to produce pulp from bagasse waste, thus pro-
ducing a better quality pulp at lower cost. The pulp will be used for cement and
fertilizer bags, as well as for mixing with ground wood pulp to make newsprint in
the Lotung mill.

Installation of equipment to manufacture a high-grade, two-side finished hard-
board and insulation board from bagasse waste. TSC will close down its sugar
mill at Changhwa and use the buildings. rail sidings, and employees for the new
plant, which will produce 45 million square feet of board per year from 35,000
tons of bagasse. Part of the board will be sold locally and part exported, result-
ing in net foreign exchange saving of $1.4 million annually.
Installation of equipment to manufacture double-base powder for mortar and
cannon shells. Since facilities are available for making nitrocellulose, the major
ingredient of double-base powder, costs of such a plant would be greatly reduced.
Practically all raw materials are available locally. The plant would be estab-
lished in connection with the single base powder plant which is initiating pro-
duction in 1954,

1,150

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VII. Personnel

The Taipei Embassy Economic Staff consists of seven persons costing $49,085 per year as against a total staff of 38 persons for all purposes costing $208,510 per year.

The Department of Defense as of November 1954 had a total of 977 persons in Formosa of which 836 were United States military personnel and 141 foreign nationals.

FOA as of November 1954 had a total of 150 persons in Formosa of which 94 were broadly classified as administrative and 56 charged to the program. A further breakdown of this total indicates that of 80 United States nationals, 24 were administrative, 47 technical assistants, 9 on reimbursable detail while 70 foreign nationals were listed as acting in administrative capacities.

VIII. Joint Commission on Rural Reconstruction

This Commission is unique to Formosa. It is a jointly operated Chinese-American organization with two American commissioners appointed by the President and three Chinese commissioners, including the chairman, selected by the Government. It was originally created to operate on the mainland. Since moving to Formosa it has been largely responsible for the outstanding success of the agricultural programs. It is financed to a limited extent by FOA but largely by Chinese Government currency derived from the counterpart fund. Its activities include programs in rural health and sanitation, land rent reduction and land reform, crops and livestock production, irrigation, improvement of farmers' associations, analysis of rural economic problems, and supervision of storage, distribution and utilization of chemical fertilizers and beancakes. Its success in maximizing self-help by the Chinese with limited supervision by American personnel affords an example which might well be followed in other areas. Its continuance is authorized under Section 536 of the United Security Act of 1954.

IX. J. G. White Engineering Corp.

In a somewhat similar fashion, the J. G. White Engineering Corp. serves the industrial and defense segment of the United States aid program in Formosa. Originally under contract to the Nationalist Government on the mainland for engineering and technical advisory services beginning in 1948 this organization moved to Formosa in 1949 with Government of Chiang Kai-shek. Its contract has been successively financed since 1948 by ECA-MSA and FOA. It now costs

347789-55-50

775

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