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The Chennault Plan To Save China: U . S .

Containment in Asia and the Origins of the CIAS Aerial Empire, 1949-1950

WILLIAM M. LEARY and WILLIAM STUECK Maj. Gen. Claire L. Chennault was in a black mood when he reached Washington in April 1949. He had watched in China as the Communists triumphed in Manchuria and then swept south toward the Yangtze River. Collapse of the mainland, he believed, would cause a chain reaction throughout the Far East. Chennault envisioned a ring of Red bases, stretching from Siberia to Saigon. With its vital eastern flank secured by Chinese subordinates, the Soviet Union would be in a position to destroy the United States. I can hear the time fuse of a third world war sputtering in China as it bums toward the final powder keg, he exclaimed, and I cannot stand idly by without making every effort in my power to snuff it out. Chennault had a plan to thwart Communist expansion in Asia. Its reception by various elements within the U.S. government reveals a good deal about American policy toward East Asia at a critical moment in its postWorld War I1 development. It also explains the origins of the Central Intelligence Agencys aerial empire. As wartime commander of the Fourteenth Air Force in China, Chennault had fought the Japanese and his own superiors with acerbic vigor during a controversial military career.* He retumed to China in 1946 and started a commercial airline in partnership with Whiting W i l l a ~ e r The . ~ companyCivil Air Transport (CAT)-prospered amid the chaos of civil war. Early in 1949, however, the declining fortunes of the Nationalist government convinced Chennault that something had to be done at once to stem the surging Communist tide. Accordingly, he drew up a plan to stop communism on the
Claire L. Chennault, Way ofa Fighter (NewYork, 1949), pp. vii-viii. %eE is no reliable biography of Chennault. For a perceptive essay on his w a r t i m e activities, see Jonathan S p e w , To C h n g e Chinu: Western Advisers in chi^, 162&1%0, pkpcrback ed. (New York, 1980), pp. 228-79. See William M. Leary, Portrait of a Cold Warrior: Whiting Willauer and Civil Air T r a n s p o r t , Modern Asian Studies 5 (1971): 378-88.

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periphery of China. The next, and more difficult, step was to sell this scheme to an American government that believed Chinas fate already had been sealed. Chennault set forth the main theme of his program during an appearance before the Senate Armed Services Committee on 3 May 1949, shortly after his arrival from Shanghai. The craggy-faced warrior began by developing at length a domino theory of events in Asia. Mao Tse-tungs victory, he argued, would permit massive Communist support for Ho Chi Minh in Indochina. After the Vietminh defeated the French, as they surely would with Chinese material assistance, an encircled Thailand would fall next. In turn, Burma and an already troubled Malaya would collapse, and this would be only the beginning. Chennault spoke about pressure on India, a Soviet move toward the Middle East, and danger for Japan and the Philippines. He predicted the growth of a new East Asia Co-prosperity Sphere-from the Bering Sea to Ba1i-under the direction of the Soviet Union. The Pacific would become a Russian lake, and the United States would be ripe for plucking. It was not too late to avert these dire consequences, however. There remained, Chennault pointed out, an extensive anti-Communistarea in China, extending from the Mohammedan-dominated provinces to the northwest, through Szechwan and Hunan, to Yunnan in the southwest. These regions had a strong tradition of local autonomy and were led by men determined to resist the Communists. Protected by shifting deserts and impassable mountains, they could easily be defended. Chennault knew this tenitory well; it took in much of what had been Free China during the recent war against Japan. The United States, he said, should send a military mission to China charged with procuring and distributing supplies to regional armies in this sanitary zone. American advisers would take charge of training and planning, serving in Chinese units down to the company level. The emphasis, naturally, would be on air power, with a Sino-American unit as the major combat arm. CAT and other civilian airlines in China would provide essential logistical support. He estimated that the scheme would cost $150 to $200 million a year. With the proper kind of aid and support from the United States, Chennault predicted, and the kind of communication and strategy

Stueck, The Road to Confrontation: American Policy toward Chinu and Korea, 19471950 (Chapel Hill, NC, 1981). pp. 126-69; Robert M. Blum, Drawing the Line: The Origins ofAmerican Containment Policy in Asia (New York, 1982), pp. 72-103; Nancy Bernkopf Tucker, Patterns in the Dust: Chinese-American Relations and the Recognition Controversy. 1949-1950 (New York, 1983), pp. 91-%. There is abundant material on the generals lobbying activities in the Papers of Claire L. Chennault, Hoover Institution, Stanford University, Stanford, California (hereafter cited as Chennault Papers). 5U.S., Congress, CongressionulRecord, 81st Cong., 1st sess., 3 May 1949, pp. 548084.

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that can be given them by air, these peripheral areas can be welded into an effective union of Chinese resistance. Chennault took his plan to a skeptical State Department. Secretary Dean Acheson; an Atlanticist, was most concerned with Europe, the area he considered to be vital to American strategic interests. When he did look across the Pacific, the corruption and venality of the Nationalists filled him with disgust. Though increasingly concerned about the spread of communism in Asia, he doubted that the United States had either the will or the power to affect the civil war. His inclination was to keep a close watch on events but to avoid any new commitments which eventually might embarrass the United States and compromise its fle~ibility.~ W. Walton Butterworth, director of the Office of Far Eastern Affairs, agreed with Acheson. A Princeton graduate, conservative, and staunchly anticommunist, Butterworth was an unsentimental realist, free from illusions about a special relationship between China and America. He believed that the Nationalist regime was doomed. Furthermore, he believed that Chinese leaders realized this and were more concerned with lining their pockets than fighting Communists. The United States must accept the inevitable and make the best of the new situation. Among the few foreign service officers out of step with the dominant view of the department, Dean Rusk was by far the most important. But the deputy undersecretary was no admirer of Chiang Kai-shek or of Chennault. A staff officer with Gen. Joseph W. Stilwell during the war and thus a veteran of the bitter conflicts between U.S. army and air force personnel in China, Rusk questioned Chennaults intimate ties to the Chiang-Soong coterie; also, he harbored doubts about the airmans personal honesty. If there were hope of salvaging something from the China mess, it would not be through the discredited Nationalists-or Chennault.9 Chennault called at the State Department on 11 May. He met briefly with Undersecretary James E. Webb, then presented his plan at length to Rusk. What individuals could carry the plan at the top? Rusk asked. Only one man, Chennault responded, Chiang Kai-shek. The diplomat remained

61bid. A popularized version of the Chennault plan appeared as Last Call for China, Life 28 ( 1 1 July 1949): 36-37. Dean Acheson, Present at the Creation: M y Years in the Stare Department (New York, 1969); Warren I. Cohen, Acheson, His Advisers, and China, 1949-1950, in Dorothy Borg and Waldo Heinrichs, eds., Uncertain Years: Chinese-AmericanRefutions, 1947-1950 (New York, 1980). pp. 13-52. *Cohen, Acheson. %usk, memorandum, 16 July 1949, file no. 890.00,general records of the Department of State, RG 59, National Archives (hereafter cited as NA); Leary interview with Rusk, 1 1 February 1981. For mmors of Chennaults dishonesty, see Tyler Abell, ed.,Drew Pearson. Diaries. 194%1959 (New York, 1974), pp. 59-60. The conflict between Stilwell and Chennault is detailed in Barbara Tuchman, Srilwell and the American Experience in Chino, 1911-1945 (New York, 1972); and Michael Schaller, The U.S. Crusade in Chino. 1938-1945 (New York, 1979).

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inscrutable as he thanked Chennault for his views and showed him out of the office. Despite grave reservations, the State Department sent the Chennault plan to the American embassy in China for comment. Ambassador J. Leighton Stuart confirmed Washingtons view. After discussing the proposal with his military attach&, Stuart reported: Our feeling is that, while [the] plan may have validity in some of its aspects, as a whole it is impractical and of doubtful value to [the] furtherance US national interests. The situation in China, he emphasized, has gone too far to be retrieved. Minister-Counselor Lewis Clark took an even stronger position. The Chennault plan, he advised Washington, was ill-conceived, unrealistic, and would benefit only the commercial interests of CAT. Chennaults vaunted sanitary zone of anti-Communist resistance did not exist. Although the Mohammedan leaders of the northwest would fight with or without American assistance, they lacked popular support and were doomed. The situation in Szechwan was no better. Distraught officials there feared that a Nationalist move to Chungking would invite early Communist attack; they wanted accommodation, not fighting. The same was true in Y u M ~ where , the government was interested only in making the best terms possible with the Communists. In other words, Clark concluded, disintegration is so far advanced, morale so low and the desire of the people for peace so strong that any effort [to] support continued resistance in West or Southwest China seems doomed in advance to failure.* Chennault also faced opposition in Congress. To some, his plan smacked of a thinly disguised scheme to salvage CATs-and the generals-declining economic fortunes. Chennault denied this. I am not advocating any aid here to the benefit of my airline, he advised a House committee. I have offered to give up all my interests in the airline, resign my position with it, if my recommendations for aid are carried out and if I can be used personally in the program.13
Webb to Butteworth, LO May 1949, Butterworth to Webb, 10 May 1949, and memorandum of conversation by Webb, I I May 1949, all in US., Department o f State, Foreign Relntiom o f the United Sftes, 1949 9 (Washington, 1974): 517-23 (hereafter cited as FRUS, followed by appropriate year). Chennault earlier had testified: I believe that the present [I9481 Chinese Government is honest. 1 know many of the Cabinet members well. I have known them for many years. I have confidence in their honesty. . . . The generalissimo [Chiang Kai-shek] is a simple, trustful man. He believes in friends. U.S., Congress, House,Committee on Foreign Affah. Hearings on United Stntes Policy for a Post-War Recovery Program, 80th Cong., 2d sess., 1948, pp. 2209-38. Webb to Stuarr, 25 May 1949. and Stuart to Webb, 30 May 1949, FRUS. 1949, 952425.

%Yakto the secretary of state, 6 June 1949, ibid., 9526-27. ?estimony before the H o u s e Committee on Foreign Affairs, 30 June 1949, published
in U.S., Congress. House, Committee on International Relations, Selected Executive Session Hearings o f the Committee. 1945-50, vol. 8: United States Policy in the Far East, pt. 2: 285-

326. Available evidence suggests that there is no reason to question Chennaults sincerity on this point.

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Acheson, testifying during a closed session of the House Committee on Foreign Affairs in late June, seemed to close the door on the Chennault plan. Questioned by RepresentativeWalter Judd (R-MN), one of Chennaults supporters, Acheson replied: We are of course familiar with General Chennaults views. Military authorities did not consider them to be soundly taken. We are not closing our minds to any of these things. If some developments take place that warrant, we will be eager to follow them. I am not in a position to come to Congress and ask Congress for money at this time to do something which we do not believe can possibly be effe~tive.~ Chennault did find an agency in Washington sympathetic toward his ideas, one that shunned the light of publicity. In early May, Thomas G. Corcoran, former adviser to President Franklin D. Roosevelt, Washington lobbyist, and financial backer of CAT, arranged a meeting between Chennault and Rear Adm. Roscoe H. Hillenkoetter, director of the Central Intelligence Agency. While these discussions proved inconclusive, Chennaults views did spark the interest of Paul L. E. Helliwell, a CIA official who had served during the war as chief of the Office of Strategic Services intelligence Division in Kunming. Like many other OSS operatives, Helliwell had worked closely with Chennault, and he had a higher opinion of him than did Rusk. He recommended to Frank G. Wisner, head of the Office of Policy Coordination (OPC)-the euphemistic designation that masked the governments covert action M a t contact be established with Chennault, looking toward the possible use of CAT for clandestine operations in China.I6 Wisner and several associates, including Franklin A. Lindsey, Carmel Offie, and Joseph A. Frank, met with Chennault at the Hotel Washington on
Ivestimony before the House Committee on Foreign Affairs, 23 June 1949, Selected Executive Session Hearings, vol. 8 , pt. 1:260. CATS ownership was divided by the following percentages: Corcoran, family members, and William S. Youngman, 28.88; Willauer, 17.64; Chennault, 14.46; James J. Brennan, 8.46; Wang Wen-san, manager of the Nanking office of the Kincheng Bank, 16.63; Y U M Peoples ~ Development Corporation, 8.11; and Shensi provincial government, 5.86. See purchase agreement of 26 October 1949, and Youngman to Willauer, 20 November 1951, in the Papers of Whiting and Louise Willauer, in the possession of Louise Willauer Jackson, Nantucket, Massachusetts (hereafter cited as Willauer Nantucket Papers). Tor Helliwells wartime career, see Archimedes L. Patti, Why Viefnam? (Berkeley, 1980). passim. On the OSS in China during World War 11, see R. Harris Smith, OSS: The Secret History o f Americas First Ceniral Intelligence Agency (Los Angeles, 1972), chap. 8. The CIAs initial contact with CAT is described in the notes of Irving R. M. Panzer on the CIAs History of Air America,194&1971. Although unavailable to historians, the History was used by the CIA in legal proceedings before. the Civil Service Commission. At issue was the claim for civil service credit that had been made by several former employees of the agencys proprietary. Panzer, attorney for David H. Hickler and other former airline employees, sought and obtained access to the document in 1980. It consisted of more than 1,ooO pages of unbound typescript, replete with numerous strikeovers, and obviously intended for in-house purposes. Panzer went through it carefully and took forty-seven pages of detailed notes on legal size paper, including lengthy quotations. The notes were submitted for security review, at which time about 10 percent were excised. Through the courtesy of Mr.Panzer, and with the kind permission of Mr.Hickler, Professor h a r y obtained a copy of the notes. Needless to say, he is most grateful to both gentlemen.

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9 May. The general outlined his plan to contain communism in Asia, emphasizing CATs role in providing essential logistical support for anti-Communist groups. Wisner came away impressed by Chennaults forceful presentation. Here was a man of action! Wisner had Alfred A. Hussy draft a memorandum for the State Department that expressed OPCs interest in the project. As O K planned to contract with CAT to carry supplies in China, Wisner hoped to ensure the airlines financial stability through a grant from the Economic Cooperation Administration. l7 Wisner found little sympathy at State. Also, ECA officials, who earlier in the year had rejected a similar proposal to assist airlines in China, continued to oppose the idea of subsidizing CAT. Undaunted, Wisner ordered Helliwell to look into the possibility of direct or indirect financial help for CAT to preserve its operations, facilitiesand personnel for UltimateOPC use in China.* Helliwell had a preliminary and umflciuf discussion with Corcoran on 27 June. Earlier, Chennault had indicated to Wisner that CAT had severe financial problems. Corcoran now portrayed CATs situation as desperate. The primary trouble, Helliwell reported, is acute dollaritis. The airline needed foreign exchange to purchase gasoline and spare parts and to pay allowances to American personnel. Helliwell estimated that O K would have to provide a minimum of $1 million a year to hold the airline together. Would it be w o r t h the cost? Helliwell thought so. He concluded with a strong recommendation that OPC support CAT. Helliwells reasoning later would provide the rationale for OFCs acquisition of the airline: . . . if at all possible action must be taken to hold C.A.T. intact. The
face of the C.A.T. operation, coupled with its communications operation, cannot be established by a new operation without the expenditure of many millions of dollars. The operation is so set up that it can be militarized, if that should become necessary, and unquestionably OPC flying and other personnel can be gradually introduced into the operation to ensure continuity and proper function. It is strongly urged that favorable policy decisions be taken promptly and that thereafter the necessary contacts and representations be made looking to maintain C.A.T. as an American-owned airline with complete facilities in non-Communist China.l9
Founded in June 1948, O K occupied a peculiar position i n the bureaucracy. It was a
part of the CIA, and its budget and personnel were appropriated within the CIAS allocations, but the secretary of state appointed the director.Policy guidancecame from a committeecomposed of representatives of the State and Defense departments. Onginally conceived of as a small

contingency force to mount operations on a limited basis, O X quickly established itself as a significant, permanent force. This was in part due to the worsening world situation and in part t o Wisners dynamic leadaship. See Anne Katekkss, History of the Central IntelligaKX Agency, a r t of US., Congress. Senate, Select Committee to Study Governmental Operations which is p with Respect to Intelligence Activities, Supplementary Dctaikd S&@ Reports on Foreign and Military Intelligence. Senate Report 94-744, 94th Cong., 2d sess., 1976. Panzer notes. History of A i r America. I9A copy of the memorandum, unsigned, on plain white bond paper, and without date or identification, is i n file no. 893.7%. RG 59, NA. There is no doubt about the documents r origins; it obviously fell through the cracks. author o

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While Helliwells recommendation was being considered in Washington, events in China were casting doubt on the viability of the border areas, especially in the northwest, that Chennault hoped to bring together as an effective anti-Communist zone. In mid-May, Ma Pu-fang, Mohammedan leader in the northwest, had scored a major victory against the Communists, but his triumph proved short-lived. The Red Army renewed its offensive in early August, threatening the strategic center of Lanchow. When expected supported from Nationalist units failed to materialize, Ma was forced to abandon the battlefield. In late August, CAT evacuated to safety the Mohammedan warlord and his $1.5 million in gold bars. The collapse of the northwest failed to deter O K . On 24 and 25 August, as Ma retreated from Lanchow, Chennault met in Washington with Col. Richard G. Stilwell, head of O K s Far East Division. Although a record of their discussions is not available, indirect evidence makes clear their purport. Following a trans-Pacific telephone conversationwith Corcoran on 28 August, Willauer, Chennaults partner, informed his wife that the situation at the moment appears to be that aid of some sort to China is 9096 sure, and that some of our people are counting on us heavily if there is such aid.21 CIA Director Hillenkoetter called at the S t a t e Department on 1 September and spoke to Acheson, George F. Kennan of the Policy Planning Staff, and Ambassador Philip C. Jessup about Ows plan to subsidize CAT. Three weeks later the State Department gave informal approval to the scheme at a meeting between Hillenkoetter, Webb, and Butterworth. Although not enthusiastic about the idea, Butterworth explained, the department would not object to a minimum amount of covert financial support to the airline if it would facilitate CIA secret operations.22 The final element of the plan fell into place on 4 October. Kennan, States representative on the OPC oversight committee, sent a memorandum to Wisner about OWSintention to provide coveft assistance to anti-communist
Tionel Max Chassin, The Communist Conquest of China: A History of the Civil War, 194-1949, trans. Timothy Osato and Louis Gelas (Cambridge, MA, 1%5), pp. 225-26; Clark to Acheson, 15 August 1949, FRUS, 1949. 8:489-90, Tong Te-kong and Li Tsung-jen, The Memoirs of Li Tsung-jen (Boulder, CO, 1979), pp. 547-48; Willauer to Louise Willauer, 18 !kptember 1949, t h e Papers of Whiting Willauer, Seeley Mudd Library, Princeton University, Princeton, New Jersey (hereatier cited as Willauer Princeton P a p e r s ) . Theodore A. Wahl, viceconsul at Chungking who visited Lanchow in late July, had prcdicttd the collapse of mistance in the northwest. Not only were the efforts of the defending annies uncoordinated, but also the province was bitterly divided along historical Hen-Moslem lines. Despite the best efforts of Ma Pu-fang to bridge the differences with the H a n majority (80percent), most observen agrsed that the Han Chinese still hate and fear Moslems. Wahl reported that some people, recalling past cruelties by Moslems, would prefer Communist to Moslem rule. Wahls report can be found in Stanley A. McGeary, vice-consul, Chungking, to Acheson, 3 August 1949, FRIIS, 1949,8:46849. Panzer notes, History of Air America; Willauer to Louise Willauer, 29 August 1949, Willauer Princeton Papen. Colonel Stilwell was not related to Gen. Joseph W. (Vinegar Joe) Stilwell. On Colonel Stilwell, see Joseph B. Smith, Portrait of u Cold Warrior (New Yo&, 1976), pp. 76-77. nPanzer notes, History of Air America.

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elements in China. The document neither approved nor disapproved of the project. Wisner interpreted the ambiguity in O K s favor and ordered prompt implementation of the scheme.23 States willingness to permit O K to nudge open the door to CAT derived from its own ambivalence about developments in China and Southeast Asia. Events of the summer had engendered pessimism regarding the prospects for an early accommodation with Communist China. At the end of June, Mao Tse-tung publicly accused the United States of seeking to enslave the world and he announced that his emerging government would lean to the side of the Soviet Union.24During the next two months, Communist treatment of Americans on the mainland often left much to be desired. In Shanghai, both the American consulate and U.S. businessmen faced harassment from former Chinese employees and Vice Consul William Olive was humiliated by local authorities after committing a minor traffic violation. There, as well as in Hankow, Peiping, and Tientsin, the Communists ordered the closing of U.S. Information Service offices. At Mukden, Consul General Angus Ward and his staff remained unable to depart from the city or to communicate with the outside world. The Communists even presented difficulties for Ambassador Stuart when he attempted to leave Nanking.= Anti-American rhetoric continued to emanate from high Communist officialdom, including Chou En-lai, whom many considered the leader of a moderate faction within the party.26 July and August saw a flurry of activity regarding Asia among State Department planners. In mid-July, Acheson asked Jessup to draw up programs for non-Communist areas of the continent. He was to assume that the United States did not intend to permit any further communist domination [in] . . . Asia or in Southeast Asia. The secretary of state remained unconvinced that anything could be done to halt the advance of the Communists in China, but, with the exception of Butterworth, his advisers increasingly flirted with the possibility of some action aimed at achieving that objective.% Although in congressional hearings of early August Acheson objected to the earmarking of new funds for China, he expressed interest in a possible appropriation for
%id. On 6 November 1980, Kennan wrote to Professor Leary: My recollection is that the Policy Planning Staff, of which I was then Director, had no authority to authorize or order action by the Office of Policy Coordination, but that we merely supplied, from among our officers, the State Departments representative on an interdepartmental committee set up to advise the Office of Policy Coordination on its work. On 31 October 1980, however, former CIA official Lyman 9. Kirkpatrick wrote to Leary: Using Kennans memo as authority was indeed common practice at the time. This was long before a formalized procedure for approving covert operations had been established. =New York Times, I July 1949. UBlum, Drawing the fine,pp. 80-84. S t u a r t to Acheson. 20 July 1949, FRUS, 1949, 8:448. On divisions within the Communist camp, see Tillman Durdins articles in the New York Times of 17 and 18 September
nU.S., Congress, Senate, Foreign Relations C o m d t e e , Heurings on Nomination of Philip C . Jessup, 81st Cong., 1st sess., 1951, p. 603. 22 See memo by Davies, 24 August 1949, FRUS, 1949, 9 : 5 3 W , and Merchant to Butterworth, 27 July 1949, file no. 711.93, RG 59, NA.

1949.

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Asia in general that could be used at the discretion of the President and on a confidential basis.29 On 24 August, President Truman shifted Statesdeliberations into high gear when he ordered the department to explore in more concrete terms the possibility of aid to [Nationalist generals] Li [Tsung-jen] and Pai [Chunghsi], whose armies clung precariously to a line north of Canton.30 Webb immediately asked the Joint Chiefs of Staff to reexamine the Chennault plan and Acheson requested additional information from U.S. representatives in Canton about Lis and P i s needs and intention^.^' By early September, reports from the field indicated that they were preparing to withdraw to Kwangsi province, bordering on Indochina, but rather than lose all hope for the anti-Communist cause in China, the State Department turned its attention toward the northwest and the continuing efforts of Ma Pu-fang and his fellow Mohammedan general Ma Hung-kwei. Despite their recent losses on the battlefield, the Mas appeared ready and anxious to carry on their struggle. With the China bloc pressing for action and Congress on the brink of appropriating $75 million to promote the anti-Communist cause in Asia, the secretary of state came close to recommending material support. Before the U.S. government could take the plunge, however, the situation in northwest China virtually collapsed and Ma Pu-fang took off on a pilgrimage to Mecca. Acheson quickly concluded that any major assistance must go to forces outside China.3 Nevertheless, small-scale covert aid to CAT presented little risk of leading to embarrassing commitments and it might be of some nuisance value in making life difficult for the Communists. If CAT remained intact, furthermore, it might be of future use to the anti-Communist cause in Southeast Asia, which was of ever-increasing concern to Washington. CAT began flying for OPC on 10 October 1949, Chinas National Day. A formal agreement came on 1 November, Corcoran signing for CAT, and Emmett D. Echols of the CIAS Office of Finance representing the government. The CIA pledged $500,000 to finance a CAT base and underwrite deficits that might occur in hazardous flying on agency missions. In return,
W.S.,Congress, Senate, Committees on Foreign Relations and Armed Services, Hearings on the Military Assistance Program, 81st Cong., 1st s e s ~ . , 1949, p. 28; Selected Executive Session Hearings, vol. 5 , pt. 1:231.
Werchant to Sprouse, 24 August 1949, FRUS. Ip49, 9:87&71. Webb to Sidney Souers, 24 August 1949. and Acheson to Robert Stmng, 25 August 1949, ibid., 9:54041. *Strong to Acheson, 28 August 1949, John J. MacDonald to Acheson, 2 September 1949, McGeary to Acheson, 3 September 1949, and Acheson to MacDonald, 8 September 1949, all in FRUS, 1949, 8:50%10, 516, 518, 532. See five-page, undated and unsigned memorandum in U.S.Policy Toward Communist China folder, records of the Office of Chinese Affairs, RG 59, NA; and Strong to Acheson, 9 and 15 September 1949. file no. 893.00, RG 59, NA. The most detailed treatment of S t a t e Department deliberations is i n Blum, Drawing the Line, chap. 6. %On the evolutionof S t a t e Department attitudes toward Southeast Asia, see Blum, Drawing the Line, chapter 7.

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CAT would give priority to agency cargo and personnel for one year at rates to be negotiated. An advance of $200.000 confirmed the engagement between the CIA and CAT.35 OKs plans to spur anti-(lmnunist resistance never amounted to much. Alfred T. Cox, the intelligence officer assigned to the project, arranged for shipment of machine guns and mortars to General Pai, commander of the only viable force left to oppose the Communists. The fall of Kweilin on 22 November sealed the fate of resistance on the mainland, however. Right now, Cox wrote to his wife in mid-December, it looks as tho its only a matter of days before the Mainland goes. Its awfully discouraging.M OWSproject, in fact, lay in shambles. Although Cox no doubt established contact with potential anti-Communist guemlla forces in border provinces, his attempt to support Nationalist resistance-as Clark had argued in June-had come far too late. Also, Chennaults views notwithstanding, the situation in 1949 was not analogous to World W a r II. As Yunnan Governor Lu Han pointed out, the Communists were not the Japanese; they would not be halted by the mountainous terrain of the southwest because the people did not regard them as in~aders.~ With CATs operations at a standstill by years end, Corcoran brought pressure on O W for continued financial assistance. The mainland may have been lost, he acknowledged, but the fight against communism continued. The CIA needed air transportation for covert operations in Asia. He held out the alluring prospect of a 100 plane line. . . over the whole peripheral arc from Korea to Japan to Okinawa to Formosa, Manila, Hongkong, Indo-China, Siam, Malaya, NEI [Indonesia]-and possibly through Pakistan to Turkey. CAT would form the nucleus for this venture, with Chennault and Willauer contributing their managerial skills and the CIA, of course, picking up the tab. Without immediate economic aid, however, he advised O K on 10 Janwy 1950, CAT would have to be liq~idated.~ The CIA hesitated. Although $100,000 remained from the original authorization of $500,000 for use of the airlines services, and these funds could be advanced to CAT without going outside the agency for policy decisions, opinion on further assistance was divided. For some time, officials concerned primarily with administration had had deep misgivings about the cost of supporting CAT. These apprehensions increased when Robert E. Terhaar, an accountant sent to Hong Kong in December to keep an eye on the agencys financial interests, expressed horror at the condition of CATs
Panzer notes, History of Air America. T.F. Liu, A Military History o f Modem china, 19261949 (Princeton, NJ, 1956). pp. 26%70; Pai to Chennault, 15 October, 13 and 15 November 1949, Chennault Papers; Cox to M y Cox, n.d. [c. mid-December 19491, the Letters of Alfred T. and Dorothy B. Cox, in the possession of Dorothy Cox Ingram, High Point, North Carolina. 37 Lu Hans comments were reported in LaRue R. Lutkins, vice-consul, Kunming, to Acheson, 28 October 1949. FRUS, 1949, 8569. B C o r c m to Willauer, 18 December 1949, Willauer Princeton Papers; Panzer notes, History of Air America.

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business records. On the other hand, the airline received strong support from individuals charged with executing covert projects. Cox, for example, recommended continued association with CAT. The airline, he said, would be of immeasurable operational value in providing secure transportation for CIA activities throughout the Far East. In the end, the operational view prevailed. On 1 February, O K s project subsidy committee approved payment of $loO,O00to CAT.39 The CIASgrant was only a stopgap. In late January, Willauer returned to the United States from China and joined Corcoran in the search for a more permanent economic relationship. The former government attorney and his wellconnected wife moved easily in Washingtons social world, where the dividing line between business and pleasure tends to blur. On 29 January, the Willauers attended a buffet party hosted by old friend and influential columnist Joseph Alsop; Frank and Polly Wisner also were there. Three days later, they had dinner at the Shoreham with Alfred and Dorothy Cox. Dinner with the Wisners came on 8 February. Later in the week, the Willauers and Corcorans shared a meal with Admiral and M r s . Hillenkoetter and others. Very nice party and good fun, Louise Willauer recorded in her diary, although one guest seemed upset because the Admiral was drinking and talking too much (to Whitey). The champagne flowed freely at the Corcorans tenth wedding anniversary celebration, where the guest list, studded with senators, Supreme Court justices, and all manner of high officials, read like a veritable Whos Who of the Washington establishment.40 Willauer and Corcoran spent their daylight hours at the State Department, Economic Cooperation Administration, and the CIA, importuning officials and arguing the case for CAT. At a decisive meeting at O K on 20 February, Willauer dropped a bombshell. CAT could no longer sustain its operating losses, he said. Its owners would have to act at once. There were several alternatives. They could sell the company to the Chinese Communists or to a third party who would sell to Peking; they could sell to the U.S. government, overtly or covertly; or they could simply liquidate on the open market.41 Willauers statementno doubt was intended to force OPCs hand. CATs owners had no desire to put the airlines assets on the block in a depressed market, and it seems unlikely that they would have sold to the Communists, even had such a deal been possible. But their threats put Wisner under the gun. O K would have to make a decision about CAT. The days following this meeting surely saw long and heated discussions at the CIA. Although available records do not reveal the details of the decisionmaking process, the result is clear: the CIA concluded that continued support

%nz.er notes, History of Air America. %uise Willauer diary, 29 January, 1 , 8, 1 1 February, and 4 M a r c h 1950, Willauer Nantucket Papers. Panzer notes, History of Air America.

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of CAT was in the national interest. On 13 March 1950,the State and Defense departments and the Joint Chiefs of Staff ratified the deci~ion.~' This decision came during a period of hardening in U.S.policy toward Asia. Following the demise of the Chennault plan during the previous fall, the State Department had persuaded the president that an effort to drive a wedge between the Soviet Union and Communist China represented the most prudent response to Mao's victory on the mainland.43This course received its strongest public affirmation in Acheson's famous speech to the National Press Club on 12 January 1950." In implementing the approach, the president and the secretary of state sought to avoid any action that might draw Moscow and Peking closer together. Thus they refused to propose new aid to Nationalist forces in Taiwan, their last bastion against the Communists. The State Department also kept open the possibility of recognizing the Communist regime. Yet Secretary of Defense Louis Johnson and the Joint Chiefs of Staff never liked that policy, and State itself sought to pursue it while, at the same time, acting to contain communism on China's southern periphery. Since it was widely believed that Mao would assist Communist forces there and since the recognition of the Peking government would deal a psychological blow to anti-Communist groups, hard choices inevitably arose.4s Events of early 1950 encouraged Acheson to lean toward containment rather than a policy aimed at turning Mao into a Chinese Tito. In mid-January, Mao's government confiscated American consular property at Peking. At the end of the month, both Moscow and Peking recognized Ho Chi Minh's government in Indochina. Two weeks later Stalin and Mao initialed a thirtyyear Treaty of Friendship, Alliance, and Mutual Assistance. With the diminishing prospects for an early Sino-Soviet split and with a growing number of Washington officials taking the domino theory as gospel, the national security bureaucracy turned much of its energy regarding Asia toward constructing an anti-Communist program for Southeast Asia. As NSC 64, adopted on 27 February concluded, "it is important to U.S. security interests that all

"Ibid. 43 For a key document, see Acheson memorandum of conversation with the president, 17 November 1949, records of the Policy Planning Staff. RG 59, NA. See also Stwck, Road to Confronrurion. pp. 13143; and Blum. Drawing the Line, chapters 10 and 11. uU.S., Department of State, Bulletin 23, pp. 114-15. " O n 16 December 1949, Acheson asked U.S. representativesin Southeast Asiatoestimate the impact of American recognition of Peking on the antiCommunist cause in Southeast Asia. All of them replied that the impact would be strong and negative. See secretary of state to certain diplomatic and consular officers, 16 December 1949, George M. Abbon to the secretary of state, 19 December 1949, Edwin F. Stanton to the secretary of state, 20 December 1949, Myron M.Cowen to the secretary of state, 20 December 1949, and Henry B. Day to the secretary of state, 27 December 1949. all in file no. 893.01, RG 59, NA. Acheson also used his growing concern about Southeast Asia in his futile attempt to discourage the British from granting early recognition to the Communists. See Oliver Franks, British ambassador to the United States, to Ernest Bevin. British foreign secretary, 17 December 1949, file 462, Bevin Papers, F.O. 800, Public Record office, Kew, England (hereafter cited as PRO).

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practicable measures be taken to prevent further Communist expansion south of Chinas borders.46 The governments action on CAT reflected not only a growing concern with Communist advances in Asia, but also an increasing acceptance of covert operations as one way to deal with the problem. With this development, O K obviously needed a secure, deniable source of transportation to move personnel, air-drop supplies to guerrillas on the mainland, and engage in all manner of clandestine activities. Financial misgivings notwithstanding, CAT seemed ideal for these purposes. On 24 March 1950, CATs owners signed an option agreement with Richard P. Dunn, a Washington banker acting as agent for undisclosed principals. (In intelligence parlance, Dunn was a cut-out, that is, a friendly outsider used to disguise the CIAS role in the transaction.) The bankers advanced $350,000 to clear up arrears in payroll, gasoline bills, outstanding supply accounts, and other debts affecting the owners equity in the airline. An additional $40,000 would be made available to fund operating deficits until midJune. The bankers then had the option to purchase the business, including physical properties and operating rights, for $1 milli~n.~ Under the agreement with the CIA, Chennault and Willauer were charged with lowering the operating budget to $200,000 a month and promoting sufficient traffic to make the airline self-sufficient by 15 June. The task proved impossible. Although the two men searched for business from one end of Asia to the other, no prospects developed. An attempt to obtain a subsidy from the Nationalist government on Taiwan also failed.48 As deficits swallowed up the last CIA dollars, Willauer once again made the wearing trip across the Pacific for discussions with O K . Arriving in midJune, he found the political climate in Washington little changed since his last visit. The last American diplomats had withdrawn from China and Consul General Walter P. McConaughy had returned from Shanghai to tell the State Department that the top command of the Chinese Communists was thoroughly indoctrinated in Soviet theory and practice and completely loyal to MOSCOW.*~

Report by the National Security Council on the Position of the United States with Respect to Indochina, 27 February 1950, Pentagon Papers, Gravel edition, 4 vols. (Boston,
1971), 1:82-83.
47 Panzer notes, History of Air America; State of Account with CATI, 28 June 1954, the legal files of Air America, temporarily in Professor Learys possession; Willauer, Working Paper-CAT-I5 March to 15 June 1950, 9 April 1950, Willauer Princeton Papers. Willauer, Working Paper, 9 April 1950, and Chennault to Corcoran, 12 April 1950, Willauer Princeton Papers; Chennault and Willauer, Petition to the Chinese Government, and Summary of a Report on the Progress made in CATs Appeal to the Chinese Government for Financial Aid, 14 May 1950, in the Papers of C. Joseph Rosbert [CATs operations manager], o r t h Carolina. in the possession of Mr. Rosbert, Franklin, N Record of an Interdepartmental Meeting on the Far East at the Department of State, 11 May 1950, and John H. Ohly, deputy director of the Mutual Defense Assistance Program, to Lyman L. Lemnitzer, 1 June 1950, both in FRUS, 2950, 687-91.

362

DIPLOMATIC HISTORY

Acheson, for one, needed little convincing. At ministerial talks in London in early May, he had told Ernest Bevin, his British counterpart, that although in the long t e r m the United States continued to anticipate a split between Peking and Moscow, for the moment Sino-Soviet relations seemed closer than ever. The Truman administration did not expect Chiangs government on Taiwan to survive for much longer, but it recently had assessed more highly the strategic importance of the island and it certainly would do nothing to hasten a Communist victory there. Even should the Communists seize Taiwan, Washington stood ready to withhold diplomatic relations from China for some considerable period. America also hoped for an effective embargo of strategic raw materials to inhibit Communist military potential. What was most feared was a Chinese Pan-Asian movement which would encompass Southeast Asia and probably Japan-where the Communists had become more aggressive since the beginning of the year.5o The domino theory had been accepted as fact. Military assistance programs were under way for Indochina, Indonesia, Thailand, the Philippines, and Burma, plans were afoot to send American military personnel to the various countries to supervise implementation of the programs, and the U S . hands-off policy regarding Taiwan was being reviewed. In late May, the State Department had loosened the purse strings, enabling the Nationalists to purchase arms and ammunition in the United States with $40 million in unexpended funds from the China Aid Act of 1948.51Reports indicated not only an improvement in internal conditions on Taiwan but a strengthening of anticommunist guerrilla groups on the Chinese mainland.s2Covert actions against Communist China, some argued, might divert Pekings resources from Southeast Asia.53 Already. a small portion of a $75 million fund for the general area of China had been earmarked for covert operations.54 The direction of American policy meant that OPC still needed CAT. Sometime after Willauers arrival, and probably before the outbreak of war in Korea on 25 June, Wisner made his decision. The continued existence of CAT, he informed State, Defense, and the Joint Chiefs, was necessary for OPCs operations in the Far East. The CIA therefore intended to acquire the airline to support authorized covert projects and to keep it out of the hands
%inUtes of bipartite ministerial talks, 7 May 1950, file 449, Bevin Papers, PRO. James H. Bums to Rusk, 29 May 1950. FRUS, 1950, 6:34647. Report of H . Kenaston Twitchell and Basil R. Entwistle, n.d., but clearly in May 1950, box 142, part 2, John Foster Dulles Pppers, Seeley Mudd Library, Princeton University, Princeton, New Jersey. Dulles ncently had taken on a position as adviser to the S t a t e Department on Asian matters and was pressing for US. action to save Taiwan from the Communists. For a report that anti-Communist guerrilla activity on the Chinese mainland was increasing, see Far Eastern Command, intelligence summary, 19 May 1950, RG 260. Suitland, Maryland. Rusk to Acheson, 26 April 1950, and John to Acheson, 14 April 1950, FRUS, 1950, 6334-35, 784. yrhe precise amount designated for this purpose remains uncertain. Various evidence indicates that it was at least $2.5 million and possibly as much as $6.5 million. See M.A.P., 26 June 1950, i n the H . Alexander Smith Papers, Seeley Mudd Library, Rinceton University, Princeton, New Jersey; and Blum, Drawing rhe Line, p. 259, n. 19.

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of uncontrolled purchasers. Reminding the other agencies of their consent in March to the option agreement, he asked if purchase at this time would cause any problems.55 The Defense Department and the Joint Chiefs promptly replied that they had no objections, but State, according to the CIAs account of events, registered concern over the prospect of a government-owned airline competing against Pan American and Northwest airlines. Wisner and CIA General Counsel Lawrence R. Houston called on Assistant Secretary Rusk to discuss this matter. Rusk, Houston recalled, reminded us that it was basic U.S.policy not to get the government in competition with U.S. private industry. Eventually, they persuaded Rusk that CAT posed no competitive threat to American airlines in the Far East and that a higher national interest was at stake. At State insistence, however, the final purchase agreement gave Willauer and an associate the option to reacquire all stock in CAT between 1 July 1952 and 1 July 1955. CIA was thus establishing the position, the agencys history observes, that the purchase was consummated for short-range national policy and operation purposes. It was the State Departments understanding, Houston confirms, that we would divest ourselves of the private enterprise as soon as such divestment was feasible. With States reservations overcome, Wisner ordered a new project established t o cover the p h a s e . After CIA Director Hillenkoetterformally approved the project on 28 June, General Counsel Houston began to orchestrate the legal and corporate details of the sale. Dunn, the agency cut-out, exercised his option and took title to the airlines assets from Willauer Trading Company, a new company created by CATs owners to facilitate the transfer. At the same time, Houston set up two companies under liberal Delaware laws, Airdale Corporation and CAT Incorporated. Airdale, the holding company, had t h r e e directors, all employees of the CIAs Office of Finance. The same three individuals, together with an agency employee with the airline, formed a majority on CAT Incorporateds seven-man board of directors, thus assuring policy control of the operating c~mpany.~ Airdale was capitalized on 23 August, acquired the airlines assets through Dunn, then transferred them to CAT Incorporated in return for all of the operating companys stock. Two days later, Willauer Trading Company received a check for $750,000, with an additional $100,000 paid on 14 December. The remaining $150,000, held back until all assets had been transferred, was reduced by negotiation to approximately $loO,OOO and paid in the fall of 1951.*
Panzer notes, History of Air America. %Ibid.Houstons testimony is in Foreign and Militcrry Intelligence, pp. 221-22. 51 Ppnzer notes, History of Air America. MSamuel Becker, attorney for Comran, to Robert M. Beckman, attorney for Louise Willauer, 27 October 1965, and Wang Wen-san to Louise Willauer, 28 December 1968, Willaucr Nantucket Papers; Leary interview with Louise Willauer Jackson, 21 June 1981; Houston tcstimony, Foreign and Military Intelligence. pp. 221-22.

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DIPLOMATIC HISTORY

CATS owners were pleased with the arrangement, at least in the summer of 1950. I am quite satisfied with the airline solution arranged by Whitey, you and other associates, Chennault wrote to Corcoran. It is far better than piecemeal liquidation or pinching down to a size that would satisfy our current operational requirements. We could not operate a competitive airline with our aircraft, and we didnt have the capital to buy modem air transport^."^^ Fortunately for CATs owners, the airlines troubles had come at a time of growing concem in the United States over Communist advances in the Far East. Determined to counter the possible effects of the domino theory, the administration adopted a wide-ranging c o m e of action that included covert operations. The State Department, especially Secretary of State Acheson, consistently resisted overt activity against Communist China, prefemng a strategy aimed at encouraging a split between Stalin and Mao. He lacked complete confidence in that course, however, at least for the short term, and his pursuit of it always was compromised by his growing determination to contain communism in Southeast Asia.60 His acceptance of covert action in China reflected his unwillingness to make a clear choice between the two aims. By the eve of the war in Korea, the potential scope for covert operations had expanded to cover a wide area in Asia, O X S projects required secure transportation, and CAT had performed well in earlier contract work. Initially reluctant to assume ownership of the airline, OPC eventually decided that purchase would be the best availableor least undesirabl-ption. As it turned out, the CIA not only had acquired a small airline in East Asia, but also the cornerstone of a vast aerial empire that would stretch around the world and be used to support covert operations in Guatemala, Cuba, Indonesia, Tibet, and throughout Southeast Asia.6

59 Chennault to Corcoran, 18 July 1950, Willauer Princeton Papers. *or an analysis of the relationship between U.S. concern for Japan and the evolution of policy toward Southeast Asia, see Michael Schaller, Securing the Great Crescent: Occupied Japan and the Origins of Containment in Southeast Asia,Jountal o f American History 69 (1982): 392-414. 6See Victor Marchelti and John D. Marks. The CIA and the Cult o f Intelligence (New YO&, 1974), pp. 137-53; Foreign and Military InfeIligence. pp. 205-56; and an article by Richard Hallofan i n the N e w Yor&Times, 5 April 1970. Christopher Robbins, Air America (New York, 1979). contains interesting operational details about the CIAS aerial activities in East Asia, but it should be used with care because of numerous factual inaccuracies.