I was assured by the Generalissimo that China would support to the limit of her ability an American program for the stabilization of the Far East. He stated categorically that, regardless of moral encouragement or material aid received from the United States, he is determined to oppose Communism and to create a democratic form of government in consonance with Doctor Sun Yat-sen’s principles. He stated further that he plans to make sweeping reforms in the government including the removal of incompetent and corrupt officials. He stated that some progress has been made along these lines but, with spiraling inflation, economic distress, and civil war, it has been difficult to accomplish fully these objectives. He emphasized that, when the Communist problem is solved, he could drastically reduce the Army and concentrate upon political and economic reforms. I retain the conviction that the Generalissimo is sincere in his desire to attain these objectives. I am not certain that he has today sufficient determination to do so if this requires absolute overruling of the political and military cliques surrounding him. Yet, if realistic United States aid is to prove effective in stabilizing the situation in China and in coping with the dangerous expansion of Communism, that determination must be established. Adoption by the United States of a policy motivated solely toward stopping the expansion of Communism without regard to the continued existence of an unpopular repressive government would render any aid ineffective. Further, United States prestige in the Far East would suffer heavily, and wavering elements might turn away from the existing government to Communism. In China and Korea, the political, economic, and psychological problems are inextricably mingled. All of them are complex and are becoming increasingly difficult of solution. Each has been studied assiduously in compliance with your directive. Each will be discussed in the course of this report. However, it is recognized that a continued global appraisal is mandatory in order to preclude disproportionate or untimely assistance to any specific area. The following three postulates of United States foreign policy are pertinent to indicate the background of my investigations, analyses, and report: The United States will continue support of the United Nations in the attainment of its lofty aims, accepting the possible development that the Soviet Union or other nations may not actively participate. Moral support will be given to nations and peoples that have established political and economic structures compatible with our own, or that give convincing evidence of their desire to do so. Material aid may be given to those same nations and peoples in order to accelerate postwar rehabilitation and to develop economic stability, provided: That such aid shall be used for the purposes intended.