cia's aerial empire origins--oct 1984 vol 8 no 4

7/28/2019 CIA's Aerial Empire Origins--Oct 1984 Vol 8 No 4

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The Chennault Plan To Save China:US. Containment in Asia and theOriginsofthe CIAS Aerial Empire, 1949-1950

WILL IAM M. LEARY and WILLIAM STUECKMaj. Gen. Claire L . Chennault was in a black mood when he reachedWashington in April 1949. He had watched in China as the Communiststriumphed in M anchuria and then swept south toward the Y angtze River.Collapse of the mainland, he believed, would cause a chain reaction through-outtheFar East. Chennault envisioned a ring of Red bases, stretching from

Siberia to Saigon. With its vital eastern f l ank secured by Chinese subordi-nates, the Soviet Union would be in a position to destroy the United States.I can hear the time fuseof a third world war sputtering in China as it bumstoward the final powder keg, he exclaimed, and I cannot stand idly bywithout making every effort in my power to snuff it out.Chennault had a plan to thwart Communist expansion in Asia. Its recep-tion by various elements within the U.S. government reveals a good dealabout American policy toward East Asia at a critical moment in its post-World War I1 development. It also explains the origins of the Central Intel-ligence Agencys aerial empire.As wartime commanderof the Fourteenth Air Force in China, Chennaulthad fought the Japanese and his own superiors with acerbic vigor during acontroversial military career.* He retumed to China in 1946 and started acommercial airline in partnership with Whiting Wi l l a~er.~he company-Civil Air Transport (CAT)-prospered amid the chaos of civil war. Early in1949, however, the declining fortunes of the Nationalist government con-vinced Chennault that something had to be done at once to stem the surgingCommunist tide. Accordingly, he drew up a plan to stop communism on the

ClaireL . Chennault, Wayof a F ighter ( NewYork, 1949), pp. vii-viii.%eE is no reliable biography of Chennault. For a perceptive essay on his wartimeactivities, see J onathan S p e w , To Chnge Chinu: Western Advisers in chi^ 162&1%0,pkpcrback ed. ( NewYork, 1980), pp. 228-79.See William M. Leary, Portrait of a Cold Warrior: Whiting Willauer and Civil AirTransport,Modern Asian Studies 5 (1971): 378-88.349


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350 DIPLOMATIC HISTORYperiphery of China. The next, and more difficult, step was to sell this schemeto an American government that believed Chinas fate already had beensealed.Chennault set forth the main theme of his program during an appearancebefore the Senate Armed Services Committee on 3May 1949, shortly afterhis arrival from Shanghai. The craggy-faced warrior began by developing atlength a domino theory of events in Asia. Mao Tse-tungs victory, heargued, would permit massive Communist support for Ho Chi Minh in Indo-china. After the Vietminh defeated the French, as they surely would withChinese material assistance, an encircled Thailand would fall next. In turn,Burma and an already troubled Malaya would collapse, and this would beonly the beginning. Chennault spoke about pressure on India, a Soviet movetoward the Middle East, and danger for Japan and the Philippines. He predictedthe growth of a new East Asia Co-prosperity Sphere-from the Bering Seato Ba1i-under the direction of the Soviet Union. The Pacific would becomea Russian lake, and the United States would beripe for plucking.It was not too late to avert these dire consequences, however. Thereremained, Chennault pointed out, an extensive anti-Communist area in China,extending from the Mohammedan-dominated provinces to the northwest,through Szechwan and Hunan, to Yunnan in the southwest. These regionshad a strong tradition of local autonomy and were led by men determined toresist the Communists. Protected by shifting deserts and impassable moun-tains, they could easily be defended. Chennault knew this tenitory well; ittook in much of what had been Free China during the recent war againstJapan.The United States, he said, should send a military mission to Chinacharged with procuring and distributing supplies to regional armies in thissanitary zone. American advisers would take charge of training and plan-ning, serving in Chinese units down to the company level. The emphasis,naturally, would be on air power, with a Sino-American unit as the majorcombatarm CAT and other civilian airlines in China would provide essentiallogistical support. He estimated that the scheme would cost $150 to $200million a year. With the proper kind of aid and support from the UnitedStates, Chennault predicted, and the kind of communication and strategy

Stueck, The Road to Confrontation: American Policy toward Chinu and Korea, 1947-1950 (Chapel Hill, NC, 1981). pp. 126-69; Robert M . Blum, Drawing the Line: The OriginsofAmerican Containment PolicyinAsia(New Y ork, 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 isabundant material on the generals lobbying activitiesin the Papers of Claire L . Chennault, Hoover I nstitution, Stanford University, Stanford, California(hereafter cited as Chennault Papers).5U.S.,Congress,CongressionulRecord, 81st Cong., 1st sess., 3 May 1949, pp. 5480-84.


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U.S. CONTAINMENT IN ASIA 351that can be given them by air, these peripheral areas canbe welded into aneffective union of Chinese resistance.Chennault took his plan to a skeptical State Department. Secretary DeanAcheson; an Atlanticist, was most concerned with Europe, the area heconsidered tobevital to American strategic interests. When he did look acrossthe Pacific, the corruption and venality of the Nationalists filled him withdisgust. Though increasingly concerned about the spread of communism inAsia, he doubted that the United States had either the will or the power toaffect the civil war. His inclination was to keepa close watch on events butto avoid any new commitments which eventually might embarrass the UnitedStates 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 anti-communist, Butterworth was an unsentimental realist, free from illusionsabout a special relationship between China and America. He believed thatthe Nationalist regime was doomed. Furthermore, he believed that Chineseleaders realized this and were more concerned with lining their pockets thanfighting Communists. The United States must accept the inevitable and makethe best of the new situation.Among the few foreign service officers out of step with the dominantview of the department, Dean Rusk was by far the most important. But thedeputy 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 veteranof 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 hopeof salvaging something from the China mess, it would not be through thediscredited Nationalists-or Chennault9Chennault called at the State Departmenton 11 May. He met brieflywith Undersecretary James E. Webb, then presented his plan at length toRusk. What individuals could carry the plan at the top? Rusk asked. Onlyone man, Chennault responded, Chiang Kai-shek. The diplomat remained

61bid. A popularized version of the Chennault plan appearedas L ast Call for China,Life 28 ( 1 1 J uly 1949): 36-37.Dean Acheson, Present at the Creation: M y Years in theStare Department (New York,1969); Warren I . Cohen, Acheson, His Advisers, and China, 1949-1950, in Dorothy Borgand Waldo Heinrichs, eds., Uncertain Years: Chinese-American Refutions, 1947-1950 (NewYork, 1980). pp. 13-52.*Cohen, Acheson.%usk, memorandum, 16 J uly 1949, file no.890.00, general recordsof the Departmentof State, RG 59, National Archives(hereafter cited as NA); Leary interview with Rusk, 11 February1981. For mmors of Chennaults dishonesty, see Tyler Abell, ed. , Drew Pearson. Diaries.194%1959 (New York, 1974), pp. 59-60. T he conflict between Stilwell and Chennault is detailedin Barbara Tuchman,Srilwell and the American Experience in Chino, 1911-1945 (New York,1972); and M ichael Schaller, TheU. S.Crusade in Chino. 1938-1945 (New York, 1979).


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352 DIPLOMA TIC HISTORYinscrutableas he thanked Chennault for his views and showed him out of theoffice.Despite grave reservations, the State Department sent the Chennaultplan totheAmerican embassy in China for comment. AmbassadorJ . LeightonStuart confirmed Washingtons view. After discussing theproposal with hismilitary attach&, Stuart reported: Our feeling is that, while [the] plan mayhave validity in some of itsaspects, as a whole it is impractical and of doubtfulvalue to [the] furtheranceUS national interests. The situation in China, heemphasized, has gone too far to be retrieved.Minister-Counselor Lewis Clark took an even stronger position. TheChennault plan, headvised Washington, was ill-conceived, unrealistic, andwould benefit only the commercial interests of CAT. Chennaults vauntedsanitary zone of anti-Communist resistance did not exist. A lthough theMohammedan leadersof the northwest would fight with or without Americanassistance, they lacked popular support and were doomed. The situation inSzechwan was no better. Distraught officials there feared that a Nationalistmove to Chungking would invite early Communist attack; they wanted accom-modation, not fighting. The same was true in Y u M ~, here the governmentwas interested only in making the best terms possible with theCommunists.In other words, Clark concluded, disintegration issofar advanced, moraleso 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 inadvance to failure.*Chennault also faced opposition in Congress. To some, his plan smackedof a thinly disguised scheme to salvage CATs-and the generals-decliningeconomic fortunes. Chennault denied thi s. I am not advocating any aid hereto the benefit of my airline, he advised a House committee. I have offeredto give up all my interests in the airline, resign my position with it, if myrecommendations for aid are carried out and if I can be used personally inthe program.13

Webb to Butteworth, LO May 1949,Butterworth to Webb, 10 May 1949, and mem-orandum of conversation by Webb, I I May 1949,all in US. , Department of State, ForeignRelntio m of the United Sf t es , 1949 9 (Washington, 1974): 517-23 (hereafter cited as FRUS,followed by appropriate year). Chennault earlier had testified: I believe that thepresent [I 9481Chinese Government ishonest. 1knowmany of t he Cabinet members well. I haveknown themfor many years. I have confidence in their honesty. . . .The generalissimo [Chiang Kai-shek]isa simple, trustfulman. He believes in friends. U.S.,Congress,House, Committeeon ForeignAffah. Hearings on Uni ted Stntes Poli cy fo r a Post -War Recovery Prog ram, 80th Cong., 2dsess., 1948,pp. 2209-38.Webb toStuar r , 25 May 1949. andStuart to Webb, 30 May 1949,FRUS. 1949, 9524-25. %Yak o thesecretary of state, 6 J une 1949, ibid., 9526-27.?estimony before the House Committeeon Foreign Affairs, 30 J une 1949, publishedin U. S. , Congress. House, Committee on International Relations, Selected Execu tive SessionHearin gs of the Com mit tee. 1945-50, vol. 8: United States Policy in the Far East, pt. 2: 285-326. A vailable evidence suggests that there is no reason to question Chennaults sincerity onthispoint.


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U. S. CONTAI NMENT IN ASIA 353Acheson, testifying during a closed session of the House Committeeon Foreign Affairs in late June, seemed to close the door on the Chennaultplan. Questioned by Representative Walter Judd (R-MN), oneof Chennaults

supporters, Acheson replied: We are of course familiar with General Chen-naults views. Military authorities did not consider them tobesoundly taken.We are not closing our minds to any of these things. If some developmentstake place that warrant, we will beeager to follow them. I amnot in a positionto come to Congress and ask Congress for money at this time to do somethingwhich we do not believe can possibly be effe~tive.~Chennault did find an agency in Washington sympathetic toward hisideas, one that shunned the light of publicity. In early May, ThomasG. Corcoran, former adviser to President FranklinD. Roosevelt, Washingtonlobbyist, and financial backer of CAT, arranged a meeting between Chen-nault and Rear Adm. Roscoe H. Hillenkoetter, director of the Central Intel-ligence Agency. While these discussions proved inconclusive, Chennaultsviews did spark the interest of Paul L . E. Helliwell, a CIA official who hadserved during the war as chief of the Office of Strategic Services intelligenceDivision in Kunming. L ike many otherOSSoperatives, Helliwell had workedclosely 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 Coordi-nation (OPC)-the euphemistic designation that masked the governmentscovert action M a t ontactbe established with Chennault, looking towardthe possible use of CAT for clandestine operations in China.I6Wisner and several associates, including Franklin A. L indsey, CarmelOffie, and Joseph A. Frank, met with Chennault at the Hotel Washington onIvestimony before the House Committee on Foreign Affairs, 23 June 1949, SelectedExecutive Session Hearings, vol. 8, pt. 1:260.CA TS ownership was divided by thefollowing percentages: Corcoran, family members,and William S. Y oungman, 28.88; Willauer, 17.64; Chennault, 14.46; J ames J . Brennan, 8. 46;Wang Wen-san, manager of t he Nanking office of the K incheng Bank, 16.63; Y U M ~eoplesDevelopment Corporation, 8.11; and Shensi provincial government, 5.86. See purchase agree-ment of 26October 1949, and Y oungman t o Willauer, 20November 1951, in the Papers of

Whiting and Louise Willauer, in the possession of Louise Willauer Jackson, Nantucket,Mas-sachusetts (hereafter cited as Willauer Nantucket Papers).TorHelliwells wartime career, see ArchimedesL. Patti, Why Viefnam?(Berkeley,1980). passim.On the OSS in China during World War 11, seeR. Harris Smith, OSS: TheSecretHistory o Americas F irst Ceniral Intelligence Agency (Los Angeles, 1972), chap. 8.The CIA sinitial contact with CAT is described in the notes of IrvingR. M Panzer on the CIAs Historyof Air America,194&1971. Although unavailable to historians, the History was used by theCIA in legal proceedings before. the Civil Service Commission. At issue was the claim for civilservice credit that had been made by several former employeesof the agencys proprietary.Panzer, attorney for David H. Hickler and other former airline employees, sought and obtainedaccess 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 wentthrough it carefully and took forty-seven pages of detailed notes on legal size paper, includinglengthy quotations. The notes were submitted for security review, at which time about10percentwere excised. Through the courtesy of Mr. Panzer, and with the kind permission of M. Hickler,Professor hary obtained a copy of the notes. Needless to say, he is most grateful to bothgentlemen.


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354 DIPLOMATICHI STORY9May. The general outlined his plan to contain communism in Asia, empha-sizing CATs role in providing essential logistical support for anti-Communistgroups. Wisner came away impressed by Chennaults forceful presentation.Here was a man of action! Wisner had Alfred A. Hussy draft a memorandumfor theState Department that expressedOPCs interest in the project. AsO Kplanned to contract with CAT to carry supplies in China, Wisner hoped toensure the airlines financial stability through a grant from the EconomicCooperation Administration. 7Wisner found little sympathy at State.Also, ECA officials, who earlierin the year had rejected a similar proposal to assist airlines in China, continuedto oppose the ideaof subsidizing CAT. Undaunted, WisnerorderedHelliwellto l ook into the possibility of direct or indirect financial help for CA T topreserve itsoperations,facilitiesandpersonnel forUltimateOPCuseinChina.*Helliwell had a preliminary and umflciufdiscussion with Corcoranon 27 J une. Earlier, Chennault had indicatedto Wisner that CA T had severefinancial problems. Corcoran now portrayed CATs situation as desperate.The primary trouble, Helliwell reported,isacute dollaritis. The airlineneeded foreign exchange to purchase gasoline and spare parts and to payallowances to American personnel. Helliwell estimated that O K would haveto provide a minimum of $1 million a year to hold theairline together. Wouldit be worth the cost? Helliwell thought so. He concluded with a strong rec-ommendation thatOPC support CAT. Helliwells reasoning later would pro-vide the rationale for OFCs acquisition of theairline:

. . . if at all possible action must be taken to hold C .A .T . intact. Theface of the C.A .T . operation, coupled with its communications oper-ation, cannotbeestablished by a new operation without the expenditureof many millions of dollars. The operation is so set up that it can bemilitarized, if that should become necessary, and unquestionablyOPCflying and other personnel canbegradually introduced into the operationtoensure continuity andproper function. It is strongly urged that favorablepolicy decisions be taken promptly and that thereafter the necessarycontacts and representations be made looking to maintain C .A .T . as anAmerican-owned airline with complete facilities in non-CommunistChina. 9Founded in J une 1948, O K occupied a peculiar position in t he bureaucracy. I t was apart of the CIA, and its budget and personnel were appropriated within the CIAS allocations,but thesecretary of stateappointedthedi rector. Policygui dancecame froma committee composedof representatives of the State and Defense departments. Onginally conceived of as a smallcontingency forcet o mount operationson a limited basis, O X quickly established itself as asignificant, permanent force. T his was in part due to the worsening world situation and in parttoWisnersdynamcleadaship.SeeAnne Katekkss, H story of theCentralIntelligaKX Agency,which is part of US. , Congress. Senate, Select Committeet o Study Governmental Operati onswith Respect to Intelligence Activities, Supplementary Dctaikd S&@ Reports on Foreign and

Military I ntelligence.Senate Report 94-744, 94th Cong., 2d sess. , 1976.Panzer not es. History of Ar Ameri ca.I9Acopy of thememorandum unsigned, on plain white bond paper, and without dateor identification, is in file no. 893.7% . RG 59, NA. There is no doubt about the documentsauthor or origins; it obviously fell through the cracks.


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U. S. CONTAINMENT IN ASIA 355While Helliwells recommendation was being considered in Washing-ton, 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, Mohammedanleader in the northwest, had scored a major victory against the Communists,but his triumph proved short-lived. The Red Army renewed its offensive inearl y August, threatening the strategic center of Lanchow. When expectedsupported from Nationalist units failed to materialize, Ma was forced toabandon the battlefield. In late August, CAT evacuated to safety the Moham-medan warlord and his $1.5million in gold bars.The collapse of the northwest failed to deterOK .On 24 and25 August,as Ma retreated from Lanchow, Chennault met in Washington with Col.Richard G. Stilwell, head of O K sFar East Division. Although a record oftheir discussions is not available, indirect evidence makes clear their purport.Following a trans-Pacific telephone conversation with Corcoran on28 August,Willauer, Chennaults partner, informed his wife that the situation at themoment appearsto be that aid of some sort to China is 9096 sure, and thatsomeof our peopleare counting onus heavily if there is such aid.21CIA DirectorHillenkoetter calledat the StateDepartment on 1 Septemberand spoke to Acheson, George F. Kennan of the Policy PlanningStaff, andAmbassador Philip C. Jessup about Ows plan to subsidize CAT. Threeweeks later the State Department gave informal approval to the scheme at ameeting between Hillenkoetter, Webb, and Butterworth. Although not enthu-siastic about the idea, Butterworth explained, the department would not objectto a mnimum amount of covert financial support to the airline if it wouldfacilitateCIA secret operations.22The final element of the plan fell into place on 4 October. Kennan,States representative on theOPCoversight committee, sent a memorandumtoWisner aboutOWSntentiontoprovidecoveft assi stance to anti-communist

Tionel Max Chassin, The Communist Conquestof China: A History of the Civil War,194-1949 , t r ans . Timothy Osato and Louis Gelas (Cambridge, MA, 1%5), pp. 225-26; Clarkto Acheson, 15 August 1949,FRUS, 1949. 8:489-90, Tong Te-kong and Li Tsung-jen, TheMemoirs of Li Tsung-jen (Boulder, CO, 1979), pp. 547-48; Willauer to Louise Willauer,18 !kptember 1949,thePapersof Whiting Willauer, Seeley Mudd Library, Princeton University,Princeton, New Jersey (hereatier citedas Willauer Princeton Papers). TheodoreA. Wahl, vice-consul at Chungking who visited Lanchow in late July, hadprcdicttd the collapse of mistancein the northwest. Not only were the efforts of t he defending annies uncoordinated, but alsotheprovince was bitterly di vi ded along historical Hen-Moslem l i nes. Despite the best efforts of MaPu-fang to bridge thedifferences with theHanmajority ( 80percent), most observenagrsed thatt he Han Chi nese still hate and fear Moslems. Wahl reported that some people, recalling pastcruelties by Moslems, would prefer Communist toMoslem rule. Wahls reportcan be found inStanley A. McGeary, vice-consul, Chungking, to Acheson, 3August 1949,FRIIS, 1949,8:468-49.

Panzer notes, History of Air America; Willauer to Louise Willauer, 29 August 1949,Willauer Princeton Papen.Colonel Stilwell was not related to Gen. J oseph W. (V inegar Joe)Stilwell. On Colonel Stilwell, see Joseph B. Smith, Portrait of u Cold Warr ior (New Yo&1976), pp. 76-77.nPanzer notes, History of Air America.


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356 DIPLOMATIC HISTORYelements in China. The document neither approved nor disapproved of theproject. Wisner interpreted the ambiguity in O K s favor and ordered promptimplementationof the scheme.23

States willingness to permit O K to nudge open the door to CATderived from its own ambivalence about developments n China and SoutheastAsia. Events of the summer had engendered pessimism regarding the prospectsfor an early accommodation with Communist China. At the end of J une, MaoTse-tung publicly accused the United States of seeking to enslave the worldand he announced that his emerging government would lean to the side ofthe Soviet Union.24During the next two months, Communist treatment ofAmericans on themainland often left much to be desired. In Shanghai, boththe A merican consulate andU.S. businessmen faced harassment from formerChinese employees and Vice Consul William Olive was humiliated by localauthorities after committing a minor traffic violation. There, as well as inHankow, Peiping, and Tientsin, the Communists ordered the closing of U.S.Information Service offices. At M ukden, Consul General Angus Ward andhis staff remained unable to depart from the city or to communicate with theoutside world. The Communists even presented difficulties for AmbassadorStuart when he attempted to leave Nanking.= Anti-American rhetoric con-tinued to emanate from high Communist officialdom, including Chou En-lai,whom many considered the leader of a moderate faction within the party.26July and August saw a flurry of activity regarding Asia among StateDepartment planners. In mid-J uly, Acheson asked Jessup to draw up programsfor non-Communist areasof the continent. He was to assume that the UnitedStatesdid not intend topermit any further communist domination [in] . . . Asiaor in Southeast Asia. The secretary of state remained unconvinced thatanything could be done to halt the advanceof the Communists in China, but,with the exceptionof Butterworth, his advisers increasingly flirted with thepossibility of some action aimed at achieving that objective.% Although incongressional hearingsof early A ugust Acheson objected to the earmarkingof new funds for China, he expressed interest in a possible appropriation for

%id. On 6 November 1980, Kennan wrote to ProfessorLeary: My recollectionisthatthe Policy Planning Staff, of which I was then Director, had no authority to authorize or orderaction by the Office of Policy Coordination, but that we merely supplied, from among ourofficers, the State Departments representativeon an interdepartmental committee set up toadvise the Office of Policy Coordination on its work. On 31 October 1980, however, formerCIA official Lyman 9. Kirkpatrick wrote to Leary: Using Kennans memo as authority wasindeed common practice at the time. This was long before a formalized procedure for approvingcovert operations had been established.=New York Ti mes, I July 1949.UBlum,Drawing the f i ne, pp. 80-84.S t u a r t to Acheson. 20 July 1949, FRUS, 1949, 8:448. On divisions within the Com-munist camp, see Tillman Durdins articles in the New York Times of 17 and 18 September1949. U.S., Congress, Senate, Foreign Relations C omdtee, Heurings on Nomination ofPhilip C. J essup, 81st Cong., 1st sess. , 1951, p. 603.See memo by Davies, 24 August 1949, FRUS, 1949,9 : 5 3 W , and Merchant to But-terworth,27 July 1949, file no. 711.93, RG 59, NA.

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U.S. CONTAINMENT IN ASIA 357Asia in general that could be used at the discretion of the President andon a confidential basis.29On 24 August, President Truman shiftedStatesdeliberations into highgear when he ordered the department to explore in more concrete terms thepossibility of aid to [Nationalist generals] L i [Tsung-jen] and Pai [Chung-hsi], whose armies clung precariously to a line north of Canton.30 Webbimmediately asked the Joint Chiefs of Staff to reexamine the Chennaultplan and Acheson requested additional information from U.S. representativesin Canton about L is and P i s needs and intention^^ By early September,reports from the field indicated that they were preparing to withdraw toKwangsi province, bordering on Indochina, but rather than lose all hope forthe anti-Communist cause in China, the State Department turned its attentiontoward the northwest and the continuing efforts of Ma Pu-fang and his fellowMohammedan general Ma Hung-kwei. Despite their recent losseson thebattlefield, the Mas appeared ready and anxious to carry on their struggle.With the Chinabloc pressing foraction and Congresson the brink of appro-priating $75 million to promote the anti-Communist cause in Asia, the sec-retary of state came close to recommending material support. Before theU.S.government could take the plunge, however, the situation in northwest Chinavirtually collapsed and Ma Pu-fang took off on a pilgrimage to Mecca. Ache-son quickly concluded that any major assistance must go to forces outsideChina.3

Nevertheless, small-scale covert aid to CAT presented little risk ofleading to embarrassing commitments and it might be of somenuisance valuein making life difficult for the Communists. If CAT remained intact, fur-thermore, it might beof future use to the anti-Communist cause in SoutheastAsia, which was of ever-increasing concern to Washington.CAT began flying for OPCon 10 October 1949, Chinas National Day.A formal agreement came on 1 November, Corcoran signing for CAT, andEmmett D. Echols of the CIAS Office of Finance representing the govern-ment. The CIA pledged $500,000 to finance a CAT base and underwritedeficits that might occur in hazardous flying on agency missions. In return,W.S.,Congress, Senate, Committees on Foreign RelationsandArmed Services, H e a r -ings on the Mi l i t ary Assistance Pro gr am, 81st Cong., 1st s e s ~ . , 1949, p. 28; Selected Execut iveSession Hearings, vol. 5 , pt. 1:231.Werchant to Sprouse, 24August 1949, FRUS. I p49, 9:87&71.Webb t o Sidney Souers, 24 August 1949. and Acheson t o Robert Stmng, 25 August1949, ibid., 9:54041.*Strong to Acheson, 28 August 1949, John J . MacDonald t o Acheson, 2 September1949, McGeary toAcheson, 3 September 1949, andAchesonto MacDonald,8 September 1949,all in FRUS, 1949,8:50%10, 516, 518, 532.See five-page, undatedand unsigned memorandum in U. S. PolicyToward Communist

China folder, recordsof the Officeof Chinese Affairs, RG 59, NA;andStrong toAcheson, 9and 15 September 1949. file no. 893.00, RG 59, NA . The most detailed treatment of StateDepartment deliberations is in Blum, Drawing the L ine, chap. 6.%On t heevolutionof StateDepartment attitudestowardSoutheastAsia,see Blum,D r a w -ing the Lin e, chapter 7.


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358 DIPLOMATIC HISTORYCAT would give priority to agency cargo and personnel for one year at ratesto be negotiated.An advance of $200.000 confirmed the engagement betweenthe CIA and CAT.35

O K splanstospur ant i - ( lmnunis t resistance neveramounted to much.Alfred T. Cox, the intelligence officer assigned to the project, arranged forshipment of machine guns and mortars to General Pai, commander of theonly viable force left to oppose the Communists. The fall of Kweilin on22 November sealed the fateof resistance on the mainland, however. Rightnow, Cox wrote to his wife in mid-December, it looks as tho its only amatter of days before the Mainland goes. Its awfully discouraging.MOWSproject, in fact, lay in shambles. Although Cox no doubt estab-lished contact with potential anti-Communist guemlla forces in border prov-inces, his attempt to support Nationalist resistance-as Clark had argued inJ une-had come far too late. Also, Chennaults views notwithstanding, thesituationin 1949 was not analogous to WorldWr I I . As Yunnan GovernorLu Han pointed out, the Communists were not the Japanese; they would notbe halted by the mountainousterrain of the southwest because the people didnot regard themas in~aders.~With CATs operations at a standstill by years end, Corcoran broughtpressure onOWfor continued financial assistance. The mainland may havebeen lost, he acknowledged, but the fight against communism continued. TheCIA needed air transportation for covert operations in Asia. He held out thealluring prospect of a 100 plane line. . .over the whole peripheral arc fromKorea 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 Willauercontributing their managerial skills and the CIA, of course, picking up thetab. Without immediate economc aid, however,he advisedO K on 10 J anwy1950, CAT would have tobe liq~dated.~The CIA hesitated. Although $100,000 remained from the originalauthorization of $500,000 for use of the airlines services, and these fundscouldbeadvanced to CAT without going outside the agency for policy deci-sions, opinion on further assistance was divided. For some time, officialsconcerned primarily with administration had had deep misgivings about thecost of supporting CAT. These apprehensions increased when RobertE. Terhaar, an accountant sent to Hong Kong in December to keep an eyeon the agencys financial interests, expressed horror at the condition of CATs

Panzer notes, Historyof Air America.T.F. Liu, A Military History of Modemchina, 19261949 (Pr inceton, NJ , 1956).pp. 26%70; Pai toChennault, 15 October, 13 and 15 November 1949, Chennault Papers; Coxt o M y ox, n.d. [c. mid-December 19491, t he Lettersof Alfred T . and Dor ot hy B. Cox,in the possession of Dor ot hy Cox Ingram, High Point, North Carolina.Lu Hans comments were reported in LaRue R . Lutkins, vice-consul, K unming, toAcheson, 28October 1949. FRUS, 1949, 8 5 6 9 .B C or cm to Willauer, 18December 1949, Willauer Princeton Papers; Panzer notes,History of Air America.

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U.S. CONTAINMENT IN ASIA 359business records. On the other hand, the airline received strong support fromindividuals charged with executing covert projects. Cox, for example, rec-ommended continued association with CAT. The airline, he said, would beof immeasurable operational value in providing secure transportation forCIA activities throughout the Far East. In the end, the operational viewprevailed. On 1February, O K sproject subsidy committee approved pay-ment of $l oO, O00to CAT.39The CIASgrant was only a stopgap. In late January, Willauer returnedto the United States from China and joined Corcoran in the search for a morepermanent economic relationship. The former government attorney and hiswellconnected wife moved easily in Washingtons social world, where thedividing line between business and pleasure tends to blur. On 29 January,the Willauers attended a buffet party hosted by old friend and influentialcolumnist Joseph Alsop; Frank and Polly Wisner also were there.Threedayslater, they had dinner at the Shoreham with Alfred and Dorothy Cox. Dinnerwith the Wisners came on8February. Later in the week, the Willauers andCorcorans shared a meal with Admiral andMs. 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 andtalking too much (to Whitey). The champagne flowed freely at the Corcoranstenth wedding anniversary celebration, where the guest list, studded withsenators, Supreme Court justices, and all manner of high officials, read likea veritableWhosWho of the Washington establishment.40Willauer and Corcoran spent their daylight hours at the State Depart-ment, Economic Cooperation Administration, and the CIA, importuning offi-cials and arguing the case for CAT. At a decisive meeting at O K on20February, Willauer dropped a bombshell. CAT could no longer sustain itsoperating losses, he said. Its owners would have to act at once. There wereseveral alternatives. They could sell the company to the Chinese Communistsor 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 openmarket41

Willauers statement no doubt was intended to forceOPCshand. CATsowners had no desire to put the airlines assets on the block in a depressedmarket, 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 thegun. O K would have to make a decision about CAT.The days following this meeting surely saw long and heated discussionsat the CIA. Although available records do not reveal the detailsof the decision-making process, the result is clear: the CIA concluded that continued support

%nz.er notes, History of Air America.%uise Willauer diary, 29 J anuar y, 1, 8, 11 February, and 4 March 1950, WillauerPanzer notes, History of Air America.NantucketPapers.


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360 DIPLOMATIC HISTORYofCAT was in the national interest.On 13 March 1950,the State and Defensedepartments and the Joint Chiefs of Staff ratified the deci ~ion.~'This decision came during a period of hardening inU. S. policy towardAsia. Following the demise of the Chennault plan during theprevious fall,the State Department had persuaded the president that an effort to drive awedge between the Soviet Union and Communist China represented the mostprudent response to M ao's victory on the mainland.43This course receivedits strongest public affirmation in Acheson's famous speech to the NationalPressClub on 12 January 1950." In implementing the approach, the presidentand the secretary of statesought to avoid any action that might draw M oscowand Peking closer together. Thus they refused to propose new aid to Nationalistforcesin Taiwan, their last bastion against the Communists. The State Depart-ment also kept open the possibility of recognizing the Communist regime.Yet Secretary of Defense Louis Johnson and the Joint Chiefs of Staff neverliked 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 waswidely believed that Mao would assist Communist forces thereand since therecognition of the Peking government would deal a psychological blow toanti-Communist groups, hard choices inevitably arose. 4sEvents of early 1950 encouraged Acheson to lean toward containmentrather than a policy aimed at turning Mao into a Chinese Tito. In mid-January,Mao's government confiscated American consular property at Peking. At theend of the month, both Moscow and Peking recognized Ho Chi M inh'sgovernment in Indochina. Two weeks later Stalin and Mao initialed a thirty-year Treaty of Friendship, Alliance, and Mutual Assistance. With the dimin-ishing prospects for an early Sino-Soviet split and with a growing number ofWashington officials taking the domino theory as gospel, the national securitybureaucracy turned much of its energy regarding Asia toward constructing ananti-Communist program for Southeast Asia. A s NSC 64, adopted on27 February concluded, "it is important to U.S. security interests that all

"Ibid.For a key document, see Acheson memorandum of conversation with the president,17 November 1949, recordsof the Policy Planning Staff.RG 59, NA. See also Stwck, RoadtoConfronrurion.pp. 13143; and Blum. Drawing theLine, chapters 10 and 11.43

uU.S., Department of State, Bulletin 23, pp. 114-15."On 16 December 1949, Acheson askedU.S. representatives n Southeast A siatoestimatethe impact of American recogni ti onof Peking on t he antiCommunist cause in Southeast Asia.All of them replied that the impact would bestrong and negative. See secretaryof stateto certaindiplomaticand consularofficers, 16 December 1949, George M . Abbon to the secretaryof state,19 December 1949, Edwin F. Stanton to the secretary of state, 20December 1949, MyronM. Cowen to the secretaryof state, 20 December 1949, and Henry B. Day to the secretary of

state, 27 December 1949. all in file no. 893.01, RG59, NA. Acheson also used his growingconcern about Southeast Asia in his futile attempt to discourage the British from granting earlyrecognition to the Communists. See Oliver Franks,British ambassador to the United States, toErnest Bevi n. British foreign secretary, 17 December 1949, file 462, Bevin Papers, F.O. 800,Public Record of f ice, Kew, England (hereaftercited as PRO).


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U.S. CONTAINM ENT IN ASIA 361practicable measuresbetaken to prevent further Communist expansion southof Chinas borders.46The governments action on CAT reflected not only a growing concernwith Communist advances in Asia, but also an increasing acceptance of covertoperations as one way to deal with the problem. With this development,O Kobviously needed a secure, deniable source of transportation to move per-sonnel, air-drop supplies to guerrillas on the mainland, and engage in allmanner of clandestine activities. Financial misgivings notwithstanding, CATseemed ideal for these purposes.On 24March 1950, CATs owners signed an option agreement withRichard P. Dunn, a Washington banker acting as agent for undisclosed prin-cipals. (In intelligence parlance, Dunn was a cut-out, that is, a friendlyoutsider used to disguise the CIAS role in the transaction.) The bankersadvanced $350,000 to clear up arrears in payroll, gasoline bills, outstandingsupply accounts, and other debts affecting the owners equity in the airline.An additional $40,000 would be made available to fund operating deficitsuntil midJ une. The bankers then had the option to purchase the business,including physical properties and operating rights, for $1 milli~n.~Under the agreement with theCIA, Chennault and Willauer were chargedwith lowering the operating budget to $200,000a month and promotingsufficient traffic to make the airline self-sufficient by 15 June. Thetaskprovedimpossible. Although the two men searched for business from one end ofAsia to the other, no prospects developed. An attempt to obtain a subsidyfrom the Nationalist government on Taiwan also failed.48As deficits swallowed up the last CIA dollars, Willauer once again madethe wearing trip across the Pacific for discussions withO K . Arriving in mid-June, he found the political climate in Washington little changed since hislast visit. The last American diplomats had withdrawn from China and ConsulGeneral Walter P. McConaughy had returned from Shanghai to tell the StateDepartment that the top command of the Chinese Communists was thor-oughly indoctrinated in Soviet theory and practice and completely loyal toMOSCOW.*~

Report by the National Security Council on the Position of the Uni ted States withRespect to Indochina, 27 February 1950, PentagonPapers, Gravel edition, 4 vols. (Boston,1971), 1:82-83.Panzer notes, Historyof Air America; Stateof Account with CATI, 28 June 1954,the legal filesof Air A merica, temporarily in ProfessorL e a r y s possessi on; Willauer, WorkingPaper-CAT-I5 March to 15 J une 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, andSummar y of a Report on the Progress made in CATs Appeal to the Chinese GovernmentforFinancial A id, 14 May 1950, in the Papersof C. Joseph Rosbert [CATs operations manager],in the possessionof Mr. Rosbert, Franklin, North Carolina.Record of an Interdepartmental Meetingon the Far East at the Departmentof State,11 May 1950, and John H. Ohly, deputy director of the Mutual DefenseAssistanceProgram,to Lyman L. Lemnitzer, 1 June 1950, both in FRUS, 2950, 687-91.

47


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362 DIPLOMATIC HISTORYAcheson, for one, needed little convincing. At ministerial talks in Lon-don in early May, he had told Ernest Bevin, his British counterpart, thatalthough in the long termthe United States continued to anticipate a split

between Peking and Moscow, for the moment Sino-Soviet relations seemedcloser than ever. The Truman administration did not expect Chiangs gov-ernment on Taiwan to survive for much longer, but it recently had assessedmore highly the strategic importanceof the island and it certainly would donothing to hasten a Communist victory there. Even should the Communistsseize Taiwan, Washington stoodready to withhold diplomatic relations fromChina for some considerable period. America also hoped for an effectiveembargoof strategic raw materials to inhibit Communist military potential.What was most feared was a Chinese Pan-Asian movement which wouldencompass Southeast Asia and probably Japan-where the Communists hadbecome more aggressive since the beginningof the year.5oThe domino theory had been accepted as fact. Military assistance pro-gramswere under way for Indochina, Indonesia, Thailand, thePhilippines,and Burma, plans were afoot to send American military personnel to thevarious countries to supervise implementationof the programs, and the U S .hands-off policy regarding Taiwan was being reviewed. In late May, the StateDepartment had loosened the purse strings, enabling the Nationalists to pur-chase arms and ammunition in the United States with $40 million in unex-pended funds from the China Aid Act of 1948.51Reports indicated not onlyan improvement in internal conditions on Taiwan but a strengthening of anti-communist guerrilla groups on the Chinese mainland.s2Covert actions againstCommunist China, some argued, might divert Pekings resources from South-east Asia.53 Already. a small portion of a $75million fund for the generalarea of China had been earmarked for covert operations.54The direction of American policy meant that OPC still needed CA T.Sometime after Willauers arrival, and probably before the outbreak of warin Korea on 25 June, Wisner made hisdecision. The continued existence ofCAT, he informed State, Defense, and the Joint Chiefs, was necessary forOPCsoperations in the Far East. The CIA therefore intended to acquire theairline to support authorized covert projects and to keep it out of the hands

%inUtes of bipartite ministerial talks, 7 May 1950, file449, Bevin Papers, PRO.J ames H. Bums to Rusk, 29 May 1950. FRUS, 1950, 6:34647.Report of H . K enaston Twitchell and Basil R. Entwistle, n.d., but clearly in May 1950,box 142, part 2, J ohn Foster Dul l es Pppers, Seeley Mudd L ibrary, Princeton University, Prince-ton, New J ersey. Dulles ncently hadtaken on a position as adviser to the State DepartmentonAsian matters and was pressing for US. action t o save Taiwan from the Communists. For areport that anti-Communistguerrilla activity on t he Chinese mai nl and was increasing, see FarEasternCommand, intelligence summary, 19May 1950, RG 260. Suitland, Maryland.Rusk to Acheson, 26 April 1950, and J ohn to Acheson, 14April 1950, FRUS, 1950,6334-35, 784.yrhe precise amount designated for this purpose remai ns uncertain. Various evidenceindicates that it was at least $2.5million and possibly as much as $6.5 million. See M.A.P.,26 J une 1950, in the H . Alexander Smith Papers, Seeley Mudd L ibrary, R inceton University,Princeton, New J ersey; and Blum, Drawing r h e Line, p. 259, n. 19.


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U.S. CONTAINMENT IN ASIA 363of uncontrolled purchasers. Reminding the other agencies of their consentin March to the option agreement, he asked if purchase at this time wouldcause any problems.55

The Defense Department and the Joint Chiefs promptly replied that theyhad no objections, but State, according to the CIAs account of events,registered concern over the prospect of a government-owned airline competingagainst Pan American and Northwest airlines. Wisner and CIA General Coun-sel Lawrence R. Houston called on Assistant Secretary Rusk todiscuss thismatter. Rusk, Houston recalled, reminded us that it was basic U. S. policynot to get the government in competition with U.S. private industry. Even-tually, they persuaded Rusk that CAT posed no competitive threat to Americanairlines in the Far East and that a higher national interest was at stake. AtState insistence, however, the final purchase agreement gave Willauer andan associate the option to reacquire all stock in CAT between 1 July 1952and 1 July 1955. CIA was thus establishing the position, the agencyshistory observes, that the purchase was consummated for short-range nationalpolicy and operation purposes. It was the State Departments understanding,Houston confirms, that we would divest ourselves of the private enterpriseas soon as such divestment was feasible.With States reservations overcome, Wisner ordered a new project estab-l i shed to cover the ph as e. AfterCI ADirector Hillenkoetter formally approvedthe project on 28 J une, General Counsel Houston began to orchestrate thelegal and corporate details of the sale. Dunn, the agency cut-out, exercisedhis option and took title to the airlines assets from Willauer Trading Company,a new company created by CATs owners to facilitate the transfer. At thesame time, Houston set up two companies under liberal Delaware laws,Airdale Corporation and CAT Incorporated. A irdale, the holding company,had threedirectors, all employeesof the CIAs Office of Finance. The samethree individuals, together with an agency employee with the airline, formeda majority on CAT Incorporateds seven-man board of directors, thus assuringpolicy control of the operating c~mpany.~Airdale was capitalizedon23 August, acquired the airlinesassets throughDunn, then transferred them to CAT Incorporated in return for all of theoperating companys stock. Two days later, Willauer Trading Companyreceived a check for $750,000, with an additional $100,000paid on14 December. The remaining $150,000, held back until all assets had beentransferred, was reduced by negotiation to approximately $l oO, OOO and paidin the fall of 195 1.*

Panzer notes, Historyof Air America.%Ibid.Houstons testimony is in Foreign and Militcrry Intell igence, pp. 221-22.Ppnzer notes, History of Air America.MSamueBecker, attorney for Comran, to Robert M . Beckman, attorney for LouiseWillauer, 27 October 1965,and Wang Wen-santoL ouise Willauer, 28December 1968, WillaucrNantucket Papers; Leary interview with Louise Willauer J ackson, 21 J une 1981; Houston tcs-timony, F oreign and Military Intelligence. pp. 221-22.

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364 DIPLOMA TIC HISTORYCATS owners were pleased with the arrangement, at least in the summerof 1950. I amquite satisfied with the airline solution arranged by Whitey,you and other associates, Chennaultwroteto Corcoran. It is far better than

piecemeal liquidationorpinching down to a size that would satisfy our currentoperational requirements. We could not operate a competitive airline withour aircraft, and we didnt have the capital to buy modem ai r transport "^Fortunately forCATs owners, the airlines troubles had come at a timeof growing concem in the United Statesover Communist advances in theFarEast. Determined to counter the possible effects of the domino theory, theadministration adopted a wide-ranging c ome of action that included covertoperations. The State Department, especially Secretary of State Acheson,consistently resisted overt activity against Communist China, prefemng astrategy aimed at encouraging a split between Stalin and Mao. He lackedcomplete confidence in that course, however, at least for the short term, andhis pursuit of it always was compromised by his growing determination tocontain communism in Southeast Asia.60 His acceptance of covert action inChina reflected his unwillingness to make a clear choice between the twoaims. By the eveof the war in Korea, the potential scopeforcovert operationshad expanded to cover a wide area in A sia, O X S projects required securetransportation, and CAT had performed well inearlier contract work. Initiallyreluctant to assume ownership of the airline, OPC eventually decided thatpurchase would be the best avai lableor least undesirabl-ption. As itturned out, the CIA not only had acquired a small airline in East Asia, butalso the cornerstone of a vast aerial empire that would stretch around theworld andbeused tosupport covert operationsinGuatemala, Cuba, Indonesia,Tibet, and throughout Southeast Asia.6

Chennault toCorcoran, 18 J uly 1950, Willauer Princeton Papers.9*or an analysisof t he relationship between U. S. concern for J apan and theevolutionof policy toward Southeast Asia, see M ichael Schaller,Securi ng theGreat Crescent: OccupiedJ apan andtheOri gi nsof Containment n Southeast Asia,J ountalof AmericanHistory 69 (1982):392-414.6See Victor Marchelti and J ohn D. Marks. The CIA and the Cult o Intelligence(NewYO&, 1974), pp. 137-53; Foreign and Military I nfeIligence.pp. 205-56; and an article byRichard Hallofan in theNew Yor& imes, 5 April 1970.Christopher Robbins, Air America (NewYork, 1979). contains interesting operational de ta i l s about the CIAS aerial activities in EastAsia, but it should be used with carebecause of numer ous factual inaccuracies.

cia's aerial empire origins--oct 1984 vol 8 no 4

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