I have the honour to submit herewith a memorandum dealing with certain long-term effects of present and prospective developments in China.
2. I desire to point out that American policy may be more broadly based than I have assumed in the memorandum. It will be the desire of the top-ranking Americans, particularly those on the civil side, to establish a more progressive government in China, drawing its support from all parties, including the Communists. This point of view was emphasized recently in an official statement by Mr.
Dean Acheson on behalf of the Secretary of State. It may be doubted, however, whether the American Government will succeed in doing this. There are great difficulties in getting a working agreement between the Government and their Communist opponents, and the idea of a coalition government is contrary both to tradition and to accepted political principles in China. American intervention may therefore be inevitably associated with the policy of the Central Government and be characterized as reactionary.
3. I would appreciate it if a copy of this memorandum could be submitted to the Prime Minister.
D. B. COPLAND 
24th June, 1946.
INTERNATIONAL ISSUES IN CHINA
The Weakness of China:
6. China is fundamentally a weak country, even on any impartial examination of her potential resources. Her large population is her greatest weakness, because it saps the energy of her people, keeps them under-nourished and a prey to disease. The Chinese are poor technicians, and they do not regard the profession of a soldier as worthy of their best people. It will be a difficult task for the Americans, with all their capital and technical skill, to make an efficient army or industry in China. Added to this difficulty is the extreme sensitiveness of the Chinese about their sovereign rights. It was a British Prime Minister who said that self government was more to be desired than good government.
Perhaps this might be quoted in extenuation of the attitude the Chinese take up to their own administration. That would be taking the most favourable view of things. The less charitable view is that the Chinese suffer from a great conceit of themselves and will never admit their own gross inefficiencies, though they are always ready to ask for help. In the formative stage of external intervention for the obvious benefit of China, the adjustment of ideas to provide a basis for co-operation is usually conceded by the Chinese, but never to the point of losing the opportunity of exploiting the assistance they are receiving. When the inflow of capital and technical skill has come to an end, a new situation will arise. This is bound to cause difficulties. The success of American enterprise in China will depend on the maintenance of efficiency, both managerial and technical. It may be assumed that the Chinese will not be equal to the task without constant American guidance, and that they will also get very tired of this guidance, especially when it takes the form of demand for some reform to be made, or some key person to be demoted. There is infinite scope in this situation for bitter recriminations and an intense anti-foreign campaign, for which the Chinese are always ready. On the more technical economic side of the American intervention, it will be necessary, sooner or later, for the Chinese to build up a balance of trade in which there will be a substantial export surplus to pay the service of the external debt. There is little prospect of this being done, not even with the chances China now has of exporting many consumer goods to the Eastern markets formerly held by Japan. It may be said that the more thoughtful of the American experts in China are worried about this aspect of the situation, and they have every reason to be.
Finally, it is a great mistake to think that China can build up a strong base for her industrial development in her heavy industries. Her resources of coal are adequate, but this is not true of iron ore. The prospects are that Australia will be able to keep in advance of China in steel output and certainly in costs of production. China is deficient in oil, and her agricultural practices are such that she cannot, without a great revolution, produce a diet that will avoid undernourishment for some 70% of her people. The objective of American policy is to build up 'a strong, stable and united China'. In the modern world, with its reliance on economic power based on technical and managerial skill and the development of certain key industries, this would appear to be a hopeless ideal.
An Explosive Situation:
7. China's weakness has always been a source of trouble, perhaps the greatest single source of trouble in the Far East. In the present situation, it is likely to be more troublesome in the long run than at any other time in recent history. There are two reasons for this. In the first place, the political needs of the past four years demanded that both the United States and the United Kingdom should flatter China and give the Chinese a false idea of their importance in the world, as well as misleading their own people as to what was really happening in China. With her new status, China is able to assume a position far beyond her relative strength, and this may become very embarrassing later when her real weaknesses become obvious. In the second place, China stands between two great opposing forces, both of which attempt to influence her. There will no doubt be a contest for supremacy of leadership between USA and Russia. At the moment, the Central Government is leaning heavily on America, whose influence is paramount, but it is not more than twenty years ago that many of the people in this Government were leaning heavily on Russia and carrying out an intense propaganda of hate against America and Britain. It is undoubtedly to their interest to lean on America now. Without the aid of America, it is not extravagant to assert that the whole of North China and the North-East would now be out of the control of the Central Government. These areas are in part held by the Communists now, and, over the past six months, they have rather expanded their territory in the north. It looks now as though they may have to retreat in some areas, but they will do so with great bitterness against the Americans. The Central Government is able to hold office without attempting any reform, partly again owing to American help, and there will be people among the present leaders or their followers who will one day exploit this. For, as already indicated, the day will come when the partnership between American efficiency and Chinese incompetence will break down, and when it will be necessary for China so to arrange her economy that she can pay the legitimate debt charge for the assistance she is now receiving. When that day comes, there will be people ready 'to cash in' on the new reform movement and the new anti-foreign feeling that will be created.
This will be Russia's day, and, in the meanwhile, Russia will undoubtedly have improved her position in Manchuria and the border regions to the west. She will have watched uneasily the Americans building up military strength in China, and now they may have to use it not only to sustain their own rights in China, but perhaps also to fight the satellites of Russia, if not Russia herself.
This may be too gloomy a picture, but that it is a possible picture nobody who studies the situation has any doubt. Because it is a possible picture, the Far East is to be regarded as perhaps the most explosive area in the world ...