A Political and Economic History of China, Part 39: Why the Communists Won the Civil War of 1946-1949, Soviet Intervention

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7 MIN READ - The Cautious Optimism Correspondent for Economic Affairs continues with his analysis of the Chinese Civil War, this time detailing how Soviet intervention and deception aided Mao Zedong’s communist victory.

Together at last: Mao and Stalin

In our last column we discussed American intervention’s role in providing the Chinese Communists a victory over Chiang Kai-shek’s seemingly larger and superior Nationalist (KMT) army. Both U.S. President Harry Truman and diplomatic envoy General George C. Marshall believed communist appeals for peace and democracy—all while the CCP broke every pledge it made—and tied Chiang Kai-shek’s hands with an arms embargo to pressure the Nationalist government into the same level of cooperation Mao Zedong’s communists professed to offer.

You can go back and read details of that sad story at:

https://www.cautiouseconomics.com/2025/10/china-history42.html

In this column we’ll discuss the role Joseph Stalin and the USSR played, aiding and supplying the Chinese Communists in a move that, unbelievably enough, took the U.S. government by surprise.

HELPING THE CCP?

To understand why Soviet support for Mao Zedong was a surprise to the U.S.—although it shouldn’t have been for more keen leadership—it’s helpful to remember that for eighteen years, from Chiang Kai-shek’s 1927 purge of the CCP to the closing months of World War II, Stalin had worked to keep Chiang in power and curbed Mao’s attempts to overthrow the Nationalist government.

Although fellow communist Mao may have seemed an obvious choice for Soviet backing, Stalin’s near-two decade pro-Chiang policy was a textbook case of rigid realpolitik and Soviet national security trumping ideological kinship.

The reason? Stalin’s primary concern from 1927 to 1945 was the Japanese threat to his east.

Ever since the 1905 Russo-Japanese war, when Japan defeated Imperial Russia and seized large tracts of Russian land and the port city of Dalian, Moscow viewed the Japanese as a constant threat. When Japan invaded and occupied all of Manchuria (1931) the Soviets suddenly found themselves with a new 2,600 mile border to defend as well.

Stalin’s mindset of Japanese treachery was on display during his Great Purge (1936-1938) during which many high ranking Soviet Communist Party officials were arrested, tried, and executed on false charges of Japanese espionage.

Since Chiang Kai-shek had control of the Chinese government and a large national army, but Mao Zedong had only a handful of rebel troops fighting a guerilla war, Stalin always favored Chiang who he viewed as more capable of resisting further Japanese incursions into China.

Thus for nearly two decades Chiang enjoyed a good working relationship with the Soviet leader, much to Mao’s irritation, until Japan was defeated by the Allies in 1945.

Once Japan was removed as a major threat, Stalin’s China policy changed completely because he no longer needed Chiang Kai-shek’s strong Chinese government. The benefits of a communist China to Russia’s south now seemed far more attractive. In the final year of the war Stalin’s allegiances changed and he shifted support from Chiang to the more ideologically inclined Mao, albeit quietly to avoid alerting either the Nationalist leader or his American allies.

SOVIET PROMISES

By early 1945 it was clear that Japan would lose the war and the “Big Three” of Winston Churchill, Franklin Roosevelt, and Joseph Stalin began shaping their vision of a postwar Asia.

At the Yalta Conference (February, 1945) the Soviet delegation agreed to nearly all of Roosevelt’s China policy proposals. This primarily meant getting the USSR into the Pacific War by invading Manchuria within three months of Germany’s ostensibly inevitable surrender, thereby taking pressure off a prospective American invasion of the Japanese home islands. The Soviets also agreed to support a democratic power-sharing Nationalist/communist postwar government in China.

Stalin also pledged that until democracy was established in China “the Government of the USSR” would support only the central Nationalist government, but his language was deliberately worded to allow a backdoor loophole by which non-government bodies could still aid the Communists, such as the Soviet Communist Party or Comintern (Communist International).

When probed about possible Soviet sympathies for the Chinese communists, Stalin assured Roosevelt that Mao’s rebels were “not real communists,” referring to them as “radishes.” Besides, State Department officials told Roosevelt, the USSR was exhausted from years of war with Nazi Germany and eager to cooperate peacefully in world reconstruction with the global powers, not spreading global communist revolution.

The Americans were pleased with Soviet pledges, nearly all of which Moscow would violate in practice. Immediately after the Yalta meeting Stalin sent a secret cable to Mao Zedong instructing him to await Soviet support in overthrowing Chiang Kai-shek’s government while trumpeting “The Red Army is coming!”

ACTIONS, NOT WORDS

The Soviet Union invaded Manchuria on August 9, 1945. The Red Army’s 1.5 million troops easily overran Japan’s dilapidated Kwantung Army, Japan announced its surrender on August 15th, and the USSR had full control of the region in just eleven days.

During the temporary Soviet occupation Stalin also agreed that Japanese armies, POW’s, and puppet POW’s in Manchuria would only surrender to KMT troops, not to Mao’s communist army. However the Nationalist Army had insufficient railroad and truck capacity to transport enough troops to Manchuria; partly due to war damage, partly due to Nationalist corruption that misallocated funds, and into 1946 partly due to an arms embargo imposed by Harry Truman.

Therefore Chiang requested that the U.S. transport 400,000-500,000 KMT troops to Manchuria by ship which U.S. Lt. General Albert Wedemeyer arranged, reaching as far as just south of the Great Wall’s ocean terminus.

However when the USA tried to drop 200,000 KMT troops off at the large Manchurian port of Dalian the Soviets advised that, due to a technical clause in their 1905 treaty with Japan, the port could not be used for military purposes during peacetime.

After rejecting two more American requests to dock at Dalian Soviet General Rodion Malinovsky recommended the U.S. land at two small Manchurian ports further north. Once the American ships arrived they found the Soviets had already moved out and the docks were heavily fortified by Chinese communist troops. The Soviets refused to guarantee the safe landing of American vessels since their official position was “not to interfere in Chinese internal affairs”—all of course while they were quietly handing Japanese POW’s and Chinese puppet POW’s over to the CCP and arming Mao throughout Manchuria.

After months wasted sailing up and down the Chinese coastline the KMT troops had to be dropped off just south of the Great Wall again.

Chiang viewed all these Soviet activities as treachery and deception, but U.S. diplomatic envoy George C. Marshall continued to press forward with his idea of a Nationalist-Communist democratic coalition government.

Meanwhile the Soviets, who had pledged not to interact with or support Chinese communist soldiers, were asked by the U.S. State Department to confirm the Red Army was keeping its word. In response the Soviets reported they had not encountered any Chinese Communists in Manchuria at all, when in fact they were actively arming and supplying them, building up garrisons and fortifications for CCP use, and constructing a massive supply pipeline from Siberia into the Manchurian northeast.

During this time the CIA and its predecessor, the Central Intelligence Group, consistently reported that the Soviet Union was providing no aid of any kind to the Chinese Communists.

As we’ve discussed in previous columns, by the time widespread fighting began between the KMT and CCP, Soviet support had largely closed the Nationalist advantage in weaponry. Meanwhile Chiang Kai-shek suffered from a lack of supplies due to the one-year arms embargo imposed on his government by Harry Truman.

Even when the embargo was lifted, and the Nationalist government tried to buy more weapons, the U.S. had scant few to sell them due to its wholesale military surplus demolition in the Pacific. All the while Soviet material aid continued to pour into Manchuria, strengthening the Chinese Communists further and helping them gain the upper hand by late 1948.

In the last days of the civil war Stalin still remained focused on deception as a tool to neutralize any threat to his goal of achieving Chinese communism.

As the CCP’s position became insurmountable the Communists, who had previously flattered Marshall, praised the American delegation, and telegraphed warm sentiments to the State Department and the White House, abruptly shifted to a belligerent and contemptuous tone towards the Americans. As the Communists captured major Chinese cities they seized and openly looted American consulate buildings, even arresting some State Department officials.

Mao informed Stalin of this new anti-American policy, dubbed “cleaning house before entertaining guests.” Stalin, fearing angering the U.S. and providing a pretext for American intervention, ordered Mao to suspend his ransacking of U.S. buildings until the PLA had consolidated its gains and established total military control of the mainland. 

Once the CCP victory was complete the Communists safely recommenced their public disdain for the Americans.

Just as they had been fooled by the Chinese Communists, the U.S. government was also duped by promises of peaceful cooperation and Chinese democracy from Stalin. Both the Chinese and Soviet communists lied repeatedly to American government officials, pledging no civil war in China while in fact Mao and Stalin cooperated clandestinely towards that very goal.

The Economics Correspondent credits much of the material in both the American and Soviet intervention chapters to the late historian Jay Taylor's book "The Generalissimo: Chiang Kai-shek and the Struggle for Modern China." Taylor's biography of Chiang's son, also succeeding Taiwan president, is an equally fascinating read: "The Generalissimo's Son: Chiang Ching-kuo and the Revolutions in China and Taiwan."

A Political and Economic History of China, Part 38: Why the Communists Won the Civil War of 1946-1949, American Intervention

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8 MIN READ - If anyone has the slightest doubt that communists are born professional liars, the Cautious Optimism Correspondent for Economic Affairs suggests reading how the CCP duped the United States into handing them victory over Chiang Kai-shek’s Nationalist government during the Chinese Civil War.

Photo: Trickster and unwitting pawn: CCP negotiator Zhou Enlai (right) and American diplomatic envoy George C. Marshall (center). Nationalist/KMT negotiator Zhang Qun is on the left.

In the last column we outlined how President Harry Truman and his U.S. diplomatic envoy General George C. Marshall tried to broker a peace agreement and democratic power-sharing deal (the Marshall Mission) between China’s bitter enemies: Chiang Kai-shek’s ruling Nationalist government and Mao Zedong’s communist rebels.

During the bargaining process the Communists, represented by the intelligent and persuasive negotiator Zhou Enlai (who would soon become Chinese Premier), agreed to every concession requested by Marshall plus a few more of their own, but in practice kept none of their promises. The Nationalists (KMT), dealing more candidly with the Americans, agreed to some concessions but resisted others. As a result Marshall believed the Communists were negotiating in good faith and the Nationalists were obstructing the peace process.

Pressuring for greater cooperation, Harry Truman imposed an arms embargo on the Nationalists in mid-1946 preventing them from acquiring U.S. weapons and supplies, all while the Soviet Red Army was secretly furnishing the Communists with an enormous arms buildup.

After a year the Nationalists’ original material advantage had evaporated and the rest is history.

Here we’ll discuss the negotiations, promises, and betrayals in more detail.

MARSHALL BEGINS

When George C. Marshall, a career officer of deservedly-impeccable reputation, arrived in China for the 1946 New Year he was received by U.S. China theater commander Lt. General Albert Wedemeyer. Marshall briefed Wedemeyer on his diplomatic objective: brokering a ceasefire and forming a Chinese democratic power-sharing government.

Wedemeyer, having been in Asia for two years and serving as the highest ranking U.S. officer in China for the previous fifteen months, cautioned Marshall of the irreconcilable differences between China’s two antagonists, concluding…

”He [Marshall] would never be able to effect a working arrangement between the Communists and the Nationalists since the Nationalists, who still had most of the power, were determined not to relinquish one iota of it, while the Communists for their part were equally determined to seize all power, with the aid of the Soviet Union.”

In response…

“General Marshall reacted angrily and said: ‘I am going to accomplish my mission, and you are going to help me.’”

(both quotes from the Wedemeyer Report, submitted late 1947)

During negotiations Marshall pressed both sides for concessions. For the Communists, Marshall asked the CCP to recognize the KMT as the legitimate government of China and follow its orders, to refrain from cooperating with the Soviet Red Army in Manchuria, to wait for Japanese officers to surrender to arriving KMT representatives, to relinquish most communist-controlled territory, and to greatly reduce the size of its army.

We’ve already mentioned CCP envoy Zhou Enlai agreed to every demand Marshall made… on paper. In reality the Communists violated every agreement in practice.

Meanwhile Chiang Kai-shek resisted some of the concessions demanded of the Nationalists, frustrating Marshall even though Chiang explained to the American that the Nationalists were actually complying with far more of his requests than the Communists who would simply ignore all of theirs.

Marshall decided to inspect Communist territory for himself and flew to a dozen towns and cities in CCP-controlled areas where he was met with well-placed cheering crowds. Meeting directly with Mao Zedong and Zhu De, both of whom professed a desire for democracy in China, Marshall reported back to Washington that the meetings ‘had most happy results.”

Further distorting the U.S. delegation’s impressions was the fact that American cryptographers had broken Nationalist machine-encrypted messages which provided Marshall access to internal KMT diplomatic communications. The Communist delegation decrypted their messages with single-use “one time pads,” denying American intelligence any corresponding insights into their strategy. 

Therefore Marshall was reading communiqués where Nationalist words didn’t always align with intentions, sowing a degree of mistrust. If Marshall had also enjoyed access to Communist communications he would have realized the CCP was engaged in an extensive deception operation and that Mao intended to break every promise he made (examples to follow).

Meanwhile Chiang, knowing the Communists were preparing for civil war, tried his best to position KMT forces within the constraints of Marshall’s demands. Mao was simultaneously positioning his own and, unlike Chiang, was receiving unconditional outside support from the Soviets. Since the U.S. delegation held leverage over the Nationalists but none over the Communists, Mao’s’ movements were completely unrestrained by any agreements which he simply ignored. In his diary Chiang expressed privately concerns that Marshall thought “he knew Chinese politics very well, but… does not.” Soon small skirmishes broke out along the southern border of Manchuria.

On a return visit to Washington Marshall’s reports were oblivious to any growing threat of civil war, declaring that both sides were…

“…now engaged in the business of demobilizing vast military forces and integrating and unifying the remaining forces into a central army.”

In a nod to the apparent success of his own efforts, Marshall called it…

“…very remarkable how we could straighten out what seemed impossible conditions… until we arrived, nothing could be done.”

KNEECAPPING THE NATIONALISTS

All throughout Marshall was convinced of the Communists’ sincere desire for a democratic China and believed Chiang Kai-shek’s intransigence was the main obstacle to peace. In mid-1946 Harry Truman turned up the pressure on Chiang by imposing an arms embargo on the Nationalist government, refusing to sell or deliver arms and supplies to the KMT, even those they had already paid for. The embargo would continue until Chiang demonstrated the same level of cooperation as the CCP.

Furthermore Marshall directly informed Zhou Enlai that the United States had ended “almost every direct support” for the Nationalist government, effectively telegraphing to the Communists that the KMT had been cut off by its strongest ally. 

Privately the CCP’s leadership was delighted, not only to hear that the USA was abandoning Chiang’s government, but they also interpreted the news as a sign the United States was too weak militarily to intervene in the Chinese theater.

The Communists accordingly ramped up their offensive operations. Marshall, unaware that the CCP was adopting a more aggressive stance precisely because they knew Chiang was no longer supplied by the USA, received reports of elevated communist activity which he blamed on “radical elements” within the party. In Marshall’s mind, a few low-level CCP troublemakers were responsible for the infractions while the top leadership—comprised of Mao Zedong, Liu Shaoqi, and Zhou Enlai—were still negotiating in good faith.

As the Communists spread throughout Manchuria they violated more and more terms of the negotiated agreements, Chiang Kai-shek provided Marshall a list of recent communist transgressions including 287 PLA offensives and the capture of 13 Manchurian counties, 28 towns, and one major city. Marshall refused to place any blame on the CCP and even criticized an anti-communist protest in Nationalist-controlled Nanking for frightening the Communists into noncompliance. 

When Marshall asked Zhou Enlai about the communist capture of a major city the envoy’s response was that his side “did not intend to monopolize Manchuria but instead desired international cooperation.” He also urged Marshall to pressure Chiang into accepting a cease-fire (that the Communists would again break when it was to their advantage). All along Mao Zedong instructed Zhou to remain friendly with Marshall so as to deny Chiang Kai-shek even “a crack to crawl through” while the People’s Liberation Army strove to seize “the golden opportunity that occurs once in a thousand years.”

Marshall later received reports that the Communists had taken over most of Manchuria with Soviet support, yet he mostly blamed the Nationalist government again. In his report to Truman, Marshall explained the Communists had acted out of fear due to the Nationalist government’s lack of good faith, and that a few KMT generals had misled Chiang into assuming too provocative a military stance. Therefore, according to Marshall, the Communists felt compelled to capture several cities because they held several “justified complaints” of Nationalist bad behavior.

THE ENDGAME

As it became clear that the CCP was blatantly violating all peace terms, and the Nationalists were responding with more aggressive military measures, talks began to collapse and Marshall became “more depressed every day” (The Marshall Papers). Yet even as the negotiations disintegrated Zhou Enlai continued to engage Marshall, trying to buy time to better arm, supply, and position PLA troops with Soviet assistance. While the communist delegation continued to lead the Americans on, Zhou reported by coded message to the CCP Central Committee that…

“The chances of making use of the United States and Marshall are diminishing daily… but we should still make every effort to delay the onset of civil war [until we are in a strong enough position].”

By early 1947 the mission had ended in failure. General Marshall returned to the United States to receive his appointment as new Secretary of State. By mid-1947 full, unrestrained warfare between the weakened Nationalists and vitalized Communists was underway and the United States at last realized Soviet support had strengthened the CCP immeasurably. 

As a result the Truman arms embargo was lifted, yet there were scant few weapons available to sell to the Chinese government. For the previous eighteen months the United States was engaged in a huge military surplus demolition operation, destroying armaments which were amassed for the invasion of Japan but rendered unnecessary by the atomic bombings of Hiroshima and Nagasaki. 

Since the end of the war General Wedemeyer, anticipating the Chinese government or even the United States might need those weapons someday, urged the wholesale destruction of Pacific theater supplies stopped but he was ignored. As a result, even after mid-1947 the USA had limited supplies to sell to the KMT. Meanwhile the Soviets continued to funnel arms through Manchuria to Mao Zedong’s Communists.

Even during the last year of the civil war, when the Communists had gained the decisive upper hand, the CCP still appealed to the USA for peace in order to confuse the Americans into hesitation, and perhaps even secure U.S. aid and support (!) for their own efforts. 

In the summer of 1949 Zhou Enlai sent a direct communication to Harry Truman, appealing for American money and logistical support. Claiming he represented the “moderate wing” of the CCP, Zhou portrayed himself at odds with [future Chinese President] Liu Shaoqi whose hardline pro-Soviet faction was solely responsible for communist aggression. Although Truman declined Zhou's request for help, years later a senior communist official told an American scholar that Zhou’s communication had all along been a premeditated ruse to preclude potential last-minute military intervention by the United States.

Hence the United States, acting with the best of intentions, was unwittingly used to serve the CCP’s aims. Believing the Communists to be advocates of peace and democracy, the Marshall Mission accepted all CCP promises at face value while simultaneously tying the hands of Chiang Kai-shek for the offense of refusing to consent to every concession demanded, even as he warned the Communists intended to honor none their own.

Through the rest of his life Chiang Kai-shek never publicly blamed the United States for losing the civil war. Even when American rapprochement with Beijing began in the early 1970’s, an aging Chiang refused to take the bait when asked by reporters if America had “stabbed [Nationalist] China in the back.”

It would be interesting to know, in his final years, Chiang’s true private thoughts on the Marshall Mission.

A Political and Economic History of China, Part 37: A High-Level View of the 1946-49 Civil War

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7 MIN READ - The Cautious Optimism Correspondent for Economic Affairs marches on with Chinese history, this time with a brief overview of the main events surrounding the Civil War of 1946-1949.

Image: Iconic photo of Mao Zedong inspecting communist troops from a U.S. Army jeep.

Earlier we ended with the disposition of Chinese regional control during Japan’s August 1945 surrender. Chiang Kai-shek’s Nationalist armies controlled the southern half of China and the Yangtze River area, the CCP controlled most of northern China, and the Soviet Red Army occupied the Manchurian northeast which it had invaded in the final days of the war.

In this article we’ll provide a very brief overview of the Civil War’s timeline, in part because the Correspondent is not an expert on very single battle of the war, in part because the factors that decided the war’s outcome are more consequential than the battles themselves (and shall follow in two upcoming articles).

One broad thesis of the 1946-49 conflict is 90% of the fighting that mattered occurred in Manchuria. In the war’s last ten months the Communist People’s Liberation Army (PLA) broke out of the northeast and rapidly advanced southward, but by then the war was effectively over. Similarly, one could argue that some of World War II was fought on German soil, but by then the war in Europe was also already decided.

MARSHALL MISSION

Much of the Chinese Civil War’s fate was decided during the Marshall Mission of 1946 -1947, when U.S. Army General George C. Marshall, an officer of virtually impeccable reputation, visited China to mediate a Nationalist-Communist ceasefire. Marshall, aligning with President Harry Truman’s China policy, tried to broker a power-sharing agreement between Chiang’s Nationalist (KMT) government and Mao’s communist rebels. The mission ultimately ended in failure in mid-1947, but during the negotiations Marshall’s demands of the two sides ultimately weakened the Nationalists while greatly strengthening the Communists. In a nod to ancient Chinese general Sun Tzu, as a result of the Marshall Mission the Nationalists may have lost the war before it was even fought.

We’ll go into more detail about the Marshall Mission in upcoming chapters, but in short the Truman administration wanted Marshall to pressure both sides into a power-sharing coalition government that resembled, according to historian Jay Taylor, “American style democracy.” The U.S. also asked the Communists to wait for the arrival of KMT troops to accept Japanese surrender in Manchuria, and that the Soviets wait to hand over Japanese weapons, POW’s, and Chinese puppet POW’s to the KMT when its troops arrived.

Mao’s delegation, headed by persuasive negotiator Zhou Enlai, agreed to nearly every concession requested by Marshall plus ceding CCP territory in the north, reducing the PLA down from thirty divisions to only one, refusing to cooperate with the Soviet Red Army in Manchuria, and embracing western democratic-style government. At one meeting Zhou even told his delegation, in front of the Americans, that they should learn from America’s democracy. Marshall was pleased with the progress.

In practice the Communists observed none of these concessions and were positioning their army for military offensives. Mao quietly ordered all guerilla units in the north to consolidate into regiments and divisions and expand their territory. The Soviets were handing over Japanese weapons and POW’s to the PLA while building a massive supply pipeline to Mao’s armies through the Soviet/Manchuria border.

Marshall, believing all was proceeding well with the mission, wrote optimistic reports to Truman that the Communists were working towards a democratic China. However Chiang warned Marshall that the Communists couldn’t be trusted and were preparing for war behind his back. Chiang’s son and future Taiwan President Chiang Ching-kuo had also returned from Moscow meetings with Josef Stalin and reported that, despite the Soviet leader’s agreeable demeanor, he was really “playing games.” For his objections Marshall chided Chiang, reporting back to Truman that the Nationalists were the primary obstacle to peace.

Contemplating a litany of communist promises and only reserved cooperation from the ever-suspicious Chiang Kai-shek, Truman imposed an arms embargo on the Nationalist government to pressure for more cooperation. The embargo lasted until mid-1947.

During that year the Nationalist army’s flow of weapons dried up. Even if the KMT was willing to pay for arms, the U.S. refused to sell them military equipment. Not only did the Nationalists run low on weapons and ammunition, but lack of spare parts translated into thousands of inoperable trucks, forcing Chiang’s soldiers to walk great distances instead of using transport. Meanwhile the Communists, rapidly supplied by their massive Soviet weapons pipeline, became stronger while the Nationalist armies became weaker.

By the time Chiang advised Marshall he’d given the Communists their “last chance,” and the Communists once again broke another set of promises, the Nationalists had lost their initial advantage. Chiang launched an all-out offensive in a much weaker position than before.

THE BATTLEFIELD

In the earliest days of open fighting the Nationalists won some key battles, retaking a few cities in southern Manchuria. 

But time was not on their side. With each passing day the Communists were growing stronger. Corruption within the Nationalist government and even hyperinflation led to discontent among the Chinese population, and many Nationalist soldiers, receiving inadequate food and supplies, defected.

Not only did the Communists receive military support from the Red Army, they also acquired a great deal of American weaponry from defecting Nationalist generals (see attached photo of Mao inspecting PLA troops from his U.S. made jeep).

By 1948 the Communists were pushing the Nationalists back, including the seizure of territory surrounding Changchun, Manchuria’s then-largest city.

The Siege of Changchun was a key event with repercussions throughout the rest of the war. Within the city the Nationalist army held out for nearly six months while the Communists enacted a blockade. The PLA destroyed Changchun’s airport runways and beefed up anti-aircraft guns, successfully preventing airlifts and airdrops from supplying the city. 

After several months starvation set in. Civilians were prevented from leaving the city and over time more and more Nationalist soldiers switched sides. By the time the Nationalist Army fell in October 1948 roughly 150,000 civilians had starved to death.

The communist blockade revealed a deliberate tactic. Changchun survivors were sent throughout China with word of the siege and, deciding they didn’t want to suffer the same fate, many cities later surrendered to the Communists without a fight including Beijing (named Beiping in 1948).

By late 1948 the Communists had more soldiers than the Nationalists and were breaking out of Manchuria. Given the increasingly lopsided numbers, a lack of supplies for the Nationalists, and a huge pipeline of Soviet supplies for the Communists, the war was beginning to look over on paper. In late 1948 the decisive Huaihai campaign began in Shandong province (just south of Manchuria) where the KMT’s 800,000 troops faced off against 660,000 Communist regulars, 400,000 irregulars, and 5.4 million communist peasant soldiers.

Yet Chiang held out, hoping for one last-ditch rescue.

The American press predicted New York Governor Thomas Dewey would defeat Harry Truman in the November 1948 U.S. presidential election, and the very anti-communist Dewey had promised strong and renewed support for the faltering Nationalists. If Dewey won, Chiang’s thinking went, the Nationalists would be saved by renewed American assistance.

Instead Truman shocked the world by upsetting Dewey, convincing Chiang once and for all that the civil war was really over. At the Battle of Pingjin, the last campaign where the Nationalist army put up any meaningful organized resistance, most KMT divisions were completely annihilated and the Communists began streaming southwards towards the Yangtze.

Chiang began preparations for a retreat to Taiwan. In an uncharacteristically brilliant battlefield move he visibly traveled from city to city along the Yangtze, issuing preparatory orders for a massive and decisive battle to “finally destroy the Communists.” In truth Chiang was only giving the false impression of fighting to the bitter end while he quietly evacuated millions of Nationalist soldiers and officials across the Taiwan Strait.

By mid-1949 Chiang announced “Shanghai will be another Stalingrad” and the Communists took heed, using valuable time to carefully and deliberately concentrate their troops to overcome Chiang’s last stand.

Meanwhile China’s foreign currency and gold reserves were sailing from Zhoushan Island under the cover of darkness. China’s great art treasures, evacuated to Nanking and then Chungking during the Japanese invasion, were railed to coastal ports and shipped to Taipei where they remain today—at the magnificent Taiwan National Palace Museum.

When the Communists launched their massive offensive to obliterate the last vestiges of Nationalist resistance, they entered Shanghai to find it already abandoned.

When, on October 1, 1949, Mao Zedong proclaimed the founding of the People’s Republic of China from Tiananmen Gate in Beijing, Chiang was still in China making final preparations for his retreat. On December 10, 1949 he stepped onto a plane in Chungking, the last time he would ever see mainland Chinese soil, and flew in darkness over one-thousand miles of communist-controlled territory to his new capital in Taipei.

A Political and Economic History of China, Part 36: Prelude to Civil War (1936-1949)

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5 MIN READ - After a long hiatus the Cautious Optimism Correspondent for Economic Affairs resumes his History of China series, picking up at the end of World War II.

Photo: Special envoy General George C. Marshall fails to secure a lasting peace deal between Chiang Kai-shek and Mao Zedong, in hindsight an impossible task.

L-to-R: Marshall, Chinese First Lady and translator Soong Mei-ling, and Chiang Kai-shek.

It’s been a while since the last China History article was posted, so before we get into the Chinese Civil War of 1946-1949 we’ll briefly revisit the situation at its opening stages.

WWII RESCUES THE COMMUNISTS

In 1936 the Chinese Communist Party was on the run from Chiang Kai-shek’s pursuing Nationalist troops. For nearly a year the CCP’s main army retreated 6,000 miles across China (the “Long March”), its strength dwindling to a mere 20,000 men by the time they found temporary respite in the remote Shaanxi province of northern China.

Chiang Kai-shek poised his army to surround and destroy the Communists in Shaanxi, but the morning after issuing his final orders he was kidnapped by one of his generals who demanded he join forces with the CCP and form a united Chinese front to fight the Japanese in Manchuria.

Chiang was forced to agree and his mutinous general effectively saved the Communists from annihilation, something he later regretted, although their numbers were still small compared to the Nationalist army’s roughly 1.7 million men.

In theory the Nationalist and Communists would cooperate, but in practice their methods and goals were so different that they operated independently.

Japan launched a full scale invasion of the Chinese mainland in 1937. The Nationalist army, fighting a conventional frontal war, was unable to resist the modernized and more disciplined forces of the Imperial Japanese Army (IJA). Suffering defeat after defeat, the Nationalists retreated inland from their southern capital of Nanking (pinyin: Nanjing), trading land for time in the hope that western powers would soon intervene. Eventually the Nationalist capital was relocated to the western city of Chungking (pinyin: Chongqing) in the remote basin of Sichuan province, surrounded by mountains on all sides.

The Japanese were unable to reach Sichuan due to the difficult terrain, so they settled for expanding in southern and eastern China while constantly bombing the capital including world history’s first civilian firebombing, a tactic that would be turned and amplified against them a few years later by American Army Air Force General Curtis LeMay’s B-29 bombers.

Meanwhile the Communists, lacking heavy equipment for a large army, resorted to guerilla tactics to harass the Japanese and destroy railroads and other supply lines. The Communists operated in the north, their smaller numbers combing easily through the countryside with the help of local Chinese, demonstrating a degree of dexterity that large Nationalist divisions couldn’t even if they hadn’t already retreated so far west. 

Although communist guerilla operations couldn’t deliver giant battlefield victories or turn the tide of the war, they did frustrate the Japanese and the Communists were able to rack up several small but highly publicized victories.

In the eyes of the average Chinese, the Communists were “doing something” (albeit something small) while Chiang Kai-shek was simply retreating or holed up in the Sichuan basin.

This public perception proved a propaganda bonanza for the Communists who looked like national heroes. Millions of Chinese, mostly young, idealistic, having no idea what communism actually was and lured by Mao’s message of democratic reforms, flocked from the cities to the north and joined the communist cause of anti-Japanese resistance.

By late 1945 the communist army, which was only 20,000 strong when Chiang Kai-shek was kidnapped, had grown to 1.2 million men and women with another 2 million “People’s Militia” troops.

At war’s end China was split into major zones of control: the Nationalists controlling the Yangtze River region and everything to the south, and the Communists in the north, and the Soviet Red Army, which had invaded and occupied Manchuria in August 1945.

The Communist base of control was in the northern town of Yan’an while Chiang Kai-shek moved his Nationalist capital back to Nanking.

PRELUDE TO CIVIL WAR

In the final stages of the war the Allied powers moved quickly in China, intervening to preclude, from their viewpoint, undesirable consequences.

The British coalition government ordered the Royal Navy to make full speed to Hong Kong to accept Japanese surrender. Parliament wanted no chance the Chinese Nationalists might leverage the temporary power vacuum to break the terms of Britain’s 99-year lease and retake Hong Kong.

With the Japanese gone the U.S. government feared fighting might break out again between Chiang Kai-shek’s Nationalists and Mao Zedong’s Communists. 

Meanwhile public opinion in the USA was actually divided between supporting the Nationalists, supporting the Communists, or nonintervention. It’s helpful to remember that in 1945 the Soviet Union had been praised for years by Washington as a valuable ally against Nazi Germany. There was little negative talk of communism or Stalin’s horrors: his gulag archipelago, his Great Purge, the mass crimes of Lavrentiy Beria’s NKVD, or the Holodomor genocide.

As the Correspondent noted in an earlier article, American journalist and communist sympathizer Edgar Snow introduced Mao Zedong to the world in 1937 with his book “Red Star Over China,” portraying the communist leader as a sincere reformer with no intentions of ruling China for himself.

U.S. State Department diplomat John Service had met the Communists and praised them, stating they were “democratic reformers” and more like European socialists than Soviet communists. Years later after the Communists seized control of China Service was hounded by accusations of communist sympathies by Senator Joseph McCarthy.

Frustrated with corruption in the Nationalist Party, several U.S. military officers including Generals Patrick Hurley and Joseph Stilwell recommended cutting off all aid to Chiang Kai-shek’s government. However Stilwell’s replacement and highest ranking U.S. military officer in China, General Albert Wedemeyer, believed supporting the Nationalist government over the Communists remained in the United States’ best interests.

Although the American public was not pro-communist, these combined factors led many to believe the Chinese communists “weren’t that bad” and perhaps even better than the corrupt Nationalist government. And after four years of world war, the American public was in no mood to get involved in a Chinese domestic conflict.

President Harry Truman sent George C. Marshall as special envoy to broker a ceasefire and democratic coalition government deal between Chiang and Mao, and the “Marshall Mission” carried on for a year. Even though fighting had begun with a Nationalist offensive in mid-1946, on-again, off-again negotiations between the Nationalists, Communists, and Marshall Mission carried on throughout.

To pressure Chiang into refraining from attacks Truman ordered an embargo on weapons and ammunition sales to the Nationalists until mid-1947. This severely weakened Chiang’s military position, especially when considering the Soviets were arming the Chinese Communists, first through their postwar occupation of Manchuria (more on that in an upcoming column) and later through North Korea.

By mid-1947 George C. Marshall was recalled to the United States, the Marshall Mission ending in failure and full civil war erupting in China.

In the next column we’ll go through a high-level chronology of the civil war followed later by a discussion of the major factors that led to Chiang Kai-shek’s defeat.

Ricardo, Wicksell, Hayek, Friedman all got it: Tariffs don't cause inflation

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5 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff once again visits recent inflation numbers and the media’s repeated attempts to link them to tariffs.

Ricardo's 1810 Bullion Debates.
The media should have checked this first

Last week we got a slightly elevated July consumer inflation report, up 2.7% year-over-year, and higher than in June and May.

And immediately the press blamed tariffs with headlines like:

” Inflation ticks higher as Trump's tariffs kick in.”

-Politico, August 12th

“Inflation remains elevated as Trump's tariffs take hold.”

-NPR, August 12th

“US wholesale prices jump in July as tariffs hit.”

-BBC, August 12th

Now the Economics Correspondent is generally no fan of tariffs, especially when other countries impose them unilaterally on the United States for decades. But whether you’re pro-tariff, anti-tariff, pro-free trade, pro-mercantilist, or pro-industrial policy, inflation is still a monetary phenomenon and not caused by tariffs (except under a rare set of conditions which we’ll see don’t apply here).

Milton Friedman famously said “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

That remains true, and to prove both Friedman right and the “blame Trump’s tariffs” press wrong, let’s take a look at what the media won't: the "monetary phenomenon" of the last year.

As we’ve already covered in previous articles Friedman’s license plate read:

mv=py

That is, money supply x monetary velocity = the general price level x economic output.

There’s nothing about "tariffs" in the formula.

So what happens if, unlike the media, we actually bother to look at the "m" in the equation of exchange: the money supply?

M2 from July 2024 to July 2025 rose by 4.8%, which is entirely within the purview of the Federal Reserve.

https://fred.stlouisfed.org/graph/?g=1LAKm

I'll repeat both numbers:

Prices rose 2.7%. 

The money supply rose 4.8%.

Since the Fed is in charge of monetary policy, since the Fed is tasked with meeting a 2% inflation target, and since the Fed boasts of its independence, then the Fed is far more guilty of the 2.7% inflation report than any alleged effect of tariffs.

For all that was required for the Fed to achieve its 2% year-over-year inflation target was to increase the money supply by a still-forceful 4.1% instead of the too-high 4.8%.

Why doesn’t the press mention this instead?

Part of it is Trump Derangement Syndrome. A bigger part of it is the much longer-standing ignorance of what the Fed actually does plus a tendency by the establishment—the media included—to rally around our central bank as some indispensable institution that bestows us with eternal economic salvation (hint: it's neither).

Now some more sophisticated people might say "Well the Fed has to offset real economic growth to keep prices stable, so of course it has to grow the money supply.”

OK fine. From 2Q24 to 2Q25 real GDP rose by 2%.

https://fred.stlouisfed.org/graph/?g=1LAKs

So if you print 4.8% more money chasing 2% more goods and services, the result is 2.7% inflation (1.048/1.02 = 1.0274), which is exactly the elevated inflation rate we got.

Thus, the original point remains: none of the latest inflation number can be attributed to non-monetary factors, including tariffs.

And again, the Fed printed money too fast. If it had simply printed 4.1% more money instead of 4.8% more money then year-over-year inflation in July, even with offsetting economic growth, would have been its dead on target at 2% (1.041/1.02 = 1.0206).

But then, say the sophisticated Fed apologists, to slow down the rate of monetary growth the Fed would have to raise interest rates which would be really bad, right?

Not when considering an even better solution they don’t mention. Namely, the Fed could have simply never lowered interest rates during the last five months of the Biden administration in the first place (September 2024 to January 2025). Had rates stayed where they had been for the previous year, a full 100 basis points higher, we wouldn't be looking at 2.7% CPI inflation today.

Inflation stood at 2.6% in October 2024 and 2.7% in November 2024. Given its dual mandate of full employment and a 2% inflation target (which the Correspondent believes is already too high), the Fed’s rate cuts made no sense in late 2024, just as cutting rates today with 2.7% inflation also makes no sense.

But then the press wouldn't have a Trump-linked scapegoat to headline.

To repeat: monetary policy is the purview of the Fed. The Fed is not only entrusted with it, Congress has granted it a coercive monopoly over currency, reserves, setting interbank interest rates and interest on reserves (IOR) rates, etc... to carry out its mandates. It has all the tools it needs to achieve any price target it wants.

Former Fed governor and short-list nominee for next Fed Chair Kevin Warsh said exactly this (about the Fed’s toolbox) in his recent Hoover Institution interview.

But the media reports "tariffs, tariffs, tariffs” while remaining silent on the money supply and silent on the Fed.

One more thought that puts this all in historical perspective: The United States was a major tariff/protectionist country in the late 19th century. The post-civil war era was dominated by Republican administrations and Congresses, and in those days the Republicans were a big pro-tariff party and imposed them all throughout.

So if tariffs cause inflation, why then in the golden era of protectionist tariffs was there not only no high inflation, but prices actually ***fell*** by 39% or an annualized inflation rate of -1.0%?

https://www.officialdata.org/1865-dollars-in-1913?amount=1

The answer: there was no Fed printing fiat money. And tariffs didn't cause inflation then either.

As we’ve already discussed in earlier articles the effects of tariffs on inflation are like those of oil, with both misunderstood.

When either tariffs or more expensive oil raise the prices of certain goods, especially inputs for other products that get purchased by consumers down the line, consumers ultimately do pay more for them. 

But if the money supply remains constant, then those same consumers will have less money left over to buy other products whose prices will necessarily fall due to decreased monetary demand. British economist David Ricardo understood this even in 1810 during the great Bullionist Debates. Knut Wicksell, F.A. Hayek, Milton Friedman and a plethora of other competent monetary economists have understood this basic principle too.

Yet over two centuries later journalists and even many economists continue to promote the tariff or oil “cost-push” fallacy.

Overall with tariffs or higher oil prices there is no inflation in the general price level... unless one of either two things also happens:

1) The central bank prints more money (the actual cause of the inflation)

2) The higher oil prices or tariffs begin to impact output and real GDP suffers by going negative (not the case in the late 19th century and GDP rose 3% in Q2).

Trump's tariffs are not causing inflation. The Fed continuing to inflate the money supply too fast is, but the Fed’s culpability—for the latest inflation report, for 2021 and 2022’s inflation, for the 2008 financial crisis, for the recent housing bubble, and for the last half century’s multiple asset bubbles and boom-bust cycles—is once again ignored by the press.

Left Coast Correspondent: Canadian and European Glaciers Receding Long Before Cars and Planes; Climate Alarmists Only Disclose 20th Century Info

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3 MIN READ - In a followup to Friday’s article on the retreat of Alaska’s Glacier Bay ice sheet, the Cautious Optimism Correspondent for Left Coast Affairs and other Inexplicable Phenomena uncovers more glaciers that have been receding long before man started driving cars. You’ll want to view the five attached pictures for reference.

For those who missed it, the original Glacier Bay map and analysis post is available at:

https://www.cautiouseconomics.com/2025/08/leftcoast28.html

During the 18th and 19th centuries the industrialized societies weren’t yet able to survey and map every glacier from all remote corners of the planet, but we still have accurate measurements of many glaciers in North America, Greenland, and Europe.

A popular tourist attraction is Canada’s Athabasca Glacier, off the famous Rocky Mountains Icefields Parkway. From the highway you turn off and take a short, narrow road less than a mile uphill. On the way up tourists see many small roadside markers, each featuring the written year indicating the glacier's earlier terminus.

The Correspondent was on that road several years ago and remembers seeing markers for years like 1880, 1890, and 1908 demonstrating the glacier was already retreating before mass production of automobiles and commercial flight began,

But the climate alarmism crowd always uses photos from more recent markers for their political material, like 1948 and 1982—basically any combination of years that frames the glacier’s retreat as having started when humans began producing large amounts of CO2.

A prime example is the first photo (attached) where we can see the glacier has retreated many dozens of yards at least from where it stood in 1992.

But also attached is a second photo which climate alarmists will never show you—from 1843. 

Yes, 1843.

Where’s this marker? Well you have to turn your car around and drive back downhill to the Icefields Parkway. Then you must cross the highway and go slightly uphill on the other side to reach the Glacier View Lodge. The marker is just outside the hotel.

In a straight line the 1843 marker is well over a mile from the glacier… which is probably why the global warming crowd doesn’t want the public seeing it: people might start to realize just how much the Athabasca had already shrunk before humans started driving cars.

There is also data on glaciers in Montana that show significant retreat from 1850 to 1900, or glaciers in Greenland that were retreating in the 19th century such as the Jakobshavn Glacier, although to the Correspondent’s knowledge there are no markers in the middle of the ocean to denote where it was in 1850.

And we have old 19th century photographs from Europe. In the next two photos we see the dramatic retreat of Switzerland's Rhone Glacier from 1850 to 1900, also before cars, planes, and electrical power plants.

Rhone glacier: 1850

Rhone glacier: 1900. Note new structures.

And then there’s some help from artists. Photography may not have been commonly available in 1835, but we have a painting that year of the Arolla and Tsijiore Nouve glaciers, also in Switzerland.

If we compare the furthest extent of the glaciers in the 1835 and 1880 images, and if we disregard climate activist allegations that the 1835 Swiss painter was being paid by ExxonMobil, a common theme appears: glaciers around the world were already observed retreating rapidly in the 19th century or even in the case of Alaska’s Glacier Bay, during the late 1700’s.

Yet when the global warming lobby shows "before and after" pictures of glaciers, they always cherry pick dates right before mass automobile production and dates near present day. Their objective is to convince (and frighten) viewers by factual omission that it's all the doing of those greenhouse gases and the future of humanity demands they hand over trillions of dollars in new taxes to save the planet.

There are many other northern hemisphere glaciers with 19th century records, but the global warming crowd isn’t going to volunteer the information. The process of finding them online is tedious and painstaking, but anyone with a little search engine persistence will find more.

Alaska Glaciers Receding Since at Least 1778, So Why Does NASA Start at 1941?

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3 MIN READ - CO recently posted some spectacular photographs of his vacation cruise sailing into Glacier Bay, Alaska to take in the magnificent ice sheets. 

However, the Cautious Optimism Correspondent for Left Coast Affairs and Other Inexplicable Phenomena would like to unapologetically leverage CO’s vacation to illustrate the less-than-honest way in which the climate alarmism lobby has used Glacier Bay in particular to further their global warming agenda.

Glacier Bay, and in particular the Muir Glacier within the bay, is cited by scientists and climate change activists as a stark warning of the dangers of a warming planet. According to them, man’s industrial activity and greenhouse gas production are precisely what has driven the glacier’s rapid inland retreat.

As evidence, NASA’s Climate365 page provides the first photograph (attached) contrasting Muir Glacier’s impressive ice sheet in 1941 which has retreated so far in present day that it’s mostly a watered inlet. 

What more proof could anyone need that we need to be forced into electric cars, lose our gas stoves, and pay trillions of dollars in new taxes? Humans began producing cars and flying airplanes at an accelerated rate after World War II, so it couldn’t be more obvious that mankind is the cause.

However what NASA never posts online is the tiny size of the 1941 glacier compared to its original size in 1778.

Yes, westerners mapped Glacier Bay as far back as 1778, but that’s not important for you to know.

As you can see from the second attached photo (map) Glacier Bay was first mapped by Captain James Cook in 1778, although there wasn’t much “bay” to map back then.

In 1778 the giant ice sheet covered the entire bay all the way out to the ocean, so Cook may not have even realized there was a “bay” there and proceeded up the coast.

In 1794 Captain George Vancouver took a closer look and, according to Gemini AI, “documented the presence of a large glacier filling the bay. At that time, the bay was just a small indentation in the coastline, with a massive glacier extending far into what is now Icy Strait.”

And as you can see from the map, the glacier has been receding rapidly from 1778 into the 19th, 20th, and 21st centuries. In fact, if one looks at the position of Muir Glacier in the 1940’s, the original ice sheet had already lost well over 80% of its length and far more of its volume before World War II, also before humans started driving cars and flying in planes en masse.

It had even lost two-thirds by the turn of the 20th century.

What caused the ice to recede so rapidly in the 18th and 19th centuries?

There were virtually no cars, the very first production internal combustion engine car manufactured in 1886.

There was no commercial aviation.

There was no commercial electricity generation on earth until 1882.

In 1900 there were about 1.6 billion people on earth, compared to 8.2 billion now, and back then almost none of them had cars, flew airlines, had electricity, or took mass transit like buses and only a tiny number had ever ridden a train.

Clearly something other than human CO2 made the glaciers melt before 1900. Some scientists argue the planet has been warming for quite some time, coming out of the “Little Ice Age” of the 16th through 19th centuries, but don’t know for sure, just as the climate alarmists clearly don’t know for sure themselves. 

If you look at the map’s other inlet glaciers, the numbers are even worse. Many of them had already receded 90% from the ice sheet’s original ocean terminus by dates like 1892 and 1912, and the retreat has slowed dramatically since then.

This tactic of parading glacial retreat exclusively between recent dates that coincide with mass automobile, air travel, and electricity production is used over and over by the climate alarmist crowd—including NASA (i.e. the federal government). They showboat dramatic ice loss from glaciers around the world, but deliberately conceal the even greater ice loss that preceded large scale human greenhouse gas activity. After all, we must all believe glacial retreat only started when lots of humans started driving cars.

ps. Although westerners weren’t present to map every glacier in every remote corner of the earth in the 18th century, the Left Coast Correspondent has seen very old data on many glaciers in Canada, Europe, and Greenland that show the same pattern. 

In a followup he’ll later post a typical 20th century retreat photo of the famous Canadian Athabasca Glacier—a popular tourist attraction—alongside another photo of what he’s seen firsthand at the glacier but which the climate alarmists never show the world: far more distant retreat markers from the mid-1800’s.