793.94/7861: Telegram

The Consul General at Canton (Spiker) to the Secretary of State

CANTON, April 20, 1936-4 p. m. [Received 4:05 p. m.]

Referring to previous correspondence concerning possible cooperation between Japanese and Kwangsi provincial leaders. In a lengthy newspaper statement published in local and Hong Kong press on April 18, Marshal Li Tsung Jen, military spokesman for Kwangsi, urges war resistance against Japan as sole means of salvation of China at this juncture. Li holds there is no likelihood of the United States, Great Britain, or Russia going to war with Japan and that those who urge delay in belief that such war will solve China's problems play directly into Japan's hands. He admits that in Sino-Japanese conflict, Japan will promptly seize China's ports and will blockade her coast but that ensuing extended guerrilla warfare in interior China will require such an expenditure of men and treasure by Japan that under pressure from within and without there will be precipitated economic and political crisis which will make prosecution of foreign war impossible. On the other hand, Li presages that "the impact of foreign aggression and raising of standard of war for national emancipation the Chinese will become more united"; that Japan will suffer "such diplomatic isolation that it would be easy for the powers to help China either morally or materially and to capitalize Japan's war-given exhaustion". Despatch follows.58 Sent to Department and to Peiping and Nanking.

SPIKER

793.94/7905

The Ambassador in China (Johnson) to the Secretary of State No. 385

PEIPING, April 20, 1936. [Received May 18.]

SIR: I have the honor to enclose a copy of a memorandum 54 of a conversation which I had on April 14, 1936, with Dr. S. G. Cheng, who was until recently the Special Delegate of the Ministry for Foreign Affairs for Hopei Province, with regard to Sino-Japanese relations, during which he stated that the Chinese Minister for Foreign Affairs, General Chang Ch'un, regarded Peiping as inevitably lost to China, that he (Dr. Cheng) did not believe that the Japanese would occupy Peiping, although they would probably achieve a greater interest in matters in North China, that he believed that the Japanese were anxious for a more active cooperation, that the Na

tional Government had an incorrect view of the situation in North China, and that General Chang Ch'un was not prepared to assist General Sung Che-yuan with either money or munitions.

Dr. Cheng has recently been transferred from Hopei to the Provinces of Sikang and Szechwan as Special Delegate, his post in Hopei being given to Mr. Lo Chia-heng who continues to hold the post of Special Delegate of the Ministry of Foreign Affairs for Chahar Province. It is believed that the National Government has given the post to Mr. Lo because he speaks Japanese, which Dr. Cheng does not. Respectfully yours, NELSON TRUSLER JOHNSON

893.00/13469: Telegram

The Ambassador in China (Johnson) to the Secretary of State

PEIPING, April 21, 1936-2 p. m. [Received April 21-noon.]

203. 1. Paragraph 3 of Embassy's 191, April 16, 3 p. m. The Reconstruction Committee of the Hopei-Chahar Political Council was inaugurated April 20 with General Men Chih Chung as chairman. Men is a member of the Council and a former divisional commander of Feng Yu Hsiang. Men stated that duties of the Committee will be highway construction, river conservancy, mining, and agricultural works.

2. General Chin Teh Chun, Mayor of Peiping, and General Chen Chi Yen, Peiping Commissioner of Public Safety, both of whom are subordinates of Sung Che Yuan, have been appointed superintendent and assistant superintendent respectively of the National Library of Peiping and of the Palace Museum. These appointments indicate the continuing extension of control by Sung's group over organs in Hopei Province of the National Government. A subordinate of General Sung has told the Embassy that the appointments have been made in order that the Hopei-Chahar Political Council may know what is going on in these two institutions.

Copy by mail to Tokyo.

JOHNSON

893.00/13470: Telegram

The Ambassador in China (Johnson) to the Secretary of State

PEIPING, April 21, 1936-4 p. m. [Received April 21-11: 50 a. m.]

204. The Consul General at Mukden 55 reported in despatch 247, April 14, that he had advised Americans residing at Sinpin to

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35 Joseph W. Ballantine.

56 Not printed.

919456-54- -14

evacuate. Prior to issuing the warning, Ballantine had been informed by the commander of the gendarmes at Mukden that banditry was rife in the Sinpin area and that there were not enough troops available to afford adequate protection. A part of the danger apparently arose from the attitude of the authorities toward the missionaries at Sinpin, some evidence of which is contained in Mukden's despatch 234, March 12.56 It is understood that of the five or six Americans who were at Sinpin, only one or two remain and that those remaining expect to evacuate within 1 or 2 days.

By mail to Tokyo.

693.943/4: Telegram

JOHNSON

The Counselor of Embassy in China (Peck) to the Secretary of State

NANKING, April 22, 1936-noon. [Received April 22-6:55 a. m.]

103. 1. An officer of the Embassy has been informed by a responsible concerned Chinese official that the Chinese Government has decided, as the only effective means of stopping the smuggling of Japanese goods into North China, to lower the import tariff on rayon, sugar and cigarette papers in order to make smuggling unprofitable. He stated that the new tariff rates will shortly be made effective and intimated that this action was taken partially in order to preclude the Hopei-Chahar Council from carrying into effect an intention, recently reported in the press, of extending "special trading privileges" in North China which would be tantamount to reduction of import duties. 2. Repeated to the Department and Peiping, by mail to Tokyo.

PECK

893.01 Manchuria/1332

The Consul General at Harbin (Adams) to the Secretary of State No. 349

HARBIN, April 22, 1936. [Received May 18.]

SIR: I have the honor to state that from time to time, and in more or less disconnected form in various despatches, I have commented on the policy of the Kwantung Army in Manchuria. Because of the outstanding importance of the effects of that policy upon developments in Manchuria and possibly the Far East generally, I believe it advisable, even at the risk of tedious repetition, to embody in one despatch the disconnected observations already made and to report some recent developments.

When the Kwantung Army obtained control in Manchuria through the Mukden incident of 1931 and subsequent military operations it

56 Not printed.

soon made apparent its intention of reserving to itself the benefits of its enterprise and of building for itself a home or empire in Manchuria where it could rule without hindrance from the Diet or the civil government departments in Tokyo, and where it could raise and appropriate as it pleased its own revenues. It created, as its agency, the government of "Manchukuo" and began to formulate and execute plans for control, by that government, of the development of private manufacturing enterprises through a licensing system, and for control and operation by it of public utilities and essential industries.

The Army found, however, several obstacles to the full and effective exercise by it of control over Manchuria. These obstacles were the Government of the Kwantung Leased Territory, the large Japanese and Korean communities and interests in Manchuria, the Chinese Eastern Railway and the South Manchuria Railway Company. The Kwantung Leased Territory comprised a free port area which occasioned a material loss of customs revenue to "Manchukuo" through extensive smuggling. The Overseas Department in Japan had a considerable voice in the Government of the Kwantung Leased Territory, control over its policing and over the policing of the South Manchuria Railway zone. The large Japanese and Korean communities in Manchuria and the extensive business and industrial interests controlled by them were through their extraterritorial status, immune from the tax agencies and courts created by the Kwantung Army. The Chinese Eastern Railway, carrying with it still the prestige and power of former days, was under effective Soviet control and was in fact in a position to resist taxation. The only direct contributions which it made to "Manchukuo" were sums, whose amounts were decided upon by the railway itself, for bandit suppression work. The South Manchuria Railway Company, representing huge financial interests in Japan, and exercising certain quasi-governmental functions itself, was controlled by a board of directors appointed by the home government in Japan. It possessed extraterritoriality and was therefore immune from taxation by the "Manchukuo" government.

It will thus be seen that the Kwantung Army found that Manchuria, as a revenue producing area, was far from perfect as then organized, and that much work was necessary to develop the country into an efficient producer of revenue. The Army lost no time in beginning that work.

The problem of the Kwantung Leased Territory was partially solved by the creation in Tokyo of the Manchuria Affairs Bureau, under a military chief, with effective power of decision in matters relating to Manchuria. This eliminated the Overseas Department from the Kwantung Leased Territory and the South Manchuria Railway zone. The police of the Kwantung Leased Territory were

placed under the control of a gendarmerie officer and a Kwantung Bureau was created in the Japanese Ambassador's office in Hsinking where the effective government of the area resided. With respect to the smuggling for which the Kwantung Leased Territory formed a base, Consul Grummon at Dairen had the following to say on April 5, 1935:

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57 Mr. J. Fukumoto, Commissioner of Customs of 'Manchukuo' at Dairen, informed an officer of this Consulate that serious consideration was being given by the authorities to the advisability of abolishing the freedom of duty of goods entering and leaving the Kwantung Leased Territory. Mr. Fukumoto remarked that in the event that customs duties were to be collected in the Territory the 'Manchukuo' customs tariff would be applied.

66

"... The smuggling activities across the borders of Kwantung Leased Territory which are exceedingly difficult to curb effectively and result in a considerable loss of revenue to 'Manchukuo' would undoubtedly cause the Hsinking authorities to look with favor upon such a change of status in the Leased Territory."

There was not even a whisper of demand from the 29 million Chinese in Manchuria for the abolition of extraterritoriality. As soon as the subject came up the Japanese and Korean communities in Manchuria promptly showed that they were opposed to the abolition of their extraterritorial status. Despite the entire absence of demand and the opposition of the civilian Japanese in Manchuria, however, the Kwantung Army through its influence at home caused the Japanese Government voluntarily to bring up the subject. This gesture was naturally favorably received by the Kwantung Army's agency, the "Manchukuo" government. According to a special telegram, dated April 18, 1936, from Hsinking to the Manchuria Daily News, Dairen, a virtual agreement has been reached and it is expected that the agreement between "Manchukuo" and Japan providing for the abolition of Japanese extraterritoriality in Manchuria will be signed during the latter part of May, to become partially effective on July 1, 1936. All through the discussions that have occurred the question of taxation was paramount.

After a long fight, full of bitterness and vituperation, "Manchukuo" finally obtained control of the Chinese Eastern Railway by purchase of the Soviet interest therein on March 23, 1935. The railway was promptly absorbed into the "State Railways" system and handed over for management to the South Manchuria Railway Company, giving that company a complete monopoly of rail transportation in Manchuria. In this connection it is interesting to note that the JapanManchukuo Year Book of 1936 gives the length of the South Manchuria Railway Company's tracks as 1,129 kilometers, and the 57 Omissions indicated in the original.