of Japan upon which the great Japanese industrial and commercial houses were built, or seek to extend the Japanese military adventure in China, in order to take the minds of the people and the army off the problems at home. I said that it was a little early yet to determine which path the army and its superiors would take. I pointed out that the first result, apparently, of the change which occurred on February 26th was the cessation of all expenditures on development work in Manchuria. I said that the best explanation I could get for this stoppage of expenditure in Manchuria appeared to be that the new authorities wished to put all available money into an expansion of Japan's armed force. Sir Frederick stated that he thought the present Japanese authorities were quite capable of attempting to reform the economic situation in Japan and to carry on an extension of their interests in China at the same time. He stated that the Japanese were very anxious for him to return home through Japan, but that he had not made up his mind whether he would go that way or not; he thought that there was little use for him to go through merely to drink a cup of sake. NELSON TRUSLER JOHNSON 693.94244/45 The Consul General at Shanghai (Gauss) to the Ambassador in China (Johnson) B No. 159 65 SHANGHAI, April 30, 1936. SIR: I have the honor to enclose, for the confidential information of the Embassy, a copy of a memorandum of conversation which took place at Shanghai on April 27, 1936, between Mr. K. Wakasugi, Counselor of the Japanese Embassy, and Mr. H. J. Timperley, correspondent for the Manchester Guardian. It will be noted that during the course of a discussion regarding smuggling in North China, and the Japanese attitude thereto, Mr. Wakasugi made the interesting statement that "We are not doing anything to help the Customs people, nor are we doing anything to help the smugglers", and that he added significantly "We would be glad to cooperate with the Chinese in suppressing the smuggling but first of all they must meet our terms." In response to Mr. Timperley's inquiry as to the nature of such terms Mr. Wakasugi stated that in the first place China would have to lower the Customs duties on the principal articles being smuggled. Mr. Timperley adduces from this statement, and probably not illogically, that the Japanese contemplate using China's anxiety concerning the serious loss of revenue resulting Copy transmitted to the Department by the Consul General at Shanghai in his despatch No. 169, April 30; received June 1. 66 Not printed. from smuggling in North China and elsewhere as a lever to force a reduction in tariff rates on certain Japanese commodities. Mr. Wakasugi's belief that Japan's policy vis-à-vis China will probably not be definitely formulated until after the Extraordinary Session of the Diet, which convenes in May, is of particular interest and is at variance with the recent statements attributed to Mr. Arita, the Japanese Minister for Foreign Affairs, and to Colonel Kita, the newly appointed Japanese Military Attaché, whose pronouncements have given the impression that there exists at the present time a coordinated and definite policy. As regards the general situation in China, Mr. Wakasugi appears to be "optimistic" and believes that so long as Japan does not "press for something which impairs Chinese sovereign rights" there can be no outbreak of hostilities between the two countries because "The Chinese will have nothing to fight about." He added significantly, "After all it is up to us." This appears to be a very shrewd estimate of the point to which Japanese aggression may be carried with impunity and is possibly indicative of a general attitude in Japanese diplomatic circles that the essentials of Japan's program can and should be effected without a technical breach of China's sovereignty. Respectfully yours, 662.9331 Manchuria/3: Telegram C. E. GAUSS The Second Secretary of Embassy in China (Atcheson) to the Secretary of State NANKING, May 2, 1936-10 a. m. [Received May 2-10 a. m.67] 118. I am informed by responsible officials of the Foreign Office that (1), the German Chargé on April 29, notified the Foreign Office orally that a "commercial arrangement" lacking any political significance would be concluded next day between Germany and Manchukuo; (2), such agreement was signed in the Manchukuo Embassy in Tokyo April 30 by Dr. Otto Kiep, head of the German Trade Commission in the Far East, but the identity and status of the official acting on behalf of Manchukuo is not yet known; (3), the German embassy has promised to furnish the text but this has not yet been received; (4), Dr. Ritter, head of the economic section of the German Foreign Office informed the Chinese Ambassador in Berlin that the agreement contemplated the purchase by Germany of Manchurian soyabeans on 75% credit and 25% cash, the credit to be used in the purchase by Manchukuo interests of German products. 2. Repeated to Department and Peiping; by mail to Tokyo, Berlin. Telegram in two sections. 3. Although some such development is believed to have been envisaged by the Foreign Office as a probable result of the Kiep mission, the informants indicated that hopes to the contrary had been entertained, particularly because of the efforts put forth by Germany since the war to win Chinese good will and expand German trade in China. The Foreign Office is obviously concerned; it fears the agreement may set a precedent for other countries who have been showing interest in Manchurian trade (the informants named Great Britain, France and Belgium); it considers that the agreement constitutes factual recognition of Manchukuo by Germany. Thus if others follow Germany's example in respect to commercial arrangements it is to be anticipated that diplomatic relations between Manchukuo and some Western Power may later ensue, eventually resulting in a general breakdown of the Western Powers' present policy of nonrecognition of the Manchurian regime. 4. To the Department and Peiping, by mail. To Tokyo, Berlin. ATCHESON 662.9331 Manchuria /4: Telegram The Second Secretary of Embassy in China (Atcheson) to the Secretary of State NANKING, May 2, 1936-noon. [Received 2:50 p. m.] 120. My 118, May 2, 10 a. m. 1. According to an officer of the German Embassy: (1) it was realized that the Chinese Government would be "worried" by the agreement but the agreement was necessary for economic reasons; (2) the agreement has not yet been actually signed but will be in a short time, probably by Kiep on behalf of Germany and possibly by the Manchukuo Ambassador on behalf of Manchukuo; (3) negotiations for the agreement have been proceeding for about 6 months and resulted from the Kiep economic mission; (4) the agreement does not in any way imply recognition of Manchukuo and is similar to other agreements such as those relating to through rail traffic between North China and Manchuria and postal communications between Manchuria and various countries; (5) any Chinese objections will be met on those grounds and the further ground that the agreement will make for the economic welfare of Germany and Manchuria because Germany (a) is the largest importer of soya beans which it requires for bean cakes for cattle feed, (b) has the better facilities for the manufacture of bean cake and oil, and (c) under the agreement can sell machinery for industrial plants in Manchuria against purchases of soya beans; (6) any loss to German exports arising from Chinese dissatisfaction with the agreement will be temporary only. 2. Press and other releases indicate to be incorrect the statement that the agreement has not yet been signed. 3. Repeated to Department and Peiping. By mail to Tokyo and Berlin. ATCHESON 893.01 Outer Mongolia/94: Telegram The Second Secretary of Embassy in China (Atcheson) to the Secretary of State NANKING, May 2, 1936-3 p. m. [Received May 2-10: 05 a. m.] 121. I am informed by spokesman of the Foreign Office that press reports of declaration of autonomy by Teh Wang are not correct and that Teh Wang has telegraphed assurances to this effect. To the Department and Peiping. ATCHESON 893.00/13485: Telegram The Second Secretary of Embassy in China (Atcheson) to the Secretary of State NANKING, May 5, 1936-10 a. m. [Received 3:50 p. m.68] 122. 1. In spite of the efforts during April of Wang Chung Hui as mediator and of various emissaries going between Canton and Nanking, relations between the National Government and the Southwest remain obscure. According to Japanese sources one question discussed recently was a Southern proposal, designed to obviate question of increased subsidies, that the Government purchase Kwangtung dollars 30,000,000 at par, the purpose being to provide Kwangtung 10,000,000 dollars profit arising from the higher value of National Government bank notes in relation to foreign exchange. Another Southern proposal was that the Government liquidate 14,000,000 dollars worth of 1925 Northern Expedition bonds. (Japanese interests are reported to have purchased at 15% some of these bonds and "military promises to pay" issued by the expeditionary forces for supplies, and to have asked through the Japanese Embassy for their repurchase by the National Government at 30%). 2. To Department. By mail to Peiping. 3. While ostensibly the general issues between Nanking and the Southwest have continued to center upon question of policy toward Japan and thus symbolized by the persisting failure of Hu Han Min ** Telegram in two sections. (virtually the prisoner of Chen Chi Tang) to come to Nanking and assume office, Southwestern opposition to Nanking is believed actually to be more military than political and to express the traditional dissatisfaction of Southwestern militarists with Chiang Kai-Shek's tendency to dictatorship. Concretely the immediate issues seem to have resolved themselves into questions of (1) financial assistance to Southwestern military leaders; (2) allotment of National Government offices to members of the military and civilian groups of the Southwestern faction; (3) powers to be vested by the draft constitution in the future president who presumably will be Chiang Kai-Shek; (4) the extent to which the National Government recommended a show of resistance to Japan. 4. On the Southern side these questions have been overshadowed by the ambition of Chen Chi-Tang and Li Tsung Jen to perpetuate their authority in Kwangtung and Kwangsi; they have been overshadowed on Nanking's side by Chiang's determination to continue his domination of the Government and expand his personal control. Thus doubt exists (1) whether Chiang sincerely desires Hu to assume office as chairman of the standing committee of the Central Executive Committee (of which Chiang is Vice and Acting Chairman); or (2) whether Hu, if he should enter the Government, could do more than a minor civilian group which is not a determining factor so long as the regional dictatorship of Chen and local government exist. With May 5 set for promulgation of the draft constitution and November 12 as date for its adoption by the party in control, Chiang is thought to prefer the status quo in respect to important National Government posts until he is safely elected president. 5. To Department. By mail Peiping. ATCHESON 793.94/7888: Telegram The Ambassador in China (Johnson) to the Secretary of State 229. Embassy's 213, April 29, 3 p.m. PEIPING, May 6, 1936—11 a.m. [Received May 6-7 a.m.] 1. According to information obtainable from a Chinese official, the conversations at Tientsin between Sung Che Yuan and Japanese military have reached an impasse. Sung wants northern Chahar and Yin Ju Keng's area returned to him. The Japanese want greater control of railways in Hopei, allegedly requesting permission to station Japanese troops at the strategic railway junction Fengtai, south of Peiping, and at Shihkiachwang. They also want to control Nanyuan airfield (at Peiping). |