2. This information is more or less in accord with information obtained from a similar informant in Tientsin by the Consulate General to the effect that the Japanese military are resolved to gain control of the communications in Hopei and Chahar, expand their military forces, gain control of and develop economic and industrial resources, and create an independent North China.

3. Local officials now state that although Sung has approved construction of the Shihkiachwang-Tsangchow Railway, the National Government has not yet done so and that the chief of the engineering bureau of the proposed railway was appointed by Sung and not by the National Government. Wang Jun Chen left for Japan May 4 apparently in conjunction with the proposed railway. Wang has a Japanese mother, was formerly a department chief of the PeipingHankow Railway, and is now simultaneously adviser to Sung, adviser to the South Manchuria Railway, and high adviser to Yin Ju Keng. 4. Embassy's 217, April 30, 4 p.m. Lieutenant General Tada has been transferred to the command of the 11th Division in Japan. His successor, Lieutenant General Kanichiro Tashiro, appointed by the Emperor, was formerly Military Attaché to China, Chief of Staff of Japanese forces at Shanghai during the fighting of 1932, and subsequently Commander of the 11th Division.

By mail to Tokyo.

JOHNSON

693.94244/8: Telegram

The Ambassador in Japan (Grew) to the Secretary of State

TOKYO, May 6, 1936-noon. [Received May 6-6:40 a. m.]

94. Acting under instructions the British Ambassador called on the Minister for Foreign Affairs on May 2 and invited the Minister's attention orally to the great damage that was being done to legitimate trade by the extensive smuggling operations of Japanese subjects in North China. He said that British traders and others as well were suffering and that there seemed little disposition to curb these activities. It was even reported that Japanese authorities were indifferent to these illicit operations because it was felt that the Chinese tariff was too high and extensive smuggling might result in a reduction in the tariff by the Chinese Government. Further the action of the East Hopei Government in arbitrarily reducing the import duties and then allowing the goods on which reduced tariff had been paid to enter into general commerce in China was resulting in complete demoralization of the Chinese import business. The British Government was concerned not only with the damage being done to British

traders but were also fearful that the situation might so develop that the customs service would be completely demoralized and the Chinese Government would find itself unable to service the loans held by British subjects on the security of the Chinese customs revenue.

The Minister for Foreign Affairs replied on May 4 that Japanese merchants were also suffering from these operations of smugglers but that the Japanese Government had absolutely no political motive and was lending no encouragement to the action of the East Hopei Government in setting up an independent tariff. The Japanese Government, however, felt that little could be done at the moment to ameliorate the general situation because Chinese internal administration was not very effective and the Nanking Government no longer remitted funds to the North China Administration. He added that Japanese interests were also concerned with the service on the Chinese external loans.

The British Ambassador also under instructions asked me whether the American Government would be prepared to authorize me to make a similar approach to the Minister for Foreign Affairs. He said that he had spoken to the French Ambassador here and that the latter was in communication with his Government.

I can see no objection to acceding to this request because while we have no direct interest in the Chinese customs loans we are definitely interested in honest customs administration.

Repeated to Peiping.

GREW

693.94244/8: Telegram

The Secretary of State to the Ambassador in Japan (Grew)

52. Your 94, May 6, noon.

WASHINGTON, May 8, 1936-6 p. m.

1. The Department authorizes you to make an oral and informal approach, similar to that of the British Ambassador, to the Minister for Foreign Affairs in regard to the smuggling situation in North China, along lines as follows:

The extensive smuggling operations in North China have created a serious situation in that area. It has been reported, with substantial supporting evidence, that Japanese subjects have taken a prominent part in these operations; that there has been little evidence of a Japanese disposition to curb their activities; that Japanese authorities in China have placed obstacles in the way of the enforcement of Chinese preventive measures; and that the eastern Hopei "autonomous" regime has arbitrarily reduced import duties and has permitted

goods on which the reduced rates have been paid to pass into general commerce in China. These conditions are leading to extensive disorganization of the Chinese import trade. This Government is concerned not only with the adverse effect of this situation on American import trade but with the impairment of the Chinese Government's income from customs revenue which impairment tends to jeopardize the capacity of the Chinese Government to meet its outstanding financial obligations to American citizens.

2. Inform Department by telegraph in regard to your conversation with the Foreign Minister.

3. Repeat paragraph 1 to Peiping as Department's No. 110, May 8, 6 p. m.

HULL

761.93/1574

The Ambassador in the Soviet Union (Bullitt) to the Secretary of State

No. 1580

Moscow, May 9, 1936. [Received June 5.]

SIR: In connection with despatch No. 247 of the Embassy in Peiping dated February 20, 1936,69 reporting a rumored agreement between the Soviet Union and Sinkiang, I had a conversation today with Stomoniakoff, Assistant People's Commissar for Foreign Affairs, who is in charge of the Far Eastern relations of the Soviet Union.

Stomoniakoff denied that there was any truth in the rumor. He said, "I can assure you categorically and officially that there is no secret agreement between the Soviet Union and Sinkiang either written or verbal". I referred to the general belief that the Soviet Union was preparing to establish Sinkiang as an "independent republic" on the lines of Outer Mongolia. Stomoniakoff said that this was absolutely untrue, that the Soviet Union was greatly interested in trade with Sinkiang, that the geographical position of Sinkiang was such that its trade must naturally flow to the Soviet Union, that the Soviet Government had been careful to develop close and most friendly relations with the Government of Sinkiang, but that nothing had been done or would be done which might in any way infringe upon the sovereignty of China.

Respectfully yours,

69 'Not printed.

WILLIAM C. BULLITT

894.00/664

Statement by Mr. J. Stowell Wright, Acting Territorial Director in Hawaii of the Federal Housing Administration 70

[HONOLULU,] May 10, 1936.

1. On Thursday, May 7, at 2:30 p. m., the undersigned " as Field Representative of the FHA, paid an official call (the second) on Mr. Teijiro Tamura, Japanese Consulate General, to thank him for his cooperation with the FHA, in that he pointed out to his subjects that loans under Title II of the national housing act were possible for aliens. The subject, as previously reported, is very frank in his discussions. During the course of the conversation, the undersigned suggested that inasmuch as Japan and her motives were so misunderstood, it might be a good idea for Japan to launch a national advertising campaign, explaining her problems, etc. The balance of the interview developed from that one suggestion. Below, I am quoting Mr. Teijiro Tamura almost verbatim:

Subject Speaking: "There was a time when Japan and her people cared what America thought . . .72 now the temper of the Japanese is so that they don't care what anyone thinks and they are through explaining. If the time comes to fight, then Japan will fight, the odds be what they may. (Sat straight in chair and slapped desk.) We are going to pursue our course as we see it. Several years ago when I was on duty in Chicago, an American advertising agency with headquarters in N. Y. and offices in Chicago and San Francisco, approached me on an advertising campaign to build good will. Í thought it was a good idea and got the Japanese Tea Association to sponsor it. It may have done some good but now it wouldn't.

"America is very difficult to get along with. It is easier to get along with England. In America it is a democracy and anyone in any house may raise his voice in protest and the politicians listen and act even though trade agreements have been made by American ambassadors. Right now on the East Coast, a handful of manufacturers are shouting that the Japanese imports to the United States of cotton goods is hurting business. The United States Government can tell no lie and everyone believes what they say, yet the United States Department of Commerce figures show that we buy far more in raw cotton from the United States than is shipped back in piece goods. Our piece goods, according to the United States figures are less than one half of one per cent of all the goods sold in the United States. They all cry "The Japanese are shipping in too much. They should be curtailed. What will happen? The politicians will listen, and even though they know our exports to the United States are low, they will further stifle us just to get votes.

то

Copy received from the War Department on May 28. The statement was an enclosure to a covering report to the War Department by Lt. Col. G. S. Patton, Jr., Assistant Chief of Staff for Military Intelligence at Fort Shafter, Hawaii, as "indicative of a changing attitude in part of the Japanese."

71 Copy not signed.

12 Omission indicated in the original.

"America and England say Japan cannot build but a few warships. We will never be satisfied with their orders. Warships are instruments of war, not peace. We have a small, isolated nation. We must protect ourselves. President Roosevelt is a navy man and his interests are there. He says that increases of the Army and Navy in manpower and ships, make for peace. It does not. It makes for war. The people of Japan read in the newspapers about the United States building more ships. To fight against who? No one but Japan. The fleet comes to Hawaii for maneuvers. . .73 practicing for war . . . against who . . . no one else would be the logical enemy but Japan.

"Admiral Yarnell and General Drum " are gentlemen but their interests are military. Yarnell talks of increasing the defenses of Pearl Harbor. . . I read in the newspapers about Kolekole Pass

that General Drum believes Oahu needs that to expedite the movement of troops in case of emergency. Both of them have Japan in mind. They talk about possible trouble with aliens. They are talking about my nationals! They are suspicious of us. That is why the temper of the Japanese people is like it is. Everything is aimed at us. No more do we care what America or any other nation thinks of us. We are going to do what necessity compels us to do!

"The United States keeps getting nearer to Japan. The fleet comes all the way here for maneuvers. Then the clipper ship has bases at Midway, Wake and Guam. How much nearer to Japan is America coming, my people ask. All of this is what makes the people of Japan nervous."

793.94/7896: Telegram

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

133. This office's 92, April 16, 5 p. m.

NANKING, May 12, 1936-4 p. m. [Received May 12—9:20 a. m.]

1. An officer of the Embassy has been confidentially informed by a responsible official of the Foreign Office that (1) reports alleging the conclusion of a Sino-Japanese anti-Communist agreement in the North on May 6 have been received by the Foreign Office but have not been confirmed; (2) the Japanese have been using the smuggling situation in the North as a coercive argument for the conclusion of such an agreement but Hsiao Chen Ying and the other interested Chinese officials have been a stumbling block through their insistence that the East Hopei regime continue to exist; (3) details of the specific Japanese proposals or of the progress of the discussions between them and Sung Che Yuan and latter's associates are not known but the Foreign Office expects to have this information soon.

73 Omissions indicated in the original.

"Rear Adm. Harry E. Yarnell, Commandant of Pearl Harbor Naval Station, and Maj. Gen. Hugh A. Drum, Commander of the Hawaiian Department, U. S. Army, respectively.