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here of national currency and that this may be expected in the very near future.

5. Sent to the Department, Peiping, Nanking, Hankow and Shanghai.

SPIKER

693.94244/116

The Chinese Embassy to the Department of State 31

Despite repeated Diplomatic protests and censure of the world's public opinion Japanese authorities in North China continue to extend protection to smuggling there on a large scale. The first twenty days of May witnessed further developments for the worse, both in respect of volume of illicit trade and variety of smuggled goods. For the three weeks ending May 17th smuggled goods arriving at Tientsin from the demilitarized zone comprised 448,920 kilograms of artificial silk yarn, 21,595,230 kilograms of white sugar, 49,324 kilograms of cigarette paper, 243,140 gallons of kerosene oil, 9,623 packages of piece goods and 13,110 cases of sundries. The duty lost on this illicit cargo is roughly estimated at six million dollars or on an average of two million dollars a week, which tallies without previous estimate that the loss of revenue would amount to one hundred million dollars a year or approximately one third of the total gross customs revenue. Under the protection of the Japanese Military authorities the smugglers no longer confine their attention to high duty-paying goods, but at the low costs invade almost every line of legitimate business. The expanding list of contraband goods brought in through the demilitarized zone now include sugar, artificial silk yarn, cigarette paper, kerosene oil, lubricating oil, piece goods, dyes of all descriptions, wire netting, bicycle parts, sea products, apples, medicine, cheese, tooth paste, rubber tires, canned goods, wines, isinglass, fruit juice, cosmetics, waterproof coats, aerated waters, candies, tin plates, nails, soft wood planks, alcohol, needles, beans, tins, milk, cotton and silk braids, saccharine, rubber shoes, electric batteries and shellac. Of chief note are increasing quantities of kerosene oil, which if smuggling is unchecked will soon disappear altogether from the customs returns. Furthermore there have been two consignments of arms and ammunition. It is feared that advantage is also being taken of the situation by drug traffickers. Authoritative observers on the spot point out the significant fact that apart from few comparatively small

"Handed to the Under Secretary of State by the Chinese Ambassador on June 18; Dr. Sze "asked whether we had taken any steps recently vis-à-vis the Japanese Government and I told him that we had not done so", Mr. Phillips noted at the time.

lots all illicit cargo arriving at Tientsin is of Japanese manufacture or origin.32

WASHINGTON, June 18, 1936.

893.00/13560: Telegram

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

CANTON, June 19, 1936-5 p. m. [Received June 20-7 a. m.]

Referring to my telegram of June 17, 6 p. m., Marshals Chen, Li and Pai yesterday sent further telegrams direct to Chiang regretting that the purpose of their expedition into Hunan "solely to resist Japan" has been so unfortunately misunderstood and requesting that Nanking's southward advance be stopped. Unconfirmed reports from Chinese sources state that at conference at Hengchow, Hunan, on June 15th and 16th, Ho Chien as representative of Chiang presented Nanking's terms to the two generals representing Kwangtung and Kwangsi, respectively. These terms allegedly contained following stipulations: complete reorganization of civil and military establishments in both provinces; high officials hereafter to be appointed solely by Nanking; Provincial Council's and Party Executive Committees to be allowed to continue functions so long as only Nanking's mandates are carried out; customs receipts and other national taxes to be remitted direct to Nanking. In return, Nanking allegedly proposes to supply irreducible provincial deficits arising from support of military establishments and from reconstruction schemes in the two provinces. Those losing provincial offices as the result of reorganization of two provincial governments will be given appointments at Nanking. Chiang was twice flown to Changsha to direct these parleys. Southwest leaders reported to have rejected terms whereupon Chiang ordered resumption of advance of his troops against Kwangsi.

2. Believedly reliable source having official contacts states that Chiang has long sought chance to subjugate southern states; that Hunan invasion and Kwangsi's rebellious activities has given Chiang justification to crush Pai whom he regards as a menace to be eliminated at all costs; that Chen is now no problem and will accede to such demands as Chiang may care to make at coming plenary session, these including adoption of national currency with surrender of silver reserves, administration, collection and remission of all revenues as else

32 In a memorandum of June 20, the Under Secretary of State approved a suggestion that "Mr. Hornbeck orally and in confidence inform the Chinese Ambassador that the American Government has approached the Japanese Government on several occasions in regard to smuggling and that this Government continues to follow with care the situation under reference". (693.94244/117)

where in Nanking controlled territory and complete national administration of Canton-Hankow Railway; that Japan has encouraged Kwangsi to take its stand and is now prepared to give expected backing leaving Pai in desperate situation.

3. This Consulate General just informed by Japanese Consulate General that it is this afternoon sending further protest direct to Chen challenging statement that local demonstration on June 13th was one of mass sentiment rather than an obviously officially staged affair; that former protest was similarly addressed but answered personally by the special delegate for foreign affairs, Chen having completely defeated all contingencies of informant to obtain interview or direct reply to written communications; that no written protest was addressed to the Kwangsi leaders; that informant does not consider local situation serious and denied prevalent press reports that his country's gunboats are now en route to Canton.

4. Unconfirmed Chinese press reports appearing in today's Hong Kong papers state Kwangsi forces in southern Kweichow have had to retreat under pressure from Nanking forces, and that efforts to conscript peasants in eastern Kwangsi has resulted in rioting and murder of recruiting officers. Missionary report from Kweichow states that "In no less than four centers soldiers have revolted, robbed parts of cities then fled into the country". Report unfortunately fails to give location or identity of troops involved.

5. Referring to paragraph 3 of my telegram June 17, 6 p. m., one of Chen's commanders today applied for visit [visa?] for travel to the United States after lengthy European visit.

6. Canton appears back to normal conditions. Local currency has appreciated to 172 to the Hong Kong dollar.

7. Sent to the Department, Peiping, Nanking, Hankow and Shanghai.

793.94/7988: Telegram

SPIKER

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

PEIPING, June 20, 1936-3 p. m. [Received 4: 15 p. m.]

313. Embassy's 301, June 12, 3 p. m.

1. Presumably important meetings of Japanese officials began June 18 at Tientsin. They are understood to include Lieutenant General Tashiro, Major Generals Kawabe and Matsumuro, and officers of the staff of the North China Garrison, as well as resident officers of Taiyuan, Kweihwa, and Tsinanfu and the Vice Chief and a section chief of the Kwantung army staff. The Chief of the Kwantung

[blocks in formation]

army staff is reputedly to arrive at Tientsin within a day or two. (Kuwashima of the Foreign Office allegedly informed the Chinese press at Peiping June 14 that "as the War Ministry knows the (North China) situation better than the other Ministry all problems in the area are being handled by the War Office.")

2. Presumably these meetings are to decide policy with regard to Sung Che Yuan's regime. There are persistent reports that General Sung's attitude toward the Japanese has stiffened since the conferences of the latter part of May with his subordinates (reference Embassy's telegram 275, June 2, 4 p. m.33 and 282, June 4, 3 p. m.) when his military subordinates (1) persuaded him to reverse his decision to declare independence in accordance with Japanese desires and (2) insisted that Hsiao Chen Ying should not resign the mayorship of Tientsin under Japanese pressure.

3. An indication of this new attitude is Sung's appointment of General Chang Tzu Chung, his senior divisional commander and prievously Chairman of Chahar, to succeed Hsiao as Mayor of Tientsin. Crang's appointment was urged by Sung's military subordinates and was definitely not desired by the Japanese military. Sung was allegedly lead to believe that if he appointed the Japanese favorite, Chi Hsieh Yuan (reference paragraph 9 Embassy's 301, June 12, 3 p.m.), his regime would soon come to an end as Chi would do Japanese bidding more readily than Hsiao Chen Ying had done which would mean that Tientsin, the most important port of Sung's area, would be lost to him.

4. The Japanese military have reputedly yielded on the question of Chang's appointment (Chang assumed office June 18) because (1) Chang's powers as mayor are to be less than were Hsiao['s], (2) Chang is simpler minded than Hsiao and can be handled easily, and (3) the Japanese military are apprehensive that some of Sung's subordinates might otherwise cause trouble which the Japanese wish to avoid.

5. The question of what the Japanese military may decide at these meetings and what will be the form of their subsequent negotiations with Sung, who is now in Tientsin, cannot be answered at present.

6. Rumors of possible cooperation of Han Fu Chu with Sung, either for or against the Japanese, are prevalent. Kuwashima of the dissolution [Foreign Office?] visited Han June 18 and the press reports that Sung will meet Han shortly at Sung's birthplace in Shantung.

7. Although it is evident that Sung is in communication with the Southwest, his intentions in that regard are not known.

By mail to Tokyo.

33 Not printed.

JOHNSON

793.94/7994: Telegram (part air)

The Consul at Geneva (Gilbert) to the Secretary of State

GENEVA, June 22, 1936-noon. [Received June 23-9 a. m.]

238. With Paris' 489, June 12, 10 a. m., in mind I asked Hoo 34 if China was considering any pertinent action before the League. His reply was in the negative. He stated that Chinese action in Geneva at any time must be predicated on prior assurances of support from the powers and of this there were no evidences. He said that Koo would head the Chinese delegation at the June 30th Assembly and that naturally China's situation would be discussed with representatives of interested powers as occasion suggested. He felt reasonably certain, however, that Koo had no specific instructions..

GILBERT

893.00/13563: Telegram

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

CANTON, June 22, 1936-4 p. m. [Received June 22-11 a. m.]

Referring to my telegram of June 20, noon, local government controlled press today published message addressed by Marshals Chen, Li and Pai to the "soldiers of the nation" calling upon them to rise and support the war against Japan. In view of the reported strict censorship engaged in by Nanking, it would appear improbable that this message will travel much further than the provincial boundary Kwangtung and Kwangsi. The same press contains a telegram allegedly addressed by the veteran Hsiao Fo Cheng to overseas Chinese stating that the Southwest Political Council deems it futile to call a further conference to deliberate on the issue but deems it imperative that Nanking should act immediately by leading armed resistance against Japan.

2. I am informed by usually reliable official source that all Kwangtung forces have returned to Kwangtung and that main body of Kwangsi troops have withdrawn to Chuanchow, Kwangsi, but that smaller body continues to occupy strategic defensive position at Yungchow, Hunan. Informant alleges that report of recent conference at Hengchow between representatives of Nanking and the Southwest is absolutely unfounded and that Li's appointment of Pai to full con

34 Victor Chitsai Hoo, Chinese Minister in Switzerland.

35

The Consul at Geneva in his telegram No. 282, July 3, 4 p. m. reported meeting "Koo today who in what he had to say confirmed my 238". (793.94/8030) 30 Not printed.

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