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from solicitude with regard to situations and problems in the Far East. The great military establishments at Vladivostok, at Singapore, and in the Hawaiian Islands, however, are establishments which relate primarily to the problem of defense against Japan. And now General MacArthur 81 and President Quezon 82 are arming the Philippines, for defense against Japan. Thus, it may reasonably be said there has been created and there is being hardened a military "iron ring" around Japan.

Both in the economic field and in the military field there exists the phenomenon of a nation that is crowded, dynamically energetic, convinced that it must expand and making every effort to expand, and a world that is limited in area and is filled with other sovereign nations most of which are fearful of that nation's expansion, convinced that they must resist it, and taking steps to resist it.

In such a situation, the obvious question is: Will the forces of expansion prove greater than the forces of resistance? If so, when and at what point will the former break through?

The weakest points in the economic and military rings around Japan are to the southwestward and the southward: China and the Philippines (and the Dutch East Indies).

There was a time when China's natural resources were rated as comparatively limitless and China's military strength as negligible. But, in recent years the estimates of China's resources have been revised downward and China's efforts in the direction of military preparedness have made some impression. The old ideas of China as a potential Eldorado no longer prevail. Meanwhile, estimates of the natural resources of the Philippine Islands and portions of the Dutch East Indies are constantly being revised upward, and there is not within these areas themselves any substantial organization for resistance to possible pressure from without. If and when the aegis of American authority and responsibility is withdrawn from the Philippine Islands, there will lie to the southward from Japan a point in the ring the resources of which will invite pressure from Japan and the power of resistance of which will be comparatively weak-perhaps the weakest point in the whole ring.

81

S[TANLEY] K. H[ORNBECK]

Gen. Douglas MacArthur, Chief of Staff, U. S. Army, 1930-35; director of organization of national defense for the Philippine Commonwealth Government since 1935.

82

1935.

Manuel Quezon, President of the Philippine Commonwealth since November

893.00/13661: Telegram

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

PEIPING, August 10, 1936-3 p. m. [Received August 10-2: 50 p. m.]

399. Reference pages 8 to 11 of the monthly report for January and pages 15 and 16 of the report for May.83

1. Various reports indicate that a number of advanced clashes have occurred during the past 10 days in eastern Suiyuan north and east of Tsining (Pingtichuan) which is on Peiping-Suiyuan Railway between Chinese provincial forces and unidentified opponents. It was thought at first that the attackers were perhaps Japanese directed Mongols but there is now reason to believe that they are Chinese malcontents paid by Japanese to test the situation existing in eastern Suiyuan. All attacks are said to have been unsuccessful.

2. These clashes may be the beginning of an attempt by the Kwantung army, which is in charge of Japanese policy in Inner Mongolia and along the Peiping-Suiyuan Railway, to obtain control of Suiyuan through the use of hired Chinese, Japanese directed Mongol forces, and perhaps eventually Japanese forces. All reports show that the Kwantung army has in Chahar Province several thousand Mongol forces, some of them being from Jehol Province and some being Mongols recruited in Chahar. The immediate intention may be limited to obtaining control of that part of eastern Suiyuan inhabited by Mongols of the Chahar banners. Control of this area would make it easier for the Kwantung army to take over control of the PeipingSuiyuan Railway when desired.

3. It is open to question whether only hired Chinese and Japanese directed Mongol forces can be successful because of (1) the preparedness of Chinese provincial forces and (2) the alleged dislike of the Japanese directed Mongol forces for the Japanese controlling them.

4. The Kwantung army may be in part motivated by its presumed belief that Japanese policy in China proper is not meeting with

success.

By mail to Tokyo.

893.00/13670: Telegram

JOHNSON

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

of State

NANKING, August 12, 1936-9 a. m. [Received 9:20 a. m.]

244. (1) Semiofficial Central News Agency reports that Chiang

Kai Shek flew yesterday from Kuling to Canton. An officer of the

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Embassy was not informed last evening by the Minister of War that Chiang would proceed to Canton this week and the agency's report is believed to be true since Chiang's movements are rarely announced until made.

(2) Chen Li Fu, party leader and member of the standing committee of the Central Executive Committee, together with Chu Cheng, President of the Judicial Yuan, flew yesterday to Canton from Shanghai to reorganize party affairs in Kwangtung. The Minister of the Navy is now at Amoy or near by ostensibly for routine inspection purposes but reportedly to prepare for naval action on the West River, particularly at Wuchow, Kwangsi, if necessary.

(3) Japanese news agency Domei reports that five additional Central Government divisions (the 11th, 14th, 18th, 50th and 67th) yesterday embarked from Canton for duty along the West and North Rivers and 12 planes of the Central Air Force proceeded to Yunnanfu August 9th in preparation for an attack upon Kwangsi.

(4) Unconfirmed reports are circulating here that negotiations with Li Tsung Jen and Pai Chung Hsi have broken down and that their continued refusal to conform to the Government's wishes is based on a belief that Chiang Kai Shek wants at all costs to avoid civil war and will ultimately agree to an arrangement whereby they will render lip service to the National Government but will remain in actual control in Kwangsi.

(5) To the Department and Peiping. Repeated to Canton. By mail to Hankow, Shanghai.

PECK

693.94244/130: Telegram

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

TOKYO, August 17, 1936-6 p. m. [Received August 17-7: 36 a. m.]

169. Department's 100, July 29, 5 p. m., smuggling situation in North China. This subject was broached today in the course of a conversation with the Vice Minister for Foreign Affairs. The interest of the American Government in the situation was reaffirmed and questions were asked concerning the results of the investigation conducted by Kuwashima, the chief of the Eastern Asia Bureau of the Foreign Office. The Vice Minister said that nothing startling had resulted from Kuwashima's investigations but that he had found that the smuggling had decreased to only one-sixth or one-seventh of its former proportions partly because of saturation of the North China markets and partly because of the more efficient preventive measures taken by the Chinese authorities especially in regard to transshipment on the railways. The Vice Minister stated that the

Japanese Government considers that the fundamental solution of the situation lies in the lowering of the Chinese tariff rates and that he understood that Dr. Kung was now considering this solution. He did not indicate that the Japanese Government would take any steps to deal with the situation which he said was rapidly being alleviated through natural processes.

Repeated to Peiping.

GREW

793.94/8105: Telegram

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

PEIPING, August 21, 1936-4 p. m. [Received August 21-9:38 a. m.84]

410. Reference paragraph 3 of Embassy's 405, August 17, 5 [4] p.m.8

85

1. The Japanese Ambassador visited Peiping from the evening of August 18th to the afternoon of August 20th. He is now in Tientsin to confer with Japanese diplomatic and military officers, including three representatives of the Ministries of Foreign Affairs, Army and Navy.

2. The Japanese Ambassador informed foreign pressmen yesterday that he had expressed the hope to Sung Che Yuan that Sung would suppress Communism in his two provinces; that he had discussed economic questions in principle with Sung; that he had advised Sung to ask for financial and technical assistance for Japan in the "exploitation of resources"; that Sung had agreed with these views; that he (the Japanese Ambassador) hoped that it would be possible to use Chinese capital although Japan would be prepared to help; that the present conditions in North China were tending toward stability; that he would inform the National Government that the Economic developments of North China was purely a local question; that the National Government was understood to be considering the question of lowering tariffs; and that Japan was prepared if necessary to open negotiations with the National Government whether or not it accepted Hirota's three principles.

3. A member of my staff in confidential conversation with the competent Third Secretary accompanying the Japanese Ambassador received certain information which is contained in paragraphs 4 and 5, together with certain inferences based on that conversation.

4. Japanese diplomats are apparently pessimistic about the future of Sino-Japanese relations. They would like to see two or three agree

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ments of an economic character entered into, not so much for the economic advantages involved, as economic development of North China will be a liability for Japan, but for the purpose of improving the feeling of the people. Chiang Kai Shek is expected to make agreements of an economic nature with the Japanese. He is strong enough to do this because his success in the Southwest weakens opposition to such agreements. The situation in Suiyuan not known to Japanese diplomats, but the Japanese Army definitely intends for strategic reasons to extend its control over Inner Mongolia. It is feared that if the Kwantung army acts in Suiyuan in the near future it will react unfavorably on Sino-Japanese negotiations with regard to North China. The question is asked whether Chiang could not enter into some agreement with the Japanese whereby the aid of the Japanese military with respect to Inner Mongolia could be satisfied and legitimatized. It is evident that the diplomats and the military are not yet united.

5. Not one pound of Changlu salt has yet been shipped to Japan because the Chinese do not yet refine the salt sufficiently and because the tax is still too high.86 The route of the proposed ShihkiachwangTsangchow Railway has not yet been decided on. The development of iron in North China is not regarded hopefully at present because the ingredients needed for the manufacture of steel are too widely scattered and communications are lacking.

6. It seems possible to this Embassy that the Japanese Ambassador hopes that he can persuade the Japanese military to remain quiet for the time being and to suspend political activities, such as those looking toward an amalgamation of Sung's and Han's regimes, in order that he may effect some agreements of an economic nature, perhaps including reduction of the Chinese tariff, which will improve the general Sino-Japanese situation. It is not known whether the successful carrying out of such a program will be permitted by the Japanese military and the opponents of Chiang Kai Shek's compromise. By mail to Tokyo.

893.52 Manchuria/20

JOHNSON

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

No. 2001

TOKYO, August 21, 1936. [Received September 8.]

SIR: I have the honor to enclose a translation of a leading article which appeared in the Jiji Shinpo of today 87 indicating that the

36 The Ambassador in China in his telegram No. 447, September 15, 4 p. m., informed the Department of reports of an agreement on September 9 by Chinese and Japanese interests for the refining of Changlu salt and its shipment to Japan (793.94/8143).

Not printed.

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