File No. 793.94/257.

Minister Reinsch to the Secretary of State.

No. 538.]

Sir: Referring to my telegrams of January 23, 7 p.m., 24, 2 a.m., 26, 8 p.m., 27, 8 p.m., and 29, 1 a.m., and February 1, 8 p.m., 8, 9 p.m., and 9, 7 p.m., I have the honor to report on the progress of the negotiations between the Japanese Minister and the Chinese Government in so far as they are known to me.

From January 25 on, the demands began to be discussed by the public press, and confidentially among members of the Diplomatic Corps; and high Chinese officials frequently consulted with me concerning the demands, informing me of the difficulties of the Chinese Government and of the alternatives between which a choice would have to be made.

All these officials expressed the feeling that China was confronted with the greatest crisis in her history; the granting of the demands [Page 86] would be the end of the independent sovereignty of China. The plan of Japan was not to make any annexations of territory, but, with the maintenance of the formal sovereignty of China, to place the Chinese State in a position of vassalage through exercising a control over important parts of its administration and over its industrial and natural resources, actual and prospective.

The outline of the plan is to seek control from three centers: Manchuria, Shantung, and Fukien. Manchuria is to be made more entirely a reserved sphere for Japanese capital and colonization with a certain measure of administrative control. In Shantung the interest formerly belonging to Germany is to be taken over and expanded, which will give a free hand for the complete control of this Province. In Fukien the priority of rights of development is asked which would exclude other nations and would lead to the Manchurianization of this Province by well-known methods.

In the northern sphere Inner Mongolia is to be included. From the central sphere influences will radiate to the interior by means of railway extension grants to Honan and Shansi. From the Fukien sphere influence would extend to the interior through Kiangsi to Hupei and Chekiang, as well as through to Kwangtung. The mortgage on the Hanyehping iron and coal mines is to be consolidated into a controlling interest with the very significant proviso attached that foreigners are to be prohibited from operating mines in the neighborhood of the company’s mines and from engaging in any enterprise which may, either directly or indirectly, affect the company’s interest without the consent of the company. This arrangement would make the Japanese interest the arbiter of industrial enterprise in the middle Yangtze valley.

To these proposals, through which a footing would be obtained on the coast and in the interior of China, there were added the other demands which, while maintaining the form of sovereignty in the Central Government, would deprive it of the substance of control over its own affairs. Such are the employment of “effective” Japanese advisers in political, financial, and military affairs; the joint organization of the police forces in important places; and the control over the armament of China implied in the provision that China must purchase one-half of the arms required from Japan or establish Sino-Japanese arsenals controlled by Japanese engineers and using Japanese materials.

Other demands carry out in detail these outlines of policy.

The Chinese Government does not seem to be disinclined to grant to the Japanese certain definite railway and mining concessions, provided they do not follow the precedent of Manchuria but the ordinary conditions under which such concessions are granted to other nations in China; thus, for instance, that the railways are to belong to and be operated by the Chinese Government, and that the concessionaire will advance the capital with the privilege of certain rights of engineering and furnishing materials.

The demands in their present form include a number which are incompatible with the treaty rights of other nations. It is believed by the Chinese that they may be modified in such a way as formally to avoid such conflict; but even if this should be done and if the demands directly affecting the sovereignty of China should be eliminated, enough would still remain to give Japan a de facto position [Page 87] which, unless China were able rapidly to strengthen her national organization, would inevitably lead to Japanese control. The hope that the most excessive of the Japanese demands may be withdrawn, and the desire to make such withdrawal easier to the Japanese, had made the Chinese Government inclined to observe the Japanese injunction of secrecy. Thus, while in the course of the conversations I have been able to gain a complete knowledge as to what demands of Japan are, I have always most carefully avoided making any suggestion that the demands should be formally communicated.

Should the attempt of Japan to secure control of the administration and resources of this rich country be successful, it will operate primarily to the prejudice of Great Britain whose existing important interests in China would be most adversely affected; but it would probably eventually be an equally great disadvantage to the United States. The good will and sincere friendship which the Chinese people have for Americans would no longer be free to manifest itself; Americans could engage in important enterprises in China only at the sufferance of another government and the friction inevitably resulting would tend to feelings of hostility between Americans and Japan.

I have [etc.]

Paul S. Reinsch.