Papers Relating to the Foreign Relations of the United States, 1919, Volume I

893.00/3040

The Minister in China ( Reinsch ) to the Acting Secretary of State

[Extract]

Peking , March 10, 1919 .
[Received April 7.]

No. 2583

Sir: I have the honor to submit the following report on the general political situation in China during the quarter ended December 31st, 1918:

1. Political Information

a. domestic

(1) Political observations and developments.

During the quarter under review, the civil war and the attempts made to bring it to a conclusion have remained the principal subject of interest in the domestic situation.

The actual military situation from the beginning of the quarter until the declaration of the armistice on November 18th remained practically stationary, with the Southern forces in possession of the southern half of the province of Fukien, a portion of the province of Hunan, practically the whole of the province of Szechuan, and an undefined portion of Shensi, in addition to the four provinces of Kwangtung, Kuangsi, Kweichow and Yunnan, comprising the original Southern Federation. No important military operations were undertaken by either side although there was much desultory fighting between small bands of Southern troops and bandits on the one hand and Northern garrison troops on the other, in Fukien and Shensi. Both of these provinces and Hunan suffered severely from the ravages of bandits, whose operations have been greatly facilitated by the breakdown of governmental authority. In Shensi in particular conditions have become indescribably chaotic, where there appeared to be at least four regular armies operating and an indefinite number of brigand bands. The impossibility of determining exactly which troops are brigands and which are regular forces of either the North or the South has led each side to accuse the other of a violation of the terms of the armistice.

Upon the assumption of office by H. E. Hsu Shih-ch’ang as President on October 10th, Gen. Tuan Chi-jui resigned his post as premier in favor of Mr. Chien Nung-hsun, who was at the time Minister of the Interior. Mr. Chien showed a marked disinclination to accept the post but was finally persuaded to do so on the understanding that the appointment would be temporary only: his personal intimacy with the President no doubt was a further inducement. For some time a complete reorganization of the cabinet was anticipated; but owing to the difficulty of securing parliamentary ratification of a new cabinet and to the exigencies of politics, the old Tuan cabinet has remained in office with only one important change, the resignation of Tsao Ju-lin as Minister of Finance and the appointment of Mr. Kung Hsin-chan in his place. This has not tended to strengthen the position of the President as Mr. Tsao Ju-lin, who retained his portfolio of Minister of Communications, remains the dominating figure in the cabinet, and is intimately associated with the Northern military party which is in opposition to the President’s domestic peace policy. It must also be noted that the Northern Parliament, which was elected under the auspices of the military clique, is still entirely dependent, as to its majority, upon the same, and will therefore not ratify any cabinet appointments which are not agreeable to the inner Tuan Chi-jui-Tsao Ju-lin combination and their foreign mentors.

It was generally believed that President Hsu would make the termination of the civil war the object of first importance in his domestic policy, and this belief has been amply substantiated by events. The peace campaign in the north was inaugurated by an unofficial conference in Tientsin between a number of prominent civilian officials, including Mr. Liang Shih-yi and Mr. Hsiung Hsiling, ex-premiers, Mr. Chow Tze-chi, ex-Minister of Finance, and a number of other political leaders, which resulted in the formation of a widely supported society pledged to furthering the cause of peace. The three Yangtsze tuchuns, headed by General Li Hsun of Nanking, represented the military element in this association. The agitation in favor of peace launched under these auspices was further increased by the issue on October 24th of a peace mandate by the President.² This was a typical Chinese document, ambiguous in its phraseology and containing no definite plan of action but of importance as marking the first definite step toward overtures to the South. In passing, it may be mentioned that in this mandate President Hsu made a prominent reference to the views of President Wilson as set forth in his public speeches and commended them to the consideration of his countrymen. With a view of coming to some understanding with the Northern military leaders before proceeding further with his peace project, President Hsu summoned to Peking early in November the military governors (tuchuns) of Fengtien, Kirin, Hupeh, Kiangsi, Honan, Shansi, Shantung and Chihli. The tuchuns of Kiangsu and Hunan were represented by proxy. The President is believed to have discussed the situation with them very frankly and to have pointed out the absolute necessity, both from a financial and a political point of view, of the termination of the civil war at the earliest possible moment. He finally obtained their assent to a proposal to order the cessation of hostilities by the Northern forces, which was thereupon embodied in a mandate published on November 18th. This was followed by a similar order to the Southern forces issued by the “military government” at Canton. It is believed that the action early in November of the Diplomatic Body in Peking in refusing to assent to the release to the Northern government of the surplus from the customs revenue emphasized the grave view of the Chinese domestic situation entertained by the friendly Powers.

It will be recalled that on October 29th [25th?], after a possible Anglo-American mediation had been suggested and discussed with approval by the Chinese press, the Japanese government expressed to the governments associated in the war its grave concern over the continued civil strife in China and suggested the propriety of a joint representation to the Chinese government of the desirability of reuniting China and restoring peace at the earliest possible moment.³ To this proposal the American Government gave its assent on November 16th⁴ and following the assent of the other Powers interested, an aide memoire was presented informally to the Chinese Government on December 2nd.⁵ An identical aide memoire was presented on the same day to the leaders of the Southern government by the consular representatives in Canton, of the Powers concerned.

Following the declaration of the armistice, informal conversations took place between the Northern and Southern leaders with a view to the convocation of a peace conference, in which General Li Hsun, Tuchun of Kiangsu, took a prominent part. As a result thereof, each side undertook to appoint a number of delegates to discuss the terms of settlement, who were to meet on a footing of equality. Mr. Chu Chi-chien, formerly Minister of the Interior, and an intimate friend of President Hsu, was appointed chief Northern delegate, and Mr. Tang Shao-yi, ex-premier, the chief Southern delegate. It was agreed further that neither delegation should enter the conference bound by definite instructions. The appointment of the Northern delegates had been made by the end of the year, but the selection of the delegates to represent the Southern Government evidently gave considerably difficulty and was not completed until some time later.

It is understood that the conference will be asked to reach a decision on three main points: the definition of civil and military authority throughout the country, with particular reference to provincial administration; the definition of the respective rights and duties of the central and provincial governments; and the solution of the constitutional problem at issue. It is understood that the conservative civilian opinion in the North in regard to these three questions is somewhat as follows. The military control of provincial administration should be entirely abolished; the army should be greatly reduced; the country should then be divided into military districts without any special relation to provincial boundaries, to which districts commanders should be appointed; and the army should be under the direct control of the Central Government. The civil governor should be the chief provincial authority and should work without any interference on the part of the military. As to division of powers, it is proposed that the Central Government should undertake the conduct of foreign affairs, the collection of customs duties, salt, wine, tobacco and other excises, the service of the national debt—both foreign and domestic—, the upkeep of the army and navy, and the administration of posts, telegraphs and means of communication. All other matters should be left for provincial administration. It is admitted that the solution of the constitutional question will prove difficult, but it is hoped that the two parliaments now in existence may each elect a limited number of representatives, probably about fifty, to meet and function as a constituent assembly to draft a new constitution under which a new parliamentary election can be held. In event of the conference reaching a deadlock on this or any other important issue, it is suggested that an extra-constitutional national assembly partaking of the nature of a constituent body should be formed at Shanghai by delegates of the provincial assemblies, of Chambers of Commerce, of educational bodies and of agricultural and other societies, which would be truly representative of the national life of China and which would therefore be in a position to speak authoritatively on the question at issue. Failing the formation of a constituent assembly by the two parliaments as mentioned above, this assembly could then function as such and draft a constitution.

There seems to be a much wider divergence of opinion in regard to peace terms amongst the Southern leaders than amongst the civilian officials of the North. The proposals to reduce the national army to a minimum naturally will be acceptable to the South, as will also the elimination of military interference in the provincial administration. However it is probable that the South will seek a provision for the local election of provincial civil governors rather than their appointment by the Central Government. A number of extreme radicals wish to insist on the punishment of the principal Northern Military leaders: as these leaders control the Northern armies, it is obviously impossible for the Northern Government to agree thereto. Finally there is the widely held view that the Peking Government must recognize the legality of the old parliament now meeting at Canton. It is believed that the principal difficulty will arise in connection with the solution of this constitutional question, more particularly as there is manifest a disposition on the part of the South to insist on its settlement before any discussion is had of such reconstruction measures as the disbandment of troops and the reestablishment of the civil administration. This is especially true of those politicians intimately connected with the old parliament and of the adherents of Dr. Sun Yat-sen. Inasmuch, however, as Chinese politics are largely personal, it is quite possible that the judicious distribution of governmental power may greatly facilitate an agreement in regard to constitutional questions.

During the quarter, the desultory warfare which has been carried on for the past two years between the Chinese and Tibetans on the borders of Szechuan was brought to an end by the conclusion of an armistice for one year, during which time it is hoped that the Chinese Government may approve the conditions of the armistice as a basis for a final settlement. The terms of this armistice are of purely local interest. Recent Consular reports and press telegrams indicate that disturbances on the border are still continuing. It appears that there are a number of large organized bands of Tibetan marauders operating there and that the menace is so serious as to threaten the garrison towns of Batang and Tachienlu.

It is a practical impossibility in any general discussion of Chinese affairs to consider politics apart from finance, as the two are interrelated and inextricably confused. Indeed the problem of government finance at the present moment is the keynote of both the foreign and the domestic policy of China. Hence while a more detailed discussion of recent financial operations will be undertaken under the appropriate heading of this report, it is necessary to take certain salient features into consideration in reviewing the development of the domestic situation. For some time there has been a regularly recurring monthly deficit of about Mexican $8,000,000 to $10,000,000 due to the abnormal expenses of the military establishment. To meet this recourse has been had to a number of miscalled “industrial” loans negotiated with a group of Japanese banks, which, while not members of the Consortium, nevertheless have been operating with the approval of the Japanese Government. For a detailed discussion of this I beg leave to refer to the Legation’s last quarterly report. The proceeds of these loans almost without exception were applied to the expenses of the Government in its domestic military adventures. Without such loans the late (Tuan Chi-jui) government would have been unable to have continued its policy of the attempted coercion of the South, and it seems clear that the ascendancy of the Northern military clique in Peking has been based entirely on this Japanese support. The popular demand for peace, however, backed as it was by the political strength of the civilian officers, proved too strong for even the military clique to disregard, and they were forced therefore to assent to the President’s peace programme, although it is known that at heart many of the military leaders are opposed thereto, in the belief that a sweeping reduction of the army will affect their positions disastrously.

The position of the President and peace party is difficult in the extreme. Without here entering into any discussion of the economic problems of disbandment, it may be stated that to effect an adequate reduction of the various armies will require for back pay, extra pay on discharge, pensions, transport, etc., about Mexican $50,000,000. There is no possibility of obtaining this amount without recourse to a foreign loan, to which none of the powers will consent until the domestic peace conference comes to some agreement. Funds from the recent Japanese loans, available only through the military clique and Mr. Tsao Ju-lin, their spokesman in the Cabinet, are barely sufficient to meet even current expenses, and are earmarked for the upkeep of certain military forces. The outlook is not a happy one. A lasting peace cannot be had without the re-establishment of the civil authority and the suppression of provincial military governors, which can be accomplished only by the disbandment of their forces: this cannot be carried out without a large foreign loan, which cannot be negotiated until a settlement of the domestic situation is assured: and this settlement is being obstructed not only by a number of extreme radicals in the south, but also by the military clique in the north, which includes a number of the members of the government, and which is receiving financial assistance from Japan.

From this brief survey it is apparent that the question of peace or war in China, the problem of domestic politics at present, is mainly a financial one: whichever party is able to command the necessary financial support abroad will be able to dictate the policy of the government. Despite disclaimers to the contrary, in the recent past and at present it is the Northern military clique which has received this foreign financial assistance.

Finally, it should be noted that the President and the peace party are almost without military support, as the Northern armies generally are under the control of the provincial military governors, of whom only one or two may be depended upon absolutely to support the President; while such troops as may be considered national in character are controlled by the prominent militarists in Peking. Even those forces especially chosen for the protection of China’s frontiers and for foreign service are beyond the control of the internationally recognized government of China. It will be recalled that in order to facilitate defense measures on the Siberian frontier and to participate more effectively in the Siberian expedition, China organized a special independent department of government known as the War Participation Bureau. This Bureau was charged with the duty of carrying out the provisions of the Sino-Japanese Military Agreement of May last, and has enjoyed especially close relations with Japan. After the resignation of Tuan Chi-jui as Premier, this Bureau became the stronghold in the government of the military clique. Special troops had been placed under the control of the Bureau for the purposes indicated above, and special funds had been set aside for its expenses. It is unfortunately beyond question that the War Participation Bureau instead of using these troops for the purposes for which they had been provided, attempted to make of them a weapon to further the political ends of the military clique. An attempt, which failed, was made by a part of this force to seize the strategically important port of Pukow, which would have resulted in neutralizing the support of General Li Hsun of Nanking to the President and peace party. It is stated and is probably true that the troops under the direction of the War Participation Bureau were used in the civil war operations in Fukien and Shensi. The perversion by the War Participation Bureau to the furtherance of the petty domestic aims of the military clique of the funds and men which ought to have been used for strengthening China’s international position, through prosecution of the joint war aims of the Allies, has aroused the bitterest of comments and feeling in China, and shows perhaps more clearly than any other single act the entire lack of patriotism and statesmanship which characterizes the military party in China. Nor can the military party of Japan, which gave financial support to the War Participation Bureau, be exonerated from responsibility in this matter.

The lack of military support for the President and his following has suggested the possibility of a refusal by the Northern militarists to abide by any settlement reached by the forthcoming conference which is unacceptable to them, and as any sound settlement must provide for the abolition of autocratic military government, this attitude, if adopted, must prove a very real danger.

Should the forthcoming peace conference fail to reach a speedy and practical settlement generally acceptable to the country, it would appear that the foreign powers will be faced with the necessity of electing one of three alternatives: to mediate; to select and support financially one faction, in the hope that it then could gain effective control; or to abandon China to a continuance of the civil war, which can only result in plunging the whole country into the anarchy already existent in Shensi, and in parts of Szechuan, Hunan and Fukien.

(2) Attitude towards the war.

The failure of the late Tuan Chi-jui government during President Feng’s administration to take China’s position as a co-belligerent seriously or to put into effective operation any restraint on enemy activity in China has already been touched upon. When President Hsu had assumed office, consultations took place between the missions of the Powers associated in the war, with a view to making clear the deficiencies of the previous administration and strengthening the hands of the President for effective action. Special delinquencies of certain individual officials also required attention. The President himself was known to be anxious that China should display more energy in fulfilling the duties which the war had thrust upon her, and he anticipated the general conference on this matter which had been suggested by the foreign representatives, by ordering the immediate adoption of necessary measures. While no official or unofficial representations were made to the Chinese government, the associated Ministers had agreed on a statement which was to serve as a basis of conversations. The principal points therein were the application of funds remitted from the Boxer Indemnity to partisan strife and political intrigue instead of to the development of the resources of the country in order that she might be fitted to render assistance to the Allied governments; the employment of the troops of the War Participation Bureau in internal disputes instead of for the purposes for which they were nominally raised; the failure adequately to deal with brigandage, with the resulting diminution of China’s ability to render economic assistance to the Allies, as well as the direct losses to foreign trade and traders; the attempt of the Chinese government to enter into direct relations with the Vatican without any consultation with its associates in the war, which suggested enemy influence; the failure adequately to enforce the prohibition of trading with the enemy, the control of enemy activity, or the internment of dangerous enemy aliens; and finally a number of cases of delinquencies, on the part of individual officials. The discussion of these matters, while only slightly affecting the activities of the War Participation Bureau, resulted, however, in more energy being displayed in regard to internment, a half-hearted beginning on which had been made shortly before, in the sequestration of enemy trading concerns and in the dismissal of two or three notorious officials. A further result was the ratification by the Peking Parliament of the declaration of war of the preceding August by the House on November 2nd and by the Senate on November 5th. At the time President Feng declared war, parliament was not sitting, the old parliament having been “dissolved” and no new parliament elected. The election of the new parliament took place during the summer of 1918 as reported in the last quarterly report. The “dissolved” parliament meanwhile had “resumed” its sittings at Canton and had declared a state of war some time before.

The Chinese Government issued a White Book during the quarter, publishing various documents dealing with China’s war relations. The only portions of this which attracted much public attention were the notes of the Dutch Legation to the Government in regard to various questions affecting German interests. It was felt that the Dutch Legation had strained its position as a neutral mission in its endeavors to protect German interests. Apparently as a result of informal representations to this effect at The Hague, His Excellency Jonkheer Beelaerts van Blokland, the Dutch Minister, has been recalled by his Government, and Mr. Oudendijk appointed in his stead. Mr. Oudendijk received part of his education in the United States: he was for many years attached to the Dutch Legation in Peking and speaks Chinese fluently.

China’s response to the appeal for the United War Work Campaign was most gratifying. Over a million dollars gold were subscribed, the largest single contribution being one hundred thousand dollars Mexican from the Chihli Provincial Assembly. It should be noted that the Shan Tien Shih Pao, the leading Japanese daily in China, bitterly attacked the Chinese for the enthusiastic response to this American appeal.

While the mass of the Chinese has little knowledge of foreign affairs, did not know what the war meant and therefore remained apathetically indifferent to it, so that the dramatic collapse of the Central Powers came as a surprise to most Chinese, yet the thinking people were on our side especially since America entered the war. The Peking Government, controlled by a narrow clique without national authority and supported by foreign money, did not lead the nation effectively to a realization of their best interest. But China was profoundly relieved by the cessation of war and showed a some what belated enthusiasm for the Allied cause. This is no doubt due in part to the hope generally expressed that China may obtain at the Peace Conference a satisfactory solution of the Shantung and other cognate questions, in which China feels that Japan took advantage of the preoccupation of the Powers to deal unfairly and harshly with China.

The appointment of the Chinese delegation to the Peace Conference aroused some discussion, the Southern Government claiming that the delegation should include both Northern and Southern representatives and should be approved as a whole by the Canton Government. The delegation as originally appointed was purely Northern and was headed by Mr. Lu Tseng-hsiang, Minister of Foreign Affairs. Subsequently, in response to sound advice and in the hope of meeting the Southern views, the Government added the names of Mr. C. T. Wang and Mr. C. C. Wu, both prominent Southern leaders, to the delegation. Mr. C. T. Wang at once accepted, and with Mr. Wellington Koo has played a prominent part. Unfortunately the modus operandi was not approved by the Southern parliament, which has since endeavored to appoint an independent delegation, and has repudiated Mr. Wang for accepting an appointment at the hands of the Northern government. Actually, however, the country is united in spirit in support of the delegation in its attempts to secure an impartial settlement of China’s difficulties.

The only war measure arousing special interest in China during the quarter was the proposal to place the Russian railways under Allied control. As the scheme included the administration of the Chinese Eastern Railway, China has not ceased to urge her claims to a special position based on the ground that that line is a joint Sino-Russian undertaking, and that should Russia be unable to operate this joint undertaking satisfactorily, China, as the other party in interest, should be permitted to do so. It is felt that this attitude is largely the result of the fact that the negotiations seeking to find a satisfactory scheme for the administration of this and other Russian lines were carried on between the United States and Japan, whose intentions in North Manchuria China views with more than a little suspicion, and that China was not directly consulted in regard to a property in which she has an important present interest as well as to which she has a reversionary right. The action of the Japanese troops in brusquely assuming policing rights along the railway and in the railway zone did not improve matters.

As a matter of fact independent reports from many parts of the country agree in attributing the pro-German feeling which indubitably existed amongst many Chinese as much to the widespread antipathy to Japan as to the result of German propaganda.

b. foreign

(1) Relations with foreign countries.

The Japanese question continues to dominate China’s foreign relations to the exclusion of practically every other consideration. As in the past China’s foreign policy—if such it may be called—is purely passive: she pays scant heed to the development of trade or intercourse with foreign nations, and considers foreign affairs only in so far as they react on her domestic problems. Thus her foreign policy throughout the war, which was instinctive rather than deliberate, was to stave off Japanese aggression as well as might be until such time as the western powers could again come to her assistance by reestablishing the equilibrium of foreign influence in China.

Apart from these special considerations, the result of conditions brought about by the war, China desires a general revision of the treaty engagements governing foreign residence and trade. This desire has found expression in a number of suggested programmes for adoption by the Chinese delegation to the Paris Conference, all of which provide for the gradual abolition of extraterritoriality, the return to China of all foreign concessions, settlements and leased territories, and the removal of all treaty restrictions on complete tariff autonomy. Unfortunately there does not appear to be the determination to bring about that reform of China’s judicial and administrative departments which alone would justify the abandonment of the peculiar privileges now enjoyed by foreign residents. Not only is the present provincial administration the worst since foreign intercourse with China first began, but even where China has had a special opportunity to demonstrate her fitness to assume the rights and duties which she claims, she has failed to do so. For example, the administration of the late German concession in Hankow, now being carried on by a Chinese Special Administrative Bureau, is so inefficient as to have led to universal complaints from the foreign residents in Hankow.

It has been stated that China’s recent foreign policy has been dictated by a fear of Japan, and it is believed that this is essentially true, although the official history of the past year would appear to contradict this assertion. The explanation lies in the exigencies of China’s financial position. As already remarked, as a result of the extraordinary increase of military expenditure brought about by the civil war, China is faced by a monthly deficit of upwards of $8,000,000 Mexican. As she has been unable to meet this by domestic loans, and as no other Power was willing to lend her funds for the prolongation of the civil war devastating the country, the Government turned to Japan for financial assistance, and negotiated the series of “industrial” and other loans already remarked in preceding reports. In spite of the fact that the Northern military party is strongly under Japanese domination, it is not believed that the leaders of even this party are genuinely pro-Japanese: it is rather the case that their patriotism is not sufficient to prevent their seeking assistance from Japan at a ruinous price to further their own immediate political ends. Were money available from any other source it would be accepted equally or more willingly. Thus we have the curious spectacle of national indignation at and opposition to the spread of Japanese influence and control in China, while the Peking government continues to function solely by virtue of Japanese financial assistance. Obviously under the circumstances a firm stand in defense of China’s rights is impossible. Any attempts therefore to oppose the extension of Japanese “special interests “in China and all that is connoted by that phrase, are doomed to failure unless those attempting the opposition themselves are prepared to afford to the Government the financial assistance which is indispensable at present. And this in spite of the fact that the President, civilian leaders, and the country at large are only too anxious to see an extension of non-Japanese foreign influence as an offset to the predominant position acquired by Japan during the European war.

It may be noted in passing that upon the assumption of office by the Hara Ministry in Japan there was a generally expressed hope that Japanese policy in China would be somewhat modified and shorn of its harsher aspects. The selection of Mr. Obata, who had made himself most unpopular by his overbearing attitude at the time of the Twenty-One Demands, to be Japanese Minister in Peking in succession to Baron Hayashi was not calculated to further these hopes, and as a matter of fact no fundamental change in Japan’s China policy has taken place.

On September 24th last there were exchanged in Tokyo notes between the Japanese Foreign Office and the Chinese Minister for the settlements of the Shantung railway question, by which, in return for an advance of Yen 10,000,000 on account of the loan for the construction of the extensions of the Tsinan-Tsingtau Railway, and the undertaking of the Japanese Government to withdraw the guards along the line of the railway and to give China some share in its administration, China agreed to engage Japanese officers for the railway police and to operate the railway as a joint Sino-Japanese concern, no matter what disposition might officially be made of it. It should be noted that this attempt to vitiate in advance the possible action of the Paris Conference has never been formally ratified by the Chinese Government: this is held to be unnecessary by the Japanese Minister in Peking and by the Chinese Minister of Communications.

(2) Attitude towards the United States and Americans.

The frequently remarked popular esteem in which the United States is held in China was, if possible, increased by the events of the quarter under review. There is no doubt that the Chinese were greatly impressed by the sudden collapse of Germany following so closely upon the appearance of American troops in France, who were generally credited by the Chinese with an even greater part in the common victory than an impartial judge might consider warranted. China had always considered the United States as a financially powerful nation, but of only secondary importance from a military point of view. The display of such great and unexpected strength has increased markedly American prestige in China. As a result the popular belief has gained ground in China that the United States will champion China against Japan, the ordinary Chinese being incapable of realizing the relative importance attributed in the United States to questions of western and eastern politics.

The second factor which has made for American popularity is the series of speeches made by President Wilson in regard to the (self-determination of peoples and the rights of weaker nations. Not only does any championing of right against might appeal strongly to the Chinese national instinct, but again the Chinese have read into these speeches a promise of the deliverance of China from foreign, or in other words Japanese, aggression. It is needless to say that the League of Nations is warmly endorsed by China.

As against this popular enthusiasm for things American, there is a strongly marked vein of cynicism in the higher official view of the United States. She is credited with being sincere in her professions of friendship for China but it is believed that her actions fall short of her words. That in practice she does not consider China of sufficient importance to justify a forcible insistence on the bona-fide application of the “open door” principle. Similarly with regard to the economic development of China, it is difficult to convince these officials that the United States is serious in the proposals which she has made from time to time for railway and other constructive work. They point to a number of past failures to carry out widely advertised plans and to the delay in commencing work on more recent concessions, and conclude again that more has been promised than will be performed. For these reasons it is of great importance that every effort should be made to give some tangible proof of the sincerity of American enterprise in China.

c. propaganda

(1) Activities of enemy propaganda.

During the past three months the work in China of the Committee on Public Information under the able direction of Mr. Carl Crow has done much to increase American prestige and popularity. Two main lines of work have been adopted. An elaborate list of local officials and persons of importance has been compiled with the assistance of American residents throughout the country, to whom literature in Chinese is sent. In this way President Wilson’s speeches for example have been given the widest publicity with most gratifying results. There is no doubt that Mr. Wilson is now the most widely known foreign statesman in China.

A news service has been organized which is to be made self-supporting. Through this service American news and world news from an impartial American viewpoint is distributed in Chinese to various vernacular papers. Of course the initial success of this service has been facilitated by the Committee on Public Information press service, and by the Lyons wireless service from France. It is believed, however, that the usefulness to American national interests of this news service is so great that every assistance should be given to make it permanent, even to the extent of a subsidy, if necessary. Heretofore American news has reached China only through the medium of foreign controlled services, such as Reuter’s (British), Havas (French) and East Asiatic Lloyd (German), and more recent Japanese agencies. Naturally little prominence is given to American news, and it is often colored for national purposes.

Enemy propaganda has naturally suffered an eclipse as a result of the collapse of the Central Powers. A few isolated cases have come to the knowledge of the Legation of post-war German propaganda, which, however, appears to have taken the rather unintelligent form of denying the truth of the news of the German defeat. As German propaganda was directed to inculcating the belief that Germany could not be defeated by the Allies, it has now defeated its own ends. Reports from the interior indicate that most of the German missionaries in China, including a few attached, to American missions, have been active in spreading German views and ideas. The liquidation of the German Bank and the internment or deportation of the known directors of German propaganda should put an effective end to all organized enemy effort in this line.

The only really dangerous feature which still remains available for enemy use is the anti-Japanese feeling in China, which has been made the basis of a number of attempts to engender distrust of the other Allies.

2. Economic Information

a. actual economic conditions

The outstanding feature of the economic situation in China during the quarter under review was the continuance of the disturbed internal conditions noted in the Legation’s last quarterly report. As mentioned elsewhere in this report, no serious military operations took place except in the Province of Fukien. Brigandage, however, increased and assumed alarming proportions in the provinces affected by the civil war, namely, Kwangtung, Fukien, Hunan, Szechuan and Shensi as well as in Shantung and Manchuria. Internal trade and industry was practically paralyzed in Shensi, Hunan and large parts of Szechuan and Fukien in consequence of these conditions. This prevalence of brigandage is due in part to the weakening of authority in the provinces affected as a result of the civil war, and in part, especially in Fukien and Shensi, to the action of the Southern military leaders in seeking the cooperation of brigand bands in their warfare against the Northern forces. From numerous reports received it appears that the bona-fide Southern forces as a whole have been well-behaved and orderly, probably more so than the Northern forces, but that they exercise little, if any, control over their bandit allies.

In Shensi, conditions have been particularly chaotic.

The Consulates in the districts concerned all report a shrinkage of trade, due to these unsettled conditions. Further, there has been a large destruction of property, whole districts in Fukien, Hunan and Shensi having been systematically looted. Agriculture has been interfered with by the requisitioning of animals for military purposes, by forced labor for transport, and by the brigand danger, which has made it unsafe for farmers to till their fields or to reap the harvest except under military protection.

In Hunan and Szechuan the economic distress has been accentuated by reckless issuing of unsecured paper money. According to an estimate of an official in the Ministry of Finance, the province of Hunan alone has outstanding Mex. $100,000,000 in copper cash notes, $70,000,000 in silver dollar notes, and $20,000,000 in tael notes, exclusive of smaller amounts issued locally in certain magistracies, against none of which is any specie reserve held. Under the circumstances, it is not surprising that such notes have ceased to have anything but a nominal value. The authorities have managed to force the currency of such notes by using them for the payment of the troops, who in turn force their acceptance at from four to five times their market value in payment for purchases made.

Beyond question the present intolerable economic conditions are the result of the breakdown of the Chinese civil administrative system and the substitution therefor of an irresponsible military despotism, a production of the chaotic political conditions and the struggle for personal power of the past five years. It would seem vain to hope for any general improvement until the administration of government is once again put on a sound basis and the power of the provincial military autocrats is brought to an end.

In spite of the depressing political outlook, signs are not lacking of an industrial awakening in China. The possibilities of the cotton industry are attracting attention. A lecturing tour, arranged by the Ministry of Agriculture and Commerce, was carried out along the line of the Peking-Hankow Railway with the object of introducing the cultivation of American cotton. A number of new cotton spinning mills have been opened during the past few months, especially in Tientsin where the aggregate number of spindles in the new mills totals 115,000. During December the government appointed Mr. Chou Hsueh-hsi, ex-Minister of Finance, to be Director General of the cotton industry. It may be mentioned incidentally that Mr. Chou is greatly interested in a proposal to form a Sino-American industrial bank, which will have for one of its primary objectives the development of the cotton industry in China. The great interest now being taken in cotton production and manufacture is due partly to the very profitable operations of existing spinning mills in Shanghai during the period of the war and partly to the ever-increasing demand from Japan for raw cotton. The formation of two new steamship companies was reported during the quarter, one to operate on the Pacific and the other on the Yangtsze. The former has chartered six small freighters from the China Merchants’ Steam Navigation Company and the latter has bought out the river fleet of a small British company. At Hankow a stock company has been formed to engage in agricultural pursuits. In Shanghai a company capitalized at Mex. $2,000,000 has been formed to manufacture paper. In Shansi an existing Chinese company has in view the establishment of a steel producing plant.

The establishment of these various joint stock companies is conceived to be no more than an indication of a change which is gradually taking place in China. In the past Chinese capitalists, while often large holders in foreign stock companies, have shown no willingness themselves to form the large domestic corporations essential to the proper development of national industries. Capital for industrial development remains the most urgent need of China and it is the more encouraging therefore to find indications at last of a disposition on the part of Chinese of property themselves to assist in meeting this need.

The problem of railway construction in China, one of the most important economical questions to be solved, has been widely discussed recently. It is generally admitted that the present system of the construction of certain specific lines with foreign borrowed capital is unsatisfactory, first, because the foreign control which is exercised in the interest of bondholders tends to perpetuate foreign spheres of influence, and thereby to restrict the free development of the Chinese railway system, second, because both the financing and the construction of railways under such a system are unnecessarily expensive, and third, because the adoption of diverse standards on the various lines operates against efficiency and economy of administration. With a view to minimizing or eliminating these objections, and possibly as a result of the proposals of the American government looking to the formation of a new international consortium, a number of proposals for the international financing of Chinese railways have been informally discussed. Of these some have provided for a Chinese railway service under foreign direction, to which however the Chinese government is not likely to consent. Nor would it seem that foreign direction is essential. The essential features would appear to be, first, the internationalization and unification of all existing railway lines, second, the international financing of the redemption of existing lines and the construction of new lines, third, the entire elimination of direct control by the financing group over construction work, fourth, the adoption by a qualified technical board, including foreign experts, of standards for construction and equipment, and fifth, the provision in the interests of the bondholders of a rigid system of inspection of construction, management and accounts. On the Chinese side it would be necessary for the Government formally to pledge itself to the creation and support of a railway service based purely on efficiency. Such a proposal it is believed would be welcomed by the Chinese Government.

The operation and economic usefulness of the existing railway lines have been seriously affected by the internal disturbances. For this, military interference with the management of the railways, and the requisitioning of cars for military purposes, are principally to blame, although to some extent the deterioration of the railways is due to the chronic financial disability from which all departments of the government suffer. Conditions are especially bad on the two north and south trunk lines, namely the Tientsin-Pukow Railway and the Peking-Hankow railway. The shortage of freight rolling stock on the latter has become so acute as to have led the foreign trading community of Hankow to lodge a formal protest with the Diplomatic Body in Peking. Those concerned allege that in some cases cargo has been waiting for months at interior rail points for transport, while in other cases contracts already made have had to be cancelled owing to the inability of shippers to secure transport for goods already purchased in the interior. For the same reason Hankow has been suffering from a coal famine. It is known that very similar conditions exist on the Tientsin-Pukow Railway, although perhaps not to the same extent. With the possible exception of the Shanghai-Nanking Railway, every line in China appears to be insufficiently equipped with rolling stock to handle the freight offering. Passenger traffic is equally affected. Carriages of all classes are infested with unclean soldiers, who apparently travel at will and are under no restraint whatever. Needless to say they pay no fares. The danger from brigands to the Tientsin-Pukow Railway became so acute during December as to cause a change in the company’s time table whereby the running time between Pukow and Tientsin was increased by several hours, in order to pass the danger points during daylight. As evidencing the entire worthlessness of the existing Chinese soldiery, it may be remarked that it is in these same bandit-infested regions that the soldier nuisance is at its worst.

On November 18th the Chinese Director-General of the Hukuang railways applied to the Peking representatives of the American, British and French financing groups of that railway for a further loan of £.4,000,000 in accordance with Article 15 of the Hukuang loan agreement, alleging that the administration had long ago exhausted the original loan of £.6,000,000, and that for some time past the Ministry of Communications had been supplying working funds for the Wuchang-Changsha section amounting to Mex. $120,000 a month. The Director-General pointed out that construction work should also be undertaken on the section between Chuchow and Canton, whereupon the expenses of the Wuchang-Changsha section would be reduced by the transfer of the engineering staff to the Southern section to undertake construction work. In case the Consortium should be unable to make the desired loan, the Director-General requested a silver advance of from $70,000 to $100,000 monthly to be deducted from the loan when ultimately made. This request was referred by the Peking representatives to their principals but no reply has yet been received. In this connection the Peking representatives of the group[s] drew the attention of the Minister of Communications on December 27th to the fact that about Mex. $1,000,000 is due to the Wuchang-Changsha section of the railway by the Ministry of War for the transportation of troops; they pointed out that it was not possible for them to press their principals for further advances while this large sum remained due to the railway, and requested the Minister of Communications to press for an early payment in order that the funds concerned might be made available for the use of the railway. No reply had been received from [by?] the groups up until the end of the year. The whole question of construction work on the Hukuang railways is complicated by the fact that the German group was one of the original partners in this enterprise and had assigned to it for construction the section between Hankow and Ichang. This is the most important section of the whole system, as it would be of little practical use to construct the American section from thence to Chengtu without the connecting section from Ichang to Hankow. The unconstructed portion of the British section from Chuchow to the present rail-head in Kwangtung, while of strategic value and of convenience to passenger traffic, is not an urgently needed line from an economic point of view, as it passes largely through undeveloped country of extreme difficulty from an engineering point of view.

As pointed out in the Legation’s despatch No. 2438,² it would probably be possible to obtain from the Chinese Government the right to take over the construction of the German section which, taken in conjunction with the present American section of this system and the Siems-Carey options, would enable a trunk line to be built from Chengtu to Hankow under purely American control. It is unnecessary to point how great would be the advantage of Americans holding the option for the construction of such an important line should it be decided to attempt the international pooling of Chinese railway construction. At the present moment in putting forward such a project the American interests have to offer as their share of the pool only the American section of the Hukuang railways and the somewhat vague Siems-Carey options, a number of the projected lines under which are protested by one or the other of the Powers as infringing options previously granted them.

In connection with the construction of the projected extensions to the Shantung railway, discussed in detail in the Legation’s last quarterly report, I venture to invite attention to a statement made to the American Consul at Tsingtau by the Japanese civil administrator at that port, quoted in the Consul’s despatch No. 243 of February 18th,³ to the effect that the revenue of the Shantung railway, amounting to between 7,000,000 and 10,000,000 silver yen per annum, is to be expended in building these extensions. Inasmuch as the Japanese Government is merely operating this railway in a fiduciary capacity pending the ultimate decision as to its final disposition, it seems remarkable that the Japanese authorities should appropriate the earnings of the railway and lend them as Japanese funds to the Chinese Government to be first charges on railway extensions to be built. The original right of the Japanese government to seize this privately-owned German line has always been open to question, and it would seem, in the absence of any binding agreement between China and Japan to the contrary, that the Chinese Government would be entirely within its rights in dealing with this property as other German-owned private property in China. If the earnings of this railway are not the property of the German owners thereof, it would seem that in equity the Chinese Government has a first claim thereon. If the Japanese view that the German proprietary company is in effect a German government concern is found to be correct, the Chinese position is greatly strengthened thereby. It is difficult to see by what right the Japanese government can seize and hold German government property in China.

. . . . . . .

I have [etc.]

Paul S. Reinsch

2. See ibid, pp. 118–119.
3. See Foreign Relations, 1918, pp. 114–115.
4. See ibid., p. 120.
5. See ibid., p. 134.
2. Jan, 10, 1919; not printed.
3. Not printed.