The Minister in China (Reinsch) to the Acting Secretary of State
[Received July 22.]
Sir: I have the honor to submit the following report on the general political situation in China during the quarter ending March 31st, 1919:
1. Political, Information
(1) Political observations and developments.
The first quarter of the year was not characterized by any important developments in domestic politics. The internal peace conference was convened at Shanghai late in January [sic] after many delays, due principally to mutual charges of the violation of the armistice, but suspended its sittings for the same reason at the end of February [sic] without having accomplished anything toward a settlement of the domestic difficulties and did not reconvene during the quarter. While there was a great deal of the usual petty intrigue, neither the civilian or peace party, nor the military clique appeared willing to force an issue, probably as a result of a desire to await the outcome of the Paris Conference before being definitely committed to any policy. Through this irresolution the peace party, headed by the President, lost much of the prestige with which it commenced the year, while the failure of the peace conference to recognize its opportunities and responsibilities has led to a general scepticism of its ability to settle the important issues before it.[Page 329]
To take up the history of the conference in more detail, as has already been remarked, the early convocation of the conference was delayed by mutual charges of the violation of the armistice in Shensi and Fukien, by a dispute as to the place of meeting and by the dilatoriness of the Southern Military Government in naming delegates. The first difficulty was met by an agreement to limit military operations to the suppression of brigandage, the second by the Peking Government yielding to the desire of Canton to hold the conference in Shanghai, while the appointment of the Southern delegation was materially hastened by the action of the Diplomatic Body in authorizing the release of Customs funds to the Central Government on January 25th unless the conference should have met meanwhile and directed otherwise. In passing it may be remarked that the amount so released was approximately $10,000,000 and was released on the specific understanding that it should be devoted to the service of domestic loans ($4,000,000), diplomatic and consular expenses ($1,800,000), Canton conservancy work ($1,000,000) and withdrawal and disbandment of northern troops in Hunan ($2,200,000). There remains some question as to whether this sum was actually so expended.
The conference was finally convened late in January [sic] and continued sitting for about one month. The sessions were occupied principally with wrangles regarding troop movements in Shensi and Fukien, the dealings of the Central Government with Japan, particularly the Arms loan, the continued recruiting for the Northern Armies and the issue of domestic loans by the Government. Very little attention seems to have been paid to the discussion of fundamental questions. On February 28th, following the resignation of the Northern delegation en bloc, the Southern delegation presented an ultimatum to the Central Government demanding an answer within forty-eight hours to its proposals for the effective enforcement of the armistice and for the removal of Chen Shu-fan from his office of Military Governor of Shensi. Failing to receive a reply within a suitable time, the Southern delegation stated that it would lay the matter before the Foreign Ministers to China, which was done in a telegram to the Dean of the Diplomatic Body dated March 3rd.42 The telegram laid emphasis on two points, the hostilities in Shensi and the continued recruiting for the National Defense Army. In a telegram dated the same day refusing to accept the resignation of the Northern delegation the President outlined the official views of the Central Government. Briefly these consisted of a denial of the southern charges of bad faith and a [Page 330] counter charge of unreasonable obstinacy against the Southern delegation. The telegram gave no very convincing explanation of the continuance of hostilities in Shensi and rather supported the Southern charges that “the Peking Government is either manifestly guilty of insincerity … or else its authority carries no weight.” It is believed that this telegram was forced on the President by the military party and that the President was in sympathy with the conference in its protest rather than with the northern militarists. It was commonly accepted as a fact that the action of the conference in suspending its sittings was intended to strengthen the northern peace party against the military and that the resignation of the northern delegation was a pure formality with the same object. The sittings of the Conference were not resumed during the quarter and its subsequent career belongs to the events of the following quarter.
It is difficult to refrain from criticism of everyone connected with the conference. The northern militarists were against it from the beginning and made every effort to obstruct its success. The conference itself failed to realize its responsibilities and opportunities and wasted in endless bickering the time which should have been spent in the formulation of a programme of reconstruction and the adoption of a definitive policy to support which an appeal to the powers could have been made. The President, the sincerity of whose motives no one questions seriously, displayed the irresolution and lack of political courage which is characteristic of Chinese leaders of today and lost the golden opportunity for prompt statesmanlike action which undoubtedly existed early in the year. The Southern Military Government appeared to have been entirely unconscious of or to have deliberately disregarded China’s critical position and helped to wreck the conference by devoting its sole energies to political intrigues designed to strengthen its position in the doubtful provinces.
Early in January a number of conversations took place between the representatives in Peking of the powers associated in the war in regard to a proposal to make a declaration to the Chinese Government that no further foreign loans would be made to the Chinese Government until the country was reunited. A similar engagement in regard to the supply of arms and ammunition was discussed, as mentioned in my last quarterly report. While no definite action was taken at the time in respect to either of these suggestions, mainly owing to the attitude of the Japanese Government which stated that it could not interfere with contracts already in course of execution, the principles advocated were tacitly adopted as a common policy by the foreign governments concerned; Japan, the last to adopt the [Page 331] point of view, having finally, in the middle of March, suspended further deliveries under the Taihei arms contract and having suggested to the Chinese Government that the money already deposited to its account under the military agreement be not drawn upon. In view of subsequent developments, during the ensuing quarter, it is worth noting that approximately Yen 15,000,000 of arms and ammunition were delivered under the Japanese arms contract between the time that the embargo was proposed by the American Government in December, 1918, and the final suspension of deliveries in March. The adoption of a policy of prohibiting further export to China therefore aroused no little resentment in the south, which claims, with some show of justice, that the north has already received a supply of ammunition adequate to the resumption of hostilities at any time.
As showing in some measure the relative military strength of the various political parties, there is appended a digest of a report on Chinese troops in the field prepared by the Military Attache’s office at the end of February.
|Affiliated||with||Dr. Sun Wen42||130,000|
In comment on the above it may be stated that of the 130,000 troops listed as affiliated with Dr. Sun Wen the allegiance to him of most is more than doubtful. The northern military leaders seem satisfied that Tang Chi-yao, Military Governor of Yunnan, is the controlling factor in the southern federation in a military sense, and they have been in direct communication with him for months past with the object of arranging a peace by understanding between the northern and southern military groups which will perpetuate the military control of the Government.
On January 9th the reorganized Cabinet was approved by Parliament and continued in office during the quarter. The only changes [Page 332] made by the reorganization were in the portfolios of Finance and War, Kung Hsin Chan having been appointed to the former and General Chin Yun-p’eng to the latter post.
The second session of Parliament commenced on March 1st. The deliberations of Parliament attract no interest, as it is generally recognized that with the government as at present organized all real power is in the hands of the Cabinet and the military leaders.
(2) Attitude toward the war and [the] peace conference.
Early in the year, as a result of oral suggestions made by certain of the Legations, the Chinese Government decided definitely to repatriate German residents in China. The Government’s orders were made applicable to all Germans but certain general exemptions were granted, such as to persons over sixty years of age, to widows, to wives of German officers and men interned in Japan, to sick persons, to Germans who had spent many years in the Chinese Government service and to such persons as were recognized by the Legations concerned as citizens of the newly established states in Europe. In addition a considerable number of Germans were exempted individually at the request of the several Legations. In all about two thousand Germans were included in the repatriation orders. Considerable difference of opinion was manifested as to the desirability of repatriating doctors and missionaries. The Chinese Government in the first instance showed a disposition to grant a general exemption to all those engaged in important charitable, educational or philanthropic work, but owing to the opposition of certain of the Allied Legations this general exemption was never granted. Under instructions from the Department of State, the American Legation continued to urge on the Chinese Government the most liberal construction of the repatriation orders in their applicability to these classes consistent with the objects in view. As a result of these differences of view, the repatriation of these classes was carried out in rather an uneven manner, considerable numbers having been removed from certain districts while in others practically none were touched. Ultimately the American view seems to have been tacitly accepted and there was very little interference with German missionary work on the Yangtze and in Southern China.
The Government also established a Sequestration Bureau to take charge of enemy property. Branch offices were set up throughout the provinces. The working of this Bureau has not been satisfactory, as in some places, notably in Tsinanfu, extensive sales of German property were permitted, whilst in others even the rental of sequestered property was refused.[Page 333]
Early in the year the Central Government added to the Chinese Peace Delegation in Paris Mr. C. T. Wang and Mr. C. C. Wu, both of whom were closely associated with the Southern Military Government at Canton. This was done in order to meet the criticism that the Chinese Delegation was not representative of the nation as a whole. These appointments were received with very general satisfaction and it is gratifying to state that the Delegation in Paris received the united support of the whole country throughout the negotiations, although the Southern Government did not cease to cavil at the manner in which the appointments were made, and even went so far as to elect a separate delegation of its own, which however did not proceed.
(1) Relations with foreign countries.
The presentation to the Peace Conference at Paris of China’s case in regard to Shantung aroused great interest, and the first cabled reports that the Chinese Delegation had made an excellent impression on the Conference gave rise to the belief that the Conference would support China in her request that the German rights and privileges in Shantung would be finally extinguished by the direct return of Kiaochow and the German properties in the province to China. It will be recalled that in response to the request of the Conference for full information as to the Sino-Japanese engagements respecting Shantung the Chinese delegation proposed to lay all secret agreements between the two countries on the table. This led to what was generally termed the “Obata incident.” On February 2nd Mr. Obata, the Japanese Minister called on the Foreign Office to express his dissatisfaction at what he termed the unfriendly attitude toward Japan of the Chinese delegation in Paris. He took especial exception to Dr. Koo’s offer to lay all secret agreements on the table, which he contended according to diplomatic usage should not be done without first reaching an understanding with Japan, as the documents in question affected Japan equally with China. Mr. Obata stated that Japan would have no objection to publishing the private agreement of September 24th, 1918 (which confirmed Japan in her succession to the German rights in Shantung). He concluded with a veiled threat, pointing out that Japan had a Navy of 500,000 tons and an army of 1,000,000 men waiting idle.
This interview brought forth a storm of protest from the country. Mr. Obata’s remarks appear to have been ill-judged to say the least, as they helped to inflame the anti-Japanese sentiment throughout the country, while, if intended to intimidate the Chinese delegation, they failed entirely, as the delegation continued to urge the [Page 334] justice of China’s claims to the end. The discussion of China’s position in regard to Shantung may better be left to be dealt with in connection with the events of the succeeding quarter, when the Shantung question was finally settled. It may be remarked in passing that the opinion was strongly held in both foreign and Chinese circles that the Conference would accept the Chinese view of the case and accede to China’s request.
As has been noted in previous quarterly reports, China’s foreign policy of recent years is occupied almost exclusively with Japanese relations, all other matters being considered primarily in their relation thereto. This has continued to be true. In the Peace Conference, China thought she had found the means of defeating Japanese aggression without taking any undue risk herself and the Conference therefore engaged the attention of the Chinese public practically to the exclusion of all other matters of foreign policy. For the same reason the League of Nations makes a strong appeal on principle to China.
During early February the agreement reached amongst the associated powers in regard to the administration of the Siberian and Chinese Eastern railways was communicated to the Chinese Government. The latter showed a feeling of pique at not having been consulted earlier with regard to the Chinese Eastern Railway, in which she has a direct interest, not only on account of its location in Chinese territory, but also as a present part owner and the ultimate reversionary owner; in consequence the Government suggested certain modifications in the arrangements made. In view of explanations that these arrangements would in no way interfere with the rights enjoyed by China under the Chinese Eastern Railway construction agreement with Russia, but applied only to the Russian management under that agreement, the modifications suggested were withdrawn and China accepted the scheme, suggesting however that wherever possible Chinese technical assistance should be utilized on the Chinese Eastern Railway and that the line should be guarded by Chinese troops, as provided for in the construction agreement. Chinese representatives on the Inter-Allied Board of Control and on the Technical Board were appointed.
(2) Attitude toward the United States and Americans.
Due to the belief already mentioned that China would recover her lost rights in Shantung through the Paris Conference and that the United States would be instrumental in bringing this about, America reached the zenith of her popularity and prestige during the quarter. The Chinese press continued to be friendly in tone and there was evident a desire to accord sympathetic consideration [Page 335] to any American proposals. Rightly or wrongly the Chinese felt that China had entered the war under America’s wing and that America would stand sponsor for her at the Conference.
Further, the President as has been noted in previous reports, enjoys a large measure of personal popularity in China as the advocate of impartial justice and the champion of the weaker nations.
It is with regret that there must be recorded a growing tendency in the interior to treat foreign residents with a disrespect which in many instances amounts to insult. As a rule, it is the Chinese troops who are the offenders. While no serious outrages against Americans were reported during the quarter, the tendency mentioned was made the subject of a number of reports to the Legation. Foreign travellers on the railway were subjected to annoyance by soldiers, in some cases being expelled from their coupés. Missionaries report insulting remarks passed by troops. While these incidents taken individually are of trifling importance, any general decline in foreign prestige in the interior is bound to lead to serious consequences, as this is the sole defence of foreigners in remote parts of the country. This unfortunate tendency may be accounted for by the fact that the troops in China as a rule are under very lax discipline, are recruited from the worst classes, and that it is next to impossible sufficiently to identify offenders to make individual punishment possible.
(1) Activities of enemy propaganda.
With the conclusion of the armistice and the arrangements made for the repatriation of German residents in China, there has been an almost complete cessation of enemy propaganda in China. One or two instances have been reported from the Yangtze region of stories in circulation which are obviously of German origin, discrediting the Allied victory, but it is believed that all organized enemy propaganda is at an end.
(2) Anti-American propaganda.
There have been repeated instances brought to the attention of the Legation of violent and scurrilous attacks on America and things American in Japanese owned Chinese papers. These cover a wide range and include political attacks, personal attacks on President Wilson, personalities regarding American officials such as a charge that the American Consul at Tsinan was smuggling opium, and attempts to stir up Anti-American feeling, such as the report, appearing in the premier Japanese owned Chinese daily in China, in [Page 336] connection with the Tientsin fracas,42 that several tens [sic] of Chinese had been killed by American soldiers. Generally speaking these articles do little harm under existing conditions, as the Chinese recognize them as inspired products and discount them accordingly. Moreover their very violence defeats their own ends.
There has also been apparent an attempt on the part of the Japanese to revive the pan-Asia movement and to stir up racial animosity in China against white residents. This has however met with no success.
As against this Japanese propaganda, there must be noted a very general tendency in both the Chinese and foreign press to criticize things Japanese in no uncertain way. …
2. Economic Information
a. actual economic conditions
The railway unification scheme mentioned in the last quarterly report, continued to be widely discussed. The Diplomatic Advisory Council adopted the principle of unification and international financing of Chinese lines and recommended it to the Chinese Delegation in Paris, but against this must be recorded the opposition to the proposal developed with the new Communication clique, which, in conjunction with the Northern Military party, practically controls the Government. The reasons for this opposition are varied: In the first place the Diplomatic Advisory Council is under the control of the Chin Pu Tang, the political rivals of the Communications clique, and the endorsement by the Council alone would probably be sufficient to account for the opposition. Additional reasons are that unification and international financing would reduce materially the opportunities for corruption, and would weaken the very strong hold which this group now has over China’s railroad system. There is probably a genuine fear that some elaborate foreign railway administration may be imposed on China. Finally a criticism continually repeated is that the scheme would not include within the scope of its operation the four concessionary lines, that is, the Chinese Eastern Railway, the South Manchuria Railway, the Shantung Railway and the Yunnan Railway. The proposals of the new Consortium in this regard will be awaited with great interest.
The inadequate traffic facilities on existing lines noted in the last report showed no improvement during the quarter. It is understood however that a number of contracts have been or are about to be placed to remedy this.[Page 337]
The difficulties of the Kiukiang-Nanchang line, mentioned in the last quarterly report, again attracted public attention. According to press reports a further Japanese loan is contemplated.
A number of conversations were had during the quarter with relation to the extinction of German interests in the Hukuang railways. These did not result in definite action until the ensuing quarter however.
It is with regret that the continued and wide spread cultivation of poppy must be reported, in many places with official sanction. It is believed that the central authorities of both the Northern and Southern Governments are sincere in desiring to suppress this, but the local authorities in many of the provinces, hard pressed for funds, do not hesitate to grant permission to plant against the payment of heavy taxes. The Legation is without any reliable reports from Kwangsi, Kweichow, and Yunnan, but consular and missionary reports make it abundantly clear that opium growing on a very large scale is being carried on in Shensi, Fukien and Szechuan.
The prevalence of brigandage and piracy noted in the last quarterly report has continued unabated. Indeed in the province of Shensi matters went from bad to worse and traffic west of Hsianfu was suspended throughout the whole quarter on account of brigand activity. In parts of Fukien there was some slight improvement but over much of the province and in the Canton Delta brigandage and piracy were of common occurrence.
During the quarter there was brought forward, in connection with the release of Customs supplies [surplus] funds, a project for flood prevention in the Canton Delta. The lands in this area subject to inundation and protected by dykes total 8,300,000 “mow” of which 5,538,000 “mow” are agricultural lands. The Canton Conservancy Board has elaborated a scheme of dyke repair and reconstruction to extend over fifteen years and to cost about $34,000,000. Pending financial arrangements to enable this to be taken in hand, the Conservancy proposes a subordinate scheme to cost about $11,000,000 and to be executed in six years, which it is hoped can be financed from Customs surplus funds.
Two very destructive fires occurred during the quarter, one at Swatow entailing a property loss of about $2,000,000 and one at Pengpu, Anhui, where the loss was variously estimated at from $2,000,000 to $10,000,000.
The Chinese Government during March urged on the various Legations its desire for the speedy ratification by the Governments concerned of the Revised Import Tariff. Up till the end of the quarter none of the Governments concerned had given formal ratification. [Page 338] In this connection it is necessary to note the continued violation of existing conventional tariff arrangements by the provincial governments with the full approval of the Central Government. By treaty, upon payment of extra half import duty a foreign merchant is entitled to secure a transit pass which frees his merchandise from “all further inland charges whatsoever”. Of recent years the Chinese have been devising one new tax after another to evade the terms of this treaty prohibition. Of these the destination tax has been collected now for some years despite repeated foreign consular and diplomatic protest.43 Originally the destination tax was collected only from Chinese merchants in the interior after the foreign imported goods had passed out of the hands of the foreign importing firm. The foreign authorities have practically ceased to protest against this, realizing the futility of so doing. Latterly it appears that the provincial authorities have gone a step further and are now collecting this tax on foreign imported goods immediately on arrival at port of destination and while still in the hands of the foreign importing firm. The repeated protests of the Legation against this flagrant violation of a treaty exemption have been without avail.44 In certain parts of the country, notably Shensi, another tax, called the Commercial Tax is being collected, alike on goods covered by transit pass and ordinary shipments. Inasmuch as the Revised Tariff will increase materially the cost of transit passes, it is felt that strong measures should be taken to force the Chinese Government to give effect to the provisions of the treaties granting immunity from inland taxation.
In connection with the domestic peace conference a number of reorganization plans were brought forward informally by various personages connected with the conference. Of these that prepared by Mr. Chu Chi-chien contains a mass of interesting economic information. While this document is too long to be reviewed in any detail, the following notes deserve consideration. During the last days of the Manchu regime the annual budget amounted to roughly $356,000,000 and showed a very small annual deficit. During the first year of the Republic the budget increased to $642,000,000 and despite a large foreign loan ($225,000,000) a deficit of $86,000,000 was recorded. During 1914 and 1915, when conditions were more or less normal, the budget was reduced to $382,000,000, and a credit balance of $30,000,000 was shown. In 1916 the estimated budget was $472,000,000 showing a slight credit, but owing to the recurrence of disorders, many items of income fell far short of the estimates, [Page 339] while military expenses were largely increased, with a resulting deficit of $80,000,000. Turning to the item of military expenses, Mr. Chu estimates that in 1918–1919 there were in all 1,290,000 men under arms (both Northern and Southern forces) requiring $209,000,000 for maintenance. Of this sum the Central Government pays $90,000,000 odd. The figures given make no allowance for increases in the southern provincial forces since 1917 nor do they include cost of upkeep of arsenals, etc. In summarizing Mr. Chu estimates the available annual income of the country at $370,000,000 as against the present annual expenditure of $507,000,000, of which nearly half is for military expenses of one sort or another. For the service of national debts $120,000,000 are required, and for administrative expenses at least $130,000,000. From a study of these figures Mr. Chu concludes that China’s only hope of getting on a sound financial basis lies in reducing military expenditures from approximately $240,000,000 (cost of troops maintenance plus arsenals and other military expenses) to $110,000,000. This would necessitate the disbandment of fifty army corps, which it is estimated will cost $50,000,000. Moreover there are in addition some $30,000,000 due as back pay. As the disbandment cannot be carried out simultaneously all over the country, it is estimated that between $45,000,000 and $65,000,000 will be required to pay troops pending this disbandment. To this must be added some $8,000,000 for transportation expenses in connection with withdrawal. Tabulating these items Mr. Chu reaches the following conclusion:
Disbandment Within One Year
|Expenses of disbandment, payment of arrears, maintenance pending discharge||$95,000,000|
|Cost of withdrawal||8,000,000|
|Cost of providing employment after discharge||30,000,000|
|Deficit before conclusion of loan||60,000,000|
Should disbandment be carried out over eighteen months instead of one year, the first item will show an increase of $22,000,000. Mr. Chu holds that these expenses must be met by a foreign loan.
Other interesting statistics shown are the amounts expended on education by the Central Government $4,272,000 and by the Provinces $35,000,000, or a total of say $40,000,000 for education as against nearly $250,000,000 for army and navy combined. In addition to this purely military expenditure nearly $20,000,000 is spent for police and gendarmerie.[Page 340]
It should be noted that Mr. Chu’s estimates of the cost of disbandment are based on the figures of the 1913 disbandment. This was carried out in a most irregular way, and it is the conviction of many who are in a position to know the facts that few if any troops were actually discharged on that occasion. Further it is questioned if the actual number of men under arms in the various divisions and brigades is within measurable distance of the totals claimed. It is therefore suggested that if disbandment is carried out under adequate supervision, the amount necessary will not approach Mr. Chu’s estimates.
It is interesting to note further that one of the most prominent northern militarists has expressed the opinion that no foreign loan is necessary. This probably means that the northern military party would be [sic] prefer to chance obtaining funds from one source or another to continue the payment of troops rather than to have an effective disbandment carried out.
All Chinese are agreed as to the necessity of providing employment for discharged troops. As expenditures for this purpose would be productive, no difficulty in raising funds therefor is anticipated, and it is suggested that the amount shown in Mr. Chu’s estimates for this purpose might well be increased.
. . . . . . .
4. Financial Information
a. loans, domestic and foreign
No foreign loans of any importance were contracted during the quarter, a result presumably of the tacit understanding between the powers that no further financial assistance will be afforded to either the northern or southern governments until the country is reunited.
Early in the year the Government planned to float a domestic loan of $40,000,000. The proposal aroused much opposition in the South and as the prospects for the success of the loan were not bright, public offer for subscriptions is understood to have been abandoned, although the bonds were used as collateral in various smaller loans.
Faced with an average monthly deficit of $10,000,000 and with all foreign financial assistance withdrawn, the position of the Government has been desperate. Recourse has been had to the wildest expedients to raise cash. Short term loans of small amounts have been negotiated with native banks at 15 to 20% interest secured on treasury bills or domestic loan bonds in four times the amount of the principal. Failing the prompt solution of the domestic difficulties whereupon a foreign loan would be available, a financial crash appears to be inevitable.[Page 341]
b. fluctuations of exchange
The banks average buying rate of U.S. $100 for January was Peiyang $111.92, for February was Peiyang $119.72 and for March was Peiyang $124.18. The highest point touched during the quarter was Peiyang $126.14 and the lowest point $111.02.
It may be interesting to note that actual gold coin brings greatly higher returns. There is not a sufficient market to give accurate quotations but there is never any difficulty in securing Peiyang $160 for $100 U.S. Gold coin.
c. financial conditions in general
The desperate financial straits of the Government has been touched on already under the headings of Economic Information and of Loans.
It seems to be generally recognized that recourse must be had to foreign financial aid to get through the critical period of reconstruction, but it is feared that there may yet be no little difficulty in inducing the Chinese Government to agree to such measures of auditing or other control as the Consortium may consider essential to safety. Despite the fact that the vast majority of Chinese themselves admit the corruption and inefficiency of the financial departments of the Government, they are bitterly opposed to whatever savors of foreign control of Chinese national finance. Those interests in Peking which view with disfavor the sound and conservative principles insisted upon by the Consortium, appear to be playing upon this fear of foreign control. It is believed that China may be induced to accept the principle of a foreign auditing control, provided that her liberty of action in regard to fundamental questions of financial policy is respected.
I have [etc.]