893.00 P.R./41

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

No. 712

Sir: In compliance with the Department’s standing instructions, and in continuation of the Legation’s despatch No. 680 of December 18, 1930, I have the honor to transmit herewith a Report on the Political and Military Situation in China for the month of December 1930.

Respectfully yours,

Nelson Trusler Johnson

Monthly Report for December 1930

I. The Political Situation

1. Conferences at Tientsin.

While in November the center of the political stage was held by Nanking, in December all eyes were focused upon Tientsin where Marshal Chang Hsueh-liang has been conferring with the principal Shansi leaders regarding the rehabilitation of the Northwest.

The Young Marshal left Nanking on December 4th and arrived in Tientsin on December 6th, and although it was expected that he would remain only a few days, the end of the year found him still there. The length of his stay is probably due not only to the inherent difficulties of the problem but also to the fact that most of the leaders he sent for did not reach Tientsin until after the middle of the month, except General Yen Hsi-shan who had arrived on December 2nd in disguise. [Page 74] Although both Yen and Chang denied that they conferred with each other in person, it may be assumed that they at least kept in close touch through third parties. At any rate, Yen’s definite elimination was accomplished by his departure for Dairen on December 22nd. Besides his immediate family he was accompanied by Chao Tai-wen, the former Chairman of the Control Yuan, Lu Ti-jen, a former Finance Commissioner of Hopei, as well as Liang Ju-chow and General Sung Chi-yuan.

Before leaving Tientsin General Yen Hsi-shan issued the following statement:

“I am proceeding first to Dairen in order to spend the New Year holidays there. Then, I hope to go to Japan by way of Korea.

“As I have definitely retired from politics, I have no intention whatever to return into China’s political life in future.

“I intend to devote the rest of my life to the development of the culture and social welfare of the country. In Japan I hope to make a thorough inspection of the social life both in the cities and in the country.

“After completing my inspection of Japan, I hope to go to Europe and America, making the tour of various countries lasting for about a year. On completion of my tour abroad, I will again visit Japan for a stay.”

It is said that the Japanese Consul General in Tientsin obtained from him a written pledge to refrain from political activities while in Japan.

Among the other Shansi leaders with whom Chang has been conferring are Generals Shang Chen, Hsu Yung-chang, Fu Tso-yi, and Yang Ai-yuan (the former Chairman of Chahar).

The Kuominchun (Marshal Feng Yu-hsiang’s troops) were represented by Generals Sun Liang-chen, Sung Chi-yuan, Peng Ping-hsun, Sun Tien-ying, Kao Kwei-tze, and Chang Tzu-chung. Feng himself never went to Tientsin and is still somewhere in Shansi.

In addition to the above the Young Marshal has summoned to Tientsin a number of minor officials, such as the finance commissioners of Shansi and Suiyuan, the Chairman of Jehol (General Tang Yu-lin), the “grey” General Shih Yu-san, and others.

Although these conferences have been held in secret and no details have been made public, it is understood that the following questions relating to the rehabilitation of Shansi and the remnants of the Kuominchun have been discussed:

Disbandment of troops and distribution of garrisons. It is estimated that the Shansi forces still under arms number about 160,000 and the Kuominchun forces about 80,000. It is proposed to reduce both to less than 50% of their present strength.
Financial arrangements. This involves the very troublesome question as to how much the troops are to receive (including arrears) [Page 75] and who is to be responsible for this expenditure in the future. It is calculated that the monthly cost of the present military establishment in Shansi and of the Kuominchun is nearly $(Mex.)5,000,000, while the revenues of the province amount to only about $(Mex.)1,500,000 a month. The Shansi generals are demanding a minimum of three million dollars for the disbandment of their forces, and the Kuominchun leaders want nearly as much. The situation is complicated by the extraordinary depreciation of the Shansi paper currency (50% of its face value) and by the fact that the abolition of likin will considerably reduce the provincial revenues. It is said on good authority that Chang Hsueh-liang has appealed to Nanking for assistance in solving this knotty problem and that the matter has been referred to the Ministry of Finance. In the meantime the troops are suffering greatly from hunger and cold.
Reorganization of the civil administration. It seems certain that General Shang Chen will be in charge of Shansi’s political affairs which he has been handling since Yen’s retirement. But as neither he nor General Hsu Yung-chang are natives of Shansi there is considerable local opposition to them. It is also expected that a number of appointees from Manchuria will be included in the new civil administrations of Shansi and Suiyuan.

It may well be doubted whether the Young Marshal, when he undertook the responsibility for the settlement of the military and political affairs north of the Yellow River, realized the extraordinary complexity of the problems. Nor can he be certain that either the engagements he entered into in Nanking or the decisions reached in Tientsin will receive the wholehearted support of his older colleagues in the three Northeastern Provinces. The latter have always been opposed to intervention in China proper (see the Legation’s despatch No. 521, October 12, 1930, page 343) and unless they receive some very tangible financial advantages they may make it difficult, if not impossible, to put into effect the most important of the commitments made by the Young Marshal. It is therefore expected that as soon as Chang returns to Mukden he will call a political conference, to be attended by the more important politicians and generals, for the purpose of submitting to them his ideas for the unification of China.

It was also inevitable that Chang’s protracted negotiations with so many of the Opposition leaders who until recently had been in open rebellion against the Government should give rise to the suspicion that his prolonged stay in Tientsin may be a sign of incipient disloyalty to Nanking. Chang’s own sincerity and patriotism are not doubted, but the men in the National Government know only too well that the Northerners are still instinctively opposed to the political doctrines [Page 76] and pretensions of the Kuomintang, and that Nanking must be careful not to lose face by allowing the complete substitution of the Young Marshal’s hegemony for its own authority in North China.

. . . . . . . . . . . . . .

II. Military Affairs

1. Army Reorganization.

The Military Reorganization Committee, of which President Chiang Kai-shek is chairman, has definitely decided to reduce the size of the national army as quickly as possible, both in order to remove the temptations which the existence of large bodies of troops puts before provincial warlords, and to cut down military expenditures. It appears that China has today a standing army of 280 divisions—the largest in the world—which costs the country, including local expenditures by the provinces, the stupendous sum of about fifty million dollars (Mex.) per month. It is now proposed to reduce the national army to 100 divisions, of which 60 will constitute the forces of the Central Government and 40 divisions of the “National Frontier Defence Forces” (i. e. Manchurian, Shansi, Kuominchun, et cetera). There are to be three categories of divisions: (a) divisions consisting of 3 brigades, 6 battalions, a regiment of artillery, transport, and a special regiment; (b) divisions of 2 brigades and 6 battalions; and (c) divisions of 2 brigades and 4 battalions. All special armies and divisions organized during the civil war will be disbanded and the wartime titles and posts of field-commander and army-commander will be abolished. The total cost of the army is not to exceed $(Mex.)12,000,000 per month.

It is to be hoped that this will prove a sincere effort to reduce China’s armies to more manageable proportions and that means will be found to use the demobilized soldiery in the shape of “labor armies” for the execution of necessary public works, such as roads, railroads, and canals.

Incidentally, this should do away with the excuse for the occupation of the numerous foreign mission properties which are now being used by the authorities for the quartering of troops even where other buildings are available.

2. Communist-Bandit Suppression.

The day after Marshal Chang Hsueh-liang left Nanking for Tientsin (December 4) President Chiang Kai-shek started up the Yangtze River to organize in person the anti-Red campaign by which he is determined to rid Central China not only of communistic elements but of all ordinary banditry as well. Chiang spent several weeks in Kiukiang, Nanchang (Kiangsi), and Hankow, returning to Nanking on December 26th. He conferred everywhere with the leading provincial [Page 77] civil and military commanders and impressed upon them the necessity of employing only loyal and efficient magistrates, as he believed that the disloyal and incompetent ones had been primarily responsible for the widespread collusion between the authorities and the outlaws. The Generalissimo has already dismissed a number of officials and has ordered others to be tried by court-martial, notably General Ting Ying, the commander of the 13th Division, for his failure to hold Kian last October. On the other hand, he has offered liberal rewards for the capture of the principal communist leaders.

President Chiang realizes that bandit-suppression is still the most pressing task of the government, and that if these disorders are permitted to continue unchecked not only will his personal prestige suffer but there is a distinct danger of cooperation between the pseudo-communists and the dissidents from the Kuomintang. It is a difficult political, as well as strategic problem. Swift action will be necessary if the morale of the government forces is to be maintained. But the enemy is elusive—mostly local men who hide their arms on the approach of troops and melt into the general populace—and the resources of the government are by no means unlimited. 300,000 regular troops have already been poured into the Middle Yangtze area and three squadrons of aeroplanes are to assist them. It is not clear why the air forces were not used long ago to bomb the bandits out of their entrenched positions along the river. Nor is it clear why there seems to be no cooperation between the military and the Chinese river gunboats. The clearing of the river banks is apparently left almost entirely to the foreign gunboats.

In a few regions government troops have already achieved some successes. The town of Tungku (south Kiangsi), which has for two years been the stronghold of the notorious “Red” leader Chu Teh, was captured on December 19th, after two days’ hard fighting. Anfu, another town in Kiangsi, and Yungting (Fukien) were also reported as retaken. On the other hand, communist-bandits captured the town of Sungtze (below Ichang) on December 19th, and the entire stretch of the river between Yochow and Ichang is still very unsafe.

Nine foreign missionaries, including the Filipino Sister Ramos, were released on or about December 25th as a result of military operations around Nanchang, but the American, Reverend Bert N. Nelson, and nine other foreigners are still in captivity. General Li Ming-chung is said to have received special instructions from the President to effect Nelson’s release as soon as possible.

In North China another train outrage, following upon the one on the Peiping-Suiyuan line in November (see Legation’s despatch No. 680, December 18, 1930, page 2044), shows that the North has its own banditry problems. On December 27th outlaws derailed a train on [Page 78] the Chaoyang-Chinchow branch line of the Peiping-Mukden Railway, and after looting it set it on fire. Some 80 passengers were killed or injured and 20 were carried off by the bandits. This is said to be the worst train hold-up that has ever occurred in North China, and to prevent further disasters of this nature Marshal Chang Hsueh-liang is contemplating the organization of a large force of gendarmes, to be affiliated with the Northeastern constabulary under General Chen Hsin-ya. It would be an excellent thing if some such system of policing rural areas could later be introduced for the entire country.

III. Financial Problems

1. The Abolition of Likin.

The National Government appears determined to redeem an old pledge of the Revolution and will definitely and permanently abolish likin as from January 1, 1931. This was decreed by the Fourth Plenary Session last November (see Legation’s despatch No. 680, December 18, 1930, page 1045) and marks an important step in the reform program of the present administration. Several previous attempts having ignominiously failed, it required considerable courage and self-confidence on the part of the Executive to insist upon it at this time.

It is generally admitted that likin has for many years been one of the worst handicaps from which the economic life of the nation has been suffering. For just as political and military feudalism found expression in the numerous provincial warlords and their armies, so financial feudalism was represented by the collection of likin and many other miscellaneous taxes—often unauthorized—which enabled the powerful vested interests of the local tax collectors to defy the central authorities. President Chiang Kai-shek, in a recent (December 27) circular telegram in which he begged the provinces to cooperate with the National Government in this matter, therefore expressed himself very forcefully on the subject:

“The institution of likin, it should be emphasized, not only increases the burden of the people and hampers the free development of trade, industry and agriculture, but constitutes also the inveterate foe to honest political administration and is the fountain-head of political corruption.

“To ‘squeeze’ and fatten themselves upon the Government revenue has become the common practice of likin tax-collectors; and extortion has been an accomplished art. It is by embezzling public funds and sucking the blood and flesh of the people that many of them now owe their magnificent mansions and the luxuries in which their wives and concubines freely indulge.

“It is therefore obvious that not until likin is abolished can purity in political administration be attained.”

[Page 79]

It is estimated by the Ministry of Finance that the loss of revenue to the National Government as the result of the abolition of likin and kindred imposts, such as taxes on railway freight and parcel post, internal customs duties, coast-trade and transit dues, et cetera, will amount to about $(Mex.)100,000,000 per annum. But as these taxes constituted some of the principal sources of revenue for the provinces, the losses to the latter will be far heavier. It is anticipated that most of the provincial budgets will show big deficits in the coming year and the National Government has already promised to come to the rescue with subsidies, for which the increase in the customs tariff is to furnish the funds. Several provinces, especially in the North, have already petitioned the government to postpone the abolition of likin for another six months or a year—as so often in the past—but their request has been curtly denied.

It is now proposed to impose a special consumption tax—a law to that effect was promulgated in 1928 but never applied—and excise duties on a number of articles, such as cotton yarn, matches, and cement. But unless the provincial authorities are carefully watched they are almost certain to devise new taxes which may prove as burdensome as the old. Nanking should see to it that all taxation is consolidated and properly organized, in order to do away with the uneconomical and arbitrary methods of collection and the abuses resulting from illegal practices on the part of petty officials.

The main question is now whether the provinces are ready to respond and to make present sacrifices in the hope of obtaining future advantages. It will be a trial of strength of the first magnitude, for the provincial spirit is very strong and if the financial centralization planned by the National Government should arouse too much opposition, Nanking may be powerless to enforce submission.

2. New Internal Loan.

In anticipation of the diminished treasury receipts upon the abolition of likin the Government decided on December 30th to float a new “Rehabilitation” loan to the amount of sixty million dollars (Mex.), in the form of Treasury Notes to be secured on the “Rolled Tobacco” (cigarette) excise duty. The interest rate is 8.4% per annum, i. e. the equivalent of seven per mille per month, and the redemption is to be completed June 30, 1937, by 78 monthly public drawings. The Notes will be offered at par, but as a special inducement to subscribers a discount of 2% will be allowed, making the issue price 98. The Notes will be bearer bonds in the denominations of $10,000, $1,000, $100 and $10.

The loan is being handled by the Bank of China, the Central Bank, and the Bank of Communications. The Consolidated Tax Administration has earmarked a portion of the Rolled Tobacco Tax, from the [Page 80] amounts required for the service of the Rolled Tobacco Treasury Notes issued in March 1927 and April 1930, to be deposited regularly with the Central Bank for the account of the Sinking Fund Committee, to meet the payments due in accordance with the amortization table.

3. Foreign Loan Payments.

As promised by the Ministry of Finance (see Legation’s despatch No. 680, December 18, 1930, page 2446), the interest payments on the loans secured on the salt revenue were brought up to date on December 18th by the payment of the October coupon (£114,890) of the Crisp Loan, and on December 24th payment was made of the drawn bonds of the Anglo-French Loan (£253,318). Since September 1929, five payments have been made, totalling £1,202,948, which cost the government $(Mex.)18,220,000. It is interesting to note that the Crisp bonds, which in August 1929 were quoted in London at 44, dropped to 28 in June 1930 (when the Feng-Yen revolt seemed about to succeed), and rose to 53 on December 17, 1930, upon the announcement that all maturities would be fully met.

  1. Ante, pp. 3839.
  2. Ante, pp. 58, 70.
  3. Ante, pp. 58, 64 (point 7).
  4. Ante, pp. 58, 72.