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

No. 83

Sir: Supplementing my telegram No. 249, December 15, 2 P.M., I have the honor to enclose a memorandum of a conversation which a member of my staff had this morning with Mr. Tani, Chief of the [Page 304] Bureau of Asiatic Affairs in the Foreign Office, regarding press reports of impending difficulties with the Chinese in Manchuria.

Since the early part of the month, the press has been showing alarm over reports to the effect that the Mukden authorities had concerted plans with the Nationalist Government to eliminate Japanese interests from Manchuria. It was said that the construction of railway lines parallel to the South Manchuria Railway would be vigorously prosecuted, the Japanese lines were to be surrounded by a network of existing and projected Chinese railways, and the freight and passenger rates would then be lowered to a point which would eventually force the South Manchuria Railway to sell out to the Chinese at a price to be dictated by the Chinese. Another feature of the plan is to be the promotion of closer relations with the Soviets in order that freight originating in the area north of the Chinese Eastern Railway might be diverted from Dairen and shipped eastwards to Vladivostok. This is all supposed to have been arranged between the Mukden authorities and the Nationalist Government during General Chang Hsueh-liang’s recent visit to Nanking.

The American press correspondents who recently called at the Embassy stated that the information given them at the Foreign Office in this relation was so “platitudinous and evasive” that they were inclined to believe that the Japanese papers had some good reason for their alarm. It was pointed out to these correspondents that the Japanese press was not unanimous in thinking that there are grounds for anxiety. The Tokyo Asahi observed editorially on the 7th instant that reports of concerted action between General Chiang Kai-shek and Chang Hsueh-liang must be examined in the light of the political situation which now obtains in China; that, while General Chang may have found it expedient to yield to pressure brought to bear on him while at Nanking to declare his subservience to central authority, he will cling to his prerogatives when he finds himself again safely at home, and that while the Nanking Government may add to its stature among the Chinese by Chang’s protestations of loyalty, it would be premature to believe that the Nanking Government will hereafter exercise authority in Manchuria. Furthermore, the Foreign Office continued to advise the Embassy that it had not received any official intelligence substantiating press reports of an impending aggression upon Japanese interests in Manchuria.

However, during the latter part of last week, the Tokyo Jiji, which is usually well-informed in political matters, carried a circumstantial account of the Chinese plans. These were alleged to include the immediate completion of the Tsitsihar-Keshanchen Line in order to absorb freight in the Hsiaoshingan area, the construction of a direct line from Paiantala to Taonanfu and of a number of spurs from the Chinese lines on either side of the South Manchuria Railway to tap [Page 305] the territory which now feeds the latter. The Jiji’s editorial comment on the report was in part as follows:

“No one will deny that Manchuria is a part of China; and if China wishes to develop this area, Japan has no right to offer any obstruction. Nay, it should be to the advantage of both countries for Japan to assist China. At the same time, the Japanese people believe that the preservation of their vested interests in Manchuria is a matter of life or death to Japan; and if the Chinese resort to such positive measures to impair these interests, it would be absolutely impossible for Japan to remain silent. We can offer the Chinese a measure of sympathy, as this is but one manifestation of their desire to recover full sovereignty; but they should know that the violation of treaties or of Japanese rights is neither advantageous to China or calculated to promote the economic development of Manchuria.”

As it was subsequently stated that the Japanese Government had instructed the Japanese Chargé d’Affaires at Nanking and the South Manchuria Railway to take up the question vigorously with the Nanking Government and Mukden authorities, respectively, a member of my staff called on the Chief of the Bureau of Asiatic Affairs this morning to ascertain the facts. His interview with Mr. Tani is set forth in the enclosed memorandum, and was briefly summarized in the above-mentioned telegram to the Department.

Mr. Tani deprecated the alarm expressed by the press, as the attitude of the Japanese Government is entirely concessive and dictated by a desire to be helpful to the Chinese. He expressed confidence that the Chinese would accept the generous proposals which the South Manchuria Railway was authorized to make. It may be added that Mr. Tani was not greatly concerned by the possibility of trouble arising out of the refusal of the Chinese to accept these terms, as it was his opinion that, while competition with Chinese railways over a short period after their completion would be embarrassing, the incapacity which the Chinese had shown to operate railways efficiently and with due regard to the setting aside of proper reserves for the maintenance and replenishment of lines and rolling stock, would ultimately lead to their defeat in a war à outrance.

Mr. Tani was particularly interested in the chances of American capital being advanced directly to the Chinese for the construction of railways which would compete with the South Manchuria Railway. He referred several times in the course of the conversation to various rumors of American financial interests acting through German (See the Embassy’s despatch No. 29 of October 18, 193068) and other European concerns; and he gave the impression that one of the principal reasons for coming to an agreement with the Chinese would [Page 306] be the removal of the ground for the objection raised by American bankers against the advancement of funds for Japanese development in Manchuria more than three years ago, when a loan was sought in the United States by the South Manchuria Railway.69

Respectfully yours,

W. Cameron Forbes

Memorandum by a Member of the American Embassy in Japan

I called by appointment this morning on Mr. Tani, Chief of the Division of Asiatic Affairs in the Foreign Office, and had the following conversation with him:

I said that several foreign correspondents had called recently at the Embassy, and they appeared to be somewhat excited by reports appearing in Japanese papers to the effect that the Chinese were formulating plans to eliminate the Japanese interests from Manchuria, and that the Japanese Government is considering ways by which this attack may be met. I asked Mr. Tani whether the Foreign Office had received any information, indicating the likelihood that the Chinese would resort to aggressive measures against the South Manchuria Railway and other interests in Manchuria. Mr. Tani answered that he deplored the unduly alarmistic views expressed by the press. He said that the question was one of several years standing, and had been created by the determination of the Chinese to build railway lines in violation of an agreement made many years ago and against the protests of the South Manchuria Railway. The most important of these lines was that running from the Chinese Eastern Railway to the Sea; this line had been built in sections and was now virtually complete except for a small gap at Paintala where the lines from Liaotun [Tungliaochen] and Tafushan [Tahushan] were now being connected. The completion of this line, as well as of the line from Kirin to Hailung, would make serious inroads into the revenues of the South Manchuria Railway. He observed that, as I well knew, the protection of the interests of the South Manchuria Railway is a matter of life and death to the Japanese people, and therefore, public opinion in Japan would not tolerate a serious assault upon the interests of this Railway by the Chinese. The Japanese Government was also very much concerned by persistent reports from China, indicating the existence of negotiations between the Nationalist Government and foreign capitalists for loans to complete a large number of additional railway lines in Manchuria, many of which would encroach upon the rights of the South Manchuria [Page 307] Railway. I asked Mr. Tani whether he had any definite information in this regard, as the Embassy had made inquiries both in Washington and in Harbin regarding the sources of these rumors, and it had been unable to discover any foundation for them. Mr. Tani admitted that his Government also had no definite information, but, at the same time, it felt uneasy over the sending by the Nationalist Government of agents to the United States for the flotation of loans. He said that there was good reason to believe that the Germans were discussing with Chinese officials in Manchuria the advancement of a very large sum of money, and he thought in view of the present financial situation in Germany, that the German interests had hopes of obtaining the necessary funds in the United States.

Returning to the question of railways in Manchuria, Mr. Tani said that the Japanese Government did not consider that it had any preemptive rights in that area, and that it would welcome cooperation by foreign capitalists as well as the development of Chinese lines of communication and industrial interests so long as they did not conflict with those legally acquired and developed by Japan. He remarked that it was often impossible to understand the reasons for aggravating actions taken by the Chinese, but that at the same time the Japanese Government is proceeding to seek an amicable adjustment of difficulties created by the Chinese. It had recently authorized the South Manchuria Railway to suggest to the Mukden authorities that they abandon the completion of the line from the Chinese Eastern Railway to Tafushan, and to offer in return for this concession funds for the construction of lines which are necessary for the development of virtually untouched portions of Manchuria. Mr. Tani hoped that the Chinese would accept this settlement, but if they did not and insisted on the completion of the parallel line, the South Manchuria Railway is authorized to withdraw its objection on the condition that the Chinese agree to some equitable division of the revenue of this line.

Mr. Tani then asked me whether I believed American capitalists would be disposed to invest in Japanese undertakings in Manchuria. I reminded Mr. Tani that some three years ago some suggestion of this nature had been made to American financial interests and that the latter were reluctant to lend money to the South Manchuria Railway so long as the Chinese found Japanese economic development in Manchuria distasteful. He asked if the converse would be equally true; that is, would American capitalists be willing to lend money to the Chinese for the construction of railways inimical to Japanese interests. I answered that of course I did not know, but it seemed to me that, while the reason for the reluctance of American capitalists to lend money to the South Manchuria Railway was political, they [Page 308] might be deterred by business reasons alone from lending money to the Chinese. So far as I could observe, the Chinese had not shown a capacity to operate their railways in an efficient manner, and with due regard to the rights of creditors and to the maintenance of the Railway in an efficient manner over a long period of time. If these considerations could be satisfactorily met by the Chinese, I saw no reason why American capitalists should not lend money to the Chinese. Mr. Tani then said that he hoped that the South Manchuria Railway would agree with the Mukden authorities upon terms satisfactory to both sides, as he hoped that it might then be possible to have foreign capital, American as well as European, cooperate with the Chinese and Japanese.