861.77 Chinese Eastern/1224

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

No. 455

Sir: Negotiations for the sale of the Chinese Eastern Railway to “Manchukuo” began in Tokyo on June 27th. At the opening session of the Conference, which was held at the Official Residence of the Vice-Minister of Foreign Affairs, the Soviet Government was represented by Mr. Benedict I. Kozlovsky, Director of the Far East Department in Moscow, Mr. Stepan Matvievitch Kuznetsov, Vice-Chairman of the Board of Directors of the North Manchurian Railway (formerly the Chinese Eastern Railway), Mr. Yureneff, the Soviet Ambassador to Japan, and Jean Spilwanek, Counsellor of the Soviet Embassy. “Manchukuo” was represented by Mr. Chuichi Ohashi, Vice-Minister of Foreign Affairs, Mr. Shen Juei-lin representing [Page 368] the Chairman of the Board of Directors of the Railway, Mr. Wu Tse-sheng, Counsellor of the Chinese Eastern Railway’s Governor’s office, Mr. Yutaki Mori, of the “Manchukuo” Department of Communications, and Mr. Ting, the “Manchukuo” Minister to Japan. Although Japan, when originally approached by the Soviet Government, insisted that the negotiations be carried on directly between the Soviet and “Manchukuo” governments, she nevertheless stated that she would be pleased to act in an advisory capacity, and consequently appointed as observers, Mr. Nishi of the Foreign Office and Colonel Suzuki of the Army General Staff. Furthermore the initial session of the Conference was dignified by the presence of the Japanese Minister for Foreign Affairs, Count Uchida, whose welcoming address to the delegates described Japan’s role in the negotiations.

Inasmuch as the successful conclusion of the sale appears highly desired by all parties concerned, the primary question at issue is one of price. Some indication of the difficulties which will be encountered before a definite figure is ultimately agreed upon can be gained from the fact that the Soviet Delegation is expected to name Yen 700,000,000 as its offering price against “Manchukuo’s” reported bid of Yen 50,000,000. However, the eventual price which “Manchukuo” will be willing to pay will be determined by three factors:

The physical value of the railroad.
The desire to rid its territory of Soviet-owned property.
The de jure recognition by the Soviet Government which the sale would constitute.

In an informal conversation* at the Japanese Foreign Office between a member of my staff and the “Manchukuo” Vice-Minister for Foreign Affairs, the latter confirmed the fact that it was consideration No. 2 which would carry the greatest weight for, he pointed out, the physical condition of the road was poor and the rolling stock practically worthless. It is, however, the opinion of many well-informed observers that from the “Manchukuo” and Japanese point of view, Soviet acceptance of “Manchukuo” as the successor of the Chinese Government in that region is the important issue at stake.

From the Soviet point of view the disposition of Russia’s interests in the North Manchurian Railway at this time would seem of dual advantage, for it would not only terminate a financially unprofitable enterprise but it would remove what has been a constant source of irritation between herself and “Manchukuo”. The fact that the railroad is now for practical purposes at the mercy of Japan and “Manchukuo” would indicate that a sale could be concluded more [Page 369] profitably at the present time than at a later date. Undeniably the prime value of the Chinese Eastern Railway in its early days centered in its role as an instrument of political penetration. However, as was indicated by the Soviet Ambassador to Japan, at the opening session of the Conference, the Soviet Government no longer regards the railway in this light. Furthermore the Soviet Government has chosen to ignore the Chinese protests against the contemplated sale on the grounds that with the establishment of “Manchukuo” China’s interest in the line ceased. This action, prompted as it was by realistic motives, would strengthen the belief that Soviets are prepared to withdraw politically from Manchuria and to accept “Manchukuo” as a fact.

In connection with the proposed sale it is a widespread belief that the funds to cover the purchase will be supplied by the South Manchurian Railway to which the control, if not the title, will eventually pass. In this connection see this Embassy’s despatch No. 341, March 24, 1933 in which it was suggested that the interests of the South Manchurian Railway constituted one of the strong reasons for the Japanese Military occupation of Manchuria if not the primary compelling force. It is important to remember, moreover, that the successful conclusion of these negotiations would mark one of the final steps in the forty years struggle between Russia and Japan for the control of Manchuria and would liquidate a situation which has at times even aroused fears of a second Russo-Japanese war.

Respectfully yours,

Joseph C. Grew
  1. See copy of memorandum enclosed herewith. [Footnote in the original; memorandum not printed.]