The Counselor of Legation in China (Peck) to the Acting Secretary of State

Sir: I have the honor to state that on the morning of December 16 in a conversation with Dr. L. Rajchman, Technical Liaison Officer between the Chinese National Economic Council and the Special Committee of the League, Dr. Rajchman described briefly to me the present state of collaboration activities.

As the Department is aware, the National Economic Council is [Page 522]the branch of the Chinese Government designated to receive the collaboration which was approved by the resolution of July 3 and at the meeting of the Special Committee in Paris on July 18, 1933. The National Economic Council is controlled by a standing committee of five members, Mr. T. V. Soong, General Chiang Kai-shek, Dr. Sun Fo, H. H. Kung and Wang Ching-wei, of whom Mr. Soong is the most active. This position, in fact, is Mr. Soong’s only important official position at the moment.

Dr. Rajchman said that the general office of the National Economic Council is in Shanghai and that Mr. Soong is extremely active there. The technical offices are in Nanking and whereas it has been Dr. Rajchman’s plan to devote his time nearly equally between Shanghai and Nanking, it is his intention henceforth to spend the larger part of his time at Nanking. I inquired whether the resignation of Mr. T. V. Soong from his post of Minister of Finance on or about November 22 had interfered with the activities of the National Economic Council. Prompted, perhaps, by a desire to refute the general belief that the National Economic Council is not extremely active at present, as well as by my question, Dr. Rajchman entered an emphatic denial. He said that the National Economic Council is now engaged in planning; even if it had $50,000,000 at its disposal it could not begin constructive work until the plans on which it is now engaged were formulated. He said the general offices of the National Economic Council and Mr. Soong, himself, were extremely busy.

Dr. Rajchman said that the Council has established, or will do so in the immediate future, a Cotton Control Commission, a Coal Commission and a Silk Commission. At the head of the first is Mr. K. P. Chen, a prominent Shanghai banker; at the head of the second is Mr. Ku, of the Kailan Mining Administration at Tientsin; and the head of the third is now in process of selection.

The Council is now engaged in a thorough study of the China Merchants’ Steamship Navigation Company, which steamship line has been taken over by the Chinese Government and will probably be organized and conducted as a governmental project, with, perhaps, commercial participation. … Dr. Rajchman said that if it were thoroughly reorganized and made into a “strong” company, there is no reason why it should not be prosperous. I inquired whether he had heard of any hope on the part of the Chinese that the efficient reorganization of this steamship line would enable China to replace foreign vessels with Chinese vessels, in pursuance of the “recovery of navigation rights” campaign. Dr. Rajchman said he did not think that this motive was animating the Chinese.

Dr. Rajchman said that, as is well known, thoroughly substantial [Page 523]and satisfactory progress had been made in two branches of technical collaboration between the League and the Chinese Government, viz, road construction and health work. He said that the next important line of activity to be undertaken was rural rehabilitation. He had been gratified to observe among Chinese bankers in Shanghai general recognition of the importance and desirability of improving the economic status of the Chinese farmer, especially the tenant farmer.

Special studies are now being made of rural conditions in the Province of Kiangsi. It has been discovered that eight middle men intervene between the producer of agricultural products and the urban market and the same number between the industrial producer in the city and the rural consumer. To improve the lot of the farmer it is essential to eliminate these middle men, as well as to improve the lot of the farmer in such matters as land tenure, marketing facilities, etc. Dr. Rajchman said that the prospect of accomplishing these objects is extremely bright. Shanghai is congested with idle capital, driven there largely for safety in the hope of profitable investment. To put agricultural economy into operation, say, in Kiangsi, would require an unbelievably low amount of credit; it has been ascertained that as little as $2 Chinese national currency per capita would accomplish this. I referred to the successful work already done by the Shanghai Commercial and Savings Bank, Limited, a Chinese concern, in connection with rice granaries in Kiangsu Province, (see my despatch of December 16, 193336). Dr. Rajchman agreed that this work was excellent, but that it was limited in extent. The plans of the National Economic Council are far wider in scope and of great political importance.

I inquired whether the League was collaborating with the Chinese Government in lines other than economic. For example, I inquired whether Messrs. Jaenicke (German) and Somervell (British), Political Advisers to the Chinese Government, were working under League auspices. Dr. Rajchman hastily disclaimed any responsibility on the part of himself for the activities of these two men. He said that, it is true, the League named them, acting on requests from Mr. T. V. Soong in the latter’s then capacity of Vice President of the Executive Yuan, but they do not submit reports to Dr. Rajchman. They are, in fact, advisers to the Examination Yuan. The League pays one-sixth of their salaries as a “token payment”. (I specially inquired about these two advisers, because this office has learned from apparently reliable sources that Dr. Jaenicke and Mr. Somervell have found it impossible to accomplish anything in the way of improvement in the organization and methods of the Chinese Civil Service and are admittedly idle at the present moment.)

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I inquired whether Premier Mussolini’s currently reported project to reorganize the League of Nations had any chance of being carried out. Dr. Rajchman replied that he did not think so. The League is too solidly based to allow the Governments concerned to alter it fundamentally at the suggestion of a solitary Premier. Mussolini’s desire is to create a “Seven Power Pact” to replace the “Four Power Pact,” which is practically defunct. Ramsay MacDonald is not a friend of the League of Nations; he has a “Great Power complex” and it is galling to him to have to act through an organization. Nevertheless, public opinion in Great Britain is so strongly behind the League that Prime Minister MacDonald and one or two other British Cabinet officials who do not strongly believe in the League would seriously hesitate to do anything to weaken that organization. There is no possibility that Italy will follow the example of Japan and Germany and resign from the League. Mussolini’s foremost policy is one of intelligent anticipation of what London and Washington will think on the following day.

The critical question in Europe today is not the safety of the League, but the territorial readjustments and the military equality demanded by Germany. Germany will persist in these demands but Europe will not grant them, for this would precipitate war. The territory whose restoration is demanded by Germany has become vitally necessary to certain countries. Dr. Rajchman did not venture a prophecy of what the outcome of this deadlock would be. (Being a Pole, Dr. Rajchman probably had in mind territorial questions between Germany and Poland.)

Returning to Chinese topics, I observed that Mr. Y. Suma, Secretary of the Japanese Legation residing in Shanghai, had been designated, also, Japanese Consul General in Nanking. I inquired whether the Japanese Government was actively interfering with the progress of collaboration between the Chinese Government and the League. Dr. Rajchman replied that one of his colleagues had had a long conversation with Suma in Shanghai and the latter had said that whether Japan had a part in the collaboration between China and the League, or pursued an independent course, Japan must have “the lion’s share” in the work of economic rehabilitation of China. (Note. In official circles, foreign and Chinese, in China, Suma is regarded as being the most influential Japanese official in this country; it is thought by many that his mind is the active force behind the formulation and execution of Japanese policies and that his advice has more weight in the Japanese Foreign Office than that of the Minister, Ariyoshi.)

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Respectfully yours,

Claude A. Buss

Willys R. Peck
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