893.00/13170
The Minister in China (Johnson) to the Secretary of State
[Received August 5.]
Sir: I have the honor to refer to the Legation’s despatch No. 3247 of January 9, 1935,36 reviewing political, military, and economic developments in China during 1934, and to submit a similar review of developments which occurred during the first six months of 1935.
Although few outstanding events took place during this period, there were developments of primary significance in China’s chief problems of unity, economic affairs and finance, and foreign relations.
I. National Unity:
Obtaining substantial control of the provincial administrations of Szechuan and Kweichow, General Chiang Kai-shek increased the number of provinces within the sphere of his dominance from nine of the twenty-three provinces of China to eleven and, at the same time, prepared the way for adding Yunnan to that number.
With this persistent encircling of the semi-autonomous provinces of Kwangtung and Kwangsi, the relations between General Chiang Kai-shek and the military leaders of those two provinces appeared to be approaching a crisis. This development was accelerated by the collapse in May and June of the strength of the civilian political group of the Southwest: there was thus removed a barrier to rapprochement with General Chiang, as well as a barrier to the alternative Japanese financed rebellion against the Generalissimo.
General Chiang’s authority in North China, which had been given a semblance of extension during 1934 as a result of visits of North China leaders to General Chiang and of his tour of the northern provinces, was gravely impaired by activities of the Japanese military designed, apparently, for the eventual separation of the five northern provinces from the National Government. Meanwhile, General Chiang’s control of Fukien Province, acquired only in January 1934, was threatened by Japanese ambition.
[Page 307]Notwithstanding the importance of these problems, General Chiang Kai-shek’s attention continued to be primarily engaged by his campaign against communist forces. By the end of the period under review, the communist forces which had been expelled from Kiangsi Province in the autumn of 1934 had apparently effected a junction in western Szechuan with the communist forces which had been in northeastern Szechuan, this junction giving them an unbroken, semicircular line of defense from the north bank of the Yangtze River in southwestern Szechuan to Pingwu, northeast of Chengtu. The advantages of this position were that the terrain made attack difficult and that the communists might be able to obtain supplies from Sinkiang, where Soviet Russia’s influence is allegedly strong; the disadvantage was that the area was so poor that the problem of existing through the coming winter would be a serious one.
Meanwhile there continued to be communist forces scattered in various provinces under General Chiang’s control, these forces in themselves presenting minor problems but, because of the increasingly serious economic situation of the country, constituting a potential menace.
As for China’s periphery, the possibility of Inner Mongolia’s remaining even nominally under the National Government became remote as a result of the Japanese activities in respect to Chahar Province; Sinkiang continued to be as much under the influence of Soviet Russia as previously; and relations with Tibet remained nebulous.
In short, General Chiang’s newly acquired influence in Szechuan, Kweichow, and Yunnan as a factor on the side of Chinese unity was more than balanced by the fact that the unity created by the military strength of General Chiang Kai-shek was threatened by Japanese activities, by increasing economic and financial ills, by the continuing existence of the communist organizations, and by jealousy of various Chinese leaders of General Chiang’s ascendancy.
II. Economy and Finance:
As no competent program was put into effect to cope with China’s economic problems, general deterioration of China’s economy continued, with the result that purchasing power, revenue, and foreign trade declined; the monthly deficit and military expenditures of the National Government were not curtailed; the new draft national budget was larger than the budget for the fiscal year just ended; significant reforms in excessive taxation were not effected; political corruption still sapped national resources; and the outlook for agriculture for the year was depressed in part because of droughts and threatening floods.
The financial situation grew worse as a result of the operation of economic factors, causing general political instability and directly [Page 308] leading to frozen assets, tight credit, appreciation of silver values, smuggling of silver from the country on a large scale with consequent decline in silver resources, and inability to obtain a foreign loan. The three principal measures taken by the Government to counteract the situation were (1) the tightening of measures designed to check silver smuggling; (2) extension of its control over two leading Chinese banks in what was apparently an initial step in a program to obtain control of the chief banks of note-issues; and (3) the issuance of two $100,000,000 (Chinese currency) bond issues (April 1 and June 30). The latter two measures were regarded as leading toward an almost inevitable inflation of Chinese currency and toward an increasingly grave situation, possibly affecting the stability of the present government, from which there seemed to be no way out except perhaps some agreement with Japan injurious to China’s political and territorial integrity.
III. Foreign Relations:
Great Britain was regarded during the period under review more favorably in public opinion in China than any other foreign nation, due to (1) the effecting of an agreement to establish a Sino-British commission for the delimitation of the disputed Burma-Yunnan border; (2) the appointment to the British Embassy in China as temporary Financial Adviser of Sir Frederick Leith Ross, Chief Economic Adviser to the British Government, an appointment interpreted as due to Great Britain’s deep concern over China’s precarious financial situation; and (3) allegedly greater sympathy for China by Great Britain than other countries during Japan’s most recent aggression. Sino-French relations were somewhat improved by reputed completion of negotiations of a Franco-Chinese commercial convention with regard to French Indo-China which would presumably give a commercial weapon to China for use against Siam. Relations with Siam deteriorated as a result of (1) oppressive measures of Siam against resident Chinese; (2) continued refusal of Siam to exchange diplomatic representatives; and (3) reports of increasing Japanese influence in that country. Soviet Russia continued to be regarded with suspicion because of (1) Soviet Russia’s influence in Sinkiang Province and (2) the transfer to “Manchukuo” of Soviet Russia’s interests in the Chinese Eastern Railway without regard for the legality of the proceedings or for Chinese feeling. The fact that the silver policy of the United States was the most obvious of the several causes of China’s acute financial situation aroused adverse comment. Criticism was perhaps augmented by the silence of the United States in the face of recent Japanese aggression and by the growing feeling in China that America’s traditional sympathy had little practical application. The raising of the status of legations in China to that of embassies by the United [Page 309] States, Great Britain, Japan, France, and Germany had no real effect on the Chinese. There was no evidence that China would improve her attitude toward western nations; that she has any real respect for any of them; that she would not play one off against another when opportunity presented itself; nor that she would not make concessions to Japan which could only be made at the expense of other nations.
China’s relations with Japan were of the greatest importance. After effecting, presumably, the fulfillment of most of the agreements reached at the time of the conclusion of the Tangku Truce of May 31, 1933, the Japanese military early in the present year apparently turned over the direction of Japanese policy in China to Japanese diplomats, the military standing by, outwardly passive. Chinese officials began to prepare the Chinese nation for some degree of yielding to Japan’s aggressive desires. In May, however, dissatisfied with the slow rate of progress, skeptical of the ability of the Japanese diplomats to gain the objectives desired by the military, and influenced by factors existing in Japan’s internal situation, the Japanese military again assumed substantial control of policy in China. The immediate aim of their action appeared to be the establishment of a regime nominally under Nanking but staffed with Chinese officials “friendly” to Japan and to “Manchukuo” which could conclude with the Japanese economic and financial agreements affecting North China and which might easily make way for a regime entirely independent of the National Government and subservient to Japanese direction. The ultimate aim of the military appeared to be the expansion of control over China, with the elimination of any effective military opposition in China, to facilitate Japanese exploitation of the Asiatic mainland, and to give to the Chinese situation stability which would help instead of hinder Japan in the event of a Russo-Japanese war.
In contrast with the past, a feeling of despondency has apparently taken possession of the Chinese, causing them to react to Japanese aggression in comparative silence. Worry over the situation seems to have eliminated Mr. Wang Ching-wei, at least for the time being, and to have caused General Chiang Kai-shek to become more anonymous than in the past, leaving the Government at Nanking practically without a head.
The appearance of inevitability of Chinese submission to the Japanese will was relieved, however, by the new and apparently serious contemplation by some Chinese officials of the question whether it might not be better to resist Japan militarily in the near future in order that, as China is to be ruined regardless of what policy she follows, Japan would also be ruined by long and exhausting warfare.
Respectfully yours,