793.94/7331: Telegram
The Counselor of Embassy in China (Lockhart) to the Secretary of State
[Received 4:43 p.m.]
108. Embassy’s 105, October 30, noon. Information obtained from various foreign and China sources appears to justify the following observations: the mooted Sino-Japanese economic cooperation in North China, indubitably a Japanese desideratum, would be dependent for its success on financial and economic stability in the area involved. The weakness of the financial structure in China and the incursion of the Chinese Communists into the northwest constitute threats to that stability creating an extraordinary risk for any economic enterprise, and to achieve stability Japan may feel that it is necessary to change the political structure of the five North China Provinces. As intimated after the Dairen conference of mid-October, Japan would prefer to reach an arrangement satisfactory to itself by agreement with the constituted authorities at Nanking. This may well mean that the démarche described in the Embassy’s 105, October 30, noon, is probably intended to force a decision favorable to Japan at the forthcoming session of the Central Executive Committee. It is contended in some quarters that Chiang Kai-shek’s policy, if he can enforce it upon the Nanking Government, provides for a continuation of the present policy of conciliation towards Japan. It is further contended that this would lead ultimately to a severance of financial relations between North China and the rest of the country and would result in the end in Sino-Japanese military cooperation against the communist forces in Northwest China. An unconfirmed report is now in circulation to the effect that the three chief figures of North China, Sting Che-yuan, Han Fu-chu and Yen Hsi-shan, with the acquiescence of the Nanking Government have already practically come to an agreement with the Japanese which will result in the establishment of a semi-autonomous political regime in the North to implant the Japanese program. [However,?] the above is wholly lacking in confirmation.
There are political observers who profess to believe that a policy directly opposite to the above is now taking on a more definite form. This group holds that an important section of Chinese Government opinion both popular and official has hardened around the belief that the time has come when China must decide definitely between submission and armed resistance and that the latter is to be preferred [Page 393] even with defeat rather than the humiliation of the former. Whether this feeling will spread would seem to depend at least to some extent on the course of events at the forthcoming meeting of the Central Executive Committee.
The only certain development is that the Japanese military and civil officials are now working together as a unit as evidenced by the demands above mentioned. This undoubtedly is a part of the so-called new policy which the Japanese recently discussed at Dairen and Shanghai but whether the plan of concerted action will continue to be [pushed?] is somewhat problematical.
Repeated to Nanking. By mail to Tokyo and Shanghai. (Note: copies or paraphrases of all telegrams are sent to Nanking by mail unless otherwise indicated.)