893.00/13348
The Ambassador in China (Johnson) to the Secretary of State
[Received January 27, 1936.]
Sir: I have the honor to refer to the Legation’s despatch No. 3675 of July 12, 1935, reviewing the political, military, and economic developments in China during the first six months of 1935, and to submit a similar review of the last six months of that year.
[Page 503](It may be recalled that important developments which took place during the first half of 1935 derived significance from their relation to the struggle between General Chiang Kai-shek to unify China and forces working for disintegration. In brief, these developments were as follows: (1) General Chiang, as a result of his campaign against communist forces in west and southwest China, brought under substantial control the provincial administrations of Szechuan and Kweichow Provinces, failing to prevent, however, the junction in western Szechuan of communist forces already in that province and communist forces arriving from their former stronghold in Kiangsi Province; (2) his success in the west was offset by the activities of the Japanese military who, dissatisfied with the conduct of Sino-Japanese affairs by Japanese diplomats, took the conduct of those affairs into their own hands and presented in May and June (and caused to be carried out in large measure) demands which prepared for the establishment of a regime in North China practically independent of the National Government and subservient to Japanese direction; and (3) the possibility of a unified China was rendered further unlikely by the continuing deterioration of China’s economy and finance.)
China’s situation appeared at the end of December 1935 to be even more precarious than at the end of the first half of the year in respect to national unity (which includes the factor of national independence), Sino-Japanese relations, communism, finance, and economy. And more and more the immediate future of those aspects seemed to depend upon the course which General Chiang Kai-shek would pursue.
Events moved faster during the second half of 1935 (especially during November and December), the principal events of the six months under review being as follows: (1) communication by the Japanese Minister for Foreign Affairs to the Chinese Ambassador at Tokyo of the so-called three point program for the solution of Sino-Japanese differences, the communication presumably being made in July although it did not become known until October; (2) the flooding of the Yellow and Yangtze Rivers (July and August) and the changing of the course of the Yellow River; (3)the appointment of General Sung Che-yuan as Garrison Commander of Peiping and Tientsin (August 28); (4) the abolition of the Peiping Political Affairs Readjustment Committee (August 28); (5) the arrival of Sir Frederick Leith-Ross, British financial expert (September 21); (6) Major General Hayao Tada’s statement (September 24); (7) report of Japan’s so-called unified policy made by representatives of the Japanese Ministries of Foreign Affairs, War, and Navy to their officers in China (October); (8) attempted assassination of the President of the Executive Yuan, Mr. Wang Ching-wei (November 1); (9) the [Page 504] decree of the National Government nationalizing silver and making the note issues of the three Government banks legal tender throughout China (November 3); (10) arrival of Major General Doihara at Tientsin (November 6); (11) meeting of the Central Executive and Supervisory Committees (November 1–6); (12) meeting of the Fifth Kuomintang Congress (November 12–23); (13) declaration by Mr. Yin Ju-keng establishing the Eastern Hopei Communist Prevention Autonomous Council (November 25); (14) abolition of the Peiping Branch Military Council (November 30); (15) appointment of General Chiang Kai-shek as President of the Executive Yuan (December 7); (16) student demonstrations against Japanese aggression (December); (17) the inauguration of the Hopei-Chahar Political Council (December 18); (18) the assassination of the Administrative Vice Minister for Foreign Affairs, Mr. Tang Yu-jen (December 25); and (19) the proposal by Chinese authorities that Sino-Japanese questions be settled by a commission (December 27).
A. Sino-Japanese relations:
Having prepared in May and June the stage for the establishment in North China of a new regime, the Japanese military waited during the next four months for North China leaders to create such a regime; at the same time, they were evidently busily engaged in preparing the ground for fresh activities, knowing that the Chinese would probably make but minor changes on their own initiative. Then, much in the manner in which the raising of the Japanese Legation to an Embassy had reacted in May on the Japanese military, the arrival of Sir Frederick Leith-Ross and the apparent effect of his conversations with Chinese leaders on the Chinese monetary policy, as reflected in the Monetary Decree of November 3, precipitated the Japanese military into vigorously pressing the northern leaders for creation of a new regime. (This monetary decree was regarded by the Japanese military as a British manoeuvre to check the Japanese, as presaging a possible strengthening of the National Government, and as threatening to drain North China of its silver. The possibility of silver’s flowing southward from North China to Shanghai impelled the Japanese military to activity because they had finally abandoned the idea, it was understood, of developing North China economically with Japanese capital, perhaps as a result of the reluctance of Japanese capitalists to invest in that area, as a result of their experience with “Manchukuo” and the Nishihara loans, and had decided that a satisfactory development of the region could be made with the wealth already existing there.) Renewed Japanese pressure, assisted by self-seeking Chinese, brought about the formation on December 18 of a new regime for Hopei and Chahar Provinces under General Sung Che-yuan. Although it was created nominally by action [Page 505] of the National Government and was not styled as autonomous, it was obviously a significant step forward toward the eventual separation of North China from the National Government. At the end of the year it seemed clear that either through this regime or through some regime which might take its place these two provinces—and subsequently Shantung, Shansi, and Suiyuan—would probably come under the substantial influence of the Japanese.
Meanwhile, the Japanese military were steadily extending their control in Inner Mongolia (in Chahar). Although developments there were obscure, it appeared that, in order to obtain the concurrence of the Chinese leaders of Chahar to the separation from their authority of all of Chahar north of the Great Wall, the Japanese military were using effectively the agreement entered into on June 27, 1935, by which a minor incident which had occurred on June 5 in the vicinity of Kalgan had been settled. Chinese began to hope that from this strategic thrust of the Japanese toward Soviet Russia might evolve some benefit to China.
A further advantage to the Japanese in their relations with China was the emergence of General Chiang Kai-shek from west China and his assumption of the presidency of the Executive Yuan, a development which meant that he would deal directly with the Japanese and be primarily responsible for the progress of Sino-Japanese relations. General Chiang’s position became, as a result, not only stronger in some respects but also more precarious for the reason that it seemed that he would have only two alternatives, one being to make agreements with the Japanese which would seriously impair the independence of China and the other being to resist by force of arms. (Any agreement would, it was thought, be based on Mr. Hirota’s so-called three points, which were understood to be (a) cooperation against spread of communism in North China, (b) abandonment by China of playing one nation against another, which means abandonment of independent relations with all countries but Japan, and (c) “cooperation” between Japan, China, and “Manchukuo”, each point being susceptible to widely varying interpretations.) The Chinese manoeuvre at the close of the year of proposing to Japan that Sino-Japanese relations be adjusted by a Sino-Japanese commission seemed likely to fail of obtaining for the Chinese much of a respite before having to subscribe to Japanese dictation or—less probably—to resist with force. It seemed improbable that the Japanese would be prepared to accept a really definitive arrangement which would have the effect of limiting their advance in Asia Although, during the period under review, many Chinese became increasingly vocal with regard to the advisability of war, presumably only General Chiang Kai-shek knew whether or not there existed a limit to Chinese submission.
[Page 506]The dangers lying in the way of continued Japanese success appeared to be the possibility that General Chiang and the National Government might be forced into armed resistance to unlimited Japanese ambition or, failing that, the possibility that capitulation on their part to Japanese demands might evoke a popular opposition, as indicated by the nation-wide demonstrations of students during December, which in conjunction with such other dissatisfied elements in China as communists might lead to the downfall of General Chiang and the National Government and create a chaotic situation which would increase Japan’s difficulties in extending its control over China.
B. National Unity: Communism: the Southwest:
The inevitability of the loss to the National Government of North China was not offset during the period under review by any extension of General Chiang’s power over other parts of China only nominally under the control of the National Government. In fact, his recently acquired influence in west China was later weakened, because his enforced absence from that area as the result of his taking over the presidency of the Executive Yuan brought renewed and successful advances by communist forces in Szechuan and prevented him from dealing effectively with the growing communist menace in the Provinces of Shensi and Kansu which had followed his failure to “bottle up” those forces when they had been in the mountain fastnesses of Szechuan. Nor was the Southwest in any closer alignment with the National Government at the close of the period under review than it had been at the beginning, notwithstanding the election in November of a greater number of Kwangsi and Kwangtung representatives to the Central Executive and Supervisory Committees of the Kuomintang and notwithstanding the fact that a larger number than previously of important civilians of the Southwest attended the meetings of those two committees and of the Fifth Kuomintang Congress. It seemed that the only basis for unity would be the adoption by General Chiang Kai-shek of a policy of armed resistance to Japan, but even such a development as this might be used, it was thought, by the military leaders of the Southwest to seize control of the National Government rather than to cooperate in resisting the foreign invader.
C. Finance and Economics:
The monetary decree of the National Government of November 3, designed to cure China’s financial and economic ills, although technically not impracticable, was so delayed from the point of view of China’s financial and economic deterioration and so hastily put through from the point of view of preparation that the probable effects of the decree were not regarded with optimism. It seemed probable that the arrival of Sir Frederick Leith-Ross (September 21) [Page 507] to study China’s financial condition had been interpreted by the Chinese authorities as meaning that a British loan would be forthcoming if they followed Leith-Ross’s advice and that, after hearing his suggestions, which were not given under any such assumption, the Chinese authorities took quick action in line with those suggestions, but no British loan was forthcoming. Meanwhile, the situation of the masses was not improved: the inability of the authorities to implement adequately the monetary decree, the popular fear of impending inflation, the decline in purchasing power, and stringent financial and commercial conditions, together with natural calamities and general deterioration of the agricultural situation, increased the already heavy burdens of the people.
D. China’s Periphery:
Except for the loss in effect of Inner Mongolia in Chahar to Japanese direction, the situation in other border areas of China did not alter materially in so far as was known. No progress was made toward any extension of Chinese control over Sinkiang or Tibet, and the Sino-British Commission for the delimitation of the disputed Burma-Yunnan border had not yet met by the time the period under review came to a close.
E. Western Nations:
There became more clearly delineated a parallel between the fate of the interests of Western nations in Manchuria during the past four years and the possible fate of the interests of the Western nations in China Proper, and more especially in North China, if the Japanese program with regard to China were to succeed. The parallel was made the more vivid (1) by the reaction of the Japanese authorities, diplomatic and military, to the visit of Sir Frederick Leith-Ross and to the monetary decree of November 3 which they regarded as an outcome of his activities, their attitude indicating plainly that Japan regards China as an area in which Japan has a highly special and privileged position and interests, (2) by the continuing increase of Japanese control in North China, including Inner Mongolia, and (3) less importantly by evidences of the development of Japanese propaganda intended to turn the Chinese against the Western powers. With European nations during the period under review concerned primarily with the Italo-Abyssinian conflict, no significant attempt was made by any Western power to preserve its interests in China in the face of Japanese determination, unless the visit of Leith-Ross was intended as such.
Respectfully yours,