Office of the Historian

793.94/7876: Telegram

The Second Secretary of Embassy in China (Atcheson) to the Secretary of State

Nanking, April 30, 1936—10 a.m.
[Received April 30—7:50 a.m.]

113. My 92, April 16, 5 p.m., and 103, April 22, noon.

1.
Foreign Office has given to the press official denial of press reports from Peiping that Sung Che-yuan has entered into an agreement with the Japanese military for Sino-Japanese cooperation against Communism.
2.
In an informal private conversation last evening a responsible official of the Foreign Office stated to me positively that no such agreement had yet been made. He indicated, however, that he feared Sung eventually would have to meet Japanese wishes in this respect, stated that Japanese military officers had recently been pressing Sung for such agreement, and intimated that Sung is bargaining for the best terms possible and is attempting as a quid pro quo to obtain the abolition of the East Hopei regime and the inclusion of the East Hopei area in the territory under the jurisdiction of the Hopei-Chahar Council.
3.
Except for threats of a military démarche, which he indicated are not being employed by Japanese officers at this time, the principal lever in the hands of the Japanese to force acceptance of the proposal in the Hirota program relating to joint Sino-Japanese action against Communism appears to be the situation arising out of the smuggling through the demilitarized zone of large quantities of Japanese goods (estimated by some to amount in value from two to three hundred million Chinese dollars per annum and to cost the customs daily from ten to twenty thousand in revenues). He feels that the smuggling constituted an attack upon the Customs Administration which might later be directed against the customs at other places and eventually destroy its effectiveness as the Government’s chief and most reliable revenue-producing agency. The seriousness of the Chinese predicament in this respect, he intimated, might cause Sung to capitulate if [Page 126] by so doing the effectiveness of the customs in the North might be maintained. He said that reduction of the import tariff would not in his opinion prove a good solution of the smuggling problem because it would mean reduction not only of duty on items now being smuggled but eventually of all items with consequent great loss of revenue.
4.
Repeated to the Department and Peiping. By mail to Tokyo.
Atcheson