165.559/2
The Consul General at Mukden (Ballantine) to the Secretary of State
[Received June 17.]
Sir: I have the honor to submit for the Department’s consideration certain observations regarding the question of how far it is profitable or wise in view of present conditions in Manchuria to carry trade promotion activities. These observations are made with particular reference to the Department’s Mimeographed Instruction of April 11, 1936, (file No. 165.559/1) entitled “Reports Concerning Construction Activity”,80 but they apply generally to the preparation of all reports involving personal field investigation.
It is true that since the Japanese occupation of Manchuria in 1931 there has been considerable activity in construction work here, and on the face of it the situation should be such as to present favorable opportunities for American business. The officially inspired local press and news services carry frequent reports of large projects, of interviews by prominent foreign visitors expressing amazement at the marvelous progress of Manchuria, and of statements tending to show that the principle of the open door is being scrupulously respected. These reports are very misleading, and the significant fact in the situation is that since 1931 there has been a general exodus from Mukden of locally established non-Japanese engineering and import firms. The exception may be noted of a few German firms, which have held on through four lean years, and which see new hope in consequence of the conclusion recently of a “Manchukuo”-German trade agreement, whereby “Manchukuo” will be compelled to take in exchange for Germany’s large purchases of Manchurian beans a certain proportionate quantity of German goods. As the United States usually sells more than it buys in Manchuria and is therefore not in Germany’s new position to bargain for a share in lines of Manchurian economic activity suited to German industry, such as construction, there is little likelihood of any immediate improvement of the American trade position here in this respect. The position thus of American exporters is not the same as that of the German firms.
[Page 155]Japan has made heavy investments in Manchuria since 1931, as is evidenced by the huge adverse balances of Manchurian trade, and indeed much of the construction work is of the nature of an investment for which Japan has not received payment. Every effort is therefore being made by the Japanese in control of the Government to ensure for their nationals such business opportunities as exist here in order that Japan may recoup its outlay. Since a preponderating part of the construction being done is on account of the Government and semiofficial firms, the authorities are in a position effectively to direct business into Japanese channels.
As there is a host of Japanese firms in the field competing among themselves for construction work and equipped for any kind of job that may be offered, and as Japan produces almost everything in the way of manufactured materials and equipment which local specifications call for, there is no room for American enterprise.
Even if for any reason American firms were accorded an equality of opportunity it would be difficult to see how they could compete with the Japanese firms. The American firm unless it were long established here would be subject to a great handicap due to unfamiliarity with the local labor market, language difficulties not only in handling native employees but also in interpreting specifications (which are invariably in Japanese) and in tendering, unsatisfactory conditions relating to meeting credit terms asked and of making collections of payments due, and uncertainty of consular legal protection because of non-recognition.
In regard to the supply of equipment and materials for construction work, preference is almost invariably given to products handled by firms locally represented, since the authorities will not ordinarily make payments until the goods have been delivered (and in the case of equipment, installed) and inspected. The only concern which makes it a regular practice to place orders directly with exporters abroad is the South Manchuria Railway Company, which has an office for that purpose at Room 4004–6, Lincoln Building, 60 East 42 N. B. Street, New York City. Since this company, together with its affiliated and subsidiary companies and the “Manchukuo” State Railways, which it operates, represents the greater part of big business in Manchuria and uses an overwhelming share of the American engineering material and equipment imported, it will be clear that American engineering and export firms are already provided a direct contact in New York with practically all that there is in the way of opportunity for doing business with Manchuria.
Due to the unrecognized status of “Manchukuo” foreign consuls stationed here are in an anomalous position, and are obliged to be unusually circumspect in their activities. The Japanese military, [Page 156] which are in a dominating position, are abnormally suspicious and are inclined to regard as espionage any activities relating to the investigation of construction work. The Consulate General believes that the influence that it has enjoyed here has been of real practical value in protection work, but it is felt that this influence would be jeopardized by any lack of circumspection in meeting local susceptibilities. In connection with inquiries regarding railway construction which have been made in reference to the Department’s instruction of February 23, 1935 (File No. 165.363/65),81 the Consulate General has sensed a distinct feeling that these inquiries were unwelcome, while certain information has been withheld with the flat explanation that it was regarded as a military secret.
The Consulate General believes that the purposes of American trade will be reasonably well served by voluntary trade reports submitted by this office from time to time, based upon published material and observation. In view of these circumstances, the Department may wish to take up with the Department of Commerce the question of the treatment that should be given by consular officers in Manchuria to requests for periodic and special surveys of the type referred to herein.82
Respectfully yours,
- Not printed.↩
- Not printed.↩
- The Department on June 29 replied that it “concurs in the Consul General’s position that ‘circumspection in meeting local susceptibilities’ should be carefully observed in the matter of investigating construction work” and suggested a procedure for future trade reports (165.559/2).↩