793.94/15306: Telegram
The Ambassador in China (Johnson) to the Secretary of State
[Received August 14—1:25 p.m.]
495. Despite fluidity of events and difficulty of appraisal of facts I offer following comments as personal reactions since my return from leave.
From a military point of view it is apparent that the land forces of China and Japan are at a deadlock. Since the beginning of the year the Japanese army of occupation has been vainly endeavoring to advance its control in Shansi, Hopei, Shantung and northwestern Hupeh. It is evident that the Japanese garrison army south of the great wall (believed to number about a million men) has all it can do to hold what it has without extending its holdings and that additional reinforcements of perhaps an equal number of men will be needed to accomplish Japanese occupation of Shansi Province, Shensi, Kansu, Szechuan, Chekiang, Kiangsi, Hunan, Kweichow, Kwangtung, Fukien and Yunnan.
In fact the military occupation of these mountain and remote western and southwestern provinces presents obstacles of both a physical and logistic nature which make its achievement open to grave doubt and it is highly doubtful whether the Japanese are willing to make the effort. Chinese forces do not yet show any aggressive spirit. They continue to remain on the defensive. Such advances as they have made consist generally in forays into the occupied areas with little or no attempt to retake important and strategical commercial bases. However, the Chinese are establishing guerrilla bases in the war areas the importance of which cannot be minimized in future operations.
The Japanese Navy has been tightening its hold on the coast with the intention of closing Chinese ports against further exportation of Chinese products. This is progressively affecting the ability of Chinese to sell their products and obtain foreign exchange for use in purchase of goods abroad although exports through Indo-China and Burma show some increase. The ability of the Japanese Navy to plug up all of the leaks is open to doubt as long as Hong Kong and Shanghai remain open as collecting and forwarding centers.
Financially the Chinese Government is practically at the end of its domestic financial resources. The small fund advanced by Great Britain for use as a stabilization fund to maintain exchange has been exhausted in the attempt to maintain Chinese currency in the occupied areas. Efforts by the Chinese Ministry of Finance to obtain French and American participation in this method of supporting the [Page 207] Chinese national currency have failed. The result is that the Chinese Government has, to all intent and purposes, abandoned the Chinese dollar in the occupied areas and Chinese economists and financiers are discouraged, feeling that such abandonment will react seriously upon the loyalty of Chinese in the occupied areas, compel them to accept Japanese sponsored currency for their products and thus help to establish that currency upon exchange derived from the sale of Chinese products shipped abroad.
This, of course, opens up a fruitful field of speculation as no one is able to foresee just how long and to what extent the Japanese Government with its own exchange problems will be able to support the currency of the regimes it is trying to set up in China. Japan of course hopes that exports from the occupied areas to countries other than Japan will take over the burden of this bayonet currency of the Japanese army of occupation but it will be some time before any accurate estimate can be made of the capacity of such commerce as may survive or be allowed to grow, apart from that which must pay for Japanese goods and the charges of the Japanese army of occupation, support such currency. The fact remains however that at the moment some responsible Chinese leaders are considerably disturbed about the financial situation, the dwindling exchange resources over which they have control and their ability to continue to hold the loyalty of the Chinese of the occupied areas where Japanese sponsored currency is available as against unsupported Chinese national currency.
This attitude of discouragement was increased by the widely disseminated Japanese interpretation of the formula accepted by the British negotiators in Tokyo. The Chinese feared that the British Government might be preparing to accept Japanese aims in China as a fait accompli and to withdraw all support and perhaps recognition from the Chinese Government. The action of the American Government in serving notice on Japan of its intention to denounce the treaty of 191180 and the accompanying evidence that this action was the outgrowth of a growing feeling in the United States of indignation over Japanese disregard of American rights and interests in the occupied areas came as an electric shock to the Chinese and has served to buoy them up on the belief that this action portends further steps of a positive character by the United States Government in defense of its citizens and their rights and interests in the Far East. Chinese leaders assume that positive action of this sort cannot but aid them in their resistance to Japanese aggression.
It is worthy of note in connection with the Japanese instigated anti-British agitations in the occupied areas that the Chinese authorities [Page 208] have never, in so far as I am aware, publicly uttered any condemnation of such agitation. It must be remembered that here in the Far East the Occidental, of whatever nationality, has a status not unlike that of the Jew in eastern European countries and it may be expected that there will be instinctive sympathy among all peoples of the Far East toward these agitations against one of the Occidental peoples and an interest in watching its effects without implying any change of attitude toward the Japanese. If these agitations result in more positive attitudes on the part of the Occidental nations in their relations with Japan, all the better. In this connection I suggest the rereading of my telegram No. 593, September 3, 1 p.m., 1937, from Nanking.81
Domestically there appear to be a notable intensification of the long standing issue between the Kuomintang and the liberal and so-called communist groups. While all political elements among the leaders and people have been compelled by events to cooperate in resisting Japanese encroachment the leaders of the Kuomintang, responsible for Government policy and conduct of the defense, have shown a growing jealousy of the so-called communist leaders among the youth of the country and a tendency to increased demands of party orthodoxy among their followers and the people. The Soviet Union Government has never, so far as I can learn, shown any tendency or desire to support the so-called communist forces as against the Chinese National Government. On the contrary Soviet support, which has been considerable and which has been of material assistance to China’s war economy, has been given exclusively to the Kuomintang Government.
The defection of Wang Ching Wei has not yet attracted any important Chinese leaders from their loyalty to the Kuomintang Government and it is evident from reports from the occupied areas that he has not yet succeeded in attracting to himself any followers, military or civilian, of note able to bring together the occupied areas under one regime which might wage civil war against the Kuomintang Government and win the de facto recognition of the foreign powers. This is due not only to his own lack of prestige but also to the inability of disparate elements among the leaders of the Japanese army of occupation to unite on any plan that would give to Chinese a predominant regency in such a unified government.
The situation remains in a state of flux with the burden of proof still on the Japanese Army and with Chiang Kai Shek and his Kuomintang Government, which they have read out of office so many times, essentially in control of China despite their economic and [Page 209] financial problems. I have consulted members of my staff in regard to the above and find them generally in agreement with it.
Repeated to Peiping and Shanghai. Shanghai repeat to Tokyo.
- See note of July 26 to the Japanese Ambassador, p. 558.↩
- Text quoted in telegram of September 6, 1937, 10 a.m., from the Consul at Hong Kong, Foreign Relations, 1937, Vol. iii, p. 513.↩