Foreign Relations of the United States Diplomatic Papers, 1939, The Far East; The Near East and Africa, Volume IV

893.102S/1703: Telegram

The Consul General at Shanghai (Gauss) to the Secretary of State

Shanghai, May 6, 1939—3 p.m.
[Received May 7—8 a.m.]

360. Following are my comments on the subject of Japanese proposals for revision of land regulations of the Settlement at Shanghai:

1. In my opinion the only logical inference to be drawn from the persistent Japanese criticism of and demands on the Municipal Council and the proposals now made to our Embassy at Tokyo and repeated here is that a deliberate “build up” is being undertaken with a view to attempting to justify eventual and perhaps early Japanese military occupation of the whole of the International Settlement and Japanese domination of the Municipal administration. I submit two reasons for this:

(a) The Japanese now find themselves more or less frustrated in their military activities regarding National Government and with no important military successes in sight it is not unreasonable to believe that they propose to offer as a major [accomplishment] the occupation of the Settlement and Japanese replacement of the British in the dominant position at Shanghai.

(b) Shanghai is the dominant commercial and financial center of China and particularly of the Yangtze Valley. There is here a tremendous concentration of Chinese wealth controlled and directed by Chinese enjoying refuge in the foreign areas. The Japanese plans for economic domination in this area demand that this wealth and these Chinese be reached if they are not to impose an impressive obstacle to Japanese ambitions. They can be reached more effectively by a military occupation with the plea of “military necessity” than by more orderly processes.

2. It is difficult otherwise to understand why such persistent emphasis is being attached to the Shanghai situation to which the Japanese Consul General apparently devotes his entire [time]. As pointed out in my despatch No. 2098 of April 6⁴¹ which should soon reach the Department, in the course of another year the Japanese could probably take over and dominate the Settlement Administration by legal means. They now [hold] 35 per cent of the voting strength in the Settlement although they pay only about 9 per cent of the land and [rental] taxes upon which the right of franchise is based. This Japanese voting strength has increased 47 per cent over last year and 79 per cent over 1936. The Japanese hold the largest number of votes held by any one nationality. At the present rate of increase in voting power and taking into consideration the heavy increase in Japanese population, now 40,000, the Japanese can soon assume the dominant position in the Settlement Administration by legal means and without any necessity of revision of the land regulations.

3. As appears from my telegrams and despatches to the Department, the Municipal Council, in response to Japanese demands, has within recent months undertaken police cooperation with the Japanese authorities in the suppression of anti-Japanese terrorism; it has also vigorously undertaken to suppress Chinese patriotic societies engaged in anti-Japanese propaganda, to deal with Chinese newspapers publishing anti-Japanese articles prejudicial to peace and order and notwithstanding Chinese opposition, it is sought to limit the display of the Chinese national flag in the areas south of the creek (parenthetically, the Japanese are not satisfied with a limitation on the display of the Chinese flag and are now demanding that it be entirely suppressed in the Settlement and Concession. Any attempt to this end may lead to disorders). The pay of the Japanese members of the police has been increased, effective May 1st, and a tentative agreement was reached recently between the Council and the Japanese authorities for substantial increase in Japanese representation and authority in the police administration particularly in areas north of the creek. (This agreement has not been finally approved however due to the fact which I have recently learned confidentially that the British Consul General deemed it necessary to refer to London for instructions before advising British members of the Council to give final approval.)

4. While all Japanese demands on the Council have not been met, the reasonable demands have been met in as substantial manner as possible. On the other hand, however, the Japanese naval landing party remains in control of the areas of the Settlement north of the creek, which areas are the important situs of the industrial, warehouse, public utility, docks and wharves section of the Settlement and port. The Japanese have permitted only a small municipal police contingent to function in those areas, under Japanese domination. The Health and Public Works Departments can operate apparently only insofar as the Japanese consider desirable. The tramways and omnibus companies, both British, holding municipal franchises, are not permitted to operate in the northern areas. The Japanese are operating their own busses in infringement of the British franchise. They are also licensing rickshaws independently of the Settlement authorities and are said to be deriving a revenue of about 600 yen a day from this source, these funds being collected by the Japanese Residents Association. There are restrictions on the entry of all Chinese to the area, and other restrictions make it difficult for foreign mills, factories, docks and wharves to function efficiently or satisfactorily. Only recently has the system requiring Japanese permits for the movement of cargo out of or into the northern areas been relaxed by the Japanese.

5. The Japanese well know that no revision of the land regulations of the Settlement has been possible for years because of the attitude of the Chinese Government and in suggesting that such revision should now be undertaken they can only contemplate that the negotiations must be with the Chinese puppet regimes set up by the Japanese themselves. They certainly realize that the foreign powers cannot recognize or deal with such regimes for the purpose; and they count on a refusal to do so to add to the “build up” to justify military occupation. The so-called “Reformed Government” at Nanking has not even yet been recognized formally by the Japanese themselves.

6. The aide-mémoire delivered at Tokyo makes a great deal of the need for cooperation by the foreign municipalities at Shanghai with the puppet regime known as the Special Municipality of Shanghai. That regime as they well know enjoys neither respectability nor responsibility. Little more need be said than to point to the gambling dens, narcotic shops and opium hongs maintained in the western area of Shanghai where this puppet regime is supposed to have jurisdiction. The new regime does not even have authority in such a simple matter as traffic regulations, the Japanese naval landing party having established such regulations for those areas under the nominal jurisdiction of the puppet municipal administration as well as the Settlement area north of the creek.

7. On the subject of the Chinese courts, the oral representations made to me by the Japanese Consul General as reported in my telegram No. 345 of May 4, 5 p.m., are without point since Chinese engaging in anti-Japanese terrorism are not tried by the Chinese courts of the Settlement but are now expelled from the Settlement into Japanese hands and thereby dealt with by the Japanese military authorities. It is true as reported in my despatch No. 2065 of March 22,⁴² that the Chinese courts have been inclined to deal very leniently with these political assassins in the past; but they do not now judge these cases. The municipal advocate, an American attorney,⁴³ tells me that in other criminal cases where Japanese are complainants the Chinese judges have invariably administered justice without prejudice. There is no information available on the results in the Sino-Japanese civil cases but no complaint has been heard on that subject. The desire of the Japanese to place in the seats of the judges of these courts Chinese of the type that adhere to puppet regimes is actuated not only by a determination thus to force recognition of the puppet regimes but in my opinion by the sinister determination to use these judges to reach out against prominent and wealthy Chinese and Chinese wealth through the courts where this may be considered necessary, the Japanese and their puppet regimes would undoubtedly seek to enforce through these courts confiscatory and other decrees of the puppet regimes against Chinese and Chinese institutions now enjoying refuge in the foreign protected Settlement areas. The attempts to obtain possession of the Chinese land office records now in the custody of the Municipal Council are probably actuated by the same purpose.

8. The Secretary General⁴⁴ of the Council several months ago requested the opinion of the American, British and French Consuls General on the question of the surrender of the land records to the regime. After consultation we replied in similar letters to the effect that the matter was one in which it is for the Council and not for the consular representatives to make the decision. But we added our personal opinion that when the new Chinese municipal regime attained to a reasonable degree of authority and responsibility the records must be surrendered and that meanwhile perhaps that [was?] one of a number of subjects on which informal and unofficial conversations might be held between executive officers of the Council and officers of the new regime at a convenient opportunity. It was our opinion that steps toward cooperation with the regime in the Chinese areas might be opened on such matters as public health, public works, and police, in an informal manner such as that suggested. Later I learned that the British Ambassador intervened to overrule the opinion of the British Consul General with the result that the British dominated Council did nothing.

9. As previously stated, I am satisfied that the Japanese well know that the foreign powers will be unable to cooperate in a revision of the land regulations in negotiation with a puppet regime and that the suggestion for such cooperation and revision is simply part of the “bracer” to a point where the Council finds itself unable to yield further to Japanese demands and the whole of the Shanghai Settlement will be occupied by force. Such occupation is necessary and vital to the plans for Japanese economic domination in central China; unless it is carried out the Japanese will be unable to reach or control the tremendous Chinese wealth and the prominent Chinese now operating from their refuge in the foreign protected areas.

10. While I believe that American influence might perhaps be stronger than any other in deterring the Japanese Government from following such a course, I am of the opinion that the matter is so vital to the Japanese that they will not long be deterred from carrying it out. I assume, however, that the American reply to the Japanese aide-mémoire must necessarily be one of rejection of the proposal to revise the land regulations at this time.

Repeated to Chungking and Peiping; by airmail to Tokyo.

Gauss

41. Not printed.
42. Not printed.
43. Robert T. Bryan, Jr.
44. Stirling Fessenden, an American lawyer.