840.51 Frozen Credits/2954: Telegram
The Counselor of Embassy in China (Butrick) to the Secretary of State
[Received August 11—9:23 a.m.]
259. 1. The principal effect on the Far East of the Japanese, in their campaign for domination of Eastern Asia, to anticipate action undoubtedly planned for a future date, such as that mentioned in Shanghai’s 987, August [July] 31, 1 p.m., and in my 205, August 5, 1 p.m.51
2. Japanese strategic domination of Eastern Asia now comprises a chain of island[s] stretching from Kamchatka to the Moluccas, with a secondary line extending from Kyushu to the Northern Philippines. On the mainland Japan’s power extends unbroken from the Siberian border to Cape St. Jacques. While the banks, reefs and islands west of Palawan are shown as Japanese on Japanese maps, the encirclement of the Japan sea, the Yellow Sea, the East China Sea and the northern half of the China Sea and the Philippines by Japanese-controlled land groups almost makes those waters inland seas. Japan’s is the “encirclement” policy.
3. Japan’s economic control of Eastern Asia may be gauged by counting the American consulates in free and controlled territories and remembering that consulates are customarily placed at commercial centers.
4. While Japan’s venture on the mainland has undoubtedly cost a vast expenditure of her resources and reserves, it is erroneous to measure this expenditure in terms of money as such. Japan has financed her venture in great part with fiat currency and doubtless with customs and other former Chinese revenues such as stamp taxes. Shanghai’s open exchange by affording indirect convertibility of this fiat currency has enabled Japan to finance purchases abroad. An example of a real economic contribution to Japan is the supplying from the mines of North China by the Kailan Mining Administration (British) of about 2 million tons annually of high grade coal, mostly coking coal necessary for the steel furnaces of Japan.
5. While the Chinese Government needs much in the way of assistance, one dire need, it seems to me, is a modern shooting air force, which can support its troops in the field and make forays at opportune times, when undoubtedly some confusion exists, on such enemy naval and air concentration[s] as are now taking place in Indochina. If supported by an effective air force, the Chinese army with bolstered morale might well recapture a large portion of China’s ports, the Yangtze valley. An efficient 50 million dollar air force might well [Page 694] contribute more toward a practical and enduring solution of China’s economic and financial problems than a loan of many times that amount.
Sent to Chungking. Repeated to Department.