The Consul General at Shanghai (Lockhart) to the Secretary of State
[Received February 14—12:35 a.m.]
186. Reference my 177, February 11, 4 p.m.77 Powell, British member of Municipal Council, several weeks ago on his own initiative began private conversations with Okamoto, Japanese member of Council, with a view to finding solution of present impasse between British and Japanese regarding Council affairs. Powell suggested present Council be replaced by a commission form of government through suspension of land regulations for 2 years by all governments principally concerned. When such consent has been granted by the governments it is essential that their consular representatives at Shanghai appoint members of the commission, except Chinese members who will be selected by Chinese Ratepayers Association, on a basis of 3 British, 3 Japanese, 3 Chinese, 2 Americans, 1 German and 1 Netherlander. If it were felt that Chinese should have greater representation the Chinese could be raised to 4. According to the British members of the Council, the proposal and the Chinese representation first mentioned above are acceptable to Okamoto and the Japanese Consul General.
Day before yesterday 3 British members of the Council conferred with Allman and Dr. McMullen, American members of the Council, and for the first time informed them that negotiations had been initiated with the Japanese and that Okamoto and the Japanese Consul General were firmly of the opinion that if the present ratio of membership on the Council, namely, 5 British, 2 Japanese, 2 Americans and 5 Chinese, is maintained at the next election by the system of increasing votes by splitting land lots as was done last year, trouble will ensue, probably resulting in riots and bloodshed, which they wished to avoid; the 3 British members also fear serious trouble and [Page 825] desire, if possible, to avoid holding another ratepayers’ meeting or an election. They also seem to be doubtful of the wisdom of continuing the vote splitting method of retaining control. The 3 British members advance the following as the four major difficulties confronting the Council today: (1) the disagreement between Japanese and other national interests at voting qualifications; (2) the practical impossibility of government through the medium of open-air ratepayers’ meetings where the voices of several thousand electors cannot possibly be heard with reason; (3) the difficulty of modernizing the present undesirable system, which is unfair and archaic; (4) the distribution of Council seats fairly to represent them in furtherance of national interests in Shanghai.
If the change should be approved by the Governments principally concerned, including the Chungking Government, it is believed by the above-mentioned British Councilors that the other interested Governments will promptly acquiesce. It is proposed that the commission assume all the responsibilities, obligations and authority, as far as may be possible, now vested in the Council under the limited regulations, given up [sic] that more flexible authority in matters of taxation would be required if ratepayers’ meetings are to be avoided.
Japanese profess willingness for chairmanship to remain British but they wish vice-chairmanship. Japanese have expressed doubt whether Chinese members would be favorably disposed towards them but this would seem to depend entirely upon the Chinese personnel.
American members report that British members believe that unanimous agreement of all Governments concerned could be quickly reached if British, American and Japanese Governments would approve plan and that the Government at Chungking could be persuaded (apparently by the British Ambassador78) to acquiesce because of the abnormal circumstances here.
It is emphasized that plan envisages an emergency measure of only 2 years duration, after which it is hoped that the international situation will be such that a new constitution for the Government of the Settlement, to take the place of the antiquated land regulations, can be adopted in case some question has arisen as to the explanation for changing the present taxation system. One argument advanced in favor of the commission form of government is that it would eliminate ambiguity in the land regulations and provide means for finding other sources of revenue, now imperative if the financial solvency of the Settlement is to be maintained.
American members believe that commission form of government is desirable as an interim measure and that the apportionment in paragraph 1 would be satisfactory. The American members of the Council [Page 826] also feel that there is some risk of disturbance at ratepayers’ meetings and during the election; that many ratepayers will complain at being disenfranchised for 2 years; that the voting system at present used is archaic and undemocratic and its suspension 2 years would be a serious matter; that the tax system is likewise archaic in that the principal source of revenue comes from the real estate tax, now as high as 38 percent on rentals; that new sources of revenue should be tapped.
The British members of the Council are extremely anxious to have a quick decision from the four Governments most concerned so that the machinery for the change, if approved, can be set in motion. The British proponents of the proposal feel that it is absolutely necessary that it be accepted, but I foresee complications. It must be admitted, however, that the situation was not growing [improving?]. The British having initiated the proposal I feel that the main responsibility for a solution rests with them, especially since their interests [are] far greater than ours.
I have been informed that the British Ambassador is favorably disposed towards the proposal.
I have discussed this matter briefly with the British Consul General,79 but not with my Japanese colleague.
Sent to the Department, repeated to Chungking and Peiping.