893.00 P. R. Yunnan/166
Memorandum by the Assistant Chief of the Division of Far Eastern Affairs (Atcheson)52
Recent reports from the Department’s officers in free China indicate that trade between free China and Japanese-occupied China has reached sizable proportions and is on the increase. For example, one transaction across the Sino-Japanese front lines in southwest China involved 1,000 horse loads of goods; in Central China some 1,200 tons of goods a month move each way along the Yangtze River and across the lines; and in North China a large traffic also moves across the opposing lines. It is reported that at Sian, in free China, where the payments for this traffic in North China are largely settled, the banks of that city now handle remittances to Shanghai and Tientsin in occupied China. The goods passing from free into Japanese-occupied China consist chiefly of raw materials, including such essential war materials as tungsten, and the goods proceeding in the opposite direction chiefly of finished consumer goods. The Chinese authorities are encouraging the importation from occupied areas of the latter type of goods by waiving import duty in the case of certain categories of such goods and by facilitating payment of excise taxes in the case of other categories. The Japanese are reportedly interested, not in stopping this traffic, but in controlling it so that the goods passing into free China may be restricted to luxuries and daily necessities and that the goods coming from free China may be confined to materials needed for Japan’s wartime economy.
Continuation and growth of this traffic constitute a serious danger to the war effort of the United Nations. Chinese commanders in the field are constantly exposed to the temptation of utilizing their controlling position to profit personally by the traffic, thus developing a vested interest in an undisturbed front which cannot but harmfully [Page 46] affect their offensive spirit. According to a reliable report, for example, one Chinese commander interfered with a sabotage project of a British unit because it would have interfered with the peaceful commercial intercourse which had been established between his area and the area beyond the Japanese line facing him.
The Chinese Foreign Minister53 on March 31 after attending the Pacific War Council in Washington told reporters that the Japanese were using “softer” tactics with the Chinese. The “softer” tactics mentioned by Dr. Soong referred primarily to Japanese measures intended to persuade Chinese puppets to collaborate with the Japanese in fact as well as in name. We feel that Japanese encouragement of trade across the lines represents “softer” tactics of a much more significant and sinister nature from our point of view, as it suggests the adoption by the Japanese of a policy calculated to promote peaceful intercourse between occupied and unoccupied areas and to lull the Chinese forces into military inactivity. In view of the war-weariness of the Chinese forces, their appallingly poor physical condition in many instances, their inadequate equipment, and their ebbing morale—ebbing from a variety of causes, economic, financial, political, administrative and psychological—this policy may well be reciprocated and may lead to at least a tacit or de facto truce between the Chinese and Japanese armies.
The foregoing developments emphasize, in our opinion, the urgent need of consideration by our military as well as other concerned authorities of immediate concrete measures looking to a rectification of the situation. The famine in essential consumer goods in free China can be relieved only by delivery into China of such goods—and this can be accomplished only by a comparatively large increase in the number of transport planes flying between India and China and the allocation of the additional planes for this particular purpose. Practical measures to activate the moribund front in China would include, as Mr. Hornbeck pointed out in his memorandum of April 3,* more visible and tangible evidences in China, in planes, guns, trucks, miscellaneous munitions, medicines, and military personnel, of our intention to attack the Japanese in and from China, and to help the Chinese fight the Japanese. Those measures would also include some concrete cooperative tactical plan between the American and Chinese military authorities whereby the Chinese forces, which are deteriorating in part because of their comparative inactivity, would undertake offensive actions against Japanese-held positions with the support of our air force.