793.94/6957
The Minister in China (Johnson) to the Secretary of State
[Received April 20.]
Sir: Referring to the persistent reports of Japanese efforts to persuade the Chinese authorities to “cooperate” with Japan, I have the honor to comment on the possible economic advantages and disadvantages to Japan and to China in case such a policy of “cooperation” should be effected to the degree regarded by the Japanese concerned as necessary for their purpose. (Political and military aspects of the situation will not be dealt with in this despatch.)
The purpose of Japan, it is presumed, is to solve Japan’s economic problems by developing in China a source of raw materials for Japanese [Page 98] factories and a market for Japanese merchandise; the necessity which impels the Japanese in this economic program is the maintenance of their country as a world power; and the degree of “cooperation” will depend upon the requirements of Japan’s program for the industrialization of Japan, industrialization being the means by which Japan’s present position as a world power can be maintained.
Behind the purpose, the necessity, and the degree of cooperation lie the two primary facts that Japan’s resources are limited and that Japan is overpopulated. Additional factors are that Japan’s population is rapidly increasing, that the standard of the people’s living is rising, that a new responsibility has been undertaken in assuming charge of thirty million Chinese in “Manchukuo”, that barriers are being erected by Western powers which threaten Japan’s present markets and make development of other markets imperative, and that if economic expansion should fail Japan will sink to a position of secondary importance in the world.
For the solution of these problems, it is natural that Japan should look to China. China is nearby, has raw materials needed by Japan, has great potentials as a market for merchandise, is militarily and politically ineffective, and is too distant for Western powers to obstruct successfully Japanese ambitions. (It may be noted that these advantages were possessed by Manchuria in 1931, when Japanese seized control of that area, and were part of the motivation of that seizure. These advantages still exist with respect to Manchuria but the results of the Japanese adventure there have not as yet improved the Japanese economic situation, which is probably one of the principal reasons why the Japanese have now turned to China Proper for a solution of their economic problems.)
Among those materials which Japan needs for its manufactures and which China has in varying degrees of quantity are raw cotton, sheep’s wool, coal, iron-ore, wood-oil, tin, wolfram, and antimony. Among those articles which it may be supposed Japan would like to sell to China are cotton, wool, and silk manufactures, rayon, machinery, railway materials, and, in fact, almost any of its manufactured goods.
There are several difficulties confronting Japan in efforts to carry out a comprehensive program of “cooperation”. (1) For Japan to obtain certain of China’s raw materials to a degree necessary to Japan’s fundamental needs would require in certain important instances considerable monetary investment for the improvement of production methods, of transportation facilities, and of the quality of produce. For example, in making China the source of her raw cotton, Japan would need to increase the acreage and to improve the quality of Chinese cotton, while to obtain coal cheaply and in needed quantities from Shanshi, which is the largest field of good coal in China, railway [Page 99] construction and investments in machinery would be requisite. (2) China is using in increasing amounts her own raw materials, which Japan needs. (3) Certain raw materials wanted by Japan are not found in China and other necessary raw materials exist only in limited amounts. (4) The purchasing power of the Chinese is decreasing with the continuing depression and financial crisis, for an improvement of which financial outlay is necessary. Furthermore, a throttling of Chinese industry by the Japanese, which would presumably be one result of “cooperation”, might tend to lower Chinese purchasing power to an even greater degree in certain aspects. (5) Certain Japanese manufactures are in competition with Chinese manufactures, such as silk and cotton products. (6) Japanese personal direction and control of enterprises would have to be permanently maintained as otherwise, as soon as such Japanese left the scene, the Chinese would cease to exert themselves on behalf of Japanese interests.
The advantages to Japan from effective “cooperation” have already been implied. (1) The Chinese form a vast potential market and, as a result of Japanese improvements, Chinese purchasing power in certain aspects might be increased. (2) Japan would have at her disposal an unlimited supply of cheap labor to man Japanese-controlled factories located in China. (3) Japan could make practically any industrial agreements with Chinese which Japan might desire. (4) Transportation costs between Japan and China are cheaper than between Japan and Western markets. (5) Other nations would be unable to compete with Japan in China. (6) Japan would be able to retard Chinese industrialization, thereby decreasing that threat to her own trade, reserving for her own use raw materials which would otherwise be consumed by Chinese industries, and selling Japanese-manufactured goods to Chinese who would otherwise buy Chinese-made articles.
The advantages to China would presumably be as follows: (1) China’s industries would be under Japanese direction and therefore more efficiently administered. (2) China’s transportation system would be of necessity improved. (3) China’s production of raw materials would be increased and their quality and method of production improved. (4) The Chinese, under Japanese direction, would become more efficient in production and in manufacture. (5) There would be increased employment. (6) China would be better prepared, if and when the Japanese yoke was discarded, to develop economically.
The disadvantages would be perhaps as follows: (1) Increased efficiency and improved transportation and production would enrich the Japanese rather than the Chinese concerned. (2) Chinese producers and workers would be exploited and could not defend themselves against such exploitation because of unity of Japanese economic [Page 100] policy and because of absence of third-party competition. (3) China’s industrial development would be stultified. (4) China’s raw materials, of which some important ones are limited in amount, would be used and perhaps exhausted for the enrichment of a foreign nation. (5) Government revenue would be decreased because Japanese-controlled industries could not be taxed as heavily as Chinese-controlled industries and because tariff rates would be presumably advantageous to Japanese rather than to Chinese interests.
From the foregoing it would appear that Japan would derive the principal benefits from “cooperation” and that success in this policy would seem to depend upon whether Japan would be able to make out of the venture (over and above her necessary investments in connection with carrying out the policy) enough to restore Japan’s own economic situation in time to forestall economic and financial collapse at home. With so many varying and conflicting factors being involved, with the probability that new factors may be introduced, and with the situation still largely hypothetical, the question can only be suggested. Any attempt at a solution at present would be confined to speculation.
Respectfully yours,