693.94244/12
The Chinese Embassy to the Department of State
With the Chinese customs authorities stripped of all powers of prevention as a result of Japanese interference smuggling in North China has assumed incredible proportions. Immense quantities of contraband goods have poured through the demilitarized zone into Tientsin and thence overflowed the trading centers throughout the country. Apart from the serious loss of revenue to the Government illicit traffic has killed trade in several important business lines and impaired China’s ability to meet foreign obligations.
That the situation has further grown worse during the last few months is shown by facts. For the week ending April 25, 1936, 374,112 kilograms of artificial silk yarn, 697,862 kilograms of white sugar and 12,564 kilograms of cigarette paper were smuggled into Tientsin by the Peining Railway. The duties leviable are computed to be over two million three hundred thousand dollars at which rate the loss of revenue would amount to over one hundred million yearly which constitutes approximately one-third of the customs gross revenue for 1934.
Having saturated the northern markets contraband goods now flow into the Yangtse area. The American-owned Evening Post of Shanghai in a recent survey of the effects of smuggling on import business described the serious predicament of foreign importers and added “they fear complete ruin for local import business” unless illicit trade should soon be curtailed.
The situation as it now stands is a hopeless one for the customs authorities are unable to exercise their normal preventive functions. A brief résumé of how smuggling has reached its present proportion with the connivance and approval of the Japanese authorities will explain the situation.
[Page 147]Smuggling in North China started on a small scale during the early part of 1935. Illicit goods then entered the country mainly through the Great-Wall passes but the customs authorities could still hold smuggling activities in check. Then a great impetus was given to smuggling by the illegal export of silver from North China by bands of Koreans and Japanese ronins. Instead of taking steps to curb their activities the Japanese military authorities seemed to do their best to encourage them. In May last year two Japanese silver smugglers injured themselves in an attempt to get away from the customs officers by jumping from the Great Wall. The Japanese authorities subsequently made strong demands for compensation for the injured and for the withdrawal of customs patrols from the Great Wall. The customs authorities accepted these demands under threat that the rejection of them would be followed by steps toward expelling the customs authorities from Shanhaikwan.
The withdrawal of customs patrols was followed shortly afterwards by the disarming of customs officers within the demilitarized zone. The Chief of the Kuan Tung Military Mission at Shanhaikwan notified the customs commissioner at Chinwangtao to the effect that owing to special political conditions customs officers are not allowed to carry revolvers in the demilitarized zone. From then on the situation became one wherein unarmed customs officers had to deal with armed Korean and Japanese smugglers who knew they could attack customs officers with impunity and were thus encouraged to go farther in open lawlessness and audacity.
The Japanese authorities were repeatedly requested by the Chinese authorities to curb their nationals in smuggling activities but all requests were ignored. The Japanese military authorities maintained that the matter did not concern the army authorities but the consular police while the latter took the attitude that smuggling into China was not an offense under the Japanese law. Protests lodged with the Tokyo Foreign Office were equally fruitless and several notes from Nanking have hitherto remained unanswered. On the other hand the Japanese authorities made strong demands if any Japanese or Korean smugglers got hurt in the slightest degree in frays with customs officers.
The position further grew worse in September when the Japanese authorities forced the removal of all customs preventive vessels armed or otherwise from the waters within three miles of the demilitarized zone. This together with the Japanese refusal to recognize the customs’ right of search outside the three-mile limit (China’s Preventive Law gives the Customs this right within twelve marine miles of the coast) rendered uncontrollable smuggling by sea from Dairen to East-Hopei coast. The chief centers of smuggling are beaches of Peitaiho, Chinwangtao, Nantassu and that near Liushouying, all within the demilitarized zone. At these points illicit goods are brought [Page 148] ashore without fear of seizure and then transported to interior markets via the Peining Railway.
Baulked in every attempt to carry out preventive measures the customs authorities this year restored the measures designed to prevent contraband goods from reaching the markets. An agreement was reached March 21 between the customs and the Peining Railway Administration whereby the Railway agreed not to accept freight or cargo except against the customs’ transportation permit. However the Railway was unable to carry out the agreement under pressure from the Japanese military authorities.
Recently the puppet regime of East Hopei, apparently with the approval of the Japanese over-lords, enforced its own dues on incoming cargo which are about one-fourth of the legitimate duties. The Japanese now claim that any goods whereon the required tax [is?] paid to the so-called East Hopei Autonomous Council cannot be regarded as smuggled goods.
In these circumstances the customs authorities are evidently confronted with a hopeless task. The grave situation not only entails a serious loss of revenue but jeopardizes the security of foreign loans and threatens to kill all legitimate trade as cargoes entering the northern frontier easily reach the Yangtse area by means of the Tsinpu and Pinghan Railways and it is from goods consumed in this area that the bulk of customs revenue is derived.
The Japanese authorities contend that smuggling is due to high import duties but nothing is further from the truth. If high duties were the real cause then the amazing smuggling scandal would not be confined to East Hopei and one might expect to find the same conditions along the whole coast. The truth is that the smuggling evil flourishes in North China only with the connivance and approval of the Japanese authorities.
A special correspondent of the North China Daily News in a recent article comes to the following conclusion: “All accounts agree that smuggling is being carried on by Japanese transportation companies under the protection of bands of Koreans who are only too aware of the impunity they enjoy thanks to Japanese extraterritorial rights. Indeed Japanese consular authorities openly state that smuggling into China is no offense under Japan’s laws. In other words, smuggling is conducted with the connivance and direct approval of the Japanese authorities”. The Shanghai Evening Post likewise believes—“Japan holds the key position of the North China smuggling picture”. An editorial in the issue of May 6 of the same journal declares—“smuggling in North China can be stopped by the Japanese or with Japanese collaboration; otherwise it must go on”.