793.94/15461: Telegram
The Consul General at Shanghai (Gauss) to the Secretary of State
[Received November 3—7:02 a.m.]
965. Reference Department’s No. 203, October 21, 2 p.m., to Chungking.6
- 1.
- Viewing the situation from this post in Japanese occupied China there seems no prospect of any early definitive settlement of the China incident. There are no indications here of any modification of Japanese objectives or policy in China. Japan’s major military effort was considered as substantially completed with the occupation of Hankow and Canton. Recent Japanese military reverses in China are not regarded by military observers here as of major importance. Guerrilla tactics by Communists and other forces in Shansi and the north appear to have been successful, but in Central China the sporadic guerrilla activities while disconcerting have brought no important results.
- 2.
- Sober Japanese opinion maintains that the project for a “recognized” Central Government regime will mature in the very near future, thus freeing Japan to deal more readily with any situation or opportunities that may develop out of the European conflict and at the same time establishing a means to “legalize” the dominant economic position into which Japan has thrust herself in occupied China through the introduction of an economy fashioned on the Manchurian pattern gradually extending through North China into Central China with Chinese and third power interests generally immobilized during the process of penetration and consolidation by restrictive measures imposed under the guise of military necessity.
- 3.
- Japan has approached the currency problem more cautiously here than in the north, but the ground work has been laid for opportune development. Through the Central China Development Company Japan holds substantial monopoly control of inland navigation, rail and other transportation, public utilities, telecommunications, fisheries, salt, coal, iron, silk, cotton and other raw materials. Lack of capital has restricted any rapid development but confiscatory methods have established Japan in control of existing substantial and profitable activities.
- 4.
- With the husbanding of material and men by avoidance of further large scale military operations, and with monopoly control of profitable enterprises and the accumulation of revenues from tax sources, it is believed here that the drain of the China incident on the resources and reserves of Japan has to a certain extent been moderated. [Page 313] Customs revenue balances in Japanese banks on September 30 totaled 330 million dollars. Approximately 85 per cent of the customs revenue is collected in Japanese occupied ports. While official information is not available, it is believed that receipts from salt revenue and consolidated and other taxes in occupied China must reach a very substantial total. One cannot doubt that these revenues are availed of to support the Japanese occupation. Foreign and domestic obligations secured on these revenues are not being serviced.
- 5.
- Observers here, while remarking on China’s continued resistance and united front, fail to find any evidence of a substantial strengthening of the Chinese position. With heavily reduced revenues and difficult trade channels, China’s resources cannot be improving and her reserves must be dwindling.
With the European conflict, it would appear that Britain and France are lost to China as possible sources of loans, credits and supplies. Soviet assistance apparently can only be had at a substantial price. There are persistent reports here of increasing activity by the Communists for greater influence in the Government; also reports of friction between communist and National Government forces in the field. Foreign observers also commented that young Chinese seeking to serve China against Japan are preferably directing their steps toward the communist camps.
Repeated to Chungking and Peiping. Code text by air mail to Tokyo.
- Not printed.↩