893.61331/234: Telegram
The First Secretary of Embassy in China (Smyth) to the Secretary of State
[Received November 15—12:50 a.m.]
450. Peiping’s 430, November 6, 4 p.m.,34 Japanese restrictions on purchase of Shantung leaf tobacco.
The informant35 mentioned in the telegram under reference has [handed?] this Embassy a copy of a memorandum dated November 13 which he addressed to the British Embassy here. In this memorandum he recites the information contained in the telegram under reference and then gives certain information in regard to Japanese economic policy, a summary of which is given below as of interest to the Department.
This matter is brought to the attention of the British Embassy as an outstanding example of the treatment accorded British firms in North China. In our negotiations with the Japanese we have emphasized the fact that we are important producers of revenue for the North China authorities.
The Japanese military who control matters appear to be completely unmoved by this argument as they are determined to develop a yen bloc economic structure which will exclude all independent foreign interests.
In long talks I have had with Major Kato, Imperial Japanese Army, who controls leaf tobacco matters I was informed very plainly that after this year our company would not be allowed to buy leaf tobacco from the farmers because the Japanese Army was developing a plan for cooperative planting and marketing of tobacco in which there would be no place for our company. Major Kato continued that the tobacco industry would be rigidly controlled from the time leaf was planted through leaf purchase, cigarette manufacture, distribution [Page 549] and sale; and that the authorities would determine the amount of business which our company would be allowed to handle as well as the profits if any which our firm would be allowed to enjoy. Major Kato explained that it was a fixed policy of the Japanese Army to control all activities in the Japanese occupied territories of China and that every form of agriculture, manufacturing, transportation, merchandising and finance would come under the strict control of the Japanese Army.
Major Kato said that the Japanese Army intended to base its policy chiefly on the policy now in force in Soviet Russia where the factor of profit has been eliminated. Kato said that although it might be considered inconsistent for the Japanese to base their economic policy on the Soviet model, this was nevertheless the policy of the Konoye Government; he added that the Japanese Army was taking measures to implement this policy as speedily as conditions permitted.
Our firm has reluctantly been forced to accept the Japanese terms and we expect shortly to undertake the restriction allowed us this year.
The comment of this office on the above as well as on Tokyo’s 1143, November 13, 10 a.m. via Peiping (which is being repeated to the Department by separate telegram) will be transmitted to the Department tomorrow by telegram.
Sent to the Department. Repeated to Chungking, Shanghai, Tientsin, Tsingtao, Tokyo.