Not Just Another Recession
Why the Global Economy May Never Be the Same
THE summer of 1935 marked the darkest period of China's political history. The three Manchurian provinces had been lost without a struggle. Jehol had then been taken by the Japanese after an eight-day battle lasting just long enough for the opium-king, General Tang Yu-lin, to furnish an example of the world's most demoralized army in a most spectacular retreat. The Tangku Pact had been signed next, after a futile war of resistance had been fought along the Great Wall by local generals, pathetically without leadership from the National Government. As a result of the Tangku Pact, the text of which never was officially published, the Japanese claimed many rights and privileges in the important province of Hopei, containing the great cities of Peiping and Tientsin. The Chinese denied that many of these concessions had ever been granted, such as the Japanese claim that the Chinese Government had agreed not to station more troops in Hopei than necessary for policing purposes. The most clearly defined result of the Pact was the establishment of a demilitarized zone inside the Great Wall, coming within about thirty miles of Peiping. Under this scheme, the bogus "autonomous régime" of East Hopei had been established, with the ill-concealed guidance of Japanese army chiefs. The same bogus régime had been used for daylight robbery of the Chinese national revenues through wholesale smuggling by a fleet of small Japanese steamers. An army of ruffians, chiefly Koreans, under the direct protection of Japanese consular authorities, demanded the disarming of the Chinese Customs officers and negotiated for the release of arrested smugglers, the return of their goods, and damages for any injuries sustained. Meanwhile, under the most rigid press censorship, the Japanese were penetrating into and taking over part of Chahar (lying north of Hopei and outside the Great Wall), without either the Chinese or the Japanese Government saying a word about it. And finally, spurred on by the success of these silent tactics, Japanese army officers had broadly hinted at the necessity of "performing a surgical operation" on China by severing all five of the northern provinces -- Chahar, Suiyuan, Hopei, Shansi and Shantung. This darkest period symbolically ended with the attempted assassination by Chinese nationalists of Wang Ching-wei, Chinese Foreign Minister, in the fall of 1935.
China then presented a truly pathetic picture -- a picture of lack of national leadership in the government, and general chagrin, suppressed indignation and consequent despondency among the people. General Chiang Kai-shek, the head of the Government, had refused to tell the people his policy vis-à-vis the issue which was rending their hearts; at least no sign of any preparation for resistance had been publicly made known. Local generals who were stationed in the northern area and who wished to resist had to make the obvious choice of at once having their own little armies annihilated without central support, or yielding to a policy of compromise and gradual suicide. A rigid censorship was clamped down on the press; no mention of the activities of the "autonomous" régime or of the smuggling was permitted; no editorials dared attack the policies of militarist Japan for fear of being charged with "injuring relationships with a friendly neighbor" (as stated in the Censorship Regulations); anti-Japanese meetings were absolutely forbidden, no demonstrations were permitted, and the Peiping Chinese police fought the student demonstrations, which flared up again and again. The police used fire-hose in icy weather, or knocked the students down with the very knives that they themselves had paid for and contributed to the army of Sung Cheh-yuan when he was fighting the Japanese on the Great Wall. On the demand of the Japanese, the offices of the Kuomintang party, the Government's own party in China, had been closed down in Peiping and the party members sent south.
A government which had acceded to demands of this nature had sunk as low as it was imaginable for any government to sink, in the eyes not only of its people, but even in the eyes of Japan.
Clearly such a state of things could not last, and it was the Japanese who, by their further pressure, brought matters to an issue. About the most stupid thing the Japanese Kwantung army ever did -- the most stupid, because most tactless -- was to challenge Chiang Kai-shek in the same summer of 1935 and demand his downfall. Even a military attaché of the Japanese Embassy at Nanking openly said that Chiang Kai-shek, the head of a friendly Power, ought to be overthrown. That such an impudent statement could have been made at all clearly illuminates the picture that I have painted above of the summer of 1935. But the statement had two effects, each electrifying. In the first place, Chiang Kai-shek is a human being, with human emotions common to every mortal; in particular, he is a born last-ditch fighter. Japan's open hostility affected him just as a Persian cat is affected by having its coat stroked backwards. In my belief, he had been following a consistently realistic policy and playing for time. This development must have helped to confirm in him the view that no compromise was possible with the Japanese militarists short of turning China into a vassal state. The foolish statements to that effect made by Japanese army chiefs who liked to see their names in the papers must have been like iron entering into his soul and inevitably stiffened and hastened his spirit of resistance.
The other effect of Japanese denunciation of Chiang Kai-shek resulted in absolving him in the eyes of the Chinese people from all guilt and suspicion of being pro-Japanese. The people began to flock around him as national leader as they never had done before. The Chinese and the Japanese had been working at cross purposes for so long that when the Japanese began to pray for rain, every Chinese felt it his patriotic duty to pray for sunshine. The Chinese nation, by a kind of vague instinct, felt that if the Japanese thought Chiang Kai-shek bad for China, then he certainly must be good for China; since the Japanese disliked him, the Chinese must like him; since the Japanese said he must go, the Chinese decided he must stay. In China the press functions as the agency for publishing official dispatches. Whispers are therefore listened to avidly; and a whispering campaign now started to the effect that Chiang Kai-shek had been preparing for military resistance against Japan and for an eventual matching of force so soon as China was ready.
During the Kuomintang Congress in the fall of 1935, Chiang Kai-shek had armies concentrated in strategic positions in Kiangsu and Chekiang, ostensibly in preparation for conflict. This was the first sign of any kind that Chiang was ready to fight. There was great talk of resistance before and during the Congress, and General Feng Yu-hsiang, who could not have been induced to come to Nanking on any other terms, actually did come and was appointed Vice-Chairman of the Military Commission of the National Government. What the intention of those army movements was no one except Chiang knew, for, as silently as the whispers, the armies disappeared again from their positions after the Congress was over.
But Chiang's position vis-à-vis Japan was not yet clarified in the eyes of the people. This was proved in the students' convention which he called at Nanking as a means of turning to his own purposes the growing student unrest which was promising to sweep the entire country. At this convention, as late as the spring of 1936, the student delegates demanded that Chiang clarify his stand with regard to Japan. The unmistakable voice of the people, of all classes and in all provinces, showing itself in a series of catastrophic upheavals, had proved that the public mind was made up about the supreme sacrifice required. Chiang was forced to take a position.
During the Kuomintang Congress in 1935, Wang Ching-wei, standing in front of the camera in the center of the Kuomintang Central Executive Committee, was shot down by a would-be assassin playing the rôle of a photographer. About a month afterwards, his closest henchman, T'ang Yu-jen, Vice-Minister of Foreign Affairs under Wang, was shot on his door-step in the French Concession in Shanghai. These acts (and also the assassination of Yang Yung-tai half a year later), were undoubtedly done from political motives and by a political faction. Although Wang survived, his position as head of the Chinese Executive Yuan and of the Foreign Ministry was no longer tenable.
Directly after the Congress of 1935, Chiang took over the helm of state as the formal head of the Executive Yuan and organized a new Cabinet. The Japanese had been demanding that Chiang come out in the open and take personal responsibility for Sino-Japanese negotiations. So Chiang did. Strange to say, although the new Cabinet was composed of a greater number of Japanesereturned students, and though it sought the settlement of outstanding issues by pacific means, an entirely new tone was observable in its diplomatic policy. The willingness and readiness to start negotiations with the diplomatic representatives of Japan indicated, not a continuation of the supine policy of Wang Chingwei and T'ang Yu-jen, but rather a new note of self-confidence on the part of China, who now treated herself as Japan's equal. China's diplomatic machinery was centralized in Nanking and regional pacts with Japan made by local authorities were declared null and void. Chiang Kai-shek was meeting the Japanese problem squarely and confidently, with poise and dignity, but also without verbosity and without cheap truculence.
Then in 1936 came a series of rebellions which steadily pressed the issue of immediate war with Japan. The chief of these rebellions were that in Kwangsi in August and the Sian revolt in December. However complicated the motives underlying the revolts, they clearly expressed the voice of the people. One must have been living in China at the time to feel their full portent. Whether the rebelling generals acted from personal or public motives or a mixture of both, and whether immediate war was advisable or not, is irrelevant; the fact remains that the whole nation had come to realize the danger of further compromise. They saw that there was no end to Japan's ambitions, and that to yield another inch of Chinese territory could not be tolerated. The nation had reached the point of determining to resist Japan even at the risk of a major war. War was in the air and Chiang felt it, knew it. The problem of war with Japan, of alliance with Russia, and of stopping internal wars against communists, had became real questions. They have not yet been settled.
It was a remarkable testimony to the Chinese Government's popular strength that although it was taking a more moderate and less anti-Japanese position it came out after every rebellion stronger than before. Chiang Kai-shek settled the rebellions with firmness and considerable sagacity. Some of his immature rawness had worn off, and he showed more temperance. In his dealing with the Kwangsi Rebellion he rose to the full stature of a statesman. He faced the opposition and won; but it was a victory far above party or personal lines, for while winning, he accepted the view of his adversaries that it was absolutely necessary to stop further encroachments, to meet force with force. Moreover, he acted on his new conviction; he predicted that the conflict of forces would begin in Suiyuan, and when the conflict actually did begin, Nanking for the first time in history mobilized its forces under open national leadership to meet Japanese or Japanese-inspired aggression. Thus did he fall into perfect alignment with the will of the people. Only by bowing to the will of the people could he command. His reward for the new policy of resistance was the spontaneous tribute of loyalty that came to him from the nation during his Sian captivity.
Thus was a circle completed, beginning with the Japanese denunciation of Chiang in the summer of 1935 and ending with the complete alignment of the people behind him as the national leader in December of 1936.
Proof as to how much the Chinese attitude had stiffened was shown in the negotiations that took place in Nanking, lasting from the middle of September to the beginning of December 1936, between Chang Ch'un, Nanking Foreign Minister, and Mr. Kawagoe, Ambassador of Japan. China met Japan's demands with counter-demands. Chang Ch'un repeatedly warned the Japanese Government to prevent the outbreak of hostilities in Suiyuan; and when the Japanese Kwantung army went ahead with its own plans of adventure there, the central Chinese Government not only met these Japanese-inspired onslaughts with its own troops but also refused to proceed further with the negotiations. Then on December 3, Japan landed 700 marines in Tsingtao (after a strike in Japanese mills by Chinese workers) and raided the Chinese railway and party offices and arrested Chinese officials. Chang Ch'un at once lodged a violent protest, and abruptly terminated the conferences which had been under way for 83 days. The landing of 4,000 Chinese troops in the suburb of Tsingtao eventually caused the Japanese marines to withdraw.
These events indicated the opening of a new chapter in the history of Sino-Japanese relations. The tables had been turned. Now it was China that was lodging complaints against Japan. China protested against violations of her sovereignty in the northeast, against the illegal smuggling into North China of Japanese goods, the illegal flight of Japanese airplanes over Chinese territory, and the illegal arrests of Chinese officials. Finally, while it was Japan who had protested against the Chinese use of Hopei as a base for subversive activities against "Manchukuo," as a result of which she demanded a demilitarized zone inside the Great Wall, it now was China's turn to protest against Japan's use of "Manchukuo" as the base for hostile activities in the territory of a friendly power. China did not logically proceed to demand the demilitarization of "Manchukuo." It would be quite some time before China was ready for that. But in response to Japan's invitation to coöperate in the fight against communists in Chinese territory, she replied by offering to send Chinese troops to Manchuria to help Japan exterminate them there.
Even more significant than the above is the fact that Japan was no longer negotiating with the Chinese local authorities in the north, but with the Nanking Government. She no longer claimed that China was "not a nation." Trivial, yet significant, is also the fact that, when Japan sent a departmental chief of her Foreign Ministry to carry on conferences in Nanking, the latter also sent a departmental chief of the Foreign Ministry to negotiate with him. Things had changed, evidently, since the Wang Ching-wei régime, when the late Tang Yu-jen, a Vice-Minister of the Chinese Government, paid dutiful visits to the Japanese Consul-General every time he came to Shanghai, and when Wang Ching-wei issued an order for the Mayor of Nanking to act as a personal guide and entertainer for a minor Japanese officer on a visit to Nanking -- as a result of which the Mayor protested and resigned.
The rupture of the negotiations by Chang Ch'un when the Japanese marines landed in Tsingtao occurred only nine days before the kidnapping of General Chiang Kai-shek in Sian. The demands of Marshal Chang Hsueh-liang during the time he was holding Chiang in Sian, calling for war with Japan, alliance with Russia and absorption of the Chinese communists into the Chinese army, represent problems that will have to be faced at the next Kuomintang Plenary Session.
A few words should be said about the events of 1936, which culminated in the discussions between Chang Ch'un and Kawagoe. Back in March of that year, General Arita, then Ambassador to Nanking, expressed the desire that China arrive at a fundamental solution of the outstanding issues. Chang Ch'un replied by expressing also the earnest desire of the Chinese Government for a fundamental solution, but added that the "removal of existing obstruction to China's administrative integrity in Hopei, Chahar and Inner Mongolia should be the first, as well as the minimum, condition in the readjustment of Sino-Japanese relations." The somewhat fundamental nature of this suggestion took Mr. Arita unawares, and as Japan evidently was not prepared to discuss the situation of China's northeastern provinces, the conference was dropped.
There followed a series of incidents, beginning with the murder of two Japanese in Chengtu (Szechuan province). Mr. Kawagoe came as a new Japanese Ambassador to Nanking, ostensibly to open negotiations regarding these incidents. Instead, he presented somewhat drastic demands as the basis for discussion. These demands concerned: (1) the opening of a commercial air-route between China and Japan; (2) the revision of the Chinese tariff on imports; (3) control of the activities of Korean revolutionists in China; (4) employment of Japanese advisers; and (5), control of anti-Japanese activities. China gave these demands careful attention, but also presented counter-demands, which threw back onto Japan the onus of establishing a new basis of relations between the two countries. Then came two events already mentioned -- the Suiyuan conflict, which paralyzed the negotiations for weeks, and the Tsingtao incident, which helped break them off completely. On the evening of December 3, Chang Ch'un had a last interview with Mr. Kawagoe. The latter took out an aide-memoire of the previous conversations and asked Mr. Chang to "keep it for reference." Mr. Chang refused to accept it, but Mr. Kawagoe insisted on leaving it. The same night, Mr. Chang sent it back to the Japanese Embassy, on the ground that it was incorrect and could not be used for reference. The next morning, the document was presented once more to the Nanking Foreign Office and once more returned. Mr. Kawagoe left Nanking on December 4.[i]
With regard to the five demands presented, the stand taken by China's diplomatic representatives during the conversations was characteristic. With regard to the establishment of an air route between Fukuoka and Shanghai, the Chinese authorities said, according to the Nanking Central News Agency, that China had been negotiating on this point even before September 18, 1931, on the principle of equality and reciprocity, but that "unfortunately since last winter, Japanese aëroplanes have been flying freely over Northern China without going through the legitimate procedure of obtaining the consent of the Chinese Government. Such illegal flights are a violation of China's sovereignty. The Chinese Government maintains that until a stop is put to these illegal flights it will be extremely difficult to proceed with further discussions to link Shanghai and Fukuoka by a civil air line. The Chinese Government has not modified this attitude."
Regarding the second demand, that for revision of the import tariff, China replied that "revision of China's import tariff is China's domestic affair. The tariff may be readjusted any time, as required by national financial and commercial conditions, but when tariff readjustment is being studied the Chinese Government regards the suppression of smuggling and freedom of the Chinese Customs Preventive Service as questions first to be considered."
China replied in the same spirit to the request that Japanese advisers be employed. This solely depends, she said, "upon the requirements of the Chinese Government and the technical ability of those to be employed" and added that "nationality should not enter into the question," and that "this is not a matter which can be made the subject of a demand by a foreign government." And as regards the control of unlawful activities of Koreans, the Chinese Government, while recognizing its duty to stop unlawful activities of any nationals in its territory, pointed out that "the Japanese Government should also suppress unlawful activities committed under its protection by Koreans, Formosans and other subjects of Japan." Its stand regarding the suppression of anti-Japanese feeling was that this depended on the eradication of the causes of misunderstanding and bad feeling.
Each of these Chinese replies was what every western diplomat would recognize as a plain, sensible and entirely normal argument. But coming from the mouth of a Chinese diplomat in reply to a Japanese demand it was unprecedented.
It was not Japan that had changed, but China. Japanese aëroplanes had always been flying freely over Chinese territory; Japanese marines had often before landed in Chinese ports; Japanese soldiers had many times before raided Chinese offices and arrested Chinese officials and citizens; Japanese smugglers had been active for a long period; and, of course, Japanese violation of China's territorial integrity had not begun in 1936. Now China had begun to treat Japan as an equal, and what was still more important, treat herself as an equal. What had happened?
In making clear her intention to meet further Japanese aggressions with force, China has perhaps accidentally called Japan's bluff. The factors that have contributed to this change are threefold.
In the first place, Japan's policy has in itself been very influential in solidifying Chinese unity. So long as the military powers of the two nations were unequal, and so long as Japan continued to bite off small bits of Chinese territory, there would always be a section of the Chinese people -- endowed with the unmatched philosophy of " changing a big thing into a small thing and a small thing into nothing" -- who would favor a policy of conciliation with Japan by putting up with various temporary disadvantages in the hope of "getting by." If it had been possible for those Chinese to continue to believe in conciliation they would certainly be doing so even now. Unfortunately, or fortunately, Japan, by her acts and plain intentions, has destroyed every possible argument for coöperation. Put in plainer English, the Chinese people feel that it has become a simple question of "I cut your throat or you cut my throat." The various statements of Japanese soldiers, unversed in the art of diplomatic lying, have made it inordinately plain that nothing short of complete Japanese hegemony in East Asia and the submission of China as a virtual vassal state will satisfy the ambitions of militarist Japan. Consequently, through the instrumentality of Japan, particularly of her militarists, there has been built up a tremendous national force in China in the form of anti-Japanese feeling, or pure hatred of the Japanese. Today I believe it is the greatest single, and the only certain, factor in the entire Far Eastern picture.
In the second place, the new tone of self-confidence is due to the gradual crystallization of a positive policy on the part of Chiang Kai-shek, that inhumanly cool statesman. Like all good chess-players, Chiang never talks; and, like a good chess-player, he plans and calculates his moves. If he must fight Japan, he would like to prepare, ruthlessly, determinedly and systematically. He would like to have three years, he is reported as saying; if not, one year; and if Japan presses too hard, he would fight even now. But if he must fight he would want to fight under the best advantages possible, and if today it comes to a question of giving in a little to gain time, then I believe he still will go some distance to humor Japan. In view of his past record of evasion of the Japanese issue, the only justification for such a policy on his part is whether he is seriously and actively preparing for the eventual matching of forces. And I am led to believe that he is preparing very fast, but also very systematically. He envisages war as a practical military matter -- including the provision of military equipment, the training of mechanized armies, the building of an air force, provision for the wounded, conscription of reserves, the elaboration of tactics and the creation of a stable base of defense, necessitating the sacrifice of certain territories, the adoption of financial measures and the building of arteries of communication. He has built a modern mechanized army (still inadequate for matching Japan's); he has bought aëroplanes and trained an air force; he has envisaged the blockade of the China coast (the reason for hastening the completion of the Canton-Hankow railway by night and day); he has put into practise the military training of Chinese college students; he has even organized nurses' corps of peasant women in the neighborhood of Nanking. He has also adopted and put through the necessary financial measures for war-time protection. Best of all, he has reason to count on excellent morale if ever it comes to fighting the Japanese. From all these preparations he even draws the conclusion -- and with reason -- that probably the danger of war is already past, for Japan does not at present relish the prospect of war on a major scale.
The third factor is Russia. China has no more made a military alliance with Russia than Japan has with Germany -- formally. Yet the alignment of forces is perfectly evident to every student. In any protracted war between China and Japan, the intervention of Russia -- not as a certainty but as a possibility -- would have to be taken into consideration. The mere possibility of Russian intervention is enough to make Japan think twice.
So long as the Japanese could bamboozle and cow the Chinese into giving up further bits of territory, they would have kept that game up indefinitely. But now that the Chinese have stiffened, now that they are willing to risk a real war in order to halt the continual whittling away of Chinese sovereignty, the situation has changed.
There is Russia -- with her self-sufficient Far Eastern Army, with a steel and concrete fortified line, with fifteen completely mechanized divisions, 1,000 tanks and 1,000 aëroplanes that can menace Tokyo and Osaka and carry hostilities to Japanese soil.
There is "Manchukuo" -- with 3,000 miles of border and 6,000 miles of railways to defend, and with an area the size of France and Germany combined to hold in submission in face of an actively hostile population of 30,000,000 Chinese. This alone would keep ten Japanese divisions fully busy in the event of war between Japan and China. What surplus strength Japan has for invading China and waging a protracted war there -- a war in which there would be no decisive victories -- is a question the Japanese can only settle for themselves.
And, finally, there is China, embittered by years of bullying at the hands of a nation which in her heart she really despises, hardened by a period of disillusionment in international diplomacy, and finally taught the lesson of ultimate reliance upon herself. At the head of this nation, keyed up at last to the modern tune of nationalism, eaten up by bitter hatred of the invaders, and unified by one single powerful emotion, is a determined, wily, modern statesman-soldier. So much of China's national consciousness has been suppressed in past years by the Government that when eventually it explodes, as it will if Japanese pressure is continued, the world will be startled. The explosion will have more spectacular results than the last Shanghai War. The only alternative is a prompt application of the old philosophy of "live and let live."
[i] The text of the statement issued by the Chinese Foreign Office on December 6, 1936, describing China's position in detail, may be found in the North-China Herald, Shanghai, December 9, 1936.