IT is now over a year since Japan officially recognized Manchukuo, signing a protocol under which she agreed to cooperate with the new state in the maintenance of its national security. During this period, organized opposition to the establishment of the new government has been crushed; Japan has been able to consolidate her position and initiate plans for the development of the country in harmony with her own economic and strategic needs. Although it is too early yet to make confident predictions regarding the future, we may assess progress and examine the situation as it stands today. In view of the war-clouds still hanging over Manchuria this may not be a profitless task.

The first fact to be grasped is that Manchukuo has come to stay. Before long the Japanese may possibly find it expedient to bring about a change in the form of government from a nominal republic, as at present, to a limited monarchy, with Mr. Henry Pu Yi restored as Manchu Emperor; but nobody believes that the Japanese have the least intention of relaxing the firm control they now exercise over the country's destinies.

Manchukuo's vaunted independence exists only in the imagination of Japanese propagandists. As at present constituted, the Manchukuo "government" amounts to little more than a polite fiction invented to obscure the fact that Japan has gone in for imperialism in a big way. Japanese officials occupy the key positions in the Manchukuo administration and work under direction of the Kwantung Army, which in turn is subordinate, ostensibly at least, to the Japanese Imperial General Staff. Mr. Pu Yi and his team of Manchu and Chinese ministers, commonly spoken of in Manchuria as "the phantom cabinet," are entirely overshadowed by their so-called Japanese "advisers," who in fact constitute the country's real executive authority.

Last spring the Manchukuo Government adopted an economic program. It indicated the following basic policies and aims: 1. To prevent any one class from monopolizing the benefits arising from the exploitation of natural resources and from industrial development. 2. To exercise national control over important economic activities and to devise rationalization measures. 3. To observe "the principle of the Open Door and equal opportunity," to encourage the investment of foreign capital, and to utilize foreign technical skill and experience. In line with these governing principles the government has laid down definite plans for the economic organization of the country, for the development of industry, and for the construction of public utilities. Progress is being made in several directions.

One of the most notable developments has been the progress towards the establishment of financial order. Among the gravest scandals of the former Chinese régime was the way in which Chang Tso-lin and later on his son and successor, Chang Hsuehliang, manipulated the currency for the purpose of bolstering up their private treasuries. It was done in this manner. Having acquired a virtual monopoly of Manchuria's foreign exports, notably the soya bean, they paid the Manchurian farmer for his produce with notes of their own manufacture, known as fengpiao. They then sold the produce to the foreign distributors for good money, which they pocketed. The emission of issue after issue of notes had the natural result of enormously lowering the value of the fengpiao. Faced with a situation similar to that which confronted the German Government in 1924 after the ruin of the old mark, the new Manchukuo Government made one of its first tasks the redemption of this paper currency at fixed rates of exchange. It is officially claimed that through the agency of the Central Bank of Manchukuo, established on June 15, 1932, with a capital of 30,000,000 Manchukuo yuan, the government by the end of last July had redeemed 60 percent of the outstanding paper issues. It is hoped that by the end of June 1934 the variegated forms of currency previously circulating throughout Manchuria will have been superseded entirely by the new currency unit known as the "Manchukuo yuan," based on the silver standard, which has already become a recognized medium of exchange. Though deplored by the exchange speculators, this much-needed reform is warmly welcomed by farmers and merchants throughout Manchuria, where it has done much already to encourage trade by eliminating the tremendous currency fluctuations which hampered the transaction of business under the old system.

But it is to railroad development that most interest attaches. For nearly thirty years Japan has been working steadily to adapt the Manchurian railroad system to her own economic and strategic requirements. Her efforts in this direction have brought her into frequent collision with the rival aspirations of the Chinese on the one hand and the Russians on the other. Attempts by the late Chang Tso-lin to build lines in competition with the Japanese-owned South Manchuria Railroad, and his refusal to build others linking up the Manchurian and Japanese systems, were major factors in precipitating the recent Sino-Japanese conflict. Since Manchukuo was established Japan finds herself in a position to proceed unhampered by Chinese opposition. She has also shown an increasing disregard of Russian interests.

The publicly announced plans of Manchukuo provide for the construction of 4,000 kilometers of new lines within ten years. The first new railroad to be completed since the Japanese army assumed virtual control of Manchuria in September 1931, is a stretch of about 200 kilometers from Tunhua to the Korean border (see railway map on page 294). This line, opened for traffic in August last, will connect with the new port of Rashin, now under construction on the Korean coast, and by joining up with the Korean railroads will provide a more direct communication between Japan and Manchuria. The Chinese refusal to sanction the completion of this railroad did much to quicken Japanese impatience with the former Manchurian régime. Another new line, due for completion by the end of 1933, will give access to the fertile country lying north of the Chinese Eastern Railway. This is the line now being built from Lafa, some 50 kilometers westward of Tunhua, to Harbin, where it will connect with the Hulan-Hailin-Koshan-Tsitsihar line. When it has been completed, and when the new bridge now being built simultaneously across the Sungari River has been finished, trains which are at present compelled to trans-ship their goods at Harbin will be enabled to carry their inland freight direct to the Korean coast. Construction has also been started on another line running northward from Yenki, about 60 kilometers eastward of Tunhua, through Hailin to Sanhsing, an important soya bean center on the Sungari. This railroad (which will take several years to complete) will tap additional regions, the products of which can then be brought down to ports on the Korean coast. Japanese railroad officials claim that these various improvements in their system will have the effect of reducing the Chinese Eastern to the status of a branch line. It is significant that by the completion of the line from Changchun to the Korean border the haul from Osaka to Harbin has been reduced from 2,800 kilometers (via the old Dairen route) to 2,060 (via northern Korea), a saving of 740 kilometers. Plans are now under way in Japan to establish a new steamship line from the Japanese port of Niigata to Rashin or Yuki, on the Korean coast, making possible a saving of two days in the journey from Tokyo to Harbin.

The contracts for the construction of the new railroads have been given exclusively to the Japanese-owned South Manchuria Railroad Company, which also has been entrusted with the management of the existing system. According to Mr. Michio Izawa, vice-director of the general railroad directorate established at Mukden on March 1, 1933, the policy to be followed in the management of the railroads will be: 1. To promote coöperation between Japan and Manchukuo for defense purposes under the Manchukuo-Japan protocol. 2. To reorganize the railways on an efficient basis, eliminating futile competition. 3. To ensure repayment of existing indebtedness to Japanese interests (notably the South Manchuria Railway), totalling 130,000,000 gold yen, and of loans made in respect of railroads now under construction or the construction of which is pending. Already considerable headway has been made in the rationalization of the 6,000-kilometer system. A through train and ticket service has been established. It is expected that the nine varying freight schedules will have been unified by the end of the present year. It is safe to predict that before long, provided the bandit menace can be removed, the South Manchuria Railway will have the Manchukuo railway system operating with a degree of efficiency inconceivable under the former régime.

Rashin is destined to become the main outlet on the Korean coast, and to that end elaborate harbor construction has already started there. It is estimated that within four years Rashin will be able to handle 3,000,000 tons of cargo annually, and 9,000,000 tons within ten years. Owing to the lack of natural land facilities the development of the port is likely to prove a costly undertaking, and the expenditure of 30,000,000 yen will be required during the first four years. Part of this sum will be absorbed in the building of 15 kilometers of railroad from Rashin up to Yuki, including the construction of a tunnel more than 4 kilometers long which will be the largest in the Far East. Pending the opening up of Rashin, cargo is to be handled through the nearby Korean ports of Seishin, with a capacity of 1,000,000 tons annually, and Yuki, with a capacity of 400,000 tons. It is conceded that Rashin, when completed, will compete to some extent with the Japanese-controlled port of Dairen, in the Kwantung leased territory, but it is felt that there should be room for both. The fate of Hulutao on the Pechihli Gulf, where a Dutch firm had begun the construction of a harbor for the former Chinese régime, remains undecided. Work ceased there some time ago and will be resumed, it is officially stated, "if traffic justifies the opening up of the port."

The Manchukuo Government's road-building program, which calls for the completion of 4,000 kilometers by June 1934, appears to be getting under way rather slowly, but highways connecting Mukden and Fushun, Jehol and Peipiao, Hsinching and Kirin, and Taonan and Solun have been started. Regular daily air services are already operating between the principal Manchukuo cities, and extensions are planned.

Steps have been taken also to bring the communications system under unified control. Details have been given out officially in Tokyo of a merger of the Manchukuo telegraph, telephone and radio services, a semi-official company having been formed to take over the systems hitherto operated separately by the Manchukuo Government and the Japanese Government-General of the Kwantung leased territory. The new company, the majority shares of which are held by the Japanese and Manchukuo Governments and the remainder confined to their respective citizens, is capitalized at 50,000,000 yen. Government supervision and control are provided for in the articles of association, and dividends are restricted. In reporting the merger, Tokyo press dispatches pointed out that it illustrates the methods of state capitalism or national socialism by which the Japanese, in developing Manchukuo, expect to combine the advantages of public ownership and private management.

In the field of industrial development the lead is being taken by the semi-official South Manchuria Railway Company, half of the capital stock of which is owned by the Japanese Government. In order to obtain funds for the economic exploitation of Manchukuo the company has recently increased its capital from 440,000,000 yen to 800,000,000 yen. The funds raised by the sale of this stock in the Japanese market will be absorbed largely by railway and harbor construction projects but will be used also for subsidiary enterprises of an industrial character. The company's plans embrace an iron and steel plant at Anshan, a chemical works at Dairen capable of producing 180,000 tons of ammonia sulphate annually, and an oil-refining plant, also at Dairen. According to the official Manchukuo News Service, additional new enterprises to be launched privately under joint Japanese-Manchukuo management include the Manchuria Collieries Company (which is to form a merger of all Manchukuo collieries except the large open-cut colliery operated by the South Manchuria Railway at Fushun), and the Manchuria Electric Company, which is to undertake large-scale industrial enterprises throughout Manchukuo.

There is little indication so far of any serious intention to encourage the participation of foreign capital other than Japanese in the development of the country, despite the Manchukuo Government's declaration that "in the work of unlocking resources and encouraging industries the principle of the Open Door and equal opportunity will be observed." Mention of the "Open Door" in this connection elicits in most foreign quarters in Manchuria the ironic comment that "the door may be open but there are too many Japanese crowding the threshold for anybody else to be able to get even a look-in." Manchukuo officials when pressed for information on the point were unable to suggest where, for instance, an American capitalist with a million dollars to invest might find a suitable opening. It was hinted that something might perhaps be done in coöperation with the South Manchuria Railway Company, but that organization so far has revealed no anxiety to share its opportunities with outsiders.

It is to be expected that for the time being the implementation of the economic program will stimulate foreign imports such as automobiles, motor trucks, heavy machinery for road-making, etc., but the general outlook for foreign trade, except with Japan, is not regarded in Manchuria as being particularly promising. Government supplies are purchased from Japan wherever possible and railway material mostly is made on the spot in the well-equipped workshops of the South Manchuria Railway Company. Virtually the whole of the trade in cotton goods has passed into the hands of the Japanese, who have gradually edged out the British from this field. Shops in the principal Manchukuo cities are crammed with cheap Japanese goods, offered for sale at prices with which the American or British exporter cannot hope to compete. There is a good deal in the Japanese contention that economic rather than political factors have been responsible for the preferred position of Japanese merchandise, as Japanese traders obviously enjoy many natural advantages in addition to the low exchange value of the yen. But the complaint is made by foreign merchants in Mukden, Newchwang and elsewhere that they have also had to contend with unfair business methods. Goods have been smuggled in large quantities across the border of the Kwantung leased territory from Dairen, which is a free port under Japanese control. Also, it is alleged, Japanese dealers have imported huge stocks of piece goods into Manchukuo through the Japanese parcels post, thereby evading payment of duty.

Most of the larger foreign corporations, such as the Standard Oil Company and the British-American Tobacco Company, report good business at present but are wondering how long it will last. The oil companies view with apprehension the prospect of a Japanese plant being erected in the near future at Dairen to refine crude oil imported from abroad. According to South Manchuria Railroad officials, the capacity of the plant will be limited to about one-fifth of Manchuria's total requirements, leaving plenty of room for the foreign companies to continue their operations; but it is feared that this may prove to be merely the thin end of the wedge. The British-American Tobacco Company, also, faces the possibility of the establishment of a tobacco monopoly by the Manchukuo Government.

So much for economic problems. They are important; but those in the political and strategic realm are even more so. Japan's task is twofold: to pacify the country, and to attain security against outside interference. For the next few years the administration of Manchukuo must remain largely a military problem; every effort will have to be bent to the task of suppressing banditry and establishing order. The prevailing lawlessness constitutes the chief obstacle to the stability which is so necessary for the success of Japan's great imperial enterprise. It is claimed officially by the Japanese military authorities that the disbanded Chinese soldiers, common bandits and other lawless elements battening on the Manchurian countryside have been reduced within a year from a quarter of a million to about 60,000 and that the majority of the latter will become peaceful citizens as the economic position improves. Observers who have studied the bandit situation at close quarters dispute the Japanese figures. They estimate that not less than 40 percent of the agricultural land along the main railroads remains uncultivated owing to bandit activities and that it will take two or three years before conditions are brought even to the unsatisfactory pre-Manchukuo level. Japanese military experts have admitted in private that they will require at least a decade to get the situation thoroughly in hand.

An equally difficult task confronting the Japanese is to win over the native population to acceptance of the new régime. Here they will have to contend less with active opposition, which appears negligible at present, than with a deep-seated distrust that only time and tactful handling can remove. It is probable that if within a reasonable period Japan can assure security of life and property and give freedom from oppressive taxation, the peasant, who forms the backbone of the Manchurian social structure, will tolerate the presence of the invader just as the Chinese accepted for centuries the domination of the Manchus. Stabilization of the currency and improved communications can hardly fail to bring a measure of prosperity in their train -- and as a rule prosperity counts for more among the Chinese than the promise of political independence. Even if Japan were to become involved in a major conflict with another Power it is improbable that China would make any serious attempt to recover the territory by armed intervention, nor is it likely that any insurgent movement from within could gain sufficient strength to cause an upset. Hence, the state of Manchukuo, for better or for worse, must be regarded as having come to stay, and sooner or later the question of recognition will have to be considered. At present this issue remains in abeyance, the majority of Manchukuo and Japanese officials holding the view that there is no great hurry about the matter and that it might indeed be embarrassing to be saddled with international responsibilities during the stage of incubation.

The problem of security is a problem of Russo-Japanese relations, for it is from Russia that any threat to the consolidation of Japan's position on the mainland is most likely to come. Within recent months political observers have begun to study seriously the chances of an armed clash between these two countries, each of which has an important stake in the Far East beyond its own borders. In Harbin, merchants have actually gone to the length of cancelling contracts owing to the fear that hostilities might break out. One of the best-informed consular observers in Harbin summed up the situation to the writer in this way: "With the establishment of the new state under Japanese military protection, Manchuria no longer serves as a buffer between Japan and Russia, which now face each other along an extended frontier. Moscow clearly is not looking for war and it is open to doubt whether Tokyo is -- at least for the present. But the White Russian element in Harbin is doing its utmost by propaganda and intrigue to stir up trouble between the two countries, and the danger, as we see it here, is that some of the local Japanese commanders, several of whom are married to White Russian women, may be egged on to start the ball rolling."

The prospect of an armed conflict with Russia is undoubtedly the prime motive which is impelling the Japanese to push rapidly ahead with railroad construction in Manchukuo, though this development is calculated at the same time to bring prosperity to the country by opening up fertile areas which at present remain unsettled. When the Lafa-Harbin railroad is completed at the end of this year the Japanese will have direct transit from the Korean coast to Tsitsihar without using the Chinese Eastern Railroad and they will be in a position to rush troops into North Manchuria with a considerable saving of time as compared with the present route via Antung. Other projected lines with an obvious strategic significance include one connecting Taonan with Solun in the west in order to give Japan a foothold in Mongolia, and one running northward from the Hailun-Koshan line to Heiho with the evident purpose of giving the Japanese military access to the Russian frontier at a vulnerable point.

Whether these railroads in their military aspect are intended for use offensively or defensively is a matter for speculation, but the likelihood that their construction foreshadows an attempt to seize Vladivostok and the Maritime Province has by no means been overlooked in Moscow. Soviet officials concede that two years ago, or even less, this region might have been Japan's for the taking. Since then, however, Russia has built up in the Far East an efficient, well-supplied army and a still more formidable air force capable of bombing Japan's large industrial cities. The Soviet authorities, while emphasizing the defensive character of those measures, appear supremely confident of their effectiveness. Commenting on persistent reports of military concentrations along the Manchurian frontiers, Soviet spokesmen have admitted that Russia's Far Eastern defenses have been strengthened considerably. "In the event of hostilities," press dispatches quote one official as saying, "the Soviet military establishment will present both offensive and defensive surprises, especially in connection with aviation, as well as our land and sea defenses at Vladivostok."

The great imponderable in the situation is the attitude of the Japanese military authorities. Are they content with the occupation of Manchuria or do they plan further conquests? There are indications that the extreme imperialists within the Japanese army have very definite ideas about the desirability of adding the Maritime Province, including Vladivostok, and Northern Saghalien to the Japanese Empire. This would give the Japanese complete control of the Sea of Japan. Soviet naval activity would be practically eliminated and the frontier would be pushed so far back from the coastline that aerial threats to Japan would be greatly lessened. Some of these Japanese extremists would go further, as far as Kamchatka and the shores of the Okhotsk Sea, shutting off Russia entirely from the Pacific, turning the Okhotsk Sea into another Japanese lake and thereby putting an end to the constant bickering over fishing rights in northern waters. But it is doubtful how far the influence of this group extends, even in the army, and up to the present there is little evidence that the nation as a whole would be greatly interested in a campaign to acquire territory from Russia. Such an enterprise would lack the sentimental background which enabled the Japanese army to drum up public support for the Manchurian adventure. On the other hand, we must not forget that the Japanese people have been made highly susceptible to propaganda. It is not inconceivable that they could be thrown into a frenzy of patriotic excitement over the righteous justification of a campaign to carry the Rising Sun to the shores of Lake Baikal.

Other potential springs of a Russo-Japanese war just as likely to become effective as any appetite for territory to the north of Manchuria are to be found in the pressure now being quietly applied to Russia by Japan in the direction of Mongolia. There is a very lively interest in Japan, commercial as well as military, in both Inner and Outer Mongolia. Japanese exploration parties, including gold and oil prospectors, are working westward from Jehol and western Heilungkiang, while Japanese political agents are busily engaged in endeavoring to persuade the Mongols that Manchukuo is the friend and not Moscow. The Soviet's policy of keeping Outer Mongolia hermetically sealed to the rest of the world is resented by the Japanese and it is conceivable that sooner or later some combination of the various elements involved will bring Japan into conflict with the Soviet interest in this region. The Russians would then find themselves called upon to yield or fight.

The Japanese military see as plainly as anyone else that, granting war to be inevitable, it would be to Japan's advantage to strike before Russia has reached the degree of industrial development envisaged by her second five-year plan. But there are other factors to be taken into account. In the opinion of military experts, Japan would be foolhardy to precipitate hostilities against Russia until she has swept the Manchurian railroads clear of bandits. Otherwise her main lines of communication would be constantly menaced. Furthermore, the Japanese army is in the midst of two major programs which clearly are intended to improve her military position vis-à-vis the Soviet. First is that of modernizing and perfecting the organization and equipment of the army so as to enable a well-found force of one million men to take the field within a few weeks. This program is planned to be finished about 1936. The second is the program of railway building which, as already pointed out, is designed to facilitate the transportation of troops into North Manchuria, and which also will take some time to complete. On balance, while we cannot exclude the possibility that increasing Russo-Japanese tension may any day lead to an armed conflict, it would seem more likely that major hostilities will be deferred at least for two or three years. But it is only with a very big question-mark that we can leave this, the really big problem in the new Manchuria.

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  • H. J. TIMPERLEY, for some years Peiping correspondent of the Manchester Guardian and the Associated Press
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