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China

(Mr. Archie Rose gave this to Gareth in 1935. Exact date uncertain.)

1.      Present Situation

 After six months of active civil war, with Nanking on the one side and the Christian General Fung and the Model Governor Yen on the other, China settled down in the middle of September to a truce.  That truce was made possible by the sudden intervention of the Young Marshall of Manchuria, Chang Hsueh-liang on the side of Nanking.  Nanking and Mukden have now reached an agreed settlement as to their respective rights and responsibilities.  Manchuria will administer, and will retain the revenues from, all the railways as far south as Tsinanfu (including the Shantung railway); and as far west as Chentow on the Shansi border.  Manchuria will also retain, or have remitted by Nanking, the whole or considerable proportion of taxes from Salt and Tobacco; the customs revenues are so largely pledged nowadays for foreign and domestic debt that there is probably very little surplus to be divided.   The point is however there is an agreed peace between the only two real combatants remaining in the field.   Fung and Yen are still in Shansi Province and still retain a certain proportion of their old armies, but they are hard put to it for money, and no resistance is likely in the near future.  We say that the general position is healthier than it has been since the Revolution in 1911.

 2.      Forces against the Government

The main difficulty of the Government is the extreme poverty of the people caused by 10 years of civil war.  The farmers have become disheartened because they cannot get their crops transported on the railways; merchants and traders have restricted all enterprise owing to the lack of security; and the main medium of exchange – silver – has vanished from the countryside and is all locked up in the banks in Shanghai.  Poverty has bred general dissatisfaction, which has shown itself in various forms, notably in banditry and communism.  The bandits are mainly disbanded soldiers who have retained their rifles.  The communists are mainly disgruntled young men who have learned a good deal of their vocabulary and a certain amount of their ideas from Russia.  Communism and banditry are now being dealt with in a vigorous way by the Government.  They have divided the country up into small areas, in which the old-fashioned Chinese methods of mutual responsibility are enforced, and there seems a fair prospect that the Government will be able to cope with these troubles before long.

 3.      Chances of Stability

Nanking has reached an agreed with Manchuria.  The Government at Nanking contains number of very able men, including the President Chiang Kai-shek and the Minister of Finance, T.V. Soong.  The President has proved himself a soldier.   Mr. Soong has proved himself a financier of quite outstanding ability.  Quotations on the Stock Exchange will show that the Chinese credit stands wonderfully high in spite of civil war and all the other disadvantages.  There is only one real black spot in regard to the credit position, the railway credit, but of that later.  Mr. Soong is making heroic efforts to cut down military expenses and balance the budget.  It seems likely that he will succeed.  There is an intense self-consciousness in China at the present moment and it is called “National Consciousness”.  It manifests itself principally by antagonism to something else, which it calls “Imperialism.” Imperialism can be roughly defined as anything, which appears to the Chinese to conflict with their quick development as a nation, politically, industrially, commercially and socially.  We cannot prophesy about China.  She has made rapid progress towards stability within the last two years.  Whether she remains stable, will depend, to some extent at least, on the attitude of the world towards her.  If we want her to be strong we better get behind the Central Government at Nanking and help it in every possible way.  Moral help will go along way.  Financial help will also go a long way.  There is no need for military adventures.  

4.     Railways

The mileage of railways is small, only about 10,000 kilometres.  But the railway system is very important because it links up with the Trans-Siberian Railway at Harbin and runs down south to the Yangtze.  Control of he railways is the deciding factor in civil war.  Free operation of the Railways on the other hand is the one thing that makes the internal and external trade of China possible.  The railways are now in a thoroughly run-down condition.  They are the best paying railways in the world, and yet they are badly in default as regards interest on bonds, and their debts for materials run into several million pounds.  The first constructive act, which is necessary in China, is the restoration of the railways to commercial use.  This will involve money and the support of the government in maintaining control.  

5.     Silver 

China is now the only silver using country in the world.  The value of Silver in relation to Gold is greatly depreciated for various reasons.  The Chinese Dollar, which not long ago was worth 2 shilling, is now worth 1 shilling.  It will be seen that England, which produces on a gold basis, must either receive double the amount of Dollars from its Chinese customers (i.e. multiply its Silver price by 2) or else cut its gold cost of production by half.  It is impossible to raise prices just now in China because the country and the people are too poor.  There seems little prospect also of reducing production costs radically at home.  This does not mean that trade has stopped – far from it.  It is increasing every year, but it is badly handicapped by cheap silver. This fairly generally held by practical men that no artificial method of bolstering up silver would have effect for long.  The best way of helping silver would be to get China on her feet again.  As soon as her internal trade begins to move there will be immense demand for silver all over China and the price will begin to rise in relation to Gold – which would have a quick effect on Chinese foreign trade and on British exports.

 6.     Chinese-Russian Relations

China and Russia have a long common frontier and have always been watchful of one another.  From 1924 to 1927 Russia gained a definite ascendency in China, chiefly owing to the successful personal work of two men, Borodin, a political organiser, and Galens, (General Blucher) a soldier.  Between them they put the Nationalist party on the map and deserved well of Nanking.  They crashed because the Chinese discovered unquestionable evidence that they are working really for Russian domination in China and not in order to make China a strong and independent nation as they had claimed.

There is probably very little direct Russian influence in China at the moment.  They still control the Chinese-Eastern Railway, the Chinese are boycotting it and its financial is growing weaker day by day.  That is their only big economic interest in China.  Politically they maintain an unostentatious flow of propagandists between Moscow and China, and thus tend to keep up a certain Bolshevik atmosphere, especially among the young.  This will not be a very serious factor provided that poverty is replaced by prosperity.

7     Chinese-British Relations.

Our interest in China is the China market.  It is the most elastic market in the world and has marvellous powers of recuperation.  The revival of British trade in China is entirely dependent on the restoration of general conditions of security in China.  This can only be accomplished in a quick and practical way by holding the Nanking Government to its obligations and helping it to fulfill those obligations.  By helping it to get control of the railways, to put them in order, to extend them and to use them for commercial purposes.  Peace, trade, railways and Silver are all part of the same problem in China – a problem which we can only help forward by backing up Nanking and seeing that it plays up to its responsibilities.

GARETH  JONES

(1905 -35)