793.94/2358
The Consul General at Mukden (Myers) to the Minister in China (Johnson)95
Sir: I have the honor to submit for the Legation’s information the following brief report on the immediate effects which the recent [Page 119] Japanese military occupation of certain areas of southern Manchuria has had upon American interests therein.
Preliminary to an enumeration of the cases where American interests have been affected, it is relevant to state that prior to the incidents of September 18th and 19th which resulted in the military occupation by the Japanese army, American business concerns, although sharing the general uneasiness concerning Sino-Japanese relations in Manchuria, were unprepared for the drastic move by the Japanese which has resulted in the paralyzation of the economic life of this territory. Furthermore, up to the present there has been no attempt on the part of local Japanese consular or military authorities, either officially or unofficially, to clarify the present unusual situation by giving the regime under which most of the cities of south Manchuria are now controlled a temporary de facto status of any kind. Military occupation, the term which seems most logically to describe the situation obtaining, has been denied by the Japanese. A state of warfare does not exist and yet public and private property (of the latter both Chinese and foreign) has been seized and is still being held more than two weeks after the incidents which precipitated the Japanese occupation. To date, this Consulate General has received no notification from the Japanese Consul General attempting to regularize these actions or to explain why (1) Japanese soldiers with fixed bayonets should be patrolling the streets in front of the Consulate General on the morning of September 19th and subsequently, (2) labels or certificates of identity were necessary for consular servants in order that they might pass through the streets unmolested by Japanese soldiers, (3) consular officials should be stopped in the Chinese city by Japanese soldiers and made to identify themselves, (4) requests should have to be made of the Japanese military authorities for Americans to visit such places as the Mukden (Chinese) radio station, the Chinese aviation field, arsenal, railway station, and other places, or (5) why, to put it broadly, the Japanese military authorities should have to be approached, through the Japanese Consulate General, concerning practically all matters which prior to September 19th came within the province of Chinese officials.
This Consulate General has had, perforce, to recognize the existence of this unusual situation and adapt itself thereto as occasions arose which required action of one sort or another. The fact, however, that there has never been any official notification of an establishment of control by the Japanese has made it difficult to judge just where assumption might become presumption with respect to placing responsibility.
One of the first effects of the occupation by the Japanese military was requests from American firms for some form of identification [Page 120] for their Chinese employees in order to permit them to travel to and from their work without being molested by Japanese patrols. The Japanese Consulate General issued a paper in Japanese to each Chinese employee named on the various lists sent them, stating his occupation, et cetera. These documents were, in the main, necessary and effective.
On September 21, the Consulate General received a letter from Andersen, Meyer and Company, requesting that appropriate action be taken, in view of the unsettled conditions, to protect its interest, amounting to over $200,000 (U. S. currency) in unpaid accounts, in a number of Chinese government and semi-government concerns. The firm further requested advice concerning the action it should take with respect to large orders of materials for Chinese concerns which were en route to Mukden. On September 29, the firm again wrote to this Consulate General stating that the Antung (Chinese) Electric light plant, in which it has a large interest in the form of machinery unpaid for, had been closed on September 22 by order of the Japanese military authorities, and requesting the Consulate General to request the Japanese for a statement of their intention with respect to the plant and of the date when it might be returned to the Chinese owners.
Acting upon Andersen, Meyer and Company’s first request, the Consulate General informed the Japanese Consul General, in general terms of the American Company’s interest in the Chinese government and semi-government organizations and requested him to take what action he deemed appropriate, “in view of the unusual situation obtaining in certain areas of south Manchuria” (the term which this Consulate General has found it convenient to use for want of a more exact one), to insure the protection of the American interest in the organizations. In compliance with the Company’s second request, the Consulate General expressed to the Japanese Consul General its concern, on behalf of the American company, over the future of the Antung Electric Light Company, inviting his attention to the obvious fact that the closure of the plant by the Japanese made it impossible for the company to meet its obligations to Andersen, Meyer & Company. No reply has been received to either communication. Andersen, Meyer & Company was informed in reply to its request concerning shipments en route to Mukden that the Consulate General was not in a position to give definite advice on the subject but that it was of the opinion that the retention of such shipments at Dairen when possible would be advisable.
It is instructive to note, with respect to the closure of the Antung (Chinese) Electric Light Company, that since the opening of this company a year or so ago, there has been a continuous feud between [Page 121] it and the old established South Manchuria Electric Light Company of Antung, which prior to the opening of the Chinese plant had a monopoly for the supply of electric current and power in Antung. The arbitrary closing of the Chinese plant has no justification as a military or protective measure and can only be explained as an attempt by the South Manchuria Railway, supported by the Japanese military authorities, to take advantage of the present unsettled conditions to further its commercial interests.
At the request of the Standard Oil Company which had heard of reports of possible danger to its large godown at Antung, the Japanese Consul General was notified on September 23, of the approximate value of the godown stocks and requested to take appropriate measures to insure the protection of the American property. Although no reply has been received to this communication, the Japanese Consul General has verbally informed an officer of this Consulate General that the Japanese military authorities were being requested to afford adequate protection.
On September 21 and 22, the Consulate General received letters from Frazar, Federal Incorporated, requesting in the first that the Japanese military authorities be notified of its substantial interest in motor buses of a Chinese company which had been seized by the Japanese army occupying Newchwang, and in the second that a protest be entered against the seizure without payment by Japanese soldiers of gasoline at the company’s office in Mukden and against the forced occupation of the office for a part of a day also by Japanese soldiers. The Consulate General made representations to the Japanese Consul General in both instances, stating with respect to the latter case that it was convinced that the situation obtaining did not justify the seizure and occupation of American property. Replies have not yet been received but the Consulate General has been advised by Frazar, Federal Incorporated, that the trucks have been returned to the Chinese company and that the Japanese military authorities have promised to pay for the gasoline taken.
On September 24, the Consulate General received a letter, delivered in person, from Mr. George F. Shecklen, China Representative of the Radio Corporation of America, requesting that this office obtain from the Japanese authorities a statement as to whether the Mukden (Chinese) Radio Station was maintaining service with San Francisco and if not, what steps were being taken to resume service. He further requested that the Japanese during their occupation be asked to protect the receiving, sending, and central control stations from damage. As the Legation is aware, the Mukden Radio Station was built with Radio Corporation of America materials and assistance. Although the Radio Corporation of America has no financial interest now in the [Page 122] physical plant, its service (or traffic) agreement with the Northeastern Telephone, Telegraph and Radio Administration for radio communication between Mukden and San Francisco gives it a vital interest in the operation and welfare of the Chinese station.
An officer of this Consulate General delivered in person a communication to the Japanese Consul General on the subject. The Consul General stated orally, in reply to Mr. Shecklen’s inquiries, that service was not being maintained and that he could not say when it might be resumed but that he would approach the Japanese military authorities with the matter. Later he replied by despatch, requesting a copy of the Radio Corporation of America’s agreement with the Northeastern Administration. This Consulate General is of the opinion that the present situation does not warrant the Japanese in requesting a copy of an agreement between an American corporation and a Chinese government organization and has informed Mr. Shecklen by telegraph to Shanghai and an officer of the Japanese Consulate General orally of its position.
The present status of the case may be stated briefly by quoting this Consulate General’s telegram of October 3 to the Department: “Referring to the Department’s telegram of October 2, 10 a.m.96 Radio Station held by the Japanese military authorities who report it undamaged. Repeated representations to Japanese Consulate General relative to the reestablishment of service fail to elicit more than statement that the Japanese military are considering the matter.”
Yesterday (October 4) an officer of this Consulate General visited the transmitting plant and the central control office of the Mukden Radio Station. At the former place he found that the Japanese soldiers had been withdrawn, leaving only a few Chinese watchmen who admitted their inability to protect the plant from the large numbers of Chinese robbers who are operating in and about Mukden. However, the transmitting equipment appeared to have been undamaged. Its state of preservation was in marked contrast to the condition of the Three Eastern Provinces Radio Station (long wave—German equipment) which had been very badly demolished by the Chinese as they evacuated the place, according to the Japanese. At the central control office, there was found billeted a detachment of Japanese soldiers, with machine gun and rifle equipment. The Japanese non-commissioned officer in charge stated that the equipment was broken but it is believed that he made this statement simply to support his point that messages could not be transmitted, as the Consulate General has had assurances from the Japanese Consul General that the equipment is not damaged.
The local Chinese representative of The L. E. Gale Company called at this office on September 25 and requested that it obtain information [Page 123] for him concerning a Waco aeroplane, the property of The L. E. Gale Company, which had been brought to Mukden for demonstration purposes and was at the Chinese aerodrome on September 19. The Japanese Consul General was requested to notify the Japanese military authorities that the Waco plane was American owned and of the fact that the American owners were planning to fly it to Shanghai as soon as repairs could be made to the engine. Yesterday an officer of my staff requested permission to visit the aerodrome for the purpose of ascertaining the condition of the American plane. This permission, at first granted orally, was refused today by letter just before the visit was to be made, the reason given by the military authorities being that they had had trouble with Japanese newspaper correspondents visiting the aerodrome and arsenal—a very feeble reason in the opinion of this Consulate General.
McDonnell and Gorman, a firm of American engineers and building contractors, informed this office on September 26th by letter of the fact that they were building in the walled city a residence and office building for General Chang Hsueh-liang, payments on which did not cover the materials which they had put into the construction. The Japanese occupying the property had removed six scaffolding poles which the firm requested this Consulate General to endeavor to recover. Later the firm further requested that permission be obtained for the removal from the site of certain building materials not yet incorporated into the buildings, on the grounds that it wished to protect its equity in the buildings in so far as possible and to lessen the danger of losses by fire and theft. The firm’s loss and its desire with respect to the removal of the materials was brought to the attention of the Japanese Consulate General which promised to take the matters up with the military authorities with a view to securing reimbursement for the poles and permission for the removal of the materials.
In addition to the cases enumerated above, there are others including a request from the Chinese Engineering and Development Company that the Japanese authorities be notified of a substantial sum of money due the firm by the Chinese Trench Mortar Arsenal which has been closed by the action of the Japanese and is now occupied by Japanese soldiers, a letter from the Aeronautical and Engineering Company requesting that the Japanese be notified of certain aircraft instruments, the property of the Pioneer Instrument Company of Brooklyn, N. Y., which were at the Chinese aerodrome for demonstration purposes when it was occupied by the Japanese, a statement from the Automatic Telephones of China, Federal Incorporated, giving its outstanding accounts with Chinese public service companies in Manchuria payment of which it fears may be jeopardized by the Japanese occupation, and a claim from the Texas Company for small losses due in part to damage from rifle fire on the night of September 18th and to interference [Page 124] from the Japanese military with respect to taking delivery of cargo. These and similar cases are either being reported to the Japanese Consulate General or are being filed for possible future reference, depending upon their nature.
On October 1, the Consulate General received a letter from The Manchurian Mission of Seventh-Day Adventists stating that the Mission had on deposit in the Frontier Bank a sum of over fifty thousand dollars (Chinese currency) which it is unable to utilize due to the closing of the bank by the Japanese, and requesting that this office make representations to the Japanese with a view to making it possible for the mission to draw on its account. The Mission added that its inability to secure funds made it liable to a loss of approximately $8,000 for failure to fulfill its part of an agreement with a building contractor who is constructing a hospital for the Mission. The Consulate General communicated the Mission’s case to the Japanese Consul General, requesting that arrangements be made as soon as possible for the Mission to draw funds against its account.
Today the Consulate General is in receipt of a request, somewhat similar in nature to the above, from the Texas Company. The Company states that it at present holds and is daily receiving drafts drawn on accounts in the Bank of the Three Eastern Provinces and the Frontier Bank which it is unable to cash due to the action of the Japanese military authorities in keeping the two banks closed and their funds under custody, and requests the Consulate General to secure a statement from the Japanese of what action they are taking to make it possible to cash drafts on the aforementioned banks. The Consulate General expects letters from other American firms in Mukden which hold drafts on the Bank of the Three Eastern Provinces and the Frontier Bank, requesting similar information.
The National City Bank of New York, which has large silver deposits in the two Chinese banks, has protested directly to the Japanese Consulate General against the prolonged closure of the banks and has requested that steps be taken to allow it to withdraw its deposits if the banks are not to be reopened soon. The National City Bank has quite naturally been very adversely affected by the situation. A large part of its business is with foreign firms selling to Chinese government and public service organizations. It is liable to substantial losses through business which it has financed involving orders placed by Chinese organizations which are now, practically speaking, non-existent and therefore incapable of taking delivery. A very large order which the Chinese arsenal placed some time ago with a foreign firm for a special type of machinery will illustrate the Bank’s difficulties. The Bank financed the transaction on a twenty-five per cent basis. The machinery is now at Newchwang and the purchaser, the [Page 125] arsenal, is unable to take delivery. The return value of the machinery is hardly twenty-five per cent of its invoice value. The Bank stands to lose the difference. These and other cases, not to mention concern over the future of business in south Manchuria, are the problems of the National City Bank.
The closing of the Frontier Bank and the Bank of the Three Eastern Provinces by the Japanese military authorities has had, and promises to have, a very serious effect upon the business and economic life of southern Manchuria. These two banks are responsible for practically the entire bank note issues in circulation in Manchuria, and the financing connected with the marketing of the agricultural produce of this area is almost entirely in their hands. The other two Chinese banks, the Bank of China and the Bank of Communications, play very little part in domestic financing and are not prepared to do so.
The financing of this autumn’s harvest presents a very serious problem if the banks are not opened soon. The Japanese claim the opening of the banks now would seriously endanger the holders of their bank notes and even the continued existence of the banks because of insufficient silver reserves and securities. The fact remains, however, that the bank notes of these two banks were accepted at very little below Shanghai par prior to the occupation of Manchuria by the Japanese. If, as reported, the Japanese have taken that part of the silver reserves which they could identify as belonging to the Northeastern government officials it is quite probable that the opening of the banks now would result in a run and the collapse of their note issues unless, as has been suggested, the Japanese banks in Mukden take steps to support them with ample credits. There is also the possibility that the two banks will be kept closed and that the Japanese banks, perforce, will have to take over the remunerative task of financing southern Manchuria and furnishing it with bank notes.
In conclusion, it should be stated that the general economic paralyzation of south Manchuria for the past two weeks has naturally affected American business from the standpoint of collections and new business. Both have all but ceased. American firms stand to lose large amounts due them by the Chinese government, semi-government, and private organizations due, in some cases to the seizure of the organizations by the Japanese, and in others to voluntary closing of firms and the hasty departure of debtors. The Japanese have thrown a wrench in the economic machinery of Manchuria, occasioning losses running into many millions to both Chinese and foreigners. They may be able to repair the damage but the greater part of the losses will probably never be recovered.
Respectfully yours,