1939: China

At the end of 1939 China, after more than two years of heroic resistance to the Japanese drive on all fronts, remained firm in her determination to oust the invader. In those parts under Japanese occupation a relentless guerrilla warfare went on; while Japan, split internally by governmental shifts resulting from new political realignments throughout the world and the war in the West, seemed to prosecute with less fury its attack, the progress of which has the Army genuinely worried. Since the beginning of hostilities in July 1937, China has lost control of approximately 900,000 square miles and her chief ports and commercial cities, and from two to two and a half million persons have been injured or killed. Despite such overwhelming losses, however, the morale of the Chinese people remained high.

THE WAR IN CHINA DURING 1939

Guerrilla Warfare.

Following the fall of Hankow in October 1938, there was very little positional fighting in China until early in the spring of 1939, when a series of important engagements began on widely separated fronts. Guerrilla warfare went on without interruption. In Shansi Province in the month of January numerous guerrilla attacks were launched from a number of mountain bases, which inflicted considerable damage on the enemy. In northern Kiangsi Province in this month, guerrillas ambushed Japanese troops, causing heavy casualties, and capturing large amounts of equipment. In Central China, also, guerrilla forces were operating on a wide front in an attempt to prevent the invaders from consolidating their gains in conquered areas. There was much fighting in the early months of the year near Nanking, the former Nationalist capital, and also in the area between Nanking and Shanghai. At Wusih, near Shanghai, guerrillas succeeded in entering the gates and killing the commander of a battalion of Chinese 'puppet' troops.

The Japanese attempt to end the guerrilla menace in Shansi Province began early in February 1939, and late in that month shifted from the southern to the northern part of the province. By the first of March operations against the guerrillas had extended to the five northern provinces of Suiyuan, Chahar, Hopeh, Shantung and Shansi. While the Japanese control all important means of communication in these provinces, there are large areas in all of them where the guerrillas have successfully maintained strongholds and administered local affairs. The only one in which the guerrillas have been seriously checked is the Province of Shantung, where in some sections there has been a tendency among farmers and townspeople to accept Japan's rule. In this province the guerrillas have been broken up into small bands, and driven from the railways, highways and large towns. They do have a base at Ishui in the central part of the province, from which they constantly attack Japanese garrisons and lines of communication, but without impressive results. And because the Japanese burn all villages near any railway that has been attacked, the villagers are afraid to harbor the irregulars. In the Province of Hopeh, which is almost entirely under Japanese control, large bands of armed guerrillas carry on ceaseless raids and inflict considerable damage. The greatest of the guerrilla strongholds is in the Province of Shansi. All through the spring months fighting between the Japanese troops and guerrillas was so extensive and destructive that spring planting had to be abandoned, and for a time movement on the railways came to a standstill.

In June 1939 the Japanese began one of the most serious offensives of the entire war in an effort to wipe out the guerrilla bases in southeastern Shansi. They met with stiff opposition from the Eighth Route Army and some of the best of the Central Government troops. The Japanese had 120,000 men in this area, divided into five columns. The fighting was bitter and the casualties on both sides numerous. In the first weeks of fighting the Japanese captured a number of cities, the most important being Tsincheng, on an important highway junction. Fighting went on to the end of August, with cities taken and lost many times. Finally, on Aug. 25, the Chinese recaptured Tsincheng after a nine-day siege, and the 'mopping up' operations of the Japanese were definitely stalled. The Chinese are still dominant in this Province, and maintain that as long as Shansi remains in their control the Japanese domination of North China is impossible.

Late in the year in this Province, Chinese guerrillas had drawn Japanese troops into the perilous passes of the Chungtiao Mountains, then rolled down on them from advantageous positions, and in four days slaughtered between 1,500 and 2,000.

The guerrillas have been active in many other parts of China. In Chekiang, Kiangsi, Hunan, and near Canton, they continue to harass the enemy, tear up railway tracks, attack garrisons and in general hold up the progress of the invaders.

Ceaseless attacks on garrisons and lines of communications, however, constitute only one phase of guerrilla activities. Another, and a very important one is keeping the invaders from getting any profit from their conquests. In sections not under actual physical occupation by the Japanese, therefore, the guerrillas settle down on the land and prevent its use as a source of wealth. In North China, for instance, they have balked the attempt to increase the cotton output, which this year will be the smallest for many years. In the Province of Shantung, which is the one most firmly under Japanese control, the estimated revenues this year are but one-fifth of normal. Perhaps the most important activity is their propaganda among people in the occupied regions, where they constantly keep alive the spirit of resistance and counteract the attempts of the invaders to persuade the people that Japan has already won the war, and that it would be better for them to cooperate with the new masters.

Offensives in Central and South Central China.

Fall of Nanchang.

One of the principal campaigns in this part of China was the long stalemated offensive against Nanchang, the capital of Kiangsi Province. Early in January 1939, the Japanese moved some troops into positions on the Sui River, thirty miles north of the city. This sector has witnessed some of the most bitter fighting of the entire war, with the Chinese holding the invaders to an advance of five miles in six months of bloody and costly fighting. The object of this drive was to capture Nanchang, and thus cut the east-west railway from the Province of Chekiang to that part of the Canton-Hankow railway still held by the Chinese. On March 26, mechanized units of the Japanese army advanced on Nanchang, moving east along the Sui River, meeting withering resistance by the Chinese 19th Army. However, on March 28, the Japanese entered the city, which the Chinese had set aflame before evacuating it.

Even after the fall of Nanchang, fighting continued to rage in northern Kiangsi Province. Late in April the Chinese tried to regain the city, and pushed on to within sight of the former capital, but so far it has not been retaken, although late in December the Chinese had advanced to fifteen miles southwest of the city. The loss of Nanchang was acknowledged by the Chinese General Staff to be an extremely serious one, since its capture cut a vital supply line for guerrillas and regular troops in the Lower Yangtze Valley, thus bolstering the Japanese defense of Hankow, and affording the invaders an opportunity to continue their southward and westward drive from Nanchang against Changsha, the capital of Hunan Province. In addition, it provided a new base from which to push the sale of Japanese-made goods which reach the occupied areas in substantial amounts.

Drive on Ichang.

Early in February, the Japanese began moving northwestward from Hankow towards Ichang, international treaty port on the Yangtze River, in Hupeh Province. In March the drive continued through this province, with numerous casualties for the Chinese. Late in the month the struggle was deadlocked, the Chinese having repulsed Japanese attempts to cross the Han River. The fighting continued through March, April and May, the Chinese holding back the invaders and regaining control of some cities lost earlier in the campaign. Late in May, however, the Chinese began converging from the north, east and west, definitely stopping the drive, inflicting terrific losses on the Japanese troops, and seriously threatening their safety. By the end of December, all Japanese positions were in danger, and it was claimed by the Chinese, with some justification that this offensive had so weakened the Japanese forces that a new offensive in this sector could not be undertaken again without very large reinforcements. During this fighting, the city of Ichang was bombed numerous times, with enormous civilian casualties. A third of the city was completely destroyed by the continuous barrage of bombs, and two-thirds of it seriously damaged. Foreign property was also destroyed in some parts of the city.

Bombing of Chungking.

During April, the bombing of Chungking (Szechwan Province), which had begun early in January, and had resulted in heavy losses in life and property, was renewed. Late in the month a special zone was created extending 75 miles around the city, and evacuation of most of the Government's administrative bureaus was completed, although Chungking still remained the principal administrative center. Kunming, terminal of the Burma road, and China's principal air base in the Southwest, also suffered a severe bombing in April, resulting in heavy losses in planes, damage to workshops, hangars, and to the new aviation training school. However, the new airplane factory in the Shan States under the direction of American engineers was beginning to turn out planes for China's use, thus making up for her serious deficiency in this respect.

On May 4th, 5th, and 12th, bombs again rained steadily down on Chungking, resulting in tremendous losses in life and property. On May 25th, bombs falling in what remained of the city's business district, completely wiped out that section and left large portions of the city a mass of smoking ruins. The casualties from air raids in this month alone resulted in more than 5,000 dead, 10,000 seriously injured and property losses running into millions of dollars. (See also JAPAN.)

Drive on Sian.

In May, Japanese forces, in an offensive directed northwest from Hankow, tried to reach the city of Sian, in Shensi Province, strategic link with the highway through Sinkiang to Siberia, over which come the vital supplies from Russia for China's fighting forces. This attempt was another in a series of drives directed against this important city for the past two years. In the serious positional fighting in this offensive, the Chinese forces, under the direction of General Li Tsung-jen, completely defeated the Japanese troops, and no attempt to take Sian by this route has since been made, although it remains one of Japan's major objectives.

Chinese Raid on Hankow.

On Oct. 2, the revived Chinese air force carried out an air raid on the Japanese airdrome at Hankow, destroying a number of planes and igniting large quantities of gasoline. Japanese anti-aircraft guns and pursuit planes started after the raiders, but the Chinese planes escaped undamaged. This raid was the first since Hankow fell to the Japanese on Oct. 26, 1938.

Victorious Defense of Changsha.

In South Central China, early in September Japan initiated a drive on Changsha (Hunan Province) with three columns. On Oct. 5, the Chinese won perhaps the greatest victory in the war thus far when they defeated the Japanese in their second attempt, one of the few large offensives of the Japanese armies in over a year. The victory of the Chinese armies was decisive, and the losses inflicted on the enemy in the course of two weeks' fighting were said by impartial observers to be more than twenty-thousand men killed. The Japanese military spokesman at Shanghai admitted, on Oct. 9, that the Japanese armies had withdrawn from Changsha to 'permanent positions.' An impartial foreign observer who visited the scene of the fighting on Oct. 20, reported that the ruined villages, the captured guns and numerous prisoners of war were evidence of a major victory.

Offensives in South China.

A struggle for control of the West River south of Canton began early in April, and turned in favor of the Japanese forces, who captured the city of Kongmoon after it had been twice taken by the two Chinese divisions fighting in this area. On April 3, in fighting between Canton and Macao the Chinese seemed to have broken the spearhead of the Japanese thrust, but a few days later, the Japanese troops received reinforcements and threw back the Chinese, with heavy losses on both sides. The Chinese retreated southward towards the city of Sunwei, but continued fighting as they went. Sporadic fighting continued in this area during the summer and early fall, but on Oct. 8 the Japanese occupied the important city of Shekki in the Canton River delta, and completed conquest of this historic Chungshan district in Kwantung Province, birthplace of Dr. Sun Yat-sen, father of the Chinese Republic, Shekki had withstood repeated attacks for months, and before the end of the fighting was reduced to ruins due to continued bombing. There was further fighting in the Province in November, when China rushed some of her best troops from Kwangsi, in order to stop the westward drive of the Japanese toward Indo-China and China's vital highways in the Southwest.

Drive toward Indo-China and Fall of Nanning.

This drive was initiated by a Japanese force which landed in the vicinity of Pakhoi on the South China coast near the Indo-China border. The drive proceeded westward from Kwantung, through Kwangsi to Indo-China and developed into a strategic move of great importance, resulting finally on Nov. 24 in the capture of Nanning, vital communications center in Kwangsi Province, on the trade route to Indo-China. China suffered here its most serious reverse since the fall of Hankow for the taking of Nanning placed Japanese troops athwart China's most important highway link with the outside world: The Kwangsi-Indo-China road. Over this highway, through Nanning, and by the Yu River, which was also blocked, more than 50 per cent of China's imports and exports were moving. At Nanning the Japanese also cut the line of the Kweilin-Indo-China Railway, just about completed, which was to be opened to traffic by Jan. 1, 1940. The Chinese, while acknowledging the seriousness of the capture of Nanning, stated that they were already developing a loop line 130 miles west of that city into Indo-China. Plans were also being pushed for development of junk traffic on the Red River, which links the Province of Yunnan with Indo-China, and also for the utilization of small streams in both areas.

The fighting over Nanning has continued down to the end of the year. On Dec. 15, the claim of the Chinese that they had cut the line of communications of the Japanese troops garrisoning Nanning, was admitted by a Japanese spokesman in Shanghai. Later, on Dec. 26, a renewed Japanese drive on Nanning resulted in heavy losses for the Chinese, and as the year closed the city was still in the hands of the invaders.

POLITICAL AND ECONOMIC CONDITIONS; FOREIGN RELATIONS

Political Affairs.

On January 1, the Chungking Government announced that Wang Ching-wei, the former Premier, had been expelled from the Kuomintang and relieved of all his party and government posts because of his treasonable conduct in trying to arrange with Japan peace terms which the Government considered totally unacceptable. Following Wang's dismissal, a number of other high officials in the Government were expelled, and there followed a general purge of those who were thought to be working against China's best interests. Many were executed on grounds of treason. The Government then issued a mandate ordering the arrest and punishment of all persons who participate in puppet régimes set up by Japan in China. As if to quell rumors of peace on Japan's terms, Generalissimo Chiang Kai-shek announced that 'China will never compromise nor surrender half-way.' He declared that Japan's resources of man-power were dwindling rapidly as compared with China's; that she had been compelled to mobilize more than 85 per cent of her total military resources; and that she had already sent to China more than twice the number of troops originally considered necessary. Victory, therefore, would be with China, he declared. Similar pronouncements of China's ability and determination to win were expressed by others high in the Government.

On Jan. 10, the Kuomintang began a ten-day plenary session, one of the results of which was the establishing of a Supreme National Defense Council which was to 'exercise unified control over all party, military and political organs,' all under the supreme command of Chiang Kai-shek. A proposal by the Communist party that its members be allowed to become concurrently members of the Kuomintang was flatly rejected with the statement that the session 'emphatically declares that it does not want dual party membership in this revolutionary party.' A manifesto called upon the entire nation 'to fight with one heart under the leadership of Generalissimo Chiang Kai-shek so that China may emerge an independent, free nation.'

The Government at Chungking also notified foreign countries at this time of the suspension of payments on China's foreign debts because the Japanese were detaining customs revenues which are pledged as security for 85 per cent of China's obligations, except railway loans.

Major Arteries of Transportation to and through China.

Next to the matter of actual defense, China's principal concern is now, and has been since the outbreak of the war, adequate means of transportation within China itself and of communication with the outside world. There was great satisfaction, therefore, at the beginning of the year, over the completion in December 1938, of the new Burma road, which provides a practicable route for munitions and other supplies which can be landed at the port of Rangoon in Burma, and from there taken into China proper. This highway, the building of which is considered one of the most remarkable engineering feats in history, supplements railway and highway links between the Provinces of Kwangsi and Yunnan. It follows the general lines of an ancient caravan route from China to Burma, and traverses some of the most forbidding terrain in the world, skirting high mountains and crossing broad and dangerous rivers. It makes its way over a series of plateaus with deep valleys in between them, dipping at one point, in a long serpentine course, from a height of 7,200 to 2,500 feet; and then rising again to a height of 7,500 feet. Supplies arriving at Rangoon destined for China take two paths northward into Chinese territory. Munitions and less bulky material go from Rangoon to the Burmese city of Lashio by rail; and from Lashio the new road winds its tortuous way for 790 miles to Kunming in Yunnan, China's industrial center in the southwest. Trucks and other bulky material go from Burma by steamer up the Irawaddy River to the city of Bhamo, from where an old border road runs into the new highway. Early in the year 400 trucks were in use on this road, each carrying three-ton loads of cargo out of Lashio destined for China. The road is surfaced with limestone, granite, sandstone, and whatever other material is available in the district through which it passes. No modern road-making machinery was used in its construction, the stone rollers used to level the ground being cut out of the mountain sides. It was built entirely by native manual labor in eight months. It required roughly 150,000 workers — men, women and children, working by families or clans. Although it has but one lane of traffic, it is wide enough at any point for cars and trucks to pass, and there are numerous turn-outs.

The part of the road actually in Chinese territory was built with loans from Great Britain and the United States, and these two countries also furnished the trucks and other necessary equipment for use on the road. The Burma part of the road was built by the Shan States over the sharp protest of Japan.

This road is now practically China's only means of receiving munitions and war supplies coming from overseas. The other road, the Chungking-Kweichow Highway from the Province of Yunnan into Indo-China, which connects with the French-owned railway from the city of Yunnanfu to Hanoi on the coast of Indo-China, is not only highly vulnerable to aerial attacks, but Japanese pressure on the French has resulted in a strict ban on the carrying of munitions over it. It is, still, however, a very vital highway for China, since most of 'free' China's trade with the outside world moves through the French colony over the French-owned railway, and the highways and waterways from Indo-China to China Proper. By August 1939, this trade had reached a total of 56,000 tons a month.

China's third and last link with the outside world is the one with Russia, over a motor road stretching nearly 2,000 miles from the city of Sianfu in Shensi Province, through Sinkiang to Siberia. Supplementing this road are caravan trails from the far west Province of Kansu to the Soviet border; and along these trails plod thousands of heavily laden camels, horses, mules, and even pushcarts, appreciably swelling the total tonnage.

Neither the Burma nor Russian road can be used for bringing in supplies of heavy armament for China's armies, but since the loss of all her seaports, China has practically given up the use of heavy artillery, or of any other large-scale equipment. Nor is she able to manufacture these herself. Lighter munitions, however, such as machine guns, rifles, revolvers and trench mortars, do come in a steady stream over these roads, and especially over the Sinkiang motor road. Numerous small arsenals in the Chinese-controlled interior also turn out large amounts of this type of equipment.

Industrial Cooperative Movement.

Another serious problem that has faced China has been the rehabilitation of her economic life, shattered by the destruction of her industrial areas, the seizure of plants and factories in occupied territory, and the general chaos resulting from the war. Late in the summer of 1938, a group of capable Chinese, with the assistance and advice of foreign experts, and with an appropriation of $5,000,000 (Chinese currency) from the Central Government, inaugurated the Industrial Cooperative Movement. At the time plans were being formulated, 70 per cent of China's former factories and industrial plants were in the hands of the Japanese. In 1939 this percentage has risen to 90 per cent. The normal channels of trade had been completely dislocated, and the few manufactured articles that finally found their way into the Interior from the coast were prohibitive in cost. Since large factories could be easily spotted and bombed from the air, it was decided not only to have the units inconspicuous, but also small enough to be easily moved if attack by the enemy threatened. Then too, any new economic setup had to be geared to fit into the ever-increasing guerrilla warfare movement, which must be provided with small, mobile industries. The interior provinces of China are rich in man-power and natural resources which could be utilized in the new type of industry. Starting with small beginnings and in the face of discouraging difficulties, cooperatives have now been established widely in the parts of China still under the control of the Chungking Government.

There are now thriving industries in four sections of the country; in the Northwest, with the principal base in Western Shensi; in West China, with stations in Szechuan and Sikong and the main base at Chungking; in the Southeast with several bases in Kiangsi; and in the Southwest, with the main base in Southern Hunan. By the summer of 1939, there were over 1,200 cooperatives, employing in the neighborhood of 35,000 workers, many of whom are refugees from the devastated areas; and the number is constantly growing. There is a wide variety of these cooperative industries. Some engage in iron and coal mining, others in the manufacture of textiles, paper, shoes, candles, soap, pottery, and building materials, while still others engage in spinning and weaving, knitting, dyeing, printing, sugar crushing and a number of other activities. Medical supplies and even surgical instruments are also manufactured for the Army Medical Corps. Transport cooperatives have been formed in order to help the farmers move their cotton, wool, hemp, oil, wheat, etc., from their own districts to other parts of the country where they are needed, and to receive in return the manufactured goods which they lack.

From the initial amount of $5,000,000 granted by the Government, capital loans ranging from $500 to $3,000 have been made to the approved cooperatives, and these loans are used for the purpose of initial equipment. Each member must buy at least three shares, and no one is allowed to own more than 20 shares. Shares may be paid for from the earnings of the workers, payment being made on the installment plan. The members of the cooperatives elect their own manager, fix wages, and hold meetings regularly to determine policies. So far, no cooperative has failed, and many have already paid off their loans. Overseas Chinese and others interested in this new movement have made contributions of substantial sums for the expansion of the movement. The original plans call for the establishment of 30,000 units.

Relations with Great Britain and United States.

Early in February, regular airplane service was established between Chungking and the city of Rangoon. The newly completed Burma highway was also being steadily improved. The British were cooperating with China in roadwork within Burma, improvement of port facilities at Rangoon, and the erection of warehouses at Lashio for the storing of war supplies. In February, also, H. H. Kung, the Premier, declared that there had been a 'decided change for the better in China's international situation.' He expressed gratitude to the 'Anglo Saxon nations' for their financial assistance, mentioning particularly American purchases of Chinese silver which had helped 'immeasurably' in the stabilization of the national currency.

On March 4, China's permanent delegate to the League of Nations submitted to that body a twelve-page memorandum setting forth incidents in which the Japanese were claimed to be guilty of the deliberate slaughter of civilians. The aim of the enemy, it was charged, was 'terrorism through slaughter.' No action was taken by the League.

Almost at the same time, the Chungking Government received identical notes from the United States and Great Britain, concerning the tense situation in the International Settlement of Shanghai. It was stated that the potentially dangerous situation would continue as long as the Chinese Government continued to direct, finance and encourage political terrorism and assassinations. A protest was also lodged with Japanese authorities in Shanghai.

On March 8, announcement was made by the British Government of a credit of £5,000,000 to the Government at Chungking, the money being furnished by two British banks which were indemnified against loss by the British Treasury. The credit was provided because of new currency regulations by the Japanese in North China which substituted the Japanese yen for the Chinese dollar, and made Chinese banknotes valueless in the parts of North China controlled by Japan.

Peace Rumors.

During this same month, Wang Ching-wei, then in exile in Indo-China, launched a verbal attack on General Chiang and the Government at Chungking and made an appeal for peace with Japan. These attacks have continued throughout the year with increasing vigor, as the ex-Kuomintang official has been negotiating with Japanese officials for the establishment of a super-puppet régime in China and the arrangement of peace terms. When the British Ambassadors to China and Japan met in Shanghai in March, there were rumors that a peace move was on foot, but shortly thereafter, when the British Ambassador visited Chungking, Chiang Kai-shek announced publicly that 'under existing circumstances peace is impossible.' China rejected any possibility of peace, he said, as long as Japan persists in her attempt to conquer China and establish a 'New Order' in Asia. This 'New Order,' he declared is not new at all, but simply 'an admission by Japan of her historic ambition to conquer China and destroy the rights and interests of third powers in the Pacific.'

China's Continued Resistance.

In spite of discouraging military reverses in the spring months, plans for reconstruction in China went steadily ahead; and new currency measures, internal loans, bank credits for the rapidly expanding cooperatives, progress in transportation, communications, agricultural and industrial activities in the areas under her control, furnished evidence not only of China's internal strength, but also of the determination to fight on.

All through March and into April, China's activity in the air showed that she had been getting many new airplanes and further supplies of gasoline. Large orders for American planes were being placed, and negotiations were begun with Russia for a substantial loan and for further military supplies.

Financial Difficulties.

The sharp drop of the Chinese dollar the first week in June, followed in two weeks by declaration of a moratorium by the Chinese banks in Shanghai, furnished evidence of the increasing use of economic weapons by Japan in the struggle for control of China. The Finance Ministry, however, in an official statement regarding the matter refused to be seriously disturbed, calling attention to favorable currency developments during the past year and maintaining that China's internal economy was still sound. (See also INTERNATIONAL BANKING AND FINANCE; WORLD ECONOMICS.)

Opium Question.

Late in June, V. K. Wellington Koo, China's Ambassador to France and her representative to the League of Nations, asserted in a public address in London that China's independence was a fundamental condition for the preservation of the Open Door policy, and urged the firm establishment of this principle in China and also its application to colonies and mandates as a means of contributing to world peace. In July, at Geneva, before the Opium Committee of the League of Nations, he again charged that the 'Japanese are deliberately encouraging the opium habit in the regions of China under their control.' The American expert, Stuart Fuller, also testifying before this Committee, reported that 'the increase of (opium) addiction in Japanese-controlled territories of China last year was so great that enormous quantities of Iranian opium had to be imported to supply the demand.'

In June the Supreme Defense Council issued an official order for the arrest of Wang Ching-wei.

Trade Agreement with Russia.

On June 24, when the Chinese dollar was at its lowest level, China announced that on June 16 a new treaty of commerce had been signed with Russia. Shortly after the signing of the new agreement, announcement was made of a new Russian loan to China of 700,000,000 gold rubles (roughly £17,000,000). The details of the trade agreement have not been made public, but in general it is understood that in exchange for military supplies, including several hundred airplanes, China is to send Russia, under a barter agreement, wool, tea, bristles, hides, wood-oil, camel's hair and other commodities over a period of years. Thus China seemed to be assured a continuing supply of the materials vitally needed for her resistance to Japan. Shortly after the signing of the agreement, the new Russian Ambassador arrived in Chungking, expressing hope for 'the complete victory of the Chinese nation.' Large numbers of new Russian pursuit planes, accompanied by pilots and mechanics began arriving in Chungking. When, shortly afterward, there was another bombing raid on the city, the new planes helped the revived Chinese air force to drive the raiders away.

China's Reaction to British-Japanese Agreement and to Abrogation of United States-Japanese Trade Pact.

But Chinese satisfaction over the new arrangements with Russia suffered a severe shock when, on Aug. 25, Russia and Germany signed a Nonaggression Pact, followed shortly after by the conclusion of a Russo-Japanese armistice on the Outer Mongolian border, and by the dispatch of Russian troops into Poland. Much concern was felt at the possibility of a realignment of world powers which might react against China. Russian denials of an agreement with Japan did not allay Chinese fears.

Chinese officials expressed great indignation over Great Britain's agreement with Japan early in July concerning difficulties in Tientsin, claiming that the accord was a violation of Britain's obligations under the League of Nations resolution in which the members undertook to aid China wherever possible in the present war with Japan. China was much heartened, however, by the abrogation on the part of the United States of its trade treaty with Japan, to take effect Jan. 26, 1940. On August 8, the United States Government resumed its purchases of silver from China, and entered into a definite commitment to take 6,000,000 ounces at the rate prevailing the day transfer is made. It was understood that further purchases were to be arranged for later on.

Government Matters.

In September, in a move to consolidate national finances and enforce retrenchment in a number of Government departments, Chiang Kai-shek assumed chairmanship of the executive board of the joint head office of China's four principal banks. Other members of this board are H. H. Kung, President of the Executive Yuan, T. V. Soong, China's financial expert, and Y. M. Chien, of the Central Bank.

During the second week of September, the People's Advisory Council met in Chungking and urged upon the Government the setting up of a constitutional régime and the adoption of measures that would safeguard the rights of free speech, free press and free assembly. It also urged certain changes in Government personnel which would assure no weakening in the attitude toward Japan. The Council is an influential, though entirely unofficial, body with a large membership scattered through the provinces under Chinese and also under alien control. Its delegates to the Chungking conference represented people in all walks of life, including the professions and learned societies. Chiang Kai-shek, speaking before this Council, declared that 'the European war will make us fight Japan with greater vigor . . . since we are confident of ultimate victory and of China's rightful place in reshaping a new world order. . . . Our present military strength, compared with the outbreak of the war, is more than doubled. . . . Japan has exhausted her man-power and is already defeated.' China's Foreign Minister, Wang Chung-hui, in an interview on Sept. 27, also stated emphatically that resistance would continue until 'final victory,' but suggested, however, that the United States was in a favorable position to act as mediator in bringing the war to an end.

Agreements with Soviet Russia.

All through the month of October there were persistent rumors of heavy concentrations of Russian troops in the Northwest Province of Sinkiang which led to speculations as to a definite military agreement between China and Soviet Russia. There was no doubt that Russian help to the Chungking Government had greatly increased, and that military advisers and technicians had arrived at the capital. Furthermore, there seems little doubt that Russian munitions, as well as advice as to strategy, were definite factors in the victory at Changsha. It also seems clear that General Chiang Kai-shek, convinced that he could not count on much assistance from Europe or the United States in fighting Japan, reluctantly yielded to his pro-Russian advisers and agreed to negotiate with the Soviet Government. Just what China promised in exchange for Russian help is not known, but it seems safe to assume that Russia was given a free hand in Sinkiang and Northwest China where the Chinese Communists are dominant.

Relations with Russia.

Russian influence in Sinkiang is of long standing, however, having begun more than one hundred years ago when the Imperial Russian Government signed treaties with China covering trading rights in the province and defining its boundaries. Soviet influence dates from 1931 when a treaty was signed with the powerful warlord who controlled the Province, establishing trading posts in a number of cities and providing for general economic development under the guidance of Russian advisers and with Russian equipment.

To many thoughtful Chinese in and out of the Government, the dominant position of both the Russians and the Communists in Sinkiang and the Northwest is a matter of genuine concern. (The Communist area, covering about as much territory as the States of California and Oregon, has a population of 35,000,000 roughly one-twelfth of the total population.) On the other hand, it is fully realized that both have been and will continue to be powerful factors in China's resistance to Japan. As yet, there has been no attempt at the communization of Sinkiang by the Russians, and the Chinese Communists have kept their promise to refrain from organizing peasants and workers on a revolutionary basis, and from preaching Marxism. The Communists have, from all reliable accounts, striven for a bourgeois democracy based on the Three People's Principles or Sun Yat-sen. They have, moreover, even after two years and one-half of the United Front against Japan, failed to win a dominant voice in Government affairs. Many in the Government are openly hostile to the Communists, and tend to minimize the accomplishments of the Red Armies and their importance in the resistance to the invaders. Since the fall of Hankow, there has been a sharp curbing of their activities outside the regions where they actually are in control; and in the Provinces of Shensi, Kansu, Ninghsia and Suryuan, there have been bitter reprisals against them by some Kuomintang officials, army leaders, gentry and others who see in the spread of their influence a menace to the existing order.

Chinese Eastern Railway.

See JAPAN: Disputes with Foreign Powers.

Factional Clashes.

Friction between the Kuomintang and the Red Army became so serious in the month of October, that it threatened to disrupt relations between them. General Mao Tse-tung, former Chairman of the Chinese Soviet Government which was established at Yenan in Shensi following the arrival of the Communist army there from Kiangsi in 1935, charged in the leading Communist newspaper, that the Central Authorities had failed to fulfill their promise of establishing a democratic form of government for China, and declared that some government and army leaders were devoting their energies to fighting against the Communist armies instead of concentrating on the fight against Japan. He referred specifically to an incident at Pinkiang, in Hunan Province, in which Central Army officers arrested an officer of the Communist Fourth Route Army, causing a serious armed clash between the two groups. The fighting stopped, however, when both sides joined forces to halt the oncoming rush of the Japanese troops towards Changsha. He referred, also, to another serious three-day clash in north Shensi, when the Communist and Central Army troops disputed possession of a certain area which both claimed. General Mao closed his remarks with an appeal for unity, political cooperation and democracy. 'The people,' he said, 'are for democracy. We have (in the border area) one of the best administered and most efficient governments in China. It is democratic. To resist, the people must have something to fight for, something to unite them. The time of political tutelage is over. The people must have their own government. All parties in China must exist side by side and cooperate.'

There have been no further serious clashes between the two factions since November, and the United Front still holds together. On Nov. 9, at a meeting in Chungking held under the auspices of the Chinese Soviet Cultural Association, to commemorate the anniversary of the Soviet revolution, many mutual expressions of friendship and desire for cooperation between the two countries were exchanged between high officials of the Government and the Soviet Ambassador to China. Despite the confident tone of this meeting and newspaper comments on it, however, there is still very real misgiving in China as to Russia's ultimate intentions, and fear is entertained that Russia and Japan may yet reach an agreement for spheres of influence in China. Late in December, when the League or Nations met to consider steps to expel Russia from that body because of the invasion of Finland, China, feeling that she must keep Russian friendship at all costs, refused to vote for the expulsion.

Withdrawal of British Troops from Tientsin.

On Nov. 14, the British Government announced that it was withdrawing the majority of its troops from Tientsin and North China 'for military reasons arising out of the conflict in Europe.' Only a sufficient number to protect property and maintain order would be left, it was said. The Chinese did not accept this statement at its face value, but declared the move to be evidence that Great Britain had reached an understanding with Japan over their mutual interests in China. A similar announcement was made shortly after this by the French Government.

Plenary Session of Kuomintang.

On Nov. 20, at the closing of the 6th plenary session of the Kuomintang, further political and military power were concentrated in the hands of General Chiang Kai-shek, when he was made President of the Executive Yuan, the chief executive arm of the government. He is now, therefore, Premier, in addition to being military Commander-in-Chief, Director General of the Kuomintang, and Chairman of the Supreme National Defense Council. H. H. Kung, former President of the Executive Yuan, was made Vice-President. At the end of the session a manifesto announced that a National People's Assembly would be convened on Nov. 12, 1940 'to enact and promulgate a Constitution for China' — a step which liberals have long urged, believing that a fully representative constitutional government should replace what amounts to a virtual dictatorship by General Chiang. The session proclaimed that resistance would continue. Four principles were announced: (1) Resistance to aggression, to protect the sovereignty and territorial integrity of China; (2) The upholding of the validity of international commitment, especially the Nine-Power Treaty, the League Covenant and the Pact of Paris; (3) Refusal to join any anti-Comintern agreement; (4) Maintenance of absolute independence in diplomacy.

Situation at Close of 1939.

Fighting on other fronts continued through December and the Chinese have suffered some extreme losses, especially in the Kwantung area and in the Province of Kwangsi where, late in December, the Japanese pushed their way to the border of French Indo-China, capturing valuable supplies of crude oil, gasoline, lead, copper wire, clothing and munitions, thus fulfilling, as a Japanese spokesman claimed, their 'mission of destroying Chinese supply bases on the border of Indo-China.' Despite this and other reverses, and the enormous suffering throughout China during the year from famine, floods, bombing raids, and the general devastation of war, at the end of the year Chinese morale was high and the confidence in ultimate victory unshaken. That China can resist indefinitely, provided no serious internal struggle develops, is the opinion of many competent foreign military observers, who point to China's vast reservoir of man-power. The Chungking Government since the outbreak of hostilities in 1937, has been building up a huge army which can, in time, it is felt, defeat Japan. According to one well-trained and impartial observer, the program of intensive training has produced a force of fully trained regulars of 3,500,000 men. Two and a half million more have been conscripted and partially trained, while an additional 3,000,000 to 4,000,000 drawn by lot, are ready to go to training camps. The military academies in Chinese-controlled territory turn out annually 20,000 officers for the regular army, and a special academy in the Province of Hunan, late in the year, turned out 25,000 officers to command the guerrilla forces. Continued acquisitions of munitions are being received from Russia, and the Chinese arsenals produce practically all the lighter arms and munitions necessary. The air force is being constantly augmented, both with supplies from Russia and with planes made for the Chinese in the United States. The new American-owned Central Aircraft Factory, situated in the jungles of southwestern Yunnan on the China-Burma border, approximately 1,200 miles away from the nearest Japanese air bases at Canton and on Hainan Island, is now turning out an average of one plane a day for China's air force.

It is true that China's economic difficulties are undoubtedly serious. The external reserves at her command, according to one trained observer, do not exceed U. S. $100,000,000, and the internal note issue has been practically doubled since the beginning of the war. During the summer, the value of the Chinese dollar was virtually halved, but up to the end of the year remained at about the same level: U. S. $0.08. Her finances are considered to be still sound, however, and sufficient credits have been arranged with foreign countries to provide her with war materials for the year 1940. The present import restrictions, in addition to the low level of the dollar are favorable to good export trade, and the outlook for continuing stability of the dollar is good. Although her military strength has been somewhat weakened by financial difficulties, the effective fighting of China's armies at the close of the year indicated that her supplies of munitions were adequate.

While some of her most valuable mineral resources, principally coal and iron, are in districts now in control of Japan, the resources of 'free' China are sufficient for industrial needs for some time to come, in addition to providing tin, antimony, gold, etc., in large quantities for export. The United Front is still holding, for while there have been serious difficulties between the Kuomintang and the Communists, there is not much likelihood of an open break between them as long as China is fighting Japan for the continuance of her national existence.

In the last days of the year, China mourned the passing of one of its most beloved and honored figures. General Wu Pei-fu, poet, philosopher and soldier, died on Dec. 5. He had been in retirement for a number of years, and of late many attempts had been made by the Japanese to persuade him to support a puppet government which it was to recognize as the government of all China. This he had refused to do.