1942: China

Although 1942 was the first year in which China had military allies against Japan, the Chungking government faced increasing difficulties after the rapid Japanese conquest of lands to the south and severance of the Burma Road supply route.

CHINA AND THE WAR IN ASIA

Nature of the Fighting in China.

The war remained one of attrition, with each side seeking to wear down the other. The few important operations — the drives against Changsha, into Yunnan province, and along the Chekiang-Kiangsi railway — were restricted actions initiated by the Japanese. The Chinese Army, although strong in manpower, carried through no significant offensive movements. One of the reasons for this situation was explained in a memorandum of Oct. 12 by United States Under-Secretary of State Sumner Welles, who declared: 'No Chinese armies are actively engaged in large-scale offensive operations against the Japanese — for the reason, principally, that there are lacking to all Chinese armies types and amounts of equipment which are essential to such operations....' Chinese activity was confined largely to counter-attacks by regular forces and guerrilla warfare. It was clear that many battles reported in the press were essentially skirmishes in which the Japanese sought to destroy supplies or to devastate an area and then retire. Nevertheless, China was performing the invaluable function of tying down well over 500,000 Japanese troops and maintaining a Far Eastern land front for the United Nations.

Third Battle of Changsha.

In the first week of January Chinese forces smashed the third Japanese drive toward Changsha, capital of Hunan province and leading economic center of the south Yangtze hill region. This was the first United Nations victory of the Pacific war. After retreating toward the end of December 1941, the Chinese, who had been laying a trap for the invaders, struck in the Japanese rear while the defending troops at Changsha moved forward at the front. The Japanese forces were said to include 150,000 men, supported by planes, tanks and heavy artillery, against 300,000 Chinese troops possessing only machine guns, rifles, grenades and a few howitzers. According to Chinese sources, enemy losses totalled over 60,000 killed and wounded, with about one-tenth as many for the defenders.

Japan Invades China from Burma.

In January Chinese troops, under agreement with Britain, entered Burma to participate in the defense of that territory, but it was not until March that they came into contact with Japanese forces on a large scale. On March 10 Generalissimo Chiang Kai-shek appointed an American general, Joseph W. Stilwell, his chief of staff and on March 19 placed him in command of the Fifth and Sixth Chinese Armies in Burma, at a time when a major battle was developing in the vicinity of Toungoo on the Sittang river. Although fighting heroically, Chinese troops were outflanked and had to break through to the north of the city at the end of the month. Chinese opinion was critical of the apparent lack of a unified command in Burma and the long delay in bringing Chinese troops into action. On April 29 the Japanese entered Lashio, terminus of the Burma Road, and soon swung eastward up that famous highway. Reaching the border on May 5, they entered Yunnan, China's southernmost province, which since 1937 had been untouched by war except for Japanese bombings. On May 10 they took Tengyueh, an important center on a spur of the Burma Road, and then marched toward the bridge over the upper reaches of the Salween; but the structure was destroyed by the Chinese, who retreated to the east bank. Aided by American Volunteer Group aircraft and by artillery which shelled the other side of the river, the defenders caused havoc among the Japanese forces and compelled their retreat to Lungling. This saved the city of Paoshan toward which the Japanese had presumably been driving. Subsequently, despite some changes, the front in Yunnan was more or less stabilized, although in December Chinese sources reported that the Japanese were preparing to resume their drive toward Kunming, the provincial capital.

Campaign in Chekiang and Kiangsi.

Meanwhile fighting on other fronts in China had been of a minor character. In late January and early February there was a brief contest east of Canton in the area of Waichow, which the Japanese entered but soon evacuated. In the first part of March fighting began in southwest Shantung province, and later in the month activity was reported from the Canton region. A new factor was introduced into the military situation on April 18, when American planes executed their famous raid on Tokyo, Yokohama, and Nagoya. Although the bases used for this action were never announced and Chungking denied that they were located in China, Japan suspected that the raiders had operated from Chinese soil or, at least, had landed there. Soon Japanese aircraft were carrying through systematic reconnaissance and bombing activity in the Chinese coastal zone, especially over the provinces of Chekiang and Kiangsi, which are relatively close to Japan. It was known that for some time China had been preparing a number of airfields in anticipation of the day when the Allies would make planes available in large numbers.

On May 15, less than a month after the raid on Tokyo, Japanese troops in Hangchow (Chekiang province) began to push inland along the railway leading to the Kiangsi provincial capital of Nanchang, while other troops in the latter city moved eastward. The object was to complete the occupation of an important rail line, part of which remained in Chinese hands. At the same time attacks on Chinese forces were initiated north of Canton, giving the impression that the whole Chekiang-Kiangsi campaign might be one part of a gigantic pincers movement designed to establish complete control over the vital rail route from Canton to Hankow. Japanese statements about plans to establish through rail communications from Shanghai to Singapore — by linking the lines of China, Indo-China, Thailand and Malaya — also caused considerable speculation in the American press, since the realization of such a scheme would enable Japan to reduce the number of ships exposed to attack on the long sea voyage to and from conquered Southeast Asia.

Actually, as the subsequent development of the campaign indicated, Japan's purposes were far more moderate, and probably embraced two main objectives: (1) to seize and hold, at least temporarily, various air bases which might have been used in the raid of April 18; (2) to weaken China politically and economically by damaging the links between two vital eastern provinces and the rest of Free China. In this connection, it should be noted that Chekiang is an important producer of salt, in connection with which China was already having serious supply difficulties. Together with Kiangsi, it was also the scene of much smuggling between occupied and unoccupied China — one method by which areas under Chungking control were able to meet at least a small part of their supply needs.

For two months the Japanese forces advanced, seizing valuable airfields, including those at Chuhsien and Lishui, occupying Kinhwa — the temporary capital of Chekiang and an important economic center — and securing control over the entire Chekiang-Kiangsi railway. This was followed by operations south of Nanchang in Kiangsi, as well as in the vicinity of Wenchow, an important Chekiang port which was still held by the Chinese. From July 18, however, the Chinese forces advanced quickly, retaking most of the towns previously lost, although Kinhwa remained in Japanese hands. In view of the weakness of the Chinese troops and the swiftness of their return, it would appear that the Japanese were not driven out but had decided to withdraw. It may be assumed that the main objective of the campaign had been achieved, at least in part. Important air bases had been kept out of use for more than two months and had probably been subjected to extensive damage. The Japanese, moreover, had deliberately caused widespread destruction in the invaded areas, which they did not abandon until after the harvest. This meant that for some time to come Chungking would face a very difficult relief problem in Chekiang and Kiangsi.

Air Exploits of the A.V.G.

For many months after the Japanese attack the United Nations had a pitifully small number of aircraft in the Far East. During this period, however, a distinguished record was established by the American Volunteer Group (A.V.G.), popularly known as the 'Flying Tigers,' which, despite its inferiority in numbers and types of planes, repeatedly shot the Japanese out of the skies over China and Burma. Under Colonel Claire I. Chennault — later a Brigadier General — the A.V.G. had been organized in May and June 1941 as an unofficial body designed to protect the Burma Road and the dispatch of supplies to China. Its first members, recruited from the United States air forces, arrived in Rangoon in September 1941, and on Dec. 20, 1941, the initial air combat with the Japanese took place near Kunming, capital of Yunnan province. Thereafter the A.V.G. was extremely active in China and Burma (in addition to making a few forays into Thailand and Indo-China) until it was replaced on July 4, 1942, by the United States Army Air Force in China. According to the official figures, in less than seven months of activity the A.V.G. destroyed 286 Japanese planes — and those not recorded totaled perhaps 300 more. It was conservatively estimated that at least 1,500 Japanese airmen were killed in encounters with the A.V.G., which itself lost only 11 men, in addition to 4 missing and 9 killed accidentally. At no time did the A.V.G. have over 55 combat planes capable of flight or more than 70 trained pilots. Its successor, the U.S.A.A.F., in cooperation with the Chinese air force, continued the raiding of Japanese-held territory, bombing such centers as Hankow, Nanchang, Canton, and Hongkong in the effort to destroy Japanese planes, airfields, ships, docks, and other objects of military value. The presence of these American planes, although they were old and few in number, probably played a large part in reducing the number of Japanese air raids against Chinese cities. In 1942, for the first time during the war, the capital at Chungking was virtually undisturbed by enemy air marauders.

China and Pacific War Strategy.

During 1942 there were clear indications that China was not satisfied with the role assigned her planning or waging the war in Asia. Though their forces were weak at the moment, the Chinese felt that their territory should be the chief base for a future drive against the enemy armies. They also desired an equal voice in discussions concerning United Nations strategy in the Pacific. A step toward equality was taken on March 30 when a Pacific War Council was formed in Washington, but the main decisions were still made principally by Great Britain and the United States. Chungking was especially anxious to secure supplies in large quantities, a desire which was expressed by Chiang Kai-shek on May 31 in a broadcast to the American people. 'I pledge you my word,' he said, 'that given 10 per cent of the equipment you produce in America the Chinese Army will reap for you 100 per cent of the desired result.' By the end of the year, however, no adequate substitute for the Burma Road had been found, although first steps were being taken in the reinvasion of Burma necessary for reestablishing the route. The Chinese were also disturbed by the fear that the European war would be emphasized to the exclusion of the war in Asia. Therefore, although welcoming every offensive action in the West — for example, the Anglo-American drive in North Africa and the Soviet winter campaign — Chungking deprecated any suggestion that Japan was a minor enemy which would collapse almost automatically upon the defeat of Germany.

FOREIGN RELATIONS

Relations with other countries differed sharply from those of previous years. For the first time China had military allies, and for the first time it was cut off from Germany as well as Japan. The major emphasis of China's foreign policy was therefore placed on methods of securing the fullest possible recognition of equality from the allies, a recognition which depended most of all upon the United States and Great Britain. An important step in this direction was taken on Jan. 1, when China joined with twenty-five other nations in signing the United Nations agreement, pledging all to prosecute the war vigorously and not to make a separate peace. Another significant move occurred on June 2 when China concluded a 'master' lease-lend agreement with the United States, providing for mutual aid during the war and outlining the principles of a post-war economic settlement. Nevertheless, the Chinese were dissatisfied with certain aspects of their international position. In facing these difficulties, they felt obliged to pay special attention to events in India and to Allied plans for the future of the Pacific, as well as to such other matters as extraterritoriality and the delivery of supplies.

Policy Toward India.

In February Generalissimo and Madame Chiang Kai-shek visited India, partly to discuss problems of supply after the severance of the Burma Road and partly to encourage a settlement between Great Britain and the Indian nationalists. The Chinese were greatly concerned because they knew that, if Burma fell, India would become a key area in the war in addition to serving as their last southern link with the outside world. The details of Chiang's discussion with British officials as well as Gandhi, Nehru, and others are not known, but in a farewell address to the people of India on Feb. 21 the Chinese leader urged Britain 'as speedily as possible to give them real political power so that they may be in a position further to develop their spiritual and material strength and thus realize that their participation in the war is not merely aid to the anti-aggression nations for securing victory but also the turning point in their struggle for India's freedom.' At the same time he expressed the hope that the Indians would 'wholeheartedly join the Allies' in the war against aggression.

Plans for the exchange of diplomatic representatives between China and India were announced on March 11, the day on which Prime Minister Churchill revealed that Sir Stafford Cripps was going to India. Extremely anxious that the ensuing discussions result in an agreement, the Chinese were bitterly disappointed when the Cripps mission failed. Although Chungking thereafter followed a cautious policy to avoid any adverse effect on relations with Great Britain, it was clear from the tone of the Chinese press that a resumption of discussions in India was desired. This was especially true after early August when — following the adoption of a civil disobedience resolution by the Congress party — the government of India arrested various nationalist leaders and declared the Congress illegal. On Aug. 10, Sun Fo, president of the Legislative Yuan (Department) of the Chungking government, stated that 'Chinese sympathy is entirely with the Indians,' while the official Central Daily News appealed for British 'forbearance' on the ground that the arrest of Gandhi and others 'does not solve the Indian problems, which, if permitted to pursue its own course of development, will not only affect the war in the Pacific, but also the war as a whole.' Here it is important to note that the Chinese, who only recently had been regarded as a semi-colony and were still not free, felt very close to the Indian nationalist movement which seemed to them similar to their own.

Full Equality for China?

Although China was one of the Allies, it was still subject to certain inequalities in international law at the beginning of 1942. Britain and the United States, for example, maintained gunboats on the Yangtze river — China's Mississippi — and, under the terms of various treaties, held special rights on Chinese soil. These privileges, it was true, had lost almost all practical significance following Japanese invasion of the coastal and Yangtze valley region. Yet the Chinese desired their early abolition in law, lest they be revived after the defeat of Japan or used as bargaining points at the peace conference. A small step in this direction was taken in March when Great Britain presented three Yangtze river gunboats to China and the United States likewise made a gift of the Tutuila, thus destroying an old symbol of China's lack of full independence.

Far more important, however, was the problem of extraterritoriality — in its narrowest sense the right of foreigners to be tried in special courts and not under the courts and laws of China, but more broadly the whole system of foreign territorial and economic privileges. These arrangements had been a principal feature of the 'Unequal Treaties' imposed on China in the nineteenth century and long regarded as an insult by Chinese patriots. The first break in the system had occurred at the end of World War I, when the Soviet government had given up the Tsarist special rights, while the defeated European powers — first of all, Germany — had been deprived of theirs. In 1942, although these privileges were held by a number of countries, their continuance in law depended primarily on the United States and Great Britain. Several times in recent years the two governments had issued statements indicating their willingness to negotiate with China for the end of extraterritoriality when conditions should be favorable, i.e., at the end of the Far Eastern war. On Oct. 9, however, on the eve of the thirty-first anniversary of the Chinese Republic, the United States and Britain announced their intention to relinquish their rights before that time. According to the text of the American declaration, 'the government of the United States is prepared promptly to negotiate with the Chinese government a treaty providing for the immediate relinquishment of this country's extraterritorial rights in China and for the settlement of related questions, and ... expects in the near future to present to the Chinese government for its consideration a draft treaty which would accomplish the purpose mentioned.' The British statement was expressed in similar language. In the message of appreciation to President Roosevelt — both for the announcement and for the ringing of the Liberty Bell in Philadelphia to commemorate China's October 10th anniversary — Generalissimo Chiang Kai-shek declared that these steps would 'do more to uphold the morale of our people in continuing resistance than anything else could possibly do.' On Oct. 27 the Political Vice-Minister of Foreign Affairs announced that the text of the United States draft treaty had been received and that its scope was 'very wide.' Subsequently it was understood that the British draft had also been presented.

Wendell Willkie in China.

The British and American statements on extraterritoriality were made one week after the arrival in Chungking of Wendell Willkie on Oct. 2. Acting as President Roosevelt's special representative on a fact-finding mission, the Republican candidate of 1940 had already visited a number of countries, but nowhere was his reception warmer than in China. Chinese circles appreciated the fact that he was the most important foreigner to visit their capital in the course of the war and were stirred to new hope for their own future by his statements on the need for immediate steps toward world freedom. In a declaration issued to the press on Oct. 6 he stressed the doubts of the common people of Asia as to the willingness 'of the leading democracies of the world to stand up and be counted upon for the freedom of others after the war is over.' He urged that everything be done as soon as possible to erase this doubt and arouse popular enthusiasm within the nations of Asia, 'determined no longer to live under foreign control.' He asked for a definite statement as to whether the Atlantic Charter also applied to the Pacific, spoke of China's great role in the war and referred to the fact that 'some of our Allies have seen very little of our actual arms.'

China's Diplomatic Relations.

During 1942 China concluded treaties of amity with Iraq and Turkey. Announcements were made concerning the exchange of diplomatic representatives with Egypt, the Vatican, India, Iran, Iraq, and Canada. In September, Hu Shih, Ambassador to the United States, was replaced by Wei Tao-ming. At the beginning of the year Sir Horace Seymour succeeded Sir Archibald Clark-Kerr, British Ambassador to China.

INTERNAL CONDITIONS

Problem of Inflation.

During 1942 China's economic difficulties increased, and prices skyrocketed to new high levels. In Chungking by the middle of the year wholesale prices were approximately 50 times their pre-war level, as compared with perhaps 27½ times in December 1941. Although speculating merchants and landlords were often able to profit from this situation, most Chinese, especially the middle class, suffered from it. The government sought to alleviate conditions by giving rice allowances to many of its own employees, and private business firms frequently did the same. In May 1942 the Ministry of Education decided to grant every normal school student approximately 2.2 pounds of government rice each month. The price problem was closely connected with a rise in the note issue of the four government banks from an estimated total of 15,000,000,000 Chinese dollars in Dec. 1941 to probably 20,000,000,000 by June 1942, as compared with approximately 1,500,000,000 before the war. In one sense, however, inflation was a method by which Chungking could continue to finance the war in face of a serious decline in the usual sources of revenue. By 1942 the maritime customs, salt tax and consolidated tax on the production of various manufactured articles, which had furnished the bulk of the government's pre-war income, yielded no more than one-fifth of their peacetime returns. Partly in order to compensate for these losses, in the first six months of 1942 Chungking established official monopoly control over production, prices and distribution of salt, sugar, matches, and tobacco, and it was expected that tea and wine would be added later. Through the salt monopoly alone the government hoped to raise 1,000,000,000 Chinese dollars in revenues as compared with the salt tax return of 100,000,000. On May 5 a National General Mobilization Act went into effect, giving the government the power to commandeer food, medical supplies, the means of production, and transport facilities and, in effect, to direct all aspects of economic life. This move appeared to be chiefly of legal significance, since Chungking had already established far-reaching economic control.

Shortage of Supplies.

One of the important factors behind price difficulties was the shortage of supplies, as a result of transportation problems, hoarding of commodities, and the low level of production. After the seizure of Hongkong by Japan in December 1941 and the cutting of the Burma Road early in 1942, China had only three sources of outside supply: the long northwest highway to the Soviet Union, the dangerous air channels from India, and the devious land and water ways by which goods were smuggled in from Japanese-occupied China. All of these combined were inadequate to meet the country's supply needs. Therefore efforts were made to develop new land routes into China from India or to use old trails, but by the end of the year there were no clear indications that such attempts had brought results. It was presumably in connection with China's supply problems that Lauchlin Currie, President Roosevelt's Administrative Assistant, visited Chungking for the second time in July 1942. Some months before, in February, the United States Congress, at the request of the President, had approved a U. S. $500,000,000 loan to be used at China's own discretion. This grant was paralleled by a British offer of £500,000,000 at the same time. The American loan was of limited immediate value because the Chinese had no means of using it to secure supplies, but they employed part of it to back the issuance of Savings Deposit Certificates and Allied Victory Bonds. This, it was hoped, would reduce speculation and hoarding by absorbing part of the money that wealthy persons were using for these purposes, but the sale of the issues was not particularly successful.

Food Problems and Land Taxes.

Although food supplies, if properly distributed, were probably adequate to meet the country's needs, there were actual shortages on the market as a result of hoarding. In June 1941, Chungking had initiated an ambitious plan, designed in part to meet this situation, under which the existing land tax in cash was converted into a tax in grain. The object was to furnish the government with food, chiefly for the army, and to force landlords to make available some of the supplies they were withholding. This was supplemented by a purchase-loan scheme under which the government was to buy additional quantities of rice and other grains, paying partly in cash and partly in Food Treasury Notes. Collections were completed by the end of February 1942 and were on the whole successful, especially in the capital province of Szechwan. Therefore the national quota for 1942 was increased. In prosecuting this new tax policy, the government faced very strong opposition from the landlords. In an address of June 1942, for example, Generalissimo Chiang Kai-shek attacked the 'very small minority of rich landowners who grumble at the slightest increase of the amount of food required of them and who attempt evasion.' He stated in unmistakable terms that food difficulties 'do not turn upon any question of lack of food but simply and solely upon ways and means of control and distribution.' At the same time he referred to 'cases of connivance on the part of the authorities in practices of evasion' and declared that 'all officials engaged in food administration should cultivate habits of strict frugality and never forget that the food they are handling has been produced by the hard work of the people.' In addition to these problems of food control, Chungking had to face a very difficult famine situation in the strategically located north central province of Honan, resulting from drought, spring frosts, locust plagues, and a brief Japanese invasion of some districts during the previous year. With thousands said to be dying each day and millions reported on the verge of starvation, the government took steps to alleviate conditions, but was hampered by poor transport facilities for bringing in food or removing people from the area.

Development: of the Northwest.

Early in the war China had taken steps toward the economic development of the southwestern provinces, especially Szechwan. During 1942 plans were also initiated for the reconstruction of the northwest. Early in August members of the Chinese Institute of Engineers met in Lanchow, capital of Kansu, where, at the request of the provincial authorities, they offered opinions on the problems of waterpower development, mining, railroads and communications. In a message to the conference, the Generalissimo declared that the engineers' next task would be to develop the resources of the northwest. During preceding months many high officials, economic experts and Army men had visited the region, and shortly after mid-September it became known that Chiang Kai-shek had just spent a month there. Back in Chungking, he declared that considerable progress had been made in Kansu, Ninghsia and Chinghai in surveying farm lands, building highways, and carrying on reforestation activities.

Political Developments.

In 1941 relations between the government and the Chinese Communists had attracted international attention, since civil war had for a while appeared imminent. In 1942, however, the situation was a stalemate. The Communist-led New Fourth and Eighteenth Group (formerly Eighth Route) armies continued their activities in the north, and there were no reports of new friction with Central forces, although old problems remained unsolved. On Oct. 12 United States Under-secretary of State Sumner Welles declared it had been the State Department's view that civil strife in China would be extremely unfortunate and that the Chinese government 'should try to maintain peace by processes of conciliation between and among all groups and factions in China.' 'The State Department in Washington,' he said, 'has at all times taken the position, both in diplomatic contexts and publicly, that the United States favors 'complete unity' among the Chinese people and all groups or organizations thereof.'

On Oct. 22, after a lapse of almost a year, the Third People's Political Council — the governmental advisory body originally established in 1938 — met in Chungking. In an opening address, Chiang Kai-shek stressed the importance of avoiding extravagance, stabilizing prices, developing popular understanding of taxation, public loans, and saving, and promoting voluntary enlistments in the military and labor service while preventing evasion of these obligations. At the closing session on October 31 he declared: 'China is the largest and most ancient of Asiatic countries, but it is not for us boastfully to talk of her right to a position of 'leadership' among those countries.... Recognizing equality as the highest guiding principle of international affairs, we shall do well neither to underestimate nor overestimate our own importance and dignity.' At his suggestion the People's Political Council had already adopted a program calling for intensified control of commodity prices, in addition to passing resolutions on many other questions. On Nov. 12 the tenth plenary session of the Central Executive Committee and Central Supervisory Committee of the Kuomintang — the official Nationalist party — convened in Chungking. In December certain changes in government personnel took place, perhaps as a result of the plenary session.

1941: China

Marked by the thirtieth anniversary of the founding of the Chinese republic, celebrated at Chungking with speeches and parades on Oct. 10, the year 1941 found China still engaged in its life-and-death struggle with the Japanese invader. Two further memorable anniversaries occurred during the course of 1941. The war in China entered its fifth year on July 7, while Sept. 18 marked the tenth anniversary of the Japanese invasion of Manchuria. Less than three months after this latter date, Japan was engaged in war with the United States, Britain and the Netherlands East Indies in an effort to establish its full mastery over the Pacific.

WAR IN CHINA

Japanese Forces Thrown Back.

With one or two notable exceptions, Japanese campaigning in China was of a desultory character throughout most of the year. During the first few months several Japanese thrusts were undertaken in the provinces of Central China, both north and south of the Yangtze River. Separate campaigns of considerable intensity occurred west and north of Sinyang (Jan. 24-Feb. 10) in Honan and Hupeh provinces; around Ichang (March 9-15) in southern Hupeh; and west of Nanchang (March 15-April 10) in northern Kiangsi. In each case, after early advances, the Japanese forces were thrown back to their starting points with heavy Iosses. A more successful Japanese drive into the Chungtiao mountain region of southern Shansi (May 8-31) resulted in the occupation of new territory, but the general strategic position of the Chinese forces in North China was not seriously affected by this local setback.

Blockade of Chinese Coast.

Early in February a Japanese landing at Mirs Bay, on the coast of Kwangtung province in southern China, initiated a more intensive effort to enforce a blockade of the Chinese coast from Canton to Shanghai. The greater part of this long coastline, including several major ports, had never been occupied by Japanese forces. A Chinese smuggling trade of large dimensions had continuously brought goods in and out of free China at many different points. Between February and April a series of Japanese landings all along the coast sought to plug these leaks in the blockade. Port cities such as Pakhoi, Swabue, Chaoyang, Foochow, Wenchow and Ningpo were successively occupied by Japanese landing parties of larger or smaller size. In some cases these descents on the coast were little more than glorified raids, which confiscated or destroyed concentrations of Chinese supplies. Raids on the Kwangtung coast in March, for example, were said to have gained rich hauls of rice, salt, sugar and cotton at several Chinese storage points, as well as quantities of tung oil, tungsten, and other commodities destined for export. In other cases the landing operations were prosecuted in considerable force, leading to a number of minor campaigns before the Japanese troops were forced to withdraw. Foochow, occupied on April 21, was not regained by Chinese forces until Sept. 2 after a counter attack of fairly large proportions. Most of the other ports were reoccupied within a week or ten days after the original Japanese landings. On the whole this Japanese attempt to make the blockade complete had no lasting effect, although it undoubtedly netted the Japanese certain stocks of stored Chinese goods and temporarily reduced the size of the smuggling traffic. The rather small results of these difficult and protracted operations led some observers to believe that they may have been undertaken in preparation for a possible campaign in Southeast Asia, where much of the success achieved would depend on the efficiency with which landing parties could operate.

Bombing of Chinese Cities.

The summer months were marked, as usual, by almost continuous Japanese bombing raids on the cities of interior China. As early as March 19 the mists that hang over Chungking in the winter had lifted sufficiently to permit the first mass Japanese air raid of the year. During the winter much work had been done in an effort to carry still further the elaborate protections against bombing raids that had been developed in Chungking since 1938. Additional tunnels had been dug into the hills of China's wartime capital, bringing the capacity of bombproof shelters to the point where more than 300,000 persons could be accommodated at one time. Chinese fighter planes and anti-aircraft defenses were still inadequate, however, so that the Japanese raiders were largely unopposed and could work their destruction with relative ease. Large sections of the city, some of which had been rebuilt since the preceding October, were again devastated. Efficient air-raid warning devices kept the casualties to a minimum, although one notable tragedy occurred on the night of June 5-6, when more than 700 men, women and children were suffocated or trampled to death in a panic caused by failure of the ventilation system in a large public shelter. In May the American Ambassador had a close call, while in September the British Ambassador's residence was hit. During the period from Aug. 8 to Aug. 15, for eight days and nights when the moon was at the full, Chungking was subjected to an almost unbroken series of raids. Less continuous attacks were made on many of China's other great inland cities, virtually all of which were entirely undefended and offered no military objectives. As in previous years, despite the civilian casualties, the heavy toll of destruction and the temporary disruption of economic pursuits, the ordeal by bombing had no apparent effect on Chinese morale or on the nation's determination to see the struggle through to the end.

Japanese Drive on Changsha.

Shortly after the middle of September, a powerful Japanese drive on Changsha, center of an important grain-producing region in northern Hunan province, began six weeks of the severest fighting of the year. Approximately 130,000 heavily mechanized Japanese troops pushed rapidly down the railway south of Hankow and succeeded in entering Changsha on Sept. 28. A day or two later, however, the Japanese forces withdrew from the city and within a week had given up all territory occupied during the offensive. Chinese reports claimed that the retreat was 'a débâcle' forced by frontal and flank attacks and resulted in heavy Japanese losses, while Japanese spokesmen asserted that it was a 'planned withdrawal' after the objective had been attained. On Oct. 2, as the withdrawal from Changsha was being made, a second Japanese offensive struck at Chengchow, strategic railway junction in northern Hunan province. Chinese defending forces evacuated the city on Oct. 3 and then reformed their troops to contest further Japanese pressure. Meanwhile Chinese armies in southern Hupeh province had themselves taken the offensive against Ichang, the important Yangtze River port marking Japan's furthest westward penetration in Central China. By Oct. 8 these Chinese forces had apparently fought their way into the city, but after several days' fighting were eventually forced to withdraw. For a time this drive also threatened Japan's hold on Shasi, a port further down the river toward Hankow. Foreign eye-witness reports of the condition of the wounded, supported by photographs of the Chinese victims, claimed that the spearhead of this Chinese offensive was broken when the Japanese forces resorted to the use of mustard gas shells in the environs of Ichang. During the first days of November counter-attacking Chinese troops defeated the Japanese and reentered Chengchow, thus essentially restoring the status quo obtaining on all fronts in Central China prior to the campaigns begun in mid-September.

These campaigns had again demonstrated Japan's inability to complete the conquest of China, or even to win and hold additional territory. For three years, since the occupation of Canton and Hankow in October 1938. Japan's military forces had proved unable to consolidate their hold over new areas. Ichang, occupied in June 1940, constituted the single major exception to this rule. The operations in this region in October 1941, moreover, had shown that the Chinese armies were capable of waging large-scale and effective counter-offensives. Given adequate air forces and mechanized equipment, these armies might be expected to transform the war of attrition in China into a war of reoccupation of lost territory. In evident recognition of the need to contain the Chinese armies, a second Japanese drive was launched against Changsha toward the end of December. At the close of the year, Japan's forces were for a third time within striking distance of the city, but Chinese counter-attacks from Jan. 2-6, 1942, trapped the invaders in the greatest Chinese victory since the beginning of the war. As a result of this offensive the Japanese lost 60,000 killed or wounded in four days fighting.

New Areas of War in Asia.

With the beginning of Japan's drive into Southeast Asia on Dec. 7, the position of China and the Chinese armies became even more strategic. In China's northern provinces the first air bases within easy bombing range of Japan's vulnerable industrial centers may well be established. The inexhaustible reserves of Chinese man-power are available for service not only on the fronts in China, but also in the southeastern sectors of Indo-China, Burma and Malaya. By counter-attacking within China itself, these armies can also force the Japanese to divert troops and munitions needed in other quarters of the war zone in the Pacific. The first practical example of this possibility was given in Kwangtung during the middle of December, when Chinese forces carried out an offensive on the mainland back of Hongkong which drove to within twenty miles of the rear of the Japanese besiegers.

FOREIGN RELATIONS

Increase of Allied Aid.

Press reports from Chungking on Jan. 4 revealed conclusion of the second part of a Chinese-Soviet trade accord involving an exchange of Chinese wool for Soviet munitions and machinery; the third part of the accord, covering the export of Chinese minerals, was concluded on Jan. 12. Announcement was made on Feb. 4 that Clarence Gauss, American Minister to Australia, would succeed Nelson T. Johnson as Ambassador to China. On Feb. 7 Lauchlin Currie and Emile Despres, special envoys of President Roosevelt, reached Chungking. After a round of visits, negotiations between the American envoys and representatives of the Chinese government, dealing mainly with economic affairs, began on Feb. 11. The report presented by Mr. Currie on his return to Washington in March was largely influential in establishing the framework within which increasing American aid, military as well as economic, was rendered China during 1941. While in Chungking, moreover, Mr. Currie impressed upon Chinese officials the necessity of reaching a settlement of the serious conflict between the central authorities and the Chinese Communist leaders. On April 25, negotiations were concluded between the United States and China dealing with the operation of the $50,000,000 American stabilization loan granted on Nov. 30, 1940. A British loan for £5,000,000 was signed at the same time, the Chinese government contributed $10,000,000, and something remained of the former Chinese currency stabilization fund — thus making available nearly $100,000,000 to the new combined Anglo-American-Chinese fund to back China's currency. An important definition of American post-war aims affecting China was embodied in an exchange of letters on May 26 and May 31 between Secretary Hull and Quo Tai-chi, new Chinese Foreign Minister. Secretary Hull's letter stated that the American government 'expects when conditions of peace again prevail to move rapidly, by processes of orderly negotiation and agreement with the Chinese Government, toward relinquishment of the last of certain rights of a special character which this country, together with other countries, has long possessed in China by virtue of agreements providing for extraterritorial jurisdiction and related practices.' Clarence Gauss, the new American Ambassador, arrived at Chungking on May 23. Unofficial reports on May 30 indicated that the United States Army Air Corps was granting permission to its pilots and mechanics to resign temporarily for service in China, where they were training Chinese aviators to fly American planes. On still another front, meanwhile, China Defense Supplies, Inc., under the presidency of T. V. Soong, had been set up in the United States to handle lease-lend supplies being sent to China. Owen Lattimore, widely known American writer on the Far East, was appointed by President Roosevelt on June 28 to the post of political adviser to Generalissimo Chiang Kai-shek.

Severing of Diplomatic Relations with the Axis.

Following recognition by the Axis of Wang Ching-wei's puppet government at Nanking, the Chinese government on July 1 severed diplomatic relations with Germany and Italy and recalled its diplomatic representatives from Berlin and Rome.

Three American highway transport experts, Daniel Arnstein, Harold Davis and Marco Hellman, arrived in Chungking on July 13 to survey the Burma Road equipment and report on methods to improve its administration. On July 14 British assurances to negotiate for the abolition of extraterritorial rights in China when peace is restored were embodied in an exchange of notes between Foreign Minister Quo Tai-chi and the British Ambassador, Sir Archibald Clark-Kerr. Colonel John S. Chennault, leader of the American pilots who will train Chinese aviators to fly American bombers and fighter planes, left Manila for Chungking on July 18. The ABC Stabilization Board, acting on Aug. 18 to improve the value of China's currency, fixed the Chungking dollar exchange rate at 5 11/32 American cents, approximately 10 per cent above the current 'black market' exchange. American and British banks licensed to sell foreign currency under the regulations freezing Chinese assets will furnish American dollars to legitimate importers at the new rate. Announcement was made in Washington on Aug. 26 that the President had ordered the dispatch of an American military mission to China. Headed by Brigadier General John Magruder, who had twice served as military attaché in China, the mission was to include a staff of trained officers and operate under direction of the Secretary of war. Its general purpose, as stated by the President, was to make 'lend-lease assistance to China as effective as possible in the interest of the United States, of China, and of the world effort in resistance to movements of conquest by force.'

American Military Mission Arrives.

Announcement was made at Chungking in early September that the Eurasia Aviation Corporation had been transformed into a 100 per cent Chinese-owned and operated company; the German employees were discharged and the German interest taken over on July 29 and Aug. 1 respectively. The American military mission, headed by Brigadier General Magruder, arrived in Chungking on Oct. 5. With the arrival in Chungking on Nov. 23 of John H. Hall, American oil company engineer, it was revealed that plans were being made for laying a pipeline along the 700-mile Burma Road to supply gasoline for China's war machine; the project would save millions of dollars spent in trucking and would free the road for the shipment of other war supplies.

INTERNAL AFFAIRS

Kuomintang-Communist Dispute.

A sharp crisis in Kuomintang-Communist relations developed early in January, following a sanguinary clash between armed forces in southern Anhwei province. The Fourth Route (Communist) Army's rear-guard, with 8,000 or 9,000 men, including medical units, nurses and wounded, was attacked by 80,000 central troops near Maolin on Jan. 6, as it prepared to cross northward over the Yangtze River. The ensuing battle lasted eight days, when the Fourth Route unit ran out of ammunition. The detachment suffered at least 4,000 casualties, more than 2,000 were taken prisoner, while less than 2,000 succeeded in fighting their way out. The two commanding generals of the Fourth Route Army were both wounded; General Yeh Ting was captured and placed under arrest, and General Hsiang Ying disappeared. Estimates of casualties suffered by the attacking central troops ranged from 20,000 to 30,000. At Chungking the central military authorities accepted the charges of General Ku Chu-tung, the commander responsible for the attack, that the Fourth Route Army had 'lengthily prepared for revolt' in order to extend the territory under its control. On Jan. 17 the National Military Council decreed the dissolution of the Fourth Route Army and announced that General Yeh Ting had been imprisoned and was awaiting court-martial for his part in the 'revolt.' The Council's decision left some 90,000 Fourth Route Army troops, located in areas north of the Yangtze River, without legal standing, central financial support, or officially recognized commanders.

In response to these actions, the Chinese Communist party immediately reconstituted its Central Revolutionary Military Committee — a move which indicated the gravity of the political crisis. The new Committee's first act was to reappoint commanders to the Fourth Route Army on its own responsibility, and then to send a list of twelve demands to Chungking, asking for the punishment of the leaders responsible for the attack on the Fourth Route Army unit and for guarantees that such incidents would not recur. The seven Communist members of the People's Political Council absented themselves from the session which met March 1-10 in Chungking, after presenting a list of twelve points on which they wished satisfaction. To this Council Generalissimo Chiang Kai-shek delivered a speech supporting the action taken by the central military authorities, but ending with an appeal to the Communist members to renew 'their contribution to national solidarity.' There the matter was allowed to rest, although it continued to affect the political atmosphere throughout the year. While the Fourth Route Army was not restored to an officially recognized status, it was allowed to continue in being and it has pushed a steady guerrilla campaign of large proportions against the Japanese in the occupied areas of the lower Yangtze Valley. In North China the Eighth Route Army has also continued to wage effective warfare against the Japanese forces.

Need for Improved Economic Conditions.

Addressing the Kuomintang Central Executive Committee in session at Chungking toward the end of March, Generalissimo Chiang Kai-shek excoriated the party for its shortcomings. His speech stressed the need for improving economic conditions and criticized the party's failure to cope adequately with the country's economic problems. 'The economic difficulties.' he said, 'are 70 per cent and the military difficulties 30 per cent of the war problem now facing the nation.' Widespread hoarding and food profiteering had already forced the Generalissimo to place his sanction behind drastic measures for dealing with the speculators. After four years of war, the problem of inflation was growing increasingly serious, and it was complicated by the difficulty of establishing effective wartime controls in a country as loosely organized as China. Following the close of the Kuomintang's plenary session on April 2, a considerable reshuffle of party and government posts occurred, with new figures appearing in the Secretary-Generalship of the party, in the Overseas Affairs Bureau, in the Foreign Ministry and in a large number of lesser posts. The new Foreign Minister was Quo Tai-chi, who had been Ambassador to London for many years. On May 20, in accordance with a decision reached at the plenary session, a Ministry of Food was established, with Hsu Kan, former Vice-Minister of Finance, as its first Minister. A special report of the Opium Suppression Commission, issued in Chungking early in June, admitted that the evil had not been entirely stamped out, but stated that Kweichow province's 30,000,000 ounceper-year opium production had been completely eliminated, that only isolated areas planted with poppy remained in Yunnan, and that by far the greatest consumption of opium in China was restricted to Japanese-occupied areas. An important economic conference, called to devise methods of transferring collection of the land tax from the provincial governments to the central government and to improve national finances in general, convened at Chungking on June 17. Chen Chi-tang, Minister of Agriculture and Forestry, announced at the end of July that he was aiming to increase China's production of foodstuffs in 1941 by 3,487,000,000 pounds, chiefly by use of improved seed, enlarged acreage, and supplements to man power. The Ministry is also promoting reforestation, land reclamation, sericulture, and cotton and tea production. During August it was announced that the Chinese government was preparing to purchase the products of the food-producing provinces with food-bonds, and would then undertake to distribute the food at controlled prices. In the same month two provincial governors were changed, three presidents of national universities were dismissed, one corrupt official was executed, and many shifts were made in minor posts, in a continuation of the clean-up started after the Kuomintang plenary session. A new Inter-Provincial Trade Commission, organized under the Ministry of Economic Affairs, held its first meeting in Chungking on Sept. 3 to discuss readjustment of the structure and policy of provincial trade enterprises. The 'double-tenth' celebrations held all over free China on Oct. 10, the national anniversary, were given special zest by the victory won at Changsha.

The Nanking Government.

The Japanese-dominated Nanking government of Wang Ching-wei opened its new 'central reserve bank' on Jan. 6. As the first move to get their currency into circulation, the Nanking authorities announced that all customs duties were required to be paid in notes of the new bank. In June, Wang Ching-wei visited Tokyo, where he conferred with leading Japanese Cabinet officials and was granted an audience with the Emperor. A joint statement issued by Premier Konoye and Wang Ching-wei on June 23 pledged mutual cooperation toward 'constructing the new order of East Asia.' As Japan's part in this mutual effort, a loan of 300,000,000 yen to the Nanking government was announced on June 28, following Wang Ching-wei's return to China. The loan was euphemistically earmarked for 'economic reconstruction,' and Japanese sources hinted that further installments would probably have to follow. Up to this time, Japan's lead in according diplomatic recognition to its puppet had not been accepted by other powers. On July 1, however, possibly in an effort to cement increasing Nazi influence in occupied China, Germany and Italy formally recognized the Nanking government, and the Axis satellites in Europe — Rumania, Slovakia, Croatia, Hungary, Spain and Bulgaria — took similar action. See also JAPAN; UNITED STATES; WORLD WAR II.

1940: China

As the year 1940 closed in China the country was believed to be much stronger from a military standpoint than it had been at the beginning of the four-year Sino-Japanese conflict. Morale was high and confidence in ultimate victory strong. New local highways to feed the Burma Road had been built, and vast quantities of American supplies were daily being moved to Chungking and other destinations inside unoccupied territory. Needed war supplies in great quantity were also reaching China by way of Vladivostock. These supplies leave the United States by ship for the Siberian port, from where they go by rail to Chita, and then over a Russian military road to the Soviet-Mongolian border. From there they travel southward to western Suiyuan cities by camel caravan, and by donkey and mule carts.

THE WAR IN CHINA DURING 1940

China's Military Strength.

Chinese armies, at the beginning of the year, consisted of approximately 2,000,000 seasoned regulars fighting on all fronts, and more than 1,500,000 guerillas scattered throughout the country. Another 3,000,000 men, equipped with rifles, were undergoing military training. Announcement was also made by the Government in April that plans for a greatly enlarged army had been completed, and that the present strength of the forces would be augmented by the addition of about 4,000,000 men before the end of another year.

Military Operations.

At the beginning of 1940 the fighting in China had reached a stalemate, and there were no large-scale attacks by the enemy such as characterized the earlier months of the war. In the early days of January, a Japanese drive in northern Kwantung, in the neighborhood of Canton, met with stiff resistance by the Chinese, and in the heavy fighting which occurred all through January and early February, both sides lost a considerable number of men. The Chinese, however, were able to regain some territory lost in the fall of 1939 and earlier, and since then they have not been dislodged from their positions.

In the southern part of Kwangsi Province, early in February, the Japanese had concentrated 100,000 troops for their drive on the important highway town of Pinyang, but the Chinese forces executed a heavy flanking attack and forced the Japanese to retreat. It was after this defeat that the Japanese Army command issued the statement that Japan had already won 'sufficient areas in China for the establishment of a new order in Asia . . . and therefore we will not expand our operations but await your defensive.'

Drives on Shansi and Hupeh.

Late in April, the Japanese launched their eleventh unsuccessful drive in the southern part of Shansi Province, in an attempt to cross the Yellow River. By April 25, twenty-five Japanese columns, totalling 60,000 men, were marching toward their goal. By the first week in May, however, the Chinese had cut their lines of communication, and in the operations which followed, the danger of a Japanese crossing of the river had been eliminated. Late in the month, however, there was a much more serious offensive launched in the upper Han River Valley of Hupeh Province in Central China. The aim of this move was to split off the northern provinces from the southwestern ones. The first phase of the drive, centered in the northern area of Hupeh Province, met with stubborn resistance, and for a time the drive was stopped, but in June, another strong Japanese drive, beginning in the southern region of this province, finally succeeded in capturing the highly important port city of Ichang on the Yangtze River above Hankow, as well as the almost equally important city of Shasi. These were extremely serious losses for the Chinese, and although there has been much desperate fighting in this region since June in an effort to retake Ichang and Shasi, they were still in the hands of the Japanese at the end of the year.

Chinese Recapture of Nanning.

Perhaps the most important military gain of the Chinese fighting forces during the entire year was the retaking, late in October, of the city of Nanning, highly strategic communications center and former capital of Kwangsi Province. On Nov. 15, 1939, in order to cut one of China's international lines of supply through Kwangsi and Indo-China, the Japanese had made a surprise landing at Yamchow, a seaport in western Kwanting, and within a week had marched on and taken Nanning, despite fierce Chinese resistance. When the Japanese were forced to evacuate the city on Oct. 28, 1940, after having lost between 50,000 and 70,000 men, they set fire to it, and when the Chinese entered on Oct. 29 more than one half of the city had been completely destroyed by flames.

There was much sporadic fighting in North, Central, Southern and Southwestern China throughout the year, with some losses and gains on both sides. None of this fighting, however, has essentially changed the military situation.

The guerilla forces, estimated at 1,500,000 men, have carried on their ceaseless, harassing tactics in all parts of China throughout the year. They have wrecked supply trains, torn up railroad tracks, surprised and killed sentries at outlying posts, and in general rendered the Japanese hold on some of the occupied territory extremely precarious.

Internal Struggles between United Front Chinese Forces.

Disruptive forces within the Chinese United Front Armies against Japan were threatening to bring about a crisis in the relations between the Kuomintang forces and the so-called Communist forces, represented by the Eighth and Fourth Route Armies, respectively. There had been attempts on the part of Kuomintang officials in Szechuan to suppress Communist publications in that province, and units of the regular Kuomintang army had attacked Eighth Route Army detachments at several different places in the northwest, while really serious clashes had occurred between the regular Chinese Shansi provincial troops and Chinese guerilla forces operating under the Eighth Route Army. These clashes went on through the winter months, but in the early spring a compromise was reached. The Shensi-Kansu-Ninghsia border region, controlled by the Communist forces, was reduced from 23 to 19 hsien, or counties, and friction was lessened by the provision for a single magistrate in each of the 19 counties, where formerly the Kuomintang had appointed a second official. The number of regular Eighth Route Army divisions to be supported with money from the Central Government was increased from three to six, while provision was also made for the reorganization of other troops into guerilla and local units. In the guerilla districts of the occupied territory in Shansi and Hopei provinces, administrative areas, as well as areas of military operations, were delimited. This settlement was not reached until April 10.

Despite the earlier compromise settlement, however, acrimonious disputes between the Kuomintang and the 'Communist' elements continued through April. A report filed at Chungking by conservative Kuomintang leaders in Northwestern China late in April, accused the Eighth Route Army of attempting to set up a separate regime in Shensi, Kansu and Ninghsia, as well as in other places in Northwest China. There were armed clashes between some Kuomintang and Eighth Route Army units and a number of arrests by the Kuomintang were made. A truce was declared in May. Late in the year, however, the tension between the two groups had again become so serious that in some quarters it was believed civil war was imminent. Part of the trouble was caused by the demand of the Minister of War, General Ho Yingchin, that the Communist new Fourth Army be withdrawn before Dec. 19 from the area south of the Yangtze River in the neighborhood of Nanking — an area which was assigned to them three years ago, and which they have wrested from the Japanese and turned into a guerilla base. The Red Army asked for reconsideration of this demand, as well as for redress of what, rightly or wrongly, they consider to be the serious grievances enumerated above. Charges and counter-charges flew back and forth between irreconcilables on both sides and actual fighting between the two factions on a somewhat extended front occurred. While the differences between the two groups are admittedly very grave, it is the opinion of most reliable observers that as long as a serious threat from Japan continues the United Front will hold.

War in the Air.

In preparation for bombing raids which would be resumed when the thick mists which protect the capital city of Chungking in winter would disappear before the spring sunshine, the government, on March 2, announced a comprehensive program for the evacuation of large numbers of people from Chungking. The authorities stated that they had bomb shelters for only 250,000 people and that therefore those residents, numbering approximately 107,000, not engaged in occupations essential to the conduct of national affairs, would be removed to safer districts outside the city.

Throughout the entire month of August, Chungking was bombed continuously from the air, civilian casualties running into the hundreds and property damage, both Chinese and foreign, running into the millions of dollars. In the raids of Aug. 19, 20 and 21, more than 25,000 homes were destroyed and almost twice that many people were rendered homeless and destitute.

Re-opening of Burma Road.

From a military viewpoint, the reopening in October 1940 of the Burma Road, one of China's vital supply lines which had been closed by Great Britain in July, was of major importance. Early in July, when there were persistent rumors that Great Britain would comply with Japan's demand for closing of the road, China's most important remaining transportation link with the outside world, Chiang Kai-shek appealed to both Russia and the United States for material aid. Announcement of the closing of the Burma Road by Great Britain for a period of three months was made on July 17 and elicited a formal statement by a Chinese Foreign Office spokesman condemning this concession. He characterized it as 'unfriendly and unlawful,' and emphasized the importance of the road to China in her struggle against Japanese aggression. 'Britain,' he said, 'has given immense benefit to the Japanese aggressor and her actions are thus tantamount to aiding and abetting China's enemy.' The press and public also joined in the general condemnation. It was understood that the promise to close the Burma Road had been made on the definite condition that Japan would consider the possibility of a broad settlement of outstanding Far Eastern questions, including an early and equitable settlement of the Sino-Japanese war, and that in this matter the British had offered their services. It was also understood that Japan, in return for the British concession, had promised to make every effort to arrange peace terms with Chiang Kai-shek.

On Oct. 10, a Chinese Foreign Office spokesman said that during the three months the Burma Road had been closed, which was during the rainy season, it had been greatly improved: roadbeds and tunnels had been made more efficient, and repair shops and workmen's quarters had been modernized to be in readiness for the reopening of the road which Britain had announced would take place on Oct. 17. At midnight on Oct. 17, the first of the 3,000 American-made trucks waiting to leave Lashio in British Burma for Kunming, started on their journey. It was estimated that over 100,000 tons of cargo were waiting to move. With the Japanese already occupying three air bases in northern Indo-China, from where their bombing planes could reach Kunming in an hour and forty-five minutes, it was realized that the road would be subjected to heavy bombardment. On Oct. 19 a number of bridges across the Mekong River near the Burma border were bombed and made temporarily useless. Nevertheless, repairs were immediately made, and despite persistent attacks, trucks have continued to carry supplies over this road to Nationalist China. (See also JAPAN.)

POLITICAL AND ECONOMIC CONDITIONS; FOREIGN RELATIONS

Political Affairs.

Adoption of National Constitution.

Announcement was made in February at Chungking that a National People's Congress, scheduled to meet later in the year, would discuss a definite date for the adoption of a National Constitution. As the People's Council was preparing for its sessions in Chungking, prominent left-wing leaders were arriving from Yennan, the Communist capital of Shensi, to discuss with Chiang Kai-shek the serious difficulties which had arisen between the Kuomintang and so-called 'Communist' groups, and the basis on which future cooperation would be possible. It had become increasingly clear that if effective resistance to Japan were to continue, the differences would have to be settled. Both sides, therefore, were prepared to make compromises. (See above.)

The National People's Council, which began its meetings on April 1, ended its session on April 10. Besides consideration and temporary settlement of some of the differences between the Kuomintang and so-called 'Communist' group, the Council finished its work by approving the final, revised draft of the new Constitution. The Constitution, containing 148 articles, is to be the basis of deliberations when the National Assembly is called. The first chapter, of seven articles, defines the Republic of China as consisting of twenty-eight provinces, including Manchuria, Mongolia and Tibet, and provides that no territorial alterations can be made without the consent of the National People's Congress. The rights and duties of the people are outlined in the second chapter, and the powers and functions of the People's Congress are set forth in the third chapter. The organization and powers of the national government are defined in the fourth chapter, and the fifth outlines a system of local government. The sixth and seventh chapters outline matters of national economic life and education, while chapter eight deals with amendments to the Constitution. Due to a number of reasons the National Assembly which was to consider the adoption of the Constitution did not meet in November as originally planned.

Organization of Secret Societies.

Early in March, a spokesman of China's Secret Societies announced in Chungking that a central governing body had been organized representing these groups, which would from thence on support the Government in its resistance to the Japanese. These Societies, whose activities are carried on underground, have been a powerful influence in China's political and economic life for centuries. They claim to represent twenty million people throughout the country. More than a thousand representatives were present at the banquet given to prominent Chungking officials when the announcement was made.

Establishment of Japanese Puppet Regime of Wang Ching-wei.

Early in January, two prominent supporters of the former Premier, Wang Ching-wei, made public at Hongkong details of an agreement which they stated had been reached between Wang and the Japanese concerning a Japanese-sponsored government to be established at Nanking in the near future, headed by Wang Ching-wei. The political and economic concessions granted to Japan in this supposed agreement resulted in a number of desertions from the Wang camp, and the resentment aroused throughout the country had the effect of strengthening the determination in China to fight on at all costs. Peace terms which Wang Ching-wei offered to the Chungking Nationalist Government at this time on behalf of Japan were rejected.

As the new 'All China' Japanese sponsored regime, headed by Wang Ching-wei, was inaugurated at Nanking on March 30, the president of China, Dr. Lin Sen, in a broadcast from Chungking, bitterly denounced the Wang Ching-wei as a traitor and declared that Chiang Kai-shek would lead the entire nation 'to fight to the end' for China's liberty. He appealed to the world to continue support of the government at Chungking and said China 'would live on despite the Japanese and their puppets.' A huge reward was offered for the arrest and capture of the traitor.

On the day of the inauguration the United States Government issued a statement reaffirming its opposition to 'armed force as an instrument of national policy,' and announced that it would continue to recognize the Chungking Nationalist Government as the legal government of China. At the time of the inaugural ceremonies the American, British, French and Soviet ambassadors were at the Nationalist capital of Chungking and no representative of any foreign government, with the exception of former Premier Abe of Japan, was present at Nanking for Wang's inaugural. Assurances of loyalty to the true Chinese regime at Chungking were forthcoming in a called message of allegiance from the 120,000 residents of the Philippine Islands, and from General Lung Yun, governor of the highly important province of Yuman in China's Southwest. The Nanking regime had repeatedly claimed that General Lung would cooperate with it.

Meanwhile the regime of Wang Ching-wei had ordered the expulsion from Shanghai of six prominent American newspaper men, and in the week of terrorism against both foreign and Chinese journalists which followed, one Chinese newsman was murdered and others were subjected to severe beatings. Finally, the Municipal Council asked the foreign consular body to check 'the present terrible wave of political crime which is destroying all confidence here and ruining Shanghai's reputation throughout the world.'

When announcement was made that Japan would extend formal recognition to the Wang Ching-wei regime on Nov. 30, China's Foreign Minister, Wang Chung-hui, threatened cessation of relations with any foreign power giving formal recognition to it. He said that 'the Nationalist Government . . . has repeatedly declared and desires to reiterate . . . that Wang Ching-wei is an arch traitor of the Republic . . . and the puppet Nanking regime is one whose acts . . . are null and void in respect to all Chinese citizens and all foreign countries. The so-called treaty just signed is totally devoid of legality and has no binding force.'

Peace Proposals.

With the closing of the Burma Road and the cutting off of supplies from the outside world, during the three months from July to October the future outlook for China was dark, and there were some members of the Chungking Government who seemed ready to give serious consideration to the possibility of peace with Japan on the best terms obtainable. Nevertheless, the Government did reject peace proposals offered by Japan on July 29. These proposals were said by foreign observers in close touch with the Chungking regime to be, roughly: (1) outright session by China to Japan of the five provinces of Hopei, Chahar, Shantung, Shansi, and Suiyuan: (2) recognition of Wang Ching-wei as president of a Chinese republic which would include the remaining provinces, plus British Burma, French Indo-China and Thailand (this assumed, of course, a German victory in Europe); (3) decision as to the status of Manchukuo would be indefinitely deferred.

Late in November Japan, wishing to close the China 'incident' and thus be free to pursue her plan of southward expansion, again offered peace terms to China. These were rejected with the statement that peace would be possible only on the 'complete and unconditional withdrawal of Japanese forces from all China.'

Economic Conditions.

Although constant recruiting had taken large numbers of men off the farms, agricultural production in the unoccupied areas was sufficient to support the armies in the field. However, both in North and Central China there were serious food shortages as a result of late autumn crop failures, and in both Peiping and Tientsin there were food riots. In Hopei Province, in which both of these cities are located, inhabitants of 12,000 villages in 82 of the 140 counties were, according to reliable reports from missionaries and travelers, reduced to eating bark, swamp grass and porridge made of weeds and cotton husks.

Despite the tremendous economic dislocation in China, caused by the war, however, two of the resulting problems: scarcity of manufactured products and widespread unemployment, were being solved in some degree, at least, by the Chinese industrial cooperative movement which began in a small way in August 1938. This development of small scale, decentralized industries has proceeded steadily, and by the end of 1940, scattered through unoccupied China there were over 3,000 individual workshops, employing 30,000 worker members and 50,000 hired members, with a total monthly production of $500,000 in United States money worth of manufactured goods. Over 225 different products are made, including clothing, shoes, blankets, medical supplies, soap, candles, porcelain, leather goods, chemical products, machinery and power equipment. More than one half of the workshops are engaged in textile manufacture. Next in order of production are chemical industries, small-scale machine building, mining and food products. There are also cooperative units for the reorganization of transport facilities. With financial aid from the government, loans from Chinese banks and gifts from interested friends abroad the number of these small mobile industries is constantly increasing.

This disruption of China's economic life is still extremely serious, especially in interior China, where during the last year, inflation, hoarding and speculation in staple commodities resulted in very severe hardships to vast numbers of people. In some cases the retail prices of food and clothing rose almost 1,000 per cent from their level in March 1940. Despite these discouraging developments, the recent loans from the United States and Great Britain to stabilize the currency and thus check the inflationary movement, and the further promise of substantial help from the United States to those nations which are fighting aggression, make the outlook for the future seem much brighter. (See also WORLD ECONOMICS.)

Financial Conditions and Loans.

Early in May the head of the Political Affairs Bureau at Chungking asked for support of the Chinese dollar which had depreciated to the lowest value in its history, being quoted at 4 15/16 American cents. In official circles the decline of the dollar was attributed to the drop in the English pound, and the failure of the Stabilization Fund of £10,000,000 established by the British in 1939 to continue support of it. The Chinese also claim, however, that it resulted from the falling off of China's export trade due to the Japanese blockade.

On Sept. 25, the United States made a loan of $25,000,000 to China. As a means of securing the loan, the United States would obtain tungsten from China in order to build up its reserve stock of this material. On Nov. 30, the United States Government announced a further loan of $100,000,000 to Nationalist China, one-half of which was loaned against supplies of wolframite, antimony and tin, and the remainder for stabilization of Chinese currency. This credit brought total American financial aid to China in the past two years up to $186,000,000. Shortly after, on Dec. 10, came an announcement by the British Under Secretary of Foreign Affairs that Britain was granting financial aid to China to the amount of £10,000,000, half of which was in credits to be used in China by countries within the sterling bloc, and the remaining half for currency stabilization. (See also INTERNATIONAL BANKING AND FINANCE.)

Transportation of Supplies.

One of China's chief economic difficulties during 1940 was the problem of transportation of supplies. The closing of the Burma Road had been a serious blow to the country and its reopening in October was a major cause for rejoicing. (See above.)

China had already begun to experience the serious consequences of the loss of the city of Nanking in Kwangsi province, which the Japanese had captured in November 1939. The loss of this city and frequent bombings of the railway from French Indo-China to Yunnan Province were holding up supplies destined for China's fighting forces. By the middle of March, it was estimated that over 150,000 tons of supplies, mostly munitions, had accumulated at the port of Haiphong in Indo-China. Before the bombing of the railway a maximum of 18,000 tons monthly had been reaching Yunnan Province over the railway, but with the destruction of bridges and tracks, only one-fourth of that amount was being received in Interior China in the early months of the year.

By the first of April, French and Chinese engineers had made extensive repairs to the tracks and bridges of the railway from French Indo-China to Yunnan, China's most important communication link with the outside world. The Japanese were at this time bringing pressure on the French authorities to prohibit the transportation of supplies destined for Chiang Kai-shek. So far the French had refused to comply, and gasoline and other critically needed supplies were again beginning to move along the railway.

The collapse of French resistance in Europe in mid-June, however, brought grave concern in China over the fate of French Indo-China, through which ran China's main export route. Fearing a Japanese attack on Indo-China, China's regular forces on the Indo-China border were strengthened. When, on June 20, under pressure from Japan, France was compelled to halt war supplies over the railway, Foreign Minister Wang Chung-hui, denounced the arrangement and pointed out that in the Chinese-French Convention of 1930 France had agreed to the transportation through Indo-China of all kinds of merchandise, including arms and ammunition. On June 23, following the announcement of the new agreement, more than 100,000 tons of Chinese supplies and more than 1,000 trucks were held up at the port of Haiphong.

These difficulties made imperative several changes. The Chinese Ministry of Communications made preparations to reorganize internal transport on the basis of the least possible use of gasoline, using both human and animal carriers. By the middle of August, thousands of pack animals, carts and coolies had been mobilized to transport military supplies inside China. Thousands of coolie-drawn, two wheeled carts were being utilized for moving munitions and other supplies to the fighting fronts. It was estimated that three able-bodied coolies could pull such a cart with a load of 650 pounds on an average of 18 miles a working day over terrain which motor vehicles could not travel.

Foreign Relations.

In September the Chungking Government offered the French authorities in Indo-China military assistance to help repel the threatened Japanese invasion; otherwise, the statement said, China would take independent action. When the French submitted to Japan's ultimatum and gave their consent to 'limited' military operations in the colony the Chinese expressed strong disapproval, and began to prepare for eventualities.

As the Japanese began to push into Indo-China, the United States Government, in order to indicate continuing support of Chungking, announced on Sept. 25 its much needed loan to China of $25,000,000. (See under Financial Conditions and Loans.)

The widespread destruction of life and property caused by the continuous bombing of Chinese cities in the West and Southwest, but especially of Chungking in April, May and June, brought a strong protest from the American Secretary of State, in which it was announced that 'the attitude and the position of the people and Government of the United States towards ruthless bombings of civilian populations have been made abundantly and frequently clear and we wholeheartedly condemn such practices wherever and whenever they occur.' The American ambassador at Tokyo also protested against the threat to American lives and the destruction of American property in Chungking and notified the Japanese Government not only that it would not withdraw its nationals from Chungking, as had been suggested, but that it would hold Japan responsible for injuries. A further action of the President of the United States in adding petroleum products and scrap iron to the list of products for which export licenses would be required, was a source of great comfort to the Chinese at a time when their morale needed strengthening. See also articles on JAPAN, UNITED STATES and WORLD ECONOMICS.

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.