1939: Hong Kong

The outbreak of war in Europe seemed relatively distant from Hong Kong, for war had already been raging around its borders for many months. On Oct. 21, 1938, Japanese forces, after a whirlwind campaign, had entered the neighboring city of Canton. In the succeeding months, fear of a sudden Japanese attack mounted higher in the British Crown colony. The erection of fortifications was hastened, and the land frontier with Kwangtung province placed in a state of defense. The challenge to British authority grew more acute when, in August 1939, the Japanese bombarded and captured the city of Shumchun on the Hong Kong-Canton Railway, interrupted all traffic on the line, and moved their outposts up to the Hong Kong border in order to cut off all direct commerce with South China.

Trade with Canton naturally dropped rapidly after that city fell to Japan, for the invaders soon won complete control over rail and river communications between the two cities. But since the fall of Shanghai, Hong Kong had become China's principal entrepôt, and the traffic continued by other routes. Coastal steamers carried cargo to and from the treaty ports of Swatow, Amoy and Foochow, the Portuguese colony of Macao, and French Kwangchowan. The great China tea market was transferred from Shanghai to Hong Kong. Because of these developments, Hong Kong's exports of merchandise were as high in the first six months of 1939 as in the same period of the record year 1938, while its imports declined by only 12 per cent.

In the summer, however, conditions changed rapidly for the worse. The Japanese blockade was tightened until the treaty ports were cut off; Chinese currency was sharply depreciated; and the Chungkung Government restricted imports. No basic improvement in trade conditions was expected until the conclusion of the China war. The difficulties for exporters were intensified by a decree of Sept. 9, prohibiting shipments from the colony, without special permission, of all metals and ores, hemp, cotton, peanuts, vegetable oils, petroleum products and a number of other commodities. Thus war, in Europe as well as the Orient, dislocated the trade which is the lifeblood of the colony. The mainstay of its prosperity is now the large number of self-supporting Chinese refugees, who in some quarters are estimated to have increased the population by 25 per cent to a figure of well over 1,000,000. Although the influx has been welcomed for economic reasons, it is scarcely a foundation for stable business development.

1938: Hong Kong

During 1938 the fate of this important British colony was bound up more closely than ever with that of the embattled Chinese Republic at whose gateway it stands. The long-standing fear that Japan might carry its war into South China and thus cut off Hong Kong's access to the interior was finally realized. For many months the Japanese discommoded, but did not disrupt communications with the interior, by mercilessly bombing the important city of Canton and the railways linking Kowloon (the mainland portion of the Hong Kong colony) with Canton and Hankow. But in October an expeditionary force captured Canton and cut the railways; and one month later Japanese forces were operating on the very borders of Hong Kong itself.

Under the circumstances it was inevitable that the British should intensify the fortification of Hong Kong, which became legitimate on the expiration of the Washington Naval Treaty at the end of 1936. A $25,000,000 defense program has been enlarged and rushed toward completion. Artillery and machine-gun emplacements have been strengthened and concealed hangars built, while civilians have been recruited for volunteer military and first-aid work which will supplement that of the regular forces. Military roads, trenches and concealed munitions dumps have been constructed; a new anti-aircraft defense system evolved; and a force of six battalions of troops and 300 first-line planes established in the territory. Yet despite these measures. Hong Kong is no longer considered an important strategic outpost of the Empire. In case of a world war in which Britain and Japan were involved, it is generally agreed that the imperial defense line would be withdrawn to Singapore, and that Hong Kong's military importance would be limited to delaying action against an enemy advance. Hence the future of the colony, which contains nearly $100,000,000 in British investments, is far from secure. Even without a war, these investments would be ruined if the Japanese were permanently to cut off Hong Kong's intercourse with the Chinese hinterland.

For the first ten months of the year, however, the Sino-Japanese war brought great benefits to Hong Kong traders. A trend of several decades toward greater use of Shanghai as a Chinese foreign trade center was suddenly reversed when that city fell to the Japanese after severe fighting late in 1937. For 1937 the total visible trade of Hong Kong, excluding gold and silver, was 35 per cent greater in value than in 1936; and in the first half of 1938 there was another increase of 21 per cent over the corresponding period of 1937 (including treasure). Needless to say, a considerable proportion of Hong Kong's trade involved oil, trucks, airplanes and munitions for the Chinese Government forces, shipped to the colony to avoid the Japanese blockade of the Chinese coast. When this trade boom ended as a result of the Japanese occupation of Canton, Hong Kong faced a serious refugee problem. To the 250,000 fugitives who sought shelter under the British flag in the first year of the war, were added scores of thousands of Cantonese. Large expenditures of public funds were made to feed and shelter the overwhelming majority of the refugees who were penniless, but the influx still continued as the year drew to a close.