59
2
organised, and they have remarkable facilities for transferring remittances from one end of the country to another. A suspension of the facilities provided by the Hong Kong and Shanghai Bank at Hankow could not have any permanent effect. If it took place and was expected to continue for some time, a whole set of forces would be immediately put into operation which would proceed to right the situation. It would probably be some months, however, before trade could adjust itself to the new conditions.
Thus the closing of the banks, viewed as an instrument of financial pressure, can be no more than a transitory measure. Its effects, although considerable at first, must gradually weaken.
6. If the other non-Chinese banks (e.g., the Japanese) participated, it would make a difference, but it would be extremely difficult to get a joint stoppage observed. The Japanese Government would no doubt act in perfect good faith, but they could not command good faith from all their nationals.
Even if all nationalities combined effectively to impose a financial blockade on the entire Valley of the Yangtse, trade would in course of time find other channels, though, no doubt, at serious cost. The main silver reserves of the country are at Shanghai, but the Chinese banks could manage by means of their highly- developed organisation to prevent serious effects resulting from their reserves. being cut off, assuming this to be possible, until they could re-establish them.
7. Among the Chinese the main pressure would be on the merchant class. They are probably opposed to violence and not unfavourable to ourselves. But they have shown themselves very timid in face of the subversive propaganda of recent times, and probably could not be relied on to offer any effective resistance to the Nationalist movement. The Chinese monied classes may be assumed to view with sympathy the desire of their fellow-countrymen to secure a more independent footing for their country.
8. Our conclusion, therefore, is that the financial pressure which would result from closing the banks, though to some extent effective for the time being, would diminish with the passage of time and cannot be relied upon as a permanent means of affecting Cantonese policy. Incidentally, the loss to British commercial and financial interests would be severe. Not only would export and import trade be interfered with, but the Customs revenues, which are assigned to the secured loans, would be adversely affected.
9.
II. ECONOMIC PRESSURE.
We turn now to the second question before us, namely, whether it is possible by economic measures against South China to bring such pressure to bear on the Nationalist Government of the South as will hinder their activities against the British to an extent which with compel them, in due course, to prefer negotiation to violence—whether organised or carried out by the mob.
10.
In considering this question, it may be advisable to refer to proposals which have been made in the past for the institution of a blockade or measures akin thereto to certain parts of China. Two documents are attached as Appendices Nos. I and II to this report, which throw light upon the problem of applying this means of coercion to China as a whole. The first, a letter from the Foreign Office to the Colonial Office, dated the 11th March, 1926,* deals with the legal aspect of the question, with special reference to the blockade of Canton as a means of bringing the Canton boycott to an end; it may be taken as applying equally to the case of Hankow or to that of China as a whole, except in so far as it treats of special action to be taken at Hong Kong. The second, a minute by Mr. Stark Toller of the Far Eastern Department, Foreign Office, † discusses a proposal made by His Majesty's Consul at Chungking in October last for a blockade of the province of Szechuan as a means of bringing about a satisfactory settlement of the Wanhsien incident: deals with the practical aspect of the problem.
11.
The Foreign Office letter of the 11th March, which is based upon a minute by Mr. Malkin, second Legal Adviser to the Foreign Office, discusses three possible
These are:-
courses.
(a.) The interception at Hong Kong by the colonial authorities of all cargo for
Canton and the refusal of entry to all cargo from Canton.
This, though legally defensible, was considered quite ineffective as a means of damaging the trade of Canton.
Appendix No. 1.
Appendix No. II.
(b.) An agreement between the Powers to prevent their nationals and national
ships from trading with Canton.
Such an agreement would be difficult to secure and the Governments concerned might be unable to take the requisite powers, even though they wished to do so. The weakness of this course is that trade would fall into the hands of Powers not party to the agreement.
(c.) A Pacific Blockade.
There would be no difficulty in dealing with the ships of Powers participating in the blockade. Further, a case could be made out for stopping Chinese ships, because it would be difficult for the Chinese Government to make an effective protest against steps taken to prevent violation by the Cantonese authorities of treaties to which China is a party. China might, of course, appeal to the League of Nations, and though such an appeal might not be well-founded it ought not lightly to be provoked. The real difficulty would arise, however, if an attempt were made to interfere with the trade of States not participating in the blockade, such as Russia or the United States.
Mr. Toller's minute* requires no comment.
12.
Pacific Blockade.
In war
13.
A blockade in the true sense of the word implies a state of war. the blockading Power has the double advantage, first, that it can exercise other warlike means of pressure above and beyond the blockade, and, secondly, that, in virtue of rights enjoyed as a belligerent, it can make its blockade more or less completely effective. We are not, however. at present at war with China (though the implications of such a contingency are examined later in this Report). Any blockade instituted now would, therefore, be in the nature of a Pacific Blockade. Such a blockade must be the less effective in that the blockading Power or Powers must rely on this weapon alone and enjoy no rights as against the Powers not participating in the blockade.
14. It may be taken as axiomatic that the first condition for the success of such a blockade, if success is at all possible, is that all, or almost all, Maritime Powers trading with China should participate in it. It is true that on the rivers almost all the trade is in the hands of the British and Japanese, and if the Japanese and British agree in forcing a Pacific Blockade in the rivers, the greater part of the trade as it now exists could be stopped. On the other hand, there are numbers of river craft belonging to other nations which would, in such circumstances, be free to carry on their business. Moreover, it is very doubtful whether the Americans, for instance, would agree to allow their goods carried in Chinese or other bottoms to be held up. These difficulties, of course, would be greatly accentuated if it were attempted to establish a Pacific Blockade of the whole Chinese coast.
15. Assuming for the sake of argument such blockade to be complete or fairly complete, the following considerations arise:-
(a.) China is self-supporting and the bulk of its population is well accustomed to hardship. Foreign trade does not seriously concern the vast majority of the population and its suspension would not greatly affect that population.
(6.) China is already suffering grave economic damage as a result of civil war, banditry and disturbed conditions generally, yet the economic life of the country is not thrown out of gear, and such conditions could probably be endured almost indefinitely. A blockade by the Powers would probably not appreciably alter the situation so far as the general Chinese population is concerned. Such hardship as it caused would probably fall more heavily on the foreign communities of the larger treaty ports, who have hitherto to some extent been protected from the more severe economic consequences of the present unrest in China. Even if important sections of the Chinese community, such as the merchant class, suffered severely, they would, if our past experience is any guide, be quite unable to bring any decisive influence to bear upon the rulers or ruling clique responsible for provoking the blockade.
[15668]
*
Appendix No. II.
B 2
60