CO129-565-16 Chinese National Economic Council- proposed establishment of branch office 9-12-1937 - 22-12-1937 — Page 11

2.

[? gp. omtd. ] China would have a free hand.

If an agreement was made Chinese heads of semi-autonomous Government would be appointed by China (presumably with the

approval of Japan).

If no agreement made heads will be appointed by Japan and given a free hand subject to certain guiding

principles laid down by Japan. from Manchukuo which is a "Japanese Colony" and would, it was hoped, develop into a strong Government.

Such a régime would be different

Japan required surrender but if surrender was made now teras

would be better than later on.

Present plan [gp. undec.] Japanese stick to North of Yangtse plus Shanghai area. It was remarked that this would probably give rise to many international complications but it could not be helped. The provisional republic would include Hopei, Chahar and Shansi only. Suiyuan and part of Chahar and possibly part of Shansi would be under another and separate Inner Mongolia

régime.

From conversation it emerged very clearly that as regards North China, viz. the present occupied area Japan was determined on absolute economic advantage and actual if not nominal dominatim but that she would prefer not to interfere with China territorial integrity or existing services or communications.

Integrity of customs would be maintained on equality of Chinese fosting and therefore if an agreement is signed, but

otherwise North China customs revenue would belong to new republic.

Japan would welcome a settlemont but Japanese army could not return without tangible spoils and Japanese people expected results not merely glory.

Should any practicable proposal be suggested Okazaki "would fly over to Japan at once to see Prince Konoye" whilst Calder- Marshal gathercd, he felt disinclined to leave matters in the hands of military Commanders.

(Ends).

Okazaki said he hardly anticipated Chinese would agree to surrender but that less than that could hardly be demanded.

Addressed to Foreign Office telcgram No. 743 of December 17th; repeated to Peking and Tokyo.