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the coolie remains the principal beast of burden. Immense quantities of materials of all kinds are transported in this way, including a great deal of salt from the wells at Tseluchin. Along most of the roads and the old tracks almost unending lines of coolies carrying every kind of article can be seen. These methods of transport, however, call for no particular comment, except to remark that they are most uneconomic in man-power so far as the coolie carriers are concerned. In the north-west camel and donkey caravans are the predominant form of transport, and these deal with practically the whole of the import and export trade, since the problem of gasoline supplies makes the use of motor lorries almost impossible.
Gasoline Supplies.
81. The main fuel used for motor trucks is gasoline, though a beginning has been made with substitutes, both along the lines of alternative liquid fuels and producer gas. Major MacDonald, who was recently in China, gave a great deal of assistance on the latter subject, and experimental lorries are already in operation, though difficulties are being encountered in the conversion of petrol lorries owing to the problems raised by steep gradients and high altitudes. We witnessed a test with one such lorry at Kunming and the result seemed hopeful.
82. So far as liquid fuel alternatives are concerned, apart from an experimental plant which is successfully cracking rape seed oil and producing about 100 tons of petrol a month, the main effort has been with alcohol production. I attach a copy of a note(") that I submitted to the Generalissimo on this matter which has been accepted as the basis of a plan, though how far it will be carried into operation remains to be seen. If it is put into operation it will very much ease the situation as regards gasoline supplies and, combined with the use of producer gas and the substitution of hand trucks for motor trucks where possible, it will enable the demand for gasoline to be reduced to a point where additional transport facilities will be available for vital commodities. The strictest economy is practised with gasoline and joy-riding of all kinds is prohibited. To show the extent to which this is carried, I may cite the instance of the wife of the War Minister, who was recently seen driving a car in Chungking, when she was stopped and sent home by a policeman and forbidden to drive a car again, the policeman being promoted next morning for his action. There is, however, still a good deal of
scope for economy
in the better and more scientific driving of the trucks and organisation of the transport services. The former point is being dealt with by the setting up of large schools for truck drivers, and the latter by putting the Americans in charge of the transport on the Yunnan-Burma highway. It would seem that this is pre-eminently a task which should have been carried out under British auspices, but, unfortunately, there are no suitable British advisers or technicians in China for such a task.
83. The most important long-term development, however, is the sinking of oil wells in Western China. The location and extent of these is, of course, highly confidential. The Sinkiang development is dealt with in that section of this report. Other developments are, first, a short distance to the west of Suchow, where ten wells have been sunk and a small experimental refinery is being set up by the Central Government. The oil is pumped from a depth of only 70 feet and is of a quality capable of yielding 20 per cent. of petrol direct, or, with cracking, 25 per cent. It will be a long time before any material quantity of petrol will be available from this source. It is said that the oil appears in pockets only, and that the quantity available is most uncertain. Secondly, it is alleged that some small development has taken place in the area of the Border Government, but, though it is certain that oil has been located there, I could obtain no details of any development that is taking place.
84. The critical question as regards the maintenance of road transport and its contribution to Chinese resistance is, therefore, at the present moment gasoline supplies. While the Haiphong Railway was cut, and at any time that it is out of action, the position is apt to become very critical. Various possibilities given above of relieving the situation are in view, and an exploration is being made of possible alternative routes for import, e.g., the Red River route from the south. The probability is that, by one or other of these methods or by all of them in combination, a sufficiency of motor transport will be able to be maintained,
(*) Not printed.
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though there may be difficult periods before the full solution of the problem is achieved. There is one other factor which deserves mention. A steady flow of gasoline has been coming in from the ports of the east coast through Japanese- occupied territory by means of small quantities carried by coolies or brought in wheelbarrows or trucks. It is estimated that last year by these means more than a million gallons of gasoline were provided.
85. In my opinion we should do all in our power to assist in this transport difficulty by giving every possible facility for transport to China through Burma. If there is any political difficulty in arranging for the construction of the railway from Lashio to the Chinese border, I suggest that this should be done through a private company, which can have a running agreement with the Burmese and Chinese railways and for which the Chinese Government is prepared to provide some form of guarantee. A comparatively small sum of money is required, as the construction is not estimated to cost more than £1,750,000. It ought not to be difficult to arrange some suitable form for the provision of the finance. I can imagine no more profitable investment for Great Britain than to undertake this work now, with a view to the return in gratitude from the Chinese hereafter and the consequent generous participation in the reconstruction of China, particularly in the west. I should mention one other aspect of the transport question, and that is the very large quantity of goods which still find their way out of those parts of China which are behind the Japanese lines through east coast ports which are either occupied or blockaded by the Japanese. The Japanese military and naval officers are prepared to allow these goods through upon payment of squeeze," and are making a very good thing out of it. For instance, this year the entire Chinese tea crop is finding its way to Hong Kong by these means, and payments of 40 per cent. of its value is the "" "that has been arranged.
squeeze
C
It is said that the reason for sinking junks which are finding their way to Hong Kong is their failure to pay the appropriate squeeze." This continued possibility of export by means much more economical than the transport by hand through the west has a great effect upon the finances of the Chinese Government and enables them to maintain their volume of imports with less difficulty.
86. So far as all methods of transport are concerned, there is a lack of co-ordination and organisation, though something may be done to remedy this in some directions shortly. There is also unfortunately more than a suspicion that a good deal of corruption is rife in this sphere of activity. This is especially the case with regard to railway transport from Haiphong, where it is alleged I think rightly that the Chinese in control at Haiphong have "sold' space to private traders which was allocated to Government transport. I drew the Generalissimo's attention to this, and he promised to have it investigated, and I understand that this has been done, though I have not heard the results. Unfortunately, one of the Soong brothers is the person responsible, and this may make it difficult to get the conditions remedied; I put up a note on this point to the Generalissimo, of which I attach a copy.(*) It is to be hoped that this and other irregularities will be remedied, but I am afraid that it will not be done in the near future unless a planning and advisory committee is set up on the lines I suggested (see "Foreign Relations" section).
87.
Economic Reconstruction.
It was to this head and the previous one of transport that I devoted a great deal of my time. I not only saw the principal officials concerned, but also visited a large number of factories of all kinds, and saw all that I could of the handicrafts, co-operatives and agricultural institutions. It is absolutely necessary, in this relation, to realise that the new China is not the old China. and that the present, and any future, Government of China will insist on being master in its own economic affairs. While foreign capital and investment will be welcomed, the Government will not allow the investment of capital to amount to the granting of monopolies to foreigners or the exploitation of the Chinese people by foreign interests. They will accept the co-operation, gladly, but not dictation or exploitation as in former times. Rules have now been laid down as to the investment of foreign capital in Chinese concerns, and these will be adhered to strictly except in very special cases when they might possibly be very partially relaxed. A copy of the substance of these rules is attached.(") The view taken by the Chinese Government is that they are anxious to encourage
(*) Not printed.
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