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27. In the spring of 1938 guerilla bands from China entered Jehol and for a time caused trouble on the borders of Hopei, and in various parts of the country the withdrawal of troops for service elsewhere encouraged bandits to resume a measure of activity. But though isolated raids occurred, it was noticeable that the usual bandit activity when the kaoliang stalks are at their height in late summer was less in evidence than formerly.

28. There are frequent rumours of disloyalty in the Manchurian army which it is impossible to sift. In June there was talk of a large-scale mutiny at Fengning in West Jehol, but, if it occurred, it was hushed up very successfully, as missionaries residing at Chengteh close by heard nothing of it. The army, the size of which is not known, is employed in anti-bandit operations, a task in which it appears to be successful, but it is doubtful if it could safely be employed against Chinese troops.

V.--FOREIGN RELATIONS.

(1) Diplomacy.

29. Manchukuo has now been recognised by Italy, Germany, Nationalist Spain, the Papal See and San Salvador. Poland has on her own initiative arranged for the official appointment of consuls by each in the other's country. Moreover, Manchukuo has herself had the satisfaction of extending recognition to the newly-formed Administrations in China. It is natural that these events should have added enormously to the confidence of the Manchukuo Government.

30. It would be a great mistake to suppose that because Japanese hold the reins of government they themselves regard Manchukuo as nothing more than an appanage of Japan. They not only talk, but act exactly as though Manchukuo were in fact as well as in name an independent State, and they give the impression of taking pride in its progress. It is true that Manchukuo toes the line with alacrity, but her officials insist on the forms of equality being observed. They contest matters of detail and any tendency to absolute dictation by the Civil Government in Japan is resented.

(2) Non-recognising Powers.

31. As already mentioned, there is a definite movement in favour of an active policy towards non-recognising Powers. There appear to be two schools of thought. What may be termed the aggressive school maintain that since the Governments of Great Britain, France and the United States refuse to have anything to do with the Government of Manchukuo, the latter should retaliate in kind and decline to recognise these Governments. Their nationals are welcome. to come to Manchukuo if they submit to the laws of the country, but they cannot claim protection from their home Governments. This would involve the cessation of the formal representation they at present enjoy through their consuls. Hints are thrown out that, if necessary, active retaliatory measures should be undertaken.

32. The more moderate school maintain that it is better to wait. There is nothing to be gained by quarrelling so long as there is a hope that the three Powers (and others that may be awaiting a lead from them) will see the light. Only force the issue when it is apparent that peaceful tactics have failed.

33. The moderate school is represented by the Foreign Office; the aggressive school by various Ministries. The former seems to be fighting a losing battle, and this because it cannot point to any proof that the three Governments have any intention whatsoever of altering their stand. The aggressive school demands facts and not theories.

34. It is partly accidental and partly intentional that chief attention should be directed towards Great Britain. It has been my aim to smooth the way as far as may be possible for the British trader and the British missionary striving to carry on under the difficult circumstances in which they are situated. It would be out of place to enter into details there, though I may perhaps be allowed to say that my efforts have been more successful than at first seemed

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