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XV. NARCOTICS.

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30. In February the Kwantung Opium Ordinance and regulations for its enforcement were revised, the principal change being the transference of the manufacture of prepared opium from licensed retailers to the Monopoly Bureau. The local press claimed that the changes were epoch making" and that the Territory was "justly famous" for its opium control system. In fact, the changes amounted to little more than window dressing for the benefit of Geneva, since it is a matter of common knowledge that no serious attempt is made to enforce the regulations, and that police officials are prepared, for a small consideration, to grant smokers' permits without medical certificates, while retailers sell both raw and prepared opium to persons not provided with permits.

XVI. NEW LEGISLATION.

31. As in 1937 all the important new ordinances promulgated during the year have been of a financial nature. Amendments to and extensions of the exchange control regulations have been closely parallel to those enacted in Manchukuo, and on the 1st April the "Kwantung Province China Incident Special Taxation Ordinance" came into force. By this ordinance income tax rates were increased, and taxes were imposed on dividends, interest on public loans, on travel, on entrance fees, and on an extended list of commodities. These taxes are the same as those applicable throughout Japanese Territory and are in theory to be withdrawn after the termination of the China incident. In April a land tax was imposed, and in October a house rent tax: these also are under- stood to be the same as in Japan.

XVII-SHIPPING CONDITIONS.

32. In the course of the year the stocks of British owned cargo over-carried to Dairen in August 1937 were finally liquidated. Owing to the priority imposed by the military authorities upon the wharf facilities and railways, congestion in Dairen harbour remains acute. In consequence there has been a diminution in the number of calls by British vessels on regular schedules, but, at the same time, there have been continuous calls by British vessels under time charter to Japanese interests. No concrete evidence of discrimination against British shipping has been found, but the attitude of the port authorities has been the reverse of helpful.

33. Mr. George L. Shaw of Antung has been obliged to abandon his losing fight to continue his participation in the coolie passenger traffic between Chefoo and Dairen, and has removed his interests to Foochow. On the 24th June two of his launches, of British registry, which were being sent from Antung to Foochow via Chefoo, were arrested by a Manchukuo gunboat on the absurd suspicion of smuggling (although they had only cleared a few hours earlier from Antung) and were forced to proceed to Dairen, where they were searched, without result. The Dairen Water Police professed to have had no previous knowledge of the matter, and maintained that the vessels were not being compulsorily detained in this port. After waiting some days for favourable weather the launches cleared for Chefoo on the 7th July without interference.

Dairen, December 23, 1938.

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