Soviet-Japanese Relations Still Hanging Fire

Institute of Pacific Relations

Soviet-Japanese Relations Still Hanging FireAuthor(s): Kathleen BarnesSource: Far Eastern Survey, Vol. 8, No. 1 (Jan. 5, 1939), pp. 1-5Published by: Institute of Pacific RelationsStable URL: http://www.jstor.org/stable/3023009 .

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FAR EASTERN SURVEY

FORTNIGHTLY RESEARCH SERVICE

Vol. VIII ? No. 1 Russell G. Shiman, editor January 5, 1939

American Council Institute of Pacific Relations

129 East 52nd Street New York

Annual Subscription, $2.50 Single Copies, 25 cents

CONTENTS

Soviet-Japanese Relations Still Hanging Fire . . 1

New American Credits to China Have Wide Implications.5

Currency Inflation in Occupied China.7

Japan, Weakened, Still Pushes Trade in Latin America.8

Manchoukuo Restricts Entry of Chinese to Seasonal Laborers.9

Oil Search in Papua and New Guinea Enters New Phase.10

Committee Report Adds Safeguards for Philippine Bonds.11

SOVIET-JAPANESE RELATIONS STILL HANGING FIRE

Kathleen Barnes

Soviet Far Eastern relations are centered, as we go to

press, around the customary feature of the year's end, the fisheries' agreement with Japan. This is in line with the general cycle. During the last year and a half,

observers of the shifting panorama of Old Peren- the Far East have had no trouble in nials Return recognizing all the old-timers in Soviet-

Japanese friction. The only difference is that the old points of friction have been thrown into bolder relief by the conflagration to the south.

In the East and in the West, crisis succeeds crisis with increasing speed; the path of international rela? tions has become so studded with milestones as to resemble a graveyard. Among the many markers, how?

ever, there are a few which crystallize trends, and which serve as focal points for the relating of nations and

policies. Such must be considered the Sino-Japanese War, heightening as it has the significance of every hap- pening in that part of the world. It is the touchstone for any Far Eastern analysis. More recently Munich has constituted an even more potent catalyzer for the world at large.

What has been the course of Soviet Far Eastern affairs since the fighting began on the Marco Polo

bridge in July 1937? Have there been momentous

changes of policy regarding internal development or

foreign relations? The answer would seem to be that there has been no change, and that the course of exter- nal events has followed the previous outline with a

regularity which would be almost monotonous were not each move representative of a situation charged with

danger. Internally, all activities are colored by the Soviet

realization that the time may come when the U.S.S.R. will play a leading role in another grim struggle. In the Far Eastern Region, whose position on the border of Manchoukuo has made it of great significance strategically, the inhabitants have been conditioned to the word defense. Population growth has been stimu- lated by the offering of various economic privileges such as tax redemptions and loans to agricultural resi? dents. An important aspect has been the settlement of men who have completed their term of service in the Red Army.

Detailed descriptions of the economic development in this area have appeared frequently in these pages.

The Region is rich in resources which War Possi- have been increased by scientific ex-

bility Colors ploration; those known are being pro- Developments gressively utilized. Sakhalin oil has

been exploited to the extent of around

2,400,000 barrels a year, according to 1937 figures;

? 1



Soviet-Japanese Relations Still Hanging Fire January 5

traces of petroleum have been found on Kamchatka and on the mainland; and a cracking plant has been

put into operation at Khabarovsk. The fish industry has been developed; fish from Far Eastern waters have constituted in the past five years from 21 to 29% of the total Union catch. Products of the timber industry, formerly to a large degree exported, are now directed

mainly to internal uses. Though suitable iron reserves are still being sought, a metallurgical center is planned for the Region, utilizing the coal base in the Bureia beds. Machine shops, ship-building yards, units for

producing construction materials, food and clothing industries, fuel for local consumption, all have been

developed. The aim in industry as in agriculture has been to increase local self-sufficiency. To be sure, this

building of a rounded regional economy has not been a

peculiarity of the Soviet Far East. It is believed, how?

ever, that it has been supplemented in this district by the storage of reserve supplies of food and other essen- tials to counterbalance transport difficulties in case of war.

Another distinguishing feature of the Region's devel?

opment has been the stress laid on enlarging and im-

proving transport facilities. The double-tracking of the Trans-Siberian Railway has constituted the building of virtually a new line, sometimes at a considerable distance from the old track. The Baikal-Amur Magis- tral, running north of Lake Baikal across the Region to the Okhotsk Sea, is at an unknown stage of construc? tion as work on the line has been shrouded in strategic silence. River and ocean transport have been advanced and stress has been laid on the development of port facilities. The most spectacular progress in this field has been the linking of the Far East with the European part of the Union by the opening of the Northern Sea Route. The nature of this route, however, looks more to long-term economic measures than to an emergency situation. Highways have been built and airplane trans?

port has been pushed; a regular air service between Vladivostok and Moscow was scheduled to begin in December 1938.

In November of the same year the Far Eastern

Region ceased to exist as an administrative unit, through its division into the Khabar-

Administra- ovsk and the Primore Regions. The tive Units former takes in the majority of the old

Split territory, including Sakhalin and Kam?

chatka, while the Primore Region is confined to the long coastal strip running from Vladiv? ostok to the Gulf of Tartary. This splitting into smaller units is in line with the procedure throughout the Union as economic planning has become more

complex. In this case it has also followed the division of the Special Far Eastern Red Banner Army into two

independent sections. The First Separate Red Banner

Army has headquarters near Vladivostok, and the See-

ond at Khabarovsk. This division may well have been motivated by considerations of strategy.

The size and nature of the Soviet military measures in the Far East are inevitably matters of conjecture. Estimates of the regular army forces located there

range from 250,000 to 500,000 men. Cement fortifica- tions are said to stud the frontier. Airplanes are supposed to be numbered in four figures. The naval forces are believed to feature submarines. The Army was seen in action apparently with full mechanized equipment at Changkufeng last August.

Frontier incidents on the Soviet-Manchoukuo border

began in 1933. By 1937 they were estimated to have numbered over 300. They had also been

Over 300 virulent several times on the frontier Border between Manchoukuo and the Mon- Incidents golian People's Republic, although

these had diminished significantly fol?

lowing the publication of the Mutual Assistance Pact between the Soviet Union and Outer Mongolia. On the Manchoukuo border, agreement in principle regarding frontier commissions, one to adjudicate disputes and one to redemarcate a section of the border, was reached in 1936. The commissions never materialized, how?

ever, due to disagreement on composition, with the Soviet Union standing out for representation equal to that of Manchoukuo and Japan combined, and Japan desiring tripartite commissions.

In the summer of 1937, there occurred a large-scale incident over some sand-bars in the Amur River which had been occupied by the Soviets but which Manchou? kuo also claimed. The incident finally resulted in an

agreement to return to the status quo ante. A few weeks later, the Sino-Japanese war broke out, and from then until July 1938 there was little mention of border affrays.

Changkufeng is still sufficiently fresh to need little

recapitulation. Beginning as an incident over Soviet defense construction on what the Japa-

Changkufeng nese claimed was Manchoukuo terri- a Major tory, it rapidly led to large-scale fight- Battle ing. This was no shifting river sand-

bar, but a strategic height overlooking Possiet Bay, and full-strength military equipment was called into play before a truce was finally framed. In

establishing a commission to investigate the dispute, the composition agreed upon was one Japanese, one Manchoukuoan and two Soviet representatives?the Soviet proposal, without, however, the neutral partici- pation also advocated by the U.S.S.R. Latest reports indicate that Soviet construction is still continuing on the hill. The legality of the Soviet claim to the height, moreover, seems not open to doubt.

While the Changkufeng fighting was in progress, it seemed for a time as though the innumerable incidents of friction between Japan and the Soviet Union had at



1939 Soviet-Japanese Relations Still Hanging Fire

long last developed into war. For years every point of contact between the U.S.S.R. and Japan and Manchou? kuo has been giving off sparks at one time or the other, and in 1937-38 there had been a wide ramification of friction. Parcel post service had been discontinued

following retention of a Soviet mail plane which had made a forced landing on Manchoukuo territory. A

Japanese military plane had come down on Soviet soil and had been held. The Soviets in their general move toward reducing foreign consulates on their territory had selected the Japanese as the first to be closed. Soviet fishing vessels were being detained by the Japa? nese, and Japanese subjects were held by the Soviets in reprisal. Several Japanese vessels were being held, and so was a Soviet river cutter. The Soviets charge torture and maltreatment of the crews of the detained vessels. The Japanese charge persecution of their na- tionals in the U.S.S.R. and the obstruction of business. Rail connection between Manchoukuo and the U.S.S.R. was broken at Pogranichnaia, near Vladivostok, early in 1937.

The coal and oil concessions which the Japanese hold from the Soviets on the northern half of Sakhalin have

attracted little general attention in Friction the past as a source of friction. The on Oil main point of interest has been the Concession attempts by the Japanese to secure an

extension of their eleven-year conces? sion for prospecting oil; the exploiting concessions were for 45 years. In 1936 they were successful in obtaining a five-year extension, and formulated plans for inten- sive work. Trouble on the concessions came into the

limelight in 1937, when the Japanese were reported to have discharged several thousands of Soviet employees claiming that they were obliged to curtail operations due to obstructions created by the Soviets. The latter, on the other hand, maintained that if the Japanese kept within the law, particularly that regarding labor, they would have no trouble, and that this was an excuse for a curtailment which was really necessitated by finan? cial and shipping difficulties. The Soviets also protested the limitation of output as contrary to the concession

agreement and as depriving them of rent, since the latter is paid on the royalty basis.

While the Japanese press continues to carry stories

concerning the difficulties of operation, the present status of affairs and the degree of curtailment is not

open to exact determination. Judging by an exchange of notes last spring, questions concerning the Sakhalin concessions are now up for discussion between the two

powers. The president of the oil company went to Sakhalin this summer seeking settlement of the dis-

putes, and apparently the concession was being worked. A later report indicates that no progress in settlement was achieved, and that the company is asking the

Japanese Government for financial assistance, claiming

that due to the "anomalous Soviet-Japanese diplomatic relations" it was unable to operate on a paying basis. These concessions, like the fishing arrangements, have

provided excuse for some saber-rattling. Even an old matter of dispute, the Chinese Eastern

Railway, presumably removed from the tapis in 1935, has provided expression for the funda-

C. E. R. mental lack of harmony. In the spring Re-emerges of 1936 and again in January 1937

there was trouble over the pensions to the former Soviet employees of the line. It was only after considerable protest by the Soviet Union that Manchoukuo made the payments provided in the terms of the sale agreement. In March 1938, Manchoukuo refused to honor the Treasury bonds given to the U.S.S.R. in 1935 for the final cash payment on the line, making a counter-claim to the Soviet Union for com? mercial debts to the railway. The Soviet Union's pro? test that the Manchoukuo payments were supposed by the sale agreement to be made regardless of any subse-

quent charges, and that these counterclaims were in

any case something previously unmentioned, as well as its appeals to Japan as guarantor of Manchoukuo's sale payments, have so far been unavailing.

The rail payment has recently been linked with the most constant source of irritation, the fisheries, which had constituted the first Soviet-Japanese dispute to reflect the new period of acrimony following the signing of the German-Japanese Pact. The preceding months of 1936 had brought a low in friction-provoking inci? dents and were about to culminate in a new fisheries

agreement to replace that of 1928, by then expired. The

signing of the anti-Comintern Pact forestalled the Soviet signature to the fisheries agreement, however, and, since then, the arrangement by which Japan exer- cises its rights to fish in Soviet waters has been on a hand-to-mouth basis of yearly extensions of the old contract.

Additional complications arose at the end of 1938, when the Soviets signified that while they were willing

to extend the working arrangement for

Fishing yet another year, forty of the fishing Rights Still lots would be closed for strategic rea- Unsettled sons. In conversations on the subject,

Mr. Litvinov made reference to the

unpaid installment on the Chinese Eastern Railway, to the Anti-Comintern Pact, to the reported anti-Soviet Alliance between Germany, Italy and Japan, and more? over charged Japan with having herself violated the Portsmouth Treaty. This latter point may have future

implications, as a Japanese violation might possibly be held to invalidate the fishing rights, resting as they do on the same 1905 document, specifically recognized as still in force in the 1925 Soviet-Japanese treaty. At

present, however, the Soviets show no sign of denying Japan's rights to fish, although maintaining that the



Soviet-Japanese Relations Still Hanging Fire January 5

manner in which the right is exercised is open to determination.

As primarily a source of export goods, the Kam- chatka fisheries are of peculiar significance at the moment for Japanese economy. Japan is anxious to secure even a one-year extension without the elimina- tion of any fishing lots, although the signing of a new

agreement would be preferred. On the basis of past experience it seems likely that some modus operandi will be worked out.

As we have already pointed out, there is nothing new in these incidents. We are now entering the eighth year

in which similar ones have been a cus-

Disputes tomary part of the Far Eastern scene. Reflect Now as formerly each one of itself

Deeper seems of not too great significance. Clashes Now as formerly each is but a reflec-

tion of the underlying situation ? a situation which is compounded of a great deal more than a conflict of ideologies. At times during these seven years, tension has slackened, so much so at one time that Mr. Litvinov declared it might be possible if the favorable trend continued to discuss demilitariza- tion of the border. Since the signing of the German-

Japanese Pact, however, there has been no such relaxa- tion. A stiffening of the Soviet attitude was at once discernible. As the fisheries question has evidenced, the U.S.S.R. has attempted to make plain to Japan the economic disadvantage of an unfriendly act, and has

clearly illustrated its disbelief in a policy of "appease- ment."

The Sino-Japanese hostilities in no way changed the

general picture. While it stressed the southerly direc? tion of Japan's advance on the Asiatic continent, it did not lead to any slackening of vigilance on the Soviet frontier. The one noticeable change in Soviet-Japanese relations, the drop in Soviet trade with its eastern

neighbor, had had its forerunner. During 1937 the marked decline of the formerly large exports of Soviet

pig-iron to Japan had been the occasion of comment by observers quick to note evidence of strain. Comparing the trade during the first eight months of 1938 with that of the similar period of the preceding year, Soviet

exports to Japan are seen to be reduced from more than eight million rubles to less than four hundred thousand. Imports have been cut in half, from thirty to fifteen million rubles. It should be noted, however, that the imports up to March of 1938 included merchandise

payments on the C.E.R., while the exports presumably contain the products of the Sakhalin concessions.

A reduction in trade with Japan was a logical devel?

opment from the non-aggression pact which China and the Soviet Union signed soon after the outbreak of the

war, containing as it does a clause pledging either na? tion to refrain from rendering aid to any third power attacking the other party to the agreement. Of the con-

crete aid that the Soviet Union has given to China, little is known except the geographical difficulties of

making overland shipments. On the Aid to China Sinkiang route, the Soviet-Turksib Limited railway runs one hundred miles from

the frontier, and from there to railhead there is a haul of more than two thousand miles through territory where a gas-station would be a mirage. There

is, also, the route through Outer Mongolia, swinging west of Kalgan, which again is without benefit of rail-

road; even the line from the Trans-Siberian to the

Mongolian border is not yet finished according to the most recent reports. That military equipment has been

supplied to China by the Soviet Union is known. The

amount, while exact information is unobtainable, is believed to be less, however, than that which has come from other powers.

Internationally, the Soviet Union, as was to be ex?

pected from its earlier policy, has been an advocate of collective action against Japan as the aggressor. As re?

cently as last October, Litvinov at Geneva deplored the

League action of putting the application of sanctions

against Japan on a permissive rather than a mandatory basis. Even before Munich, however, the Soviets had little belief in the likelihood of joint economic pressure as long as the present government policy continues in Britain. In the absence of collective action, they will

undoubtedly continue to cut down on their own trade with Japan and to render aid to China, for both of which they have the blessing of the League.

There is much over-subtle discussion of the Soviet Union's position in relation to the Sino-Japanese war

which cannot be reviewed here. The War Still absence of a large Soviet "economic Averted stake" in the Orient was discussed in

the Far Eastern Survey nearly three

years ago, and the U.S.S.R. would seem still to be clear of such entanglements. Again the Japanese-Soviet war has been expected, almost momentarily, at least since

1933, but the most the world has so far seen has been frontier incidents and one large-scale clash.

The Sino-Japanese war has not meant an improve- ment of Japanese-Soviet relations. In fact it may be said to have provided additional possibilities of fric? tion ; witness Japanese comment on the Soviet-Chinese Pact and protests on Soviet aid to China. If the Munich

arrangement represented an isolation of the U.S.S.R. on the part of the European governments?and the recent Soviet-Polish agreement signifies that this is at least not complete?it has not apparently altered the Soviet attitude in the Far East as the present fisheries con-

tretemps amply demonstrate. The most that can be said now is that Soviet-Japanese relations are on the same dangerous periphery as the relations of several other equally powerful states. Here in the Far East the older points of economic friction could easily be settled



1939 New American Credits to China Have Wide Implications

peacefully once and for all. If war comes between

Japan and the Soviet Union it will be on much broader issues than these?regardless of the pretext.

PRINCIPAL SOURCES: Pravda (in Russian) ; Izvestiia (in Russian) ; Industriia (in Russian) ; Tikhookeanskaia Zvezda (in Russian) ; Japan Times; Japan Chronicle; Trans-Pacific; Contemporary Manchuria; Tokyo Gazette; Statistics of Foreign Trade of the U.S.S.R. (in Russian) ; World Economics and World Politics (in Russian) ; Pacific Ocean (in Russian) ; V. A. Yakhontoff, "Russia and the Soviet Union in the Far East," New York, 1931; Japan Yearbook; Christian Science Monitor.

RELATED ARTICLES IN PREVIOUS ISSUES: "Vladivostok Development Stresses Port Aspects," Oct. 12, 1938; "Soviets Report Gains in Agriculture in Far East," July 27, 1937; "Asiatic Russia?Storehouse of Mineral

Wealth," July 13, 1938; "Few New Aspects to Soviet- Japanese Friction," June 1, 1938; "U.S.S.R. Increasing Oil Reserves in Far East," Mar. 23, 1938; "Japan-Soviet Fric? tion in Sakhalin," Nov. 17, 1937; "Soviet Far East Timber Production Below Plan," June 9, 1937; "Agricultural Foundation of Siberia's Economy," Feb. 17, 1937; "Soviet- Japanese Relations Strike Snag," Jan. 6, 1937; "U.S.S.R. Reaches Second Place in World Fishing," Nov. 4, 1936; "Sakhalin Mirrors Developments in All Siberia," Sept. 9, 1936; "Disputes over the Soviet-Manchoukuo Border," July 1, 1936; "U.S.S.R. and Japan Reach Temporary Fish? ing Agreement," Jtme 17, 1936; "Soviet Air Development Aids Siberian Transport," June 3, 1936; "Soviet Building Highways in Far Eastern Siberia," Apr. 8, 1936; "Soviet 'Economic Stake' in the Orient," Jan. 29, 1936; "Japanese- Soviet Friction," Sept. 25, 1935; "Basic Transport Facili? ties in Siberia," July 31, 1935; "Japan Preparing for Soviet Fishery Talks," May 22, 1935; "Japan Seeking Further Sakhalin Oil Concession," May 8, 1935; "Industrialization of the Soviet Far East," Apr. 10, 1935; "Memorandum on the Chinese Eastern Railway," Dec. 7, 1934.

SIGNIFICANT DEVELOPMENTS

NEW AMERICAN CREDITS TO CHINA HAVE WIDE IMPLICATIONS

Two recent moves in Washington afford fresh evi? dence of the stiffening of American policy in the Far East. One is the announcement on December 15 of a

$25,000,000 credit to Chinese interests authorized by the Export-Import Bank of Washington. The other is

Secretary Morgenthau's statement four days later that the United States Government is extending the arrange? ment under which the Central Bank of China has been enabled to obtain dollar credits against gold acquired largely through American silver purchases and now on

deposit in this country. It will be apparent that these transactions, taken in

conjunction with other recent developments in Ameri? can foreign policy, have a diplomatic significance be?

yond their direct material importance. Politically they are to be interpreted against the background of sharp- ening controversy between the governments of Japan and the United States over restrictions on American business and philanthropic activity in the occupied territories of China. Their economic and military sig? nificance to China is not to be underrated, however, and on both economic and political grounds their an? nouncement has been received with jubilation in China and with deep resentment in Japan.

The $25,000,000 credit was authorized by the Export- Import Bank for the Universal Trading Corporation of New York, a private concern organized under the laws of that state. Its announced purpose is to aid in the sale of American agricultural and manufactured prod? ucts in China and in the importation of tung oil. This

procedure avoids placing the United States Govern? ment formally in the role of financing one of the Far Eastern belligerents against the other. Actually, how?

ever, the lending institution is an official agency of the United States Government; the borrowing firm is owned by Chinese interests and headed by T. M. Hsi,

a high executive of the Central Bank of China; and the

obligations are to be guaranteed by the government- controlled Bank of China.

This transaction is further evidence that the Export- Import Bank, like similar agencies created by foreign governments in recent years, is slated to become an

important instrument of national policy in a world which has moved rapidly towards government control and subsidy in international economic relations. In- active for a year and a half after it was first organized, it has come increasingly to the fore since 1936 as a means of encouraging American export trade. Its activities have centered in the provision of short-term credits on agricultural exports, medium-term credits on exports of industrial products, and advances to American exporters against foreign government obliga? tions issued to settle claims arising out of blocked

exchange. Recently it has become especially active in the Latin

American field, where foreign trade competition has

grown increasingly severe. Not long ago, for example, it authorized a loan of $10,000,000 to the International

Telephone and Telegraph Corporation largely for ex-

panding operations in South America, and in July it entered into an agreement with the J. G. White Engi? neering Corporation of New York City to discount notes issued to that company by the Haitian Govern? ment in payment for a public works program utilizing American materials and equipment. It also handles several credits extended to China in the past by fed? eral agencies?the wheat and cotton loans of 1931 and 1934 and the loan which it authorized in 1937 for the

purchase of American locomotives. Of these Chinese loans totalling $27,051,412, about half has been repaid as it matured and the balance now outstanding is $12,631,520.



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Soviet-Japanese Relations Still Hanging Fire