# Report of the Commission of Enquiry/Chapter 8

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Chapter VIII.
ECONOMIC INTERESTS IN MANCHURIA.
It has been shown in the preceding chapter that the economic requirements of Japan and China, unless disturbed by political considerations, would lead to mutual understanding and co-operation and not to conflict. The study of the inter-relation between Japanese and Chinese economic interests in Manchuria, taken in themselves and apart from the political events of recent years, leads to the same conclusion. The economic interests of both countries in Manchuria are not irreconcilable; indeed, their reconciliation is necessary if the existing resources and future economic possibilities of Manchuria are to be developed to the fullest extent.
In Chapter III, the claim of Japanese public opinion that the resources, both actual and potential, of Manchuria are essential to the economic life of their country has been fully examined. The object of this chapter is to consider how far this claim is in conformity with economic facts.
Investments.It is a fact, in South Manchuria, that Japan is the largest foreign investor, whereas in North Manchuria the same is true of the U.S.S.R. Taking the Three Provinces as a whole, the Japanese investments are more important than those of the U.S.S.R., although precisely to what extent it is difficult to say because of the impossibility of obtaining reliable comparative figures. As the subject of investments is examined in detail in an annex to this Report, a few essential figures will be sufficient to illustrate the relative importance of Japan, the U.S.S.R. and other countries as participating factors in the economic development of Manchuria.
According to a Japanese source of information, Japanese investments were estimated in 1928 at about 1,500,000,000 Yen, a figure which, if correct, must have grown to-day to approximately 1,700,000,000 Yen. A Russian source puts Japanese investments at the present time at about 1,500,000,000 Yen for the whole of Manchuria inclusive of the Kwantung Leased Territory, and at about 1,300,000,000 Yen for the Three Provinces, the bulk of Japanese capital being invested in Liaoning Province.
​With regard to the nature of these investments, it will be found that the majority of the capital has been devoted to transportation enterprises (mainly railways), agriculture, mining and forestry coming next. As a matter of fact, the Japanese investments in South Manchuria centre mainly round the South Manchuria Railway, while the investments of the U.S.S.R. in the North are to a great extent, directly or indirectly, linked up with the Chinese Eastern Railway.
Foreign investments other than Japanese are more difficult to estimate and, in spite of the helpful assistance of those immediately interested, the information obtained by the Commission has been meagre. Most of the figures given by the Japanese are prior to 1917 and consequently out of date. For the U.S.S.R., as has been stated, no definite estimate is possible. With regard to other countries, a recent Russian estimate for North Manchuria only, which it has not been possible to verify, indicates the United Kingdom as the next largest investor with 11,185,000 gold dollars, followed by Japan with 9,229,400 gold dollars, the United States of America with 8,220,000 gold dollars, Poland with 5,025,000 gold dollars, France with 1,760,000 gold dollars, Germany with 1,235,000 gold dollars, and miscellaneous investments 1,129,600 gold dollars, making a total of 37,784,400 gold dollars. For South Manchuria, similar figures are not available.
Japan's economic relations with Manchuria.It is now necessary to analyse the part Manchuria plays in the economic life of Japan. A detailed study on this subject Will be found in an Annex to this Report, from which it will be seen that, although this part is an important one, it is at the same time limited by circumstances which must not be overlooked.
It does not seem from past experience that Manchuria is a region suitable for Japanese emigration on a large scale. As already stated in Chapter II, the farmers and coolies from Shantung and Shihli (now Hopei) have in the last few decades taken possession of the soil. Japanese settlers are, and for many years will mostly be, business-men, officials, salaried employees; who have come to manage the investments of capital, the development_of various enterprises, and the utilisation of natural resources.
Agriculture.As regards her supplies of agricultural produce, Japan to-day depends on Manchuria mainly for the soya bean and its derivatives, the use of which as foodstuff and forage may even increase in the future. (As a fertiliser, which is to-day one of its chief uses, its importance is likely to decrease with the growth of chemical industries in Japan.) But the question of food supply is not at the moment acute for Japan, the acquisition of Korea and Formosa having helped to solve at least for the time her rice problem. If at some future date the need for this commodity becomes urgent for the Japanese Empire, Manchuria may be able to provide an additional source of supply. But in that case a large amount of capital would have to be spent in the development of a sufficient irrigation system.
Heavy industries.Larger still, it seems, will be the amount of capital necessary for the creation of Japanese heavy industries, if these are destined to become independent of foreign countries, as a result of the utilisation of the resources of Manchuria. Japan seeks, above all, to develop in the Three Eastern Provinces the production of those raw materials which are indispensable to her national defence. Manchuria can supply her with coal, oil and iron. The economic advantages, however, of such supplies are uncertain. For coal, only a comparatively small part of the production is utilised in Japan; oil is extracted from shale only in very limited quantities, while it would appear that iron is definitely produced at a loss. But economic considerations are not the only ones which influence the Japanese Government.!. The resources of Manchuria are intended to assist the development of an independent metallurgic system. In any case, Japan must seek abroad a great part of her coke and certain non-siliceous ores. The Three Eastern Provinces may ensure greater security in the supplies of certain products which are ​indispensable for her national defence, but heavy financial sacrifices may be involved in obtaining them. The strategic interests of Japan in Manchuria involved in this question have been mentioned elsewhere.
Further, Manchuria is not likely to supply Japan with those raw materials which she needs most for her textile industries.
Manchuria as a market for Japanese products.The Three North-Eastern Provinces provide a regular market for Japanese manufactured goods; and the importance of this market may even increase with their growth in prosperity. But Osaka, in the past, has always depended more on Shanghai than on Dairen. The Manchurian market may perhaps offer more security, but it is more restricted than the Chinese market.
The idea of economic "blocs" has penetrated to Japan from the West. The possibility of such a bloc comprising the Japanese Empire and Manchuria is often found in the writings of Japanese statesmen, professors and journalists. In an article written shortly before he took office, the present Minister of Commerce and Industry pointed to the formation in the world of such economic blocs, American, Soviet, European and British, and stated that Japan should also create with Manchuria such a bloc.
There is nothing at present to show that..such a system is practicable. Some voices have recently been raised in Japan to warn their compatriots against dangerous illusions. Japan depends for the bulk of her commerce far less on Manchuria than she does on the United States of America, China proper and British India.
Manchuria may become, in the future, of great assistance to ail overpopulated Japan, but it is as dangerous not to discern the limitations of its possibilities as it is to under-estimate their value.
China's economic relations with Manchuria.When studying the economic relations of the rest of China with her Three Eastern Provinces, it will be apparent that, contrary to what we have seen in the case of Japan, her chief earlier contribution to their development consisted in the sending of seasonal workers and permanent settlers, to whom the great agricultural development of the country is due. More recently, however, particularly in the last decade, her' participation in railway construction, in industry, trade and banking, and in the development of mineral and forestry resources, has. also shown a marked progress the extent of which cannot be adequately shown due to lack of data. On the whole, it may be said that the principal ties between Manchuria and the rest of China are racial and social rather than economic. It has been recalled in Chapter II that the present population of Manchuria is, in the main, drawn from recent immigrations. The spontaneous character of these immigrations show clearly how they have fulfilled a real need. They have been a consequence of famine, although they were encouraged to some extent by both the Japanese and Chinese.
The Japanese have for a number of years recruited Chinese labour for the Fushun mines, for the Dairen harbour works and for the construction of railway lines. But the number of Chinese thus recruited has always been very limited and this recruitment ceased in 1927, when it appeared that the local supplies of labour were sufficient.
The Provincial authorities in Manchuria have also on several occasions assisted the settlement of Chinese immigrants, although in practice these activities of the authorities of the Three Eastern Provinces have only had a limited influence on immigration. The authorities in North China, and the charitable societies, have also in certain periods endeavoured to encourage the settlement of families in Manchuria.
The principal assistance received by the immigrants has been the reduced rates offered by the South Manchuria Railway, the Chinese lines, and the Chinese Eastern Railway. These encouragements given to newcomers showed that, at least until the end of 1931, the South Manchuria Railway, the Manchurian provincial authorities and the Chinese Government regarded ​this exodus with favour; all of them profited by the peopling of the Three Eastern Provinces, although their interests in the movement were not always identical.
Emigrants, once settled in Manchuria, maintain their relations with their province of origin in China proper. This is best shown by a study of the remittances that the emigrants sent back to their families in the villages of their birth. It is impossible to estimate the total of these remittances, which are effected through banks, through the post and through money taken back by returning emigrants. It is believed that twenty million dollars are so taken annually into Shantung and Hopei, while the Post Office statistics showed in 1928 that the Provinces of Liaoning and Kirin remitted to the Province of Shantung by money orders a sum equal to the amount remitted to that province by all the other provinces in China. There is no doubt that these remittances form an important economic link between Manchuria and China proper. They are the index of the contact maintained between the emigrants and their families in the provinces of their origin. This contact is all the easier because conditions on either side of the Great Wall do not greatly differ. The produce of the soil is in the main the same and the agricultural methods identical. The most pronounced variation between agricultural conditions in Manchuria and in Shantung are caused by differences of climate, varying density of population and different states of economic development. These factors do not prevent the agriculture of the Three Eastern Provinces from tending to resemble more and more the agricultural conditions in Shantung. In Liaoning, a long-settled territory, rural conditions resemble more closely those in Shantung than do those in Heilungkiang, a territory more recently opened up.
The organisation of direct trade with the agriculturists in Manchuria resembles also the conditions in China proper. In the Three Provinces, such commerce is in the hands of Chinese, who alone buy directly from the farmers. Similarly, in the Three Provinces, as in China proper, credit performs an important function in such local trade. One can even say that the resemblance in commercial organisation in Manchuria and China proper is found not only in local countryside trade, but also in trade in the towns.
In fact, the social and economic Chinese organisation in Manchuria is a transplanted society which has kept the customs, dialect and activities of its home. The only changes necessary are those required to meet the conditions of a land more vast, less inhabited and more open to outside influences.
The question arises whether this mass migration has been merely an episode or whether it will continue in the future. When account is taken of the areas in South Manchuria and certain valleys in the south and east, such as the Sungari, Liao and Mutan Valleys, it is clear that, from the purely agricultural point of view, Manchuria can still absorb numerous colonists. According to one of the best experts on the staff of the Chinese Eastern Railway, the population of Manchuria could reach in forty years a figure of 75,000,000.
But economic conditions may in the future limit the rapid growth of the population of Manchuria. Economic conditions in fact alone render the future of soya-bean farming uncertain. On the other hand, crops recently introduced into Manchuria, especially rice-farming, may develop there. The hopes which some Japanese have placed in the development of cotton-growing seem to be subject to certain limitations. Consequently, economic and technical factors may to some extent limit the entry of newcomers into the Three Provinces.
The recent political events are not the only cause of the decline of Chinese migration into Manchuria. The economic crisis had already, in the first six months of the year 1931, diminished the importance of the seasonal migration. The world depression added to the effect of an unavoidable ​local crisis. Once this, economic crisis is over and order has been re-established, Manchuria may once more serve as an outlet for the population of China proper. The Chinese are the people best adapted for the colonisation of Manchuria. An artificial restriction of this migration by arbitrary political measures would be prejudicial to the interests of Manchuria, as it would be to the interests of Shantung and Hopei.
The ties between Manchuria and the rest of China remain chiefly racial and social. At the same time, economic ties are continuously becoming stronger, which is shown by the growing commercial relations between Manchuria and the rest of China. Nevertheless, according to Customs returns, Japan remains the best customer and chief supplier of Manchuria, China proper occupying the second place.
The chief imports from Manchuria into the rest of China are the soya bean and its derivatives, coal and small amounts of groundnuts, raw silk, miscellaneous cereals and a very limited amount of iron, maize, wool, and timber. The chief exports to Manchuria from China proper are cotton piece-goods, tobacco preparations, silken and other textiles, tea, cereals and seeds, raw cotton, paper and wheat flour.
Consequently, China proper relies on Manchuria for certain foodstuffs, most important of which is the soya bean and its derivatives, but her imports of minerals, with the exception of coal and her imports of timber, animal products and raw materials for manufacturing purposes have in the past been slight. Furthermore, China proper is able to use only a portion of Manchuria's favourable balance to offset its own unfavourable balance. It is able to do this, not by virtue of its political affiliation as such, as is generally thought, but chiefly because the Manchurian Post Offices and Customs have been highly profitable institutions and because of the substantial remittances of Chinese settlers to their families in Shanghai and Hopei.
Comment.The resources of Manchuria are great and as yet not fully ascertained. For their development they require population, capital, technical skill, organisation and internal security. The population is almost entirely supplied by China. Large numbers of the existing population were born in provinces of North China, where their family ties are still very close. Capital, technical skill and organisation have hitherto chiefly been provided by Japan in South Manchuria and by Russia north of Changchun. Other foreign countries to a much smaller degree have interests throughout the Three Provinces, but principally in the large cities. Their representatives have exercised a conciliatory influence in the recent years of political tension, and will continue to do so, provided that Japan, as the dominating economic Power, does not attempt to monopolise the field. The all-important problem at the present time is the establishment of an administration acceptable to the population and capable of supplying the last need namely, the maintenance of law and order.
No foreign Power could develop Manchuria or reap any benefit from an attempt to control it without the good-will and wholehearted co-operation of the Chinese masses which form the bulk of the population, tilling its soil, and supplying the labour for practically every enterprise in the country. Neither will China ever be free from anxiety and danger unless these Northern Provinces cease to afford a battleground for the conflicting ambitions of neighbouring Powers. It is as necessary, therefore, for China to satisfy the economic interests of Japan in this territory as for Japan to recognise the unalterably Chinese character of its population.
Maintenance of the Open Door.Parallel to an understanding of this kind and in order to allow all interested Powers to co-operate in the development of Manchuria, it seems essential that the principle of the Open Door should be maintained, not only from the legal point of view, but also in the actual practice of trade, industry and banking. Amongst foreign business-men in Manchuria other than Japanese, there is a fear that Japanese business concerns will try to ​reap benefit from the present political position by other means than those of free competition. If this fear came to be justified, foreign interests would be discouraged and the population of Manchuria might be the first to suffer. The maintenance of a real Open Door, manifested by free competition in the field of trade, investment and finance, would be in the interests of both Japan and China.
* ↑ See, for this chapter, special studies Nos. 2, 3, 6, 7, annexed to this Report.
* ↑ Another Japanese authority puts the total of Japanese investments in China, including Manchuria, in 1929 at a figure of approximately 1,500,000,000 Yen.
* ↑ In this connection, it is necessary to mention the extraordinary extent to which goods are being smuggled into Manchuria, especially over the Korean border and through Dairen. Not only is this practice detrimental to the Customs revenue, but it disorganises trade, and rightly or wrongly gives rise to the belief that the Power which has virtual control over the Customs Administration might discriminate against the trade of other Powers.