8

A Critical Juncture:
The Chinese Eastern Railway
in Far Eastern Rivalries,
1920–1922

After the collapse of the Kolchak government at the end of 1919, America’s Siberian policy rested exclusively on the tenuous international agreement between the United States, Britain, Japan, and France for supervision of the Chinese Eastern Railway. From 1920 until the end of 1922, when Japan’s troops were finally withdrawn from the Chinese Eastern Railway zone and Russia’s Maritime Provinces, American policy struggled to establish an effective trusteeship over the line in order to maintain a link between Siberia and the international market.

American statesmen believed that maintenance of the Open Door on the Chinese Eastern Railway would eventually have far-reaching implications for the United States’s position in the global political economy. This view was best illustrated by an interview that took place between John Stevens and Thomas Lamont, representative of the American group of the China Banking Consortium, at Mukden in early May 1920. Stevens linked the fate of the Siberian market to the Chinese Eastern Railway. He stressed that Japan posed a great danger to the railroad in its desire to “block the rest of the world from the immense possibilities of trade with Siberia.” Stevens earnestly impressed upon Lamont that “if America is blocked out of trade with that immense area it will be the greatest misfortune for our country. We need foreign markets badly and that is the very best of them all—the richest, most prosperous, most able to pay. Japan, if she is not checked in her present plans, will control all Siberia east of the Ural Mountains. Such an outcome would be a world calamity.”¹ Stevens’s comments emphasized certain factors about Siberia that bear special attention. Siberia’s rich natural resources and its relatively prosperous, market-oriented population made the region potentially a much more important outlet for American capital than China, whose poverty and instability limited its developmental potential beyond the environs of the treaty ports. Stevens’s views suggest that during this particularly fluid historical period American statesmen perceived a whole new dimension to their long-standing interest in the China market. The Open Door in Manchuria now constituted a bridge to the immense possibilities of the Siberian market.

The divergent interests of the powers in Manchuria isolated America in its efforts to maintain a viable international trusteeship over the line. While the Chinese Eastern Railway was critical to American long-term interests in Siberia, the fate of the line had become caught up in the turbulent crosscurrents of China’s warlord era. This era was marked by incipient Chinese nationalism, warring political factions, and an intensified competition among the powers over spheres of influence.

The year 1920 opened with the United States contemplating the withdrawal of the American railroad advisers, who, under the terms of the Inter-Allied Railway Agreement, were supposed to depart with the American troops. The termination of inter-Allied supervision over the Chinese Eastern Railway would have serious consequences since this body represented the major impediment to Japan’s ambitions toward the railway.

There were ominous signs that Japan was preparing to make a move on the line. Near the end of 1919 Stevens reported that Japan was attempting to introduce the yen in northern Manchuria through indirect methods. Japan proposed to loan the Chinese Eastern Railway yen for the purchase of Romanov rubles to meet payroll and other current expenses. Stevens believed that since the supply of Romanov currency was too small to provide an adequate circulating medium, Japan actually was attempting to establish the yen in the region.² The substitution of yen for gold rubles would be facilitated by the fact that they were approximately equivalent in value, both being worth about 50 American cents.³ Stevens also thought the Japanese were trying to ply the officials of the Chinese Eastern Railway with yen advances in order to gain special traffic privileges.⁴ Stevens urged that a joint Allied loan of about $5 million be made to the railroad before it fell under Japanese control for lack of alternative financing.⁵

Over the next three years, Stevens and his American colleagues on the inter-Allied supervisory bodies consistently opposed Japanese and Chinese efforts to discriminate against Russian currency in the Chinese Eastern Railway zone. They insisted that the monetary “status quo” be maintained on the Chinese Eastern and its revenues should not be reduced into one currency, rather all circulating specie should be accepted without restrictions. Until June 1920, when the maritime zemstvo government devaluated the badly depreciated Siberian ruble, both the Technical Board and Inter-Allied Railway Committee had attempted to compensate for its depreciation by accepting all currencies, whether Chinese silver, Romanov currency, or the Siberian rubles as payment for railroad tariffs on the basis of the prewar gold ruble. Against this fixed standard the exchange rate between these currencies was then periodically readjusted. This American support for the continued use of Russian currency on the Chinese Eastern Railway served two basic objectives. This policy helped preserve a semblance of Russian sovereignty over the line and it maintained the railroad’s links with foreign currencies on the gold standard.⁶

Japanese troop movements in early 1920 were a further threat to the railroad. On the pretext of defending its interests in Manchuria and Korea against bolshevism, Japan’s military occupied the Chinese Eastern Railway west of Harbin and the Ussuri Railway; this railway connected Vladivostok with the Chinese Eastern Railway. In the Trans-Baikal region Japanese troops and Semenov’s forces were blocking the withdrawal eastward of the Czecho-Slovak troops creating a situation that, under the terms of the Allied intervention, justified a continued presence of Japanese troops in the Russian Far East.

The precarious financial position of the Chinese Eastern Railway was compounded by the Allies’ delinquency in paying their military transportation bills; this factor increasingly threatened the solvency of the line. In early May Stevens explained that while the road owed about $5 million, the Allies owed it $6 million. Consequently, if those bills were promptly paid the road’s financial problems would be solved. While the United States and Britain paid their bills quickly, Japan was slow and France would pay neither its own bills or those of the Czecho-Slovaks, for which it was responsible. Japan’s delinquent payments were particularly a nuisance to Stevens because the road simultaneously owed money to Japanese-controlled coal mines in southern Manchuria. Japanese authorities explicitly considered these coal supplies as a loan, which they consciously used as a source of financial leverage against the Chinese Eastern. Stevens feared that Japan would suddenly demand payment of these bills on threat of a stoppage of its coal shipments.⁷

While the collapse of Russian authority over the Chinese Eastern heightened the danger from Japan after 1919, it also encouraged Chinese aspirations to assert control of the line. The added dimension of Chinese nationalism, which was deeply entangled in factional politics and Japanese intrigue, created another destabilizing factor that complicated American efforts to maintain international control of the Chinese Eastern. Following the collapse of Kolchak’s government and in response to General Dmitri Khorvat’s announcement that he would himself assume full governmental powers of the Russian people within the jurisdiction of the Chinese Eastern Railway, the Chinese government announced that it would assume governmental power in the zone on the pretext that no outside power could exercise this prerogative in Chinese territory. The Soviet government fueled China’s pretensions toward the Chinese Eastern Railway when it formally renounced the rights the previous Russian governments had claimed over the line.⁸

Initiatives by Britain and China during the spring of 1920 appeared to offer the United States renewed hope that the Chinese Eastern could be brought under effective international control. Beginning in February 1920, and continuing through the spring, Britain strongly urged the State Department to continue its participation in the Inter-Allied Railway Committee and Technical Board. Fearing that Japan was about to seize control over the line, Britain recommended that control by the inter-Allied board continue, that operation of the line be conferred to China, and that the consortium, rather than Japan, finance the railroad.⁹ Similarly, while China was determined to take control of the line, it requested that Stevens remain in his position, and it asked Thomas Lamont, the American representative of the Banking Consortium, to place the line under consortium jurisdiction.¹⁰

By mid-May the State Department had reconsidered its decision to withdraw American personnel from the Chinese Eastern Railway. This change in the American attitude had been encouraged by the overtures of Britain and China, and the recommendations of Charles Smith, the American representative on the Inter-Allied Railway Committee. The views of the Russian embassy played a particularly important role in shaping American policy toward the line in 1920. In early May the Russian embassy proposed to the State Department that the Chinese Eastern Railway be placed under the mandate of an international committee in order to protect Russia’s existing rights in the line. Financing could then be arranged for the line either by the consortium or by a power acting as a mandatory, on the approval of the international committee.

The Russian embassy justified this arrangement in favor of its claims on grounds that the actual ownership of the line still resided in the Russian government, even though the shares were held by the Russo-Asiatic Bank. This peculiar situation worked to the advantage of the fictitious Russian state. Since the bank held the railroad’s stock, the legal status of the line was that of a private concern, even though the bank’s control was purely formal. This de jure private status served to protect Russia’s rights since it enabled the line to continue functioning under its legally established Russian administration, regardless of whether a Russian government existed.

After asserting that the Russian government still owned the line, the embassy reminded the State Department to uphold Russia’s legal rights in the line. Now, with China threatening to unilaterally repudiate the legal status quo, the Russian embassy was anxious to have the Chinese Eastern Railway placed under a formal international trusteeship. This arrangement would guarantee the existing status quo and thereby lay to rest all uncertainty over the line’s legal status. The embassy warned that any change of the railway’s status in favor of China would have dangerous implications for the future of the line because Manchuria had become a virtual protectorate of Japan. Under these circumstances control of the line would inevitably pass to Japan.¹¹

Meanwhile, the State Department briefly considered an alternative form of trusteeship whereby the Chinese Eastern Railway would be placed under the control of the presently constituted Inter-Allied Railway Committee; the Technical Board would be transferred to China as a mandate. The technical operation of the line would then pass to the Chinese government or a new board chosen by that government with a qualifying provision for review by the Inter-Allied Railway Committee. Under this reorganization plan the troublesome Military Committee would be abolished.¹² The American chargé in Japan, Edward Bell, quickly notified the State Department that Japan would vigorously oppose China receiving a mandate over the Chinese Eastern Railway or the Technical Board. Charles Tenney, the American chargé in China, suggested that if the United States wanted to implement the plan of the Russian embassy, it would be best to continue the existing inter-Allied agreement.

American resolve was bolstered by Britain, which indicated it would support an international trusteeship over the railroad to protect Russia’s primary rights in the railway and China’s secondary interests. Britain favored placing the line under consortium jurisdiction to control Japanese ambitions, to help stabilize China, and to block the spread of Bolshevik influence. Britain, however, would not press for a withdrawal of Japanese troops from the Chinese Eastern Railway because it had a legitimate security interest in the region. Instead, it suggested that a joint military force of Chinese and Japanese troops guard the line. Nor was Britain willing to back up its position by promising a British financial contribution from the British group of the China Banking Consortium. For the ostensible reason that its banking group had been delayed in completing its arrangements, Britain coyly suggested that the United States and Japan make the preliminary loan to the line. Britain’s position conveniently enabled it to support the status quo in northern Manchuria while avoiding a confrontation with Japan in an area where it had little financial interest.¹³

Despite these reservations, the State Department was encouraged by the prospects that an essential concurrence existed between the United States and Britain with regard to the Chinese Eastern Railway.¹⁴ Up until this time the State Department had hesitated to advocate consortium financing out of concern for jeopardizing the broader consortium negotiations with Japan. As recently as the end of April the State Department had instructed its diplomatic representatives not to raise the controversial issue of consortium financing for the Chinese Eastern Railway at that delicate stage of the consortium negotiations.¹⁵ In view of the likelihood of Japanese opposition and because of the difficulties that would be involved in floating a loan for the Chinese Eastern Railway in the American market, near the end of May the State Department still wanted to postpone consideration of the issue until Thomas Lamont, representative of the American group, could be consulted.¹⁶ Nevertheless, the State Department was already placing a great deal of stock in the support it believed Britain was now prepared to lend on the contentious issue of consortium financing for the Chinese Eastern Railway. The department fully expected Britain to line up French support in order to pressure Japan into accepting the proposal.

Meanwhile the State Department now favored a plan for an international trusteeship over the Chinese Eastern Railway, which probably grew out of the Russian embassy proposal of May 7. By late May the department was considering the possibility of establishing an international bankruptcy commission to administer the line temporarily in trust for Russia. This commission would consolidate functions of the Technical Board and the Inter-Allied Railway Committee. It would assume all the duties of a trusteeship over the line with the exception that it could not borrow money without authorization of the participating governments. Yet the governments would be expected to base their financial decisions regarding the line on the commission’s reports and recommendations.

Similar to the question of consortium financing for the Chinese Eastern Railroad, the State Department counted on Britain to support the plan for a bankruptcy commission. A department memorandum from June 15 emphasized that they “quite frankly hoped that we could in the first place come to a full understanding with Great Britain, that the latter would be able to enlist the support and cooperation of France, and that the three powers might then be in a position to bring to bear upon Japan such pressure as might induce it to fall in with the project.”¹⁷ By this time the State Department had come to “heartily” endorse consortium financing for the line, even though it had not yet heard Lamont’s views on the subject. On June 15 Britain’s ambassador to Washington, Sir Auchland Geddes, informed Foreign Secretary Earl Curzon that “they [the State Department] believe, failing some arrangement which will really put Chinese Eastern under effective (?trustee)ship, all that hitherto [has been] achieved for consortium in way of eliminating reservations of special interests will be jeopardized.”¹⁸ This comment would seem to indicate that the State Department linked the success of the consortium to inclusion of the Chinese Eastern Railway within its jurisdiction. If too many important properties were excluded from the consortium its effectiveness as an instrument of the Open Door would be seriously compromised.

On June 19 the department informed Ambassador John W. Davis in London that it had urged the American group of the desirability of consortium financing for the Chinese Eastern Railway. It then instructed Davis to remind the Foreign Office that the State Department expected it to take the lead in obtaining French cooperation, both in regard to consortium financing for the line and in encouraging France to pay its transportation bills.¹⁹ Circumstantial evidence suggests the State Department thought a bankruptcy commission could be a lever to extract payment from the Allies for the $5 million they owed the line for transportation of their military forces—particularly France, which was responsible for the Czecho-Slovaks as well as its own forces.²⁰

The United States quickly found that it could not count on British support when it came to any revision of the existing arrangement for Allied supervision of the Chinese Eastern Railway. In late June Britain’s ambassador to Japan, Charles Eliot, reported that any attempt to link the Chinese Eastern Railway with the consortium would meet stiff opposition from Japan. Japanese foreign minister Uchida explained to Eliot that he could not support such a course for the line because Japanese public opinion would not tolerate it at the time. Following this conversation Eliot recommended to London that Britain should not press the question of consortium financing for the Chinese Eastern Railway for the present.²¹ After hearing the same report from the British embassy in Washington, the State Department commented with disappointment that Britain’s ambassador gave no reason to believe “that in the near future conditions might be more favorable for a consideration by the Japanese Cabinet of using the consortium for financing the Chinese Eastern Railway.”²²

A week later, Britain gave further indication that it was backing away from the American program for the Chinese Eastern Railway. On July 8 Ambassador Davis in London reported that the Foreign Office had strong reservations about the American proposal for a bankruptcy commission. It was concerned that the creation of such a commission would imply complete insolvency and thereby jeopardize French interests represented in the Russo-Asiatic Bank. Yet, beyond this technical consideration, the Foreign Office argued “that the proposed arrangement appears … merely to take us round the circle again into a consortium of a more complicated form which Japan’s probable contentions would again block.”²³

Britain’s equivocal position toward the Chinese Eastern Railway question was influenced by a broader calculation of its interests in China. On July 7, 1920, Frank Ashton-Gwatkin of the British Foreign Office issued a memorandum analyzing Japan’s threat to the Open Door. He emphasized that Japan built its spheres of influence around exclusive railroad privileges such as the South Manchurian Railway. These privileges in turn gave Japanese commerce formidable advantages. But British statesmen directed their attention to Japan’s emerging spheres of influence in China proper, which threatened British interests in Central China. Japan’s exclusive control over the Tsingtao-Tsinan Railroad in Shantung Province and its embryonic position in Fukien Province straddled perilously close to Britain’s extensive interests in the Yangtze Valley. Ashton-Gwatkin suggested that while it might be difficult, Japan could be persuaded to accept nationalization of the railroad concessions in China proper out of a keen awareness for its diplomatic isolation and because it wanted to renew the Anglo-Japanese alliance. As compensation he recommended that Britain should be prepared to concede Japan a special position in Manchuria. Ashton-Gwatkin’s justification for this policy manifested a basic divergence of interests between Britain and the United States in China at the time. He concluded that:

although it is difficult to defend the strict morality of her protectorate in Manchuria, yet the position there is entirely different to that of Shantung. Shantung is in the heart of China, the birthplace of Confucius, densely populated and developed by a highly civilised people. Manchuria is on the outskirts, neglected by the Chinese government, sparsely populated, and low in the scale of culture. Recent prosperity there is due to Japanese enterprise, and although the foreigner may be excluded in spite of his treaty rights, yet the presence of the Japanese has been a benefit to the country. Japan in Manchuria has to a certain extent played the part of Great Britain in Egypt. Even if Japanese influence spreads to North Manchuria and can get control of the Chinese Eastern Railway (which at the present moment seems an object coveted by Japan), such expansion can do very little harm to England nor can it greatly damage China…. If a real Open Door can be established in Shantung, Great Britain might be able to view a further extension of Japanese influence in the Manchurian sphere with equanimity. In any case, Japan’s position in Manchuria is a peculiar one, and appears to deserve a certain measure of sympathetic consideration.²⁴

Indeed, in October 1921, before the Washington Conference, British foreign secretary Earl Curzon advocated exactly this course to V. K. Wellington Koo, the Chinese minister to Britain. He candidly asked Koo whether it would “not be sound statesmanship to steer Japan away from the great industrial areas of China proper, and push her—so to speak—to the North?” After noting that Manchuria was not part of China proper, but an outer territory, and that even America had recognized Japan’s special position there under the Lansing-Ishii Agreement, Curzon suggested to Koo that China should “allow the Japanese to expand, under reasonable conditions, in that direction, rather than to bring them down upon the main body of China.”²⁵

Britain’s indifference to the Chinese Eastern Railway issue was not yet grasped in Washington. By mid-summer 1920 the State Department had linked the possibility of obtaining consortium financing for the Chinese Eastern Railway to a strengthened international control over the line. When John Stevens met Thomas Lamont at Mukden in May to discuss consortium financing for the line, he impressed upon the head of the American group that he must be allowed to manage the property on his own terms if the consortium expected him to remain and to administer the line. In July he made the same point to the State Department when he insisted that whoever undertook control of the Chinese Eastern Railway had to be given “full authority which can be enforced,” in contrast to the ineffective inter-Allied agreement.²⁶ In October, when the consortium finally adopted a position on the Chinese Eastern Railway at its final conference, the influence of Stevens’s recommendations was apparent. The consortium group unanimously agreed to provide the line with a $10 million gold loan pending the consent of their respective governments, the condition of the security markets, and provided “satisfactory conditions can be arranged as to security, as to payment of debts due from the Allied and Associated Powers, as to the Allied and Associated Powers undertaking that there shall be no military interference with the traffic of the Railway, and as to the position of the representatives of the Consortium Powers on the technical Board (or other Administrative body) being regularized and stabilized.”²⁷ Aside from the financial conditions demanded by the bankers, the remaining points embodied in the consortium’s statement had been insisted on by Stevens: the payment of Allied military debts, the end of interference by the military, and the strengthening of the Technical Board’s powers.

Unilateral action by the Chinese government near the end of 1920 inaugurated two years of frustration for American efforts to strengthen international control over the line. On October 2 the Chinese government declared its intention to assume control over the Chinese Eastern Railway by virtue of an agreement it concluded with the Russo-Asiatic Bank. Since Russia could no longer administer the line, China claimed that its ultimate right of sovereignty obligated it to provisionally guarantee security in the region until some arrangement could be reached with a future Russian government that merited recognition. Under this agreement China announced that it would now exercise the right to name the president and four of the railroad’s eight members of the board of directors, giving it an effective majority. Furthermore, the railroad would be required to pay the Chinese government the sum of 5 million silver taels, which should have been paid it by the company with the beginning of operations, plus 6 percent compound interest up to the year 1920. Although Stevens immediately obtained reassurances from the Chinese minister of communications that this supplementary agreement would not affect the authority of the Technical Board, this promise would be continuously violated.²⁸ From this point until the termination of the inter-Allied agreement in November 1922, the Chinese dominated board of directors freely ignored all directives from the Technical Board.

In another development that did not bode well for American policy, Britain retracted all support for the new American initiatives regarding the Chinese Eastern Railway. In late December 1920, the British Foreign Office informed American ambassador John W. Davis that Britain would not support either an increase in power for the Technical Board or a financial reorganization of the line by the consortium.²⁹

These setbacks did not deter the newfound American resolve toward the Chinese Eastern Railway. By the beginning of 1921 the State Department had prepared a drastically revised plan for supervision of the railroad. In a clear effort to counter China’s official meddling in the railroad’s affairs, this new American plan would firmly establish an international trusteeship over the line. Under this plan the Inter-Allied Railway Committee would be abolished and replaced by a powerful Technical Board that would oversee both the technical and economic administration of the railroad. In addition to its existing powers the board would now assume the following responsibilities: the full control over the receipts and disbursements of the railroad’s revenues, the power to fix all tariffs, and complete control over all personnel matters. The Russian general manager would be entirely subordinated to the board’s authority. The State Department emphasized that the president of the board should be entrusted with as much responsibility as possible—even going so far as to recommend that he be given the prerogative to act independently of the other board members. If operated by a single powerful head, the State Department believed the railroad would be able to collect the sums due it from the Allies and to earn a profit when trade improved. Finally, as a corollary to the plan, the State Department intended that John Stevens be retained as president of this powerful new board.³⁰

The State Department immediately used this proposal as the basis for informal discussions with the British embassy in Washington.³¹ Early indications from the British ambassador Sir Auchland Geddes were not promising. In a conference with Secretary of State Colby and the acting secretary of state, Norman H. Davis, on February 24, Geddes would only extend qualified support to the American plan. While he expressed Britain’s willingness to follow the American lead, Geddes added that it would not be able to put up any money or to take the lead on the issue. Nor was he prepared to discuss the American amendments to the inter-Allied agreement in any detail. Colby and Davis reacted sharply to Geddes’s noncommittal position. They told Geddes that the United States “had taken the initiative already in making this proposal and that we wished to have a frank understanding in the matter, and not expect the British to follow us and then look behind and not find them.” Furthermore, the American officials made it known to Geddes that Britain’s neutrality would not be appreciated, “that if they attempted to take the role of mediator between the United States and Japan in case [of] any controversy that might arise it would not be the proper way to deal with the subject, but if the two governments should propose the amended agreement to Japan it would probably be accepted gracefully without any difficulty.”³²

Britain would not give a definite reply to the American proposal between January and mid-May 1921. Britain continued to delay its response in spite of repeated American appeals that the United States attached great importance to reaching a prior agreement with Britain before negotiating with the other powers.³³ On May 14, 1921, after having received the views of its ambassadors in Tokyo and Peking, the Foreign Office informed the State Department that it preferred not to raise the issue at all in light of the strong opposition that would be encountered from both Japan and China to any proposals for greater international control over the Chinese Eastern Railway. Therefore, while Britain could agree to the American plans “in general principal [sic],” it would leave the United States with the unpromising task of sounding out the other powers on its own.³⁴

The State Department’s Far East experts perceived a broader pattern behind Britain’s uncooperative position regarding the Chinese Eastern Railway. John V. A. MacMurray, head of the Far Eastern division, believed that Britain’s neutral stance toward the Chinese Eastern Railway signaled a growing divergence of interests between it and the United States over investment questions in the Far East. In an analysis of the Chinese Eastern Railway issue for Secretary Hughes, MacMurray argued that this episode reflected a broader shift in British policy away from the Open Door and toward an acceptance of spheres of influence in China. He suggested that Britain’s “practical recognition” of Japan’s claim for a dominant position in northern Manchuria coincided with a more aggressive support in favor of the prior concessionary claims of certain British manufacturing interests in China proper against rival American interests.³⁵

In fact, in the years preceding World War I, Britain had been retreating from an Open Door for industrial loans in China; instead Britain favored a consolidation of its sphere of influence for industrial concessions in central China. This trend emerged out of the heightened competition between the powers over the growing investment opportunities for industrial activity in China.³⁶

Despite this obvious setback to American policy, on his return to Washington in the spring of 1921, John Stevens told the State Department that Britain’s support was not vital. He planned to return to Manchuria and “limp along” as best as he could under the existing arrangement until sometime in the future when the United States could exert “sufficient pressure to bring them to accept our views of the matter.” Stevens felt there was a reasonable chance he could make the line pay because of its tremendous commercial potential, even with his insufficient authority.³⁷ Stevens’s newfound optimism sprung from the promising increase in the volume of commercial traffic the line was handling by the spring of 1921.

A change in the administration of the Chinese Eastern Railway during the winter of 1921 had also given Stevens and the Technical Board reason to be encouraged. After asserting control over the Chinese Eastern Railway in October 1920, the Chinese government ousted Dmitri Khorvat as general manager of the line. In place of Khorvat, the Chinese backed the appointment of Boris Ostroumov, a reform-minded engineer. For the Chinese, Ostroumov’s reformist tendencies and his independence from the Russian railway bureaucracy made him an attractive alternative to Khorvat, who would otherwise continue to be a pillar of Russian national interests in the railway zone. Chinese officials counted on Ostroumov to break the grip the Russian bureaucracy had over the line. Ostroumov’s appointment would also be satisfactory to the Russo-Asiatic Bank, the line’s financial agent, since he had connections with the Stakheev firm, which owned a majority of the Russian shares of the Russo-Asiatic Bank. Nevertheless, China permitted one of Khorvat’s lieutenant’s to be named vice president, since some accommodation had to be made to the Russian bureaucrats who continued to manage the line.³⁸

Following Ostroumov’s installation as general manager in early 1921, the Technical Board immediately began to implement its own reforms by introducing auditing and statistical procedures for the line. Benjamin O. Johnson, who served as acting president of the Technical Board during Stevens’s frequent absences in 1921–22, considered these endeavors crucial to the board’s work because the line had never had a budget before. Improved knowledge of the railroad’s financial condition would enable the Technical Board to begin placing each department on a sound economic basis.³⁹

Meanwhile the Technical Board supported the efforts of Ostroumov and assistant General Manager D. P. Kazakevitch to begin making staff reductions in order to bring expenditures in line with operating income. Proceeding cautiously, the Technical Board and Ostroumov planned to make these reductions proportionately among all levels of employees and in limited numbers over a period of time in order to limit hardship. Johnson also believed the impact of these staff reductions would be quickly mitigated, since he anticipated that the surplus employees would soon be redistributed west when communications with Siberia were reestablished.⁴⁰ When Ostroumov’s staff cuts met stiff resistance in the spring, resistance that the Russian bureaucracy encouraged in an effort to protect their patronage workers, Johnson urged the general manager to delay any drastic changes in the budget because the recent improvement in earnings would permit the administration to delay staff reductions until 1922. For the remainder of the year, Johnson stressed that it would be more important to establish budgetary principles for the line than to undertake any precipitous staff reductions.⁴¹

But growing Chinese interference with the line in 1921 greatly hindered the Technical Board’s efforts to rationalize expenditures. As quickly as the railroad produced any surplus that could be applied to past debts, Chinese officials pressured the administration for additional funds to support Chinese institutions in the railway zone. These demands reflected the political ascendance of Chang Tso-lin in Manchuria, whose power, and that of his clique, required the maintenance of extensive patronage networks.

While the Technical Board agreed that the railroad had an obligation to pay its share of the cost for local administration, it believed the Chinese submitted highly inflated budgetry estimates, particularly for institutions like the railway police. As a temporary compromise, the Technical Board agreed to make lump-sum payments to the city and settlement police and to the prison. After 1921 however, Johnson insisted that the railway should make no further lump-sum payments for any civil institutions and the Chinese would have to furnish the railway administration with itemized budgets before receiving funds from the railroad. In mid-May 1921 Johnson believed the line could be placed on a sound operating basis by January 1922, if only Chinese influence over expenditures could be reduced.⁴²

Nor did the Chinese officials appreciate the importance of preserving the railroad’s monetary connections with the international economy. In January 1921 the Chinese members of the board of directors attempted to transfer the Chinese Eastern Railway’s operations from a gold basis to China’s silver-standard currency. C. C. Wang, the Chinese representative to the inter-Allied committee and member of the board of directors, argued that the line could not be kept on a gold basis because gold rubles constituted no more than 10 percent of the line’s receipts. The Chinese claimed that the scarcity of gold rubles made it very inconvenient for the line to operate when its local expenses in fuel and labor were paid in silver.

As acting president of the Technical Board, Johnson opposed this step on grounds that it would have serious implications for the future of the line. He explained that the economy of northern Manchuria was tied to the international economy because of the ascendancy of its bean and wheat exports. Since the price of wheat and beans at Harbin was the European price minus transportation costs, their prices fluctuated with the world price, based on gold, rather than with local demand. Even the local cost of living and the cost of transportation was tied to the international market because the cost of labor, itself determined by the price of wheat and imported clothing, and all the supplies for the Chinese Eastern Railway were purchased from gold standard countries. Hence, if transportation rates on the Chinese Eastern Railway were put on a basis that fluctuated with the vagaries of silver, the region’s economic ties with the international economy would be disrupted. Johnson viewed the grievances of the Chinese as a reaction to the recent depreciation of silver, which would abate if the exchange value between gold and silver stabilized.⁴³ Determined opposition from the Technical Board forced the Chinese to back down in this instance.

In July 1921 the Chinese directors placed the line in immediate jeopardy when they attempted to float a bond issue that would probably end up in Japanese hands. At this time the Chinese majority on the board of directors decided to float a bond issue of 25 million taels, in accordance with the provisions of the amended agreement for control of the Chinese Eastern Railway, which the Chinese government foisted on the Russo-Asiatic Bank in October 1920. About 15 million taels of this loan would be used to cover the railway’s debt to China, while the remaining 10 million taels would be used to finance operating expenses.

Stevens and the American diplomatic representatives at Peking quickly moved to block the bond issue because they feared Japanese influence lay behind the transaction. A few weeks earlier the Japanese-controlled South Manchurian Railway Company reportedly offered the Chinese Eastern Railway a loan of 20 million yen. Now the Chinese government planned to issue the bonds on terms that would make them susceptible to appropriation by Japanese interests.

This situation arose as a result of Japan’s skillful manipulation of Chinese warlord factions. Part of the issue, 15 million taels, was to be handed directly to China, while the remaining 10 million would be floated in the open market; both issues were to bear 5 percent interest. In the first instance, British and American sources discovered that the bonds issued to the Chinese government would quickly be liquidated, and probably at a discount, for the dubious purpose of raising funds for the military expenses of Gen. Chang Tso-lin’s powerful Fengtien clique, which had gained a predominant position in Manchuria with Japans help. Furthermore, political and financial circles in Peking believed that a good deal of the balance would be turned back to Japan to pay arrears on the notorious Nishihara loans from 1916, which subsidized pro-Japanese factions in China.⁴⁴

The 10 million taels worth of bonds earmarked for the open market were also likely to fall into Japanese hands. The low 5 percent rate of interest on these bonds would make them an unattractive investment for private interests. However, Western sources in Peking recognized that the South Manchurian Railway Company, an agent of the Japanese government, would readily purchase these bonds in order to give Japan a direct financial interest in the Chinese Eastern Railway. In fact, the Chinese ministers of communications and of war exhibited such callous disregard for China’s interests in the railway because they held their positions on the basis of pledges to raise funds for military and administrative expenses. After a bitter fight, the Russian representatives on the board of directors only acquiesced to the bond issue when they recognized that the Chinese members would merely find other means for pawning China’s interests in the line to Japan.⁴⁵

Stevens adamantly opposed this financial maneuver, claiming the Chinese government must recognize the Technical Board’s authority in all matters connected with the railroad’s finances. While Stevens recognized that the line needed $10 million to pay debts and to maintain adequate working capital, this situation had arisen because of the Allies’ refusal to pay for their military transportation. Under normal operating conditions the railway’s revenue would be adequate to meet its operating costs. In Stevens’s view the line’s current financial difficulties did not justify China’s resort to questionable financial practices like the present bond issue.⁴⁶

By the middle of July, the United States managed to exert its influence with pro-Western Chinese officials to defeat the proposed bond issue. Between July 7 and July 15, the American legation at Peking engaged in a concerted effort to defeat the bond issue, supported by a vigorous campaign in the English-speaking newspapers, The Peking Leader and The Peking and Tientsin Times. In particular, the American chargé, A. B. Ruddock, enlisted C. S. Liu, a Chinese member of the Technical Board, as a lobbyist against the bond issue within the Chinese government. Liu, who had studied in the United States, was also one of the most influential men in the Ministry of Communications. The American position finally mobilized sufficient support among the Chinese officials opposed to Chang Tso-lin, when the legation allayed the concerns of the Chinese premier, Gen. Chin Yun-p’eng; Liu; the minister of communications, Chang Chih-t’an; and the Director General of the Chinese Eastern Railway, Sung Hsiao-lien that the United States planned no permanent internationalization of the line, but rather, that it merely wanted to use the Technical Board as a means of preserving the existing rights of all concerned parties. It was only after these assurances were communicated to the premier that Liu informed the legation the bond issue would be dropped.⁴⁷

However, even Liu refused to give a “blanket assurance” that China would cooperate with Stevens’s terms; that as a party to the Inter-Allied Railway Agreement, China recognize the Technical Board’s authority over all matters connected with the finances of the Chinese Eastern Railway.⁴⁸

In early August, Minister of Foreign Affairs W. W. Yen revealed why all Chinese officials were sensitive about the continuation of joint Sino-Russian control over the Chinese Eastern Railway. This precedent strengthened Japan’s claim for a joint Sino-Japanese railway in Shantung Province, a concern shared by Britain in light of its fears over Japanese penetration in central China. In contrast to the Chinese Eastern Railway, Yen commented favorably on the arrangement China had with Britain with regard to lines such as the Shanghai-Nanking Railway, a Chinese government railway constructed by Britain.⁴⁹ Britain agreed to build this line for the Chinese Railway System in return for concessionary rights to furnish the line with British capital and materials. British contractors were effectively given a preference in all orders made for this line because a British engineer had the privilege of supervising the line during the term of the loan.⁵⁰ This episode demonstrates how the convergence of interests between Britain’s investment sphere in Central China and Chinese nationalism operated to the detriment of American efforts to nominally preserve Russian rights in the Chinese Eastern Railway.

In the aftermath of the bond issue controversy, the question remained of how to finance the Chinese Eastern Railway. At the high point of the controversy on July 13, Yen quizzed Ruddock whether, as an alternative to the bond issue, the United States or the governments represented on the Technical Board would be willing to furnish the needed funds. In late June the possibility of consortium financing had again been raised—this time by the British group. Sir Charles Addis of the Hong Kong Bank and head of the British group learned that the Japanese government had decided to retreat from its previous opposition to Japanese participation in consortium financing for the Chinese Eastern Railway. Addis recognized that China probably hoped to inherit the line from Russia, and he suggested that the powers accept this fate. Addis believed the consortium members “should be content to see the Chinese Eastern Railway merged in the Chinese Government Railways and, in view of the international importance of the line, we would remain willing to render financial support in terms of Article 4 of the Consortium Agreement, i.e. ‘on the principle of complete equality in every respect.’” In other words, since Britain held no special interests in northern Manchuria it would be completely willing to see the line come under Chinese control as long as Britain retained equal opportunity to finance the line.⁵¹ This encouraging news finally spurred the State Department to approach Japan with the amended plan of January 13, 1921, for supervision of the Chinese Eastern Railway.⁵²

The State Department also brought this matter to the attention of the American group in early August, but they quickly dampened the hopes of the State Department. While J. P. Morgan and Company thought the Chinese Eastern Railway should come under consortium jurisdiction, until the Chinese government decided that it wanted the consortium to function “and until the financial position of the railway itself makes a better exhibit, we think there is little immediate possibility of offering in the United States a loan to this railway.” Ever conscious of the need to maintain investor confidence in the financial markets, the American group stressed that it “must exercise the greatest caution and assure itself that” any Far Eastern loan it offered to American investors “shall be based upon sound operation and adequate security.” Obviously the Chinese Eastern Railway did not meet these criteria. In a comment that demonstrated the advantages state capitalism had over corporate-liberal America in foreign investment ventures, the American group added that “It is true that in a situation of this kind Japanese bankers are sometimes able to proceed, but only under a guarantee on the part of their government which the American group would deem entirely unfitting to suggest to the American Government.”⁵³ J. Paul Jameson, an American consul on temporary assignment to the State Department, captured the essence of the American dilemma over the railroad with his observation that “if the Group waits for the betterment in operations and earnings of the Railway when the object of the loan is to put it on its feet, there is no chance of a consortium loan, unless some sound security can be found to satisfy the Group.”⁵⁴ In a letter to the American group, Secretary of State Hughes expressed regret over its decision, reminding the group that “the international importance of the Chinese Eastern Railway is quite obvious, and I hoped that through adequate financial support it might be made an important instrumentality of our ‘open door’ policy.”⁵⁵

In response to an inquiry from the State Department, Stevens indicated the Chinese Eastern had great need for a loan. He estimated the line required about $10 million gold. He believed a mortgage on the line’s assets would be a more than adequate basis upon which to secure the loan, since a conservative figure placed its value at $100 million. Once again, however, Stevens insisted that the loan only be granted on conditions the Chinese would inevitably resist. The Technical Board must have sole control over all receipts and expenditures and it must have complete authority over all personnel decisions in order to prevent the Chinese from “loading” the payroll with high positions.⁵⁶ Stevens could not have been optimistic that anything would come of his recommendations because he informed the department that all actions of the Chinese government demonstrated its resolve to control the line.⁵⁷ After receiving Stevens’s suggestions for financing the line, J. P. Morgan and Company dashed any lingering hopes that the American group would extend a loan to the line when it told the State Department that, if China hoped to attract the American investing public, it would likely have to pledge the surplus revenues of all the government railways above the charges on bonds issued for railway construction.⁵⁸

American policy toward the Chinese Eastern Railway was clearly at an impasse by the late summer of 1921. The United States lacked the power to assert the Open Door on this critical communication link amid the divergent Far Eastern interests of Japan, China, and Great Britain. Likewise, the poor investment climate in China deterred American bankers.

The problems American policy faced in the Russian Far East and northern Manchuria typified its overall position in the Far East. The Harding administration sponsored the Washington Naval Conference between November 1921 and January 1922 in an effort to remove an important source of the United States’s political isolation in the region. With the Anglo-Japanese alliance up for renewal in 1921, the Harding administration undertook this initiative in an attempt to redress the unfavorable relations of power that confronted the United States in the Far East. Since 1902 Japan’s defensive alliance with Britain had given it the freedom to pursue expansionist policies. Even though Britain wanted to maintain friendly relations with its Asian treaty partner, by 1921 it could no longer avoid the threat Japan’s hegemonic designs in the region posed for its own interests in central China. Britain now hoped to maintain the advantages of the Anglo-Japanese alliance by transforming this relationship into a tripartite arrangement that would include the United States. These sentiments were expressed to American officials through diplomatic channels in the spring and early summer of 1921.

When the British Imperial Conference called for a discussion on the Pacific and the Far East in early July, the Harding administration quickly moved to organize a conference that would address the whole spectrum of Far Eastern issues. By early September the State Department announced that the agenda of the Washington Conference would consist of two phases: the first would address the issue of naval disarmament, and the second stage would take up Pacific and Far Eastern political issues. During this second phase the State Department would attempt to resolve the whole range of Chinese and Siberian issues, including the Chinese Eastern Railway and the Japanese occupation of the Russian Maritime Provinces.

This division of the conference agenda into two parts was crucial to the American strategy. The American delegation, headed by Secretary of State Charles Evans Hughes, hoped to achieve dramatic success in disarmament issues first, in order to reduce tensions among the Far Eastern powers. Indeed, the United States accomplished its principal political goal, the termination of the Anglo-Japanese alliance, by abandoning its own ambitious naval program and by agreeing not to construct advanced bases in the Philippines and Guam. Following the agreements on naval tonnage and Pacific fortifications the United States persuaded Britain and Japan to replace their alliance with a Four-Power Treaty, which also included the United States and France. Under this treaty the signatories agreed they would attempt to settle Far Eastern controversies through diplomacy and conferences, rather than with force.

The Siberian and Chinese Eastern Railway questions figured prominently in the later stages of the conference. As an international forum the conference setting gave the American delegation a more favorable position for bargaining with Japan and China over these issues in which the United States otherwise lacked leverage. In an important breakthrough for the United States’s Far Eastern policy, Secretary Hughes obtained Japan’s promise to withdraw its troops from Siberia, offering renewed hope for the Open Door in the Russian Far East. This was a noteworthy achievement because both Japan and Britain had favored exclusion of Siberian questions from the conference agenda.⁵⁹

But America’s Siberian policy still hinged on the Chinese Eastern Railway and it would be harder to counteract Japan’s manipulation of Chinese factions than to obtain an agreement for the withdrawal of its troops. The State Department hoped that it could use the conference to pressure China into accepting some type of strengthened international control over the railroad. Accordingly, the department requested that John Stevens return to Washington in an advisory role for the American delegation. Stevens’s prestige still represented the United States’s biggest asset in its struggle against Japanese aggression and against China’s intractable position regarding the Chinese Eastern Railway.

Just before the opening of the conference, Japan put forward a new proposal that was designed to encourage Chinese resistance toward the American position. At the end of October 1921, Japan responded to the American plan for enhanced supervision of the Chinese Eastern Railway with a counterproposal that would transfer direct control of the line to the legally suspect board of directors; a body dominated by its Chinese majority.⁶⁰ On his return to Washington Stevens vehemently dismissed this new Japanese proposal as “altogether inadmissable” and “not worthy even of discussion.” He stressed that what little power the Technical Board effectively exercised under the existing agreement would be “entirely nullified” by the Japanese proposal.⁶¹ In view of his staunch opposition to any increase of Chinese authority over the line, Stevens submitted new recommendations for international control of the line, which differed little from the amended plan presented to Japan in August.⁶²

But at the conference the State Department attempted to reach an accommodation with China’s unyielding nationalist sentiment regarding the Chinese Eastern Railway. During informal preliminary discussions in Washington, the American delegation learned that the Chinese delegation would oppose any form of international control over the line. In view of this unavoidable opposition of China’s representatives, the State Department first tried to maneuver around the fragile Peking government. On December 24, before the Chinese Eastern Railway issue would be formally taken up at the conference, the State Department instructed the American ambassador to China, Jacob G. Schurman, to confidentially broach a new American proposal to Gen. Chang Tso-lin, who for practical purposes governed Manchuria independently of Peking. The State Department directed Schurman to impress upon Chang the need for a “temporary international conservancy” over the Chinese Eastern Railway as the only alternative to Japanese financial control over the line.

This new American proposal for the railroad focused on three principal issues: finance, operation, and police. In its new approach to these issues the department skillfully shifted the machinery for international supervision from management of the line to its financing. It hoped to impress upon Chang that the railroad should obtain funds from a number of foreign powers or else it would become exclusively dependent on the Japanese. While foreign funds were in use by the railroad their expenditure should rightly be controlled by a board of conservators representing the nations who contributed to the line. Located at Harbin, this body would conveniently replace either the existing Inter-Allied Railway Committee or the Technical Board. To further appease the Chinese, the United States acknowledged that operation should be left in the hands of the Chinese Eastern Railway Company without interference from the conservators on technical matters. However, the American plan qualified this concession with the reservation that the conservancy maintain general control in matters of finance. Finally, the American proposal recommended that a dependable police force be established to protect the railway property and to maintain public order in the railway zone. This force could be composed strictly of Chinese, but the American proposal stipulated that this guard be paid by and remain under the conservancy’s control.⁶³

After a long visit with Chang on New Year’s Eve, Schurman reported to Washington that the governor-general reacted very unfavorably toward the American proposal. Since he did not want to be drawn into a controversy with the Peking government over this issue, Chang simply told Schurman that the question should be handled by the Peking government, not him. Later in the conversation, Chang reminded the American ambassador that, even with his extensive power, he could not afford to support any course of action inimical to Japan’s wishes.⁶⁴

Even after the Washington Conference subcommittee on the Chinese Eastern Railway began its deliberations on the issue, the State Department continued to pursue independent diplomatic initiatives in Peking in an attempt to enlist first the Chinese foreign minister and then Britain’s support specifically for the conservancy proposal. On January 10 the department instructed Schurman to “present the plan merely as a suggestion… to avoid the possibility that he [the Chinese foreign minister] will immediately unconditionally reject it.”⁶⁵ Foreign Minister Yen only promised to confer with the minister of communications on the matter.

Meanwhile, the department directed Schurman to confidentially obtain the British minister’s cooperation on this compromise American proposal in order to improve the chances of winning acceptance from the Peking government.⁶⁶ Instead, the British minister reported to London that he only favored modification of the existing inter-Allied agreement that would modestly increase the Technical Board’s power. Schurman attributed the minister’s uncooperative attitude to Britain’s “opposition to any general program of internationalization of the railways in China as that would deprive England of [the] predominant position she now holds in connection with certain railways.”⁶⁷ In other words Britain opposed any truly effective form of international supervision of the Chinese Eastern Railway since it could potentially be used in the future as a precedent to jeopardize the British investment sphere in central China.

Back in Washington, in the deliberations of the conference subcommittee on the Chinese Eastern Railway, the American delegation found it had little room with which to maneuver between Japan and China. The American delegation would have preferred to transform the existing Technical Board into a “temporary international conservancy” since it could then assert that an American be retained as chairman. Predictably, the Japanese delegate opposed this and insisted that Japan obtain “a position of equality in any international body created at Harbin.⁶⁸ In what probably represented a compromise, the subcommittee’s final report of January 21, 1922, stipulated that a finance committee, similar to the international conservancy, replace both the Inter-Allied Railway Committee and the Technical Board. Even then, the Japanese delegate to the conference subcommittee indicated that he expected the organization of this committee would require adjustment. Parts two and three of the final report, regarding operation and protection of the line, were virtually identical to the original American conservancy proposal.⁶⁹

Inevitably, the Chinese delegates on the technical subcommittee rejected the final report of January 21 on grounds that it infringed upon China’s sovereignty. China would not permit a foreign trusteeship to exercise general financial control over the line and it would not agree to place Chinese police forces under an international body.⁷⁰

Recognizing that nothing more than a stalemate had been reached by the technical subcommittee, Secretary Hughes suggested that a subcommittee of delegates be appointed in an effort to reach an agreement. Further wrangling and numerous compromise resolutions failed to produce any significant improvement over the existing inter-Allied agreement. Once again, the obstructionist positions of Japan and China tended to cancel each other, thereby severely limiting the possibility for an effective resolution of the issue. On the one hand, China opposed any amended agreement for the supervision of the Chinese Eastern on grounds that the original agreement provided for Allied supervision over the whole Trans-Siberian system, which included the sections in Russian territory. On the other hand, the Japanese delegate refused to accept the inclusion of the Ussuri Railway in the discussions. Japan’s delegate also objected to an appointed chairman of the Allied board.⁷¹

In the end, Chairman Elihu Root could only report an unenforceable resolution from the subcommittee, which called for preservation of the rights of all interested parties through better protection of the railway and its personnel, more careful selection of staff to ensure efficiency, and more economical use of funds to prevent waste. In an adjoining reservation, to which China did not agree, the other powers called on China to uphold its responsibility, both for performance of its obligations to the foreign stockholders and creditors of the railway and for it to fulfill the responsibilities of trusteeship China now exercised as a result of its possession and administration of the line.

While these resolutions lacked enforcement power because of China’s opposition, Hughes hoped that China’s participation in the conference would demonstrate to its leaders the benefits of international cooperation. For all of its shortcomings, he considered the conference resolutions on the Chinese Eastern Railway an important moral achievement. First, general recognition was obtained for continuation of the inter-Allied agreement. Next, the resolution’s provision for continuing diplomatic exchanges on the issue left open the possibility that an amended agreement for supervision of the line could still be achieved. Finally, the conference exerted international moral pressure on China to fulfill the responsibilities of trusteeship that it had assumed under the “purported” contract of October 2, 1920.⁷² Ambassador Schurman reiterated these sentiments to the Chinese minister of foreign affairs, W. W. Yen, emphasizing that the United States “placed particular stress on the advantage to China and the wisdom of the Chinese Government’s assuming of its own accord the initiative in immediately asking the other powers to cooperate in handling the railway problem.”⁷³

Stevens had a decidedly unfavorable view of the conference resolutions on the Chinese Eastern Railway. He believed the United States should have extracted a definite commitment from Japan specifying the date it would begin the withdrawal of its troops from Siberia. He warned that Japan’s continued occupation of Russia’s Maritime Provinces and of Vladivostok, even if for a limited period, would enable Japan to redirect freight traffic from the Chinese Eastern Railway to the South Manchurian Railway and the port of Dairen. Since its occupation Japan had consistently pursued this goal by interfering with the operations of the Ussuri Railway, which ran from Vladivostok to the Manchurian border, and by manipulating traffic rates.

Stevens’s dissatisfaction with the conference results occasioned another of his frequent threats of resignation. Secretary Hughes, who hardly needed to be reminded of these dangers, asked Senator Elihu Root to explain the situation to Stevens. Clearly irritated by Stevens’s attitude, Hughes commented to Root that “he seems to think that we have some way of driving the Japanese troops out of Siberia without going to war. Perhaps you can give him a better understanding.”⁷⁴ In conversation with Root, Stevens also criticized the conference resolutions for placing responsibility on China for operation of the line. Chinese officials would construe these statements as tacit acceptance that the line belonged to China.⁷⁵

In discussions following the Washington Conference, Chinese officials indicated they had little reason to reach an accommodation with the American position. C. C. Wang, who was made director general of the Chinese Eastern Railway in March 1922, told Schurman that China was content to maintain the existing status quo with the expectation that it would soon reach an agreement with the Soviet government over restitution of the line. In the meantime, the Chinese were content to let the line struggle along financially. Any economies the Technical Board achieved were quickly siphoned off by Chinese officials who continued to establish new patronage positions. If a foreign loan became necessary, the Chinese considered the existing inter-Allied bodies convenient vehicles for facilitating any financial arrangements they would have to make with the powers. Otherwise, the Technical Board still served a useful purpose in as much as both the Chinese and the Russians found it a useful buffer between them.⁷⁶

By the end of May the Chinese officials utter disregard for the Technical Board and their willingness to loot the railroad had convinced the demoralized Stevens that inter-Allied supervision over the Chinese Eastern Railway should be terminated.⁷⁷ Under the existing state of affairs, Stevens did not think a financial collapse of the railroad could be averted.

By the summer of 1922, however, the Ostroumov administration’s rate policy, not Chinese graft, would be responsible for bringing the line to the brink of financial disaster. While the Technical Board appreciated Ostroumov’s aggressive efforts to reduce costs and to remove corrupt officials held over from Khorvat’s administration, it increasingly became frustrated with his short-sighted financial practices that undermined the line’s solvency. During the winter and spring of 1921, Ostroumov’s administration had resorted to deep reductions in transportation rates in order to attract more business to the line. In March 1921 the Technical Board temporarily approved the administration’s proposal to reduce rates on bean cake from 1.40 to 1.05 gold rubles per tariff ruble to stimulate the reopening of the bean oil mills in northern Manchuria.⁷⁸ Then in July the Technical Board approved another reduction on bean oil and cakes from 1.05 gold rubles per tariff ruble to parity at 1 to 1. The Technical Board approved these measures, pending a reliable assessment of the line’s cost structure.⁷⁹ After returning from the United States in late June, Stevens concluded that the railway administration had reduced rates too far since March in its efforts to satisfy shippers.⁸⁰ In August the Technical Board’s financial subcommittee, chaired by the British member, Brig. Gen. W. T. C. Beckett, recommended that an upward revision of the tariff rates was necessary. It had found that the existing estimates of the cost of transportation were flawed because they did not take into account that one-fifth of the railroad’s earnings were never actually paid in hard cash. This large shortfall in the line’s real income existed as a result of unpaid military bills, amounting to about 10 million gold rubles, and because 40 million rubles consisted of Siberian currency, which the railway had been forced to accept and were now worthless.⁸¹ To rectify the divergence between the line’s costs and its income, the subcommittee recommended that the exchange rate between the gold ruble and the tariff ruble be raised from parity on most Manchurian products to 1.20 gold rubles per tariff ruble.

Before leaving for the Washington Conference, Stevens had strongly urged the Technical Board to begin discussions with the administration over the desirability of placing the Chinese Eastern Railway’s rate policy on a “scientific basis.”⁸² Repeated overtures by the Technical Board to devise a systematic rate structure failed to elicit any serious action on the part of Ostroumov’s administration.

Predictably, the drastic rate reductions of the winter and spring of 1921 gradually eroded the railroad’s improved financial performance, which had stemmed from the increased traffic in early 1921. By August 1921 current indebtedness had actually been trimmed from 8.5 million rubles to about 5.4 million rubles. However, as the line continued to haul freight at rates below its costs into 1922, the administration compounded its errors by utilizing short-term notes and transportation credits, both of which were issued to contractors in lieu of cash. Ostroumov’s administration increasingly resorted to these quick-fix financial expedients without the Technical Board’s approval, thereby escalating the line’s current indebtedness to critical levels by the summer of 1922.

In June 1922 the Technical Board’s financial subcommittee warned that the Chinese Eastern Railway’s current indebtedness would soon exceed 14 million gold rubles. A major cause of this rapid escalation in current liabilities lay in the Russian administration’s heavy reliance on the short-term notes and transportation credits issued to the line’s contractors. Because the railroad’s persistent financial difficulties prevented it from paying its obligations on time, the notes inevitably had to be renegotiated at high rates of interest. Meanwhile, the transportation credits sacrificed the line’s future cash receipts, just as this current debt was rising to dangerously high levels. The finance subcommittee calculated that until the end of October, when another bean harvest would be ready for export, existing transportation credits could be applied to as high a percentage as 41 of the 46 daily car exports—the estimated daily average, leaving the railroad with little income from freight traffic. Even worse, about 2.7 million rubles were overdue to the Japanese-owned Fushan coal mines.⁸³

While the financial condition of the Chinese Eastern Railway continued to deteriorate, Japan made no response to American requests for a definite proposal regarding the line. All indications suggested that Stevens’s warnings of impending trouble following the Washington Conference were being realized. In early May he reported to Washington the likelihood that Japan’s Mitsui and Mitsubishi companies were about to purchase the Ussuri Railway and to change its gauge. He believed the Japanese government stood behind these private companies in order to maintain plausible denial.⁸⁴

On June 30 Stevens’s fears were confirmed when he received the shocking news of a distinctly unfavorable rate agreement for the Chinese Eastern Railway, which its directors concluded with the Japanese-controlled South Manchurian Railway during a conference at Changchun. Under the terms of this agreement, the Chinese Eastern Railway relinquished its independence to the South Manchurian Railway by agreeing not to change its own traffic rates without consent of the South Manchurian Railway. The Chinese Eastern was now required to apply a uniform freight rate for both north- and southbound trips on its Changchun branch regardless of destination—whether north to Harbin or south to the Japanese-controlled ports of Dairen, Yinkow, and Antung. But for no other reason than to force traffic in a southerly direction, the Chinese Eastern Railway had to raise its rates eastward to Vladivostok both from Harbin and from the southern Changchun branch via Harbin by 1.22 yen per ton!

In contrast, the South Manchurian Railway could adjust its rates as it saw fit. These rate agreements were designed to create an advantage for Dairen at the expense of Vladivostok because Japan controlled sea transportation to Kobe from both ports. Not surprisingly, with a monopoly of sea transportation Japan discriminated against Vladivostok by establishing highly variable rates from that port, which created instability for shippers while the rates from Dairen remained stable.

As a result of this agreement Dairen would be able to attract from Vladivostok the rapidly developing bean trade of northern Manchuria. Before 1914, 80 percent of these exports went through Vladivostok, and while this decreased to 10 percent during the war, this figure had risen to 70 percent by mid-1922, largely due to efforts of Stevens’s Technical Board. Through its control of sea routes, this agreement virtually gave Japan the power to determine the world price of beans at a time when Europe was becoming a large importer.

In Stevens’s view Japan had been able to impose this agreement on the Russian administration because of its gross financial mismanagement of the line. The estimated 14 million gold rubles in short-term notes, including the 3 million yen owed the Fushan coal mines, gave Japan the financial leverage to entice the Russian administration into accepting the agreement with the promise of an advance payment of 1 million yen, without interest. Stevens noted that this amount could have been earned by the railroad with only a slight increase of traffic from 1921 levels. This controversial agreement had been concluded in a single day, without consultation with the Technical Board, in order to present it and the public with a fait accompli.⁸⁵

Following this agreement Japan announced it would begin the withdrawal of its troops from Siberia and the Chinese Eastern Railway zone in accordance with its promise at the Washington Conference. This process would be completed by November 1922. Japan no longer needed to maintain its troops because the Changchun agreement fulfilled its principal objective; it now effectively controlled the Chinese Eastern Railway and the economy of northern Manchuria, ensuring the demise of the Ussuri Railway and the Port of Vladivostok. Japan’s withdrawal also set in motion the termination of the inter-Allied agreement and the end of John Stevens’s service in Russia.

One possible alternative to the Japanese-imposed settlement existed, and it could have developed from the Technical Board’s offers to devise a rational rate structure for the Chinese Eastern Railway. Japan had forced the agreement on the Russian administration in part to protect the South Manchurian Railway from Ostroumov’s reckless rate reductions, a practice the Technical Board also condemned. Accordingly, a rational rate structure would necessarily have had to take into account the interests of the South Manchurian Railway. Some insight into the Technical Board’s views on this problem may be gleaned from a suggestion made by David B. MacGowan, the American representative on the Inter-Allied Railway Committee, in February 1922. MacGowan proposed a plan whereby the Chinese Eastern and South Manchurian Railways would “pool” the revenues from traffic originating in the rich bean producing areas of northern Manchuria, thereby reducing the intense interline rivalry. To illustrate the advantages of interline cooperation, he referred to the recent precedent of the U.S. Transportation Act of 1920, which gave the Interstate Commerce Commission (ICC) broad power to rationally regulate American railroads in the best interests of the railroads and shippers.⁸⁶ Implicitly, MacGowan’s plan would have given the Technical Board what Stevens had wanted all along—extensive authority to regulate economic activity in northern Manchuria, transforming the Inter-Allied Railway Committee into an international analogue of the ICC.⁸⁷

Before he returned home, Stevens participated in one last attempt to maintain American influence on the Trans-Siberian Railway. From the spring through November 1922, Stevens, M. H. Bunting, representative of the Baldwin Locomotive Works; Carl Mayer, Commerce Department Trade Commissioner for Siberia; and Russian officials connected with the Chinese Eastern Railway, all endeavored to arrange barter agreements between the Chinese Eastern Railway and the railroads of the Soviet-sponsored Far Eastern republic. By forging a working relationship between sections of the Trans-Siberian railroad in Russian and Chinese territory these American officials hoped to establish the basis for a future American presence on a unified railroad system.

As far back as January 1920, both Stevens and Johnson had expressed optimism over the possibility that they might develop more satisfactory relations with the coalition revolutionary government that was then in the process of formation than they had ever had with the Omsk government.⁸⁸ At the Washington Conference, the State Department demonstrated to the Far Eastern republic the value of American diplomatic goodwill. The United States had adroitly permitted a commercial representative from the Far Eastern republic to attend the conference as an observer in order to bolster the republic’s bargaining position in its drawn-out negotiations with Japan over the withdrawal of its troops from the Maritime Provinces. Likewise, the State Department thought the presence of a representative from the Far Eastern republic at the conference might induce Japan and China to make concessions on the Siberian and Chinese Eastern Railway questions. In early December 1921, D. C. Poole suggested that the United States should consider letting the Far Eastern republic exercise Russia’s legal rights over the Chinese Eastern Railroad, if the State Department could not obtain a satisfactory agreement for an international receivership over the line. Nevertheless, he indicated this should essentially be used as a ploy since “a suggestion that the United States would be prepared to cooperate with the Far Eastern republic in the operation of the railway might move Japan to consent to a continuance and strengthening of the existing agreement.”⁸⁹

The United States also employed this diplomatic card in an attempt to delay the conclusion of any agreement between the republic and the Chinese government over restoration of the Chinese Eastern Railway to China. However, the Far Eastern republic also had its reasons for objecting to the American proposal for expanded international supervision of the Chinese Eastern Railway. Representatives of the Far Eastern Republic told Consul John Caldwell at Chita they feared the presence of an Allied police force for the railway zone because it would be composed of anti-Bolshevik elements. The Bolshevik government and the Republic therefore wanted to settle the line’s fate among themselves and China. For their part, the Russian revolutionary governments and China were attempting to preempt Japan’s efforts to gain control of the line through its support of Chang Tso-lin.⁹⁰

The barter arrangements concluded in November 1922 between the Trans-Baikal and the Chinese Eastern Railways that developed out of discussions Benjamin Johnson, Stevens’s acting representative on the Technical Board, initiated with officials of the Far Eastern republic in the spring. In early March Johnson reported to Stevens that commercial activity in the Trans-Baikal was rapidly improving. This trend would receive additional impetus when the Far Eastern republic established its control over the whole Russian Far East after the evacuation of Japan’s troops. But Johnson thought the poor condition of the republic’s locomotives and freight cars would hamper this process. Accordingly, Johnson asked for Stevens’s authorization to examine locomotive conditions at Chita and to order as much as five hundred thousand dollars of repair parts for this equipment from Stevens’s funds.

Johnson recommended this course of action because in a variety of ways it would strengthen American prestige among the Russian revolutionary governments who were deeply interested in the fate of the Trans-Siberian system. He thought it might persuade the Far Eastern republic and its Moscow backers to support the revised American plan for supervision of the Chinese Eastern Railway. Next, a future Russian government would possibly be more inclined to honor the loans already made to the Trans-Siberian railway if the American engineers demonstrated the “non-political character of our work.” Moreover, if the United States assumed a friendly posture toward the republic, it might compel Japan and China to adopt a more conciliatory position toward the regime. This service might impress upon the republic some appreciation for the United States. Finally, in view of the inconclusive results of the Washington Conference, this step would reassure Russians of all political stripes that the United States had not abandoned its commitment to Russia’s “reconstruction.”⁹¹

The State Department would not approve any financing for the Trans-Baikal Railroad because virtually all of the Technical Board’s funds had already been allocated. Stevens added that the Technical Board would probably require that it be permitted to supervise the use of the funds. Still, D. C. Poole, head of the Russian division, did think Johnson should be allowed to investigate conditions at Chita. He favored this overture because it would create goodwill with the Russians and because it would “emphasize the fact that our interference with the Chinese Eastern Railway is not so much with that railway in itself as with a link of the whole Trans-Siberian system in respect to which our assistance was originally sought by the Russians.”⁹²

Johnson informed the State Department he planned to deliver the materials to the Trans-Baikal line in a manner that would be consistent with past procedures. The transactions would be mediated through a Russian representative of the Inter-Allied Purchasing Committee at Vladivostok; his receipt would then be accepted as if the materials were destined for the Ussuri Railway. An American engineer would direct all work done with this material. Johnson advised that this arrangement would secure an “entering wedge into Chita” that would later “cover further assistance and control.” For the present any further discussion of Allied supervision would only create suspicion on the part of the Russians.⁹³

On his return to Harbin in May, Stevens quickly became an advocate of Johnson’s plan for assisting the Far Eastern republic’s railways. He indicated that a limited amount of the inter-Allied funds would be required, of which only the American contribution remained. Stevens did not think the Technical Board would approve his use of the funds for this purpose, but for this very reason he thought the “action would have good political effect.” If the State Department gave final support to the plan, Stevens would insist on being given absolute control over the expenditures, but if he were not allowed to use these funds he believed his assistance would be of little value.⁹⁴

In mid-summer 1922, M. H. Bunting of the Baldwin Locomotive Works made an extensive tour of the Siberian railways at the request of the Far Eastern republic. During his trip, Bunting observed conditions that led him to oppose a loan to the republic at the time. He discovered that plenty of railroad equipment existed in Siberia; the Chita railway officials simply had no idea what to do with the supplies they possessed. Accordingly, he recommended that experts be made available to the government. With technical assistance, the republic could obtain food, spare parts, and other necessary materials from the Chinese Eastern Railway in exchange for the quantities of Siberian raw materials simply stocked along the railways such as coal, oil, cement, wood, and iron. Bunting proposed that unemployed Russian engineers and mechanics who fled Siberia after Kolchak’s fall should now return there to organize workers for the repair of the railways and railroad equipment and for the rehabilitation of the related industries. This work would fulfill an immediate humanitarian function because “these workers would be relieved from the hardships they and their families were suffering and a beginning made in the work of improving economic conditions in Siberia.” Stevens concurred with this assessment. He believed the economic recovery of Siberia required “outside brains and organizing ability, which no one in Chita appeared to possess.”

A delegation of Russian officials connected with the Chinese Eastern Railway, headed by General Manager Boris Ostroumov, favored the establishment of a joint Russian-American company to mediate the exchange of supplies between the two railroads. But neither Bunting or the American consul at Harbin, G. C. Hanson, was anxious to become involved in a business venture with these Russian railroad officials who had repeatedly demonstrated their administrative and financial ineptitude. Instead, Bunting and Hanson suggested a trial exchange of a few carloads of Siberian coal for Harbin flour. If these shipments proved successful, an American-Russian company could be established to handle the business, which would also include imported equipment.⁹⁵ While this trial shipment did take place, the absorption of the Far Eastern republic by the Soviet government, immediately following the withdrawal of Japan’s troops in November, prevented any possibility that this initiative would receive further American sponsorship.⁹⁶

American efforts to establish a more effective form of international control over the Chinese Eastern failed because of the United States’s political isolation. Britain played a pivotal role in the struggle for control over the line because its support for the American proposal might have compelled Japan to cooperate as well. However, consistent with its long-standing policy in the Far East, Britain preferred to continue its balancing act between the United States and Japan. Britain clung to the Anglo-Japanese alliance even as it increasingly proved less effective as a restraint on Japanese ambitions in China proper. Yet, the more Britain feared Japanese expansion in China proper, the more willing it was to acquiesce in the extension of Japanese influence in peripheral areas like Manchuria.

Below the surface of these geopolitical calculations, Britain also viewed the American proposal for strengthened international supervision of the Chinese Eastern Railway as having potentially threatening implications for its principal investment interests in China. Britain, it should be remembered, had strongly encouraged the United States to continue its participation in the inter-Allied agreement in the spring of 1920. But Britain quickly backed off when the United States proposed to transform the agreement into an international bankruptcy commission. The creation of a bankruptcy commission for the Chinese Eastern Railway might have set a precedent that would endanger the extensive financial and commercial privileges Britain enjoyed on many railway projects in central China. Moreover, in many of these contracts between Britain and the Chinese government, the railroads themselves served as the security for the loan, a factor that enhanced British leverage over the management of the line during the duration of the loan.

Finally, a convergence of interests between British investment policy and Chinese nationalism added another dimension to this intricate Chinese puzzle that militated against this specific American initiative toward the Chinese Eastern Railway. Although Britain extracted extensive concessionary privileges in its loan agreements for the construction of railroads in China, these lines were nevertheless being built for eventual inclusion into the Chinese national railway system. Therefore, because the United States supported Russian sovereignty over the Chinese Eastern Railway, if only to maintain its independence from Japan, it consequently put itself at odds with both China and Britain, who viewed the continuation of this Russian concession in Manchuria as a pretext for Japan’s claim for the same privileges with regard to the Tsingtao-Tsinan Railroad in Shantung.