Safe Deposit Vault

Wealthy Chinese as well as foreign traders in China have long realized that the safest haven for their transferable riches--jewels, antiques, gold and silver objects, foreign bonds, foreign money--was in the foreign-held concessions and International Settlements, where neither Chinese bandit nor Japanese invader could get at them. In their invasion of China the Japanese have found precious little loot with which to finance their war. Before they retreated the Chinese were careful to strip their cities of wealth, and what they could not take westward with them they hastily deposited in the foreign-controlled zones.

Not long after the war began the Japanese showed signs of coveting the accumulated riches of the concessions. In North China the Japanese demanded that the foreign concession at Tientsin, and the Legation Quarter at Peking, turn over to their puppet Government for a new Federal Reserve Bank some $9,000.000 in silver belonging to the Chinese Government-controlled banks. When foreign authorities (backed by the French and British Governments) refused, the Japanese took the extraordinary procedure of issuing paper money "against" this silver.

The fullest deposit vaults are in the big International Settlement and the French Concession at Shanghai. There are only guesses as to how much wealth (foreign and Chinese) is on deposit there, but if Japan, already forced to tighten her belt to carry on the Chinese "incident," could get her hands on these riches, they would help her in financing the rest of the war. While Chinese diplomats profess optimism over the military situation, no one was surprised when they warned Occidental powers sympathetic to China that the question of whether Japan wins or loses now depends largely on how firmly the French, British and U. S. stand on their rights in the international zones, give active support to China.

Last week the three powers stood firm, not only at Shanghai but also at the little International Settlement on the Island of Kulangsu, near Amoy. There the Japanese landed 126 marines. Soon Vice Admiral Sir Percy Noble, Commander-in-Chief of the British China Fleet, served the Japanese with an ultimatum to clear out. Sir Percy was not speaking for Britain alone but for France and, more important, for the U. S. Throughout the war the Japanese have been considerably more respectful to the U. S., which is a big nation with a big fleet more free to prowl the Pacific than those of other foreign powers.

In an aide memoire (an informal preliminary diplomatic note) the Japanese Government proposed far-reaching changes in the Government of the Shanghai International Settlement--changes which would give the Japanese virtual control of the Settlement. Chief Japanese demands were for more voting power for the Japanese residents of the International Settlement so that more Japanese could be elected to the Municipal Council. Other demands were for administrative and court "reforms." Just before going on leave, U. S. Ambassador Joseph C. Grew handed Japanese Foreign Minister Hachiro Arita the U. S. reply. It was a strong rejection of all Japanese demands. The U. S. even suggested that the Japanese, who have governed a small section of the Settlement as their own since the war and who have two seats of the 14 on the Settlement's Municipal Council, retire from their section of the International Settlement altogether. Britain soon followed suit, France was expected to send a similar answer.

But notes are not the only weapon the Japanese have been using. Japanese military and naval spokesmen have "predicted" that Japan would soon find it "necessary" to send her marines into the Shanghai International Settlement to stamp out anti-Japanese "terrorism."* Flushed by their small but solid victory at Amoy, the three Western countries put on at Shanghai a joint demonstration of just what resistance Japan would meet in the Settlement should her armed forces try to move in.

In the French Concession special Chinese police, French Ahnamese soldiers even French sailors from warships in the Whangpoo River were mustered out. In the International Settlement the 4th U. S. Marines and bluejackets from the U. S. cruiser Augusta were under stand-by orders. The British ordered out their entire defense forces, landing both soldiers and sailors from warships. The Shanghai Volunteer Corps and the International Settlement Police were called out to the last man. To give the Japanese no excuse for penetrating the area, Settlement patrols also began a systematic search for terrorists arrested 150 Chinese, found no ammunition. Two Chinese-language newspapers which had carried a speech by Generalissimo Chiang Kai-shek were suspended.

The Shanghai open money market soon reacted to the Occident's firm stand at Shanghai and Amoy. In terms of U S dollars, the Japanese yen fell below the value of the Chinese dollar, the yen falling under 16-c- while the Chinese dollar held firm at 16.11-c-. For the Japanese, who have been trying to persuade the Chinese that their money was just as good as Chiang Kai-shek's and who have made valiant efforts to keep Japanese-sponsored currency at par with the British and U S-supported Chinese dollar, this was as serious as a big defeat on the battlefield Many a Chinese coolie, farmer or worker in Japanese "conquered" territory has even on pain of death preferred the "harder" Chinese money, which could be changed at any time to western currency, to the yen which could not. Last week's events made them even more likely to continue this preference. For some 40,000 Japanese civilians and thousands of Army men who have thrown money about in the cafes geisha houses, bars and dance halls of Shanghai, the yen's fall meant that gaiety would become more expensive. Japanese officials began asking their nationals not to spend their yen in the International Settlement and the Japanese-sponsored Asia Development Board began a "thrift" campaign to cut down on "entertainment."

In Japan there were further headaches. The Tokyo yen has been officially pegged at 27-c-, U. S. currency. With the Japanese-backed North China currency now cheaper, money-smuggling was due for a boom. That the financial situation of Japan in China (not to mention Japanese prestige there) had suddenly taken a turn for the worse was evident when Toshigo Somma, Shanghai secretary to the Japanese Minister of Finance, suddenly departed for Tokyo for advice and counsel. And in Japan proper, the Government began a census of gold which included plates, rings, antiques, but not teeth.

*In recent months there has been less anti-Japanese terrorism in the Shanghai International Settlement than in Shanghai territory ruled exclusively by Japan. But Japanese suspect, with reason, that many of Japan's murdered Chinese puppets have been killed by assassins lying low in the Settlement.

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