5

Planting radishes in the desert

The Nationalists’ handling of the negotiations for Sino-Soviet economic cooperation in Manchuria

While the dispute over Dalian continued to cause stand-offs in the GMD–Soviet negotiation, disagreements over the ownership of the Japanese–Manchukuo industrial assets sparked yet another round of fierce wrangling. The withdrawing Soviet forces confiscated stockpiles of supplies, machinery and industrial installations as war trophies. The Soviets’ unilateral action infuriated the Americans. In June 1946, after full Soviet military withdrawal from Manchuria, Washington dispatched a reparations mission to China to investigate the condition of Japanese industries. The ensuing report held the Soviet government responsible for the severe damage to Manchurian industrial complex during its military occupation.¹

This official US view set the tone for the subsequent report and analysis. Studies have emphasised the systematic Soviet pillage in China’s north-east.² With righteous overtones, recent studies contend that the Soviet claims to substantial parts of the Japanese industrial complex as war booty and requests for the GMD’s cooperation in the post-war Manchurian economy were gross violations of international law. These studies claim that the Soviet leadership had deliberately occupied and monopolised the Japanese assets in Manchuria. Given such offensive manifestations of Soviet hegemony, these studies argue that the GMD leadership’s refusal to cooperate with Soviet demands was entirely justifiable; hence the failure of the GMD–Soviet economic negotiations was inevitable.³ The Soviet Union’s economic despoliation of Manchuria certainly did take place. Nevertheless, recent disclosure of Britain’s role in the organised dismantling of Italian industrial installations as spoils of war in post-war Eritrea demonstrates the complexities and competing interests involved in wartime and post-war looting by the Allied powers.⁴

There was once a dissenting view from Dong Yanping, NEHQ deputy chief of staff and head of the GMD military mission in Manchuria. Despite being an anti-Communist diehard,⁵ Dong regarded diplomacy, not military power, as a sine qua non for long-term stability in the north-east. Assessing the impasse with the Soviets, he warned his superiors that the ever-deepening trust deficit could push worsening Sino-Soviet relations out of control and defeat the purpose of the Sino-Soviet Treaty. The Soviets, he pointed out, might not have intended to simply monopolise the Manchurian economy. Soviet efforts to capture various monopoly privileges in Manchuria stemmed, according to Dong, from a misguided sense of insecurity and sensitivity. In the original version of his mission report written in 1946, Dong recommended that the Nationalist government revitalised the negotiation with a reciprocal proposal of economic cooperation with the Soviets in order to alleviate the Soviet Union’s heightening suspicions of the GMD.⁶

In the 1980s, a heavily abridged version of Dong’s original report was published by the Nationalist authorities with an appendix that contains an article written by Dong shifting towards anti-Soviet sentiment. In that article, he categorically rejected any possibility of reaching a settlement with the Soviets via diplomacy. He asserted that the Soviet request for a share of Manchurian industrial enterprises was merely part of a massive conspiracy to subjugate China. Even with a joint venture deal, the Soviet Union would still have propped up the CCP.⁷ The following discussion presents a new look at the history of the Nationalists’ handling of negotiating a Soviet-proposed economic cooperation scheme in Manchuria with their powerful Soviet opponents that was more chequered than Dong’s conflicting recollections.

Generalissimo Chiang’s defiance

Soon after the signing of the Sino-Soviet Treaty, the GMD authorities had already tried to pre-empt the Soviets by sending memoranda to both the United States and the Soviet Union declaring that all Japanese properties and enterprises on Chinese soil should be regarded as Japan’s war reparations to China.⁸ On 17 October in Changchun, Xiong expressed China’s intention to take over the Japanese industries in Manchuria. Malinovsky responded unequivocally that all Japanese factories and Sino-Japanese industrial joint ventures in the region were spoils of war for the Soviet Army.⁹ The focus at that particular juncture of the negotiations was Dalian, however, and both parties agreed that Zhang Jia’ao would discuss economic issues further with the economic counsellor of the Soviet Army Command in Manchuria, M.I. Sladkovsky.¹⁰

In his report to Chiang Kai-shek, Zhang Jia’ao speculated darkly that even if the Soviet Union were to withdraw its preposterous demand of ‘war booty’ and agree to run Manchurian industrial enterprises as joint ventures, China would still lose its ‘economic autonomy’.¹¹ In other words, Zhang considered China’s economic independence as a key national interest and did not consider such options as negotiating cooperation or accepting an asymmetrical Sino-Soviet economic interdependence, even if they had strategic and economic appeal. In reality, however, China and the Soviet Union had already developed asymmetrical economic ties since the war years. China was still repaying Soviet wartime loans via Wolfram trades, and a new contract for the 1945–46 payment year had just been signed on 12 December 1945.¹² The Nationalists simply could not exclude the Soviets from China’s post-war economy.

Zhang’s concern might actually be justified. In a decision-making process, options within the realm of the political dimension that are considered politically unacceptable may be discarded outright even though these options appear to have a cost-benefit attraction in other dimensions.¹³ However, Chiang’s own intelligence sources warned his inner circle that remaining on bad terms with the Soviet Union was not an option: to be able to fend off a militarily superior and disgruntled neighbour, the GMD would need to deploy 120 US-armed, heavy-armoured infantry divisions along the Sino-Soviet border—something deemed impossible for the war-depleted Nationalist government.¹⁴

Chiang was indecisive initially. He asked Zhang to do whatever was possible to adapt to the changing circumstances.¹⁵ Chiang’s hesitation amplified the GMD’s problems by allowing the Soviets more latitude. On 29 October, Sladkovsky successfully forced the Japanese management of the key Manchurian industries to relinquish control to the Soviets, prompting Zhang’s bitter recognition that the dispute over the GMD takeover of Manchuria must be solved together with the disputes over economic issues.¹⁶

Chiang then decided to pursue the tactic of passivity to the extreme. In early November 1945, still fuming over being forced to send GMD troops overland to the Shanhaiguan area, where they encountered strong CCP resistance, Chiang decided to protest by means of a walkout from the negotiations in Changchun. He explained to his cabinet that the withdrawal would expose the truth of Soviet lack of cooperation to the world.¹⁷ Chiang’s plan resembles the negotiation tactics of ‘withholding’, whereby less powerful parties attempt to exercise counter-control over their stronger opponents.¹⁸ With calculated passivity (e.g. withdrawal), a negotiator can disrupt the opponent’s course because it is tantamount to an appeal. It also establishes an image of the weak as a victim of injustice, which discredits the stronger rival. As a negotiation technique, however, accusing the other of an injustice does not change the nature of the conflict but only sustains or even escalates it, and in the longer term creates more opportunities for the stronger party to discount or belittle its weaker opponent.¹⁹

The NEHQ was ordered to withdraw from Changchun on 15 November. All NEHQ personnel were to be evacuated except those in the Military Mission. The mission, headed by Dong, was to keep liaising with the Soviet forces and would be attached to the Soviet headquarters. As it turned out, the NEHQ was first relocated to Beiping in December 1945 and then moved to Jinzhou in March 1946 before relocating to Shenyang in April 1946.²⁰ After Chiang made the decision to suspend his government’s participation in the negotiation with the Soviets, Sladkovsky unexpectedly told Zhang that the Soviets intended to use the ‘confiscated enemy property’ (i.e. the industrial plants) for a joint venture project with the Nationalists. This was the first time the Soviets had raised the prospect of Soviet–GMD collaboration in Manchuria since the talks began in mid-October.²¹ However, the change of tack by the Soviets did not stop the Nationalists from going ahead with their plan to withdraw from the negotiations, amid the intensified hostilities in Shanhaiguan, where their troops had begun to triumph.

The Soviets responded to the GMD’s announced withdrawal with a carrot-and-stick approach. In Changchun, the GMD officials in the NEHQ were subjected to intimidation. On 16 November, those in the NEHQ compound found themselves without running water or electricity, as well as besieged by non-Soviet police armed with heavy machine guns. A GMD plane sent on 17 November to rescue staff managed to evacuate only 160 personnel; the remainder scrambled to get out, amid scenes of chaos.²² Simultaneously, the Soviets softened their negotiating stance. Sladkovsky now expressed interest in allowing China to play a major role in running a number of Manchurian industries.²³ The Soviet troops also quickly stepped in to defend the NEHQ compound and chased away the armed men.²⁴ In a communiqué from the Soviet Embassy in Chongqing to the GMD Foreign Ministry, the Soviets pledged to ensure preferential treatments for the GMD airlifted troops arriving in Shenyang and Changchun, and announced that the Soviet forces would be able to stay in Manchuria for one to two more months if the Chinese government so wished.²⁵

The Soviets were keen to reopen negotiations with the Nationalists in the wake of this series of damage control exercises. On 20 November, Sladkovsky met Zhang and told him that while regarding all Manchurian industrial plants that had supplied the Japanese army as war booty, the Soviet government was willing to split the ownership of these industries equally with China and operate them as joint ventures.²⁶ Zhang departed for Chongqing on 24 November with the last contingent of NEHQ evacuees. He reported to Chiang positively about the entry of GMD troops into Manchuria, if there was a consensus by both parties on economic cooperation.²⁷

Chiang, riding high after the GMD’s occupation of Shanhaiguan, was in no mood to negotiate a plan that was congenial to the Soviets.²⁸ Many GMD leaders, including the moderate Wang Shijie, expressed their support for Chiang’s strategy of non-engagement until the GMD had completed its takeover.²⁹ Both Wang and Premier Song mistrusted the Soviets and viewed their war booty claim as a breach of the Sino-Soviet Treaty. Continuing negotiations would lead only to a poor outcome.³⁰ Wang personally regarded Soviet ‘power politics’ as the biggest impediment to reconciliatory negotiation.³¹ To borrow Cohen’s example of Japanese–American negotiations, the Soviets seemed unaware that their heavy-handed attempts at bludgeoning the Nationalists into submission could create difficulties for the GMD in terms of obtaining a ‘domestic consensus’.³² In this sense, Song and Wang’s approach might not have been a bad idea: they could minimise their dependence on a party they did not fully trust. But the GMD leaders had not fully assessed the possible ramifications of withdrawal.³³

Chiang and his associates seemed to believe that they could have their cake and eat it too. First, they sought to secure the Soviets’ full cooperation for their troop-airlifted campaign and accepted the Soviets’ offer of a month’s extension for Soviet troop withdrawal.³⁴ In pursuit of the first goal, they decided to send Zhang Jia’ao and Chiang Ching-kuo back to the negotiating table.³⁵ As it turned out, the Soviet forces were granted an extension of their withdrawal to 1 February 1946 following an understanding reached by the two governments on 9 December 1945.³⁶

Concurrently, however, they attempted to cut the Soviets out of Manchuria’s economy by hatching a plan that included more posturing, along with a harsh stipulation that the negotiations on economic issues would be reopened only after the GMD took control of Manchuria. The plan the GMD authorities prepared for Zhang was not attractive to the Soviets at all. The key elements of the plan were that economic cooperation would be based on barter and that China encouraged Soviet investment in Manchuria.³⁷

Zhang flew back to Changchun on 4 December. In Xiong’s absence, Zhang bore the brunt of the negotiations, without much latitude to work with. Sladkovsky ridiculed the GMD’s proposal as ‘lacking in coherence’ and demonstrating that China had no intention of entering into joint ventures of industries already in Soviet hands. The Soviet confronted his Chinese counterpart with a fait accompli that the war booty was in Soviet hands. China had only two options. One was to form a joint venture with the Soviets. The other was to let everything deteriorate.³⁸ This was effectively a threat because the alternative would be the total destruction of industrial infrastructure in Manchuria.

The Soviet position was further clarified by Malinovsky on 9 December. The Soviet marshal told Zhang Jia’ao and Chiang Ching-kuo that his party called for economic cooperation with China on the grounds of security concerns, as Moscow was seeking assurance that Manchuria would never become an anti-Soviet base. Malinovsky hinted that his party was seeking to resolve the problem in a time-efficient way and that if China wished to own certain industries and mines independently, it was negotiable.³⁹

The Soviets had revealed their hand, and Zhang and Chiang Ching-kuo quickly advised Chiang Kai-shek that regardless of the war booty issue, China would be better off making economic concessions to obtain, in exchange, an unhindered political position in Manchuria. They advised Chiang Kai-shek to consider seriously the factories and mines the Soviets wished included in the joint ventures, while ensuring that the structure of each venture, such as equity contribution and the ownership of the resources underground, were congenial to Chinese interests.⁴⁰

Sladkovsky sent an inventory of proposed enterprises to Zhang on 13 December as requested.⁴¹ Tsou has estimated that the Soviet list included 80 per cent of Manchuria’s heavy industries,⁴² such as the Manchurian Heavy Industries Company and Manchurian Electric Company. Malinovsky followed up on 17 December by telling Zhang that they were committed to allowing a certain number of heavy industries to operate as wholly Chinese-owned enterprises.⁴³ The Soviets did not concede their stance on the ‘war booty’ issue, but skilfully presented it only in the attached memorandum of the inventory.⁴⁴

On 19 December, Zhang Jia’ao and Chiang Ching-kuo arrived at Nanjing to join Chiang Kai-shek, who was there to meet Marshall, and they talked for many hours. Chiang Kai-shek was still unhappy about the Soviet claim of war trophies, but he told Zhang that he could offer the Soviets a one-off payment of 10 billion Circulating Currency for the Nine Provinces of the North-east (CCNE) as compensation ‘for expenses incurred by them as a result of postponing the date for withdrawing their troops’.⁴⁵

This meant, on the one hand, that Chiang Kai-shek preferred to reimburse the Soviets via a GMD-initiated payment in the name of ‘military expenses’ rather than acknowledging that the Manchurian industries were ‘war booty’ to the Soviet forces, despite the fact that a substantial number of the crucial industrial plants had already been removed and possessed by the Soviet forces. On the other hand, Chiang Kai-shek’s move also conveyed a clear message to the Soviet negotiators that their ‘war booty’ claim had breached the bounds of the GMD’s tolerance. More importantly, the payment was offered to the Soviets as a GMD initiative and was not directly connected to the Soviet demands. Chiang Kai-shek’s ‘free concession’ therefore entailed no loss of face for him. In addition, Chiang Kai-shek’s unilateral gesture also effectively exonerated him from being accused domestically of succumbing to foreign pressure and making abject compromises.⁴⁶

Chiang Kai-shek told Zhang Jia’ao during the meeting that the Ministry of Economic Affairs would thoroughly consider the Soviet plan before dispatching officials to Changchun to take over the negotiations. The decision virtually downgraded Zhang’s role from being a negotiator to that of messenger.⁴⁷ Unfolding events would soon demonstrate that the Nationalist top officials were increasingly unhappy about Zhang’s performance, believing that he was too soft on the Soviets.

Zhang returned to Changchun and held talks with Sladkovsky on 24 December. Zhang presented the payout plan and proposed that the Soviets treat the money offered as the capital for the joint venture in exchange for Soviet cooperation on the ‘war booty’ issues.⁴⁸ In other words, the proposal that the GMD put on the table did not require the Soviets to actually accept payment in a currency that had little credibility. Rather, the plan effectively acknowledged the Soviet shares in the joint venture while avoiding the term ‘war booty’. Given that the Soviets had been haggling extensively with the Americans and the British since Yalta to secure their war reparations payment in kind, the GMD proposal had considered Soviet needs.⁴⁹

The estimated market value of the cooperative joint venture was only about 38 billion Chinese Currency (Fabi 法幣),⁵⁰ whereas 10 billion CCNE was worth more than 100 billion Fabi. The market rate of CCNE to Fabi was around 1:13 when the CCNE was first launched by the Changchun branch of Central Bank of China in late December 1945.⁵¹ Hence the GMD’s proposal was by no means a bad deal for the Soviets to kick-start a stalled negotiation.

Sladkovsky was reticent on the GMD’s payout plan. He regarded the move to send new negotiators as a retrograde step and dismissed it as unnecessary.⁵² The GMD’s decision to change its team was tantamount to signalling to the Soviets that the GMD was changing the negotiating setting, and this also meant that its substance could be changed accordingly. The most important item in the agenda—Chiang Kai-shek’s payout plan—was not discussed at all. Zhang Jia’ao, relegated to the position of messenger, was understandably rather disinclined to persuade Sladkovsky, repeatedly hinting that he would like to leave the problem to the new negotiators.⁵³ The meeting ended without making any headway.

Meanwhile in Chongqing, Chiang Kai-shek and his top aides were making every effort to improve ties with Moscow, and Chiang decided that his son Chiang Ching-kuo should go to Moscow as his personal envoy and meet Stalin. Chiang Ching-kuo had strict instructions to avoid negotiating any specific issue with the Soviets.⁵⁴ The GMD leaders apparently wanted nothing more than showing friendship, assuaging Soviet suspicions of the GMD and explaining GMD’s policy direction towards the CCP. Chiang Kai-shek had consulted Marshall about the matter, and the advice he received was that nothing constructive would be achieved unless the individual selected for the task was an eminent person who had the power to deal directly with Stalin.⁵⁵ The problem for the Nationalists was that if Chiang Ching-kuo negotiated the major disagreements unsuccessfully with Stalin, it would make the situation even worse. They therefore preferred Chiang Ching-kuo to pay a friendship visit to Stalin.⁵⁶

Chiang Ching-kuo conferred with Stalin on 30 December 1945 and 3 January 1946 in Moscow. Under strict instructions not to get into specifics, Chiang Ching-kuo could not provide more convincing details of Chiang Kai-shek’s payout plan. Not surprisingly, Stalin rejected Chiang Ching-kuo’s proposal, citing his generals’ objection to the plan as an excuse. On the war booty dispute, Stalin maintained that the Soviets were entitled to a share of the Japanese industries in Manchuria and that further delay in signing the joint venture deal could incur more losses of industrial assets. He used the case of Poland as a precedent, pointing out that the Red Army had done the same with the German industries there.⁵⁷ The Soviets had sought to legitimise the Soviet claim over the defeated Axis powers’ war matériel and industrial infrastructure in Europe as war booty and reparations. The United States showed a détente posture by recognising the Soviet-controlled Polish government in July 1945.⁵⁸ By invoking Poland, Stalin left Chiang Ching-kuo with no room to make any powerful counter-argument regarding Manchuria. The meeting ended without any easing of the tensions between the two nations.

In a second major attempt to improve relations with the Soviets, Chiang Kai-shek sent his wife, Madame Chiang, to visit the Soviet soldiers in Changchun. Madame Chiang arrived at Changchun on 22 January 1946 on her three-day official ceremonial visit, but she received perhaps the coldest reception of her otherwise lustrous diplomatic career. Malinovsky apologetically absented himself for the duration of her visit—to exercise his right to vote in a domestic election in the Soviet Union, he said. In his place, the Soviet marshal sent one of his subordinates to meet Madame Chiang—a gesture just short of insulting China’s First Lady.⁵⁹ In return, Madame Chiang delivered something that may have had the effect of thwarting the GMD’s efforts to use her visit to further engage the Soviets. In her speech addressing the Soviet Army officers during the banquet held in her honour at their headquarters, Madame Chiang told her audience that the format of cooperation for the two nations should not follow the precedent set by the Japanese, who had forced their will on the Chinese people. ‘But this kind of cooperation would not last’, she warned.⁶⁰

Planting radishes in the desert

While successive diplomatic setbacks and stalemates were bad enough for the GMD leaders, the situation on the ground remained volatile. Perhaps the most potentially explosive incident was a GMD air strike that resulted in Soviet casualties at the post-conflict hot spot of Chifeng. On 8 January, two GMD fighter planes pounded targets on the barracks precinct of the Soviet forces at the town. The attack inflicted Soviet casualties and damaged Soviet military equipment.⁶¹ The attack may have been a case of mistaken identity, but the operation was directed from the top: Wang Shuming, one of Chiang Kai-shek’s most trusted air force commanders, gave Xiong a first-hand report of the air strike in Beiping in the immediate aftermath of the raid.⁶²

Malinovsky called on Dong on 10 January to launch a broadside against the attack, describing the belligerent actions as in contravention of the Sino-Soviet Treaty. The fallout from the incident was limited, however. Moscow did not join its army headquarters in Changchun in condemning the attack and let the GMD leadership exonerate itself by sending Dong to offer an apology to Malinovsky on 13 January, attributing the ‘mistaken fire’ to intelligence failure.⁶³

Failing to revive their spirit of cooperation, both the GMD and Soviet frontline officers in Manchuria were in a bad fix. The Soviet Army commanders, on the one hand, were struggling to maintain the appearance that they had adhered to the treaty and done their best to assist the GMD takeover. On the other hand, the GMD officials were finding it difficult to demonstrate that their government was capable of assuming full control over Manchuria. After pulling his NEHQ team out of Changchun, Chiang Kai-shek began to press his senior civilian officials to get ready for the takeover.⁶⁴ On 11 December 1945, a deal was struck between Dong and the Soviet chief of staff Trotsynko that the Soviets would dispatch armed liaison officers as escorts for GMD civilian officials en route to assume takeover duties in major Manchurian cities.⁶⁵

Chiang Kai-shek considered it an opportunity and told Zhang Jia’ao on 19 December that the takeover of the largest Manchurian cities had to be accomplished by the end of 1945 before taking over the various provincial governments in 1946. Hence, from the end of 1945, GMD bureaucrats were sent in groups to establish municipal and provincial governments in the major cities in Manchuria without the protection of the GMD regular forces.⁶⁶

The dangers were clearly present. On 6 January, Zhang Jia’ao sent Zhang Xinfu, a special envoy from the GMD Ministry of Economic Affairs, to take over the Fushun Coal Mines north-east of Shenyang, the largest coal-producing area in Manchuria and an important source of fuel for the Chinese Changchun Railway. The decision was made after reaching an agreement with the Soviet board of directors of the Chinese Changchun Railway Bureau.⁶⁷ The arrangement was made in accordance with the provisions of the Sino-Soviet Treaty. The treaty stipulated that the Chinese government supplied coal to operate the railway.⁶⁸ The attempted takeover was thwarted by Soviet Army officers in Fushun. On 16 January, on their return trip on train guarded by Soviet troops, Zhang Xinfu and his entourage of seven were murdered by unidentified gunmen. Nationalist authorities sought to blame the Soviets and the CCP for the deaths of the officials, but the Soviet forces refused to accept responsibility.⁶⁹ A CCP account of the incident identifies GMD secret agents as the perpetrators.⁷⁰ In the end, the Nationalists and the Soviets had to move forward despite the rancour. A CCP soldier was captured by the GMD military in July 1946 as the murder suspect and later court-martialled. He was sentenced to death in late 1948.⁷¹

While Chiang Kai-shek was willing to risk dispatching civilian officials to take over Manchuria, he was wary about sending in his elite troops. In early January 1946, the Nationalists suspended the original plan to airlift a US-armed army division to Changchun. Instead, they decided to airlift the paramilitary security maintenance corps of 4,000 men to the city.⁷² The difficult and costly airlift began on 5 January. On 9 January, thirty-six lives were lost in a collision between two GMD troop carrier planes over Changchun’s suburbs. After struggling with fuel supplies for nearly a month, the GMD air force only managed to send a negligible 3,000 second-rate troops into Changchun, expecting that these units would be split up and sent to various provincial cities. The commanders of the Soviet garrison forces in Changchun were quick to question the wisdom of the plan, as they felt that these troops were not up to the task of taking over the defence of the outskirts.⁷³ Given the presence of the CCP forces in the nearby rural areas, the Soviets had a point.

As discussed, the January truce granted the GMD the exclusive right to troop movement in Manchuria. The new development soon prompted Chiang Kai-shek to abort the airlift campaign at the end of January because he expected his elite armies to reach Changchun overland by that time.⁷⁴ The remaining paramilitary forces soon got into trouble. In some unpleasant encounters in January and February, the Soviet forces disarmed and detained contingents of the GMD’s ‘security maintenance police’ in Changchun and other Manchurian cities.⁷⁵ Disillusioned with his superiors’ handling of the Sino-Soviet negotiations, Zhang Jia’ao speculated pessimistically that the GMD’s last chance for a peaceful takeover of Manchuria might have been just lost.⁷⁶

On 16 January, the GMD authorities finally sent Special Envoy Sun Yueqi from the Ministry of the Economic Affairs to meet Zhang Jia’ao in Changchun, bringing with him a joint venture proposal. The proposal left little room to bargain. It reiterated the GMD’s initial position that all industries and mines in Manchuria were the property of the Chinese people. Most of the important coal mines (e.g. Fushun and Hegang) and major industrial plants were not on the list.⁷⁷ Clearly, the plan underlined the GMD’s preferred solutions rather than indicating a willingness to bargain.

Zhang Jia’ao bore the brunt again. In a letter to Chiang Kai-shek, he warned that a lack of flexibility at the negotiating table would only encourage the Soviets to be adversarial and undercut the GMD’s bid to establish authority over Manchuria.⁷⁸ Chiang told Zhang in his reply that he had no alternative but to reduce the Soviets’ joint venture demands. Taking an anti-colonial stance, Chiang was worried about whether the joint venture would set a bad precedent for other foreign powers.⁷⁹ Privately, however, Chiang admitted that a more practical option for him at that particular juncture of decision-making was to make the best possible concessions to cater to the Soviets’ pleasure in exchange for the GMD’s recovery of Manchuria.⁸⁰

While Chiang Kai-shek’s concerns over China’s sovereign rights dominated his decision-making, both Zhang and Sun were calling for a quick agreement with the Soviets on the joint ventures. Both felt that an early settlement would minimise the GMD’s losses. Taking the Yalu River Hydroelectric Power Plant near the Sino-Korean border as an example, they pointed out that the Soviets had already demonstrated their intention to occupy it permanently. The GMD authorities would be better off seizing the opportunity when the Soviets were actively seeking a settlement before their withdrawal, and cut China’s losses by writing the power station into the joint venture inventory, even if certain concessions would have to be made in order to secure a cooperative settlement.⁸¹

Both Zhang and Sun urged Chiang to make his proposal more attractive to the Soviets. Notably, the Zhang–Sun plan did not vigorously seek to negotiate a settlement based on mutual concessions because reciprocal concessions were bound to incur obligations and would have affected China’s sovereignty and legal status—the issues that Chiang Kai-shek were most concerned about. Zhang and Sun intended to let the Soviets gain in order to create a less belligerent environment for the GMD negotiators over the long term.⁸² Accommodating strategists might settle for a suboptimal deal and let the other party win for the sake of a good relationship but seek to balance the books in the long run.⁸³

The problem with the Zhang–Sun plan was, however, that it did not take into account how much responsibility the GMD leaders were willing to bear for allowing the Soviets to hold large shares of prominent mines and key industries in Manchuria. In a private letter to Zhang Jia’ao on 20 January, Chiang Kai-shek implicitly told Zhang that it would be better to conduct such negotiations in an informal way, and it would have been even more inconvenient if the Ministry of Economic Affairs was directly involved in this matter. This meant that Chiang Kai-shek now did not want Special Envoy Sun to take over the negotiations. Zhang assured Chiang that he would negotiate with the Soviets in the way Chiang wished.⁸⁴

Sun presented the GMD’s joint venture proposal to the Soviets in a meeting, but it ended badly.⁸⁵ Sun was not sent to the forthcoming meetings between Zhang, Sladkovsky and Malinovsky. Sladkovsky held talks with Zhang on 26 and 28 January, and the GMD’s plan was criticised at both meetings. Sladkovsky was unhappy about the omission of important coal mines, iron mines and electricity power plants in the GMD proposal. He demanded inclusion via joint ventures in China’s largest iron ore mines at Anshan, high-quality engineering/steaming coal producer Hegang and the Fengman Hydroelectric Power Plant. Sladkovsky mocked the lack of commercial value in the GMD proposal as akin to ‘planting radishes in the desert’ and considered the GMD plan unacceptable.⁸⁶

Reports from the field: Hegang and Anshan

While the negotiators were arguing about the details, there were struggles for control of the important mines—Hegang and Anshan—between groups associated with the CCP and GMD as well as the Soviet forces, with different outcomes in each case. The Hegang Coal Mines were situated in what is today eastern Heilongjiang Province close to the Soviet border, strategically located to supply coal to the Soviet Union. In mid-August 1945, the mine sites and its township were occupied by a Soviet Army company after the Japanese surrender.⁸⁷ Directed to maintain coal supplies to the Soviet forces,⁸⁸ Soviet troops in Hegang made possible the urgent repair of the local power station. It took only three weeks for the plant to resume full operation.⁸⁹ This suggests that although the Soviets removed some of the deployed large machines from the mine site, they did not take the generators away from the plant so that they could supply electricity to the mine, which had suffered war damage.⁹⁰ This was in stark contrast to the Soviet dismantling of key mining machinery and power generators in coal mines in southern Manchuria that made these mines virtually inoperable. The official US investigation by Edwin W. Pauley later speculated on the long-term strategic goals behind the Soviet removals and destruction of industrial plant in Manchuria.⁹¹ In the Hegang case, however, the Soviets seemed to have had a reason to maintain it intact.

The local Soviet forces allowed the pro-GMD elements and former Manchukuo officials to maintain peace preservation forces and mine site security officers.⁹² Although the Soviets also allowed the pro-CCP elements to set up their local militias and later supported a CCP candidate taking charge of the mine site,⁹³ the Communist cadres did not at first enjoy the same kind of latitude to expand their local influence as Steven Levine has found in other Manchurian cities and counties during the same period.⁹⁴ On the contrary, Soviet officials in Hegang made the CCP cadres join a group of people who now worked for them, including the ex-Manchukuo mine chief and the head mine engineer, who had a strong GMD background.⁹⁵ The Soviets reminded the CCP head cadre in Hegang that revolutionary radicalism had no place under their rule, and on one occasion Soviet Army officers seized his handgun.⁹⁶

The Hegang case suggests that despite their deliberate removal of key industrial equipment, the Soviets needed to maintain certain industrial sites in reasonable shape. In Hegang, the Soviets were keen to keep up coal production to supply their forces in Manchuria and perhaps for future Soviet needs. The pro-GMD mine executives had the technical skills necessary to step up production, so the Soviets had good reason to get the Nationalists on board in a joint venture for mutual gain.

However, the situation in Hegang remained fluid: as the economic negotiations were at a stalemate, the balance did not shift to the GMD’s favour. The CCP gradually expanded its influence in the town.⁹⁷ A battle-seasoned regular CCP army company from Shandong arrived and established a militia unit, recruiting all kinds of people, including local bandits.⁹⁸ Between December 1945 and January 1946, the strengthened pro-CCP militia succeeded in disarming the pro-GMD mine site security guards.⁹⁹ This incited a counter-attack from pro-GMD elements in the nearby township. The assault occurred about the same time as Sladkovsky talked up the possibility of writing the Hegang Coal Mines into the joint venture proposal. The Soviet troops were forced to join the pro-CCP militia to repel the pro-GMD raiders in order to protect the coal mines.¹⁰⁰ In the wake of the attack, the CCP cadres executed the ex-Manchukuo mine chief, but the execution drew limited mass support and the pro-GMD head mine engineer was able to flee to safety.¹⁰¹ The CCP asserted total control over the Hegang Coal Mines and the adjacent area only after the withdrawal of Soviet forces in early April 1946.¹⁰²

In contrast, the city of Anshan, a key source of iron and steel at the centre of the Liaodong Peninsula, was experiencing a different kind of struggle. As discussed, the GMD–CCP race for Manchuria was blown wide open by the arrival of a substantial number of CCP troops at the southern tip of the peninsular via sea transport. The CCP forces established a quasi-permanent base at Anshan and established a municipal government in mid-November. A few pro-GMD paramilitaries active in the area attempted to fan resistance. However, their uncoordinated attacks inflicted casualties on the Soviet forces instead. The Soviets in turn assisted the CCP forces to fight off these paramilitary units.¹⁰³ The Nationalist authorities later limited the scope of their military operations, recruitment and funding, but these changes came too late as the attacks against the Soviets had further fuelled GMD–Soviet tensions.¹⁰⁴

Meanwhile, Soviet removal of the major industrial plants in Anshan was extensive. The GMD armies took Anshan in April 1946 after Soviet withdrawal. Eyewitness reports estimated that more than two-thirds of the essential equipment in complete sets from the Japanese Shōwa Steel Works had been systematically removed by the Soviet forces, reducing production to a negligible level.¹⁰⁵ In iron mines in the city’s north-east, all surface equipment had been completely stripped.¹⁰⁶ The removal of generators, including two turbo-generators from the steel mill’s power plant, paralysed the plant for more than a year. The power plant remained inoperable until it went through a GMD-sponsored repair program in September 1946.¹⁰⁷

The contrasting cases of Hegang and Anshan demonstrate that GMD–Soviet economic relations in Manchuria were wide-ranging and complex. Nevertheless, the conflicts that the two parties needed to resolve in certain areas were clearly less intractable than others. The challenge for both parties was whether they were able to divide an overall economic cooperation proposal into smaller projects and seek breakthrough in those areas deemed more amenable to resolution. Sladkovsky’s demand for selective mine sites and power plants, in a sense, gave the GMD negotiators a good opportunity to seek partial agreement on selected subject matters—a more effective way than pursuing an all-or-nothing-deal with their more powerful Soviet opponents. This is because negotiating a make-or-break deal with a stronger party is likely to narrow the room for manoeuvre for the less powerful party and consequently leaves the latter extremely vulnerable.¹⁰⁸

An overdue ‘yesable’ proposal

The GMD authorities were not ready to rethink their approach, however, and allowed Soviets to continue dominating the negotiations. In a meeting held on 1 February 1946, Malinovsky told Zhang that they could temporarily set the war booty dispute aside in order to facilitate a speedy settlement. He requested specifically that the Hegang Coal Mines and the Anshan iron works be included in the final deal. The Soviet marshal insinuated the spectre of US aggression, saying: ‘I am deeply aware that China and the Soviet Union will never go to war. But I fear that a foreign power, a wolf in sheep’s clothing, may encroach on Manchuria.’¹⁰⁹

Malinovsky was sending his first unambiguous signal that forcing the GMD to accept the Soviet position on the ‘war booty’ was less important than reaching a settlement on the basis of economic interests, regardless of his anti-American rhetoric. His concession could be seen as a ‘de-escalating gesture’ towards resolving Sino-Soviet conflicts.¹¹⁰ Zhang immediately travelled to Chongqing to report to his leader. Although some GMD top officials found fault with Zhang,¹¹¹ they agreed to respond positively to Malinovsky’s initiative. After rounds of internal consultation, Chiang finally agreed on 10 February to include the Hegang Coal Mines and the iron and steel enterprises in Anshan in the joint venture proposal. In addition, the oil refinery plant in Dalian, the salt fields on the Liaodong Peninsula and the civil aviation industry in Manchuria were all on the table. The entire package would constitute GMD’s final concessions.¹¹² Given that there were only limited differences between the GMD’s final proposal and that of the Soviets, both parties had effectively arrived at the emerging point of an agreement.

But just as the GMD and the Soviet negotiators finally had a glimmer of hope, the Americans dashed it by asserting their position over the Japanese assets. On 11 February, the Yalta Agreement was released simultaneously by the British, Soviet and US governments¹¹³ amid increased mistrust between the Soviet Union and its Western allies, which underlined a list of unpleasant events from the end of 1945. Most of these events were related to the conflicts between the Soviet Union and the West in the Near East and over the minor Axis states.¹¹⁴

As its embarrassing concessions to the Soviets at Yalta reached the public domain, the US government sought to toughen its Soviet policy. On the same day that the Yalta Agreement was publicised, the United States sent communiqués to the Soviet Union and China, respectively, declaring that a Sino-Soviet agreement for ‘exclusive’ control over industrial enterprises in Manchuria would be contrary to US interests from the perspective of its Open Door policy; therefore, any removal of Japanese external assets in Manchuria as war booty was considered inappropriate.¹¹⁵

Trying to accommodate his American ally, Chiang Kai-shek reneged on his commitment to support the Zhang Jia’ao-led negotiation¹¹⁶ by instructing Foreign Minister Wang Shijie to put the negotiations on hold.¹¹⁷ Instigated by GMD hawks, Manchurians in Chongqing began to stage rallies against Soviet atrocities in the north-east on 16 February.¹¹⁸ The demonstrations provoked the Soviets into verbally remonstrating with Wang Shijie via Ambassador Petrov on 19 February. Petrov reiterated the war booty issue, asserting that it was the nub of the problem and that nothing would be settled without resolving it first. Chiang Kai-shek reacted by instructing Zhang Jia’ao and Chiang Ching-kuo to cancel their scheduled return trip to Changchun. This decision effectively suspended the entire negotiations, with Dong now left as the most senior GMD official to liaise with the Soviets in Changchun.¹¹⁹

Anti-Soviet and anti-Communist movements continued to surge in China’s wartime capital. One large-scale demonstration on 22 February involved more than 30,000 students and a few Americans. Nationalist right-wingers were again suspected of aiding and abetting the rally organisers. The Soviets in turn escalated the diplomatic spat by not attending a GMD-sponsored banquet to commemorate Red Army Day before lodging a formal diplomatic protest over the anti-Soviet activities on 26 February.¹²⁰ Sino-Soviet relations plummeted to a new low.

Meanwhile, the disposition of Japanese industrial assets in Manchuria had become the focus of a diplomatic tussle between the United States and the Soviet Union. On 5 March, the day Winston Churchill delivered his famous ‘Iron Curtain’ speech, Byrnes instructed the US chargé d’affaires in Moscow to inform the Soviets that the Sino-Soviet negotiation on economic cooperation in Manchuria should take place only after the Chinese government resumed control over Manchuria and other Allied nations were also in a position to discuss Manchuria’s economy with the Chinese.¹²¹

In this less-than-benign environment of Great Power politics, Chiang Kai-shek resorted to some double-dealing to manoeuvre between the United States and Soviet Union. Chiang neither put a halt to the anti-Soviet movement nor embedded himself in the GMD’s ultra-right turn. As Donald Gillin and Ramon Myers point out, the anti-Soviet and anti-CCP sentiment helped the GMD to improve its public image—if Chiang had agreed to the Soviet demands, he would have faced a backlash against his regime.¹²² Not unexpectedly, the wave of protests rapidly spread nationwide.¹²³

A statement by Chiang Kai-shek nevertheless reflected the need to prevent a rupture in Sino-Soviet relations. In a public speech delivered on 25 February, he warned against overreaction in Manchurian affairs.¹²⁴ Chiang also reprimanded the GMD right-wing leader Chen Lifu for his role in the anti-Soviet demonstrations.¹²⁵ Yet Chiang was equally keen to persuade the Americans, at the Soviets’ expense, that the GMD–US alliance was unbreakable. In his talk with Marshall on 10 March, Chiang raised the issue of a potential Soviet conspiracy to undermine China’s partnership with the United States.¹²⁶

Chiang Kai-shek and his associates quickly found it difficult to maintain the right balance between Great Power diplomacy and domestic politics that was pushing the GMD’s Soviet policy in a more hard-line direction. During the GMD’s CEC held in March, Central Committee members took turns to berate senior government officials for their incompetent handling of Manchurian affairs and Sino-Soviet relations.¹²⁷ After being broadsided by his party rival over the GMD’s Soviet policy on 5 March, Wang Shijie aligned the GMD foreign policy with that of the United States by telling Petrov that his government would be ready for negotiations only after the withdrawal of Soviet forces from Manchuria.¹²⁸ A recent study argues that the basis for negotiation ceased to exist after March 1946,¹²⁹ but Chiang Kai-shek’s attitude towards the anti-Soviet demonstrations still gave Zhang Jia’ao a small ray of hope. On 11 March, the tireless Zhang invited Sladkovsky to move the negotiations to Chongqing.¹³⁰

Both the Soviet and Nationalist armies in Manchuria engaged in hostilities against each other. In the city of Shenyang and adjacent areas, both sides had clashed since the GMD forces arrived at the outskirts of the city in mid-January. The Soviet military command was unable to restrain its forces from violent acts, including beating and humiliating GMD army officers.¹³¹ GMD troops and unspecified anti-Soviet elements, for their part, were implicated in detentions, robberies and even assassinations against the Soviets.¹³² While anti-Soviet protests spread across China proper in February, the Soviet forces in Shenyang conducted provocative military exercises in late February and there was a deadly exchange of fire in early March.¹³³

The Soviet forces decamped northward from Shenyang on 12 March with no takeover arrangements with the Nationalists. The GMD forces were able to sweep through the entire city the next day, but encountered CCP forces on the outskirts.¹³⁴ Stalin admitted that some of his troops were ‘far from being angels’,¹³⁵ but the Nationalist armies were no angels either. The GMD commanders seemed to believe that they had carte blanche over Soviet interests as the city was now in their hands: the Soviet forces’ coal supply northbound from Shenyang was intentionally cut off after their withdrawal; Soviet railway staff at Shenyang station were shot at, subject to summary arrests and verbally abused; and Soviet expatriates in the city were forced to wear identifying armbands, resembling Nazi practice in wartime Europe. In Changchun, the Soviet military command protested to the GMD representative Dong, but did little to control their own rampaging troops from retaliating against Chinese civilians in the city.¹³⁶

As atrocities on both sides spiralled, the Soviet forces kept retreating north. Without coordinating with the Nationalist forces, the withdrawing Soviets created a security vacuum between Shenyang and Changchun. On 26 March, a week after the fall of Sipingjie to the CCP, the Soviet military command in Changchun informed the Nationalist authorities that it could not stop the scheduled withdrawal and wait for the Nationalist forces to take over defence, and hence would transfer responsibility for security to ‘whatever armed force currently exists’.¹³⁷

Despite the Soviet forces’ disinterest in supporting the GMD forces, Moscow had the incentive to return to the negotiating table for international political reasons. Soviet activities abroad had been under increasing international scrutiny since 1946, particularly over the presence of Soviet troops in Iran. A series of events concerning the Soviet Union’s refusal to withdraw its armies from Iran developed into a crisis involving the United States and the Soviet Union in late March 1946.¹³⁸

Notwithstanding its refusal to yield to the pressure exerted by the United States, Moscow was seeking a breakthrough with the GMD. In late March, Ambassador Petrov personally delivered a pragmatic joint venture proposal to Wang Shijie. Petrov’s package was almost identical to the GMD’s February proposal, except for the Fushun Coal Mines. The proposal was clear and straightforward, omitting the term ‘war booty’.¹³⁹ As Zhang Jia’ao observed, the Soviet proposal was devised on the basis of an expectation that the GMD leadership would agree upon,¹⁴⁰ a ‘yesable’ proposition. From an impasse-breaking perspective, a proposal devised to meet the needs of the other party rather than emphasising one’s own interests is acknowledged as a ‘yesable’ proposal because the expected answer would only be ‘Yes, it is acceptable’.¹⁴¹

The military picture in Manchuria had distinctly worsened for the GMD since February. As Sipingjie had fallen into the CCP’s hands, and as the city was located in the main rail hub, the Nationalist armies had to reassert control over it before they could catch up with the withdrawing Soviet forces in northern Manchuria in order to accomplish a joint takeover of the defence of Changchun. The Soviets, however, informed the Nationalists on 23 March that the deadline for a complete Soviet troop withdrawal was scheduled for the end of April 1946.¹⁴² Zhang Jia’ao was aware that even though a formal takeover of defences from the Soviet forces was quite unlikely, the GMD was still capable of reclaiming Manchuria by force in the future. Hence, it was in the GMD’s interest to foster ties with its powerful northern neighbour. Zhang speculated that this was something Moscow was predicting.¹⁴³

Zhang’s views seemed to have had little influence on his government’s decision-making. Chiang Kai-shek saw Petrov’s concession as evidence of the tactical efficacy of his negotiation disruption.¹⁴⁴ A meeting with Wang Shijie on 13 April soon moved Petrov to protest. Petrov was appalled that the GMD had reinstated its initial position regarding all Japanese properties in Manchuria as war reparations to China. Wang concluded the meeting by telling Petrov that what had happened in Sipingjie must not be repeated in Changchun. The GMD leadership’s response to Petrov’s proposal certainly did not help improve relations; on 18 April, Changchun too fell into the hands of the CCP. Meanwhile, Petrov continued to show great disposition to compromise, most notably by expressing the Soviet intention to take the Fushun Coal Mines off the agenda on 17 April. But the Nationalist leaders, fuming over Changchun, insisted that the Soviets had to assist the Nationalist forces in taking over the defence of Manchuria before they would consider restarting the negotiations.¹⁴⁵

After the fall of Changchun, the GMD maintained its fierce military campaign against the CCP in Manchuria and succeeded in recovering major cities along the main railway at the end of May, including Changchun—a subject that is discussed further in chapter 6.¹⁴⁶ Meanwhile, the Soviet troop withdrawal continued, and the last Soviet combat forces pulled out of Manchuria at the end of April.¹⁴⁷ Formal diplomatic ties between Chongqing and Moscow did not end, but the negotiations on economic cooperation came to a complete halt with the spread of the Chinese Civil War.

The GMD had also been dealing with ongoing US interference in Manchurian affairs. As mentioned, in June 1946, the Truman administration had sent a reparations mission under Edwin W. Pauley to inspect the Japanese assets. After a month-long investigation in Manchuria, Pauley’s mission delivered a damning report in July detailing the removal and destruction of Japanese industrial equipment during the Soviet occupation.¹⁴⁸ Pauley’s report further intensified the post-war reparations row between the Soviet Union, China and the West.¹⁴⁹

When the GMD’s offensive against the CCP in Manchuria reached its height in 1946, Chiang Kai-shek was simultaneously brainstorming ideas to return to the negotiating table with the Soviets, but his inner circle opposed the idea and the military conflicts dissuaded him from doing it.¹⁵⁰ Chiang confided to Zhang Jia’ao that he felt ‘the Soviets did not show favouritism to the CCP. If they wanted to practice partiality towards the CCP, how was it possible that the Nationalist armies could conquer Changchun?’¹⁵¹ Chiang asked the right question.

Last chance in Manchuria

In March 1945, when the Nationalist diplomats were trying to get to the bottom of the Anglo-American–Soviet secret deal in Yalta, Chiang Kai-shek had noted that he must have the courage to take risks in dealing with the Soviets.¹⁵² Indeed, Chiang’s foreign policy decisions towards the end of World War II show a strong element of risk-taking, as his government was constantly being forced into crisis management mode. The prime example of this was when Chiang staged a walkout from the negotiations when the Soviets started to press hard for economic privileges in Manchuria. Chiang’s risky tactic did achieve some short-term effects. The Soviets were forced to slow down their takeover of Japanese enterprises and forge a more negotiable joint venture scheme. Although Chiang’s ploy put substantial pressure on his frontline negotiators, his 10 billion CCNE payout plan was an attractive transitional arrangement that could have turned the tables and resolved the war booty disagreement.

However, Chiang Kai-shek’s own decision to change the negotiation venue and replace his lead negotiator in midstream was counterproductive, as the decision robbed his negotiators of authority, albeit Special Envoy Sun played a limited role in the negotiations. When the downgraded Zhang Jia’ao put forth Chiang’s proposal, it was received coldly. In the same vein, although Chiang Kai-shek sent his son to meet Stalin personally, Chiang Ching-kuo could not promote his father’s plan as the GMD leadership limited his authority to negotiate. And while Madame Chiang might have had sufficient prestige for ceremonial purposes, her official visit to the Soviet forces did little to patch up relations with the Soviets.

Meanwhile, the Soviet Union was wielding and trying to extend its supremacy globally over weaker states. The Soviets used Poland as a precedent to try to press the Turkish government to submit to a range of Soviet demands, including territorial cession, in June 1946.¹⁵³ Stalin also drew on the Polish case to press Chiang Ching-kuo to accept the Soviet claim of war booty, but the Soviets’ tepid protest against the Nationalists’ air attack demonstrates that they were unwilling to go beyond a certain point. Evidently, Moscow was less interested in risking a war with the West and its allies. Succumbing to Anglo-American pressure, the Soviets agreed not to send armies to Hokkaido, abandoned their claim to Turkey and withdrew their forces from Iran.¹⁵⁴ As Marshall told Chiang Kai-shek, the tactic that the Soviets were using in dealing with the GMD was also used in dealing with other countries.¹⁵⁵ Moscow did not pressure the GMD any harder than it did other smaller powers.

As discussed in chapter 1, Chiang Kai-shek once thought that a policy of appeasement on the Soviet Union was his best option. The Zhang–Sun plan was a negotiator’s answer to Chiang’s vision because it was not only a plan designed to make the best of a bad situation but also a far-sighted approach to creating a manageable relationship: ‘If the other side has big guns, you do not want to turn a negotiation into a gunfight.’¹⁵⁶

Looking for ways to tackle a stronger adversary, Chiang Kai-shek acknowledged the necessity to broaden his bargaining range in order to induce the desired behaviour on the part of the Soviets. From a negotiation point of view, Chiang was correct. Arguably, the toughest bargainers do not usually finish first, and the deficit incurred by settling for a suboptimal deal can be overturned via multiple negotiations down the track.

Realistically, however, Chiang did not have many options. After he played his two trump cards (i.e. the walkout tactic and the one-off payout), with unconvincing results, Chiang was forced, for the most part, to wait for his stronger opponents to make the next move. Besides, Chiang had to be sensitive to his American allies, who had been pushing the GMD to toughen its Soviet policy—this further complicated his decision-making.

Then again, the Nationalists came to the economic negotiations against the backdrop of rising discontent with the Soviets’ stance on Dalian and their war reparations claim. Also, Chiang Kai-shek and his inner circle would have to further risk weathering domestic opposition if they offered more concessions. As Wang Shijie told Marshall, the GMD had already made huge concessions in the Sino-Soviet Treaty and could not afford to pay extra for Manchuria under threat.¹⁵⁷ In other words, Chiang Kai-shek’s decision to reduce the scope of economic cooperation with the Soviets provided an easy but dangerous way out for the GMD.

Soviet negotiator Sladkovsky had described the process of seeking an economic accord with the GMD as akin to ‘planting radishes in the desert’. In reality, growing radishes in the desert is difficult, but it is not impossible. Tsou has argued that the USSR was fundamentally hostile towards the GMD.¹⁵⁸ If so, the GMD–Soviet negotiation for economic cooperation in Manchuria would be notable because despite the high level of mutual mistrust and conflict, the Nationalists still shared considerable common interests with the Soviets. In early February 1946, both parties actually came tantalisingly close to an accord; hence Zhang Jia’ao’s concern that the GMD had its last chance for a peaceful takeover of Manchuria.¹⁵⁹

The cases of Hegang and Anshan demonstrate the full complexity of issues confronting the Nationalist–Soviet economic negotiations. Soviet actions in Hegang prove that ideology does not always prevail over material needs and that common interests shared by both parties do have the potential to make a difference. Although common interests were available, they unfortunately did not facilitate an agreement between the Nationalists and the Soviets in the end. As Roger Fisher, William Ury and Bruce Patton observed, ‘Conflict lies not in objective reality, but in people’s heads.’¹⁶⁰ In the GMD’s case, its decision-makers could not break out of their straitjacket of legality and moral righteousness and simultaneously influence the perception of their strong international opponents and allies. This was probably one of the missing links between Chiang Kai-shek’s vision and his execution of it.

Malinovsky’s rhetorical comment on US aggression justifies Dong’s initial claim that the origins of Soviet recalcitrance came from Moscow’s insecurity complex and that it was something the GMD authorities needed urgently to deal with. However, the Nationalist negotiators were unable to secure an acceptable deal with their Soviet counterparts before the domestic and international political environment deteriorated into a perpetual logjam of negotiation. In particular, the Nationalists’ proposal in February and the two proposed by the Soviets in March and April demonstrate that both sides did not have irreconcilable disagreements on specific economic issues. The crux of the matter was the domestic anti-Soviet atmosphere in China, the strong CCP presence in Manchuria and the venom of post-Yalta and pre–Cold War international politics, which were responsible for the erosion of the bilateral relationship. This perhaps justifies Dong’s final and arguably most pessimistic observation: that an agreement on economic cooperation alone would not be enough to reverse the downward spiral of Nationalist–Soviet relations.

Force replaced negotiation in Manchuria after the Soviet troop withdrawal was completed in April 1946. The GMD–CCP rivalry escalated into a full-scale war. Zhang Jia’ao had no further role to play in the Sino-Soviet negotiations because both Premier Song and Wang Shijie believed that Zhang was not tough enough to be a negotiator.¹⁶¹ Moscow evacuated the Soviet employees of the Chinese Changchun Railway in July. In October 1946, the Soviet Union began to evacuate hundreds of Soviet citizens from Manchuria, indicating that a GMD–Soviet split was in the making.¹⁶²