Sino-German Cooperation Until 1941 - Germany and Chinese Industrialization

Germany and Chinese Industrialization

In 1936, China had only about 10,000 miles (16,000 km) of railways, far lower than the 100,000 miles (160,000 km) that Sun Yat-sen had envisioned for his ambition of a modernized China. In addition, half of these were in Manchuria, which was already lost to Japan and out of Kuomintang control. The slow progress of modernizing China's transportation was because of conflicting foreign interests in China, such as the 1920 New Four-Power Consortium of British, French, American, and Japanese banking interests. This consortium aimed to regularize foreign investment in China and unanimous approval was required before any of the four could provide credit to the Chinese government for building railways. In addition, other foreign countries were hesitant to provide funding because of the depression.

However, a series of Sino-German agreements in 1934–1936 greatly accelerated railway construction in China. Major railroads were built between Nanchang, Zhejiang, and Guizhou. These fast developments were made possible because Germany needed efficient transportation to export raw materials, and because the railway lines served the Chinese government's need to build an industrial center south of the Yangtze, in the south-central provinces. In addition, these railways served important military functions. For example, the Hangzhou-Guiyang rail was built to facilitate military transport in the Yangtze delta valley, even after Shanghai and Nanking were lost. Another similar railway was the Guangzhou-Hankou network, which provided transportation between the eastern coast and the Wuhan area. This railway would later prove its worth in the early stages of the Second Sino-Japanese War.

The most important industrial project from Sino-German cooperation was the 1936 Three-Year Plan, which was administered by the Chinese government's National Resources Commission and the Hapro corporation. The purpose of this plan was to create an industrial powerhouse capable of resisting Japan in the short run, and to create a center for future Chinese industrial development for the long run. It had several basic components such as the monopolization of all operations pertaining to tungsten and antimony, the construction of the central steel and machine works in provinces such as Hubei, Hunan, and Sichuan, and the development of power plants and other chemical factories. As outlined in the 1934 barter agreement, China would provide raw materials in return for German expertise and equipment in setting up these ventures. Cost overrun for these projects was partly assuaged by the fact that the price of tungsten had more than doubled between 1932 and 1936. Germany also extended RM 100 million line of credit to the Chinese government. The Three-Year Plan also introduced a class of highly educated technocrats who were trained to run these state-owned projects. At the height of this program, Sino-German exchange accounted for 17% of China's foreign trade and China was the third largest trading partner with Germany. The Three-Year Plan had many promises, but unfortunately much of its intended benefits would eventually be undermined by the breakout of full-scale war with Japan in 1937.