Deng Yanda may have been offered Communist Party leadership by Stalin, but instead Yanda tried to take over the KMT. It cost him his life.
Chiang Kai Shek's Shakedowns and White Terror during the Nanjing Decade
Last time we looked at the founding of the Communist Red Army. Let’s turn our attention back for the moment to Nanjing, Chiang Kai-shek’s capital on the Yangzi River.
In May 1929, Sun Yat-sen’s body was moved from the western hills of Beijing to its final resting spot in Nanjing. Sun’s wish had been to be buried there. Only with the KMT in power was that request fulfilled. A mausoleum was built on Purple Mountain of Nanjing. Chiang Kai-shek presided at the ceremony and Sun was lauded as the Father of the Chinese Republic. Since 2005, KMT officials from Taiwan have visited the site again. There had been an interruption for 56 years following the proclamation of the People’s Republic on the mainland.
The first of Sun Yat-sen’s three principles of the people had been nationalism. The KMT was called the Nationalist Party. One of the key issues for the Nanjing government was asserting national control. Both over the provinces and with respect to foreign powers. I recently discussed Chiang’s efforts to gain control over warlords with his successful battles around the Central Plains War. Now let’s consider foreigners and businesspeople.
The Nationalists’ strongest base was along the Yangzi River and beside the Pacific coast. That is where it had won battles, but also where foreign trade and foreign concessions were strong. There was racial discrimination in the treaty ports with Chinese treated as a second class or barred altogether from many parks, businesses, clubs and schools. But that began to change. The British concessions in Wuhan were taken over during the Northern Expedition. Britain also agreed to give up other concessions by negotiations. Belgium gave up its concession in Tianjin. It was ultimately because of World War 2 that the remaining international concessions in China ended, except for Hong Kong and Macau, which were returned in 1997.
By the time of the Nanjing government, the Nationalists also could appoint the judges of the Provisional Court of the International Settlement in Shanghai. Now Chinese appointed judges tried Chinese people arrested in the foreign concession. Before that, those judges were appointed by the international community. Finally, Nanjing had power and influence over the more than one million Chinese living in that area of China’s most economically dynamic city.
Shanghai now had a population of about 3 million and had grown by a million people during the last 7 years or so. It was China’s most important port, having surpassed Guangzhou. But it was also the one with the most foreign influence and ownership. About half the population lived within the two main international settlements. That had started during the Taiping Rebellion when Chinese moved in seeking shelter in the areas beyond Chinese control. Shanghai was not just a trading city. Foreigners were allowed to build and own factories. They did and Shanghai was a major industrial zone, with ownership mixed among foreigners and Chinese. And to give a sense of the city’s importance, about half the modern factories of China in 1933 were in Shanghai.
You might assume that the Nationalists were on good terms with the Chinese business owners, because of their shared concern with communism. While they might have been natural allies, in practice the business owners were quickly disappointed by Nanjing.
To fund the Northern Expedition, the Nanjing regime sometimes kidnapped businesspeople and only released them once a ransom was paid. Officially, they were arrests and donations. But the effect was the same. For example, Mr. Fu, a senior banker and industrialist was asked to arrange a 10 million Yuan loan for the Chiang government. When he refused, he was arrested on charges of having financed warlords. He fled to the international settlement and then to Japanese controlled Dalian. He transferred his assets to foreigners. The government seized his steamship company. He suffered serious financial losses and finally contributed to the KMT to have himself cleared. But his flight from China allowed the Nationalists to use his name to impose control on the Shanghai Chamber of Commerce.
Foreign businesses already had advantages in terms of access to cheaper loans internationally and markets outside of China. When Chiang’s Nanjing government was split from the KMT Wuhan government, the Nanjing side strongarmed businesspeople into subscribing to Nanjing bonds when the very legitimacy of that government was in question. Quotas were announced. This was considered a reign of terror by the American consul and an Australian in Shanghai who observed what was happening. Similar techniques were used in July 1927 during anti-Japanese demonstrations and boycotts following Japan’s militarization of Shandong. Businessmen would be arrested as Japanese stooges until their release was paid for. The Northern Expedition was a scary time for the affluent of Shanghai.
Chiang’s regime was helped by the Green Gang. Because Shanghai was divided into three parts: the French concession, the International Settlement and the Chinese controlled part, police action against the Green Gang was challenging on legal grounds. Each police force had limited territory and coordination across boundaries was an issue. Extradition, a complicated legal process, was needed to remove criminals from one part of Shanghai for trial in another. Recently, it seems, India chose not to go through extradition proceedings with Canada and is alleged to have assassinated the Sikh separatist Hardeep Singh Nijjar in Canada rather than go through that complicated process of requesting his removal for a trial in India.
The Green Gang was a secret society with opium dealing, gambling, prostitution, protection rackets and kidnapping as sources of income. They were ready to use violence. Chiang seems to have often called on them.
In case you think Chiang was the only one involved with gangs, I mentioned at the end of the Northern Expedition episode that Mao and his band of soldiers had joined up with a secret society. That one too operated a protection racket and conducted raids for its income. Mao and his soldiers were soon raiding too, although they used suitably communist wording to excuse it. So, both Chiang and Mao allied with gangs at this time. But Chiang was doing it on a larger scale, while claiming to be the government of China and under the eyes of foreign observers.
France also allied with the Green Gang and appointed its member, Pockmarked Huang, as their chief Chinese detective in the French Settlement. He protected French property and his own people and targeted his rivals. Opium smuggling was so open as a result that in the French controlled area, smugglers put their names and addresses on the packages. France had their property protected at a lower cost, so long as they looked the other way from the Green Gang.
The Green Gang was heavily involved in the violent suppression of Communists in Shanghai once Chiang turned on them during the Northern Expedition. Leaders of the Green Gang also headed the reorganized labor unions, bringing them indirectly under Nanjing control.
One leader of the Green Gang, who was always surrounded by armed bodyguards and who travelled in an armour-plated car, founded a bank and became a director of the Shanghai Stock Exchange. He frequently put pressure on Shanghai bankers and industrialists to follow Nanjing’s orders.
About 50% of the national budget was for the military and about another 35% was interest on the national debt (including debts incurred by the Qing and the other Republic of China administrations and including payments of the Boxer Rebellion indemnity). Only about 15% was left for everything else, such as roads or education. Railways were accounted separately as they were controlled by a special entity. There would have been debt used to build railways too, of course.
The provinces controlled the important land tax and kept most tax revenue and had their own armies. The national budget was relatively small as a result. For example, in 1933, the Nationalist Government’s expenditures added up to 2.4% of China’s economy. Japan’s equivalent in the late 19th century was four times higher. The comparable US number today is about 10 times higher than China’s in 1933.
Heavy taxes were imposed on modern industry and forced loans too. For example, during the late stages of the Northern Expedition, the KMT imposed a 50% tax on cigarettes. Foreigners fought it and benefited in two ways. The final tax system taxed cigarettes in two tiers instead of the previous seven levels. The tax on low quality cigarettes was only a bit below that of high-quality cigarettes, but as a share of their value, the tax was highest on the low-quality cigarettes made by Chinese companies. Also, the British and American Tobacco Company, which made high quality smokes negotiated a discount by offering to prepay the tax in advance. Even when the tax was later reduced in 1929, there had been widespread business failures by Chinese cigarette manufacturers.
Chinese businesses of course resented any advantages foreign businesses got in China. Foreign businesses could negotiate changes and exemptions to taxes and rules more easily because of their option of using foreign concessions and foreign courts in those concessions to extract better deals. Chinese businesses could be based in the concessions too. But they would be judged by Chinese appointed judges, which made them subject to Nanjing.
There was a break in the pressure on Shanghai business for a while during the Northern Expedition. Once the Wuhan administration rejected communism and negotiated to reunite with Nanjing, Chiang stepped down for some months in late 1927. That was when he married Song Meiling. The Nationalists, in Chiang’s absence, had serious difficulties raising funds. It seems that voluntary bond sales weren’t enough to fund the war. The Wuhan regime collapsed in large part because it couldn’t raise sufficient funds. Chiang was welcomed back in the KMT government, and his new brother-in-law T.V. Soong became Finance Minister and was expected to supply Chiang’s army with 1.6 million Yuan per day. But with Chiang back in office in early 1928, the coercion started up again. Directors of racetracks were held for ransom. Wealthy residents in Shanghai started leaving as a precaution.
But T.V. Soong was a different man than Chiang and stopped the use of thuggish techniques. He had studied economics at Harvard University. As a member of a wealthy family from Shanghai, he was able to mend fences and improve relations with the business community. He held a conference, apologized for the previous strong-armed tactics and said, “in times of war, we have perhaps been forced to resort to extraordinary means to raise funds.” He made the government bonds more attractive by increasing the interest rate. He tried to bring order to the Nationalists through his budget. He clashed with Chiang who always wanted money for his army. Soong wanted to shrink the army and create national revenue sources for the central government that would flow from all provinces to the capital. These were worthy and far-sighted aims. But he immediately faced resistance from Chiang and the other generals. A problem was that the Nationalists did not really control the country. As you may remember, Chiang had to take the provincial and warlord armies in mind. They had helped him take Beijing. But as discussed with the War of the Central Plains, they were not volunteering to disband their armies.
The issue of taxation was a crucial early issue for the Nationalists. Could Nanjing build stable national institutions that would govern the whole country. China needed it.
I believe this was a missed opportunity to come to a long-term solution, like a Chinese Magna Carta that would have limited the power of the state in exchange for predictable taxation and revenue powers. Before the Magna Carta, the English king’s power was unlimited but he was resented. Negotiations with his lords in 1215 for funding led to a series of agreements that, in the long run, limited the power of the English throne and set up some fundamental rights for the king’s lords and eventually all the king’s subjects. Restriction on the power of arrest was one of those rules that remains fundamental in English law to this day. English speakers around the world would recognize its legacy in any tv crime show. A person cannot be arrested for no reason, or without a charge.
Chiang resorted to force, both with the Shanghai bankers, and later during the war against the Japanese with forced requisitions for the army. There was an alternative. The Shanghai bankers were willing to provide funds to the Nationalist Government. But they wanted a say, and they wanted the government to implement a budget and to partially demilitarize. T.V. Soong, having studied at Harvard, understood this and tried to give voice to such concerns. But he lacked the political skills to force a compromise on the budding KMT political system.
Taiwan now has democracy and civil liberties.
In Mainland China, and sadly increasingly in Hong Kong too, businesspeople are kidnapped or disappear under government orders. One well known case, among countless examples, is that of Jack Ma, the founder of Alibaba. He had spoken up and criticized government financial regulations in China. He then disappeared from public view for at least two years, and even though he was never charged with any crime, his very essence has changed. He is no longer a confidant businessman. A planned stock offering was cancelled. He “donated" $10 billion to the government Common Prosperity Fund. He has appeared as a teacher in Japan and has quoted Chairman Xi Jinping favourably since his earlier criticisms of the Communist government. The legacy of arresting businessmen in China on trumped up charges continues in the 2020s just as it did in the 1920s under Chiang Kai-shek.
Under T.V. Soong and the KMT, the Nationalist government finally obtained control over the tariffs China charged on imported goods. That was an important step and an improvement over what the Qing had following their disastrous encounters with foreign militaries. Until Nanjing changed the rates, the tariffs had been 5% by international treaty. Now, T.V. Soong started to change the tariffs. Mostly, Nanjing’s goal was to maximize its revenue. But rarely the changes also helped Chinese industry. One set of changes affecting cotton and textiles in particular caused Japan businesses to lose out to Chinese businesses. This was around 1933 and Japan then launched a publicity campaign against Soong personally and his successor and brother-in-law H.H. Kung then reversed the newest tariff policy and Chinese businesses lost out and Japan imports flooded back in.
T.V. Soong, while Finance Minister of the Nationalists, also achieved the abolition of the likin, an internal tax on the transportation of goods between provinces. At least, it did in the areas controlled by the KMT. That was a very important and beneficial achievement. Opening trade within a country builds the size of markets, reduces costs and speeds up transportation. The likin had been an important source of revenues at least since the Taiping Rebellion when the provincial armies were funded through that method. But its negative features can be understood by this example. 3M is a company headquartered in the US state of Minnesota that makes countless products, including tape. Imagine they wanted to sell tape in a likin system. The neighbouring states of Wisconsin and Iowa might charge a tax on all products passing through their state. And then Illinois and Missouri. Then Arkansas and Mississippi, before finally Louisiana. That would mean that a sale of tape by 3M made in Minnesota would be taxed countless times before it reached New Orleans…regardless of whether it was being bought by a store in that city or proceeding further into the sea for export to another country. You can well see that this would increase the costs of that tape considerably and decrease its sales. The elimination of the likin system would have been very positive for businesses, commerce and the economy. However, Soong also increased taxes on commodities like tobacco and salt.
When the Nanjing government began, half of the most modern industry was owned by foreigners. Foreigners controlled the maritime customs system and salt tax administration to secure payments on debts and indemnities owed by China, including amounts still due from the Boxer Rebellion. The Republic of China was honouring these legacy debts, though in 1933 T.V. Soong was able to get Italy to agree to return Boxer Indemnity funds to China. Britain also returned Boxer Indemnity funds to Nanjing’s control. Some of those funds were used to build a modern newsprint manufacturing plant and to buy equipment for it.
In contrast, the current government in Beijing, the People’s Republic of China did not assume Republic of China debts when it took over mainland China in the late 1940s. In its defence, the Republic of China still existed and had international recognition. It had evacuated to Taiwan. But the People’s Republic started without assuming the historic debts that the Chinese Republic did. And as an interesting bit of financial trivia, as part of Britain’s agreement to return Hong Kong to China after Communist China had re-opened to international trade, Margaret Thatcher successfully insisted that China acknowledge and repay old sovereign debt owed to Britons.
Like many autocrats, Chiang valued loyalty above competency. When Soong became too independent, pushed back too much against Chiang’s spending and was criticized by Japan, Chiang replaced him with another of his brothers-in-law, H.H. Kung, who understood his job was to fund Chiang’s army at any cost. While Soong had been able to run a budget surplus for one year, the deficit exploded under Kung.
There was an alternative to Chiang Kai-shek who is worth mentioning. Deng Yanda had been a military commander in the KMT and was involved in the Northern Expedition. He was then associated with the Wuhan government and fled to Moscow and then Berlin when Wuhan and the KMT broke with the Communists. He seems to have been charismatic and popular. Madame Sun Yat-sen, who was also in exile for the same reasons, corresponded and met with him. Stalin spent time with him in Moscow, on one night enjoying 6 hours together and personally walking him to the Kremlin outer gate. Stalin seems to have been a fan of his and offered him leadership of the Communist Party of China. Yanda declined saying he wasn’t even a member of the party. Stalin said that was no issue. “The Comintern could fix that”, Stalin replied.
But Yanda said no to Stalin, he wasn’t a Communist. And probably for safety reasons, he then left the Soviet Union and moved to Berlin. He wrote to Madame Sun from Berlin and used terms like “120%”. He wanted her to join him in Berlin so they could discuss things that were “120% important” and “120% specific”. Song Qingling did join him in Berlin in May 1928. She rented an apartment, had an assistant and was watched by Germany’s security services. She frequently walked and talked with Deng Yanda. There were rumours that they were lovers, but that is probably not true. The rumours caused them to stay away from each other. Qingling was carefully guarding her status as the widow of Sun Yat-sen. To have a new lover would risk that. She left Berlin, first for Moscow and then for her late husband’s interment in Nanjing. Her mother wouldn’t see her because of the daughter’s sympathy with communism and for disobeying her requests not to leave China or to return sooner. When Qingling then returned to Berlin, Yanda was in Paris and London for meetings.
In 1929, the Soviet Union invaded Manchuria over a dispute with the Chinese Eastern Railway. The Chinese people generally supported their government. The Red Song Sister, Madame Sun Yat sen, however, sided with the USSR and attacked her brother-in-law Chiang Kai-shek. She wrote, “Never has the treacherous character of the counter-revolutionary Kuomintang leaders been so shamelessly exposed”. They had “degenerated into imperialist tools and attempted to provoke war with Russia”. No Chinese newspaper would publish it, so it was printed on leaflets and Communists dropped them from the top of high rises in central Shanghai. Her view was deeply unpopular in China and in her own family. When a telegram arrived saying that her mother was gravely ill, she did not return to China to see her mother. Only after her death, when her family wrote her again, did Qingling return home for the funeral. She did so via Moscow and following a meeting with Soviet officials. She was more loyal to Moscow than to her own mother.
Deng Yanda secretly returned to China in 1930 to organize. While most historians use the term Third Party to describe what Deng was building, he himself always used the term Provisional Action Committee of the Chinese Nationalist Party. It was a Japanese newspaper in Shanghai that first used the term Third Party to describe what Yanda was doing. He saw himself as a Nationalist Party member, not a Communist and not the leader of a new political party. He wanted to reform the Nationalist Party and to bring it closer to United Front days. While he did not succeed and was arrested and executed by Chiang Kai-shek, he came closer than most people realize. It was precisely because he was a real threat to Chiang Kai-shek’s leadership that Chiang felt the need to kill him.
Deng Yanda was deeply curious and spent a lot of time reading and asking questions. He learned German fluently and read Kant, Hegel and Marx. His understanding of the world caused him to reject both traditional Chinese values as well as Communism, in particular because of its slavish devotion to Moscow. He did believe that Chinese society in the future should be built on the active participation of the masses of the common people and that distinctions between elite and common should cease. He wanted keen youth to go to the people and to organize them. He believed in mass action. This was all very different than Chiang Kai-shek’s elitest and militaristic regime.
Yanda had a two-pronged strategy. One was a long-term political program based on mass mobilization to engage the population through recruitment, propaganda and organization of a popular political party. The second was a military uprising to overthrow the current Nanjing government and to replace it.
From 1927-1930, there were steps to organize people. But this was difficult given Chiang’s White Terror as well as Yanda’s exile. He returned in 1930 at the request of his supporters to overcome these challenges with his presence. He knew it was risky. When he said goodbye to Song Qingling in Berlin, he said it might be the last time they would see each other. It was.
Yanda was able to build connections in many circles. He had been a military commander and had connections and friends in the army. His father had passed the first examination and had been a magistrate, scholar and teacher. Yanda was seen as sincere and was a good listener and charming. But it was his military background that caused the greatest fears in Chiang Kai-shek.
Yanda had been Commander of the Cadet Brigade at the Whampoa Military Academy. He had also been Vice-Director of Training. His former cadets were loyal to him. And military commanders respected him. Broad and deep military support gave him a credible path to power. If a military coup could take place by those who preferred Yanda to Chiang, then Yanda could gain power. And he was a better natural politician than Chiang and had a support base that could have broadened his foundation. In August 1930, it held its opening launch. It began publishing a magazine and then a daily. The quality of the articles was outstanding and in spite of the government suppressing it, readership was sizable and it was showing up in various Chinese cities. Political organizing was happening too, including peasant associations, student groups and worker organizations. All the major cities and provinces had divisions, except Sichuan.
But Deng, like Mao and Chiang, knew that power came from the barrel of a gun. He said, “Military affairs as the first priority”. He was busy recruiting among his military contacts and from graduates of the Whampoa Military Academy. This hit very close to home as that was Chiang Kai-shek’s pillar of support, since he had formerly led that Academy. Deng had a Whampoa Military Academy Revolutionary Classmates Association set up to allow him and his team to communicate with fellow graduates. 75% of Whampoa’s military graduates joined it.
Also, in 1924, Deng had saved the life of Chen Cheng, when he had been wounded. Deng had carried him to safety. Now Chen commanded the Eighteenth Army, which was stationed in Jiangxi to attack Communists. In 1931, Chen and Deng met multiple times and Chen joined Deng’s Provisional Action Committee of the Guomindang. They were planning an insurrection for late August 1931.
Chiang could not risk having his military support go to a rival. He had spies within Deng’s movement. Even though Deng was careful and not predictable in where he slept, he was found.
Deng Yanda was arrested that month, the day before Mrs. Soong’s funeral. Chiang Kai-shek had him executed on November 29, 1931. When Qingling heard the rumour, she reached out to her brother-in-law. She offered to mediate and offered to discuss everything. Chiang replied, “It’s too late”.
Qingling exploded and screamed “You butcher”. Chiang left the room.
Qingling then upped her attacks on the KMT in public and met privately with a Comintern representative in Shanghai and asked to join the Communist Party of China. Her request was kept a secret and Communists thought it better to have her as a visible supporter outside the party. They preferred the optics of Sun Yat-sen’s widow attacking the KMT, not as a Communist, but as a disgruntled Nationalist. They only accepted her application to join the party about 50 years later, when she was on her deathbed in 1981. In the meanwhile, she did act on the Party’s behalf and received secret agent training. Song Qingling was a loyal Communist in actions, if not in title, for decades.
https://buymeacoffee.com/thechineserevolution