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 of rivalry between China and Japan. No railway of any importance has ever been constructed in Manchuria without causing an interchange of notes between China and Japan or other interested foreign States.

Manchurian railway construction began with the Russian-financed-and-directed Chinese Eastern Railway which, after the Russo-Japanese War, was replaced in the South by a Japanese-controlled system, the South Manchuria Railway, thus making inevitable future rivalry between China and Japan. The South Manchuria Railway Company, although nominally a private corporation, is, in fact, a Japanese Government enterprise. Its functions include, not only the management of its railway lines, but also exceptional rights of political administration. From the time of its incorporation, the Japanese have never regarded it as a purely economic enterprise. The late Viscount Goto, first President of the Company, laid down a fundamental principle that the South Manchuria Railway should serve Japan's "special mission" in Manchuria.

The South Manchuria Railway system has developed into an efficient and well-managed railway enterprise and has contributed much to the economic development of Manchuria, serving at the same time as an example for the Chinese in its numerous services of a non-railway character, such as its schools, laboratories, libraries and agricultural experiment stations. But this has been accompanied by limitations and positive hindrances arising out of the political character of the Company, its connection with party politics in Japan, and certain large expenditures from which no commensurate financial returns can have been expected. Since its formation, the policy of the Railway Company has been to finance the construction of only such Chinese lines as would be connected with its own system; thus, by means of through-traffic agreements, to divert the major part of the freight to the South Manchuria Railway for seaboard export at Dairen in the Japanese leased territory. Very large sums have been expended in financing these lines and it is doubtful if their construction, in certain cases, was justified on purely economic grounds, especially in view of the large capital advances made and the loan considerations involved.

The very existence of such a foreign-controlled institution as the South Manchuria Railway on Chinese soil was naturally looked upon with disfavour by the Chinese authorities, and questions concerning its rights and privileges under treaties and agreements have constantly arisen since the Russo-Japanese War. More particularly, after 1924, when the Chinese authorities in Manchuria, having come to recognise the importance of railway development, sought to develop their own railways independent of Japanese capita], did these problems become more critical. Both economic and strategic considerations were involved. The Tahushan-Tungliao line, for example, was projected to develop new territory and to increase the revenues of the Peking-Mukden Railway, while, on the other hand, the Kuo Sung-lin mutiny in December 1925 demonstrated the possible strategic and political value of independently owned and operated Chinese lines. The Chinese declaration of attempt to overcome the Japanese monopoly, and to place obstacles in the way of its future development, anteceded the period of political influence of the Nationalist Government in Manchuria, the Tahushan-Tungliao, Mukden-Hailungcheng and Hulan-Hailun Railways, for example, having been constructed while Marshal Chang Tso-lin was in power. The policy of Marshal Chang Hsueh-liang, after his assumption of authority in 1928, re-enforced by the widespread movement for "rights recovery" sponsored by the Central Government and the Kuomintang, came into collision with Japan's monopolistic and expansionist policies, centred, as they were, around the South Manchuria Railway Company.

In the Japanese justification of their resort to forceful means in Manchuria, on and after September 18th, 1931, they have alleged violation of Japan's "treaty rights" and have emphasised China's failure to carry out an