Japanese Yearbook on Business History-1990/7

The Move into Manchuria of the Nissan Combine

Masaru UDAGAWA

INTRODUCTION It is a commonly known fact that international relations involving Japan worsened after the outbreak of the Manchurian Incident in September1931,and Japan became increasingly isolated interna tionally.Likewise,in the1930s,particularly in the latter half of the decade,a variety of pressures were applied to the activities of busi nesses as a result of increased intervention by the military in the political and economic arenas and a thrust towards a controlled economy.In the midst of such changes in the political and eco nomic environment,foreign investment in Japan diminished,and foreign businesses already in Japan left the country one after the other. On the other hand,throughout this period the Japanese econ omy continued to expand,and rapid progress was made in the heavy and chemical industries.This was because the technological improvements and efforts at rationalization made by businesses during the recession of the1920s finally bore fruit in the midst of

This study was made possible by the1990Special Research Subsidy Fund of Hosei University. 4JAPANESE YEARBOOKON BUSINESSHISTORY-1990/7 the increase in demand for munitions following the Manchurian Incident and the acceleration of exports and suppression of im ports that followed the yen exchange collapse after the export of gold was banned in December1931.The invigoration of business activities,with the progress of the heavy and chemical industries forming the core,inspired entrepreneurs with confidence and heightened and encouraged their entrepreneurial spirit.

Their business activities,however,were to become replete with bitter experiences after the outbreak of the Sino-Japanese War in

July1937.The expansion and prolongation of the Sino-Japanese War spurred Japan's international isolation,with the result that the Japanese government planned the establishment of an•gEco

nomic Bloc of Japan,Manchukuo,and China.•hFor entrepre

neurs,the raw materials and natural resources of Manchuria and

China were certainly an attraction.But cooperation in the estab

lishment of such an economic bloc meant approval for the mili

tary's aggressive actions and toeing the military line.The majority

of entrepreneurs forming the mainstream of the business world at

the time were critical of the military's aggressive actions.1The rea

son is that the expansion and prolongation of the war would inev

itably lead to confrontation and friction with the democratic

ountries,particularly the United States and England.Theyc feared the emergence of such a situation. For this reason,from the latter half of the1930s on,tne entre preneurs fronted up to the extremely difficult,and mutually con tradictory,tasks of cooperation with the establishment of an economic bloc of Japan,Manchukuo,and China,an early solution to the Sino-Japanese War,and maintenance of harmonious rela tions with the United States and England.

1On this point ,the following two works can serve as the first point of ref erence.Hideichiroö Nakamura,•gThe activities of the Japan Economic Fed eration,•hin Dorothy Borg and Shumpei Okamoto,eds.,Pearl Harbor as History:Japanese American Relations1931-1941(New York:Columbia Uni versity Press,1973),411-20;and Hidemasa Morikawa,•g1930nendai ni okeru kigyojin no ishiki•h[The attitude of entrepreneurs in the1930s],Shi no.624,1976. so UDAGAWA:Nissan Combine's Move into Manchuria5

The purpose of this essay is to consider,as an instance of a busi

ness that took up the challenge of these difficult tasks,the activities

of the Nissan combine that moved to Manchukuo2in December

of1937,called itself the Manchuria Heavy Industries Develop

ment Corporation,and became the implementing body of the•g

Five-Year Industrial Development Plan in Manchuria,•hand re

late these activities with the international relations they entailed.

HISTORY OF THE NISSAN COMBINE'S MOVE TO MANCHURIA

The founder of Kuhara zaibatsu,Fusanosuke Kuhara,in Decem ber1926entrusted the rebuilding of Kuhara zaibatsu ,then on the verge of bankruptcy,to his brother-in-law,Yoshisuke Aikawa . After disposing of Kuhara zaibatsu's accumulated debts through the assistance of relatives and friends,Aikawa in December of1928 reformed Kuhara Mining,the key enterprise in the zaibatsu ,into a public holding company and renamed it Nippon Industrial

Company(popularly called Nissan),and assembled the various en terprises of Kuhara zaibatsu under its umbrella.

Thus reorganized and born,the Nissan combine,like other companies,felt the effects of the world panic that broke out shortly after it began operations,and it continued to experience recession. But in the midst of the revival and expansion of the Japanese eco nomy that opportunely followed the Manchurian Incident and the measure to ban the export of gold,the Nissan combine's business operations would recover.And then the Nissan combine carried out an aggressive and daring expansion strategy that had as its core a•gconglomerate strategy•hthat took full advantage of the public holding company functions and structure of the head office,Nippon Industrial Company(Nissan).As a result ,it achieved a rapid expansion,so that by June1937it controlled77

2In Japanese academic circles it is customary to put Manchukuo in quo tation marks,but because this is needlessly troublesome ,quotation marks will be omitted in this essay. 6JAPANESE YEARBOOKON BUSINESSHISTORY-1990/7 companies,including such powerful ones as Nippon Mining, Hitachi Engineering Works,Nissan Automobile Company,and Nippon Fishery,with a paid-up capital totaling473,630,000yen, and formed one giant industrial group.The scale of the Nissan in dustrial group at the time was such that it followed in size the Mitsui and Mitsubishi zaibatsus.3 Now,the Nissan combine,the third-ranking industrial group in the nation,suddenly moved its head office,Nippon Industrial Company,to Hsinking,the capital of Manchukuo(present-day Changchun in China)in December1937,changed its name to Manchuria Heavy Industries Development Corporation,and an nounced that it would become the implementing body for the Five-Year Industrial Development Plan for that country,thereby dealing a severe shock to Japan's business world.

The opportunity for the move to Manchuria of the Nissan com bine head office was provided by the Manchukuo government and

Japan's Kwantung Army stationed in Manchuria.The Manchu kuo government and the Kwantung Army announced in June

1936that,as the•gSecond General Outline of a Program for the

Economic Construction of Manchukuo,•hand following the exam ple of the Soviet five-year plans,they would create a five-year plan funded at2,200,000,000yen and based on a•gone industry,one company system•hwith the South Manchuria Railway Company as the nucleus,and they would put this into effect from April1937.

Before putting anything into effect,in autumn1936the Kwan tung Army invited industrial managers from Japan and sought their opinions of the five-year plan.4The following opinion,ex-

3Masaru Udagawa,Shinko zaibatsu[The new zaibatsu](Nihon Keizai Shinbunsha,1984),p.10.Nissan had the special characteristic of being a combine centered on the heavy and chemical industries.For the business history of the Nissan combine,see chapter1of Shinkozaibatsu. 4Those invited included ,besides Aikawa,Shingo Tsuda(president of Fuji Spinning Mills),Yunosuke Yasukawa(president of Toyo Takushoku), Nobuteru Mori(founder of the Mori combine),Shitagau Noguchi (founder of the Nitchitsu combine),and others. UDAGAWA:Nissan Combine's Move into Manchuria7 pressed by Aikawa,was noted carefully by Kwantung Army officers and Manchukuo officials:

1.To develop the resources and encourage industry in such a vast area as Manchuria,there are two methods,the line method that follows a theory of each single individual indus try by itself,and an integrated pyramid method.The line method is the one usually considered,and Manchukuo's special company system also belongs to this type.But if the line method,with its•gone industry,one company•hbrand of independent individual companies is not boldly abandoned on this occasion and resource development and industry construction not carried out in a comprehensive form on the basis of the pyramid method,then a five-year plan would be impossible to realize.

2.There is a need to acquire materials and technology,as well as capital,from advanced countries.Manchuria resembles America in that the land is vast and resources are abundant.Furthermore,because it has not been ruined by human mismanagement,an American-style large-scale de velopment is possible.If it were developed with the use of modern machinery from the United States,it would be pos sible to build up a sturdier,more powerful industry than Japan's.5 The five-year plan was put into effect from April1937as origi nally planned(on the basis of one industry,one company),but as a result of the outbreak of the Sino-Japanese War shortly after ward,there was an urgent need to establish a wartime bloc eco nomic structure that would integrate Japan and Manchukuo,and to build military supply sites in Manchuria,with the result that the five-year plan was revised to something double its size,with the main focus on the mining and manufacturing sectors.But it was thought to be difficult to put the expanded five-year plan success fully into effect at the time,with the South Manchuria Railway as the key element,for the Railway was busy with the construction of

5Manshukoku -shi Hensan Kankokai ,ed.,Manshukoku-shi[History of Manchukuo],vol.1(Kokusai Zenrin Kyokai,1970),pp.547-48. 8JAPANESE YEARBOOK ON BUSINESS HISTORY-1990/7

railways in occupied territories.On top of this,it was not an easy matter to obtain funds and materials needed for the five-year plan from Japan,which was feverishly engaged in the construction and expansion of the munitions industry sector.

Thus the Manchukuo government and the Kwantung Army were compelled to reexamine ways to effect the five-year plan.

After deliberation,they abandoned the one industry,one com pany(with the South Manchuria Railway as the key element)sys tem of development and decided instead to set up a company along the lines suggested by Aikawa,one that would control the whole development of resources and construction of industry,and to adopt the•gcomprehensive development method•hthat would put this company in charge of implementation of the five-year plan.At the same time,there arose among them a willingness to seek as far as possible to obtain from overseas countries the funds and materials that could be foreseen as becoming bottlenecks to realization of the five-year plan.

The proposers of the five-year plan looked around for some organ that would carry out the plan regarding the South Manchu ria Railway,and in the end they selected the Nissan combine that was controlled by Aikawa.The reason they gave is that,besides Ai kawa being the one who advocated the comprehensive develop ment method and the introduction of foreign capital,Nissan also was a public combine that had a head office possessing over50,000 shareholders.6

The Manchukuo government and Kwantung Army demanded of Aikawa that he shift the Nissan head office,as being the main constituent in the implementation of the five-year plan,to Man churia.At the same time they conferred with the Japanese govern ment and offered the following six privileges:1)a guarantee of the principal and dividends of6%per year on new investments in

6The Kwantung Army bore ill feelings towards such zaibatsu as Mitsui and Mitsubishi,which were controlled feudalistically by zaibatsu families. And at that time Aikawa and his relatives owned no more than5.2%of Nissan shares. UDAGAWA:Nissan Combine's Move into Manchuria9

Manchukuo;2)a reduction in the•gdouble taxation•hburden;3) respect for the marketability of shares;4)approval for the issuance of debentures with shares as security;5)freedom of dividend pol icies;and6)positive financing from the Bank of Japan and the

Japan Industrial Bank.7 These privileges were attractive to the Nissan combine.The rea son is that,though Nissan was outwardly growing,the inner real ity was that it was facing•gthe pinch of being veritably trapped against the water's edge at Dunkirk.•h8The causes of the pinch were financial difficulties and an increase in the taxation burden due to•gdouble taxation.•hThe expansion of the Nissan combine was achieved through a•gconglomerate strategy•hthat was effected, as mentioned earlier,amidst a share boom against a background of revival in the Japanese economy after the Manchurian Incident and the ban on gold exports.And the motive force for that strategy was the gigantic premium revenue derived from the open sale to the public of shares in the subsidiary companies of Nissan.

But the progress of the wartime economic system quieted the share boom down,and as a result the premium revenue acquired by Nissan fell off.And at the same time that this reduction caused

Nissan dividend rates and share prices to drop,it made difficult the further development of the•gconglomerate strategy•hthat made use of Nissan's high-priced shares.Also,the reduction in premium revenue augmented Nissan's loan debts and increased the burden of interest that Nissan had to pay.

Therefore,to find a way out of this vicious circle,in April1935

Nissan planned a debenture issue of50,000,000yen,secured by subsidiary company shares.But the opposition of the Finance

Ministry prevented the plan from being realized.9

7Mochikabu -gaisha Seiri Iinkai,ed.,Nihon zaibatsu to sono kaitai[Japan ese zaibatsu and their dissolution],vol.1(1951),p.78. 8Juichiro Tomoda ,Aikawa Yoshisuke-kaiso to hofu[Yoshisuke Aikawa: Reminiscences and aspirations](manuscript,Aikawa Family Archives),p. 37. 9It was only from1938that the issuance of debentures secured by de bentures was permitted in Japan. 10JAPANESE YEARBOOK ON BUSINESS HISTORY-1990/7

In early1937these financial difficulties were exacerbated by the

passing of a provisional additional tax collection law and a special Sino-Japanese War law,with the result that,besides an income tax

on subsidiary companies and an increased levy of a special provi

sional tax on profits,a special tax was even levied on the premium

revenue and acquisition dividends of the holding company.As a

result,the additional taxes Nissan had to bear because of•gdouble taxation•hamounted to740,000yen for half the year,while the tax burden on the Nissan combine as a whole was foreseen to be over

5,000,000yen for the whole year.10For these reasons,even though

it had excellent companies under its umbrella,Nissan had lost its

merit as a holding company,and its economic problems had be

come so serious that its financial director even urged the dissolu

tion of the Nissan combine.

For a Nissan combine that was so•gtrapped against the water's

edge at Dunkirk,•hthe six privileges offered to it by the govern

ments of Japan and Manchukuo were certainly attractive,and

acted as•gpump priming•has far as Aikawa's resolution to move Nis

san to Manchuria goes.But these privileges were also natural re turns in the nature of risk incentives for moving the head office of

the Nissan combine overseas.For this reason,it is rash to think

that Aikawa embarked upon the shift of Nissan to Manchuria just

in order to obtain these privileges.Behind his decision to move

Nissan was his grand scheme.For one thing,it meant the realiza

tion of his•gdream•has an entrepreneur,of taking Nissan over to

Manchuria and having it become the implementing body of the five-year plan,and someday building a giant combine that would

stretch from Japan to Manchuria.Secondly,it meant that,in the

implementation of the five-year plan,he would introduce overseas

funds,especially capital from the United States,and thus build a

relationship of common interests between Japan and the United

States,which he planned to use as a lever to improve the worsen

Masaru Udagawa,•gNissan zaibatsu no Manshu shinshutsu•h[The -10 in vasion of Manchuria by the Nissan zaibatsu],Keieishigaku[Japan Business History Review],vol.11,no.1,July1976,p.62. UDAGAWA:Nissan Combine's Move into Manchuria11

ing relations between the two countries;he hoped that in the end he could get United States recognition of•gManchukuo•hand at the same time find a solution to the Sino-Japanese War.11Aikawa found a positive significance in the move to Manchuria especially in the realization of the second motive,and he staked his own en trepreneurial life on it.For this reason,as a final condition for Nis san's move to Manchuria,he strongly demanded of both the

Japanese and Manchukuo governments,and of the Kwantung Army,the introduction of foreign capital into the five-year plan. As a result,both governments accepted Aikawa's demand,and in

October1937the Cabinet decided on a•gGeneral Plan for the Es tablishment of Heavy Industries in Manchuria.•hIn it was ex pressly stated that,•gin regard to the development and management of the various industries•hin the five-year plan,•gthe participation of foreign capital is to be recognized,and vigorous steps are to be taken for the introduction of foreign capital along with foreign technology and equipment.The above is regarded of special importance as a sine qua non of this proposal.•h12

NEGOTIATIONS TO INTRODUCE FOREIGN CAPITAL

The head office of the Nissan combine,Nissan,held a special gen eral meeting of shareholders on20November1937,at which it was decided to move the head office to Hsinking in Manchukuo.

On1December,as a result of the complete abolition of the prin

Aikawa-tei ni okeru Manshu kankeisha kondan kiroku•h[Records 11•g of informal talks between people connected with Manchuria in the Aikawa residence],26October1951,Mangyo juyo shorui[Important documents on Manchurian industry](4),in the Aikawa Family Archives. The plan to introduce foreign capital into Manchurian development was proposed by other people prior to Aikawa's proposal of the idea.On this point see Yukio Cho,•gAn Inquiry into the Problem of Importing American Capital into Manchuria:A Note on Japanese-American Rela tions,1931-1941,•hin Borg and Okamoto,Pearl Harbor as History,pp.377- 410. 12Manshukoku-shi ,vol.1,pp.554-55. 12JAPANESE YEARBOOK ON BUSINESS HISTORY-1990/7 ciple of extraterritoriality,Nissan became a juridical person in Manchukuo,changed its name to Manchuria Heavy Industries Development Corporation(commonly known as Mangyo),and appointed Yoshisuke Aikawa president. Thus established,Mangyo immediately doubled its capital to 440,000,000yen and placed the newly issued shares in the posses sion of the Manchukuo government;at the same time it under wrote the shares of the special-purpose companies owned by the Manchukuo government and the South Manchuria Railway,and simultaneously began acting as the implementing body of the five- year plan. The first thing to note is the scale of Mangyo as an enterprise group:as a result of the lively business activity of affiliated enter prises in Japan and Manchuria,by1941,the final year of the five year plan,Mangyo controlled31companies in Manchuria and63- in Japan,for a total of94.The total sum of payment capital of these94companies amounted to2,264,550,000yen.The same total sum for Mitsui-Zaibatsu-affiliated enterprises at the same time was1,362,990,000yen,and for the Mitsubishi Zaibatsu, 1,263,990,000yen,so in scale Mangyo surpassed both Mitsui and Mitsubishi.13Just seeing it from this point of view alone,we can say that Aikawa's cherished dream to form a giant enterprise group spanning Japan and Manchuria was realized. The next thing we might note is the investment balance(the total sum of share investment and loans directed to affiliated en terprises);between the latter half of1938and the latter half of 1941,it had grown from575,250,000yen to1,728,670,000yen.14 A breakdown of the total shows that in the latter half of1939the investment balance on Manchuria-related businesses already sur passed that for Japan-related businesses,and by the end of1941 the investment ratio stood at87%for Manchuria and13%for Japan.As the body responsible for implementing the five-year

13Nihon zaibatsu to sono kaitai ,vol.1,pp.445-46. 4Udagawa 1 ,Shinko zaibatsu,pp.71-73. UDAGAWA:Nissan Combine's Move into Manchuria13 plan,Mangyo had indeed pushed investment in Manchuria-re- lated businesses strongly. What results,then,were achieved by the Mangyo combine in the five-year plan?According to studies by Prof.Akira Hara,the five-year plan was expected to cost(calculated in current prices) Mangyo and related companies2,726,000,000yen in total invest ment costs,and the production targets were to be1,236,000,000 yen,but actual investment in the five years was55%of the ex pected total,or only1,492,840,000yen,and the actual production results were34%of the expected figures,or422,000,000yen.15 Despite the fact that Mangyo was the key element in the im plementation of the five-year plan,its investment and production results both fell far short of the expected figures.What is more,the ratio of production total to investment total was a low28per cent for this period. As can be seen,then,though the Mangyo combine enlarged its scale of operations,the actual results as regards the implementa tion of the five-year plan were not very good.I have indicated in another essay four reasons for this:1)the failure to introduce for eign capital;2)a miscalculation of resource development;3) abuses of the controlled economy structure;and4)the bankruptcy of the five-year plan itself.16Because of limitations of space,I can not reexamine these four causes here. I would like,however,to elaborate on the first cause in this essay:the failure to introduce foreign capital.The reason for doing this is that,as I mentioned earlier,the General Plan for the Establishment of Heavy Industries in Manchuria had placed the introduction of foreign capital on the top of the list of important

15Akira Hara ,•g'Manshu' ni okeru keizai tosei no tenkai•\Mantetsu kaiso to Mangyo setsuritsu o megutte•h[The development of economic con trol in•gManchuria•h:Concerning the reorganization of South Manchuria Railway and the establishment of Mangyo](in Nihon keizai seisaku shiron

[Historical essay on Japanese economic policies],ed.by Yoshio Ando,vol. 2,University of Tokyo Press,1976),p.292. 16Udagawa ,•gNissan zaibatsu no Manshu shinshutsu,•hpp.67-69. 14JAPANESE YEARBOOKON BUSINESSHISTORY-1990/7 items for the implementation of the five-year plan,and the success or failure of the agreement between Japan and the United States on economic interests,as well as the recognition of Manchukuo by the United States on the basis of that agreement-both of which were the ultimate targets of Aikawa's Mangyo combine opera tions-really depended upon the introduction of foreign capital.

Aikawa was of the opinion that•gto build heavy industries in

Manchuria in five years(actually I figured it would take ten years) would require3,000,000,000yen,and of this at least one-third,or hopefully one-half,would have to come from foreign capital

(mainly U.S.dollars).•h17Therefore,in October1937,when the move of the Nissan combine to Manchuria was more or less infor mally decided upon,Aikawa sent a trusted staff member,Kantaro

Miho,and an American,J.W.Malley(finance director in Japan

Columbia and Japan Victor,joint-venture-type companies related to Nissan),to the United States by way of pushing ahead prepara tions for the introduction of foreign capital,and after the estab lishment of Mangyo,Aikawa set in motion a plan to go to the

United States himself in order to negotiate the introduction of for eign capital,even reserving a cabin for himself on Nippon Yusen

(NYK)'s Asama Maru.But his plan had to be canceled when the U.S.gunboat Panay was sunk on12December1937by the Japan ese naval air force while it was patrolling the Yangtze River ,as a result of which public opinion in the United States abruptly turned against Japan. Still,Aikawa did not give up his efforts at bringing foreign cap ital into Manchuria.In addition to Miho and Malley ,he sent Gen shichi Asahara,a director of Mangyo,to Europe and the United States in a continued search for ways to obtain foreign capital .In order to lay a more solid foundation for attracting capital,Aikawa invited Dr Foster Bain,former head of the U.S.Government Bu reau of Mines and a world authority on geological mineralogy ,to

17Yoshisuke Aikawa ,•gWatakushi no rirekisho•h[My personal history] (Watakushi no rirekisho:Keizaijin[My personal history:Economists],vol.9, Nihon Keizai Shinbunsha,1980),pp.65-66. UDAGAWA:Nissan Combine's Move into Manchuria15

undertake a survey of underground resources in the Donghian dao region in south Manchuria,which had the reputation of being

the Saar of the East.•hAlso,in order to obtain opinions on how•g to improve Showa Steel Works,a Mangyo affiliate,he invited a vice president and engineerss from the U.S.Brassert Company,which was world famous as a consultant in the iron-and-steel industry and had designed the Goring ironworks in Germany.18

Despite Aikawa's assiduous efforts,his moves to bring in foreign capital for the most part ran aground and were unable to produce the expected results-thanks in no small part to the expansion of the Sino-Japanese War.As a result,when the United States gov ernment announced on26July1939the abrogation of the U.S.

Japan Treaty of Commerce and Navigation,Aikawa presented - a Progress Report on the Problem of Foreign Capital•h19tothe •g

Manchukuo government and the Kwantung Army,in which he had to announce that foreign capital introduction had as a matter of actual fact ended in failure.

At this point let us next have a look,on the basis of this report, at the various attempts made by Mangyo to attract foreign capital, and the reasons for their failure.Mangyo tried in three ways to at tract foreign capital.The first way was that of purchasing machines and products from overseas companies on credit.It carried on ne gotiations with many companies,but by July of1939,as Table1 shows,it had succeeded in drawing up credit contracts with only nine companies,for a grand total of only50,000,000yen.

The second way was to aim at the introduction of foreign capital through business tie-ups.Table2shows that Mangyo held negoti ations with ten companies,and by July1939it had entered final negotiations with seven of them.But the joint-venture plans fell through in the case of all seven companies.

The third way was to raise large sums of long-term capital, through overseas money lenders acting as middlemen,so that

18Tomoda,Aikawa Yoshisuke-kaisoto hofu,p.59. 19Kept in the Aikawa Family Archives,in Aikawa Yoshisukechojutsushu [Collection of writings of YoshisukeAikawa],vol.1,no.2. 16JAPANESE YEARBOOK ON BUSINESS HISTORY-1990/7

Table1.Mangyo Purchases of Machinery and Goods on Credit(Firm Settlements)

Nationa且ityO1血erTypeof了bta且CashDefヒrredPeriodof PartyGoodsPurchasePaymentPaymelltSumCredit Sum

U.S.EmermallUsed3427,470275,410152,00018皿ondls Mac』inery

U.S.PennUsed釦46,00091,00055,0001year Iρcomotives

U.S.Coppe1且Mining3177,16084β8092,78030皿onths Freightcar8

U.S.DoleMilling$186,27062,090124,1801year Equipment

U.S.FordAutomobiles¥3,495,000-3,495,0000ne・fifセh &Parts・fbr2 yea「s; ・fbur-」i」8d1S fbrlyear

U.S.Genera量Automobi且es¥5,000,000500,0004,500,00017mollths Motors&Parts

GermallyBellzDeisel£489,90048,990440,91011mo11止s Tセucks& Parts

AustriaBohrerSpecialSted£30,000-30,0008mo11止8

GermanyKarowitzMachi且1ery¥20-40three。seve互1-tenths2years milliontenths

Tbta置DefヒrredPaymemSumApprox.¥50,000,000

Note:Mangyo also had negotiations with Czechoslovakia's Skoda Co.,Germany's Henschel Co.,and France's Eugene Co. Source:Gaishi mondai keika hokokusho[Progress report on the problem of foreign capital],in the Aikawa Family Archives.

Mangyo could freely buy the production equipment and ma

chinery it needed.This was the method Mangyo considered.But

most of the businessmen who drew up these proposals were•gsec

ond-or third-class financial brokers•hin whom trust could not be

placed,and Mangyo broke off negotiations with them at an early UDAGAWA:Nissan Combine's Move into Manchuria17 stage.20On the other hand,proposals from businessmen who could be trusted entailed severe financing conditions,and the fact that the governments of their countries did not recognize Man chukuo proved to be a bottleneck,so that none of the negotiations went as far as settlement.(cont.on p.19)

Table2.Mangyo's Business Tie-ups(Being Negotiated in1939)

N・d・n・lityO止erPartyC・ntent・Sum・ ・fM・ney

SwedenSKFCo.High-gradeball・ £500 ,000 bearings

U.S.MestaCo.Rollingm窺chines&鉱000 ,000 0therheavy machinery

GermanyMin.ofAviationFuselages(Hai1止d);M58 ,000,000 engines(BMW)

GermanyHenscbelCo.Dieselautomobi丑es¥5,000,000

U.S.HarbisonW詠1kerMagllesite$500 ,000 nlanuf謡cturing

U.S.FordCo.Automobile$5,000 ,000 man漁cturing

GemlanyエeichmletalCo.Lightalloy¥2 ,500,000 mamlf為cmring

GermanyB"schingCo.Dieseltmcks

ItalyFiatCo・Airplanesalld automobiles

GermanyDaim且er-BenzBenzatltomobi且e manu臨cturerights

Source:Gaishi mondai keika hokokusho,Aikawa Family Archives.

20Shinji Yoshino,Omokaji torikaji—urakara mita Nikon sangyono ayumi [Starboard the helm,port the helm:The progress of Japanese industries as seen from behind the scenes](TstisheiSangy Kenkyiisha,1962),p.428. Yoshino acted as vice-president of Mangyo after retiring as permanent vice-minister in the Ministry of Commerce and Industry,from November 1938to February1941. 18JAPANESE YEARBOOK ON BUSINESS HISTORY-1990/7

Table3.List of Financial Mediation Offers Made to Mangyo

NameofPersonNationalityCo厭emsofOHヒr

wituer(shanghai)upwardnlallipuktiollofJapallesefbreigll

currencybolldsandraisillgof2to3hu量ldred

milli。nyeninJewishcapiml

Meyer-Bec㎞amGcrmanyEst紐1)1ishmentofahypothecballkinSwitzerhlld

alldsaleofbankdebentureswithMangy6 (1elbelltUlresassecurity

F・uc・n鯉FranceAct3sg・-betweeninlt・2btlndredmilli・nyen

且oanfセomEuropeallellterprisesylldicate;rqected

byFrellchgovenllnellt

ModerhammerGermallyCreditproposahllakinguseofGerma11愈eezillgof

themarkandmediadollillMexican

pe廿01eum八J.S.rolledstee1/SeligmallCo.10all

ShandlerUS.340,000,000(10%securityonexportstoU.S.)or

$20,000,000(publicl》011dsandcorporate debenturesassecurity)食omDuPont

KleimalmU.S.111troducdollthroughFim且1ceMillistry

co且mecdo11;11・ediadolli1110anofJewis}」capiね 量

(Kuh叫Loeb&co.);J3panesefbreig111)011dsasse- CU1●1ty

1溢chibanaRy6sukeJapallProposaltoestablishatradillgfirmregisteredas

juridica量persollinU.S.dlatwouMbaveexdusive co11廿010fU・S・Jap3nesetrade

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inMallchuria An example of the difficulties Mangyo faced is seen in the fol lowing report sent to Aikawa on14March1939from Genshichi Asahara,who was in charge of operations to obtain foreign capital in the United States.

Regardless of whether you're talking about a big loan or a small transaction,the American parties will not come to any agreement,no matter how hard we try to win them over. They say there is no way to assure rights in a contract with a country that is not recognized.The problem is,we always run into snags over the recognition of Manchukuo.21

Thus Mangyo's negotiations to bring in foreign capital all ended

21Tomoda,Aikawa Yoshisuke-kaisótoWu,pp.43-44.

S】継γacquaimanceofAi㎞wa;agreementtomediaterai3ingof藪》reigncapita且inEuropeBelgianembassyBelgiumUno伍cia置introductiontooHヒrsofcreditsupply仕omBelgianindustrialfinancinggroupsDoleCompany1=LSTie。upof艶rinregardtom3chinemanuf油αuri119indus廿yTblbeyHonandFormerconsu童inChilla;goundingoutof止e飴reigncapimlquesd・nMossus・JapanrepresemadveofRepublicsted;o価rtomediatefbreigncapita且HartUβ.Vice。presidelltofNationalCityBank;commercialdea量ing・面erthep・蓋idcalsituad・nbasdearedup 20JAPANESE YEARBOOKON BUSINESSHISTORY-1990/7 in failure except for the50,000,000yen in credit contracts from the first of the three approaches to the problem. Without foreign capital,however,implementation of the five year plan by the Mangyo combine was impossible.Therefore,after submitting the Progress Report on the Problem of Foreign Capi tal,Aikawa decided to negotiate with leaders of the U.S.financial world directly.But there was a movement among some of the right wing and the military against the introduction into Manchuria of United States capital,22and the Foreign Ministry did not approve of his plans to go to the United States.

At this juncture Aikawa received a proposal from Wilhelm

Wagner,German minister stationed in Manchukuo.•gif you barter

Manchurian soybeans for German machinery,"Wanger told him,

you should be able to carry out the plans of Mangyo.•h23Where •g upon Aikawa obtained permission from the director-general of the

Manchukuo government,Naoki Hoshino,to use10,000tons of soybeans,and made a trip to Germany in December1939. His visit to Germany had two objectives.The first was the pur chase of machinery and equipment from Germany in return for the soybeans Germany wanted.The second was to cross by way of Sweden over to the United States and there to investigate the pos sibilities of attracting foreign capital. In Germany,Aikawa received a grand welcome from people in the oil and fat industry,who were bothered by the drying up of oil and fat sources,and by livestock raisers,who were apprehensive about fodder shortages.In March1940Aikawa met Adolf Hitler.

He said to Hitler,•gThere are so many places asking me to allot them some of the soybeans that I do not know what to do.I would like to receive some directions from you,•hbut Hitler's reply was,

At present the most important thing for Germany is preparation •g

22The upper ranks of the military were strongly in favor of introducing

U.S.capital into Manchuria,but there were not a•@few among the ranks of captain and major who were against it. 23Aikawa ,•gWatakushi no rirekisho,•hp.70. UDAGAWA:Nissan Combine's Move into Manchuria21

for war;there is no margin for sending machinery out of the coun try as collateral for soybeans.•h24 Then Aikawa asked Saburo Kurusu,Japanese Ambassador to Germany,what he thought about Aikawa's second objective,that of going to the United States and finding out about the possibilities of foreign capital introduction.Kurusu's opinion was as follows:

The idea of restricting foreign capital to the United States is a very wise one.But under present circumstances,there is no hope of achieving it except to wait for a turnabout in di plomacy.Someday a favorable time is sure to arrive.But till then there is nothing one can do.I'm afraid you'll have to wait with patience and prudence.25 Kurusu went on to stress that the first fundamental policy of the Japanese government at the time was not to stir up waves in the Pacific,and the second one was to maintain friendly relations with the Soviet Union.26The opinions of members of Aikawa's staff traveling with him,who had been gathering information in all parts of Europe,were the same as Kurusu's.As a result,Aikawa sent Kantaro Miho to the United States alone,and he himself re turned to Japan in April1940.

THE DEVELOPMENT OF PRIVATE DIPLOMACY AND A STRATEGY FOR WITHDRAWING FROM MANCHURIA

When Aikawa returned from Germany,convinced that foreign capital could not be obtained for Manchuria unless there was a so lution to the Sino-Japanese War and an improvement in Japan U.S. relations,he was to seek an opportunity to have direct- talks with President Roosevelt and to initiate steps towards positive pri vate diplomacy. He began by directing Kantaro Miho in the United States to

24Aikawa ,•gWatakushi no rirekisho,•hpp.71-72.Naoki Kojima,Aikawa Yoshisuke den[Biography of Yoshisuke Aikawa](Nihon Keiei Shuppankai, 1967),p.136. 25Tomoda ,Aikawa Yoshisuke-kaiso to hofu,p.78. 26Ibid .,p.79. 22JAPANESE YEARBOOKON BUSINESSHISTORY-1990/7 proceed with setting up a meeting with President Roosevelt;at the same time,through an introduction by Robert F.Moss,represen tative of Republic Steel in Japan and president of the Tokyo Trus con Co.,in May1940he met with the American Ambassador to Japan,Joseph C.Grew,to whom he explained a possible solution to the Far East question,and from whom he requested the ar rangement of a meeting with President Roosevelt. The result of his efforts was the following pair of wires from Miho. Wire dated9July1940:

The President might bypass the State Department here and make indirect inquiries about yourself directly to Ambassa dor Grew.I told him that,in my opinion,you are the most suitable single person in Japan and the United States to dis cuss a commercial treaty and especially the purchase of ma chinery and other necessities,and that in regard to the Manchurian and Chinese problems,too,you have close re ations with the military.27 l

Wire dated11July:

Preliminary arrangements have been completed here for your meeting with the President.It is now safe for you,if nec essary,to tell the Foreign Minister and the Prime Minister that you have made sufficient contact with the President.28

In reply to these wires,Aikawa wired Miho on11July as follows:

It is regrettable that circumstances are so delicate I cannot disclose our plans to the military here or consult with them. But if it can be made to look as if the President on his own initiative invited me to go there,then there's a possibility of pulling this off successfully.I leave tomorrow overland for Manchuria.Intend to sound out Kwantung Army,with aim of gaining their understanding.29

27Ibid .,p.88. 28Ibid .,p.89. 29Ibid .,pp.89-90. UDAGAWA:Nissan Combine's Move into Manchuria 23

On12July the following memorandum reached Aikawa from Ambassador Grew.

Embassy of the United States of America

Memorandum

As a result of our discussion several months ago of Japanese American relations,I informed the American Government of your views as you expressed them to me.My Government has studied your views with interest,and it appreciates your wish to assist in promoting cooperation between our coun tries.Since you believe that there is a possibility of bringing about a fair and satisfactory settlement of the Far Eastern sit uation•|fair and satisfactory to all concerned and since

you also incline to think that it might serve a useful purpose for you to visit the United States and in person to lay your views before appropriate American Government officials,

perhaps,consistently with that belief,you would care to con sider making such a trip at this time.I can assure you that in such an event American officials will gladly discuss such

problems with you as have been the subject of conversations between us.In advance of fuller information you will realize, of course, that I could not possibly offer an opinion on what might be my Government's reaction to your possible sugges tions.You will understand also that this expression of my views does not,of course,imply any commitment,either for my Government or myself,concerning the American Govern ment's possible attitude toward suggestions which you may nresent to them

Tokyo,July12,94030

Aikawa was overjoyed when he received this memorandum,and later he was to say that•gthis came to me as truly heaven-sent glad tidings.•h31But Aikawa's cherished hope of a visit to the United

States and a meeting with President Roosevelt was never realized.

Four days after Ambassador Grew's memorandum arrived,the Yo

30Ibid.,p.90.The above wires and the memorandum are also contained in Kojima's biography of Aikawa. 31Tomoda ,Aikawa Yoshisuke•|kaiso to hofu,pp.104-105. 24 JAPANESE YEARBOOKON BUSINESSHISTORY-1990/7 nai Cabinet resigned en masse and the second Konoe Cabinet took its place,and Yosuke Matsuoka was appointed Foreign Minister. Matsuoka came out with a policy of stronger ties with the Axis powers, and on27September concluded the Tripartite Treaty of Alliance with Germany and Italy.While he did not seek friction with the United States,he still manifested a tough attitude towards the United States.32

Even after his meeting with Roosevelt became impossible,

Aikawa continued to work for improvements in Japan•|U.S.rela tions.With the purpose of avoiding war between the United States and Japan,he tried all sorts of moves aimed at bringing about a meeting between Konoe and Roosevelt.33As everyone knows,

however,a summit meeting between the two was already beyond the realm of possibilities.On17October1940,Hideki Tojo took

over for Konoe and reorganized the Cabinet.Tojo abandoned the idea of improving relations with the United States by means of dip lomatic negotiations and proceeded with preparations for war

against the States.

Aikawa continued to adopt a position opposing war with the

United States.On23November1940, through Akira Muto, chief

of the Military Affairs Bureau,he presented Tojo with a•gPlan for

Avoiding War with America.•h34The following five points give the substance of the plan. 1.America is to recognize Japan's hegemony in Manchuria and Mongolia. 2.America is to mediate cooperation between the two gov ernments of Chiang Kai-shek and Wang Jing-wei,and cooperate with Japan in securing China's political inde pendence and the worldwide opening of its doors. 3.A demilitarized buffer zone is to be set up between Japan and the Soviet Union.

32For Matsuoka's diplomatic policies ,see Matsuoka Yosuke Denki Kankaai,ed.,Matsuoka Yosuke•|sono hito to shogai[Yosuke Matsuoka:The man and his life](Kodansha,1974). Tomoda,Aikawa33 Yoshisuke•|Kaiso to hofu,pp.93-106. 34Contained in Aikawa Yoshisuke chojutsushu . UDAGAWA:Nissan Combine's Move into Manchuria25

4.Japan is to withdraw from the Axis Alliance with Ger many and Italy and form a Pacific league with America. 5.The U.S.-Japan Treaty of Commerce and Navigation is to be revived,and America is to grant Japan a loan of 5,000,000,000yen.

Tojo's reaction was to remark that•gthat stage is already too late•h35and to send the plan back to Aikawa. Now,management of the Mangyo combine received a serious blow as a result of the failure to introduce foreign capital.The fail ure rendered impossible the intense resource development that formed the foundation for implementation of the five-year plan. In addition,as a result of the intensifying of the controlled econ omy and the interference of the Kwantung Army that accompa nied the expanse of the Sino-Japanese War,the independent activities of Mangyo were greatly restrained.What is more,from 1940on,the five-year plan implementation policy changed dras tically from a policy of constructing Manchukuo's own industries to a policy of making basic resources and materials available to Japan.36 In the midst of such a change for the worse in the business en vironment surrounding the Mangyo combine,in early1940Ai kawa began to abandon efforts to further the five-year plan through Mangyo operations.37It would take two more years be- fore Aikawa would resign as president of the Manchuria Heavy In dustries Development Corporation.The reason is that he still clung to the slight hope of a possibility to introduce foreign capital by way of dealings with the United States,and he had to stay on as president of that company in order to carry out those dealings favorably. But when relations between the two countries worsened deci sively from early1941and any hope of obtaining capital from the United States evaporated,Aikawa secretly planned strategies for

35Aikawa ,•gWatakushi no rirekisho,•hp.76. 36Udagawa ,Shinko zaibatsu,p.77. 7Aikawa 3 ,•gWatakushi no rirekisho,•hp.73. 26 JAPANESE YEARBOOKON BUSINESSHISTORY-1990/7 withdrawing from Manchuria,and implemented them gradually. The first part of the plan was to change Mangyo from being the body implementing the industrial development of all of Manchu kuo to being the body in charge merely of affiliated enterprises; the second part was to divide the Mangyo combine into Manchu ria-based enterprises and Japan-based enterprises and have a dual system of managing and operating them. If we consider first the first part of the plan,we find that the head office of Mangyo carried out two drastic reorganizations in 1941,one in March and the other in August.In March the ar rangement by function sectors was restructured so that ,besides the president's office,the planning department,and the Tokyo branch office,four new departments were created:iron and steel , coal,non-ferrous metals,and mechanical engineering.Affiliated companies in Manchuria were roughly divided according to type of industry and assigned to one of these new enterprise sectors ,to be under the supervision of a separate general director for that sector.At the same time,the drawing up and regulating authority of business planning,capital planning,procurement planning , and personnel planning of these operating companies were con centrated in the planning department.The aim of this structural reorganization was to concentrate within the Mangyo head office all the managerial resources that under the five-year plan system had been spread out every time there was business planning in any of the related companies based in Manchuria ,and to redistribute the work to the various operating enterprise departments on the basis of the planning and responsibility of the Mangyo head office , thereby to strengthen the head office's control over affiliated en- terprises.

But before anyone could see the results of this organizational restructuring,the head office was forced to make a second reorga nization.The reason for this was that,on the basis of a•gState De cree on Important Industries•henacted in Japan and Manchukuo in August1941,a control association was to be set up in every im portant industrial sector in both countries,as a result of which the allotment of production and distribution plans and the authority UDAGAWA:Nissan Combine's Move into Manchuria 27 to apportion the various managerial resources in the industrial sectors concerned were now in the firm grip of the control associ ations. Therefore the Mangyo head office did away with the system of four departments classified by enterprises,as well as the planning department,and restricted their functions to three:1) personnel management and managerial guidance in affiliated enterprise companies;2)investment and finance;3)business and accounts inspection of investment companies.38The result of this was that the Mangyo head office became merely a holding company of affiliated enterprises,and at the same time was transformed into a cooperative organ of the control associations. The second strategy for withdrawal from Manchuria was the creation in June1941of the Manchuria Investment Securities Company.Mangyo was,according to the General Plan for the Es tablishment of Heavy Industries in Manchuria mentioned earlier , forced to promise that it would gradually sell its shares in related companies located in Japan,and invest them in Manchuria.The purpose of creating this new company was to recover from Mangyo this capitalization of shares in related companies located in Japan and the right of management of the same. Life insurance companies in Japan,which had been forced into purchasing low-interest wartime bonds in great quantities in the midst of a burgeoning war economy,were looking to investment in the heavy and chemicalmanufacturing companies,whose achieve ments were especially favorable at the time,as a way to make good use of capital.Aikawa had grasped this,so he negotiated with the Japanese and Manchukuo governments and set up the Manchuria Investment Securities Company,a Manchukuo juridical person, by means ofjoint capitalization by eighteen life insurance compa nies. He then handed over to the Manchuria Investment Securi ties Company the shares owned by Mangyo in related companies

38Manchukuo Government ,ed.,Manshu kenkokujunenshi[Ten-year his tory of building Manchuria] (Nara Shobo,1969),pp.588-89. 28JAPANESE YEARBOOK ON BUSINESS HISTORY•|1990/7 based in Japan,and the money he obtained for them he invested as capital for development of Manchurian industries. Now,the share capital of Manchuria Investment Securities was 400,000,000yen,a figure equal to the sum total of the prices of the shares owned by Mangyo in the related companies located in Japan.The shares of Manchuria Investment Securities consisted of395,000non-voting shares and5,000voting shares,each share worth1,000yen.The non-voting shares were vested by the Man chukuo government with a guaranteed dividend of5%per annum and the condition of repayment of the principal after ten years, and these were taken over by the life insurance companies.The voting shares,on the other hand,were owned by the Nissan Cor poration,39of which Aikawa was president. In this way,by creating Manchuria Investment Securities Com pany and selling to it shares in Mangyo's related companies in

Japan,the Mangyo combine was split into a Manchuria-based group of related companies managed by Mangyo and a Japan based group of related companies that Nissan Corporation had right of management over,so that,de facto,the Mangyo combine that had been formed to span the two countries of Japan and Man churia was now broken up.And through this breakup Aikawa not only fulfilled one end of the obligation that had been imposed on him when the Nissan combine head office moved to Manchuria, but at the same time he succeeded in recovering from Mangyo the right of management of the Japan-based related companies•|that is,the Nissan combine.Having done this,in December1942, when Japan was intoxicated by its early victories in the war against the United States,Aikawa resigned the presidency of Mangyo. UDAGAWA:Nissan Combine's Move into Manchuria29

CONCLUSION When one looks back at the international politics and economic environment that enveloped Japan after the outbreak of the Sino- Japanese War from the vantage point of the present day,one can conclude that the possibility of introducing foreign capital,espe cially American capital,for the five-year plan for the development of Manchurian industry was extremely bleak.In that sense,the ac tions of Aikawa,who had staked his entrepreneurial life on the in troduction of U.S.capital,might seem quixotic.But most of the entrepreneurs in Japan at the time were groping,even as they co operated with the state policy of building a Japan-Manchukuo- China economic bloc,for an early solution to the Sino-Japanese War,and were fervently hoping for maintenance of harmonious relations with the United States and England.But achieving all three tasks simultaneously and in parallel was extremely difficult, and only a few of them took concrete action for those aims.One that boldly took up the challenge of realizing these tasks in the midst of such conditions in the business world was Aikawa,with his move of the Nissan combine into Manchuria and the subsequent activities of Mangyo. It is said that the international activities of enterprises are often tossed about between the •glogic of economics•hand the•glogic of politics.•hMangyo's activities attempted to work for harmony with the•glogic of politics•hthrough the pursuit of a•glogic of econom ics.•hBut under the establishment of state sovereignty in the1930s and1940s,and international and domestic environments in which that sovereignty was strongly emphasized,harmony between the•g

logic of economics•hand the•glogic of politics•hwas difficult,and in the end the business activities of the Mangyo combine,also,were tossed about within the dilemma of these two logics and went on to collapse altogether.