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-6-
China or the replacement of a certain number of Japanese
garrison troops by Chinese troops. While the Japanese have
utilized puppet troops to some extent, this has not yet
become an important factor but if it continues on an expand-
ing scale it will, of course, tend to weaken China's situa-
tion and may eventually have serious results.
Since the outbreak of the Sino-Japanese hostilities
and before, there has been in Chinese Government and other
influential circles a number of individuals, not organized
in a group, who, for a variety of reasons, might under some
ciroumstances not be averse to some "peace" arrangement
with Japan. For instance, some banking groups and prominent
businessmen whose interests have been centered in financial
and commercial marts such as Shanghai, are naturally war-
weary and may have leanings toward "peace". If Chiang
should be eliminated, or if China's economic situation
should become so desperate as to cause a currency collapse,
such uncrystallized elements could be expected to exert in-
fluence in regard to any question of continuing or dis-
continuing the war.
IV
Chinese morale is adversely affected not only by the
lack of military aid furnished China but by diversions CI
aid allocated and failure on our part to fulfil prowises of
aid. Chines:
= ARCHIVES "NATIONAL SERVICE'* RECORDS AND
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"ocrText": "324\n46-6\n-6-\nChina or the replacement of a certain number of Japanese\ngarrison troops by Chinese troops. While the Japanese have\nutilized puppet troops to some extent, this has not yet\nbecome an important factor but if it continues on an expand-\ning scale it will, of course, tend to weaken China's situa-\ntion and may eventually have serious results.\nSince the outbreak of the Sino-Japanese hostilities\nand before, there has been in Chinese Government and other\ninfluential circles a number of individuals, not organized\nin a group, who, for a variety of reasons, might under some\nciroumstances not be averse to some \"peace\" arrangement\nwith Japan. For instance, some banking groups and prominent\nbusinessmen whose interests have been centered in financial\nand commercial marts such as Shanghai, are naturally war-\nweary and may have leanings toward \"peace\". If Chiang\nshould be eliminated, or if China's economic situation\nshould become so desperate as to cause a currency collapse,\nsuch uncrystallized elements could be expected to exert in-\nfluence in regard to any question of continuing or dis-\ncontinuing the war.\nIV\nChinese morale is adversely affected not only by the\nlack of military aid furnished China but by diversions CI\naid allocated and failure on our part to fulfil prowises of\naid. Chines:\n= ARCHIVES \"NATIONAL SERVICE'* RECORDS AND"
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