Conditions in the Far East ate to-ly more serious than they have ever been in the history of our bank. The two great nations of the Orient are at grips grimly determined to fight it out. All the efforts made in recent years to outlaw war through treaties, pacts and covenants have broken down. So far from intervening to bring this conflict to an end, the leading Western countries are seen aligned into groups supporting widely opposed theories of government; watching each other intently like boxers at the opening of their bout. Under such conditions British interests in the Far East might well be pictured in the eyes of His Majesty's Government as only a smell item in the sum total of the vast interests of the British Commonwealth of Nations. Nevertheless, the indications are that the importance of the Far Eastern question is fully realized, and very welcome was the statement issued last August at a critical time in Shanghai which formally promised "all possible. measures to protect British lives and interests" at that port, We feel confident. that when necessary and in face of every difculty we can count on support for our legitimate interests.
Few years have seen such con-trests as the past year in China and it is a sad task to set about reviewing the political situation there during 1997. The year started so well and ended so differently. In each of the past few years your chairmen have uttered words of warning about the dangers inherent in the unsatisfactory political relations. between Japan and China. Last year your chairman stated that relations with Japan dominated the political scene. He mentioned that negotiations between the two countries were, when he spoke, in suspense as a result of the Sian incident when General Chiang Kai-shek-was kidnapped. That affair, it mow appears, was a key-point in Sino-Japanese relations, The result was an accession of strength to those Chinese who, rightly or wrongly, saw no hope -of ce-operation with Japan and "advocated a policy of stern resistance to aggression.
The subsequent meeting of the 3rd Plenary Session of the Central Exeecutive Committee last February confirmed that line of action, which had already been made one of the main planks in the policy of the Kwangsi Jeaders end of the Communists. From that time on it seems that the influence of those who wished for com-ise and delay gradually waned understanding was reached with the Communist army and the way was prepared for action by a united China as soon as the need should arise.
You will remember that early in the year the liberal and friendly tone of the utterances of General Hayashi, then the Japanese Prime Minister, and of Mr. Sato, his Foreign Minister, gpichused a feeling of optimism in re. gard to the development of relations between the two countries, In China itself there were signs of stability and progress such as had not been apparent for many years. The outlook was, in fact, hopeful though we were aware that the cloud of Sino-Japanese distrust still hovered in an ill-omened way on the horizon. It is doubtful if this cloud could have been dissipated even with the best will in the world. An accumulation of aggravations made it almost inevit-
Text read from the printed page and cleaned; old type leaves the occasional error.