Germany and Chinese industrialization
In 1936, China had only about 10,000 miles (16,000 km) of railways, far lower than the 100,000 miles (160,000 km) that Sun Yat-sen had envisioned for his ambition of a modernized China. In addition, half of these were in Manchuria, which was already lost to Japan and out of Kuomintang control. The slow progress of modernizing China's transportation was because of conflicting foreign interests in China, such as the 1920 New Four-Power Consortium of British, French, American, and Japanese banking interests.[citation needed] This consortium aimed to regularize foreign investment in China and unanimous approval was required before any of the four could provide credit to the Chinese government for building railways. In addition, other foreign countries were hesitant to provide funding because of the depression.
However, a series of Sino-German agreements in 1934–1936 greatly accelerated railway construction in China. Major railroads were built between Nanchang, Zhejiang, and Guizhou. These fast developments were made possible because Germany needed efficient transportation to export raw materials, and because the railway lines served the Chinese government's need to build an industrial center south of the Yangtze, in the south-central provinces. In addition, these railways served important military functions. For example, the Hangzhou-Guiyang rail was built to facilitate military transport in the Yangtze delta valley, even after Shanghai and Nanking were lost. Another similar railway was the Guangzhou-Hankou network, which provided transportation between the eastern coast and the Wuhan area. This railway would later prove its worth in the early stages of the Second Sino-Japanese War.
The most important industrial project from Sino-German cooperation was the 1936 Three-Year Plan, which was administered by the Chinese government's National Resources Commission and the Hapro corporation. The purpose of this plan was to create an industrial powerhouse capable of resisting Japan in the short run, and to create a center for future Chinese industrial development for the long run. It had several basic components such as the monopolization of all operations pertaining to tungsten and antimony, the construction of the central steel and machine works in provinces such as Hubei, Hunan, and Sichuan, and the development of power plants and other chemical factories. As outlined in the 1934 barter agreement, China would provide raw materials in return for German expertise and equipment in setting up these ventures. Cost overrun for these projects was partly assuaged by the fact that the price of tungsten had more than doubled between 1932 and 1936.[23] Germany also extended RM 100 million line of credit to the Chinese government. The Three-Year Plan also introduced a class of highly educated technocrats who were trained to run these state-owned projects. At the height of this program, Sino-German exchange accounted for 17% of China's foreign trade and China was the third largest trading partner with Germany. The Three-Year Plan had many promises, but unfortunately much of its intended benefits would eventually be undermined by the breakout of full-scale war with Japan in 1937.[24]
Germany and Chinese military modernization
Alexander von Falkenhausen was responsible for most of military training conducted as part of the deal. Original plans by von Seeckt called for a drastic reduction of the military to 60 well-equipped and well-trained divisions based on German military doctrines, but questions as to which factions would be axed remained a problem. As a whole, officer corps trained by the Whampoa Academy up until 1927 were of marginally better quality than the warlord armies, but they remained valuable to Chiang Kai-shek for sheer loyalty.[25] Nonetheless, some 80,000 Chinese troops, in eight divisions, were trained to German standards and formed the elite of Chiang's army. These new divisions might have contributed to Chiang's determination to escalate the skirmish at Marco Polo Bridge to full-scale war. However, China was not ready to face Japan on equal terms, and Chiang's decision to pit all of his new divisions in the Battle of Shanghai, despite objections from his staff officers and von Falkenhausen himself, would cost him one-third of his best troops that took years to train. Chiang was suggested to preserve his strength to maintain order and fight later.
Von Falkenhausen recommended that Chiang fight a war of attrition with Japan as Falkenhausen calculated that Japan could never hope to win a long term war. He suggested that Chiang should hold the Yellow River line, but not attack north of that until much later in the war. Also Chiang should be prepared to give up a number of regions in northern China, including Shandong, but the retreats must be made slowly; Japan was to pay for every advance it made. He also recommended a number of fortifications to be constructed, near mining areas, coastal, river locations, and so on. Falkenhausen also advised the Chinese to establish a number of guerrilla operations (which the Communists were adept at) behind Japanese lines. These efforts would help to weaken an already militarily challenged Japan.
Chinese in Wehrmacht, prior to 1939
Von Falkenhausen also believed that it was too optimistic to expect the Chinese National Revolutionary Army (NRA) to be adequately supported by armor and heavy artillery in the war against Japan. Chinese industry was just starting to modernize and it would take a while to fully equip the NRA in the fashion of the German Army (Wehrmacht Heer). Thus, he emphasized on the creation of a mobile force that relied on small arms and adept with infiltration tactics, similar to the stormtroopers near the end of World War I. German officers were called into China as military advisers, like Lt. Col. Hermann Voigt-Ruscheweyh, who acted as adviser to the Artillery Firing School in Nanjing from 1933 to 1938.[26]
German assistance in the military realm was not limited to personnel training and reorganization, but also involved military hardware. According to von Seeckt, around eighty percent of China's weapons output was below par or unsuitable for modern warfare. Therefore, projects were undertaken to expand and upgrade existing armories along the Yangtze River and to create new arsenals and munitions plants. For example, the Hanyang Arsenal was reconstructed during 1935–1936 to bring its standards up to date. The arsenal was to produce Maxim machine guns, various 82 mm trench mortars and the Chiang Kai-shek rifle (中正式; Zhōngzhèng Shì), which was based on the German Karabiner 98k rifle. The Chiang Kai-shek and Hanyang 88 rifles remained as the predominant firearm used by Chinese armies throughout the war.[27] Another factory was established to produce gas masks, with plans to construct a mustard gas plant that was eventually scrapped. In May 1938, several arsenals were built in Hunan to produce 20mm, 37 mm, and 75 mm artilleries. In late 1936 a plant was built near Nanking to manufacture military optical equipment such as binoculars and sniper rifle scopes. Additional arsenals were built or upgraded to manufacture other weapons and ordnance, such as the MG-34, pack guns of different calibers, and even replacement parts for vehicles of the Leichter Panzerspähwagen series serving in the Chinese army. Several research institutes were also established under German auspices, such as the Ordnance and Arsenal Office, the Chemical Research Institute under the direction from IG Farben, and others. Many of these institutes were headed by German-returned Chinese engineers. In 1935 and 1936, China ordered a total of 315,000 of the M35 Stahlhelm, and also large numbers of Gewehr 88, 98 rifles and the C96 Broomhandle Mauser. China also imported other military hardware, such as a small number of Henschel, Junkers[clarification needed], Heinkel[clarification needed] and Messerschmitt[clarification needed] aircraft, some of them to be assembled in China, and Rheinmetall and Krupp howitzers, anti-tank and mountain guns, such as the PaK 37mm, as well as AFVs such as the Panzer I.[citation needed]
These modernization efforts proved their usefulness with the outbreak of the Second Sino-Japanese War. Although the Japanese, in the end, were able to capture the Nationalist capital at Nanjing, the process took several months with a cost far higher than either side had anticipated. Japanese frustrations at strong Chinese resistance were vented out during the Rape of Nanking (Nanjing Massacre). Despite this loss, the fact that Chinese troops could credibly challenge Japanese troops boosted the morale of the Chinese. In addition, the cost of the campaign made the Japanese reluctant to go deeper into the Chinese interior, allowing the Nationalist Government to relocate China's political and industrial infrastructure into Sichuan.