1931: Mukden Incident; founding of Manchukuo (1932)
1937: Full Japanese invasion
World
1914-1919: WWI
1929: The Great Depression
1939: Germany invades Poland; WWII begins in Europe
1941: Japan attacks Pearl Harbor; US enters war
1945: Hiroshima and Nagasaki bombed; Japan capitulates
Time: Great Transformation
Manchukuo was founded at the nexus of two trends: Japan’s catch-up industrialization and a major transformation of global capitalism.
Neo-classical capitalism:
Market-driven economy
Macro-economic tools: Monetary and fiscal
Conflicts between workers and managers
State intervention, with three models:
Fascism / Managed economy
State socialism / Planned economy
Democratic socialism / New deal economy
Key Questions
Building Angang: How did it become East Asia’s premier steel plant?
Industrial Policy and Planned Economy: How did Japan design Manchukuo’s First Five-year Plan? Did it work?
Catch-up industrialization: How to do it? China and Japan compared
Sun Yat-sen: Father of the Chinese Nation
Although the Nationalist party opposed Mao’s in China’s civil war, Sun – China’s first president and its most international leader – is still viewed by both the PRC and the ROC as father of the nation.
Sun Yat-sen
Ma Ying-jeou (Ma Yingjiu), former president of the Republic of China, visits the mausoleum of Sun Yat-sen in Nanjing
The CCP celebrates the 150th Anniversary of Sun Yat-sen, sun-yatsen-150th-anniversary-beijing
Sun Yat-sen: A Life
Sun looms large in 20th century Chinese history. But he also spent much of his career in exile and marginalized from national politics.
Year
Event
1866
Born in Cuiheng, Guangdong.
1882
Moved to Honolulu to live with his brother, became a Christian.
1892
Graduated from Hong Kong College of Medicine.
1894
Founded the Revive China Society in Hawaii, exiled from China.
1895
Exiled in Japan and traveled globally to raise funds.
1912
Became first president of China but abdicated after 45 days. Formed the Nationalist Party (Guomindang).
1923
First United Front: With help from Russia, Sun arranged an alliance between China’s Nationalist and Communist parties to fight the remaining colonial powers and work towards reunification.
Table 1
Discuss: Sun Yat-sen
What’s Sun Yat-sen’s first program for China’s development?
How does Sun define China’s place in the world?
“In a nutshell, it is my idea to make capitalism create socialism in China so that these two economic forces of human evolution will work side by side in future civilization.” Is Sun a socialist or capitalist? How would that work?
Sun’s vision: Railway Development
Sun Yat-sen: Map for national construction
China’s High Speed Rail network
Sun’s vision: From China to Europe
Sunism
Sun Yat-sen plan for national construction, International Development of China
“Three Principles of the People”
Developmental state
Northern expedition against warlords and unification of China
Political tutelage
Sun on Chinese nationalism
Sun Yat-sen (1866-1925) with cabinet members, 1912
The Chinese people have only family and clan groups; there is no national spirit. Consequently, in spite of four hundred million people gathered together in one China, we are, in fact, but a sheet of loose sand.
Sun on party tutelage
Sun Yat-sen (1866-1925) inspects troops from the Whampoa Academy
“At this point the state is in great disarray and society has regressed, so the responsibility of the revolutionary party at present must be first to establish the state. We have still not reached the point of governing the state…. At this moment the state foundations of the republic have yet to be consolidated. We must carry out more work and build the country once again before the state foundations of a republic can be consolidated.
The Nationalist Party in the 1920s
Chiang Kai-shek with staff
In the mid-1920s, Whampoa Military Academy cadets formed Sun Yat-sen Study Societies to promote Sun’s ideology and reject Communism.
Militant nationalists sought centralized state power to modernize China and transform popular beliefs.
The primary division was between the right wing (aligned with Chiang Kai-shek) and the left wing (aligned with Wang Jingwei), based on their willingness to cooperate with Communists.
Death of Sun
Sun Yat-sen’s death
Sun’s death on March 12, 1925
Last wish of unifying China remained unfilfilled
Set off power struggle between the left wing (Wang Jingwei) and right wing (Chiang Kai-shek) of the KMT
Northern expedition (1926-1928)
Warlords in 1926
Fengtian clique (奉系)
Zhang Zuolin (張作霖)
Occupied Northeast China and parts of north China
Zhili clique (直系)
Warlords Wu Peifu (吳佩孚) and Sun Chuanfang (孫傳芳)
Occupied central and southeast China respectively.
War against warlords
Map of Northern Expedition
Start of 1926: Main force of Wu Peifu hit in Hunan and Hubei provinces; Changsha and Wuhan successfully captured
Sun Chuanfang’s force defeated in Jiangxi and Fujian provinces
End of 1926: NRA marches from Zhejiang province to Nanjing and Shanghai
1927-03-23: Nanjing captured; Chiang Kai-shek founded new gov in Nanjing
Sun Yat-sen: On Global Governance
The world has been thrown back to the pre-war condition again. The scrambling for territories, the struggle for food, and the fighting for raw materials will begin anew. So instead of disarmament there is going to be a greater increase in the armies and navies of the once allied powers for the next war. China, the most rich and populous country in the world, will be the prize. […] Now the militaristic policy of Japan is to swallow China alone. So long as China is left to the tender mercy of the militaristic powers she must either succumb to partition by several powers or be swallowed up by one power. […]
Shall we organize for war or shall we organize for peace?
Sun Yat-sen: On Capitalism
Commercial war, or competition, is a struggle between the capitalists themselves. This war has no national distinction. It is fought just as furiously and mercilessly between countries as well as within the country. […] It was once thought by the economists of the Adam Smith school that competition was a benificent factor and a sound economic system, but modern economists discovered that it is a very wasteful and ruinous system. As a matter of fact, modern economic tendencies work in a contrary direction, that is, toward concentration instead of competition. That is the reason why the trusts in America flourish in spite of the anti-trust law and the public opinion which aim at suppressing them.
The Great Transformation
Why did a prolonged period of relative peace and prosperity in Europe, lasting from 1815 to 1914, suddenly give way to a world war followed by an economic collapse?
From Market liberalism:
Free labor markets, Free trade, Self-regulating monetary mechanism of the gold standard
Intellectual response to the English Industrial Revolution
To global crises:
1914-1919: First World War
1929: Great Depression
Timeline: Japan’s Road to War
How Japan responds to the global crises would change not just its own history, but that of China, East Asia, and the world.
From Manchurian crisis…
1927: Tanaka Giichi cabinet claimed Manchuria and Mongolia as Japan’s lifeline
1928: Kwantung army assassinated Manchurian warlord Zhang Zuolin
1931: Mukden Incident; military occupation
1932: Founding of Manchukuo
… to global war
1933: Japan withdrew from the League of Nations, which refused to recognize Manchukuo
1937: Full invasion of China
1941: Attack on Pearl Harbor;
1945: Atomic bombing of Nagasaki and Hiroshima; Japan capitulates
Japan: An Anxious Empire
Japan against Russia. Great Britain pushes Japan during the Russo-Japanese War.
Japan’s adoption of producer economics was driven by a feeling of insecurity and anxiety tied to the international environment:
Meiji Restoration (1868): Need to catch up with the industrialized West
This anxiety was heightened by the perception of national crisis and external threats during the 1931-45 war.
Japan: Industrialization and National Power
Sino-Japanese War 1894
Japanese industrialization was a response to the Western threat in the mid-19th century. Its primary motivation was to strengthen national power in int’l competition, with three collective goals:
to “increase production and develop industry”
to build up “a rich country and a strong army”
to pursue “enlightenment and civilization”
Japan’s Expansion
1895: First Sino-Japanese War; Taiwan colonized; privilege to open factories in China proper.
1905: Russo-Japanese War, gained special privileges in Manchuria and northern China.
1910: Korea colonized.
Manchuria: From Qing Ancestral Homeland to Japanese Protectorate
Under Qing
Manchuria as preserve of Manchu heritage
Restriction of Han Chinese migration
Migration ban relaxed by 1902 in response to Russian and Japanese expansion in the region, and to famine in north China
8 million migrants between 1890 and 1942
Under Japan
1895: Treaty of Shimonoseki
1905: South Manchurian sphere of influence after victory in Russo-Japanese War
1919: Treaty of Versailles; gained German protectorates in China.
Japanese sphere of influence in Northeast China
South Manchurian Railway Route Map
Leasehold over Liaodong Peninsula (later Kwantung Leased Territory)
Russian-built Chinese Eastern Railway from Changchun to Liishun (later Mantetsu, the South Manchurian Railway)
Railway zone, which land along railway track and key railway towns
Kwangtung Army
Kwantung army soldiers
Regular army division and heavy siege artillery battalion in the Kwantung Leased Territory
Two-fold strategic mission:
Secure concessions to build new strategic rail lines
ensure that Manchuria remained free of the political and military instability in ROC
South Manchurian Railway
South Manchurian Railway: The Most Important Link Between the Far East and Europe
Japan’s largest corporation
Expanded Russian-built railway into largest rail network in Asia
Research wing became center of Japanese colonial research
Settler colonialism
South Manchurian Railway cigarette card
Kwantung Army and South Manchurian Railroad as main employers of empire
Japanese civilian population in Manchuria: from 16,612 in 1906 to 233,749 in 1930
Most managerial, urban, and professional: manufacturing, commerce, transportation, public service as key industries
In need of a new lifeline
Even before the Great Depression, Japan was already preparing for military confrontation in Asia.
From cooperation….
Japan shifted to a policy of cooperation at the Washington Naval Conference, 1921-1922, an effort by the United States to promote naval arms control and international stability in the Pacific region following World War I.
Japan committed to respecting China’s sovereignty, independence, territorial and administrative integrity.
… to confrontation:
Japan viewed the West’s self-determination push in China as a way to limit Japan’s influence.
In 1927, the Tanaka Giichi cabinet adopted an aggressive policy: Manchuria and Mongolia were claimed as Japan’s “lifeline.”
Japan advocated for racial equality with the West but felt discriminated. It didn’t extend such equality to its Asian neighbors, viewing itself as superior.
Crises in Japan
Kwantung army soldiers
Great Depression further weakened Japanese gov
Next PM Hamaguchi Yuko could not solve the Great Depression and was shot by right-wing radical in Nov 1930
US tariffs increased duties on Japanese goods led to failures of silk industry and rapid unemployment
Manchuria as Lifeline
After the Great Depression, full control over Manchuria was predicted to be a Japanese “lifeline” and “our only means of survival”.
Map of Manchukuo, ca. 1939
Security: Buffer to Russia
Source of raw materials: Coal, iron, timber, soybeans
Markets to help withstand impact of global depression
Four times larger than Japan: Living space for Japan’s population
Founding of Manchukuo
Puyi, Qing’s Last Emperor, and emperor of Manchukuo (1934-1945)
By 1932, Manchuria was wholly occupied by the Japanese
Not formal annexation of the Northeast and creation of a Japanese colony
Instead, creation of Manchukuo an independent state in March 1932, under Puyi, last emperor of Qing dynasty
Activity: Manchukuo’s Five-Year Plan
Consider the following:
Vision statement
Key priorities
Hard goals
Potential risks
Action steps
Three principles of Japanese developmentalism
Japanese developmentalism, unlike liberal capitalism, prioritized “national production through industrial policy at the nation-state level.”
Strategic economy:
Government plans should optimize industrial structure for international trade.
Restrained competition:
State regulations should concentrate resources in strategic industries and maintain economic order.
Rejecting profit motive:
Mobilizing human resources by trading short-term profits for labor’s cooperation in productivity.
What is Fascism
There are irrational aspects to fascism – such as its desire for world domination by military power – but to achieve this irrational goal, fascist regimes also adopted rational economic reforms.
Nationalistic ideology
Extreme nationalism: Shared history, blood ties, supremacy of certain people based on these characteristics.
Cult of personality: Strong leaders, often perpetuated in mass media and propaganda
Popular mobilization: Stirred-up enthusiasm for the country, the party, and the leader.
Defense state: The nation-state was the basic unit for war mobilization.
Economic ideology
Strategies to counteract the Great Depression and to mobilize for war.
The economy has a national boundary; domestic companies favored.
Victory depends on industrial strength. The state should serve play a key role in managing the economy.
Total war theory and its impact
Ideas
Total war theory states victory depends on industrial strength, not just battlefield strength.
Every economic instrument, every material should be mobilized to fight.
The economy became a means to the nation-state’s political ends, not an end in itself.
Implications:
The Japanese state became an “economic general staff”: it planned production, upgraded industry, and controlled resource allocation.
National interest (economic strength, independence, military power) superseded individual freedom and property rights.
Methods of state intervention
Liberal capitalism
Macro economic policy: monetary and fiscal
Fascist capitalism
Focus on micro level: Control and use of human and material resources for national production and security
Develop heavy-chemical industries
Promote exports in order to increase Japan’s import capacity
Easy money policy to promote production
Japan’s Managed Economy: Global Influences
In addition to Nazi Germany, Japan also found inspiration – and threat – in Soviet and American models.
Germany:
The German experience as key reference: theory of total war and national socialism.
Soviet Union:
Japan studied the Soviet economy – both a model and a threat.
Modified Marxism: excluded class struggle and int’l solidarity but emphasized planning
Adopted social policy as precondition for mobilizing working class into the nationalist program of state policy
Need to adjust or reform “irrational” elements of economic institutions in the national crisis.
USA:
The Tennessee Valley Authority influenced Japan’s nationalization of management in the electrical industry.
Japan’s Managed Economy
To achieve its strategic goal, the Japanese state made a great effort to constrain market forces using both state regulations and non-state institutions.
State regulations:
Personnel drafts and employer orders on employment conditions, layoffs, wages, and dispute resolution.
Control over production, distribution, and exchange of production materials.
Restrictions on establishing new firms, increasing capital, mergers, business changes, and stock issuance.
Non-State Institutions:
Cartels moderated the Great Depression’s effects.
Shift from direct financing via stock sales to indirect financing via bank loans.
Industrial patriotic associations mobilized and trained workers.
Bloc Economy
From Economic nationalism…
Emergency Tariff Act (1921) and Fordney-McCumber Tariff Act (1922): Made it harder for European nations to export to the United States and so earn dollars to service their war debts.
Smoot-Hawley Tariff Act (1930): Entrenched the protectionism. Canada, Britain, France et al. retaliated, leading to a sharp decline in global trade.
Protectionist spiral strained diplomatic relations and, amid the Great Depression, worsened economic conditions.
… to Bloc Economy
Japan wanted a regional economic bloc under its leadership due to its limited natural resources: Manchuria, China, Korea, and Taiwan.
Great East Asia Co-Prosperity Sphere, based on Asianism.
Parallel trade blocs: the Commonwealth and the Reichsmark bloc.
Manchukuo: Economic Powerhouse
Location of Railroad and Japanese Immigrant Colonies, Library of Congress, https://lccn.loc.gov/80675188
Manchukuo’s major industrial products as percentage of total in China, 1943
Industrial product
%
Coal
48.8
Pig iron
88.5
Steel
91.0
Electricity
66.5
Cement
66.0
Salt
26.1
Ammonium sulfate
69.0
Soda ash
60.0
Machinery
95.0
Manchukuo Economy: At a Glance
Industry
Rapid industrialization focused on heavy industry
Massive iron/ore deposits around Anshan used for steel expansion + Vast coal reserves (Fushun = major open-pit mine)
German and Japanese technology transfers
Large use of Chinese labor, including forced labor/POWs in major enterprises, while Japanese staffed key technical and managerial roles
Major industrial centers: Anshan (Shōwa Steel), Mukden, Dairen, Fushun, Harbin
Agriculture
Dominant employer (~85% of population)
Major crops: soy (principal export), kaoliang, corn, wheat, rice; mixed subsistence and commercial farming
Intensive farming concentrated on southern plains
Showa Steelworks: Crown Jewel
Origins, ownership, and governance
How did strategic concerns shape Showa’s management practices and corporate governance?
Production, technology & inputs
Which technologies and foreign suppliers (German, American, etc.) did Shōwa/Angang rely on? What were the main raw‑material sourcing and transport constraints?
Economic strategy & performance
How did Showa prioritize military output over profitability? To what effects?
Showa Steelworks: A History
Year
Event
1915–1918
Japan secures economic concessions in Manchuria; Anshan Ironworks established (1918) to process Anshan ore into pig iron.
1929–1933
South Manchurian Railway formally establishes Shōwa Steelworks; later merged into Anshan as Shōwa Steelworks (1933).
1933
Shift toward German technology for blast furnaces and growing state‑directed industrial policy under Manchukuo’s Five‑Year planning.
1938–1944
Production expands despite unprofitability. By 1941 Shōwa produced the vast majority of Manchuria’s pig iron and steel (e.g., 86.7% of pig iron, 69.5% of steel in Manchuria); Heavy reliance on North China coal and ore.
Table 2
Showa Steelworks: Origins, ownership, and governance
Grew out of earlier Anshan Ironworks and Shinkō Company established under South Manchuria Railway (SMR)
Gradual shift from SMR/private control to strong state influence—Manchukuo bodies (MHID ~55% by Mar 1938)
Preexisting Chinese public enterprises absorbed into Manchukuo SOEs
Required ministry approval for board appointments, statutes, profit use, bond issues, mergers and share transfers
Kantō Army and Manchukuo planners prioritized creating an autonomous heavy‑industrial base for military operations (e.g., against the USSR).
That security-first logic was redoubled even when unprofitable—management was organized to meet military targets rather than market signals.
Production, technology & inputs
Reliance on imported technology: American‑designed Blast Furnace in 1930; Western machinery and advisors
Technology flows & constraints: Germany became the principal supplier in the 1930s, but shipping equipment became difficult after 1939
Raw‑material sourcing: local Manchurian iron ore and Fushun coal were primary inputs, but reliance on North China coal and ore from 1938 onward, which were more expensive to ship than nearby Fushun
US bombing in 1944 and Soviet entry in 1945 physically damaged facilities and disrupted operations
Economic strategy & performance
Security‑first strategy
Shōwa was run to maximize production for Japan’s wartime needs—even at the expense of profitability.
State bodies and trading monopolies (e.g., Japan–Manchuria Trade Company) subsidized Shōwa products to keep capacity running despite losses
Impressive growth, poor profitability
Rapid quantitative growth in pig iron and steel (~86.7% of pig iron and ~69.5% of steel in Manchuria by 1941)
Persistent poor profitability and weak incentives to improve quality or cost‑efficiency
Forced labor/POWs — harsh human costs and labor instability.
Take-away: Between socialism and capitalism
“In a nutshell, it is my idea to make capitalism create socialism in China so that these two economic forces of human evolution will work side by side in future civilization.”
Sun Yat-sen, “International Development of China”
Both socialist and capitalist systems saw increased state power and market limitations due to total war.
Late industrializers, despite ideology, desired heavy industrialization led by a strong state.
Industrial Manchuria represents a convergence and mutual influence between socialism and capitalism.
From Showa to Angang: Legacy of Manchukuo
Both Japan and Nationalist China pursued Soviet-inspired mobilization, which unintentionally set the stage for the PRC’s industrialization.
Former Japanese factories, reorganized by the Nationalists, became key SOEs in the PRC.
