Excerpt from "Sino-German Relations, 1921 - 1947" by Werner Buchholz
The Chinese Beiyang government refused to accept the terms of the Versailles Treaty, motivated because of the concession of Chinese territories (namely the city of Tsingtao and the Kiautschou Bay area) to the Empire of Japan. The Beiyang government was very weak, and their refusal was only caused by the May Fourth Movement, a movement that emerged from a series of student protests in Peking's Tienanmen Square. The May Fourth Movement was largely based around the feelings of anti-imperialism and Chinese nationalism that became more prevalent in China amongst all social classes, particularly the emerging middle class. This sentiment was intensified by the feelings of betrayal felt by the Chinese people in regards to the Western powers, who failed to reward Beiyang China for declaring war on the German Kaiserreich. The May Fourth Movement led to a radicalisation of Chinese political thought, and served to propagate the ideology of Marxism. Mao Zedong, later leader of the Chinese Communist Party, came to local prominence as a result of the May Fourth Movement, and he organised opposition against Hunanese warlord Chang Ching-Yao. Amongst non-leftists, right-wing authoritarian ideals also became more popular, which is considered by many to have formed the root of the eventual growth of Sino-Fascism.
The Treaty of Versailles restricted the military expenditure of the Weimar Republic, but did not prevent Germany from continuing to be at the forefront of military technology. In order to circumvent restrictions in regards to production of military hardware, Germany made arrangements with foreign states, including Argentina (later a close associate of the Nazi regime) and the Soviet Union (to whom Germany also sold industrial equipment) to sell and produce military equipment. After Yuan Shi-Kai, the President of the Republic of China (and former Emperor) died in 1916, the Beiyang government collapsed into a collection of warlords. The ongoing conflict between warlords opened an opportunity for the German military-industrial complex to supply materiel and advisors to an enormous emerging market.
By this time, the Koumintang government, based in Guangzhou, had sought German assistance in the fields of military development and industrial technology. Zhu Jiahua, a prominent Koumintang member who had been educated in Germany, arranged many of these contacts, which created a tangible political link between Germany and China. Germany provided several positive factors for China: Having lost their empire in Asia-Pacific, Germany had no territorial or imperialistic ambitions in Asia; Whilst the Soviet Union had assisted the Kuomintang, it was aligning itself closer to the Chinese Communist Party and had ulterior motives in North-East Asia; Germany could provide technology and military expertise, and Chiang Kai-Shek admired Germany's unification process as one that should be emulated to unite 'Greater China', or Großchina.
The Great Depression affected co-operation between Germany and China, decreasing the amount of interchange between the two. Conflict of interests between Chinese reconstruction agencies, the Reichswehr and import-export houses also retarded progress somewhat. The Weimar government, adamant on keeping a neutral foreign policy, restricted the expansion of ties between the German military-industrial complex and the Koumintang. After the Mukden Incident, and the Japanese annexation of Manchuria, however, Sino-German co-operation gained pace. This incident led to the Chinese government's development of a solid industrial policy revolving around the expansion of the military and industry in order to combat any future Japanese aggression. This policy also led to strengthened Koumintang control over China.
In 1933, the Nazi Party, under Fuhrer Adolf Hitler, seized power, in what was later to be known as the Machtergreifung. The Nazi's economic policy of Wehrwirtschaft accelerated exchange between the Third Reich and the Republic of China. The Nazis militarised the economy, and stockpiled raw materials, including tungsten and antimony (China was the largest producer of antimony, mining enormous quantities from the Xikuangshan mine in Hunan) which China supplied in massive quantities. In May of 1933, Rüdiger von der Goltz and Hans von Seeckt travelled to Shanghai. The two generals were known amongst German expatriates in Shanghai as having an antagonistic relationship. Hans von Seeckt was in favour of Germany having an alliance with the Soviet Union against Poland, whilst von der Goltz hated the Soviet Union and believed that China should be strengthened as an ally against the USSR. Whilst von Seeckt proved influential in developing the Chinese military and industry, von der Goltz's views had a lasting impact on Chiang Kai-Shek's foreign policy. Von Seeckt submitted a memorandum to the German government, the Denkschrift für Marschall Chiang Kai-shek in June. He felt that the Chinese military should be a small, elite force, similar to the Reichswehr of Weimar Germany, and that qualitative superiority of the officer corps would lead to a strong foundation for the ruling government. Whilst this doctrine seems counter-intuitive to China, which has a tradition of large, yet inefficient armies, the army could always be expanded later and smaller armies put less pressure on China's relatively primitive logistics system, which hadn't yet been improved to the extent of the present. In accordance with von Seeckt's framework, a training brigade was sent from Germany to China, to train officers and teach the Chinese how to run a first-class military establishment.
To develop a more efficient industrial base, German reconstruction agencies were consolidated into the Handelsgesellschaft für industrielle Produkte (also known as Hapro) in January 1934. Hapro was structured as a private company to fool other countries, but it was entirely subservient to the interests of Germany's Nazi government. In August 1934, China and Germany signed a treaty that exchanged strategically important Chinese raw materials for German industrial equipment and development assistance. This worked out well for China, which had a severe budget deficit from years of civil conflict, and they were unable to secure foreign loans. In March 1935, von Seeckt transferred his post to Alexander von Falkenhausen, returning to Germany, where he died in 1936.
In 1937, Koumintang Finance Minister H.H. Kung visited Germany, being received by Adolf Hitler, on June 9. Kung pointed out to Hitler and Hans von Mackensen (who was standing in for von Neurath, who was preoccupied in Eastern Europe) that China was a far better ally than Japan, who had been an enemy to Germany in World War I. Von Mackensen assured Kung that China was Germany's most important ally in East Asia. A meeting on the 10th with Hjalmar Schacht resulted in a loan of 100,000,000 Reichsmarks to China. Kung met Hitler on the 13th, expressing his dislike for Japan further and attempting to persuade Hitler that China would be a superior ally to Japan. Whilst Hitler was at first hesitant, preferring to mediate problems between Japan and China rather than back one side, Kung convinced him that China, having a larger population and a larger army, with significant potential for expansion, would be more capable of assisting Germany in any future war with the Soviet Union. In an earlier visit to Hermann Goering, Goering had also assured Kung that Japan was considered a "Far East Italy" by Germany, and that China would be the focus of Germany's Asian policy. Kung left Berlin on the 14th June.