Chapter 13: Naval Competition Among the Three South American Powers

At the end of the 19th century, Brazil only possessed a coastal defense-oriented naval force that was lagging behind. While Argentina and Chile engaged in spectacular naval competitions, Brazilians could only watch. As Brazil's economy gradually improved, the proud Brazilians began their foray into the seas.

In 1904, Brazil formulated plans for a powerful navy. Heeding advice from Armstrong Company, the Brazilian government, in a groundbreaking move after the commissioning of the dreadnought battleship in 1907, directly ordered these formidable naval assets – the most fearsome naval weapon in the world! Consequently, Brazil joined the ranks of nations with battleships, surpassing traditional naval powers like Russia and France.

Brazil finally disrupted the tranquility of the South American continent, disturbing the calm seas of the Atlantic and Pacific!

In the year Brazil decided to order two dreadnought battleships from Britain, Argentina, as the strongest naval power in South America, was greatly shocked and deeply felt the threat from Brazil! After Brazil ordered two dreadnoughts, its backbone stiffened. Brazil's Foreign Minister even actively embraced the policy proposed by US President Monroe at international conferences, hinting at Brazil's ambitions to all countries. As a result, Argentina immediately approved a naval development plan to order new ships, and Argentine naval officials were frequently seen in large shipyards in Britain, Germany, and the United States. Due to American designs and competitive pricing, Argentina chose the American solution – the Rivadavia-class battleship!

Known as the "Britain of South America," Chile, with its disadvantaged navy, had drawn attention by defeating Argentina several times. However, compared to Argentina and Brazil, Chile's national strength was significantly inferior. As competition between Brazil and Argentina intensified, Chileans could only watch from afar. It was not until 1911, through a plan to expand its navy, that Chile decided to order 2 "super-dreadnought" battleships from Britain. Based on the design of the Iron Duke-class battleships of the British Navy, they were equipped with 14-inch caliber main guns surpassing even Britain's super-dreadnoughts, albeit at the cost of reduced defensive armor.

The planned class of ships was intended to build two, but only one was completed. After the outbreak of the Great War, through friendly negotiations, the British government immediately bought the incomplete first ship, which was then completed and named "Canada," and incorporated it into the Royal Navy. It participated in the Battle of Jutland. The construction of the second ship was halted. After the war, the first ship, named "Almirante Latorre," was resold to Chile at a discounted price, less than half of its original cost. The hull of the second ship under construction was bought by Britain and converted into the aircraft carrier HMS Eagle, and its side armor was used on the Royal Navy's battlecruiser HMS Repulse.

The naval competition among the three South American powers was not limited to battleships. Regarding submarines, a burgeoning weapon, the Argentine government was the first to attempt acquisition, purchasing a small submarine from Italy in 1907. In response, Brazil also bought three 250-ton coastal submarines from Italy. Chile, however, outdid both Argentina and Brazil by purchasing six Holland-class submarines from the United States in 1915. In the following decade, influenced by the Great War and post-war economic fluctuations, none of the three countries acquired additional submarines. However, this delicate balance was once again disrupted at the end of 1926 when Argentina decided to purchase three 775-ton medium submarines from Italy, which would far surpass any submarine currently in service in South American countries in terms of tonnage and performance.

Just after Christmas 1926, Raut Walker, a Bahia state legislator and nominal owner of the Walker Underwater Tourism Company, brought news to Zhang Hainuo: the Brazilian Navy was extremely interested in the company's only sightseeing submarine, the K-1. Especially upon learning that the other seven K-class submarines were still in service with the US Navy, they hoped the Walker company would sell this submarine to the Brazilian Navy. Despite its age and various issues, and the need for rearmament before it could be deployed, it was still better than the three small coastal submarines currently in service with the Brazilian Navy, which spent at least six months of the year in dry dock. Despite the recent growth in Brazil's industrial sector, which accounted for less than forty percent of Brazil's national industry, most of the mining and railway industries were controlled by foreign consortia. Therefore, Brazil's primary income still relied on agricultural products such as coffee, cocoa, and natural rubber, with the government often facing deficits. The government's debt now amounted to £140 million, of which about £100 million was external debt, with Britain and the United States being the two largest creditors.

As a politician focused mainly on official duties, Raut Walker, despite serving as a company representative and owning twenty percent of the shares, was not usually involved in the operational strategy of the underwater tourism company. He told Zhang Hainuo that the conditions set by the Brazilian Navy were to purchase their submarine with government bonds equivalent to $300,000. This not only reduced the price by a quarter compared to the original purchase from the Americans but also meant the "submarine trips" that were previously popular among the upper class would have to be suspended until the company could purchase a new submarine. Moreover, there was some skepticism about the credibility of Brazilian government bonds. In 1921-1922, due to the impact of the post-war economic depression, Brazil's agricultural exports sharply declined, leading to a severe inflation crisis. Although not as severe as in Germany, it severely affected the interests of government bondholders.

Before this, Zhang Hainuo had been following the situation in South America, especially the movements of the navies of the three South American powers. He had also appointed Otto as a special advisor to the shipyard and secretly sent him to Buenos Aires to negotiate the sale of 60-ton coastal patrol boats and 200-ton coastal gunboats. Although they were nearly thirty percent cheaper than their British and American counterparts, and Argentine naval officers were interested in these ships just purchased by the Brazilian Navy, the idea was eventually abandoned. According to Otto's observations, Zhang Hainuo believed that Argentina had indeed spent a lot of money on purchasing submarines this time, and in the short term, the navy would not be able to allocate more funds for the purchase of other ships.

However, the new submarines did give the Argentineans a new factor to pride themselves on over the Brazilian and Chilean navies. It was not surprising that the Brazilian Navy would eagerly eye a decommissioned submarine.

Subsequently, accompanied by Walker, Zhang Hainuo met with Colonel Kobayashi, the Deputy Minister of the Brazilian Navy, and Lieutenant Colonel Tister, an officer of the Brazilian Navy Submarine Squadron, who had arrived earlier in Salvador to negotiate the purchase of submarines. He told the two officers that Schneider Shipyard was also one of the investors in the Walker Underwater Tourism Company. He personally welcomed the Brazilian Navy's purchase of the K-1, and Schneider Shipyard, responsible for the routine maintenance and repair of the K-1, was now capable of rearming the submarine. They were also actively planning to build a light submarine similar to the Holland class. If the Brazilian Navy could provide funding, they could even advance this plan.

Regarding the former suggestion, Colonel Kobayashi, with a typical Western European face, expressed his approval. However, he was not very optimistic about Schneider's attempt to build a light submarine on its own. This was not the first time Zhang Hainuo had met with this Colonel. They had met at a high-level cocktail party in Rio de Janeiro more than six months ago. Although he had tried to deepen his understanding and establish a personal relationship with this naval officer, Zhang Hainuo soon realized that he was a naval officer with a strong pro-British inclination. He later learned from others that during the Great War, Kobayashi had served as a minesweeper commander in the South Atlantic and was deeply resentful of Germany's sinking of Brazilian ships during the war, thus displaying a rather indifferent attitude towards German immigrants.

Nevertheless, Kobayashi still gave his approval for the project of the 60-ton coastal patrol boats and 200-ton coastal gunboats to Schneider Shipyard. Although this Brazilian shipyard was also a foreign-funded enterprise, the total cost of building six coastal patrol boats and two coastal gunboats was only $150,000. The cost of building two coastal patrol boats by the British Royal Armstrong Company was also $150,000. Schneider Shipyard's eight warships had all been commissioned and received unanimous praise from naval personnel. However, due to habitual reasons such as strikes, the completion date on the British side had been delayed until March of the following year, and sea trials and improvements would still be required. These warships would not be commissioned until at least June, making it clear which shipyard was superior.

The face of Lieutenant Colonel Tister was unfamiliar to Zhang Hainuo, much like the obscure submarine force of the Brazilian Navy. As for the 250-ton coastal submarines built by Italians for Brazil before the war, Zhang Hainuo didn't know much about them either. However, he could be certain that the renown and achievements of the Italian submarine force were far behind those of the German U-boat force. Whether this was due to submarine technology or human factors, he looked forward to personally finding the answer to this question one day.

One was a Navy Colonel and Deputy Minister of the Navy, the other was a Navy Lieutenant Colonel and officer of the submarine support squadron. Their ranks differed vastly, so during the meeting, Zhang Hainuo barely heard Lieutenant Colonel Tister speak. However, whenever Zhang Hainuo mentioned submarine design and construction matters, Lieutenant Colonel Tister would listen attentively, occasionally nodding or entering a contemplative state.

The first informal meeting between the two parties did not result in a specific cooperation agreement. Colonel Kobayashi returned to Rio de Janeiro with Zhang Hainuo, carrying the proposal of "bundled sales." A month and a half later, when he returned to Salvador, he brought with him an expert group. However, to Zhang Hainuo's displeasure, this expert group was mainly composed of British personnel. If he guessed correctly, there must be technical experts from Armstrong Shipyard among them.

After visiting the crude submarine repair dock of Schneider Shipyard, a yellow-haired British expert bluntly commented that the shipyard did not even have the capability to carry out major repairs on a medium-sized submarine, let alone build one from scratch. Despite the British arrogance, Zhang Hainuo didn't confront them directly. Instead, he refused to take them to see the brand new UB-901 and the soon-to-be-completed UB-902 submarines. Eventually, the K-1 submarine was sold to the Brazilian Navy. Although the military reluctantly agreed, the task of rearming the submarine was still entrusted to Schneider Shipyard. The modified K-1 was naturally "mediocre" in performance. However, after replacing the old diesel engines made in Germany, its power system finally overcame the instability issues it had before.

After concluding negotiations with the Brazilian Navy, Zhang Hainuo immediately flew to the capital of Chile, Santiago. In this country with a long and complex coastline, high-speed coastal patrol vessels and coastal gunboats with decent endurance were welcomed by the military. After a series of evaluations and tests, the Chilean Navy purchased the remaining four 60-ton patrol boats and three coastal gunboats from Schneider Shipyard, previously delivered to the Brazilian Navy, at a package price of $175,000. With these vessels, the Chilean Navy updated two coastal patrol fleets!

Stimulated by Argentina's order for new submarines, the Chilean military also hoped to possess more powerful submarines. However, submarines were not like ordinary patrol boats and gunboats. Even the most basic Holland-type submarines, each newly built at the time, cost $200,000. Today, a brand-new submarine equivalent to the L-class was priced as high as $600,000, while the larger and more advanced S-class had a construction cost of $1 million per vessel—these were internal prices of the US Navy!

During his month-long activities in Chile, Zhang Hainuo successfully established mutual trust with senior Chilean Navy officials. General Guinea, the current Minister of the Chilean Navy, had a good impression of this modest and pragmatic Austrian ship merchant. Especially after the Chilean Navy accepted the aforementioned seven vessels and found them to be of excellent performance, he actively proposed to appoint Zhang Hainuo as an honorary advisor to the Chilean Navy Ministry.

In this scenario, Zhang Hainuo tentatively proposed suggestions to build submarines for the Chilean Navy and establish a shipyard in Chile. His proposals received positive responses. General Guinea and his staff were very interested in Zhang Hainuo's suggestion of "upgrading the existing six Holland-class submarines to improve combat effectiveness in the short term and ordering several new submarines in the medium to long term." Especially when he suggested that the Chilean government could pay in installments or offset with goods, unlike British and American shipyards which actively recommended various governments to loan from their own countries to order ships, this was particularly welcomed by the Chilean officials—not only by South American countries, but also by many economically underdeveloped countries who had been financially controlled by Britain and the United States due to this trick. By the end of July, after personally inspecting Schneider Shipyard's facilities, General Guinea approved a plan to comprehensively upgrade the existing Holland-class submarines from 1927 to 1928. This plan included replacing outdated main engines, improving conning towers, and installing 500mm torpedo tubes. Another contingent plan was if Schneider Shipyard could satisfactorily complete the design of a submarine that met the Chilean military's requirements and finish it within the specified time frame, the Chilean Navy would buy the submarine. One-third would be paid in cash, and the rest would be compensated with copper, iron, saltpeter, and coal mined from Chilean state-owned mines.

In July, Schneider Shipyard proposed a 450-ton medium-range submarine plan to the Chilean military based on the UB-901 prototype. Although the design was excellent in all aspects, due to Argentina's order for 775-ton submarines placed a year ago, General Guinea and his staff believed that the Chilean Navy should purchase larger-tonnage submarines. At this time, the British had also come forward to promote their O-class fleet submarines. In 1928, the Chilean Navy indeed ordered three of these 1500-ton ocean-going submarines from Britain, which remained in service in the Chilean Navy until 1958 and were considered excellent submarines. The only deterrent factor was probably their high cost of £450,000!

After learning that the British were actively recommending new submarines to the Chilean Navy and due to the urgency of time, the hints from General Guinea also showed that the Chilean Navy hoped to order submarines weighing more than 1200 tons with stronger combat capabilities, Zhang Hainuo immediately instructed his expert group to make corresponding modifications based on the technical drawings of U-148 to counter the British proposal. As a result, the O-class submarines designed and built by the British in 1923 were inferior in performance to the German U-139-class submarines designed in 1917.

Considering that the cost of one side exceeded the other by more than ten percent and Schneider Shipyard's promise to invest in establishing two new shipyards in Chile, the Chilean government ultimately chose Schneider Shipyard as their new submarine supplier. The order was issued in the form of "1+2," meaning Schneider Shipyard would build the first submarine first. If it passed the final acceptance, the Chilean government would then order two more submarines to achieve the strategic goal of "having three new submarines more powerful than those of the Argentine Navy before 1929."

After securing the order from the Chilean Navy, Zhang Hainuo and his experts had no time to celebrate and immediately immersed themselves in the tense work. After discussions and preparations, Schneider Shipyard soon decided to invest in building two new shipyards in Chile—one dedicated to building civilian cargo ships, and the other initially set up as a military shipyard specializing in building and repairing vessels for the military. The Holland-class submarines currently in service with the Chilean Navy would be repaired here. The funds to build the two shipyards were mainly raised by the whole American Coffee, and Zhang Hainuo and others also withdrew some funds from the investment of the Graham Newman Company, totaling $600,000 as the first-phase investment.

To meet the Chilean government's deadline for completing the construction of the first large submarine, Zhang Hainuo fully mobilized the spare forces of the shipyard and pulled a group of workers from the construction of UB-902. Once the plan was finalized, urgent orders for the required steel parts were sent to the Royal Ironworks in Rio de Janeiro within a week.

Due to the good cooperation between the two parties and Schneider Shipyard's existing one-quarter ownership of the Royal Ironworks, the Royal Ironworks concentrated its efforts on casting these steel parts, postponing other orders. Workers worked overtime continuously, and the keel of the first submarine was laid on October 9, while the keels of the second and third submarines were laid a month later. Schneider Shipyard ordered enough steel parts from the Royal Ironworks to build six submarines of this class. It was just because there were idle workers that they did not start construction together. However, it was foreseeable that the Brazilian Navy would respond after the Chileans had three large submarines—since Brazil, Argentina, and Chile were not hostile to each other in the naval race, and Brazil's direct competitor was Argentina rather than Chile, the Brazilian government would not risk diplomatic tensions by forcing Schneider Shipyard to stop supplying the Chilean government. The result could only be to purchase submarines of a similar or even more advanced level to cope with the "challenge."