CHINA: Money to Burn

Uneasiness grew in Chungking with each new shipment of fresh Chinese bank notes from the U.S. As the big transports from over the Hump brought ton after ton of baled currency, the people who understood took quiet steps and the ones who only sensed something strange became cautious.

A U.S. soldier, standing ankle-deep in Chungking mud, lit a cigaret with a Chinese dollar and laughed. A patient child cut a doll from currency and its mother said nothing. A ricksha coolie, squatting beside the road, thumbed through a fat roll again & again. He waved away a customer, saying that he had enough for the day.

Double & Redouble. Like a strong Maotai wine, the new bank notes flooded through China’s body. But they only affected a quarter of the population of Free China. The 160 million peasants who had always lived without benefit of currency continued to barter what they had for what they could get. It was the 60 million workers, soldiers, clerks, officials, merchants and intellectuals who felt the impact of unbridled inflation.

For some it was a joy; some rolled in new wealth, splashed happily among unaccustomed delights. For many more it was plain tragedy; starvation was an ever-present possibility. The bank clerk, fingering his last western suit and wondering how many thousands of Chinese dollars he could get for it, was little better off than the university professor wondering whether he should abandon his career, with its paltry fixed salary, for a bank clerk’s job where at least there was some attempt to hoist wages as the cost of living soared. In this atmosphere, U.S. Army men in China soon lost all sense of normal value. It is no novelty to see a U.S. soldier or civilian official offer 30 U.S. dollars ($3,000 Chinese, at black-market rate) for a bottle of Scotch—when & if he can find it.

This autumn the cost of living is 164 times what it was when China’s war began in 1937. A year ago it was 80 times the prewar level, which gives economists hope: the rate of doubling and redoubling seems to be slowing down. Before the great Allied victories, prices were doubling every eight months. But China’s transport planes still devote precious tons to the hauling of bank notes, and President Chiang Kaishek’s Government still hesitates to apply full force to arresting the tide.

Hot & Cold. China’s intellectuals today are a shabby, undernourished, despondent group who feel the cold. White-collar workers in Government offices and banks are a shade, better off: they are allowed to buy some of their necessities at low fixed prices. Labor is scarce enough to keep day wages just a notch behind the cost of living. Merchants, if they are skillful, fare best. There is money to be made and real wealth to be salted away against better postwar years. But those who do the best must be prepared to hear epithets like “hoarder” and “smuggler,” must expect their neighbors to assume that they are using “pull.” Over & over, the hard-pressed tell each other that “The Gang,” the favored few who know how to obtain licenses to trade in foreign currency, are lining pockets, putting down anchors where they will do the most good if chaos should come.

Cause & Effect. The reasons behind China’s burgeoning inflation are the reasons behind all great currency depreciations, plus a few special Chinese reasons.

To a sensationally unbalanced budget—now 45 times the prewar budget, while revenues cover less than one-fifth of the outlay—have been added a strangling blockade and jealous hoarding of those few commodities which do appear. The Government imports more & more paper money to balance the budget and the new money finds less & less to buy.

But the new money and the scarce goods would not alone shoot prices to their present astronomical levels (see chart, p.

34). Lack of transportation inside China makes it hard to move supplies from provinces relatively well supplied to those bare of even the plainest necessities. Lack of capital to nourish the small but intense efforts to mechanize handicrafts limits China’s capacity to satisfy even a fraction of the mounting demand. Capital had discovered smuggling from Occupied China; the returns were fat and fast. As merchants saw that the authorities were not opposed, they plunged avidly into the get-rich-quick border trade.

Black & White. The U.S. and Chinese Governments pegged the Chinese dollar to the U.S. dollar at 20-to-1, ignored the existence of a black market where a U.S.

dollar fetches from 80 to 100 Chinese dollars. One result: U.S. official expenditures in China cost four to five times what they would if the currency market were free. Compared with other forms of subsidy to China, the cost is small. But economists in London and Washington see no economic sense in a pegged value until the Jap has been driven out, sources of revenue restored to normal and a beginning made in export-import trade.

Chungkingers with know-how see plenty of sense in pegged dollars. Armed with a license to trade in foreign exchange, a member of “The Gang” can grow fat by moving back & forth between the black and the legal market, between smuggling, hoarding and speculation. As those who know the ropes pile up paper profits, they turn to time-honored ways of hedging against the effects of the inflation that they helped to create. They buy land.

The longest faces in Chungking today are worn by those who fear that inflation may yet have a profound effect on the silent peasant millions. For 30 years after Sun Yat-sen’s 1911 Revolution the slow trend was toward peasant ownership of the parcels tilled; today a new and powerful land-owning class is in the making.