GENERAL ARTICLES

China's Inflation

Cost of meals up 30,000 per cent, clerks earning $6,000 (CN) a week, coolies $3,000 a month —here is the fantastic story of China’s spiralling inflation

ROBERT B. McCLURE,HAROLD DINGMAN April 15 1944
GENERAL ARTICLES

China's Inflation

Cost of meals up 30,000 per cent, clerks earning $6,000 (CN) a week, coolies $3,000 a month —here is the fantastic story of China’s spiralling inflation

ROBERT B. McCLURE,HAROLD DINGMAN April 15 1944

China's Inflation

GENERAL ARTICLES

ROBERT B. McCLURE

As told to HAROLD DINGMAN

EVERY day the money is flown over the “hump” in great cargo planes from secret air bases in northern India to land at Kunming, in Yunnan province, Free China’s greatest port of entry. Ten million Chinese National dollars to a plane load and seldom less than five planes each day. Fifty million dollars every 24 hours!

It is money by the ton, and that, literally, is what is required to feed China’s fantastic inflation. It spirals onward and upward at a mad dizzy pace and has passed by far the point where Germany collapsed in 1923. It has been estimated that by the end of 1944 the cost of living in Free China will have increased by 60,000% over the year 1939. Germany’s inflated economy collapsed when that country’s living costs soared to 8,000% above normal years.

The Chinese National dollars are printed by American and British bank note companies and flown to China from India in American planes, sometimes by American pilots and sometimes by Chinese. To the pilots, who daily risk their lives flying one of the most dangerous of all the world’s air routes—across the hump of the Himalayas—it is a bitter, galling and demoralizing job. Carrying paper money when they could be carrying medicine or guns!

The currency is printed in fiftyand one-hundred dollar bills. No one has any difficulty making change —it is rarely needed. Fifty Chinese National dollars is a paltry sum in China. Not long ago, when the inflation madness was setting in, currency was printed in tens and twenties, but that proved too bulky even for giant freight planes. As a matter of fact $10 (CN) bills are printed inside Free China on the cheapest paper. The bills are the size of what we used to call the shinplaster and they look like worn-out. cigar coupons. The cheap printing is done deliberately to condition the Chinese mind to the idea that $10 (CN) is worth almost nothing.

The official and legal rate of exchange is 20 Chinese National dollars to one American dollar, which means that the CN dollar bill is worth just a nickel. But the legal rate does not tell the story at all. On the black market—the most savagely vicious of all economic operations—you can buy $72 (CN) for $1 (US) and the rate regularly goes as high as $92 (CN). In some provinces it has reached the incredible rate of $125 (CN).

(I refer throughout to American dollars because a Canadian in China, or going to China, first obtains U. S. funds and then buys Chinese National dollars. Any foreign civilian caught operating in the black

Dr. Robert B. McClure graduated in medicine from the University of Toronto in 1922 and in 1924 went to China as a United Church medical missionary. Since 1937 he has been engaged in war work in China. He returned to Canada in February on sick leave but expects to return to China shortly.

Cost of meals up 30,000 per cent, clerks earning $6,000 (CN) a week, coolies $3,000 a month —here is the fantastic story of China’s spiralling inflation

market ia sent home at once. There is no appeal, and rightly so. China is bleeding.)

Inflation has brought tragedy almost beyond belief to China’s millions of soldiers; yet that Army fights on. It has brought terrible hardship to what we call the white-collar class.....the schooltoacher, university professor, lawyer, doctor and hospital assistant. It has slowed down the progress of China’s educational and civil medical systems. On the other hand inflation has brought its “blessings” to millions upon millions of laborers and coolies. Today their standard of living is better than it has been for 150 years. Even the small farmer, although stripped of two thirds of his rice crop (the basic land tax), is better off today than he has been in years.

You have to live in China to believe it. In the spring of 1939 I was able to buy quite a good meal in a restaurant for 15 cents (CN). In 1940 this had jumped to 35 cents, but toward the end of 1943, before I left China, the same meal cost $45 (CN). The cost of the meal had multiplied 300 times, or 30,000%! Five years ago rice cost $1.82 per unit (approximately 80 lb.). Today rice costs $630 (CN) per unit— an increase of 34,615 4%.

Fantastic Increases

AND the same fantastic increases apply today when ■¿V you want a rickshaw, or when you want a coolie to carry your luggage a few blocks. In 1939 a rickshaw cost you perhaps 20 or 30 cents (CN) for a half-hour ride. Today it costs $50 (CN). I remember quite recently paying a coolie $120 (CN) to carry my bags to the post office, where once his wage had been 20 cents (CN).

In Toronto, when I came home on sick leave this time, I was given a prescription forsulfathiazole. The medicine was delivered to me at a price of 95 cents for 32 tablets. In China they sell for $1.50 (US) per tablet. Ordinary toilet soap which once sold in China for 50 cents (CN) now sells for $60 (CN) and if a woman wants a tube of lipstick she will pay from $400 to $800 (CN) for an article that would cost perhaps 25 cents in Canada.

At our base at Kü-tsing-fu, in Yiinnan province, one of our hospital assistants was a girl who came from a very high Chinese family. She needed a new pair of bags (slacks) and appealed to us. We provided the flannel, the buttons and the thread. But even with all our reductions and exemptions for Red Cross the tailor charged her $1,000 (CN) to make the slacks. The employment of this girl in our hospital cost us about $700 (CN) per month. Included in this was her food and lodging and about $120 a month pocket money. Later she was forced to leave us because of money troubles in her own family and today she is earning $6,000 (CN) each week, or about $300 (US). She is doing stenography and clerical work.

Those are examples of Chinese inflation, and I could go on endlessly. Strange times have come to China. The coolie, once the poorest paid of the world’s workers, is now an independent fellow and will not work unless he is paid in advance, and well-paid. If you need repairs to your house or want any other manual labor done, you must pay the coolie in the morning before he starts his day. He will stay on the job until perhaps four in the afternoon and then knockoff, and if you want him back next morning you must assure him that his money will be waiting. By morning, of course, he may have given himself a pay increase. If you don’t like it he’ll trot off to another job.

The United States Army came to China believing the legend of cheap coolie labor and found that it was less costly to fly in tractors and fuel than to employ the coolie. They are still using the coolie, but more and more heavy machinery is arriving in China.

It was J. Lossing Buck, adviser to the United States Treasury on Chinese economics, who estimated that by the end of 1944 China will have reached an inflation of 60,000%. Buck, who commutes between Washington and Chungking, specialized in rural economy, since 86% of China is agricultural. He made a survey, covering all of Free China, of the rising costs of such essential commodities as food, clothing and fuel, and found that there was a steady advance of 10% per month. Not a 10% increase over normal costs, but a progressive 10% increase. At the end of

1943, he estimated, an inflation of 16,000% had been reached and he believed that in 12 months quite possibly it would reach 60,000%.

The Chinese soldier and his family have probably suffered as much as any class, possibly more. (Here I do not include the people who live in the famine areas, particularly northern Honan and the Toishan district of Kwantung, near Canton. They are dying by the thousand.) The soldier’s pay is fixed at $30 (CN) per month and his wife and children, supposedly, must live on whatever he can save. Obviously, his full month’s pay wouldn’t even buy a meal. In this crisis the Chinese family system has worked a miracle in the sheer art of living. Related families band together and work the land, sharing the crops.

The soldier, of course, is clothed and fed by the Government. He is given a new uniform whenever possible, which isn’t often, and he receives a daily issue of 24 ounces of rice.

Topsy-Turvy Economics

INFLATION has shaken China’s economic system topsy-turvy; has, indeed, turned it upside down. The white-collar worker, the professor and instructor and medica! man, formerly spent about 75% of his income on food and clothing and shelter, and had a comfortable 25% for his other needs. He purchased books, for instance, and perhaps he bought a bicycle and a tennis racket. He lived quite well. Now he is at the very bottom of the economic ladder. Everything he earns goes toward the barest essentials of life. Food comes first, then clothing, then shelter. He has nothing more. He lives in the crudest poverty.

The reason is this: Except for those employed in the post office and in some banks, wages for white-collar workers were fixed at the old rates of pay—frozen, and although salaries and bonuses are readjusted the process is always at least six months behind the need. So if a university professor earned, say, $100 (CN) per month before inflation, today he needs at least $1,000 or $2,000 (CN). He needs that amount merely

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China's Inflation

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for food. Therefore in addition to his regular work he must seek other ways of making a living. He works long gruelling hours, but sets his own rate of pay.

The civil servant is not so badly off, despite the fact that his salary is frozen. He is given a government issue of 24 ounces of rice daily, which is quite generous, and he may barter this for a little meat or whatever he needs. This barter is not considered a black market operation.

The coolie and small farmer once spent 96% of their income on food and clothing, leaving only 4% for shelter and fuel. Few, ever, could heat their squalid homes. In inflated China the coolie and farmer earn something like $3,000 (CN) per month and can get along nicely on about 80% of that. Where once a truck driver considered himself lucky to get meat once a week, now he buys it twice a day.

Few people realize the far-reaching effects today’s inflation in China is going to have—not only on that country but on the North American continent. The Chinese laborer has advanced his standard of living a century and a half and I do not believe he will let it slip back to the old scale. Once he earned $2 (US) a month but when a new normal is established in China, and when peace comes once again, I think you will find that he will be able to earn $1 or $2 (US) per day— a very high wage in China. Then will China’s millions be open for trade with the Western world.

Strange as it may seem the Chinese farmer is getting along quite well despite the fact that the Government takes two thirds of his rice crop for taxes. This two thirds is taken to the county granaries and stored to feed the Army and the civil servants. The farmer has his one third to live on, and any supplementary crop he may grow, such as wheat or buckwheat or corn, he may keep, tax-free. Thus he is assured of his food. But the farmer’s richest harvest today is oil. When Japan blockaded the entire China coast, imports of kerosene for the lamps of China automatically ceased. Now, at night, China works and lives by the light of a wick dipped in bean oil. The bean is the teaberry bean or various branches of the soybean. Oil also is produced from the cabbage seed and rapeseed. The farmer gets full inflation prices for his product. Disaster will hit this market when the new Burma road is opened or when the ports are reopened and kerosene once again is imported.

One of the great tragedies of modern times, in my opinion, has been the effects of inflation on China’s educational system and on state medicine. In more than 10 years of aggression at the hands of Fascist Japan the Chinese Government never once retreated in its determination to educate the illiterate millions. In the face of sore defeats and

extreme suffering China actually expanded her schools and universities. Arts and law courses were as numerous as those for technical subjects such as engineering. The deadly curse of inflation has slowed down this progress.

At one time (even as late as 1939) schoolteachers and university professors gave two hours of their spare time each evening to lead adult education classes in YMCA huts and at tradeunion meetings. The system reached out to millions who could not otherwise be educated. But the teachers’ salaries were frozen and when inflation came they had to give up their voluntary work and seek enough money merely to fill their stomachs. Now they do tutoring at high rates of pay and the old classes are dissolved.

Here is another example, perhaps even more tragic. In ’39 in Kweiyang, in the province of Kweichow, one university was almost entirely staffed by volunteer professors. There were a few part-time instructors who received pay, but I think there must have been 40 volunteer professors. Kweichow was considered a backward province and it was a great blessing to have the university opened. Now the volunteers can teach no longer and the university is closed.

Doctors Must Eat

The same thing has occurred in medicine. The provinces opened public clinics in each county and provided pre and postnatal care for women. Disease was fought on every hand by modern medicinas. The Federal Government also operated clinics and hospitals on even a better scale. But here again the wages were frozen at their old levels and the loyalty of the staffs severely tested. New recruits to the medical profession are difficult, almost impossible, to obtain. A man must eat and he cannot eat on $100 (CN) per month.

Another curious thing about China’s inflation is the status of the merchant. He has not been pinched so badly as one might expect. He seems always to have a little stock on hand; enough, anyway, to provide food for himself. His ways of obtaining goods are somewhat mysterious. A bolt of silk may be brought across the Japanese lines by fleeing refugees or, if he is disloyal, the merchant may be dealing in illicit traffic with the Japanese. Or he may obtain goods smuggled in by air from India. (Any American pilot caught smuggling is discharged and sent home.)

Two classes of people have been wiped out completely in recent years. One, the absentee landlord, lost his holdings through government legislation and through causes directly attributable to the war. The absentee landlord used to live in Shanghai or Hong Kong, literally on the fat of the land. He would be master of a luxurious town house, probably have a Russian or a French wife. Not in 20 years would he visit his farm. An

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Continued from page 40 J agent would collect his rents. All that

is gone in the new China.

The other class eliminated were the cash-rich people. The profiteers who make money by trading in goods on an inflation market are still there but today to have a million dollars in the bank in China is a sucker’s game. The interest won’t pay for the depreciation of the currency. That is the madness of inflation—the money must circulate continuously, never rest an idle moment.

In my opinion it is senseless to talk of price controls in China and of wartime regulations such as we know them in Canada and the United States. China, with its 450,000,000 people, scattered over vast areas, with poor communications, could not adapt itself to such bureaucracy. But—of greater importance— there simply are not enough educated people to form such a bureaucracy. It can’t happen there— not yet.

I believe that Canada and America can learn a great lesson from China. We, in Canada, are the least inflated of any country on earth. If we continue to abide by rationing and other wartime regulations we will continue to he safe. But if we play the black markets we will be on the same road as China and we will end with economic disaster. The more black markets you have the more inflation you get; the more inflation the more black markets. It goes on and on and on in an everincreasing whirl, madly, disastrously.

Although Chinese laborers earn $3,000 a month, China still needs help desperately from the Western world. Do not be misled by the fantastic

figures I have quoted here. Literally thousands of people are dying in the famine areas, many of them trapped inside Japanese lines, and thousands upon thousands of others are on the verge of starvation in Free China. For every $100 Canada sends to China, the Government of Chiang Kai-Shek contributes an equal amount. That is, your $100 becomes $2,000 (CN) and the Government adds another $2,000 (CN).

Floating Billions

I do not believe that the Government of China ever will completely disown the billions of paper currency that is floating around. I do believe that it, will be stabilized at some low level. In Germany, you will recall, the Government in adopting a new currency decided completely to ignore the old. The new money was based on real estate values, not commodity values.

The collapse will come in China when the farmer refuses to sell his produce for a bundle of waste paper, or when the cotton mill owner refuses. Or, far more quickly, if the time comes when the Government cannot collect sufficient taxes to pay the Army. It would not then he a question of a soldier-patriot refusing to fight for his country without pay; it would be a matter of a soldier going without food and knowing, too, that very likely his family was hungry.

If that time comes I believe the United Nations will have to step in and pay the Chinese Army; will have to hack their way through Burma with sufficient foodstuffs to prevent widespread chaos and famine.