(2 of 2)
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.