Parks M. Coble - The Collapse of Nationalist China - How Chiang Kai-Shek Lost China's Civil War-Cambridge University Press (2023)

THE COLLAPSE OF NATIONALIST CHINA
When World War II ended, Chiang Kai-shek seemed at the height of his
power – the leader of Nationalist China, one of the victorious Allied Powers
in 1945, and with the financial backing of the US. Yet less than four years
later, he lost China’s civil war against the communists. Offering an
insightful chronological treatment of the years 1944 to 1949, Parks Coble
addresses why Chiang was unable to win the war and control
hyperinflation. Using newly available archival sources, he reveals the
critical weakness of Chiang’s style of governing, the fundamental
structural flaws in the Nationalist government, bitter personal rivalries,
and Chiang’s personal lack of interest in finance. This major work of
revisionist scholarship will engage all those interested in the shaping of
twentieth-century history.
Parks M. Coble is James L. Sellers Professor of History at the University of

Nebraska–Lincoln.
Published online by Cambridge University Press

THE COLLAPSE OF
NATIONALIST CHINA
How Chiang Kai-shek Lost China’s Civil War
Parks M. Coble
University of Nebraska–Lincoln

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DOI: 10.1017/9781009297639
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Library of Congress Cataloging-in-Publication Data
Names: Coble, Parks M., 1946- author.
Title: The collapse of Nationalist China : how Chiang Kai-Shek lost China’s Civil War /
Parks Coble, University of Nebraska, Lincoln.
Description: Cambridge ; New York, NY : Cambridge University Press, 2023. | Includes
bibliographical references and index.
Identifiers: LCCN 2022057929 | ISBN 9781009297615 (hardback) | ISBN
9781009297646 (paperback) | ISBN 9781009297639 (ebook)
Subjects: LCSH: China – History – Civil War, 1945–1949. | China – Politics and
government – 1945–1949. | Chiang, Kai-shek, 1887–1975.
Classification: LCC DS777.54 .C63 2023 | DDC 951.04/2–dc23/eng/20230110
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Contents
List of Figures page vi

Acknowledgments vii
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1 Ichigo and Its Aftermath . . . . . . . . . . . . . . . . . . . . . . . 18
2 Hyperinflation and the Rivalry between T. V. Soong
and H. H. Kung . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3 Sudden Surrender and Botched Liberation . . . . . . . . . . . . 80
4 1946: Failure to Revive the Economy in the Aftermath of War . 111
5 1947: Speeding toward Disaster . . . . . . . . . . . . . . . . . . 131
6 1948: The Collapse of Fabi and the Gold Yuan
Reform Disaster . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Glossary 212
Notes 215
Bibliography 254
Index 265

Figures
0.1 The Big Four Allied leaders in World War II . . . . . . . . . . . . . . page 2

1.1 H. H. Kung with Henry and Elinor Morgenthau . . . . . . . . . . . . 32
2.1 T. V. Soong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.2 H. H. Kung with John Maynard Keynes . . . . . . . . . . . . . . . . . 44
2.3 The Soong family in 1914 . . . . . . . . . . . . . . . . . . . . . . . . 48
2.4 Chiang Kai-shek with the Soong sisters, 1942 . . . . . . . . . . . . . . 51
5.1 Hyperinflation begins . . . . . . . . . . . . . . . . . . . . . . . . . . 133
5.2 Madame Chiang and her Kung nephews and niece . . . . . . . . . . 144
6.1 Exchanging fabi for gold yuan notes, August 1948 . . . . . . . . . . 174
6.2 Rush on the banks as the gold yuan collapses . . . . . . . . . . . . . 190
vi

Acknowledgments
I have accumulated numerous debts to individuals and institutions in the

years spent researching and writing this study. None is greater than the
support I have received from my home institution, the University of
Nebraska–Lincoln. My colleagues in the history department have created
an environment that encouraged research, and the university provided
assistance throughout. I have been the James L. Sellers Professor of
History since 2007, a position providing substantial research support.
I am deeply grateful to the late Catherine and John Angle for their
generosity. My chair is named for James L. Sellers, a distinguished histor-
ian who taught at the University of Nebraska from 1930 until 1959,
through the difficult days of the Depression and World War II, and who
was the father of Catherine Angle.
The archives of the Hoover Institution on War, Revolution, and Peace
at Stanford University provided some of the most valuable material for
this study. I thank the staff at Hoover for their assistance and support and
particularly for a Visiting Research Grant for a visit in June 2016. Earlier
in April 2015, I received a Visiting Research Grant for work at the
Stanford University East Asian Library, awarded through Stanford’s
Title VI National Resource Center Grant from the Department of
Education. The contents of this book were developed under grant
#84.015A from the US Department of Education. However, these con-
tents do not necessarily represent the policy of the US Department of
Education, and you should not assume endorsement by the Federal
Government.
I have been privileged to be an associate-in-research at the Fairbank
Center at Harvard University for many years. This has allowed access to
vii

ACKNOWLEDGMENTS
the libraries of Harvard, particularly the Harvard-Yenching Library and

the Fairbank Collection at the Fung Library. I thank especially Nancy
Hearst of the Fairbank Collection. Visits to Harvard also afforded the
opportunity for informal discussions with scholars from around the
world. It is impossible to list all who were helpful, but I would like to
single out the late Ezra Vogel. Not only did he provide encouragement,
but he organized important conferences, bringing together Chinese,
Japanese, and Western scholars, which impacted my work.
I have been an inveterate conference-goer during my entire career,
attending most regularly the Midwest Conference on Asian Affairs, the
American Historical Association annual meeting, and in particular the
meetings of the Association for Asian Studies (of which I am a fifty-year
member). Perhaps the most significant conferences have been those with
a specific research agenda with invited participants. My deepest debt of
gratitude goes to Professor Wu Jingping of the Department of History at
Fudan University who generously invited me to attend several such
meetings in Shanghai and provided financial support for travel, which
enabled me to connect with scholars and graduate students in China and
internationally. Most generously, I had the opportunity to present my
own research and receive the advice of Chinese colleagues.
This began in November 2013 when I presented at the “Symposium
on the Soong Family and the Development of Modern China,” held at
Fudan University and sponsored by the Modern China Research Center
of Leadership and Archival Documents at that institution, the Hoover
Institution at Stanford, and the Shanghai Soong Ching-ling Research
Institute, with support from the Asia Pacific Fund. In October 2014,
I participated in the “Symposium on the Soong Family and the
Development of Modern China,” sponsored by the Modern China
Research Center of Leadership and Archival Documents of Fudan
University and the Shanghai Soong Ching-ling Foundation. I then pre-
sented at the conference “Bankers and Shanghai’s Financial
Transformation,” sponsored by the Fudan University Research Center
on the History of China’s Finance, the Shanghai Research Institute on
Financial Regulation, and the Shanghai Municipal Archives. In July of
2015, I attended the “Symposium on the Collection and Study of the
Soong Family’s Archives: The Soong Family and World War II,” an
viii

ACKNOWLEDGMENTS
invaluable experience that also allowed me to meet descendants of the

Soong family. In August of 2015, I presented at “Shanghai Finance
during the War of Resistance against Japan,” a symposium sponsored by
the Center for China’s Financial Studies, Fudan University, and the
Shanghai Institute of Financial Legislation.
In October 2016, I presented at the conference “Shanghai Finance:
From the Perspective of the Interaction between Treaty Ports,” jointly
organized by the Fudan University Center for China’s Financial History
Studies and the Shanghai Institute of Financial Legislation. The follow-
ing October, I presented at “The Symposium on Financial Risk
Management in the Perspective of Globalization and Changes in
Industry,” jointly organized by the Fudan University Center for China’s
Financial History Studies and the Shanghai Institute of Financial
Legislation. Finally, in May of 2018 I presented at a conference,
“Studying in America and Modern China’s Finance, Economics, and
Diplomacy,” at Fudan University. In addition to the Fudan conferences,
I gained invaluable insights when I presented at the conference “Modern
China in World Affairs: Interaction and Mutual Influence,” jointly organ-
ized by the Chinese Academy of Social Sciences, Institute of Modern
History, and the Historical Society for 20th Century China, held in
Beijing in August 2016. I thank all the abovementioned agencies for
their support in allowing me to participate in these conferences.
I gained many insights over the course of my encounters with Chinese
and international scholars in China and owe debts to many more individ-
uals than can be named here. But in addition to Professor Wu Jingping,
I would like to thank the following for comments given at the above
conferences: Chen Hongmin, Nancy Gao, Kubo Toru, the late Lai
Chikong, Pei-tak Lee, Lin Mei-li, Liu Zhiying, Ma Linghe, Ma Zhendu,
Mou Libang, Shiroyama Tomoko, Wang Chaoguang, Xiong Yuezhi, Xu
Ang, Yang Tianshi, Zheng Huixin, and Zhuo Zunhong.
Over the course of the years in which I was writing this study I gained
support and insights from many individuals. I would especially seek to
thank Morris Bian, Sherman Cochran, Po-shek Fu, Grace Huang, Emily
Hill, Kang Jin A, Elisabeth Köll, Diana Lary, Sophia Lee, Greg Lewis, Lin
Man-houng, Stephen MacKinnon, Ghassan Moazzin, Brett Sheehan, and
Margherita Zanasi. I also thank my editor at Cambridge University Press,
ix

ACKNOWLEDGMENTS
Lucy Rhymer, for her significant assistance, as well as two anonymous

reviewers for the press who provided valuable feedback on this study.
Emily Plater arranged permissions for the images used in the text.
This study is dedicated to the late Lloyd E. Eastman, my graduate
mentor and friend who did so much to shape the field of study of
Republican China before his untimely death. This study had its origins
in questions raised half a century ago in classes, seminars, and discussions
at the University of Illinois at Urbana–Champaign. At that time the
archival sources proved insufficient to undertake this project. Yet
I constantly recalled those discussions so many years ago as I wrote this
study.

Introduction
O n august 15, 1945, japanese emperor hirohito broad-

cast a speech announcing the surrender of the Empire of Japan
to the Allied Powers. At that moment, Chiang Kai-shek (Jiang Jieshi),
leader of the Republic of China, seemed at the peak of his prestige and
power. American president Franklin Roosevelt had elevated China to the
status of one of the “Big Four” Allied Powers (Figure 0.1), although
neither Joseph Stalin of the Soviet Union nor Winston Churchill of
Great Britain favored the move. At the new United Nations organization,
China and the other Big Four Powers, joined by France, would be given
permanent membership (with a veto power) on the Security Council.
China had seemingly achieved the status of a great power and Chiang of
its supreme leader.
There were other victories. During the war, the Chiang government
had fulfilled many of the goals set by Sun Yat-sen, whose legacy Chiang
claimed. Embarrassed that a wartime ally was treated as a second-class
nation, the United States and Great Britain agreed to end the infamous
“unequal treaties.” When Nationalist forces returned to coastal cities such
as Shanghai, the old foreign concessions were no more; the Chinese were
in charge. Institutions imposed on China during the heyday of Western
imperialism, such as the Maritime Customs Service, would fade from the
scene. The United States even made limited changes in the Chinese
Exclusion policy that prohibited immigration of most Chinese to
America. Facing Japanese wartime propaganda that they were fighting to
free Asia from white imperialism, President Roosevelt persuaded the
American Congress to modify US immigration policy in December 1943.
The move was largely symbolic, as the quota for new entry visas for Chinese
https://doi.org/10.1017/9781009297639.001 Published online by Cambridge University Press

INTRODUCTION
0.1. The Big Four Allied Leaders from World War II: Winston Churchill (Great Britain),
Franklin Roosevelt (United States), Joseph Stalin (Soviet Union), and Chiang Kai-shek
(China). Photo Quest/Archive Photos/Getty Images
was set at 105 annually. And though extraterritoriality was gone, American
military personnel could usually operate in China without facing Chinese
judicial authorities. Chinese-Americans still faced discrimination and
racism in a segregated America. President Truman would not be as
accommodating as Roosevelt had been to Chiang and his family.
Yet few could deny that he and his famous American-educated wife
Soong Mei-ling (Song Meiling) were global stars in the postwar era. And
few in August 1945 could imagine that a mere four years later, Chiang would
be driven from the mainland of China to a humiliating exile on the island of
Taiwan. Certainly, neither Stalin nor Truman would have believed it; and
despite his optimism Mao would have been startled to know that it had
occurred so quickly. The collapse of Chiang’s government between 1945
and 1949 was one of the most stunning and significant events of the
twentieth century.

INTRODUCTION
What happened? How could a leader and a regime that seemed at the
peak of its power collapse so quickly? In hindsight there were clear signs
that the Chiang government was in trouble, although these were not
widely known outside of the inner circle of “China hands.” Observers of
the Nationalist military on the scene, from General Joseph Stilwell on
down, felt that its caliber and effectiveness was deteriorating. The cata-
strophic performance of Chiang’s forces in countering the Japanese
Ichigo campaign was seen by many as proof of the incompetence of his
leadership. Chiang by contrast blamed that failure on the Americans,
especially Stilwell, who had moved many Chinese forces into the cam-
paign in Burma, leaving areas of China unprotected and inviting
Japanese attack, in Chiang’s view. After the surrender of the Japanese,
Chiang had to rely on American help in transporting his troops to regain
control of occupied areas. Most outsiders found the behavior of these
troops and the officials who accompanied them as undercutting the
legitimacy of the Nationalist government. Corruption, looting, and inef-
ficiency led to a “botched liberation” of Japanese-held territory.
Chiang was obsessed with his communist opponents. He even had
some Japanese troops or those of the puppet regimes established by the
Japanese remain on duty in the occupied areas rather than permit the
communists to take the surrender of the Japanese. Although several
American advisers warned him about stretching his forces too thinly, he
would have Nationalist troops airlifted to the northeast (the old Japanese
puppet state of Manchukuo) as the Soviets withdrew. Both Americans
and Soviets underestimated the Chinese communists, who had created
a formidable political and military structure during the war against
Japan. After careful maneuvering, they isolated many of Chiang’s forces
in the northeast and north and switched with lightning effectiveness
from a guerrilla strategy to positional warfare. The result was
a stunning collapse by Chiang’s forces, which seemed to crumble totally
in the last weeks of 1948.
For almost three decades after 1949, scholarship on the Civil War
period was quite limited. In China, the Maoist narrative allowed for little
flexibility in interpreting the communist victory. The onset of the
Cultural Revolution virtually shut down academic historical inquiry in
China for the last years of Mao’s life. In the West (but less so in Japan), the

INTRODUCTION
politically charged atmosphere made work on the era problematic. The

Korean War and American support for the Republic of China on Taiwan
strongly favored an anticommunist narrative in the United States.
Archives and research opportunities in the People’s Republic were
closed. A handful of classic studies of the Civil War era – many by
participants in the events of the struggle – did appear, but they were
few in number. All of this finally began to change with the “reform and
opening” policy launched by Deng Xiaoping in 1978. The result has been
a wave of new scholarly writing in China, Japan, and the West about the
war against Japan and the Chinese Civil War.
In China, most of the new writing concerns the War of Resistance
against Japan. A virtual avalanche of new scholarship, accompanied by an
outpouring of popular writing, motion pictures, and television dramas,
has dealt with the war. Why did this suddenly emerge? Perhaps the key
factor is that since June 1989 the Beijing government has promoted
nationalism as a key element in the appeal and legitimacy of the com-
munist government. Much of the popular writing and dramatization of
the war stresses both the cruel nature of Japanese atrocities and the
heroic resistance of Chinese. This “patriotic nationalist narrative” has
perhaps skewed some of the research on the war. Episodes that reflected
poorly on China, such as the Ichigo campaign, were often ignored.
Under Mao, writing on the war stressed only the heroic leadership of
the Chairman and the Chinese Communist Party (CCP). Chiang and the
Nationalists were given little credit for resisting Japan. In the new nation-
alist writing on the war, it became possible to celebrate Chiang’s role – his
trip to India or meeting with Roosevelt and Churchill in Cairo. More
recently under Xi Jinping this trend has halted, and more emphasis has
been placed once again on the communist role.1
This outpouring of new writing in China on the war against Japan has
not been matched by work on the Civil War period. In part because it was
a civil war, it is not so useful in promoting patriotism among young
Chinese. And in China, there is little room for ideological flexibility in
discussing this conflict. In the West and Japan as well, the Civil War era
has not drawn as much attention as the war against Japan. Still compared
to the paucity of publications in the early decades after 1949, there has
been a significant increase in studies that deal with this conflict. Not

COLLAPSE OF THE NATIONALIST CURRENCY
surprisingly, the great majority of this scholarship has focused on the

Chinese communists and the elements that led to their success. A lively
debate about the causes of that success has broadened as archival access
has made possible far more detailed studies of individual communist base
areas. This has led to recognition that there was an enormous diversity in
regional factors creating success or failure for the communist movement.
There has been less new scholarship on the Nationalists, but key works
by Rana Mitter, Hans van de Ven, Diana Lary, and others have provided
a much richer understanding of the collapse of Chiang’s regime. One
important feature of much of this writing is that many of these works have
sought to reach a broader audience than just the academic world. The
often-neglected military side of things has been increasingly covered,
with new work by scholars such as Odd Arne Westad and Harold
Tanner among others. Even familiar topics in Western scholarship such
as George Marshall’s ill-fated mission have gotten a new treatment in
Daniel Kurtz-Phelan’s recent study.2 As a consequence, both academic
and general readers now have access to a much wider range of scholar-
ship than before.
COLLAPSE OF THE NATIONALIST CURRENCY
This study primarily revisits an old issue, inflation (later hyperinflation)

in Guomindang (Nationalist) China during the war against Japan and
accelerating in the Civil War period. Virtually all studies of the failure of
the Nationalist government note the important role of hyperinflation in
weakening the regime. The actual facts of the situation have been well
known since the events themselves. In the 1950s and 1960s, classic studies
by Arthur N. Young, a financial advisor to the Chiang Kai-shek govern-
ment during war against Japan and Civil War years, and Chang Kia-ngau
(Zhang Jia’ao), a key banker and government official, detailed the prob-
lem of inflation.3 In November 1935, the Nationalist Government cre-
ated a new currency, fabi, issued by the four government banks – the
Central Bank of China, the Bank of China, the Bank of Communications,
and the Agricultural Bank. When the war with Japan erupted in the
summer of 1937, Chiang put up fierce resistance on the east coast before
ultimately retreating to Chongqing (Chungking) and the base of “Free

INTRODUCTION
China” during the long war against Japan. By October 1938, with the fall
of Wuhan and Guangzhou, the Nationalists had lost the heart of their
economy – the lower Yangzi and coastal areas. Tax receipts plummeted
while military expenses remained high. By 1941, for instance, govern-
ment expenditures topped 10 billion yuan, but revenue was only
1.3 billion yuan. Printing money covered most of the difference.4
But printing currency was but a short-term solution. Paper money
declined in value, and prices of commodities rose along with the
money supply. An index of commodity prices in Free China compiled
by adviser Arthur Young used the average prices from January to
June 1937 as a base of 1.0. Four-and-one-half years later when the
Japanese attacked Pearl Harbor and declared war on America and
Great Britain, the price index in Free China had increased by nearly
twenty times (or 19.8). This was a substantial change but not one that
would have been permanently crippling to the economy. Yet after China
joined America and Britain as allies against Japan, the situation wors-
ened. Japan occupied British Burma and French Indochina, isolating
“Free China” from the outside world. By the end of 1943, the price index
stood at 228 and in the last two years of the war accelerated, reaching 755
in December 1944, then 2,167 in June 1945, and then 2,647 in
August 1945. The rise in prices accompanied the vast increase in the
amount of fabi issued by the government. Using the amount of currency
in circulation in June 1937 as a base of 1, the total amount was 10.75 in
December 1941, 53.57 in December 1943, and 733.5 in December 1946.
The actual increase was even more pronounced because the area in
which it circulated (Free China) was much smaller than was the case
when war erupted. The value of fabi shrank in proportion to the vast
increase in notes being circulated, and the Guomindang government was
greatly weakened in the process.5
Yet when the war ended, there was a feeling among observers such as
Arthur Young that the situation could be rectified. After all, the
Nationalists would regain control of the east coast, the economic heart-
land of their old government that had provided most of the tax revenue.
Commodities had been scarce in “Free China,” which was isolated from
the world economy. With the reopening of ports such as Shanghai,
foreign trade could revive; customs revenue might recover. It was widely

AFTER JAPANESE SURRENDER
assumed there would be a “peace dividend” as military activities were

scaled back. Moreover, the United States had emerged from the war as
the dominant economic force globally. As an ally, America would likely
provide the assistance China needed to revive economically and to
restore confidence in fabi. Despite wartime deprivations, China had
a significant amount of foreign exchange to serve as a reserve. In
February 1946, the Central Bank of China had holdings of gold, silver,
and foreign exchange worth more than US$822 million.6 So there
seemed to be the prospect that in postwar China the economy might
revive and the currency might be stabilized with no more than
a manageable degree of inflation.
But this was not to be; the currency situation actually worsened after
Japanese surrender. There would be no “peace dividend.” Victory over
Japan did not bring reduced military spending, as Chiang gave absolute
priority to preparing for, what he saw as, the inevitable showdown with
the communists. Meanwhile, after Guomindang authorities regained
control of the lower Yangzi and coastal China, they were unable to revive
foreign trade and the overall economy of the area. Consequently, tax
receipts from the liberated region remained weak. Faced with continued
high expenses and limited revenue, the Chiang government returned to
the printing presses to pour out more banknotes.
The sudden onset of peace did lead to a brief drop in prices as hoarders
unloaded some of their goods, and for a few weeks commodity prices
actually fell. In August 1945, prices dropped by almost one-third on
average, the only real decrease during the postwar situation under
Chiang. But this “peace dividend” would be very short lived. By
October 1945, hyperinflation resumed with a vengeance.7 As Frank
Tamagna, then a financial advisor to the Executive Yuan, wrote “inflation
hit Shanghai like a typhoon.”8
In September 1945, the wholesale price index in Shanghai (using
January to June 1937 as a base of 1) stood at almost 346. By
December 1945, it was over 885; by June 1946, over 3,724; and by
December of that year, 5,713. In June 1947, it had soared to 29,931 and

INTRODUCTION
by the end of that year, 83,796. In the next six months, price went up
tenfold, with the index reaching 884,800 in June 1948. On August 21,
1948, the last day of fabi, the wholesale price index was 4,927,000. An
item priced at one yuan in 1937 would now cost almost 5 million yuan!9
Newspapers carried pictures of people using wheelbarrows of currency to
do daily shopping and shippers using shredded banknotes as packing
material. Foreign observers noted the similarity to the situation in the ill-
fated Weimar Republic of Germany. The Chiang government aban-
doned fabi in August of 1948 for the new gold yuan notes – which
would fail with greater rapidity than fabi.10
The collapse of the value of the fabi in the Civil War era was not the
result of setbacks on the battlefield by military forces. Major drops in its
value preceded military losses by the Nationalists. By the time the collapse
of Chiang’s military position was imminent in late 1948, fabi was already
gone. Currency collapse was a precursor of – not a result of – military
failure.
But do we need to revisit this issue? In the decades since 1978, new
sources and archives in China and globally have certainly increased our
understanding of hyperinflation in wartime and Civil War China. In her
1996 study of inflation during the war of resistance period, Lin Meili was
able to refine the figures for government spending and the deficit and
provide detailed analyses of commodity prices in a variety of cities in Free
and occupied China.11 Yet the picture that emerges of relentless govern-
ment deficits and inflation as the money supply increased is basically the
same as that detailed in the early studies by Arthur Young and Zhang
Jia’ao. So a new study will not dramatically alter the facts of what hap-
pened. This study will address instead two other questions.
First, what was the impact of the inflationary policy on the political
and military situation of Guomindang China in the Civil War era?
Hyperinflation was a precursor of military failure by the Guomindang,
but was it a cause of that failure? One could argue that the value of the
currency impacted only a minority of the people of China. Rural Chinese
could avoid currency and tap into a barter economy. Many urban factory
workers had contracts which adjusted their wages in tandem with the
commodity price index. The Chiang government wanted to nip labor
unrest in the bud to prevent the communists from capitalizing on it.12

Yet those most strongly impacted by hyperinflation were the military

and civilian employees of the Nationalist government. For most, the
actual value of their wages shrank daily during this period. Army officers,
college professors, and government clerks – few could live on the actual
wages received. This situation invited corruption and pilfering – an
almost universally acknowledged phenomenon in the Guomindang
regime in this era. The collapse of morale and effectiveness of the
Nationalist military – so obvious in the Civil War – was a direct result of
poor pay and corruption. Little funding trickled down to the enlisted
soldiers, who were usually malnourished and ill equipped. Desertion was
common.
The second – and more intriguing question – is why did this policy
persist? Observing the impact of the printing-press approach to govern-
ment deficits is a bit like watching a car crash in slow motion. Could
nothing have been done to prevent this? One could argue that during the
war against Japan when the Chiang government was trapped in interior
China, isolated from the outside world and facing extinction at the hands
of an external enemy, there was no other credible option. But after
August 1945 with coastal China and the lower Yangzi regained, with
access to world markets possible and with American support and aid
likely, why did the Chiang government continue this disastrous policy?
Were no other options available?
It is perhaps in answering this second question that the new archival
and published material supports a much clearer portrait of the decision-
making within the Chiang government. Much of this material is at the
Hoover Institution Archives at Stanford University. Mostly famously, the
opening of the Chiang Kai-shek diaries has upended the world of
Republican studies. Scholars primarily from China have flocked to
Hoover to consult these documents. Hoover also contains the
T. V. Soong Papers, now fully opened; the partially opened archives of
H. H. Kung; and those of many key players in the Guomindang era. Both
Arthur Young and Chang Kia-ngau (Zhang Jia’ao) published classic
studies about China’s inflation from an insider perspective. Both pub-
lished in the 1950s and 1960s after they left China. Yet ultimately both
strongly opposed the new People’s Republic of China so pulled their
punches in criticizing the Chiang Kai-shek government. Arthur Young

INTRODUCTION
was a bit more forthcoming in his privately published Cycle of Cathay: An

Historical Perspective in 1997, in which he was more candid in discussing
key personnel in the financial circles of Guomindang China. But he was
far more so in the unpublished material in his now fully opened archives
at the Hoover Institution.13
This study will seek to understand the “why” of the decision-making
process of the Guomindang government in its currency and financial
policy as well as the impact of hyperinflation on China at large. The root
of the weaknesses of fabi can be found in both its creation in 1935 and in
decisions made during the war of resistance against Japan. A decided
turning point in its downfall, however, occurred with the Japanese Ichigo
campaign undertaken late in the war against Japan. More broadly, the
new understanding afforded to us about decision-making in the Chiang
government gives insight into failures in military and political areas.
FABI’S FATAL WEAKNESS
Fabi was created in November 1935 when the fiat currency replaced the
silver standard. H. H. Kung (Kong Xiangxi), Madame Chiang Kai-shek’s
brother-in-law, served as minister of finance and directed the creation of
the new currency. Fabi had been in circulation less than two years when
the war with Japan erupted. The creation of this currency had been
supported by both Great Britain and the United States, and it was widely
accepted in China. Many nations have established institutions to regulate
the money supply that are insulated to some degree from political influ-
ence. In the United States, for example, the Federal Reserve Board is
supposed to make decisions about money supply without political inter-
ference. These systems do not always perform flawlessly but can help in
creating public confidence in the currency. But the arrangements made
for the creation of fabi in 1935 provided no real checks and balances,
leaving political leaders with a free hand in setting the money supply.
Many private and even government bankers had vivid memories of
the warlord era in China, when regional militarists tried to use banks as
a source of revenue by having them issue unlimited currency. Chang
Kia-ngau , as long-time manager of the Bank of China, had tried to
insulate the bank from political control. Most famously in 1916 when
10

FABI’S FATAL WEAKNESS
he was at the Shanghai branch of the bank, he refused an order by

Yuan Shikai, the leader of the Beijing government, to cease redeeming
the bank’s notes for silver. Because of his independence, Chang was
removed as the general manager in 1935 before the fabi reform. He
was replaced by T. V. Soong (Song Ziwen), Chiang Kai-shek’s brother-
in-law. Chang had recommended that the Central Bank of China be
made a reserve bank, separated from the Ministry of Finance, and
made independent so that the supply of money could be regulated
without political interference. Inflation could be kept in check. But
that was not to be.14
Although the inflationary aspect of the new currency system did not
become obvious until after the war with Japan started, Chang Kia-ngau
realized the direction fabi was headed even before July 7, 1937. He
observed that “the Central Bank never gained independent status and
no serious attempt was made to reorganize government finances.”
Between the creation of the currency in November 1935 and the out-
break of war in the summer of 1937, the amount of currency in circula-
tion increased from 453 million yuan to 1,477 million yuan. “Only about
half of this increase represented notes issued against silver surrendered,”
he noted.15 In other words, the government had already started printing
paper currency and increasing the money supply before the war started.
The stage was set for wartime inflation.
The war situation created a new set of problems for fabi currency.
China was in many ways a semicolonial country at the start of the conflict.
The treaty ports were islands of foreign control where international
banks such as the Hongkong and Shanghai Banking Corporation oper-
ated behind a curtain of extraterritoriality. The Guomindang govern-
ment could not really control the actions of foreign banks in China. This
became obvious when the banks began to move hard currency out of
China (primarily from Shanghai) between the Marco Polo Bridge
Incident of July 7, 1937, and the start of fighting in the Shanghai area
on August 13, 1937. Fabi was convertible to hard currency, and the
government in Nanjing was slow to adjust this policy. In the nearly five
weeks from the Marco Polo Bridge Incident to the start of the battle of
Shanghai, an equivalent of 423 million yuan in foreign exchange left
China, most of it moved by the foreign banks.16
11

INTRODUCTION
Even after the Guomindang forces retreated west, many anomalies of

the treaty-port system continued. Although the Chinese portion of
Shanghai was occupied, much of the International Settlement and the
French Concession remained an unoccupied “solitary island” (gudao),
a neutral area surrounded by Japanese-occupied territory. Because the
conflict between China and Japan was not a declared war, many foreign
institutions, such as banks, operated in the “solitary island” as if the war
were not happening. Only after Pearl Harbor in December 1941 did
Japan declare war on the United States and Great Britain, ending the
special status for Shanghai.
KEEPING FABI CONVERTIBLE
As a matter of prestige, the Nationalist government was determined that

fabi would remain convertible into foreign currencies and, for the first
eight months of the conflict, tried to hold the prewar exchange rate of
US$0.30 to 1 yuan. The Chiang government expended large amounts of
foreign exchange to hold this rate until March 1938.17 The foreign
“isolated islands” were surrounded by territory occupied and controlled
by Japan. It was widely believed that the Japanese exploited this arrange-
ment, a view held by Chinese historian Qi Chunfeng. Japanese author-
ities, Qi argues, accumulated fabi in the occupied areas and then
converted this to hard currency in Shanghai and Tianjin.18 At the time,
the major Chinese banking journal Yinhang zhoubao (Bankers’ weekly)
warned that Japan could devour China’s foreign-exchange reserves.19
Eventually the situation became untenable, and on March 13, 1938,
China had to impose severe limits on the purchase of foreign exchange
with fabi. Even so, the foreign banks could evade many of the controls and
continue to move money out of China. But key nationalist leaders includ-
ing H. H. Kung, the minister of finance, felt that China had to keep some
level of convertibility of fabi to curb the influence of currencies issued by
the client regimes of Japan. Others argued then and later that the convert-
ibility policy aided Japan because it provided hard currency that could be
used to finance Japan’s war plans.20 They also argued that trying to
maintain the financial markets in Shanghai and Tianjin during wartime
simply served the needs of the imperialist powers and not those of China.21
12

KEEPING FABI CONVERTIBLE
But H. H. Kung remained adamant. He felt that Chongqing was in

a currency war with the Japanese client regimes in Beijing and Nanjing. If
fabi remained convertible, even with restrictions, people in the occupied
area would continue to hold the currency, and the Japanese could not
establish complete economic control.22 If that population lost their trust
in fabi and abandoned it for banknotes of the client states, a flood of the
fabi notes would move back into Free China, which would spark more
inflation.23
T. V. Soong was in Washington in December 1940 as Chiang Kai-
shek’s special representative. He telegraphed Chiang that he had heard
rumors that Chongqing was prepared to abandon fabi in Shanghai.
Chiang consulted H. H. Kung, who stated explicitly that:
in fact, the ministry had never made statement about abandoning fabi in
any city during the past several years. In view of such rumors month ago,
a statement released in English language reiterated that government’s
policy on fabi currency had not changed and after receiving US loans,
our currency reserves are stronger than ever. The public should not
believe in rumors and fall into trap.24
Chiang did emphasize to Soong that stabilization loans from the United
States and Britain would be crucial in maintaining the stability of fabi, but
clearly both Kung and Chiang were committed to keeping the exchange
market open in the “solitary island” in Shanghai.
In early 1941, one of American president Franklin Roosevelt’s closest
aides, Lauchlin Currie, had made a trip to China. Technically, this was at
the request of the Chinese government, which paid for his expenses and
even covered his government salary during his absence. His trip thus did
not violate American neutrality in the Sino-Japanese War, at least on
paper. In reality, Franklin D. Roosevelt was seeking ways to shore up
China while Chiang, eager for American aid, saw Currie as having direct
access to the American president. Currie did deliver a verbal message of
support to Chiang from Roosevelt on his first meeting on February 8,
1941. On the convertibility issue, Currie concluded that trying to main-
tain the exchange market in Shanghai had many disadvantages and only
one significant plus. Closing Shanghai would lead to a huge flow of fabi
from occupied China into Free China, which would stimulate inflation.
13

INTRODUCTION
He suggested to Chiang that they keep Shanghai open but develop

a market for foreign exchange in Chongqing.25
Shortly after Currie returned to Washington, Kung wrote to him
about this issue. “Throughout our four years’ bitter struggle, the
Chinese Government, realizing that the outcome of the struggle depends
to a great extent upon the upholding of the currency structure, has
exerted every effort to maintain the national currency.” Kung reiterated
that “the Chinese Government has never failed to support the currency
to the best of its ability.” Kung noted, however, that few applications for
foreign exchange now came from the “isolated island” in Shanghai,
presumably because they had access to the “black market.”26
Another strong advocate of convertibility was Arthur Young, who
stressed the advantages fabi had in the occupied areas. Its convertibility
gave it “an outstanding advantage” in competition with currencies of
client regimes.27 In many rural areas of the occupied zone, actual control
was held not by the Japanese military, which was thinly spread, but by
Chinese guerrillas. Because the latter preferred to use fabi, “exports from
this hinterland, even though sold through occupied ports, had to be
ultimately paid in Chinese currency.”28 Young was certainly aware of
reports that the policy was being exploited by the Japanese to accumulate
foreign exchange but doubted the significance of this phenomenon.29 In
1958, long after the war concluded, Young met in Tokyo with several
Japanese bankers who were in China during the conflict. They believed
that it was primarily Chinese bankers, not the Japanese, who converted
fabi into hard currencies to get assets out of China during the period
before Pearl Harbor. At that point, Young candidly admitted this was
likely to be true, that Chinese bankers may have been responsible.30
But large government deficits and a reliance on the printing press to
cover the red ink were too strong a force for the market to resist. The
foreign-exchange value of the yuan, which was just over twenty-nine cents
in July 1937, dropped to only six cents in December of 1940. The chief
competitor for fabi in north China was the currency issued by the Wang
Kemin client regime in Beijing. It expanded note issue by 450 percent
from 1938 to 1941, and its currency lost value. But fabi declined more
rapidly, so that by the end of 1940 its value fell below that of the Beijing
issue. Arthur Young concluded that during 1941, the notes issued by the
14

AFTER PEARL HARBOR
Wang Kemin government “became the chief currency of occupied north

China.”31 Chongqing had lost the currency war in north China.
The Japanese established a separate client regime in central China
under Wang Jingwei, a prominent Nationalist politician who defected to
Japan. His government in Nanjing was slow to set up a bank and issue
currency but had done so by December 1941 when the Japanese attacked
Pearl Harbor. Fabi was still widely held in the “solitary island” in Shanghai
and in the occupied areas in the Yangzi Valley. But once Japan was at war
with Great Britain and the United States, it quickly occupied foreign
Shanghai and Tianjin. The anomaly of the “solitary islands” ended.
Japanese seized most of the banks in Shanghai and declared that all
fabi had to be exchanged for banknotes of the new Wang Jingwei govern-
ment in Nanjing. A deadline of June 1, 1942, was set; after that date, fabi
would be worthless.32 When those living in the occupied zone surren-
dered their fabi notes, the Nanjing client state mandated a 2:1 ratio in
favor of the Wang Jingwei government bank. For most Chinese, this
meant their fabi notes lost half of their value, wiping out much of their
savings and delivering a serious blow to the economy of the lower
Yangzi.33
AFTER PEARL HARBOR
With the United States and Great Britain now fighting against Japan, the
conflict became a declared war, with China joining the Allied Powers.
Direct aid and supplies of military equipment could now be made to the
Chiang government, and Roosevelt no longer needed to be concerned
with the American neutrality laws. But in reality, China’s fiscal situation
actually worsened in the months after Pearl Harbor. Japanese forces
overran British Burma, cutting off the last land route to Free China.
Chongqing became even more isolated from the outside world. Trade
was minuscule, and government deficits grew worse. Even morale
declined, as many in the Nationalist government were now content to
let Americans and the Allies bear the brunt of the fighting. China had
fought alone for four-and-one-half years; it had endured bombardment
of its cities, particularly Chongqing. Now others could bear the burden of
countering Japan. The index for commodity prices in Free China using
15

INTRODUCTION
January to June 1937 as a base of 1 had increased almost twentyfold by the

attack on Pearl Harbor. By the end of 1943, it had soared to 228. But the
worst was yet to come.
As weak as fabi was in 1942 and 1943, sinking rapidly in value, the
situation might have been worse if the Japanese had adopted a more
unified approach to eliminating fabi. But Japanese agents were divided.
The North China Army, which had established the Wang Kemin govern-
ment and bank in Beijing, would not fully yield to the central-China
Japanese leaders who wanted the Wang Jingwei government and its
banknotes to reign supreme. The result was that Japan maintained two
separate currency zones in occupied China. In north China, the Wang
Kemin notes were pegged to the yen; in central China, the Wang Jingwei
notes were tied to the yuan. The two areas operated as separate currency
zones with an exchange rate in 1943 of 100 yuan in Nanjing currency to
18 yen in Beijing currency. Complex restrictions on exchange actually
inhibited trade between the two areas. Had it not been for Japanese
ineptitude, the fabi might well have declined even more rapidly it did.34
Ultimately, wartime inflation could not be contained as long as the
government continued to run up huge deficits. When China’s ambassa-
dor to Great Britain Wellington Koo (Gu Weijun) visited Chongqing for
a few weeks in late 1942 and early 1943, he had a frank conversation with
the financial adviser Arthur Young. Dr. Young told Koo that “in his view,
the only way to meet the danger was by reducing the national budget.
Too many troops constituted a big and unnecessary strain on the treas-
ury. It resulted in the withdrawal of men from production, and also in the
inadequate feeding of the soldiers.” The solution Young recommended
was fewer soldiers. This “would not only save money but would also
enable the government to feed the remaining troops better; at the
same time there would be more men engaged in production in the
factories and on the farms.”35 Indeed, malnutrition among the ordinary
soldiers was a major weakness of Chiang’s military.
But Chiang Kai-shek’s approach was to increase the size of the mili-
tary, never to cut back. Since he made the ultimate decisions, reduction
in the size of the military was simply not going to happen. Chiang
sometimes took note of the problem of inflation. In a speech in
October 1942 cited by Matthew T. Combs, Chiang stated that “modern
16

AFTER PEARL HARBOR
warfare is by no means merely a matter of military operations; economic

affairs constitute another factor of first importance.” In November 1942,
Chongqing announced a program of price controls. Once that was done,
Chiang seemed to have no new approaches to controlling inflation. As
Combs notes, “for the rest of 1943 his diary records only attention to the
economic problems but no new action to solve the crisis.”36 Price controls
are very difficult to enforce, of course. Farmers and producers of manu-
factured goods would simply withhold their supplies from the market if
they were not getting a sufficient price.
Fabi had inherent weaknesses from its inception. The money supply
was subject to the political whims of the key leader – Chiang Kai-shek. But
as late as 1943, one could argue that the damage had not been irrepar-
able. Yet in what turned out to be the last months of the war, a series of
disasters seemed to have set the currency on a spiral from which it could
not escape. Military losses by the Nationalist government went hand in
hand with the loss of value of the currency used to pay China’s soldiers.
Their effectiveness as fighters declined as well. The two phenomena were
related.
17

CHAPTER 1
Ichigo and Its Aftermath
I t is perhaps both a blessing and a curse that historians

generally know the outcome of the historical events that they are
studying. In trying to understand the actions of people in the historical
past, it is often difficult to recapture their thinking at a time when the
future appeared so uncertain. One of the driving forces of hyperinflation
is human behavior – people assume that paper currency will lose value at
a rapid rate, therefore rationally, when one acquires a fiat currency such
as fabi, one should immediately buy commodities that will more likely
hold value. In wartime conditions in which commodities are scarce, this
sets up a self-perpetuating cycle. Goods are scarce, but consumers are
desperate to buy, which drives up prices and perpetuates inflation.
During the war against Japan, this phenomenon prevailed in Free
China, and the rate of inflation even accelerated in 1943 and 1944. Yet
in theory, this process should have reversed as signs of an Allied victory
over the Axis Powers began to appear. Such a victory would be expected
to improve the value of fabi. With victory, consumers might well dump
commodities that they had hoarded, fearing a price decline. When
hoarded goods are released on a market, prices in fact should go down.
With the eastern ports recovered, foreign commodities might also enter
the market, and more American aid might be expected. Yet few acted to
release commodities and hold fabi even up to the final hours of the
conflict. The psychology of hyperinflation continued even as the Allies
moved toward victory.
Today, we know of course that the United States dropped atomic
bombs on Japan on August 6 and 9, 1945, and that the Soviet Union
declared war on Japan on August 8. We know that the Japanese emperor
18

ICHIGO AND ITS AFTERMATH
broadcast a speech announcing surrender on August 15. Yet in trying to

understand the actions and feelings of historical actors in the months
leading up to these events, it is important to remember that they had no
such foreknowledge. Even at the beginning of 1945, few people living in
“Free China” would have envisioned that the war would end a mere eight
months later. Although knowledge of Germany’s likely surrender and
Japanese defeats in the Pacific appeared in the newspapers, most assumed
that the fighting in China would drag on for many more months or even
years. And given the harsh conditions under which so many lived, they
probably feared that they and their families might not survive to see victory.
Why this pessimism? Although the Allied Powers seemed to be win-
ning globally as 1945 began, the major exception was mainland Asia. As
the journalist Cao Juren later recounted, in military terms the last year of
the war was China’s darkest hour.1 In April 1944, Japan launched the
largest military campaign of the China war. Indeed, as the Japanese
military historian Hara Takeshi observed, it was “the largest military
operation carried out in the history of the Japanese army.”2 Called
Operation Ichigo (number one), the campaign saw the mobilization of
500,000 Japanese forces, approximately 80 percent of the China
Expeditionary Army. In addition, the Japanese used 100,000 horses,
1,500 pieces of artillery, 800 tanks, and many airplanes.
Operation Ichigo was a tremendous Japanese victory. As historian
Hans van de Ven noted, “Ichigo’s forces slashed through Nationalist
armies as if they did not exist, clearing them from the provinces of
Henan, Hunan and Guangxi. By October 1944, Sichuan was the only
large Chinese province still in Nationalist hands. A Chinese collapse
appeared a distinct possibility.”3
Why did Japan mount such an offensive even in the face of losses in
the Pacific? Operation Ichigo had two goals. The first was to capture the
American air bases in China in eastern and southeastern China that were
giving the Allies air superiority in the area. Ultimately, the targets were air
bases near Chengdu designed to host B-29 bombers, which could hit the
home islands of Japan. The second was to secure an interior corridor to
link north China, Manchukuo, and Korea with Japanese-held territory in
southeast Asia. The Japanese hoped to establish a direct rail link between
southeast Asia, north China, and Korea. As early as their defeat at
19

Guadalcanal, the Japanese military realized that it might lose control of

the sea route and would need a rail link by land to get resources from its
newly conquered territory in southeast Asia to northeast Asia and Japan
itself.
However, as van de Ven observes, no matter what plans were made in
Tokyo, field commanders of Japanese armies often went their own way in
interpreting their orders, either ignoring them completely or going
further than intended. General Hata Shunroku, field commander of
the China Expeditionary Army, decided that that “Ichigo should go for
the jugular and take Chongqing.” Thus, during this campaign, “Japanese
forces time and time again sought out the Nationalists’ main forces with
the aim of annihilating them.”4 Hata hoped to knock the Chiang govern-
ment out of the war, offsetting Japanese losses elsewhere, and he nearly
succeeded.
In phase one of Ichigo, the Japanese struck in Henan province, an
area that had been ravaged by famine from 1942. Nationalist general
Tang Enbo exacerbated the problem by continuing to levy grain taxes on
the stricken areas. A massive Japanese force crossed the Yellow River in
mid-April 1944 and encircled Luoyang. Chinese peasants attacked their
own forces, such was the anger over the famine. By the end of May,
Henan was in Japanese hands.5 In phase two, they attacked Hunan
province, invading in late May. After a chaotic and disorganized
Chinese defense, the Japanese captured Changsha on June 18, 1944.
Chinese forces put up a much stiffer defense at Hengyang, location of
an American air base. But following intense fighting in which both sides
suffered heavy losses, the Japanese prevailed on August 8. Japan’s success
dealt Chiang Kai-shek an enormous blow to his standing as the leader of
Nationalist China.6 As Hsiao-ting Lin has noted, “by July 1944, as a result
of Japan’s Operation Ichigo in China, Allied strategy in East Asia lay in
ruins, draining the relationship between Chongqing and Washington.”7
In early September 1944, Japanese forces entered Guangxi province. The
American air bases in Guilin, Liuzhou, and Nanning, built at great
expense, would quickly fall to the Japanese. Japan moved forces north
out of Vietnam in order to link up with the group in Guangxi. The
Japanese captured Fuzhou with little Chinese resistance on October 5,
1944.8
20

The Guomindang losses in Guangxi were particularly painful. By

September 10, 1944, when Japanese forces entered Guangxi province,
China had 170,000 troops to defend northern Guangxi, but Chinese
soldiers seemed unwilling to fight, and units simply fell apart. The
Japanese invasion was virtually unopposed. The leaders of the Guangxi
Clique, particularly General Bai Chongxi, concluded that neither Guilin
nor Liuzhou could be defended successfully. The cities were torched and
abandoned. Guilin was looted by departing Chinese forces before being
set ablaze. The Japanese entered the gutted city on November 11, also
capturing Liuzhou. Civilian losses were staggering.9 General Zhang
Fakuei and other Chinese commanders evacuated for Chongqing in
October.10
By late November 1944, the Japanese were only sixty-two miles from
Guiyang and 300 from Chongqing. There was widespread fear that, after
holding out for so long, Chongqing might now be occupied.11 Even the
famed Burma Road, which the Allies were reopening at great expense in
men and material, was threatened. If Guiyang fell, the road would be cut
some 200 miles from Chongqing.12 A wave of panic hit the wartime
capital. United States authorities began monitoring a large increase in
money leaving Chongqing for the USA in the autumn of 1944.13
In a letter written to his wife in America a year after these events
happened, American Colonel John Hart Caughey recalled the panic.
“A little over a year ago I hit this place. Boy, what a dismal spot it was
then.” The Japanese had taken the American airfield at Liuzhou and
then advanced thirteen-and-one-half miles a day. They were only 250
miles from Chongqing where Caughey was stationed. “Although we
weren’t so worried about that as the fact that they were also 250 miles
from Kunming. If they ever got there the whole show would be up.” The
Hump connection would be severed as well as the Burma Road. Thus, he
recalled that “it looked as though China were on her last legs. That we
were too. Yes, those were bleak days.”14
The Japanese began to halt their offensive at that point, as they faced
major shortages of material and trained men. Although Japan achieved
its goals – seizure of the American air bases in China and opening
a potential railway corridor from Manchukuo to Hanoi – these successes
occurred too late to impact the outcome of World War II. The B-29
21

bombers that were to have been based in Chengdu in Sichuan were

moved to the Mariana Islands. There, from bases in Saipan and Tinian,
they could readily bomb the home islands of Japan, eventually with two
atomic bombs. Allied forces controlled the sea and air in the western
Pacific, and Japan could not complete a railway corridor in the interior
of China. The major impact of the campaign was to expose the severe
deterioration in the military of Chiang Kai-shek. American leaders
realized that China would be of virtually no help in the final defeat of
Japan. When Chiang Kai-shek demanded that Washington recall
General Joseph Stilwell, the ranking American military man in China,
Roosevelt concurred, but the damage to Chiang’s standing was
substantial.
Hans van de Ven details the tremendous blow that the Ichigo defeat
had on the prestige of Chiang Kai-shek and his government, both within
China and without. “In 1943, Chiang Kaishek had been riding high,
having secured an end to the unequal treaties and having been feted at
Cairo as a world leader.” Yet after Ichigo, “internationally he had become
an irrelevance. In July 1945, when Truman, Churchill and Stalin drafted
the Potsdam Declaration, which demanded Japan’s unconditional sur-
render, they did not even consult him.”15 The Allied Powers had con-
cluded that Chiang, his government, and his army could not offer
meaningful military assistance to the defeat of Japan and basically
planned the Allied endgame without his strategy.
THE ECONOMIC IMPACT OF OPERATION ICHIGO
Most scholarly discussion of the Ichigo campaign relates to its impact on

the global prestige of the Chiang government and the tilt in domestic
power to the communists. The significant economic impact of the cam-
paign is generally understudied. Yet Japanese success reshaped the finan-
cial landscape of Free China, greatly reducing its economic base in the
final phase of the war. As Wang Qisheng wrote, “The Japanese north–
south corridor cut in half the area under Nationalist rule. One-fourth of
China’s manufacturing base was destroyed. Revenue dropped sharply
because of the loss of manufacturing and because of the Japanese occu-
pation of grain resource areas, aggravating an already desperate financial
22

THE ECONOMIC IMPACT OF OPERATION ICHIGO
situation.”16 Hunan had been a particularly important source of rice for

the Chinese military.
Earlier, the Chiang government had relegated the land tax to the
provinces, but in July 1941, Chongqing nationalized the tax and began to
collect it in kind – mostly in grain. This move reflected the weakening of
fabi and the move to a barter economy. Local army units were also given
authority to requisition grain with remuneration generally well below
market rates.17 Ichigo slashed the availability of grain to feed Chinese
soldiers. The blow to Chongqing’s already-inadequate tax revenues
occurred when the massive attacks by Japanese forces prohibited reduc-
tion in military outlays. The burden of feeding the Nationalist army fell
increasingly on Sichuan province alone.
Government deficits worsened, and inflation accelerated. In 1943, the
Guomindang government spent 58,816 million Chinese yuan, whereas
revenue excluding borrowing was only 15,882 million yuan. A staggering
42,934 million yuan was covered by borrowing. In 1944, the correspond-
ing figures were 171,690 million for expenditures, 35,609 million for
revenue, and 136,081 million in deficit spending. And for 1945, the totals
reached 1,215,089 million for expenditures, 150,061 million in revenue,
and 1,065,028 million in deficit spending. The primary source of borrow-
ing was simply bank credit.18
Even though Chinese forces did not for the most part fight effectively
against the Japanese in the response to the Ichigo offensive, just the cost
of mobilizing them increased government deficits. In the second half of
1944, the deficit increased at twice the rate of the previous six months.
And in 1945, the deficit rose 378 percent before Japanese surrender.19
Clearly, in the last months of the war, the government’s financial stand-
ing declined seriously. John Service, then Secretary at the American
Embassy in Chongqing, noted that the losses in Hunan would not only
deprive Chongqing of commodities from this area but would also disrupt
trade with the occupied areas. This was an important source for
Chongqing and was already having an impact there. “Goods show
a tendency to be withdrawn from the market for hoarding, and prices
are going up.”20
Arthur N. Young, who had a front-row seat to the crisis in Chongqing,
observed that “beginning late in 1944 the price rise became definitely
23

faster. A shock to confidence resulted from the strong Japanese drive in

the second half of that year.” By the spring of 1945, the rate of inflation was
nearly 25 percent monthly, which in Young’s view was a threshold that,
once breached, indicated that China had now passed “the almost irrevers-
ible stage of hyperinflation, and to financial collapse before war’s end.”21
Young even cites American commander General Albert C. Wedemeyer,
who commented in February 1945 that inflation “was almost as great
a threat to the U.S. Army operations in China as the Japanese.”22
Young’s price index for Free China (using January to June as a base
of 1), had reached 228 in December 1943. But Japanese success in the
Ichigo campaign created the self-sustaining surge of hyperinflation that
Young feared. The December 1944 index reached 755, the June 1945
index 2,167, and the August index 2,647. The psychology of hyperinflation
gripped China even as the empire of Japan faced its final days.23
Chiang Kai-shek himself recognized that the loss of so many productive
areas would pose a major problem for the Chongqing regime. The agricul-
tural tax and grain levies had been collected directly and distributed to the
military and to government personnel. Without the grain being requisi-
tioned from Henan, Hunan, and Guangxi to feed the vast Nationalist
military, the government would have to increase the levy in Sichuan prov-
ince. Chiang anticipated that peasant unrest might increase as the burden
became heavier. After the war, many of the local elites in Sichuan backed off
supporting Chiang even in the face of communist success.24
Perhaps the most corrosive result of the campaign was to increase
corruption in the military and to lower morale. As Chen Yung-fa noted,
“Chiang began to overlook military involvement in smuggling and com-
mercial activities, because he knew very well that the army suffered from
insufficient military budgets.” But once that process began, it was difficult
to control. “While such profits could relieve the commanding officers of
their financial anxiety,” noted Chen, “venturing into the spheres of
smuggling and commercial activities could give rise to rampant
corruption.”25 In November 1944, Weng Wenhao, in a private conversa-
tion with L. K. Little, the American who served as Inspector General of
the Maritime Customs, admitted that conditions in the Chinese Army
were much worse than when the war started. He blamed “the rise in
prices and the failure to pay troops and officers a living wage.” Weng
24

THE IMPACT OF HYPERINFLATION ON DAILY LIFE
observed that the officers “can and do squeeze and are well off, but the
troops are miserable.”26 This would be a portent of things to come in the
Civil War era. Morale among ordinary soldiers plummeted.
The inability to adequately fund the army after the retreat to the
interior meant that the government had to turn a blind eye to corrup-
tion. The officers had the authority and clout essentially to confiscate
commodities in lieu of compensation in currency. As Lloyd E. Eastman
noted, conscripts generally got only small servings of rice gruel, “because
the officers in charged had ‘squeezed’ most of the rations for their own
profit.” To draft peasants into the army, recruiters raided villages and
press-ganged recruits in forced marches to their units. Conditions were
so poor that an estimated 10 percent of those conscripted died before
they even reach their assigned units.27
Once in their assigned units, conditions were little better during the
last part of the war. Corruption led to food and money allowances for the
soldiers being siphoned off. As Eastman notes, meat, salt, and oil disap-
peared from the soldiers’ diet for months at a time. Operation Ichigo
revealed how drastically the fighting ability of the Nationalist forces had
fallen. In the fall of 1944, General Wedemeyer, then the senior American
military representative in China, realized that Nationalist forces could
not fight effectively because they were too weak to march and were half-
starved. “Chinese forces, poorly fed and badly treated, had little enthusi-
asm for combat; many deserted. Indeed, half of China’s troops – over
eight million men – simply disappeared and were unaccounted for
during the course of the war,” Eastman concludes.28
THE IMPACT OF HYPERINFLATION ON DAILY LIFE
The impact of hyperinflation on the military was the most serious issue.
But it also created many hardships in day-to-day living. For a long time,
the government refused to issue large-denomination banknotes well
after value of the existing bills was completely inadequate. It feared that
doing so would feed into the psychology of inflation. The 100-yuan note
long remained the largest denomination even as it became practically
worthless. In the summer of 1944, H. H. Kung did place an order in
Britain for 100 million 500-yuan notes. A separate large order was placed
25

in September 1944 with the American Bank Note Company. Another

New York-based firm, Security Banknote Company, shipped 22 to
23 million notes a month during most of 1944.29 People carried huge
bundles of notes even for daily purchases.
Printing the notes was also expensive. This was mostly done in the
United States or Great Britain, and then the notes had to be transported
to China, no easy task in wartime. Because there was no land route into
China until the Burma Road reopened, the notes were flown over “the
Hump” from India in the final leg. The entire process was costly. The
United States gave China a $500 million loan in 1942, but fully
$55 million were spent on banknotes, paper, and ink.30 In the nine
months through February 1943, American authorities calculated that
approximately 9 percent of the tonnage flown over the Hump into
China consisted of banknotes, space that might have carried weapons
or medicine. In October 1944, for instance, seventy tons of banknotes
were flown over the Hump. American military authorities then recom-
mended that the Central Bank of China use notes smaller in size (physic-
ally) to reduce the weight of the shipments.31
This issue continued right up until the collapse of the Guomindang
government on the mainland. Ministry of Finance officials consistently
resisted issuing larger-denomination bills fearing (correctly) that this
would lead businesses to raise prices. In his diary entry for April 21,
1945, L. K. Little observed that on his way home at noon, someone had
thrown three 1,000-yuan note bills on the street. “But nobody bothered to
pick them up. They are practically valueless. One of my secretaries said
that dollar bills are cheaper than toilet paper.”32 This would become
worse during the Civil War. By the fall of 1947, the government was
printing 300 million pieces of currency monthly.33
Wartime inflation had been a serious problem especially for individ-
uals such as teachers, bureaucrats, and military officers, who had salaried
incomes. But the seriousness of the problem increased dramatically in
the last portion of the war. Chang Kia-ngau summarized the situation by
suggesting that inflation in the war era fell into three phases. The first
one was the moderate inflation of the first two years of the war in which
prices rose 40 to 50 percent annually. “There followed a two year-year
period, ending in late 1941, in which people began to lose confidence in
26

DECLINE IN THE ROLE OF BANKS
their currency. Hoarding and speculation became widespread, and

prices increased by 160 per cent a year.” But the real crisis came after
Pearl Harbor, when the average annual price increases in Free China
topped more than 300 percent annually.34 It was no wonder that resi-
dents of Free China had few reasons to be optimistic about their own
personal situations or the likelihood that the war would end soon.
For those on fixed salaries, it became virtually impossible to remain
honest. Survival forced many into a path of corruption. A military med-
ical doctor stationed in Chongqing recalled how his military salary
became completely inadequate, so he began a side practice in private
medicine, sharing an office with a pharmacy run by two Shanghai refu-
gees. “My practice permitted me to live fairly well without succumbing to
the corruption which had become endemic to much of Chinese govern-
mental and military officialdom as the inflation made their salaries
almost worthless,” he remembered. Yet he did not really condemn
those who became corrupt. “How many men could remain uncorrupted
when their wives and children suffered actual want and opportunity
existed to succor them?” He did recall that malnutrition became
a major problem in Chongqing, as inflation made it difficult for many
families to obtain sufficient food.35
DECLINE IN THE ROLE OF BANKS
China’s modern bankers had played a significant role in the economy

in the first three decades of the twentieth century, particularly in the
east coast treaty ports. But except for the Central Bank of China and
other government banks, their role in society greatly diminished as
inflation increased. The principal commodity of banks is currency,
which under conditions of hyperinflation becomes virtually worthless.
People preferred to hold real commodities including gold, silver, jew-
elry, even foodstuffs, as well as foreign exchange, to counter the grow-
ing hyperinflation. Bank deposits steadily lost value. Only the
government banks, especially the Central Bank that held government
funds, could garner deposits. The proportion of total bank deposits
held by private banks had been 56 percent in 1932, with the remaining
portion in government banks. In 1945, that had dropped to
27

a minuscule 2 percent.36 Taking deposits from customers had simply

ceased to be a significant business practice of private banks in China by
the end of the conflict.
As Chou Shun-hsin noted, “as a result of protracted inflation, the
value of the capital assets of the Chinese banks, both private and govern-
ment, became ridiculously low in comparison with their deposit liabilities
or total assets.” In the 1930s, before the war, the ratio had been in the 15
to 18 percent range for private banks, close to the American ratio. In
1946, after the war, this had dropped to less than 4 percent. “In upsetting
the prewar capital–deposit relationship, the inflation seriously impaired
the stability of the Chinese banking system.”37 Many of the assets that the
private banks held prior to the war became virtually worthless with infla-
tion. During the 1930s, Chinese banks had purchased a substantial quan-
tity of government bonds, equaling almost 8 percent of their total
business. In 1946, the government announced that it would liquidate
all of these debts at the par value of the bonds. Since total inflation had
soared 5,712-fold from 1937 to 1946, in effect this simply canceled all of
these debts.38
So if their normal banking practices were no longer possible, how
could banks survive the war – or did they? It appears that many of the
bankers began to engage in speculation and black-market activities to
survive the war. As Chang Kia-ngau, who had headed the Bank of China
for many years, wrote in 1958, “the standards of banking had deteriorated
greatly during the war, many of the small banks having taken the oppor-
tunity to abandon approved banking practices and having become
deeply involved in speculation.”39 After the Japanese seized the “solitary
island,” a host of small new banks appeared in Shanghai, twenty-eight in
1942 alone.40 Meanwhile in Free China, the Central Bank had set the
approved rate of interest on savings deposits for commercial banks at
8.4 percent annually. Since this rate was significantly below the rate of
inflation, many of the private banks apparently offered rates set on the
black market, which necessitated engaging in unregulated activities.41
China’s banking industry was moving toward speculation and black-
market activity in occupied and unoccupied areas.
The eight years of conflict with its currency wars and hyperinflation
simply destroyed the environment in which a sound banking system
28

MAINTAINING THE EXCHANGE RATE AND RELATIONS WITH THE USA
could function. The heroic efforts of the major private bankers in devel-
oping a vital new sector of the economy had come to a halt. Yet to
a degree, most of these institutions still existed at war’s end but were
not able to contribute to any great degree to postwar recovery.
MAINTAINING THE EXCHANGE RATE OF THE YUAN

AND RELATIONS WITH THE UNITED STATES
In the four-and-one-half years from the outbreak of the Sino-Japanese

War until Pearl Harbor, the Chiang Kai-shek government had been
committed to keeping fabi convertible despite the high costs to China’s
foreign-currency reserves and suspicions that the Japanese garnered
hard currency through the “solitary island” in foreign Shanghai.
H. H. Kung, minister of finance, had been adamant in his support of
this policy and was strongly back by Chiang. Both considered it a matter
of national honor as well as a crucial weapon in the “currency wars”
between Chongqing and the client regimes established by the Japanese.
Once Chiang became set on an idea such as this, it was difficult to get him
to change his mind.
After Pearl Harbor, conditions changed dramatically, as “island
Shanghai” disappeared and Shanghai’s many banks were under
Japanese control. Even as inflation eroded the value of fabi within
China, however, Kung tried to maintain a fixed rate for foreign
exchange, although restrictions were placed on the process. Kung had
set the rate at 18.8 yuan to 1 dollar in August 1941, although this was later
adjusted to 20 yuan to 1. Other government officials, including
T. V. Soong, had argued against trying to maintain a set rate, but Kung
and Chiang insisted on the fixed rate.42 From the beginning this rate had
never been realistic – a sizable difference developed between the official
government rate and the black-market rate. As the value of fabi eroded,
the gap widened. In 1944, the market rate would reach 600 yuan to 1
American dollar; the official rate of 20 to 1 was a fantasy. Yet Chongqing
insisted on using the official rate in financial dealings with the Allies,
most notably the United States. The American military was constructing
bases and airfields in China, including the B-29 bases in Chengdu; they
agreed to compensate the Chinese government for its contribution. But
29

Chongqing calculated this using the official rate of exchange, and the
cost was staggering. The US Army estimated in early 1944 that the costs of
materials for building the air bases in China, calculated at the official
exchange rate, would be eight to ten times as expensive as building them
in the United States itself.43
China’s insistence on the official exchange rate created serious ten-
sion with its major ally, the United States. General Joseph Stilwell, no fan
of the Chiang Kai-shek to begin with, expressed his anger over the issue in
a candid conversation in September 1943 with L. K. Little, the American
who served as Inspector General of the Chinese Maritime Customs.
Stilwell noted that the United States was supplying China with millions
of dollars’ worth of goods for free, but when the US Army wanted to buy
an old truck from the Chinese in mid-September, the Chinese insisted on
the official exchange rate, which priced the item at US$10,000. A new
Buick had been offered at $60,000. If the situation continued, noted
Stilwell, China could pay back all of its debts to American “with a bag of
oranges.”44 But it was not just the top leadership that was angered by the
policy. The average GI stationed there was acutely aware of the difference
between the official rate and black-market rate of exchange.
Theodore White, a reporter for Time magazine in China, captured the
feeling in his reporting. “The extortionate exchange rate was known to
every American GI in China, who felt that America was being swindled in
the most scandalous and blatant fashion.” White felt that the Chiang
government was shooting themselves in the foot with this policy, because
it was alienating Americans who worked and served in China. In the long
run, it would damage the United States–China alliance.45 Arthur Young
wrote that insisting on the unrealistic official exchange rate created
a situation in which “it appeared that Uncle Sam was being taken for
a ride.”46
Tensions between the United States and China over the exchange-rate
issue became sufficiently serious that Washington sent Ted Acheson to
negotiate the conflict over the compensation for the air bases. Arriving in
early 1944, he offered a rate of 100 yuan to 1 dollar, which was still above
the black-market rates. Kung nonetheless rejected this rate, stating that
this would undercut the value of the Chinese yuan. With negotiations at
an impasse, the US Army adopted a policy of paying American military
30

personnel in China in US dollars. If they exchanged this for local cur-

rency on the black market, the Army would simply turn a blind eye. Most
GIs seemed to have taken that route. The US Army estimated its monthly
expenses in China to be about $17 million, but only $6 million of that was
exchanged at the official rate and $9 million on the black market.47
No matter how the American military personnel were compensated,
the introduction of American forces in China even in limited numbers
strained the economy of Free China. As Gregory Lewis noted, “the
overwhelming presence of the U.S. Army, with its extraordinary demands
to maintain living conditions, its food requirements, and construction of
four east China airfields, greatly endangered the Nationalist economy via
vastly increased U.S. dollars in circulation.”48 In an environment of
shortages of food and commodities, maintaining the lifestyle of the US
military certainly increased inflationary pressure. Madame Chiang Kai-
shek wrote to Roosevelt on February 17, 1944, making this point when
she stated, “the amount needed by the American military in China is such
an astronomical figure . . . that China’s economy cannot withstand the
strain and is imminently threatened with collapse.”49
Kung realized that the United States and also Britain were effectively
permitting their countrymen to exchange currency on the black market.
Yet he privately told American ambassador Clarence E. Gauss that he did
not object to the practice. By turning a blind eye, Kung could accommo-
date the GIs without having to publicly back down and lose face or
confront Chiang on the issue.50 Kung did agree to special arrangements
for diplomats and government officials, allowing them a 50 percent
increase in the exchange rate, which was still well below the market
rate. But this accommodated those in the American and British embas-
sies who wished to avoid using the black market.
Kung extended this courtesy rate to one other group of foreigners.
Among those who had been most supportive of China were missionary
groups who received donations from their home churches. Yet American
missionaries found that the dollars sent from home bought very little in
China when exchanged at the official rate. Kung, who had been educated
at Oberlin College in Ohio and had close ties to the missionary commu-
nity, extended the special rate to them as well. To receive the discount
rate, one had to go through the official exchange channel at the Central
31

Bank of China. Although China gained foreign exchange through this

process, it also lost foreign exchange when many foreigners went to the
black market.51
Kung’s concessions did little to ease the tension between Americans
who dealt with China and the Chiang government. Obviously key officials
such as General Joseph Stilwell were clearly alienated from Chiang. But
equally annoyed was secretary of the treasury Henry Morgenthau, who
had been an early supporter of aid to China before Pearl Harbor
(Figure 1.1). He was also very close to President Roosevelt. Increasingly,
Morgenthau saw Chiang Kai-shek as a problem in US–China relations. In
a memorandum sent to the president on June 8, 1944, he wrote that the
“difficulties of financing our military program in China began, you recall,
at the Cairo Conference, where the Chinese leader requested a $1 billion
1.1. H. H. Kung with Henry Morgenthau, American secretary of the treasury, and Elinor
Morgenthau at the Bretton Woods Conference, July 1944. Bettmann/Getty Images
32

loan.” Morgenthau had urged Roosevelt to deny the loans and noted that
“the Generalissimo in January threatened that the Government of China
would not make any further material contribution to the war effort,
including construction of military works, unless we agree to grant the
loan, or alternatively, to purchase Chinese currency at the official rate of
exchange for our military expenditures.” Morgenthau advised Roosevelt
that the official rate for the yuan was five cents, the rate set in 1941, but
that the current market rate in China was only one-half of one cent. He
told Roosevelt that Chiang was bluffing and that he should deny the
loan.52
The entire episode left a bitter taste in the mouths of many in
Washington. It fed into a suspicion that that Chiang Kai-shek was more
intent on fleecing America than being a partner. Some of this suspicion
had developed much earlier in the months before Pearl Harbor.
Roosevelt and Morgenthau wanted to shore up Chiang’s government,
seeing it as a potential Asian bulwark against the Axis. But Roosevelt was
then hamstrung by the American neutrality laws. Chiang had sent
T. V. Soong to Washington as his personal representative to arrange
a loan, but Soong’s aggressive tactics created resentment against him in
Morgenthau. Soong demanded large and unrestricted loans from the
United States, sometimes dangling the prospect of China’s concluding
a separate peace treaty with Japan.53 But ultimately, decisions were made
by Chiang Kai-shek himself. When Soong was negotiating for loans for
the Stabilization Fund in Washington in the spring of 1941, American
officials wanted to extend the loan in installments, perhaps not having
full confidence in how China might use the funds. Chiang telegraphed
Soong on April 17, 1941, that this was unacceptable. “It seems that US
Treasury Department does not trust our government. If loan is paid by
installment, China’s government’s domestic and international dignity
will be compromised. Therefore, I ask you not to sign the loan
agreement.”54 Some American officials eventually joked that Chiang Kai-
shek’s actual name was “cash my check.”
US relations with China were obviously not entirely smooth during the
war, and the exchange issue was a key reason. But another obvious factor
was the relative position of the two countries. The United States was the
dominant partner militarily and economically, and China had to
33

strategize from a position of weakness. But Chiang was sensitive to

China’s being seen as a second-class nation by the Western Powers and
could be adamant when he felt he was not being treated with dignity by
the Americans. And Chiang did have one trump card: the United States
wanted to counter Japanese arguments in Asia that they were freeing
Asians from the burden of white imperialism. Having China as a major
ally was a counter to such arguments. And since Roosevelt had created
the public image of a close alliance between the United States and Free
China, he did not want to damage this illusion.
After Acheson’s visit produced no real solution to the basic problem,
Chiang suggested that he send Kung to Washington to negotiate the
issue. Kung was actually already scheduled to attend the Bretton Woods
Conference, which would convene in July 1944. With the yuan continu-
ing to fall in value, Kung negotiated a solution to the issue in
September 1944. Yet the loss of many of the air bases to Japan during
the Ichigo offensive, coupled with the capture of the Mariana Islands in
the summer of 1944, meant that the value of using China for launching
air strikes against Japan was diminished. The interest of the American
military in building bases in China had passed.55
Arthur Young argued that the American treasury had originally been
a strong advocate of the fixed rate. But Young concluded that Chiang
suffered “from bad advice and blunders on both the Chinese and
American sides.” Both he and T. V. Soong had opposed the exchange-
control policy with a fixed rate, but the system was set up “on advice by the
American Treasury, and supported by Chiang – whom Kung convinced.”
Not only did this lead to great friction between the United States and
China over costs of the US Army in China, but China also “misused
American credits, which could have been used at a critical time to
check inflation and thereafter.”56
In examining the overall problem of maintaining a viable currency,
the approach of printing currency was not sustainable without worsening
the problem. In retrospect, the effort to maintain the convertibility of
fabi for as long as was attempted followed by the policy of an unrealistic
exchange rate was not a good use of resources. There probably were no
good answers to the economic problems China faced in World War II,
but there undoubtedly were better ones.
34

DISPUTE OVER THE SALE OF GOLD
The US Department of the Treasury was also unhappy with the Chongqing’s
government handling of the sale of gold that the United States had supplied
to China. The sale was supposed to soak up fabi and thereby reduce infla-
tion. But the Treasury representative in China, Solomon Adler, reported
from China on March 11, 1945, that the Chinese government persisted in
“selling gold at an absurdly uneconomic price.” The government refused to
change the official rate of the price of gold while the black-market price
soared. Adler believed that this was “dissipating China’s foreign exchange
assets which she will badly need at war’s end.”57 Both Chiang and Kung
believed that lowering the official rate would simply stimulate speculation.
But market forces continued to put pressure on the low price of gold in fabi
and required action by Chongqing.58
When China finally raised the price of gold on March 28, the handling
of this issue set of a firestorm of criticism in Chongqing and later in
Washington. Word of the increase leaked out to key financial officials
who purchased large quantities of the gold (an estimated 30,000 to
36,000 ounces) at the old price for a couple of days before the announce-
ment. China’s handling of the issue convinced the US Treasury that aid
sent to China was not being handled wisely.59 One rumor (unverified) was
that the wife of Yu Hongjun (O. K. Yui), head of the Central Bank of China,
had purchased 1,000 ounces of gold on March 25 for 20 million yuan. After
the increase in price, the gold was worth 35 million yuan. The Control Yuan
would investigate the incident and send a detailed report to Chiang Kai-
shek. The latter apparently blocked public release of the document in part
because it named too many “big names,” but also because it would lead to
criticism in America that China was misusing the American gold loan. That
in fact was the reaction in the United States. The Western press also
reported that much of the gold was traded to occupied China where it
would end up in Japanese hands. Kung vigorously denied these reports.60
Henry Morgenthau sent a memorandum on May 8, 1945, to
T. V. Soong outlining his objections to the handling of the program.
He very bluntly stated that:61
We believe that the Chinese Government should terminate the program of

forward sales of gold. As you know, the U. S. Treasury was not consulted
35

when this program was initiated. In view of the difficulties of shipping

gold, the limited effects of sales upon price rises in China, the public
criticism of such sales and the desirability of using foreign exchange
resources to achieve maximum effects, this program is ill-advised.
And Morgenthau was even more direct when he brought up issues of

corruption and inside trading. “It is most unfortunate that the impres-
sion has arisen in the United States that the $200 million of U. S. dollar
certificates and bonds and the gold sold in China have gone into rela-
tively few hands with the resultant large individual profits and have failed
to be of real assistance to the Chinese economy.” He also urged Soong to
crack down on speculators. “China should investigate and cancel sales to
speculators and illicit purchasers and ensure that only bona fide pur-
chasers will receive such gold as is available.”62
Within the Treasury Department, criticism was even blunter. One aide
to Morgenthau noted, “the Chinese did not consult us about these
forward sales of gold, which were obviously imprudent under the circum-
stances and designed to act as a pistol to our head.” A study by the
department concluded that “the acquisition by China of additional for-
eign exchange and the sale of gold . . . by China will have no discernible
effect in halting inflation.”63
Soong reacted angrily to Morgenthau’s implied threat to halt ship-
ments of gold. In a May 9, 1945, meeting with Morgenthau at the
Treasury Department, Soong basically delivered an ultimatum. “Unless
the promise made by President Roosevelt and the Treasury to make gold
available is fully implemented, a disastrous financial collapse in China is
plainly indicated, which will inevitably be followed by a military collapse.”64
Soong’s implied threat led the US to agree to supply the gold with ship-
ments in May and June of 1945.65 But in the confidential exchange on
May 9, Morgenthau was more understanding of Soong’s position. “In this
room we are among friends. Certain things happened when you were not
in control,” Morgenthau stated. He noted that so far the scandal of the
gold sales had only been circulated in the State Department and Treasury,
but he feared the press might write about it. Soong admitted that there was
faulty handling of the situation in the past. “The date after the price of gold
was put up, I went to see the Generalissimo and told him we ought not to
36

be ashamed to order an immediate investigation. If there is anything

wrong, we ought to rectify it right away.”66
Soong stated that when the credit was first arranged in 1943, the price
of the certificates sold in China was in line with the market rate. “Later,
when they stuck to the stupid rate of 20 – 1, of course the situation is
different,” noted Soong.67 Morgenthau had assured Soong that the
Treasury was prepared to meet its commitments to deliver the gold, but
Soong was not convinced. He tried to reach America’s new president
Harry Truman. On May 16, 1945, Morgenthau met with Truman and
then held a brief and less pleasant meeting with Soong. Soong wanted to
speed up shipment of the American gold.68
Soong had appealed directly to secretary of state Edward Stettinius. In
a memorandum of April 20, 1945, he stressed that “the continued sales of
gold will be the most important single factor in blotting up large issuance of
banknotes,” a complete rejection of the arguments from Morgenthau. He
was obviously attempting to get the State Department to pressure the
Treasury. Roosevelt had promised China that US$200 million of
the $500 million of American aid to China pledged in 1943 was to be in
the form of gold, Soong stated, a promise “made with knowledge of the
Secretary of the Treasury.” Yet only US$7 million of the gold had been
shipped, creating the possibility that China might default on payments to
those who had purchased gold futures.69
Morgenthau yielded and had the gold shipped, but he did not modify
his criticism of the process. In a letter of May 16, 1945, drafted after their
meeting, he acknowledged that the shipments would be forthcoming,
but he reminded Soong that the purpose of the financial aid was to assist
the anti-inflationary program of the Chinese government, and “in my
opinion the sale of gold by China has not proved effective in combating
inflation, and I am doubtful that it will prove effective.”70 But in his
earlier meeting with Truman, Soong had pledged that problems in the
handling of gold shipments to China would be corrected. At the meeting,
the American side brought up criticisms of the procedures for the sale of
gold in China coming from the Chinese People’s Political Council, and
Morgenthau bluntly suggested that forward sales of gold be stopped.
Soong again completely rejected that suggestion and stated that he had
initiated an investigation in the issue.71
37

In fact, the Central Bank in Chongqing had commitments to deliver

gold to different banks there on April 20, but the last shipment from
America had not yet reached India. Yu Hongjun frantically cabled Xi
Demou in America that he must alert H. H. Kung of the crisis. “Since this
reflects [the] credit of our government I feel much concerned and
distressed.”72 In what would be the final months of the war, China drew
on the remaining portion of the $500 million credit of March 1942 to
purchase $60 million in gold on May 22, 1945, another $60 million on
June 12, and a final $60 million on July 27.73 The Americans delivered the
gold as promised, but the damage to relations between Soong and
American treasury officials was already done. Yet Truman was not willing
to have a public blowup with China as he was moving into Roosevelt’s
shoes.
In March of 1945, Arthur Young was in America seeking medical
treatment but also trying to arrange for America to ship gold and con-
sumer goods to China. Young was anticipating the recovery and opening
of a port on the east coast of China and wanted to bring in goods and gold
to help bring prices and inflation under control. But in a frank letter to
the head of the Central Bank of China, Yu Hongjun, to whom Young
directly reported, he wrote, “obtaining goods will be easier if American
authorities can be satisfied that adequate provision is made in China to
distribute the goods so that they will go into consumption and not into
the hands of speculators or to be sold at cheap prices to those who could
resell in the market at excessive profit.”74 Clearly, many American author-
ities had developed deep concerns about the Chinese leadership.
Morgenthau’s warning that the American press would pick up on the
scandal was accurate. Chiang Kai-shek’s government had strictly cen-
sored news of the scandal from getting out of Chongqing when the
story broke in March. But by May, the situation had changed. A May 14,
1945, broadcast by Raymond Swing revealed details of the scandal taken
from the Dagong bao and the Xinmin wanbao in articles published in late
March. He noted that when the four government banks were informed of
the plan to raise the price of gold, “there was an immediate leak of the
news and a wild scramble for profits.” The Dagong bao noted that the gold
had been supplied by the United States as a friend and ally and had been
shipped in other people’s planes and by their sweat and labor. “But no
38

sooner had it got to China than it was sold in such a manner as to

stimulate the black market and speculation.”75 The source of the news
leak was T. V. Soong himself, who spoke with Mr. Swing and informed
him of the March incidents. Why had Soong done this? Soong included
the pledge that the government had made to punish anyone responsible.
So perhaps he suspected that information on the scandal would get out
and hoped to deflect criticism. But it is also possible that Soong sought to
embarrass H. H. Kung, head of the treasury, and Yu Hongjun. As is noted
later in this study, Kung and Soong developed quite a rivalry.76
The relationship between the United States and the Chiang govern-
ment had developed a very troubling dynamic. As an ally, the United
States provided financial and military aid to China, but American officials
such as Morgenthau became very suspicious of how this money was used
by the Chongqing government. Consequently, they began to demand
strings be attached to the various loans and grants in guarantee that the
money was spent in a way satisfactory to Washington. Chiang felt this was
a blow to his dignity and to the position of China and stated so vigorously,
sometimes through Kung or Soong. Yet this stand increased suspicion in
America about the disposition of funds sent to China. This dynamic
continued and worsened during the Civil War period.
In November 1943, President Roosevelt hosted representatives of
forty-four countries at the White House to consider the rehabilitation
of Allied countries who had suffered during the war. Eventually known as
the United Nations Relief and Rehabilitation Administration (UNRRA),
it would distribute billions of dollars in humanitarian aid to Allied
countries after the war. The Big Four Powers would serve on a council
to administer the program. The United States was the dominant sponsor,
with additional funds from Britain and Canada, while China would be the
largest recipient of aid. Yet from its inception, the mutual distrust of
financial officials in Washington and Chongqing would set up a scenario
that would fester during the Civil War period. Chiang wanted to control
the use of the funds in China, making certain that none went to the
communist areas. The Chinese National Relief and Rehabilitation
Administration (CNRRA) was established in January 1945 to filter
UNRRA aid through a Chinese political organization. Mutual distrust
between the two sides hampered China’s recovery and cost China
39

support in Washington. The seeds of this tension were planted even

before Japanese surrender.77
As the war came to a sudden end in August 1945, the Chongqing
government was ill prepared to make the transition to a stable peacetime
economy and currency. The military failures of the late war period and
the loss of much of its already inadequate income led to a rapid acceler-
ation of hyperinflation. And Chongqing’s policies had alienated the
major financial officials of the one foreign power that could have pro-
vided meaningful help. American support for Chiang would later
become virtually unconditional. But this was after the communist victory
of 1949 and when the right wing of the Republican Party had begun to
attack President Truman as “soft on China.” In the aftermath of Japanese
surrender, American attention focused on Europe and occupied Japan.
American financial officials had less enthusiasm for shoring up the
Nationalist government’s sinking currency.
40

CHAPTER 2
Hyperinflation and the Rivalry between

T. V. Soong and H. H. Kung
F or twelve years, from the summer of 1937 through

the end of 1949, inflation and then hyperinflation ravaged the
Chinese economy. This was not the only factor that led to the ultimate
defeat of Chiang Kai-shek, but it was certainly a major one. Normal
economic activity could not occur under such strained conditions. In
the last months of this era, news photos showed Chinese taking wheel-
barrows full of cash to go shopping for everyday items. Morale among
both the civilian and military components of the Chiang regime fell
steadily, as did its international prestige. In April 1946, for instance,
professors at three major Shanghai universities – Fudan, Jiaotong, and
Tongji – went on strike, complaining that their salaries had fallen well
below the average for rickshaw pullers.1 In August 1946, a professor at
Southwest United University (Lianda) in Kunming calculated that the
real value of salaries of professors at the institution had fallen by 98 per-
cent since the start of the war against Japan.2 While salaries of govern-
ment officials were increased on a regular basis during this era, Suzanne
Pepper wrote, “these adjustments never corresponded to the actual rise
in the cost of living and so did little to alleviate the impoverished condi-
tions of teachers and civil servants whose real income remained in most
cases insufficient to maintain their basic livelihood.”3
Rightly or wrongly, the blame for this situation has often fallen upon
T. V. Soong (Song Ziwen) and H. H. Kung (Kong Xiangxi). Together,
the two men dominated key financial positions in Chiang Kai-shek’s
government from 1928 until 1949. Both at the time and in historical
writing, they were deemed the architects of China’s financial policies
during the years when Chiang ruled on the mainland. After T. V. Soong
41

HYPERINFLATION AND THE RIVALRY BETWEEN SOONG AND KUNG
joined with Chiang in 1928, for instance, he served as minister of finance

and later head of the Central Bank of China until resigning in
October 1933, after which he still held several positions including leader
of the Bank of China from April 1935 until 1943 (Figure 2.1). In
a semiofficial capacity, he established the China Development Finance
Corporation (Zhongguo jianshe yin gongsi) to organize economic
projects.4 The agency put together financial packages for a variety of
companies that became identified with Soong and his family. The board
of directors of affiliated companies was usually headed by Soong or one
of his brothers or Xi Demou, father-in-law of T. L. Soong (Song Ziliang)
or Hu Yuzhang, father-in-law of T. A. Soong (Song Zi’an). The family
identification was strong.5
Soong’s activities blended into the private sector of the economy. In
April 1937, for instance, T. V. became a partner and member of the board
of directors of the Nanyang Brothers Tobacco Company, one of the
largest Chinese-owned enterprises. During wartime, Soong played an
2.1. T. V. Soong, brother of Madame Chiang Kai-shek. Pictures from History/Universal

Images Group/Getty Images
42

even larger role as Chiang’s personal representative in Washington from

mid-1940, and he served at times as minister of foreign affairs and head of
the Executive Yuan. Even in that position, he focused on economic issues,
as one of his major tasks was to gain financial support from America and
Britain for China’s war effort. He resigned as head of the Executive Yuan
in March 1947 in part in response to the financial crisis and under heavy
criticism within the Guomindang itself, but Soong remained active in
determining Chinese financial policy until January 1949 when he
departed China for the United States.6
H. H. Kung held a similarly impressive list of positions in the
Guomindang government. He joined with Chiang in 1928 to become
minister of industry and commerce and assumed control of the ministry
of finance following Soong’s resignation in October 1933, a position he
would hold for over a decade. He traveled to Europe and America in the
spring and summer of 1937 seeking foreign assistance even as war broke
out. In the summer of 1944, he represented China at the Bretton Woods
Conference, which established the postwar economic regime
(Figure 2.2). But Kung resigned these positions in May and June of
1945 and moved to the United States in 1948.7
These two men thus dominated key positions in finance and banking
during the Chiang era. Their prominence meant that they became
linked to the spectacular failure of fabi during the twelve years of war
from 1937 to 1949. Fabi itself had been created in 1935 when H. H. Kung
was minister off finance, so he was identified with the policy from its
inception.
Yet the high profiles of Kung and Soong were not simply a matter of
their official positions in government but also because of their family
connections to Chiang Kai-shek, who was also known as the
Generalissimo. Authority in the Guomindang government ultimately
rested with him. The actual power wielded by an individual who was in
a position such as minister of industry or head of the Executive Yuan was
far more dependent on his relationship to Chiang than on the office
itself. Kung and Soong always carried both authority and responsibility
associated with their family connections rather than just their formal
positions in government at any particular moment.
43

2.2. H. H. Kung with John Maynard Keynes at the Bretton Woods Conference in July 1944.
Bettmann/Getty Images
This was amply illustrated when Chiang sent T. V. Soong to the United
States as a personal representative during the war. Arriving before Pearl
Harbor and seeking to gain support, particularly financial support, from
America, Soong immediately superseded the Chinese ambassador and
foreign affairs staff in the United States. Officials in Washington dealt
with Soong as Madame Chiang’s brother, someone with a direct line to
the Generalissimo. Soong thus assumed responsibility for a wide range of
issues unrelated to any formal position in government.8 A brief look at
the telegrams between Chiang and Soong held at the Hoover Institution
at Stanford University reveals this clearly.
During the war, most of the banknotes used in China were printed in
the United States and shipped to China. When Pearl Harbor occurred,
Soong was immediately concerned about the supply of notes and tele-
graphed Chiang on December 12, 1941, asking about the inventory. If
44

the need for more was urgent, Soong was concerned about alternate
transport routes in view of the eruption of war. On December 24, 1941,
he telegraphed Chiang that he had arranged for a shipment in the
Philippines to be burned as it became clear that they would fall into
Japanese hands.9 Soong’s quick action on this matter occurred not
because of his actual position in the Chinese government – he was not
minister of finance – but because of his status as Chiang’s personal
representative and brother-in-law.
Even outside factors magnified Soong’s role. Prior to Pearl Harbor,
American secretary of state Cordell Hull was very concerned about alien-
ating Japan and reluctant to take any action which might appear to aid
China. Meanwhile, President Franklin Roosevelt habitually bypassed the
Department of State, often using personal envoys or informal contacts to
conduct foreign policy.
Roosevelt’s approach was particularly notable during the period
before Pearl Harbor. He was concerned about the fate of China and
wished to help but was limited by American neutrality laws and isola-
tionist sentiment in the US Congress. A foretaste of what was to come
occurred shortly after Roosevelt’s inauguration. At that point, the
United States did not have diplomatic relations with the Soviet
Union. Worried about potential German and Japanese aggression,
Roosevelt felt that the United States should open channels to
Moscow. The secretary of state Cordell Hull and much of the depart-
ment’s establishment remained firmly opposed to the move. Rather
than challenge them directly, Roosevelt established a back channel.
He turned to Henry Morgenthau, Jr., a political and personal associate
from New York state whose wife was also close to Eleanor Roosevelt.
Morgenthau was then governor of the Farm Credit Administration.
The president had Morgenthau open discussions with a Soviet diplo-
mat in Washington on the pretext of the sale of American agricultural
products to the Soviets. These moves eventually led the State
Department to get on board and diplomatic ties were established.10
In November 1934, Roosevelt appointed Morgenthau as secretary of
the treasury.
Roosevelt wanted to show some support for China as Japanese
increased their pressure. The Chinese had moved off the silver
45

standard in 1935 and issued the fabi. Roosevelt had Morgenthau

receive a Chinese delegation led by the banker Chen Guangfu to
discuss American purchase of Chinese silver, which would shore up
the Chinese currency. Morgenthau agreed to have the Treasury pur-
chase Chinese silver monthly for the remainder of 1936. Both
Morgenthau and Roosevelt wanted to encourage China to resist Japan
and acted despite reluctance from the American State Department.11
Later, when H. H. Kung arrived on June 30, 1937, Roosevelt urged
Morgenthau to show support for China to boost Chiang Kai-shek as
well as Kung. On July 8, Morgenthau told Kung that the United States
would purchase 62 million ounces of Chinese silver at forty-five cents
an ounce. Neither man realized that the clash at the Marco Polo Bridge
(Lugouqiao) the previous day would herald the start of war.12 In both
cases, Roosevelt bypassed the State Department, which advocated
a more cautious approach to China.
The eruption of war between China and Japan in 1937 – though
undeclared – would severely hamper Roosevelt and Morgenthau in
their efforts to shore up China and skirt American neutrality laws.
Nonetheless, the Treasury extended its silver-purchase agreement and
allowed China to receive dollar credits against gold held in America.
Roosevelt basically pushed the limits of the neutrality rules, side-
stepping the State Department.13 But Morgenthau had soured on
Soong by 1944 and 1945. But when T. V. Soong first arrived in
Washington as Chiang’s personal representative, he found a situation
where he could use personal diplomacy with Morgenthau. The latter
was a supporter of China, following Roosevelt’s lead. The Chinese
diplomatic staff in the United States dealt with the more hostile State
Department.14 China’s connections to America were thus forged
through finance, highlighting the role of both Kung and Soong in the
process. Since this was a foreign policy issue but handled on both the
American and Chinese end by Soong and Kung as financial leaders, this
increased their role. In particular, T. V. Soong learned to manipulate
bureaucracies in Washington and proved invaluable for Chiang.15
Eventually Soong’s aggressive tactics would alienate many in the
American government, particularly at the War Department and finally
even the Treasury. But Soong fought hard for China.16
46

AMERICAN TIES
AMERICAN TIES
One striking feature of the political leaders who directed China’s war-
time finances, as well as key figures in banking and government who were
often indirectly involved in financial policy, was the high proportion who
had an American education. The most famous group, of course, was the
Soong family, the six children of Charles Soong, who himself had gradu-
ated from Vanderbilt University in the United States (Figure 2.3). The
two oldest sisters, Soong Ai-ling and Soong Ching-ling, both attended
Wesleyan College in Macon, Georgia. Ai-ling married H. H. Kung (Kong
Xiangxi), who attended a missionary school followed by study at North
China Union College, a school near Beijing. He later graduated from
Oberlin College in Ohio and received an MA in economics from Yale
University. Ching-ling of course married Sun Yat-sen, leader of the
Nationalist Party until his death in 1925. The youngest sister Mei-ling
(Madame Chiang Kai-shek) lived in Macon as a teenager and then later
graduated from Wellesley University near Boston, where she moved to be
close to her brother T. V. Soong (Song Ziwen), who graduated from
Harvard University. The second son, T. L. Soong (Song Ziliang),
attended his father’s alma mater of Vanderbilt, and the youngest,
T. A. Soong (Song Zi’an), attended Harvard.17
Yet the circle of those with an American education was much wider.
Chen Guangfu was a famous commercial banker in China who
founded the Shanghai Commercial and Savings Bank. He had an
extensive education in the United States, studying at Simpson
College in Iowa and Ohio Wesleyan University. Following that, he
received a degree in business from the Wharton School at
Pennsylvania University, one of America’s most prestigious business
schools. Perhaps because of his American training, the Chinese gov-
ernment often prevailed on him to lead delegations to America. In
1936, for instance, he led a group of Chinese to Washington to try to
persuade the government to modify its silver-purchase policy. In late
1938, he went back to attempt to arrange a loan based on tong oil
exports, and in April 1940, to facilitate a loan based on tin exports
from Yunnan. These were but the first of many trips that obviously built
on his American connections.18
47

2.3. Charles Soong (Song Jiashu) with members of his family in Yokohama Japan,
August 25, 1914. Back row: T. L. Soong (Song Ziliang), Charles Soong, H. H. Kung
(Kong Xiangxi). Front row: T. A. Soong (Song Zi’an), Soong Ching-ling (later Madame
Sun Yat-sen), Madame Soong (Ni Guizhen), and Soong Ai-ling, who would soon marry
H. H. Kung. Not in Japan: T. V. Soong and Soong Mei-ling (the future Madame Chiang Kai-
shek). Pictures from History/Universal Images Group/Getty Images
Yu Hongjun (O. K. Yui) began his Western-based education at St. John’s

in Shanghai and later studied at the University of Michigan, where he
worked with the economist C. F. Remer. He served as vice-minister of
48

AMERICAN TIES
finance under H. H. Kung from June 1941 to November 1944 and then
later as minister of finance himself. In 1945, he also served as governor of
the Central Bank of China.19 Wu Guozhen (K. C. Wu) was not really
a financial official but served in several positions, including mayor of
Shanghai in the Civil War period – a job that put him at the forefront of
dealing with inflation. A graduate of Qinghua University, he received an MA
from Grinnell College in Iowa and then a doctorate from Princeton
University in 1926.20 Even those without formal training in the United
States often had extensive experience there. Li Ming, a major private
banker and founder of the Zhejiang Industrial Bank, studied at an academy
in Hangzhou operated by Southern Baptist missionaries before going to
Japan to study. Yet he spent much of World War II (March 1941 to 1945)
living in the United States and was a member of the Chinese delegation to
the Bretton Woods Conference.21 But these individuals are only a few of
those with educational training in the United States.
China’s most famous diplomat during these years was V. K. Wellington
Koo (Gu Weijun). Koo attended St. John’s Academy in Shanghai before
going to the United States and studying at Columbia University in
New York. He finished his undergraduate degree in 1908, a master’s
degree in political science in 1909, and doctoral degree in 1912. His
fluency and speaking proficiency in English was so great that as an
undergraduate he won the Columbia-Cornell Debating Medal.22 Shi
Zhaoji (Alfred Sze), another diplomat who served in Washington during
the war, had studied at St. John’s in Shanghai before being appointed
a student interpreter for the Chinese minister to the United States. While
in Washington, he enrolled and graduated from Central High School
and later studied at Cornell University, graduating in 1901 and receiving
a MA degree in 1902. He served in Washington during the war, and after
Pearl Harbor he handled procurement of weapons from America as vice-
chair of the China Defense Supplies Commission.23
What impact did American education and training have on the rela-
tionship between Chinese and Americans regarding financial and bank-
ing policy? Perhaps the important factor was that, in negotiating with
American leaders, those Chinese officials with an American education
could usually converse in English without having to use an interpreter.
That advantage was almost entirely one-sided, as few American leaders
49

spoke any Chinese or had lived in China to any extent. Even in high-level
talks where translations were needed, Americans often relied on those on
the Chinese side who were bilingual. When Vice-President Henry
Wallace visited China, for instance, T. V. Soong traveled with him during
the entire visit and translated when needed.24 Soong seemed to have
preferred to use English even with Chinese officials. Wu Guozhen, who
often worked with Soong, serving for a time as vice-minister of foreign
affairs and who had done his graduate work in America, recalled that
Soong talked to him in English. Wu’s recollection was that Soong spoke
Shanghai dialect but that his Mandarin was not so good.25 One of
Soong’s major enemies within the Guomindang, Chen Lifu (part of the
C. C. Clique with his brother Chen Guofu), put a much more negative
spin on the issue. “T. V. Soong had come from abroad, possessed little
knowledge of the Chinese language, and used English in his daily deal-
ings and also in written communication,” Chen wrote in memoirs pub-
lished after 1949.26
The routine use of English among the top leadership of the ministry
of finance meant that the American adviser Arthur N. Young could play
a more active role than might have otherwise occurred if translations
were always required. Arthur Young had served as an economic adviser in
the US Department of State from 1922 to 1928, providing advice to
American minister Jack MacMurray when he was negotiating an agree-
ment on tariffs with T. V. Soong, then minister of finance in Nanjing in
1928. That encounter led Young to join a commission of financial experts
to China headed by Edwin W. Kemmerer, who had been Young’s gradu-
ate professor at Princeton University. When the commission’s visit
ended, Soong invited Young to stay on as an economic adviser to the
Nationalist government, a task which lasted almost twenty years. With
connections in the State Department and an Ivy League education that
he shared with many of the top Chinese leaders, Young became a bridge
between the United States and China. In a period when China needed
American economic support, Young played a vital role.27 The British
adviser Cyril Rogers was in a similar situation. In August 1946,
T. V. Soong invited him to take a leave from the Bank of England and
become an adviser to Bei Zuyi at the Central Bank with the particular
responsibility for aiding currency stabilization.28
50

AMERICAN TIES
Experience in America could be very useful when determining how to

deal with American visitors and officials. Many Chinese lacking such
experience often found the behavior of Americans baffling. But some-
one such as Soong Mei-ling or her brother T. V. Soong, with varied and
lengthy exposure to American society, was in a good position to “size up”
an American official. Many of the Americans concerned with Chinese
affairs came from a missionary background. They were usually deeply
religious, more commonly from the Midwest, and often abstained from
alcohol. By contrast, those from a business or banking background were
more likely to be from the coasts, less straitlaced and more likely to enjoy
alcoholic beverages. T. V. Soong would frequently present a bottle of
Scotch to visitors to China in the latter group, knowing that the gift would
be appreciated. Later when he moved to the United States after 1949, he
would often send such a gift at Christmas time.29
Soong Mei-ling was known to turn on the charm and virtually flirt on
occasion with American envoys such as Wendell Wilkie, who was particu-
larly impressed (Figure 2.4). Claire Chennault was also a great fan.30
When Roosevelt sent personal envoys to China, Madame Chiang usually
2.4. Chiang Kai-shek with the Soong sisters in 1942. From the left: Madame Chiang Kai-
shek (Soong Mei-ling), Madame H. H. Kung (Soong Ai-ling), Chiang Kai-shek, and
Madame Sun Yat-sen (Soong Ching-ling). Bettmann/Getty Images
51

sat in on the meetings. Lauchlin Currie, an economist and aid to

Roosevelt, made his second trip to China in the summer of 1942 (this
time officially representing the United States). He had ten different
meetings with Chiang Kai-shek, all attended by Madame Chiang.31
Finally, many of the Chinese who had studied in the United States had
attended elite colleges such as Harvard or Yale for men and Radcliffe or
Wellesley for women. In the prewar and wartime era, the number of
people with a college education in the United States was much lower than
today. To a considerable degree, top positions in government, banking,
and business were dominated by those with Ivy League educations. Many
Chinese with backgrounds in the same institutions could use school ties
as part of the socialization with their American counterparts. There were
exceptions, including prestigious liberal arts colleges like Grinnell
College in Iowa, the alma mater of Wu Guozhen as well as Harry
Hopkins, one of Franklin Roosevelt’s closest associates and generally
considered a friend of China.32
These connections provided Chinese officials with a major advantage
when dealing with their American counterparts. Yet despite this, major
conflicts developed between the two allies that led to considerable ten-
sion. Individuals such as Morgenthau, who had been considered in the
China camp early on, became hostile to the Chiang government because
he disagreed with Chinese policies on the exchange rate and the sale of
gold by China, among other items. Ultimately, decisions were made by
Chiang Kai-shek, who did not have experience in America.
Most of the American-educated Chinese officials recalled fondly their
college days there and had close friendships with some of their fellow
classmates. But there was certainly a dark side to studying in America.
Anti-Chinese racist sentiment was widespread and had deep roots. In the
late nineteenth century, “white supremacist politicians routinely used
racial arguments to justify the Chinese Exclusion Act of 1882,” noted
Charlotte Brooks. “The racism that these Chinese encountered almost
everywhere in the United States deeply shaped their ideas about . . .
Chinese identity in general.”33 In encounters with immigration officials,
government bureaucrats, landlords, police, and others in almost any
situation, ethnic Chinese would encounter racism in America. The
1924 Immigration Act, which banned Asians, made explicitly clear that
52

TIES TO CHIANG: THE DOWNSIDE
the United States did not welcome Chinese. “Racial discrimination in the
United States meant that full membership in the American nation
remains elusive of all but white citizens,” Brooks noted.34
In dealings with Americans in China, many who returned from
sojourns in the United States were particularly sensitive to slights. This
occurred even at the top levels. In 1943, Madame Chiang Kai-shek made
a triumphal visit to the United States with speeches to Congress and
large public gatherings. Her trip was designed to garner public support
for China. Some Chinese groups in America hoped that she would raise
the issue of discrimination against Chinese. She largely refused to do
this because she felt that it would detract for the key purpose of trip,
getting American support for China. But as Grace Huang noted, “no
matter how Americanized Mme. Chiang and her siblings appeared to
be, they had also been on the receiving end of discrimination during
their years in the United States.” In a speech that she made to a Chinese
audience in Chinatown in New York, Madame Chiang noted that as
girls, she and her sisters were not allowed to attend the public, white
schools in Georgia. They were tutored in the home of their white host
family.35
After World War II when extraterritoriality was gone, many Americans
and British were slow to recognize the new reality. They often found
Chinese officials, even those with substantial experience in America,
hostile and nationalistic when they were not pliant in dealing with their
more powerful allies. Close familiarity and shared goals often masked
a prickly relationship.
T. V. Soong and H. H. Kung held much of their status in the Nationalist

government because of their personal connections to Chiang Kai-shek. But
close family ties to Chiang had a downside. Chiang had a ferocious temper
and could be very stubborn. Perhaps the most famous example of this
occurred when Zhang Xueliang, vice-commander of Chinese forces, placed
Chiang under house arrest in the Xi’an Incident in December 1936. After
Chiang negotiated with the Chinese Communists, Zhang released him and
as a measure of good faith flew back to Nanjing. Chiang promptly had him
53

placed under house arrest and kept him there. He remained a captive in
Taiwan when Chiang died in April 1975.
Soong clashed with the volatile Chiang on occasion, often with disas-
trous results for Soong. When he returned from Washington in 1943,
notes Chinese scholar Wu Jingping, he had a heated argument with
Chiang in mid-October regarding the position of General Joseph
Stilwell. Soong had worked assiduously in Washington to get Stilwell
recalled, which had been in accordance with Chiang’s wishes when
Soong left China. But in the meantime, Chiang, perhaps influenced by
Madame Chiang Kai-shek and her sister Soong Ai-ling (Madame
H. H. Kung), had decided that he should retain Stilwell in part to deal
with Lord Louis Mountbatten, then in charge of the newly created
Southeast Asia Command. After an exchange that featured smashed
teacups, a furious Chiang completely shut Soong out of government for
several months. As Hsiao-ting Lin noted, Chiang labeled Soong “per-
verse, violent, foolish, and treacherous” in his personal diary. Soong had
been handling China’s relations with the United States and other coun-
tries from Washington, but now Chiang sent Kung to the Bretton Woods
Conference in June 1944 even though Soong might have been a better
representative.36
Soong’s sudden fall from grace caught many foreigners who dealt with
him off guard. When Lord Mountbatten visited Chongqing for five days
in late October 1943, he found Soong “indisposed” and unavailable.37
Soong’s adviser, Dr. Ludwig Rajchman, telegraphed Chongqing in
December 1943 trying to find out when Soong might return. But
T. V. could only reply cryptically: “shall communicate with you in a few
weeks. Warmest regards.” He was confined to Chongqing and stripped of
his political role.38 Soong was not above trying to manipulate Americans
to help his position. On November 11, 1943, he telegraphed Shi Zhaoji
(Alfred Sze) in Washington requesting that he discreetly approach Harry
Hopkins, Roosevelt’s trusted adviser, and ask him to provide an endorse-
ment of Soong.39 Meanwhile, Soong was missing in action at the Cairo
summit, where Chiang met with Roosevelt and Churchill. Chiang appar-
ently was not well prepared for the meeting, perhaps in part because
Soong did not assist in preparations and Chiang had to rely on working
with Stilwell, which did not go smoothly.40
54

American leaders, many of whom preferred to work with Soong

perhaps because he was more American in approach and personality
than other Chinese officials, speculated about the source of Soong’s
problems. In a memo of March 7, 1944, John Service suggested that
several factors led to the split between Soong and Chiang, including
a personality clash, his failure to deliver sufficient American aid, his
independence as foreign minister, and his failure to provide adequate
help for Madame Chiang on her American visit. Service felt that his
criticism of China’s economic policy had alienated Soong Ai-ling and
her husband H. H. Kung. Ultimately, he felt that the break was really
a confrontation over control of finance and economic policy. At that
point, Kung seemed to have gained the upper hand in control over
government banks and government trading companies.41
A memorandum prepared by the Division of Chinese Affairs of the US
Department of State for the secretary of state on May 11, 1944, notes that
“although many stories indicating that T. V. Soong’s difficulties in
Chungking [Chongqing] have been occasioned by the Generalissimo’s
displeasure with some aspects of his work as Foreign Minister, it is
believed that rivalry in the economic field between Soong and Kung
accounts for Soong’s difficulties.” The report noted that Kung had man-
aged to grab leadership of the board of directors of the Bank of China
from Soong and that “the current attack on Soong should be regarded
primarily as a move by Kung, supported by Chiang, to divest Soong of his
economic influence.”42
Of course, not all American officials were so enamored of T. V. Soong.
His aggressive tactics in Washington had annoyed many in the War
Department. Soong rarely like to go through “proper channels” and
preferred to use personal connections. When Lauchlin Currie made
his second trip to China in the summer of 1942, he alerted Chiang Kai-
shek to Soong’s behavior. Soong, he noted, “has resorted to bargaining
and pressure which has caused estrangement of relations with the War
Department. . . . For nine months Dr. Soong did not co-operate with the
War Department but went in round-about ways.” On the issue of defining
the exact position of Stilwell, Soong had not been pleased with the attitude
of the bureaucrats, so “he went to the President direct. The President
made verbal promises. Subsequently I wired to the President and in his
55

reply to me he adhered to his first reply to the Generalissimo which was

worded by the War Department. This is Dr. Soong’s peculiar way of
approach.” Currie told Chiang that Roosevelt was annoyed by Soong’s
behavior in this instance. “I hated to say anything on this personal matter
in as much as Dr. Soong represents you. His present attitude is disadvanta-
geous to China as well as injurious to the relationship between our coun-
tries.” Currie contrasted the Chinese approach to that of the British, who
worked through channels to receive Lend Lease aid and did not go directly
to the President.43 When Chiang has his big fight with Soong a few months
later, he was thus aware that Soong had made enemies in Washington.
Currie gave one other example. Chiang had not been happy with the
tonnage of war supplies being shipped to China. In Currie’s view, the proper
response would have been to approach the War Department. But Soong was
a member of the Pacific War Council that met frequently, with Roosevelt
attending. He brought up the matter there, forcing the President to refer it
back to the War Department, which further soured relations. Finally, Currie
mentioned that regarding Stilwell, Soong had only wired Chiang a summary
of his exchange with the War Department, not the full text. “I would have
given great assistance to T. V.,” Currie noted, “but he did not wish it.”44
Yet despite Soong’s problems in Washington, by December 1944,
Chiang decided he needed Soong and his connections to the American
leadership. Perhaps Chiang concluded that “the squeaky wheel gets oiled.”
Britain could go through channels to get aid because it was America’s top
priority. China had to fight to receive aid, and perhaps Soong’s style was to
be successful in the long run. Soong was appointed acting president of the
Executive Yuan. As Soong noted in a telegram from Chongqing to an
assistant on February 6, 1945, “my position in government has been
thoroughly consolidated and I possess more authority than ever before.”45
Yet troubles persisted between Soong and Kung. In April 1944, John
Service, then second secretary at the US embassy in Chongqing, detailed
a report from a Chinese source about a heated and very personal
exchange between Kung and Soong at the April 4, 1944, meeting of the
Executive Yuan, which revealed Soong to have been frank to the point of
rudeness in attacking Kung.46 Foreigners were not the only ones to
witness the bad feeling between the two men. Wu Guozhen served for
a time as vice minister of foreign affairs. At that point, Chiang Kai-shek
56

was head of the Executive Yuan but seldom attended, so H. H. Kung, the
vice-head, presided. Soong then rarely came to the meetings but sent Wu
instead. As foreign minister, Soong sent foreign policy updates to Chiang
but did not include Kung.47
Wellington Koo attended a dinner party at the Kungs’ home in
Chongqing in mid-January 1943, which was being given for
T. V. Soong, who was returning to the United States. When Koo
raised the issue of a loan from Great Britain that he was currently
negotiating, the two men immediately began bickering over the terms
of the loan, the amount, and its potential use. Soong seem to belittle
Kung’s lack of understanding of the use of a loan in pounds sterling.
Koo realized that the two men were sharply at odds and “it also
[pointed up one of the reasons why] I had been experiencing diffi-
culties in handling the negotiations.”48 The dispute between the two
men impacted the work of other government officials.
Most famously, after American vice-president Henry Wallace visited
China, he prepared a report for President Roosevelt and commented
directly on this issue. “It was significant that T. V. Soong took no part in
the discussions except as interpreter,” observed the vice-president. Away
from Chongqing, Wallace found him very outspoken. Soong “said that
Chiang was bewildered and that there were already signs of disintegra-
tion of his authority.” Wallace concluded that “Soong is greatly embit-
tered by the treatment received from Chiang during the past half year.”49
In October 1944, John Carter Vincent of the Division of Chinese Affairs
in the State Department reported that relations between Chiang Kai-shek
and the then-American ambassador C. E. Gauss were not good. One key
factor is that Gauss was close to T. V. Soong. The latter “is still in the ‘dog
house’ and therefore the closeness of Gauss and ‘T. V.’ is not conductive
to good working relations between Chiang and Gauss.”50
Kung was more easygoing than Soong. During his time as head of the
Executive Yuan, his meetings were leisurely, and he had a reputation for
being somewhat chatty. Soong, by contrast, preferred short meetings and
could be brusque.51 But Chiang became angered with Kung because of
widespread reports of corruption. He seems to have lost faith in Kung in
1944 – hence his removal from politics.52 For whatever reason, Kung
became widely unpopular among many factions in the Guomindang,
57

leaving him with limited political support. Perhaps the imperious nature of
the entire Soong clan alienated some, and perhaps attacking Chiang’s in-
laws was safer than attacking him. And there was no doubt that during his
tenure as minister of finance, the collapse of the fabi had been disastrous.
The Kung children would sometimes cause embarrassment. When
Rosamonde Kung planned a trip to America in the spring of 1943, she
wanted to fly with her doctor and maid over the Hump to India. But such
travel required priority clearance from Washington, so Kung had to cable
T. V. Soong, then in Washington, to ask if he could get priority for the
doctor to fly from American government officials.53 After the end of the
war, Madame Chiang Kai-shek asked General Wedemeyer and General
Stratemeyer for the young Kung and her companion to get flight priority
to return to the United States. T. V. Soong also made a request to General
Wedemeyer. But the general had run out of patience and sent a very
blunt refusal to T. V. Soong on November 26, 1945. He had, he noted,
already “informed Madame Chiang that at the present time there are
several thousands of Americans awaiting return to the homeland by air or
ship.” He stated that “if I were to give the Kung sisters, who insofar as I can
learn contributed in no way to the war effort, I would be personally
subject to severe criticism and rightly so. Also I believe that the
Generalissimo would be subject to criticism.”54 The American general’s
frank words suggest that both Chinese and foreigners had strong reser-
vations about the Kung family as well as the Soong clan.
David Kung (Kong Lingkan/kai)55 also attracted unwanted attention
on occasion. He was in Hong Kong in the months leading up to Pearl
Harbor. While there, he became involved in espionage work for China.
Rumors surfaced that he was engineering a plot to assassinate Wang
Jingwei, who had defected from the Chongqing government. At the
time, the British were maintaining a neutrality policy and did not want
to antagonize the Japanese, with whom they were not at war, and were
very unhappy with the young Kung. H. H. wrote to his son (in English) on
October 28, 1939:56
I have been much concerned over what has happened in Hongkong. . . .

Uncle Kai-shek and has been most concerned and Aunt May [Soong Mei-
ling] has been very helpful in settling this matter for you; but they have
58

FAMILY ISSUES
heard all sorts of rumours through many sources including charges made
by the Honkong people which were repeated to the British
Ambassador. . . . The British ambassador has been most friendly and
frank and in every way he wished to be helpful . . . There might be other
people who have grudges against you and therefore want to create trouble
and make it hard for you. But don’t be discouraged as long as you are
doing good work for a good cause . . . with this goes my fondest love.
The British then expelled Kung and twenty other Chinese from
Hong Kong, enraging the Kungs. After he enrolled at Harvard in 1942,
the FBI did a background check but decided that he was okay. His
activities in Hong Kong had taken place before Britain was at war with
Japan, while it was attempting to be neutral in the Sino-Japanese
conflict.57 The younger Kung had informally served as a secretary in his
father’s office and while in Hong Kong had been involved in purchasing
military equipment from Western countries. He was said to have made
significant profits at least in the eyes of his enemies.58
After the war, David Kung was the frequent target of attacks by enemies
of his father, both the communists and rivals within the Guomindang.
Today, he would be referred to as a “princeling.” Even Arthur Young, who
was sympathetic to H. H. Kung, tended to lend credence to some of the
charges in his private diary. On May 11, 1946, for instance he wrote “Hear
DK brought 4,000 bales of cotton on speculation.”59 David Kung estab-
lished the Yangzi Development Company (Yangzi jianye gongsi) at war’s
end. It became involved in import–export trade, with branch offices in
Shanghai, Hankou, Fuzhou, Nanjing, Hong Kong, and Tianjin, as well as
a partner firm in New York. It primarily imported cotton, electric machin-
ery, medicine, and luxury goods and exported hog bristles, tea, and
agricultural products.60
FAMILY ISSUES
The close family relationships also meant that personal disputes within
the family (inevitable in virtually all families) often had a political side.61
The younger brothers, T. L. Soong (Song Ziliang) and T. A. Soong (Song
Zi’an), spent much of the war era in the United States engaged in
59

government business. When Madame Chiang Kai-shek visited America,

they were called on to assist, frequently traveling with her party.62
Madame Chiang had serious health issues and often sought family mem-
bers to be with her when receiving hospital treatment. In January 1943,
for instance, Madame Chiang cabled her sister Soong Ai-ling urging her
to come to the United States with T. V. Soong (who was scheduled to
return) and join her in New York.63 When in China, she often
approached those in America for medicines and personal items.
Madame Chiang attributed some of her skin problems to the time
spent in damp air-raid shelters during the intense bombing of
Chongqing earlier in the war.64 In the spring of 1946, Madame Chiang
was being treated in New York by her physician Dr. Edgar Mayer, who
concluded that the newly developed drug streptomycin would be effect-
ive. At that point the US Army controlled the supply, and it was not
generally available for civilians. T. L. Soong in Washington cabled
T. V. Soong asking him to approach George Marshall to make the supply
available for Madame Chiang.65 Private family matters and public duties
intermingled for the Soong family.
And then of course there was Soong Ching-ling (Song Qingling,
Madame Sun Yat-sen), who was politically at odds with the others and
particularly with Chiang Kai-shek. Her occasional pronouncements made
her displeasure relatively clear. This family dynamic was legendary and
a key reason that so many popular books about the family have been
published both in China and in the West. But despite her political differ-
ences, she kept in touch with some of the family, particularly T. V. Soong,
writing to him from time to time. She had a narrow escape from
Hong Kong after the Japanese attacked in December 1941, traveling by
plane with her sister Soong Ai-ling (Madame Kung) and niece Rosamonde
Kung. She wrote T. V. a lengthy account of their escape and reception in
Chongqing shortly after they arrived.66 Like her sisters and Soong’s wife,
she also often requested Soong to procure medicines and skin ointments
as well as such items as an electric toaster. And Soong would often ask
whether she needed anything from America when he was returning to
China.67
For all the rivalries among them, the Soongs were still family.
Roosevelt’s close aide, Lauchlin Currie, on his second trip to China in
60

FAMILY ISSUES
September 1942, recalls listening to Madame Chiang’s vitriolic denunci-

ation of T. V. Soong. But then she suddenly said, “He is my brother and
I love him.”68 And Meiling would often write to “my dear brother,”
writing in English and signing “May.”69
And even between T. V. and H. H., there were still the family connec-
tions. When Kung was in Washington in early 1945, he spent a month
convalescing and dealing with a kidney stone. He also suffered from
bouts of malaria. On February 3, 1945, he wrote T. V. in China, and
although he discussed some governmental issues, he specifically thanked
Soong for the kindness of Soong’s wife and daughter (then in the United
States), who visited often and brought home cooking.70 And both men
were constantly called on to assist with Madame Chiang’s travel and
personal needs. On March 1, 1943, for instance, Soong cabled Kung
from America that Madame Chiang wanted $50,000 transferred to her
account in the National City Bank of New York. Soong requested that
Kung authorize the transfer from the Central Bank of China to the Bank
of China in New York.71 These financial transactions involved the chil-
dren and spouses as well. Madame Kung asked T. V. to transfer $3,000
from her account to America on September 25, 1943, when her daughter
went overseas.72
The White House monitored this transfer of money from China.
Lauchlin Currie, Roosevelt’s close aide, noted that on May 12, 1943,
the Bank of China had instructed the Irving Trust Company to issue
a cashier’s check of $100,000 to Madame Chiang, who turned it over to
David Kung, who deposited it in his personal account. On May 17,
another check for $61,000 was handled in the same way, and a third
check for $59,000 was given to David Kung, who turned it over to his
secretary. On June 10, 1943, Currie heard from Randolph Paul, who
worked for Morgenthau, that the total amount transferred to Madame
Chiang to that point was $800,000.73 American authorities monitored the
financial holdings of many prominent Chinese in American financial
institutions. In a memorandum of September 13, 1943, Currie noted that
Lin Yutang, a noted author who had published several successful books in
the United States, held $46,800 in the United States as of 1940. But most
of these reports were of politically connected individuals and companies.
T. V. Soong’s China Development Finance Corporation had increased its
61

assets from 1940 to 1941 from $3.5 million to $5.4 million. T. L. Soong
had received $403,000 from September 1941 until June of 1942.
T. A. Soong’s account in the Irving Trust had grown from $19,000 to
$209,000 at the same time. T. L. Soong’s account at the Chase Bank was
$911,000 in mid-1941.74 The banker Li Ming had told Currie that
T. V. Soong probably kept funds at the Bank of Canton headquarters in
San Francisco and possibly some cash at the Bank of China.75
In the fall of 1943, the Treasury Department monitored an increase of
assets in the Irving Trust of approximately $200,000 in the account of
T. A. Soong and sought to determine the source of the funds. Money was
also moved from the Irving Trust to the Bank of Canton, which drew
attention. The Treasury thought some of these transfers were related to
David Kung and Rosamonde Kung.76
The Soong family kept a certain family dynamic despite disagreements.
On Christmas Day 1944, T. V. Soong from Chongqing sent Merry
Christmas greetings by cable to his wife and daughters in America, to
his sister Madame Chiang Kai-shek, to H. H. Kung and Madame Kung, to
T. L. Soong and his wife, and to the youngest brother T. A. Soong.77 But
pleasantries aside, the rivalry among the Soongs and particularly between
T. V. and H. H. Kung spread across the banking and financial sectors of
the Nationalist government and impacted both personnel and policy.
RIVAL NETWORKS AND FINANCIAL POLICY
The rivalry between T. V. Soong and Kung went beyond the family. Both
tended to build networks in banking and finance, creating a complex web.
Individuals were usually identified as either pro-Kung or pro-Soong even
when circumstances required working with the other camp. Associates of
either man would often report back that the other was trying to undermine
him. In February of 1941, for instance, Kung associate Robert T. Huang
wrote from San Francisco that “while in San Francisco and this part of
America, I sense acutely that the opinion of the Chinese Community here
and that of the Press are definitely against your Excellency. I cannot but
feel that some people are out deliberately working on these people to
poison their minds against your Excellency.” And who were these people?
“There are several groups working aggressively among the Chinese in this
62

country. Doubtless, Dr. T. V. Soong is most aggressive. The others include

Kwangsi [Guangxi] group and Chen Cheng and Chu Chia Hua.” He
concluded “where are these friends of Your Excellency’s?”78
Implementation of financial policy sometimes got caught up in this
web of connections. And often political and family connections inter-
twined. Bei Zuyi (Pei Tsuyee), one of the most prominent government
bankers, held key positions in the Bank of China. In 1942, when Soong
was in Washington, he found a position for Bei’s son-in-law, Stanley Shen,
with the China Defense Supplies Agency there. When Soong was posted
to Washington, he relied on Bei to provide insider political summaries
from China. In July 1942, he wrote to Soong about the decision to strip
the Bank of China and other government banks of the right to issue
banknotes and the consolidation of that power in the Central Bank of
China. The decision was reached at a meeting of banking leaders pre-
sided over by Chiang Kai-shek. Bei quotes remarks by H. H. Kung that
individuals should serve the interests of the government and not their
individual institutions. Kung added that “one who is working in his
institution may not necessarily work in the same institution after the
promulgation of these regulations.” In other words, the network at the
Bank of China that Soong had built up over several years might be
undone.79
In June of 1943, Bei sent Soong a confidential memo about Kung’s
proposal to terminate the currency stabilization agreement of 1941.
Chen Guangfu and others had proposed revising the agreement, but
Kung and Chiang Kai-shek seemed to favor termination. Bei suggested
that Soong avoid acting on this because of Chiang’s views. Kung was
dispatching Arthur Young to Washington to deal with the matter.80
After Kung gained control over the Bank of China, Bei continued to
serve in the New York office but still sent confidential notes to Soong
about the political and economic situation.81
Soong went to extraordinary lengths to keep his communications with
Bei secure. In the spring of 1943, L. K. Little was in Washington when he
was summoned to Chongqing to become the inspector general of the
Maritime Customs Service. That venerable institution had fallen on hard
times, with much of it functioning under Japanese control in the occu-
pied zone, but a truncated version was headquartered in Chongqing.
63

Little would be the last inspector general and the only American to hold
the post. Little was rather surprised when he received a request from
T. V. Soong, then China’s Minister of Foreign Affairs but residing in the
United States, to carry a personal letter to China for him. In his diary,
Little noted on May 17, 1943, “New York: A letter from Mr. T. V. Soong
addressed to Mr. Tsu-yee Pei [Bei Zuyi], Chungking. Query: Why, having
a diplomatic pouch, does the Chinese Minister of Foreign Affairs send
this document through me?”82 The answer was self-evident. Three years
later in January 1946, Little, then in Shanghai, was surprised when an
appointment of Carl Neprud, an American, to be Shanghai commis-
sioner of Maritime Customs was blocked by T. V. Soong. In trying to
figure out the cause of Soong’s action, an associate suddenly remem-
bered that Neprud had worked for H. H. Kung in Washington during the
war. “It is pretty bad if the Soong-Kung feud is to extend itself to the
foreign staff of Customs,” Little concluded.83
Another back channel sometimes used by Soong was his wife, who,
along with his daughters, spent long periods in the United States. When
Soong was back in China, he would often use her as a conduit. In
March 1945, when Patrick Hurley, ambassador to China, was in
Washington, Soong cabled that he had sent a reply to a message from
Hurley through his wife and asked Hurley to discuss the matter with her.
She would forward the reply. Soong stated, “would appreciate if you
would communicate with me through her as much as possible.”84
Kung had not wanted to appoint another foreigner as inspector
general, feeling it was time for the Chinese to take over. He had favored
his son David Kung, but T. V. Soong had blocked this. Eventually Chiang
himself decided on naming an American as inspector general “for the
time being.”85 As a member of Soong’s informal network, Bei remained
loyal to Soong even when his actual boss was Kung. But being considered
in Soong’s “camp” could often result in attacks by those who wanted to
get at Soong. In August 1947, for instance, Bei was indicted, which Arthur
Young considered an attempt to get at T. V. himself.86
Another Soong loyalist from the Central Bank but based in
Washington kept him apprised of Kung’s activities at the Bretton
Woods Conference. “I was told during the whole conference the
Chinese delegation made not one proposal or recommendation.
64

Several of our delegates, I do not wish to mention names, brought along

their wives and daughters and daughters in law to the Conference.” The
shared opinion was that Kung simply was not an effective representative
for China at this critical meeting. The report also noted that “reports
here is that K [Kung] has bought a house and does not look as if he will
return to China in the foreseeable future. American officials and news-
papermen have been asking the question: Why is it that every member of
K’s family is now abroad?”87
In fact, China was not well represented at Bretton Woods.
H. H. Kung’s reputation had been tainted by the gold scandal, and it
was widely assumed he would be out of power soon. He also faced medical
issues that needed to be treated. And as the Chinese delegation arrived,
the Japanese Ichigo campaign was sweeping though China, overrunning
American air bases. It was not an auspicious time to be representing the
Chiang government. Ironically, one of the most effective members of the
delegation, Ji Chaoding, was a communist spy.
Ji had arrived in the United States in 1924, a graduate of Tsinghua
University, and enrolled at the University of Chicago. Eventually, he
received doctorate from Columbia University and published an influen-
tial book, Key Economic Areas in Chinese History. But during those years, Ji
also joined the American communist movement and later established ties
with the Chinese Communist Party. During the war years, he connected
with H. H. Kung because of native place ties. Ji, who was fluent in English,
assisted Kung in negotiations with the Americans over the exchange rate
to settle US military debts in China. Finally, for Bretton Woods, Ji accom-
panied H. H. Kung to the United States as his secretary. The C. C. Clique
warned Kung that Ji was a communist, but when asked, Ji replied to Kung,
“Uncle, I have followed you for so many years, you know all about me. . . .
Do I look like a communist to you?” Kung was convinced the accusations
were false.88 Ironically therefore, the communists likely had better infor-
mation on the actions of the Chinese delegation at Bretton Woods than
T. V. Soong, then acting head of the Executive Yuan.
When Kung left the government, Ji was able to keep a research pos-
ition at the Central Bank of China because he had good ties with Yu
Hongjun, the new minister of finance. But despite his lengthy inter-
national experience and contacts, Ji was not invited to be part of the
65

delegation to the United Nations Conference in San Francisco. This was

not done because he was suspected of being a communist, but because
the delegation was headed by T. V. Soong, and Ji was clearly a Kung
man.89 Ji stayed on in China after 1949 and was welcomed in the new
government.
The ramifications of the Soong–Kung rivalry were serious. Kung was
quite pliant to Chiang’s demands and willing to advance sums to him
without accounting for their use. Kung was doubtless aware that there was
little backing for this currency, which would lead to inflation, but none-
theless he obeyed Chiang’s bidding. Soong had grave doubts about
running up large deficits and printing money. He despaired of attempts
to keep the exchange rate of the yuan at unrealistic levels. But after his
confrontation with Chiang had left him temporarily out of power, he
became more accommodating of Chiang’s demands. Such was his ambi-
tion that he was not willing to confront Chiang over the massive deficits
covered by printing currency and risk Kung grabbing Soong’s position.
Thus neither Kung nor Soong stood up to Chiang and would continue to
deliver increasingly worthless sums of money to pay for the military.
Hyperinflation would consequently accelerate.
POLEMICAL ATTACKS ON SOONG AND KUNG
Soong and Kung bore a heavy political cost for their very public identifi-
cation with the financial policy of the Guomindang and their high-profile
financial activity. Soong was often attacked by others within the
Guomindang itself, including Chen Lifu and Sun Ke. The party was
highly factionalized, and groups jockeyed for power.90 But despite
attacks from with the Guomindang, the really severe criticism of Kung
and Soong came from outside. The Chinese Communist Party and the
political left in general targeted both Kung and Soong for intense per-
sonal criticism, labeling them corrupt “bureaucratic capitalists.” The
most famous of the writings was Chen Boda’s polemic on China’s four
great families (Chiang, Soong, Kung, and Chen), who were accused of
a wide assortment of social and economic crimes.91 This line continued
throughout the Maoist era with works such as Chen’s “The People’s
Public Enemy, Chiang Kai-shek.”92 Even more than Chiang, Soong, and
66

Kung were attacked for their supposed personal wealth. This campaign
was not confined to China but promulgated globally. Leftist groups in the
West published polemics such as “How Chinese Officials Amass Millions,”
which detailed corrupt practice linked to Guomindang authorities.93
These views became widespread in the West, reflected in the writings of
many journalists and in public opinion.
American Arthur Young, financial adviser to the Chiang government
and an admirer of T. V. Soong, still admitted that “when he left office in
1947, observers stated that his withdrawal was widely welcomed. He was
blamed, though not justly, for most of the mess that had come about.”94
President Harry Truman recalled in his memoirs his reluctance in
May 1945 to release $200 million in gold to China, even though
Congress has authorized the expenditure in January 1942. Truman had
Secretary of Treasury Morgenthau convey to China Truman’s feeling that
the way in which the sale was conducted “and subsequent public criticism
of them in China are not conducive to achieve the purposes for which
American financial aid was given.”95 He felt that corruption was under-
cutting the effectiveness of American aid. This attitude came to define
the Truman administration’s relations with Chiang at least until the
outbreak of the Korean War.96 This portrait of Soong and Kung as
corrupt “bureaucratic capitalists” persisted long after they faded from
power.
In China, however, there has been a gradual change in this historical
image in recent years. An avalanche of historical writing about key
leaders of the Republican period has appeared in China, much of it
aimed at a general (rather than just academic) audience. Within this
new writing, more nuanced portrayals of many leaders of the
Guomindang period began to appear, particularly of Chiang Kai-shek.
In contrast to the total villain depicted in Chen Boda’s “Public Enemy
Chiang Kai-shek,” some aspects of his rule are painted in a more positive
light, particularly his wartime military leadership, his visit to India, and
his role as one of the “Big Four” Allied leaders. The change has not been
as dramatic in writing on Kung and Soong. A 1995 biography of Kung
published in Wuhan still went by the title Da caifa Kong Xiangxi zhuan
(The big tycoon H. H. Kung).97 And popular histories of the whole clan
such as Chen Feng’s Sida jiazu miwen (Secrets of the four great families)
67

published in 2008 still follow the framework of the late 1940s. Yet these
new studies in content offer a more subtle portrait of the men, as
compared with Chen Boda, mixed in with gossip and pictures.98
The most significant change in the portrayal of Guomindang figures
in China has been in academic publishing that utilizes newly available
archival material. Most famously, the unveiling of the Chiang Kai-shek
diaries at the Hoover Institution at Stanford University has produced an
enormous body of Chinese writing. For T. V. Soong, it has been the joint
publication of many documents from his archives at the Hoover
Institution in bilingual editions by Fudan University in conjunction
with the Hoover Institution that has been key. In addition to the reprint
and translation of the archival material, the two institutions have spon-
sored academic conferences and published proceedings that have added
a great deal to our understanding of Soong and his role in modern
Chinese history. Although much of this has focused on Soong, volumes
such as Zhongguo renwu de zai yanjiu yu zai pingjie (The restudy and
revaluation on the Republic of China leadership), edited by Professor
Wu Jingping, contain new scholarship on many key figures.
Unfortunately, there have yet been far fewer new archival sources avail-
able on Kung, but perhaps this will change in the future.99
Ironically, these new archival materials have produced little fresh
scholarship in the West. For various reasons, few new academic publica-
tions on either Soong or Kung have appeared, and relatively little yet on
Chiang himself despite the availability of the diaries. Popular writing on
the Chiang and Soong families continues to appear but is still under the
shadow of the historiography of the 1940s. Unfortunately, the most
widely read popular history written in English in the last few decades
concerning the Soong family was Sterling Seagrave’s The Soong Dynasty,
published in 1985 by Harper and Row, a major commercial publisher.
Subsequently a paperback edition and “Books of Tape” edition
appeared. Widely read and circulated, this book is still readily available
today. Seagrave gives an extraordinarily negative view of the Soong clan,
depicting them as virtually a criminal gang, stealing billions from the
Chinese people.100
Two more recent popular accounts have focused on Madame
Chiang Kai-shek. Laura Tyson Li’s Madame Chiang Kai-shek: China’s
68

Eternal First Lady was published in 2006. Although Li is a journalist and

the book appeared through a commercial not academic publisher, the
author used a wide range of archival sources, including material from
the Butler Library at Columbia University, collections at Cornell,
Harvard, the Hoover Archives at Stanford, the Truman Library, and
the Wellesley College Archives. Interviews and archival sources
included numerous friends and contacts of Madame Chiang in
America and China. Containing relatively little on T. V. Soong and
H. H. Kung himself (much more on his family), the book offered
a nuanced and largely sympathetic portrait of Madame Chiang.101
Just three years later, Hannah Pakula published the massive (almost
800 pages) biography The Last Empress: Madame Chiang Kai-shek and the
Birth of Modern China. Like Li, Pakula used a commercial press and
cited many personal letters from Madame Chiang’s American friends,
which allow for an inside look at Soong Mei-ling. Nonetheless, much
more than Li, Pakula was willing to include a great deal of “gossip
history” in the text.102
The most recent addition to this literature is Jung Chang’s Big Sister,
Little Sister, Red Sister: Three Women at the Heart of Twentieth-Century China,
published in 2019 by Alfred A. Knopf, a collective biography of the three
Soong sisters. A well-known popular writer on modern China, she is
known for her strong opinions, seeing the Empress Dowager Cixi as the
key force for modernizing reforms in the late Qing and willing to believe
any negative account of Sun Yat-sen. Jung Chang rarely engages with or
acknowledges academic writing that does not support her ideas.
Determined to portray Sun Yat-sen in a bad light, she tends to praise
the warlords, dismissing their conflicts as minor. “The fighting was spor-
adic and small-scale, and most outbursts lasted no more than a few days.”
But missing in her bibliography are works such as Edward McCord’s The
Power of the Gun: The Emergence of Modern Chinese Warlordism, which might
offer a different view.103 Her book is really a biography of the Soong
family from Charlie Soong until the death of Soong Mei-ling in 2003. For
Jung Chang, the leader of the sisters was the eldest, Soong Ai-ling,
married to H. H. Kung. In her telling, not only did Soong Mei-ling look
up to her but after 1927 Ai-ling “would exercise a bigger influence than
anyone else on the Generalissimo.”104
69

The three books mentioned above are a testament to the enduring

interest in the saga of the Soong sisters, a story that combines family
struggle with national history. Yet the men of the Soong clan, including
H. H. Kung, attract little attention, and almost none regarding their
economic policies.
NEW PERSPECTIVES ON SOONG AND KUNG
The opening of new archival sources and the voluminous publications

in China have yet to make a significant impact on Western scholarly
writing on T. V. Soong and H. H. Kung. Yet such an effort is clearly
needed, and not simply because of the new sources. The entire histor-
ical era looks very different today when viewed from the perspective of
the twenty-first century rather than the 1940s; it is time to break out of
the earlier framework. When the CCP attacked “bureaucratic capital-
ism” in the 1940s, communist writers assumed capitalism and market
activity themselves were evil. Private business activity, whether con-
ducted by those connected to the government or by international
firms, was universally condemned by communist writers. Today, with
the Chinese economy booming, private and semiprivate business activ-
ity plays a key role, as does the investment of global capital, and
capitalist-style business activity is far more acceptable in China. In
2001, then-Chinese leader Jiang Zemin even invited entrepreneurs to
join the Chinese Communist Party. “Entrepreneurs and technical
personnel employed by scientific and technical enterprises of the non-
public sector, managerial and technical staff employed by foreign-
funded enterprises, the self-employed, private entrepreneurs . . . have
contributed to the development of productive forces . . . in a socialist
society.” These private entrepreneurs should be eligible for member-
ship in the party itself, Jiang concluded.105
From this new perspective, the careers of Soong and Kung might be
interpreted quite differently. In looking back at T. V. Soong’s China
Development Finance Corporation (CDFC), for instance, a first reac-
tion might not be that it was evil simply because it was capitalistic, but
rather how little it accomplished. Founded in 1935 at a time when the
effects of the global depression meant that little foreign capital was
70

NEW PERSPECTIVES ON SOONG AND KUNG
available, the few projects underway in the summer of 1937 were

largely destroyed by the Japanese. Some that were completed ended
up benefiting the Japanese. The CDFC put together financing with
French help to build a railway from Vietnam to Nanning in Guangxi
province, only to have it captured by the Japanese shortly after
completion.106
The CDFC had built a major high-rise building in Shanghai, but this
was used by the Japanese after Pearl Harbor. Late in the war, the
Japanese removed radiators and piping from the building. After
Japanese surrender, the US Army commandeered the building for its
use. Eventually, the US Consulate in Shanghai leased much of the space
in the building, and the CDFC continued with a small staff.107 The
failure of CDFC projects contrasts sharply with today’s China and its
high-speed railways, gleaming skyscrapers, and modern airports.
A study of the CDFC done today actually reminds us of the high cost
of the Japanese invasion. Even the issue of corruption itself looks
different today. The major anticorruption campaign launched by cur-
rent leader Xi Jinping suggests that this is an endemic problem not
confined to any one historical era.
The time is thus right for Western scholars to reevaluate the careers
of T. V. Soong and H. H. Kung. Should they have been blamed for
wartime inflation? In retrospect, the problem appears unavoidable and
beyond the power of either man to control. Early in the conflict, the
Chiang government lost control of its main tax sources on the east
coast while military expenses remained high. Even at the time, many
observers recognized that in fact neither Soong nor Kung could really
control this process. Theodore White, who covered China during the
war years for Time magazine, noted that Kung had to bow to Chiang
Kai-shek’s wishes when he demanded funds for his military. Kung
complied and had the money printed. “To run China on any sound
economic basis required basic political decisions that only Chiang Kai-
shek could make,” White concluded, and Chiang was not inclined the
make them.108 But if Kung and Soong could not really solve the
fundamental economic problems of China, there is still much room
for debate about specific policies that they supported at different
points during the war.
71

RESIGNATION OF H. H. KUNG
Chongqing’s financial and economic failures claimed one victim before

the war’s end with H. H. Kung’s resignation from government positions.
Kung seemed to have been the scapegoat for the financial disaster that
befell wartime China, and his reputation declined long before his resig-
nation. When Lauchlin Currie made his first trip to China before Pearl
Harbor, he was funded by the Chinese government and took a leave of
absence from his job at the White House. This was done in large measure
to comply with American neutrality policy. Because of this relationship,
Currie’s exit interview with Chiang on February 25, 1941, with
Hollington Tong translating, included some rather blunt advice about
Chinese officials. But this was delivered not as a representative of
Washington, but as a paid adviser to the Chinese government.109 And
Currie was blunt.
He was particularly critical of Kung. “I feel that Dr. Kung has been too
long on the job . . . and is referred to again and again as representing the
Old China. Moreover, he is not trusted and ugly stories concerning him
have gained wide credence.” Currie even suggested that “he has not, as
far as I have been able to discover, any able men in his Ministry.” He
recognized that “Dr. Kung is loyal to the Generalissimo and accommo-
dating. However, new eras demand new men.”110 In a confidential report
made to Roosevelt following his return to the White House, Currie
elaborated on what he considered the incompetence in Kung’s
Ministry of Finance. “Large-lump sum payments are made to the military
and the Minister of Finance had no idea how they are spent. . . . I did not
meet one person whom I considered competent in the whole Ministry of
Finance.”111
Currie was also rather perceptive about T. V. Soong. He thought
him “able and aggressive. I also believed him to be self-willed and
probably unable to successfully subordinate himself. I do not think,
therefore, that he could get along for any length of time with the
Generalissimo.” Thus in February 1941, Currie instinctively realized
that Chiang would have a personality clash with Soong.112 In his report
to Chiang, Currie pushed as an alternative the banker Chen Guangfu,
who had already led missions to Washington and was seemingly well
72

AMERICAN DOLLAR BOND ISSUE SCANDAL
liked by people in the Treasury Department. “He has a reputation for

honestly and incorruptibility. He is outside of politics and is well known
to have no personal ambitions.” Currie was even sensitive to the politics
of the situation. Chen, he noted, “is an old friend of Kung’s so the
transition could be made without too much loss of face on Kung’s
part.” Currie concluded that “his appointment would be a symbol of
a new era . . . and would convince opinion both at home and abroad
that the National Government really intended to put its financial house
in order.” Currie felt that Chiang was appreciative of his report, but of
course he stuck with Kung for another three years. Still, Chiang was
aware of certain misgivings in America about Kung even at that
point.113
Eventually the persistent reports over corruption led Chiang to remove

Kung. It was a scandal related to the American Dollar Bond issue that
broke the camel’s back. This had its origin in the period after Pearl
Harbor, when both the United States and Great Britain wanted to provide
visible support for China even as their actual ability to get supplies to China
fell with British Burma. Both advanced loans to Chongqing; America
provided a credit of US$500 million and Britain 50 million pounds.
There was considerable discussion about how best to use this money, but
Chinese authorities decided to issue US$200 million in American dollar
bonds and gold sales. Purchasers in China would buy the bonds with fabi at
the official exchange rate and would be paid in dollars when the bonds
were redeemed following victory over Japan. The idea was that the bonds
would absorb excess fabi and curb inflation. Gold purchases would do
likewise. The American Dollar Bonds were issued on March 24, 1942.114
American advisers initially thought the scheme would work, but they
made incorrect assumptions about how the plan would be implemented.
First, they assumed that wealthy Chinese would be under some pressure
to buy the bonds, so hoarders would be forced to sell much of their
merchandise for fabi to buy the bonds. With commodities being released
on the market, the rise of prices could be stemmed. They also assumed
the bonds would be sold in a short period of time. Neither of these
73

scenarios was realized. No pressure seemed to have been applied, so after

eight months only 10 percent of the bonds had been sold. Although in
theory they were a good deal, the public seemed very dubious about
whether the bonds would be paid at maturity. Most took their chances by
hanging on to commodities, trusting the return would be greater than on
the bond issue. Sales remained slow even as the black-market rate for fabi
rose far beyond the official rate of 20 yuan to 1 dollar, making the actual
cost for Chinese purchasers much more reasonable. At the end of
December 1943, the black-market rate almost reached 84; by the end of
June 1944 nearly 192. Following the Ichigo debacle, the black market
soared reaching 600 yuan to 1 dollar in December 1944, yet the official
rate remained at 20 to 1.115
In early October 1943, Kung sent a secret memo to Chiang Kai-shek
requesting that sales of the bonds be terminated. Subscription was closed
on October 15, 1943. An official of the Central Bank, Guo Jinkun,
announced that all the bonds had been sold. The actual figure was
about half; Kung ordered all of the banks to stop sales and return unsold
bonds to Chongqing. Secretly, it appeared that insiders had then pur-
chased the remaining bonds at the official rate of 20 to 1 but of course
using currency acquired at the black-market rate. Word of the windfall
spread among the inner circles, especially in the Legislative Yuan.
Charges appeared that Kung had made profits of over US$3 million in
the process.116 Others said to benefit were all of the Soongs, under-
ground leader Du Yuesheng, banker Chen Guangfu, military leaders
Wei Daoming and Long Yun, and many more.117 Morgenthau told
Roosevelt of the charges and stated that the $200 million in aid for the
program had made little difference in stopping inflation.118
This widespread criticism of Kung apparently led Chiang to lose confi-
dence in him. By May of 1944, the British minister in Chongqing reported
to London that there was a great deal of ferment in Chinese politics. “We
think position of Chiang Kai-shek is still sound but public dislike of
H. H. Kung and his associates gives him a good weight to carry. On the
whole, we think a slow deterioration must be noted on the political side.”119
One source of the criticism appeared to be T. V. Soong himself. He sent
a telegram to Guomindang elder Li Shizeng in June 1944 attacking the
financial policies of Kung.120
74

Chiang came to perceive Kung as a liability rather than an asset to the

Chongqing government. Attacks on Kung came not only from groups
like the communists but also those within the Guomindang. American
diplomatic personnel in China became seriously concerned by reports
that several Guomindang military commanders were plotting to kidnap
Chiang (possibly in Kunming on his return from the Cairo Conference)
and force him to rid the government of individuals they deemed corrupt,
notably H. H. Kung and He Yingqin. The US ambassador informed the
secretary of state on February 3, 1944, that one of the demands was that
Kung be removed and shot.121
Meanwhile, an American source, the leftist journal Amerasia, noted
that the Dagong bao had published an article sharply critical of Kung in
early 1945, claiming that he had spent the previous ten years as minister
of finance “building up his personal fortune at the expense of govern-
ment duties, and for having a large bank balance” in the United States.
Since the newspaper was subject to Guomindang censorship, this article
could not have appeared unless prominent factions in the government
had permitted the attack on Kung. “Their publication suggests that the
political prestige of Dr. Kung . . . has reached a new low.” The journal
believed that officials associated with the Political Study Clique were
behind the attacks.122
In September 1944 when the People’s Political Council met,
H. H. Kung was still in the United States, in part for medical treatment.
The vice-minister of finance, his close associate Yu Hongjun, was sub-
jected to vigorous rounds of questions and criticism. Questions involved
the Kung family’s business operations, the management of the Central
Bank, the buying and selling of gold, and in particular the issue of the
American Dollar Bonds. As the British representative in Chongqing
commented, “the Council was really after Dr. Kung’s blood.”123 British
reports concluded that Kung “is not over-scrupulous in his methods and
has retained the favor of Chiang Kai-shek (in spite of the general distrust
and hostility of the people) owing to his ability to produce funds when
required for military purposes.”124
Chiang was sufficiently concerned with the Dollar Bond question to
commission a confidential investigation. As Zheng Huixin notes in his
study of the issue, Chiang concluded that a substantial portion of the
75

bond issue had in fact been purchased (presumably by insiders) after the
official close of sales on October 15, 1943. Ultimately, Chiang realized
that Kung was responsible and sent several telegrams to him in America.
Kung did not want to admit this, and Chiang was loathe to make the issue
too public for fear of giving potential enemies within the Guomindang,
not to mention the Chinese Communists, an issue with which to attack
him.125 Yu formally replaced Kung as minister of finance in late
November 1944, but this did little to stem the criticism. Kung remained
vice-president of the Executive Yuan and head of the Central Bank of
China. Even after he lost these two positions in the spring of 1945, Chiang
appointed him head of the board of directors of the Bank of China to
“save face.”126
With the Japanese success in the Ichigo campaign, the Chiang govern-
ment and its military were humiliated and subject to criticism overseas as
well as at home. Chiang reacted by giving the appearance that ministers
in his government who faced heavy criticism from Allied leaders would be
removed. General He Yingqin, for instance, was removed as minister of
war but given a new and significant command. Chen Lifu, widely viewed
as reactionary, was removed as minister of education, although he was
given a substantial position within the party. The final blow was to
H. H. Kung. In December 1944, Chiang brought T. V. Soong back to
power as acting president of the Executive Yuan. Kung, the vice-
president, had apparently wanted the position but was leaving for the
United States. Losing favor at home, Kung remained in America until
July 1945, first for the Bretton Woods Conference and negotiations in
Washington, and then for medical treatment, according to the official
statement of the government.127
When Kung did return on July 8, 1945, there were rumors that he
would be given a post with the four government banks, but that did not
happen. He resigned all remaining positions, with Soong taking over
control of the government banks and Yu Hongjun, then minister of
finance, the Central Bank. The British authorities in China, in their
official summary of events of July 1945 for the Foreign Office in
London, noted that “Dr. Kung is obviously unpopular among the general
public and has been held to blame in some quarters for the present
financial crisis.” The report included a quote from the Dagong bao of
76

July 12 that clearly attacked Kung, as it had earlier. “Who allowed our
finances to get into this mess? Who allowed inflation to reach this stage?
Who allowed prices to soar to the present level? Who openly maintained
that there was no objection to public servants engaging in business?” The
paper concluded that “we cannot allow this sort of man to deal with
China’s financial policy.”128 So why did Kung return? The British specu-
lated that Chiang might have summoned him as a counter to T. V. Soong
and to “warn Dr. Soong of the vulnerability of over-playing his hand
here.” Chiang apparently appreciated Soong’s abilities in dealing with
the West but remained somewhat suspicious and jealous of his status, as
Lauchlin Currie had predicted.129
When Kung did return, he met with Chiang on July 14, 1945. Unsatisfied
with Kung’s responses on the bond question, Chiang requested a detailed
list of who had actually bought and sold the bonds. In addition to the full
accounting, he wanted to know if purchases had been made through the
black market. Almost simultaneously, T. V. Soong returned to China from
his talks with Stalin and met with Chiang on July 18 and 19.130
Following Kung’s return, Fu Sinian and others in the People’s
Consultative Congress demanded an investigation into the American
Dollar Bond scandal. Chiang discussed the matter with Chen Bulei,
who simply asked Chiang how much he wished the public to know
about Kung’s behavior – it would reflect on the family. Chiang received
the investigative report on the matter from the Central Bank on July 16
and discussed this with Kung. The following day, Chiang learned that Fu
Sinian and twenty-one others in the congress had started procedures for
the impeachment of Kung, greatly distressing Chiang. Fu, a distinguished
scholar at Academia Sinica, had long been a critic of Kung and had sent
a number of private memos to Chiang about Kung’s corruption. Lower-
ranking officials in the treasury began to secretly supply Fu with proof of
Kung’s malfeasance. Kung defended himself by claiming again that it was
difficult to learn the names of all those who had purchased the bonds. On
July 21, Kung sent a new report on the issue to Chiang justifying his
behavior in handling the bonds, but his answers seemed evasive. This
angered Chiang, who assigned several people to make discreet inquiries
into the bond issue. Yet ultimately Chiang followed Chen’s advice and
was not able to face the problem in a public way.131
77

A separate scandal enveloping the Ministry of Finance in the spring of

1945 involved questions surrounding the sale of gold supplied by the
United States. The charge was that certain officials took advantage of
advance knowledge of the government’s decision to raise the official
price of gold from 20,000 yuan per ounce to 35,000 by buying immedi-
ately before the new policy. This was still well below the then-black-
market rate of roughly 50,000. Soong returned from the United States,
where he had been at the United Nations conference in San Francisco,
and he pledged to purge the ministry of these officials. He then obtained
the resignation of several individuals. Yet the subtext for this was that
Soong was attempting to purge officials who were close to H. H. Kung as
he attempted to consolidate his control.132
It is perhaps understandable why a man who had been minister of
finance for ten years would bear the brunt of criticism for China’s diffi-
cult financial situation. But what of the charges of corruption and mis-
management? Arthur Young worked with Kung for many years and
personally liked him. In his memoirs, he glossed over the issue of corrup-
tion and its relationship to Kung’s resignation but concluded that it was
Kung’s “misfortune to face wartime problems for which there was no
really good solution. Not understanding some issues, he adopted and
persisted with policies bound to fail. This . . . brought about his retire-
ment after more than ten years in charge of the finances.”133
Chinese scholars have weighed in on the issue in recent writings.
Based on his reading of the Chiang Kai-shek diaries, Wang Chaoguang
concluded that Chiang was often unhappy with Kung, feeling that he was
too active in looking after private interests without regard for public
opinion. Chiang became concerned about the management of the
American loan, which reportedly had been mishandled.134 Wu Jingping
also raised several key points. Ultimately, Chiang felt that Soong was
more effective in dealing with Washington than Kung. Beginning in
March 1944, he began giving more and more diplomatic tasks to
Soong, and Kung’s position eroded. Chiang thus removed him from
the Central Bank of China in July 1945.135
Zheng Huixin and Yang Tianshi both noted that Chiang’s discovery
that Kung was culpable in the American Dollar Bond issue scandal deeply
troubled Chiang, even disrupting his sleep. His diary contains several
78

references to his distress over the issue. Following Kung’s final report to
Chiang, he was dismissed from his remaining posts at the Central Bank
on July 24, 1945. But Chiang was unwilling to go too public in discussing
this issue, because he wanted to prevent family disharmony from being
used by his enemies. Ultimately, he protected Kung and instead dis-
missed lower officials at the Central Bank and Ministry of Finance. Lu
Xian and Guo Jinkun were made scapegoats. Chiang blocked newspapers
from printing the charges made by Fu Sinian, determined to limit the
damage from this incident. After the Japanese surrender in August,
Chiang decided to wrap up his own investigation into the matter. He
wanted nothing to undermine the Guomindang government as he
confronted the Chinese Communists.136
79

CHAPTER 3
Sudden Surrender and Botched Liberation
I n the weeks before the united states dropped atomic

bombs on Japan on August 6 and 9, 1945, and the Soviet Union
entered the war on August 8, Japan had been withdrawing from several
occupied areas in China and consolidating its hold in a few areas in
anticipation of an American/Allied landing on the east coast of China.
Chinese officials in Chongqing as well as many in the Allied camp
assumed that such a landing would occur, resulting in several months
of additional fighting before Japan’s final defeat. Chinese leaders there-
fore believed that they would have ample time to regain control of the
occupied areas as part of the military campaign assisted by the United
States.
A British intelligence report on China for June 1945 stated, “the war
news from the China theatre during the month continued to be encour-
aging and optimism about ‘an early return to the coast’ became more
widespread.” And while a July 1945 report realized that China’s eco-
nomic and fiscal problems were severe, relief appeared to be on the
horizon. “It cannot therefore be said that the political and economic
situation of Free China has shown any improvement. There continues
to be the hope that the opening of a port will have an almost immediate
effect upon the economic position.”1 Americans in the field anticipated
the coastal landing and were preparing for it well into the summer of
1945. Clayton Mishler, attached to SACO, recorded in May 1945 that
the Americans anticipated landing near Xiamen in the immediate
future. He trained what would be his final groups of Chinese to assist
in the last weeks of June.2 The swift end of the war caught all these
groups off guard.
80

SUDDEN SURRENDER AND BOTCHED LIBERATION
Among those anticipating an Allied landing on the southeast coast of

China was Arthur Young, who served as an economic adviser to the
Chinese government.3 In what turned out to be the final months of the
war against Japan, Young was worried about the accelerating pace of
inflation, yet felt that China might turn things around after victory.
China’s wartime inflation had been severe but perhaps unavoidable.
The Guomindang government lost control of the eastern part of China,
which had been the foundation of its revenue. The retreat to the interior,
especially after the fall of Burma, left “Free China” almost completely cut
off from the outside world with very little trade. The plunge in revenue
coupled with crippling military expenditures led the government to
cover the deficit by printing money, leading to the inflationary spiral.
In 1941, for instance, government expenditures were over 10 billion
yuan, but revenue was just 1.3 billion, leaving a deficit of 8.7 billion yuan
covered primarily by printing banknotes. As the value of these notes dimin-
ished, the government increased the issue, and the deficit soared to over
38 billion in 1943 and 1.1 trillion yuan in 1945.4 The total value of fabi notes
in circulation increased from 1,407 million in June 1937 to 336,485 million
in May 1945. Those figures understated the increase, because in June 1937,
fabi was used throughout much of China, whereas in May 1945, it was only
used in “Free China,” not in the occupied areas. In total during the war, the
official banks extended advances of 1,261,921 million to the government.
The price of average commodities in urban areas had increased from a base
of 1 in June 1937 to 2,168 in May 1945.5
But Young felt that, after peace, the government might curb military
expenditures while regaining control of its revenue base in eastern China.
Like many observers based in China, however, Young did not anticipate the
war ending as early as it did. He assumed that an Allied landing on the east
coast would be a necessary step before any invasion of Japan itself. In a letter
to the then-minister of finance Yu Hongjun on March 15, 1945, Young
expressed concern that the rate of inflation in Chongqing had accelerated
in the weeks since the Ichigo offensive. “I trust that a landing on the coast of
China would not be too long delayed. A landing would probably do more
than any other single thing to strengthen confidence and curb inflation.”6
Young believed that, after an Allied landing, one or more of the
eastern ports would become open for trade. Despite the opening of the
81

Burma Road (officially named the Stilwell Road) and the increased
tonnage carried over the Hump, China’s imports from the outside
world were very restricted, far less than what was needed. Young assumed
that the opening of ports would vastly increase the flow of goods into
China. This was critical because it could break the psychology of hyper-
inflation. With money losing value rapidly, people spent fabi almost as
soon as they got it, preferring to hold commodities. This pattern led to
hoarding of goods, causing scarcity and further escalating prices. Once
China had an open eastern port, he hoped that people would suddenly
divest themselves of hoarded goods, fearing that prices would drop.
Young also anticipated that the United Nations Relief and
Rehabilitation Administration (UNRRA) would be providing relief com-
modities that would help drive down prices once they could be imported.
The government could also raise funds by selling Japanese enterprises
and those of collaborators.7 Finally, at that point China still had consid-
erable reserves in gold and foreign currencies. So a bit of optimism that
China could turn the corner once peace began was not out of line.
Once the threat of hyperinflation was brought under control, regular
economic activity could revive. One factor that Young often emphasized
in his reports to the Chinese government was that the huge increase in
the amount of fabi in circulation more than evaporated if that figure was
adjusted for inflation. The amount of fabi in circulation had increased
exponentially during the war, even as the area of circulation shrank. For
instance, in June 1937, the total value of fabi in circulation was 1.4 billion
yuan; in May 1945, it was almost 336.5 billion. However, if one adjusted
for inflation, the latter figure decreased to only 155 million in equivalent
yuan of June 1937.8 This trend is partially explained by the smaller
geographic area that used fabi in 1945, since much of eastern and
northern China were still using the currencies issued by puppet govern-
ments. But Young basically argued that China’s real money supply had
shrunk drastically and that people needed confidence in the use of
currency for recovery to occur. He noted:
A characteristic of acute inflation is that the total value of a country’s currency

is grossly inadequate for the needs of the people. China’s pre-war currency of
all kinds excluding Manchuria was around C$2 billion equivalent at the pre-
82

NO PEACE DIVIDEND; INFLATION QUICKLY RESUMES
war exchange to about US$700 million. The C$462 billion outstanding

July 31, 1945, at the exchange of US$ notes of 2880 to 1 was worth only
US$160 million. This situation explains the many complaints about the
shortage of money, but the shortage can be relieved only momentarily by
printing more money.9
The unanticipated Japanese surrender meant that the Guomindang

forces were in no position swiftly to regain control of the occupied areas of
eastern China. Japanese soldiers remained in place in many areas, still in
possession of their weapons, and the Nationalists were in no hurry to round
up puppets before they gained control. Lacking adequate transportation,
Chongqing had to rely on American forces and airplanes to assist them in
“liberating” the coastal areas.10 All of this contributed to the chaos of the
postsurrender period and slowed the recovery of normal economic activity.
The Dagong bao, in an editorial on November 28, 1945, complained that over
three months after the victory, these chaotic conditions persisted in much of
China.11
There was no China landing; no gradual increase of imports that would
have strengthened the fabi and led to an orderly replacement of puppet
currencies in the east. In much of eastern China, the currencies that had
been issued by Japanese client regimes in Nanjing (for central China) and
Beijing (for northern China) were still in use. Yet Young remained hope-
ful. In a confidential memo of September 6, 1945, he wrote, “the stabiliza-
tion of a depreciating currency in a free market need not be technically
difficult or costly provided confidence can be restored, which depends
largely upon definite ending of inflationary issues.” China simply had to
stop printing money to cover government deficits, curb expenditures
(mostly military), and restore the tax base.12 Unfortunately, the govern-
ment would pursue virtually none of the policies that Young advocated.
Even without an Allied landing on China’s coast, the end of the war did
bring a brief drop in commodity prices. For a few weeks after Japanese
surrender, this appeared possible, as hoarders unloaded their stashes
and prices fell. As Chou Shun-hsin commented, “anticipation of the
83

resumption of international trade and the flow of fresh supplies from

coastal provinces into interior China resulted not only in a reduction in
the buying pressure on the market; but in a large-scale dishoarding of
commodities by speculators.”13 For a few weeks, commodity prices fell. In
August 1945, prices dropped by almost one-third on average, the only
real decline during the war and postwar situation under the Chiang Kai-
shek government. The price for cotton textiles, items which could be
easily hoarded, dropped 40–50 percent in August, as people sold. Even
the price of gold took a sudden, if brief, drop. But by October 1945,
hyperinflation resumed with a vengeance.14
As Frank Tamagna, then a financial advisor to the Executive Yuan,
wrote in an unpublished report on money and banking in October 1946,
“after short-lived deflationary pressure, following the elimination of the
Central Reserve currency in the autumn of 1946, the outlays of funds by
the National Government, the spending of American forces and the
inflow of funds from the interior resulted in an inflationary spiral.” The
result, he concluded, was that “inflation hit Shanghai like a typhoon.”15
The Chinese Maritime Customs Service estimated that the monthly cost
of subsistence living in Shanghai increased 245 percent from October 1,
1945, to November 5.16 In January 1946, the price index in Shanghai
stood at over 1,600 (with January to June of 1937 as a base of 1). A year
later, the price index there was at 8,177, and in January 1948, at 140,743.
In July of 1948, it reached a stunning 2,877,000 before the government
adopted its ill-fated gold yuan reform.17
For government officials and those in the middle class, joy at the end
of the war was tempered by financial woes. Economist He Lian (Franklin
L. Ho) wanted to return to Nankai University at war’s end. He had been
working for the government during the war. But he recalled that “ten
years of government service under conditions of hyperinflation had
bankrupted me; I was literally ‘broke.’ My wife even had to sell some of
our possessions.” Therefore, he began to seek out employment in the
financial field, joining the Jincheng Banking Corporation.18
Why did inflation resume so quickly? Fundamentally wartime infla-
tion had been caused by heavy military expenses but declining and
inadequate revenue. The Guomindang government failed to resolve
either of these issues so that government deficits continued, and the
84

printing presses churned out currency whose value began to rapidly

decrease.
Anticipating conflict with the communists, Chiang Kai-shek did not
demobilize troops but kept the military on active war footing. The major
cause of the deficits thus remained. Government expenses increased by
3.2 times in 1946, and revenue sources only covered 37 percent of
expenses. Victory had brought not a new era in Chinese finances but
an acceleration of old problems.19 As the Wenhui bao noted in an editorial
of April 3, 1946:20
During the past eight years of war of resistance, our Government relied
solely on the issuance of paper currency to defray military
expenditures. . . . After the victory, if the Government had actually had
the welfare of the country and the people at heart, it should have lost no
time in reducing the Army and curtailing military expenditures, thereby
deflating the currency. But, exactly on the contrary. . . instead of reducing
the Army, has expanded it.
Ultimately financial officials such as H. H. Kung and T. V. Soong could

not alter Chiang’s decision to use a military approach to deal with the
communists. Although many of his American advisers, military and civil-
ian, urged him to reduce the size of his military and modernize that
which remained, Chiang was unwilling to do so. Chiang still had the old
mentality that the number of your soldiers was the basis of your political
power – a throwback to the warlord years. He also rejected advice that he
limit the role of his military in Manchuria because it would be too
exposed. Forces of the Soviet Union had taken control after it entered
the conflict on July 8, 1945. Recovering Manchuria had become a rallying
cry during the war. Chiang decided to go with the maximum military
plan, printing money to cover bills and dooming the currency to fail.
Many of the key financial leaders of the government realized very early in
the postwar period that Chiang was not willing to contain military
spending.
Arthur Young wrote in his personal diary on May 8, 1946, “the
Generalissimo recently raised the army budget by a handwritten order
from 90 to 170 billion monthly. That is dictatorship!”21 The pattern
begun under H. H. Kung as minister of finance continued. Chiang
85

demanded the money, and the treasury supplied it with little accounting
for its use. China would print money; hyperinflation would continue.
There was no “peace dividend.”
Young’s private diary has not been published but kept at the Hoover
Institution Archives. As a supporter of the Guomindang government,
Young was more guarded in his published comments on the leadership.
But he acknowledged in the diary that:22
It is a great pity for China that [Chiang] does not understand finance and
will still take action without consulting those who do. He feels that those
who predicted financial collapse before are wrong and that it will not
happen. He got the country through eight years of war, and now wants
his own way with spending and finance.
Chiang decided that he wanted ninety divisions, which Young felt would
bust the economy in 1947 unless there was a change. China desperately
needed to repair its railroad system, but the railways faced a 47-million-
yuan deficit during the first half of 1946. Yet Chiang ordered the railway
administration to undertake the building of new lines that served his
military campaigns, so that restoring commercial functions took a back
seat.23
There is substantial evidence that much of the enormous military
budget was simply wasted. The Office of Intelligence Research of the
United States Department of State issued a detailed report on China’s
budget for 1946, made in the summer of 1947. The report noted that “the
unusually large volume of expenditures attributed to the military in 1946
(CN$ 4 trillion) is difficult to account for on the basis of reasonable
assumptions regarding the pay and supply requirements for
a Nationalist army of less than 4 million men.” Although the report
only provided crude estimates, it suggested that 2.5 trillion would have
been sufficient, leaving a gap of 1.5 trillion. Where did the money go? “It
seems probable that the major portion of this balance can be explained
only in terms of incompetent administrative controls over military
expenditures resulting in corruption on a large scale.”24
The report cited two key problems. First was the lack of control over
military expenditures. Branch offices of the Central Bank of China “in
areas dominated by military commanders consequently are forced to
86

issue currency to the military on a more or less uncontrolled basis.” These

outlays, which were outside of the regular budget process, were estimated
to have accounted for half of the military expenses. Much of this likely
went for speculative purchases by military officers. The second was that
“rice counts” for troops were “substantially higher than actual head
counts.” A traditional problem in China, this meant that money was
appropriated for a large number of soldiers who did not actually exist
and whose officers confiscated these salaries, often paid in rice. The
report suggested that, based on salaries, China’s army had more than
5 million men, but some intelligence sources suggested the actual num-
ber of troops was fewer than 3 million. So military expenditures were
enormous and yet poorly managed.25
The report also noted the failure to revive revenue streams that which
had been crucial to the Nanjing government prior to the war – customs
revenue, consolidated consumption taxes, and the salt tax. Customs
revenue had been the single largest source of revenue in prewar China,
30 percent of receipts in 1936–1937. But in 1946, the customs collections
were only 20 percent of prewar yields. The report suggested that the
severe decline of foreign trade and the elimination of customs taxes on
exports were the causes. It also attributed some of the decline “to
a deterioration in customs administrative standards.”26 As Philip Thai
noted in his study of smuggling, “corruption became especially problem-
atic in the postwar years.” Because salaries of the inspectors fell far
behind inflation, “corruption was also a survival strategy for frontline
employees.”27 How could officials resist bribery when their wages had
drastically declined in value?
Consolidated taxes on commodities such as tobacco, sugar, wheat
flour, beverages, and cotton yarn were another important prewar rev-
enue source. Revenue in this category was down 30 percent from prewar
levels in 1946. The report attributed this to “disorganization in product-
ive and commercial activity during 1946.” Receipts from the salt tax,
a major source of revenue before the war, were estimated to have
declined 70 percent in 1946. The report found several likely causes.
The government taxed based on the official prices of salt rather than
the black-market rate, which meant financial yields were much lower
87

than they might have been. Finally, “revenue leakages and salt smug-
gling” probably exceeded prewar levels.28
The land tax had been a key component of the government’s income
during the war. Earlier, this had been allocated to provincial govern-
ments, but in 1941, the national government (then in Chongqing) took
control and converted the tax from cash to in kind, primarily payments in
grain. After the war, the national government returned administration to
the local level and reduced its share to only 30 percent. Grain receipts
therefore played a much less significant role in providing revenue.
Receipts from north China were increasingly uncollectible because of
the military situation.29 In sum, military expenses continued to mush-
room, while revenues sources were generally less productive than prewar.
The government was unable to regenerate income in the liberated areas
of eastern China, while the ability to tap older sources of revenue likewise
declined.
BOTCHED LIBERATION AFTER JAPANESE SURRENDER
When Nationalist personnel – military and civilian – made their way back
to the occupied areas in the days after Japanese surrender, they univer-
sally made a negative impression. As Diana Lary observed, “to many in
Shanghai, the GMD takeover felt more like the onslaught of a plague of
locusts than a liberation. . . . Within a short time, so many houses, busi-
nesses, cars and private possessions had been lost by the locals to the
incomers from Chongqing that there was widespread disillusion [sic] and
anger.” Locals began to use a play on words, Lary notes. Jieshou (takeover
接收) was replaced by the homophone jieshou (plunder 劫收). She noted
that the Guomindang made no exception for the big capitalists who
might seem like allies. “They were squeezed just as hard as less wealthy
people.”30
This impression was almost universal among Chinese and foreigners
alike. F. H. Burch was a banker with the Hongkong and Shanghai
Banking Corporation. During the war, he had been interned in the
Longhua concentration camp along with his colleague A. S. Adamson.
With liberation, they left the camp to try to take possession of the bank
headquarters on the Bund only to find the Japanese still maintaining law
88

BOTCHED LIBERATION AFTER JAPANESE SURRENDER
and order and an official of the Yokohama Specie Bank on site. But when
interviewed a few years after the war, what angered Burch was not that his
former captors were still in charge, but rather the behavior of the
Nationalist operatives when they returned. He recalled, “the Japanese
kept law and order until the ‘vultures’ as we called them, the Chungking
[Chongqing] crowd . . . took the Japanese surrender.”31 And Arthur
Young reflected, “what happened in the early months of the war set the
pattern for what lay ahead. . . . The Nationalists badly mishandled the
takeover.”32
The report by the British embassy in Chongqing to London for
September 1945 observed “The enthusiasm of victory which marked
the first few days of the month has given way to the aftermath of disillu-
sionment.” Despite censorship, the report continued, “disappointment
at the lack of enthusiasm with which the relieving armies were received by
their compatriots (in Nanking in particular) and the activities of carpet
baggers in the most important liberated centres, has found expression in
the press.”33
One hope for the postwar economy was that domestic commerce and
foreign trade could be revived and once again provide income for the
Guomindang government. In theory, this should have occurred, but in
reality, the economy began to stall. War damage to railways, roads,
shipyards, and other facilities could not easily be replaced or repaired.
But government leaders also had great difficulty managing the newly
liberated areas. Chiang Kai-shek had been forced to abandon much of
east China early in the war, so most officials who fled to Chongqing had
been gone for more than seven years. But the east coast they left had been
the old treaty-port China. Many sections of key cities such as Shanghai,
Tianjin, and Qingdao had been under de facto foreign control. Public
services such as electric-power generation, harbor management, police,
and so on had been dominated by foreigners, most of whom enjoyed the
privilege of extraterritoriality.
All of this had disappeared during the war. On May 20, 1943,
Britain and the United States ratified agreements that ended the
unequal treaties and extraterritoriality; foreigners were now subject
to Chinese law. This also marked the termination of foreign entities
such as the Shanghai Municipal Council.34 And many foreigners were
89

simply gone. The Japanese had been the largest group of foreigners in
China, and they were to be repatriated. Most Allied nationals had
either fled the coast or ended up in concentration camps. Many
died; others were physically and psychologically scarred. Even if they
were able and willing to resume their former roles, Chinese officials
seemed unenthusiastic about their continued presence. Chinese
authorities stated that few foreigners would be given their old jobs
back and that China would not provide pensions promised by the
Shanghai Municipal Council. Many former foreign employees found
themselves in financial straits after being released from Japanese
camps. But the era of foreign imperialism was over. The hated
unequal treaties were gone, and China was to be free of the foreign
control.35
The returning Guomindang government could not thus simply
“restore” its early control of the coastal cities, because they had never
exercised full sovereignty. Thus, reopening ports, repairing railroads,
creating an effective police force, and many other tasks needed to pro-
vide sound urban government were often new tasks to be undertaken
under chaotic conditions. It is not surprising that this proved to be
daunting.
British diplomat Sir Horace Seymour traveled to Shanghai from
Chongqing in October 1945 and reported back to London that “there
is practically no shipping in the port, the municipal authorities have no
money, and the public utilities are working at such a heavy loss that they
obviously cannot be carried on on the present basis.” He met with
T. V. Soong and raised the issue that British ships from Hong Kong
could not get permission to bring in goods into Chinese ports. “It
seems difficult to believe that there should be any question in Chinese
minds about the desirability of getting overseas trade going again at the
earliest possible moment. In fact there seems to be considerable hesita-
tion about doing this.”36
During the war, the Guomindang government had severely limited
exports so that commodities would not leave “free China” for the occu-
pied areas. But these restrictions continued well after the war. When the
President Lines managed to get a ship to Shanghai, it found that even in
late November it was impossible to take cargo because the wartime
90

FLEECING “COLLABORATORS,” SEIZING ENEMY PROPERTY
restrictions had still not been lifted.37 In a memorandum of October 18,

1945, Arthur Young urged the government to take action to increase
trade. Limitations on exports should be lifted, and for imports, the
government should provide a list of commodities that could be freely
imported without restriction. These were commodities that would assist
in economic recovery for which foreign exchange would be provided.
The government might prohibit the importation of certain luxury, non-
essential commodities. But the regulations should be clear.38
But management problems at the port of Shanghai persisted. The
China Weekly Review in an editorial “Shanghai Port of Chaos” published
almost a year after Japanese surrender noted “the chaotic mess that is the
Shanghai port today may well cause the city to lose its chance of becom-
ing the greatest export and import center of Asia.” The biggest problem
was theft. Official reports from the Maritime Customs Agency admitted
that approximately one-third of all imports were stolen after being
unloaded at the port.39
Many Chinese capitalists had remained in the occupied area during the
war. Some had stayed in Shanghai during the period from July 1937 until
December 1941 when the “isolated island” offered some neutrality and
then became trapped there after Pearl Harbor. In many cases, the
Japanese confiscated their property, and they endured grim conditions
during the Pacific War period. But when Guomindang officials “liber-
ated” the occupation areas, they often considered these individuals to
have collaborated with the Japanese.
Some of the capitalists had hedged their bets during the war and were
able to evade censure. Zhou Zuomin was one of the most important of
the private bankers in the prewar period, the founder of the Jincheng
Bank. During the war, Zhou had stayed in Shanghai and Hong Kong. He
was placed under house arrest in Hong Kong by the Japanese after Pearl
Harbor and then was returned to Shanghai. He had chances to leave the
occupied zone for Chongqing but refused to do so. Moreover, he fre-
quently visited with Zhou Fohai, a key official in the Wang Jingwei client
regime, during the war. Zhou Zuomin also allowed branches of the
91

Jincheng Bank to operate in the occupied zones (as well as in Free

China). But during the war, Zhou was also shrewd enough to avoid
publicly joining puppet organizations in Shanghai. After the war
ended, he quickly set out to mend ties to Chongqing, meeting with
individuals such as Yu Hongjun, Wu Tiecheng, and Green Gang leader
Du Yuesheng.40
Ultimately Zhou decided that only a personal meeting with Chiang
Kai-shek himself could stifle the odor of collaboration with the Japanese.
Zhou arranged a personal conference with Chiang in Chongqing on
January 12, 1946. The forty-five-minute meeting with Chiang was devoted
to a discussion of the economic situation. In his diary, he described
Chiang as cheerful and exuberant in the meeting and that he saw him
out of the room. Reports of the event gave the public the impression that
he was cleared of the charges of collaboration even though that issue was
seemingly not discussed. Before returning to Shanghai, Zhou made the
rounds, having lunch with H. H. Kung on January 15 and dinner with
T. V. Soong that evening.41 But most capitalists lacked Zhou’s extensive
political contacts and could not easily escape the charge of collaboration.
And even Zhou could not fully dispel the taint of his wartime activities. In
his diary, he recalls incidents in the press where he was attacked and even
labeled hanjian (traitor to the Chinese). He mentioned a letter sent to
the supplement of the Wenhui bao entitled “What kind of person is Zhou
Zuomin?” and a similar attack in the Xinmin bao. The diary entries suggest
he was very sensitive to these attacks.42
Businesses that the Japanese held at the time of surrender were seized,
with little effort to return them to their previous Chinese owners. In
theory, both Chinese and foreign businessmen could petition to regain
control of property seized by the Japanese. If the Japanese had invested in
new equipment after they took the facility, that was to be the property of
the Chinese government. The reality was that a great deal of the property
ended up in the hands of the government and its officials. The rule of
“first come, first served” seemed to be the guiding principle in seizing the
property of those deemed collaborators.43 Chongqing set up an Enemy
and Puppet Properties Supervision Bureau (Diwei ye waili ju) that was
charged with taking over and operating businesses which had been
confiscated. T. V. Soong, then head of the Executive Yuan, directed the
92

establishment of the office along with the minister of finance. But as the
Dagong bao noted December 3, 1945, pilfering from confiscated proper-
ties was rampant, particularly from warehouses.44 These were technically
sealed because they contained enemy property but were not completely
secure. An unintended problem was a severe shortage of warehouse
space in Shanghai in the months after Japanese surrender.
A considerable number of warehouses had been damaged or destroyed
in the war, and since the government was slow to clear those holding
enemy property, ships arriving in Shanghai had difficulty finding
a facility into which to unload their cargo.45
As the China Weekly Review noted nearly two years after surrender,
“the victorious Nationalist Army and the incoming civil officials had
been fighting for years with their back to the wall. They suffered from
inadequate food, clothing shortages.” The consequence was, the jour-
nal concluded, that they “took this [Shanghai], their own city, as
a victorious army would take an enemy city. Shanghai became a prize
of war, a source of loot and booty.”46 Guomindang officials began to
extort money from individuals under threat of labeling them
“collaborators.”
It was not always clear who might be behind some of the extortion.
The Rong family textile and flour-milling enterprises had been among
the most important in China before the war. The family had ambitious
plans for postwar China although beset by internal disunity. But one of
the senior family members, Rong Desheng, had remained in Shanghai
during the war and had some dealings with the Japanese. He was afraid of
being labeled a collaborator following Japanese surrender. Yet when he
was seized on April 20, 1946, the culprits seemed to be criminal kidnap-
pers. When the family paid a reported US$500,000, he was released on
May 28. Yet this was but the most-high profile of many such cases.47 Lack
of clarity about those responsible for holding “collaborators” created real
anxiety among the Shanghai business community.
One reason for the chaos was the overlapping agencies that dealt with
punishing hanjian (traitors) and seizing their property. As Yun Xia notes
in her study of the treatment of traitors, “Chiang deliberately created
multiple layers of power in his administration and played one faction
against the other so no single individual or clique would threaten his
93

central authority.”48 In this case, two secret intelligence agencies were

bitter rivals. The Juntong (Bureau of Investigation and Statistics under
the Military Affairs Commission) was led by Dai Li, the notorious spy-
master who worked closely with the US Navy. Its rival was the Zhongtong
(Bureau of Investigation and Statistics of the Party Central Office), which
was part of the C.C. Clique of Chen Guofu and Chen Lifu. After the
Japanese surrender, the two groups competed to arrest the greatest
number of hanjian. Business leaders who had cooperated with the
Japanese were particularly targeted because they generally had financial
assets that could be seized. Many who had remained in the occupied area
claimed to have been secretly working with Chinese intelligence during
the war. But Juntong would particularly target those who has cooperated
with the Zhongtong.49
Not long after the war against Japan ended, Chiang Kai-shek seems to
have turned against Dai Li, feeling that he was becoming too powerful.
Chiang planned a conference of seven intelligence chiefs in the spring of
1946 to sort out the functions of each group. When Dai Li saw that three
of the names were his archrivals, he became convinced that the meeting
would lead to Juntong being dissolved. Before the issues could be
resolved, Dai Li was killed in a plane crash on March 17, 1946, effectively
removing Juntong as a competitor. Meanwhile, Chiang had selected one
of Dai’s rivals, Xuan Tiewu, affiliated with the Zhongtong, as head of the
Shanghai police, which gave him the authority to arrest hanjian.50
In theory, the government provided regulations and due process for
the confiscation of property of those deemed to have collaborated with
the Japanese. On November 23, 1945, it issued “Regulations on Handling
Traitors Cases” (Chuli hanjian anjian tiaoli) that specified ten kinds of
collaborators whose property would be confiscated. Additional guide-
lines were issued in December and again in the following spring.
Guidelines specified court guidance for property taken by the Alien
Property Administration.51
Despite the various regulations, in the chaos of the postwar situation
rules were often ignored. As Feng Bing and Wang Qian point out, the
embezzling of traitors’ property was the norm, as were cases of property
being concealed and evading confiscation. Property was often confiscated
by key military leaders or government officials, which “undoubtedly made
94

TRASHING THE WANG JINGWEI CURRENCY
the work of handling traitors’ properties all the more difficult.” The major
villas of collaborators were among the most visible targets. Liang
Hongzhi’s home was occupied by Guomindang general Bai Chongxi and
Chen Gongbo’s villa by the family of T. V. Soong. But most of the property
that was simply seized was taken by officials at a much lower level who took
advantage of the chaos of the postwar situation.52
As Yun Xia concludes, “laws against hanjian . . . created new channels
for government corruption, embezzlement, and nepotism. The public
grew increasingly bitter while watching those with political privileges
receiving the lion’s share of the wealth and possessions of hanjian.”53
The Dagong bao ran an angry editorial on September 9, 1946, the first
anniversary of Japan’s formal surrender:54
The taking over of enemy properties in China has been regarded by some
people as an opportunity to amass a fortune. These people have occupied
foreign style houses, grabbed automobiles, sealed warehouses and sent
gold bars to other parts of the country. Everything which could be
removed or hidden or which could make people get rich quick and
enjoy life was quickly taken over. One the other hand . . . foodstuffs
stored in warehouses were allowed to mold, and large numbers of trucks
and steamers were allowed to rust.
Some of the collaborators had managed to get property and money

out to Hong Kong where it could be deposited in foreign banks.
“Hong Kong has become a paradise for those wanted by the Chinese
government . . . from where they could find a better place to escape due
punishment.”55 Finally, because of the large number of cases involved,
trials and processing of traitors proceeded very slowly. In theory, the
property of these individuals was to be sealed until after a guilty verdict.
But because of long delays, the property had often been looted or
pilfered by the time the case was settled.56
TRASHING THE WANG JINGWEI CURRENCY
When the war ended, there were still three major, separate currency
regimes in China in the occupied areas. In central China where the writ
of the old Wang Jingwei government had held sway, the currency was the
95

Central Reserve Notes, as they were usually labeled in English. In north

China, the banking system established by the Wang Kemin puppet govern-
ment had issued the Federal Reserve Notes, while in the northeast, the
Bank of Manchukuo’s currency was dominant. Interestingly, the Japanese
never unified the currencies, which were subject to exchange control
between areas. Prices of commodities varied dramatically across the differ-
ent currency areas.57 The government wanted to retire these currencies as
soon as possible, replacing them with fabi, but this was easier said than
done. Setting an exchange rate was the first order of business.58
The government decreed a minimal exchange rate for notes of the old
Wang Jingwei regime at 200 yuan in the Wang currency to only 1 yuan in
fabi. This move wiped out the savings of most of the people who had
survived the years of occupation and alienated them from the
Guomindang. Few felt that they had really been “liberated” by the return-
ing troops. The impoverishment of the population of east China meant
that few could purchase manufactured goods, making an economic
revival difficult.59 Arthur Young had advised the government to adopt
a more lenient exchange rate, noting that actual prices in the two
currencies made 30 to 1 a more realistic ratio. When the government
did not heed his advice, “holders who had only puppet money, mostly
loyal Chinese, suffered greatly,” he observed.60 Scholar Diana Lary calls
the action, “one of the most damaging decisions that the GMD made in
the immediate post-war period. . . . With a single executive order, thou-
sands of innocent people under the puppet government became bank-
rupt overnight. . . . Bank balances melted away.”61
Ironically, the low exchange rate for the Wang notes was one of the
factors that triggered the revival of inflation. People were given four
months to convert the Wang Jingwei notes to fabi. Since they were so
undervalued, most rushed to buy goods with the old notes while they
could still be used. The resulting rush started prices on an upward spiral.62
The punitive exchange rate for puppet currency also opened the door
for an army of carpetbaggers to arrive from “Free China.” With the Wang
Jingwei currency suddenly nearly worthless, demand for fabi in the for-
merly occupied areas increased quickly. Officials from Sichuan brought
large quantities of fabi with them and went on a buying spree in the newly
“liberated” areas.63 One official in Chongqing, Mi Qingyun, who worked
96

THE FOREIGN EXCHANGE RATE AND ITS CONSEQUENCES
in grain management, recalled the aftermath of Japanese surrender. On

August 20, 1945, another official arranged for them to fly to Shanghai,
where the sudden increase in the value of fabi relative to the local currency
made it advantageous to purchase commodities such as gold. In addition,
many hoarders in the occupied area unloaded commodities to acquire
fabi. Realizing that the situation would not last long, Mi and his friend
arrived by air to take advantage. At first, they were able to make
a substantial profit in purchasing gold in the local market, but Mi noted
that prices adjusted within ten days. The thriving black market in gold was
centered on Hankou Road in Shanghai. Meanwhile the locals in Shanghai
suffered, and it was difficult for businesses to recover from the war.64
The overvaluation of fabi versus the Wang Jingwei currency meant
that commodities in the lower Yangzi area were relatively cheap for those
arriving from Chongqing. The buying frenzy by those coming from the
interior in part helped set off a new round of inflation. The famous
department stores on Nanjing Road in Shanghai were cleaned out of
commodities by the incoming officials. The “peace dividend” had been
very short-lived.65
The other currencies used in Japanese-controlled areas fared a little
better. In northeast China (formerly Manchukuo), the government
decreed an exchange ratio of 1 Manchukuo yuan to 13 Nationalist
yuan. This was a relatively fair exchange rate based on commodity prices
and similar to the market rates for currency.66 The exchange rate for the
old currency used by the Wang Kemin government in Beijing was
announced in November and was set at 1 yuan fabi to 5 of the Wang
Kemin currency. This approximated the black-market rate so was much
less of a burden for those who had lived in the occupied area.67 These
areas would be contested with the communists, so the cautious exchange
policy may have reflected those concerns.
THE FOREIGN EXCHANGE RATE AND ITS ECONOMIC

CONSEQUENCES
In the final months of the war, the Chinese government had persisted in
maintaining an artificially high exchange rate for the yuan against both
the dollar and the pound sterling. The yuan continued to weaken in the
97

black market, but the government refused to adjust the rate. Chiang Kai-
shek seemed to feel that lowering the rate would be a blow to China’s
prestige. Meanwhile, British officials in China noted that the Chinese had
eased up on wartime restrictions on foreign trade in October 1945 but
felt that there was little hope of a revival of foreign trade “until shipping is
available and able freely to enter Chinese ports and until a new and
realistic exchange rate has been fixed.”68
The Chinese government had stated that it was eager to have foreign
business resume activity in China, although it would no longer be pro-
tected by extraterritoriality. But the official exchange rate made it diffi-
cult for foreign firms to invest. In a statement of October 16, 1945, the
Foreign Bankers Association in Shanghai noted “foreign companies and
firms in China are anxious to resume their former activities . . . but they
lack the local currency funds necessary to rehabilitate themselves and
they cannot afford to sell their foreign currency funds at the Chinese
Government’s official rates.” And the foreign banks could only sell at the
official rates, not the market rates.69 Most businesses who exported did so
by smuggling goods out and then selling the foreign exchange on the
black market. Arthur Young advised Bei Zuyi, head of the Central Bank,
in a conversation of December 13, 1945, that China should simply aban-
don the idea of trying to manage currency exchange at a fixed rate. His
argument was that fixing the rate was very difficult, the costs of covering
the foreign exchange would be too high, and that frankly it would not be
well administered. But Bei did not have the final say in this policy, of
course.70 Chiang seems to have become entrenched on the idea of
holding the foreign exchange value of fabi as a matter of national pride.
T. V. Soong as head of the Executive Yuan managed to launch
a reform program in early 1946. The government adjusted the official
rate to a level of US$1 to 2,020 yuan in February 1946, abandoning the
pretense of the $1 to 20 yuan. This temporarily eased some of the
problems, although the rate would be raised on August 19 to $1 to
3,350 yuan.71 The government reopened the foreign exchange market
and on March 8, 1946, resumed sales of gold, hoping that this would help
stabilize the value of fabi. But too many tried to purchase gold, so the
government suspended the sales on April 29. Many bankers and business-
men felt that the government had not really issued a clear statement on
98

its foreign-exchange policy. With so much uncertainty about the ration-

ale behind decisions on the rate of exchange, some felt it was difficult for
the government to stabilize the currency.72
At that point, all foreign-exchange transactions had to be handled
through the Central Bank of China at the fixed rate. Twenty-two banks
were listed as “appointed banks” who could deal with foreign exchange
by going through the Central Bank. The government also issued a list of
approved imports for which foreign exchange would be provided.
A second list included items for which a special permit was needed to
receive the foreign exchange. And finally, some items were listed as
nonessential and could not be imported. In theory, these regulations
gave the government some control over foreign trade. To order products
from overseas, merchants had to deposit funds in yuan at the Central
Bank before foreign exchange could be arranged and goods ordered
from abroad.73
That rate of 2,020 yuan to $1 had been roughly comparable to the
black-market rate, but that rate increased an average of 25 percent
monthly, which meant that the official rate was quickly overvalued. This
triggered the adjustment in August to 3,350 yuan per dollar.74 As Arthur
Young remembered, “It was not long until we met the expected difficulties
from overvaluation . . . The printing presses spewed out a flood of money,
and reserves were sold too cheaply. Reserves . . . dwindled alarmingly.”75 By
late September 1946, the black-market rate for American dollars reach
almost 4,400 yuan for $1. The local press reported that there was over
US$100 million in American banknotes being hoarded in China, primarily
by wealthy Chinese who had lost faith in fabi and had the means to acquire
US currency.76
The exchange-rate policy had a major impact on China’s difficulty in
recovering from the war. Almost a year after surrender in late June 1946,
the Dagong bao, one of China’s best newspapers, ran a lengthy analysis of
what it considered to be an industrial crisis in China. It noted that two
sectors of the industrial economy were suffering the most. Industries such
as drugs, paper, cement, and tobacco that faced foreign competition
suffered because imports were cheaper in the Chinese market and limited
the growth of Chinese firms. The second was industries that relied on
foreign sales such as silk, knitting, and handkerchief production, whose
99

products were more expensive when sold overseas. By contrast, cotton

textiles relied on cheap, imported American raw cotton and thus found
their costs reduced.77
In another editorial on April 29, 1946, the Dagong bao noted that the
situation had not improved. “More than eight months have elapsed since
the conclusion of the war and five months have passed since sea traffic
was re-opened. But China’s foreign trade has been shrouded by an
atmosphere of pessimism.” The paper blamed the greatly overvalued
yuan relative to the dollar “so import trade is in a very favorable position
and export trade is in a very unfavorable position.” The paper also
criticized the government for relying solely on the United States for
trade. Developing an export market in Southeast Asia was critical.78
Not long after, on May 14, 1946, the Xinwen bao ran an editorial “Save
the Export Trade!” The editorial put direct blame for the crisis in exports
on the government, whose exchange-rate policy priced China’s exports
out of foreign markets. “If our exports cannot establish a good standing
in the new, postwar world market, who can guarantee that Japan will not
re-expand her export trade after a certain period of time? Who can
guarantee that India will not take Japan’s place?”79 These sentiments
were echoed by a Shenbao editorial of June 4, 1946. “Since V-J Day the
European and American shipping companies have resumed operations
and large numbers of ships have called at this port [Shanghai] but due to
the high commodity prices prevailing in this city the amount of exports
has been small, so that most of these ships have left port without any
cargo.” By contrast, the imported goods were quite cheap when sold in
Chinese currency. “We depend upon foreign countries not only for the
supply of cotton and wheat, but also for oranges, aerated water, candies,
cigarettes and even the soap bubbles with which children play. Yet our
exports are almost nil.”80
Statistics verified this journalistic account. According to an analysis
done of the Shanghai trade for the first six months of 1946, Shanghai’s
total volume of trade was 380 billion yuan, which was US$190 million at
the official exchange rate. Of this total, 347 billion yuan were imports and
only 34.8 billion exports. In other words, imports were ten times the
amount of exports. China’s foreign-exchange reserves were thus being
drained in the process. Almost half of the total was for cotton and cotton
100

products, with gasoline and other fuels being second. Chemical and
medicines were next, followed by cars and trucks. As for exports, raw
silk, bristles, leather goods, and knitted cotton goods led the way. Only
a negligible amount of tea was being exported. The official statistics
underestimated the trade deficit because some products were smuggled
into China without legal clearance.81 Arthur Young predicted that China
would run out of foreign-exchange reserves if it continued current
policies.
China adopted a more widespread program of control of trade in
November 1946, designed primarily to restrict imports. Import permits
were required for all items, and many items were prohibited entirely.
The latter included luxuries, toys, and so on that were deemed nones-
sential. Other items that were legal to import faced quota restrictions.
Raw materials and capital goods were given priority for importation.
The regulations required equal treatment for government and private
enterprises. The new regulations were designed to eliminate the black
market in US dollars, since all imports would have to have a government
license and foreign exchange arranged through the Central Bank of
China. The black-market rate had been almost 50 percent higher than
the official rate.82
But altering the situation was not easy. Importers needed to demon-
strate that they had foreign funds available to receive an import license.
But since most could not obtain them legally, they attempted to acquire
such funds on the black market, which drove up the rate. So, the licens-
ing system did not rein in the gap between the official and black-market
rates of exchange. The government attempted to only grant licenses
when the foreign exchange had been obtained legitimately, but this
was difficult. In January 1947, the black-market rate for American dollars
was nearly two- and-one-half times the official rate.83
One important effect of the failure of China to revive trade was the loss
of customs revenue. A confidential study of the Chinese national budget
done by the US State Department in July 1947 looked at the drastic
shortage of revenue by the Chinese government. It noted that the yield
from customs duties in 1946 in comparative terms was only 20 percent of
the prewar level. “This failure of customs revenue to recover to the
prewar level” was largely due to factors such as “foreign trade subject to
101

duty during 1946 was sharply reduced from the prewar level in terms of
both value and quantity.” A reduction in trade meant a reduction in tariff
revenue. Additionally, imports for government agencies were generally
exempted from tariffs.84
SHIPPING AND TRANSPORTATION PROBLEMS
Foreign-exchange difficulties and government regulations were not the

only factors that inhibited a recovery of trade. Transportation woes
plagued China. Prior to the war with Japan, foreign shipping companies
had played a major role in China. Under the unequal treaties, foreign
ships were allowed to ply the interior rivers of China carrying freight and
passengers. Britain had been especially dominant. In 1937, 42.4 percent
of China’s domestic shipping and 36.5 of her international shipping had
been carried by British vessels.85 Foreign gunboats could also enter the
interior waters to “protect their interests,” hence the famous gunboat
diplomacy. Decades earlier, the Chinese had tried to counter by estab-
lishing the China Merchants Steam Navigation Company but with limited
success.
Foreign intrusion into the interior of China under those conditions
had rankled Chinese nationalists from Sun Yat-sen to most of the postwar
leadership of the Guomindang Party. Restricting foreign commercial
and military ships in interior areas had been a long-standing goal.
When the new Nanjing government began negotiating with the foreign
powers to end or modify the unequal treaties, top priority went to the
issues of tariff autonomy and terminating extraterritoriality, but the issue
of shipping rights was not far behind. In August of 1929, the
Guomindang’s Central Political Council decided to add recovery of
China’s shipping rights to the treaty revision effort. The Shanghai
Shipping Association (Shanghai hangye gonghui) headed by Yu
Xiaqing conducted propaganda on the issue, demanding that the gov-
ernment do more to get foreign ships out of Chinese domestic waters.
Although Nanjing had made limited progress on the issue before the war,
it was of deep concern to many within the Guomindang.86
With the unequal treaties terminated during the war, Chinese leaders
across the board favored prohibiting the ships of foreign companies from
102

entering interior rivers. This was, in fact, the policy of many nations,
including the United States. America allowed foreign ships to trade at
select international ports but did not extend the right of domestic trade,
a policy that China seemed prepared to adopt at war’s end.87
While it is understandable why Chinese would favor ending foreign
privilege in shipping, the hard reality was that China was desperately
short of water transport at the conclusion of the war. A great deal of
shipping had been destroyed, railways were still not fully restored, and
China lacked a usable highway system for the most part. The Office of
Intelligence Coordination and Liaison of the Department of State of the
United States undertook a confidential assessment of Chinese merchant
shipping in July 1946. The report noted that in 1935 vessels involved in
shipping in China that were over 100 gross tons in size totaled 6.6 million
gross tons. Chinese ships were only about half of the total of the inland
and coastal trade, the rest were foreign. But during the war, much of this
was sunk. “China in these years lost most of its merchant fleet by seizure
or sinking. When the war ended in the summer of 1945 the Chinese
merchant fleet was reduced to about 90,000 to 100,000 gross tons of river
craft, including vessels retaken from the Japanese.” The China
Merchants Steam Navigation Company lost virtually all its shipping dur-
ing the war.
Compounding the difficulties, less than one-fifth of the railway mile-
age in China outside of Manchuria was in service in the summer of 1946.
With the ban on foreign shipping in interior rivers, the report concluded,
China desperately needed 1.0 million gross tons of river and coastal
vessels. The report concluded that China lacked any ship-building indus-
try and could not develop one in the short run. Most commercial ships
would have to be purchased from the United States.88 A similar report
done in 1948 by the Chinese Ministry of Communications concluded that
China lost 86 percent of its shipping vessels during the war.89
Late in the war era, the Chinese government began to plan for
a revival of shipping and designated the China Merchants Steam
Navigation Company as the key agency for government investment.
The Ministry of Communications developed a five-year plan that high-
lighted growth of the company. At the time, the company had a very
limited number of river vessels in the Sichuan area. An immediate source
103

of vessels was those seized from the Japanese. In October 1945, the
minister of communications Yu Feipeng telegraphed T. V. Soong
requesting all boats confiscated from enemy shipping companies.
Chinese authorities confiscated eleven steamers from the Japanese Toa
kaiun kaisha (East Asia Navigation Company) and gave these to the
China Merchants Navigation Company.90 But in fact Japan had lost
a great deal of its commercial shipping to Allied submarines and surface
ships. Ultimately, the only solution was to purchase foreign ships, primar-
ily from the United States, with some coming from Canada. Soong
announced in March 1946 that purchases from America were underway.
Soong did try to diversify his sources. In early 1946, he worked to
arrange purchase of five Danish ships and two Swedish ships through the
China Purchasing Agency in London. These would have gone to the China
Merchants Company.91 But despite these efforts, many of the purchase
attempts fell through because of complications in the negotiations or
questions about the quality of the vessels. These problems delayed
Soong’s attempt to establish domestic and foreign shipping under
Chinese control.92
The China Merchants Steam Navigation Company did manage
a significant revival in the postwar period. At the end of 1945, it had 366
ships, and by June of 1948, it reached a peak of 490. Nearly 74 percent of
these ships by tonnage were purchased overseas; less than 20 percent had
been confiscated from Japanese companies, and only 6.3 percent of the
total tonnage remained from the Yangzi fleet in Sichuan. One major shift
in the shipping industry was the move toward government control. In
1935, only 11 percent of total tonnage of Chinese shipping was held by
the government; the figure for June 1948 was 44 percent, with the China
Merchants Steam Navigation Company the dominant player. Private ship-
ping was still the majority, but many of these companies were small firms
with small ships. The largest of the private companies was Lu Zuofu’s
Minsheng Shipping Company, which held 7.6 percent of all tonnage.
With the Guomindang government backing the China Merchants
Navigation Company, Lu turned to Canadian funding with some assistance
from the Jincheng Bank. A major problem for all shipping companies was
that the government used their boats to ship supplies and troops during
the civil war but was slow to compensate the firms.93
104

Despite this modest revival of Chinese shipping after the war, trans-
portation problems inhibited the revival of commerce. The textile mills
of Shanghai, Tianjin, and Qingdao had to rely on imported cotton as the
domestic supply could not reach the cities. Transportation difficulties
and communist control of cotton-growing areas prevented raw cotton
from getting to the cities. Before the war, China’s textile industry had
used 2.5 million bales of domestically grown cotton. After the war only
500,000–800,000 bales were estimated to be available. Before the war,
China had imported about 300,000 bales of cotton, but from the end of
July 1945 until early 1946, 1,250,000 had already been imported. This was
a significant strain on China’s balance of payments issue, so getting more
domestic cotton in production and to market was essential.94
The issue of foreign ships in the interior flared up almost immediately
over relief shipments that were arriving under the auspices of UNRRA.
These were distributed in China by its domestic counterpart, CNRRA. In
August 1946, the US Department of Agriculture, the only source supply-
ing UNRRA with wheat, expressed reluctance to provide the monthly
quota of 50,000–60,000 tons because CNRRA had not been able to ship
earlier supplies to famine areas in the interior.95 CNRRA had proposed
an exception to the shipping rule so that British ships could carry relief
supplies directly to famine areas. Arthur Young noted that when CNRRA
proposed this, there was strong objection from Nationalist leaders and
domestic shipping firms. The dispute, he noted, had significantly delayed
getting relief supplies to inland locales that desperately needed them.96
Soong agreed, and British ships were given permission to bring the relief
supplies to inland ports until July 15, 1946. The Chinese Shipping
Companies Guild in Shanghai protested this action, stating that Britain
was using delivery of emergency aid as a pretext to regain the right of
interior navigation.97
Shipping was not the only issue that led to problems between
UNRRA and its Chinese counterpart CNRRA. In a Senate inquiry
held in Washington, DC in July 1946, UNRRA reported that they had
curtailed some exports to China because of problems with CNRRA.
Specifically, they found that the agency lacked funding and began
selling relief goods for cash on the open market, and they used relief
goods to pay laborers. Flour meant for relief of famine areas was being
105

dumped and sold for profit on the black market, as was fertilizer.
Meanwhile, owners of wharfs in Shanghai were refusing to give space
for unloading relief supplies because CNRRA was not paying its bills.
The report stated that thirty ships carrying relief supplies were
anchored at Wusong without adequate berthing space in Shanghai.
Fiorello LaGuardia, the director-general of UNRRA, stated to the
Senate Committee that he had no choice but to curtail relief shipments
and that he had directly contacted Chiang Kai-shek on May 29 to
resolve the situation. Meanwhile, 300 UNRRA officials wrote directly
to LaGuardia in July 1946 noting improper handling of supplies, pil-
fering, and profiteering with China supplies.98
UNRRA had been created in November 1943 to aid areas that had been
occupied by the Axis Powers. The China program was the largest single
program, and 72 percent of the funding came from the United States. From
the outset, UNRRA was designed for the relief of civilian populations in war-
torn areas. Reports that UNRRA cotton was used to produce military items
led to the China office issuing a circular directive to cotton mills in Shanghai
in August 1946. Relief cotton could only be used to produce cloth for
civilian use, not for uniforms for Chiang’s military. A similar directive was
issued to Tianjin mills. But this issue did not go away. Reports in the summer
of 1947 suggested that UNRRA vehicles and rolling stock were being used
for the transportation of military supplies and soldiers. Nonetheless, pres-
sure from LaGuardia and the US Congress seems to have resolved some of
the disputes between UNRRA and CNRRA. By mid-August 1946, for
instance, additional wharf space become available in Shanghai.99
The UNRRA program had made its first deliveries to Shanghai in
November 1945, and the program was largely completed by November
1947 with nearly 518 million dollars’ worth of supplies delivered. A study
done in the immediate aftermath acknowledged some of the problems.
“Early congestion in the ports, paucity of transportation facilities within
China, and the chronic shortage of local currency with which to operate
provided almost insuperable obstacles to effective distribution.” The report
also was candid about issues between UNRRA and CNRRA. “Relations
between CNRRA and the China Office of UNRRA were, in the early period
of active operations, marred by disagreement, inefficiency, and the piling up
of UNRRA supplies in the ports without adequate organization,
106

transportation facilities, or funds for distribution.”100 The problems were

simply yet another area of friction between the United States and China in
the aftermath of World War II, which plagued economic relations in
particular.
Arthur Young tried to find ways to increase China’s exports, which
were so minimal compared with imports. He felt an increase in
Chinese shipping was crucial. In a letter sent to T. V. Soong, then
head of the Executive Yuan, on July 1, 1946, Young noted that many
of China’s exports such as wood oil, bristles, and hides and skins, were
produced in the interior. Many egg products needed immediate
refrigeration. If these had to be shipped to Shanghai on domestic
shipping and then transferred to oceangoing vessels, this would
increase the cost. Allowing foreign ships to take on cargo along the
Yangzi River and at other interior ports would help boost China’s
exports, especially since there was a significant shortage of river ship-
ping. Also, Tianjin exporters could not ship to Shanghai but had to
ship directly overseas, which inhibited economic recovery, in Young’s
view. Although he realized this was politically sensitive, Young felt that
the most urgent matter was to increase exports to strengthen the yuan
and to revive the economy.101
In this case, the Supreme National Defense Council decided in early
June 1946 that four Yangzi ports – Nanjing, Wuhu, Jiujiang, and Hankou –
would be reopened for foreign shipping for one year. Once again,
Chinese shipping leaders objected to this policy.102 An editorial in the
Shang bao on June 13, 1946, criticized the new policy, stating that many of
the imports were luxury goods that China did not need, wasting valuable
foreign exchange. Further, “after the opening of the four river ports, the
dumping of cheap goods will be made even easier, due to the fact that
foreign steamers can sail to the inland ports.”103 But foreign observers felt
trade was still stifled. The Hongkong and Shanghai Bank reopened its
branch in Hankou in 1946, but the manager observed that “we were doing
no business at all.” Their big bank building on the Hankou Bund was no
longer needed; most was rented out. The manager reported that “there
was virtually no shipping, there was nothing, the only ships that were
moving up and down the river were tank landing craft which were carrying
the UNRRA supplies to starving Chinese in the interior.”104
107

T. V. Soong was also approached in February 1946 to allow American

shipping of cotton to Qingdao and Tianjin from Shanghai. A shortage of raw
materials was stifling the textile industry in those cities, but the only available
cargo shipping was American coal ships that carried coal to Shanghai but
were empty on the return trip north. The Chinese Textile Industries Group
wrote Soong on February 9, 1946, supporting this request, noting that the
shortage of raw material in Qingdao and Tianjin threatened to shut down
textile production. Permission of the Executive Yuan was required for this,
which Soong apparently granted in this case.105 Still, Frank Tamagna, in
a draft report for the Executive Yuan written in October 1946, observed that
“economic conditions in Northern China in the summer of 1946 may be
described as stagnant.” He attributed this to the shortages of raw materials
and coal caused by the lack of transportation. “This state of affairs affected
particularly foreign businesses, which were reduced to almost a complete
standstill.” He observed the primary causes: “the high costs and inadequacy
of Chinese shipping, the restrictions imposed upon shipping and the com-
plications involved in foreign-exchange financing were the chief obstacles to
import and export trades.”106
Shipping was not the only transportation issue. Despite wartime con-
ditions, aviation grew in importance during the war. Indeed, flying over
the Hump became the key link with the outside world. During the
conflict, China had relied on American ties. The China National
Aviation Corporation (CNAC) had been established as a partnership
with Pan-American airways, which held 45 percent of the ownership.
Beginning as early as November 1943, Kung began to entertain proposals
for postwar aviation. Although he recognized that China would need
foreign capital, there was strong feeling that China must protect its
sovereignty and maintain control over its domestic airlines. In
January 1944 Kung received a confidential report that in postwar China,
foreign ownership in domestic Chinese airlines should be limited to 20 to
25 percent of the stock and that contracts with foreign firms should give
the Chinese government the right to purchase the foreign shares at a fair
price at any time during the contract. In addition, China should diversify
its foreign partners. TWA, an American airline, had made an offer to train
pilots for China as a first step to get an entrée into the China market and
break Pan-American’s monopoly. John Keswick of Jardine’s had written
108

A DIFFICULT BEGINNING
Kung in December 1943 about a postwar partnership between China and

Britain for international routes.107
W. L. Bond, vice-president and ranking American partner in CNAC,
recognized that China would like to limit foreign ownership of Chinese
domestic airlines while benefiting from foreign capital and technology. He
noted that the United States provided that any American domestic airline
wishing to carry airmail had to be at least 75 percent American-owned. He
thought a similar limit might be suitable for postwar China. In addition, he
understood that the Chinese government might wish to have the provision
that it could buy out foreign partners if it so chose. Overall, Bond was very
optimistic of the future of Chinese aviation in the postwar era.108 One
concern was that Stalin was pressing China for joint development of aviation
links through northwest China to the Soviet Union. When the war ended
suddenly, the future organization of postwar Chinese aviation was still
unclear. But the importance of aviation – a vital lifeline during the war –
would not change. The slowness in restoring shipping and the rehabilita-
tion of China’s railways guaranteed that the reliance on air transport would
be undiminished.
A DIFFICULT BEGINNING
When the war ended in the late summer of 1945, the feeling of euphoria
in China was short-lived. The prospect of a looming civil war was perhaps
the key factor. But the failure to stabilize the currency and restart foreign
trade played a vital role in the despair. The psychology of hyperinflation
continued. Industrialists found holding raw materials and finished prod-
ucts more profitable than manufacturing. As a US State Department
intelligence report noted, under conditions of hyperinflation, “industrial
production was frequently a bad gamble for low stakes. Many private
manufacturers preferred to hold material inventories for the almost
inevitable appreciation in their market values rather than to accept the
risk of converting those inventories into finished goods the prices of
which might not cover the mounting costs of production.”109
A series of bad policy decisions by the government and inept adminis-
tration undermined the takeover of the formerly occupied areas.
Rapacious behavior by officials arriving from Sichuan and a disastrous
109

exchange policy for the old currency of the occupied area created an
atmosphere that undercut both demand for products and a feeling of
security in business investment. Proud of its achievement in fulfilling Sun
Yat-sen’s goal of ending the unequal treaties, Chinese officials began to
exclude foreigners from China’s economy, which made recovery of
transportation especially difficult. Guomindang policies alienated
Chiang’s American partners, particularly in the Treasury Department.
Could the government salvage the peace? Events in 1946 would be
decisive.
110

CHAPTER 4
1946
Failure to Revive the Economy in the Aftermath of War
D r. arthur n. young had served as a financial adviser

to the government of China for seventeen years. In the late
summer of 1946, however, Young decided to resign and return to
America in part to seek medical treatment for several health issues,
including malaria. Young assumed this would end his China adventure,
but in fact he would return for a time in 1947 and worked for China in the
United States. But another reason for his departure from China was his
deep pessimism about the financial situation and his assessment that
neither Chiang Kai-shek nor other officials would change a course
which he saw as disastrous. Only a few months earlier as the war seemed
to be heading toward an Allied victory over Japan, he had been more
optimistic. But the botched liberation of coastal areas, the difficulties of
revival of trade and commerce, and the quick onset of hyperinflation
suddenly changed his perception.
Young was not the only foreigner working for the Chinese govern-
ment to become quickly disillusioned. L. K. Little, inspector general of
the Chinese Maritime Customs, wrote in his diary on September 19, 1946,
“I am very discouraged, after one year of China’s ‘rehabilitation.’ I realize
there is unrest all over the world and that no country is escaping prob-
lems and trouble, but China’s mishandling of her great opportunity is so
easily avoidable and so unnecessary that it is most saddening.” A few days
later, he added the observation that “the feeling of hopelessness and
frustration among the honest Chinese is one of the most tragic and
disturbing features of the present day.”1
Arthur Young wrote a farewell memorandum to Chiang Kai-shek on
August 31, 1946 in which he was brutally frank about the situation.
111

1946
“The financial situation in China is basically unsound. . . . The violent

phase of inflation – in which prices multiply several-fold in a month – is
postponed only by heavy use of reserves of foreign exchange, gold, and
enemy property.” Those reserves, he argued, were fast being depleted.
To maintain the stability of the fabi at a rate of 2,020 yuan to US$1, which
had been set on March 4, 1946, China spent US$40 million a month in
June and July of 1946. China’s foreign reserves would be gone by the end
of 1947 if nothing were done. “Drastic curtailment of expenditures,
especially military, and firm rebuilding of revenues to restore equilib-
rium is the fundamental policy needed before the situation gets com-
pletely out of hand.”2
It is doubtful that Young held out much hope that any of his policy
suggestions would carry the day; earlier warnings had largely fallen on
deaf ears. But his prediction of financial collapse proved accurate.
Estimated price indexes for China based on the prewar average of
January to June 1937 as a base of 1 show a price index in January 1946
of 1,827. The following January in 1947, it reached 7,550. By June 1947,
24,830, and by December 1947, 103,400. By July 1948, when the govern-
ment abandoned fabi for the ill-fated gold yuan, the index reached an
astounding 2,877,000.3 By autumn 1947, the government was printing
300 million pieces of currency monthly.4 Small denominations of yuan
were so worthless that in Hong Kong they were shredded and used for
stuffing in packing crates.5 The financial collapse that Young had pre-
dicted was realized.
Attempts to implement price controls repeatedly failed, as almost
universally happened in cases of hyperinflation. In the spring of 1946,
the price of rice in Shanghai began to accelerate. Shanghai mayor Wu
Guozhen had mandated a fixed price for rice sales. As a result, the supply
began to drop as farmers were unwilling to sell rice to Shanghai buyers at
the set price.6 China was simply too big and too chaotic at the time for the
Guomindang government to impose fixed prices.
Young had hoped that China could turn things around with victory
over Japan. But little went as Young wished. The abrupt end of the war
provided no transition period for imported goods to enter the market
before China faced the problem of eliminating the puppet currencies. In
Young’s view, the Guomindang government had mishandled the
112

1946
conversion of the currency of the Wang Jingwei regime, greatly under-

valuing the banknotes. This had impoverished the population of the
lower Yangzi, alienating them as well. It also reduced the ability of the
easterners to purchase goods, stifling the revival of the economy and
restricting the recovery of tax revenue. Most critically, however, was
Chiang’s decision to focus on the military. There would be no disarma-
ment after the war against Japan; Chiang was gearing up to fight the
communists.
Sensing that the chance to stabilize the currency was being lost forever,
Young sent a confidential memo on April 3, 1946, to Bei Zuyi, general
manager of the Central Bank of China, for whom Young directly worked.
Bei apparently shared the contents of this memo with Chiang Kai-shek. In
it, Young outlined what he thought were the key steps that had to be
implemented to stabilize the currency. The failure of Chiang and the
Guomindang leadership to implement any of these in part triggered his
resignation and the final memo of August 1946. The key item was that
China must expedite troop disbandment “and stop expansion of military,
air, and naval projects except those immediately needed for maintaining
internal order and national defense.” China should also “suspend expan-
sion of Government economic enterprises and limit public works to those
necessary for rehabilitation and those whose internal costs can be covered
by non-inflationary means.” The government should “gradually reduce by
sales, the number of Government enterprises and restore and encourage
private ownership and management both Chinese and foreign.”7
The above steps were aimed at reducing government spending to
eliminate the need for deficits. But Young also felt China had to restore
a revenue stream that had largely been lost when the Guomindang
retreated from the coast under the Japanese onslaught. “Reduce current
Central Bank advances by actively developing non-inflationary revenue
from the sale of imported consumer goods . . . the sale of domestic goods
and property that is under government control; and the sale of gold, silver,
and foreign exchange.”8 Young argued that following these steps could
restore confidence in the financial system and curb inflation. Yet the
writing was already on the wall; the massive expenditure of foreign
exchange in June and July 1946 revealed clearly that none of the measures
he recommended were being followed.
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1946
There were a few bright spots. Some sectors of the industrial economy
such as cotton textiles recovered, quickly reaching prewar levels.9 But
Young felt that this recovery could not be sustained without stabilizing
the currency and improving transportation. He had strong reservations
about the large role that government was coming to play in the economy.
And he felt that China was squandering its foreign-exchange reserves
both by an unrealistic exchange rate and by too many expensive and ill-
advised projects that increased government spending and reliance on
foreign imports.
LIMITING GOVERNMENT ENTERPRISES AND PROJECTS
One reason for Young’s pessimism in the early months of 1946 was that
he had become increasingly disillusioned with the Nationalist leadership,
particularly T. V. Soong. Young felt that China had very limited foreign-
exchange reserves and should be cautious in using them. Purchases
should be directly related to rehabilitating the infrastructure and econ-
omy as frugally as possible to restore economic activity. Young felt that
Soong had become overly enthusiastic and was not being careful in
picking his projects. In an entry in his confidential diary of January 23,
1946, Young noted that “T. V. is spending a lot for ships, etc. sending
telegrams from all over the country, and apparently has no systematic
record. The Central Bank does not know the whole picture, nor the
Ministry of Finance or anyone.” Careless budgeting was not a luxury
China could afford. “Payments might be credited against funds due
from U.S. for army costs in China but not arranged.”10 He reiterated
this point in late March. “The Government still is spending recklessly and
pumping out money, which is beyond Central Bank control.” Leadership
was the problem, he admitted. “T. V. [Soong] is not holding a tight rein,
but has become more of a politician. O. K. [Yu Hongjun] is not strong
enough to hold back.”11
Young was also dismayed as some Americans pushed China into
investments and deals that he thought wasteful of foreign exchange.
Perhaps the most egregious in his view was the American effort to get
China to purchase a great deal of surplus US military equipment that was
left in the Western Pacific. Young felt that much of this – including large
114

JAPANESE REPARATIONS
trucks – would not be useful in China and would be a waste of foreign

exchange. The costs of the deal, which was pushed through, was an
estimated US$240–$300 million.12 General George Marshall, who had
arrived in China to negotiate a coalition government between the
Guomindang and the communists, had pushed this because he thought
the American property could help stabilize prices and control inflation.13
The Chinese Supply Commission, a Chinese agency in Washington,
arranged lines of credit with the US Export-Import Bank of Washington
to purchase capital equipment in the United States for railway materials,
power plant facilities, coal-mining equipment, old ships, and other
materials, designed to help revive China’s economy. For instance, the
line of credit for purchase of coal-mining equipment was US
$1.5 million.14 Had China entered a period of economic stability, these
advances would have been very helpful in recovering from the war. But in
the circumstances in 1946, they increased debt, while China was unable
to get mining moving under existing conditions.
The continued division between T. V. Soong and H. H. Kung plagued
China in Young’s view. Soong had presented his plan to Chiang Kai-shek,
who had not objected. But Young felt that Chiang would consult
H. H. Kung, who would oppose the plans because they came from
Soong. Thus, Chiang would have “divided consul [sic] and this is unfor-
tunate for China.” In addition, Soong did not support or cooperate with
the minister of finance Yu Hongjun, whose position was therefore
undercut.15 Young recalled an awkward meeting with Yu in Soong’s
outer office in January 1946. Soong had sent for Yu to discuss
a financial plan that Young had not shared with Yu. When asked why,
Young had to admit that Soong had asked him not to discuss it. “I am
much embarrassed by T. V.’s needlessly keeping O. K. (Yu) out,” Young
confessed.16
JAPANESE REPARATIONS
One area from which both Arthur Young and most Chinese financial
leaders had hoped for revenue was in reparations from Japan. Yet this
proved problematic. Confiscation of Japanese resources such as shipping
was not very successful because so much had been lost in the war. Most of
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1946
the industrial plant in Manchuria had been seized by the Soviet Union.
One minor success occurred with the rehabilitation of the silk industry in
China, which had been devastated by the war. Much of the machinery in
filatures was seized for scrap by the Japanese and the market for silk in the
West disappeared with the war. Mulberry acreage had dropped by 40–60
percent compared to prewar. Filature silk production in 1946 would be
less than one-third the prewar output, although handicraft production
had actually increased and ameliorated the decline.17
T. V. Soong sought to have 5 million grams of silkworm eggs delivered
from occupied Japan. General Wedemeyer, commander of the US forces
in China, sent repeated messages to General Douglas MacArthur,
Supreme Commander Allied Powers, Tokyo, regarding this matter. In
January 1946 after some delay, US Army headquarters finally agreed that
150,000 sheets of silkworm eggs of 5 grams each would be shipped from
Japan. China also sought a substantial number of mulberry seedlings to
provide food for the silkworms. The initial shipment had only a modest
impact on Chinese production. Problems developed with the
Occupation authorities over the quantity and terms of the shipments,
so the process was terminated in 1947. In both the Chinese press and
statements by Chinese government officials, there was substantial criti-
cism of US authorities in Japan for their failure to provide additional
Japanese silk supplies as war reparations. This became another irritant in
US–China relations.18
THE ROLE OF PRIVATE BUSINESS: STATE ENTERPRISES

FAVORED OVER PRIVATE
In the immediate aftermath of Japanese surrender, the Guomindang

government and its officials greatly increased their control of business
enterprises. Much of this occurred when government authorities confis-
cated properties and firms owned by the Japanese or by Chinese labeled
as collaborators. Chongqing set up an Enemy and Public Properties
Supervision Bureau (Diweiye chuli ju), which was charged with taking
over and operating businesses that had been confiscated. T. V. Soong,
then head of the Executive Yuan, directed the establishment of the office
along with the minister of finance. But as the Dagong bao noted
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THE ROLE OF PRIVATE BUSINESS
December 3, 1945, pilfering from confiscated properties was rampant,

particularly from warehouses.19 Nonetheless, private business had clearly
taken a back seat to government firms in the aftermath of war.
The private businesses that did reopen after Japanese surrender often
faced difficulties getting access to capital. Private banks had played
a significant role in prewar China in providing liquidity to private indus-
trialists but were greatly weakened by the war and did not recover their
earlier position. Wartime conditions led to an increase in the dominance
of the government banks. In 1932, about 56 percent of total banking
deposits were in the hands of private banks in China. In 1945, this figure
fell to less than 2 percent, while the Central Bank alone held 71 percent.
Government banks financed primarily government deficits and the
enterprises controlled by government-connected individuals and agen-
cies. Private banks, which had been the main supplier of business loans,
had few resources. The lack of access to bank loans thus hampered the
recovery of private industry.20
When economist He Lian (Franklin L. Ho) left government service in
1946 and joined the Jincheng Banking Corporation, he first made a study
of the private bank’s business operations. He urged the banking manage-
ment to broaden their activities from banking into subsidiary activities in
trade and industry. The opportunities in banking itself were just too
limited for a private bank. “I was of the opinion that under present
conditions in the country, the prospect for development of commercial
banking was limited. When an economy is inflated, few people are
inclined to make deposits, and few banks inclined to make loans of
money which, in all probability, would be valueless when paid back.”
Most money was deposited in government banks, not commercial
banks. “I was of the opinion that commercial banks would do best to
use their accumulated assets for productive purposes outside of banking
per se.” He advised the Jincheng Bank to continue to diversity its other
business interests such as its holdings in the Yongli Chemical Industry
and Minsheng Industrial Corporation of Lu Zuofu.21
Zhou Zuomin, the founder of the Jincheng Bank, who employed He
Lian, seems to have followed that strategy. Although dogged by rumors
that he had collaborated with the Japanese during the war, Zhou had
partially dispelled these when he met personally with Chiang Kai-shek in
117

1946
January 1946 in Chongqing. Following that encounter, Zhou would

engage in a series of meetings with various businessmen and bankers in
an effort to revive the Jincheng Bank. Before leaving Sichuan, he met
with Lu Zuofu, whose Minsheng Company was a leading private shipping
firm. Throughout the spring of 1946, Zhou visited with many banking
and business leaders particularly in Shanghai, as well as government
officials such as Yu Hongjun and Chen Lifu.22 But the traditional busi-
ness practices of prewar private banks such as Jincheng could not work in
the postwar, high-inflation world.
Arthur Young felt that given greater freedom to operate, private
enterprises would speed up economic growth, and he was frustrated
with the unwillingness of the government leaders to give up control of
enterprises. Young wanted to increase tax revenues to curb the deficit,
but he felt that the government firms were not contributing very much to
this goal. Many government enterprises were rather a failure. As the
United Nations Relief and Rehabilitation Administration (UNRRA)
office noted in its report of January 1947, the Chinese state controlled
a significant number of businesses, and the profits from these could have
been a significant source of revenue. Yet the report noted that in the
previous fiscal year, only 2 percent of revenue came from these profits,
which covered a minuscule 0.7 percent of government expenditures.
Clearly the government-run enterprises were not successful in that
regard.23
Because the government-connected businesses were not providing
much tax revenue for the government, Young had hoped that private
business and banking could be revived so as to provide a source of
revenue. But this was slow to happen. Government-connected firms
had several advantages unavailable to the private sector. A secret US
government report noted privileges which accrued to government
firms:24
Plants owned by the government or by ostensibly private interests with

strong government connections . . . possessed a number of competitive
advantages. The nature of these advantages varied from plant to plant, but
most government plants have received some or all of the following forms
of financial assistance: [1] direct subsidies; [2] tax exemptions; [3] low
118

LIMITING FOREIGNERS AND FOREIGN FIRMS
interest on loans from government banks; [4] opportunity to purchase

fuel and materials from other government enterprises at prices below
market; [5] access to government-rationed rice for use as part of wage
payments; [6] favorable government contracts for the purchase of output;
and [7] advanced payments for output and moratoria on payment for
materials, with resultant opportunities to invest surplus funds in profitable
speculative ventures.
Under these conditions, government firms began to increase their hold

on China’s economy as the sector of private manufacturing shrunk.
LIMITING FOREIGNERS AND FOREIGN FIRMS
Prewar China had been a semicolonial country with many foreigners

enjoying extraterritoriality and foreign firms dominating the treaty
ports. With an end to their privileges, many foreign companies found it
difficult to restart their businesses. Chinese government enterprises were
privileged over both Chinese and foreign private firms. As noted earlier,
the unrealistic exchange rate, the limitations on conversions of foreign
exchange, and bureaucratic obstacles all hindered private foreign firms.
As China began to draft a new company law, leaders in the Executive
Yuan favored a policy approach that would allow foreign firms to have an
active role in the economy. The Legislative Yuan, however, tended to be
opposed to foreigners. The economist Ma Yinchu was the leader of the
antiforeign faction.25 After the end of extraterritoriality, Chinese author-
ities required foreign companies to register with the Chinese govern-
ment and comply with its regulations. But many foreign firms felt that the
regulations were cumbersome and unclear and that they would be
fleeced by Chinese authorities.26
These issues came to the fore when the United States and China
signed a new treaty of commerce in November 1946. The result of
months of negotiations, the treaty appeared to be one of equality, but
much of the press, especially the liberal and leftist press, was skeptical.
The Dagong bao in an editorial of November 6, 1946, noted, “a perusal of
it gives one the impression that it is truly equal in form. However, since
China and the United States are entirely different in national strength,
119

1946
the advantages or disadvantages of the treaty to one nation will be differ-

ent from those to another.” The newspaper was very suspicious that the
treaty was heavily weighted toward the United States. The terms of the
treaty opened both countries up for businesses to establish themselves in
the other country and to engage in trade. But the paper felt that this
would greatly benefit American business, which could take advantage of
the China market, while Chinese firms would lack the strength to do so in
America.27
The editorial also noted the glaring inequality in terms of immigra-
tion. The United States continued to restrict Chinese entry, and many
states barred Chinese from owning property, yet the treaty gave
Americans the right to travel freely in China and purchase property.
Extraterritoriality might be gone, but the editorial writer suspected that
Americans in China would get better treatment than Chinese in America,
where discrimination would continue. The treaty provided for equality in
navigation but, the paper noted, “since China does not have a single
ocean-going steamer, the result will be that only one of the contracting
parties will receive ‘most favored nation treatment.’”28
Key leaders of the Legislative Yuan feared that, because American firms
were much stronger than Chinese, they would dominate the Chinese
economy. Meanwhile, American firms lobbied the State Department to
pressure China to open its economy to foreign business. When George
Marshall went to China on his year-long mission, he was asked to press
Chiang Kai-shek on the matter. Although Chiang was eager to accommo-
date Marshall, the latter was primarily focused on military and political
matters not economic. The final treaty satisfied neither group – American
businessmen with interest in China nor the members of the Legislative
Yuan. The Shanghai American Chamber of Commerce opposed ratifica-
tion of the treaty on the ground that it violated the Open Door Policy.29
Many leftist writers, including those affiliated with the Chinese
Communist Party, supported limits on imports. They argued that the
United States was taking advantage of its dominance in East Asia in the
wake of Japanese surrender and dumping American products in China.
They maintained that the Chiang policy was to allow America to “indus-
trialize America and agriculturalize China.” This became a dominant
theme in communist rhetoric.30 Two areas where the competition
120

TEXTILES
between enterprises controlled by the Guomindang government and its

officials and by private firms – Chinese and foreign – was especially strong
were textiles and electric power production.
TEXTILES
When the war ended, the textile industry was in terrible shape, with most
mills producing very little in the last months of the war. In her study of the
Shanghai textile industry, Wang Ju noted that in early 1945 only 5.9 per-
cent of spindles and 8.1 percent of looms in Chinese-owned mills were
actually operating. Shortages of power, capital, and raw material were
severe. Yet Wang argues that textile production revived quickly in 1946.
Demand for textiles was intense because of wartime shortages. Raw
cotton was available from overseas, mostly America but also India and
Brazil. Half of China’s imports in 1946 was raw cotton. Most importantly,
one of the major constraints on production by Chinese mills in the
prewar era – the competition from Japanese mills – was now gone.
Japanese competition was also removed in overseas markets in
Southeast Asia, opening the door for Chinese sales.31
Government-connected ventures had the upper hand in the postwar
era; they had a much easier time of getting access to bank loans.
T. V. Soong established the China Textiles Development Company
(Zhongguo fangzhi jianshe gongsi), which took over mills confiscated
from the Japanese, on November 26, 1945. Although many of the private
textile magnates called on Soong to sell the mills to the private sector or
transfer ownership to Chinese industrialists who had lost equipment in
the war, Soong rejected this approach. On January 22, 1946, he held
a press conference in Shanghai and stated that private businesses lacked
the capital to revive the industry, so the government would retain control
these mills for the foreseeable future.32 Of the 5.4 million textile spindles
in mills in China in September 1945, this new company held about
2.1 million.33 It began operating textile mills in Shanghai, Tianjin,
Qingdao, and even in the northeast and became the key player in the
textile industry. In 1947, it had thirty-eight mills in China, seventeen in
Shanghai alone. The government provided capital and access to raw
materials.34 The manager of the company was Shu Yunchang, who had
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1946
close ties to Soong. The government mills also benefited from the confis-
cated Japanese equipment, which was generally superior to that in
Chinese mills.35
He Lian (Franklin Ho), an economist with Nankai University and an
adviser with the Ministry of Economic Affairs before working with the
Jincheng Bank, recommended to the government that it sell most light
industry, including textiles, to private entrepreneurs. Government enter-
prises, he argued, should be limited to heavy industries such as steel and
mining. Professor He noted that his suggestions were not well received by
government officials. “I feared that government ownership and oper-
ation of textile mills might lead to bureaucratic capitalism. . . .
Although the textile mills would initially be controlled by the govern-
ment, the inducement to manipulate them would be too great.” In his
memoirs, He Lian noted that the officials who favored government
rather than private control of the textile mills saw it as a great source of
income for the government. So T. V. Soong’s plan moved forward.36
But private industrialists were not entirely devoid of resources. Many,
like the Rong family, had extensive experience in textiles and widespread
networks. Total production by both private and government mills
increased, and the production of cotton yarn by Chinese mills surpassed
the level of 1936 by the beginning of 1947. Private textile mills also began
to generate profits; they tended to be more profitable than state-owned
mills because they were not burdened by so many political factors. Wang
Ju labels these months as a “golden age” of the textile industry in
Shanghai, although this came to an end in late 1947.
Christian Henriot in his study of Shanghai industries in the civil war
era also notes that textiles initially did well. In the last months of the war,
because of the lack of power to operate mills, most factories were idle. But
“in the immediate postwar period, Shanghai industries recovered
promptly . . . with textiles moving ahead of all other sectors.” And textiles
were by far the dominant sector of industrial production, employing over
62 percent of all industrial workers.37 But this boom faded. “The process
was unsustainable under conditions of high and then hyperinflation. On
the opposite, hyperinflation killed the momentum.”38
Foreign businessmen in textiles did not fare as well. Many felt that they
were being shut out of the supply of cotton. They felt that imports were
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TEXTILES
difficult to get, and their mills were at the back of the queue.39
Complaints from American businesses were sufficiently strong that the
US Export-Import Bank, which was supplying a credit of US$33 million
for China to purchase American cotton, specifically asked the Chinese
government what percentage of the cotton was going to government-
connected mills. Arthur Young answered with a memo of December 11,
1947, stating that the China Textiles Development Company and two
other mills owned by the Bank of China received about 40 percent of the
total cotton allotment and had gotten no special financial credit to
purchase it.40 But writing several months earlier in his private diary, he
acknowledged that the US Export-Import Bank had “made a condition
that the loan be made available in equal terms to private and government
mills in China. Previously the Government favored Government mills.” 41
Whatever the truth of the situation, private businessmen felt stymied. On
June 24, 1946, the Dagong bao noted that almost a year after Japanese
surrender, private industry had still not really recovered. The foreign-
exchange policy of the government inhibited recovery, while the govern-
ment made few loans available to private industry.42
One group of textile mills that did not fare well were those which had
relocated to Free China early in the war against Japan. As the Chiang
government retreated inland, ultimately moving the capital to
Chongqing in Sichuan province, the government had announced an
effort to move factories from eastern areas to the interior. Because of
chaotic conditions in the early days, few were successfully moved from the
coastal cities such as Shanghai. But when the Guomindang government
evacuated Wuhan in October 1938, a much better result was achieved.
After arriving in Free China, these factories had a mixed record of
success. Lack of electricity, skilled workers, and Japanese bombing
plagued most. But demand for cotton textiles was high, so many of the
mills were profitable, even under difficult conditions.43
When the war abruptly ended, many of these factories had great
difficulty reversing the process. Moving back to their original home
often proved difficult, particularly if they were not part of a large network
like the Rong Brothers group. Much of their equipment was in poor
shape, transportation was very difficult, government help minimal, and
competition from the better-funded government mills sharp. With the
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1946
exodus of most of the wartime leadership from the interior to their

prewar homes in eastern China, the interior found itself once again
overlooked by the government.
The Yudahua Business group had been one the largest textile groups
in China on the eve of the war. Unusually, its mills were centered in
interior cities, their largest in Wuhan. That mill migrated to Sichuan in
1938, taking its spindles with it. After a profitable stretch during the war,
the company was faced with returning to Wuhan. At war’s end, manage-
ment decided not to move that equipment back east, deeming it out of
date and not worth the expense of the trip. Even during the war they
began to order equipment from Britain, to be delivered when possible.
Forty thousand spindles and over 500 looms were on order in 1946. But
European production lagged and demand for equipment in India was
high. Consequently, the Wuhan factory did not reopen until
September 1948 and had only 12,000 spindles in operation when the
communists arrived.44
The company’s other properties fared no better. A mill at
Shijiazhuang had been captured by the Japanese early in the war. Much
of its equipment had been lost to frequent scrap-metal drives by the
occupiers. In the civil war, the mill ran into the same delays in ordering
equipment and was unable to get any allocated from Japanese-owned
mills. Those had all been claimed by the government. Production was
only about 40 percent of the prewar level. A couple of small mills in the
interior had been established in isolated areas to escape Japanese bomb-
ing as well as government regulations from Chongqing. Yudahua
thus missed out on the “golden age” of the textile recovery immediately
after the war with Japan.45 Many of these industrialists were bitter because
they felt that they had sacrificed in relocating to help the war effort. But
the government seemed to have forgotten their sacrifice and kept the
best mills for itself.
The silk industry had a long history in China, although in the modern
era it was dwarfed by cotton textiles. Japanese confiscation of filatures for
scrap and the collapse of global demand had drastically curtailed silk
production in China. Shortly after the end of the war, the government
established the China Silk Corporation, which was the equivalent of the
government cotton textile group. It was given control over the silk
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ELECTRIC POWER
market, setting prices for cocoons. One of the jobs of the silk company
was to take possession of silkworm eggs and mulberry seedlings sent from
Japan as part of the reparations and barter agreement arranged though
the American Occupation forces there. This effort was not very success-
ful, as farmers exhibited little interest in restoring silk production
because of low prices and demand for the cocoons. An American intelli-
gence report suggested that only 20 percent of the Japanese eggs and
16 percent of the seedlings actually reached farmers. The corporation set
the purchase price for silk cocoons in the spring of 1946 at a fixed rate of
120,000–160,000 yuan per picul. The cost of producing the cocoons by
the farmer was estimated by roughly at 168,000 yuan per picul. As
a consequence, interest in silk production by the farmers was low.46
Ultimately, weak demand overseas, particularly in the United States,
inhibited a recovery of the silk industry in China. To get the silk filatures
to operate, the China Silk Corporation set the price for finished silk at
a price high enough that producers could earn some profit.
Unfortunately, this price was about 30 percent higher than the market
value of the silk in the US at the official exchange rate, so the corporation
ended up by October 1946 with about 10,000 bales of silk held in
warehouses. Revival of the silk industry proved elusive.47 In contrast to
the cotton textile industry in which the government controlled nearly
half of all mills, the government only owned about 5 percent of the silk
filatures. Its involvement was in providing subsidies to produce silk
cocoons and in January 1947 providing weaving mills with raw silk. In
effect, the government subsidized production so that Chinese silk would
not be priced out of the American market.48
ELECTRIC POWER
One of the major problems facing industry in China was the shortage
of electricity needed to power China’s factories. Shanghai, still the
industrial center of China, experienced a shortage of electric power
after the war that limited industrial production. The Shanghai Power
Company was a legacy of the old treaty port system, and Chinese
officials made no secret of their desire to create a new, modern
Chinese-operated plant. But meanwhile, the existing plant operated
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1946
well below capacity because of the difficulty of obtaining coal and the
inability to replace equipment damaged by the Japanese and American
bombing. On the eve of the war with Japan, the plant produced
approximately 19 million kilowatt hours weekly. At war’s end, produc-
tion was only 2 million. Damaged equipment was about 40 percent of
the total for the plant, and the company borrowed US$3 million in
America to purchase replacement parts. But the manager, Paul
Hopkins, who had been interned by the Japanese during the war,
could not get around foreign-exchange restrictions to buy replacement
parts and faced a worldwide shortage of electric power-generating
equipment in the aftermath of the war. Eventually, the company was
able to repair some of the equipment. Of the estimated 119,000 kilo-
watts of generating equipment destroyed, 46,000 kilowatts was repaired
by 1947.49
The shortage of generating equipment limited the revival of textile
production in Shanghai. In April of 1946, the usage of electric power
by cotton mills in Shanghai was just over 15 million kilowatts. By June,
this had increased to almost 19 million. But this was still well below
the average monthly usage of 1940, which was 35,685,000. The indus-
trial output index for cotton mills in Shanghai followed this trend
closely. With the average production in 1940 as a base of 100, output
in April 1946 was only 42.53, for May 45.23, and for June 53.15.50 The
inability of the power plant to replace equipment destroyed in the
war limited the economic recovery of Shanghai.
The desire to have Chinese-owned and operated electric power plants
is understandable, but in the chaotic conditions of postwar Shanghai, the
net result was that the power shortage persisted and shadowed the
recovery of industrial production.51 T. V. Soong had visited the plant in
October of 1945 but concluded that they did not have the personnel to
operate it. The company needed government permission to raise rates,
which was crucial in an environment of rapid inflation. Paul Hopkins
persuaded T. V. Soong to grant permission in December 1945 and again
in April 1946. But the increase in rates did not keep up with inflation, and
the company continued to lose money.52
In early April 1946, Arthur Young noted in his diary that the Shanghai
Power Company was had lost 3 billion yuan since the end of the war.
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ELECTRIC POWER
Fundamentally, Young suspected that Soong wanted to set up govern-

ment-owned power plants and therefore provided only limited support
to the Shanghai Power Company. “Why not encourage private Chinese
and foreign capital?” Young felt that the National Resources Commission
was also planning its own plant and was blocking Shanghai Power from
importing new generators. He felt this was a poor strategy because China
did not have the foreign exchange to buy equipment for the new plan
nor the technicians to operate it.53
The foreign-owned utilities encountered problems of labor unrest in
the last quarter of 1945. Foreign managers of the plants felt that the
government was fueling worker grievances and promoting antiforeign
sentiment in an attempt to get the foreign owners to turn over the
enterprises to the government. The Shanghai Power Company had
faced considerable labor unrest in the lead up to Chinese New Year in
1946. Although American diplomatic sources suspected that
Guomindang officials were encouraging the labor unrest, they con-
cluded that the Guomindang had become deeply concerned that the
communists were infiltrating the labor movement. The government then
pressed for the labor activists to compromise with the company, and the
police told the workers to return to the plant. Among labor’s grievances
was the difference in pay scale between foreign and Chinese workers; the
latter demanded equal pay for equal work. The union also wanted to
monitor and approve dismissal of workers by management.54
Major strikes hit the French-owned Tramway, Light and Power
Company in Shanghai and in the British-run tramways in Shanghai in
January 1946 before Chinese New Year. Labor representatives sought
a large bonus to counter the rise in the cost of living.55
Government policies also forced a French-owned power plant in
Tianjin into bankruptcy. Prices charged for power were set by authorities,
but costs of fuel escalated rapidly. A US State Department intelligence
report concluded that the government essentially wanted to confiscate
the plant. “Such a company can conceivably be indirectly confiscated in
China without compensation to the owners.”56 Most employees came
with an automatic wage increase tied to the cost of living, but the index
ran about a month behind for most workers. The reality of China in 1946
to 1947 was that the monthly delay could be critical. Strikes became
127

1946
common at department stores, cinemas, and restaurants. Many Western

businessmen believed that they were being deliberately targeted by the
government;57 rightly or wrongly, they perceived labor unrest to be
a secret government attempt to force them out of China.
Although foreign businessmen had become very suspicious of the
motives of the Chiang government, evidence suggests that the key reason
the government was more attentive to the demands of labor was fear of
the movement becoming totally controlled by the communists. Suzanne
Pepper contrasts the government’s “uncompromising attitude toward
the students,” with its “more flexible posture vis-à-vis labor. While con-
tinuing its effort to weaken and subdue the labor movement, the
Government also attempted to pacify workers by acknowledging the
legitimacy of their principal demands,” hence the willingness of
Guomindang authorities to index wages for industrial workers to the
cost-of-living index.58
Soong did press ahead with government plans to improve power pro-
duction. In July 1946, China received a credit of US$8.8 million to pur-
chase ten auxiliary power plants in the United States through the Chinese
Supply Commission.59 But getting new equipment to China and up and
operating entailed a substantial delay, during which time the power crisis
continued. Soong also pushed plans for the Yangzi Power Company,
a subsidiary of the China Development Finance Corporation (CDFC), to
expand its operations in Nanjing, Wuxi, and the lower Yangzi area. In
July 1947, the company submitted a detailed proposal to the Export-
Import Bank in Washington for the acquisition of US$15 million credit
for the period 1947–1952. The CDFC held almost 44 percent of the stock
in the power company; the Ministry of Economic Affairs 30 percent, and
the Bank of China 10 percent, with the remainder among other banks.60
At the time of the new proposal, the Yangzi Power Company operated
two plants, one serving the Nanjing area and the other supplying power
to Wuxi and Changzhou. Of the power they generated, 70 percent went
to industrial consumers, particularly the textile mills in the area. The
1947 plan outlined an ambitious program of expansion, but getting the
new equipment delivered to China was clearly a problem. The report
estimated a four-to-five-year period from the placing of the order for
equipment in America until the machinery was operating. An order for
128

HAD CHINA REACHED A TIPPING POINT?
a 50,000-kilowatt generator placed with General Electric was scheduled

to be shipped in March 1950. This was the earliest available date because
of production issues in the United States.61
HEAVY INDUSTRY AND THE NATIONAL RESOURCES

COMMISSION
Although consumer goods such as textiles were often controlled by

T. V. Soong and his agencies, much of the heavy industry and mining was
now under the dominance of the National Resources Commission (NRC)
under Weng Wenhao. Until 1938, the NRC had been under the Military
Affairs Council, but in 1938, it was moved to the Ministry of Economics and
began to focus on developing heavy industry in wartime. In 1946, it was
placed directly under the Executive Yuan. The later years of the war against
Japan had been challenging for the agency, but with Japanese surrender,
new opportunities arose. It seized control of many of the factories and
mines in the east-coast areas, while liquidating mines and factories in the
interior. Many of the confiscated industrial plants and mines had been
developed by the Japanese. The NRC thus gained control of much of the
heavy industry and mining resources. It took over 107 units in the formerly
occupied areas including Taiwan. By the spring of 1947, it had 220,000
workers in its factories and mines and 32,000 other employees.62
In late May 1946, the government established the China Petroleum
Company, to be headquartered in Shanghai with Weng as general
manager. The company was to consolidate existing operations in
Gansu, Sichuan, Taiwan, the northeast, and a refining plant in
Shanghai. The plan was to take the oil pipeline that had been devel-
oped for wartime use connecting China and India and move it to
Gansu. Oil from the Gansu fields would be transported to the coastal
region for refining.63
THE END OF 1946: HAD CHINA REACHED A TIPPING POINT?
It is difficult to determine, but it is likely that the financial situation

reached a tipping point by the end of 1946. The government was
neither going to raise more revenue nor curb military spending.
129

1946
Many of China’s wealthy now focused on acquiring foreign exchange

(one way or another) and getting their capital out of China. The
process obviously became a vicious circle that just spiraled out of
control. Once the psychology of hyperinflation set in, the cycle was
all but impossible to escape. Regular accounting practices, calculating
return on investment, and getting bank loans all because problematic.
It was not “business as usual.”
130

CHAPTER 5
1947
Speeding toward Disaster
A secret intelligence report done by the office of

Intelligence Research of the US Department of State in
March 1947 was very pessimistic about the economic situation in China.
As some American advisers had earlier warned, Chiang’s insistence on
recovering northeast China strained Nationalist resources. “Territory in
North China and Manchuria brought under the sphere of the National
Government has required heavy administration costs without commen-
surate tax revenues.” The logistical lines for Chiang’s strategy were
stretched out and expensive to maintain. “The cost to the government
of fighting an offensive civil war appears to be greater than the cost of
fighting a defensive war against the Japanese.” The consequence of these
circumstances was economic disaster. “Prospects for 1947 indicate that
the requirements of the government for support of its military operations
will continue to grow; that the government will have to finance a larger
proportion of its expenditures through note issue; and that the deflation-
ary inflow of resources from abroad will be reduced.” Under these
conditions, the report concluded, “continued currency depreciation at
an accelerated rate appears to be inevitable, and currency collapse in
1947 seems likely.”1 The report proved correct.
Prices in Shanghai, the report noted, had increased 700 percent during
the previous year to reach a level 7,500 times that of the prewar level. This
was nearly twice the rate of the increase in note issue during that year.
Public confidence in the currency was low so people rushed to purchase
commodities as soon as possible, driving up prices. Clearly inflationary
psychology was increasing its hold on the Chinese population.2
F. C. B. Black, who worked for the Hongkong and Shanghai Banking
131

1947
Corporation, recalled that “nobody put money in the Bank. As soon as ever
they had money, they rushed out and bought something.” A shipment of
oil arrived once a month in Shanghai, but once sold the company could
not hold the cash because it would steadily lose value. “They would do
things like buying silver bars . . . which was illegal . . . anything to avoid
holding cash. So they didn’t put it in the bank, they got rid of it.”3
A report of late December 1947 showed that advances from the
Central Bank accounted for 67 percent of government revenue in the
first eleven months of the year. Everything else – taxes, profits from
government enterprises, and sale of public assets – accounted for only
33 percent.4 The crisis had begun early in 1947 and seemed to deepen
during the year as the rate of inflation began accelerating. The depart-
ure of General George Marshall from China in January 1947 was a clear
signal that the United States was not going to bring a halt to the civil
war in China, which would (and did) escalate. Meanwhile L. K. Little,
inspector general of the Chinese Maritime Customs Service, wrote in
his diary for January 1, 1947, “I have never entered a New Year with so
little confidence in the future of the Customs Service or of China as
today.”5
The open-market price for gold and US dollars increased 30 percent
in January 1947 and 50 percent in the first two weeks of February. The
press referred to this as the “gold rush.” Rumors had circulated in mid-
December 1946 that the Central Bank had taken half of its gold bars out
of the Chase Bank, but even this could not keep up with demand. On
February 1, 1947, the black-market rate for the US dollar was 7,800 yuan,
and by February 8 it had already risen to 11,500. The government raised
the exchange rate to 12,000 yuan to US$1 but once again failed to keep
up with the market.6 On February 3, the Central Bank quit throwing gold
bars onto the market to support the yuan, indicating that it no longer had
sufficient gold to continue sales. By February 11, panic hit the market,
and the US$ reached 16,000 yuan on February 11 (Figure 5.1). In less
than a week, the price of virtually everything had increased from 50 to
100 percent.7 The government had for a long time refused to issue larger
denomination banknotes, fearing it would spike inflation, but finally
relented and issued a 10,000-yuan note in early 1947, and then a
100,000-yuan note in December 1947.8
132

NEW CONTROL POLICIES IN EARLY 1947
5.1. Hyperinflation begins. January 1, 1947: The girl is holding up a US$10 bill and the
Chinese equivalent in fabi notes at the black-market rate. Things would soon get much
worse. Underwood Archives/Archive Photos/Getty Images
Faced with this crisis, the government mandated a series of wage and
price controls in January and February of 1947 in an effort to stem the
tide. Labeled the “emergency economic measures,” they highlighted
the severe nature of the situation. Wages were to be frozen at January
levels, and in return the government was to maintain fixed prices on
essential goods and supply government workers with the commodities
if the market failed to do so. But in the chaotic conditions of early
1947, this was almost an impossible task. Efforts to freeze prices in the
past, including during the war against the Japanese, had usually failed
because they led to hoarding of commodities, which increased short-
ages. As Odd Arne Westad noted, Chiang’s government “had neither
the economic strength nor the political will to follow through on these
policies.”9
One by one, the policies announced as part of the reform package fell
away. The government initially announced a policy of providing subsidies
for exports and surcharges on imports to preserve foreign exchange. But
133

1947
this move unsettled the market and brought strong objections from the
United States and Britain. After ten days, China abandoned that policy
and announced new ones, a process which suggested an inability to
sustain a reform program.
Other measures were announced but were slow to be implemented.
The government pledged to enforce strictly the collection of various
taxes such as the income tax. Shares in government-controlled enter-
prises were to be sold to the public to bring in revenue, except for those
needed for national defense or public health. But little seemed to be
done to implement these over the next few months. Had the companies
been sold off, the contribution to government coffers would have been
a one-shot deal. The government pledged to implement mandated price
controls of commodities in certain areas.10
The most significant changes announced in February 1947 concerned
foreign currency and the gold market. The government suddenly pro-
hibited the use and circulation of foreign currency such as US dollars. In
orders issued by the National Defense Council, all Chinese citizens who
held foreign assets had to register these with the Central Bank of China.
The requirement extended not only to currency but to other items such
as stocks, insurance policies, and bonds. Any sale or transfer of foreign
assets required permission from the Central Bank of China.11
In response to the “gold rush” that had sent the gold market into
a wild acceleration, the buying and selling of gold was likewise banned
in the February emergency regulations. This reversed long-standing
policies in which the government had sold gold to the public to absorb
fabi. Some supported the new policy. The Shenbao noted on
February 12, 1947, that “inasmuch as China is not a gold-producing
country, the sale of gold bars is tantamount to wasting foreign
exchange.” Even if the government could hold the price to 4 million
yuan per bar, “it is quite doubtful whether the general price level would
drop in sympathy with the price of gold.”12 Some officials, including
Shanghai mayor Wu Guozhen, worried that the new policies might fuel
the increase in commodity prices. Because few wanted to hold fabi, idle
money that had been held in gold bars or foreign currency would
instead be used to hoard commodities. Prices for food and other
items would thus soar.13
134

The entire process, however, related to reports of corruption and

insider trading. Because of this, Bei Zuyi, head of the Central Bank, was
forced out of office and replaced by Chang Kia-ngau. Chang had headed
the Bank of China from 1928 until 1935, when he was removed at the
time that the fabi reform was adopted. But Chang had continued to serve
in a variety of positions including minister of railways, and in wartime
minister of communications, although he spent much of the later war
years in the United States. Chiang Kai-shek had sent him to the northeast
after the war, where he had to deal with the Soviet presence. Chiang
turned to him during the scandal at the Central Bank. Press reports
suggested that over fifty employees of the bank had been found to have
engaged in illegal gold transactions.14 Arthur Young lamented the polit-
ical attacks on Bei, who appeared to have been forced to take the blame
for the gold sales crisis. “How can China expect patriotic men to take
responsibility if they will be treated like this,” he lamented. Young also felt
that T. V. Soong was receiving unfair criticism, because without the
presence of Soong and Bei the situation would have been much worse.
Still more fundamentally, Young did not agree with the exchange and
gold policy.15
Could the new regulations stop the “gold rush”? Many Chinese obser-
vers were skeptical. The Dagong bao noted on February 8, 1947, that “the
amount of smuggling done will be increased, and due to increased
smuggling, there will be a greater demand for black-market foreign
exchange,” a pattern that had happened in the past. “When the black-
market exchange-rate rises, the CN$3,350 to US$1.00 will become obso-
lete,” which it quickly did.16 Market frenzy peaked on Monday,
February 10, when speculators unleashed a day of wild trading. As the
North-China Daily News reported, “Local gold bar and U.S. dollar notes
markets skyrocketted to new highs yesterday, with exchange shops and
brokers’ offices being filled to capacity and beleaguered by steadily
growing bevies of excited speculators and traders.” Finally, in the after-
noon trading was suspended “by voluntary consensus of local financial
circles who could not operate any longer considering the rapidly rising
quotations which changed from minute to minute.” US dollar rates for
buying started the day with a surge to 11,000 yuan per dollar but reached
17,500 by the time trading stopped.17
135

1947
The paper also had a different take on the prohibition on buying and
selling gold. In a February 18 editorial, it noted that “during one day last
month, the Central Bank of China sold as much as 5 tons of gold bars in
an effort to press down gold prices [which] indicates that the financial
authorities had quite a strong faith in their gold policy.” But now the
government had suddenly abandoned that policy and closed the gold
market, at least the open market. For the Dagong bao, this was “tanta-
mount to saying that the Central Bank has no more gold and that the
Government has lost another instrument for absorbing currency.” This
move was clearly a result of another failure by financial authorities, the
paper concluded.18
Reuters reported in late February that the government of China
wanted to sell US$200 million of relief supplies provided by the United
Nations Relief and Rehabilitation Administration (UNRRA) on the black
market in order to raise revenue. T. V. Soong immediately denied that
such a request had been made, but the report seemed credible enough
that it was denounced by several American congressmen on the grounds
that the supplies were to relieve those suffering because of World War II,
not to fund the Chinese government. Not all in Congress were so
opposed, however.19 Additional bad publicity about the UNRRA effort
surfaced in the summer of 1947 concerning the attempt to rehabilitate
China’s fishing industry. A convoy of thirty-four fishing boats provided by
the agency had left Puget Sound for China the previous year. Yet a report
in the Seattle Times in early 1947 stated that only eight of the thirty-four
had actually been put into use. Queried by a senator, the director-general
of the agency admitted that the fleet was only operating at 25 percent
capacity.20
Whereas the hyperinflation was devastating for certain groups of
people such as government employees, many others had been protected.
Most industrial workers were granted cost of living increases which meant
that their wages rose in tandem (if somewhat delayed) with commodity
prices. This policy had been designed to curb labor unrest and prevent
communist agents from exploiting labor grievances. In the early 1947
reforms, however, the government in effect froze the wage increases,
announcing that they should not go beyond the level of January 1947.
Since prices were rising almost daily, this meant a sharp decrease in real
136

wages. Shanghai and other cities with industry had been plagued by labor
unrest since the end of the war, and most industrialists feared these new
controls would increase labor strife and lead to strikes.21
The Wenhui bao echoed these sentiments in an editorial of
February 18, 1947. “What we are most worried about is that with the
salaries and wages fixed at a certain level, if the Government cannot
stabilize commodity prices at the January 1947 level, then labor strikes
will become unavoidable. For this reason, one is worried about the future
of peace and order in the country.”22 Indeed, as commodity prices rose
despite the government’s efforts to freeze them, workers upped their
demands. On April 25, 1947, the Dagong bao wrote:
with wild fluctuations of commodity prices here [Shanghai], the livelihood

of the workers has been jeopardized. As wages are now under control while
commodity prices are soaring all the time, the workers of all of the cotton
mills in the fourth District unanimously urged the General Labor
Union . . . to petition the government for the unfreezing of the cost of
living index.23
The government issued bans on strikes including one in July 1947, but
they rarely were effective. The workers were living in dire conditions
when the price freeze did not hold and were willing to take on the
government in many cases.24
And economic conditions worsened during the year. A. Doak Barnett,
who was in China at this time, commented that “A [Chinese] dollar is
worth more today than it will be tomorrow; consequently all money is
‘hot money.’ As a general rule, people spend money as soon as they can
get it.”25 When the government tried to mandate price controls, farmers
and merchants refused to sell, hoarding the commodities themselves.
Faced with shortages, the government had to all but abandon price
controls by late spring. Rice riots became widespread, which alarmed
Guomindang authorities, fearful that the communists could gain advan-
tage. Even the official Guomindang organ Zhongyang ribao admitted on
May 2, 1947, that “during the past week commodity prices in Shanghai
have registered another mad hike. Rice, edible oils, vegetables, meats,
cotton yarn and all other daily necessities have doubled in price.” The
system of freezing wages would likely have to give way or be adjusted.
137

1947
“The problem of the pay of Government employees and schoolteachers

has arisen.”26 In June, the government had to rescind the freeze on wage
increases, which led to a spike in wages.27 By October 1947, the free-
market exchange rate for US dollars was over 80,000 yuan to 1 US
dollar.28
ATTACKS ON T. V. SOONG
The economic crisis of January and early February 1947, with the sudden
rise in the price of gold and the exchange rate for the US dollar, led to
increased attacks on T. V. Soong. The communists, of course, remained
hostile, but much of the severe criticism came from rival groups in the
Guomindang, including Sun Ke (son of Sun Yat-sen), as well as Zhang
Qun and Chen Lifu. The “CC” Clique headed by Chen Lifu and his
brother Chen Guofu had been particularly aggressive in attacking
Soong and earlier H. H. Kung.29 Many of his enemies were based in the
Legislative Yuan. When that body met in January 1947 in a meeting
closed to the press, word of the sharp attacks on Soong leaked out. It
was reported that, since he had taken over the leadership of the
Executive Yuan in early 1945, China had issued 3 trillion-yuan worth of
banknotes, fueling inflation. Soong was also lambasted for the issuing of
larger-denomination banknotes that, the attacks alleged, stimulated
inflation. One member of the body, Wei Dingsheng, went on record
with the allegations, demanding that Soong appear before the body to
answer questions. Soong had consistently refused to do so.30 Others felt
that Soong and his group had profited from the gold sales. In
August 1946, the Central Bank had sold US$380 million worth of gold.
Critics contended that Soong’s group bought $151 million of the total
and Kung’s group $180 million. Whatever the truth of these reports, they
were widely circulated within the Guomindang itself.31
One group behind many of the attacks was the Gexin movement, which
was composed of younger Guomindang members who were mostly associ-
ated with the CC Clique or Whampoa group. Formed in 1944, they had
initially attacked H. H. Kung during the period leading up to his resigna-
tion. They had opposed a coalition government with the communists that
George Marshall had tried to arrange in 1946 and the Sino-Soviet Treaty
138

negotiated in the final days of the war against Japan. By 1947, they had
become very critical of T. V. Soong, blaming him for corruption. The
group began using the phrase “bureaucratic capitalism” in their attacks,
even though the communists were the likely source of this term. Their
activities lay behind many of the newspaper attacks on Soong and criticism
that emerged in the Legislative Yuan.32
A committee in the Legislative Yuan charged Soong with failing to
control commodity prices, issuing bigger banknotes that contributed
to inflation, and allowing government enterprises under his direction to
spend lavishly. But it was the rapidly deteriorating value of the yuan after the
suspension of the sale of gold that brought the criticism to a head.33
The noted scholar Fu Sinian suggested a probe into the property
holdings of Soong and H. H. Kung.34 When writing in the Dagong bao on
February 21, 1947, Fu specifically called on Soong to resign. He cited his
failed gold policy as a prime factor warranting his dismissal. Fu blamed the
crisis on the rivalry between Soong and Kung, and he attacked the Central
Bank of China for not allowing the Legislative Yuan to investigate the
matter. The decision to issue large-denomination banknotes, taken on
the eve of Chinese New Year, had been a disaster, he asserted. The short-
lived program to subsidize exports violated the laws of Britain and the
United States and had to be quickly abandoned. Soong refused to meet
with officials except within his entourage, not attending meetings of the
Executive Yuan and People’s Political Conference. Fu even attacked Soong
for his complete lack of understanding of Chinese culture and mocked his
fluency in English. In truth, many who worked with Soong felt that he was
more comfortable in an English-speaking environment than Chinese –
that he preferred to read documents and write in English.
Fu noted that it was widely reported in the press that the current “gold
panic” had been organized by Kung to create trouble for Soong. But if
Kung returned, then Soong would do likewise to embarrass his rival. The
Kungs and Soongs had to go, he suggested, or China was doomed. “The
country can no longer tolerate him and the people can no longer forbear
him. It is time he must go, otherwise all will collapse.” He concluded that
“The Chinese Communists welcome most heartily H. H. Kung and
T. V. Soong’s holding the reins of Government for it will hasten ‘the
end of everything’ and the former will proceed to Nanking [Nanjing].”
139

1947
Despite their rivalry, Fu saw Kung and Soong as sharing many character-
istics. “The primary reason for the failure of Kung and Soong is their
‘integrity.’ H. H. will grab at anything, big or small, direct or indirect.
T. V. cares only for his ego and muddles his public duties with his private
interest. The former is more covetous than ambitious while the latter is
just vice versa.”35
Soong had been aware for some time that he would likely be forced
out of office. On December 31, 1946, he wrote a confidential letter to
William S. Youngman in Washington on the matter. Youngman had
headed the China Defense Supplies during the war and would remain
a close associate of Soong after he moved to America. Youngman later
served as executor of Soong’s estate and delivered a eulogy at his funeral.
Soong stated that “There has been a great deal of open talk about
changes in the government, including my own post as premier. . . .
Such being the circumstances the chances are that sometime during
1947 I would retire, for I would not move a finger to keep myself in office,
and there are too many people who aspire to my post.” Soong told
Youngman that “when I retire I shall take at least a year out to recuperate
and enjoy myself a bit.”36
T. V. Soong would resign as president of the Executive Yuan on
March 1, replaced by Zhang Qun in April 1947. Chiang Kai-shek himself
served as acting president in the interim. In an address to the Legislative
Yuan on March 1, Soong stated that “three times during the last year
I submitted my resignation as President of the Executive Yuan. The
Generalissimo has finally granted my request.” Soong stated that the
reason for his resignation was the financial crisis. “When the war
ended, the course of inflation could have been stopped – that is if there
had been international peace. Military expenditures could have been cut
down and revenue increased.” Soong placed the blame for the renewed
fighting on the communists who plunged the nation into war.37
Soong took the opportunity to defend his record. He acknowledged
criticism that Chinese Textile Industries had kept control of the Japanese
mills seized at the end of the war rather than selling them to private
interests. But he argued that he would have gotten very little for the mills
at that point, and now they were much more valuable. “The truth can be
told in one sentence. The present economic crisis is the cumulative result
140

of heavily unbalanced budgets carried out through eight years of war and
one year of illusory peace, accentuated to some degree by speculative
activities.”38
Soong had a lengthy meeting with Chiang on March 3, but Chiang
would have little time to deal with the economic crisis. He was focused on
military matters and the situation in Taiwan following the bloody upris-
ing on February 28, 1947, by Taiwanese protesting against the military
control established by the Chinese Nationalists and the ongoing riots
there. Chang Kia-ngau, who had been serving in northeast China,
returned to take over as governor of the Central Bank of China.39
Chang brought more of the old private-bankers’ group back into the
operation of the Central Bank and its related functions. He made Li Ming
the chair of the committee that regulated imports and Chen Guangfu
director of the export development board. Chen was also thought to be
the best candidate to negotiate a loan with the Americans because he
continued to be well regarded in the United States.40
The fall of Soong also gave the CC Clique a chance to enhance its
economic profile. It came to dominate the Agricultural Bank of China,
one of the four big government banks. In the spring of 1945, Chen Guofu
had replaced H. H. Kung as head of the board of directors of this bank.
Another CC Clique member, Luo Jinghua, aggressively developed commer-
cial enterprises affiliated with the clique. When the war ended, few of the
Japanese firms taken over by the Guomindang government had come under
CC control; Soong had been the dominant player. But with his eclipse, the
CC gained momentum and by 1947 had made its presence felt.41
The Chinese press generally cited the gold panic as the immediate
factor leading to Soong’s resignation, as well as his ongoing dispute with
the Legislative Yuan. But most of the Shanghai press was very critical of
his performance in office. The Shen bao on March 2, 1947, noted that
“because of the gold bar and green back crisis, Dr. Soong has aroused the
dissatisfaction of all quarters, which has made it necessary for him to
resign.” The paper considered that T. V. was excessively self-confident
and “will not easily take other people’s advice . . . and he is sometimes too
stubborn.”42
The liberal Wenhui bao argued that “nobody will regret that he has had to
‘quit with humiliation.’” However, the paper suggested that Soong was not
141

1947
solely to blame for the crisis. Fundamentally, Soong had stressed the raising
of funds to cover military expenses as the top priority and the revival of the
national economy to be secondary. “In order to attain the first objective, he
has often sacrificed the second one.” As long as the civil war continued, the
paper concluded, the situation was unlikely to improve.43 Still in a later
article, the paper noted that when Kung turned the Ministry of Finance over
to Soong, China had US$800 million and 5 million ounces of silver as
reserves as well as 20 trillion Chinese dollars’ worth of enemy property.
When Soong resigned, the treasury was empty, forcing the government to
turn to Chang Kia-ngau.44 The Dagong bao noted that “formerly Dr. Soong
enjoyed a very good reputation in financial circles, and at the time he
assumed the post, people both at home and abroad had great expectations
of him. But now, only a short time since then, he has had to quit his job in an
embarrassing manner.” While the paper recognized that the civil war was
the basic problem, it concluded that “his way of doing things is dictatorial,
and he seldom takes the advice of other people. . . . This is also one of the
main reasons he has had to quit.”45
One of Chang Kia-ngau’s first tasks was to reevaluate the reforms of
February, which had already been overtaken by events. Wages had been
frozen at the time, but the rise in commodity prices made adjustments
necessary. Labor became restive and demanded that the actual cost of
living index be used to determine wages. Rice prices started to escalate as
suppliers were unwilling to ship rice to Shanghai and other cities at the
set prices and supplies dwindled. Widespread rice riots erupted, forcing
the government’s hand. In early May, Shanghai had to abandon the
ceiling price on rice. The city agreed to sell rice to the local population
on a rationed basis.46 This was one of the problems with controlling
commodity prices: producers began to hoard commodities rather than
sell at a price they considered inadequate. Fu Sinian charged that the
UNRRA sold cotton at the set price of 700,000 yuan per bale, but it was
then being resold on the black market for 1.5 million per bale. The fixed-
price system led to corruption and speculation.47 The government finally
permitted utility firms to raise rates on May 31, 1947, in part to cover
higher wage costs now that the freeze on wages had been modified. The
government provided some subsidies to the companies to keep them
operating.48
142

BUREAUCRATIC CAPITALISM
The attacks on T. V. Soong that forced him out of office on March 1,

1947, as well as earlier attacks on H. H. Kung, included the charge of
“bureaucratic capitalism” (guanliao ziben). Both men and their associates
were accused of using government assets for personal, private gain. These
charges are usually attributed to the communists, but they were endorsed
by Soong’s critics within the Guomindang, including many based in the
Legislative Yuan. Yet these charges spread among foreign businessmen
active in China as well as officials of Western countries. The ideas had
a long life: Many years later, Soong and Kung were still referred to in the
international press as two of the richest men in the world.
How could these charges have obtained so much traction? Were they
true? It is evident that the Guomindang government was very active in the
economy during the civil war period, running several enterprises such as
cotton-textile firms confiscated from the Japanese. It is much less clear
that Soong or Kung garnered much profit from these. The government
also imposed controls on foreign exchange, import licenses, and the use
of foreign capital. Because business conditions were so unfavorable at
this time, many businessmen – both Chinese and foreign – found it easy
to blame their failures on the government-connected enterprises that
seemingly enjoyed special advantages. Yet the fact that Chiang Kai-shek
dismissed both Kung and Soong suggests that these charges had consid-
erable credibility with the public.
In October 2009, Sherman Cochran convened a conference at
Cornell University on the theme “The Capitalist Dilemma in China’s
Communist Revolution: Stay, Leave, or Return?” Later published as
a conference volume, the scholars involved examined the decisions by
various capitalists and bankers on whether to leave China after the
Communist Revolution or to stay.49 In some cases, individuals who had
left China for Hong Kong or elsewhere decided to return. The pattern
which emerges from these essays is that many capitalists had become
completely alienated from the Guomindang government and thought
conditions under Chairman Mao would be an improvement. Few prob-
ably held that opinion by the mid-1950s and certainly not by the Cultural
Revolution. Yet it does point to one of the puzzles of the civil war period
143

1947
in China: Why did so many of the capitalists desert the Nationalists? The
abysmal record of the government’s policies during the postwar period
was certainly a factor.
China’s capitalists did not have the benefit of hindsight in 1949 and
could not know what Mao’s China had in store for them. Yet they did
know their experiences under the Guomindang, and a sizable number
came to feel that they were being shut out of economic opportunity by
government-connected individuals and enterprises. In many ways, the
situation resembles that of contemporary China, where a wide variety
of enterprises exist, but government ties are usually helpful in operat-
ing a successful business. Another comparison with contemporary
China is that children of key officials (“princelings”) and other family
members came under attack for their business and political activity
(Figure 5.2).
5.2. Madame Chiang Kai-shek was close to her sister Ai-ling’s children. From left to right:
Louis Lin-jie Kung, niece Jeanette Ling-jie Kung, Madame Chiang, and David Ling-kan
Kung. Hulton Deutsch/Corbis Historical/Getty Images
144

Among the firms drawing criticism was the Fuzhong Industrial

Company, which had been formed at the end of the war against the
Japanese as a partnership between the Bank of Communications, the
Jincheng Bank, and the China National Products Bank. The key figure in
the enterprise was T. L. Soong, the general manager, although H. H. Kung
was on the board of directors as well as Xu Xinliu, who represented the
Bank of Communications. The firm was also registered in the United States
as the business partner of Willis-Overland Motors of Toledo, Ohio, which
specialized in exports of cars, trucks, and jeeps, as well as auto parts. The
American firm was capitalized at US$600,000 while the headquarters estab-
lished in Chongqing was capitalized in Chinese yuan.50
The Yangzi Development Company was formed in a similar fashion, but
the key figure was David Kung, son of H. H. Kung. Established in the winter
of 1945, the firm was registered in Shanghai in January 1946. Stockholders
included David Kung and Shanghai “notables” such as Du Yuesheng. This
company was established to be involved in international trade, and the
young Kung served as an agent in China for numerous American firms.
According to the scholar Zheng Huixin, these ties gave him a monopoly on
the marketing of products of sixty American companies in the China
market. Eventually, the company had offices in Shanghai, Hankou,
Fuzhou, Nanjing, Hong Kong, and Tianjin and had an affiliate in
New York registered as the Yangzi Trading Company. Imports included
cotton, electrical equipment, medicine, and luxury items while exports
included hog bristles, tea, and agricultural products.51
One of the major criticisms of the politically connected enterprises
was that they had favorable treatment in receiving foreign exchange. The
Control Yuan investigated this question and completed a report in early
October 1947. It found that several firms associated with Soong and Kung
received special privileges. These firms included Fuzhong, the Yangzi
Development Company, and the China Development Finance
Corporation. These firms “have obtained more than their allowed quotas
of foreign exchange and have imported certain luxury items forbidden to
be imported by others,” the report found. The Control Yuan identified
the family members involved. For Fuzhong, it named T. L. Soong, for the
China Development Finance Corporation, T. A. Soong (Song Zi’an), and
for the Yangzi Development Company, David Kung. Finally, the report
145

1947
stated that several banks including the Bank of Communications and the
Jincheng Banking Corporation had invested in the China Development
Finance Corporation, which violated banking regulations.52 This report
thus corroborated many of the charges made in the press about “bureau-
cratic capitalists.”
In one of his many attacks on T. V Soong, the scholar Fu Sinian wrote
that “T. V. is frightfully strict in granting foreign exchange for legitimate
use, but in cases in which he is interested he makes no fuss about the
expenditure of foreign exchange at all.” Fu cited the examples of the
Jiuda Salt Company and Yongli Chemical Company, which Soong had
failed to assist even though they were major private firms that contributed
to China’s economy. But he argued, if they were “to join the China
Development Finance Corporation (the nerve center of the Soong
trust), then all questions will be resolved. T. V.’s ignorance and egoism
will inevitably lead China’s economy to total collapse.”53
Yet there is some evidence that Soong’s connections were not always
helpful. His China Development Finance Corporation (CDFC) survived
the war and began to make plans for postwar projects. Yet many of these
stalled because of the foreign-exchange regulations. In a memorandum
prepared by the company on August 31, 1947, it noted that during the
war in 1943, the corporation and the United States Rubber Company had
made plans for a postwar joint project to manufacture high-quality rub-
ber products in China, perhaps a foretaste of the joint-venture projects of
Deng Xiaoping’s China. The company was finally incorporated under
the Ministry of Economic Affairs in April of 1947. But as of August, the
memorandum noted, although plans were made, the plant had not been
established. That would happen “as soon as the raw rubber import
restrictions will ease up.” The Chinese portion of the investment was to
come from the Bank of China and the corporation. In the meantime, the
CDFC served as an agent of the American firm, marketing their products
in China.54
A second venture that was stalled was an agreement between the
CDFC and the Studebaker Corporation of the United States to begin
a joint venture to produce automobiles in China. The plant had been
shipped to China in autumn of 1946. But the report noted that “while
preparing to start the semi-manufacturing operation and assembly of
146

trucks, import and exchange control regulations became tightened,

making it impossible to import truck parts and manufacturing materials
in sufficient quantities. The large number of War Surplus trucks bought
by the Government also affected the business adversely.” The project had
to be postponed: another failure by the CDFC.55 In general, 1947 was the
turning point as the accumulating problems with hyperinflation became
to impact deeply the economy. But T. V. Soong’s fall from power was
critical. The CDFC was closely identified to him and his position.56
David Kung was a particular target of criticism. Was this unfair? Arthur
Young, who was sympathetic to H. H. Kung, tended to lend credence to
some of the charges in his private diary. On May 11, 1946, for instance he
wrote “Hear DK brought 4,000 bales of cotton on speculation.”57 In 1946,
to save foreign exchange, the government barred merchants from
importing trucks unless they were already on the way. In the fall of
1947, David Kung acquired 700 jeeps, which he had reclassified from
trucks to cars, allowing him to import these to China, evading the ban.58
When a March 4, 1946, regulation prohibited the importation of vehicles
priced over US$1,200, the Fuzhong Company got them reclassified to
evade the rule. Fuzhong also exceeded the limit on importing radio
equipment including receivers. It had become an agent for
Westinghouse Corporation in America and shipped their products dir-
ectly from New York, regardless of the quota.59 Whatever the significance
of the charges, they were believed by a wide group of people within the
business community and damaged the Guomindang government.
Soong family members and their associates were charged with using
their diplomatic passports when conducting private business in America.
An investigation by officials of the Control Yuan in June 1947 revealed
that during the war when they had official appointments, they had in fact
received diplomatic passports. As scholar Zheng Huixin noted,
T. L. Soong had received diplomatic passport D-2067 on July 3, 1940,
when he represented the Executive Yuan in America. He had returned to
the US in September 1946, where he remained on this passport. The
assistant manager of the Fuzhong Company, Shen Hongnian, had
received diplomatic passport D-2435 in April 1942 when he served as
secretary to T. V. Soong, then minister of foreign affairs. But he returned
to America on July 5, 1946, when he was working for the company.
147

1947
T. A. Soong had received diplomatic passport D-2325 in November 1941

when he traveled to America representing the Military Affairs
Commission. But he had remained there and like his brother was
engaged in private business after Japanese surrender. In the view of
Chinese critics, use of diplomatic passports when conducting private
business was improper.60
Chiang Kai-shek himself received reports on many of these mat-
ters. According to Zheng Huixin, Chiang was aware of the charges
that Fuzhong had exceeded the quota for importing vehicles, and
both it and the Yangzi Development Company had violated the rules
for importing radio and refrigerator equipment, as well as the regu-
lation on jeeps. According to Chiang’s diary, he was concerned about
the issue, and when Zhang Qun took over the Executive Yuan,
Chiang instructed him to correct the situation. Chiang noted that
there was limited foreign exchange and many companies sought it.
Because of criticism that government-connected firms enjoyed advan-
tages in receiving foreign exchange, the entire process had to be
open and public with a list of companies involved, the names of the
head of the board of directors, and the list of the types of goods
being imported. The process must be fair and open, Chiang
insisted.61
But Zheng Huixin concludes that there was a contradiction in
Chiang’s attitude toward the matter of family corruption. He was not
above removing both Kung and Soong from office, but he was reluctant
to allow criticism aimed at his wife’s family to go too far. He limited the
publicity surrounding Kung’s removal in 1945 and would do the same in
1948 when his own son, Jiang Jingguo, would target David Kung. He
feared that the communists would take advantage of this information to
attack him and the Guomindang.62
Following T. V. Soong’s resignation, the government announced once
again plans to sell many of the government enterprises, including 70 per-
cent of Chinese Textile Industries. Several other enterprises had already
been sold, the government announced, including a tobacco company
operated by the Ministry of Economic Affairs, paper mills in the north
and northeast operated by the National Resources Commission, and
flour mills operated by the Ministry of Food, among others. Other
148

CRITICISM BY FOREIGN BUSINESSMEN AND BY OFFICIALS
enterprises operated by the government were to offer half of their stock

to the public.63 Yet despite this talk of turning these enterprises over to
the private sector, little of this seemed to have been completed. By the
time the government began to offer these enterprises for sale in 1947,
many private businessmen were already focusing on getting capital out of
China rather than risking more. The original plan to sell enterprises
confiscated from the Japanese located in the former Manchukuo was
suspended in the summer of 1947 because they were either in the war
zone or had already been confiscated by the communists.64
State-owned enterprises were no better at obeying government
decrees than private ones. In the fall of 1947, for instance, Arthur
Young noted that the government-owned Chinese Textile Industries
was deeply involved with the black market. It refused to sell cotton yarn
at the mandated prices, selling only at the black-market rate. The inability
to get this type of enterprise to accept government regulations clearly
showed the lack of administrative control in China.65
CRITICISM BY FOREIGN BUSINESSMEN AND GOVERNMENT

OFFICIALS
Western businessmen in China picked up the criticisms of “bureaucratic

capitalists,” often finding this a scapegoat for the failure of commerce
and trade to revive in the postwar period. They were particularly critical
of the China Merchants Steam Navigation Company, a government
enterprise. This was a product of the exclusion of foreign merchants
from the interior waters of China, a sensitive issue in the aftermath of
Japanese surrender and the end of extraterritoriality. But American
representatives in China still thought the Chinese were shooting them-
selves in the foot by blocking the revival of trade. The American assistant
commercial attaché Carl H. Boehringer noted in a report from Nanjing
on July 23, 1947:
Because the Chinese are jealous of their newly-regained sovereign rights

they prevent foreign companies to assist in economic revival. At Hankow
[Hankou], for instance, where ocean steamers once lined the Bund to
carry away products of the flourishing industries . . . there may now be seen
149

1947
a few small river boats of the China Merchants Steam Navigation

Company, a monopolistic, official concern which charges freight rates
on cargo from Hankow to Shanghai which are in excess of those charged
by foreign ships for the same cargo moved from Shanghai to New York.
The result, he noted, “industry is largely at a standstill.”66

When foreign business failed to revive in 1947, many in the British and
American commercial community stepped up their criticism, echoing
the remarks coming from the Legislative Yuan. Businesses associated with
the Soong family (including the Kungs) were referred to as “holy family”
enterprises, a phrase that appeared in print. Although these officials
denied getting special privileges, the Far East American Council of
Commerce and Industry and the National Foreign Trade Council sub-
mitted a joint report to the State Department complaining of preferen-
tial treatment accorded to the “holy family” businesses. They repeated
the domestic criticism of those such as T. L. Soong who traveled in the
United States under diplomatic passports. By contrast, they charged,
many private Chinese businessmen could not easily get passports at all.
American firms, they contended, could not get the credits and licenses to
trade with China. Meanwhile, the Universal Trading Corporation,
a Chinese-government institution, maintained spacious offices in the
Rockefeller Center in New York City and did not have to comply with
licensing and foreign-exchange regulations. Other firms mentioned
were the Fuzhong Company headed by T. L. Soong and H. H. Kung,
the Nanyang Brothers Tobacco Company tied to T. V. Soong; the China
Development Finance Corporation (T. A. Soong), China–US Rubber
Company (T. V. and T. A. Soong), and the Yangzi Development Company
(David Kung). The complaints by the American businessmen alleged that
these companies could obtain foreign exchange and import licenses while
others could not.67
Among the examples cited by the American businessmen was the
almost complete failure of automobile dealerships in Shanghai owned
by Americans, a group that had been very prominent before the war. The
Cadillac dealership in Shanghai, for example, had been unable to get
a license to import any cars because they were deemed luxurious. Yet
a ship had just arrived with twenty-three Cadillacs, imported by the
150

government-run Central Trust of China. The complaint also stated that

many American firms had received orders for goods from China but had
not been given the licenses to import them. Items such as textile spindles,
structured steel equipment, and mining equipment were sitting in
American warehouses.68
A delegation of American businessmen in Shanghai met with Albert
Wedemeyer in July 1947 to air these grievances. He had been sent as
a special envoy to China by President Truman. The group complained
about anti-American sentiment and discrimination by the Chinese gov-
ernment while at the same time attacking the US State Department for
failing to defend the interest of American businessmen in China. They
contrasted the State Department’s seemed indifference to the fate of
American businessmen to the British Foreign Office, which worked
closely with British business interests.69 The new head of the Executive
Yuan, Zhang Qun, issued a statement on August 13 inviting foreign
investment in China, which was welcomed in manufacturing and other
areas except for those sectors reserved for state control. Zhang pledged
that foreign investors would be permitted to remit an appropriate por-
tion of profits, and he pledged nondiscrimination between Chinese and
foreign investors. A United Press reporter spoke with unidentified for-
eign businessmen who expressed to him interest in Zhang Qun’s state-
ment but considerable skepticism. They had heard much of this before
and would reserve judgment until such time as change had actually
occurred.70
T. V. Soong strongly denied these charges made by foreign business-
men, working with Dr. Wellington Koo in Washington to refute them.
Soong stressed that he was not connected with any import firms.71
H. H. Kung continued to defend his record as well. In a press statement
on July 12, 1947, following a trip to north China, Kung vigorously denied
reports in the American press that China had squandered the
US$500 million loan. Such criticism occurred as China sought new
American financial assistance.72 Whatever the validity of the reports or
what lay behind the delays in getting permission to do business, by the fall
of 1947 many American businessmen concluded they were not wanted in
China. And these groups had been among those most active in advocat-
ing a strong interest in China. As Washington became more focused on
151

1947
the situation in Western Europe and the Marshall Plan, China began to
lose the attention of American political leaders.
Bruce Smith, head of the Shanghai American Chamber of Commerce,
wrote to Shanghai mayor Wu Guozhen on July 24, 1947, complaining
about the difficulties that faced foreign firms attempting to operate in
China. Regulations governing import and export business were drawn
up, he noted, without any consultation with the business community and
implemented with no advance notice. This created chaotic conditions
that made trade difficult. It was also almost impossible to import parts
and supplies to keep manufacturing plants operating; power plants and
transportation companies faced similar restrictions. Equipment needed
to rehabilitate these facilities was often denied import licenses. Smith
suggested that American businessmen were losing faith and interest in
China.73
A few months later, in January 1948, Smith demanded that any future
economic aid to China should carry the condition that the Chinese gov-
ernment curb the present tendency “to foster its own enterprises or
companies in which officials have interest and to encourage rather than
stifle private enterprise.” Chinese-government-sponsored monopolies in
trade, such as the Shanghai fish market, should be eliminated. Restrictions
on foreign ships in inland waters should be reduced, and Chinese labor
laws should reduce the advantage given to labor in the current climate.
Finally, Smith argued, foreign capital should be encouraged to invest in
China rather than the current policy of discouragement.74
Liddell Brothers and Company, which manufactured tools and equip-
ment used by textile mills, took their case directly to Arthur Young. On
November 27, 1947, they complained that “all import licenses are rigor-
ously curtailed and the quota allotments to dealers and manufactures are
quite below their requirements.” In their own case, they stated, “although
we are operating at only 30% of the capacity of our plant, we have barely
enough materials available to fulfill our outstanding commitments to
a number of Chinese cotton mills.” They had on hand enough material
to last through March 1948 but not after that. Their immediate request
for Arthur Young was to enlist his aid in getting a large shipment of iron,
steel bars, and steel sheet that had arrived at Shanghai but had not been
released by customs. The memo emphasized that the customers who
152

needed their output of machinery were Chinese textile mills who relied
on their equipment.75
Businessman Edwin Chester Allan tried to revive his business enter-
prises in Shanghai after World War II but encountered severe difficulties.
Before leaving the United States, he tried to buy an automobile to send to
China but found it virtually impossible. He had to obtain a permit from
the Chinese consulate to start the process. “They are asking $2,000 for
a Ford Sedan here and by the time you pay ‘squeeze’ in every direction it
would cost nearly $5,000 landed in Shanghai.” Once he arrived in China,
he wrote a letter to his wife Dolly on April 8, 1947. “Nothing but chaos
everywhere you turn,” referring to Shanghai. “Really a d− shame to see
such a good place go to rack and ruin. Makes me sick when I think of it.”
He reported that he was wrapping up his business the best he could. “I
have no idea what is going to happen to the exchange in the next few
months.”76
Among the critics was an individual considered to be a staunch sup-
porter of Chiang Kai-shek and his government – Claire Chennault.
Leader of the “Flying Tigers,” Chennault was a popular wartime hero in
China and America. He enjoyed a close relationship with both Chiang
Kai-shek and Madame Chiang. Yet after the war when he tried to organize
a commercial air transport line, he ran into numerous roadblocks. He
felt that, with his knowledge of flying conditions in China and experience
in leading aviators, he could create a company that would be beneficial to
China and the Guomindang government. But he encountered little but
obstacles. He unleashed his criticism in a private letter to General Albert
Wedemeyer on July 27, 1947, in which he outlined the many problems
facing private business in China. He started with an attack on the control
over business exercised by the government banks. “Government banks
today are actually running most of China’s business, and I think this is
unhealthy,” he told Wedemeyer. The unrealistic rate of exchange drove
most to the black market, “while the accompanying limits on importing
foreign exchange drove most people overseas going to the black market
when making remittances to China.”77
The failed attempt by the Chinese government to regulate the
exchange market had basically driven economic activity underground.
“There are no important private exports from China today,” Chennault
153

1947
declared. Most exports were smuggled from Guangzhou to Hong Kong.

Nanjing simply lacked the ability to run a program of economic control,
and the pay of civil service was too low, which meant that bribery was
common. Chennault strongly complained about the daily burden of
hyperinflation. “You may be interested to know,” he told Wedemeyer,
“that our airline payroll for the last two weeks weighed slightly over a ton
in currency and that it took five men four days to count it out into
bundles.” Chennault tried to be hopeful. In the conclusion of his letter,
he said that he thought China “was still a great country and I think that it
would take a surprisingly small, well directed effort at this time to channel
its future along sound lines.”78 That conclusion seemed very much like
wishful thinking. But when an old friend of the Chiangs, one who was
closely identified with the Nationalist government, had become so dis-
couraged, the depth of the economic problems was clear.
Wedemeyer seemed to agree with many of Chennault’s assessments.
He was in China as a special envoy of President Truman and sent
a memorandum to Chiang Kai-shek on August 20, 1947, that particularly
discussed allocation of exports and imports, foreign exchange, and the
general treatment of foreign firms and businessmen. “In most cases,” he
told Chiang, “the laws on the statute books were manifestly fair. However,
in their implementation continued injustices and dishonest interpret-
ations as well as bribery were all involved.” Legitimate business, “be it
foreign or Chinese . . . cannot thrive under existing conditions. This of
course encourages illegitimate business.”79
By 1947, many American businessmen were opposed to another
American loan to China. They were annoyed by what they perceived as
favoritism for the Universal Trading Corporation, which allegedly
exported a large volume of capital goods to China while Western mer-
chants and Chinese private merchants were being shut out.80 Merchants
became less willing to cooperate with the government. By the autumn of
1947, when goods arrived in ports such as Shanghai but did not have the
necessary foreign-exchange permission, government agencies began to
confiscate the commodities. Importers then began shipping the goods to
Hong Kong where they could be smuggled into China.81
American businessmen with an interest in China increasingly blamed
the agents of their own government for not taking a harder stand in
154

forcing the Chinese to accommodate American business. They again

demanded that Yangzi ports be opened to foreign shipping, and they
called for the abolition of the Universal Trading Corporation, which
most viewed as a tool of government monopoly. Prominent government
officials should be removed from the business sector. A May 1948 memo-
randum supported by American business groups expanded their com-
plaints to include the difficulty of registering foreign businesses, the
problem of remitting profits, and the general incompetence of Chinese
officials. Although they acknowledged that black markets were illegal,
they argued that such markets were an open and free normal part of
business activity in China. US officials must use American aid as a tool to
press China on behalf of American firms.82
Some news reports also suggested that China was misusing American
aid. The China Press on September 21, 1947, noted a story that China was
reselling for profit much of the US Army surplus property that had been
provided at a fraction of its cost, and often selling to American firms. One
of the hottest-selling items was tractors, which were in short supply in the
United States and subject to a waiting period of up to two years. China
sold 122 surplus tractors to an American firm for US$700,000.
Presumably these had been provided to help agriculture in China.83
Corruption is a complex issue. Envy of government-connected indi-
viduals who personally profit from political ties unavailable to others is at
its core. It becomes a political and perhaps even a moral issue for some.
Its economic impact is less clear. There are many examples of societies
that experience rapid economic growth despite rampant corruption, or
what is commonly perceived as corruption. The Hu Jintao era in China is
certainly a notable example. China’s economy grew rapidly while govern-
ment-connected individuals and their families garnered large wealth. But
that was not the case of China in the civil war. A dysfunctional currency,
a severely strained transportation system, and an ongoing civil war cre-
ated a climate where economic growth was not going to happen.
Was corruption a key component in inhibiting economic growth? It
certainly made the issue more politically sensitive. One reason Chinese
businessmen were so irate over the “holy family” enterprises was that they
perceived that those were flourishing while their own were languishing.
But was that really true? If government-connected enterprises got first
155

1947
access to foreign exchange, was that the major reason private firms
stagnated? In fact, many businessmen simply circumvented the rules
and traded (smuggled) through Hong Kong. It is impossible to quantify
the exact economic costs of bureaucratic capitalism.
The political costs are much clearer. The communists perceived the
charges of corruption as a winning political issue, violating the sense of
fair play in the economy and playing to the economic grievances of most
Chinese. Opponents of the Soong/Kung group within the Guomindang
saw an opportunity to advance their political position within the move-
ment. Some might have seen the attacks as a subtle way of undermining
Chiang Kai-shek himself since they involved his wife’s family. And attacks
from foreign businessmen vented to their own diplomatic and political
leaders damaged the Chiang government’s chances for foreign support.
How badly corruption hurt the economy is unclear, but the damage to
the standing of the Chiang government was much more obvious.
Finally, there was another key factor fueling the criticism of foreign
businessmen in China. While they were correct that China did not make
it easy for them to do business, at bottom their grievances were tied to the
disappearance of the old treaty-port China. Gone were the days when
a foreign businessmen could sell Cadillacs in Shanghai with little regard
for the Chinese government. When many returned to China after the
war, it was their old way of life – now vanished – that they were loath to
accept. Hence their anger at Chinese authorities. But when Mao and the
communists finally triumphed, the situation became much worse.
GETTING CHIANG KAI-SHEK’S ATTENTION
Ultimate power in the Guomindang government rested with Chiang Kai-

shek. As Lloyd E. Eastman noted about the decade prior to the war with
Japan, “regardless of the formal positions that Chiang Kai-shek held in
the party, government or army, he wielded ultimate authority over the
regime as a whole. He exercised that authority with minimal concern for
the formal chain of command.”84 Thus, any major policy change in
military, diplomatic, or economic areas required Chiang’s stamp of
approval. Odd Arne Westad added, “no other leader within the GMD
had the authority to force through even the simplest decisions. A vital
156

GETTING CHIANG KAI-SHEK’S ATTENTION
matter such as repairs to the railroads connecting the cities to the interior
was held up by factional infighting within the government.”85
Virtually everyone with a significant position in the Guomindang
government realized that, ultimately, they needed Chiang’s blessing for
any substantial policy to be enacted. He Lian (Franklin L. Ho), the noted
economist based at Nankai University, began work with the Central
Planning Board in early 1944 under the direction of its chief secretary
Xiong Shihui. Professor He had been tasked by Chiang Kai-shek with
undertaking postwar planning. In his memoirs, he recounts that he
needed broad instructions on several issues – how much public owner-
ship of enterprises should occur versus private owners; what should be
the regional distribution of capital investment; and what were the major
goals of planning for economic development. After several weeks of
wrestling with the questions, He Lian concluded that “frankly, there
was no one capable of providing me with any instruction aside from the
Generalissimo. My direct superior, Hsiung Shih-hui [Xiong Shihui],
wasn’t capable of finalizing any suggested resolution of the problem.”
He Lian was able to have a one-hour conference with Chiang during
which he endorsed several ideas presented by He. “The meeting with the
Generalissimo was very fruitful. After the meeting I was in a position to
proceed with the organization of my work and the distribution of
responsibility.”86
Much has been made in recent years about the release of the Chiang
Kai-shek diaries, which provide insights into Chiang’s thought process
(or at least how he wished that process to be seen by posterity). But in
trying to understand how Chiang dealt with issues facing China, there is
a better source. Chiang had established the Office of Personal Attendants
(Shicong shi), which compiled voluminous records about his daily activ-
ities. The Jiang Zhongzheng zongtong dang’an: Shilue gaoben (The Chiang
Kai-shek archives: draft working records) has now been published in
dozens of volumes, with each covering two to three months. The Shilue
gaoben contains daily records of virtually all of Chiang’s activities includ-
ing meetings, speeches, important documents sent or received, quota-
tions from the diary, and even leisure activities (such as strolling in the
evening with Madame Chiang). Important dates such as the twentieth
wedding anniversary of Chiang and Soong Mei-ling or Madame Chiang’s
157

1947
fiftieth birthday are mentioned along with details of any celebrations.

Reading through these pages gives one a sense of what Chiang was doing
at any given time.87
For example, on May 25, 1947, Chiang received a report about the
high rice prices in Shanghai, with one picul topping half a million yuan.
The increase had unsettled society. Then on May 31, 1947, the Shilue
gaoben quotes from Chiang’s diary that he understands that the financial
crisis has gotten much worse, and the price of rice has continued to
increase. He also commented on the difficulties with foreign exchange.
Then on October 31, he noted that the price of rice had risen to 800,000
yuan and higher per picul. The striking thing about these entries, how-
ever, is how uncommon they are. During these weeks, Chiang’s attention
was almost entirely on military matters, including inspection trips to
various military headquarters. He also dealt with political matters, stu-
dent unrest, and diplomatic concerns. Far down on his list of activities
was concern with financial matters. He met occasionally with financial
officials such as Yu Hongjun, but his only consistent attention to the topic
was his strong interest in obtaining an American loan. The Shilue gaoben
contains frequent telegrams from Wellington Koo in Washington related
to the negotiations for a loan. On June 20, 1947, Chiang had an after-
noon meeting with Chen Cheng, Chang Kia-ngau, and Wang Shijie at
which military training and foreign relations with America and the Soviet
Union were discussed, as well as currency reform. But despite the rapid
depreciation of the value of fabi, the topic did not absorb much of his
time.88
Chiang did become concerned when scandal threatened to engulf those
in his entourage. On March 5, 1947, Chiang received a report on the gold
sales crisis in Shanghai that suggested that T. V. Soong and Bei Zuyi were
involved in some way. Later in the month on March 22, 1947, Chiang held
an afternoon meeting with Chang Kia-ngau, now director of the Central
Bank, and Yu Hongjun, then minister of finance. That same day, Wu
Tiecheng delivered a report on the party congress, particularly on criticism
of T. V. Soong, H. H. Kung, and foreign minister Wang Shijie. What Chiang
feared most was that much criticism would play into the hands of the
communists. His family legacy must be kept clean. The Shilue gaoben does
not provide any significant analysis of why T. V. Soong was dismissed.89
158

FOREIGN-EXCHANGE WOES WORSEN
Although Chiang was aware of the financial crisis and hyperinflation,

he did not make dealing with it a priority. In the context of the
Guomindang government, that meant that little could be done to resolve
the issue. Officials dealing with the matter would press Chiang to focus
on it, but military matters always came first. On June 28, 1947, Shanghai
mayor Wu Guozhen came to discuss the economic problems that were
worsening daily as inflation continued. And on July 2, 1947, Chang Kia-
ngau, general manager of the Central Bank, came to discuss reforming
the currency and possibly replacing fabi. Yet it would be over a year
before the gold yuan reform was attempted, too late to salvage the
currency. Chang cautioned that a new currency would not succeed unless
the deficit was brought under control.90
Shortly after these meetings, Chiang became preoccupied with the
visit of Albert Wedemeyer as Truman’s special representative and the
related prospects of obtaining an American loan. Chiang held
another meeting with Chang Kia-ngau on July 29, 1947, during
Wedemeyer’s visit, discussing how to increase the trust that China’s
banking community had in fabi. Chiang also dealt with the fallout
from the scandal involving the Fuzhong and Yangzi Development
Companies obtaining foreign exchange illicitly. But that involved
a matter of family reputation, which was always a prime concern for
Chiang. He ordered foreign-exchange issues to become more trans-
parent and met with Zhang Qun and Chang Kia-ngau on August 14 to
discuss its regulation. But he also wanted to avoid public criticism of
the Soong and Kung families.91
The smuggling issue between Guangzhou and Hong Kong became more
severe in 1947 as little legitimate trade occurred. Because foreign
exchange was difficult to obtain, most trade was carried on illicitly.
Large numbers of goods from Hong Kong were regularly sold in
Guangzhou with prices only slightly higher than in Hong Kong itself,
indicating the ease of smuggling. The primary item smuggled in return
was wolfram mined in Guangxi and Guangdong, which fetched a high
price in Hong Kong.92
159

1947
Of course, not everyone saw smuggling as a bad thing. The China

Weekly Review noted that businessmen in South China had long com-
plained that most of the foreign-exchange permits and import licenses
went to Shanghai businessmen who had the right connections with
Nanjing authorities. Southerners were left out. But the journal noted:
it now appears that Chinese businessmen in Canton and other South

China cities have – largely through smuggling – solved their import–
export problems in a reasonably satisfactory manner. Foreign exchange
is obtained by smuggling Chinese products such as Wolfram, tea oil, duck
feathers, Chinese medicines and various food stuffs to Hongkong where
they are sold for Hongkong dollars which in turn are used to purchase
imports in the British crown colony. . . . This “illegal” trade has now
developed into such a well-organized two-way affair that some observers
believe that South China nearly enjoys a balance of trade.93
Philip Thai, in his study of smuggling in modern China, noted that “as its
supply of foreign exchange reserves steadily eroded, the government cor-
respondingly reduced import quotas,” which further constricted legitimate
trade. Measured in US dollars, import quotas shrank from $172 million for
February to July 1947 to only $42 million for September 1948 to
March 1949, a decrease of 75 percent. Thai notes that small firms found it
almost impossible to get quotas and were “reluctant to register with the
government or apply for import permits.”94 Thai cites an observation by
the Chinese trade commissioner at Kowloon that there was a shift in the
economics of smuggling from trying to avoid the payment of duty to evading
trade controls. This was especially true in south China, since importers had
to apply directly to the Central Bank in Shanghai.95
In June 1947, several economic experts led by Fang Xianting and Yang
Yinpu publicly urged the government to simply lift controls on foreign
exchange and allow foreign-exchange rates to fluctuate freely. They
argued that doing so would increase China’s exports, as they would be
priced competitively. Remittances by overseas Chinese would no longer
be going entirely into the black market, and capital that had fled overseas
could be returned to China to help revive the economy. They argued that
this would serve to ease the economic crisis.96 Their arguments held little
traction with authorities, however.
160

In August 1947, the government announced a new Foreign Exchange

Equalization Fund Committee to govern the exchange rate for the
Central Bank of China. The committee, which operated August 1947
until May 1948, consulted with and supervised the rate of exchange with
the Bank of China, Bank of Communications, National City Bank of
New York, and the Hongkong and Shanghai Banking Corporation.97
The rate for August 18 was set at 39,000 yuan for US$1. The committee
had more flexibility to keep the official rate in line with the black-market
rate, although the maximum increase was set at 5 percent per month.
One immediate result was a sudden growth in exports. For several
months, export goods had accumulated in warehouses because the
exchange rate was too unfavorable to sell overseas. But with the new
rate, exporters leaped to take advantage, creating a short-term rush.98
But the growth was only temporary. For about a month, the exchange
system worked reasonably well, but starting on September 21, the black-
market rate began suddenly to rise. The committee felt that if it raised
rates to match, this would simply accelerate inflation; but if it held firm,
then legitimate traders would turn to smuggling to evade the unrealistic
exchange rates. Ultimately, the new policy did not stabilize the foreign-
exchange value of the yuan, which in fact worsened.
The head of the stabilization committee, Chen Guangfu, a prominent
banker, sent a confidential letter to Chang Kia-ngau, governor of the
Central Bank, on October 25, 1947. He complained that the group had
been subject to severe criticism in the press and by public officials. Chen
felt that the committee was wrongly blamed for increasing prices which it
could not control. If “the Committee does not command confidence,” he
stated, “the Committee would be glad to withdraw.”99
A report of November 27, 1947, noted that the black-market foreign-
exchange rates had increased 50 percent since November 15. On that
date, the black-market rate was 95,000 yuan for one dollar and by
November 27, it reached 140,000.100 Arthur Young prepared a memo
on the issue on December 1, 1947, and remarked that official remissions
to China from overseas Chinese were drying up because the rate was
simply too unfavorable. In all likelihood, people were using the black
market.101 Young also sent a memo to Chang Kia-ngau warning that the
rapid rise in the black-market rate in the first two weeks of November was
161

1947
a sign of serious problems. “Money is being sent abroad in growing

volume by persons including officials.”102
On his return to China in 1947, Arthur Young stayed at the Cathay
Hotel in Shanghai. In his papers, he saved a printed form from the hotel
stating that “we regret to inform you that due to circumstances beyond
our control, we are reluctantly compelled to raise rates in this hotel.” The
line for the rate was left blank so the new amount could be written in. On
his arrival, the room was 900,000 yuan nightly.103 Newspapers began to
make the inevitable comparison with Weimar Germany in 1923, when it
completely collapsed. When the value of 1 yuan in 1936 was equal to
50,000 yuan in October 1947, the Shen bao felt that moment had come.104
By late October, rumors began to spread that China was on the verge of
attempting to return to the silver standard by issuing silver coins. The
United States was rumored to loan China a substantial amount of silver to
permit the coinage.105
In an editorial of November 19, 1947, the Dagong bao called the
government’s foreign-exchange equalization effort begun in August
a complete failure. When the gap between the open market and black-
market exchange rate varied by 40 percent, the board seems to have
given up trying to close the difference. One obvious problem was that
remittances from overseas Chinese continued to flow into the black
market. The paper concluded:
We admit that under existing economic conditions in China, it is

impossible for us to have a very sound foreign exchange policy. All we
can hope for is . . . a policy that will more or less encourage exports. This is
about time that the Government authorities considered lifting
conditionally the foreign exchange controls.
The buying and selling of foreign exchange should be open and left to
the market to determine the rate. This policy should encourage exports
and reduce smuggling. It might even be possible, the Dagong bao sug-
gested, that some remittances might flow into legitimate banks.106
Despite the serious deterioration of the currency, Chiang Kai-shek’s
attention still lay elsewhere. Throughout November 1947, the log of his
daily activities reveals an almost-total focus on military matters, with
occasional references to concerns over student demonstrations and
162

DETERIORATION OF THE BATTLEFIELD SITUATION
their communist leanings. With the impending meeting of the national

assembly, Chiang met regularly with Chen Bulei and Chen Lifu to discuss
political mobilization. Conspicuously missing from his schedule were
regular meetings with financial officials. Finally on November 25, 1947,
Chiang noted the increase in prices of commodities in Shanghai, which
he found troubling. He blamed speculators for the rise in cotton-textile
prices. He also condemned the black market in American dollars, noting
that the going rate was 130,000 yuan for 1 dollar. But Chiang was quickly
diverted when he flew to Beiping the following day accompanied by his
son Jiang Jingguo, where he met military officials.107 On his return to the
capital, he held meetings with Zhang Qun, head of the Executive Yuan,
and Arthur Young to discuss the financial crisis. In mid-December, he
met with the leaders of the four government banks to formulate
a solution. But ultimately, Chiang seemed to have pinned his hopes on
a loan from the United States.108
DETERIORATION OF THE BATTLEFIELD SITUATION

OF THE GUOMINDANG
Over the course of 1947, the Guomindang government’s military pos-

ition began to weaken. Large portions of the countryside in the north
and northeast fell under Chinese Communist Party control. Odd Arne
Westad argues that “the most spectacular military operation of the civil
war was Liu Baocheng’s 1947 sweep across the Yellow River toward his
former base in the Dabie Mountains. This was a new type of offensive for
the Communists. . . . The operation was a startling success that awoke all
Chinese to the possibility of the Communists ultimately topping the
government of Jiang Jieshi.”109 The worst defeats were to come in the
following two years, but there was a shift in public perception in 1947,
recognizing that the communists might indeed win the civil war.
Communist success on the battlefield also had a profound economic
impact. The urban bases of the Chiang government became further
isolated from the countryside. Cotton and foodstuffs could not reach
Shanghai and Tianjin. The cities became further dependent on foreign
imports, adding to the strain of the foreign-exchange problem. Solutions
to the problem that might have been viable in 1946, such as allowing
163

1947
foreign shipping access to the interior, were no longer options. The

military and political divide was separating the rural and the urban
economies, and the latter was failing.
Wedemeyer returned to the United States without arranging a new
American loan, so US cash could not be used to cover the imports to keep
Chinese cities alive. The Truman administration had simply lost faith in
the economic competence of the Guomindang government. In
December 1947, the government planned to set up finance and currency
bureaus in Shanghai, Tianjin, Guangzhou, and Hankou, with the
announced goal of preventing banks from engaging in speculation and
illegal activities. Few expected significant results. A severe tightening of
credit by government banks was to be initiated.
164

CHAPTER 6
1948
The Collapse of Fabi and the Gold Yuan Reform Disaster
B y the spring of 1948, the foreign business community

had all but written off the Guomindang government and its
ability to salvage the economy. A secret report of March 26, 1948, by
D. F. Allen, the British shipping representative for the Far East noted,
“the mood of the British Community in Shanghai today is without ques-
tion more despondent than it was four months ago.” The deteriorating
military situation was critical, but Allen focused on the weaknesses of the
Guomindang government. “The dominant feature of their mood is
complete disgust with the Kuomintang [Guomindang] and all it stands
for in corruption, feebleness and chauvinism.” He concluded that fabi
was on its last legs, and that the real currency in Shanghai was the
American dollar and in Guangzhou, the Hong Kong dollar. Allen’s
report argued that the communists would not make much of
a difference if they won, a perspective that many Chinese businessmen
had come to adopt.1
For some months, many of the financial leaders in Nanjing had also
become convinced that people had lost confidence in fabi and that the
currency was doomed. Something completely new was needed. The price
of commodities was rising substantially faster than the increase in the
amount of fabi in circulation, an indication that people were not holding
on to the rapidly depreciating currency. But the basic question was that, if
a new currency was issued, what would prevent it from going the way of
fabi? American help was deemed essential. On January 14, 1948,
a delegation led by Bei Zuyi left for the United States with the hope of
enlisting American aid in the creation of a new currency. The Xinwen bao
stated that with a US$300 million loan, all fabi could be redeemed and
165

1948
replaced by a new currency. The Dagong bao was more skeptical, stating
that “stabilization of commodity prices cannot be achieved by merely
replacing the existing currency with a new one. Success or failure of the
currency reform will depend mainly upon whether the State budget can
be balanced.” That prospect seemed remote, which meant that the new
currency would fail as well. “It is possible that when and if public confi-
dence in the new currency is shaken, commodity prices may rise even
more rapidly than they have done in the past,” a statement that was
remarkably prescient.2 At the end of February 1948, the market rate for
the US dollar reached 300,000 yuan; it had started the year at 150,000.
A picul of rice rose to 3.3 million yuan by February 27.3
Meanwhile, the government continued its cycle of raising the
exchange rate to match the black-market rate only to find the new official
rate completely inadequate. On April 6, 1948, the Foreign Exchange
Equalization Fund Committee increased the official rate of exchange
for US$1 to 324,000 yuan. Almost immediately, the black-market rate
reached 565,000, and prices continued to surge.4 By June 7, the black-
market rate for dollars reached 1.4 million and on June 15 reached
1.95 million yuan per dollar.5 By June 25, it hit 3.7 million and by
July 13 rose to 6 million per dollar. The end was clearly near.6 Bad news
from the battlefield accelerated the decline of fabi. With the fall of
Kaifeng to the communists in late June, prices on some commodities in
Shanghai doubled in less than twenty-four hours.7
The cover price for the China Weekly Review in Shanghai was 300,000
yuan on July 10, 1948; 600,000 for July 17; 800,000 for August 7; and
1.5 million for August 21.8 In late May, the government introduced an
Exchange Certificate System that was supposed to let the exchange rate
fluctuate with the market. But as in the past, the black-market rate
continued to soar.9 And in mid-July, the government issued the 5 million-
yuan note to cope with the higher prices, a move that the Dagong bao
stated would simply fuel price rises.10
The worst consequence for urban residents was the soaring price of
rice, which the government could not control. In early March 1948 the
price of rice in Shanghai was 3.3–3.5 million yuan per picul. The govern-
ment could simply not get more rice on the market without paying
a higher price to producers. As L. K. Little noted on March 11, 1948,
166

THE COLLAPSE OF FABI
the day had arrived when “the farmers won’t bother to bring their
produce to the city because, by the time they can spend money they
receive at the market, prices of what they want to buy have gone up so fast
that the money won’t bring them anything worthwhile.”11 As the price
index continued to soar, even government enterprises could not resist
the trend. In early April, the government transportation enterprises
raised passenger fares, as did other government-owned enterprises.12
Because the government itself did not have enough foreign exchange
to purchase petroleum from overseas, most vessels in the China
Merchants Steam Navigation Company had to suspend operations at
the end of April.13
The United States began a program of sending relief supplies to China
to alleviate the shortage in urban areas. In January 1948, Congress
provided US$125 million for the purchase of commodities including
cotton, petroleum, foodstuffs, and other items. The goal was not only
to alleviate shortages in China but also to absorb currency and reduce
inflation. The first shipment of flour arrived in Shanghai in mid-January
1948. The relief items could be sold on the open market, but the pro-
ceeds were to go to relief efforts. The program delivered some benefits
but could not stem the tide of hyperinflation.14
The Chiang government continued to press for more American finan-
cial aid, including funds that could be used to stabilize the currency. The
Truman administration and George Marshall as secretary of state had
been hesitant to provide aid to the Chiang Kai-shek government, which
they saw as increasingly inept and corrupt. But the success of the Chinese
Communists on the battlefield and the tense relationship between
Washington and Moscow changed the equation in Washington.
Republican leaders in Congress pressed Marshall to find funds for
Chiang, and Truman himself began to see the Cold War as extending
beyond Europe. Marshall asked Congress for an aid program for Chiang.
The China Aid Act passed in early April 1948, providing $388 million for
economic aid to China over a one-year period and an additional
$125 million for military aid.15
Much of the assistance was to be in the form of commodities that
would be sold, as had earlier relief supplies. The Shen bao urged the
government to use the proceeds from these sales to close the budget
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1948
deficit and discontinue printing excess banknotes.16 The new loans were
attacked by communists and leftists. Feng Yuxiang, the old “Christian
General,” denounced the loans, stating that Chiang had already lost the
support of the people and American efforts to shore up the Chiang
dictatorship would not be effective.17
The collapse of fabi also brought an end to Zhang Qun’s tenure as
head of the Executive Yuan. Weng Wenhao emerged as a surprise choice,
in part because he was thought to have a better chance of obtaining
American aid than some of the other candidates.18 Yu Hongjun was out
as minister of finance; Weng brought in Wang Yunwu for the position.
The general manager of the Commercial Press for many years, Wang had
served as minister of economic affairs from May 1946 to April 1947,
a tenure fraught with conflict with T. V. Soong. Now Wang would have
responsibility for salvaging China’s sinking currency, and he advocated
a major change.19
Yet changing personnel could not solve the underlying problem. On
June 15, 1948, Weng admitted that the government could not balance
the budget because of the expense of the war against the communists.
After his remarks, the Xinwen bao editorialized that “it is tantamount to
admitting in advance that inflation is going to become worse and that the
inevitable result is that the financial problem will become a mess. At this
time when commodity prices are soaring, this will at least accelerate the
price hike.”20 On June 26, rice prices increased 30 percent to 23 million
yuan per picul; the US dollar increased to 4.8 million yuan per 1 dollar.21
Many felt that the government had simply given up halting the price rises.
As the Xinwen bao noted on June 27, 1948, “what is most surprising in the
current frantic price hike is that the Government has taken an attitude of
aloofness toward it. . . . This phenomenon has increased the people’s
apprehensions and given them the impression that the different kinds of
Government control agencies have already stopped functioning.”22
Capital continued to flow into Hong Kong despite all efforts to control
exchange. One indication was a sharp growth in the number of bank
accounts in the Crown colony. The Hongkong and Shanghai Banking
Corporation, the dominant British-controlled bank, noted that before
the war only one or two depositors had accounts of more than 10 million
Hong Kong dollars, but in June 1948, over 1,000 had such accounts, and
168

THE COLLAPSE OF FABI
10,000 had at least 5 million in deposits. The assumption was that most of
these deposits had come from Chinese seeking to get capital out of
China.23
Even the Zhongyang ribao (Central daily), generally considered the
voice of the government, expressed despair. “The illegal activities of
Chinese banks, both Government and private, have now become
anarchic. How many of these banks dare to declare that they have
never violated any of the decrees and regulations promulgated by the
Ministry of Finance? How many of them dare to declare that they have
only one set of books?” The government banks were singled out as
particular targets. “The capital of Government banks and bureaus is the
property of the state and the sweat and blood of the people. Do these
banks and bureaus have the right to use these funds in any way they like
and to buy a large amount of real estate in China or abroad?”24
On July 22, 1948, the exchange rate for the dollar reached 6.5 million
yuan per 1 dollar. Livingston T. Merchant, economic adviser to the
American Embassy in Nanjing, noted in a report to the secretary of
state on July 30, 1948, that “there is no doubt in my mind that the
Central Bank is absolutely out of dollar exchange. The inflation is now
taking on an explosive form with the first signs beginning to appear of the
actual physical slowdown of the conduct of business which characterizes
its final stages.” He noted that CNAC flights from Shanghai to Nanjing
had been suspended because the official rate did not cover the rising cost
of obtaining aviation fuel. Many stores in Shanghai were staying closed
rather than risk holding fabi for even a few hours. “The rate went over
eight million in Shanghai yesterday and until this morning the largest
denomination bill in circulation was worth only slightly over one cent
gold.”25
On July 29, Chiang Kai-shek met with officials at his mountain
retreat in Zhejiang to discuss the matter. Among those attending
were Weng Wenhao (head of the Executive Yuan), Wang Yunwu (min-
ister of finance), Yu Hongjun (the head of the Central Bank), and
Wang Shijie (the foreign minister). They decided that a reform plan
would be developed in secret. Chiang returned to Nanjing on
August 18 and the following day he would approve the regulations
for the new currency.26
169

1948
SOONG HEADS SOUTH
Although T. V. Soong had been forced out as head of the head of the
Executive Yuan in March 1947, he had one final role to play in
Guomindang China. Chiang Kai-shek appointed him governor of
Guangdong province in September of that year, with the added title of
pacification commissioner. Soong’s appointment gave rise to speculation
that Chiang was preparing a base in the far south in the event the
communists continued their military march. Communist sources sug-
gested that the United States wanted Chiang to secure this area so that
it could become a base for American aid to counter the communist
triumphs.27 But others in Washington realized that Chiang might be on
the way out and that the United States should support regional regimes
in south and southwest China. Soong was seen as a candidate for such
a government in Guangdong province. This was not to be, for when
Chiang resigned the presidency in January 1949 (if perhaps not giving
up actual political power), Soong also stepped down and left for the
United States, never returning to mainland China. But when Soong
undertook his new position in the fall of 1947, he did so with typical
energy, frantically trying to undertake multiple economic projects. And
he took the daring step of using Japanese advisers and technicians as he
saw fit.28
Soong’s appointment was heavily criticized by the same groups that
had attacked him a few months earlier. The National Socialist Party,
headed by Zhang Junmai (Carsun Chang), one of the Third Force
groups, saw the appointment as revealing Chiang’s unwillingness to
purge the government of corrupt individuals. An editorial of
October 4, 1947 in their major journal stated, “today, all the people
throughout the country are hungry and emaciated, but he and
H. H. Kung and a small number of bad eggs are growing fatter and fatter,
richer and richer, so much so that even high-class foreigners are envious
of their material abundance.” The article concluded that “we express the
strongest protest against the assumption of governorship by T. V.! We
believe that this protest of ours also represents the wish of all the wise,
great and law-abiding people throughout the length and breadth of the
country.”29
170

SOONG HEADS SOUTH
Ling Wusu, a representative of the Democratic Socialist Party on the

provincial council, attacked Soong for his failure to assist private industry
and mining in Guangdong. Ling charged that Soong was signing secret
agreements with the United States that would allow for military bases in
south China and for the reduction of tariffs on US products.30 In
October 1948, the Control Yuan – a center of opposition to Soong –
sent two representatives to Hong Kong to investigate charges that Soong
had been engaging in unlawful transactions in Hong Kong currency as
well as building unauthorized airfields in Guangdong.31
Soong was deeply upset at the criticism he received and continually
protested that he had not accumulated large sums of money. In
October 1947, T. V. had made a very public donation of his shares in
the Yangzi Development Company to a charity that aided dependents of
Guomindang members who had died in the defense of the country. His
opponents in the party downplayed the donation, calling it a “drop in the
bucket,” and suggested it was all for show.32
When Soong heard a rumor that someone at a dinner party at the
British Embassy in Nanjing had stated that an official with connections to
the Guangdong provincial government was conducting unauthorized
business between Guangzhou and Hong Kong, he became sufficiently
outraged to write to the British ambassador himself on January 12, 1948.
He asked the ambassador to please assist in providing information about
the charges. “I feel sure that you will sufficiently sympathize with a public
servant who has frequently been under fire without justification to accede
to my request.” The ambassador replied on January 24 that he had made
enquiries but had not been able to find out any information about the
alleged remarks.33 Soong obviously felt compelled to try to dispel charges
of corruption leveled at him.
When the gold yuan reform was introduced in August 1948, the new
currency was not successful in the south. Because Hong Kong and Macao
imported foreign goods with no or little duty, smuggling into China was
virtually inevitable. It seems that 70–80 percent of the trade between
Hong Kong and south China was done through smuggling.34 When
Jiang Jingguo (Chiang Ching-kuo) imposed his “reign of terror” in
Shanghai after the gold yuan reform, the terms were rigorously enforced
there. But Soong seemed unwilling to use those methods in Guangdong.
171

1948
Some in the Legislative Yuan raised the issue of why this was not the case.
The British consul-general at Guangzhou in a report to the colonial
secretary in Hong Kong on September 27, 1948, noted that “Dr. Soong
says he will not have a reign of terror in Canton, and there seem to be
a reluctance here to copy Shanghai methods.” Jiang Jingguo enforced
the rules by methods that alienated many of the business community.
The British consul noted that “commodities disappear if police try to
prevent sales at black market rates.” But in explaining this, the consul
simply assumed that the rumors about Soong were true. “One possible
reason for this is, of course, the fact that it is common knowledge that
Dr. Soong has a sizable fortune salted away abroad and that he should be
responsible for the local enforcement of the economic programme
strikes the Cantonese merchant community as somewhat anomalous.”35
Clearly, Soong had not succeeded is dispelling rumors about his wealth.
Soong’s tenure in Guangdong shows that he had great ambitions for
the province and assumed the Guomindang government would control
the area in the future. He worked closely with the National Resources
Commission (NRC) to develop large-scale projects. In April 1948, an
American engineer, Martin T. Bennett, completed a study for the NRC
for the development of ammonium sulfate fertilizer plants for
Guangzhou and for Taiwan. The Guangzhou plant was to be located
outside of the city between it and the Pearl River along the Guangzhou–
Kowloon Railway. Budgeted at over US$20 million, the plant would have
produced over 121,000 pounds of ammonium sulfate and additional
ammonium nitrate. The plant assumed that an American loan would
be forthcoming to be repaid over fifteen years.36 The project was not, of
course, completed before the communists seized the area, but it reveals
that the Soong regime was still making long-term plans for the province
in 1948.
A second major project promoted by Soong was the development of
Hainan Island. A sweeping proposal would have funded development of
agriculture, fishing, mining, industry, and transportation. Because Japan
had invested substantial resources in the island during the war, Soong
decided to invite Japanese experts and assistants to come to Hainan to
assist in the project. The proposal included reasonable pay for the
Japanese, security for their living arrangements, and provision for
172

INTRODUCTION OF THE GOLD YUAN
a Japanese-style education for their children. With the war only three
years in the past, Soong seemed unconcerned by possible public reaction
to the employment of these Japanese experts. But like the fertilizer
project, Soong’s ambitions were not realized.37 A major difficulty in
getting the Japanese experts to China was General Douglas
MacArthur’s office, Supreme Commander Allied Powers, in Tokyo.
When Soong requested twenty Japanese engineering experts be sent to
Guangdong for the repairs to the Kokusaku Paper Mill, he was advised by
John Leighton Stuart, then American ambassador to China, that the Far
Eastern Commission had not cleared the process. China would have to
appeal directly to the commission, which had not heretofore allowed
Japanese engineers to participate in work overseas.38
The ambitious plans for Guangdong reflected a sense of optimism
that was not warranted under the circumstances. Both the military and
economic situations were rapidly deteriorating. An official who had
served under Soong in the Ministry of Finance and continued working
there sent a private message to Soong on June 28, 1948. Tax revenues
were not improving, he noted. An increase in import tariffs produced
negligible revenue because so few items were legitimately imported. The
government had pledged to improve collection of the income tax, but
“we do not have the organization or trained staff to administer properly
an income tax. Prices continue to rise. The rapidity and extent of the rise
are terrifying. People have been wondering what will happen. Unless the
deterioration of the military situation could be checked, even U.S. aid
will not be of any avail. Some momentous crisis may develop.” Soong’s
informant suggested that the business community had no confidence in
the in the new finance minister. “I am sorry I have nothing encouraging
or hopeful to report to you except that I still manage to get along.”39
On August 20, 1948, Chiang Kai-shek suddenly announced a new

currency – the gold yuan. The use of the term “gold” was a bit of
salesmanship, as the government had less than US$100 million in gold
reserves at this point and it was not used to back the new issue.40 The plan
had been prepared in secret during the previous weeks. Weng Wenhao,
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1948
head of the Executive Yuan, and Wang Yunwu, minister of finance, both
promoted the policy, finally convincing Chiang. Wang, who had only
a limited background in finance, was the most enthusiastic architect of
the reform. However, T. V. Soong and Chang Kia-ngau cautioned Chiang
against the change.41 By government decree, all gold and silver held by
individuals and banks had to be surrendered to the Central Bank of
China in exchange for the new currency. All banks were to close for
two days to facilitate the exchange. Old fabi notes were to be converted at
banks at the rate of one gold yuan per three million fabi yuan
(Figure 6.1). The government announced that the amount of the new
currency would be strictly limited and that rigid price controls would be
enforced in major cities.42 Overnight, there was a stunning change in
market prices. The cost of a tram ticket, previously 300,000 yuan fabi,
became 10 cents in the gold yuan currency. The street price of the North-
China Herald dropped from 800,000 yuan to 25 cents.43
6.1. People crowd banks to exchange the old fabi notes for the new gold yuan notes,
August 1948. Bettmann/Getty Images
174

The total of the new currency to be issued was 2 billion yuan, while 700
trillion yuan of the old currency circulated. The exchange rate for the
American dollar was set at four gold yuan for one dollar. Chiang con-
sidered the key to success of the reforms to be Shanghai, more than ever
the financial center of Guomindang China. Chiang sent his son, Jiang
Jingguo [Chiang Ching-kuo], to Shanghai on August 20 to oversee the
process in the metropolis. Jingguo had made a trip to Shanghai a few
weeks earlier to study the economic situation in the city. He wrote to his
father on June 26 to report that conditions were quite serious. On
June 28, he began a series of personal meetings with his father that
continued until August 3 to discuss the situation.44 The reform was
prepared with such secrecy that even key government officials were
caught off guard. Wu Guozhen, then mayor of Shanghai, which would
be central to the success or failure of the gold yuan, was one such official.
He only learned of the change on August 19 when Yu Hongjun, then
head of the Central Bank, phoned him with the news.45
Some in the press indicated hope that the reform would be successful.
On August 21, 1948, the Dagong bao noted “the publication of the size of
the note issue and the independence of the note issue constituted one of
the important reasons why the fapi [fabi] was able to enjoy the confi-
dence of the public in the early days, and now those have been
restored.”46 The Shen bao likewise stressed the importance of independ-
ent power to control the issue of banknotes. “The Government must not
issue a single Gold Yuan note without first obtaining the written approval
of the responsible officers of the supervisory committee.” It this rule was
violated, the paper continued, inflation would resume.47 Jiang Jingguo
himself was optimistic when the project started. On August 22, 1948, he
wrote in his diary that most people seemed supportive of the new cur-
rency and felt that it would succeed. Government personnel, he noted,
were not as optimistic.48
And skepticism abounded. Even before the currency was introduced,
much of the Chinese press pronounced it a failure. The Shidai gonglun
(Modern critique) on February 15, 1948, wrote that today’s China did not
have the basis for a successful new currency. It lacked the ability to back
currency in either silver or gold. The “new fabi will quickly become the
old fabi.” The article was triggered by reports that Chiang had sent Bei
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1948
Zuyi to America to attempt to get US backing for the new currency.49

When asked about the reform, economist He Lian (Franklin Ho)
recalled, “I thought that it was plainly impossible! You cannot achieve
monetary reform merely by adopting a new currency to replace the old
one. You cannot achieve monetary reform without fiscal reform.”50 Upon
learning of the new policy, Shanghai mayor Wu Guozhen headed to
Nanjing on August 20 to attempt to convince Chiang Kai-shek that the
gold yuan reform would not work. His stance simply angered Chiang. Wu
returned to Shanghai without even meeting with the minister of finance,
sensing that it was a lost cause.51
The British consul in Shanghai sent a confidential report to the
embassy in Nanjing that stated, “in view of the slight prospects of the
new currency succeeding in the present circumstances, the question may
well be asked why did the Government introduce it at the present junc-
ture?” The general view was that, if the government was going to succeed,
it should have tried the change before things had deteriorated so ser-
iously. “With wholesale prices tripling in the month of June and retail
prices similarly tripling in the month of July, there was a general feeling
that the situation had become untenable. It is believed that the leaders of
the Shanghai banking community informed the Generalissimo to that
effect about a month ago.”52 The issuing of the new currency was done in
tandem with a series of policies including the freezing of most commod-
ity prices at the level of August 19, 1948. Similar policies in the past had
proven unsuccessful.
To bring in funds to back the new currency, the government tried
once again to interest the public in purchasing shares in government
enterprises. Among the firms touted were the Chinese Textile
Industries, China Merchants Steam Navigation Company, Taiwan
Sugar Corporation, Taiwan Paper Company, and Tianjin Paper
Company. Yet according to a report from the American Embassy in
Nanjing sent to Washington in mid-September 1948, sales were slug-
gish. After a month, apparently sales of stock had only brought in
4 million gold yuan, as opposed to the projected sales of 564 million.
As in 1947 when the government announced such sales, the credibility
of the investment was low, so the public was wary of purchasing the
stock.53
176

Equally troubling was the difficulty of setting the exchange rate at

a realistic level. On August 18, 1948, the official exchange rate was
7.5 million yuan fabi to 1 US dollar. At the time of the currency reform
decree, this was suddenly raised to 12 million yuan to 1 dollar. When the
gold yuan reform was introduced, the exchange rate had been set at four
gold yuan for one American dollar, a rate set by Chiang Kai-shek
himself.54 In May 1948, the Central Bank had introduced a flexible
exchange rate designed to reflect market values. They had tried to
keep the rate above 70 percent of the black-market value. But after the
gold yuan reform, the government tried to maintain a fixed exchange
rate. But this effort, too, quickly failed. In November 1948, Nanjing could
no longer maintain the four-to-one rate. As the communists won a series
of major victories in late 1948 and early 1949, the Central Bank was also in
retreat.55
For the gold yuan reform to succeed, Nanjing authorities believed,
banks, enterprises, and individuals had to surrender their gold, silver,
and foreign currency assets to the Central Bank. Li Ming, then chair of
the Shanghai Bankers Association, stated that all modern and native
banks in Shanghai would comply with the new order.56 Thanks to the
harsh methods used by Jiang Jingguo in Shanghai, a substantial amount
was surrendered. But the situation in the rest of China was much less
successful. Shanghai residents supplied 64 percent of the total value of
surrendered gold, silver, and foreign currency, but estimates were that
only 20–30 percent of the national total of these items had been turned in
by the September 30 deadline.57 The situation in south China was par-
ticularly bad. The Hong Kong dollar continued to be hoarded by the
local population, and T. V. Soong refused to use the harsh methods of
Jiang Jingguo. So the gold yuan never caught on in Guangdong and
surrounding areas. As Chou Shun-hsin noted, “even at best, the
Chinese currency only supplemented and never superseded the role of
Hong Kong dollars as the de facto standard money in south China.”58 In
an editorial on September 15, the Dagong bao echoed this theme. “The
nation’s economy is an organic whole, so if economic conditions in other
parts of the country cannot be made entirely satisfactory, Shanghai will
eventually be adversely affected.” The government’s focus on Shanghai
would not work in the long run, the paper concluded. “We urge that the
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1948
Government give special attention to measures which are nation-wide in

scope, instead of thinking that by improving conditions in one city alone,
it will be able to improve conditions in the whole country.”59
Ultimately, the gold yuan reform could not succeed unless the gov-
ernment abandoned the policy of covering deficits by printing currency.
But the continuation, indeed the acceleration, of the civil war in the
latter half of 1948, made this nearly impossible. As the Shang bao pre-
dicted on August 20, 1948, when the reform was issued “we are convinced
that no currency reform measures can have any success as long as order is
not restored and as the budget is not able to be balanced. . . . [But] bandit
suppression will certainly continue even after the currency reform. . . .
Bandit quelling and a stable currency cannot exist side by side.” The only
hope was that “this most wasteful war must be stopped if we are to have
effective currency reform.”60 That, of course, was not going to happen
until the communist victory.
JIANG JINGGUO’S REIGN OF TERROR
The gold yuan reform worked remarkably well for several weeks in the
Shanghai and Nanjing areas. Commodity prices remained stable at the
August 19 ceiling levels, and approximately US$170 million in gold,
silver, and foreign exchange was surrendered to the Central Bank in
exchange for the new currency.61 But there was a cost for this success.
Chiang had placed his son Jiang Jingguo in charge of enforcing the
reform in Shanghai. As Chang Kia-ngau noted, “for six weeks Shanghai
was more or less terrorized into a state of monetary equilibrium.
Commodity prices remained at ceiling levels except for perishable
goods, and the black market in foreign currencies and gold passed out
of existence.”62 Jiang used his own agents to make these arrests, subor-
dinating the Shanghai city police. His nominal boss, general manager of
the Central Bank Yu Hongjun, had little control over Jiang Jingguo. He
wrote to his father on a regular basis to report on the situation, and the
backing of the elder Chiang was the source of Jingguo’s authority.63
Jiang Jingguo relied on two outside organizations that were relatively
new and answered directly to him. The Sixth Battalion of the Bandit-
Suppression National-Reconstruction Corps (Kanluan jianguo dadui)
178

was brought in to search warehouses for hoarded goods. They also put up
“secret-report boxes” that allowed citizens to report violations anonym-
ously, and they carried 45 caliber pistols while on patrol. The second
organization that assisted Jingguo was the Shanghai Youth Service Corps
(Da Shanghai qingnian fuwu zongdui), which enrolled approximately
12,000 youth. The younger Jiang considered it to be essential for the
success of his endeavors in Shanghai. Although they were loyal to him,
most of the young people had limited or no training in the tasks that they
had been given.64
Doak Barnett, then in China, noted that the “methods used by Chiang
[Jiang] have been described as ‘reform at pistol point.’ His energy,
fearlessness, and honesty were admired by many, but it soon became
apparent that his methods were antagonizing key groups whose cooper-
ation was absolutely necessary for the success of such a program.”65 But
Jingguo felt that he was launching a social revolutionary movement that
would overcome economic inequality in society. His target was to be the
big, wealthy “traitorous merchants.” “Those who disturb the financial
markets . . . are not the small merchants, but the big capitalists and big
merchants. Therefore, if we are to employ severe punishments, we
should begin with the chief culprits.”66
Jiang Jingguo became convinced that many business and banking
leaders were only giving superficial support to his program. On
September 11, he met with several bankers with whom he was dissatisfied,
including Li Ming, who was head of the Shanghai Bankers Association,
and Qian Xinzhi, head of the Board of Directors of the Bank of
Communications. Reportedly, Jiang was particularly rude to Zhou
Zuomin, manager of the Jincheng Bank, who had voluntarily spent the
war in occupied areas, demanding more foreign exchange. Zhou fled to
the Hongqiao Hospital to escape the pressure.67 The capitalists, Jingguo
reported, were friendly to him in person, but “behind one’s back there is
no evil they do not commit.”68 Chiang Kai-shek issued a statement affirm-
ing that he believed several private banks had not submitted all of their
foreign exchange. On September 12, Jingguo held a rally for officials
implementing the policy and spoke for over an hour to applause and
cheers. But the following day, he summoned business leaders to
a meeting at the Central Bank of China building and informed them
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1948
that if they slowed down production or suspended operations because

they felt that the fixed price was too low, the government was prepared to
confiscate their enterprises.69
Jiang’s special agents arrested Li Ming, one of the most prominent
bankers of the Republican era, on the grounds that he was secretly
holding US$3 million. Shanghai mayor Wu Guozhen went to Nanjing
to plead his case with Chiang Kai-shek, arguing that Li’s bank did not
have nearly that much capital. Chiang replied that his son had the
evidence. Still, Li was released after filling out a police report and
promptly fled to New York. Jingguo was alienating the Shanghai business
community. Many of the Shanghai capitalists gave up on the
Guomindang government at this point. Altogether, nearly sixty promin-
ent business leaders were swept up in the campaign.70
But Jiang’s reign of terror could not work outside of the urban areas
and Shanghai in particular. Mayor Wu Guozhen noted that the new
currency was not accepted in the villages where commodities were pro-
duced. Farmers simply refused to sell at the prices fixed by the reform
and were dubious about holding gold yuan notes. Textile leaders in
Shanghai who were arrested by Jiang’s agents protested that they could
not obtain cotton from the interior, so that the only way to continue to
operate was to import foreign cotton. Jiang Jingguo had Rong
Hongyuan, China’s leading textile magnate, arrested for hiding foreign
exchange. Rong claimed that he had no real alternative to obtain cotton
other than overseas purchases. He was sentenced to seven years in prison
but later released when the gold yuan reform failed.71 Both textile
production in Shanghai and the use of electric power declined from
August to September 1948 because of the lack of raw materials.
Estimates put the decline in output at 30 percent. Fearful that merchants
would simply transport commodities outside of Shanghai to the interior
where price controls were not enforced, Jingguo began to impose strin-
gent rules on exporting goods from Shanghai. Since the big city had long
relied on sales of commodities in its hinterland, this further depressed
the economy.72
Cotton textiles were hit doubly hard because prices of cotton products
had been fixed on August 19, 1948. As Juanjuan Peng noted in her study
of the Yudahua business group, “unfortunately, August happened to be
180

the low season for the textile manufacturers; the cotton price hit the peak
just before the new cotton was picked and the yarn price was still low
because the farmers, the ultimately consumer of cotton products, usually
waited until after the harvest to make purchases.”73 The legal price for
textile goods was set at an unfavorable level and could not be adjusted.
Jiang Jingguo targeted Zhou Zuomin of the Jincheng Bank, placing
him under house arrest. Zhou apparently then admitted that his bank
held significant deposits in foreign currency and other assets in the
United States. According to He Lian, who had earlier been a professor
at Nankai University but began working for the Jincheng Bank in 1946,
Jiang targeted Zhou because he had stayed in Shanghai and Hong Kong
during the war and was suspected of working with the Japanese. He Lian
recalled that Weng Wenhao and Chang Kia-ngau both spoke up on
Zhou’s behalf. With their support, and assistance from Claire
Chennault, Zhou escaped to Hong Kong.74
Du Yuesheng had been one of the most powerful underworld figures
in Shanghai for several decades. He had worked with Chiang Kai-shek on
earlier occasions, and he invited Jingguo to dine with him on his arrival in
Shanghai. Jingguo not only declined but shortly thereafter had Du’s son
Du Weiping arrested and sentenced to eight months in prison for hoard-
ing and violating the stock exchange rules.75 Another victim was the son
of Aw Boon Haw, the famed Tiger-Balm king, who was arrested for gold
and foreign currency smuggling. Although several hundred were
arrested in the crackdown, Jiang was most concerned with the “Big
Tigers,” labeling himself as the “Big Tiger hunter.” But some were
beyond Jingguo’s reach. T. V. Soong was rumored to have purchased
a large amount of Hong Kong currency on August 18 on the eve of the
announcement of the gold yuan reform. No charges were filed in the
latter case.76
Still, Jiang Jingguo was fearless in his sweep of those suspected of
corruption. Among those targeted was H. H. Kung’s son, David Kung
[Kong Lingkan], who had stayed in Shanghai to manage the Yangzi
Development Company. Jingguo’s forces, the Youth Service Corps per-
sonnel, military police, and officials from the Central Bank raided the
warehouses of the company and seized control. David Kung was accused
of holding foreign exchange, and several employees of the company were
181

1948
arrested. According to the British Embassy in Nanjing, Kung was also

accused of hoarding 100 motor cars, 500 cases of woolen piece goods,
and 200 cases of medicine.77 Jingguo’s move was risky because David was
a favorite of his aunt, Madame Chiang Kai-shek, whom David Kung
contacted shortly after the raid on the Yangzi Development Company.
Madame Chiang protested directly to her husband, and she called
Jingguo directly. He was forced to back off in tackling the “Big Tigers.”
Madame Chiang had the upper hand.78
On October 8, the Generalissimo flew from Beiping, where he had
been assessing the military situation in the north, to Shanghai to meet
with his son. Ten days later, the problem was dumped on Wu Guozhen,
mayor of Shanghai.79 He received a telegram from Chiang Kai-shek
telling him to deal with the matter. Wu tried to dodge the issue, replying
that he had not been responsible for David’s arrest and that others
should be held responsible. Wu had been unhappy from the start with
Jingguo’s role in Shanghai, feeling that the young Jiang was moving into
his turf. Three days later, Wu received a phone call from Madame Chiang
herself stating that Chiang wanted Wu to handle the matter. Faced with
the pressure from the top, Wu began an independent investigation of the
matter. By the time he finished his work, the gold yuan had collapsed,
and the matter was largely overshadowed. He concluded that David
Kung’s actions were legal and followed the rules of the gold yuan reform.
His company had simply ceased importing anything after the new cur-
rency was issued. But Wu felt that even though his actions were not illegal
they were unethical. He had relied on influence and position to obtain
foreign exchange before the reform, much as his father H. H. Kung had
done.80
Chiang Kai-shek persisted in the approach he had used in the past
when faced with reports of corruption among the Soongs and Kungs.
Although he acknowledged the possibility of some wrongdoing, he felt
the communists were attempting to take advantage of this, so the issue
should not be aired too publicly. He particularly disliked attempts by
those within the Control Yuan to target his in-laws. In his telegram to Wu
Guozhen, Chiang noted that the Yangzi Development Company was
a private firm, not a government institution. Therefore, it was not
a proper target for investigation by the Control Yuan. Wu agreed and
182

had the Shanghai police notify the personnel from the Control Yuan that
they must withdraw the team they sent to investigate the firm. The
Control Yuan’s mandate was to investigate government agencies only.81
Jiang Jingguo was frustrated that he could not punish David Kung. He
wrote in his diary on October 16, 1948, “in the case of the Yangzi
Development Company, I was not able to carry it through to the end
because of limitations on my mandate.” The general feeling was that if
Jingguo could not punish David Kung, he could not really be effective.82
Jiang Jingguo’s “reign of terror” did have one major impact – many of
the prominent capitalist leaders in Shanghai left for Hong Kong and
beyond. David Kung headed first to Hong Kong and then New York. His
departure infuriated several members of the Control Yuan, who believed
that he should not have been allowed to leave while the Yangzi
Development Company case remained unsettled. At a meeting of the
Legislative Yuan on November 2, 1948, some members unleashed an
attack on the Kung family and specifically blamed the corporation for
hoarding commodities.83 Du Yuesheng made a substantial payment to
the government and was allowed to leave for Hong Kong with his son.
Later, he declined to go to Taiwan but chose to remain in Hong Kong, as
did industrialist Liu Hongsheng. And the Guos (Kwoks) of the Yong’an
Company also departed for the British Crown colony. Others would
choose the People’s Republic over Taiwan, including Zhou Zuomin.
Jingguo’s brief reign was felt long after the gold yuan collapsed.84
As the capitalists left, they attempted to take as much of their money
with them as they could. The official Zhongyang ribao (Central daily news)
noted on September 9 that the government had shut down illegal direct
remittances from Shanghai to Hong Kong. But gold yuan notes were
increasingly being sent from Shanghai to Guangzhou, where they could
be converted to Hong Kong dollars and eventually US dollars in many
cases.85
The Shidai piping (Modern critique) published in Hong Kong by the
China Democratic League was blunt. The attacks on the Zhejiang–
Jiangsu financial clique, it noted, had disrupted Shanghai’s economy;
there was no market for manufactured goods, and many banks closed as
capitalists left for Hong Kong. Jingguo had threatened confiscation for
any enterprise that closed, the journal concluded, so many shops
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1948
remained open but with no goods to sell. Still, the journal concluded that
the crackdown excluded the “four great families” associated with Chiang
Kai-shek.86 Shang bao (Commercial press), a Shanghai paper associated
with the C. C. Clique, was more circumspect but noted that “while it is
necessary to stabilize commodity prices and prohibit speculation, yet in
trying to achieve these objectives, the Government must not act in such
a way as to hinder the normal operation of the system of production. We
sincerely support the economic supervisory work, but we also love the
industrial and business enterprises.”87
A few days later, the Shang bao noted that the cost of production for
most items now exceeded the price which merchants could charge,
which was set at August 19 levels. “The replacement of raw material
supplies has become difficult. Foreign supplies cannot be imported.
Wages and other expenses cannot be reduced, while taxes are being
increased. Thus, the present ceiling prices are sometimes far below
production or importation costs.”88 The Shishi xin bao (Current affairs
news) noted in the evening edition on September 21, 1948, that “during
the past month everybody has been living under great nervous strain,
fearing that what he or she did might be contrary to the law. The
merchants have not dared to do business, so that a state of depression
have prevailed in the markets and economic activities have partly come to
a standstill.”89 Jiang Jingguo had come down hard, and the economy
suffered.
The August 19 price level held for approximately seventy days before
it suddenly fell apart. The government itself triggered the collapse when
in an ill-timed effort to raise revenue it increased the tax on a wide range
of consumer items including tobacco and alcohol on October 2.
Merchants would be permitted to raise prices to cover the new taxes.
Tobacco shops closed for two days and reopened with the higher prices.
When people saw the new prices, they assumed this was only the begin-
ning and started a wild buying spree. Since merchants could not easily get
new stock, many were left with empty shelves. As Lloyd E. Eastman wrote,
“within three weeks the buying spree abated, for virtually nothing
remained to be purchased. Then Shanghai became like a besieged city,
shortages being far more critical than at any time within memory, includ-
ing the last stage of the war with Japan. The poor went for weeks without
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COLLAPSE OF THE GOLD YUAN
rice, meat, or cooking oil.”90 Stores began to run out of commodities but
were not legally permitted to close. Shoppers on Shanghai’s famed
Nanjing Road found empty shelves in the Sincere (Xianshi), Wing On
(Yong’an), and Xinxin Department Stores. Factories were idle because
they had no raw materials but could not declare bankruptcy.91 Many
stores, worried when they could not restock, simply started closing earl-
ier, which increased the frenzy of the shoppers.92
By mid-October, even Jiang Jingguo recognized that most textile mills
in Shanghai were in a paralyzed state because they could not get raw
materials. With domestic sources unavailable, imports of cotton became
essential. The Dagong bao reported on October 15 that Jingguo had
agreed that the ban on privately held foreign exchange be eased so that
raw cotton could be imported by the textile mills. He personally tele-
phoned Weng Wenhao to ask the Executive Yuan to deal with the matter.
Jingguo noted in his diary on October 17 that Weng was very concerned
about the situation in Shanghai and was likely to support abandoning the
price controls.93 On October 20, the Zhongyang ribao reiterated that the
August 19 price levels for daily necessities had to be held so that people
could maintain their livelihood. But the government should study the
production costs for raw materials and fuel and adjust prices so that
production of commodities such as textiles would be possible. How this
was to be done without gutting the price controls was unclear.94
The key to the gold yuan reform was a promise by the Ministry of Finance
that the government would not continue to print money to cover deficit
spending. When the new currency was introduced, the government
pledged to reduce the portion of the budget covered by deficit from
70 percent to only 30 percent. In October, they reduced that portion to
50 percent, but the following month the deficit soared to 75 percent of
the budget. The plan to absorb capital by selling shares in government
enterprises and issuing bonds had largely failed to bring in substantial
revenue. Once the dam broke and people lost confidence in the gold
yuan, they quickly converted cash into commodities which led to a reboot
of hyperinflation.95 As the Shang bao noted on October 6, 1948, “from the
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1948
point of view of the emergency measures, it is evident that the present

state of confusion – the buying spree and the closing of shops earlier than
usual – indicates that the measure taken by the Government have already
reached the limit of effectiveness.”96 On October 21, Jiang Jingguo went
to Nanjing to meet with Weng Wenhao and sensed that the government
was ready to abandon the price controls.97
By late October, rumors spread that the price ceilings would be
broken. On October 28, the Dagong bao noted that “since the buying
spree began . . . the economic situation in this city has been especially
grave.” The end was clearly near. “The fact today is that in places outside
of Shanghai, the ceiling price dyke has long been breached, and even in
Shanghai, it is also difficult to obtain goods at ceiling prices. Viewing the
situation as a whole, we see that the sources of supply have been cut off
and frozen.”98 Stores were virtually empty. “There are no medicines for
the sick, no coffins for the dead, no milk powder for babies, and not even
toilet paper and cotton for women in labor. Even more serious is the
shortage of rice, cooking oil, and fuel. All essential daily necessities have
disappeared. What can one do?”99
Financial leaders in the government gathered in Nanjing on
October 27 and 28 and heavily criticized Jiang Jingguo for his handling
of the crisis. Chiang Kai-shek was still in Beiping at that point, attending
to the military situation in the north. In his monthly reflections for
October in his diary, Jingguo noted the tobacco-tax increase, and the
large issuance of the gold yuan notes. That situation set up a tidal wave of
buying in early October that had destabilized the marketplace. The
fundamental problem, he concluded, was that the amount of notes
issued had been too large. Summoned to Nanjing for the meeting with
government leaders, Jingguo was one of the few to advocate continuing
with the plan. He had to deliver the bitter news to his supporters in
Shanghai that the campaign was over.100
On November 1, 1948, the government abandoned the August 19
ceiling level on prices. Weng Wenhao and Wang Yunwu both announced
their resignations, taking responsibility for this debacle. Jiang Jingguo
publicly apologized. On November 11, Chinese citizens were now per-
mitted again to hold gold, silver, and foreign exchange, and the
exchange rate for the American dollar was increased from the old four
186

gold yuan for one dollar to twenty to one. The freeze on wage increases
was dropped, and they were to be adjusted to meet the needs of liveli-
hood of the workers. Wages and prices surged.101
The gold yuan regulations were abandoned after only seventy days; the
new currency had been a complete failure. Law-abiding citizens who had
surrendered their gold and silver when asked suffered great losses, while
those who had hoarded these metals were rewarded. As Lloyd E. Eastman
argued, “the termination of price controls on October 31 marked the
beginning of the final collapse of the National Government on the
mainland. . . . Largely by coincidence, the full extent of the debacle on
the battlefield also became apparent at this time.” Hyperinflation resumed
with a vengeance. Farmers would not supply rice to Shanghai, which
resulted in a series of rice riots in early November. By November and
December industrial production in Shanghai was only 50–60 percent of
the level of early 1948.102 Increasingly, the Chinese resorted to a barter
economy, avoiding currency altogether. In early November, for instance, it
was reported in Shanghai that two cans of kerosene (ten gallons) could be
exchanged for one picul of rice.103
Why had the reforms failed? Continued military setbacks by Nationalist
forces in the civil war undermined popular confidence in the currency.
But the basic cause was that the government had totally abandoned its
pledge to limit the quantity of notes issued. On November 20, 1948, the
total issuance of gold yuan notes was 2.47 billion; on December 29,
7.85 billion; on February 4, 1949, 25.5 billion; March 16, 98.487 billion;
and April 20, 1.1 trillion. The result was a rapidly weakening yuan.104
From the beginning, the gold yuan had a fatal flaw. The premise of the
new currency was that the amount issued would be limited to avoid the
rapid increase in money supply and attendant inflation. When citizens
surrendered their gold, silver, and foreign currency, they were issued
gold yuan notes. They had other options, including depositing these
items in an account in the Central Bank. But few Chinese trusted the
government institutions and took a chance on the new currency instead.
The government did a reasonable job of restraining deficit spending
during the seventy days of price controls. As of September 30, only
23 percent of the new notes had been created to finance the government;
63 percent were printed to exchange for surrendered gold, silver, and
187

1948
foreign exchange. The latter was much greater than anticipated. As

Lloyd Eastman wrote, “the result was that U.S. $190 million worth of
gold, silver, and foreign currencies that had hitherto been held off the
market were now suddenly converted into money and became an active
inflationary ingredient.” Ironically, this represented a complete reversal
of the government policy during 1946 and early 1947, when the Central
Bank sold gold to pull currency out of circulation. The gold yuan had
taken gold and silver out of circulation and replaced it with paper
currency – a recipe for disaster.105
With the ceiling prices abandoned, the rate of inflation soared to
levels that surpassed what had occurred with fabi. As the Shen bao noted
on November 9:
commodity prices have virtually become unbridled horses, free to gallop at

a speed beyond the reach of human attempts to stop them. . . . Although
only seven or eight days have elapsed since the ceiling prices were
unfrozen, values of rice, edible oil, flour, coal, and other daily necessities
have appreciated more than tenfold, while prices differ at different times
during the same day. The soaring tendency has been startling.106
On November 9, 1948, the British Consulate in Shanghai reported that

rice prices in Shanghai had tripled over the weekend and continued to
rise.107 Farmers in the lower Yangzi were still reluctant to ship rice to
Shanghai because they did not wish to hold the gold yuan notes even for
the briefest period. But as the Dagong bao noted, “Shanghai’s rice prob-
lem is entirely man-made. . . . There are bumper crops in China this year,
and the autumn harvest is now being gathered.” But farmers would not
ship rice to Shanghai if they must take the gold yuan notes which were
rapidly becoming worthless.108
When the new currency had been introduced, the official exchange
rate had been set at 4 gold yuan to 1 US dollar. But away from Shanghai,
the black-market rate began to increase within days. Starting in Tianjin,
rate increases followed in Guangzhou, Chongqing, and Hankou. By
November 11, the black-market rate had reached five times the official
rate. In early November, the American authorities negotiated a special
exchange rate for US organizations in China of 15 gold yuan to 1 dollar.
The day after on November 5, the rate was raised to 20 to 1. The
188

government revised the official public rate upward to 28 to 1 on

November 30, 1948. This was increased to 2,660 to 1 on February 28,
1949, and 205,000 to 1 on April 25, 1949. The black-market rate for
that day was 813,880. The gold yuan had collapsed.109 When the com-
munists arrived in Shanghai, the rate had reached 7 million to 1.110
As the black-market rate soared once again, even the foreign embas-
sies began to give up on the new currency. The American consul general
in Shanghai had alerted the secretary of state as early as mid-September
that “the currency reform is going very badly.” He warned that “produc-
tion and commerce [are] coming to a standstill. Imports also greatly
curtailed primarily as a result of freezing of retail prices.” Exports had
surged briefly at the start of the reform but now stalled because at the
official rate of exchange domestic prices were above world rates for most
export commodities. The feeling was that the gold yuan had at most
a month before hyperinflation resumed.111 On November 10, 1948, the
American ambassador to China John Leighton Stuart notified the secre-
tary of state that – in light of the thoroughly disorganized economy in
China with the gold yuan cascading hourly – the embassy “has reluctantly
authorized all Consulate China to make local arrangement through
recourse to black market for gold yuan requirements.”112
A similar attitude prevailed among the British. In a telegram from the
British embassy in Shanghai to the Foreign Office in London on
October 19, 1948, the embassy noted that the black-market rate for prices
had soared, and that the embassy was going to the black market. “I am
aware that the Central Bank [of China] will notice immediately when we
cease to purchase funds through official channels and that we may
consequently incur some slight political odium if we do so.” But the
view from Shanghai was that it would not matter. “I cannot help feeling
that the days of the Government in its present form once currency
collapse are numbered and that any odium we may incur will soon be
forgotten in subsequent changes.” The reply from London was more
cautious. It suggested that the British consult with the Americans and
attempt to act in concert. Also, before resorting to the black market the
ambassador should try to get a renewed subsidy rate. If that failed they
might turn to the black market but should warn the Chinese in
advance.113
189

1948
Paul Frillman, working for the US Information service in Shanghai, in

a letter of December 1, 1948, noted that after the introduction of the gold
yuan, “for a while prices held . . . but then in their own mysterious way, black
markets began to appear, to grow, and finally mushroom until the malig-
nancy was once more beyond control. In a few weeks all gold yuan became
worthless.”114 On November 15, Jiang Jingguo wrote to his father that his
mission in Shanghai was a failure.115 The gold yuan reform really destroyed
China’s small middle class, with many businesses in Shanghai closing. Chiang
Kai-shek never admitted the gold yuan was a mistake, blaming communist
victories in Shandong as the culprit.116 The government began selling gold
and silver at select offices with the stated goal of drawing down the gold yuan
notes. But when long queues formed, this became a sign of people’s eager-
ness to dump the failing currency. Violence erupted on occasion, with forty-
five people injured and seven killed in the frenzy (Figure 6.2).117
After Weng Wenhao resigned as head of the Executive Yuan and
Wang Yunwu as minister of finance, Sun Ke replaced Weng and Xu
Kan took over for Wang. Sun immediately checked into a hospital in
Shanghai and received few visitors as he tried to put together a cabinet.118
6.2. Frenzied crowds surge into banks attempting to dump the gold yuan notes as their
value plummets. ullstein bild Dtl./ullstein bild/Getty Images
190

ECONOMIC CONSEQUENCES OF MILITARY COLLAPSE
Meanwhile, the treasury halted sales of gold on January 17, 1949, and
hyperinflation continued.119
Wu Guozhen, who had opposed the gold yuan reform from the
beginning, was still angry about it in an interview of 1953. “The whole
trouble about the gold yuan was that it embittered every part, every
segment, of the Chinese people against the government,” lamented
the former mayor of Shanghai. “The bankers and businessmen like Li
Ming got embittered and hated the government. And the middle
class got entirely bankrupt because they surrendered what little sav-
ings they had.” Even the poor were impacted. “Chinese poor people
always had some ornament, gold you know, and so on, but they had
to surrender those things too and finally the currency they got
became worthless. So you can say the gold yuan was a fatal blow.”120
ECONOMIC CONSEQUENCES OF MILITARY COLLAPSE
The collapse of the gold yuan had in fact paralleled the military collapse of
the Guomindang and the triumph of the communist forces. Two events were
clearly related. A classified report done by the American Department of
State’s intelligence division December 1948 stated that “the outstanding
economic development in China during 1948 was the progressive contrac-
tion of the area under the control of the National Government.” It cited two
cases, coal and food production, to illustrate that point. Coal production in
China in 1948, it noted, was similar to that of 1947. However, supplies reach-
ing consuming areas were sharply reduced, particularly during the latter half
of the year, as mining areas fell into communist hands and transportation
lines were destroyed or lost.121 The Shanghai Power Company normally used
19,000 tons of coal a month, but in September 1948 the company only
received 7,300 tons. It began to draw down its emergency stocks.122
A similar situation prevailed in food production. The intelligence
report indicated that food production in 1948 reached a postwar peak
and was probably comparable to prewar levels. Yet it noted:
in the face of this recovery in the agricultural regions, China’s urban

centers were able to meet their food requirements only with the
assistance of receipts from abroad. Factors contributing to this situation
191

1948
were Communist captures of producing areas as in Manchuria; the

disruption of distribution patterns, a general phenomenon in the area
north of the Yangtze affected by military operations.
The report also cited the sharp depreciation of currency and in the face
of government attempts to fix prices, “an increasing unwillingness on the
part of farmers to market their crops.”123 The American commodity
relief program, which shipped foodstuffs directly to urban areas such as
Shanghai, was designed to alleviate the shortages created by the isolation
of cities from the rural areas.
In cotton textile production, the output held up for the first half of
1947 and then began to drop sharply. In the months since then, major
cities in north and central China had become isolated economically from
the surrounding countryside. “At the present time [December 1948] it is
evident that the government’s economic position is extremely precar-
ious,” the report concluded.124 Much of the cotton grown in China was in
communist-held areas by late 1948.
WHY DID THE NANJING GOVERNMENT WAIT SO LONG

FOR COMPREHENSIVE CURRENCY REFORM?
The collapse of the gold yuan was hardly a surprise; many observers –
Chinese and foreign – assumed the effort was doomed from the start. The
currency situation had simply deteriorated too far to permit the gold yuan to
succeed. What was unexpected was that Jiang Jingguo’s methods delayed the
collapse. But what if the effort had been undertaken a few months earlier
before fabi had fallen so precipitously and the military situation turned so
strongly against the Guomindang? Obviously, we can never know the answer
to this question, but what of the related question: why did not Nanjing act
sooner? For the Guomindang government to have launched a new currency
in the summer of 1947 rather than 1948 would have required a strong push
from Chiang Kai-shek himself. Nothing of that significance could be done
without his personal attention. But during the months in question, Chiang
paid only limited attention to the financial/inflation situation.
The opening of the Shilue gaoben, the draft of Chiang’s daily activities
by the Chiang Kai-shek archives, allows us unprecedented access to his
192

WHY DID THE NANJING GOVERNMENT WAIT SO LONG?
activities, including a list of his visitors, important documents, and tele-

grams he sent and received, and even sections of his diary. Mention is
usually made of his morning study lesson and sometimes the evening one
of the Bible or Chinese classics, dining arrangements, strolls, and sight-
seeing with Madame Chiang, and even “gazing at fish,” an occasional
occurrence. The record reveals that virtually all his attention was cen-
tered on the military situation, reading reports from the field, communi-
cating with military commanders including personal conferences, and
frequently traveling to cities around China where he met almost exclu-
sively with military leaders. Other topics of interest included
Guomindang and communist politics and foreign relations, particularly
with the United States.125
Among the few occasions on which Chiang did turn to financial matters
were when the Soongs and Kongs were involved or when connections to
the United States and potential American aid were at stake. Otherwise, he
showed little interest. After departing from his Lushan summer getaway in
early September 1947, Chiang stopped briefly in Shanghai. He held a short
meeting with Shanghai mayor Wu Guozhen, who was deeply disturbed by
the rise in commodity prices. But the visit appears more of a courtesy call
by Wu, and no details of the meeting are listed. A similar meeting occurred
on October 22, 1947, when Chiang passed through Shanghai again. The
early morning meeting merits only one line with no topic of discussion
listed.126 In early October, Chiang and Madame Chiang flew to Beiping,
where he dealt with the battlefield situation in north and northeast China.
He later flew to Shenyang and then Qingdao for a firsthand look. Only on
October 12 did he meet with Zhang Qun, then head of the Executive Yuan,
to discuss the grain market in Shanghai. Chiang wanted to reduce con-
sumption and promote austerity.127
Even as the value of fabi sank in 1948, Chiang paid little attention to
the issue, although he still held out hopes for an American bailout. He
worried about secretary of state George Marshall’s views on the
Guomindang government, feeling that he was not supportive and that
the hopes for substantial American aid were fading. Bei Zuyi had led
a delegation to the United States seeking financial aid and reported back
to Chiang on a regular basis. As preparations continued for the national
assembly, Chiang broadened the range of his meetings to include
193

1948
political preparation for the gathering. He met with Guomindang dele-

gates and Chen Bulei, a key political operative. Finally on April 8, 1948,
he met with Chang Kia-ngau, then manager of the Central Bank, to
discuss the crisis of foreign exchange. But they would not meet again
until May 6 to discuss the price of gold, and the introduction of the new
currency would not occur for over three more months. Although he
noted the surging price of rice and the market turmoil on June 10, the
crisis in currency and commodity markets in China simply did not draw
much of Chiang’s time.128
Finally, in the summer of 1948 Chiang had to deal with the issue of the
collapsing of fabi. Chiang met frequently with his son Jiang Jingguo, to
whom he would entrust the handling of the situation in Shanghai. But the
younger Jiang did not really have any expertise in financial matters.
Chiang’s meetings with financial leaders were still relatively rare in the run-
up to the gold yuan reform. On June 28, 1948, he consulted Yu Hongjun,
director of the Central Bank, to set in motion the reform, and on July 5, he
discussed financial matters with the mayor of Shanghai, Wu Guozhen.
During July 13–15, he held a series of meetings to develop a concrete
proposal for currency reform, and during the final days of July he held
additional talks with Yu Hongjun. But Chiang focused as usual on military
matters until August 13–14, when he made the final decisions with Weng
Wenhao, now head of the Executive Yuan, and Wang Yunwu, the new
minister of finance. After he returned from his excursion in north China
on August 18, he issued the rules for the gold yuan the following day.129 So
the fateful decisions that led to the disastrous gold yuan reform were made
with only the limited attention of Chiang Kai-shek.
As the gold yuan reform unfolded and his son riled the capitalists in
Shanghai, Chiang Kai-shek had good reason to turn his attention else-
where, because it was during these weeks that the Guomindang’s military
position began to unravel in the northeast and in the central plains of
north China. Chiang frequently absented himself from Nanjing as he
visited northern commanders attempting to shore up the resistance to
the communists. On September 5, he did meet with Yu Hongjun, Weng
Wenhao, and Wang Yunwu to receive a report on market conditions in
Shanghai, foreign-exchange issues, and the wave of arrests of individuals
such as Du Weiping undertaken by his son. Jiang Jingguo himself
194

GUOMINDANG SHANGHAI’S FINAL WEEKS
reported to his father on September 7, and a week later Jingguo went to

Nanjing to report personally to Chiang. The elder Chiang did turn his
attention to the matter after the flare-up over David Kung and the Yangzi
Development Company that so alarmed his wife. Chiang turned the
matter over to Wu Guozhen, the mayor of Shanghai, who would deliver
his report to Chiang on November 4, even as David Kung left for the
United States. Wu Guozhen met personally with Chiang on November 12
to discuss the handling of the David Kung matter. Chiang was concerned
about the reputation of the Kung family and possible damage to the
position of the Guomindang. Meanwhile on October 29, Jiang Jingguo
returned to Nanjing from Shanghai with the gold yuan plan now com-
pletely defeated.130
Chiang’s attention was thus only tangentially focused on the gold yuan
reform. In mid-October, the fighting at Jinzhou in northeast China had
turned against the Guomindang, and the communists took the city.
Meanwhile the 60th corps at Changchun defected to the communists,
and the city surrendered with a decisive battle. Further south in
Shandong, the city of Jinan fell in September, eventually placing much
of the province in communist hands. By early November, the fateful
Huaihai campaign was underway. The military situation was crumbling
for the Nationalists. Almost simultaneously came the news from the
United States that Truman had been reelected against predictions by
most pundits. Chiang was deeply unhappy with the result, as he was
certain a Republican administration under Dewey would have been
more receptive to aiding his government. Then on November 13 came
the shocking suicide of Chen Bulei, one of Chiang’s most trusted lieu-
tenants. All seem to be crumbling around him.131
GUOMINDANG SHANGHAI’S FINAL WEEKS
On December 30, 1948, the Xinwen bao noted that only the very wealthy
were surviving in this final economic crisis:
The earlier reform measures and the purchase of gold and foreign
currency by the Government had virtually robbed the middle class of the
very last cent of their purchasing power. Today those with purchasing
195

1948
power are mostly members of the super-powerful class. They had not only
refrained from parting with their gold and foreign currency, but on the
other had bought in more gold and foreign currency from the black
market at the time of reform.
The paper concluded that despite soaring prices, the actual sale of
commodities for consumption was small. Only the speculators were in
the market.132 The cost-of-living index for Shanghai municipal workers
had registered as 294 percent for the last half of January. Cyril Rogers, the
British adviser to the Central Bank of China, told a British official on
February 9, 1949, that the rate of inflation of the gold yuan had now
surpassed that of fabi. He was preparing to leave China.133
On January 22, 1949, Chiang Kai-shek resigned and left Nanjing for
his native Fenghua. This development caused a slight but brief improve-
ment in the value of the gold yuan, which went from 300 gold yuan to one
dollar to 250 to one. On January 27, 1949, the Ministry of Finance staff,
about 1,500, arrived in Shanghai having abandoned Nanjing. The gov-
ernment itself moved to Guangzhou in early February.134
In what would be the final weeks of Guomindang China on the
mainland, much of the gold, silver, and foreign exchange accumulated
as reserves for the gold yuan notes would be transferred to Taiwan or
overseas. According to records held by the Central Bank of China,
between November 1948 and April 1949, a total of over US$49 million
was moved from China to banks in the United States. During the same
period, almost 77 million in Hong Kong currency was moved from China
to banks in the British colony. By May of 1949, almost 2.3 million ounces
of gold had been moved to Taiwan, nearly 245.3 million ounces moved to
banks in New York, and 9.27 million ounces to London. Substantial
quantities of silver had been shipped to New York and London as well.
As historian Wu Jingping concluded, the gold yuan reform had led to
a concentration of gold, silver, and foreign exchange in the Central Bank
for the purpose of providing backing for the new currency. But after
November 1948, little was used for that purpose. Instead, the concentra-
tion allowed people to prepare to move capital to Taiwan or overseas.135
By early March 1949, the gold yuan remained in circulation but often
bypassed even by the government itself. Military pay and food allowances
196

AFTERWORD: A BITTER EXILE FOR THE SOONGS
were calculated on the silver dollar. Customs duty was payable in the
Customs Yuan, which was pegged to the American dollar. And land, salt,
and commodity taxes were increasingly collected in kind. The commod-
ity taxes on cotton yarn, matches, cement, cigarettes, and sugar were
likewise collected in kind, indicating a barter economy taking hold. For
all intents and purposes, Guomindang China ceased to have
a functioning currency.136
Shortly after the communists took control of Shanghai on May 28,
1949, authorities issued a decree that henceforth the renminbi (people’s
currency) issued by the People’s Bank of China would be the sole legal
tender. The populace had until June 5 to convert their old gold yuan
notes at the People’s Bank. The exchange rate was set at 100,000 gold
yuan to 1 yuan in the new currency. New China had arrived.137
The ad hominem attacks on the Soongs and Kungs continued even as

they left China for America. In May of 1949, the Legislative Yuan adopted
an emergency measure to request of Soong, Kung, and Chang Kia-ngau
that they contribute US$1 billion to finance the war against the commun-
ists. The assumption was, of course, that these “bureaucratic capitalists”
had that level of private income. Although it was recognized that Soong
had lost much of his China-based wealth during the war years, press
reports suggested that he had property valued at over US$1 billion
stashed in America, Canada, and Chile.138
Soong bitterly resented the lingering attacks on his reputation even
as he pursued a comfortable life in America. After The Saturday Evening
Post published a column by Stewart Alsop, entitled with “Why We Lost
China,” in which he highlighted a feud between Madame Chiang and
her brother, T. V. fired off a letter to the magazine bitterly complain-
ing about the flimsy basis for the article. Alsop’s source was identified
as “a witness on the scene during the tragic feud” over the Stilwell
issue.139 And even though the two had clashed over that matter and
other issues, the Soong archives at the Hoover Institution at Stanford
contain several warm letters from “May” in Taiwan to “my Dear
Brother” in America. She would sometimes send gifts to his daughters
197

1948
with an intermediary such as Wellington Koo and acknowledge gifts

that he had sent her. In the summer of 1956, she noted that T. A.’s
sons were visiting, and she was helping them learn Mandarin Chinese.
She sometimes included details of her projects in Taiwan such as
finding housing for veterans. Ultimately, T. V. Soong helped his sister
obtain medical specialists from the United States to treat Chiang Kai-
shek’s medical problems as well as her own. They continued to have
a strong if not always harmonious relationship, as is often the case with
siblings.140
Even after Soong left for the United States, having lost his holdings of
real estate and business interests in China, he was still routinely referred
to as one of the richest men in the world. His assets did include a portfolio
of American stocks such as Alcoa, General Electric, Polaroid, Monsanto,
General Dynamic, Lockheed, Hilton, and Reynolds Metal, among others,
as well as an apartment on Fifth Avenue.141 When Soong died in 1971, his
executor was William S. Youngman, Jr. who worked with Soong as the
head of China Defense Supplies from 1941 until the end of the war. The
final probate of the estate filed in New York listed the value of his assets as
somewhat over $10 million. Aside from legal and funeral expenses, the
estate was dispersed among several family members, including Soong’s
widow, Laura Chang Soong, and his daughters and their families.142
Critics claimed that Soong’s assets were hidden in accounts all over the
world as well as in the Bank of Canton in San Francisco. Still, the evidence
suggests that Soong was a wealthy man but certainly not one of the
wealthiest men in the world.
Madame Chiang had earlier requested T. V. Soong to come to Taiwan.
In a February 14, 1951, letter she wrote, “I wish you were here. I think it
was a great mistake that you did not come back when I repeatedly asked
you to come. When another opportunity comes for you to return you
ought to do so.”143 But Soong had decided to remain in America. The
bitterness of earlier disputes with Chiang and many Guomindang stal-
warts who had attacked him and were then in Taiwan made him wary of
the trip. Despite pleas from Mei-ling, Soong only made one brief visit to
Taiwan in 1963, when he was received rather coolly by Chiang.144 From
his base in America, however, he continued to support the Nationalist
cause. He still had strong contacts in Washington with individuals such as
198

Averill Harriman. He often visited his youngest brother T. A. Soong and

occasionally Ai-ling. Mei-ling encouraged T. V. and his sister to stay in
touch, reminding her brother to call her on her birthday, for example.
That warmth did not extend to H. H. Kung, with whom T. V. never
seemed to have reconciled.145 Soong died suddenly on a trip to San
Francisco in April 1971 at the age of seventy-nine.
William Youngman became something of a guardian of Soong’s leg-
acy, sometimes writing to the Soong family members about new publica-
tions relating to their patriarch. On January 22, 1984, in a letter to
Laurette and Ivan Feng, he noted “I have read lately one interesting
book about T. V.’s work before I knew him. It is called ‘The Shanghai
Capitalists and the Nationalist Government 1927–1937,’ by Parks
M. Coble, Jr., published by Council on East Asian Studies, Harvard
University.” In a handwritten note added at the bottom of the page, he
did add, “Doesn’t mean that I agree with the book, but the facts are
interesting.” Youngman concluded the letter with the statement, “while
the cause that we were for did not succeed, T. V.’s efforts to make a great
China were, in my opinion, unparalleled in modern history.”146
Youngman and the Soongs were particularly upset by the publica-
tion of Sterling Seagrave’s bestselling book, The Soong Dynasty. Seagrave
essentially portrayed Soong and the entire family including the Kungs
as thieves who had looted vast fortunes from China. Seagrave stated
that the entire clan devoted the years from 1944 on to building what
was “probably the largest fortune, collectively, on the planet a fortune
probably in excess of $2 billion U.S., perhaps more than $3 billion.”147
Elsewhere he stated that T. V. “energetically pursued his reputation he
was earning ‘as one of the richest men in the world.’”148 Youngman
wrote directly to Seagrave on March 18, 1985, challenging his assump-
tions. He informed Seagrave that as the sole executor of Soong’s estate
he knew that the charges against T. V. were false. “T. V. Soong was not
‘the richest man in the world’ or anything like it. He brought little out
of China after the war. He died possessed of a very modest fortune
which he honestly acquired mostly in the U.S.A. by sound investment
and hard work. . . . With the able assistance of Sullivan and Cromwell
I examined all his financial records and those of his banks and can say
as certainly as anyone can that there were no undisclosed assets as you
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1948
suggest.” He also challenged Seagrave’s use of sources. “Much of your

account about T. V. Soong’s activities in China before World War II is
a distortion of the very able book by Parks Coble, Jr., a Harvard
University Press publication.” Youngman noted that Seagrave (and in
fact most critics of Soong) conflated his control of government enter-
prises with his private assets, which Youngman felt was false. “It was easy
for you to distort many of these activities using hearsay and rumors,
particularly because of some of the ventures that Soong ran, such as
some of the Bank of China operations and the China Development
Finance Corporation had both government and private participation.
It does not follow from this fact alone that Soong did anything
improper.”149 Youngman sent copies of the letter to Soong’s widow,
his daughters, the book-review editor of the New York Times, and
Professors Edwin Reischauer and John Fairbank at Harvard and
Jonathan Spence at Yale. The latter had written a review of the
Seagrave volume in the New York Times Sunday book-review section.150
Youngman was not the only one stirred up by the book. Madame Chiang
Kai-shek wrote to Michael Feng, Soong’s grandson, urging him to refute the
book. She noted that Donald Gillin, an academic generally favorable to the
Chiangs, had written a rebuttal. She urged Feng to obtain papers from his
grandmother about Soong’s career. She also noted that Youngman had
been head of the China Defense Supply and that all the major staff had
been Americans. She made other suggestions and concluded that “I think
what I have given you will give you quite a lead toward refuting Seagrave’s
groundless accusations. I am glad that you have taken it upon yourself to
rebut so much deceitful calumny against your grandfather’s good name.”151
H. H. Kung and his wife had moved to the New York area, where he
lived, except for visits to Taiwan, until his death on August 16, 1967. The
Kungs generally kept a low profile during their American years. David
(Lingkan) Kung dropped the English name “David,” and reverted to
using only his Chinese name in America, distancing himself from his
earlier identity. When Albert Wedemeyer, who corresponded with David
Kung on occasion, accidentally used the old name, Lingkan reminded
him that he was establishing an all-Chinese identity.152 He spent much of
his time in America helping Madame Chiang Kai-shek and assisting in
promoting the interests of the Chiang government in Taiwan.
200

The one exception to this low profile was Louis (Lingjie) Kung, who
moved to Houston and founded the Westland Oil Company. Kung
achieved some notoriety when he married a twenty-eight-year-old movie
actress, Debra Paget, in April 1964. Kung was her third husband and
produced her only son, Gregory Kung. The two divorced in 1980. Paget
had starred in Cecil B. DeMille’s The Ten Commandments and opposite Elvis
Presley in Love Me Tender. Madame Chiang Kai-shek is said to have visited
the couple in Houston on occasion.153 Louis Kung gained considerable
attention in the early 1980s when he became convinced that a nuclear war
was eminent. He had a massive compound built that was designed to have
space for 1,500 people to seek shelter for ninety days after a nuclear attack.
Rumors about the compound – security cameras, private police, body bags,
soundproof conjugal chambers, as well as its extraordinary cost – circulated
in the Houston press. Kung perhaps overspent, for Westland Oil had to
seek chapter 11 bankruptcy protection in 1987. He lost the compound,
which remained vacant after 1993.154
Louis Kung was the one Kung held in high regard by his uncle
T. V. Soong. In January 1947 he had toyed with the idea of creating an
elite guard service of 2,000–3,000 soldiers to be headed by Louis Kung. At
the time, he told L. K. Little that Louis “is the best of the whole family.”155
When T. V. sent a private letter to Madame Chiang to be hand
delivered, he discussed the situation with Louis. Apparently, Mei-ling
had expressed some concerns that Louis was “not very stable.” But
T. V. felt that although “like every human being Louis has his faults,
but he has a capacity of dreaming.” Soong alluded to the fact that Louis
had been very close to Richard Nixon and had expressed his faith in him
when he not only lost in 1960 but then was defeated when running for
governor of California. “The close ties between him and Nixon is one of
our most precious assets. It should not be wasted.” Soong was concerned
that the following autumn would see another attempt to seat the Beijing
government in the United Nations in China’s seat (then held by the
Taiwan-based Republic of China). He urged Mei-ling to have Chiang
invite Louis to Taiwan to work out a campaign to block this. “His part
in the so-called ‘China lobby’ of a few years back was very effective as you
recall.” A postscript added “If you want to, you may show this letter to
Sister E., [Ai-ling] but to no one else.”156
201

1948
The Chiang government was fighting a rearguard action. Ultimately,

the tide of history had turned against him. Ironically, it would be his
supposed ally, Richard Nixon, who was most responsible with his sudden
and shocking visit to Beijing. The Soongs’ and Kungs’ role in mainland
China was essentially over, even though they continue to attract attention
not simply in the academic world but in popular publications, an indica-
tion of the enduring fascination with the family dynamics.157 Ironically,
the attacks by the communists against “bureaucratic capitalism” and
corruption resurfaced in a wealthy People’s Republic of China. But
now wealthy Chinese billionaires are indeed among the richest men
and women in the world.
202

Conclusion
I n the conclusion of his book seeds of destruction:

Nationalist China in War and Revolution, 1937–1949, Lloyd E. Eastman
posited the question “if a building collapses in a windstorm, what is the
cause of the collapse?” Is it the weak building or the strong wind? The
weak building referred to the Guomindang government, the strong wind
to the communists. In Eastman’s telling, the Guomindang government
was a weak structure indeed by the late 1940s. “Never did the Nationalists
succeed in creating a sound, sturdy political structure.”1
This study has said very little about the strong wind – the formidable
communist movement that forced Chiang into his exile in Taiwan. But
a substantial scholarly literature on this topic is readily accessible. During
the years covered by this study, the social, political, and military power of
the Chinese Communist Party increased steadily. The shocking victories
of the communist armies in winter of 1948 to 1949 were the culmination
of this growth, often obscured from international gaze. Instead of replow-
ing this ground, I have instead looked at the weak structure – the
Guomindang–and focused on one key issue – hyperinflation. I would
argue that the evidence reaffirms Eastman’s view that the Guomindang
government was a fragile structure in this period. Throughout the war
against Japan, but particularly after the Japanese Ichigo offensive, the
Chongqing government simply could not pay its bills. The acceleration of
inflation in the war opened the door to rampant corruption among
government bureaucrats and the military. As Eastman argued, “inflation
was a major reason why corruption reached unprecedented levels . . . and
why the army became dispirited and ineffective.”2
203

CONCLUSION
As the salaries of those in government service, whether military or

civilian, lost buying power at dizzying rates, the only option for most was
pilfering from government supplies. Ammunition, medicine, kerosene,
foodstuffs, anything movable began to disappear into the barter econ-
omy. Those at the bottom with little access to such commodities suffered
the most. While officers got by, ordinary soldiers suffered malnutrition or
deserted. American intelligence reports thought that the spending for
the military by the Nationalist government was substantially more than
was needed for the size of its army. Their analysis was that officers and
regional militarists pilfered much of the money and supplies.
Until the autumn of 1948, Guomindang forces still seemed to have the
upper hand in China, at least viewed from afar. Then, in a sudden series
of military reverses in northeast China followed by the disastrous defeat
in the Huaihai campaign, Chiang’s position seemed to crumble like
a house of cards. One crucial feature of these communist victories was
the large number of Nationalist forces that changed sides in the middle
of the conflict. Entire segments of the Nationalist Army defected and
were suddenly gone. Although there is no simple answer to why this
happened, one obvious cause was that so many of the officers and
common soldiers had lost faith in the Chiang government. The long
years of inflation and corresponding corruption had eroded trust in the
Nationalists and left many to view the communists as a better alternative.
Just as with the capitalists who moved their bodies and their capital out of
China, soldiers deserted and officers surrendered.
China’s vast rural population of peasant farmers, although mired in
poverty, were in a better position to evade the damage of hyperinflation
by avoiding the monetary economy. When not forced to give up their
harvest at gunpoint, most farmers chose to hold onto grain rather than
exchange it for what they perceived to be paper currency of dubious
value. But those in the civilian and military service of the Nationalist
government – the building that collapsed in the wind – were the most
impacted.
The military were not the only group to desert the Nationalists. In the
fight between communists and the Nationalists, one natural ally for the
latter would seem to be private business and banking, China’s capitalists.
Yet as this study has revealed, by the end of the civil war period – certainly
204

CONCLUSION
by the time of the gold yuan reform – many of China’s private capitalists
had become deeply disillusioned with the Chiang Kai-shek government.
Some left China for Hong Kong, Taiwan, the Americas, or elsewhere.
Some stayed or even returned to China, believing that Mao’s New
Democracy offered them a place in the “new China.” Chiang Kai-shek’s
government had managed to alienate the one group that should have
been natural allies against communism. When many came to realize that
they had little place in Mao’s China, it was too late. Their enterprises,
their wealth, and their ability to emigrate were lost. But during the civil
war, many felt that Chiang’s China offered little opportunity for private
business; they hoped that Mao’s China would be better.
What led to this disastrous situation for the Guomindang govern-
ment? A study of the single issue of hyperinflation can identify crucial
flaws within the structure of the Chiang government that reveal why it
ultimately crumbled before the strong wind. When the war against Japan
ended in the summer of 1945, many inside observers, including financial
adviser Arthur Young, felt that China might be able to turn the corner on
inflation. They believed that, however bad things had gotten during the
war, the fault lay with wartime conditions. The isolation of Free China
and the severe strains of funding eight years of warfare provided few
alternatives to simply printing money. But all of that could have theoret-
ically changed after the war ended. The return to the east coast – the
economic heart of Nationalist China before July 1937 – provided an
opportunity to restore a tax base. The restoration of international trade
opened the possibility of tariff revenue being revived. American and
UNRRA aid would be forthcoming. And many hoped that peace would
lead to a lowering of military expenses. A stable currency might be
possible. But this was not to be. Chiang’s financial policy was a disaster
of staggering proportions. The currency collapsed not once, but twice –
first fabi and then the gold yuan. The result was a stunning failure of the
urban economy.
The origins of this failure go back to the beginnings of Chiang’s
leadership of the Nanjing government in 1927 to 1928. Chiang rose to
power out of the warlord era in China – a time when regional militarists
ruled. One’s political clout was tied to the size and perceived strength of
one’s military. Chiang deftly maneuvered his way to supreme power
205

CONCLUSION
within the party following the premature death of Sun Yat-sen from
cancer in 1925. He bested such political opponents as Hu Hanmin, Sun
Ke (son of Sun Yat-sen), Wang Jingwei, Comintern representatives, and
even his future sister-in-law Soong Ching-ling, the widow of Sun Yat-sen.
But once he established a government in Nanjing, he still faced formid-
able military challenges.
Chiang completed the Northern Expedition, capturing Beijing in the
summer of 1928, by allying with militarists who had ties to the
Guomindang such as Yan Xishan and Feng Yuxiang. They had van-
quished warlords such as Sun Chuanfang, Wu Peifu, and Zhang Zuolin,
warlord of Manchuria. But after a failed effort at disarmament, Chiang
found himself merely the first among equals in the Nationalist military.
Over the next decade, he managed to increase his hold over China by
sometimes confronting his former allies and sometimes buying them off.
When he challenged Feng and Yan on the battlefield in 1930, he made
a shrewd overture to Zhang Xueliang, the “young marshal” of Manchuria
who allied with Chiang and become the vice-commander of the armed
forces of China. When Chiang finally took control over Guangdong
province in 1936, he appeared on the verge of gaining nearly full control
over China at least south of the Great Wall. Had the war with Japan not
intervened, he would likely have succeeded. But it was precisely his
success in unifying China that led Japan’s right-wing militarists to push
for war before Chiang became too strong.
The outbreak of war changed the equation for Chiang. On the eve of
the war, the Nationalist military was still a coalition of many provincial
armies but anchored by Chiang’s own well-armed and trained “central”
units. Those were devastated in the battle of Shanghai-Wusong in the last
half of 1937, shattering the strength of the forces on which Chiang’s
status depended. Particularly damaging was the loss of so many of his
officers, who could not be easily replaced. When the Nationalists’ military
units regrouped at Wuhan for a vigorous defense, Chiang found himself
once again merely first among equals. As Stephen MacKinnon has
argued, the result was a genuine coalition-style government that worked
together to resist Japan.3 After Wuhan fell in October 1938, Chiang’s
military moved to Chongqing, where he was determined to rebuild his
own military units.
206

CONCLUSION
Over the course of his career Chiang Kai-shek had a variety of foreign
military advisers – German, Soviet, and especially American. Nearly all
believed that Chiang’s military was simply too large. He had more sol-
diers than he could train, equip, keep healthy, and feed. They frequently
urged him to reduce troop size so that the remaining units could be more
effective. After the defeat of Japan and the increasing inflation of the civil
war period, American advisers doubled down on this point. All was to no
avail. Chiang still clung to the old warlord belief that the bigger your
army, the stronger your political position. All suggestions that he balance
the budget by reducing military expenses fell on deaf ears. In Chiang’s
mind, more soldiers meant political strength.
In his rise to power, one crucial advantage Chiang enjoyed was greater
revenue. At the start of the Northern Expedition, he relied on Soviet
military and economic aid. When his armies captured Shanghai and the
lower Yangzi, this gave him access to the wealthiest region of China, so he
broke with Moscow and drew on income from taxes, tariffs, and the
selling of government bonds. He had greater financial assets than any
of the military rivals within his coalition so could offer his opponents
“silver bullets” to defect and join his group. This became an essential part
of his strategy to unite China.
For most of the Nanjing decade, Chiang had to use “real money” to
attract the support of regional militarists. When China was on the silver
standard, government expenses had to be balanced by tax and other
receipts and sale of government bonds. All of this had changed in
November 1935 when fabi was introduced and China went to a fiat
currency. Chiang simply decided how much money he needed for his
military and ordered H. H. Kung to supply the currency. When the war
with Japan began, government receipts declined while expenses sky-
rocketed. As Arthur Young had noted in his diary, when Chiang wanted
more defense money, he simply sent a note raising the defense budget.
When regional militarists needed to be given funds to ensure their
loyalty, he had Kung order the appropriate branch of the Central Bank
to provide the banknotes. Chiang did not seem troubled that issuing
unsecured notes led to a steady erosion of their value.
Chiang was notoriously stubborn and once he made his mind up on
an issue if was difficult to persuade him to a different point of view. When
207

CONCLUSION
Chiang decided on an exchange rate for the yuan into dollars and British
pounds, he was loath to adjust it. It became almost a matter of pride or
face to keep the façade of the nation intact. Chiang never seemed to have
understood the harm that the huge gap between the exchange rate and
the black-market rate could do to China. Nor could his officials, includ-
ing his own brothers-in-law, persuade him on this or other points.
When Chiang constructed his civilian government in Nanjing, he
created an authoritarian regime under his personal power. His authority
was not absolute even within this structure and elusive elsewhere because
he did not control the treaty ports that included the financial center of
the International Settlement in Shanghai. Areas away from the lower
Yangzi River were often under the control of regional militarists who
were not inclined to accept his commands unless cash was forthcoming.
Chiang centered many agencies of the new government under his per-
sonal command by always holding multiple positions. As Lloyd
E. Eastman commented about the Nanjing years, “responsibility was
concentrated in a few leading figures in the regime. Chiang Kai-shek,
for example, at one time held twenty-one offices.”4
Another part of Chiang’s strategy was to set up rival institutions or
cliques to compete with one another. Observers often commented on
factions in the Nationalist government. These were fostered by Chiang
because it gave him the ultimate authority; no one faction could become
too powerful. An example of this strategy, noted earlier in this study, was
in intelligence agencies. Chiang set up two, rival groups. The Juntong was
under the Military Affairs Commission and headed by Dai Li. The
Zhongtong was under the Party Central Office and controlled by the
C. C. Clique. Both agencies engaged in investigation and covert oper-
ations. Chiang played them off against one another until it appeared that
Dai Li had become too powerful.5 But the energy used in competing with
each other inhibited their effectiveness. Both the Japanese and the
communists infiltrated the Guomindang structure and had excellent
intelligence information. This strategy of divide and rule was pervasive
during the entire time he ruled on the mainland; it was clearly
a deliberate approach.
In setting financial policy, Chiang had the ultimate, inside rivalry.
T. V. Soong and his brother-in-law, H. H. Kung vied for power and
208

CONCLUSION
control during the entire period from the establishment of the Nanjing
government. Chiang fostered the rivalry turning to Kung when Soong
resigned in October 1933, a pattern repeated until the civil war period.
Kung was more compliant and loyal; but Soong was more capable and
more popular with Americans. He could not dispense with either but
could play them against each other. The impact of this rivalry has been
noted throughout this study. Both men maintained their own supporters
and thwarted those in the other camp. Bei Zuyi was perceived as a Soong
man; Yu Hongjun as closer to Kung. Their jealousy and suspicion, fos-
tered by Chiang, haunted policy making. Soong used private correspond-
ence carried by foreign friends or through his wife to avoid the
diplomatic pouch, fearful that Kung would become aware of the
contents.
The rivalry between the two men meant that Chiang held the ultimate
authority. As Arthur Young discerned, Chiang understood little about
finance and banking but knew what he wanted – money for his military.
When Soong tried to trim military spending in 1933, Chiang dismissed
him for the more pliant Kung.6 Kung remained minister of finance until
his political unpopularity threatened the government and Soong seemed
to offer a greater hope for American aid. But with Kung in eclipse,
Chiang then allowed others such as the C. C. Clique and Weng
Wenhao to play a larger role. Even criticism from the Legislative Yuan
by such luminaries as Fu Sinian could be useful as a constraint on Soong.
Because of this rivalry, both men felt vulnerable. After the fight
between Chiang and Soong during the war over the Stilwell issue,
Soong realized how precarious his position was, how dependent on
Chiang for his power and position. Nonetheless, it is doubtful that even
if Soong and Kung had cooperated and put up a united front to get
Chiang to reduce military spending that such a ploy would have worked.
Likely neither man would have retained his position had they attempted
this. So even though the disastrous nature of printing paper currency
became obvious to all, neither of the two key financial officials of the
Nationalist government were willing to risk all to persuade Chiang to act.
So like a slow-moving train wreck, no one could halt the disaster in time.
Even in the final months of fabi, Soong could not get Chiang Kai-shek
to focus on the issue of inflation. As the diary of Chiang’s daily activities
209

CONCLUSION
reveals, he was interested in the military and only occasionally turned his
attention to financial matters. When the government finally attempted to
issue the new gold yuan currency, it was simply too late. Jiang Jingguo’s
coercion worked for only a short time before the new currency went the
way of the old.
The entire aftermath of Japanese surrender was a failure of fiscal
and economic policy. From the decision to undervalue the currency of
the Wang Jingwei regime to the inability to revive tax revenue, the
government was truly inept. International trade was stifled; customs
revenue was minuscule. Reliance on America was ultimately not
enough and not always helpful. The decision to purchase large stocks
of US surplus military material saddled China with debts for unneeded
items.
With the end of extraterritoriality, the Chinese government could
restrict foreign access to the China market, and it did. Pent-up resent-
ment of decades of foreign privilege in China took front and center stage
with many officials. Foreign firms became wary of investing in China, and
domestic capital was insufficient to revive the economy. Warehouses and
docks, railway lines and stations, power plants – all had been badly
damaged in the war but could not be repaired because of the shortage
of capital. Although some sectors such as cotton textiles showed life after
the end of the war with Japan, they too went flat. Energy shortages,
inability to import foreign equipment, and lack of access to domestic
cotton were among the culprits. Finally, the failure to manage foreign
exchange properly badly damaged relations with the United States and
often hurt China’s exports. This study has been a long litany of failed
policies.
When the final collapse of Nationalist armies occurred in late 1948
and early 1949, it appeared shockingly rapid to the outside world. But it
mirrored the collapse of Nationalist forces in Henan during Operation
Ichigo in the war against the Japanese. Corruption meant that ordinary
soldiers were ill trained, fed, and housed. Medical care was minimal.
Desertions were high and morale low. The failure to pay for the bloated
military during both the war against Japan and the civil war had spawned
corruption among the officer corps. The regular soldiers, mostly the least
powerful group in society – peasants – suffered accordingly.
210

CONCLUSION
Ultimately, the failure of the Nationalist government to deal with the

issue of hyperinflation is a cautionary tale about centering too much
authority on one individual. No leader has unlimited energy, time, and
knowledge to control everything. Chiang Kai-shek lacked an understand-
ing of banking and finance and could not seem to look beyond military
matters. When confronting a daunting crisis like the Japanese invasion,
his lack of knowledge and unwillingness to follow the advice of others
proved disastrous. Had World War II in Asia ended in a different way with
a more gradual surrender of Japan, perhaps American help would have
created a smoother transition. But in the sudden aftermath, Chiang was
not able to lead China to recovery.
211

Glossary
Bai Chongxi 白崇禧

Bei Zuyi 贝祖诒
Chen Boda 陈伯达
Chen Bulei 陈布雷
Chen Cheng 陈诚
Chen Gongbo 陈公博
Chen Guangfu 陈光甫
Chen Guofu 陈果夫
Chen Lifu 陈立夫
China Development Finance Corporation (Zhongguo jianshe yin
gongsi) 中国建设银公司
Chuli hanjian anjian tiaoli 处理汉奸案件条例
Da Shanghai qingnian fuwu zongdui 大上海青年服务纵队
Diweiye chuli ju 敌伪业处理局
Du Weiping 杜维屏
Du Yuesheng 杜月笙
Feng Yuxiang 冯玉祥
Fu Sinian 傅斯年
Fuzhong gongsi 孚中实业公司
Gexin 革新
Gu Weijun (V. K. Wellington Koo) 顾维钧
guanliao ziben 官僚资本
gudao 孤岛 Guo Jinkun 郭锦坤
hanjian 汉奸
He Lian 何廉
Jiang Jingguo 蒋经国
Juntong 军统
212

GLOSSARY
Kanluan jianguo dadui 戡乱建国大队

Kong Lingkan (David Kung) 孔令侃
Kong Xiangxi (H. H. Kung) 孔祥熙
Li Ming 李铭
Li Shizeng 李石曾
Liang Hongzhi 梁鸿志
Liu Bocheng 刘伯承
Lu Zuofu 卢作孚
Ma Yinchu 马寅初
Qi Chunfeng 齐春风
Qian Xinzhi 钱新之
Shanghai hangye gonghui 上海行业公会
Shen Hongnian 沈鸿年
Shi Zhaoji (Alfred Sze) 施肇基
Song Ailing (Madame H. H. Kung) 宋蔼龄
Song Meiling (Madame Chiang Kai-shek) 宋美龄
Song Qingling (Madame Sun Yat-sen) 宋庆龄
Song Yaoru (Charles Soong) 宋耀如
Song Zi’an (T. A. Soong) 宋子安
Song Ziliang (T. L. Soong) 宋子良
Song Ziwen (T. V. Soong) 宋子文
Sun Ke 孙科
Wang Chaoguang 汪朝光
Wang Jingwei 汪精卫
Wang Kemin 王克敏
Wang Shijie 王世杰
Wang Yunwu 王云五
Weng Wenhao 翁文灏
Wu Guozhen (K. C. Wu) 吴国桢
Wu Jingping 吴景平
Wu Tiecheng 吴铁城
Xi Demou 席德懋
Xiong Shihui 熊式辉
Xu Kan 徐堪
Xu Xinliu 徐新六
Xuan Tiewu 宣铁吾
Yang Tianshi 杨天石
Yangzi jianye gongsi 扬子建业公司
Yu Feipeng 俞飞鹏
Yu Hongjun (O. K. Yui) 俞鸿钧
213

GLOSSARY
Zhang Fakuei 张发奎

Zhang Jia’ao (Chang Kia-ngau) 张嘉敖
Zhang Junmai 张君劢
Zhang Qun 张群
Zheng Huixin 郑会欣
Zhongguo fangzhi jianshe gongsi 中国纺织建设公司
Zhongguo jianshe yin gongsi 中国建设银公司
Zhongtong 中统
Zhou Fohai 周佛海
Zhou Zuomin 周作民
214

Notes
INTRODUCTION
1. On this argument see Rana Mitter, China’s Good War: How World War II Is Shaping a New
Nationalism (Cambridge, MA: Harvard University Press, 2020), and Parks M. Coble,
China’s War Reporters: The Legacy of Resistance against Japan (Cambridge, MA: Harvard
University Press, 2015), passim.
2. Some examples of the new scholarship include Hans Van de Ven, China at War:
Triumph and Tragedy in the Emergence of New China (Cambridge, MA: Harvard
University Press, 2018); Harold M. Tanner, The Battle for Manchuria and the Fate of
China: Siping, 1946 (Bloomington: Indiana University Press, 2013); Daniel Kurtz-
Phelan, The China Mission: George Marshall’s Unfinished War, 1945–1947 (New York:
W. W. Norton, 2018); Odd Arne Westad, Decisive Encounters: The Chinese Civil War,
1946–1950 (Stanford, CA: Stanford University Press, 2003); Diana Lary, China’s Civil
War: A Social History, 1945–1949 (Cambridge: Cambridge University Press, 2015).
Other examples include China 1945: Mao’s Revolution and America’s Fateful Choice
(New York: Alfred A. Knopf, 2014) by journalist Richard Bernstein.
3. Chang Kia-ngau, The Inflationary Spiral: The Experience in China, 1939–1950 (Cambridge,
MA: MIT Press, 1958); Arthur N. Young, China’s Wartime Finance and Inflation
(Cambridge, MA: Harvard University Press, 1965). See also Chou Shun-Hsin, The
Chinese Inflation, 1937–1949 (New York: Columbia University Press, 1963).
4. Chang Kia-ngau, The Inflationary Spiral, p. 49.
5. Young, China’s Wartime Finance and Inflation, p. 152; Yang Peixin, Jiu Zhongguo de tonghuo
pengzhang (Currency inflation in old China; Beijing: Renmin chuban she, 1985), pp.
30–31.
6. Wu Jingping, “Jinyuan quan zhengce de zai yanjiu” (On the study of the gold yuan
policy), Minguo dang’an (Republican Archives), 1 (2004), pp. 99–110 (p. 99).
7. Adapted from Chang Kia-ngau, The Inflationary Spiral, p. 372.
8. T. V. Soong Papers, Hoover Institution Archives, box 25, folder 1, “Report on Money
and Banking,” unpublished draft, by Frank M. Tamagna, October 10, 1946, p. 28.
9. Yang Peixin, Jiu Zhongguo de tonghuo pengzhang, pp. 75–76.
10. Adapted from Chang Kia-ngau, The Inflationary Spiral, p. 372; Yang Peixin, Jiu Zhongguo
de tonghuo pengzhang, pp. 30–31.
215

NOTES TO PAGES 8–14
11. Lin Meili, Kangzhan shiqi di huobi zhanzheng (The currency war during the war of
resistance period; Taibei: Guoli shifan daxue lishi yanjiu so, 1996).
12. Matthew T. Combs, “Chongqing 1943: People’s Livelihood, Price Control, and State
Legitimacy,” in Joseph W. Esherick and Matthew T. Combs, eds., 1943: China at the
Crossroads (Ithaca, NY: Cornell East Asian Series, 2015), pp. 282–322.
13. Arthur N. Young, Cycle of Cathay: An Historical Perspective (Vista, CA: Ibis Publishing
Company, 1997).
15. Chang Kia-ngau, The Inflationary Spiral, p. 8. See also Yang Peixi, Jiu Zhongguo de tonghuo
pengzhang, pp. 23–24.
16. Cited in Lincoln Li, “An Alternative View on Occupation Policy: China’s Resistance
Potential,” in David Pong, ed., Resisting Japan: Mobilizing for War in Modern China, 1935–
1945 (Norwalk, CT: EastBridge, 2008), pp. 79–104 (p. 90).
17. Young, China’s Wartime Inflation, p. 153.
18. Qi Chunfeng, “Kangzhan shiqi da houfang yu lunxian qujian de huobi liudong” (The
flow of Guomindang currency between Chinese-controlled and enemy-occupied areas
during the Resistance War against Japan), Jindai shi yanjiu (Modern Chinese History
Studies) 5 (2003), pp. 137–169.
19. Yinhang zhoubao (Bankers’ weekly) 22, no. 31 (August 9, 1938), p. 3.
20. Robert W. Barnett, Economic Shanghai: Hostage to Politics, 1937–1941 (New York: Institute
of Pacific Relations, 1941), pp. 112–113; Yin Xiqi, “Waihui tongzhi xin zhengce zhi
jiantao” (An examination of the new policy to control foreign exchange), Dongfang
zazhi (The Eastern Miscellany) 36, no. 2 (February 1, 1938), p. 19.
21. Lin Meili, Kangzhan shiqi de huobi zhanzheng, pp. 65–69.
22. Lincoln Li, The Japanese Army in North China, 1937–1941: Problems of Political and Economic
Control (Tokyo: Oxford University Press, 1975), pp. 141–142; Ma Yinchu, quoted in
Zhanshi jingji lunwen ji (A collection of essays on the wartime economy; Chongqing:
Zuojia shushi, 1945), p. 197; United Kingdom, Foreign Office Files for China, PRO.FO
371/23445 F/806/75/10, Letter of November 3, 1938 from E. L. Hall-Patch in Tianjin
to the British Ambassador at Shanghai, Sir Archibald Clark Kerr, Re currency situation
in north China; Arthur N. Young Papers, Hoover Institution, box 68, memo of
March 31, 1941; Zhu Chuxin, “Sannian lai di women de huobe zhan” (The war of the
enemy against our currency in the last three years), Dushu yuebao (Readers monthly) 1,
no. 11 (January 1, 1940), pp. 485–488.
23. Lin Meili, Kangzhan shiqi, p. 55.
24. Wu Jingping and Guo Daijun [Kuo Tai-chun], eds., Song Ziwen zhu Mei shiqi dianbao
xuan, 1940–1943 (Select telegrams between Chiang Kai-shek and T. V. Soong, 1940–
1943; Shanghai: Fudan daxue chuban she, 2008), p. 303.
25. Lauchlin Currie Papers, Hoover Institution Archives, Stanford University, box 3, folder
“Report by Lauchlin Currie, February 24, 1941; box 4, folder “Currie: First Visit to
China,” Hollington Tong translated for Currie.
26. Lauchlin Currie Papers, Hoover Institution Archives, Stanford University, box 1, folder
“Correspondence,” H. H. Kung to Lauchlin Currie, February 26, 1941.
216

27. Young, China’s Wartime Finance and Inflation, p. 169.

31. Young, China and the Helping Hand, p. 158; Takafusa Nakamura, “The Yen Bloc, 1931–
1941,” in Peter Duus, Ramon H. Myers, and Mark Peattie, eds.,The Japanese Wartime
Empire, 1931–1945 (Princeton, NJ: Princeton University Press, 1996), pp 171–186 (p.
181); Barnett, Economic Shanghai, pp. 121–125, 133–135.
32. Shou Jinhua, Zhanshi Zhongguo de yinhang ye (China’s wartime banking industry (n.p.,
1944), pp. 78–79; Young, China’s Wartime Finance and Inflation, p. 180.
33. Ke-wen Wang, “Collaborators and Capitalists: The Politics of ‘Material Control’ in
Wartime Shanghai,” Chinese Studies in History 26, no. 1 (Fall 1992), pp. 42–62 (p. 47);
Eleanor Hinder, Life and Labour in Shanghai (New York: International Secretariat,
Institute of Pacific Relations, 1944), p. 46.
34. United States, Office of Strategic Service, Programs of Japan in China with Biographies,
vol. 1, pp. 124–126.
35. Wellington Koo, “Wellington Koo Memoir,” vol. 4, part 2, “Sojourn in China,” p. 326.
36. Combs, “Chongqing 1943,” pp. 292–293.
CHAPTER 1 ICHIGO AND ITS AFTERMATH
1. Cao Juren, Caifang waiji, Caifang erji (A record of covering the news, a second record of
covering the news; Beijing: Sanlian shudian, 2007), pp. 122, 212.
2. Hara Takeshi, “The Ichigo Offensive,” in Mark Peattie, Edward Drea, and Hans van de
Ven, eds., The Battle for China: Essays on the Military History of the Sino-Japanese War of 1937–
1945 (Stanford: Stanford University Press, 2011), pp. 392–402 (p. 392). This discussion
of the Ichigo campaign is also based on Hans van de Ven, China at War: Triumph and
Tragedy in the Emergence of the New China (Cambridge, MA: Harvard University Press,
2018), pp. 179–190; Wang Qisheng, “The Battle of Hunan and the Chinese Military’s
Response to Operation Ichigo,” in Peattie, Drea, and van de Ven, The Battle for China,
pp. 403–418; Hsi-sheng Ch’i, Nationalist China at War: Military Defeats and Political Collapse,
1937–1945 (Ann Arbor: University of Michigan Press, 1982), pp. 74–79; and Parks
M. Coble, China’s War Reporters: The Legacy of Resistance against Japan (Cambridge, MA:
Harvard University Press, 2015), pp. 116–126.
3. Van de Ven, China at War, p. 179.
4. Van de Ven, China at War, p. 181.
5. Van de Ven, China at War, pp. 182–185; Hsi-sheng Ch’i, Nationalist China at War,
pp. 74–79; Lloyd E. Eastman, Seeds of Destruction: Nationalist China in War and
Revolution, 1937–1949 (Stanford: Stanford University Press, 1984), p. 141.
6. Paul Preston and Michael Partridge, eds., British Documents on Foreign Affairs: Reports and
Papers from the Foreign Office Confidential Print (Bethesda, MD: University Press of America,
1997), part II from 1940 through 1945; Series E Asia, vol. 7, ed. Anthony Best, “Monthly
Summary from Chungking Embassy of Great Britain, June 1944,” p. 365.
217

7. Hsiao-ting Lin, “Wartime Sino-U.S. Relations Revisited: American Aid, Persona and
Power Politics, 1938–1949,” in Wu Jingping, ed., Song Ziwen shengping yu ziliao yanjiu
(T. V. Soong: personal wartime archives; Shanghai: Fudan daxue chuban she, 2013),
pp. 260–285 (p. 282).
8. Preston and Partridge, British Documents on Foreign Affairs, Series E, Asia, vol. 7, pp. 468,
471, 489, 504–505; Zhongguo renmin kangri zhanzheng jinian guan, ed., Kangzhan jishi
(Memoranda on the war of resistance; Beijiing: Zhongguo youyi chuban she, 1989), pp.
218–221.
9. Lary, The Chinese People at War, pp. 154–155; van de Ven, China at War, pp. 188–189.
10. In Song Shiqi and Yan Jingzheng, eds., Jizhe bixia de kangri zhanzheng (The writing of
reporters in the war of resistance; Beijing: Renmin ribao chuban she, 1995), pp.
318–321.
471, 489, 504–505; Zhongguo renmin kangri zhanzheng jinian guan, ed., Kangzhan
jishi, pp. 218–221.
12. China at War, vol. 13, no. 6 (December 1944), p. 2.
13. T. V. Soong Papers, Hoover Institution Archives, box 8, folder 24, telegram from Alfred
Sze to T. V. Soong in Chongqing, October 17, 1944.
14. Roger B. Jeans, ed., The Marshall Mission to China, 1945–1947: The Letters and Diary of
Colonel John Hart Caughey (Lanham: Rowman & Littlefield, 2011), p. 51.
15. Van de Ven, China at War, pp. 179–180.
16. Wang Qisheng, “The Battle of Hunan,” p. 403.
17. Eastman, Seeds of Destruction, pp. 50–56.
18. The government banks extended advances to the government of 1,261,921 million
yuan during the war era. Arthur N. Young, China’s Wartime Finance and Inflation
(Cambridge, MA: Harvard University Press, 1965), pp. 12, 15. In her study, Lin Meili
gives slightly different figures: for 1943, the deficit was 41,943,703,152; for 1944,
138,726,128,798; and for 1945, 1,202,205,543,309. See Lin Meili, Kangzhan shiqi de
huobi zhanzheng (The currency war during the war of resistance; Taibei: Guoshi guan,
1996), p. 38.
19. Chang Kia-ngau, The Inflationary Spiral: The Experience in China, 1939–1950 (Cambridge:
MIT Press, 1958), p. 58.
20. Joseph W. Esherick, ed., Lost Chance in China: The World War II Dispatches of John S. Service
(New York: Random House, 1974), p. 134.
24. Chen Yung-fa, “Chiang Kai-shek and the Japanese Ichigo Offensive, 1944,” in Laura De
Giorgi and Guido Samarani, eds., Chiang Kai-shek and His Time: New Historical and
Historiographical Perspectives (Venice: Sinica venetiana, 2017), pp. 37–74 (p. 67);
Li Huang, “The Reminiscences of Li Huang,” Chinese Oral History Project, East
Asian Institute of Columbia University, 1975, p. 698.
25. Chen Yung-fa, “Chiang Kai-shek and the Japanese Ichigo Offensive,” p. 68.
218

26. Chihyun Chang, The Chinese Journals of L. K. Little, vol. 1, p. 88.

29. H. H. Kung Papers, Hoover Institution Archives, box 17, folder 6, “Central Bank, 1944,”
letter from Pingwen Kuo (Guo Bingwen) to H. H. Kung, August 10, 1944; cable of
August 8, 1944, Pingwen Kuo to Bernard Westall, London; letter from H. G. McHeary
to Hsi Te-mou (Xi Demou), Bank of China, August 29, 1944; letter from H. W. Scruton
to Hsi Te-mou, September 8, 1944.
30. Young, China’s Wartime Finance and Inflation, pp. 160–161.
31. H. H. Kung Papers, Hoover Institution Archives, box 17, folder 6, “Central Bank, 1944,”
letter from Lt. General Joseph T. McNarney, Lt. General, US Army, to General Shang
Chen (Shang Zhen), Chief, Chinese Military Mission to the United States,
September 19, 1944; McNarney to Shang Chen; Lauchlin Currie Papers, Hoover
Institution Archives, box 3, folder “China – Economic Conditions,” memorandum to
the President, April 2, 1943.
33. Arthur Young Papers, Hoover Institution Archives, box 94, folder “US aid, post war.”
35. T. G. Li, A China Past: Military and Diplomatic Memoires (Lanham: University Press of
America, 1989), pp. 222–223.
36. Chou Shun-Hsin, The Chinese Inflation, 1937–1949 (New York: Columbia University
Press, 1963), p. 195.
37. Chou Shun-hsin, The Chinese Inflation, p. 199.
38. Linsun Cheng, Banking in Modern China: Entrepreneurs, Professional Managers, and the
Development of Chinese Banks, 1897–1937 (New York: Cambridge University Press, 2003),
pp. 118, 125.
40. Obayashi jimusho, ed., Dai Toa senso daiichi nendo ni okeru Shanhai Keizai no hensen
(Economic changes in Shanghai during the first year of the Great East Asia War;
Shanghai: Obayashi jimusho, 1943), pp. 81–83; Masuda Yoneji. Shina senso keizai no
kenkyu (Research on China’s wartime economy; Tokyo: Daiyamonda sha, 1944), pp.
29–30.
42. Arthur Young, Cycle of Cathay: An Historical Perspective (Vista, CA: Ibis Publishing, 1997),
p. 241; Wang Chaoguang, Zhongguo mingyun de juezhan, 1945–1949 (The decisive war
for China’s fate, 1945–1949; Nanjing: Jiangsu renmin chuban she, 2006), p. 235.
43. United States, Department of State. Office of the Historian, Foreign Relations of the United
States: Diplomatic Papers: 1944, vol. 6, China, p. 843.
45. Theodore White and Annalee Jacoby, Thunder Out of China (New York: William Sloane,
1946), pp. 115–116.
46. Arthur Young, Cycle of Cathay, p. 241.
47. Foreign Relations of the United States: Diplomatic Papers: 1944, vol. 6, China, p. 853.
219

48. Gregory Scott Lewis, “Shades of Red and White: The Life and Political Career of Ji
Chaoding, 1903–1963,” unpublished PhD dissertation, Arizona State University, 1999,
p. 172.
49. Lewis, “Shades of Red and White,” p. 172.
306.
52. Foreign Relations of the United States: Diplomatic Papers: 1944, vol. 6, China, pp. 928–929.
53. Hsiao-ting Lin, “Wartime Sino-U.S. Relations Revisited” p. 264.
54. Wu Jingping and Guo Daijun, Song Ziwen zhu Mei shiqi dianbao xuan, 1940–1943
(Select telegrams between Chiang Kai-shek and T. V. Soong, 1940–1943; Shanghai:
Fudan daxue chuban she, 2008), p. 320.
57. Foreign Relations of the United States: Diplomatic Papers: 1944, vol. 7, The Far East, p. 1063.
58. Lewis, “Shades of Red and White,” p. 172.
59. T. V. Soong Papers, Hoover Institution Archives, box 25, folder 4; Yang Peixin, Jiu
Zhongguo de tonghuo pengzhang (Currency inflation in old China; Beijing: Renmin
chuban she, 1985), pp. 66–67.
60. Chihyun Chang, The Chinese Journals of L. K. Little, vol. 1, pp. 117–118. The Control Yuan
report was leaked to the Chinese press in early May and mentioned Yu Hongjun as one of
the officials responsible. Chihyun Chang, The Chinese Journals of L. K. Little, vol. 1, p. 120.
Arthur Young, who knew Yu quite well, believed him innocent. He was “a true patriot,
honest and sincere,” Young wrote. He also admired Bei Zuyi, whom he labeled “the best of
400 million.” Cited in Chihyun Chang, The Chinese Journals of L. K. Little, vol. 2, p. 8. See also
H. H. Kung Papers, Hoover Institution Archives, box 9, folder 3, “Foreign Ministry,” cable
from Wellington Koo in London to H. H. Kung and Foreign Office, Chongqing, March 5,
1944; reply from H. H. Kung to Wellington Koo on March 15, 1944.
61. T. V. Soong Papers, Hoover Institution Archives, box 6, folder 36, memorandum from
Henry Morgenthau to T. V. Soong, March 8, 1935.
62. T. V. Soong Papers, Hoover Institution Archives, box 6, folder 36.
63. Arthur Young Papers, Hoover Institution Archives, box 111, folder “Graphs from 1937–
1945.”
64. Foreign Relations of the United States: Diplomatic Papers: 1944, vol. 7, The Far East, pp.
1084–1086.
65. T. V. Soong Papers, Hoover Institution Archives, box 4, folder 27, Hsi Te-mou (Xi
Demou) to T. V. Soong, May 21, 1945, Hsi Te-Mou to T. V. Soong, August 17, 1945.
66. T. V. Soong Papers, Hoover Institution Archives, box 25, folder 4, “Morgenthau,” Notes
on the Conference between Dr. T. V. Soong and the Secretary of the Treasury, May 9,
1945.
1945.
220

1945.
69. T. V. Soong Papers, Hoover Institution Archives, box 8, folder 18, T. V. Soong to
Edward Stettinius, April 20, 1945.
70. T. V. Soong Papers, Hoover Institution, box 6, folder 36, letter from Henry Morgenthau
to T. V. Soong, May 16, 1945.
71. T. V. Soong Papers, Hoover Institution, box 25, folder 4, “Morgenthau,” Notes on the
Conference between Dr. T. V. Soong and the Secretary of the Treasury, Washington,
D. C., May 16, 1945.
72. Arthur Young Papers, Hoover Institution Archives, box 4, folder “Hsi Te-mou,” cable
from O. K. Yui (Yu Hongjun) to Hsi Te-mou, April 23, 1945.
73. T. V. Soong Papers, Hoover Institution Archives, box 26, folder 6, Hsi Te-mou to
T. V. Soong, July 3, 1946. An additional $10 million was used to purchase cotton textiles
on July 18, 1945, and $13.5 million in raw cotton on March 13, 1946. Of the total
$220 million in gold purchased under the $500 million line of credit, all but
$13.8 million had arrived in China by July 3, 1946.
74. Arthur Young Papers, Hoover Institution Archives, box 84, folder “Planning for Postwar,
1945,” letter from Arthur Young to O. K. Yui, Minister of Finance, March 15, 1945.
75. T. V. Soong Papers, Hoover Institution Archives, box 25, folder 4, “Morgenthau,”
excerpt from Raymond Swing’s Broadcast, May 14, 1945.
76. T. V. Soong Papers, Hoover Institution Archives, box 8, folder 23, “Raymond Swing.”
77. Margaret Mih Tillman, Raising China’s Revolutionaries: Modernizing Childhood for
Cosmopolitan Nationalists and Liberated Comrades, 1920s–1950s (New York: Columbia
University Press, 2018), pp. 131, 133, 157; C. X. George Wei, Sino-American Economic
Relations, 1944–1949 (Westport, CT: Greenwood Press, 1997), p. 56; Xiao Ruping,
“Kangzhan shengli hou Zhejiang de shanhou jiuji” (Relief aid in Zhejiang after the
victory in the War of Resistance), Kangri zhanzhen yanjiu (Research on the War of
Resistance against Japan) 1 (2013), pp. 126–128.
CHAPTER 2 HYPERINFLATION AND THE RIVALRY BETWEEN
T. V. SOONG AND H. H. KUNG
1. The China Weekly Review, April 20, 1946, p. 169.

2. Dagong bao, August 30, 1946, cited in Chinese Press Review, US Consulate Shanghai,
August 30, 1946.
3. Suzanne Pepper, Civil War in China: The Political Struggle, 1945–1949 (Lanham, MD:
Rowman and Littlefield, 1999), p. 128.
4. T. V. Soong was the moving force behind the China Development Finance Corporation,
but when the company was organized in June of 1934, H. H. Kung was the chair of the
board of directors. This was Chiang Kai-shek’s decision. At the time, Chiang was pursu-
ing his appeasement policy of Japan. Soong was then persona non grata by Japan, so
Chiang insisted Kung be the head. See Zheng Huixin (Cheng Hwei-sheng), Cong touzi
221

gongsi dao “Guanban shangxing”; Zhongguo jiangshe yin gongsi de chuangli ji qi jingying
huodong (From private investment company to state enterprise: The development and
operation of the China Development Finance Corporation; Hong Kong: Zhongwen
daxue chuban she, 2001), pp. 68–71.
5. Zheng Huixin, Cong touzi go dao “Guanban shangxing,” p. 272.
6. For details on Soong’s career, see Wu Jingping, Song Ziwen zhengzhi shengya biannian (A
chronology of the political career of T. V. Soong; Fuzhou: Fujian renmin chuban she,
1998). Material on the Nanyang Brothers Tobacco Company is found on p. 322.
7. See Shou Chongyi, Kong Xiangxi qiren qishi (H. H. Kung, the man and his affairs; Beijing:
Zhongguo wenshi chuban she, 1987).
8. Yang Tianshi, Kangzhan yu zhanhou Zhongguo (Wartime and postwar China; Beijing:
Zhongguo renmin daxue chuban she, 2007), pp. 490–492.
9. Wu Jingping and Guo Daijun [Kuo Tai-chun], eds., Song Ziwen zhu Mei shiqi dianbao
xuan, 1940–1943 (Select telegrams between Chiang Kai-shek and T. V. Soong, 1940–
1943; Shanghai: Fudan daxue chuban she, 2008), pp. 428, 432.
10. Henry Morgenthau III, Mostly Morgenthaus: A Family History (New York: Ticknor and
Fields, 1991), pp. 270–271.
11. John Morton Blum, From the Morgenthau Diaries: Years of Crisis, 1928–1938 (Boston:
Houghton Mifflin, 1959), pp. 220–227.
12. Blum, From the Morgenthau Diaries, pp. 479–480.
13. John Morton Blum, Roosevelt and Morgenthau: A Revision and Condensation from the
Morgenthau Diaries (Boston: Houghton Mifflin, 1970), pp. 221–223.
14. On this point, see Kuo Tai-chun and Hsiao-ting Lin, “Introduction,” in Lin Xiaoting
and Wu Jingping, eds. Song Ziwen yu waiguo renshi wanglai handian gao (T. V. Soong
important wartime correspondences, 1940–1942; Shanghai: Fudan daxue chuban she,
2009), pp. 247–250.
15. Hsiao-ting Lin, “Wartime Sino-US Relations Revisited, American Aid, Persona and
Power Politics, 1938–1949,” in Wu Jingping, ed. Song Ziwen shengping yu ziliao wenxian
yanjiu (T. V. Soong: personal wartime archives; Shanghai: Fudan dauxue chuban she,
2010), pp. 262–267.
16. Lauchlin Currie Papers, Hoover Institution Archives, box 4, folder “Second trip to
China.”
17. Howard L. Boorman, editor, Biographical Dictionary of Republican China (New York:
Columbia University Press, 1970), vol. 3, pp. 137–153.
18. Boorman, Biographical Dictionary of Republican China, vol. 1, pp. 192–196.
22. Boorman, Biographical Dictionary of Republican China, vol. 2, p. 255.
23. Sao-Ke Alfred Sze, Reminiscences of His Early Years, as told to Anming Fu (Washington DC: n.
p. 1962), pp. 4, 7, 12, 16; Boorman, Biographical Dictionary of Republican China, vol. 3, p. 126.
24. United States, Department of State. Office of the Historian, Foreign Relations of the United
States: Diplomatic Papers: 1944, vol. 6, China, p. 241.
222

25. Wu Guozhen, Cong Shanghai shichang zhi “Taiwan sheng zhuxi” (From mayor of Shanghai
to chairman of Taiwan province; Shanghai: Shanghai renmin chuban she, 1999), pp.
240, 247.
26. Ch’en Li-fu, The Storm Clouds Clear Over China: The Memoir of Ch’en Li-fu, 1900–1993
(Stanford, CA: Hoover Institution Press, 1994), p. 181.
27. Arthur N. Young, Cycle of Cathay: An Historical Perspective (Vista, CA: Ibis Publishing,
1997), pp. 1–4.
28. T. V. Soong Papers, Hoover Institution Archives, box 7, folder 14, “Cyril Rogers,” letter
from Soong to Rogers, August 18, 1946.
29. T. V. Soong Papers, Hoover Institution Archives, passim. The archives contain numer-
ous thank-you notes from individuals such as George Marshall for the gift. Other letters
were for gifts made in the United States.
30. Hsiao-ting Lin, “Wartime Sino-US Relations Revisited,”in Wu Jingping, Song Ziwen
shengping, pp. 262–67.
China.”
32. Robert E. Sherwood, Roosevelt and Hopkins: An Intimate History (New York: Harper and
Row, 1950), pp. 16–17, 289.
33. Charlotte Brooks, American Exodus: Second-Generation Chinese Americans in China, 1901–
1949 (Oakland: University of California Press, 2019), p. 3.
34. Charlotte Brooks, American Exodus, p. 190.
35. Grace C. Huang, “Madame Chiang’s Visit to America,” in Joseph W. Esherick and
Matthew T. Combs, eds., 1943: China at the Crossroads (Ithaca, NY: East Asia Program
Cornell, 2015), pp. 41–74 (p. 60).
36. Wu Jingping, “Kangzhan shiqi Song Ziwen yu Kong Xiangxi zhi guanxi zhi shuping”
(A review of the relationship between T. V. Soong and H. H. Kung during the war
period), in Wu Jingping, Song Ziwen shengping yu ziliao yanjiu, pp. 189–208 (pp. 202–
206); Hsiao-ting Lin, “Chiang Kai-shek and the Cairo Summit,” in Esherick and
Combs, 1943: China at the Crossroads, pp. 426–458 (p. 432); Joseph W. Esherick,
“Prologue: China and the World in 1943,” in Esherick and Combs, 1943: China at
the Crossroads, pp. 1–40 (pp. 34–36).
37. T. V. Soong Papers, Hoover Institution Archives, box 6, folder 38, letter from
Mountbatten to Soong, October 25, 1943.
38. T. V. Soong Papers, Hoover Institution Archives, box 35, folder 17, telegram from
Rajchman to T. V. Soong on December 6, 1943, and reply on December 10, 1943.
39. T. V. Soong papers, Hoover Institution Archives, box 35, folder 31, telegram of
November 11, 1943.
40. Hsiao-ting Lin, “Chiang Kai-shek and the Cairo Summit,” p. 433.
41. Joseph W. Esherick, ed., Lost Chance in China: The World War II Despatches of John S. Service
(New York: Random House, 1974), pp. 78–82.
China.”
223

China.” Currie noted that regarding the air service over the Hump, Soong agreed to
General Arnold’s suggestion of turning much of this over to the private aviation firm,
CNAC. Currie felt that this was a mistake, because a commercial firm could not
properly operate a military service. The original draft contains the sentence, “As
General Arnold does not like China he will do anything to embarrass her.” This is
scratched through (although clearly legible), so would have been deleted from the
report sent to the president. In his report to Roosevelt on his trip, dated August 24,
1942, Currie also gave the President blunt advice on Stilwell. “I am convinced that
General Stilwell cannot function effectively as our chief military representative in
China. I recommend therefore that he be recalled” (p. 37).
45. T. V. Soong Papers, Hoover Institution Archives, box 1, folder 38, From T. V. Soong in
Chongqing to F. Chang, February 6, 1945; see also Wu Guozhen, Cong Shanghai
shichang, pp. 237–238.
47. Wu Guozhen, Cong Shanghai shichang, p. 240.
48. Wellington Koo, “Wellington Koo Memoir,” vol. 5, pp. 301–302.
51. Xu Bingsheng, “Guomin dang xingzheng yuan yuanhui jianwen” (Information on the
meetings of the Guomindang Executive Yuan), Shanghai wenshi ziliao xuanji (Selections
from literary and historical material, Shanghai), 43 (1983), pp. 122–132 (pp. 127–28).
52. Yang Tianshi, “Jiang Kong guanxi tanzheng” (An examination of the Chiang–Kung
relationship), Mingguo dang’an (Republican archives) 4 (1992), pp. 115–120 (pp.
115–119).
53. T. V. Soong Papers, Hoover Institution Archives, box 30, folder 16, cable from
T. V. Soong to H. H. Kung, March 15, 1943.
54. Albert C. Wedemeyer Papers, Hoover Institution Archives, box 83, folder 7, letter from
Wedemeyer to T. V. Soong, November 26, 1945.
55. The family seems to have pronounced this Kong Lingkai. See for instance, T. V. Soong
Papers, Hoover Institution Archives, box 64, folder 7, letter from T. V. Soong in New York
to Madame Chiang Kai-shek, Taibei, March 22, 1965, and Albert Wedemeyer Papers,
Hoover Institution Archives, box 46, folder 6, Kung Ling-kai (David).
56. H. H. Kung Papers, Hoover Institution Archives, box 9, folder 6, English correspond-
ence files, letter from H. H. Kung to David Kung, October 28, 1939. The original letter
was in English.
57. Norwood Alman Papers, Hoover Institution Archives, box 18, folder 23, David Kung
file. T. V. Soong Papers, Hoover Institution Archives, box 64, folder 7, letter from
T. V. Soong in New York to Madame Chiang Kai-shek, Taipei, March 22, 1965, and
Albert Wedemeyer Papers, Hoover Institution Archives, box 46, folder 6, Kung Ling-kai
(David).
58. Zheng Huixin, “Zhanhou zhongguo de ‘guanban shanghang’” (Bureaucratic capital-
ism after the war), Minguo dang’an (2014), 1, pp. 134–143 (p. 136).
224

59. Arthur Young Papers, Hoover Institution Archives, Box 113, folder “China Diary,” entry
for May 11, 1946; United Kingdom, Foreign Office Files for China, 1918–1980, Adam
Mathew, Archives Direct, FO 371/53747, Commercial Activities of David Kung.
60. Zheng Huixin, “Zhanhou zhongguo de ‘guanban shanghang,’” pp. 136–137.
61. See, for example, Wang Chaoguang, “Jianbuduan libuluan – Kangzhan zhong houqi”
(Unending chaos: The relationship between Chiang Kai-shek, H. H. Kung, and
T. V. Soong during and after the war of resistance), pp. 209–232 (pp. 221–225) and
Wu Jingping, “Kangzhan shiqi Song yu Kong Xiangxi guanxi zhi shuping” (A review of
the relationship between T. V. Soong and H. H. Kung during the war period), pp. 189–
208 (pp. 191–207), in Wu Jingping, Song Ziwen shengping yu ziliao yanjiu.
Brigadier General T. G. Hearn to T. V. Soong in Chongqing, November 27, 1942.
63. Wellington Koo, “Wellington Koo Memoir,” vol. 5, “Sojourn in China,” p. 189.
64. T. V. Soong Papers, Hoover Institution Archives, box 61, folder 31, letter from Madame
Chiang Kai-shek to Laura Soong, June 22, 1941; letter from Madame Chiang Kai-shek to
Laurette Soong, June 22, 1941; letter from Madame Chiang Kai-shek to T. V. Soong,
January 5, 1944. In the last letter, she requested that Laura Soong send as many twelve-
inch zippers as possible as well as different-colored velvet ribbons for hair bows. Soong
cabled his wife on January 7, 1944, with the request. A more frequent request was for
medicine, however. Among those requested by Madame Chiang from T. V. were drugs
to treat amoebic dysentery, chloral hydrate, and vitamin B. T. V. Soong Papers, Hoover
Institution Archives, box 62, folder 4, cables from Madame Chiang to T. V. Soong,
September 13, 1943, and September 23, 1943.
65. T. V. Soong Papers, Hoover Institution Archives, box 35, folder 33.
66. T. V. Soong Papers, Hoover Institution Archives, box 61, folder 30, letter from Soong
Ching-ling to T. V. Soong, January 12, 1942. Soong Ching-ling (Song Qingling) was
incensed that the Dagong bao published a report that they had brought a vast amount of
luggage, seven poodles, and many servants. She noted that the airplane had twenty-
three passengers so that it would have been impossible for there to have been much
luggage. “I could not even bring along my documents and other priceless articles, let
along my dogs and clothings,” she noted. See also Zaisheng 124 (August 3, 1946), p. 2.
67. T. V. Soong Papers, Hoover Institution Archives, box 61, folder 30, letter from Soong
Ching-ling to T. V. Soong, October 24, 1941; cable from Soong Ching-ling to
T. V. Soong, April 28, 1943; cable from T. V. Soong to Soong Ching-ling, April 26, 1943.
China, notes,” September 3, 1942.
69. T. V. Soong Papers, Hoover Institution Archives, box 61, folder 31, Madame Chiang Kai-
shek, personal letters. She often sent best wishes to Laura Soong, T. V.’s wife, as well.
H. H. Kung to T. V. Soong, February 3, 1945.
T. V. Soong to H. H. Kung, March 1, 1943.
72. T. V. Soong Papers, Hoover Institution Archives, box 30, folder 16, cable from Madame
H. H. Kung to T. V. Soong, September 21, 1943.
225

73. Lauchlin Currie Papers, Hoover Institution Archives, box 3, folder “Madame Chiang
Kai-shek,” folder “China: Economic Conditions, Banknotes.”
74. Lauchlin Currie Papers, Hoover Institution Archives, box 3, folder “China: Economic
Conditions,” memorandum of September 13, 1943.
75. Lauchlin Currie Papers, Hoovers Institution Archives, box 5, folder “Notes on
T. V. Soong,” Currie conversation with Li Ming, recorded April 24, 1943.
76. Lauchlin Currie Papers, Hoover Institution Archives, box 5, folder “U.S. Department of
the Treasury, October 14, 1943.”
77. T. V. Soong Papers, Hoover Institution Archives, box 1, folder 1, cables from
T. V. Soong in Chongqing, December 25, 1944.
78. H. H. Kung Papers, Hoover Institution Archives, box 8, folder 6, letter from Robert
T. Huang to H. H. Kung, February 13, 1941.
79. T. V. Soong Papers, Hoover Institution Archives, box 25, folder 15, letters from Bei Zuyi
to T. V. Soong, July 19, 1942; July 21, 1942.
80. T. V. Soong Papers, Hoover Institution Archives, box 25, folder 15, letter from Bei Zuyi
to T. V. Soong, June 9, 1943.
81. See for instance, T. V. Soong Papers, Hoover Institution Archives, box 25, folder 15,
letter from Bei Zuyi to T. V. Soong, October 25, 1944.
82. Chihyun Chang, ed., The Chinese Journals of L. K. Little, 1943–1954: An Eyewitness
Account of War and Revolution, vol. 1, The Wartime Inspector General, 1943–1945, pp.
xxviii, 4. Little had generally good relations with T. V. Soong.
83. Chihyun Chang, The Chinese Journals of L. K. Little, vol. 2: The Last Foreign Inspector
General, 1946–1949, p. 5.
T. V. Soong to Ambassador Patrick Hurley, March 12, 1945.
85. Chihyun Chang, The Chinese Journals of L. K. Little, August 26, 1943 entry, vol. 1,
p. 13.
86. Arthur Young Papers, Hoover Institution Archives, box 113, folder “China Diary,” entry
for August 22, 1947.
87. T. V. Soong Papers, Hoover Institution Archives, box 1, folder 39, “F. Chang,” letter of
August 17, 1944, from F. Chang in Washington, DC to T. V. Soong.
88. Gregory Scott Lewis, “Shades of Red and White: The Life and Political Career of Ji
Chaoding, 1903–1963,” PhD dissertation, Arizona State University, 1999. Quotation
from page 168, see also pp. 22, 101, 140, 169–170.
89. Ji Chaoding had extensive personal ties with H. H. Kung. During the war period in
Chongqing, Ji lived on the top floor of Kung’s compound, referred to Kung as “uncle,”
and often played bridge with Soong Ai-ling, Kung’s wife. See Gregory Lewis, “Shades of
Red and White,” pp. 159, 178, 180–181.
90. Wang Chaoguang, “Sheng yu moshi yunbian xiao: Song Ziwen churen xingzheng yuan
qianhou jingwei zhi yanjiu” (Fading away in the final years: Research on T. V. Soong
before and after heading the Executive Yuan), in Wu Jingping, ed., Song Ziwen yu
zhanshi Zhongguo (T. V. Soong and wartime China; Shanghai: Fudan daxue chuban
she, 2008), pp. 284–300 (pp. 290–296).
226

91. Chen Boda, Zhongguo sida jiazu (China’s four great families; Hong Kong: Changjiang,
1947).
92. Chen Boda, Renmin gongdi Jiang Jieshi (The enemy of the people, Chiang Kai-shek;
Beijing: Renmin chuban she,1954).
93. The Economic Information Service, Hong Kong, “How Chinese Officials Amass
Millions.” New York: Committee for a Democratic Far Eastern Policy, 1948. For
a full discussion of this issue see Dai Hongzhao, “Song Ziwen de siren caichan yu
shifou gong wubi zhi pingxi” (An examination of whether or not T. V. Soong private
property involved corruption), in Wu Jingping, Song Ziwen shengping yu ziliao wenxian
yanjiu, pp. 393–399.
95. Harry S. Truman, Memoirs: Vol. 1: Year of Decisions (Garden City: Doubleday,
1955), p. 267.
96. For additional information on this point see Hsiao-ting Lin, Accidental State: Chiang
Kai-shek, The United States and the Making of Taiwan (Cambridge, MA: Harvard
University Press, 2016), passim.
97. Wu Song, Jiang Renmin, and Rao Fanghu, Da caifa Kong Xiangxi zhuan (A biography of
the big tycoon H. H. Kung; Wuhan: Wuhan chuban she, 1995).
98. Chen Feng, Sida jiazu miwen (Secrets of the four great families; Beijing: Tuanjie
chuban she, 2008).
99. For an example of how the new sources have led to a revised view of T. V. Soong
and the issue of his wealth, see Dai Hongchao, “Song Ziwen de xiren caichan,”
pp. 393–399. An early article by Wu Jingping on the importance of studying
T. V. Soong is “Song Ziwen lungang” (A brief discussion of T. V. Soong), Lishi
yanjiu 6 (1991), pp. 106–121.
100. Sterling Seagrave, The Soong Dynasty (New York: Harper and Row, 1985). For
a summary of arguments by Seagrave, see Dai Hongchao, “Song Ziwen de xiren
caichan,” pp. 394–396.
101. Laura Tyson Li, Madame Chiang Kai-shek: China’s Eternal First Lady (New York: Atlantic
Monthly Press, 2006).
102. See, for example, Pakula’s treatment of Madame Chiang’s relationship with
Wendell Wilkie. Hannah Pakula, The Last Empress: Madame Chiang Kai-shek
and the Birth of Modern China (New York: Simon and Schuster, 2009), pp.
432–434.
103. Jung Chang, Big Sister, Little Sister, Red Sister: Three Women at the Heart of Twentieth-Century
China (New York: Alfred A. Knopf, 2019), p. 100; Edward McCord, The Power of the Gun:
The Emergence of Modern Chinese Warlordism (Berkeley: University of California Press,
1993).
104. Jung Chang, Big Sister, Little Sister, Red Sister, p. 139.
105. Beijing Review, July 19, 2001, documents supplement, p. v.
106. Arthur N. Young, China’s Wartime Finance and Inflation, pp. 107–108; Zheng Huixing,
Cong touzi gongsi, pp. 102–119.
227

107. T. V. Soong Papers, Hoover Institution Archives, box 29, folder 2, China Development
Finance Corporation, letter from D. S. Yuan to T. V. Soong, October 5, 1945, and
October 31, 1945; letter of T. V. Soong to D. S. Yuan, October 27, 1945.
108. Theodore H. White and Analee Jacoby, Thunder Out of China (New York: William
Sloan Associates, 1946), pp. 114–115.
109. Roger J. Sandilands, The Life and Political Economy of Lauchlin Currie: New Dealer,
Presidential Adviser, and Development Economist (Durham, NC: Duke University Press,
1990), pp. 107–109. Sandilands states that Currie assumed his mission would be
concerned with technical issues regarding finances and currency but quickly realized
that his visit was being used for broader political purposes. Roosevelt had asked him to
convey a personal message to Chiang Kai-shek that he hoped that civil war between the
Nationalists and Communists would not break out.
110. Lauchlin Currie Papers, Hoover Institution Archives, Stanford University, box 4,
folder “Currie first trip to China,” p. 38.
111. Lauchlin Currie Papers, Hoover Institution Archives, box 4, folder “Currie first trip to
China,” p. 20.
China,” p. 39.
China,” pp. 39–40.
114. Zheng Huixin, “Meijin gongzhai wubi an de fasheng ji chuli jingguo” (The US dollar
bond embezzlement scandal and its handling), Lishi yanjiu 4 (2009) pp. 99–123 (pp.
103–104); Arthur N. Young, China and the Helping Hand, 1937–1945 (Cambridge, MA:
Harvard University Press, 1963), pp. 234–237.
115. Zheng Huixin, “Meijin gongzhai wubi an,” pp. 103–104; Arthur Young, China and the
Helping Hand, pp. 235–238.
116. Chen Gengya, “Kong Xiangxi jingtun meijin gongzhai de neimu zhenxiang” (The
true inside story of H. H. Kung devouring the American dollar loan), Wenshi ziliao
xuanji 50 (1986) pp. 246–252; Jiang Zhongzheng zongtong dang’an: Shilue gaoben (The
Chiang Kai-shek collections: the chronological events; Taipei: Guoshi guan, 2011),
vol. 61, pp. 514–517; Yang Tianshi, Zhaoxun zhenshi de Jiang Jieshi: Jiang Jieshi riji jiedu
(Seeking the real Chiang Kai-shek: Reading the Chiang Kai-shek diary; Taiyuan:
Shanxi renmin chuban she, 2008), vol. 2, p. 449.
117. Wu Song, Jiang Renmin, and Rao Fanghu, Da caifa Kong Xiangxi zhuan, pp. 239–40;
Zheng Huixin, “Meijin gongzhai wubi an,” pp. 105–106.
118. Arthur Young, China and the Helping Hand, p. 239.
119. Paul Preston and Michael Partridge, eds., British Documents on Foreign Affairs: Reports
and Papers from the Foreign Office Confidential Print (Bethesda, MD: University Press of
America, 1997), vol. 7, p. 289; Zheng Huixin, “Meijin gongzhai wubi an,” p. 106.
120. Zheng Huixin, “Meijin gongzhai wubi an,” p. 113.
122. Amerasia 9, no. 4 (February 23, 1945), p. 51. The article also attacked General He
Yingqin saying that he had “the biggest bank balance in New York of any Chinese.”
228

123. Preston and Partridge, British Documents on Foreign Affairs, vol. 7, p. 476.
125. Zheng Huixin, “Meijin gongzhai wubi an,” pp. 108–112; Yang Tianshi, Zhaoxun zhenshi
de Jiang Jieshi, vol. 2, pp. 452–453.
126. Xu Bingsheng, “Guomin dang xingzheng yuan yuanhui jianwen” (Information on the
meetings of the Guomindang Executive Yuan), Shanghai wenshi ziliao xuanji 43 (1983),
pp. 122–132 (p. 128).
129. Preston and Partridge, British Documents on Foreign Affairs, vol. 8, pp. 256–267.
130. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 61, pp. 521–563.
131. Zheng Huixin, “Meijin gongzhai wubi an,” pp. 118–119; Jiang Zhongzheng zongtong
dang’an: Shilue gaoben, vol. 61, pp. 588–592; Yang Tianshi, Zhaoxun zhenshi de Jiang
Jieshi, pp. 459–460; Yang Tianshi, Yang Tianshi wenji (The collected works of Yang
Tianshi; Shanghai: Shanghai Cishu chuban she, 2005), pp, 579–582; Wang Fan-sen,
Fu Ssu-nien: A Life in Chinese History and Politics (New York: Cambridge University
Press, 2000), pp. 168–170.
132. Foreign Relations of the United States: Diplomatic Papers: 1944, vol. 7, The Far East, pp. 1095–
1097, 1101; Zheng Huixin, “Meijin gongzhai wubi an,” p. 113.
134. Wang Chaoguang, “Jianbuduan libuluan – kangzhan zhonghou,” in Wu Jingping,
Song Ziwen shengping yu ziliao wenxian yanjiu, pp. 218–221.
135. Wu Jingping, “Kangzhan shiqi Song Ziwen yu Kong Xiangxi guanxi zhi shuping” (A
review of the relationship between T. V. Soong and H. H. Kung during the war
period), in Wu Jingping, Song Ziwen shengping yu ziliao wenxian yanjiu, pp. 205–206.
136. Zheng Huixin, ”Meijin gongzhai wubi an,” pp. 115–122; Jiang Zhongzheng zongtong
dang’an: Shilue gaoben, vol. 61, pp. 514, 600–608, vol. 62, pp. 19, 45, 57, 63; Yang
Tianshi, Zhaoxun zhenshi de Jiang Jieshi, vol. 2, pp. 458–459; Yang Tianshi, “Jiang
Kong guanxi tanwei” (An exploration of the Chiang–Kung relationship), Mingguo
dang’an 4 (1992), pp. 119–120.
CHAPTER 3 SUDDEN SURRENDER AND BOTCHED LIBERATION
1. Paul Preston and Michael Partridge, eds., British Documents on Foreign Affairs: Reports and
Papers from the Foreign Office Confidential Print (Bethesda, MD: University Press of America,
1997), part II from 1940 through 1945, Series E Asia, vol. 8, pp. 217, 252.
2. Clayton Mishler, Sampan Sailor: A Navy Man’s Adventures in WWII China (Washington,
DC: Brassey’s, 1994), pp. 161–164. SACO was the Sino-American Cooperative
Organization, a mutual intelligence service.
3. Arthur N. Young, Cycle of Cathay: An Historical Perspective (Vista, CA: Ibis Publishing,
1997), pp. 1–4.
4. Chang Kia-ngau, The Inflationary Spiral: The Experience in China, 1939–1950 (Cambridge,
MA: MIT Press, 1958), p. 49.
229

5. Arthur N. Young Papers, Hoover Institution Archives, Stanford University, box 97,
folder “Currency from August 15, 1945 to December 31, 1945,” confidential memo,
August 20, 1945; Arthur Young, China’s Wartime Finance and Inflation (Cambridge,
MA: Harvard University Press, 1965), pp. 12, 15. In her study, Lin Meili gives
slightly different figures: for 1943, the deficit was 41,943,703,152; for 1944,
138,726,128,798; and for 1945, 1,202,205,543,309. See Lin Meili, Kangzhan shiqi de
huobi zhanzheng (The currency war during the war of resistance period; Taibei:
Guoshi guan, 1996), p. 38.
6. Arthur Young Papers, Hoover Institution Archives, box 84, folder “Planning for
Postwar, 1945.
7. Arthur Young, Cycle of Cathay, pp. 210–211.
8. Arthur Young Papers, Hoover Institution Archives, box 97, folder “Currency
August 15–December 31, 1945,” memo of August 20, 1945.
9. Arthur Young Papers, Hoover Institution Archives, box 97, folder “August 15–
December 31, 1945,” memo dated September 6, 1945.
10. Wanyan Shaoyuan, Da jieshou (The great takeover; Shanghai: Shanghai yuandong
chuban she, 1995), p. 57.
11. Cited in the Chinese Press Review, US Consulate, Shanghai, November 2, 1945.
12. Arthur Young Papers, Hoover Institution Archives, box 97, folder “August 15–
December 31, 1945,” memo of September 6, 1945.
13. Chou Shun-hsin, The Chinese Inflation, 1937–1949 (New York: Columbia University
Press, 1963), pp. 23–24.
14. Adapted from Chang Kia-ngau, The Inflationary Spiral, p. 372; see also United States,
Department of State. Office of the HIstorian, Foreign Relations of the United States:
Diplomatic Papers, 1945: The Far East, vol. 7, pp. 1129–1130.
and Banking,” unpublished draft by Frank M. Tamagna, October 10, 1946, p. 28.
16. Chihyun Chang, Government, Imperialism and Nationalism in China: The Maritime Customs
Service and Its Chinese Staff (London: Routledge, 2013), p. 149.
17. Adapted from Chang Kia-ngau, The Inflationary Spiral, p. 372.
18. Ho Lien (He Lian), “The Reminiscences of Ho Lien (Franklin L. Ho),” Chinese Oral
History Project, East Asian Institute, Columbia University, pp. 499–500.
20. Wenhui bao, April 3, 1946, cited in Chinese Press Review, US Consulate, Shanghai,
April 3, 1946. Translation by the consulate.
for May 8, 1946.
for February 18, 1946.
of July 13, 1946.
24. United States, Department of State, Office of Intelligence Research, “Themes in the
Chinese National Budget,” July 15, 1947, pp. 6–7.
230

Chinese National Budget,” July 15, 1947, p. 8.
27. Philip Thai, China’s War on Smuggling: Law, Economic Life, and the Making of the Modern
State, 1842–1965 (New York: Columbia University Press, 2018), p. 218.
30. Diana Lary, China’s Civil War: A Social History, 1945–1949 (Cambridge: Cambridge
University Press, 2015), p. 46.
31. Quoted in Frank H. H. King, The Hongkong Bank in the Period of Development and
Nationalism: From Regional Bank to Multinational Group, vol. 4 of The History of the
Hongkong and Shanghai Banking Corporation (Cambridge: Cambridge University Press,
1991) p. 89.
34. Isabella Jackson, Shaping Modern Shanghai: Colonialism in China’s Global City
(Cambridge: Cambridge University Press, 2018), p. 239.
35. Isabella Jackson, Shaping Modern Shanghai, pp. 239–241.
for November 23, 1945.
38. Arthur Young Papers, Hoover Institution Archives, box 97, folder “Currency from
August 15, 1945–December 31, 1945.
39. China Weekly Review, August 10, 1946, p. 243.
40. Peng Xiaoliang, ed. Zhou Zuomin riji shuxin ji (Zhou Zuomin diary and letters;
Shanghai: Shanghai yuandong chuban she, 2014), pp. 45, 49, 55–58; Parks M. Coble,
“Zhou Zuomin and the Jincheng Bank,” in Sherman Cochran, ed., The Capitalist
Dilemma in China’s Communist Revolution (Ithaca, NY: East Asia Program, Cornell
University, 2014), pp. 151–174 (pp. 162–165).
41. Peng Xiaoliang, Zhou Zuomin riji shuxin ji, pp. 63–64, 68–69; Parks M. Coble, “Zhou
Zuomin and the Jincheng Bank,” p. 165.
42. Peng Xiaoliang, Zhou Zuomin riji shuxin ji, p. 123.
43. Chinese Press Review, US Consulate, Shanghai, November 20, 1945; Yun Xia, Down with
Traitors: Justice and Nationalism in Wartime China (Seattle: University of Washington
Press, 2017), p. 85.
44. Dagong bao, December 3, 1945, quoted in Chinese Press Review, US Consulate,
Shanghai, December 3, 1945, p. 2; Cui Meiming, “Song Ziwen zhuchi xia de
Shanghai qu diwei chanye chuli ju” (The management of enemy and puppet property
in the Shanghai area under T. V. Soong’s direction), Jindai shi yanjiu (Research into
modern history) 1 (1988), pp. 267–268.
231

45. North China Daily News, February 14, 1946, p. 1; Suzanne Pepper, Civil War in China: The
Political Struggle 1945–1949 (Lanham, MD: Rowman and Littlefield, 1999), pp. 23–29.
46. China Weekly Review, July 12, 1947, p. 168.
47. Parks M. Coble, Chinese Capitalists in Japan’s New Order: The Occupied Lower Yangzi, 1937–
1945 (Berkeley: University of California Press, 2003), pp. 136–137, Qian Keting, “Rong
Desheng de jizhe zhaodai hui” (Rong’s Desheng’s press conference), Shanghai wenshi
ziliao xuanji (A collection of Shanghai literary and historical materials) 73 (1993), pp
201–204; Shen bao, June 26, 1946, p. 1; Zhongguo di’erh lishi dang’an guan, ed., “1946
nian Rong Desheng bei bangjia an shiliao erjian” (Two documents of historical mater-
ials on the 1946 kidnapping of Rong Dengshe” Minguo dang’an (Republican archives) 1
(2001), pp. 31–33.
48. Yun Xia, Down with Traitors, p. 72.
49. Yun Xia, Down with Traitors, p. 100.
50. Frederic Wakeman, Jr., Spymaster: Dai Li and the Chinese Secret Service (Berkeley:
University of California Press, 2003), pp. 353–356; Yun Xia, Down with Traitors, p. 33.
51. Feng Bing and Wang Qiang, “A Study of Postwar Nationalist Government’s Policies on
Traitors’ Properties, 1945 to 1949,” Chinese Studies in History 49, no. 4 (2016), pp.
218–236 (pp. 218–219).
52. Feng Bing and Wang Qiang, “A Study of Postwar,” pp. 225–226.
53. Yun Xia, Down with Traitors, pp. 80–82.
54. Dagong bao, September 9, 1946, Chinese Press Review, US Consulate, Shanghai,
September 9, 1946.
55. Ding Zhijin, “Taobei Xianggang de nichan wenti” (Problems of traitors’ properties
hidden in Hong Kong), Jingji zhoubao (Economics weekly) 9 (1946), p. 8, quoted in
Feng Bing and Wang Qiang, “A Study of Postwar,” p. 236.
56. Feng Bing and Wang Qiang, “A Study of Postwar,” pp. 227–228.
57. Arthur Young Papers, Hoover Institution Archives, box 84, folder “Planning for post-
war, general 1944.”
58. For a discussion of this issue, see Wu Qiyuan, You zhanshi jingji dao pingshi jingji (From
a wartime economy to a peace time economy; Shanghai: Dadong shuju, 1946), pp.
308–310.
59. Arthur Young, Cycle of Cathay, pp. 209–210.
60. Arthur Young, Cycle of Cathay, pp. 209–210; Arthur Young, China’s Wartime Finance and
Inflation, 1937–1945, p. 182.
61. Diana Lary, China’s Civil War, p. 48; see also Ho Lien (He Lian), “The Reminiscences of
Ho Lien (Franklin L. Ho),” Chinese Oral History Project, East Asian Institute of
Columbia University, p. 384.
62. Chang Kia-ngau, The Inflationary Spiral, pp. 69–70; Wu Qiyuan, You zhanshi jingji,
pp. 339–340.
63. Suzanne Pepper, Civil War in China, p. 21.
64. Mi Qingyun, “Cong Chongqing dao Shanghai di jieshou jianwen,” (From Chongqing
to Shanghai, impressions of the takeover), in Wenshi ziliao cungao xuanbian (An edited
collection of selections from literary and historical materials; Beijing: Zhongguo wen
232

chuban she, 2002), vol. 7, pp. 736–740. See also Tao Juyin, Gudao jianwen: Kangzhan
shiqi de Shanghai (Experiences in the solitary island: Shanghai during the war of
resistance; Shanghai; Shanghai renmin chuban she, 1979), pp. 325–326, 332, and
Wanyan Shaoyuan, Da jieshou, pp. 41–45.
65. Chou Shun-hsin, The Chinese Inflation, p. 24; Tao Juyin, Gudao jianwen, p. 332.
and Banking,” unpublished draft, by Frank M. Tamagna, October 10, 1946, p. 4.
67. Suzanne Pepper, Civil War in China, p. 35.
69. Arthur Young Papers, Hoover Institution Archives, box 97, folder, “Currency,
August 15–December 31, 1945,” memo of October 16, 1945.
70. Chihyun Chang, Government, Imperialism and Nationalism in China, pp. 148–149; Arthur
Young Papers, Hoover Institution Archives, box 97, folder, “Currency, August 15–
December 31, 1945,” memo of October 16, 1945. See also Wu Qiyuan, You zhanshi
jingji, pp. 343–344.
71. Most observers noted that as soon as the government raised the exchange rate as in
August 1946, merchants took this as a signal to raise prices. See for instance, Roger
B. Jeans, ed., The Marshall Mission to China, 1945–1947: The Letters and Diary of Colonel
John Hart Caughey (Lanham, MD: Rowman and Littlefield, 2011), pp. 149–150, entry for
August 23, 1946.
72. Wu Qiyuan, You zhanshi jingji dao pingshi jingji, pp. 343–344; Yang Peixin, Jiu Zhongguo de
tonghuo pengzhang (Currency inflation in old China; Beijing: Renmin chuban she,
1985), pp. 86–87; Shenbao, March 4, 1946; Zaisheng 139 (November 16, 1946), p. 7.
73. Arthur Young Papers, Hoover Institution Archives, box 77, folder “Press clippings,
currency, 1946,” box 113, folder “China Diary,” entry for December 13, 1945;
J. Franklin Ray, Jr. Papers, Hoover Institution Archives, box 2, folder “China Office,”
monthly reports, February 1946; Shun-hsin Chou, The Chinese Inflation, 1937–1949,
p. 131.
74. Yang Peixin, Jiu Zhongguo de tonghuo pengzhang, pp. 88–89.
76. China Weekly Review, September 28, 1946, p. 116.
77. Dagong bao, June 25, 26, 27, 1946, Chinese Press Review, US Consulate, Shanghai,
June 28, 1946; Shen bao, November 24, 1946, p. 7.
78. Dagong bao editorial of April 29, 1946, Chinese Press Review, US Consulate, Shanghai,
no. 37, April 29, 1946, p. 1.
79. Xinwen bao, May 14, 1946, Chinese Press Review, US Consulate, Shanghai, May 14, 1946,
p. 10.
80. Shen bao, June 4, 1946, Chinese Press Review, US Consulate, Shanghai, June 4,
1946, p. 1.
81. Sheng Mo-chieh, “Shanghai’s International Trade,” September 12, 1946, Chinese Press
Review, US Consulate, Shanghai, October 22, 1946, pp. 1–2.
82. Shen bao, November 18, 1946, Chinese Press Review, US Consulate, Shanghai,
November 18, 1946, p. 1; Xinwen bao, November 18, 1946, Chinese Press Review.
233

83. T. V. Soong Papers, Hoover Institution Archives, box 36, folder 10, “China, foreign
exchange,” “Exchange Rate Policy,” January 20, 1947, p. 8; Arthur Young Papers,
Hoover Institution Archives, box 98, folder “Exchange equalization fund.”
84. “Trends in the Chinese National Budget,” confidential report by the Division of
Research for Far East, Office of Intelligence Research, Department of State, July 15,
1947, p. 13.
85. United Kingdom, Foreign Office Files for China, 1918–1980, Adam Mathew, Archives
Direct, FO 371/69559, British shipping in China, folder 1, 1948, March 1, 1948.
86. Ann Reinhardt, Navigating Semi-Colonialism: Shipping, Sovereignty, and Nation-Building in
China, 1860–1937 (Cambridge, MA: Harvard University Asia Center, 2018), pp.
304–305.
87. Arthur Young Papers, Hoover Institution Archives, box 94, folder “Water transport
1944–1946,” memo, December 21, 1945. Great Britain by contrast allowed foreign-flag
vessels to call at domestic ports in Britain provided that the privileges were reciprocal.
88. “An Analysis of the Problem of Restoring and Expanding Chinese Merchant Shipping
in the Postwar Period,” Office of Intelligence Coordination and Liaison,” Department
of State (United States), July 22, 1946, pp. 1–30.
89. Chen Junren, “Kangzhan hou guomin zhengfu chuanye zhengce yu zhaoshang ju de
fazhan” (Postwar shipping policies of the National Government and the development
of the China Merchants Steam Navigation Company), Guojia hanghai (National ship-
ping) 19 (Shanghai: Shanghai guji chuban she, 2017), pp. 89–103 (p. 95).
90. Shenbao, November 22, 1945, Chinese Press Review, US Consulate, Shanghai,
November 23, 1945, p. 8; Chen Junren, “Kangzhan hou guomin zhengfu chuanye,”
pp. 94–95.
T. V. Soong to Dr. C. C. Wang, China Purchasing Agency, London, January 31, 1946;
the agency had been negotiating for older Canadian vessels engaged in coastal trade,
but Soong opted for newer ships. Telegram of January 10, 1946.
92. See for example the telegram of March 2, 1946, from the China Purchasing Agency,
London, to T. V. Soong. T. V. Soong Papers, Hoover Institution Archives, box 3, folder 8.
93. Chen Junren, “Kangzhan hou guomin zhengfu chuanye,” pp. 93–100.
94. Arthur Young, Hoover Institution Archives, box 93, folder “Cotton Credit, 1946,”
memo of July 2, 1946.
95. UNRRA China Office Papers, Hoover Institution Archives, box 1, folder “Office of the
Director, staff meeting minutes,” August 8, 1946.
96. Arthur Young Papers, Hoover Institution Archives, box 113, folder “China Diary,”
January 29, 1946.
97. Dagong bao, June 7, 1946, Chinese Press Review, US Consulate, Shanghai, June 7, 1946.
98. North China Daily News, July 15, 1946, p. 2; UNRRA China Office Papers, Hoover
Institution Archives, box 9, folder “Special Reports,” CNRRA/UNRRA Supply
Program for Communist Areas, July 5, 1947, pp. 16–17.
99. North China Daily News, August 10, 1946, p. 2; UNRRA China Office Papers,
Hoover Institution Archives, box 1, folder “UNRRA Council, Program and Estimated
234

Requirements for Relief and Rehabilitation in China”; folder “Office of the Director,
Staff Meeting Minutes,” August 6, 1946; August 8, 1946; box 9, folder “Special Reports
CNRRA/UNRR Supply Program for Communist Areas, July 5, 1947, p. 15.
100. George Woodbridge, compiler, UNRRA: The History of the United Nations Relief and
Rehabilitation Administration (New York: Columbia University Press, 1950), vol. 2, pp.
373–376.
101. Arthur Young Papers, Hoover Institution Archives, box 74, folder “Trade 6/1/1946 to
12/31/1946.”
102. Li bao, June 10, 1946, Chinese Press Review, US Consulate, Shanghai, June 10, 1946.
103. Shang bao, June 13, 1946, Chinese Press Review, US Consulate, Shanghai, June 13,
1946, p. 1.
104. Frank H. H. King, The Hongkong Bank in the Period of Development and Nationalism,
pp. 157–158.
105. T. V. Soong Papers, Hoover Institution Archives, box 36, folder 7, letter from S. F. Soh,
China Textile Industries, Shanghai, to T. V. Soong, February 9, 1946.
and Banking,” unpublished draft, Frank M. Tamagna, October 10, 1946, pp. 6–7.
107. H. H. Kung Papers, Hoover Institution Archives, box 8, folder 9, “Aviation,” report on
Proposed Chinese Air Transport Co. with British Assistance, January 10, 1944.
108. H. H. Kung Papers, Hoover Institution Archives, box 8, folder 9, “Aviation,” confiden-
tial report of W. L. Bond, November 25, 1943.
109. “Trends Toward State Control of Industry in China,” confidential report of the Office
of Intelligence Coordination and Liaison of the Department of State, August 20, 1946,
p. 37.
CHAPTER 4 1946: FAILURE TO REVIVE THE ECONOMY
IN THE AFTERMATH OF WAR
1. Chihyun Chang, ed., The Chinese Journals of L. K. Little, 1943–1954: An Eyewitness to War
and Revolution, vol. 2, The Last Foreign Inspector General, 1946–1949 (London: Routledge,
2018), vol. 2, p. 34.
2. Arthur Young papers, Hoover Institution Archives, box 97, folder “Currency, 1/1/46 to
9/1/46,” confidential memo to Chiang Kai-shek, August 31, 1946.
3. Compiled from Chang Kia-ngau, The Inflationary Spiral: The Experience of China, 1939–
1950 (Cambridge, MA: MIT Press, 1958), pp. 371–373.
4. Arthur Young Papers, Hoover Institution Archives, box 94, folder “US aid, post war.”
5. China Weekly Review, January 4, 1947, p. 149.
6. Arthur Young Papers, Hoover Institution Archives, Box 113, folder “China Diary,”
entries for May 18, 1946, and June 26, 1946.
7. Arthur Young Papers, Hoover Institution Archives, box 92, folder 6, memo of April 3,
1946, Arthur Young for Bei Zuyi, Central Bank of China.
8. Arthur Young Papers, Hoover Institution Archives, box 92, folder 6, memo of April 3,
1946, Arthur Young for Bei Zuyi, Central Bank of China.
235

9. Wang Ju, Jindai Shanghai mianfang ye de zuihou huihuang, 1945–1949 (The final flourish-
ing of the modern Shanghai cotton textile industry; Shanghai: Shanghai shehui kexue
yuan, 2003). Wang labels the immediate postwar period as a “golden age” for cotton
textiles. See pp. 76–153, passim.
of January 23, 1946.
of March 28, 1946.
12. Arthur Young Papers, Hoover Institution Archives, box 94, folder 3, “Surplus Property,
1946,” June 24, 1946.
13. Daniel Kurtz-Phelan, The China Mission: George Marshall’s Unfinished War, 1945–1947
(New York: W. W. Norton, 2018), p. 187.
14. Arthur Young Papers, Hoover Institution Archives, box 26, folder 7, “U.S.
Economic Assistance, 1946–1947,” letter from Shou Chin Wang, Washington DC
to H. C. Kiang, Office of the President, Executive Yuan, Nanking [Nanjing],
November 29, 1946; Shou Ching Wang, Washington, DC to T. V. Soong,
President of the Executive Yuan, July 22, 1946.
entries of January 19, 1946, January 23, 1946.
for January 14–17, 1946.
17. “Wartime and Postwar Status of the Silk Industry in the Far East: China,” report by the
Office of Intelligence Research, Division of Research for Far East, US Department of
State, March 15, 1947.
18. T. V. Soong Papers, Hoover Institution Archives, box 34, folder 1, letter from General
A. C. Wedemeyer to T. V. Soong, February 3, 1946; “Wartime and Postwar Status of
the Silk Industry in the Far East: China,” pp. 13–14.
19. Dagong bao, December 3, 1945, China Press Review, US Consulate, Shanghai,
December 3, 1945, p. 2; Cui Meiming, “Song Ziwen zhuchi xia de Shanghai qu di wei
chanye chuli ju” (The management of enemy and puppet property in the Shanghai
area under T. V. Soong’s direction), Jindai shi yanjiu (Research on recent history) 1
(1988), pp. 267–268.
20. Guancha (The observer) 1, no. 20, January 11, 1947, pp. 12–14; Chou Shun-hsin, The
Chinese Inflation, 1937–1949 (New York: Columbia University Press, 1963), pp. 194–199.
21. Ho Lien, “The Reminiscences of Ho Lien (Franklin L. Ho),” Chinese Oral History
Project, East Asian Institute, Columbia University, p. 401.
22. Peng Xiaoliang, ed., Zhou Zuomin riji shuxin ji (Zhou Zuomin diary and letters;
Shanghai: Shanghai yuandong chuban she, 2014), pp. 68, 78, 89–92, 108, 117–118.
23. J. Franklin Ray Jr. Papers, Hoover Institution Archives, box 1, folder “China Office Monthly
Report,” January 1947, pp. 11–14. Ray was the head of the UNRRA office in China.
24. “Trends Toward State Control of Industry in China,” Secret Intelligence Research
Report, Office of Intelligence Coordination and Liaison, [US] Department of State,
August 20, 1946.
236

February 14, 1946.
26. C. X. George Wei, Sino-American Economic Relations, 1944–1949 (Westport, CT:
Greenwood Press, 1997), pp. 85–88.
27. Dagong bao, November 6, 1946, Chinese Press Review, US Consulate, Shanghai,
November 6, 1945, pp. 1–2.
28. Dagong bao, November 6, 1946, Chinese Press Review, pp. 1–2.
29. C. X. George Wei, Sino-American Economic Relations, pp. 90–92.
30. Tao Juyin, Gudao jianwen: Kangzhan shiqi de Shanghai (Experiences in the solitary island:
Shanghai during the war of resistance; Shanghai: Shanghai renmin chuban she, 1979),
p. 334.
31. Wang Ju, Jindai Shanghai mianfang, chapter 2, passim; Christian Henriot, “Shanghai
Industries in the Civil War (1945–1947),” Journal of Urban History 43 (2015), https://doi
.org/10.1177/0096144214566977. Published online April 2, 2015.
32. Wang Ju, Jindai Shanghai mianfang, passim.
33. Chao Kang, The Development of Cotton Textile Production in China (Cambridge, MA:
Harvard East Asian Monographs, 1977) p. 133; Shanghai shehui kexue yuan, Jingji
yanjiu suo, ed., Rongjia qiye shiliao (Historical materials on the Rong family enterprises;
Shanghai: Shanghai renmin chuban she, 1980), vol. 2, pp. 404–406.
34. T. V. Soong Papers, Hoover Institution Archives, box 45, folder 21; Liu Guoliang,
Zhongguo gongye shi xiandai juan (A history of China’s modern industry; Nanjing:
Jiangsu kexue jichu chuban she, 2003), pp. 515, 542.
35. Wang Ju, Jindai Shanghai mianfang, passim.
36. Ho Lien, “The Reminiscences of Ho Lien,” pp. 382–383.
37. Christian Henriot, “Shanghai Industries in the Civil War,” p. 9.
38. Christian Henriot, “Shanghai Industries in the Civil War,” p. 19.
January 25, 1946.
40. Arthur Young Papers, Hoover Institution Archives, box 93, folder “Cotton Credit,
1947,” memo of December 11, 1947.
February 21, 1946.
42. Dagong bao, June 24, 1946, Chinese Press Review, US Consulate, Shanghai, June 24,
1946, p. 2.
43. For a discussion of this issue see Parks M. Coble, Chinese Capitalists in Japan’s New Order:
The Occupied Lower Yangzi, 1937–1945 (Berkeley: University of California Press, 2003),
pp. 16–19.
44. Juanjuan Peng, The Yudahua Business Group in China’s Early Industrialization (Lanham,
MD: Lexington Books, 2020), p. 105.
45. Juanjuan Peng, The Yudahua Business Group, pp. 105–107.
46. “Wartime and Postwar Status of the Silk Industry in the Far East: China,” Office of
Intelligence Research, US Department of State, March 15, 1947, pp. 5–6.
47. “Wartime and Postwar Status of the Silk Industry,” p. 10.
237

48. “Wartime and Postwar Status of the Silk Industry,” p. 11.

49. Arthur Young Papers, Hoover Institution Archives, box 94, folder “Shanghai Power
Company;” Wei, Sino-American Economic Relations, 1944–1949, pp. 128–129.
50. J. Franklin Ray, Jr. Papers, Hoover Institution Archives, box 2, folder “UNRRA Monthly
Report.”
51. Arthur Young Papers, Hoover Institution Archives, box 94, folder “Shanghai Power
Company.”
52. Wei, Sino-American Economic Relations, 1944–1949, pp. 129–133.
53. Arthur Young Papers, Hoover Institution Archives, box 113, “China Diary,” January 31,
1946; April 9, 1946.
54. “Resume of Postwar Labor Developments in Nationalist China,” Department of State,
Intelligence Research Report, November 1, 1946, pp. 6–7; Wei, Sino-American Economic
Relations, p. 130.
55. “Resume of Postwar Labor Developments,” pp. 7–9.
56. “Developments in the State Control of Chinese Industries,” Confidential Intelligence
Memorandum by the Office of Intelligence Coordination and Liaison, US Department
of State, July 17, 1946, p. 5.
57. “Developments in the State Control of Chinese Industries,” pp. 5–11.
Rowman and Littlefield, 1999), pp. 100–101.
59. T. V. Soong Papers, Hoover Institution Archives, box 26, folder 7, letter of August 26, 1946.
60. T. V. Soong Papers, Hoover Institution Archives, box 28, folder 6, “Proposed Extension
Program of Electrification for Nanking, Changchow and Wusih,” July 1947.
61. T. V. Soong Papers, Hoover Institution Archives, box 28, folder 6, “Proposed Extension
Program of Electrification for Nanking, Changchow and Wusih,” July 1947.
62. Economic Bulletin, no. 24, Hong Kong, June 12, 1947, Chinese Press Review, US
Consulate, Shanghai, July 5, 1947, p. 1.
63. Wenhui bao, May 27, 1946, Chinese Press Review, US Consulate, Shanghai, May 27, 1946,
p. 10.
CHAPTER 5 1947: SPEEDING TOWARD DISASTER
1. United States, Department of State, Office of Intelligence Research, “The Trend of

Inflation in China, 1946–47,” secret report, March 18, 1947, p. iii, p. 4.
2. “The Trend of Inflation in China,” pp. 2–3.
3. Frank H. H. King, The Hongkong Bank in the Period of Development and Nationalism: From
Regional Bank to Multinational Group, vol. 4 of The History of the Hongkong and Shanghai
Banking Corporation (Cambridge: Cambridge University Press, 1991), p. 163.
4. Arthur Young Papers, Hoover Institution Archives, box 92, folder “Revenues and
Expenditures, 1947,” memo of December 22, 1947.
5. Chihyun Chang, ed., The Chinese Journals of L. K. Little, 1943–1954: An Eyewitness to War
and Revolution, vol. 2, The Last Foreign Inspector General, 1946–1954 (London: Routledge,
2018), p. 49.
238

6. “The Trend of Inflation in China,” p. 9; United Kingdom, Foreign Office Files for
China, 1918–1980, Adam Mathew, Archives Direct, FO 371/63339, “Currency and
Exchange Problems and Financial Situation in China,” folder 1, 1946; see also
Guancha (The observer) 2, no. 1 (March 1, 1947), pp. 8–11; Chihyun Chang, The
Chinese Journals of L. K. Little, vol. 2, p. 46.
7. Chihyun Chang, The Chinese Journals of L. K. Little, vol. 2, pp. 51–53.
8. Shidai pinglun (Contemporary critique), vol. 4, no. 96 (December 16, 1947), p. 21.
9. Odd Arne Westad, Decisive Encounters: The Chinese Civil War, 1946–1950 (Stanford, CA:
Stanford University Press), p. 75.
10. Dagong bao, Chinese Press Review, US Consulate, Shanghai, February 18, 1947, p. 2;
United States, Department of State, Division of Research for Far East, Office of
Intelligence Research, “Trends in the Chinese National Budget,” confidential report,
July 15, 1947, p. 27.
11. T. V. Soong Papers, Hoover Institution Archives, box 25, folder 10, “China, foreign
exchange,” “Foreign Exchange Regulations Supplement to Economic Emergency
Measures,” February 16, 1947; Yang Tianshi, Yang Tianshi wenji (Collected works of
Yang Tianshi; Shanghai: Shanghai cishu chubanshe, 2005), pp. 584–585.
12. Shenbao, February 12, 1947, Chinese Press Review, US Consulate, Shanghai, p. 3.
13. United Kingdom, Foreign Office Files for China, 1918–1980, FO 371/69567, “Currency
and Exchange Problems and Financial Structure in China, 1947,” folder 2, from the
Shanghai Consulate to the Foreign Office, February 18, 1947, private conversation with
Mayor Wu Guozhen.
14. The China Weekly Review, Shanghai, March 22, 1947, p. 87.
15. Arthur Young Papers, Hoover Institution Archives, box 95, folder “Currency 9/1/46 to
1947.”
16. Dagong bao, Feb. 8, 1947, Chinese Press Review, US Consulate, Shanghai, p. 1. At the
time 3,350 yuan to US$1 was the official exchange rate.
17. The North-China Daily News, Shanghai, February 11, 1947, p. 1.
18. Dagong bao, Chinese Press Review, US Consulate, Shanghai, February 18, 1947, p. 1.
19. The North-China Daily News, February 20, 1947, p. 1.
20. The North-China Daily News, July 4, 1947, p. 2.
21. Dagong bao, Chinese Press Review, US Consulate, Shanghai, February 18, 1947, p. 2.
22. Wenhui bao, Chinese Press Review, US Consulate, Shanghai, February 18, 1947, p. 3.
23. Dagong bao, Chinese Press Review, US Consulate, Shanghai, April 25, 1947, p. 9.
Rowman and Littlefield, 1999), p. 112.
25. A. Doak Barnett, China on the Eve of Communist Takeover (London: Thames & Hudson,
1963), p. 20.
26. Zhongyang ribao, Chinese Press Review, US Consulate, Shanghai, May 2, 1947.
27. Shen bao, Chinese Press Review, US Consulate, Shanghai, June 28, 1947.
28. Barnett, China on the Eve of Communist Takeover, p. 20.
29. J. Franklin Roy Jr. Papers, Hoover Institution Archives, box 1, folder “China Office [of
UNRAA] Monthly Report, January 1947,” p. 2; Wang Chaoguang, “Sheng yu moshi
239

yunbian xiao: Song Ziwen churen xingzheng yuan qianhou jingwei zhi yanjiu”
(Fading away in the final years: Research on T. V. Soong before and after heading
the Executive Yuan), in Wu Jingping, ed., Song Ziwen yu zhanshi Zhongguo (T. V. Soong
and wartime China; Shanghai: Fudan daxue chuban she, 2008), pp. 284–300 (pp. 290,
296); Wang Chaoguang, “Guanyu ‘guanliao ziben’ de zhenglun yu guomin dang
zhizheng de weiji” (Regarding the bureaucratic capitalism controversy and the crisis
of governing by the Guomindang), Minguo dang’an (Republican archives) 2 (2008),
pp. 105–111 (p. 110).
30. The North-China Daily News, January 31, 1947, p. 1.
31. Fan-sen Wang, Fu Ssu-nien: A Life in Chinese History and Politics (Cambridge: Cambridge
University Press, 2000), p. 181.
32. Lloyd E. Eastman, Seeds of Destruction: Nationalist China in War and Revolution, 1937–1949
(Stanford, CA: Stanford University Press, 1984), pp. 109, 123–124; Gregory Scott Lewis,
“Shades of Red and White: The Life and Political Career of Ji Chaoding, 1903–1963,”
unpublished PhD dissertation, Arizona State University, 1999.
33. J. Franklin Ray, Jr. Papers, Hoover Institution Archives, box 1, China Office Monthly
Report, February 1947; Shen bao, March 2, 1947, p. 1.
34. The North-China Daily News, February 15, 1947, p. 1.
35. Dagong bao, February 21, 1947, Chinese Press Review, US Consulate, Shanghai, pp. 10–
11; The Century Review, February 22, 1947, Chinese Press Review, March 6, 1947, p. 9; Xu
Bingsheng, “Guomindang xingzheng yuan yuanhui jianwen” (Information on the
meetings of the Guomindang Executive Yuan), Shanghai wenshi ziliao xuanji
(Selections from literary and historical material, Shanghai) 43 (1983), pp. 122–132
(pp. 127–128).
36. T. V. Soong Papers, Hoover Institution Archives, box 62, folder 22, Youngman letters,
T. V. Soong to William S. Youngman, December 31, 1946. After the resignation of
Soong, the China Defense Supplies was closed and turned its assets over to the
Universal Trading Corporation.
and Exchange Problems and Financial Situation in China, 1947,” folder 2, T. V. Soong
Address to the Legislative Yuan, March 1, 1947. Soong still had some supporters among
the Westerners who worked in China. L. K. Little, inspector general of the Maritime
Customs Service wrote in his diary on January 24, 1947, “If China had 50 men like
Soong, it could be a different country! He is really a great administrator, and one of the
very few Chinese who gets things done. I believe him to be thoroughly patriotic.”
Chihyun Chang, The Chinese Journals of L. K. Little, vol. 2, p. 51.
and Exchange Problems and Financial Situation in China, 1947,” folder 2, T. V. Soong
Address to the Legislative Yuan, March 1, 1947.
39. Chang Kia-ngau (Zhang Jia’ao) Papers, Hoover Institution Archives, box 27, folder 1,
Correspondence 1962; Jiang Zhongzheng zontgong dang’an: Shilue gaoben (The Chiang
Kai-shek collections: chronological events; Taibei: Guoshi guan, 2013), vol. 69, pp.
5–132. This source lists a few meetings about the financial crisis but many more about
240

the fighting with the communists and the tense situation in Taiwan. Chiang spared little
time to deal with financial issues.
40. Wenhui bao, May 16, 1947, Chinese Press Review, US Consulate, Shanghai, June 4,
1947, pp. 1–2; United Kingdom, Foreign Office Files for China, 1918–1980, FO 371/
63344, “Currency and Exchange Problems and Financial Situation in China, 1947,”
folder 6.
41. The Economic Information Service, Hong Kong, How Chinese Officials Amass Millions:
An Analytical Study of the Financial Basis of the Chinese Kuomintang “CC” Clique (New York:
Committee for a Democratic Far Eastern Policy, 1948), pp. 4–5, 20, 26.
42. Shen bao, March 2, 1947, Chinese Press Review, US Consulate, Shanghai, March 3, 1947,
p. 2.
43. Wenhui bao, March 2, 1947, Chinese Press Review, US Consulate, Shanghai, March 3,
1947, pp. 3–4.
44. Wenhui bao, May 16, 1947, Chinese Press Review, US Consulate, Shanghai, June 4, 1947,
p. 1.
45. Dagong bao, March 2, 1947, Chinese Press Review, US Consulate in Shanghai, March 3,
1947, p. 4.
46. The North-China Daily News, May 6, 1947, p. 3; Chihyun Chang, The Chinese Journals of
L. K. Little, vol. 2, p. 66.
47. The North-China Daily News, May 10, 1947, p. 1.
48. The North-China Daily News, June 1, 1947, p. 1.
49. Sherman Cochran, ed., The Capitalist Dilemma in China’s Communist Revolution (Ithaca,
NY: East Asia Program, Cornell University, 2014).
50. Zheng Huixin, “Zhanhou zhongguo de ‘guanban shanghang’ (Bureaucratic capitalism
after the war), Minguo dang’an (Republican archive) 1 (2014), pp. 134–143;
Zheng Huixin, “Zhanhou guanban shangxing de xingqi; yi zhongguo fuzhong shiye
gongsi de chuangli weili” (The emergence of state enterprises after World War II, the
establishment of the Fuzhong Corporation), Zhongguo jingji shi yanjiu (Research on
Chinese economic history) 4 (2009), pp. 119–122.
52. Central China News English Service, “Report of the Control Yuan on Foreign
Exchange,” found in Arthur Young Papers, Hoover Institution Archives, box 95, folder
“Currency, 1947,” October 6, 1947; Zheng Huixin, “Zhanhou zhongguo de ‘guanban
shanghang,’” p. 135; Wu Guozhen, Cong Shanghai shichang zhi “Taiwan sheng zhuxi”
(From mayor of Shanghai to chairman of Taiwan province; Shanghai: Shanghai
renmin chuban she, 1999), pp. 232–233.
53. Fu Sinian, The Century Review, February 22, 1947, Chinese Press Review, American
Consulate, Shanghai, March 6, 1947, p. 10.
54. T. V. Soong Papers, Hoover Institution Archives, box 29, folder 2, “China
Development Finance Corporation,” “Memorandum on the Business Activities of
the China Development Finance Corporation,” August 31, 1947.
55. T. V. Soong Papers, Hoover Institution Archives, box 29, folder 2, “China Development
Finance Corporation,” August 31, 1947.
241

56. Zheng Huixin, Cong touzi gongsi dao “Guanban shangxing”; Zhongguo jiangshe yin gongsi de
chuangli ji qi jingying huodong (From private investment company to state enterprise:
The development and operation of the China Development Finance Corporation;
Hong Kong: Zhongwen daxue chuban she, 2001), pp. 223–232.
May 11, 1946.
October 5, 1947; box 93, folder “Trade control, 1945,” clipping from the Shanghai
Evening Post, April 30, 1946.
61. Zheng Huixin, “Zhanhou zhongguo de ‘guanban shanghang,’” p. 141; Jiang Zhongzheng
zongtong dang’an: Shilue gaoben, vol. 70, pp. 489–490; 511–512.
62. Zheng Huixin, “Zhanhou zhongguo de ‘guanban shanghang,’” p. 141.
and Exchange Problems and Financial Situation in China, 1947,” folder 4, memo of
April 9, 1947, disposal of state-owned enterprise.
October 4, 1947.
66. United States Department of State, Office of the Historian, Foreign Relations of the United
States, 1947, vol. 7, The Far East, p. 661.
67. Report contained in the Shanghai Evening Post and Mercury, October 18, 1947, p. 6,
found in the Arthur N. Young Papers, Hoover Institution Archives, box 93, folder
“Trade and Trade Control 1947.”
68. Report contained in the Shanghai Evening Post and Mercury, p. 6.
70. The North-China Daily News, August 14, 1947, p. 1.
Wellington Koo to T. V. Soong, August 13, 1947, T. V. Soong to Wellington Koo,
August 14, 1947.
72. Dagong bao, July 15, 1947, Chinese Press Review, US Consulate, Shanghai, July 15, 1947.
73. Bruce Smith Papers, Hoover Institution Archives, box 1, letter of July 24, 1947.
74. Bruce Smith Papers, Hoover Institution Archives, box 1, memo of January 14, 1948.
75. Arthur Young Papers, Hoover Institution Archives, box 93, folder 1, “Trade and Trade
Control, 1947,” Liddell Brothers memo, 27 November 1947.
76. Edwin Chester Allan Papers, Hoover Institution Archives, box 2, folder “C. P. Ling,”
“Letter from Allan to wife Dolly from Shanghai, April 8, 1947; letter from Allan to Li Zhi
Tang, Shanghai.”
77. Albert C. Wedemeyer Papers, Hoover Institution Archives, box 92, folder “Claire
Chennault,” letter of July 27, 1947.
78. Albert C. Wedemeyer Papers, Hoover Institution Archives, box 92, folder “Claire
Chennault,” letter of July 27, 1947.
242

79. Albert C. Wedemeyer Papers, Hoovers Institution Archives, box 92, folder “Chiang
Kai-shek and Mei-ling Soong Chiang,” memo to the Generalissimo from Alfred
Wedemeyer, August 20, 1947.
80. Arthur Young Papers, Hoover Institution Archives, box 94, folder “U.S. aid post-war.”
81. Arthur Young Papers, Hoover Institution Archives, box 96, folder “Unauthorized
imports.”
82. C. X. George Wei, Sino-American Economic Relations, 1944–1949 (Westport, CT:
Greenwood Press, 1997), pp. 160–163.
83. Arthur Young Papers, Hoover Institution Archives, box 94, folder “U.S. aid postwar”;
C. X. George Wei, Sino-American Economic Relations, pp. 160–163.
84. Lloyd E. Eastman, “Nationalist China during the Nanking Decade, 1927–1937,” in
Lloyd E. Eastman, Jerome Ch’en, Suzanne Pepper, and Lyman P. Van Slyke, eds., The
Nationalist Era in China, 1927–1949 (Cambridge: Cambridge University Press, 1991),
pp. 115–176 (pp. 120–121).
85. Westad, Decisive Encounters, p. 75.
86. Ho Lien, “The Reminiscences of Ho Lien (Franklin L. Ho),” Chinese Oral History
Project, East Asian Institute of Columbia University, 1975, pp. 358–360.
87. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, 2003 and continuing; for a discussion
of this source see Grace C. Huang, “Creating a Public Face for Posterity: The Making
of Chiang Kai-shek’s Shilue Manuscripts,” Modern China 36, no. 6 (2010), pp. 617–643.
The twentieth wedding anniversary of Chiang and Soong Meiling was in
December 1947. Madame Chiang’s fiftieth birthday was on March 22, 1948. See
Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol 71, p. 540; vol. 73, p. 429.
88. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 69, vol. 70, passim; vol. 71, p. 345.
89. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 69, pp. 28, 131, 132, 213.
90. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 70, pp. 183, 225; Yao Songling,
“Jingdao Zhang gongquan xiansheng (In memory of Zhang Jia’ao), Zhuanji wenxue
(Biographical literature) 211 (December 1979), pp. 64–68 (p. 67).
91. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 70, pp. 489–490; 553.
93. The China Weekly Review, August 23, 1947, p. 344.
94. Philip Thai, China’s War on Smuggling: Law, Economic Life, and the Making of the Modern
State, 1842–1965 (New York: Columbia University Press, 2018), p. 211.
95. Thai, China’s War on Smuggling, p. 212.
1947.
97. King, The Hongkong Bank in the Period of Development and Nationalism, vol. 4, p. 156.
98. The North-China Daily News, August 19, 1947, p. 1; Dagong bao, August 23, 1947, Chinese
Press Review, US Consulate, Shanghai, August 23, 1947, p. 3.
99. Arthur Young Papers, Hoover Institution Archives, box 95, folder “Foreign Exchange
8/17/47.”
100. Arthur Young Papers, Hoover Institution Archives, box 94, folder 1, “U.S. aid post-war,”
secret memo of November 27, 1947; box 95, folder “Currency 1947,” letter from
243

H. J. Shen, Cyril Rogers, and Arthur Young to Chen Guangfu in Nanjing, November 25,
1947; memo by Arthur Young, October 3, 1947.
101. Arthur Young Papers, Hoover Institution Archives, box 95, folder “Currency, 1947.”
102. Arthur Young Papers, Hoover Institution Archives, box 94, folder “U.S. aid postwar.”
103. Arthur Young Papers, Hoover Institution Archives, box 95, folder “Currency, 1947.”
No date is given on the memo, but it would have dated from 1947.
104. Shen bao, October 20, 1947, Chinese Press Review, US Consulate, Shanghai,
October 20, 1947.
105. Shen bao, October 25, 1947, Chinese Press Review, US Consulate, Shanghai,
October 25, 1947.
106. Dagong bao, editorial, November 10, 1947, Chinese Press Review, US Consulate,
Shanghai, November 10, 1947.
107. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 71, pp. 350–530, passim.
108. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 71, pp. 580, 584, 616, 627, 651–
652, 655, 711.
109. Westad, Decisive Encounters, p. 168.
CHAPTER 6 1948: THE COLLAPSE OF FABI AND THE GOLD YUAN REFORM DISASTER
Direct, FO 371/69559, “Shipping in China,” folder 2, 1948, secret report of March 26, 1948.
2. Xinwen bao, January 13, 1948, Dagong bao, January 15, 1948, Chinese Press Review, US
Consulate, Shanghai, January 15, 1948, pp. 2–3.
3. Chihyun Chang, ed., The Chinese Journals of L. K. Little, 1943–1954: An Eyewitness Account
of War and Revolution, vol. 2, The Last Foreign Inspector General, 1946–1949 (London:
Routledge, 2018), vol. 2, pp. 90–95.
Direct, FO 371/69564, “Currency and Exchange Problems and Financial Structure in
China,” folder 1, 1948.
7. China Weekly Review, July 10, 1048, p. 173; Jiang Zhongzheng zongtong dang’an: Shilue
gaoben (Taibei: Guoshi guan, 2013), vol. 75, pp. 275, 308.
8. China Weekly Review, July 10, 1948, July 17, 1948, August 7, 1948, August 21, 1948, cover
price.
9. T. V. Soong Papers, Hoover Institution Archives, box 25, folder 10, China, foreign
exchange, “Notes on the Exchange Certificate System,” June 2, 1948.
10. Dagong bao, July 20, 1948, Chinese Press Review, US Consulate, Shanghai, July 20, 1948,
p. 1.
244

11. Xinwen bao, March 8, 1948, Chinese Press Review, US Consulate, Shanghai, March 8, 1948,
p. 1; Chihyun Chang, The Chinese Journals of L. K. Little, vol. 2, p. 97.
12. Xinwen bao, April 9, 1948, Shen bao, April 9, 1948, both found in Chinese Press Review,
US Consulate, Shanghai, April 9, 1948, p. 1.
13. Dagong bao, April 20, 1948, Chinese Press Review, US Consulate, Shanghai, April 20,
1948, p. 10.
14. Shen bao, January 20, 1948, Chinese Press Review, US Consulate, Shanghai, January 20,
1948, p. 1; Chang Kia-ngau, The Inflationary Spiral: The Experience in China, 1939–1950
(Cambridge, MA: MIT Press, 1958), p. 82.
15. Chao Hsiang-ke and Lin Hsiao-ting, “Beyond the Carrot and the Stick: The Political
Economy of US Military Aid to China, 1945–1951,” Journal of Modern Chinese History 5,
no. 2 (2011), pp. 199–216 (p. 211); Odd Arne Westad, Decisive Encounters: The Chinese
Civil War, 1946–1950 (Stanford, CA: Stanford University Press, 2003), p. 161.
16. Shen bao, May 12, 1948, Chinese Press Review, US Consulate, Shanghai, May 12, 1948,
p. 1.
17. Shidai gonglun (Contemporary public opinion) 5, no. 101 (May 15, 1948), p. 12.
18. China Weekly Review, July 3, 1948, p. 150. The cover price for this issue was 300,000 yuan.
19. Wu Xiangxiang, “Wang Yunwu yu jinyuan quan de faxing” (Wang Yunwu and the
issuance of the gold yuan notes), Zhuanji wenxue (Biographical literature) 213
(February 1980), pp. 44–50 (p. 44); Heng Dafeng, Wang Yunwu pingzhuan (A critical
biography of Wang Yunwu; Shanghai: Shanghai shudian chuban she, 1999), pp.
310–321.
20. Xinwen bao, June 16, 1948, Chinese Press Review, US Consulate, Shanghai, June 16,
1948, p. 1.
22. Xinwen bao, June 27, 1948, Chinese Press Review, US Consulate, Shanghai, June 27,
1948.
23. Shen bao, June 25, 1948, Chinese Press Review, US Consulate, Shanghai, June 25, 1948,
p. 8.
24. Zhongyang ribao, June 30, 1948, Chinese Press Review, US Consulate, Shanghai, June 30,
1948,
25. Foreign Relations of the United States, 1948, vol. 8, The Far East (1973), p. 377; Lloyd
E. Eastman, Seeds of Destruction: Nationalist China in War and Revolution, 1937–1949
(Stanford, CA: Stanford University Press, 1984), pp. 177–178; Chihyun Chang, The
Chinese Journals of L. K. Little, vol. 2, p. 116.
26. Wu Xiangxiang, “Wang Yunwu yu jinyuan quan de faxing,” p. 46.
27. Cited in Qunzhong (The masses), Hong Kong, December 7, 1947, China Press Review,
US Consulate, Shanghai, January 7, 1948, pp. 8–9.
28. T. V. Soong Papers, Hoover Institution Archives, box 3, folder 11, “Chinese National
Relief and Rehabilitation Administration, 1947–48” reveals extensive plans for devel-
opment projects. For instance, in December 1947, Soong had directed the Fishery
Rehabilitation Administration to develop a plan for reviving the fishing industry and
245

constructing piers in Swatow (Shantou). See also C. X. George Wei, Sino-American

Economic Relations, 1944–1949 (Westport, CT: Greenwood Press, 1997), pp. 154–155.
29. Zaisheng (The national renaissance) 184 (November 4, 1947), p. 2, Chinese Press
Review, US Consulate, Shanghai, October 4, 1947, p. 8.
1948, p. 6.
31. Heping ribao, Shanghai, October 22, 1948, Chinese Press Review, US Consulate,
October 22, 1948, p. 5.
32. The Century Critique Weekly, Nanjing, 2, no. 14 (October 4, 1947), Chinese Press Review,
US Consulate, Shanghai, p. 8.
33. T. V. Soong Papers, Hoover Institution Archives, box 8, folder 19, correspondence,
Ralph Stevenson.
34. Chou Shun-hsin, The Chinese Inflation, 1937–1949 (New York: Columbia University
Press, 1963), p. 150.
China,” folder 16, September 27, 1948.
36. T. V. Soong Papers, Hoover Institution Archives, box 27, folder 6, “China – National
Resources Commission,” “Ammonium Sulfate Plant for Canton, April 12, 1948.”
37. T. V. Soong Papers, Hoover Institution Archives, box 29, folder 19, “Hainan Island,”
letters, April 15, 1948, April 19, 1948.
38. T. V. Soong Papers, Hoover Institution Archives, box 8, folder 20, “Leighton Stuart,”
letter of August 16, 1948, from Stuart in Nanjing to Soong in Guangzhou.
39. T. V. Soong Papers, Hoover Institution Archives, box 34, folder 31, “Correspondences,
F. Chang,” letter of June 28, 1948, from the Customs Building, Shanghai to Soong in
Guangzhou.
40. Frank H. H. King, The Hongkong Bank in the Period of Development and Nationalism: From
Regional Bank to Multinational Group, vol. 4 of The History of the Hongkong and Shanghai
Banking Corporation (Cambridge: Cambridge University Press, 1991), p. 153.
41. Eastman, Seeds of Destruction, p. 177; Tso Shun-sheng, “The Reminiscences of Tso
Shun-sheng,” Chinese Oral History Project, East Asian Institute of Columbia
University, 1975, p. 262.
42. Chou Shun-hsin, The Chinese Inflation, 1937–1949, p. 25.
43. Eastman, Seeds of Destruction, p. 185.
44. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 75, pp. 287–603, passim. Meetings
between Chiang Kai-shek and Jiang Jingguo occurred on June 28, 1948, July 2, July 11,
July 17, July 20, July 22, July 23, July 25, July 26, July 28, and July 31; vol. 76, August 3,
p. 41. These meetings did not focus solely on the economic situation. Many were
labeled as training meetings where the elder Chiang instructed his son on Chinese
culture and values.
45. Wu Guozhen, Cong Shanghai shichang zhi “Taiwan sheng zhuxi” (From mayor of Shanghai
to chairman of Taiwan province; Shanghai: Shanghai renmin chuban she, 1999), p. 54;
Wang Chaoguang, Zhongguo mingyun de juezhan, 1945–1949 (The decisive war for
246

China’s fate, 1945–1949), vol. 10, p. 312; Wang Feng, Jiang Jieshi fuzi 1949 weiji dang’an
(Archives on the crisis of 1949: Chiang Kai-shek, father and son; Taibei: Shangzhou
chuban she, 2008), pp. 94–95.
46. Dagong bao, August 21, 1948, Chinese Press Review, US Consulate, Shanghai,
August 21–23, 1948, p. 1; Wang Yunwu, 1948 dafeng dalang: Wang Yunwu congzheng
huiyi lu (The great wind and waves of 1948: Wang Yunwu’s record of his memories in
government; Taipei: Taiwan shangwu, 2010), pp. 148–50.
47. Shen bao, August 23, 1948, Chinese Press Review, US Consulate, Shanghai, August 21–
23, 1948, p. 3.
48. Quoted in Wu Xiangxiang, “Wang Yunwu yu jinyuan quan de faxing,” p. 48.
49. Shidai gonglun 5, no. 98 (February 15, 1948), pp. 19–20.
50. Ho Lien, “The Reminiscences of Ho Lien (Franklin L. Ho), Chinese Oral History
Project, East Asian Institute of Columbia University, 1975, p. 426.
51. Wu Guozhen, Cong Shanghai shichang, p. 55.
China,” folder 15, confidential report, September 25, 1948.
53. Foreign Relations of the United States: Diplomatic Papers, 1948, vol, 8, The Far East, China
(1973), p. 405; Eastman, Seeds of Destruction, p. 199.
54. Wang Yunwu, 1948 dafeng dalang, pp. 129–131.
55. Chou Shun-hsin, The Chinese Inflation, 1937–1949, pp. 144–147.
56. Dagong bao, September 8, 1948, Chinese Press Review, US Consulate in Shanghai,
September 8, 1948, p. 9.
58. Chou Shun-hsin, The Chinese Inflation, p. 149.
59. Dagong bao, September 15, 1948, Chinese Press Review, US Consulate, Shanghai,
September 15, 1948.
60. Shang bao, August 20, 1948, Chinese Press Review, US Consulate, Shanghai, August 20,
1948, p. 4.
61. Wang Yunwu. 1948 dafeng dalang, pp. 202–206. Price controls were not as effective
outside of Nanjing and Shanghai, especially in the southwest.
63. Wu Guozheng, Cong Shanghai shichang, pp. 65–66; Jay Taylor, The Generalissimo’s Son:
Chiang Ching-kuo and the Revolutions in China and Taiwan (Cambridge, MA: Harvard
University Press, 2000), pp. 154–155; Wang Feng, Jiang Jieshi fuzi 1949 weiji dang’an,
pp. 94–98; Fabi jinyuan quan yu huangjin fengchao (Legal tender, the gold yuan note, and
the gold unrest; Beijing: Wenshi ziliao chuban she, 1985), p. 88.
64. Eastman, Seeds of Destruction, p. 184; Thomas A. Marks, Counterrevolution in China: Wang
Sheng and the Kuomintang (London: Frank Cass, 1998), pp. 103–106, 109.
65. A. Doak Barnett, China on the Eve of Communist Takeover (London: Thames & Hudson,
1963), p. 73.
247

67. Shou Chongyi, “Jiang Jingguo Shanghai ‘Daohu’ ji” (A record of Jiang Jingguo striking
big tigers in Shanghai), in Fabi jinyuan quan yu huangjin fengchao (Legal tender, the gold
yuan notes, and the gold unrest; Beijing: Wenshi ziliao chuban she, 1985), p. 79; Wu
Xiangxiang, “Wang Yunwu yu jinyuan quan,” p. 48.
69. Shen bao, September 13, 1948, Chinese Press Review, US Consulate, Shanghai,
September 11–13, 1948, p. 1; Dagong bao, September 14, 1948, Chinese Press Review,
US Consulate, Shanghai, September 14, 1948, p. 8; Fabi jinyuan quan yu huangjin
fengchao, pp. 70–71.
70. Wang Chaoguang, Zhongguo mingyun de juezhan: 1945–1949, vol. 10, pp. 313–317; Wang
Feng, Jiang Jieshi fuzi 1949, p. 113.
71. Wu Guozhen, Cong Shanghai shichang, pp. 64–65.
72. Wu Guozhen, Cong Shanghai shichang, pp. 58–59; Xinwen tiandi, October 16, 1948,
Chinese Press Review, US Consulate, Shanghai, October 20, 1948, p. 10.
73. Juanjuan Peng, The Yudahua Business Group in China’s Early Industrialization (Lanham,
MD: Lexington Books, 2020), p. 107.
74. Ji Zhaojin, A History of Modern Shanghai Banking: The Rise and Decline of China’s Finance
Capitalism (Armonk, NY: M. E. Sharpe, 2003), p. 230; Wang Feng, Jiang Jieshi fuzi 1949,
p. 103, Ho Lien, “The Reminiscences of Ho Lien,” p. 428.
75. Taylor, The Generalissimo’s Son, p. 155; Wang Feng, Jiang Jieshi fuzi, pp. 113–120.
Direct, FO 371/69566, “Currency and Exchange Problems, 1948,” folder 16,
October 13, 1948; Eastman, Seeds of Destruction, pp. 186–187; Yang Peixin, Jiu
Zhongguo de tonghuo pengzhang, p. 106; Marks, Counterrevolution in China, pp. 108–109.
Direct, FO371/6956, “Currency and Exchange Problems, 1948,” folder 16, October 13,
1948; Taylor, The Generalissimo’s Son, p. 160; Marks, Counterrevolution in China, p. 109.
78. Wang Feng, Jiang Jieshi fuzi, 1949, pp. 116–120; Ho Lien, “The Reminiscences Ho Lien
(Franklin L. Ho),” pp. 435–536; Tso, Shun-sheng, “The Reminiscences of Tso Shun-
sheng,” Chinese Oral History Project, East Asian Institute of Columbia University, 1975,
pp. 261–262.
79. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 77, pp. 49, 50, 55, 59, 60.
80. Wu Guozhen, Cong Shanghai shichang, pp. 69–71; Wang Chaoguang, Zhongguo mingyun
de juezhan, vol. 10, pp. 317–18; Zheng Huixin, “Zhanhou zhongguo de ‘guanban
shanghang’” (Bureaucratic capitalism after the war), Minguo dang’an (Republican
archives) 1 (2014), pp. 134–143 (p. 142); Wang Jeng, Jiang Jieshi fuzi, p. 104.
81. Zheng Huixin, “Zhanhou zhongguo de ‘guanban shanghang,’” p. 142.
82. Wang Feng, Jiang Jieshi fuzi, p. 122.
83. Dongnan ribao, November 3, 1948, Chinese Press Review, US Consulate, Shanghai,
November 3, 1948, p. 7.
84. Taylor, The Generalissimo’s Son, p. 161; Wang Feng, Jiang Jieshi fuzi, pp. 266, 276.
85. Zhongyang ribao, September 9, 1948, Chinese Press Review, US Consulate, Shanghai,
September 9, 1948.
248

86. The China Democratic League was part of the so-called “Third Force.” Shidai piping
106 (October 15, 1948), pp. 12–14.
87. Shang bao, September 13, 1948, Chinese Press Review, US Consulate, Shanghai,
September 11–13, 1948, pp. 2–3.
88. Shang bao, September 21, 1948, Chinese Press Review, US Consulate, Shanghai,
89. Shishi xin bao, September 21, 1948, Chinese Press Review, US Consulate, Shanghai,
91. China Weekly Review, October 30, 1948, p. 1; Shen Yunlong, “Dui jinyuan quan an
yingjin yibu zhuizong yanjiu” (Advancing research on the matter of the gold yuan
case), Zhuanji wenxue 214 (March 1980), pp. 40–42 (p. 41); Yang Peixin, Jiu Zhongguo
de tonghuo pengzhang, p. 107.
92. Dagong bao, October 7, 1948, Chinese Press Review, US Consulate, Shanghai,
October 7, 1948, p. 2.
93. Diary quoted in Wu Xiangxiang, “Wang Yunyu yu jinyuan quan,” pp. 48–49; Dagong
bao, October 15, 1948, Chinese Press Review, US Consulate, Shanghai, October 15,
1948, p. 10.
94. Zhongyang ribao, October 29, 1948, Chinese Press Review, US Consulate, Shanghai,
October 20, 1948, p. 1.
95. Chang Kia-ngau, The Inflationary Spiral, pp. 80–81; Barnett, China on the Eve, pp. 71–72;
Dagong bao, September 24, 1948, Chinese Press Review, US Consulate, Shanghai,
96. Shang bao, October 6, 1948, Chinese Press Review, US Consulate, Shanghai, October 6,
1948, p. 4.
97. Wu Xiangxiang, “Wang Yunwu yu jinyuan quan,” p. 49.
October 28, 1948, p. 1.
October 28, 1948, pp. 1–2.
100. Diary quoted in Wu Xiangxiang, “Wang Yunwu jinyuan quan,” p. 49; Marks,
Counterrevolution in China, p. 110.
101. Foreign Relations of the United States: Diplomatic Papers, 1948, vol. 8; The Far East, p. 428;
United Kingdom. Foreign Office Files for China, 1918–1980, Adam Mathew,
Archives Direct, FO 371/69569, “Currency and Exchange Problems,” folder 16,
Nanjing Embassy to the British Foreign Office in London, November 2, 1948; Wu
Jingping, “Jinyuan quan zhengce de zai yanjiu” (On the study of the gold yuan
policy), Minguo dang’an (Republican archives) 1 (2004), pp. 99–110 (pp. 107–
108); Eastman, Seeds of Destruction, pp. 192–193; Yang Peixin, Jiu Zhongguo de tonghuo
pengzhang, p. 108; Jiang Zhongzheng zongtong dang’an: Shilue gao ben, vol. 77, pp. 325,
333, 338, 354, 362, 419.
249

104. Zhongguo renmin yinhang zonghang canshi shi, ed., Zhonghua minguo huobi shi
ziliao (Historical materials on currency in the Republic of China; Shanghai:
Shanghai renmin chuban she, 1991), vol. 2, p. 595.
106. Shen bao, November 9, 1948, Chinese Press Review, US Consulate, Shanghai,
November 9, 1948, p. 3.
107. British Consulate in Shanghai to the Foreign Office, London, November 9, 1948, FO
371/69569, “Currency and Exchange Problems, 1948,” folder 16.
108. Dagong bao, November 10, 1948, Chinese Press Review, US Consulate, Shanghai,
November 10, 1948, p. 1.
109. Chang Kia-ngau, The Inflationary Spiral, p. 84; Huang Yuanbin, “Jinyuan quan de
faxing he tade bengkui” (The introduction of the gold yuan notes and their collapse),
in Fabi jinyuan yuan yu huangjin fengchao (Legal tender, the gold yuan notes, and the
gold unrest; Beijing: Wenshi ziliao chuban she, 1985), pp. 51–62 (p. 61); British
Embassy in Nanjing to the Foreign Office, London, November 5, 1948, FO 371/
69569, “Currency and Exchange Problems, 1948,” folder 16.
110. China Weekly Review, July 9, 1949, p. 124.
111. Foreign Relations of the United States: Diplomatic Papers, 1948, vol. 8; The Far East, p. 407.
112. Foreign Relations of the United States, vol. 8; The Far East, p. 428.
China,” folder 16, telegram to London on October 19, 1948, reply October 28, 1948.
114. Paul Frillman Papers, Hoover Institution Archives, box 1, folder “Correspondence,”
L. Iverson from Fuzhou, December 1, 1948.
115. Wang Feng, Jiang Jieshi fuzi 1949 weiji, p. 123.
116. Wu Guozheng, Cong Shanghai shichang, pp. 67–68.
117. Dagong bao, December 10, 1948, Chinese Press Review, US Consulate, Shanghai,
December 10, 1948, p. 3; Eastman, Seeds of Destruction, pp. 193–195.
118. Shou Chongyi, “Wang Yunwu yu jin yuan quan,” p. 65; Wu Jingping, “Jinyuan quan
zhengce de zai yanjiu,” p. 108.
Direct, Commercial Report from the British Consulate in Shanghai, China, Reports of
December 1948 and January 1949, FO 371/75840, “Economic Situation in China,
Economics Reports, November 1948 to July 1949,” folder 1.
120. Quoted in Eastman, Seeds of Destruction, p. 196.
121. United States, Department of State, Intelligence Section, “Economic Development in
China, 1948,” issued December 14, 1948, p. 1.
122. Xinwen tiandi 50 (October 16, 1948), Chinese Press Review, US Consulate, Shanghai,
October 20, 1948, p. 11.
250

125. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vols. 69–74, passim.
126. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 71, pp. 188; 208; 213; 289.
127. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vols. 72–73, passim, vol. 74, pp. 195,
377.
128. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 74, pp. 59, 242, 247; vol. 75, p. 119.
129. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 75, pp. 299, 388, 462, 477, 482,
595, 603; vol. 76, pp. 122, 123, 127, 181, 220.
130. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 76, pp. 400, 419, 478; vol. 77, p. 59,
60, 147, 176, 443.
131. Jiang Zhongzheng zongtong dang’an: Shilue gaoben, vol. 77, pp. 357, 469, 451, 475, 506; Ho
Lien, “The Reminiscences of Ho Lien, p, 433.
132. Xinwen bao, December 30, 1948, Chinese Press Review, US Consulate, Shanghai,
December 30, 1948, p. 1.
133. British Embassy in Nanjing to Foreign Office, London, 13, February 1949; British
Consulate in Shanghai to the Foreign Office, London, February 18, 1949, FO 371/
75844, “Currency Exchange Problems, December 1948 to April 1949,” folder 1.
134. Chihyun Chang, The Chinese Journals of L. K. Little, vol. 2, pp. 154–155.
135. Wu Jingping, “Jinyuan quan zhengce de zai yanjiu,” pp. 109–110.
136. Dagong bao, March 8, 1949, Chinese Press Review, US Consulate, Shanghai, March 8,
1949, p. 4, March 10, 1949, p. 1.
137. Jiefang ribao, May 28, 1949, Chinese Press Review, US Consulate, Shanghai, May 28,
1949, p. 10.
138. The China Daily Tribune, Shanghai, May 16, 1949, Chinese Press Review, US Consulate,
Shanghai, May 19, 1949, p. 10.
139. T. V. Soong Papers, Hoover Institution Archives, box 8, folder 1, The Saturday Evening
Post.
140. T. V. Soong Papers, Hoover Institution Archives, box 61, folder 31, Madame Chiang
Kai-shek, personal letters. See especially letters of August 14, 1950, July 14, 1956, and
July 2, 1962. Madame Chiang (May) refers to Chiang Kai-shek as “Kai” in these
letters. In terms of Chiang Kai-shek’s treatment, the plan was to have an internal
specialist come to Taiwan as a visiting professor at a medical school in Taiwan. The
specialist’s actual duties would primarily be to provide medical treatment for
Chiang.
141. T. V. Soong Papers, Hoover Institution Archives, box 62, folder 19, “Personal financial
ledger of T. V. Soong, 1965.”
142. T. V. Soong Papers, Hoover Institution Archives, box 62, folder 16, “Will and lists of
personal financial assets,” decree settling final account of the executor, filed
September 4, 1975, surrogate court of county of New York.
Kai-shek, letter of February 14, 1951.
144. Jung Chang, Big Sister, Little Sister, Red Sister: Three Women at the Heart of Twentieth-Century
China (New York: Alfred A. Knopf, 2019), p. 304.
251

Kai-shek, personal letters. See especially letters of July 2, 1962, November 5, 1962,
December 10, 1962, October 7, 1963, and letter from T. V. Soong to Madame Chiang
Kai-shek, September 1, 1962.
146. T. V. Soong Papers, Hoover Institution Archives, box 62, folder 22, “Youngman
letters,” January 22, 1984.
147. Sterling Seagrave, The Soong Dynasty (New York: Harper and Row, 1985), p. 416. For
a discussion of this issue, see Dai Hongchao, “Song Ziwen de siren caichan yu shifou
gong wubi zhi Pingxi” (An examination of whether or not T. V. Soong’s private
property involved corruption), in Wu Jingping, ed., Song Ziwen shengping yu ziliao
wenxian yanjiu (T. V. Soong: Personal wartime archive; Shanghai: Fudan daxue
chuban she, 2010), pp. 393–399 (pp. 393–396).
148. Seagrave, The Soong Dynasty, p. 453.
letters,” letter to Sterling Seagrave, March 18, 1985, sent care of Harper and Row.
letters,” letter of March 18, 1985.
letters,” Soong Mei-ling to Michael Feng, July 7, 1986; Donald G. Gillin, Falsifying
China’s History: The Case of Sterling Seagrave’s The Soong Dynasty (Stanford, CA: Hoover
Institution, 1986).
152. Albert Wedemeyer Papers, Hoover Institution Archives, box 46, folder 6, letters, Ling-
kai (David) Kung.
kai (David) Kung; Independent, April 21, 1962, p. 11.
kai (David) Kung; Houston Business Journal, May 11, 2003, by Jennifer Dawson, “Bizarre
Bomb Shelter Becoming Data Center.”
155. Chihyun Chang,The Chinese Journals of L. K. Little, vol. 2, p. 50.
T. V. Soong to Soong Mei-ling, March 22, 1965. Also box 64, folder 31. See also
Laura Tyson Li, Madame Chiang Kai-shek: China’s Eternal First Lady (New York:
Atlantic Monthly Press, 2006), pp. 399–400.
157. A recent is example is the commercial publication by Jung Chang, Big Sister, Little
Sister, Red Sister (2019).
CONCLUSION
1. Lloyd E. Eastman, Seeds of Destruction: Nationalist China in War and Revolution, 1937–1949
(Stanford, CA: Stanford University Press, 1984), pp. 216–217. Since Eastman wrote those
words, a considerable literature has developed challenging this thesis or at least parts of
it. See, for example, Julia Strauss, Strong Institutions in Weak Polities: State Building in
Republican China, 1927–1940 (Oxford: Oxford University Press, 1998).
252


3. Stephen R. MacKinnon, Wuhan, 1938: War, Refugees, and the Making of Modern China
(Berkeley: University of California Press, 2008).
4. Lloyd E. Eastman, The Abortive Revolution: China under Nationalist Rule, 1927–1937
(Cambridge, MA: Harvard University Press, 1947), p. 10.
5. Yun Xia, Down with Traitors: Justice and Nationalism in Wartime China (Seattle: University of
Washington Press, 2017), p. 100.
6. Parks M. Coble, The Shanghai Capitalists and the Nationalist Government, 1927–1937
(Cambridge, MA: Harvard East Asian Monographs, 1986), pp. 129–132.
253

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China and the Helping Hand, 1937–1945. Cambridge: Harvard University Press,
1963.
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Young, Arthur N. Papers. Hoover Institution on War, Revolution and Peace,
Zaisheng (The national renaissance). Shanghai and Guangzhou, 1946–1949.
Zheng Huixin. “Cong Song Ziwen fumei qijian dianbao kan zhanshi Chongqing
guanchang yidong” (Telegrams from T. V. Soong during the period when he
was in America observing the war situation in Chongqing). In Wu Jingping,
ed., Song Ziwen shengping yu ziliao wenxian yanjiu (T. V. Soong: personal
wartime archives). Shanghai: Fudan daxue chuban she, 2010, pp. 233–259.
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Minguo zhengfu zhanshi tongzhi jingji yu maoyi yanjiu, 1937–1945 (Research into
economic control and trade during wartime period of the Nationalist
Government 1937–1945). Shanghai: Shanghai shehui kexue yuan chuban
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“Zhanhou zhongguo de ‘guanban shanghang’” (Bureaucratic capitalism after
the war). Minguo dang’an (Republican archives), vol. 1 (2014), pp. 134–143.
“Zhanhou guanban shangxing de xingqi: yi zhongguo fuzhong shiye gongsi de
chuangli weili” (The emergence of state enterprises after the war: The
establishment of the Fuzhong Corporation). Zhongguo jingji shi yanjiu
(Research on Chinese economic history), vol. 4 (2009), pp. 119–122.
Zhongguo di’erh lishi dang’an guan, ed. “1946 nian Rong Desheng bei bangjia
an shiliao erjian” (Two documents of historical materials on the 1946
kidnapping of Rong Deshen). Minguo dang’an (Republican archives), vol.
1 (2001), pp. 31–33.
Zhongguo renmin kangri zhanzheng jinian guan, ed. Kangzhan jishi
(Memoranda of the war of resistance). Bejing: Zhongguo youyi chuban
she, 1989.
Zhongguo renmin yinhang zonghang canshi shi, ed. Zhonghua minguo huobi shi
ziliao (Historical materials on the currency of Republican China). Shanghai:
Shanghai renmin chuban she, 1991.
Zhongguo renmin zhengzhi xieshang huiyi, Quanguo weiyuan hui, wenshi ziliao
yanjiu wenyuan hui. Fabi jinyuan quan yu huangjin fengchao (Legal tender, the
gold yuan note, and the gold unrest). Beijing: Wenshi ziliao chuban she,
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Zhu Chuxin. “Sannian lai de women de huobe zhan” (The war of the enemy
against our currency in the last three years). Dushu yuebao (Readers
monthly), vol. 1, no. 11 (January 1, 1940), pp. 485–488.
264

Index
Adler, Solomon, 35 Chen Guangfu, 46, 47, 63, 72, 74, 141, 161,
airline industry, 108–109 244
Allan, Edwin Chester, 153 Chen Guofu, 94, 138, 141
Allen, D. F., 165 Chen Lifu, 66, 94, 118, 138, 163
American Dollar Bond Scandal, 73–76 Chennault, Claire, 51
American education, 47–52 complaints to Wedemeyer, 153–154
impact on relations, 43–45 Chiang, Kai-shek, 13, 16, 20, 24, 52, 211
attacks on T. V. Soong, 139 central role, 156–157
Aw Boon Haw, 181 conference on fabi, 169
daily personal schedule, 157–159, 192–194
Bai Chongxi, 21, 95 diaries of, 9
Bank of China, 10, 28, 42, 128, 135 finances, lack of attention to, 192–194
banknotes, 44 foreign exchange rates, views on, 98
printing of, 25–26 gold sales issue, 35
banks gold yuan, introduction of, 173
declining role of, 27–29, 117 inattention to finance, 162
Bei Zuyi, 50, 63, 98, 113, 135, 165, 193, 209 Jiang Jingguo, support for, 179
gold sales issue, 158 military leadership, approach, 205–207
gold yuan, 176 reaction to attacks on the Soong and
secret communications with T. V. Soong, Kong families, 148
63 relations with H. H. Kung, 58
black market, 31 relations with Morgenthau, 33
botched liberation, 3, 88–91 relationship with T. V. Soong, 53–57
Bretton Woods Conference, 34, 43, 54, 64 resignation of, 196
bureaucratic capitalism, 143 rivalry between T. V. Soong and
H. H. Kung, 115
Cairo Conference, 4 Status in 1945, 5–8
Caughey, John Hart, 21 Stilwell affair, 22
C. C. Clique, 141 stubbornness, 207
Central Bank of China, 7, 26, 27, 32, 42, 99, Zhou Zuomin, meeting with, 92
113, 134, 141, 174 Chiang, Kai-shek, Madame, 2, 31, 47, 51, 52,
Chang, Kia-ngau. See Zhang Jia’ao 54, 58, 69, 157
Chen Boda, 66, 67 biographies of, 68, 69
Chen Bulei, 77, 163, 194 David Kung, arrest of, 182
suicide of, 195 discrimination, 53
Chen Cheng, 158 Sterling Seagrave, view of, 200
Chen Gongbo, 95 T. V. Soong, relationship with, 198
265

INDEX
Chiang, Kai-shek, meeting with Wu Enemy and Puppet Properties Supervision

Guozhen, 159 Bureau (Diwei ye waili ju), 92, 116
China Aid Act, 167 exchange rate
China Development Finance Corporation, dispute over, 97–102
42, 61, 70, 71, 145, 146, 150, 200 extraterritoriality, 89, 119
electric power, 128
China Merchants Steam Navigation fabi
Company, 102, 103, 104, convertibility, 12–15
149, 167 creation of, 10–12, 207
China National Aviation Corporation final collapse of, 165–167
(CNAC), 108 Fang Xianting, 160
China Petroleum Company, 129 Feng Yuxiang, 168, 206
China Textile Industries, 140 foreign businessmen in China
Chinese Communists bureaucratic capitalism, criticism of,
military victories, 163 149–155
Chinese National Relief and Rehabilitation Foreign Exchange Equalization
Administration (CNRRA) Committee, 166
creation of, 39 Foreign Exchange Equalization Fund,
shipping issues, 105 161–162
Chinese Supply Commission, 115, 128 foreign exchange rate, 97–102
Chinese Textile Industries, 149 foreign trade
Chou, Shun-hsin, 28, 83, 219, 230, 233, 247 failure to revive, 100–101
Coble, Parks M., 199, 200 Frillman, Paul, 190
Cochran, Sherman, 143 Fu Sinian, 209
collaborators attacks on H. H. Kung, 77, 140
taking property of, 94, 95 attacks on T. V. Soong, 139,
Commerce, Treaty of, US and China, 146
119 attacks on UNRRA, 142
Control Yuan Fuzhong Industrial Company, 145, 147,
report on bureaucratic capitalism, 145 150, 159
corruption
impact of, 27 Gexin movement, 138
Currie, Lauchlin, 61, 77 gold rush, 132, 135
first visit to China, 13–14, 72 gold sales
second visit to China, 52, 55, 56, 60 dispute with America, 173–178
T. V. Soong, views of, 72 gold sales scandal, 30
customs revenue gold yuan
decline in, 101 exchange rate of, 177
introduction of, 173–178
Dai Li, 94, 208 gold yuan reform
Du Weiping abandonment of, 185–187
arrest of, 181, 194 causes of failure, 188
Du Yuesheng, 74, 92, 145 collapse of, 185
departure for Hong Kong, 183 gold, ban on sales, 134
Jiang Jingguo, relationship with, 181 government-owned enterprises
advantages given, 118
Eastman, Lloyd E., 25, 156, 184, 203, sale of, attempted, 176
208 Gu, Weijun. See Koo, Wellington
gold yuan reform collapse, 187 Guo Jinkun, 74, 79
electric power industry
civil war era, 125–129 Hainan Island
Emergency Economic Measures, 133 development of, 172
266

INDEX
Hata Shunroku, 20 rejects criticism, 151

He Lian, 84, 117, 157, 181 relationship with Chiang Kai-shek, 43–45,
government-owned enterprises, views on, 53–58
122 resignation of, 72–73
He Yingqin, 75, 76 rivalry with T. V. Soong, 62–66, 115,
Ho, Franklin L. See He Lian 208
Hongkong and Shanghai Banking Zhou Zuomin, meeting with, 92
Corporation, 11, 88, 132, 161, 168 Kung, Louis (Lingjie), 201
branch in Hankou, 107 and T. Soong, 201
Hoover Institution Archives, 9 Chiang, Kai-shek, Madame, 201
Hopkins, Harry, 52, 54 Kung, Rosamonde, 58
Hu Yuzhang, 42
Hull, Cordell, 45 LaGuardia, Fiorello
Hurley, Patrick, 64 issues with China, 106
land tax, 88
Ichigo offensive, 3, 19, 25, 34 landing on the China coast, planned, 80
economic impact, 22–24 Lary, Diana, 88, 96
inflation, 15 Li Ming, 49, 62, 141, 177
in the civil war era, 112 arrest of, 180
psychology of, 131, 137–138 gold yuan reform, 191
resumes in autumn 1945, 85 Jiang Jingguo, relations with, 179
victims of, 9 Li Shizeng, 74
Liang Hongzhi, 95
Japanese reparations Liddell Brothers and Company, 152
silk industry, 115–116 Lin, Hsiao-ting, 20, 54
Ji Chaoding, 65 Ling Wusu
communist ties, 65 attacks on T. V. Soong, 171
Jiang Jingguo, 148, 177, 210 Little, L. K., 24, 30, 63, 111, 132, 166
gold yuan, 175 Liu Hongsheng, 183
gold yuan reform failure, 190 Long Yun, 74
reign of terror in Shanghai, 178–183 Lu Xian, 79
Jiang, Jieshi. See Chiang, Kai-shek Lu Zuofu, 104, 117
Jiuda Salt Company, 146 Luo Jinghua, 141
Juntong, 94, 208
Ma Yinchu, 119
Kong Xiangxi. See Kung, H. H. MacArthur, Douglas, 116, 173
Koo, Wellington, 16, 49, 57, 151, 158 Mao Zedong, 4, 143
Kung, David, 58–59, 64, 145, 147, 148, 150 Maritime Customs Service, 1
arrest of, 195 Marshall, George, 60, 115, 120, 132, 138,
departs to America, 183 167, 193
Jiang Jingguo, relationship with, 183 Merchant, Livingston T., 169
life in America, 200 Mi Qingyun, 96, 97
Kung, H. H., 10, 12, 13, 25, 29, 31, 39, 85, military spending, 27, 85–86
138, 145, 150, 207 wasteful, 86–87
attacks on, 170 Morgenthau, Henry, 32, 33, 67, 74
career in government, 43 gold sales issue, 35, 36, 37, 38
gexin movement, 138 support for China, 45–46
gold sales issue, 35
life in America, 200 Nanyang Brothers Tobacco Company, 42,
Morgenthau, Henry, relationship with, 46 150
new perspectives on, 70–71 National Resources Commission, 129, 148,
polemical attacks on, 66–68 172
267

INDEX
Paget, Debra, 201 collective biography of, 69

prohibition on use of foreign currency, 134 relationships, 59–62
Soong Ching-ling, 47
Qian Xinzhi Soong, Ai-ling, 47, 54
Jiang Jingguo, relations with, 179 Soong, Mei-ling. See Chiang, Kai-shek,
Madame
racism, 52–53 Soong, T. A., 42, 47, 150
Rajchman, Ludwig, 54 diplomatic passport, use of, 148
relocation of factories Soong, T. L., 42, 47, 145, 150
return to east coast after the war, 123–124 diplomatic passport, use of, 147
revenue Soong, T. V., 11, 13, 29, 51, 85, 90, 92, 95,
failure to revive, 87–88 108, 129, 150, 158
rice riots, 142 attacks on, 138–141
Rogers, Cyril, 50, 196 career in government, 20
Rong Desheng challenges critics, 151
kidnapping of, 93 Chiang Kai-shek, relationship with, 43–46
Rong Hongyuan China Development Finance
arrest of, 180 Corporation, 145
Roosevelt, Franklin Delano, 1, 31 criticism of, 135
Morgenthau, relationship with, 32 electric power, 126, 128
support for China, 45–46 exchange rate issue, 34
foreign exchange rate, 98
Seagrave, Sterling gold sales issue, 35, 36, 37, 158
The Soong Dynasty, 68, 199 gold yuan, failure in Guangdong,
Service, John, 55, 56 171–172
Seymour, Horace, 90 Guangdong province, governor of, 173
Shanghai Municipal Council, 90 Jiang Jingguo, relationship with, 181
Shanghai Power Company, 125, 126 life in America, 199
coal shortage, 191 new perspectives on, 70–71
Shanghai Shipping Association (Shanghai papers of, 9
hangye gonghui), 102 polemical attacks on, 66–68
Shanghai Youth Service Corps, 179 projects in 1946, 114
Shen Hongnian resignation, , 147, 148
diplomatic passport, use of, 147 rivalry with H. H. Kung, 39, 62–66, 115,
Shen, Stanley, 63 208
Shi Zhaoji, 49, 54 silk industry, 116
shipping use of English, 139
lack of, 102–105 Wang Yunwu, relations with, 168
silk industry, 124–125 Washington, served in, 33
Sixth Battalion of the Bandit-Suppression wealth of, 198–199
National-Reconstruction Corps, 178 Zhou Zuomin, meeting with, 92
Smith, Bruce, 152 Stilwell, Joseph, 3, 32, 54
solitary island, (gudao), 28 dispute with Chiang, 30
Song Ziliang. See Soong, T. L. Stuart, John Leighton, 173, 189
Song Ziwen. See Soong, T. V. Studebaker Corporation
Song, Ailing. See Soong, Ai-ling agreement with the CDFC, 146
Song, Meiling. See Chiang, Kai-shek, Sun Ke, 66, 138, 190
Madame Sun, Yat-sen, 1, 102, 110, 138, 206
Song, Qingling. See Soong, Ching-ling
Song, Zi’an. See Soong, T. A. Tamagna, Frank, 7, 84, 108, 215, 230, 233,
Soong family, 47 235
biography of, 69 Tang Enbo, 20
268

INDEX
textile industry, 121–122 Westinghouse Corporation

shortage of raw cotton, 105 agreement with the Fuzhong Company,
Truman, Harry, 2, 67 147
disillusionment with Chiang Kai-shek, 40 White, Theodore, 30, 71
gold sales issue, 37 Wilkie, Wendell, 51
reelection, 195 Wu Guozhen, 49, 52, 56, 112, 134, 152
Chiang Kai-shek, meeting with, 159, 193,
United Nations Relief and Rehabilitation 194
Administration (UNRRA), 82, 106, David Kung arrest, 183, 195
107, 118, 136 gold yuan, 175
creation of, 39 gold yuan reform failure, 191
shipping problems, 105 gold yuan, opposition to, 176
United States Rubber Company Li Ming, support for, 180
agreement with the CDFC, 146 Wu Jingping, 54, 78
Universal Trading Corporation, 150, 154, gold yuan reform, impact of, 196
155 Wu Tiecheng, 92
van de Ven, Hans, 19, 22 Xi Demou, 38, 42, 219, 220

Vincent, John Carter, 57 Xiong Shihui, 157
Xu Kan, 190
Wallace, Henry, 57 Xu Xinliu, 145
Wang Chaoguang, 78 Xuan Tiewu, 94
Wang Jingwei, 58
regime, 15, 16 Yan Xishan, 206
banknotes of, 95, 96 Yang Tianshi, 78
Wang Ju, 121, 122 Yang Yinpu, 160
Wang Kemin government, 14, 16 Yangzi Development Company, 59, 145,
banknotes of, 96, 97 150, 159, 171
Wang Shijie, 158 Chiang, Kai-shek’s views on, 182
conference with Chiang Kai-shek, 169 Yangzi Power Company, 128
Wang Yunwu, 168 Yongli Chemical Company, 146
Chiang Kai-shek, meeting with, 194 Young, Arthur N., 5, 6, 14, 23, 30, 38, 50, 63,
conference with Chiang Kai-shek, 169 64, 91, 101, 161, 205
gold yuan, introduction of, 174 American surplus equipment, purchase
resignation of, 186 of by China, 114–115
Wedemeyer, Albert, 24, 25, 58, 116, 159, and Bei Zuyi, 135
164 Cathay Hotel, cost of, 162
American businessmen, 151 Chiang Kai-shek, view of, 85–86, 209
complaints by Claire Chennault, David Kung, 59, 147
153–154 electric power, 126
complaints to Chiang Kai-shek, 154 exchange-rate issue, 34
David Kung, relationship with, 200 exports, increasing China’s, 107
Wei Daoming, 74 foreign-exchange rate, views on, 98, 99
Wei Dingsheng, 138 H. H. Kung, on, 78
Weng Wenhao, 24, 129, 168, 185, Liddle Brothers, 152
209 optimism in 1945, 81–83
Chiang Kai-shek, meeting with, 194 publications by, 8, 9
conference with Chiang Kai-shek, 169 reports, 113
gold yuan, introduction of, 173 rivalry between T. V. Soong and
resignation of, 186 H. H Kung, impact on, 115
Zhou Zuomin, support for, 181 shipping issues, 105
Westad, Odd Arne, 133, 156, 163 Soong’s resignation, on, 67
269

INDEX
Young, Arthur N. (cont.) Chiang Kai-shek, meeting with, 159,

state-owned enterprises, 149 194
Statistics compiled by, 6 gold yuan, 174
T. V. Soong, views of, 114 Jiang Jingguo, 178
textiles, 123 publications by, 8
Youngman, William S., 198, 199 Zhou Zuomin, support for, 181
Sterling Seagrave, 199, 200 Zhang Junmai
Yu Hongjun, 35, 38, 39, 48, 65, 75, 76, 81, attacks on T. V. Soong, 170
92, 118, 209 Zhang Qun, 138, 151
Chiang Kai-shek, meeting with, 158, 194 Chiang, Kai-shek, meeting with, 159,
Conference with Chiang Kai-shek, 169 193
Jiang Jingguo, relations with, 178 resignation, 140, 168
resignation as minister of finance, 168 Zhang Xueliang, 53, 206
rivalry between T. V. Soong and Zheng Huixin, 75, 78, 145, 147, 148
H. H. Kung, impact on, 115 Zhongtong (Bureau of Investigation and
Yudahua Business group, 124 Statistics of the Party Central Office),
Yui, O. K. See Yu Hongjun 94, 208
Yun Xia, 93, 95 Zhou Fohai, 91
Zhou Zuomin, 117
Zhang Fakuei, 21 arrest of, 181
Zhang Jia’ao, 5, 10, 11, 26, 28, 135, 141, 142, collaborator with Japanese, 91–92
158, 161 Jiang Jingguo, relations with, 179
270

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THE COLLAPSE OF NATIONALIST CHINA

Parks M. Coble is James L. Sellers Professor of History at the University of

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How Chiang Kai-shek Lost China’s Civil War

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Cambridge University Press is part of Cambridge University Press & Assessment,

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List of Figures page vi

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0.1 The Big Four Allied leaders in World War II . . . . . . . . . . . . . . page 2

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I have accumulated numerous debts to individuals and institutions in the

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the libraries of Harvard, particularly the Harvard-Yenching Library and

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invaluable experience that also allowed me to meet descendants of the

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Lucy Rhymer, for her signiﬁcant assistance, as well as two anonymous

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O n august 15, 1945, japanese emperor hirohito broad-

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politically charged atmosphere made work on the era problematic. The

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surprisingly, the great majority of this scholarship has focused on the

COLLAPSE OF THE NATIONALIST CURRENCY

This study primarily revisits an old issue, inﬂation (later hyperinﬂation)

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assumed there would be a “peace dividend” as military activities were

AFTER JAPANESE SURRENDER

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Yet those most strongly impacted by hyperinﬂation were the military

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was a bit more forthcoming in his privately published Cycle of Cathay: An

FABI’S FATAL WEAKNESS

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he was at the Shanghai branch of the bank, he refused an order by

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Even after the Guomindang forces retreated west, many anomalies of

KEEPING FABI CONVERTIBLE

As a matter of prestige, the Nationalist government was determined that

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But H. H. Kung remained adamant. He felt that Chongqing was in

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He suggested to Chiang that they keep Shanghai open but develop

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Wang Kemin government “became the chief currency of occupied north

AFTER PEARL HARBOR

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January to June 1937 as a base of 1 had increased almost twentyfold by the

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warfare is by no means merely a matter of military operations; economic

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Ichigo and Its Aftermath

I t is perhaps both a blessing and a curse that historians

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