033.1100 Rogers, James H./36:Telegram
The Consul General at Shanghai (Cunningham) to the Secretary of State
[Received May 16—2:40 p.m.]
For [Morgenthau] from Rogers. During the 2 weeks have visited Southwestern China, Canton and Hong Kong and West China as far as Chungking.
In both of these regions heavy restrictions on the movement of silver are in force and the money is depreciated. In the South the depreciation is sufficient to bring considerable relief but the monetary situation is complicated, the standard being temporarily based on defined silver content of subsidiary coins.
In Szechuan where the depreciation is only 12 to 15% and where the tax situation is acute, agriculture and trade are very depressed. While in each locality special conditions account for much of the distress, there is no doubt in the minds of business leaders that the higher prices of silver in terms of major currencies have aggravated export difficulties and hence have reduced considerably the prices of most farm products. The financial demands of the 21st Army for political as well as military purposes have led to increasingly heavy taxes not only on imports and on goods in transit but also on exports. These exactions combined with reduced prices for their products are leading some farmers to join the bandits as a means of livelihood. Chungking is under martial law for fear of communist uprising but during the 3 days I spent there all was quiet.
In the country districts of Szechuan most exchanges are in copper, agricultural products in particular being bought for copper. Nevertheless the purchasing agents reckon at least their maximum prices in silver as they must sell to other provinces or to exporters in terms of silver. Since all major agricultural products are exchanged at least between provinces prices received by farmers even in copper provinces are closely connected with silver.
The embargo on the exportation of silver from Szechuan is not effective. The drain of silver down river continues large.
An effective national embargo on silver is at least temporarily unlikely because unenforceable in important section of the country. Protection against further important rise in silver price with resulting increased outflow of silver would probably be sought in higher export taxes on silver. Increased import tax would probably be ineffective because of large-scale smuggling which would be further stimulated. [Rogers.]