Subject: “A Review of Economic Conditions in Free China”
prepared in the Office of the Adviser on International Economic Affairs.
I am of the opinion that American production experts could do little, with
the facilities and resources available, to increase production in free China
under existing conditions.
. . . . . . . . . . . . . .
[Enclosure]
Memorandum by the Commercial Attaché in China
(Richards)
[Chungking,] December 17, 1943.
Memorandum on “A Review of Economic Conditions in
Free China”
Mr. McGuire’s17
review is very thorough and competent and he seems to have made good use
of the materials at his disposal.
There is attached a list of suggested amendments and alterations.16
I submit the following by way of comment to bring the information in the
review up to date:
Conditions have continued approximately as outlined in the review, with a
steady deterioration in the physical condition of industrial and
transport equipment, and a rapid increase in the volume of currency
circulation, which is irregularly, but inevitably reflected in the price
structure.
On the brighter side of the picture are the fairly good crops recently
harvested, which ensure against a food shortage in most areas (with some
unfortunate exceptions), and continued reports of United
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Nations successes in Europe and the South
Pacific. These reports bolster morale and encourage the hope that the
end of the blockade of China may not be much longer deferred. It is not
probable that China’s loosely integrated economic structure will crack
for some time unless there should be a bad crop failure, when the
situation might become acute.
The only measure which might reasonably be expected to check the rapid
spiraling of prices would be a successful campaign in Burma promising
the opening of the Burma Road. While with the reopening of that artery
of land communications it would for a long period of time be necessary
to restrict traffic to the transport of military supplies and equipment,
and only limited quantities—if any—of commercial goods could be brought
into China, the fact that land communication with outside sources of
supply had been re-established, with promise of early victory over
Japan, would lead to the release of hoarded stocks and generally ease
the economic position in the country as a whole.
The Government of China has been making some attempt to reduce the rate
of inflation by reducing railroad and other construction; but these
budegtary savings have been negligible as compared with the inevitably
increasing costs resulting from mounting commodity prices. At the end of
October, for example, it was found necessary by the Government to
quadruple government salaries and double cost of living allowances. The
only apparent effect of the reduction in construction activities has
been a decrease in the demand for steel and cement.
Proposed assistance of American production
experts.
Government officials consulted have indicated that the assistance of
American production experts would be welcomed but it was evident that
they were thinking mainly of post-war reconstruction rather than an
increase in war-time output. The need for a chemical engineer was
mentioned and it is possible that such an engineer might be of immediate
value in improving the production of fuel alcohol from sugar. (Under the
present system, it takes 11 kilos of brown sugar or 15 kilos of molasses
to produce one gallon of 96 percent alcohol.) Miming is said to be
notably inefficient but an American mining engineer (Mr. Marshall Morris
of the FEA) does not believe that an American mining engineer could do
much to improve the situation, because of political difficulties. There
seems to be much room for improvement in the transportation situation
and an American expert, if given a competent staff and a free hand,
could probably do much to improve it through more efficient use of
available facilities and through possible ability to obtain the most
vitally needed imports. To be effective, however, he would have to be
free of political interference and in a position to
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act ruthlessly, and it is unlikely that an
American expert would be permitted to exercise the necessary powers,
even if they were initially granted to him.* The Minister of Economic Affairs
goes farther in suggesting the utility of a man of great prestige and
broad caliber, familiar with all aspects of industry, including finance,
production, transportation and distribution, who could integrate the
conflicting policies of the different ministries and bureaus. It seems
extremely improbable, however, that such an economic dictator would be
accepted or permitted to function.
There are a number of very competent Chinese mechanical engineers, who
are doing reasonably well with the facilities available. It is possible
that American production engineers, accustomed to modern equipment and
to the availability of stores of supplies, would be less adept than the
Chinese at the improvisation required to keep factories going in the
difficult circumstances encountered in China. American engineers now in
China are generally agreed that production experts from the United
States, with the facilities available, could do little to increase
production or even to prevent a decline in production, as machinery
continues to deteriorate and transportation and the financial situation
get steadily worse. In The post-war reconstruction, there will be a very
great need for American production experts, including both graduate
engineers and factory superintendents and shop foremen.
There is attached a copy of a memorandum20 of conversation with Dr. Wong Wen-hao, Minister
of Economic Affairs, on the subject of American experts.
Data on Current Output.
It is impossible to obtain comprehensive or accurate data on current
output in China of industrial raw materials and finished products. The
Statistical Monthly, issued by the
Directorate General of Budgets, Accounts and Statistics, contains some
production statistics. The Statistical Division of the Ministry of
Economic Affairs issues production statistics from time to time, but its
efforts have been hampered by the prolonged illness of its director and
a shortage of personnel. Some information can be obtained from the
various divisions of the National Resources Commission, in regard to
production by the factories and mines controlled by the Commission, and
from the Industrial and Mining Adjustment Administration in regard to
production by privately-owned factories and mines. Available production
data will be transmitted separately.
