Foreign Relations of the United States, Diplomatic Papers, 1945, The Far East, China, Volume VII

893.515/9–1745: Telegram

The Ambassador in China (Hurley) to the Secretary of State

Chungking, September 17, 1945—8 a.m.
[Received 6:30 p.m.]

1604. To Secretary of Treasury from Adler and Casaday.

Section 1.

Reference 2 of No. 1598 of September 15 [16]. Shanghai financial and economic situation.

1. Chinese Reserve Bank dollar is still used as measure of value and chief medium of circulation except for real estate which is quoted in gold bars. There was a currency panic and sales strike from August 11 to 13 but it was short-lived. Prices then fell and there was a heavy selling rush. Fapi are being brought into Shanghai in rapidly increasing amounts and are willingly accepted in trade although prices are not directly quoted in them. Puppet printing presses continue to function, servicing defunct government’s officials and soldiers and Japanese banks.

Shanghai business community takes following for granted:

(a) There will be no outright repudiation of Chinese Reserve Bank dollars.

(b) There will be no immediate withdrawal of Chinese Reserve Bank dollars from circulation.

(c) Formal conversion of Chinese Reserve Bank into fapi will occur at undetermined time and rate.

Leading business men and commercial bankers want a conversion rate of 50 Chinese Reserve Bank to one fapi and contend that all Central Reserve Banks convertible assets and possibly also part of hypothetical Japanese reparations should be used for retirement of its note issue. Smaller bankers and business men would not object to a higher value for Chinese National against Chinese Reserve Bank. The mass of the people have only enough currency for a few days support. The monetary situation, in fact, does not warrant any precipitate action or statement by Central Government on value of puppet currency. (This opinion coincides with view of Minister of Finance as reported in 1 of 1598 of September 15 [16].)

2. On September 8 prices (in Chinese Reserve Bank dollars) in Shanghai free market were as follows: Gold per ounce 4.7 million, U. S. currency 93,000, Swiss francs 19,000, old Hong Kong dollar currency 8,500, fapi 120 and custom gold unit 2,300. Market weakened around September 12 but fapi has strengthened. In last month peak prices reached August 11 to 13 were as follows: Gold bars 17½ million per ounce, U. S. currency 300,000, Swiss francs 50,000 Hong Kong dollars 15,000, and fapi 1,000. Bottom prices reached around August 20 were: Gold 2 million per ounce, U. S. currency 40,000, Swiss francs 9,000, Hong Kong dollars 3,000, fapi 60.

Cross rate for gold in terms of U. S. dollars has declined from U. S. $80 per ounce in July to U. S. $45 on August 20 and on September 12 was about U. S. $50. The cross rate for Swiss francs has risen from about 4 to almost 5 per U. S. dollar in currency. The trend of gold bar prices is regarded as a general price indicator by Shanghai business community. Foreign exchange market has been relatively thin.

3. Central Reserve Bank ceased taking orders from Yokohama Specie Bank in middle of August but continued credit transactions with and supply of notes to Japanese banks. It announced its note circulation at Chinese Reserve Bank dollars 1900 billion and its gold holdings at 270,000 ounces in mid-August and has since been buying gold at between Chinese Reserve Bank 4.6 million and 7 million per ounce. Neither its note circulation nor its gold holdings have been reliably audited. There has been a tremendous contraction of bank credit in last month and commercial banks hold reserves with Central Reserve Bank constituting 60% or more of their total deposits in Chinese Reserve Bank dollars; they are in a position to pass on to their depositors without risk of loss of own funds whatever treatment is meted out to puppet currency. Shanghai branches of Bank of China and Bank of Communications are mere agents of Central Reserve Bank. Japanese banks are engaged in general settlement of engagements under auspices of Yokohama Specie Bank; their deposits and turnover have far outdistanced those of Chinese banks.

Section 2.

1. Most serious industrial shortage is that of coal. Shanghai Power Company has only enough coal for 60 days. Problem is one of obtaining shipping to import some 50,000 tons per month from North China. There is also shortage of oil, though not as acute. Shanghai supplies of raw materials are adequate for present low level of industrial consumption. No shortage of basic foodstuffs is feared if there is internal stability in Shanghai hinterland. Shanghai is well supplied in semi-luxuries though influx of American soldiers may drain existing stocks.

2. There has been little damage to industry through bombing, and output can increase rapidly. Shanghai cotton spindles have been reduced by Japanese requisitioning some idle spindles for scrap. Japanese also requisitioned motors and boilers from other industries. Stocks of some factories were looted by staff after announcement of surrender negotiations. Technical conditions of plants has deteriorated owing to non-replacement, lack of repairs, etc. Technicians and skilled labor are dispersed.

3. In second week of September after a month of violent fluctuations, prices in terms of Chinese Reserve Bank dollars were firm and tending to rise. Essential foodstuffs and semi-luxury goods have also increased in terms of U. S. dollars. There have been numerous bankruptcies, but now holders of stocks no longer expect large new supplies at an early date.

4. In the long interim between initiations of Japanese surrender negotiations and first Allied assumption of control many snees [sales?] and transfers of Allied property under Japanese control as well as of Japanese property for preservation from recovery occurred. At news of war end, pre-war owners and managers of Allied property were not allowed to resume control and were even put under arrest. Japanese supervisors of American and British establishments sold large stocks of raw materials and merchandise in second half of August to parties in collusion with the buyers at bargain prices. Staffs of such enterprises also looted their stores with Japanese connivance. Japanese also made many sales of their own property at bargain prices to Chinese, White Russians, Portuguese, etc., with pre-dated sales documents.

5. Big Japanese business since spring of 1945 has been large buyer of gold bars which must be owned by local Japanese individuals; many Chinese war time collaborators are concealing their acquisitions through dummies.

6. Since Stalingrad Shanghai-German firms have been selling real estate to Chinese many of whom are nominal transferees. Since summer of 1944 German firms here have generally liquidated their stocks. Proceeds from such sales were largely invested in gold bars hidden with Chinese and neutral associates or in European neutral currency deposits under fictitious names. In May, 1945, Japanese bought remaining commodity stocks of Bayer and Siemens-China companies at prices far below market value. The proceeds together with official funds of local German authorities were distributed among German citizens on official and semi-official pay lists. Thus many Nazis received even September salaries. Nazi Party propaganda, Gestapo and SS³⁷ officials are suspected of still having substantial funds for undercover work. [Adler and Casaday.]

Hurley

37. Schutzstaffel.