893.50 Recovery/8–2648: Airgram

The Consul General at Shanghai (Cabot) to the Secretary of State

A–803. Following are observations re immediate press reaction to the Chinese economic reform program announced August 19.

Press commentators can be classified into two major categories: (a) those who attempt to analyze the general price level aspects of the stabilization program; (b) those who discuss the disparities within the current price structure as it was frozen by the August 19 decree.

Group (a) has been politely friendly and circumspect in their public utterances due, perhaps, to Central Government warnings against sabotaging the currency reform program. Derogatory observations have, however, called attention to: 1) the non-liquid securities of uncertain value which constitute 60% of the highly publicized 100% reserve for the new Gold Yuan currency; 2) the unbalanced Central Government budget; 3) the meager foreign balances; 4) the low industrial production; 5) the stagnant foreign trade; 6) the hoarding of goods; 7) the civil war; 8) the conspicuous rise in certain retail food prices on August 23 and 24. They are frank in noting that unless these basic problems are solved by the economic reform program the inflationary process can be expected to resume after a temporary lull.

The over-all editorial policy attempts to create impression of optimism and resolution. Every conspicuous price reduction is presented [Page 395]as proof that program is successful. Government’s warnings against sabotaging program are displayed prominently. Editors exhort public to obey meticulously all the do’s and don’t’s prescribed in reform program lest this should prove to be the last opportunity granted to the Chinese to salvage their mode of life. The Shanghai Evening Post editorializes typically: “Success depends not only upon the Government’s forceful enforcement, but, even more important, upon the readiness of the Chinese people to sacrifice immediate personal gains and support the laws for the greater future stability of the country”. Parenthetically, several retail food and cotton prices penetrated their legal maximums on August 23 and 24, causing over 100 arrests in Shanghai by the Economic Police Corps.

Group (b) has been more openly critical in their evaluation of the reform program, perhaps because problems involved have an immediate and direct impact upon their daily lives. They call attention to the fact that the violent price upheavals during the past 3 months produced serious maladjustments within the current price structure. These disparities were incorporated into the economic reform program when the Central Government issued the decree freezing all prices as of August 19, 1948. Some Chinese language newspapers point to obvious inequities involved in specific price and income categories as the most serious defect in the reform program. Various commentators call attention to the plight of civil servants, teachers, Army personnel, salaried employees vs. wage earners, and the public utilities, with the admonition that unless the Government adjusts these prices and incomes in terms of some pre-war equilibrium, the reform program will be jeopardized. Other commentators counter with the assertion that if these adjustments are made, the cost price relationships will be upset, thus giving another spin to the inflationary spiral.