893.515/10–748: Telegram
The Consul General at Shanghai (Cabot) to the Secretary of State
[Received October 7—7:41 a.m.]
2153. Reaction to August 19 currency reform moved into another phase in Shanghai during this last week with retail buying spree on part of salaried and laboring classes. Besides indicating decreasing [Page 418] confidence or possibly even complete loss of confidence in gold yuan currency by those classes which has been Chiang Ching-kuo’s main asset to date, present unrestrained purchasing comes as natural and not unexpected result of coincidence several factors: (1) Delayed response to news [of] fall of Tsinan; (2) extensive conversions of foreign exchange and gold in last few days before end of September, together with regular end of month payrolls, placed large sums of local currency in hands of general public who in 6 weeks since conversion began had had neither considerable extra cash nor incentive to spend; (3) latter supplied by statements of impending rationing of daily necessities, announcement of new taxes on luxury items, particularly tobacco and rumors of general upward readjustment of prices; (4) police registration and godown inspection has eliminated possibility of investment in semi-wholesale lots of industrial commodities and other items not necessarily for personal use previously standard procedure in hedging, against inflation; (5) buying of Shanghai’s fixed price and earmarked merchandise by profiteering Yellow Ox gangs during last 2 weeks for sale at higher prices in unpoliced rural areas outside Shanghai served as stimulus.
Favored in present run on stores are cigarettes, silk, wool, and cotton piece goods, knitting wool, shoes and ready-made clothes, canned goods and in general all items of imported nature which people know are irreplaceable in foreseeable future.
Purchases of cloth have been restricted by economic police to 5 yards of cotton and 3 yards of silk per 3 months on presentation residence certificate. Stores are opening late and closing early to reduce outgo of goods; some have attempted to close up tight in spite of police prohibition with arrests resulting.
We doubt if volume of merchandise presently being cleaned off shelves constitutes any really considerable portion of such goods available in city but event shows that mass of people here are now at least partially aware of impossible future of currency and are following same protective course of action more quickly adopted by merchants and industrialists who invested larger sums in real estate and jewelry.
Situation is indeed gloomy and in the absence of any real reform or progress of Government in basic matters of taxation and budgeting we can see nothing but increasing trouble ahead. Scheduled rice rationing in Shanghai will probably not be met this month; coal is critically short and cold weather is only a month off; the war goes badly. Chiang Ching-kuo is now on the defensive and only rear guard actions are to be expected from hereon.
Sent Department; repeated Nanking as 1644.