893.50/11–948: Telegram
The Consul General at Shanghai (Cabot) to the Secretary of State
[Received November 9—12:40 p.m.]
2353. During past week businessmen, laborers and farmers may have all attempted to seek out again those halting facilities of commercial intercourse which they knew in the pre-August 19 era (and which were possible only because of a mutual cognizance of day-to-day depreciation of CNC), yet it is most apparent now that dislocations which came about in this 2½ months have created a grave situation. Businessmen are saying each day things could not possibly get worse and yet we are seeing marked deterioration each day rather than any sort of recovery. At moment Shanghai is shocked by doubling and tripling of prices within hours.
Shopping spree for consumer goods has petered out with some fresh goods on shelves, but stocks limited and prices tentative, because it is not possible to decide just where to pick up again parabolic curve of price advances which was interrupted on August 19 and because there is in air an awareness and fear of riot and looting.
Trade between Shanghai and its rural areas has not been reestablished. Plans of Chiang Ching-kuo (now resigned1 and departed) [Page 427] to match value of incoming food and raw material with outward shipments of manufactured goods were never even fully developed even on paper. Altho neither ECA stocks on hand or current Chinese procurements were adequate to fill out October rice ration obligations, yet underpricing policy maintained at Chinese insistence has not been abandoned and farmers continue hold their rice. Thus no rice available today in Shanghai even in response to offers in neighborhood of GY 1200 per picul, or 20 cents per pound at BM rate of moment. Failure of business to revive also apparent in import-export lines where some form of linked foreign exchange is again rumored but which would now come very late in game; exports have dwindled away during past month and imports, although ostensibly advantageous now from profit point of view, are pursued most cautiously in view of military hazard and consequent possibility of total loss of cargo.
A “critical” point is anticipated next Monday when mid-month wage payments are due and workers demanding food, not money. Equity and necessity wage increases has already been acknowledged by most employers who, on October 30 when increases were still illegal, gave employees “loans” amounting generally to something like 100 percent of that month’s salary. From survey representative prices ConGen would estimate that cost of living is certainly now ten times greater than on August 19; sample increases are: rice flour and pork 25 times, eggs 19 times, edible oil 17 times, cotton yarn and cloth 10 times, slack coal 6 times, soap, matches and kerosene 4 times. Laboring groups are likely to be more than just vocal if mid-month cost of living index (due to be reinstituted) is much less than that figure, but on other hand it is not seen how employers can pay even that much. Public utilities here, for instance, have been authorized rate increases of only some 300–400 percent over August 19 rates, at which they were even then losing money. From another aspect it may also be physical impossibility to drastically increase wage payments; this is the matter of tightness of money. Central Bank is veritably unable to supply all money being requested by commercial banks. An American bank for instance reports that it yesterday requested GY 50,000 and got only 10,000 (US dollars 333 at BM). This shortness of cash and now general appreciation of rapid deterioration of value of GY have together driven short term interest rates up to neighborhood of 90 percent per month, a point never reached even in CNC days.
Sent Department 2358, pouched Nanking 1782.
- The resignation of Chiang Ching-kuo took place November 7.↩