893.0151/3–1149: Telegram

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

840. For State, Treasury, ECA from Parker. During fortnight since “financial reforms” announced no specific clarifying announcement has been forthcoming. Market continues disturbed. Primary characteristic this period has been sharp shift upward in rate of increase commodity prices both Shanghai and Canton beginning date announcement. Central Bank has withdrawn from policy of containing rise in BM29a rate by dumping gold and commodities. Whereas [Page 745]former operations consisted strong selling action in early morning as market developed, bank now following policy of selling gold in afternoon following noon closing. Gold sales made through Chase Bank to local goldsmiths30 in amounts up to 8,000 ounces week. S. Y. Liu says this program of permitting increase GY price gold designed yield maximum absorption currency through gold sales. However, concomitant price increase necessitate larger emission GY notes.

Note issue now 71 billion. Present increase at rate of 170 percent per month as against 180 percent week ago. Open market rate US dollar notes 10 March 6050 buying, 6150 selling. On March 9 rate advanced from 5170 to 6000 on basis strengthening Commie attitude in peace negotiations with persistent rumors intended crossing Yangtze at Tichiang (west of Wuhu) which counteracted generally favorable response Sun Fo Cabinet resignation.31 Shanghai wholesale price index rose 62 percent during week ending March 9 to 166,666 on August 19 base. Greatest gains last 2 days. Large denomination notes being issued.

GY 500 appeared last week, 1000 to be released today. Money market continues tight with interest rate about 300 percent per month.

Despite obvious failure new measures as stabilizing influence, Hsu Kan apparently retains confidence President Li and expected to retain position as Finance Minister.

Central Bank has not yet begun to issue silver dollars in appreciable quantity. Public warned against expressing prices in silver or US dollars and apparently Finance Minister abandoned intention to collect customs duties in foreign exchange. Although publicly announced travelers may carry in and out of China up to $500 in foreign currency, customs not advised and continue permit only $100.

Government on March 9 released statement that request to US for silver loan had been turned down and indicated US Treasury responsible for decision. Tsuyee Pei32 has been instructed approach Treasury and State concerning metallic loan either gold or silver. Reliably informed he lacks accurate information official Chinese gold and silver holdings.

Sent Department, pouched Nanking 599, Canton 140. [Parker.]

Cabot
  1. Black Market
  2. In telegram No. 886, March 15, 5 p. m., the Consul General at Shanghai reported that the Central Bank was operating through devious undercover channels to manipulate the market and could not confirm that the Chase Bank wat acting as its agent (893.5151/3–1549).
  3. On March 8.
  4. Chairman of the Chinese Technical Mission in Washington.