893.515/7–249: Telegram
The Consul General at Shanghai (Cabot) to the Secretary of State
[Received July 2—4:43 a. m.]
2595 Despite theoretical virtues attributed jen min piao12 and differences ideological concepts in comparison CNC or gold yuan or even with foreign currency such as US dollar and pound sterling, [Page 792] evidence now accumulating Communists have entered upon dangerous experiment in adoption commodity dollar Shanghai based on composite price rice, cotton, yarn, vegetable oil and coal briquettes. This composite price used as device stabilize value bank accounts (mytel 2557, June 3013) and as basis determination foreign exchange value jmp. Unbalance among these four basic commodities and continued inflationary pressures which advent Communist “liberation” has not eliminated may be expected to have eventual inflationary reactions on internal price structure as well as foreign exchange markets as pressures build up due blockade and trade stagnation. Recently Communists have achieved some success foreign exchange and price stabilization due low level business and dumping commodities on market, but supplies available for dumping not inexhaustible, especially as rural areas now making rice purchases in Shanghai market due lower price level here instead of affording steady source supply.
Universal pegging wages to rice, wholesale prices of which have moved up sharply last 2 weeks, most dangerous aspect of situation. If present wage formulas continue, management will be placed under intolerable burden meeting payroll at current levels prices and business activities. If management refuses following [follow] formulas generally adopted under SLU14 pressure any [and] mediation, lock-ins, strikes, demonstrations and probable violence seem inevitable. Nor can management solve its problems by dismissals superfluous labor which labor refuses accept. One large British employer labor last January forecast losses meet payrolls during interim period at average rate 10,000 pounds sterling but at recently negotiated wage agreement in relation rice prices, actual losses last 2-week period workout approximately 40,000 pound[s] sterling monthly with no relief in sight. As reported mytel 2554, June 30,13 Caltex15 payroll advanced from US $40 to 100,000 from June 1948 to 1949. Andersen, Meyer [&] Company pleased with wage settlement, costing company US $5,000 monthly, giving employees closed factory full wages on express condition they do not enter factory premises. See also mytel 2551, June 29,13 proposing pay-off Stan Vac16 contract employees. Comparable burdens on management also applicable Chinese employers and across the board for almost every category industry and commercial activity.
With wages and currency pegged to rice and with large foreign employers labor unable meet payrolls under established formulas from [Page 793] current sales, substantial remittances from home office required cover Shanghai overhead. Since June 15, rice prices have doubled. Another 100 percent increase rice price within next 2 weeks or month would upset entire wage structure, particularly if PB foreign exchange and foreign currency deposit certified rates [certificates] remain stationary or move upward only fractionally as in past 2 weeks. If labor rejects any readjustment wage structure, foreign companies have alternative meet excessive payrolls in terms US dollars to [or?] become involved in labor disputes far more serious than any as yet encountered. In fact, probability further sharp rice price advances jeopardizes entire financial economic structure Communists now seeking stabilize.
Sent Department 2595, repeated Nanking 2430, OffEmb Canton 846.