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FOREIGN
PM, MONDA, JANUARY 27
FOREIGN 7

...Civil War and Economic Chaos Threaten Nation

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Many of China's people are unable to meet the rising prices of rice and food distributions such as this are common throughout the nation.

same time it scarcely bothered to finance new production.
2. The Government was either unable or unwilling to prevent the flight of capital from Free China. Deposits of Chinese money in Shanghai and Hongkong have been enormous. Moreover, large deposits of refugee money have gone to America. General Chou En-lai, the Communist general at Chungking, recently charged that highly placed Chinese had sent as much as U. S. $170,000,000 to the U. S. A. for safekeeping--in other words, as much as the U. S. A. has loaned to China. One well known Chinese family is said to have $50,000,000 in U. S. banks.
3. Since everybody was taking money out of Free China's banks instead of putting it in, the Government took to printing money. The bank notes are printed in Hongkong, America and England and flown to Chungking in chartered planes. It is estimated that about $8,000,000 new money has been printed, which would not be much if production had simultaneously risen.
4. Increased expenses have often been met by simply printing more money, which inflated the currency, which again raises prices.
5. The currency is getting shaky, people look around for safe places to invest it. Since new industries are scarce, they invest it in commodities, which causes a scarcity, which in turn causes vaulting prices. Rice, since it will keep for years and can be stored unobtrusively, is the perfect investment.

Lower Wages
The net result is a continuous lowering of real wages, a terrifying drop in standards of living, widespread impoverishment of great masses, and all at the same time that others are making fortunes.
It is only within the last several months that Generalissimo Chiang Kai-shek, mostly concerned with military problems, has felt obliged to bother much about economic problems. He recently put his mind to rice-hoarding, with the result that some three or four prominent hoarders were executed and some 30 members of the government were arrested. That seemed scarcely a fundamental solution.
Dr. H. H. Kung, 75th descendant of Confucius, husband of the eldest of the Soong sisters and China's Finance Minister, is the leading member of the vitamin school of economists. He urges that Szechwan's 60,000,000 eat wheat, beans and corn instead of rice. Recently he gave a dinner at Chialing House in Chungking just to prove that rice was not a necessity. When I talked to Dr. Kung he seemed to think that China's rising prices were only a natural result of war. There are others, who are also highly placed, who believe that sooner or later there will be rice riots which might conceivably turn into embarrassing minor revolts.
Any American who has seen of heard the widespread havoc caused by the Japanese in China is willing to pull for more U. S. loans to Chungking. There should, however, be some guarantee that the loans will be used to stimulate production and this stabilize the economy. For what is the sense of lending more gold if it only results in more printing of money, which causes more hoarding, which means higher prices and which creates more and more hardships for the bulk of the Chinese?

TOMORROW: Chungking. The trip by air from Hongkong to China's wartime capital, a crowded city that has defied Japan's air attacks.

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These are members of the Communist armies equipped with American-made sub-machine guns.
Photo by Harrison Forman

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Rice fields such as these have yielded three successive bumper crops, but there is a breakdown in distribution of food.