Tomoko's book is a valuable and sophisticated account of the China's currency reform in 1935. Tomoko enjoyed an immense benefit in drawing the Japanese source and data of Chinese economic situation in 1930s, which the Japanese regime accumulated in preparation to take over the country. Another interesting point is Tomoko implicitly confirmed the nationwide administrative power of Nanking government, which was previously believed to have direct control on no more than five provinces in the Eastern China. Facing a dim prospect of possible Japanese military threat, Nanking cannot achieve such a grand project of drawing all silver deposits over the country, some even in Japanese-controlled banks, to develop a foreign-currency reserve without a robust administrative capacity and international credibility. Tomoko here implied the personal effect of T.V.Soong in this reform. Without him, I would doubt British and American authorities would endorse such a risky project which could harm their relationship with Japan, especially Britain, which is eager to come to terms with Japanese to draw a line among their Asian real estates....Continua
It is a great book published in time! The author fulfills the great space of the omitted issue of monetary system of Republican China, which was too weak to manage the Great Depression. The interesting point is that the Chinese economy is based on silver, devalued during the late nineteenth century to the early 1930s, but not based on gold. The special condition delayed the great depression from the increasing value of gold until the rising price of silver from 1931. However, the contradiction is that for China, silver is currency, but for the others silver is commodity.
For the sharply industrialization around the Lower Yangtze Delta, Shanghai also became the greatest import market of the silver demand of the world. The author then turns to the industrialization, especially the challenges of the cotton-spinning and silk-reeling industries in the Lower Yangtze Delta. The two industries faced the competition from Japanese and Indian textile industries and the upgrading difficulties in the late 1920s.
Without the appropriate financial institutions such as stock market, the entrepreneurs heavily relied on their product as the collateral to borrow money from the native banks, who also use the same trick to get their credit from the HSBC, the market leader of silver on Shanghai. "This type of loan contract, involving collateral and careful monitoring, does not fit the conventional conclusion that most loans in China were based on personal credit.(86)"
The agricultural sector is another story. Chinese farmers around Yangtze River are not isolated from the monetary economy but deeply involved in the market and trade. When the appreciation of silver happened after 1931, their living standard seriously suffered from the dropping price of agrarian products. The rural financial institutions relied more on the personal ties are collapsed by the depression of the markets for both products and credits.
The crisis spreads from the rural farmers to the Shanghai bankers because they belonged to the same financial chain of collateral. Moreover, the chain finally linked with the declining export to the American and European textile markets, which also suffered from the Great Depression. After the silver oversupply between 1929 to 1931, the appreciation resulted from the American Silver Purchase Act (1934) reversed the Chinese economic cycle from a lower interests to a depression of credits. Silver rapidly flied out and collapsed the booming Shanghai real estate market.
Chiang Kai-shek administration tried to inject funding into the financial institutions but did not work well. The Republican government tried to get loans from the Western Powers, espacially from the US, but resisted by Japanese government, which wanted to weaken Chiang's rule for the attempt of invasion. Issuing new Chinese currency dis-articulated with the silver standard looked like the only way out of the turmoils. Finally the Nationalist government made deal with US by the sale of silver for funding the new "legal tender(法幣)," which sufficiently led to the reflation of credit and the recovery of export. However, the budget and finance were constrained and the agricultural sector still suffered from the narrowing credits.
In conclusion th author implies that the Nationalist government did good in monetary reform, but not good enough. The Chinese state was too weak to shape necessary financial institutions for industrialization. After the broken out of Sino-Japanese War, the weakness of the low standard foriegn reserves and inflation became the leather damage for the KMT government. In contrast, after 1949 the communist government adopt a reversed strategy, cutting down the international trade and stopping foriegn exchange for reducing the inflationary rate. Ironically, the painful experience of the KMT government has become the legacy of the conservative central bank policies in Taiwan.
I am looking for the next book of the author, who looks like interested in the recent economic frustration......Continua