International Payments of Postwar China

Abstract

AT the close of the Pacific War, it appeared that China might be able to stabilize her economy and her balance of payments. Though the Communists were in revolt, it did not appear that dealing with them would be an exhausting experience. During the war, China had built up a foreign exchange balance of US$9oo million, and her credit was fairly good. She had every expectation of receiving financial support from the United States in reconstruction. The UNRRA program, of which China was to be a major beneficiary, had begun. Lend-lease was continuing into the postwar period. The relatively undestructive reoccupation of coastal China and Manchuria encouraged some optimism in Chinese circles over the benefits to be obtained from seizure of Japanese assets in China and from reparations. It was expected that the recovery of Manchuria and Formosa would strengthen the national economy. The inflation, though serious, appeared manageable since it was not believed that liquidation of the Communists would be a particularly expensive undertaking. This optimism did not last long. Upon the resumption of foreign trade, it became clear that basic disequilibria were forcing the Chinese deficit in the balance of payments' to become ever greater. The military situation in China seemed to improve for a while, but after the failure of the Marshall mission it deteriorated and the war effort absorbed up to 70 per cent of the national' budget. Deterioration of the taxation system and other sources of revenue forced the government to finance its expenditures by printing money. Hyper-inflation resulted.