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The Economic Ministries

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The Ministries dealing in economic matters bear the ultimate burden of resistance. Upon their success depend China's tools of war. If artillery, aircraft, machine-guns, munitions, food, clothing and other necessities are not available to the central armies, the opportunity for counter-attack may come and go, and China be lost—not through the power of her enemy, but through her own weakness. Unless economic mobilization succeeds, the guerrilla warfare in the occupied area will be frustrated, since its purpose is merely to prepare for a révanche from Free China; history affords few examples of guerrillas defeating mass armies, fighting positionally, without the intervention of other mass armies.

The Ministry of Finance (Ts'ai-chêng Pu) is the leader of the Economic Ministries. Headed by H. H. K'ung, successor to the celebrated T. V. Soong, it has performed fiscal miracles in maintaining the credit of the National Government. Chief among its accomplishments has been the institution, within the past decade, of a managed currency on the gold-exchange standard. Specie had been the immemorial medium of exchange, and Chinese experience with paper money—from the earliest times to the present—had been unfortunate. Starting with the 1860's, China had undergone one paper-money inflation after another. Governmental currency was frequently a receipt for silver on deposit, in which case it amounted to no more than a commodity warehouse certificate, thereby subject to discount for transportation charges, and fluctuating meanwhile with the world price of silver; otherwise it was fiat money, guaranteed by stranglers' cords and long knives. Fractional coins passed by metallic weight; the shifts in the price of copper in New York and London determined the number of pennies which farmers received for their silver dollars, even on the threshold of Tibet.

By putting private bank notes, both Chinese and foreign, out of circulation, systematizing note issuance to four government banks and a limited number of carefully supervised provincial agencies, the National Government made the change with far less difficulty than anyone, even optimists, dared to hope. Until the outbreak of war subsidiary coinage was copper and aluminum; this has been replaced by fractional paper, circulating decimally without discount for exchange into larger bills. Simple peasants, who used to hide a slug of silver in their fields, now conceal a Bank of China, Bank of Communications, Central Bank of China, or Farmers' Bank of China fa pi (legal tender) note in roofs or walls.

Other noteworthy reforms include the standardization of levies in the provinces, now proceeding to some degree, and the imposition of direct taxes, a revolutionary step for China. Income and inheritance taxes, previously thought to be uncollectible in a pre-modern area such as China's hinterland, are yielding substantial sums. War borrowing is done almost entirely through domestic loans. These are issued in the form of patriotic contribution bonds, and are available in denominations as low as Ch. Nat. $5.00 (about 28 U. S. cents). Further support has come in the form of American, British, and Soviet fiscal aid, and—until the outbreak of the European war—additional credits, both private and intergovernmental, from continental Europe. The Ministry has moved with a financial prudence which promises to maintain China's domestic and foreign credit for further years of war.

The Ministry has engaged in direct conflict with the enemy through bank-note rivalry. Throughout the occupied area, National Government currency is in conflict with the issuances of the Japanese army and the pro-Japanese governments. The Chungking policy has been to hold back the invasion currencies, on the assumption that continued circulation of the national currency maintains a continued popular stake in the government. Many guerrilla leaders believe that the occupied areas should use nothing of value to the Japanese, and therefore encourage the issuance of local emergency currency.

Under the Ministry of Finance, numerous efforts have been made to keep foreign trade alive. With war-time pressure on transportation facilities, foreign trade has become a virtual monopoly of the government; few major transactions are made by wholly private interests, since in addition to monopolizing the highways, government-owned corporations also have access to differentials in foreign exchange (which often mark the difference between great profits and none). In the matter of the governmentalized Sino-American trade, correlated with the American credits, the Foo Shing Corporation (export) and the Universal Trading Corporation (import) control the current both ways. The Ministries of Communications and of Economic Affairs also have a share in this state-capitalist business.[17]

Subdivisions in the Ministry of Finance include sections for customs, salt gabelle, internal revenue, general taxation, public loans, currency, national treasury, accounting, and general affairs. Efforts are now in progress to consolidate all intragovernmental fiscal services, so that the budget shall cover the entire government, and separate agencies will no longer be able to make half-controlled collections and disbursements.

The Ministry of Economic Affairs (Ching-chi Pu) is in general responsible for the industrialization of an area half the size of Europe with well over two hundred million inhabitants. No non-industrial state can defeat an industrial state unless it has access to the industrial resources of third parties. The Chinese, realizing this, have launched a modernization process unparalleled in modern history. The two greatest migrations of the twentieth century have occurred, most probably, in China: the first the settlement of Manchuria, and the second the flight to the West. In each case more than twenty million persons have been involved. The Ministry of Economic Affairs has transformed this rout into a pioneering advance. Refugees have been taught to bring their tools with them; when they had no tools their skills have been sought out and utilized. As the national armies and government retreated up the Yangtze and inward, they brought along the personnel of a modern economic system, and set an industrial society down in a world technologically backward.

West-China modernization will probably be the most durable economic consequence of the war. Cities near the edge of Tibet have underground electric power and automatic telephone systems. Primitive salt-drying areas have been modernized; in one instance, steel pipe being lacking, bamboo pipelines, plastered and cemented for reinforcement, run cross-country. Filthy, tax-ridden, vicious little cities which had been the haunts of opium-sotted militarists are now given the double blessing of fair government and a business boom. (The author felt, when he returned to America in September 1940, that he was going from a new country to an old, leaving the hope, zest and high spirits of the Chinese frontier for the comfortable melancholy of American half-prosperity.)

On the government side, the stimulation to technological advance has consisted of broad, experimental use of government personnel, subsidies, and part-ownership, together with some outright state socialism. Four types of encouragement appear with particular frequency: the government-controlled movement of private industries from the endangered areas to the West, government sponsorship of brand new industrial enterprises, official encouragement of cooperatives, and state ownership-management of enterprises.

Many industries were saved for China through compulsory movement. Thousands of tons of industrial equipment were moved up to the West, floated on barges and river-boats, or dragged by hand over macadam highways, dirt roads, and mud footpaths. One single enterprise, the Chung Fu Joint Mining Administration of Honan, successfully transferred one hundred and twenty thousand tons of equipment, now applied to coal mining in the Southwest.[18]

Government sponsorship of new enterprises covers the entire field of modern industry. Investors wait in line before opportune undertakings. Electric light bulbs, safety matches, automobile parts and tools, clothing—everything from machine-shop tools to luxury goods is being produced in the West. Bottlenecks do occur in new industries competing for priorities in imported machinery.

In the field of cooperatives, the C. I. C. (China Industrial Cooperatives) stand out as truly important social and economic pioneering. (See below, p. 223.)

Government ownership has not been niggard or timorous. In most cases it has followed American patterns and appeared in the form of government-owned corporations, but there are also a considerable number of frankly state-operated enterprises, such as municipal food stores, ferries, and heavier industrial undertakings. The munitions and motor fuel trades are, so far as the author could find, entirely a matter of government ownership. In the air communications and airplane production field, government ownership is relaxed to the point of a senior partnership in joint companies with foreign corporations; the latter provide the supplies and trained personnel.

The Ministry of Economic Affairs is under the control of Wong Wen-hao,[19] whose career was first distinguished in geology and educational administration. His scientific outlook stands him in good stead, since the exploitation of West-China resources requires scientific as well as business application. Subdivisions of his Ministry include those of mining, industry, commerce, water conservancy, and general affairs.

A Ministry of Agriculture and Forestry (Nung Lin Pu) was set up in 1940 as the third economic ministry. Industrialization's dependence on farm products makes this an invaluable coordinate to the other two Ministries. The Chinese are in many cases proceeding directly from pre-industrial to the latest chemico-industrial techniques, and skipping the phase of reliance upon subsoil minerals. Gasoline is being mixed with fuel alcohol derived from grain; plastics are appearing.

Agriculture also involved China's greatest social problem—that of encouraging freehold or cooperative farming at the expense of sharecropping. Much of the agricultural reform is undertaken by the new local government and provincial government plans, but the problems of farm prices, general farm planning, and utilization of agricultural products fall on the Ministry. It is headed, not by a farm leader or expert, but by the General Chên Chi-tang, former governor of Kwangtung Province.[20]

A proposed Material and Resources Control and Supervision Ministry (or Ministry of Economic Warfare), based approximately upon the British Ministry of Supplies, is in process of organization.[21] The Ministry may be kept independent of either the Executive Yüan or Military Affairs Commission, since it is to coordinate a group of industrial and commercial agencies which are now independent. Upon its establishment, the Ministry of Economic Affairs will become one of Industry and Commerce, and a central agency for economic war work will be available.

The National Relief Commission (Chên-chi Wei-yüan-hui) supervises the general relief work of the government, which is performed in part by the extragovernmental war and Party agencies and in part by local and provincial authorities. The immensity of the relief problem in China has always been such that organized relief can do no more than stir the misery of the masses. Opportunely for the National Government, the Imperial Japanese Army is securely in possession of the world's greatest relief problem, and unable to relinquish it. Chungking is more fortunate. (The author never dreamed that prosperity such as he saw in West China could exist in Asia. Prices are extremely high, but wages and farm prices tend to follow, and unemployment—always low in China because of the work-sharing role of the family—is almost completely out of sight. Skilled labor commands remuneration fantastic by pre-existing scales.)

All these agencies, and much of the rest of the government, depend upon the Ministry of Communications (Chiao-t'ung Pu). The invasion struck at existing communications lines; Japanese are now in control of the mouths of all major Chinese rivers, most of China's railway mileage, and the coastal system of modern highways. A glance at the map of China will show that Japanese forces have hugged modern communications lines, whether steamship, railway, or highway. Whenever the Japanese ventured far from these lines, they met with disaster.

The Ministry of Communications has used existing facilities to draw new networks. The short stretches of railway in Free China are still operated; matériel from the occupied zone was brought West on them, and they are undergoing rapid development. Roadbeds are being constructed in anticipation of future imports of steel rails. Steamship enterprises, under government subsidy, operate extensively, and new reaches of river have been opened to service.

Three lines of reconstruction have proved very fruitful: motor communications, telecommunications, and the rationalization of pre-modern facilities already at hand.

Motor communications, both highway and aerial, have shown enormous progress. Air service is maintained by the China National Aviation Corporation and the Eurasia Company, both owned by the Chinese Government, the former jointly with Pan American Airways and the latter with German interests. Through connections from New York to Berlin are available by the combined services of the two companies.

The highway system can be thought of as spider-like. Three enormous legs reach to the outside: the Chungking-Kunming-Lashio route, famous as the Burma Road; the trans-Sinkiang route, finally connecting with the Soviet Turksib Railroad beyond thousands of miles of desert and mountains; and the due North route, now being developed, reaching the Trans-Siberian Railroad. The body of the system is a tight, well-metalled skein of roads interconnecting the major cities of Free China. Most highways are all-weather, and well-engineered, but niceties of surfacing have been postponed.

Truck and bus service is regular, but very crowded, with inescapable confusion as to priority. The majority of the operating firms are government-owned, either by the central government or the provinces. Complaint has arisen over the restrictions to private enterprise in this field. Since gasoline costs about U. S. $1.00 per gallon and is available only under permit, further official obstructions to highway use seem unnecessary.

Telecommunications have been maintained and extended. Telegraph service has reached into hitherto untapped areas, and wireless is extensively employed. Radio services operate under the Kuomintang, not the government; stations XGOX and XGOY reach North America and Europe with propaganda in the world's leading languages. The telephone has come to be a regular part of Chinese official and business life, and is to be seen, far off the beaten track, as one of the heralds of industrialization.

All these modern services would, however, be grossly insufficient for the needs of the whole nation at war. They have been supplemented through the use of every available type of pre-modern transportation. Most of these rely on man-power, and have had their own elaborate organization for many centuries: boatmen's guilds, unions of transport coolies, carters, muleteers and camel-drivers. It has been possible to ship heavy freight through country consisting of mountains traversable only by stone-flagged footpaths or torrential streams. The Ministry has regimented this complicated pre-modern world, with impromptu modernizations as startling as they are efficacious. Where once couriers trotted, they now speed by on bicycles or motorcycles; the squealing wooden-axled wheelbarrows of the Chinese countryside are yielding to pneumatic-tired carts which resemble American farm trailers. Three to eight men can drag one cart, with half a ton of freight, over any terrain, making up to forty miles a day. Provision can be made, therefore, for moving a quarter-million tons of raw materials across territory lacking even the most elementary roads. The roughness of the country, which bars the Japanese army, is no obstacle to huge coolie gangs, drafted sometimes, but more usually hired.

The Minister of Communications gave the following written answers to questions put by the author:[22]

1. In view of the political interruptions to commerce through British and French territories south of China, will efforts be maintained to keep communications on the same schedules southward that they had before?

Yes, because commercial and export traffic is still being carried on southward, and there is a large accumulation of important materials to be moved from the frontier inward.

2. Will the restriction of gasoline lead to the abandonment of certain truck and bus routes, and the maintenance of others, or do you expect to restrict all routes evenly?

We expect to restrict all important routes evenly if the motor fuel situation becomes really acute.

3. Is a motor road running through Inner and Outer Mongolia directly north to the Trans-Siberian Railroad a feasible project?

Yes, it is a feasible project.

4. For all practical purposes, is the Soviet route as it exists an adequate although expensive channel for the import of high-class American machinery, such as trucks?

Yes, the Soviet route as it exists is adequate though expensive for the purpose.

5. Is there evidence that mail between the United States and China has been censored or tampered with while in transit past Japan?

No, there is no such evidence so far.

6. How extensive a foreign personnel do you have in the varied agencies under your Ministry?

Postal Service: 28
China National Aviation Corporation: 15
Eurasia Aviation Corporation: 13
Railways: 8

7. What developments of the last three years do you regard with most pride, as evidence of China's power to cope with the emergency?

The timely completion of the Yunnan-Burma Highway may be considered as evidence of China's power to cope with the emergency and as an important development in the field of war-time communications. The Highway is 960 kilometers long from Kunming to Anting on the frontier. Construction began in October 1937. Eleven months later, the road was opened to through traffic. At one time during its construction, as many as 100,000 laborers were employed on the road.

The highest point on the Highway is 2,600 meters above the sea level, yet the road has to pass two deep valleys, the Mekong and the Salween, where the Highway dips a few thousand feet within a distance of several miles in order to reach the river bed, and rises precipitously again in the same manner just beyond the suspension bridges over the two turbulent rivers. The scarcity of local labor, the enervating climate, and the wild and sparsely populated country traversed, all combine to make the construction work difficult. But now, anyone may take a motor car and cover the distance between Chungking and Rangoon in two weeks, as Ambassador Johnson did soon after the Highway was completed.

The Minister Chang Kia-ngau (Chang Chia-ao) is one of the most eminent bankers in China. His Ministry is a model of business-like organization and systematic routines; he has a great reputation for getting things done in the American fashion—quickly, and without ceremony.

In addition to these major ministries, there are the Pu of Justice (part of the Judicial Yüan, sharing its war-time somnolence), of War (affiliated with the Military Affairs Commission), of Audit, of Personnel, and—in process of establishment—of Social Affairs, supplementing the Party-Ministry of Social Movements (Shê-hui Yün-tung Pu) now under the Kuomintang Headquarters.

All Ministries are headed by a Minister (Pu Chang), seconded by a Political Vice-Minister (Chêng-wu Tzŭ-chang) and Administrative Vice-Minister (Ch'ang-wu Tzŭ-chang). Since almost all officers are political appointees, and few of the new career men have touched the higher levels of the bureaucracy, this duplication prevents a job famine and keeps personnel levels high; the utility of a large administrative staff depends, obviously, on the nature of the executive. Some of the most crowded ministries seem permanently under-staffed because of the intense activity they maintain; others, with skeleton staff, appear to have far more civil servants than service. The over-all picture of the Ministries, however, leads inescapably to the conclusion that they are really functioning today. Long-transmitted vices of sloth and sinecures are on the wane. The war, high-lighting every demerit into treason, has created optimum conditions for administrative progress in China.

The China of Chiang K'ai-Shek: A Political Study

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