Hyperinflation in Civil War China
I have recently been reading Helen Zia’s Last Boat out of Shanghai, which presents a narrative history of a handful of refugees who fled Shanghai as the Communist Party took control of China in the late 1940s. In framing this flight from the city, Zia details the experiences of the refugees during the Japanese occupation during the Sino-Japanese War, as well as just after the Chinese Civil War. Naturally, there is a lot of heart-wrenching suffering documented in these pages, from people of various backgrounds, but I found the experience of hyperinflation during the late 1940s to be particularly interesting as something I had not heard of before.
Zia first describes the experience of that hyperinflation from the view of the people trying to pay for what they need:
Everyone in Shanghai had had the unsettling experience of looking in a shopwindow as a clerk reached in to cross out one price and scrawl a new, much higher price, often x-ing out prices several times in a single day. Not even the belt-tightening inflation during the war had prepared them for costs that seemed to multiply by the minute. In June 1948, a sack of rice had cost 6.7 million yuan; within a few weeks the price had reached 63 million.
In response to the out-of-control inflation, the Nationalist government of Chiang Kai-shek did what most governments in history have done. Chiang Kai-shek appointed his son, Chiang Ching-kuo, finance minister and had him go after “hoarders” and “speculators.” Most egregiously, the younger Chiang ordered Chinese citizens to hand over all gold, silver, and foreign currency to the government, as well as outstanding yuan, for a new version of the yuan supposedly backed by gold. Zia quotes Chiang Ching-kuo as threatening, “Those who damage the new gold-based currency will have their heads chopped off!”
This policy did not last long, however. Chiang Ching-kuo made the mistake of arresting the wrong person for “speculation”:
Chiang Ching-kuo also arrested David Kung, the nephew of his stepmother, Madame Chiang. Upon learning that her favorite nephew was in jail, Madame Chiang stormed into her stepson’s office and slapped his face. Then she wired her husband, the generalissimo…
This severe loss of face put an end to Chiang Ching-kuo’s attempted currency reform process. Forced to abandon it, he released the “hoarders” and “speculators” from prison. The new version of the yuan failed spectacularly:
The newly issued currency collapsed, becoming instantly worth less than the paper it was printed on. Everyone who had obeyed the government’s orders to use the new currency lost everything; their assets of gold, silver, and foreign currency were now locked in Chiang Kai-shek’s treasury.
It is important to note that Zia is not an economist, and takes essentially for granted that the inflation was due to hoarding and speculation rather than the printing of money by the Nationalist government to fund their war efforts (though she does not explain why, if that is the case, foreign currency was still “better than gold against the collapsing new Chinese yuan”). There is, however, still a lot of value to be gleaned from this narrative history and it is worth examining in detail. I highly encourage the reader to consider purchasing this book for that alone.