Anarchy and Unnra

"My guess is that complete anarchy and bankruptcy will come within three months. This is the rotten, stinking mess the Yanks are backing, mouthing sanctimonious democratic phrases the while.

"The Chinese Liberals, inheritors of the ideals of the Republic, headed by Madame Sun Yat-sen, have called on them to leave the shores of China forever. If they pull out the Communists will win hands down because the people are with them. If they stay Chiang will need a completely Nazi regime to retain power.

"Other pieces help to complete the jigsaw—fantastic UNRRA profits and the destitute still starving—the beating up of Shanghai students by the police—the new law allowing police to enter any building without a warrant. Rather grimly consistent.

"Now, how does Hong Kong fit into all this? First of all, some important features of the treaty of cession 184X; Hong Kong is a free port (no customs dues) and there is no control exercised over Chinese moving into or out of the colony. The flow of goods from abroad has steadily increased since the re-occupation, but enormous shortages in China and the ease with which Chinese customs officials can be avoided or bribed along the open border result in the flow continuing right through the colonies. The fantastic prices realised in China keep prices high here and attempts at control drive whole commodities off the market and into China. Goods passing the other way are negligible. Thus certain merchants are making enormous profits and China is being surely drained of her overseas credits with very little to show for it. (In case I appear to be inconsistent 90% to 100% of the goods which reach China through Hong Kong are sold on the black market, where Chiang's pals trade their ill-gotten US currency).

"When the crash comes and Chinese currency really breaks loose, the inflow of goods will stop, as payment in US$ or sterling will be impossible. Prices in Hong Kong will plummet, the deflationary tendency of the Hong Kong dollar will be accentuated, and trade slow up or stop. Apart from those who are paid fixed salaries at a sterling rate, many will have a lean time. Then until China can regain a balanced trade this place dies and will rapidly depopulate."