Salient Features—"Hong Kong Letters"

Canton Date Line

Red Ruin

"The Communists, not Marxists but Socialist Agrarians, have cancelled land mortgages and put the peasant on a sound economic footing. Thus, although the Chinese official is a born 'squeeze' artist, he hasn't much scope and the administration is reasonably honest Chiang and Co. realise the Chinese, given the chance, would have such a government and bring the gang to a bloody end obtaining it.

"Not being strong enough to hold out alone (the Communists were the only Chinese to beat the Japanese in pitched battle), the boys look after their old friend, Uncle Sam, dangling before his popping eyes a succulent double bait—the Communist threat to appeal to the Sir Galahad in him and the unlimited market of China for his more profane tastes.

"Well, it's another case of hook, line and sinker, with the Yanks pouring in dollar credits and munitions into the country (over 200 U.S. warships have just been given to the boys to play with). American soldiers, too, were sent in to disarm "the Japs—the last Jap left China a month ago, but the doughboys are still around, although a lot of them have a Fairy Godmother who turns them into benevolent [unclear: busy] men at a wave of a wand.

The Yankee dollar

"As part of the bolstering process the Chinese national dollar (CN$) has recently been anchored to the Yank dollar at rate 2,055 CN$ to one US$. What an opportunity! The inert clique take US$ at 2,055 through the loan funds, keep printing billions of CN$, and lift all controls in a terrific inflation splurge which has shot the real rate to 2.600:1. As US$ cannot be exported the boys do quite well. One result is that the US$ has also become considerably inflated in China.

"To give you some idea of the speed at which the toboggan is now moving—the cost of living index in Shanghai was 52% higher in May than in April, and in ten years it has risen [unclear: 000.] times. It now costs more to unload a ship at Shanghai than to load and ship the goods from America. Even with these prohibitive additional costs in Shanghai, traditional home of the world's cheapest labour, half the cotton factories, and in Canton most of the tobacco factories, have closed because they cannot compete with articles made in the country with the highest labour costs. You can imagine what has happened to China's export trade. For the first six months of 1946 exports through Shanghai totalled 16% of imports, and if UNRRA is considered, about 9% of imports.

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."

Shanghai Sorrow

In an earlier letter he writes;—"Shanghai is of course terrific. A huge brash, wicked city, still rich to outward appearances, but in reality in a state of anarchy, rife with graft and corruption, and the scene of the first real trial of strength between British and American forces. Yanks arrive as army officers, commandeer British flats and clubs, and unobtrusively change to big business men.

"There is no International Zone in Shanghai now. It is completely 'controlled' by the Chinese. On all sides I have heard terrible tales of the rottenness of the National Government Inflation, which still continues unchecked, has resulted in millions of hardworking people becoming starved and homeless, while a few at the top have become incredibly rich.

"A conservative Englishman in Shanghai told me that it would be a major tragedy if Russia, by not annexing Manchuria, allowed it to fall into Chiang's hands. Pretty well 100% of Unrra aid is sold by its corrupt administrators direct to the black market, and practically none of it has reached the interior.

"Opinion is that the Chinese were much better off under the Japs than under their own Government."