Why did the Nationalist government collapse? Chiang Kai-shek had a style of government that maximized his power by creating competing agencies which vied for power. Ultimately, nothing could get done without the personal attention of Chiang. He had little understanding of finance and simply demanded that banknotes be made available to pay for his military. The history of Chiang’s rise to power was impacted by the warlord era, which made the size of one’s army key. So he consistently rejected advice from foreign advisers to reduce the size of his military and improve conditions for soldiers. Low morale in the underpaid army led to defections. The collapse of the Chiang government reveals the perils of having too much authority in the hands of one individual.

Early hopes that the economy could be revived quickly were soon dashed. T. V. Soong’s projects strained the budget as well. Japanese reparations were of little help. The foreign exchange issue remained a difficult problem

State enterprises had the upper hand over private firms. Foreign firms found it difficult to do business in China as well. Textiles did well at first but encountered supply and energy problems. Much of the cotton textile industry was controlled by the government, especially mills that had been run by the Japanese during the war and then taken over by the government. Electric-power generation has difficulty recovering. Many plants had suffered damage during the war and could not replace damaged equipment.

At the end of 1946: Had China reached a tipping point?

The chapter offers a general introduction to the Ichigo campaign, particularly with reference to its economic impact. Launched late in the war when Japan’s position in the Pacific was deteriorating, it was the largest military campaign ever undertaken by the Japanese Imperial Army. The armies of Chiang Kai-shek performed very poorly, often just melting away. There was general pessimism about the war in China even as the Allies did well elsewhere.

The campaign had a calamitous economic impact on Free China. Food supplies were cut off. Hyperinflation continued to have a devastating impact on the lives of Chinese. There were struggles in maintaining the exchange rate of fabi and the beginnings of conflict with the United States over this issue. US treasury secretary Morgenthau became angry with Chiang. A second dispute over the sale of gold in China supplied by the United States created tension between Morgenthau and T. V. Soong who represented Chiang in Washington.

This chapter looks at the two men, T. V. Soong and H. H. Kung, who dominated financial positions from 1928 until the collapse of the Nationalist regime on the mainland. Both had personal ties to Chiang through his wife Madame Chiang Kai-shek (Song Mei-ling). A bitter rivalry developed between them that impacted the entire coterie of financial and banking officials. On a related issue, it examines the prevalence of American education among financial officials and its impact on ties to America, particularly in the Soong family. This chapter uses the papers of Lauchlin Currie, a key aide to Roosevelt, who made several trips to China on his behalf. The chapter closes with an examination of the way in which the two men have been portrayed in writings about the Chiang Kai-shek era, suggesting some reevaluation is needed.

This chapter examines the scandal associated with the American Dollar Bond issue and the resignation of H. H. Kung

In the last days of fabi, T. V. Soong heads south to become provincial governor of Guangdong province. On the introduction of the gold yuan currency in August 1948, Chiang Kai-shek turns to his son Jiang Jingguo (Chiang Ching-kuo) who begins a reign of terror in Shanghai. He alienates major capitalists and bankers and tackles David Kung, Madame Chiang’s favorite nephew, creating a family crisis.

Jiang Jingguo cannot hold the line on commodity prices in Shanghai. Controls are abandoned at the start of November, and hyperinflation explodes. The communist military victories exacerbate the situation. Capitalists begin fleeing China for Hong Kong, America, and elsewhere.

Why did the Nanjing government wait so long to introduce the new currency? Chiang’s focus on military issues had led him to ignore the issue until it was too late. Chiang resigns and T. V. Soong heads to America. Afterward – a bitter exile for the Soongs and Kungs.

The introduction establishes the background to the hyperinflation crisis and outlines the major issues explored in the manuscript. It begins with the creation of the fabi currency in 1935 and argues that it was set up to fail because there were few checks on expanding note issue.

It examine the currency war that erupted after the fall of Shanghai and the establishment of Japanese client regimes in Beijing and Nanjing. Each of the latter had separate currencies that were rivals with fabi.

The chapter presents the overall thesis of the study and the sources which have made it possible. New material gives an inside look at the decision-making process of the Chiang Kai-shek government. The most important has been the archives at the Hoover Institution at Stanford and material in Taiwan. The study particularly benefited from eight academic conferences at Fudan University in Shanghai.

This chapter examines the impact of the sudden end of the war, which caught the Chiang Kai-shek government off guard. The Allies had planned an amphibious landing on the coast of China, which would have given Chongqing time to regain control of the east coast and reduce inflation. After Japanese surrender, inflation briefly halted but then rather quickly resumed. Why was there no peace dividend?

Botched liberation: The retaking of occupied areas was done poorly, alienating many of the residents who had endured years under Japanese control. Topics covered include fleecing collaborators and undervaluing the currency of the Wang Jingwei government. There were problems maintaining the exchange rate of fabi with foreign currencies. Shipping and transportation problems were serious and inhibited economic recovery. UNRRA had problems getting aid to China.

The year begins with emergency control policies designed to curb accelerating inflation. The government halts sale of gold. Political attacks on T. V. Soong become strong, especially in the Legislative Yuan. Soong resigned as head of the Executive Yuan in March 1947. Most of the reform policies adopted earlier in the year are then abandoned.

Political attacks on “bureaucratic capitalism” follow, with foreign businessmen joining the attack, as well as criticism of the “holy family” enterprises, those connected to the Soong and Kung families. Attacks on both accuse them of corruption, charges they try to refute.

Getting Chiang Kai-shek’s attention is a problem. Little can be done without an endorsement by Chiang. But he has little knowledge or interest in financial issues. His focus is on military matters. Foreign exchange woes worsen.

Chapter 6: 1948: The Collapse of Fabi and the Gold Yuan Disaster

Keywords: fabi, gold yuan, collapse of fabi, hyperinflation, Guangdong, Jiang Jingguo, reign of terror, collapse of the gold yuan, Soongs in exile