Inflated Crisis

China's monetary crisis last weekend inspired an excited Associated Press cable from Shanghai: "An American consular announcement today blasted Chinese Premier T. V. Soong's abortive 100% export subsidy program, as Chinese currency continued its dizzy descent, and the complete economic collapse of Generalissimo Chiang Kai-shek's Nationalist China appeared to be a very real possibility."

It was not that bad. China's largely agricultural economy has not much to do with foreign-exchange fluctuations in Shanghai. But the latest slump in the Chinese dollar, aggravated by inept Chinese Government public relations and feverish reporting, was bad enough.

Last week Premier T. V. Soong attempted to help the export trade by establishing a separate exchange rate for it, similar to a separate rate uneventfully set up a few weeks ago for remittances by overseas Chinese. Unfortunately, in announcing the new export rate, Soong used the words "export subsidy." Shanghai businessmen are aware that U.S. law permits the imposition of countervailing tariffs on goods sent to the U.S. under export subsidies by foreign governments. Shanghai believed that the U.S. Consulate had announced that it would invoke the countervailing machinery against Soong's subsidies. Some Chinese drew from that the sensational conclusion that the U.S. had withdrawn all support of Chiang's Government. (The State Department in Washington was informed by its Shanghai Consulate that it had merely announced that Soong's measure had been forwarded to Washington which would determine whether or not it was an export subsidy.)

In three days of confusion, the Chinese dollar rocketed from 10,000-to-1 U.S. dollar, to 14,000-to-1. One day this week a foreigner walked down a crowded Shanghai street carrying Chinese currency, bundied but unwrapped, up to his chin like kindling wood. He was unguarded--and safe.

The rumor "This is it" ran through Shanghai's ever-jittery streets. But the peasants in Szechwan and Yunnan provinces, getting ready for the spring crops, were undoubtedly less excited.

The wild rumors let loose by a reported U.S. decision on export subsidies pointed up the need for a new U.S.-China policy to replace the outworn mediation policy abandoned last month when George Marshall left China. TIME Correspondent Frederick Gruin then cabled: "It looks as if the book of mediation is now definitely closed. A new book must be opened, and its cover must be turned in Washington. The Secretary of State and the U.S. people must choose one of three possible policies toward China--a policy of confusion and aimless drift; a policy of complete withdrawal, which influential voices will vigorously advocate; or a policy of continuous aid to the Gimo's Government on the condition of continued reform such as has been evident in the past year." If the U.S. did not make up its mind soon, doubt about eventual U.S. aid would encourage the Chinese Communists in their efforts to destroy the Chinese Government's currency by continuing the civil war.

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