102.1/7–2446: Telegram
The Consul General at Shanghai (Davis) to the Secretary of State
[Received July 24—8:15 a.m.]
1328. For Secretary of Treasury from Casaday: In connection with our discussion of the no-rate CNC problem (see Nanking’s 1160, July 18 and Shanghai’s 1318 of July 22) Governor Pei stressed the need of the Government at this time to use large sums in US dollar funds “to check inflation and support the Chinese currency”. In a letter from the Minister of Finance to General Gillem, copy of which is being forwarded to you [by air,] this was given as the reason for requiring henceforth “current reimbursement” in US dollars for CNC released or advanced to the armed forces. Pei stated to me in confidence that, barring a definite turn for the worse in the political and military situation, he can now for the first time begin to feel fairly optimistic about the possibility of controlling the inflationary spiral. He pointed out that the bank now has considerable foreign exchange resources with which to support the value of Fapi and that the acquisition of dollars presumably soon to be brought about by the new policy with regard to the US armed forces (see reference messages) will be of great additional help in this direction.
On the question of prices Pei stressed the extent to which the general price level is influenced by the price of rice and went on to say that, although the recent attempt of the Shanghai municipal government to reduce the local price of rice from CNC 71,000 per picul to CNC dollars 46,000 per picul was admittedly a failure, the outlook for price reduction and stabilization is by no means discouraging. He stated that rice is now flowing into Shanghai from Szechuan at the rate of 10,000 piculs per day which is approximately the daily consumption of rice in the Shanghai area. In addition, 5,000 to 10,000 tons of rice are expected shortly from Brazil. Continuing imports from this and other sources are anticipated between now and the advent of the Chinese harvest even if present prices should be reduced [Page 995] considerably. Pei stated that the great majority of the rice now coming into Shanghai both from the interior and from abroad is coming into Government possession and so is potentially subject to control. The Shanghai price of rice fell from CNC dollars 71,000 or higher to CNC dollars 46,000 per picul for only a day or two as a result of the municipal government’s abortive attempt at control. When the effort was abandoned the price rose to CNC dollars 68,000 to CNC dollars 70,000 but since then has receded steadily, the latest quotations being in the neighborhood of CNC dollars 60,000 per picul.
Governor Pei seems confident that this gradually downward tendency in the price of rice (and an assumption, other prices as well) can be maintained. With the coming of the new harvest in the Autumn there is, he feels, a reasonably fair chance that the price of rice can be held indefinitely to a level approximating CNC dollars 30,000 to CNC dollars 40,000. If this could be done price and currency stabilization would be definitely within sight, he said.
Repeated Nanking as 730. [Casaday.]