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History and Planning: Some Aspects of Economic Development in Asia-I. Chinese National Expenditures in the Nanking Period

Published online by Cambridge University Press:  23 March 2011

Douglas S. Paauw
Douglas S. Paauw
Affiliation:
Harvard University
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Extract

It is useful to assess the effect of Nanking fiscal policy on the Chinese economy since we are once again in the strategic position of rendering aid and advice to under-developed areas. (Nanking fiscal policies were predominantly repressive of economic development; they were not designed to alleviate the traditional economic burden on the peasant nor to promote the growth of industry.)

Type
Articles
Information
The Journal of Asian Studies , Volume 12 , Issue 1 , November 1952 , pp. 3 - 26
Copyright
Copyright © The Association for Asian Studies, Inc. 1952

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References

1 In the study of national expenditures during the Kuomintang period, there is special merit in restricting attention to the nine years period (1928–1937) during which the central government was located at Nanking. It was only during this brief period that the Republican central government had fiscal control over the greater part of China proper. It was also a period when the Kuomintang was attempting to establish an independent national system of public finance. Annual fiscal reports were issued for all but the last two fiscal years of the period. Fiscal statistics were subject to the review of a number of economic missions from the West. The entire system of public finance was studied by foreign economists several times during the period. These and other observers believe that fiscal statistics issued by the Nanking government were reasonably accurate. This study, however, reveals that even during this relatively favorable period, materials must be used with caution.

2 Ping-tsang, Chen, “Public finance,” Chinese yearbook, 1935–1936 (Shanghai: China United Press, 1935), 1166–1167Google Scholar.

3 A general evaluation of statistical materials used in this study appears in Appendix A.

4 All figures are in terms of Chinese national currency dollars. Figures pertaining to periods prior to the adoption of the Chinese national dollar have been converted into this standard currency.

5 It is clear that the absolute rise in the amount of national expenditures was for the greater part real as well as monetary. The domestic and international value of the Chinese national dollar (yuan) remained relatively stable throughout the Nanking government years. The index of wholesale prices in China, which reflects the value of currency, varied between a low of 92 in 1935 and a high of 120.7 in July, 1937 (average, 1929 as 100). (Source: “Index numbers of wholesale prices in principal countries,” Central bank of China bulletin, 5, (December, 1939) 420Google Scholar). The international value of China's currency is indicated by the foreign exchange rates of the Chinese dollar in principal countries. There was considerable fluctuation of the foreign value of the Chinese dollar between 1928 and the currency reform of 1935, after which Chinese foreign exchange rates vis-a-vis major countries were pegged. Shanghai rates for the value of the Chinese dollar in terms of United States currency varied between a high of $46.14 (US $ per 100 Chinese $) in 1928 and a low of $21.49 in 1932. However, both of these years were extremes, and for the greater part of the period the foreign value of the Chinese dollar fluctuated within narrower limits. For the last five years of the Nanking period the United States value of the Chinese dollar varied within a $.10 (US) limit. All foreign exchange rate figures have been taken from “Foreign exchange rates in Shanghai, 1926–1937,” Central bank of China bulletin, 3, (December, 1937) 368Google Scholar.

These statistics indicate that the real domestic value of Chinese national expenditures followed the changes in registered monetary value very closely, while the value of national expenditures in terms of foreign currencies varied within somewhat wider limits.

6 Figures for the size of the Chinese gross national product are taken from Tachung, Liu, China's national income, 1931–1936 (Washington, 1946)Google Scholar. Estimates of national expenditures on a calendar year basis have been drawn from Ming-chung, Tay, Das finanz und steuerwesen China's (Jena, 1940)Google Scholar. National expenditures as a percentage of gross national product for all years for which figures are available are as follows: 1931. 2.1 per cent; 1932, 2.6 per cent; 1933, 3.7 per cent; 1934, 4.8 per cent; 1935, 4 per cent; 1936, 3.8 per cent; average, 3.5 per cent.

7 For a more detailed study of military expenditures see Appendix B.

8 See, e.g. The annual report of the Ministry of Finance, 1928–1929, 10.

9 In the 1928–1929 Annual report, the revolts of the Kwangsi Clique and the Kuominchün are mentioned; in later reports the necessity to suppress the Communist threat is suggested as a cause of large military expenses.

10 For a more detailed study of expenditures for debt and indemnity service see Appendix C.

11 Expenditures for civil purposes are defined as non-military and non-debt service expenditures. For a more detailed study of civil expenditures see Appendix D.

12 Apart from $20 million invested in capital in the Central Bank in 1928–1929, “Investment in Government enterprises” did not appear in the Annual reports of the Ministry of Finance until the final year in which a report was issued, 1934–1935. In that year the Annual report indicates investment in government enterprises generally of $537 thousand, and an investment in further stock of the Central Bank amounting to $73.5 million. The other sources indicate larger government investment in industry, $83 million being reported by the Directorate-General in The statistical abstract and $81 million by the Ministry of Finance's Public finance yearbook. The two available sources indicate that relatively large amounts were invested in industry during the last two fiscal years of the Nanking period. The figures reported by the exclusively Chinese source, The public finance yearbook, are larger than those reported in the bilingual Statistical abstract. This may indicate an effort to obscure the increasing encroachment of the government on private industry from Western readers. The income side of government accounts reveal that substantial increases in revenue were obtained from government operation of industry in the final years (1934–1937) of the Nanking period.

13 In technical economic terms, the neo-classical full employment model would be more appropriate for an analysis of the government's effect on the economy than the Keynesian model, which allows for unemployed resources. Although in general terms the Keynesian model is more descriptive of the Chinese economy, since unemployed resources do exist, in practice it was virtually impossible to mobilize these resources for transfer to other uses during the Kuomintang period. This suggests that in the case of an underdeveloped economy such as China, transfer of resources from private to government employment would ordinarily reduce the level of private production. In short, a rather neat transfer of both resources and product from the private to the public economy results.

14 No breakdown on the use of actual military expenditures is available. Chia Shih-i, however, provides a budgeted breakdown of military expenditures for the fiscal year 1928–1929. Chia Shih-i, Min-kuo hsü ts'ai-cheng shih (a history of Republican public finance supplement) 3: 122.

The budgeted amount for this fiscal year was to be used as follows:

Thus, approximately 82 per cent of total budgeted military expenses were to be used for maintenance of Kuomintang armies.

15 The breakdown of debt service and indemnity expenditure during the Nanking period between foreign and domestic payments can be seen from that in a typical fiscal year for which an annual report was issued by the Ministry of Finance. The breakdown according to Ministry of Finance, Report for the 23rd fiscal year, July 1934 to June 1935, (Nanking: 1935) 5Google Scholar, is as follows:

Thus out of total actual expenditures for debt service and indemnity of $265 million, 35 per cent was paid to foreigners while 65 per cent was paid to domestic bondholders.

A greater part of total debt service payments was used for service of domestic loans in the latter years of the Nanking period than in the first years of the period.

16 The following percentages have been derived from reported government borrowing and expenditures. Figures from the Annual reports have been used for 1928–1935 and figures from The statistical abstract have been used for the last two fiscal years of the period (1935–1937):

Percentage of net total expenditures financed by borrowing:

17 Ting, Leonard G., “Chinese modern banks and finance of government and industry,” Nankai social and economic quarterly, 8, (October 1935), 581–597Google Scholar.

18 Ibid. 596.

19 In technical economic terms we will here analyze the multiplier and acceleration effects of government expenditures. In short, our conclusion is that the multiplier effect of government expenditures was relatively small. The effect on induced investment (the acceleration principle) was also insignificant because basic political and economic conditions greatly limited expansion of industrial investment in Nanking China.