resistance against Japanese aggression, the civil war between the Kuomintang and thecommunist party began just as people were trying to catch their breath. Two forces in thiscivil war that was Chiang Kai-shek’s Nationalist government and the large communist forcesled by Mao Zedong. The civil war raged across China for four years, until Mao’s communistswere triumphant on the mainland and the remnants of Chiang’s Nationalist army withdrew toTaiwan in late 1949.When war with Japan broke out in 1937, the Chinese inflation was began and itbecame hyper-inflation before the end of the Second World War. When the United Statesentered the war, the Chinese money supply had increased to 22.8 billion yuan. Originally, thetotal quantity of money was 3.6 billion yuan. The civil war brought a worse inflation.American aid was very important to China at that time. That is why China's economicsituation still does not collapse after the war of resistance against Japanese aggression.Otherwise, China's economy would have collapsed as it had. During the war, in addition to9
military pay, dry food had to be distributed to the people. So foreign money is an importantsource of support for this war. But sustaining hyper-inflation in 1947 was the existence of large budget deficitsassociated with the civil war and financed by issues of money or bank credit. Another was theexpansion of bank credit to private business at relatively low rates of interest, which seems tohave been used largely for hoarding of commodities. In the same time, wholesale prices inShanghai rose about fifteen times. Thus, the price increase and the rise in the velocity ofcirculation tended to reinforce each other. Expedite of the hyper-inflationary processcontinued until monetary reform in August 1948. This exacerbated the spread of economicproblems, and because of the aftermath of the war, China's economy had not really recovered.So, the economy has been unstable.In August 1947, Chinese government was instituted a currency reform to curb hyper-inflation. It can change the old depreciated yuan to the new yuan and the rate id three millionold for one new. In August 1948, the new money supply stood at 296.82 billion yuan. But thegovernment printing presses were set to work again because the supply of the new yuan waskeeps increasing. Between 1937 until 1949, the prices in the whole China was rosedramatically but to different degrees in the various regions of China. It caused the hyper-inflation was developed again and it was forcing a breakdown of the price controls which hadbeen introduced under the monetary reform. 10
(Source: The report of World Economic Report 1948, p44) The table showed the index of wholesale prices indices for Shanghai between September andDecember in 1948. At the end of December, the conversion of currency into gold or silverwas suspended.