When the Chinese came to take over the country they were faced with extremely serious difficulties. Industries had been bombed with the greatest efficiency. Many towns and cities had large sections in ruins while other parts were comparatively untouched. Roads, broken by bomb craters and covered with rubble, were frequently impassable. Many large buildings of any consequence had been destroyed and these included hospitals. The railways had been severely damaged and almost all station buildings damaged to a greater or lesser extent, some even to complete destruction. Railway rolling stock had long been a target for aerial attack and what was left was in urgent need of repairs and maintenance. In the interregnum, also, considerable looting had occurred. It was obvious, therefore, that much reconstruction would have to be done and be done quickly.

The destruction of the factories brought unemployment, unemployment to which the Chinese added by bringing over their own relatives and friends and by deporting 100,000 Formosans from overseas.

China was in the throes of a civil war and her economy was suffering accordingly. She therefore had no money to spare for rehabilitation and restoration - in fact she took so much money out of the Island that it looked as though she did not know the meaning of rehabilitation - and money that should have gone into restoring the industrial and economic life of the Island was taken to bolster the tottering economic system on the mainland. Furthermore, the Chinese let their hatred of everything Japanese go beyond the bounds of common sense and hastened to ship the Japanese population to Japan with all speed. This rebounded and caused them very great difficulties in industry.

All major positions in industry and, for that matter, in the organisation and control of the Island had been in the hands of the Japanese and, while business executives and governing officials were easy enough to obtain from corresponding classes on the mainland, nevertheless when it came to technicians and specialists there was not an adequate supply from China. The engineers who arrived were young and keen but they lacked the training and experience which was necessary for the economic rehabilitation of industry and for its efficient running. Had the Japanese technicians been assured of a reasonable return and reasonable living conditions on the Island they would have preferred to carry on. Then they could have trained the new Chinese technicians in their respective duties and in due course the Chinese technicians could have assumed full responsibilities.

As it was, embittered by the treatment they were receiving, the Japanese destroyed valuable records and apparatus and added still further to the confusion created by the bombing. The Chinese technicians then were faced with the very difficult proposition of having to re-make, and sometimes re-design, machinery of which they had very little experience.

In a chemical factory, for instance, it was very difficult for the chemical engineer to design and set up precision mechanical equipment. The fundamental weakness in the Chinese industrial training was that the majority of them had very little practical aptitude. They were apparently good text-book engineers. I met a number of exceptions to this and it may only have been a coincidence that they all had been trained in England. In particular, the engineer in charge of the railways made an excellent job under very difficult circumstances and he spoke English with an Oxford accent.

Another great difficulty was that no trade was allowed with Japan. As by far the greater part of the machinery and equipment was manufactured in Japan it was impossible to obtain repair parts from the manufacturers and almost equally impossible to get any other manufacturer to make repair parts. The railways may be quoted as an example. New tyres, boiler tubes, Westinghouse brake parts all were urgently required and considerable equipment was out of commission as these supplies were unobtainable. In spite of this, many difficulties were overcome by makeshifts and substitution. For instance, I have seen taken from boilers, tubes which consisted of short pieces not exceeding 18" in length all welded together.

Telegraph and telephone communications were also difficult problems. In Taipei the telephone system was entirely automatic and the cables were run underground. The cables in every manhole were broken and consequently ruined by the ingress of moisture.

The Japanese-controlled industries were organised by the Chinese to produce, as far as possible, Government monopolies. The Island was administered by General Chen Yi who came with a record of ruin and bloodshed as Governor of the Fukien Province from 1934-41. Apart from his close association with Generalissimo Chiang Kai-shek, his general qualification as administrator of the Island apparently was his long-standing connection with certain influential Japanese Army circles which had lasted right through the war. He in turn appointed commissioners who formed his Cabinet and comprised the Commissioners of Mining and Industry, of Finance, of Civil Affairs, of Communications, of Railways, and of Agriculture and Forestry.

The Commissioner of Mining and Industry controlled the following industries: petroleum, aluminium and gold and copper, sugar, ship-building, electric power, electrical equipment manufacture, caustic, cement, paper, fertiliser, coal (but only the larger coal mines), iron works, iron and steel, oils and fats, textiles, brick and tile, glass, chemical products (rubber, essences, etc.), printing, building construction, and the supply of industrial equipment and materials. In the last twelve industries a considerable amount of private capital had been invested by the Formosans under the Japanese regime. This, of course, continued to function, if it could, under the new set-up. The Commissioner of Communications included in his confines the automobile, Harbour Bureau, transportation and, later, after the rebellion, combined with the Commissioner of Railways who controlled the combined organisation, and the Railway Commission thus added the principal Government railways and certain private lines and pushcar networks to the Commission of Communications. The Commissioner of Agriculture and Forestry had in his organisation companies dealing with agricultural products, livestock, tea, pineapple, fisheries and timber. Each Commissioner produced regulations which had the effect of increasing the Government monopoly if it was not already complete in a particular kind of organisation, thus throwing more and more Formosan-owned organisations out of operation. There were licenses for almost every business operation and although fees might not be required in every case, still "unfortunate delays" could be avoided by making payments to officials concerned. Furthermore, no permits were issued to private industry for raw materials, nor could any financial assistance be obtained from banks. All imports and exports had to be carried out through the Trade Bureau or the Monopoly Bureau. The Trade Bureau controlled such important goods as industrial materials, cotton, sugar, fertiliser, cars and coal. The Monopoly Bureau controlled such products as salt, tobacco, wine, alcohol, matches and camphor. This policy of stifling private industry greatly retarded the rehabilitation of the Island. Private industries are much more flexible than large organisations and usually more economic; for instance, a number of privately-owned engineering factories manufactured machine tools, a product which was not only greatly in demand in Formosa but almost all over the world, yet many of the machines remained unfinished, not because the raw materials were in short supply on the world market, but because the raw materials were all going to Government factories.

A similar condition of things existed regarding the cement industry. Until about August 1947, no cement was allocated to private industry. No doubt the Government had great claims on it but the fact remains that cement, which was manufactured on the Island by a Government monopoly and whose importation was strictly controlled, still found its way on to the black market at a price about three times the normal selling price. Yet at times huge allocations were being made to Government works; for instance, the total output for one and a half months of the largest cement factory in the Island was granted to the Harbour Bureau. The total amount of cement involved was 22,000 tons and the greatest amount ever allocated in Japanese time had been to the Navy for new harbour works and totalled four to five thousand tons a month, and the Japanese had always divided the cement equally between private and Government needs.

Owing to the dislocation of industry, the unemployment problem was a serious one. It was, of course, highly desirable that from this point of view private firms should be kept in operation as much as possible. Actually the unemployment problem was one of the factors which led to the rebellion. Estimates of the reduction in employment in private industry were difficult to make but it was not uncommon to find the numbers of work-people reduced to about ten percent. One company which originally operated several factories employing about a thousand men was in 1947 struggling along with one factory employing only thirty-five men - and this was a machine-tool shop.

But in spite of the difficulties much use was made of the large amount of scrap material available on the Island, including sunken vessels, all kinds of scrap-iron, steel and aluminium. The plates from the sunken vessels were sheared into strips, heated and rolled into iron bar and wire. Scrap iron and steel were used for castings after being melted in small electrical furnaces of the electrode type. It was estimated that there were about one hundred small work-shops working in aluminium and using about three hundred tons of aluminium a week, the aluminium being largely obtained from scrap and re-melted.

The Government was always eager for money and its monopolies enabled it to charge very high prices which often disadvantaged other industries it controlled. The Japanese developed their electrical supply system to be one of the cheapest in the world. In the Chinese regime the prices became excessively high. As many of the major industries depended on cheap power it was found necessary to revise the prices to enable certain consumers to carry on.

Charges for shipping, a Government monopoly, were excessively high. At one time it cost three times as much to carry coal from Keelung to Takao by sea as it cost to carry it by rail, a reversal of the normal conditions where it is usually much cheaper to ship by sea than by rail. The Taiwan Cement Company shipped a trial shipment of 1,000 tons of cement to Shanghai, where American cement was selling at 100,000 dollars Chinese National Currency per ton, whereas the freight alone of the Formosan cement cost 69,000 dollars C.N.C., on top of which, of course, there were handling charges and insurance. The China Merchant Shipping Company, the Government Monopoly Company, originally quoted 32 dollars U.S. per ton for shipping phosphatic rock from the China mainland to Formosa for the manufacture of fertiliser. When it was found that this would kill the scheme for manufacturing fertiliser in Formosa the price, after negotiation, was reduced to 4 dollars U.S. per ton.

The aluminium and cement industries were being rehabilitated on the advice of American experts, but in the cement industry UNRRA supplied equipment to the value of 1,400,000 dollars U.S. and the rehabilitation was being carried out rapidly and expeditiously by the experts concerned.

The lumber industry suffered the same disadvantage as the other industries. For instance, Director Hwang Wei Yen of the Formosan Forestry Bureau was imprisoned for obtaining "squeeze" from the controlled price of timber. There were two prices in operation, one being the controlled price and the other the market price. The market price was nearly double the controlled price. Merchants paid Hwang from 500 to 1,000 yen per koh (ten cubic feet) to be allowed to sell at the market price instead of the controlled price. The total amount of "squeeze" received by the Director before being caught was 80,000,000 yen.

As an instance of the Government strangling all the private lumber firms may be quoted UNRRA'S experience. It was found difficult in the initial stages to contact the private lumber industry and so an advertisement as put in all the important Formosan newspapers indicating that timber felling and saw-milling equipment might be available if the need was justified. Application was to be made to CNRRA. It was found that practically no applications were being received from this source and as the rebellion shortly afterwards took place it prevented any further inquiries along these lines. Six months later important contacts were made with a considerable number of private firms taking part in various branches of the lumber industry. These firms soon expressed their need for all kinds of equipment, and when asked why they had not applied in response to the advertisement in the newspapers, replied that they had made inquiries from CNRRA who had told them that there was very little equipment available and as the Government demands were so great it was not worth their while applying. Being under the impression that CNRRA had the sole control of the allocations they had dropped the matter. It may be of interest to add that before UNRRA closed down it was able to provide a very useful contribution to the private lumber industry.

While the Government has endeavoured to follow the system established by the Japanese of controlling the felling of timber in the forest areas, there is marked evidence that there is indiscriminate felling in the hills which are more easily accessible. It is a common sight to see coolies staggering down the hillsides under a load of freshly-cut timber carried on the ends of a bar suspended across their shoulders. Where once the Japanese had planted trees, apparently with the idea of soil conservation and reduction of the rush of water down the hill-sides (thus diminishing the strain on their irrigation systems), now large bare patches of upturned soil were appearing in precipitous places and attempts were being made at farming them. It is obvious that with the heavy rainfall it would only take a season or two to wash the soil from the sides. This is a serious matter for the rice fields below, as there is danger of their being washed away and being put out of production. In other words, if this process of indiscriminate deforestation goes on, there is a danger of the highly productive ricelands being turned into waste areas. UNRRA agricultural experts were much concerned with this phase and drew the attention of the Forestry Bureau to it.

The position of the agricultural industry when then mainlanders took over was also, in many respects, chaotic. The chief agricultural activity is rice, of which two crops are produced a year. The consequent demands on the soil require the extensive use of fertiliser. The Japanese, well aware of this, had established a number of fertiliser manufacturing plants and another was still in the process of construction when the war finished. However, on the cessation of the war, no artificial fertiliser was available and there was, as a result, a reduction in the quantity of rice harvested. UNRRA stepped into the breach as soon as possible and the large amount of fertiliser brought into the Island produced highly satisfactory results - satisfactory, that is, from the point of view of the increase in rice production.

But the Japanese had exerted a certain amount of control over the industry and required certain crops to be grown even although they were not, from the farmers' point of view, profitable. Sugar-cane, ramie and jute are notable examples of this. The growing of sugar-cane is not so profitable as the growing of rice and much the same type of land is suitable for both. Consequently, the Japanese required a certain amount of cane to be grown and for this cane a price was offered which covered the cost of production and gave very little profit. The idea was, of course, to keep the cost of sugar as low as possible, one reason being that the huge pineapple canning industry would be less economic and would not be able to hold such a favourable place on the world's markets if the price of sugar was too high. Therefore, when the Japanese control was removed, less cane was grown, and as it takes eighteen months for the crop to grow, there was very little cane available for those factories which had been restored. Only now are the crops of cane becoming available in anything like adequate quantities to meet the present factory requirements. At present, most of the cane production seems to be done by the factories themselves and independent farmers are concentrating more on rice. The shortage of fertiliser has also had its effect on the growth of the cane.

The seeds for ramie were imported from the north of Japan and, as the growing of ramie was uneconomic to the farmer, the Japanese used compulsion to obtain the necessary crops. Furthermore, only the raw fibre was prepared in Formosa and the finishing processes were done in Japan. The ramie crop grew very well in between the two rice crops and the Formosan climate seemed to be very suitable for its growth. Nevertheless, as there were no seeds available due to the cessation of trading with Japan, and as the farmer thought that the ramie reduced the next rice crop very little was being grown. Similar remarks apply to jute which was also grown under compulsion.

In the Japanese time there were about 180,000 acres planted in jute, whereas in September 1946 there were only 8,400 acres of jute available. Jute can be produced in two grades, one for making sacks and the other for rope. In this respect, then, both ramie and jute were suitable for making sacks but there was already a great shortage of ramie for sacks and to produce jute satisfactory for sacks it had to be cut and treated almost immediately. If it is cut and left to lie in the fields it becomes what is called "baby jute" and is good only for rope. To obtain jute for sacks it was necessary to buy from the farmers immediately after it was available, but unfortunately the jute factories had no money and could not buy it and therefore the jute was liable to lie in the fields and become only "baby jute". Furthermore, all cutting had to be done before seeding and crops left standing for the special purpose of obtaining seeds were unfit for use in manufacture. Farmers therefore required money for the seed production, and as that was not available, no seeds were being harvested for future crops. Consequently, there was a severe shortage of sacks for sugar and rice.

The pineapple industry also suffered owing to the high price of rice and the high price of sugar (it was again more profitable to grow rice than pineapple). In fact, the pineapple industry largely stagnated. The extensive markets that Formosan pineapple once had were largely lost and Shanghai was now the main market, but even Shanghai inflation was reducing purchasing power and consequently the demand from that quarter also was failing. The chief problem, however, was the supply and cost of tin-plate for making the cans which, when it was available, comprised sixty percent of the factory cost and sugar ten percent. However, the factories were bombed and a third of the buildings were destroyed. As with many other industries, the machinery had been dismantled and dispersed to other localities and suffered very little damage; and after being restored was ready for further production. Now, due to the shortage of pineapples, one factory which completed its season at the end of August 1946, produced 20,000 cases of canned pineapple, an amount which could have been done in two days before the bombing.

The Japanese made great efforts to become independent as far as possible from outside fuel supplies and developed the manufacture of alcohol both from molasses and from the sweet potato. An alcohol factory was often found adjacent to a sugar factory. In Kagi, however, a large factory controlled by the China Petroleum Company, a branch organisation of the Government National Resources Commission, also produced under the Japanese butanol, acetone and ordinary alcohol. Butanol was used for making 100 octane aviation petrol. Naturally it came in for very special attention from American bombing and was ninety percent destroyed, fire adding to the destruction.

In this, the whole town of Kagi also suffered and was very seriously damaged. In full production the factory employed 3,200 people but the number employed after the change-over was gradually reduced to about 130. The unemployment in this town was therefore serious and as much of the surrounding country was devoted to growing the sweet potato for the factory, the farmers had difficult times also. The fact was that the factory was the biggest in the Far East and one-fifth of the population of Kagi depended on it. The authorities took up a very cautious position regarding this factory and, as they had no money, were not carrying out effectively even the normal repairs necessary to keep what remained of the plant from deteriorating. There was also an enormous amount of clearing up to be done, and much of the scrap could have been made available with profit for the use of the Island's industries. This "wait and see" policy rankled with the townspeople of Kagi, who also suffered because the other major industry of the town, that of lumber, was suffering from shortage of equipment. The people endeavoured to restore their destroyed houses but the majority of them were only able to live in a house made from salvaged material. Whole families lived in the kinds of constructions which a dairyman would not consider satisfactory for a cow. The authorities were apparently indifferent to the distress of the townspeople.

Formosa had a good coal industry in the time of the Japanese, but as with the rest of the industries, the equipment was worn and was suffering from the conditions arising from the wear and tear due to war. It was, however, only very slightly damaged by bombing, but the bombing had some indirect effects in that it disorganised the electrical power supply to such an extent that the main pumps could not be worked and the mines were flooded. In the interests of increased production during the war, open-cast working of some of the coal outcrops was also commenced. It was found shortly afterwards that water was seeping through these new workings into the old workings and flooding to such an extent that the pumps could not cope with the increased amount of water and the old workings were also flooded. These mines were likely to remain out of production until other equipment could be obtained and the water pumped out.

As already indicated, the Government took control of the larger coal mines, and the privately-owned coal mines struggled on as best they could with poor equipment and increasing regulations and strangling officialdom. CNRRA again ran true to form in endeavouring to have UNRRA equipment channelled to Government mines at the expense of the private mines. This, of course, was not done openly. This time they endeavoured to make the price of the equipment as high as possible so that it would be beyond the financial resources of the private mines. The purchase of the equipment for Government mines amounted to nothing more than a book transaction between two Government Departments and UNRRA spent a considerable portion of its time in endeavouring to keep prices reasonable. However, there were better schemes than those afoot for liquidating private ownership, of which the withholding of permits to obtain much needed repair and new equipment was only a minor one. At one time it was necessary for the coal to be put on the market through Government organisations and a Coal Control Commission was set up whose duty it was to allocate coal to various consumers. In spite of a general shortage of coal, this Commission did not function very long. The current reason given by the cynical was that "there was no money in it" although others were careful to point out that if offered marvellous opportunities for obtaining money by irregular channels. The price at which the mine-owner had to sell to the Government organisation was fixed very low and this made it difficult for the less economic mines to carry on. Particularly was this the case where new tools or new equipment had to be obtained, as the new prices were greatly in advance of the old.

The smartest scheme, however, was the control of the coal export trade. For this the mine-owner had to sell his coal to a Government organisation for ultimate sale on the Shanghai market. The price at which the coal was sold to the Government barely covered operating expenses, but the mine-owner was consoled with the promise of receiving fifty percent of the profits - and he realised that the profits made from coal sold on the Shanghai market were very great indeed. However, he was not told that the Formosan Government organisation intended to sell to a Central Government organisation and that it was this latter organisation which was to make the highly profitable sale on the Shanghai market. There was practically no profit arising from the sale of coal by the Formosan Government organisation to the Central Government organisation, and therefore the private mine-owner found that there were no profits in the transaction as far as he was concerned, and his total return therefore, including the illusory profits, barely covered production costs.

Gold and copper were also found, but the quantities were not large. In 1943 the Japanese ordered one mine to reduce its working to one half, and in March 1945 they stopped the whole operation on account of war shortages. 1,200 tons of railway materials, explosives and electrical equipment were taken away for military use from April to July 1945, and other mines had similar treatment. One mine in 1943 employed about 10,000 people but now employed about 1,000. Several thousand of the unemployed now go in and work the mine through its various disused shafts on their own account and protect their workings with rifles and machine-guns; and at the time I received the information the police were powerless to prevent it. As the country was very mountainous, the inhabitants in this area were almost entirely dependent on the gold-mining industry. Poverty, therefore, was extreme, and it was not unusual to hear of parents first killing their families and then committing suicide. In other words, conditions there were desperate and were just more highly combustible fuel for the fires of rebellion which broke out early in 1947.