In my first tour of the Island I came to the conclusion that by far the greatest difficulties of rehabilitation were those of finance. Time and again I was told that no money was available, and in such a highly productive Island as Formosa two questions arose. One was as to what had happened to the tangible assets of the various companies, particularly in the way of stocks, both of raw materials and finished products; and the other question concerned the proceeds from agricultural production, particularly of rice, which was undoubtedly a good source of external revenue, when it was remembered that the Island satisfied all its needs from one crop and the second crop produced in the year could be used for export. The answer in both cases was that every dollar that could be found was poured into the economic vacuum of the mainland. For example, of all old stock of sugar seven-eighths had to be handed over to the Executive Yuan and one-eighth remained with the companies.

The Government railways were operating practically without reserves as most of them had been handed over to the Provincial Government. On April 1st, 1946, the Provincial Government issued an order that there would be no more funds available for restoration of works for any organisation that was in production. This, of course, meant that any further work of repairing would have to be done out of the profits which probably could not be obtained till the repairs had been carried out and there was thus a kind of vicious circle. Some factories found themselves in the position of not having even sufficient funds to build protection from the weather for their valuable machinery. The Government had granted loans for various purposes but when application was made to the bank for the loan, the account was found to be empty. Sometimes the case was not so extreme and a company had proceeded on a work, having already obtained a certain proportion of the money that was allocated to it. As the work progressed, further applications revealed the fact that there was no more money available, with consequent holdup and deterioration of what had already been accomplished.

One source of revenue was from the large salt beds which existed in several places on the Island, particularly at Anping. Shipload after shipload of this salt was sent to Japan but it was only one-way trading. In accordance with the general trade policy nothing was received direct from Japan in repayment for the salt. Similar transactions took place with rice and coal, but in these cases the recipient was the China mainland and the Formosans sarcastically remarked that the only importations they received for this wealth which was being taken out of their Island, were the useless friends and relatives of those mainland Chinese already in power in Formosa. These friends and relatives were largely devoid of qualifications for the positions they held and were therefore a drag on the enterprises with which they were associated. They slowed the processes and did not earn their salaries, and if any profit was to be made it would have to include the payments they received. They were usually on the alert for "squeeze" and looked upon the Island as a place to "get rich quick". They frequently occupied posts jointly with Formosans who, even if they received the same salary, did not receive the same allowances and perquisites ("perks") as the mainlanders. For instance, the mainlanders frequently received a free house and extra overseas allowance and rice at prices below those on the current market. Later the privilege of buying the rice cheaper than current prices was extended to all Government employees.

The Government tied the Formosans yen to the C.N.C. dollar and with the mainland in the grip of inflation, Formosa followed accordingly. Had the Formosan currency been independent of the mainland, and had Formosa received credit for the goods she exported, there is no doubt that there would have been no inflation. She had large exports of coal, rice and salt and comparatively nothing was being imported, so she had large external credits and under ruling conditions was practically self-supporting. The more educated Formosans recognized this and strongly resented the added burden that the mainlanders were imposing on them. There was, of course, the direct export of money to the mainland by officials from the mainland at preferential exchange rates. As an instance of what could be done should be quoted the fact that the secretary to the Governor of the Pescadores, after he had been in the Pescadores two weeks, sent home to China 150,000 yen as "savings". Resulting from inflation, savings dwindled away and many Formosans found themselves becoming bankrupt. At the same time, the numerous hindrances and restrictions to trade restricted the livelihood of many so that they were not able to overtake the rise in prices.

The phenomenon of inflation, being new to many of the small traders and industrialists, led them to think that because of increasing profits their businesses were going ahead and, at one meeting I addressed, an industrialist, in discussing the question with me afterwards, admitted that he had not before realised that the only safe standard with which to gauge his business position was whether he was maintaining his capacity for production. In other words, the price he obtained for the finished article must not only include an adequate profit but also include the cost of replacing the raw material and whatever was used in producing that article.

With inflation there also came a shortage of rice. It was believed that rice was being bought up by officials and secretly exported to the mainland where much higher prices could be obtained. This was a very lucrative proposition. It was claimed by the officials that the high price of rice was due to hoarding on the part of the rice merchants and they stated that, if the rice merchants sold their rice on the market, the price would be reduced. The Formosans saw the point of this and much rice came on to the market, but there was no noticeable reduction in price from the increase in the quantity of rice available. The Formosans believed that the Government officials had again tricked them and that there was just more rice made available for exportation to Shanghai. Furthermore, responsible officials continually criticised the "wicked rice merchants" and tried to make them the scapegoat for the increasing distress of the people. The following is an extract from the issue dated 3rd February, of the "Ta Min Pao", a paper published in Taipei.

"The Chief-of-Staff of the Formosan Army, Mr. Koa, made a speech to a meeting of merchants in Formosan Province called to discuss food, and said, 'If there is any riot by the farmers against the merchants who hoard rice away the Government will not protect the merchants'". This incitement to lawlessness had its effect at the end of that month, but it was not the rice merchants that the rioting was against, but the Government itself.

On the first day of the new note issue in October 1946, a Chinese from the mainland attempted to open up a new account with the Bank of Taiwan. He offered millions of dollars of new currency - much more, in fact, than had so far been issued. He tried to explain himself out of the awkward situation by saying that he had seen in the newspapers an announcement that such notes would be issued on that day and he wanted to open an account with the notes which had been given him some time before in Shanghai by a friend. Further questioning showed that friend had also been a friend of a former Premier. This was the only case of which I heard, but it was interesting to speculate as to the number of new notes which could flood on the market at the hands of private individuals without any corresponding withdrawal of the old currency.

The malpractices were not only committed by the Government officials individually but by various Government organisations. Probably one of the biggest rackets was carried out on the question of export and import payments. Exchange of currencies was carried out at two rates, the official rate and the market rate. If for various reasons an exporter obtained dollar credits in the United States, he immediately had to hand that over to the Central Bank which would exchange it into C.N.C. or yen at an official rate, always on the understanding, of course, that when he wanted dollars for purchases in the States he could obtain them from the Central Bank; but almost in every case when application was made to the Bank for dollars the reply was received that it had none and recourse then had to be made to the black market, in which the price was three times that of the official rate. Actually, therefore, this made it necessary to obtain credit in America for three dollars in order to purchase one dollar's worth of goods there. As to what happened to the dollars which were handed to the Central Bank, the current opinion was that they were immediately bought up by the Government officials themselves and sold on the black market. While I have no evidence for this statement, the fact remains that there was always a shortage of dollars in the banks while they were readily enough available on the black market.

I have already mentioned the fact that no loans were available to private industrialists from Government sources and, with the ever-increasing inflation, it was very difficult to obtain loans for private industries. One industrialist, hard pushed for money, had to pay six sen - or 0.06 yen - interest on 100 yen per day, which is practically twenty-two percent per annum. It was interesting to find that there was a surprising amount of wealth among the Formosan private industrialists and some of them, recognizing the dangers of inflation, were anxious to invest their money in tangible assets, particularly with the idea of buying more factories which they considered had industrial possibilities. In Kagi, for instance, there were Japanese factories lying idle for approaching two years and Formosans wished to buy them. This would have been an excellent idea for reducing the serious unemployment in Kagi, but they were unable to do so. A cotton weaving mill was sold by the Provincial Government to a company on the mainland, to which all the machinery was removed. The Industrial Labour Union protested in January 1947 against the removal but no reply was received. It was estimated that this factory would have created employment for about 150 to 200 people.

The Government Health Bureau in the same town took over a factory formerly owned by private Japanese for making medical injection material. It is no longer working and the workers lost their jobs. Half of the machinery was sold on the market and the Health Bureau gave no indication that the factory would ever be put into operation again. It employed between 100 and 200 men, but as it used a plant which was specially grown in the district by the farmers, it was estimated that, including the farmers, there were 900 people whose employment was affected.

The Formosans, who are more industrious and hardworking than the mainlanders, could not understand why so little was being done by the Government officials to restore the Island to normality and, with distress increasing, the situation greatly irked them. Even the least observant realised that the Chinese had received from the Japanese an extremely rich prize, and so they were intent on getting as much of it as possible over to the mainland. But apparently they did not realise that this very process would greatly reduce their chances in the future of acquiring further wealth from the Island. In fact, if they carried on in this manner for a few years, they would reduce it to the general poverty of the mainland.