VI



Chen Yi's "Necessary State Socialism"



The Monopoly Mechanism



FORMOSANS WERE NOT STANDING idly by while the Japanese Property Commission compiled its lists. They took the position that Japanese wealth on Formosa had been created by the application of Formosan labor to Formosan resources. The record clearly showed that a substantial part of these confiscated properties -especially the sugar lands - had been taken from the Formosans at one time or another by illegal or extra-legal means, or by outright confiscation.



What did the Formosans expect or want in 1945?



An important number of local leaders assumed that confiscated property would be (or should be) divided three ways. The Central Government of China would take over Tokyo's share, the Formosan Government would retain its shares, and the balance - all private Japanese properties - would be held temporarily in trust, to be managed for the benefit of the island people. An arrangement could be made (they thought) to provide opportunities for Formosans to buy up these confiscated private assets as rapidly as financing could be arranged.



I do not know on what grounds it was assumed that this division would take place, but to anticipate it Formosan businessmen formed the Taiko Kigyo Kaisha, or Greater Public Enterprises

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Company, capitalized at one hundred million yen, (then about $6.6 million). Shares were bought up eagerly at Taipei. For reasons never explained they were encouraged to pay over to the Company in banknotes of one thousand yen denomination.



When this was well advanced, the Finance Commissioner suddenly announced that all banknotes of one thousand yen denomination in private hands or on deposit would be "frozen" for one year. It was construed that the new company's capital was all in one thousand yen notes. This effectively paralyzed the Formosan investment company and eliminated many Formosans who would have been competitors to the Chinese bidding for confiscated properties. For Japanese real estate, industries and enterprises Chen Yi's men had other plans.



Shanghai newcomers had ready capital - or could arrange to have it run off the presses, crisp and new. (Commissioner Yen one day told me that his solution to the nagging inflation problem was simply to "Print! Print! Print! Print! Print!") The Formosans stood no chance against such competition.



But even the newcomers had to obey new monopoly regulations -or buy their way around and through the maze of red tape which was spun out of the Government offices.



In outline, the arrangements were simple. The Commissioners controlled and directed the operations of the Government's Confiscated Property Commission by creating a new series of subsidiary commissions, each devoted to a specialized category of enterprise or property. For example, the Department of Mining and Industry (under Commissioner Pao) assumed control of more than two hundred organizations, including all major installations relating to power, sugar, metallurgy, chemicals, textiles, machine fabrication, and electrical engineering. The Department of Agriculture and Forestry (Commissioner Chao) took over food-processing industries other than the sugar mills, and to these added lumber yards, sawmills, and the marine products industries, plus hundreds of thousands of acres of

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productive farmlands, plantations, and forests. The Commissioner of Finance assumed control of all banks, trusts, insurance companies and other financial institutions (including the presses which supplied banknotes in the early months of the Chinese administration). He also controlled organizations set up to manage the rental and sale of small parcels of real estate and the miscellaneous small businesses, homes, and shops which did not fall into the larger categories.



This division of responsibilities was reasonable enough immediately after the transfer took place, but the next move revealed unmistakably the true direction and character of "Necessary State Socialism."



Within each Control Commission the Governor's men reserved for themselves top positions, ex officio, and then filled the ranks with friends, relatives, and close associates. Within each Commission special management committees were formed to control specific enterprises. For example, all confiscated tea companies came under one management, all iron works under another, all pulp mills under a third, and so on until the hundreds of small property units were merged or under the control of one agency. In this fashion, for example, Mining and Industry Commissioner Pao had developed at least thirty-three companies by midyear 1946.



The next step was the obvious one. Management committees began to be transformed into "Boards of Directors" and other convenient forms of control. In theory the Government continued to own the capital assets and real property, but the amalgamated companies were run as private enterprises. In one sense efficient Japanese ownership and management had been replaced overnight by inefficient Chinese ownership and management. The Formosans were left to nurse their grievances as best they could.



Now came the ultimate step; the Directors, Board members, managers and operating personnel - mainland Chinese at all levels -were in a position to vote themselves salaries, bonuses



CHEN YI'S "NECESSARY STATE SOCIALISM" 127



and perquisites, including official residences and cars, and inside opportunities to acquire blocks of shares in the new companies.



Thus a major portion of the productive economy passed into mainland Chinese hands. The Commissioners on top - Yen, Pao, Chao - held the power to regulate trade and transport, taxation, and the rehabilitation subsidies. They could grant or withhold licenses to operate and trade, they set the rates on transportation of goods, and issued (or withheld) export licenses. They had established a stranglehold on the confiscated enterprises and properties.



At the same time Commissioners and their associates as private persons held salaried positions and dividend-bearing shares. In a thousand public statements the Governor and his men professed dedication to the rehabilitation of damaged industries and a speedy restoration of Formosa to its high prewar production levels. In practice it was clear to all that the payment of private salaries, bonuses and dividends came first; if there was anything left over it might be spent upon long-range reconstruction.





"If You Can't Sell the Product, Sell the Plant!"



The year 1946 was one of unrelieved economic disaster. Prices rose steadily, production fell, and unemployment among the Formosans became a grave problem everywhere. The only happy people on Formosa were the Commissioners and their friends, who spent the year converting the island's industrial assets into good hard gold bars which could be tucked safely away, out of sight, in any part of the world.



The Finance Commissioner controlled three banknote printing presses which hummed busily throughout 1946. 1 was told by employees in the Bank of Formosa that no one actually had records of the total issue, and that there was much extra-legal printing. There was no clear definition of the channels through

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which fresh notes went into circulation, and the disclosure of a large-scale forgery pointed to connivance by staffmen in the Finance Department.



Between May and December all banknotes of Japanese design were gradually withdrawn. The replacement issues bore a picture illustrating the first Chinese victory over a European people (the defeat of the Dutch on Formosa by Koxinga in 1662) and the expulsion of meddlesome foreigners from the island. The new banknotes were printed in New York at the Government's order, and were shipped to Taipei by way of Shanghai. On the first day of issue the Bank of Taiwan proposed to release a total of TY 2,600,000. On that morning a mainland Chinese appeared at the teller's window with a suitcase containing no less than TY 3,000,000 in crisp new notes with which he proposed to open an account. My friend the teller summoned Bank officials who demanded explanations. These began with the remark that one of T. V. Soong's aides had made the cash available to him in Shanghai as a private favor. The interrogation was abruptly closed; the magic name had been spoken.



Large bonuses, "overseas pay," and cheap rice rations were made available to themselves by the Government officials. This contributed steadily to inflationary pressures. One by one the factories and other productive enterprises failed, and goods became scarce. Formosa in effect became a huge Thieves Market.



Formosans complained that for every shipload of commodities which left the ports they received in return only a shipload of greedy mainlanders. Few came over with a view to making Formosa a permanent home. Each tried to make the most of a good thing in the shortest possible time. We concluded that as a rule of thumb neither the Government nor private persons were interested in any transaction which yielded less than 100 per cent profit. The Japanese had reached a general conclusion that between ten and twenty years must be required in Formosa for a moderately prosperous business to recover its initial capital expenditure, but the newcomers showed

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no interest in long-term investment. For example, one of Japan's leading fisheries experts (Maene Hisaichi) was retained by the Government to advise on the rehabilitation of the marine products industry. He prepared plans which called for the development of fleets, technical training schools, markets, and a return of capital investment over a ten-year period. The Governor's men promptly rewrote the proposal, calling for an American agency to provide the capital, but making no allowances for maintenance, expansion, training, or the amortization of the original investment. The profits were to be immediate, and were estimated at twice the figure anticipated by the Maene Plan.



Maene gave up; he knew that he would have great difficulty in securing a release from his position as "advisor," for he knew too much of the smuggling activities being carried on by the Department of Agriculture and Forestry and so one day he simply vanished, to reappear in Tokyo, well beyond reach.



This was exclusively a "government of merchants"; the Commissioners and the majority of office-holders below them were not interested in reviving and enlarging production, but only in buying and selling. Financial policies across the board were being manipulated to advance the interests of newcomers and to eliminate competition offered by independent private Formosan enterprise.



The Finance Commissioner withheld all figures on total revenues, publishing only the budget of alleged expenditures. Statement sheets bore little resemblance to reality. For example the Government budget showed that millions of yen had been appropriated to the Education Department, but when local school administrators and teachers stood ready for operating funds and wages, the Department accounts proved empty. If the total original funds had ever really been transferred to the Education Department (a moot point), too many official hands had been in the till between the Finance Office and the countryside.



The Japanese Monopoly Bureau system offered a superb





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pasture for the grafters in the Government. Before 1945 ten private companies were licensed to distribute the Bureau's products, and the Government confined itself to processing and manufacture. Under Governor Chen the Government itself assumed responsibility for the distribution and sale of alcoholic beverages, matches and camphor. The Salt Monopoly was detached to form a separate bureau administered as part of the national salt monopoly system. It was announced that the Narcotics Monopoly would be abolished.



Although only five commodities were handled officially by the Monopoly Bureau, goods of every description were passing under Government controls, to be bought and sold many times over within and between the government agencies before they reached the consumer on Formosa or at Shanghai. Each paper transaction was expected to yield a profit to the men concerned.



Some newcomers were unfortunate enough to be assigned to administrative jobs which were not directly associated with production and commerce. They had to devise their own ways of milking the economy. I discovered one of these by curious chance, a minor one, but important in consequence.



My home lay on the principal boulevard leading from town to the Shih Lin suburb. One day a heavily loaded bullock cart broke down at my gate. In passing I noticed that it was loaded with books which had been stripped of bard covers. They were being taken, I was told, to a small pulping mill at Shih Lin. When I discovered that one of my acquaintances was employed there it was arranged for him to set aside and sell to me any interesting book having to do with Formosa. He told me that each week the pulping mill received many tons of books and statistical records - anything made of paper - and that the bulk came from school libraries and minor office files which had been taken over by the mainland Chinese. Many, indeed, bore the stamp of well-known institutions, from primary schools to high Government offices. The newcomers could see no use for the books (written in Japanese) and so were selling them

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out the back door, to be pulped, pocketing the money for themselves. At the same time, I discovered, many mainland administrators and teachers were making a private business of school supplies by requiring the children to buy paper and pencils from "private stock."



All new paper produced at the confiscated Japanese factories was reserved for the Government's use. After its own needs had been met the remainder was allocated to wholesale and retail distributors. Along the way Government officers acquired substantial quantities which they sold in the black market after paper rationing (which they themselves decreed) had driven the prices to an exorbitant figure.



There was an acute paper shortage. Normal prewar consumption had been about 2400 tons annually, when Formosa's own paper mills were producing 40,000 tons per year. Engineers with UNRRA in 1946 estimated that under proper management the total annual output could be raised to 50,000 tons at that time. The new Taiwan Pulp and Paper Company, founded by the Government in May, 1946, was the largest enterprise of its kind in all of China. One factory unit (at Lotung, south of Keelung) had previously supplied fifty-six press and publication agencies on Formosa.



A Chinese manager took over control in November, 1945, retaining a staff of Japanese technical experts to continue operations. They promptly advised him that the factory had only two months' reserve supply of certain critical materials and parts. When these were gone, they resorted to many ingenious makeshifts to keep the factory in production. Eight months after the manager had been alerted to the factory's critical needs (i.e. in June, 1946), be gave his first reply to the Japanese technical staff, saying that probably nothing could be done until the end of the year. The Japanese gave up, and sought to be repatriated.



Factory after factory simply disappeared. The principle seemed to be that "If you can't sell the product, sell the plant."



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Chinese managers would not agree to operate a factory at a temporary loss to ease unemployment or to use profits for capital reconstruction. If a factory was not yielding commodities which could be sold promptly, the working assets were sold, beginning with the stockpiled raw materials and finished products, and then by dismantling the factories themselves. Units which could be sold piecemeal went first, then the very framework went, shipped off to Shanghai as scrap metal.



The fate of the Tropical Chemical Industry Company near Chia-yi was an example. Here cassava root from some eight hundred farms was processed at a factory employing more than one hundred workers. In the face of organized community protest the new management simply dismantled and sold the works as machine units and as scrap metal. The cassava farmers were without a market, and the factory workers without jobs. In a similar fashion the industrial alcohol plant near Chia-yi (the largest of its kind in the Orient) was allowed to fall into complete disrepair and go out of production. From a maximum of 3200 employees the working staff was reduced to a skeleton maintenance crew of about 130 men. Much of the plant fabric was carted away as scrap metal.



Here and there we observed able men in office, but the average was extremely poor. For example, a former YMCA worker from Shanghai was made Director of the Taichung Regional Office of the Taiwan Pineapple Company. In the best years some 25,000 acres of land had been planted to pineapples and Taichung had been one of the world's noted production areas. Pineapple industry experts from Hawaii came in 1946 to have a look. The Director for Taichung took them on a guided tour. As they rode southward from Taipei the route lay through sand dunes near the western shore Suddenly this important Pineapple Company executive excitedly pointed out the first "pineapples," and the visitors gazed in wonder and disbelief. Mr. Fu was showing them, with obvious delight, the inedible fruits of the pandanus tree, a wild beach growth that has nothing whatever to do with the pineapple industry.

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The Taiwan Tea Corporation management was just then operating at about the same level of competence. Formosa had been one of the world's leading tea producers, with a worldwide reputation, shipping 13,200 metric tons of tea in 1939. The new Director was a brother of General Keh, the Civil Administrator. One day he brought to the American Consulate three half-pound bags of tea (one for each officer in the Consulate, we supposed) with a handwritten "advertisement" copied clumsily by a 19th-century gelatin process on flimsy paper. "Would the Consulate please send these to America to help promote the tea trade?"



The Trading Bureau was of special interest to Chen Yi himself. Producers of many commodities were required to sell to the Trading Bureau at fixed prices, and the Bureau in turn sold them on the local market or at Shanghai, thereby "generating State capital." After five months' operation the Governor announced that the Bureau had accumulated a profit of 160 million Taiwan yen "in the public interest." Men working in the Bureau or close to it asserted privately that the profits were at least ten times as great.



Even members of Chen Yi's official family were astonished by the magnitude of corruption within the Trading Bureau. Word reached Nanking that Chen Yi was skimming off a disproportionate share of the profits. Investigating agents from the Central Government ordered the Bureau Director placed under arrest, but the moment the investigating Commission left Formosa, the Director was released "for lack of evidence" and left the island, a free man.



One instance will illustrate the Bureau's methods. Large stockpiles of confiscated crude rubber had fallen into the hands of the Department of Industry and Mining, which resumed local production of bicycle tires, shoes, and other rubber goods. The finished products reached the market at exorbitant prices. Vigorous public protest brought the explanation that the Trading Bureau was receiving only a 10 per cent profit; the public should not complain. Technically, the 10 per cent figure was



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indeed accurate, but investigation showed that by arrangement with officials in Commissioner Pao's Department of Industry and Mining, the prices of rubber had been marked up 600 per cent before the rubber goods were sold to the Trading Bureau, which then so modestly added a mere 10 per cent to the inflated price.





Ships and Rails: Communications in an Island World



Transport and communications are the ultimate controlling factors in an island world. The people of Formosa were entirely dependent upon their railway system for internal economic life, and upon ocean shipping for communication with the larger world.



The Railway Bureau was made responsible to appropriate offices in the Central Government. Wartime damage at key junctions was soon repaired. Rolling stock was in poor condition, but the Taipei (Sungshan) Railway Shops were considered to be superior to any on the China mainland. Although some replacement parts were in short supply, it was clear that the principal damage to railroads in 1945 and 1946 was suffered at the hands of the incoming Chinese themselves. Soldiergangs made off with all copper wiring and switching equipment they could find, and passengers in the second-class coaches slashed out the plush upholstery. No metal fixture in any coach, baggage car or "goods wagon" was safe.



The new Bureau Director (Chen Ching-wen) was an arrogant "proper pipe-smoking chap" who had acquired an exaggerated British accent at school in England, a dislike of "meddling Americans," and a monumental contempt for the Formosan people, often plainly expressed. Members of the UNRRA Team considered him an able administrator, most fortunate to inherit a well-organized, well-staffed railway system.



But under this new administration nothing was safe aboard



CHEN YI S "NECESSARY STATE SOCIALISM" 135



the freight and baggage cars. By midyear 1946 shippers had to assign their own agents to ride with goods in transit from town to town to ensure arrival and delivery at the proper destination.



Director Chen developed a corps of special Railway Police, but they were soon accused of being as unreliable as any of the other special and regular police forces, for despite heavy guards aboard the trains, freight and baggage shipments, if unaccompanied, continued to disappear or were rifled along the way. Because of his arrogance, and the ruthless behavior of his private policing force, Director Chen became an object of special dislike among the Formosan people.



At times the highly developed transport and communications system seemed to baffle the new administration. There was nothing like it in any province on the mainland. On one occasion a Commissioner complained to me "The Formosans have too much and demand too much." Before the war there had been twelve express or semi-express trains each day passing between the ports of Keelung and Takao (Kaohsiung), and with subsidiary services as well. In their peak years the Japanese railways on Formosa had carried approximately one-sixth of the total freight tonnage carried over the whole of the sprawling continental Chinese railway system in its best year (1936). The Commissioner noted that China got along well enough with two express trains per day running between the national capital (Nanking) and Shanghai, one of the world's largest cities. The Formosans (he said) were making a nuisance of themselves in clamoring for the restoration of "normal" services.



Commissioner Jen controlled warehousing, internal transport, and portside shipping facilities. Few goods could move from the countryside to local markets or from the island to the mainland without paying tribute to the communications monopoly.



This enhanced the profits of smuggling. The laws, rules and regulations on the books of the Communications Department were not there to improve and promote transport services but

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were there to be circumvented--for a fee. Here the squeeze system flowered in its finest form, for there were few Formosans whose livelihood was not affected, and no mainland enterprise could ship or receive goods without a proper permit, to be had for a price.



The monopoly on sea transport dominated the economy, and was in the hands of the Taiwan Navigation Company, by now a subsidiary of the China Merchants Steam Navigation Company. In the next chapter we will review the effects of this stranglehold upon transport and communications, reflected most clearly in the UNRRA reports for 1946 and in the threatened extinction of foreign private commercial interests on Formosa.





Crisis Behind the Scenes?



It had been obvious from 1941 to 1945 that the Chinese had little understanding of the wealth and complexity of the island economy, and that our American studies of the island had directed Chinese attention to it and stimulated interest in the spoils. T. V. Soong was in wartime Washington occasionally, and his agents and lieutenants kept him well informed. It required some little time after the surrender, however, for word to spread through Chungking, Nanking and Shanghai that in Formosa China had indeed inherited "Treasure Island."



The only large-scale foreign investment in prewar Formosa had been a $25,000,000 bond issue floated by J. P. Morgan and Company on behalf of the Japanese Government to finance

construction of the first dams and power stations at Sun-Moon Lake. The J. G. White Engineering Corporation had surveyed the power potential and upon White reports the Morgan Company had agreed to promote the enterprise. Late in World War II it is not impossible that T. V. Soong (then Foreign Minister) was approached for assurance that American investments in



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Formosa would be respected in the event of a transfer of sovereignty. Be that as it may, Soong had prepared well in advance of the Surrender at Taipei; within a matter of days the J. G. White Corporation had a team based at Taipei to check the power situation and report on industrial potential.



Nothing long remains secret in China; we must presume that the contents of the second White Survey report were fairly widely known early in 1946. The Government moved from Chungking to Nanking on May 1. About that time I was in Shanghai and found myself wined and dined by a number of major bankers and businessmen eager to discuss the situation in Formosa. Questions and comments clearly reflected a keen but new interest in the island, its economic history and its current problems under Chen Yi's administration.



I interpreted some of the remarks to reflect considerable chagrin that the Generalissimo had turned Formosa over to Chen Yi and Necessary State Socialism. My interrogators obviously thought Chen Yi had held the island long enough to reap his reward, and feared that the total economy would suffer irreparable damage if he remained there much longer.



In May and June we became aware of a crisis behind the scenes we believed to be the consequence of a powerful conflict of interests at Nanking and Shanghai - a determined effort to oust Chen Yi and the so-called Political Science Clique which he was supposed to represent. There was great tension and the threat of violence, but we could not obtain a clear definition of the lines of conflict.



At one moment it was rumored that T. V. Soong himself would fly in (several leafy arches were erected near the airfield to frame "Welcome!" signs); and it was rumored that he had someone in the city waiting to replace the Secretary General, Keh King-en (the "Civil Administrator"). Any changes at this level would mean a drastic redistribution of authority, wealth and privilege. Since General Keh was not a "Chen Yi" man, we wondered if Soong was about to eliminate a rival faction which



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had brought critical pressure to bear at Nanking. Perhaps Chen Yi was not sharing the wealth to everyone's satisfaction.



The surface manifestations of crisis were very real. Communications between Formosa and the mainland were obviously a key to the situation if it came to a show of force. For a month regular air service to Shanghai was suspended. The Chinese Air Force suddenly showed that it would tolerate no interference with its properties and prerogatives. Armed Air Force units seized the principal airfield (Sungshan), surrounded it with guards and set up sandbagged barricades with a gate at the main approach. They defied the Governor to take the airport. For a fortnight the Shanghai Bureau of Communications refused to transmit telegraphic messages to Formosa. Obviously someone near the top of the National Administration was bringing heavy pressure to bear upon Taipei.



The American Consulate became very popular as a consequence. Commissioner Pao Ko-yung was suddenly seized with a desire to do pressing business at Shanghai and asked for our help in getting him aboard an American plane. The former Taipei Chief of Police (now suddenly transformed into a Special Representative for the Foreign Ministry, according to his calling card) persuaded the American Consul to help him secure passage aboard a foreign vessel then at Keelung. An agent from the Governor asked the Consul's help in getting the Governor's Japanese mistress (Formosa's "First Lady") out of the island; she too had pressing reasons to reach Shanghai - or at least to leave Formosa. These were official people and "technical experts," therefore our office was happy to oblige.



For a brief time it seemed probable that Formosans would witness a bloody clash within the ranks of their mainland "brothers" and "liberators," but the crisis passed, settled somewhere by compromise.

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Cutting the Formosan Pie Another Way



Chen Yi and his men remained at Taipei but the Commissioners had to share the spoils on a wider basis. Nanking directed them to reorganize confiscated properties and to provide a new division of responsibility. Certain major enterprises were to be entrusted to the executive management of the National Resources Commission. The NRC alone was in a favorable position to arrange foreign (American) financial and technical aid on the scale required to rehabilitate the Taiwan Copper Mining Company (all gold and copper mines), the Taiwan Aluminum Manufacturing Company (with plants at Hualien and Kaohsiung), and all island petroleum interests, now brought together as the Taiwan Branch of the China Petroleum Company. The NRC men - technically able and with a reputation for honesty began promptly to rehabilitate the mines which had been so badly damaged after the surrender, and to reconstruct the bauxite processing plants. The oil refineries near Kaohsiung had been damaged in 1944 and 1945, but could be brought back to their original planned capacity of 100,000,000 gallons of petroleum products annually. The China mainland had nothing to match these three enterprises in scale of operations or in technical development.



The new dispensation called for the formation of seven new corporations to be managed jointly by the National Resources Commission, the Taiwan Provincial Government, and certain private mainland Chinese capital investors, who were not identified. These seven companies brought together all the Japanese power installations, sugar interests, chemical fertilizer factories, paper and pulp industries, alkali industries, machine-manufacturing operations and shipbuilding concerns, including the drydocks at Keelung.



It should be remembered that henceforth any American or



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United Nations aid extended to these industries was aid to the unspecified private capital investors then on the mainland as well as to the Nationalist Party Government.



The leftovers (which were by no means inconsiderable) were divided among Chen Yi's Commissioners, and they, too, underwent reorganization. Twelve major companies were combined under one management to be known as the Taiwan Industrial Enterprises Company, directed by Commissioner Pao. Shares in this company were held by the Taiwan Government and private investors, who turned out to be the Commissioners and their associates. The syndicate embraced all confiscated companies having to do with coal, iron, rubber, vegetable oils and fats, textiles, industrial ceramics, electrical equipment, glass, chemicals, printing supplies, and supplies required for the construction, mining, and industrial maintenance activities on the island.



After June, 1946, only, eight million yen were made available by the Government to private Formosan enterprises for the second half of the year; Commissioner Pao's new Taiwan Industrial and Mining Enterprises Syndicate was provided with an operating capital of two billion yen.



The Formosans were simply frozen out. As they struggled to revive and rehabilitate their own small industries and commercial enterprises they found their rivals were Government men who held the licensing power, controlled transport, and manipulated the capital and credit sources. The Formosans were overwhelmed by the red tape of the licensing system. Few permits or licenses could be obtained without payment of squeeze.



Thus in late 1946 the Formosans found themselves at the mercy of three principal agencies. The Finance Commission very effectively restricted private (Formosan) use of foreign credit and of domestic loans for development purposes. The Department of Transport and Communications exerted a powerful influence on the flow of commodities, and the Taiwan Trading Bureau fixed prices which made black-marketing inevitable





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and universal. This in itself generated a wealth in bribes for the law-enforcement officers.



Quite naturally the Formosans measured these conditions against the best years they had known in the Japanese era. UsIng 1937 Prices as a base-line of 100, the commodity price indexes prepared at the UNRRA offices and at the American Consulate summarize the story. Foodstuffs rose from 3323 in November, 1945, to 21,058 in January, 1947. The cost of building materials rose from 949 to 13,612, despite the resumption of forest operations, local cement production, and brick-kiln operations, and despite a light need for new housing, thanks to the availability of thousands of vacated Japanese homes.



The farmer, who desperately needed chemical fertilizers, saw the index figure rise from 139 at the end of the war to 37,560 by January, 1947, although local factories were returning to production, and China's Western allies were donating tens of thousands of tons of fertilizer through the UNRRA program.



Unemployment became a grave problem. Manufacturing industries before the war had employed between 40,000 and 50,000 persons. Fourteen months after the surrender fewer than 5000 were employed. For example, an UNRRA report on one machine-tool shop showed that a normal payroll of 1000 men had been reduced to a maintenance minimum of thirty-five employees by the end of 1946. They could not meet the rising cost of living in the cities. Late in 1946 the unemployed Formosans began to drift back to their ancestral homes in the countryside, to help out on the farm. But they took all their grievances and disappointments with them.



Under these conditions new extremes of wealth and poverty appeared. The small but prosperous Formosan middle class began to vanish. Men and women from Shanghai set unprecedented standards of luxury, and ragged peddlers and beggars - a new phenomenon in Formosa - became a common sight.



My Formosan friends complained bitterly that they might as well give up urban life and go back to tilling the soil. And this,



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suspect, was precisely what Chen Yi's Commissioners hoped they would be forced to do.



The sooner Formosa could be reduced to the familiar conditions of mainland provincial life, the easier it would be to manage the economy, KMT-style.



But the Formosans - and UNRRA in Formosa - took a different view.