Japanese Foreign Trade, by Principal Countries (Japan Proper)

Source: Monthly Return of Foreign Trade, Department of Finance, Tokyo, December 1936. NOTE. The average value in United States currency of the yen in 1934 was $0.2972; in 1935, $0.2871; and in 1936, $0.2902.

CHINA

In many respects the year 1936 may be characterized as one of the most prosperous and successful in China's recent history. Viewed in the light of certain political events, in combination with a national policy of economic experiments, it was also one of the most crucial. There were times when the whole political, social, and economic structure of the country appeared to be threatened with disaster, but the conclusion of every struggle seemed to resolve itself into a betterment of the general welfare. As a result of at least two remarkable political coups, the country was more unified administratively than ever before. From north to south, with the exception of certain southern areas, unusually heavy crops combined with (paradoxically) a notable rise in the prices of farm products to bring comparative prosperity to the Chinese farmer. These more abundant returns to the great mass of the population and the Government's success in the maintenance of stable exchange served to raise China's purchasing power to its highest peak in 25 years, and under this stimulus Chinese

industry made marked gains over the previous year. A striking feature of 1936 was the tendency of Chinese capital to turn from the internationally controlled city of Shanghai into the interior for investment, under the impetus of new faith in the enduring qualities of the country's progress.

On October 25, 1936, China celebrated the twenty-fifth anniversary of the Revolution which led to its establishment as a Republic, and the statement was widely published that "on no occasion in the past quarter century have the internal conditions of the country, political and commercial, given greater promise of an era of orderly government and prosperous development."

Such a summary, however, should not be understood as implying that China's future road is to be all smooth going. There are still a number of large and influential adverse factors standing in the way. The aggressive character of dissatisfied factions in several parts of the country, particularly the communistic forces in the west and northwest areas, retards the processes of internal unity. Unsettled questions inherent in China's relationships with some of her nearer neighbors still cloud the immediate future. Smuggling of imports across the northeastern border persists on a large scale, upsetting the market for lawfully entered goods and depleting the revenues from customs. While export trade materially expanded during the year, the unfavorable trade balance is still comparatively large.

CURRENCY AND FINANCE

The currency reforms introduced by the Government in November 1935 worked throughout 1936 with unanticipated ease. Government bank notes were accepted, in lieu of silver, throughout the country. Silver ceased to be used as a currency but flowed into the reserves of the Central Bank of China, where a large part was converted into foreign-currency reserves. Notwithstanding threats against its stability, the exchange value of the yuan was steadily maintained, while the Government banking institutions accumulated resources greatly in excess of those with which they started.

In May 1936 the Ministry of Finance announced new provisions for increasing the gold-bullion and foreign-currency portions of the currency reserves, with silver reserves to be no less than 25 percent (formerly 60 percent) of the total value of note issues. Following the conclusion of negotiations between China and the United States in that month, China successively made large silver exports to the United States and other foreign financial centers for the acquisition of foreign currencies as stabilization factors.

The introduction of an income tax was one among several reform measures which served to supplement increased revenues from other sources and compensated to a certain extent for losses in customs revenues as a result of smuggling operations. Government expenditures were lowered through a reorganization of old loan issues which reduced servicing costs. Government bonds enjoyed both an appreciation in values and an increased demand, which permitted the renewed servicing of old foreign loans in default and thus contributed toward a considerable recovery in China's credit status.

Note issues of the three Government banks amounted to 1,080,000,000 yuan, as compared with 638,000,000 yuan at the end of the previous year. Adding issues of other banks still outstanding, total note

The

issues in China were calculated at about 1,650,000,000 yuan. national budget for the fiscal year ending June 30, 1937, required a borrowing of 222,000,000 yuan to meet deficits, and the unlikelihood of the budget being balanced at an early date is a matter of some concern. The present huge military expenditures are still regarded as unavoidable, but the increasingly larger sums being spent by the Government as capital investments in railways and other State enterprises are expected to yield eventual returns which will materially add to the State revenues.

At the end of 1936 China's total outstanding foreign obligations amounted to 1,790,002,000 yuan at the exchange rates prevailing.

LEGISLATIVE MEASURES

INSURANCE ENTERPRISE LAW

The insurance enterprise law was promulgated June 7, 1936, subject to the enactment of regulations for enforcement, and the latter were issued November 27, 1936, but have not yet become effective. Foreign insurance companies operating in China objected to the proposed law mainly because it restricted their operations to treaty ports. This, it was contended, served as a discrimination against them in favor of Chinese companies.

REGULATIONS GOVERNING PROPRIETARY MEDICINES

The proprietary-medicine regulations originally drafted and revised from time to time were embodied in a final draft effective January 1, 1937. Most of the features objectionable to foreign interests were either eliminated or revised acceptably.

JOINT SINO-FOREIGN ENTERPRISES

The National Government announced on November 22, 1936, that any Sino-foreign enterprise organized or approved by local authorities must, in order to become valid, receive the sanction of the proper authorities of the National Government.

INCOME-TAX LAW

On June 9, 1936, the Legislative Yuan enacted an income-tax law, effective January 1, 1937, providing for taxation of three classes of income; but the law has not yet been accepted as applicable to foreigners subject to extraterritorial jurisdiction.

AGRICULTURE AND CROPS

China's vast agricultural population not only had the benefit of bumper crops in 1936 but obtained also higher prices for harvest yields. The rice yield, except in South China, was about 5 percent greater than in 1935 and one of the largest rice crops in recent years. South China's crop was considerably below normal and necessitated larger imports of rice into that region, but with improved transportation facilities the shortage was covered by bringing rice in from domestic areas of production, and imports of foreign rice were smaller than during the previous year.

Exclusive of Manchuria, the wheat crop rated throughout the country at an average of 10 percent above the previous year and

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placed China in the front rank of wheat-producing nations. The cotton crop was the largest recorded, being estimated at 3,700,000 bales of 500 pounds each, or an increase of about 1,000,000 bales over 1935. Part of the increase resulted from Japanese efforts to increase production and improve the quality of cotton in North China with the hope of securing a larger source of supply for Japan's cotton mills. It is estimated that about 200,000 bales of foreign cotton will be imported into China during the 1937 season, compared with 300,000 bales in the previous season.

Tobacco production also registered a record crop estimated at 170,000,000 pounds, of flue-cured tobacco, or approximately 10 percent greater than in the previous year. The higher prices obtained for Chinese flue-cured tobacco leaf are indicative of an increase in cigarette consumption and offer encouragement to sales of American leaf during 1937.

Although there was a large increase in the acreage under cultivation of sugarcane in Kwangtung Province, the harvest was but slightly greater than in 1935. Indications are that plantings will continue to increase during 1937, because sugar refining is no longer restricted to the provincial government's monopoly and there is strong interest in the development of a modern cane-sugar industry in China.

The North Manchurian soybean crop for 1936 was not only 8 percent larger than last year, but the quality was also much better, with practically no carry-over of the 1935 crop. The harvest was estimated at 4,175,000 metric tons. There was, moreover, a considerable increase in the yield of soybeans in other parts of China.

In Kwangtung, the raw-silk crop was 22,500 bales, or an increase of 4,500 bales over 1935. In Kiangsi and Chekiang Provinces production is estimated to have amounted to 70,000 bales, of which 33,000 bales were exported. The production was greater than for 1935, but exports were less. However, there was a substantial increase in domestic consumption.

The 1936 fall tung-oil crop was expected to be about 10 percent better than the excellent crop of 1935, with 70,000 tons of tung oil available for export to the United States in 1937. Exports of tung oil to the United States in 1936 were the highest on record.

INDUSTRY

GOVERNMENT IN INDUSTRY

There were noticeable indications during the year of a declining interest by the central Government in embarking upon manufacturing enterprises. With the liquidation of the Kwangtung-Kwangsi semiindependent political status, some of the provincial industrial plants were leased to private interests with implications that further progress will be made in this direction. On the other hand the China Vegetable Oil Corporation, a Government industrial concern, was launched with the announced intention of standardizing vegetable oils, especially tung oil, and stabilizing the price; but there is some apprehension that the ultimate objective may be the establishment of a Government monopoly for handling this export commodity. Antimony and tungsten ores are both under the control of governmental agencies.

A match monopoly known as the China Match Production and Sales Union, which includes 65 match factories, was inaugurated on

February 1, 1937, with capital of 5,000,000 yuan. It has the support of the National Government, which, in cooperating with the Union, has issued a mandate instructing the authorities of various districts to prohibit the establishment of any new factories for a period of 5 years.

The Central Machine Works, a Government project which was built and equipped with up-to-date machinery through credits obtained from the British Boxer Indemnity Refund, has been under the direction of the Ministry of Industry but is soon to be turned over to the Ministry of Railways.

Plans have been announced for the founding of a Central Engineering Academy at Nanking to comprise four departments-electrical, mechanical, civil, and chemical engineering. Part of the funds will be allocated from the Sino-British Boxer Indemnity and the remainder by the Ministry of Education.

Under the Kwangtung provincial government's 3-year plan for industrial development, 20 government-operated factories were completed, and the construction of several others commenced by the end of 1935. Eight new factories were completed and operations begun. in 1936. The 30,000-kilowatt turbo-electric power plant at Canton was completed, and the machinery, of German origin, arrived during the year. year. A paper factory was finished and completely equipped with Czechoslovakian machinery. The provincial government turned over operation of two sugar mills to a Java-Chinese concern for a period of 5 years, the company to retain 15 percent of the net profits. The Government also terminated its sugar monopoly in the fall with the announcement that private mills might be constructed at points distant from government plants. A contract was signed with a British firm for the survey of iron and coal deposits in Kwangtung to determine the feasibility of erecting in the vicinity of Canton a steel mill to cost approximately $9,000,000 (U. S. currency). A preliminary agreement was signed with the General Electric Co. of England to furnish for Canton 70 trackless trolley-busses and to install cables therefor at a cost of £225,000. According to the terms of this contract, payments are to extend over a period of 6 years, secured on the mayor's signature, backed by promissory notes of the Canton municipal government. Also, the German company which furnished machinery for the power plant extended credits for a 5-year period, with no security except similar promissory notes signed by the mayor.

PRIVATE INDUSTRY

Viewing industry as detached from governmental participation in any particular phase of its organization or operations, one finds that in the first half of the year conditions generally were not propitious, but during the latter half definite improvements were noticeable, especially in the last quarter. The Shanghai Power Co. (American), which supplies approximately 90 percent of the power consumed by the various industries in the premier industrial city of China, reports that for the year there was an increase of 5 percent in industrial electric-current sales over 1935, and for the last 6 months of the year an increase of 9 percent in sales. Similarly, the Shanghai Gas Co. shows a heavy proportionate increase in the sale of gas for industrial purposes during the latter part of the year.