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Unmaking the Chinese Nationalist State: Administrative Reform among Fiscal Collapse, 1937–1945*

  • FELIX BOECKING (a1)
Abstract

The defeat of the Chinese Nationalist Party (Guomindang) in the Chinese Civil War in 1949 is often explained as a consequence of Nationalist fiscal incompetence during the Second Sino-Japanese War, which led to the collapse of the Nationalist state. In this paper, I argue that from 1937 until 1940, GMD fiscal policy managed to preserve a degree of relative stability even though, by early 1939, the Nationalists had already lost control over ports yielding 80 per cent of Customs revenue which, during the Nanjing decade (1928–1937), had accounted for more than 40 per cent of annual central government revenue. The loss of this revenue forced the Nationalists to introduce wartime fiscal instruments, taxation in kind, and transit taxes, both previously condemned as outdated and inequitable by the Nationalists. Further territorial losses led to the introduction of deficit financing, which in turn became a cause of hyperinflation. The introduction of war-time fiscal instruments led to administrative changes in the revenue-collecting agencies of the Nationalist state, and to the demise of the Maritime Customs Service as the pre-eminent revenue-collecting and anti-smuggling organization. The administrative upheavals of the war facilitated the rise of other central government organizations nominally charged with smuggling suppression, which in fact frequently engaged in trade with the Japanese-occupied areas of China. Hence, administrative reforms at a time of fiscal collapse, far from strengthening the war-time state, created one of the preconditions for the disintegration of the Nationalist state, which facilitated the Chinese Communist Party (CCP) victory in 1949.

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7 van de Ven, War and Nationalism in China, p. 295.

8 Second Historical Archives of China (hereafter SHAC) 679/9/3560, Hooper to Kung (31 March, 1937).

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10 ‘Annual Report on China for 1937’, in Sir A. Clark Kerr to Viscount Halifax, (29 April, 1938) [F6312/6312/10], in Bourne, K., Cameron Watt, D. and Trotter, A. (eds), (1992). British Documents on Foreign Affairs (hereafter BDFA), Part II, Series E, Asia, 1914–1939, University Publications of America, Fredericksburg, Maryland, Vol. 21, China, 1932–1939, pp. 372373.

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13 Bickers, R. (2008). The Chinese Maritime Customs at War, 1941–1945, Journal of Imperial and Commonwealth History, 36:2, 301.

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16 SHAC 679/1/32745 K. K. Chen, ‘Customs Revenue in Occupied Areas’ (23 March, 1944), in L. K. Little to Dr H. H. Kung (28 March, 1944).

18 Bickers, The Chinese Maritime Customs at War, pp. 299–301.

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20 Bickers, The Chinese Maritime Customs at War, p. 299.

21 SHAC 679/1/32745 K. K. Chen, ‘Customs Revenue in Occupied Areas’ (23 March, 1944) in L. K. Little to Dr H. H. Kung (28 March, 1944).

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37 SHAC 679/8/158 IG Circular CIS No. 883 (27 February, 1945).

38 Young, China's Wartime Finance and Inflation, p. 36.

39 Bickers, The Chinese Maritime Customs at War, p. 303.

40 SHAC 679/26090 E. T. Williams, Commissioner, Wuchow, Wuchow No. 4230/CIS No. 74 (25 September, 1942).

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46 SHAC 679/1/4145 IG Circular CIS No. 52 (7 March, 1942).

47 Chargé in China (Atcheson) to Secretary of State, Chungking (2 August, 1943) [893.5151/953: Telegram], in Department of State (ed.) (1957). Foreign Relations of the United States: Diplomatic Papers(hereafter FRUS), 1943, China, United States Government Printing Office, Washington, DC, p. 440.

48 Freyn, H. (1943). Free China's New Deal, Macmillan, New York, p. 73; OSS, doc. C: China 2.3-c, ‘Trade between Occupied China and Free China’ (16 June, 1942), p. 2 (Office of War Information (OWI), Box 397); both in Eastman, ‘Facets of an Ambivalent Relationship’, p. 278.

49 OSS, ‘Trade between Occupied China and Free China’, p. 1, in Eastman, ‘Facets of an Ambivalent Relationship’, p. 279.

50 Eastman, ‘Facets of an Ambivalent Relationship’, p. 283.

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52 Eastman, ‘Facets of an Ambivalent Relationship’, p. 283.

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57 Harvard University, Houghton Library, Ms. Am 1999.2, L. K. Little Personal (spine), Letters, Memoranda etc. relating to Customs Affairs 1945 (title page), L. K. Little to B. E. F. Hall, IGS No. 52 (9 February, 1945), in Bickers, ‘The American IG’, pp. 25–26.

58 Young, China's Nation-Building Effort, pp. 433–435.

59 Bickers, The Chinese Maritime Customs at War, p. 301.

* This paper is based on a part of my Ph.D. thesis, which was supervised by Hans van de Ven at the University of Cambridge and funded by the Arts & Humanities Research Council award APN 16,296 ‘The History of the Chinese Maritime Customs Service, 1854–1949’. I gratefully acknowledge both supervision and funding. I also thank Martin Daunton and Rana Mitter for their very useful comments during my viva, and I am grateful to Robert Bickers, Martin Chick, David Greasley, Stephen Halsey, He Wenkai, Thomas Rawski, R. Bin Wong and Tabitha Mallory for their comments on earlier versions of this paper, and to Robert Bickers for his permission to quote from an unpublished paper. Madeline Graham kindly prepared Figure 1 based on my data. Figure 2 is printed courtesy of the Department of History, United States Military Academy. The conference where this paper was presented was organised by the China's War with Japan programme at Oxford University, funded by the Leverhulme Trust (www.history.ox.ac.uk/china [accessed 20 December 2010]).

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