All manner of ambitious schemes for the development of morth China are now being discussed by the Japanese controlled press in Tientsin and Peiping, not the least interesting of which is the proposal reported elsewhere in this issue for the creation of the China Federated Reserve Bank and its participation in the yen bloc with Japan, Manchoukuo and Inner Mongolia. By this means it is sought to form an oriental economic bloc and with the consolidation of the currency system in north China preparations are being made to reap the economic fruits which Japan expects from her present venture in this country. The proposed bank will have a capital of Yuan 50,000,000 to be subscribed half by Chinese banks and half by the new regime. It will undertake the control of the money market and all note issues of existing banks in the north, including the Yokohama Specie Bank and the Bank of Chosen. Silver stocks in all banks in Peiping and Tientsin will be concentrated in the new bank as a specie reserve. There will be no free conversion of notes into specie, but a managed currency policy as is followed by Japan will be adopted, while the external value of the notes issued by the new bank will be made equal to the Japanese yen. The scheme is identical with that set up by Japan in Manchoukuo. There, by law, the Central Bank of Manchoukuo was required to hold as reserve against the note issue a sum equivalent to 30 per cent. or more of the total amount of the notes issued in gold and silver bullion, reliable foreign currencies and deposits with banks in gold and silver accounts. As a matter of fact the reserve ratio was generally higher, but the scheme actually permitted the retirement of the old notes then current in Manchoukuo to the face value of no less than Yuan 19,660,000,000 and the substitution therefor of no more than Yuan 200,000,000 on the new currency. It will be remembered that the enormous note issues in the time of Chang Tso-lin and Chang Hsueh-liang had greatly depreciated despite their frantic endeavour to uphold their value even by resort to the executioner's sword, and in 1935 a correspondent of this journal was able to report that the managed currency of Manchoukuo was proving a success and a decided boon to the inhabitants of that country who had suffered so badly under the quaint financial methods of the old regime.
It appears that the silver cash held in Peiping and Tientsin amounts to about Yuan 56,000,000 and on the basis of the Manchoukuo experiment this should provide sufficient reserve for a note issue of Yuan 168,000,000. It is believed that this is wholly insufficient for the needs of the area over which Japan has secured control and it would seem that it is also intended to negotiate a credit amounting to Yeh 100,000,000 with Japan through a syndicate organized by the Yokohama Specie Bank, Bank of Chosen, Industrial Bank of Japan.and the Hypothec Bank of Japan. If that is also to be used as a reserve for the note issue it would then be possible to place notes representing approximately Yuan 500,000,000 at the service of the new regime, and it is believed by those responsible for the scheme that this would be sufficient for the change which is contemplated. Northern critics of the plan, however, believe that the only way the new currency can be established on a stable basis would be to give it a proper backing by Japanese capital of four to five hundred million yen, and in order to prevent the yen being weakened in Japan—by the export of the Yen which the Japanese government is striving so desperately to prevent—the new currency will have to be stabilized at a fixed rate, as has been done in the case of Manchoukuo. To achieve that end it would be necessary to impose the same restrictions on imports and exchange transactions as have been applied in Japan rogue dines That this is contemplated is: it from the expressed intention of including north China is the economic bloc which already exists. In view of the uncertainty of the hold which Japan at present has upon northern China the possibility of successfully enforcing such restrictions must be regarded with some doubt, but should it prove success the same Gepressing effect would be felt on trade as is experienced in both Manchoukuo and Japan.
The point may be taken quite correctly that the depression which those countries are at present suffering is the direct result of the Japanese campaign in China and that as soon as conditions return to normal it will disappear. Temporary inconvenience, it will be urged, is the natural price for undertakings which have been embarked on with an eye to the long distant future. That may be very true but the foreigner will watch developments with considerable gloom realizing that what is happening in Manchoukuo will in all probability occur to him in north China. That the Japanese can carry through such a scheme as the one under review is proved by what has been achieved in Manchoukuo. It may make bigger demands upon Japanese resources, but there is at. present no reason to believe that Japan is unable to meet them. The point which it is sought to make, however, is that plans such as these, having a direct effect upon the trade which the foreigner desires to do in this part of the world, are calculated to damage those interests which it has been repeatedly stated it is the Japanese intention strictly to respect. The recent restrictions imposed on trade and exchange firstly in Japan and subsequently in Manchoukuo have had serious repercussions upon the businesses of foreign nationals resident in those countries. There is no ground for believing that similar arrangements in north China would produce any different results: on the contrary they may be expected to operate in exactly the same manner. When, therefore, such plans are in the making how can it be said with any hope of carrying conviction that foreign interests will be scrupulously respected? To the very simplest it must appear that such is not the case, and that those unofficial publicists who have so frequently boasted of Japanese intentions to monopolize the trade of China have probably more real authority behind them than the more official utterances to the opposite effect. A realistic view of the outlook is not reassuring, but there is this comforting reflection that it is not unlikely that Japan is taking on more than she can handle, and that in the kong run she will find that ce-operation with the foreigner in China and not his exclusion may serve her ends best.
Text read from the printed page and cleaned; old type leaves the occasional error.