A springboard to victory: Shandong Province and Chinese Communist military and financial strength, 1937--1945

During the Sino-Japanese war of 1937 to 1945, the Chinese Communist Party (CCP) in Shandong Province in North China achieved an unnoticed but historically significant success in financial affairs. From that time onward, the CCP in Shandong not only controlled economic affairs within its territory, but also obtained access to territories under enemy occupation through manipulation of currency exchange rates and by controlling the trade in staple grains, cotton, salt and peanut oil. As a result, trade with occupied China and with the Japanese invaders became the principal source of revenue of the CCP in Shandong as early as the second half of 1943. By the time of Japan's defeat in August 1945, about 80% of the CCP's revenue in Shandong came from trade beyond the areas under its control. Moreover, the CCP in Shandong deliberately carried out a policy of controlled inflation to increase its financial power. The key to this achievement was the CCP's success in establishing exclusive zones for its banknotes in August 1943. The exclusive use of CCP currency developed in the course of many years of armed conflict among Japanese, CCP and Nationalist (GMD) forces in the province. The CCP's banknotes were backed by Communist military power and military success. From their first days, the banknotes were intertwined with the military power of the CCP in Shandong and the supporting administrative institutions that Party authorities established in the province. The establishment of exclusive currency zones reflected the maturity of the CCP's party-state. Because external trade was their principal source of revenue, CCP leaders in Shandong lacked the incentive to carry out social reform in Shandong. Moreover, justifications for the CCP's program of agrarian revolution as carried out elsewhere were not found in Shandong. Rather than seeking social and economic transformation, the CCP built up power with a view to achieving a favourable position vis-a-vis the GMD before the end of the war against Japan.