The Study On Reverse Lend-lease And Wartime Inflation Of China

Chinese anti-Japanese war is an indivisible and important part of world anti-fascist war. After the Pacific war broke out, the United State established a Lend-Lease relationship with China. According to the "Lend-Lease Agreement between the United States and China", American provided a series of military and economic aid, and by the form of "Reverse Lend-Lease", China provided such articles, services, facilities or information as it might be in a position to supply. So the Lend-Lease relationship between American and China in World War ? was bilateral assistance. U.S. military investment in China had a great significance in resisting Japanese aggression and enhancing Chinese soldiers' morale during the wartime. But Lend-Lease aid still had some limitations which couldn't meet China's domestic demand in wartime and also had little power to support China in this war. Most scholars in this field used to study the Sino-US relationship with the political and military, considering that the American aid had significant meaning in politics but still played a positive role in the victory of anti-Japanese war. However, they paid less attention to the negative effect of Reverse Lend-Lease, especially the study on the impact of American aid on China's economy was very weaken.During the Chinese anti-Japanese war, the free China's inflation divided into two stages, the price was rising moderately before the outbreak of the Pearl Harbor incident, then the speed of inflation reached a new height after the Pacific war broke out which might because of the Reverse Lend-Lease Act. Through the collection and collation of previous information on the loan material, and went to the archives to collect first-hand information, read the newspapers and the Kuomintang government statistics. A large number of historical documents which were collected by the previous researches, the archives' materials, some newspapers of republic period and the KMT government's statistics, clarify the amount of China paid for American military spending and the amount of advances by U.S. in wartime. The KMT government paid for the American spending in China for several times, and they also had many times negotiations for the repayment problems, eventually the United States repaid cash advance twice, equivalent to a total of 327 million fabi, didn't charge the legal tender advances total fabi 980.4 billion yuan, the compensation of American to China was less than 14% during the war of resistance against Japan. For making up the deficit, The KMT government had no choice but to accelerate the pace of printing money which caused severe inflation. This paper quantifies the effect of Reverse Lend-Lease on wartime inflation of China.This paper intensive studies the impact of Reverse Lend-Lease on China's wartime economy, by researching a lot of historical materials. Based on the theoretical macroeconomic model, building the behavior equations and market equilibrium conditions for households, firms and government, we analysis the relationship between monetary and fiscal policies and inflation in wartime. And then selects the Free China's 7 provinces and region's price index and budget in wartime, the amount of the KMT government paid for the American spending in China, and other variables. The Investigation of the effect of the KMT government's policies and American military expenditures on wartime inflation by using wartime provincial panel data and GMM dynamic panel estimation. The empirical research indicates that the direct cause of hyperinflation is KMT government's proactive fiscal policy and monetary policies. What's more, American huge expenditures led to a further in China aggravated the inflation. This paper finds that if the American army's spending increases 10%, this period's price index rises 7.8%. And the government budget enhances 10% would lead to 1% increase in this period's price. Also, the construction of US military bases in China and the US military operations caused the increase of inflation. This paper suggests that the form of the hyperinflation in wartime due to the KMT government implemented the expansionary fiscal policy and monetary policy, what's more, the Reverse Lend-Lease led to the deterioration of inflation.In the previous studies, the main reason for wartime and postwar economic collapse in China was the failure of the national government's anti-inflation policy and years of huge fiscal deficits, especially due to huge military expenditures. This paper quantifies the role of wartime finance policy and American military expenditures in China, shows that the Reverse Lend-Lease deteriorated free China's inflation, this conclusion can be an additional explanation for wartime hyperinflation of China.