New-York tribune., 1917-12-24
China Goes Awry
On Perfectly Good
Economic Theory
Higher Purchasing Power OF
Silver Fails to Increase
Country's Imports

When silver dollar OF Chlnese, MEX
lean or British mintage-that is, Sill
yer dollar with no gold exchange guar
antee back of twill exchange into 10
70 50 gold cents in Hong Kong or
China for the purchase of goods IN the
United States instead Of the 40 to 40
gold cents il usually calls for, It would
seem there ought TO be strong demand
IN Hong Kong and China for American
or European goods. This, at least,
is the theory Of the matter, and in
general way high exchange in China
usually leads to increased purchases OF
foreign made products, while, con-
versely. the comparatively low value OF
gold leads to a check in Chinese ex-
PORTS TO the United States and Europe.
But in spite Of these general effects
% plain economic laws, the recent
extraordinary rise in the value Of sill
yer. George Z. Anderson, American
Consul General at Hong Kong, re-
rcrts. has not led to increased imports
os foreign goods, although it has
checked the normal flow Of Chinese ex-
ports.
an fact" writes Mr. Anderson, this
latter result explains the former re-
suit, for the buying power OF the Chi
rese people is so low and the economic
position Of the Chinese nation IS so
weak that. save in q few instances, the
people and country cannot and do not
buy abroad until they have exported
what they have to sell.
aside from booming trade with the
United States due to the fact that
commerce with other nations is ham
pered by the war; trade conditions in
Hong Kong and China since silver took
its upward trend have not been good.
There is no reason to believe that they
will improve until silver falls in price.
Export of Silver Prohibited
The situation in Hong Kong and
South China, and to some extent in all
China, would have been much less
satisfactory than it has been if ex-
change on the United States and Eu-
rope had followed its normal course in
the rise and fall of silver. 1t has not
followed this normal course, however.
Notwithstanding the fact that silver
bullion-silver in any form-in China
in
Kong is the basis of all currency, the
free movement of this currency out Of
Hong Kong and South China was pre-
vented by law and, to some extent, by
the lack of general import business.
Concurrent with this action was the de-
cision of the dominant financial inter
ests in Hong Kong not TO follow the
price of silver abroad in exchange rates,
being supported in this position by the
general commercial conditions in the
colony and more or less in China as Il
whole.
"The fact was that Chinese import
and export business could not adjust
itself to the rise in silver as rapidly
as that rise occurred. When the price
Of silver in the markets of the world
advanced more rapidly than the price
of the metal in Hong Kong and Shang-
ha exports of the metal from Hong
Kong and Shanghai commenced, and at
Shanghai proce ded TO n considerable
extent. In the South China provinces
silver began TO move TO Shanghai. go
ing thither for export, for speculation,
for investment in foreign securities
or simply on interest TO take the place
OF silver already exported. For a time
the outflow from South China was Sc
rious-so serious, in fact, that the
Chinese officials concerned took ac-
tion and prohibited the further export
OF silver from the South China prov
inces. Action on the part of the Hong
kons government was even more
prompt. At the solicitation Of the
dominant banking and financial inter-
csts, the government early prohibited
the further export of silver from the
colony
Exchange Below Silver Parity
The result illustrates remarkably
the influence of Hong Kong banking
institutions, as well as the dependence
OF exchange upon trade. On Septem-
Der %, when both the price of silver
and silver exchange were at their high
est point, the telegraphic transfer rate
Of the Hong Kong silver dollar on
New York was 77H cents London, /
3s 2Ad), while the parity of silver
(that u.s.. the actual value of silver
here AS determined by its cost abroad
at bod per ounce in London, with
freight, insurance and interest added 7,
was roughly about Is sterling, or SO
cents gold. Exchange in Hong Kong,
therefore, was held 1914 per cent below
the value Of the silver it represented.
In Shanghai, on the same date, with !
the tclcgraphic transfer rate OF the
tael at Sll7is gold London. Is 10Izd), '
silver parity was placed at sl.30 (5s /.
sd stcrling), or per cent below the [
value OF the silver in Shanghai as
meSsnrel by its value in other markets. |
This policy Of keeping exchange be- !
low lis London level was deemed neces- |
sary Tor the protection of banking and
commercial interests in this field. /
That il has accomplished its object is
true in remarkable degree. though /
some ~ It's results have been rather !
unexpected. or course the first object
ard the first result--of this policy
was the protection OF Hong Kong apd
South China business from the restric-
tlon OF credits and the withdrawal Of