Nationalist Government - Economy

Economy

After the Kuomintang reunified the country in 1928, China entered a period of relative prosperity despite civil war and Japanese aggression. In 1937, the Japanese invaded and laid China to waste in eight years of war. The era also saw the first boycott of Japanese products.

Chinese industries continue to develop in the 1930s with the advent of the Nanjing decade in the 1930s, when Chiang Kai-shek unified most of the country and brought political stability. China's industries developed and grew from 1927 to 1931. Though badly hit by the Great Depression from 1931 to 1935 and Japan's occupation of Manchuria in 1931, industrial output recovered by 1936. By 1936, industrial output had recovered and surpassed its previous peak in 1931 prior to the Great Depression's effects on China. This is best shown by the trends in Chinese GDP. In 1932, China's GDP peaked at 28.8 billion, before falling to 21.3 billion by 1934 and recovering to 23.7 billion by 1935. By 1930, foreign investment in China totaled 3.5 billion, with Japan leading (1.4 billion) and the United Kingdom at 1 billion. By 1948, however, the capital stock had halted with investment dropping to only 3 billion, with the US and Britain leading.

However, the rural economy was hit hard by the Great Depression of the 1930s, in which an overproduction of agricultural goods lead to massive falling prices for China as well as an increase in foreign imports (as agricultural goods produced in western countries were "dumped" in China). In 1931, imports of rice in China amounted to 21 million bushels compared with 12 million in 1928. Other goods saw even more staggering increases. In 1932, 15 million bushels of grain were imported compared with 900,000 in 1928. This increased competition lead to a massive decline in Chinese agricultural prices (which were cheaper) and thus the income of rural farmers. In 1932, agricultural prices were 41 percent of 1921 levels. Rural incomes had fallen to 57 percent of 1931 levels by 1934 in some areas.

In 1937, Japan invaded China and the resulting warfare laid waste to China. Most of the prosperous east China coast was occupied by the Japanese, who carried out various atrocities such as the Rape of Nanjing in 1937 and random massacres of whole villages. In one anti-guerilla sweep in 1942, the Japanese killed up to 200,000 civilians in a month. The war was estimated to have killed between 20 and 25 million Chinese, and destroyed all that Chiang had built up in the preceding decade. Development of industries was severely hampered after the war by devastating conflict as well as the inflow of cheap American goods. By 1946, Chinese industries operated at 20% capacity and had 25% of the output of pre-war China.

One effect of the war was a massive increase in government control of industries. In 1936, government-owned industries were only 15% of GDP. However, the ROC government took control of many industries in order to fight the war. In 1938, the ROC established a commission for industries and mines to control and supervise firms, as well as instilling price controls. By 1942, 70% of the capital of Chinese industry were owned by the government.

Following the war with Japan, Chiang acquired Taiwan from Japan and renewed his struggle with the communists. However, the corruption of the KMT, as well as hyperinflation as a result of trying to fight the civil war, resulted in mass unrest throughout the Republic and sympathy for the communists. In addition, the communists' promise to redistribute land gained them support among the massive rural population. In 1949, the communists captured Beijing and later Nanjing as well. The People's Republic of China was proclaimed on 1 October 1949. The Republic of China relocated to Taiwan where Japan had laid an educational groundwork.