The Chinese Inflation, 1937-1949

By Shun-Hsin Chou | Go to book overview

CHAPTER II Receipt and Expenditure: Inflationary Pressures in the Government Sector

THE FISCAL SYSTEM BEFORE 1937

A chief characteristic of China's fiscal system before the war was a continuing deficit. During 1928-35 taxes and other current revenues covered on the average only 79.57 percent of the government's total expenditures. 1 The remainder was met by borrowing. In the fiscal year 1935-36 smuggling became rampant in north China under the de facto control of the Japanese, and as a consequence, the customs revenue registered a sharp decrease. The ratio of the government's total current revenue (excluding borrowing) in its total receipts (including borrowing) or expenditure dropped to 40.0 percent. In the fiscal year 1936-37, however, the current revenue rose to cover 65.81 percent of the total expenditures, because of a substantial reduction in smuggling and of improvement in the customs revenue.

In these prewar years, the bulk of current revenue was derived from the customs revenue, the salt tax, and the commodity tax. These contributed 68.52 percent of government's total receipts, or 86.08 percent of the total revenue.

During 1928-35 customs revenue consisted mainly of import duties and contributed on an average 42.23 percent of the government's total receipts (including borrowing) or 53.03 percent of its current revenue (excluding borrowing). And, except for the fiscal year 1935-36, it was invariably the most important tax revenue of the Nationalist government.

The salt tax was an excise tax, usually collected at the producing center at the time the salt was shipped out. During 1928-35 the salt

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