Changes in Income Distribution during the Wartime Inflation in Free China
Because of the lack of basic economic and financial statistics, it is impossible to analyze with any finality the changes in income distribution in China during the wartime inflation. There is some evidence, however, which suggests the directions of change and provides a basis for hazarding certain general conclusions.
Manufacturing output in Free China increased greatly after the Japanese invasion as new industries were established with equipment moved from the coast; agricultural production, too, rose under the stimulus of government encouragement. The index of industrial production prepared by the Ministry of Economic Affairs shows a rise of 86 per cent during the two years 1939-1940, and the index of agricultural output increased by 4 per cent in the crop year of 1939. There was, of course, a sharp decrease in trade with occupied regions, but in most parts of Free China increases in production outweighed the fall in imports; and, at first, the total amount of commodities available for distribution rose. This situation was reversed in 1940 when the disruption of communications with the outside world deprived Free China of imported supplies for China's own industries. At the same time, shortages of manpower in agriculture, resulting from conscription, and subsequent wage increases retarded the further growth of output. Crop production began to decline in 1940, and it averaged about 9 per cent below 1939 during the remainder of the war. Industrial production approximately doubled in the three years 1941-1943 but began to fall in 1944 following increased scarcities of essential materials and rapid increases in wages caused by inflation. From 1941 on, therefore, increases in total production in Free China