Famine & Bankruptcy

The gimlet-eyed money-changers on Hong Kong's Connaught Road and along the nearby Macao waterfront traditionally buy--at carefully reckoned prices--even the most dubious currencies. But last week they were shaking their heads at fishermen and smugglers selling Communist China's yuan. For the yuan had dropped to an alltime low. It began its spectacular decline last year, took its biggest plunge since January, when the news of China's food shortages first leaked out. Overall, it has dropped 50% in value from a year ago; buyers can get all they want at 75-c- U.S. for ten yuan, or about one-sixth of the money's nominal value.

The yuan's low estate is dramatic evidence of Peking's virtual bankruptcy and the urgent need to raise hard currency to pay for 233.4 million bu. of Canadian grain ordered last month (TIME, May 12).

The Chinese Communists' entire hard-currency reserves are believed to consist of some $300 million on deposit, largely in Soviet bloc banks--not even enough to pay the Canadians. To raise money, the Chinese Communist authorities borrowed a technique developed by the Russians in the hungry 1930s. Overseas Chinese, presenting hard currency in Hong Kong banks, can buy special coupons to send to their hungry relatives in Communist China, where gratified recipients can exchange the coupons for flour, blankets and hams. Desperate Communist officials are scouring the countryside for hoarded silver coins and old jewelry, which can be melted down and shipped to London, where sales of silver leaped from $2,000,000 during the first six months of 1960 to $9,000,000 during the first four months of this year.

To ease the pressure on their beleaguered yuan, Peking authorities have obtained a five-year moratorium on payment of their balances to the Soviet Union and cut back purchases of industrial equipment from West Germany and Britain. They are also dumping abroad textiles badly needed in China itself at prices well below competitive exports from India, Japan and Hong Kong. But these measures cannot conceal the fact that Mao's communization has wiped out those exportable surpluses of soybeans, rice, pork and oils that used to earn the country foreign exchange.

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