In January 1936, a fourth government bank, the Farmers’ Bank of China,† was also given the power to issue bank notes. The Farmers’ Bank was reputed to be controlled by Chiang Kai-shek, who used it to fund his military campaigns. According to one authority, the Farmers’ Bank “apparently had been very free in issuing banknotes, supplying funds when Chiang needed them. It allowed no audits of its reserve funds… [and]… may have been a conduit for opium revenues.” Under the direction of Kung, the Farmers’ Bank, the Central Bank, the Bank of China, and the Bank of Communications, with their monopoly on the power of issuing banknotes, became known as the “four banks.”
Having taken control of the banking sector, Kung was able to follow his policy of deficit financing and its inevitable corollary, printing money on demand, which led to a quick recovery from the depression and catastrophic wartime inflation. A pair of shoes that had sold for $80 in 1939 cost between $900 and $1,200 in 1943. When General H. H. “Hap” Arnold arrived in Chungking that same year, a package of cigarettes cost $120.00, a tangerine, $20.00, and a gallon of gasoline, $180.00 Chinese.* The American general registered surprise at seeing piles of paper left on the ground at the airport in Kunming. “What is all that?” he asked one of the crew.
“That is Chinese money, General.”
“How much?”
“Why, I don’t know. Maybe two, three, four million Chinese dollars.”
“What are you going to do with it?”
“We are taking it in our airplane to Chungking.”
“Isn’t anyone responsible for it?”
“Yes, we are responsible for taking it in there.”
“Does anyone have to sign up for it?”
“No sir.”
“Had it been a pack of cigarettes or a jeep,” Arnold said, “it would have disappeared hours before.”
Kung’s takeover of the four banks also led to claims that the various branches of the Soong family turned these banks into bases for their private financial empires. Chiang Kai-shek certainly regarded the Farmers’ Bank as his own private source of money, liberally funded by his government’s involvement in the sale and transport of opium. T.V. used the assets of the Bank of China to organize a number of public/private corporations that invested in everything from automobiles to tobacco, while Kung used the Central Bank as a base for insurance and industrial investments. Not everyone profited in the same way. According to Crozier, “There has been an unfortunate tendency to link his [T.V.’s] name with Kung as another reprehensible KMT type, but the two men were very different. T. V. Soong had made a great fortune, but unlike his brother-in-law, he had made it by dynamic, entrepreneurial capitalism, creating wealth for China and jobs for ten of thousands.” At one point, T.V. even lured the eminent French banker Jean Monnet to China to help him reorganize China’s finances and railroads. “While it was easy for me to deal with T. V. Soong, whose culture was European,” Monnet said, “I never stopped learning the art of negotiating with traditional Chinese businessmen. It took me a long time to understand that in China, one should not ask for a reply but guess it.”
There were many complaints of illegitimate manipulation in the Ministry of Finance under Kung, which was “widely considered to be a venal and corrupt organization.” One critic charged that Ai-ling was the prime speculator on the various exchanges, and it was generally believed that she used advance information gleaned from her husband to make her investments. With what Snow called “a mixture of contempt and admiration,” Ching-ling spoke to him about her sister’s activities: “She’s very clever, Ai-ling. She never gambles. She buys and sells only when she gets advance information from confederates in the ministry of finance about changes in government fiscal policy.” Dr. K. C. Wu agreed: “She is the shrewdest, most capable and absolutely unscrupulous character I have ever known.” In one instance, Ai-ling caused the downfall of a minister of industry, Wu Ting-chang. In the course of trying to curb speculation on the Cotton Goods Exchange, Minister Wu ordered an investigation and issued a report that named Madame Kung as one of the “influential persons” responsible for an attempt to manipulate transactions on the exchange. The report was sent to Chiang, who immediately dismissed the minister. According to one member of the government, “Madame Kung had already made a trip and seen Chiang Kai-shek. When [Minister] Wu called upon Chiang he was ready to give a full report, but the first thing Chiang said to him was, ‘I know now everything about this case; it is needless for you to make any report.’”
Dr. K. C. Wu (as distinguished from Minister Wu) offered an interesting explanation of why Ai-ling was permitted to do what she did: “I think the argument which Madame Kung advanced was that all the money that had been made had been made as a reserve for Chiang in order to bolster him in power or to prepare for any emergency situation when he might have to go into retirement. Of course, between the sums which she reported to Chiang she had made on his behalf, and the sums which she had actually made, there could be much difference.” Queried as to whether Kung’s reputation for not being “too bright” was accurate, Wu replied, “That’s why he was useful.”
Big-Eared Du also benefited from the government’s new currency policy. Although known by now as “one of the outstanding business and banking leaders in Shanghai,” he remained king of the underworld. On being questioned about putting Du on the Currency Reserve Board, Kung explained that Du was “undoubtedly a speculator; he was also leader of the gangsters, but one hundred thousand men in Shanghai obeyed his orders; he could create a disturbance at any moment.” A story went around Shanghai soon after the currency reform that Ai-ling had given Du inside information on the government’s position on foreign exchange. Du made some speculative purchases but having assumed that Ai-ling would not have told him the truth, lost 50,000 pounds. He insisted to Kung that the Central Bank make up his loss. Kung refused. “That evening,” according to Sir Frederick Leith-Ross, Chief Economic Adviser to the British government, “a No. 1 style coffin was deposited on Dr. Kung’s doorstep by half a dozen funeral attendants.” The next day, Du got his money back from the bank.
Athough most authorities feel that the Kungs profited hugely from his position as minister of finance, it is impossible for this author to determine the extent of their honesty or dishonesty without a paper trail. According to James McHugh, writing in 1938, “specific proof of corrupt activities is almost impossible to obtain in China due primarily to the endless chain of underlings who always come in for their share of the spoils and none of whom would dare to squeal.” Moreover, the stories told by current Chinese historians remain subject to question, since they write at the pleasure of a Communist government. What is known is that Kung was born into a wealthy family and had multiplied his personal fortune by acting as an agent for Standard Oil and selling pig iron to the United States during World War I. When he joined the government, however, Ai-ling is said to have taken over their personal finances, apparently depositing money in banks in the United States, Switzerland, and France. This is not something that Ai-ling could have done by herself, since it was forbidden by law to move public monies. It has therefore been surmised that as finance minister, Kung managed to change public funds into private in order to avoid the restrictions. The Kungs dealt mostly in commercial ventures until the 1930s, when Ai-ling began speculating in the stock market, reputedly using inside information to determine her investments. Author Parks Coble summed it up this way: “The protection of family gave the Soongs power, but power, of course, can corrupt.… Particularly notorious were Soong Ai-ling, her son David Kung,* and the younger Soong brothers.* Rumors circulated that they had made large sums speculating in currency and commodities using inside information supplied by H. H. Kung, then minister of finance. How deserving this reputation is still needs an impartial assessment. Yet there is no question that their status as family members permitted much unfettered activity.”
During the early years of the war, when Kung was serving as minister of finance, head of the Executi
ve Yuan, and president of the Central Bank, he established an official secretariat in his residence, thus affording Ai-ling the opportunity of keeping abreast of financial plans. Referred to by the mild-mannered Rogers as a “modern Borgia,” she is also said to have made money through the Yu Hua Bank, which was allowed to sell government bonds. Private banks were normally not allowed to do this, but the head of the Yu Hua Bank was Kung himself, who was also finance minister at the time. In its capacity of selling government bonds, a bank received 2 yuan as a handling charge for every 100 yuan in bonds. When the Yu Hua Bank was founded, it had a capitalization of 50,000 yuan.† In the 1920s, it was worth 200,000 yuan,‡ in the 1930s, 2 million yuan,§ and, by the last years of World War II, 1 billion yuan.¶ Nor was Kung apparently above the traditional Chinese squeeze. A story is told that Big-Eared Du, who was trying to transport crude opium out of Szechuan, could not get the necessary papers until the Finance Ministry received a check for 5,000,000 yuan made out to H. H. Kung.
It was Ai-ling’s financial manipulations that were, according to Donald’s biographer, at least partially responsible for the Australian journalist’s departure from China in 1941. Donald, who usually defended the Kungs, dismissing the rumors about them and claiming that if he was ever presented with proof of financial wrongdoing, he would “go away from China on his boat as he has long wanted to do,” apparently had a change of heart. One afternoon he received a call from an American acquaintance, the president of a Chinese university. “Someone has to tell the Soongs and the Chiangs to put a stop to this nonsense,” the man said. “Some of their official family are making money hand over fist in the exchange market. Lord, haven’t they any sense of decency!”
Donald walked over to the Chiangs’, took May-ling’s arm, and led her out into the garden (i.e., away from listening devices), where he told her that she “would have to order a halt to such ostentatious and vulgar display of wealth while the nation tumbled all about them, while the cries of the hungry and the suffering mounted.” As an example, he mentioned her sister Ai-ling. May-ling turned on him in fury: “Donald, you may criticize the government or anything in China, but there are some persons even you cannot criticize!”
Although the Australian continued to work for the Chiangs, he began to rethink his career. Not only had he long resented Chiang’s continued detention of the Young Marshal, but “the Chinese Government had failed to adopt the uncompromising anti-Axis policy” that he had recommended, and he did not want “to continue as adviser to Chiang Kai-shek under these conditions.” This issue came to a head a year or so after his conversation with May-ling, when the speeches he had been writing for the G-mo became “more and more pungently anti-Hitler.” One day he received a speech back from Chiang with a note saying “I’m not at war with Germany.” To which Donald retorted (doubtless to himself), “I am.” He got up from his desk, walked over to see May-ling, said good-bye, and that night caught a plane for Hong Kong.
IN THE SUMMER of 1937, four years after T.V. had been replaced by Kung, Chiang sent representatives to Hong Kong, where T.V. was living in a house on Repulse Bay, to ask him to come back and assume responsibility for financing the war. In response, T.V. turned to his friends who were in the room and suggested they all go out for a game of tennis. “Let’s leave the affairs of state to others,” he said. “We are clearly not needed.” Chiang then sent May-ling to talk to her brother, but T.V. did not return until war broke out in Shanghai shortly thereafter. Three years later, the generalissimo asked T.V. to go to Washington as his personal representative to President Roosevelt. It was a brilliant move. According to the journalist Ernest O. Hauser, T.V.
engaged a suite at the Shoreham, shaved and bathed and took a taxi to the White House to see his old friend, the President of the U.S. After a chat with the President, Soong called on Hull, Morgenthau and [Secretary of Commerce] Jesse Jones. He explained that he wanted money in vast amounts, but that he did not propose to beg for it. Told that it might be a good idea to contact a few Congressmen (“a little lobbying” wouldn’t hurt), T. V. Soong snorted. He had come to Washington with a business proposition and the President, Congress and Mr. Jesse Jones could take it or leave it. The President, Congress and Mr. Jones took it.… They knew a bargain when they saw it.… For $100,000,000 China promised to keep 1,125,000 Japanese troops pinned in the field; to keep Japan’s formidable fleet blockading the China shores; to retard the aggressor’s march in the direction of immediate U.S. interests… this $100,000,000 loan gave China a new lease on life. It ensured Chiang Kai-shek’s ability to carry on for at least six months more in full control of the monetary, if not the military, aspects of his war.
And even if the story was not as simple as Hauser claims, it was still an enormous coup for T.V., whose work in Washington on behalf of his country proved invaluable.
Meanwhile, H. H. Kung was sent abroad by Chiang. His stated mission was to represent China at the coronation of King George VI of England, but he was also looking for armaments and financial aid from the West. In the words of James McHugh, Kung “assumed the role of an international beggar, grabbing at every small credit he could get… in order to be able to flourish such credits before the Generalissimo to strengthen his own political position.” Kung traveled with his wife,* two of his children, and at least thirty secretaries and assistants. While in Europe, Kung spent two hours with Hitler: “Hitler spoke against communism and the Communists. He said, ‘I understand that people in China think the Soviet Union is their friend. But from our talk I understand that you, Herr Doktor, realize the danger of Communist doctrines.’ ” While Hitler railed against the Russians, Kung tried “to convince him of my view on the danger of Japan.” The Germans had apparently planned to invite the brother of the Japanese emperor to speak at a Nazi Party convention.
But after my talk with Hitler, the plans were changed.… I was able to make Hitler understand that Japan wanted to dominate the world.… Japan and Germany were already allies through the Anti-Comintern Pact of 1936. They were getting closer and closer, but I was able to make Hitler think twice before getting too close with Japan.… Hitler was against England. He said that England was only a second-class power; she was getting weaker and weaker. He said that France was rotten.… He had only contempt for France.… But he had a good word to say of Italy.… Italy was Germany’s friend. What were my impressions of Hitler? I thought he was a little unbalanced… his eyes gave me that sort of funny feeling. He had a strange look.
Kung also met with Mussolini in Italy. “I thought Mussolini was doing great things for Italy” he wrote later, “… we got along well. I thought he would be a good ally for our Government.” His wife was not so easily impressed. She made an appointment with Il Duce, and, according to a friend,
went to keep it, equipped and prepared to exercise the charm to which so many had succumbed. She experienced the customary technique, which so many of us have known. She was first kept for a considerable time in a waiting room: and did not appreciate it. At last she was shown into a vast room, at the far end of which the great man was writing furiously with a carefully studied industry and indifference. She looked across the large intervening space, skilfully designed to break the spirit of the visitor by making him wonder, as he walked across it, whether his trousers were properly creased or, if the visitor was a woman, whatever may be the equivalent anxiety about feminine apparel. She noticed the indifference and preoccupation—and again, did not appreciate it. She waited, in silent dignity, at the entrance. At last Mussolini looked up, saw the gracious figure in the distance and made a beckoning gesture but no more. She smiled, and with Chinese grace bowed slightly with clasped hands—and stayed where she was. Mussolini returned to his writing, expecting her to be walking across the room in the meantime. After a minute he looked, saw that she had not moved, and beckoned more impatiently; she bowed once more with clasped hands—and again waited. So the little drama continued, the impatience of the dictator increasing, the smiling dignity of his
visitor still unruffled—till at last he rose, walked across the room and escorted her to her chair by his desk.
From Europe the Kungs moved on to the United States. While they were there, Ai-ling paid a visit to a former teacher in Georgia or, as an imaginative reporter for the Shanghai Spectator, put it, “A royal daughter of China… who is able to trace her Chinese ancestry back more than 2,400 years… was Atlanta’s guest last week.” The Spectator continued its mythical meanderings in the royal vein: “Following her graduation [from Wesleyan] she [Ai-ling] was presented at the Court of St. James’s in London, and was the toast of half a dozen courts on the European continent.… All the sophistication of Western culture is combined with the subtle charm of the Orient, the age-old heritage of aristocratic birth and breeding, in this young Chinese woman.… Perfectly costumed in the latest Chinese style… she wore for dinner a fragile dark blue silk lace posed over the softest white Chinese silk.… ‘Our gowns are always so plain that one must wear jewels,’ she explained with characteristic modesty.”
Meanwhile, Kung met with Roosevelt and Hull. He told them that the Japanese government was “controlled by the young militarist clique who were determined to make war on China and conquer the world. That meant that America was going to be involved.… Roosevelt agreed with me,” he said. “Roosevelt was really a good friend of mine.” Although Kung was apt to think that anyone who agreed with him was a “good friend,” his faith in Roosevelt’s friendship was bolstered by Roosevelt’s chief adviser and troubleshooter, Harry Hopkins, who told him that the president had “one hundred percent confidence” in him.
The Last Empress Page 44