[6]Starting in July 1937, the Japanese military advanced through northern and eastern China, forcing the Nationalist government to retreat inland and abandon significant manufacturing and agricultural regions, as well as key transport hubs for imports and exports.

In contrast, locally produced goods, including food and agricultural raw materials, maintained stable prices until 1938, supported by a robust harvest in Sichuan that year.

However, from 1939 onwards, the prices of both imported and local goods began to rise in tandem as around five million refugees moved westward into Free China.

[11] With limited tax revenue from occupied regions and no bond market, China relied on banking institutions to fund deficits, leading to monetary expansion.

[12] After the Japanese attack on Pearl Harbor in 1941, Japan quickly seized the whole of Shanghai and, in 1942, cut off the Burma Road, a crucial supply route for China.

Due to administrative failures, the Nationalist government struggled to enforce price control measures, despite issuing decrees to this effect.

[19][20] Traditionally sustained by the surplus from nearby Zhejiang and Jiangsu provinces, Shanghai had to import more rice from Saigon due to conflicts in neighbouring areas.

[18] Although factories attempted to provide substitutes for workers, these efforts were insufficient to maintain a decent standard of living due to rampant price hikes of rice and rents.

[19] Despite its military success, Japan did not outline any specific plan for China until late 1938, when the Japanese premier declared the intent to establish a New Order in East Asia.

[10] Additionally, from 1939 onwards, the Japanese Noborito Research Institute engaged in large-scale counterfeiting, producing approximately 4 billion yuan to bolster Japan's war efforts.

They dumped hundreds of millions of CNC to acquire essential war supplies, posing a risk of depleting valuable resources from Communist-controlled areas.

By purchasing strategic materials and providing financial support to agricultural and industrial production, the Bureau effectively curbed price hikes.

[26] (CNC per US$) As the war came to a sudden end in August 1945, the Chongqing government was ill prepared to make the transition to a stable peacetime economy and currency.

[29] The government's reliance on printing money to fund the war effort led to hyperinflation, with wholesale prices in Shanghai increasing fivefold from September 1945 to February 1946, and then thirtyfold the following year.

The continued printing of money meant the reform failed to stabilise prices, leading to the new currency depreciating even faster than its predecessor CNC.

The introduction of the Gold Yuan was accompanied by significant fanfare as a supposed solution to economic problems, but sceptics argued that it merely removed six zeros from the value of the CNC.

Initially set at four GY per US dollar, the exchange rate quickly fell under the pressures of inflation and speculation, returning to the CNC level from August 1948 by May 1949.

[34] The bank soon became a key financier for the Taiwan Provincial Government and gave unsecured loans to state enterprises, which led to stead inflation in 1947 and early 1948.

Despite the weakening of the Chinese gold yuan, the exchange rate with the Taiwan Dollar remained unchanged, attracting significant capital inflows that inflated the money supply.

The General Trade Bureau in Harbin, the only main city they controlled before 1948, helped keep prices steady by releasing goods like cotton cloth into the market.

This protected the real value of deposits from inflation and helped stabilize the velocity of money, reducing the pressure of panic spending.

State Trading Companies were central to controlling inflation by manipulating the supply of key commodities like grain, cotton, and coal.

To stabilise the Renminbi, Mayor Yi Chen's government released 410,000 silver yuan into the market on 5-6 June, but this did not reduce prices.

The March 3, 1950 fiscal consolidation helped control government spending, which had been inflated by military costs and public sector wages.

By constraining spending and balancing the budget, the government aimed to reduce inflationary pressures, leading to a gradual stabilisation of the currency and prices by mid-1950.

This measure, combined with a sharp drop in private bank deposit turnover, helped reduce inflation and prevent further price hikes.

Hyperinflation also undermined the appeal of modern banking, as people chose to hold tangible assets such as gold, silver, jewellery, foodstuffs, and foreign currencies to safeguard against the worsening inflation.

The government's attempt to control inflation through administrative measures only worsened the situation, making the Nationalist policies extremely unpopular and causing it to lose credibility and support.

[28][15] Milton Friedman noted that bureaucracy, corruption, and poor financial management, which caused the collapse of the money market and hyperinflation, were significant factors in the Nationalists' defeat in the civil war.

[6] Starting in late 1948, Chiang Kai-shek covertly moved China's gold reserves from Shanghai to Taiwan, estimated at around 113.6 to 115.2 tonnes, as his government gradually lost the civil war.