China’s external official assets amounted to $327 million (US) on July 30, 1947. Privately-held foreign exchange assets are at least $600 million and may total $1500 million, but no serious attempt has been made to mobilize these private resources for rehabilitation purposes. Private Chinese assets located in China include probably $200 million in gold, and about $75 million in US currency notes. Although China has not exhausted her foreign official assets, and probably will not do so at the present rates of imports and exports until early 1949, the continuing deficit in her external balance of payments is a serious problem. Disparity between the prices of export goods in China and in world markets at unrealistic official exchange rates has greatly penalized exports, as have disproportionate increases in wages and other costs. Despite rigorous trade and exchange controls, imports have greatly exceeded exports, and there consistently has been a heavy adverse trade balance. China’s food harvests this year are expected to be significantly larger than last year’s fairly good returns. This moderately encouraging situation with regard to crops is among the few favorable factors which can be found in China’s current economic situation. Under inflationary conditions, long-term investment is unattractive for both Chinese and foreign capital. Private Chinese funds tends to go into short-term advances, hoarding of commodities, and capital flight The entire psychology is speculative and inflationary, preventing ordinary business planning and handicapping industrial recovery. Foreign business enterprises in China are adversely affected by the inefficient and corrupt administration of exchange and import controls, discriminatory application of tax laws, the increasing role of government trading agencies and the trend towards state ownership of industries. The Chinese Government has taken some steps toward improvement but generally has been apathetic in its efforts. Between 1944 and 1947, the anti-inflationary measure on which the Chinese Government placed most reliance was the public sale of gold borrowed from the United States. The intention was to absorb paper currency, and thus reduce the effective demand for goods. Under the circumstance of continued large deficits, however, the only effect of the gold sales program was to retard slightly the price inflation and dissipate dollar assets. A program to stabilize the economic situation was undertaken in February, 1947. The measures included a wage freeze, a system of limited rationing to essential workers in a few cities, and the sale of government bonds. The effect of this program has been slight, and the wage freeze has been abandoned. In August, 1947, the unrealistic official rate of exchange was replaced, for proceeds of exports and remittances, by a free market in foreign exchange. This step is expected to stimulate exports, but it is too early to determine whether it will be effective.