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Revolution and Civil War, episode 26

The Year It Came Apart

In 1947 the Nationalist state begins to come apart behind the front: on Taiwan, handed back to China in 1945, police seize a widow's cigarettes and set off a rising that the Nationalist governor Chen Yi crushes, and on the mainland hyperinflation eats wages while students march against hunger and the war. The episode follows Chiang Kai-shek as his armies take the Communist capital at Yan'an while Mao Zedong slips away and sends an army south into the heart of Nationalist China, through Li Zongren's election as vice president against Chiang's wishes, to the gold yuan of August 1948, a new currency that fails within months, and asks how far the Nationalists lost the war at home. It leans entirely on scholars.

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Taiwan China Yan'an Dabie Mountains Nanjing
Map drawn by Then and There on Natural Earth's public domain coastlines, rivers and lakes

Transcript

Chiang Kai-shek
Chiang Kai-shek. Unknown author, Public domain, via Wikimedia Commons

On 27 February 1947, on a street in Taipei, two policemen stopped a widow who was peddling her wares, and tried to confiscate what she had: a small amount of contraband, mostly matches and cigarettes. People nearby protested. In the scuffle that followed, the police shot a bystander dead. By the next morning, thousands of protesters were on the streets. Someone took down the characters for the word China from important buildings, and put up a big banner that read, in Japanese, Down with military tyranny. Within days the protests had spread to other cities across the island. Taipei is the capital of Taiwan, the large island off China's southeast coast. A handful of cigarettes is a strange way for a rebellion to start. But on Taiwan, people had been waiting for a spark. Back in October 1946, Chiang Kai-shek and his wife had flown to the island for their first visit ever, and come away deeply impressed by its peace and order. Taiwan had seemed wonderfully stable to them. Four months later, it produced the worst civil uprising China had seen in many years. So before we follow the rising, let me catch you up on everything else. Last time, the American general George Marshall tried to stop China's civil war before it began. There were agreements at a political conference, a plan to shrink the two armies and merge them into one, and a ceasefire. And then Marshall decided he had no basis for further negotiations. By the summer of 1946, full scale war had broken out. Chiang's armies had four point three million men against the Communists' one point two million, and in the first months the Communists had to give up a hundred and five cities and towns. Then Marshall left China. While he was still in the air over the Pacific, the White House announced that Truman had nominated him to be America's new secretary of state. Years later, Marshall said Chiang had betrayed him down the river several times, but that he was, and still remained, fond of him. With the American gone, Chiang felt far freer to act. In the first weeks of 1947 he was convinced that his party and his country were heading in the right direction. This episode is about the year that proved him wrong, and how much of that happened far from any battlefield. Taiwan had been a Japanese colony for fifty years until 1945, and many of the Chinese who had lived there under Japan did not think much of their liberators. Many of them thought of themselves as better educated and more modern than the mainland officials who came to govern them, and those officials found that very hard to take. Thousands of mainland officials and officers had come over with the new governor, and they took virtually every political, administrative and security post on the island. They also took control of all the state run businesses, which meant everything the Japanese had owned, and that was most of the economy. By the beginning of 1947, these Nationalist officials had taken over or simply made off with an estimated one billion American dollars in property and other assets. Meanwhile the economy suffered from its broken links with Japan, and mainlanders steadily squeezed native Taiwanese out of almost every position of power. Chiang, for his part, was eager to fold Taiwan fully into his republic, and he was surprised and angry to find that some of the Chinese political groups on the island did not share his vision of its future. The governor himself was General Chen Yi, a stubborn and grumpy official of the old type. He is no relation to the Communist general of the same name. Since arriving in 1945, the governor had refused to speak Japanese, the language of Taiwan's educated elite, even though he spoke it perfectly and was married to a Japanese woman. And he did not understand Minnan, the dialect most ordinary people on Taiwan spoke. So his attempts to talk directly to his new subjects were, let's say, handicapped. He had been zealous about confiscating Japanese property, in which many Taiwanese also had a stake, and about putting the state in charge of the economy. So most of the anger at him was about money. Now the anger had a shape. By early March, committees run by Taiwanese, called Resolution Committees, were in control in many cities. They demanded that the military be disarmed, corrupt officials arrested, the families of those killed compensated, and every Taiwanese leader given an amnesty. Some days later, the main committees went further. They asked for full self government for the island, democratic elections, and that mainlanders be kept out of positions of power. There were not enough soldiers or military police on the island to keep control, because of the war on the mainland. Facing what looked like a war of independence, the governor, Chen Yi, said he was ready to negotiate on all local matters. In a radio message to Chiang, the governor blamed the violence on pro-Japanese members of Taiwan's elite and on radicals who opposed Taiwan's return to China. Chiang thought the whole thing was probably a Communist plot. His chief of the general staff, Chen Cheng, urged him not to send more troops, but a delegation of senior officials to talk with local leaders and give many more Taiwanese posts in the island's government. Then the committee of civic leaders in Taipei demanded that the army's garrison command be removed, and that the government "give up all weapons to the committee." That, Chiang wrote, "crossed the red line of what the government can tolerate." It was only words, a demand from a committee with no power to enforce it. But Chiang had had enough. Chiang ordered a crackdown of the kind the Chinese proverb calls killing the chicken to scare the monkey. The proverb means punishing a few in the most brutal way so that everyone else learns to obey. A division sailed at once for the island. On 9 March, as the transport ships came into Keelung harbour near Taipei, the troops on board began shooting anyone they saw on the docks or in the buildings nearby. Troops were landing at several ports at once, and slowly they took the cities back, in some places after fierce fighting. Once ashore, the soldiers joined the garrison in rounding up people whose names were on lists, and executing them as examples. The next day the governor went on the radio. The trouble, he told the people of Taiwan, was the work of a very small number of traitors and rebels, and the government had declared an emergency so that they could be wiped out. Around ten thousand people were killed in all. Some two thousand died in the rising and the retaking of the island. The rest were executed by the Nationalist secret police over the months that followed, in what amounted to a campaign of terror to destroy the Japanese trained elite of Taiwan. Decades later, the Kuomintang apologized for what Taiwan remembers as the two twenty eight affair, after the date of the rising, and its own estimate of the dead ran from eighteen to twenty eight thousand. On 13 March, belatedly, Chiang cabled the governor that no revenge was to be taken against the people of Taiwan. By then the carnage was done, and the world had noticed. Chiang realized he had a political disaster on his hands. He set up a proper provincial government, ordered early elections for mayors and county chiefs, and told his officials to appoint native Taiwanese to run government offices. He replaced Chen Yi with Wei Daoming, a respected educator and former ambassador to America, who ended martial law, ended the censorship of the mail, and began holding local elections. Had those steps come first, the island would very likely have calmed down without a massacre. As for the governor, Chen Yi, some months later Chiang made him governor of Zhejiang, his own home province. For Chiang, loyalty could excuse a great deal. The Taiwan killings were among the gravest wrongs of Chiang's life, and they were unnecessary even by the measure of his own aims. Hold on to this island. Even now, Chiang saw it clearly as the one stable refuge for himself and his army, if he should ever lose the mainland.

On the mainland, the new year of 1947 began badly for Chiang's armies, as Lin Biao's surprise attacks across the frozen Songhua River destroyed two regiments. Politically, it began much better. His government seemed more popular and more legitimate than it had been for years. There was a new constitution, some real rebuilding, and a string of military victories behind him. But there was one enemy his armies could not reach. Inflation had been bad in the last years of the war against Japan. In 1947 it ran fatally out of control. Between September 1945 and February 1947, the paper yuan fell in value by a factor of thirty. Chiang tried. He banned the sale of foreign currency and gold, capped interest rates, put off government projects, froze wages at their January level, fixed the prices of wheat, cooking oil and rice, and supplied government workers with food and cloth at fixed prices. It worked, briefly. Chiang himself said he did not know whether it would solve anything. And it could not, because the real cause was the war itself. Military spending was eating up more than half of the government's budget, and perhaps as much as ninety percent. There were a few economists in the party, trained in the West, who saw the problem plainly: you cannot control prices while you keep printing banknotes. But Chiang knew that limiting what the state spent meant limiting his war against the Communists, at the very moment his troops were starting a general offensive. He was sure that only a military victory over the Communists could give him control of the country, and he refused to cut military spending. So, almost as a declaration of war on economics, he issued government bonds instead, to pay for the army. They found few buyers. Everyone with money remembered that the government had never paid back the bonds it sold during the war against Japan. That spring, by not reissuing the currency and tightening its finances, the government lost its last chance to steady the economy. From the summer of 1947, China fell into hyperinflation. Hyperinflation is inflation so fast that money loses value from one day, or one hour, to the next, and people stop trusting it at all. In 1947 prices rose by as much as twenty six percent in a single month. Nobody trusted the new ten thousand yuan notes, so people carried their money in bundles, and in carts. Traders had to take on faith that a bundle held what it was supposed to hold. And when, as was bound to happen, some customers or traders gave in to temptation, slipped a few notes out of the bundles and were caught, it felt as if money itself was under threat. One eyewitness remembered that "the pile of money that would purchase three eggs in the morning would buy only one egg by the afternoon." The price of rice climbed so high, the same witness said, that people who in ordinary times would never have dreamed of stealing began breaking into grain shops and carrying off whatever they could. The money ran away too. Chinese capital fled to Hong Kong, to the Chinese communities of Southeast Asia, and to America. The government passed laws against it, but by late 1947 the flight of capital had reached alarming proportions. Industrialists would not invest in their own factories, because there was more money to be made in Hong Kong, or by speculating on the currency. More and more plants ran at half speed, or simply closed, and unemployment rose. The workers fought back the only way they could. In Shanghai alone in 1946, there were one thousand seven hundred and sixteen strikes. That winter, workers in Shanghai's department stores pretended to be too tired to serve customers, and put up signs saying that management's refusal to pay their annual bonus had worn them out. Others started what they called a frowning movement, telling customers that inflation and low wages had made them far too unhappy to sell anything. The films of those years told the same story. One of them follows a young clerk in Shanghai who cannot feed his family because of inflation. Its camera looks down on the city at night, its ten thousand lights flickering like dying fires, while a narrator warns that disaster is coming, because a few families live in privilege and most live in misery. It was called Ten Thousand Rays of Light, and the audience knew exactly which city it meant. It was not the only one. Studios turned out film after film that year that read like verdicts on the government. One historical drama showed how the Song dynasty fell because its emperor refused to reform or to stand up to foreign invaders. Another, made in Hong Kong but hugely popular in China, invited audiences to see the decay of the last imperial court as a mirror of the regime they were living under. And a black comedy called Brilliant Sun laughed at how black marketeers and former collaborators did well after the war, while patriots and decent people were mistreated and left poor. A social critic of the time, mourning what victory had come to, began a sentence about how the Nationalists measured up to Sun Yat-sen's revolutionary goals, and then deliberately let it trail off into nothing. "Heaven and earth are confused," he wrote. The government's own remedies made things worse. In early 1948 Chiang brought in new taxes to pay for the war, let local authorities collect their own fees for the defence of their towns, and gave some army commanders the right to take supplies straight from the people they were supposed to protect. In parts of the north, economic life almost stopped. Some traders took to hiding their goods in Communist held areas whenever Nationalist armies came through, saying it was better to pay fees to the Communists than to have half their stock confiscated by Nationalist officers. By the spring of 1948, the government had to bring in rationing in every major city, and to buy up grain from farmers by force at low prices. That turned the well off peasants against it, and they were the Kuomintang's natural allies. A wealthy textile merchant from Guangzhou, once a Kuomintang stronghold, wrote to party headquarters denouncing the party as "thieves, highway robbers", worse even than socialists. By January 1948, the government's paper money, the fabi, had fallen from about fifteen hundred to the American dollar at the end of the war with Japan to about a hundred and eighty thousand. Shanghai saw three major riots in a few weeks, and foreign trade almost stopped. America's ambassador, John Leighton Stuart, reported a growing awareness among ordinary people that the regime was not likely to survive, and the American and British embassies advised their citizens to leave north China. Stuart had been born in China to American missionary parents, and had spent most of his life there, as a missionary and as the president of a university in Beijing. An economic weekly in Hong Kong marvelled that even conservative businessmen, men who had firmly backed the government in 1945, now felt that "life under the relatively honest totalitarianism of the Communists could not be worse than it is under the corrupt inefficiency of the Kuomintang."

The students felt it first, and they said it loudest. When the war with Japan ended, students flocked back to the great university cities, Beijing and Shanghai. Most of them, probably, condemned both the Nationalists and the Communists, and feared American and Soviet imperialism equally. But even the uncommitted followed politics closely, and wanted more freedom. Up to the middle of 1947, the great majority of students supported neither side, and would rather have kept their heads down and studied. But the government took the blame for nearly everything, including the foreigners. American troops were the most obvious foreign presence in China, and stories spread of American soldiers running down pedestrians, beating rickshaw pullers, even shooting at people they suspected of robbing them. Most Chinese saw the Nationalists' corruption and incompetence up close. Little was known about the Communists, but it became hard to imagine they could be worse. Many simply wanted Chiang to find a way to work with them instead of trying to wipe them out. Students boycotted classes in their thousands to hear famous speakers like Xu Guangping, the widow of the great writer Lu Xun, and the historian Wu Han. What changed their minds started with an American uniform. In December 1946, a student from Beijing's most famous university was allegedly raped by American soldiers in Beijing, and it became an instant cause. Mass rallies followed all over China. In Shanghai, the Nationalists, seeing how much genuine anger there was, for the first and only time gave the protesters police protection. At first the local Communists did not know what to make of it. They worried the issue was too local, and that the slogans might break the party's rules against general hatred of foreigners. Within days the party's leadership decided to make it a nationwide movement, but told its cadres to keep the focus on one demand, the withdrawal of American troops. Most of the anti-American protests of early 1947 were organized by students with ties to the party. Then inflation hit the students themselves. In 1947, by now suffering badly, they put together a combined Anti-Hunger, Anti-Civil War Movement, demanding among other things an increase in their stipends. These protests were colourful and exciting: bright armbands, bloodied clothing, flags at half mast, songs, chants, posters, and buses and trains decorated for faraway destinations. A student leader in 1947 boasted that they had moved past the old chants of down with this and up with that. Now, he said, they shouted lively new slogans: "Our stomachs are empty!" and "We are begging food from the mouth of guns!" When police and soldiers were sent to stop them, the students chanted at them that "Soldiers, policemen, and students are all part of one family", and that "people don't beat up their own kin". Student activists even found classmates who were the sons and daughters of police chiefs, and coached them in how to beg their fathers not to attack the marchers. And they did not have the streets to themselves. Through 1946 and the first half of 1947, students loyal to the government held marches of their own, often organized by the party's youth corps, and they could draw big crowds. You could often find two demonstrations in the same city on the same day, using the same kind of language. The radicals chanted against civil war. The loyalists changed one word of the slogan, and chanted against chaos. On the fourth of May 1947, the anniversary of the student protests of 1919, rallies opened in the major cities, and the protests against repression and hunger spread to every urban area in China. On 18 May the government tried to stop them. The American embassy reported that the government "issued an edict prohibiting student demonstrations which was immediately disobeyed in major urban centers". On 19 May, groups from all over the country met in Nanjing, the capital, to organize a coordinated, nationwide campaign. Student delegates from Shanghai, Hangzhou and Suzhou had come to petition the government, and were refused the right to march. On 20 May they marched anyway, in the centre of the capital, and police and soldiers attacked them. They were beaten and sprayed with fire hoses. Fifty student leaders were arrested, and hundreds beaten up. It was a public relations disaster for the government. News of the showdown spread far, all the way to foreign broadcasters. For most people in China's cities, those days in May were the first time since the Japanese occupation that they had seen repression on such a scale. A poet who watched the police beat students in Beijing wrote a call to the sons and daughters of the Yellow River: listen, the storm is raging wild and furious over the earth. The embassy saw what it meant. The students were now calling for a nationwide general strike on 2 June, and the ambassador judged that the movement would grow, and might end up led by the government's enemies, if not by the Communists. Stuart reckoned at the time that ninety five percent of university students opposed the Kuomintang, and ninety percent opposed the Communists. That is the whole tragedy of the middle ground in China, in one sentence. Most young people wanted neither side. Chiang decided to crack down. He banned three Shanghai newspapers and ordered the leaders of the student movement arrested. Police detained two hundred people in Chongqing, and over the next two weeks security forces in the big cities picked up large numbers of suspected ringleaders. Some were abducted by police. Others simply disappeared. At Wuhan University, students stopped a police van that was taking away five professors. The police fired over the students' heads, and their bullets killed three people through the dormitory windows. The rounds fired into that dormitory were dumdum bullets, and five more people were wounded. A dumdum bullet spreads out when it strikes, to tear a far wider wound. A furor broke out across the country, and Chiang quickly backed away. He issued a personal statement condemning the police, and when the parents of the arrested students went to court for their release, he let almost all of them go, though many of the students and their activist teachers were thrown out of their universities. The chief of detectives of the Wuhan garrison was found drowned in the Yangtze, an apparent suicide. In Tianjin, the newspaper Dagongbao ran fourteen outspoken editorials backing the students before the censors finally closed it down. Harsh in one place and soft in another, the crackdown failed both ways. It undermined the regime's prestige as well as its authority. In one sense the repression worked. The general strike of 2 June never happened, and student marches never again reached the size they had in the middle of 1947. But the government paid a heavy price for shooting at students in the streets of its own capital. Intellectuals, businessmen and foreign experts who had served the regime for years began to wonder whether it would survive, and even some senior officers voiced their worries. And the students paid too. Most of their leaders were arrested, frightened into silence, or fled to the Communist areas. The movement went underground and lost much of its spontaneity, and from the late autumn of 1947 the Communists controlled much of it. They already had a foothold. A secret party member had become head of the student union at the country's most famous university, in Beijing, early that year. It had not taken many of them. In 1946 there had been fewer than twenty party members among the students of that university.

Mao Zedong
Mao Zedong. Chen Zhengqing (1917–1966), Public domain, via Wikimedia Commons

All this time, the war went on, and in March 1947, Chiang went for the Communists' heart. The plan came from General Hu Zongnan, the Nationalists' long time commander in Shaanxi province. He proposed to take Yan'an, the political centre of Chinese Communism, and drive the Communist armies in the province away to the north. Yan'an, a dusty town in the hills of the northwest, had been Mao Zedong's capital since the beginning of 1937. It was bold enough to please Chiang. He gave Hu more than a hundred and fifty thousand men and seventy five aircraft, the biggest operation the Nationalists had launched in the war so far. The plan was kept secret from the government's own top military council, and, until the last minute, from all but a few of the commanders who would carry it out. It was not secret from Mao. Hu Zongnan's personal secretary was a Communist spy, and Mao and the other leaders were told of Hu's plans, and of his talks with Chiang, almost every day. Mao did not want to give up Yan'an. But he did not want to pull badly needed troops out of north China to defend it either. When the full battle plans reached him at the very beginning of March, he decided almost at once to leave. Other leaders opposed him, above all Ren Bishi, who thought giving up Yan'an would be a disaster for the party's morale, and it seems the Soviets agreed with Ren. As usual, Mao won. So the party had almost two weeks to get out, enough time to save not only the leaders but the weapons, printing presses, radio equipment and medicines. On 12 March 1947, Chiang's air force bombed Yan'an and the caves around it. There was not much left of the town itself. Japanese bombing since 1938 had reduced it to its broken walls and two or three streets, and the leaders, Mao among them, had long since moved into caves in the hills on its northern edge. For a week about fifty planes flew over without stopping, while the Nationalist infantry attacked from the south. By 16 March, Hu's forward units were so close that Chiang received telegrams reporting that they could see, through their binoculars, the panic outside the caves. The night before an American correspondent, Anna Louise Strong, was taken out of Yan'an, Mao explained himself to her. Was it better to lose the city or keep it? Of course, he said, "it is better to keep it. But if we lose it, we are still all right." He turned to Peng Dehuai, the forty seven year old commander who would one day lead China's armies in the Korean War, to cover the retreat. For two days, Peng and about twenty thousand men fought a desperate battle just south of the town, and bought the leaders the time they needed. On 18 March, with the Nationalists a couple of miles away, Mao gave the order to abandon Yan'an. That evening he left the caves with his wife, Jiang Qing, and their daughter, Li Na. Before he climbed into his old army jeep, he gave Peng one last order. The rooms in every cave were to be swept clean, and the furniture was not to be broken. He did not want the Nationalist soldiers to think the Communists had fled in a panic. Early on the morning of 19 March, the Nationalist First Army marched into Yan'an. They took the Communist capital, and ten thousand prisoners with it. Chiang, a man never given to euphoria, wrote that the capture of Yan'an might be the beginning of the end of the war. It had not come cheap, or easy. Hu had wanted fresh troops flown in from the south and the coast to relieve his men, and Chiang, hedging even on the edge of his greatest triumph in years, would not promise them. His propaganda machine went into high gear. Headlines in China and abroad announced that the Communists were beaten, and reporters said the next lightning offensive would be in northern Manchuria. In Washington and in Moscow alike, the victory was read as a sign that Chiang's grip on China was getting stronger. For ten days the Communist leaders fled north and east in small bands, and lost touch with each other. Mao feared some of them had been captured. On 29 March they met again in a village in northern Shaanxi, and split up. Liu Shaoqi, Zhu De and most of the party's central staff would go northeast, to the Communist base in north China. Mao, Zhou Enlai and Ren Bishi would stay in Shaanxi and fight. Then Mao set about building a legend. He had, the story went, invited Hu Zongnan to take Yan'an, to draw him in. In a secret message to the party's top cadres on 9 April, he said the purpose of the offensive was to settle the northwest, to "cut off the right arm of our party", and to drive its leaders out. Then, he warned, the Nationalists would attack north China. The legend lifted the party's morale after the loss of its capital, and it added to the image of Mao as all knowing and ever wise. He also told the party's top cadres that the central leadership would stay in Shaanxi, when much of it was already on its way east. As a result, for almost a year, most party members did not know where the real leadership of the party was based. Mao fought for Shaanxi the way he had fought in the 1930s and on the Long March: cut off isolated parts of the enemy's army, usually a brigade at a time, and destroy them before the main force could come to the rescue. Ambushes, speed, and surprise. His messages from those weeks were distinctly cheerful. Our victories, he told Peng Dehuai in April, had dealt Hu's army a heavy blow, and proved that the Communists could wear it down without any outside help at all. All that summer, autumn and winter, Mao led his worn out army along the mountain roads of northern Shaanxi. And in April 1948, the Communists took Yan'an back.

Liu Bocheng Puyang Dabie Mountains Liu Bocheng's army
The march to the Dabie Mountains, 1947-06. Map drawn by Then and There from the episode's sources, on Natural Earth's public domain coastlines and rivers

Mao wanted revenge for Yan'an, and his first try came in Manchuria. In May 1947, pressed hard by Mao, Lin Biao attacked the town of Siping, the gateway to western Manchuria, with more than a hundred thousand men. At first it went well. But Chiang ordered the town held at all costs, and Lin's men found themselves fighting block by block inside Siping, pounded by Nationalist aircraft and artillery while a relief army closed in. On 28 June, their equipment and morale in tatters, the Communists lifted the siege and pulled back north. It was a costly blunder, born of Mao's hunger to answer the loss of his capital. But Mao was not content to hide in the hills. He wanted something flashy. After the fall of Yan'an, some of the party's leaders had begun to think about a peace settlement with Soviet backing, and Liu Shaoqi had told Mao several times how gloomy he was about the months ahead. Mao began to fear that, cut off from the others, he might lose his grip on the party. Big, flashy victories would put a stop to all talk of a Soviet sponsored peace. And Mao had the general for it. Liu Bocheng was fifty five, a former cowherd, miner and highway robber, known for his ruthlessness and for his devotion to the Communist cause. His chief political officer was Deng Xiaoping, forty three, a landlord's son who had studied in Paris and in Moscow, and who understood that military power was a currency to spend on the hearts and minds of people living under the Nationalists. That spring, on Mao's orders, Liu's forces had attacked Nationalist strongholds along the Yellow River, and had taken them so easily that Mao decided the great plain to the south was the soft underbelly of the Nationalist war machine. In May, Mao gave the go-ahead to Liu and Deng's audacious plan to cross the river and fight the Nationalists on the great plain beyond it, a huge stretch of farmland in the middle of China. The Yellow River was itself a weapon by then. In 1938, to slow the Japanese advance, the Nationalists had broken the Yellow River's dikes and sent it pouring down a new course to the south. In March 1947, with American technical help, the government turned the river back into its old bed. With a bit of engineering, Chiang had put half a mile of water between Liu's army and the Communist forces to the east. The peasants had been warned, but five hundred villages went under, and more than a hundred thousand people lost their homes, with no compensation. Millions suffered. So if there was anywhere in China in 1947 where peasants were ready for revolution, it was the very place Liu's army landed after it crossed the river. Late in June, Liu crossed near Puyang. To the surprise of many Communist officers, who had thought of the plain as enemy country, peasants flocked to them and treated them as liberators. Tens of thousands were drafted, mostly to carry supplies. As Liu's main force of about a hundred thousand men moved south across the plain, the Communist armies to the east rushed in from their mountain strongholds, and suddenly the Nationalist brigades found themselves surrounded. In three battles in July, two Nationalist armies were badly beaten, losing more than eighty thousand men. The Communists lost about ten thousand five hundred. After the first two weeks, the Nationalist units mostly tried to stay out of harm's way, sheltering in the towns and letting the Communist columns go by. Chiang was furious. By August he had sacked every commanding officer involved in the disaster. In November he gave the whole region to his defence minister, Bai Chongxi, a former leader of the Guangxi clique of generals, whom Chiang had long distrusted. Bai was a Muslim, and an old schoolmate of Li Zongren. Keep both names in mind. In Chiang's eyes, Bai had one great qualification. The Communists hated him, and with reason: he had been in charge of the slaughter of Communists in Shanghai in 1927. In late July, Mao called his leaders to a little village in northern Shaanxi. The battles on that plain, he told them, were the turning point of the civil war. From now on the party's armies would go on the offensive all over China. He prophesied that the war would not last more than five years before Chiang was beaten. That meeting made Mao the supreme military genius even within the party's inner circle. From then on, he made the big military decisions on his own whenever he felt it necessary. Now Mao told Deng Xiaoping to strike through to the Dabie mountains, the range between Hubei and Anhui, and build a stronghold there, between Wuhan and Nanjing. The Dabie mountains had been a Communist base fifteen years earlier, and Liu and Deng believed a strong Communist underground still survived there. With the Nationalists in half hearted pursuit, picking up deserters from the enemy as it went, Liu's army set off on a little Long March of its own, back into central China. They fought an unwanted battle at the Ru River in late August, crossed the Huai, and reached the Dabie mountains in early September. They had marched more than five hundred kilometres in less than forty days. What they found there shocked even veterans like Deng Xiaoping. There was no Communist underground waiting to be set free. There was a peasantry devastated by years of war and hunger. It was a foretaste of how hard it would be to remake central and southern China in the Communist image. But as a stroke of war, it worked. It was the most spectacular operation of the civil war, an offensive into the heart of the Nationalist state, and it woke all of China to the possibility that the Communists might one day bring Chiang down. It was meant to force Chiang to pull troops back to defend the great cities of central China, Wuhan, Nanchang, Shanghai and Nanjing itself. It wrecked his plans, and it opened a new phase of the war, the Communist counteroffensive. Chiang's generals and the Americans pressed him to bring some of his best troops down from Manchuria. He refused. If he lost the Northeast, he wrote, there would be nothing left to protect north China, and the Communists and the Russians would use its industry to sweep through the whole country. Instead, to hold Manchuria, he sent one of his ablest officers, Chen Cheng, his former student at the Whampoa military academy.

A year on, things looked very different from the morning Yan'an fell. The government now held a mere one percent of Manchuria, and only fifteen percent of China north of the Yellow River. Chiang mourned in his diary that he had no officers with the character to save the situation. "There are no such persons," he wrote. "What can I do?" A week before the new National Assembly met, he had an unusually frank talk with the American ambassador. He admitted he should have listened to Marshall, who had told him he could not defeat the Communists by force. But he still believed he had been right that there could be no compromise with them. And he told Stuart that he "really wanted to reform but did not know how to go about it." The new National Assembly, elected under China's new constitution, opened on 29 March 1948. That constitution had been drawn up at the end of 1946, and on paper it ended the Kuomintang's long rule as the only party. Chiang gave the keynote speech, on the beginning of China's democratic and constitutional history. From his words, nobody would have guessed that the assembly, the government and the vast army were all facing extinction. The assembly elected Chiang the first president under the new constitution. That was expected. What came next was not. For vice president, the delegates chose General Li Zongren, even though Chiang had discouraged him from running. Li was fifty seven, the son of a failed scholar who worked as a tutor, and he had served under Chiang against Japan, and against the Communists after the war. But Chiang had a very long memory for anyone who had ever challenged him. In the early 1930s, Li and Bai Chongxi had run their home province of Guangxi as a government of their own, and Chiang had worked hard to bring them to heel. At the assembly, the ambitious and rather unpredictable Li had gathered a coalition of old regional strongmen, liberal members of the Kuomintang and the smaller parties. And it worked, but only because Chiang had waited too long to put forward an electable candidate of his own. It was a serious rebuff to the Generalissimo. He was so upset that he could not sleep that night, and reputedly drank a rare spot of whiskey to help. Chiang, as a rule, drank nothing stronger than plain boiled water. Li's election became a rallying point for the growing number in the party who wanted a change at the top. Chiang's answer was to freeze him out. After the election, he never once invited his new vice president to any important conference. It was an open sign that Chiang's grip on his own party was loosening. Even his oldest loyalists were nagging him. Chen Lifu, the head of the party's conservative faction, sent memo after memo warning that greed, a lack of willpower and foreign influences were dragging the party down, and that only a strict moral purge could save it. Chiang resented the nagging. He was not ready to sweep thousands of corrupt officials and generals out of office in the middle of a war, and he slowly cut back the say that Chen and his brother had in party affairs. In Washington, patience was running out too. By early 1948 Truman's government had come to see Chiang as a liability, and there were quiet suggestions inside the American government that he would have to go. Ambassador Stuart warned that there really seemed to be no one else who could take his place. And Marshall, now running American foreign policy, was against meddling directly. In April, under pressure from Chiang's friends in Congress, a China aid bill passed. But arguments over how to spend the money held it up for months, and the first supplies did not arrive until November, too late for the battles that mattered. Chiang, for his part, was keeping something back. The Americans would now sell him arms, if he paid. He had a few hundred million dollars left from wartime American loans, and a hoard of gold in the state banks in Shanghai. But he wanted to keep a reserve, probably thinking more than ever of a retreat to Taiwan. And the party's real problem in 1948 was that it was losing the cities, the businessmen, and even its own officials. Business leaders in Shanghai and Wuhan complained that the party did nothing to stop soldiers and officials helping themselves to traders' goods, and that honest trade had become so risky and so unprofitable that many simply shut down. By the first half of 1948, families who had watched most of their savings vanish in the two years before faced near destitution. Officials' pay barely bought rice from one day to the next. Some saved themselves by joining the booming ranks of black marketeers and speculators. Others turned their rage on the government. A few even reached out to the Communist underground in the cities, and were mostly turned away. The city Communists, middle class themselves, had no use for bad class elements so late in the revolution.

A ten gold yuan banknote of the Central Bank of China, 1948
A ten gold yuan banknote of the Central Bank of China, 1948. The Central Bank of China., Public domain, via Wikimedia Commons

By that summer, the money was finished. In June a standard sack of rice sold for six point seven million yuan. In August it cost sixty three million. The Americans were pressing for a complete overhaul of the currency. The party's right wing wanted austerity and confiscations. And several of Chiang's generals, joined by his own son, wanted a real crackdown on corruption. What Chiang announced on 19 August was all of these at once, jumbled together. At its heart was a new currency, the gold yuan. One gold yuan would replace three million of the old ones, and no more than two billion would ever be issued. Prices and wages were frozen at their August levels, and all strikes and public protests were banned. And every citizen had to hand over all the gold, silver and foreign money they held, in exchange for the new notes. The battle was fought in Shanghai, and Chiang put his son in charge of it. Jiang Jingguo was Chiang's eldest son, educated in the Soviet Union, and now in his late thirties. His powers, on paper, were nearly absolute, including the right to jail saboteurs and opponents of the reform without trial. More than most Nationalist leaders, the younger Jiang understood that this campaign might be his party's last chance to steady things before the final military showdown with the Communists. He went at it with determination, and with a good deal of public support. He took control of the half dozen or more police and intelligence agencies in the city, and went after speculators and hoarders, prominent businessmen included, and men with ties to the Green Gang. The Green Gang was Shanghai's great criminal brotherhood, which ran the city's underworld and had long done business with the Kuomintang. He inspected markets and exchange offices in person, and arrested anyone he suspected of speculation or black marketeering on the spot. By early September more than three thousand suspects were in prison, among them some of the best known businessmen in Shanghai. He arrested the head of the finance ministry's own currency department in Shanghai, and other high officials, for smuggling gold and foreign money to Hong Kong. After that, the Shanghai banks handed over large amounts of their gold and foreign currency. Even the gangsters were not safe. He arrested the son of Du Yuesheng, and the son had to make a large payment to the government before he was allowed to close his company and follow his father, who had already gone to Hong Kong. Du Yuesheng was the boss of the Green Gang, and for twenty years one of the most powerful men in Shanghai. He kept saying that the Kuomintang was the party of social revolution, and that he meant to end not only economic crime but the unequal spread of wealth. He became a popular figure in the city. Then he reached the family. Among the companies illegally storing goods was a group owned by Kong Lingkan, Madame Chiang's own nephew. His father, H. H. Kung, had been Chiang's finance minister through most of the war with Japan, and his mother was Madame Chiang's eldest sister. Jiang Jingguo put Kong Lingkan under house arrest. Soong Mei-ling went straight to Shanghai and met the two young men, cousins by marriage. "You are brothers," she told them. "You have no reason to fight each other." Then she sent an urgent message to her husband. Chiang was in Beijing at a critical military meeting, on the eve of the decisive battle for Manchuria. He dropped everything and flew to Shanghai to settle the family quarrel. General Fu Zuoyi put it in a sentence. "Chiang Kai-shek loves the beauty more than the throne." Fu Zuoyi was the Nationalist commander in north China, around Beijing. After some negotiation, the young Kung reportedly handed six million American dollars to the government, and left for Hong Kong. The reform held for a few weeks. In Shanghai, after five weeks of steady prices, the shops began to empty, because goods could be sold for more in the provinces around the city. And some of the factories still running had to close, because their owners could no longer cover the cost of making anything. The final nail in the coffin was the same as the year before. The limits on government spending were never enforced, so the government had to break its own rules on printing money. By the middle of October, Jiang Jingguo had to tell Shanghai's film makers to stop making fun of the new currency in their advertisements. By the end of October it was clear to everyone that the August reforms had collapsed. The gold yuan began to lose value even faster than the money it had replaced. Chiang fired his prime minister and his finance minister. And he wrote in his diary that he could not spare any more energy for political reform. What mattered now was to stop the Communist army's advance, and to get American help to turn back the tide coming down from the north. It was the regime's last throw at home, and it had failed. Because by then, the tide was already rolling. Since the start of 1948, Chiang had been ordering his commander at Shenyang, Wei Lihuang, to pull his main forces out and clear the railway south to Jinzhou, near the coast. And again and again, Wei had refused. Next time, we go to Manchuria, and to Lin Biao, a brilliant and sometimes hesitant commander, closer to Mao than any of his other generals. That autumn, Lin will finally move, and the two armies will meet in the battle for Manchuria.

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