A History of Modern Shanghai Banking: The Rise and Decline of China’s Finance Capitalism

Published by EH.NET (October 2003)

Zhaojin Ji, A History of Modern Shanghai Banking: The Rise and Decline of China’s Finance Capitalism. Armonk, NY: M.E. Sharpe, 2003. xxxviii + 325 pp. $69.95 (cloth), ISBN: 0-7656-1002-7; $25.95 (paperback), ISBN: 0-7656-1002-5.

Reviewed for EH.NET by Catherine Schenk, Department of Economics & Social History, University of Glasgow.

Since 1990 the Chinese government has sought to re-establish the dominance of Shanghai as China’s international financial center. This policy has recently taken on new impetus with the liberalization planned in financial services under the auspices of the WTO. This book explores the first surge in Shanghai’s prominence as an international financial centre in the nineteenth and early twentieth century, with particular focus on the interaction between foreign and domestic banking and the relationship with the state. This is a particularly timely study since in recent weeks the first foreign equity participation in Chinese banking has been announced.

Ji (program co-ordinator at Johns Hopkins University SAIS) comes from a Chinese banking family and this has generated an appreciation and enthusiasm for the nuances of both traditional and modern banking (her family provided interviews as well as photographs for the book). The text is frequently interrupted with photographs, particularly of bank buildings and bank notes but occasionally also images of correspondence from the archives. The research has drawn on published collections of Chinese banking archives, contemporary Chinese accounts and material in the Shanghai Municipal Archives. No use appears to have been made of the very rich HSBC Group Archives in London. The result is an easily readable and often vivid account of the development of Chinese and foreign banks in Shanghai against the backdrop of the profound political changes in China from the mid-nineteenth century to 1952, with a short ‘afterword’ on banking in the People’s Republic of China since 1979.

The first chapters describe the emergence and development of traditional native banks, the entry of foreign banks into Shanghai and then the emulation of modern banking by the Chinese. The currency reform of 1935 takes up most of Chapter 6 and is the most well developed historical chapter. The final substantive chapters trace the crumbling of the financial infrastructure through the Japanese occupation (1937-41), the Second World War, the Civil War of 1947-49, and then the nationalization of banking (1949-53). Throughout, currency reforms and the development of the monetary system and regulatory framework are the focus of study.

The over-arching theme of the book is the relationship between banks and the state, and the profound influence of political turmoil on the development of banking in Shanghai. The state established early on an interventionist stance toward finance through the ‘merchants’ management under government supervision’ policy in the 1870s. This history of Shanghai banking emphasizes that the current ambivalent attitude of China to capitalism and individual entrepreneurship is well founded in over a century of China’s history.

The book’s subtitle refers to the shift from pre-capitalist finance to finance capitalism and then the triumph of the state over private enterprise. Ji argues that the ‘native’ banks (unincorporated, operating on trust rather than objective criteria) represented ‘pre-capitalist’ institutions. Because of their ability to provide arbitrage among the complex monies of China, they coexisted with modern banks until the reorganization of the currency in 1933 to a silver dollar rather than the Chinese tael. This removed the essential role of native bankers as intermediaries between the local economy and modern banks, except for a brief resurgence in the currency chaos of the 1940s. The modern Chinese banks flourished during a brief ‘golden age’ of modern Chinese banking during the Republican era from 1912 to 1927 when foreign banks were weakened by war. However, as the domestic political system in Shanghai disintegrated from the 1930s, the Nationalist government gradually squeezed out private banking in a process that culminated in nationalization by the Communist government in the early 1950s.

One gap is the lack of reference to Hong Kong as a rival financial center for China. As Shanghai deteriorated from the 1930s, Hong Kong superseded Shanghai as China’s international financial center. Ji does not note that after 1949 many native banks and other Chinese banks opened branches or affiliated offices in Hong Kong to service local needs, trade and remittances on the traditional basis of trust and with different attitudes to accounting, customer care and collateral than foreign banks. An analysis of the movement of bankers from Shanghai to Hong Kong would have been an interesting addition to bring the story full circle as Hong Kong banks move back to Shanghai today.

While an interesting read, there are some weaknesses. The narrative comes in relatively short bites, often leading to a somewhat superficial approach that tends toward description rather than analysis. There are few direct references to existing historiography and little statistical data. The first half of the book is dominated by short, 1-2 page biographies of individual banks with equally brief accounts of more general trends. Nevertheless, Ji has provided a useful and accessible overview of the period and description of the nature of Chinese banking developments. It forms a welcome addition to the growing literature on Chinese banking history that this year alone also includes L. Cheng, Banking in Modern China: Entrepreneurs, Professional Managers, and the Development of Chinese Banks, 1897-1937 (Cambridge University Press, 2003) and B. Sheehan, Trust in Troubled Times: Money, Banks and State-society Relations in Republican Tianjin (Harvard University Press, 2003).

Catherine Schenk is Reader in Economic History at the University of Glasgow. She is the author of Hong Kong as an International Financial Centre: Emergence and Development, 1945-65 (Routledge, 2001). Her most recent publication is “Banking Crises and the Evolution of the Regulatory Framework in Hong Kong, 1945-70,” Australian Economic History Review, 43(2), July 2003.