Banking in Modern China: Entrepreneurs, Professional Managers, and the Development of Chinese Banks, 1897-1937

Published by EH.NET (December 2003)

Linsun Cheng, Banking in Modern China: Entrepreneurs, Professional Managers, and the Development of Chinese Banks, 1897-1937. New York: Cambridge University Press, 2003. xvi + 277 pp. $65 (cloth), ISBN: 0-521-81142-2.

Reviewed for EH.NET by Man Bun Kwan, History Department, University of Cincinnati.

This is a much awaited and needed book about the modern Chinese bank industry. Professor Cheng of the Department of History, University of Massachusetts, Dartmouth, and before that, the Institute of Economics, Shanghai Academy of Social Sciences, has drawn on hitherto closed archival materials to produce an exhaustively researched and useful monograph.

The work begins with a survey of late nineteenth century China’s “three kingdoms” of banking industry: the sight-draft remittance banks (“piaohao”), native banks (“qianzhuang”), and foreign banks. Late imperial China had evolved a range of unlimited liability financial and credit institutions serving local, regional, and national needs. With the further development of a national market, sight-draft banks specialized in long distance remittance of both public and private funds, facilitated inter-provincial trade, provided credit to native banks and big merchants, issued notes, and took deposits mainly from the state and officials. At their height in the late 1890s, the twenty-seven remittance banks commanded an estimated 280 million Chinese yuan in capital power (paid-up capital, deposits, and notes issued). In contrast, native banks served primarily various local markets by issuing notes, took deposits from relatives and friends, and extended credit, with or without collateral, to select customers, including Chinese importers of foreign goods and exporters. Over ten thousand in number, the native bankers boasted of some 303 million yuan in capital power. When the foreign banks landed in China, they thus faced a well-developed banking sector with considerable financial strength. Operating with extraterritorial privileges, however, they quickly gained control over the country’s foreign remittances, state loans, issued their own banknotes, took deposits, and even provided loans to native banks. By the end of the nineteenth century, the nine foreign banks with a network of branches in the treaty ports controlled at least 280 million yuan in capital power.

The turbulent times of modern China, however, upset the balance among the “three kingdoms.” Condemned to modernize, the country’s needs could not be met by the increasingly obsolete native and remittance banks, and modern banks became the panacea to building a strong, wealthy, and independent China. Beginning with the Imperial Bank of China, state and private capital were pooled to launch limited liability banks. By 1911, seventeen modern Chinese banks were in business, with an estimated capital power of 192 million yuan.

Much of the book’s empirical substance focuses on the expansion of modern Chinese privately owned joint-stock banks thereafter. Between 1912 and 1927, 266 new banks appeared amid rampant warlordism and civil wars. During the same period, although almost half went out of business, those that did survive reported a six-fold increase in paid-up capital while deposits and loans grew by eight-fold. By 1927, the 160 modern banks could claim almost 1.7 billion yuan in capital power. The reunification of the country under the Nationalist party ushered in a “Golden Age” for the banking industry from 1927 to 1937. Although the number of modern banks remained approximately the same (164 still operating in late 1936), their assets had climbed, before adjusting for inflation, to 7.27 billion yuan (Appendix II), or at least eighty percent of the country’s capital power (Tables 3.3 and 3.4).

What accounts for this apparent success? Rejecting the accepted wisdom that the modern banks owed their prosperity to rampant speculation, especially on government bonds and insider information, the author focuses on a closely-knit group of nine leading professional bankers who championed reforms in banking practices. Together, their banks in 1936 accounted for twenty-four percent of the paid-up capital but controlled slightly over half of the capital power in the country (Table 3.2 and Appendix I). Often trained in the west, they combined the best traits of western entrepreneurship and Chinese business management. Far from the corrupt “robber barons” they were often criticized as, these bankers were conscious of their crucial role in economic development and worked closely with the government, if only to promote financial stability and industrialization of the country.

While there are recent monographs and dissertations on individual banks and issues such as the relationship between industrial development and the banking industry, there is no comparable treatment on the subject with the temporal span and depth offered here.1 The book is thus essential reading for scholars interested in banking history, modern Chinese business and economic history.

Note: 1. See, for example, Zhang Guohui, Wanqing qianzhuang he piaohao yanjiu [A Study on Native Banks and Remittance Banks of Late Qing] (Beijing: Zhonghua shuju, 1989); Liu Yongxiang, “Minguo shiqi de Jincheng yinhang” [The Jincheng Bank during the Republican Period] (Ph.D. dissertation, Nankai University, 2001); and Brett Sheehan, Trust in Troubled Times: Money, Banks, and State-Society Relations in Republican Tianjin (Cambridge, MA: Harvard University Press, 2003).

Kwan Man Bun is affiliated with the History Department, University of Cincinnati. He is preparing a monograph on the Yong-Jiu-Huang Chemical Group in China.