Contract and Property in Early Modern China

Published by EH.NET (September 2004)

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Madeleine Zelin, Jonathan K. Ocko, and Robert Gardella, editors, Contract and Property in Early Modern China. Stanford: Stanford University Press, 2004. vii + 398 pp. $65 (cloth), ISBN: 0-8047-4639-7.

Reviewed for EH.NET by Carol H. Shiue, Department of Economics, University of Texas — Austin.

It is often assumed that property rights in China were historically weak and that expropriation by the state was a major obstacle to its economic development. This volume argues against taking this view, and provides evidence that casts earlier misconceptions of Chinese contractual forms into considerable doubt. Taken together, the eleven papers in this volume present a fascinating range of case studies and historical details on the role of contracts and property rights in Chinese economic transactions during the Qing Dynasty (1644-1911) and the early years of the Republican Era (1912-1949).

A better understanding of the meaning of property rights in Chinese economic history is especially timely for readers interested in the comparative analysis of institutions and the historical evolution of different institutional forms. While many economists are now convinced that “good institutions” — common law, property rights, broad access to the commercial economy — are deep determinants of economic growth, it has been difficult to identify how exactly specific institutions generate long-run growth. Relating existing notions of good institutions to the different forms that these institutions might take in other societies allows us to get a better view of what is inside the institutional black box.

The articles from this book were drawn from a series of workshops on the evolution of property rights and the role of contract in Chinese business practice. The first part of the book describes the institutional features of Chinese property rights.

Madeleine Zelin makes the point that rights on property can take different forms. In China, property rights were well defined, the state played an important (though not exclusive) role in the enforcement of those rights, and the use of contracts permeated all levels of society. At the same time, Chinese notions of individual private property were different from their Western counterparts. For instance, the unit of ownership is usually the household and not the individual. Other differences existed with respect to rules of inheritance, and customs in the transactions of land and capital. A wealth of implications may be derived from these and other institutional examples that should be of great interest to economists and historians alike.

Upwards of 10 million land deeds and contracts from the imperial and modern period are publicly available. Myron Cohen discusses and translates full passages from 20 examples of such documents. His selection includes land contracts, marriage contracts, and agreements regarding adoption and family division. All were used in the late eighteenth and nineteenth centuries by residents of Minong, a community in southern Taiwan.

Mark A. Allee examines over a thousand nineteenth-century case files from court cases of Taiwan and Sichuan Province. Although community norms and cultural notions of fairness cannot and should not be ignored, it is significant that written agreements were extremely important in dispute mediation, and these written contracts were typically upheld and recognized by the state. Thus, archives on lawsuits and civil cases are an excellent source of information on contracts, since these documents were very often part of the evidence preserved in the case files.

Thomas Buoye examines 630 homicide reports from three provinces of China that were related to property rights disputes such as disagreements over rent default, eviction, or land boundaries. Court cases and criminal records documented in the county magistrate’s office offer a way to assess legal institutions in China. Buoye focuses on homicides that were preceded by lawsuits to learn more about the effectiveness of official intervention in property disputes, the efficiency of courts in conflict resolution, and their effectiveness in enforcing property rights.

In the eighteenth century, the movement of people to the frontier resulted in the reclamation of much land that was previously wilderness. To analyze the extent to which the state established and protected the property rights of those who had newly acquired land, Anne Osborne considers the example of Qing land reclamation policy. She finds that tax receipts and contracts with an official seal fully established property rights, but private documents and other kinds of proof were also valid. Again, the state respected property rights, and relied on documents such as tax receipts, to prove ownership when land disputes arose.

Anglo-American political debates, dating back to Hobbes and Locke, may have led to a culture-specific understanding of individual rights. In contrast, the Chinese did not seem to speak in the legalistic language of “rights.” Jonathan Ocko surveys some of the current Western legal scholarship on transactions costs, property rights, customs, norms, and courts, and suggests the ways in which the ideas emphasized in this literature may or may not be applicable to China.

Articles in the second part of the book consider how the use of Chinese contractual forms affected Chinese business practice.

Feng Shaoting examines real estate contracts in the Shanghai Municipal Archives, and focuses on the custom of supplementary payment (jiatan) in sales of urban property. This was a custom in which the original owner could return to the same buyer months or years after the first sales contract and come to an agreement on a new contract involving a supplementary payment for the same property. Moreover, the original owner could do this not just once or twice, but seemingly in perpetuity or “according to custom.” Requests for supplementary payment by the original owners were prefaced with the customary statements: “because we are in urgent need [of the money] … and because we think we previously underestimated the price.” Feng suggests some of the difficulties that emerged as a consequence of this arrangement. However, a key unanswered question here is whether the sum of all payments reflects the present discounted value of the property. Furthermore, it is possible that the payment of property in flexible installments, where the timing and the amount paid might depend on the financial situation of the buyer or seller can potentially be a mutually beneficial way to transact a large purchase. This may be especially true in an economy with imperfect credit markets and informal means of enforcement of the implicit sales contract.

Using the Zigong Salt Yards of Sichuan as a case study, Madeleine Zelin examines the evolution of business relationships and the productive capacity of firms in China. In the late nineteenth and early twentieth centuries, growing domestic markets and other factors led to conditions that one might think would have helped to promote greater incentives for the development of forward and backward linkages. However, this did not occur in the case of the Zigong partnerships. Instead, over the nineteenth century, the size of managerial structures appears to have reached a critical level, beyond which partnerships started to erode. This article explains why the full potential of economies of scale and scope were not realized in China: unlimited liability, ambiguities in rights over shares and assets, and political instability all contributed to the fragmentation of corporate structure.

Tomoko Shiroyama examines financial arrangements in the textile industry in the Lower Yangzi Delta from 1895 to 1937, drawing on company records and archives of debt contracts in the cotton-spinning and silk-reeling industries. Contrary to conventional views that Chinese financial loans relied on personal ties, she shows that bank credit was based on forms of collateral such as factories, equipment, and raw materials.

Man Bun Kwan studies the court cases drawn from disputes involving the Changlu Salt Division. The merchants held state-licensed privileges to be the sole seller of salt in their designated district. Salt merchants were able to enter and exit the business by buying, selling, leasing, or subleasing their salt certificate. Kwan examines the ways in which the state resolved disputes that arose over these rights.

Robert Gardella concludes the volume and provides a summary and overview of models of Chinese business partnerships. He also provides a comparative perspective, suggesting that the risks and limitations of partnerships in the mid-nineteenth century United States (highlighted in the work of Naomi Lamoreaux) have similarities in late-nineteenth and early-twentieth century China.

Carol H. Shiue is Assistant Professor of Economics at the University of Texas-Austin. Recent articles include “The Political Economy of Famine Relief in China, 1740-1820,” Journal of Interdisciplinary History (forthcoming); “Local Granaries and Central Government Relief: Moral Hazard and Intergovernmental Finance in Eighteenth and Nineteenth Century China,” Journal of Economic History (2004); and “Transport Costs and the Geography of Arbitrage in Eighteenth Century China,” American Economic Review (2002).

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