Published by EH.NET (October 2009)

Niv Horesh, Shanghai’s Bund and Beyond: British Banks, Banknote Issuance, and Monetary Policy in China, 1842-1937. New Haven, CT: Yale University Press, 2009. xiv + 240 pp. $48 (hardcover), ISBN: 978-0-300-14356-0.

Reviewed for EH.NET by Richard C. K. Burdekin, School of Economics and Finance, Claremont McKenna College.

This book by Niv Horesh of the University of New South Wales offers a meticulously researched account of British banks’ involvement in monetary emissions in mainland China and Hong Kong from the cession of Hong Kong to Great Britain in 1842 up until the outbreak of war with Japan in 1937. Although the book includes details of British bank activities and note issuance in the Crown Colony of Hong Kong, the particular focus is on Shanghai, which became the center of British interests in mainland China after it was opened up for trade as a treaty port in 1842 (followed by the establishment of the International Settlement in 1844). Horesh also incorporates information on developments in China’s hinterland and the implications of monetary policy changes elsewhere in East Asia, most notably Siam and the Straits Settlements. The role played by British banks in China is seen to be influenced not just by British government policy but, even more crucially, by disruptions and uncertainties regarding local Chinese money issuance under the Qing dynasty and the early days of the Republic that made the relative stability of the established British bank notes highly appealing to the local population. The author describes how the later eruption of anti-British sentiment in 1925, and increasing attempts by the Nationalist government to establish their own uniform currency, set British note issuance into decline, however. A new nationwide fiat currency standard, the fabi, was instituted in 1935.

This book is certainly far from being a narrow account of British bank operations in Shanghai. Although research materials from the archives of the Chartered Bank of India Australia and China (CBIAC) and the Hong Kong and Shanghai Banking Corporation (HSBC) form the centerpiece, Horesh’s account places this material within the broader context of British colonial policy and evolving monetary conditions. There is extensive discussion, for example, of the differential regulations attended to banks conducting business in the colonies as well as comparisons of British bank operations in China with those in other parts of the world. A particular complication faced by banks operating in East Asia concerned the silver-based monetary system extant there versus the gold-based system entrenched in the west. British banks doing business in China were exposed to currency risks insofar as payments were received in silver whereas any obligations in London remained linked to gold. With silver generally depreciating relative to gold from the 1860s through the First World War, the author notes that this also eroded the value of bank profits when converted into pounds and reduced the scope for dividend payments to the British shareholder base. HSBC, alone among the major British banks operating in China, largely avoided this problem by being incorporated in Hong Kong rather than in London and by taking advantage of its special role as primary creditor to the Chinese Imperial Court to secure gold loans based on Chinese custom revenues. As Horesh (p. 54) puts it, these “inherent advantages were compounded by managerial prudence” that helped HSBC cement a dominant role among the British banks in China and relegated even CBIAC to secondary status.

The impact of the British banks on the Chinese economy remains extremely controversial to this day. Horesh offers a very even-handed treatment, laying out views expressed both by contemporary writers and modern-day western and Chinese historians while attempting to resolve the debates (and disputes) not by polemic but by appeal to data. Although the data available are far from complete, this book greatly adds to our understanding of the nature of the British banking operations, the extent of their money issuance, and the profitability of this issuance. There are many tables tracing the evolution of bank balance sheets over time and charts showing the trends in note issue. A number of things become clear from these data. First, British bank issuance was highly profitable and the value attached to it is affirmed not only by the data themselves but also by official correspondence expressing concerns whenever changes in British government policy, or developments in China itself, posed a threat to these activities. Second, the extent of this note issuance, relative to total monetary circulation in Shanghai and elsewhere, was never anywhere near a dominant or majority share. Horesh effectively debunks claims to the contrary as well as other overstated claims regarding the extent of Hong Kong banknote circulation in southern China. Third, British banknotes came to be highly prized by the local population owing to their proven convertibility and restraints on supply reflecting both their mandatory coverage ratios and British government quotas on global issuance by the colonial banks.

While it is true that British banks like HSBC and CBIAC drew in funds that might otherwise have found their way into Chinese-owned institutions, Horesh convincingly demonstrates that this was not due to any imperialist browbeating but rather the desire to avoid the vagaries of the local banking system, which suffered under the disintegrating financial position of the late Qing dynasty and the ensuing chaotic “warlord era” of the early Republican period. Horesh (p. 160) concludes that British banknote issuance ?seems to have mattered most as a readily convertible store of value, as a resuscitator of Chinese banknote issuance, and as a touchstone for Chinese monetary reform. It was part of the formula that drew Chinese capital to the city ? a liquid safeguard against one specific form of warlord and central government depredation, that is, debased coinage and inconvertible notes.? A rather amusing confirmation of the regard in which British bank notes were held comes from a 1928 newspaper report of a gang of bandits that demanded not silver or gold but Shanghai banknotes “with the view, it is conjectured, of retiring to [Shanghai] when their fortunes are made” (p. 30).

My only minor quibble is that the organization of the later chapters to focus, first, on CBIAC and, second, on HSBC leads to a little redundancy insofar as both banks tended to be buffeted by many of the same policy changes and events. An alternative might have been to organize that body of material chronologically and then address each bank’s activities over the respective time periods. Overall, however, this is a book awash with interesting and compelling insights that make an important contribution to our understanding of British involvement in prewar China. An area that I would like to see the author explore more in future work is the relationship between British banking interests and the successive Qing and Republican governments. How profitable, for example, was HSBC’s pre-eminent role as creditor to the Qing government? And how important was British bank lending to the fortunes of that government and the financing of its successor? Although these relationships are discussed to some extent in the present volume, I wonder if the bank archives could shed further light on such issues and would certainly look forward to anything the author might have to offer along these lines.

Richard C. K. Burdekin is Jonathan B. Lovelace Professor of Economics at Claremont McKenna College and is an Editorial Board Member of Economic Systems and The Open Economics Journal. His latest book, China’s Monetary Challenges: Past Experiences and Future Prospects, was published by Cambridge University Press in 2008. E-mail: