The Merchants of Zigong: Industrial Entrepreneurship in Early Modern China

Published by EH.NET (September 2006)

Madeleine Zelin, The Merchants of Zigong: Industrial Entrepreneurship in Early Modern China. New York: Columbia University Press, 2006. xxiv + 404 pp. $45 (cloth), ISBN: 0-231-13596-3.

Reviewed for EH.NET by Carol H. Shiue, Department of Economics, University of Colorado.

The considerable fortune accumulated by the famed salt merchants of China has often been attributed to their privileged access to government licenses that limited salt sales through quotas. In this volume, Madeleine Zelin, Professor of History and East Asian Languages and Cultures at Columbia University, uses source materials based on municipal archival documents of case records of legal suits; business accounts and contracts; local gazetteers; memoirs and transcribed oral histories; and other primary and secondary materials to evaluate the economic history of the salt industry. Among the many substantial findings that emerge in her study is that the industry was built on much more than the government’s regulations on salt.

The “Merchants” of the title refer to the entrepreneurs of Zigong, in the western hinterland province of Sichuan, who dealt in the business of producing and trading salt. Salt production was a multi-step process that began with raising the salty brine. This required pumping and well drilling, a costly venture that could potentially take five or ten years. Afterwards, furnaces were needed to evaporate the salt. Because the tasks involved in processing were invariably larger than anyone could undertake alone, production ultimately relied not only on advances in new technologies, but just as importantly, on organizational structures that allowed groups (such as corporate groups and lineages) to finance the drilling, to create profit sharing arrangements, and to allow a rental market in productive assets. The first chapters of the book describe the technology used in salt production. Using the example of two saltyards, Chapter 2 discusses the structure of investment contracts in well drilling. Chapter 3 shows how partnerships (e.g. contracts for renting a well or for renting a furnace and leasing brine and gas) were used to organize fragmented resources and to merge smaller amounts of capital. Zelin provides important new evidence of an active industrial sector where property rights and contracts were recognized and enforced by the existing legal framework, but commercial laws governing limiting liability and the effects of bankruptcy did not exist until the turn of the twentieth century.

For acquiring the necessary capital, banking and credit services were not critical to the early development of the salt industry. Instead, assets were often brought together through kin and the establishment of lineage trusts, with little outside sources of financing. Chapter 4 focuses on the role of the lineage in structuring the management of the firm, taking as examples several families that had accrued large fortunes as salt developers.

In addition to capital, processing the salt required a sizable labor force, and the possibility of shipping the goods to potential buyers. Large vertically integrated firms could ensure not only their own supplies of brine and gas, but establish contacts in merchant networks for the sale of their goods. Chapter 5 considers working conditions in the salt industry, which was the largest employer outside of agriculture in Sichuan. Chapter 6 considers the question of the impact of government regulation on producers.

The remaining chapters, Chapters 7-10, turn to the changes in the twentieth century, when the prosperous salt empires of the previous century faced decline, mainly as a result of political instability and the lower profitability of processing brine. In addition, increasingly over the late-nineteenth century and twentieth century, the state sought to tax salt in transit. Chapter 7 surveys the impact of technological changes. Chapter 8 details the family histories of the salt magnates in the later period. Chapter 9 brings the implications of politics to bear on the business of merchants, and Chapter 10 addresses the question of the long-term implications of the industry on Zigong’s economic development.

The text assumes some familiarity with the institutional background of early modern China, and most chapters are packed with carefully teased out analysis from original sources, but Zelin also provides brilliant summaries in the introductory and concluding sections of each chapter that tend to be targeted to a wide audience in business history. The book’s glossary compiles an excellent list of more than 750 names and terms used in the text in both pinyin and in Chinese. If this sounds specialized, it is — but the writing is so clear and engaging that even the general reader will want to know more about the uses of bamboo piping in pumping or the intra-familial spats of the merchant clans.

A recurrent theme of the book is that the business arrangements seen in the Chinese salt industry belie not only previous perceptions about the predatory influence of the “feudal” state on entrepreneurial incentives in China, but also the purported uniqueness of Western business practice. On both fronts, this book breaks important new ground and will have a major influence on the future research agenda. The Merchants of Zigong, however, is fundamentally not a comparative study, and as such its comparisons are based mostly on secondary sources from the business history of the United States. Nevertheless, it is at these points that some of the more provocative observations emerge. For example, Zelin observes, “On a much more limited playing field, the chengshouren then played much of the same role of informed ‘honest broker’ performed by investment bankers like J.P. Morgan” (p. 48). In another analogy, Zelin finds that the advantages of vertical integration in the Chinese salt industry “match in importance the organizational breakthrough made by the great American oil and steel companies?” (p. 96). The implication of the analogies is that despite differences in institutional environments, similarities in business practice between China and the United States arose out of underlying similarities in “opportunities and constraints” (p. 292). For those who see more differences than similarities between oil and salt, the correspondences may seem to be too broad brush. How far should the similarities be taken, and what is the significance of the differences? It may take another book to answer these questions, but the undertaking would be well worth it.

The Merchants of Zigong is a microeconomic case study that expands our knowledge of business practices in the nineteenth and twentieth centuries by leaps and bounds while shedding light on the institutions in which the Chinese firms operated. It is a work that shows just how good historical scholarship on China can be and the volume is one that researchers will refer to time and time again.

Carol H. Shiue is Associate Professor of Economics at the University of Colorado at Boulder, a Research Affiliate at CEPR and a Research Economist at the NBER. She is the author of “Transport Costs and the Geography of Arbitrage in Eighteenth-Century China,” American Economic Review, December 2002, and co-author (with Wolfgang Keller) of “Markets in China and Europe on the Eve of the Industrial Revolution,” NBER and CEPR Working Papers. Additional details on her work can be found at http://spot.colorado.edu/~shiue/.