Published by EH.NET (December 2001)
W. A. Thomas, Western Capitalism in China: A History of the Shanghai Stock
Exchange. Aldershot: Ashgate, 2001. xii + 328 pp. $74.95 (hardback), ISBN:
0-7546-0246-X.
Reviewed for EH.NET by Andrea McElderry, Department of History, University of
Louisville.
W. Arthur Thomas of the University of Liverpool has written a very
straightforward descriptive history of the securities market in Shanghai from
the late nineteenth century to the present. The study centers on securities
trading in Shanghai’s International Settlement where the listed securities
were almost exclusively those of foreign companies and organizations. Along
the way Thomas provides glimpses of life in the International Concession and
sketches of its foreign residents. In the final two chapters on Chinese stock
markets, Thomas gives a useful summary of the Chinese government bond market
until 1940, which was the main activity on the Chinese stock exchanges, and
of the ins and outs of today’s emerging markets in Shanghai and Shenzhen.
Thomas begins with a brief account of the development of foreign trade in
China and of the foreign community in Shanghai. Crucial to both was the
formation of the International Settlement in Shanghai as a result of the
Treaty of Nanking, 1842 (which ended the Opium War) and subsequent agreements
between Chinese and foreign governments. In the International Settlement,
foreign residents lived under the jurisdiction of their own courts and at
least some of them elected their own Municipal Council since “there were
strict property qualifications attached to the franchise” (p. 20). Western
banks and trading houses located in the Settlement and it quickly became a
“flourishing emporium.”
The bulk of the book is an account of securities trading centered in the
International Settlement. Thomas’s main source of information is the weekly
share list and related material published in the Settlement’s English-language
newspaper, the North China Herald. In spite of “an extensive search of
libraries and other depositories,” Thomas did not find any records of the
Shanghai Stock Exchange founded in 1904 or the earlier Shanghai Sharebrokers’
Association, formed in 1898. The first share list appeared in 1866 and by then
Shanghai’s International Settlement had developed the conditions conducive to
the emergence of a share market: several banks, a legal framework for
joint-stock companies, and an interest in diversification among the
established trading houses (although the trading houses themselves remained
partnerships).
The supply of securities came primarily from local companies. In the early
days, banks dominated private shares but, by 1880, only the Hong Kong and
Shanghai (the local bank, so to speak) remained. Shipping, insurance, and
docks persisted to 1940 but were overshadowed by industrial shares after the
Treaty of Shiminoseki, 1895, which permitted Japan, and by extension other
nations who had treaties with China, to establish factories in Shanghai and
other treaty ports. Rubber plantations became the staple of stock trading
beginning in the second decade of the twentieth century. Fixed securities
balanced the “risky” shares of local companies, both in terms of dividends and
capital value. Those of the Shanghai Municipal Council and local utilities,
such as the Shanghai Waterworks, enjoyed the most consistent favor.
Shanghai had no shortage of people who were willing to risk investing in local
companies. Thomas has gleaned information about the foreign investors from
reports of company meetings in the North China Herald. Individuals,
most connected in one way or another with Shanghai’s foreign trading
companies, provided the main “supply” of investors in the early days. From the
mid-1890s, with the expansion of commercial activity and the introduction of
manufacturing, “the securities of local companies became attractive trade
investments for the corporate sector” (p. 83). Information on Chinese
investors comes largely from Yen-p’ing Hao’s work on compradors and Chinese
business development in the late nineteenth century. (See, Yen-p’ing Hao,
Commercial Revolution in Nineteenth Century China: The Rise of Sino-Western
Mercantile Capitalism, University of California Press, 1986, and The
Comprador in Nineteenth Century China: Bridge between East and West,
Harvard University Press, 1970.)
What stands out in chapters 7 through 9 detailing the fluctuations of the
market is the importance of rubber. In 1909-10 investment and speculation in
rubber plantations in Southeast Asia “produced a transformation in the share
list” (p. 145). By autumn 1910, 47 rubber companies were listed on the
Shanghai exchange. Not surprisingly, the boom did not last. Thomas details the
rise and subsequent crash of rubber shares, the general outlines of which are
known to those familiar with Shanghai financial history. What is not so well
known is that rubber recovered and remained a staple of the market until the
Japanese occupation of International Settlement in December 1941 brought an
end to the Shanghai Stock Exchange. For example, “a sharp and unexpected rise
in the price of rubber produced a big increase in share business” (p. 199) in
1925 after a major strike among Chinese workers in Shanghai. Rubber prices
collapsed in early 1928 on the heels of a crisis connected to Chiang Kai-shek
consolidating control over the Chinese part of Shanghai. Perhaps, Thomas
suggests, the fall in rubber prices was responsible for the ensuing enthusiasm
for greyhound shares. Greyhound racing had arrived in Shanghai in 1928 and
the shares in companies who ran the sport were briefly “the focus of all
activity” (p. 203). However, when “the flirtation with ‘the dogs’ had ended
the market returned to its main dealing medium, rubber shares” (p. 203).
Thomas’s study is the first account of foreign stock trading in Shanghai and,
as such, will be useful to those who examine various aspects of finance and
business in Shanghai and China. The book is also an addition to literature on
the history of stock trading. It would benefit from an analytical framework
grounded either in Chinese economic history or in comparative stock market
history. The latter is more realistic since the author is clearly not a China
specialist but is quite conversant with stock markets.
The book has a sense of having been written and published in a hurry.
Footnoting is inconsistent. At times, even quotations have no citations.
Material from the Cambridge History of China, one of the main secondary
sources on China, is sometimes cited by author but mostly cited only by volume
and page. Also the book, or at least the copy I have, needs some serious
copy-editing, especially for romanized Chinese words. Understandably spell
check doesn’t recognize the Chinese words, but even Hong Kong comes out
variously as Kong Kong and Honk Kong. More serious, Chinese names of authors
cited are sometimes, but not always, misspelled. For example, the frequently
cited works of Yen-p’ing Hao are often footnoted as Hoa. Less serious is the
lack of a standardized romanization system such as on page 138 where spellings
of Kang Youwei and the Kuang-hsu emperor come from two different systems.
Admittedly, the romanization of Chinese is a slippery slope and thus its
inconsistency can be put down as a quibble from a Chinese specialist who will,
no doubt, use the book as a reference.
Andrea McElderry’s publications on Chinese business history include a study
of Chinese stock exchanges, “Shanghai Securities Exchanges: Past and Present”
(Occasional Paper Series in Asian Business History #4), Brisbane: Asian
Business History Centre, University of Queensland, 2001.