A history of modern shanghai banking the rise and decline of chinas financial capitalism

A HISTORY OF MODERN SHANGHAI BANKING


Studies on Modern China
CHILDREN'S LITERATURE IN CHINA
From Lu Xun to Mao Zedong
Mary Ann Farquhar
CHINA'S LAST NOMADS
The History and Culture of China's Kazaks
Linda Benson and Ingvar Svanberg
THE CHINESE NATIONAL CHARACTER
From Nationhood to Individualilty
Lung-kee Sun
HAKKA CHINESE CONFRONT PROTESTANT CHRISTIANITY, 1950-1900
Jessie G. Lutz and Rolland Ray Lutz
A HISTORY OF MODERN SHANGHAI BANKING
The Rise and Decline of China's Finance Capitalism
Zhaojin Ji
IMAGINING THE PEOPLE
Chinese Intellectuals and the Concept of Citizenship, 1890-1920
Edited by Joshua A. Fogel and Peter Zarrow
INDUSTRIAL REFORMERS IN REPUBLICAN CHINA
Robin Porter
THE KWANGSI WAY IN KUOMINTANG CHINA, 1931-1939
Eugene William Levich
"SECRET SOCIETIES" RECONSIDERED
Perspectives on the Social History of Early Modern South China and Southeast Asia
Edited by David Ownby and Mary Somers Heidhues
THE SAGA OF ANTHROPOLOGY IN CHINA
From Malinowski to Moscow to Mao

Gregory Eliyu Guldin
MODERN CHINESE WRITERS
Self-Portrayals
Edited by Helmut Martin and Jeffrey C. Kinkley


MODERNIZATION AND REVOLUTION IN CHINA
June Grasso, Jay Corrin, and Michael Kort
PERSPECTIVES ON MODERN CHINA
Four Anniversaries
Edited by Kenneth Lieberthal, Joyce Kallgren, Roderick MacFarquhar, and Frederic Wakeman,
Jr.
READING THE MODERN CHINESE SHORT STORY
Edited by Theodore Huters
UNITED STATES ATTITUDES TOWARD CHINA
The Impact of American Missionaries
Edited by Patricia Neils


A History of Modern Shanghai Banking
THE RISE AND DECLINE OF CHINA’S FINANCE CAPITALISM

ZHAOJIN JI


First published 2003 by M.E. Sharpe
Published 2016 by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
711 Third Avenue, New York, NY 10017, USA
Routledge is an imprint of the Taylor & Francis Group, an informa business

Copyright © 2003 by Zhaojin Ji
No part of this book may be reprinted or reproduced or utilised in any form or by any electronic,
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Library of Congress Cataloging-in-Publication Data
Ji, Zhaojin
A history of modern Shanghai banking: the rise and decline of China’s finance
capitalism / Zhaojin Ji.
p. cm.
“An East gate book.”
Includes bibliographical references and index.
ISBN 0-7656-1002-7 (cloth: alk. paper)
1. Banks and banking—China—Shanghai—History. 2. Banks and banking,
Foreign—China—Shanghai—History. 3. Finance—China—Shanghai—History. I. Title.


HG3340.S52 J5 2002
332.1'0951'132—dc21
2002029407
ISBN 13: 978-0-7656-1003-4 (pbk)

ISBN 13: 978-0-7656-1002-7 (hbk)


To my parents Xia Huiqin and Ji Zhitai


Contents
List of Illustrations, Photographs, and Tables
Preface
Acknowledgments
Introduction
1. Origins of Shanghai Native Banks
The Origins of the Shanghai Native Banks
Money and Native Banks
Shanxi Banks
The Ningbo and Shaoxing Financial Groups
Shanghai Native Bankers Guild
Native Banks and Merchants
The Organization of Native Banks
Native Banks’ Capital
Management of Native Banks
Functions of Native Banks
Shanghai Native Bankers Clearing Association
The Opening of Shanghai
Foreign Concessions (1845)
Xianfeng Inflation (1851-1862)
Foreign Trade and Native Banks
"Shanghai Conventional Currency" (1856)
Creation of North and South Markets (1855-1862)
2. The Rise of Foreign Banks, 1847-1894

Foreign Trade and Foreign Banks
The Oriental Banking Corporation (1847)
The Chartered Bank of India, Australia, and China (1858)
The Hongkong and Shanghai Banking Corporation (1865)
The Deutsch-Asiatische Bank (1889)
The Yokohama Specie Bank (1893)
Formation of a Comprador Class
The Self-Strengthening Movement and Finance
Early Industry in Shanghai
Russell & Co. and the China Merchants' Steam
Navigation Company
The Shanghai Railway
The "Merchants' Management Under Government


Supervision" System
Financial Crisis of 1883
3. The Expansion of Foreign Banks and the Search for National
Banks, 1895-1911
The Expansion of Foreign Banks
Russo-Chinese Bank and Russo-Asiatic Bank (1895)
Banque de l'lndochine (1898)
The Boxer Indemnity (1900)
The International Banking Corporation (1902)
Banque Beige pour l'Etranger (1902)
Nederlandsche Handel-Maatschappij (1903)
The Search for National Banks
The Imperial Bank of China (1897)
The Hubu Bank (1905) and the Daqing Bank (1908)
The Bank of Communications (1908)

Early Private Banks: Xincheng (1906) and Siming (1908)
The Shanghai Financial Panic and the Revolution of 1911
The "Discount Storm" (1897)
The "Rubber Stock Crisis" (1910)
Banking and the Revolution of 1911
The Reorganization Loan and International Banking
Consortium
4. The Golden Age of Shanghai Banking, 1912-1927
The Impact of Social Change on Banking and Finance
The Bank of China (1912)
Government Bonds (1912-1926)
The Development of Native Banks
Shanghai General Chamber of Commerce (1902-1929)
The Growth of National Industry
The Golden Age of Shanghai Modern Banking
The "Three Southern Banks"
The National Commercial Bank (1907)
The Zhejiang Industrial Bank (1915)
The Shanghai Commercial and Savings Bank (1915)
The "Four Northern Banks"
The Yien Yieh Commercial Bank (1915)
The Kincheng Banking Corporation (1917)
The Continental Bank (1919)
The China & South Sea Bank (1921)


Other Chinese National Banks
New Organizations of Shanghai Banking
The Shanghai Bankers Association
The Banker's Weekly (1917)

The Native Bankers' Monthly (1921)
The Shanghai Stock and Commodities Exchange (1920)
The Rise of Chinese Finance Capitalism
5. New Foreign Financial Powers, 1915-1930
The Japanese Banking Group
The Bank of Taiwan (1911)
The Bank of Chosen (1911)
The Sumitomo Bank (1916)
The Mitsubishi Bank (1916)
The Mitsui Bank (1917)
The "Nishihara Loans" (1917-1919)
The American Banking Group
The National City Bank of New York (1915)
The American-Oriental Banking Corporation (1917)
The American Express Company (1917)
The Equitable Eastern Banking Corporation/The Chase Bank
The Underwriters Saving Bank for the Far East (1930)
Joint-Venture Banks
The Commercial Guarantee Bank of China
The Banque Industrielle de Chine
The Exchange Bank of China
The Asia Banking Corporation
The Chinese-American Bank of Commerce
The Chinese-Italian Banking Corporation
The Sino-Scandinavian Bank
The Banque Franco-Chinoise pour le Commerce
et l'lndustrie
Causes of the Failure of Joint-Venture Banks
6. Shanghai Banking and the Nationalist Government, 1928-1937
The Creation of Chinese State Banks

Shanghai Bankers and Chiang Kai-shek
The 1928 National Economic and Financial Conferences
Tariff Autonomy
The Creation of the Central Bank of China (1928)


The Reorganization of the Bank of China and the
Bank of Communications (1928)
The Postal Remittances & Savings Bank (1931)
The Farmers Bank of China (1935)
The Central Trust of China (1935)
The Currency Reform
The Abolition of the Tael and the Adoption of
the Silver Dollar (1933)
The Silver Purchase Act (1934)
The Shanghai Financial Panic of 1935
The 1935 Currency Reform
Responses of Foreign Banks
The British Response
The American Response
The Japanese Response
Consequences of the Currency Reform
7. Wartime Banking and Finance, 1937-1945
The Isolated Island of Banking and Finance
Wartime Banking Organization and Financial Control
Foreign Exchange Management
The Exchange Stabilization Operation
Currency War
The Hua Hsing Bank (1939)
The Central Reserve Bank of China (1941)

The Pacific Wartime Finance and Inflation
The Revival of Native Banks
Wartime Inflation
8. Collapse of the Nationalist Monetary System, 1945-1949
Postwar Banking Rehabilitation
The 1946 Banking Laws
Gold Scandals
The 1947 Economic Emergency Measures
Hyperinflation
The 1948 Economic Emergency and the Issuance of
Gold Yuan
Collapse of the Nationalist Monetary System
9. The Socialist Transformation of Shanghai Banking, 1949-1952
The People's Bank of China
The Takeover of Bureaucratic Capitalist Banks


Stabilizing the Renminbi
State Monopolies on Purchase and Distribution
The Unification of Economy and Finance
The "Three Antis and Five Antis" Campaign
The Merger of Native Banks and Other Private Banks
The Socialist Transformation
Conclusion
Afterword
Institutional Transformation
Banking Recapitalization
Banking Privatization
Foreign Banking Opportunity
Banking Globalization

Notes
Glossary
Bibliography
Index


List of Illustrations, Photographs, and Tables
Illustrations
The Shanghai City Temple and its "Inner Garden" where
1.1 the guildhall of the Shanghai Native Bankers Association
was located in 1872
1.2 The organization chart of a native bank
1.3 A native banknote (zhuangpiao) in the 1920s
1.4 Bao Kang's Daqing Qianpu, 1876
1.5 Token money during Xianfeng inflation in the 1850s
1.6 Samples of hubu guanpiao, 1853
1.7 Spanish Carolus dollar in 1789 and Mexican dollar in 1857
2.1 Banknote of the Hongkong and Shanghai Banking Corporation
3.1 Banknote of the Banque de l'lndochine
The banking regulations of the Ningbo Commercial and
3.2
Savings Bank in 1923
Organization chart of the Shanghai Commercial and
4.1
Savings Bank
4.2 A cover of the Native Bankers' Monthly
5.1 Banknote of the International Banking Corporation
Letter from Chiang Kai-Shek to the Shanghai Native
6.1
Bankers Association

6.2 Reply letter from the Shanghai Native Bankers Association
7.1 Japanese military note
8.1 Paper money of gold yuan
Photographs
1.1 The renovated "Inner Garden " in Shanghai City Temple in 1995
1.2 The Yongchang cigarette and money shop in the 1930s
1.3 Hongkang Qiangzhuang in the 1930s
1.4 Ji Lezhi, a native banker and manager of Yuancheng Qianzhuang
1.5 Ji Zhitai, assistant manager of Yuancheng Qianzhuang in 1948
The bank building of the Chartered Bank of India, Australia,
2.1
and China in the 1930s
The bank building of the Hongkong and Shanghai Banking
2.2
Corporation
The bank building of the Deutsch-Asiatische Bank, which
2.3
became the bank building of the Bank of Communications
2.4 The Yokohama Specie Bank in the 1930s
3.1 Russo-Asiatic Bank in the 1900s


3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3

4.4
4.5
4.6
4.7
5.1

Nederlandsche Handel-Maatschappij in the 1920s
Sheng Xuanhuai
The Imperial Bank of China
The Ninbo Commercial and Savings Bank building in the 1910s
Insider Business Hall of the Ninbo Bank
The old bank building of the Bank of China in 1918
Song Hanzhang
Zhang Gongquan
Li Ming
Chen Guangfu
Zhou Zuomin
Outside of the Shanghai Gold Stock Exchange, 1930s
The Bank of Taiwan, 1930s
The American Asiatic Underwriters and the Asia Life Insurance
5.2
Company were in this building in the 1930s
5.3 Asia Banking Corporation, 1920s
T.V. Soong and Mrs. Soong welcome Sir Frederick Leith-Ross
6.1
and Mrs. Leith-Ross to Shanghai on September 21, 1935
7.1 T.V. Soong and Secretary Morgenthau in January 1942
A run on a bank in Shanghai between December 1948 and
8.1
January 1949

Tables
2.1 Tonnage of Shipping Entered and Cleared in Shanghai
2.2 Total Import and Export Trade
Deposits Received by the Hongkong and Shanghai Banking
2.3
Corporation, 1865-1930
Dual Role of Compradors as Foreign Employees and
2.4
Native Bankers
3.1 List of the Boxer Indemnity
List of Major Shareholders in the Ningbo Commercial
3.2
and Savings Bank
Domestic Bonds Issued by the Beiyang Government from
4.1
1912 to 1925
4.2 Average Capital of Shanghai Native Banks, 1912-1926
8.1 The Issuing of Gold Yuan (August 1948-May 1949)


Preface
Perhaps it is cultural bias, perhaps it is hometown affection. Having been away from Shanghai for
more than fifteen years, I could not help but miss it. This emotion has stimulated me to write about the
people, the city, and the history, in particular, Shanghai's banking history. This history amazes me and
has a special meaning to my family. My grandfather devoted his life to Shanghai banking for more
than a half-century, my father has worked and observed Shanghai's changing banking industry for the
past half-century, and I have committed myself to writing about Shanghai banking in the twenty-first
century.
This study of the modern history of Shanghai banking over the past 150 years grew not only from
family interests but also from work experience and research seminars in Shanghai and Washington,

DC. When I worked at the Shanghai Academy of Social Sciences between 1983 and 1985, I learned
old stories about Shanghai and its economic history. When I attended a research seminar at the Paul
H. Nitze School of Advanced International Studies of the Johns Hopkins University in the spring of
1994, I found that there were only a few comprehensive books on the subject during my preliminary
research. I decided to commit myself to writing a book on Shanghai banking.
This book starts with a search for the origins of Shanghai qianzhuang (native banks) and their
subsequent rise and fall in modern Chinese history. Some may question the importance of writing
about native banks, considering them the product of a "feudalistic" society that belongs to the past.
However, the phenomenon of native banks still exists today in terms of the relationship between
private entrepreneurs and individual financial lenders. The pre-modern history of native banks
provides many sources for understanding the development of China's modern banking and finance. At
the same time, the pre-modern history of native banks also reflects the influence of Chinese traditional
culture and the impact of Confucian values on economic life.
This book illustrates the intricacy of international relations in modern China by showing the
cyclical nature of foreign banking and finance in Shanghai. The rise of foreign banks was a result of
foreign trade and foreign loans (in terms of railways, telegraphy, and political indemnity). Under the
protection of several unequal treaties signed in the mid-nineteenth century, foreign banks enjoyed
extraterritorial rights in China, which included the freedom to issue their own banknotes. Shanghai's
modern financial market has been closely related to world financial markets since the 1850s. With the
adoption of the gold standard in Germany and the discovery of Nevada silver mines in the United
States in the early 1870s, the value of silver in Shanghai depreciated quickly. China was forced to
abolish the silver standard and to adopt a managed foreign reserve system after the onset of the world
economic depression and the U.S. Silver Purchase Act in the early 1930s. Finally, Shanghai financial
markets were very sensitive to London financial markets because telegraphy services had closely
linked both cities since 1871. Thus, the concept of "globalization" is not new to Shanghai. It emerged
early as a real theme, and then as reality in Shanghai in the modern era.
With the rise of foreign trade and foreign banks on the Huangpu River Bund after the opening of
Shanghai to the West and by the West, a growing class of compradors, the local agents employed by

foreign businesses in China, played important roles in both political and economic life. As the
modern Chinese bourgeoisie was created, national industry and capital grew. They formed Chinese
private banks in the style of foreign banks. The Chinese bourgeoisie were unable to solve the
dilemma of having a strong government or having a laissez-faire society throughout the whole modern
period. Faced with a weakening nation amid insufficient capital and foreign economic infiltration,
they desired strong national capitalism. However, when a strong Nationalist government interfered in
banking and business, they hoped to have a laissez-faire society that would provide freedom in
forming enterprises and operate banking according to economic law. The dream of Chinese
bourgeoisie could not be realized because of the consecutive civil and Sino-Japanese wars. With the
victory of the Communist Party in China, all private banks were nationalized at the end of 1952.
Will Shanghai banking history start a new cycle when China enters the World Trade Organization?
Will private banks reemerge? To study Shanghai's banking history is not to study China's banking
history alone, but also to study China's modern history and international relations. The history of
modern Shanghai banking acts as a mirror to reflect modern society and international relations.
According to Georg Wilhelm Friedrich Hegel (1770-1831), the German philosopher, the historical
process is the self-actualization of spirit or reason, "What is rational is real and what is real is
rational." The existing history of Shanghai modern banking is not a spirit movement but a rational
process in a real world, in which we can investigate the rise and decline of China's finance
capitalism in the modern period.
Zhaojin Ji
January 2002
Washington, DC


Acknowledgments
In the years I spent writing this book, I have received continued encouragement and assistance from
my friends and colleagues in the United States. I am indebted to Nathaniel B. Thayer, Ralph Clough,
Don Oberdorfer, James Riedel, Diane Whaley, Frederick Starr, George Packard, Edward Baker,
Thomas Thornton, Anne Thurston, David Brown, Carla Freeman, Ruth Kling, Kindra Tully, David
Everett, Frank Shima, Aubrey Kuan, Kiyohiko Fukushima, Kei Karasawa, Hak-kil Pyo, John

Schidlovsky, Robert Elegant, Joanne Brainerd, Dan Wright, Liu Lei, Mason Denton, Zheng Hongbei,
Mark Fung, Bian Hongwei, Sanjay Srikantiah, Tung Chen-yuan, and especially, the late A. Doak
Barnett.
I owe intellectual debts to David M. Lampton, Pieter Bottelier, Jim Robinson, Frank Fukuyama,
Ka-Che Yip, Toby Wahl, and Phyliss Waldman for reading the original manuscript and providing
valuable comments. A special thanks to Lyman Miller for his inspiring research seminar that directly
led me to write this book and for his comments on the original manuscript. My thanks also go to
Candace Miller in S AIS public affairs for scanning pictures for the book, Laura Wong in the Library
of Congress, and many members of the SAIS library staff who supported me through all the process of
research.
My friends and old colleagues in China and in the Shanghai Academy of Social Sciences have
assisted me through the research; they are Fang Xiaofeng, Shao Junwei, Yu Xintian, Zhu Minyu, Dang
Mingming, Huang Hanmin, Yang Songping, Jimmie Wang, Ma Jun, Zhu Min, Li Qun, and Jiang
Xiaoyan. Special thanks to Ding Richu, Du Xuncheng, Shen Zuwei, and Hong Jiaguan for their expert
advice, as well as Qian Zonghao at the Shanghai History Museum, and Shao Qin and Ma Jinghua at
the Shanghai Municipal Archives.
My gratitude to my father Ji Zhitai and sister Ji Zhaoyu, whose sustained support for me cannot be
adequately expressed. A special thanks also goes to my uncle Ji Zhiqing for a precious historical
picture. And most of all, I am deeply indebted to my husband, Quan Lu, for his love, passion, support,
and for contributing his artwork for this book. My twin sons John Lu and Tom Lu have been giving me
double joy, magnifying my energy and responsibility to complete this book.
Finally, thanks to editors Doug Merwin, Patricia Loo, Angela Piliouras at M.E. Sharpe, and to
Therese M. Malhame for her careful editing of my manuscript.


Introduction
The history of modern banking in Shanghai presents a unique and fascinating history of a dynamic
banking system that functioned in an international financial center from the late nineteenth century to
the middle of the twentieth century. Shanghai, a great metropolis located on the eastern coast of
China, combined a traditional agrarian economy with modern Western commercial activities to create

an interacting "dual economy" phenomenon in modern economic history. The controversial nature of
the dual economy manifested the transitional features of moving from a pre-modern economic society
to a modern economic system. Here, I adopt the historic periodization that uses the year 1842 to
separate the pre-modern China from modern China after it opened its door to Western powers.
Complex international relations combined with weak national financial systems in the late Qing
dynasty and the early Republican era paved the way for a tortuous road of banking development in
Shanghai.
Three types of banks coexisted in modern Shanghai: native banks, foreign banks, and modern-style
Chinese banks. This book illustrates that a coherent native banks structure endured in the economic
autarky of pre-modern China. The rise and fall of foreign banks reflected global trade and world wars
integrating banking and finance and international relations in Shanghai. Although modern-style
Chinese banks have existed for a relatively short period, various Chinese models for these modern
banks have been created. This book also assesses the Chinese government's intervention in banking
and finance during special periods, the importance of foreign reserves to China, and the concept of
"state capitalism" as the ending point of the banking development. It is important to learn from these
historical experiences, particularly in an epoch of reconstitution of China's contemporary banking and
finance. Now, through the progress of economic reform and China's entry into the World Trade
Organization (WTO), China's banking and financial markets have reopened to foreign banks and
investors. What did the old Shanghai banks look like? How did these banks operate in the past? What
kinds of stories and lessons should we learn from the past? To answer these constructive questions,
this book provides a comprehensive historical background or an outline of the history of modern
banking in Shanghai, depicting the complete cycle of the rise and decline of finance capitalism in
China. In writing this book, I hope to stimulate some critical thinking about contemporary
developments in banking and finance in China.
This book first examines the organization of native banks that existed long before the opening of
China, in order to provide an understanding of the different roots of modern banks in Shanghai. With
the defeat of China by Britain in the Opium War, the destiny of Shanghai substantially changed—
previously an inwardly self-sufficient city it became an international treaty port. What was the
primary cause of this change? Was it geography, war, or commerce? In fact, each of these causes
contributed to the transformation of Shanghai into an international metropolis.

Shanghai's geographic location makes it well situated to serve as an international port. Ships from
overseas can transit through Shanghai and connect with the interior via the Yangtze River and Grand
Canal system. According to the Treaty of Nanking, Shanghai was formally opened to foreign trade in


1843 as one of five treaty ports. The rapid growth of trade stimulated the development of capitalism
to meet the demands of high-volume trade for high velocity of capital. In coping with the unexpected
increase in foreign trade and commercial activities, native banks adjusted their business patterns to
meet the market demand. By the same token, the temptation of Shanghai's geographic location
attracted many foreign bankers who seized this great opportunity to enter the Chinese market by
setting up their headquarters or branches in Shanghai. Furthermore, the opening of the Suez Canal in
1869 shortened the distance for global trade from the western to the eastern hemisphere. Moreover,
beginning in 1871, the new technology supported submarine cables transmitting daily information
about new science and technology and world financial news from London to Shanghai.
Shanghai was built upon trade and finance. By virtue of handling nearly half of China's imports and
exports, Shanghai collected and accumulated abundant commercial capital to become a capital-rich
city. This commercial capital further transformed into industrial capital constructing China's first
industrial base to meet the future needs of commercial and economic development, and investing in
the capital market to develop banking and finance. Shanghai's function as a finance center, again,
contributed to the establishment of a great urban society. During the process of constructing a modern
Shanghai, it experienced unimaginable conflict between traditional thinking and how to use Western
technology and money in early industrial development. But Shanghai adapted very well to Western
technology and management skills, and also borrowed foreign funds to build railways and other
infrastructure.
Shanghai was also built upon human capital, an ancient Confucian culture and an old generation of
native bankers performing business based on trust and fidelity. The same culture combined with a
new Western educational system cultivated a young generation of leaders in the political, economic,
and banking sectors. The cultural approach to understanding Chinese bankers are very important,
because the profession has combined personal value and interests with national interests to serve
society. These bankers have participated in many national anti-imperialism movements. Liberal ideas

and democratic thoughts emerged in the modern city. While Shanghai bankers assisted the Nationalist
government at the beginning of the regime, they also challenged its authority because of its corruption
and faulty monetary policy. Thus, the bankers added invaluable human capital to the great city.
When Shanghai's private banking was discontinued after the socialist economic transition and
banking nationalization, it lost its unique banking status for about four decades. Now, Shanghai has
restored its ambition to become a great international metropolis again. The remaining historical
international finance sentiments made it possible for Shanghai to reemerge rapidly as an international
banking and finance center. Why is the financial environment in Shanghai so attractive to both
domestic and international investors? What is the underlying essence that enables Shanghai to meet
international financial challenges, assimilate cultural differences, resolve business conflicts, and even
share in the fashionable concept of "globalization"? Perhaps the justification of historical continuity is
"essentially inherent in all human history," as Alexander Gerschenkron indicated. 1 Historical
continuity logically extends to the banking and finance fields.
A study of banking history would not be complete without the mention of various nonbanking
elements that contributed to the dynamic social changes and development in Shanghai. Thus, the


impact of war and international relations was reflected in the development of Shanghai banking. The
combination of foreign invasions and domestic turmoil forced the Qing Court to decentralize political
power and finance, which ultimately left the Chinese government in a state of decay. Externally, the
Opium wars and foreign economic expansion destroyed China's self-sufficient agrarian economy and
native financial system. As more international conflicts emerged, so did the specter of government
financial collapse in terms of enormous indemnities. Yet, when the collective indemnity payments
were sent to Shanghai and waiting for settlement, the banking and finance markets grew oddly through
handling the transfer of funds into urban commercial activities.
Internally, the Taiping Rebellion (1851-64) drew many migrants from the lower Yangtze Valley to
Shanghai, The rich brought gold and silver with them; the poor brought only their hands and eagerness
to work. For example, when the rich landlord Chen's family moved from Suzhou, a famous cultural
city about sixty miles west of Shanghai, they carried 100,000 silver taels with them.2 Using this
money, they formed the Yantai Qianzhuang (Yantai Native Bank) in Shanghai. Then, the Yantai

Qianzhuang produced several other native banks by diversifying the family wealth. These migrations
not only provided sufficient funds to enhance Shanghai's native money market, but also provided a
large number of cheap laborers to build the infrastructure of a modern society. When the poor arrived
in Shanghai, they lived in poverty and toiled in newly founded factories or service industries.
Like New York, Shanghai is a migrant city with residents from all over the nation and the world.
Using an extension of the modern political science term citizenship,3 there would be a special term of
residentship to describe the status of people who lived in Shanghai. This residentship can be divided
into two levels: nominal residentship and substantive residentship. Nominal residentship applies to
a person who currently lives in the city, but might have originally migrated from another place.
Substantive residentship applies to those immigrants, whose natural inclination, despite living in the
city, determined their attitudes toward inherent lifestyles, business circles, and political judgments.
The attempt to keep native-place identity and maintain substantive residentship in certain business
circles was typically reflected in the existence of various native-place associations and business
guilds. The Shanghai Native Bankers Guild was an example of such a self-regulated organization
established to provide guidance to the subguilds that were grouped by native townships such as
Ningbo, Shanxing, Zhengjiang, and others. Native-place sentiments became one of the most important
driving forces in modern Shanghai society from the late Qing to the early Republican eras.4
Although the phenomenon of substantive residentship appeared very strongly among older
generations of immigrants, as time passed, pan-residentship has gradually replaced substantive
residentship through social interactions, such as intermarriages among different native groups,
interbusiness communication, and the intercultural education of younger generations. Eventually, a
mixed cultural identity of "Shanghainess" has come to characterize the people who live in the urban
region. For example, while most members of the Shanghai Bankers Association came from nearby
Zhejiang and Jiangsu provinces, they shared the common goal of promoting the Chinese banking
industry. The common goals led young bankers to go beyond the boundary of substantive residentship
to become the general representatives of "Shanghainess" and Shanghai bankers.
Native banks, foreign banks, and modern-style Chinese banks were three major banking forms


coexisting in modern Shanghai. Native banks had dominated the local financial market before

Shanghai opened as an international financial market. After recognizing the value of foreign trading
power, native banks developed interbank relations with foreign banks by issuing native banknotes,
short-term credits issued by the native bank and accepted by foreign banks enabling merchants to
purchase goods. Foreign banks were established in the middle of the nineteenth century soon after
Shanghai opened as a treaty port. By issuing temporary loans, called "chop loans," to native banks,
foreign banks established special business relations with native banks. The "chop loan" was usually
guaranteed by the foreign bank's Chinese employee or the comprador's personal credit, and issued by
the bank to native banks at times when money was easy to obtain in the international market and tight
in the Chinese domestic market.
Compared to native banks and foreign banks, China's modern-style banks emerged relatively late in
the development of Shanghai's financial markets. By imitating Western banking institutional
frameworks, Sheng Xuanhuai, a noted Qing officer, established the first modern bank, the Imperial
Bank of China, in 1897. The Imperial Bank of China was created as a joint state and private bank
because the government did not have sufficient capital to operate the bank. With the rise of nationalist
sentiments after the May Fourth Movement in 1919 and the May Thirtieth Incident in 1925, Chinese
modern banks and bankers gained in financial power. Each private bank in China had its own
fantastic story to illustrate difficulties in establishing and developing the bank. In late 1935, the
Nationalist government-controlled Central Banking Group finally declared its victory over native
banks, foreign banks, and some private banks through "currency reform" and the reorganization of
China's banking. The scope of banking and finance control extended through the Sino-Japanese War
and civil war period. It was then that the modern governmental monopoly of banking originated. I do
not know whether or not the prevailing thought of John Maynard Keynes in the 1930s influenced
Chinese finance ministers Song Ziwen and Kong Xiangxi, but Chinese monetary policy reflected
influences that emphasized government control of banking and finance and intervention in private
business.
Several main political thoughts and economic themes are integral to the development of Shanghai
banking. The most important themes include: the conflict between "state and society," between
officials and bankers; the political economic policy of guandu shangban (merchants' management
under government supervision); the "borrowing of foreign capital"; foreign currency control and
management; and the ideal of "national capitalism." These themes are vital to Chinese economic

society, because the vestiges of these themes have been demonstrated repeatedly since China opened
to the world.


The Conflict of State and Society
Shanghai was a special treaty port with extraterritorial status. Outside the Chinese walled city, it was
divided into two districts, the International Settlement and the French Concession, each with
dissimilar political, economic, and cultural atmospheres. The Qing Court and early Republican
governments had limited administrative control within the walled city, and little influence in the
International Settlement and French Concession. While conflict of state and society in the relationship
between the Chinese government and Shanghai bankers was not very distinct during the Qing dynasty,
it captured greater attention in the Republican era with the rise of a Chinese middle class.
With the growth of modern industries and banking in Shanghai, the emerging Chinese bourgeoisie
played an increasingly important political and economic role. They participated in all important
political affairs, including the 1911 revolution. For example, Shen Manyun, the manager of the first
modern-style private Xinchen Bank, contributed a large sum of funds to finance the revolutionary
army, despite the bank's weak financial situation. 5 This case showed the strong political commitment
of the Chinese bourgeoisie to the Republican Revolution. Furthermore, the Shanghai bankers
exercised de facto independence by being able to resist the unsound executive orders emanating from
the central authority. When the president of China, Yuan Shikai, restored the monarchy, his premier
ordered the Bank of China and the Bank of Communications to cease the remittance (cash) of
banknotes, in order to collect funds for the inauguration. The Shanghai Branch of the Bank of China
unilaterally announced its rejection of the administrative order and continued carrying out the
remittance of banknotes. Society greatly appreciated the Shanghai bankers' independence (i.e., their
self-management and their willingness to accept responsibility for their own risks and credit). These
events stirred civic consciousness and prompted greater social responsibility that placed the middle
class and the new bourgeoisie in a special position in Shanghai, where they exercised greater
autonomy from the central government.
After the Nationalist government established its Central Banking Group in the early 1930s, the role
of free enterprise in private banking began to decline. By ending a series of unequal treaties, the

Nationalist government built up a strong government image and established a central government
banking group in Shanghai from 1928 to 1937. The native banks met their downfall after the
unification of Chinese currency in 1933. Furthermore, all private banks lost the special rights to issue
their own banknotes after the 1935 currency reform. The power of the state began to eclipse that of
society through the control of banking and finance.
According to the view of Chinese scholars,6 the attitudes of Shanghai capitalists toward the
Nationalist government changed in several phases. At first, they supported the Nationalist
government's efforts to unite the country with patriotic feeling and hoped the government would
establish a sound new economic order. However, when they found that the government's interests
conflicted with their own, they resisted the government's increasing powers. Finally, Shanghai
capitalists gave up their resistance and submitted to the government. But the temporary capitalist
submission did not mean that they had abandoned their ambitions and entrepreneurial spirit. Under the


high-handed monetary policy imposed by the Nationalist government, particularly after the imposition
of the economic and financial emergency in 1948, some of them fled the country, while some joined
the third political force seeking a democratic coalition government, and others approached the
Communists.
After the revolution of 1949, the People's Republic of China exercised decisive state power over
society. All native banks and private modern banks were either dissolved or transformed into the
socialist planned economic and banking system by the end of 1952. The classical theory of the
conflict of state and society has not been obvious since then, but it was still valid when China's
private banks reemerged in the society.


The “Merchants’ Management Under Government Supervision”
Policy
Historically, the economic policy of "merchants' management under government supervision"
(guandu shangban) was a very important political instrument that deserves special attention in
understanding Chinese banking history. This policy arose initially in the 1870s, when the Qing

government attempted to construct an early Chinese industrial base.7 Underlying this concept was the
government's lack of sufficient funds and professional managers to operate modem industrial and state
enterprises. Overriding the central government's power and recognizing the Chinese merchants' role
in developing the economy, Li Hongzhang, the superintendent of foreign affairs and advocate of
yangwu yundong (promoting foreign affairs and industrial modernization), appointed merchants with
professional experience to manage state enterprises under government supervision. Following the
original political economic policy, Sheng Xuanhuai, a prominent progressive Qing official and
industrial entrepreneur, extended the concept of merchants' management in his proposal to create the
first national bank in 1897. He proposed the formation of a national bank along the Western model,
similar to the Hongkong and Shanghai Banking Corporation. Sheng suggested that the new bank
follow the route of "merchants' management under government supervision" policy. He suggested that
the new bank headquarters be set up in Shanghai, away from the watchful eye of Beijing. This
suggestion caused a stir among the higher officials in the Qing Court, because it proposed giving the
bank greater autonomy by keeping geographical distance between the bank and the central
government. Although Sheng was able to found the Imperial Bank of China in Shanghai, the Treasury
Board (Hubu) of the Qing Court was not satisfied with a national bank beyond its direct control. In
1905, the Qing Court established its own bank in Beijing, called "Hubu Bank," to handle national
fiscal transactions.
By the end of the Qing dynasty, the "merchants' management under government supervision" policy
had evolved into "government and private merchants' joint ventures" (guanshang heban) which
created an equal partnership between government and merchants in China's banking industry,
However, the fact that the official supervision had recognized government authority over the private
bankers in the initial stage, created the precedent of government participation in Shanghai banking.
Both the guandu shangban and guanshang heban systems met many difficulties in practice, due to
their lack of clarity with respect to job responsibilities, inefficient bureaucratic systems, improper
personnel appointments, and insufficient government capital. In order to gain control over the
decision-making process, some private shareholders increased their shares in the banks. These
themes are particularly important, because they still serve as the fundamental guideline in China's
economic reform today. Keeping the sound elements of "merchants' management under government
supervision," the government should establish stable regulations and laws to govern the joint state and

private enterprises, and give more autonomy to private entrepreneurs.