#2983 - Potential Section A Mt With Answers - Chinese Economic History Since 1850

Central concept in Chinese society and Confucian social theory (Butterfield, 1983)

Western interpretation ‘connections’ or ‘relationships’ Wrong!

Describes special relationship which reflect social duty

Distinguished from social relationships (concept of order)

Bourdieu (1986) – Social capital More fitting

Unifying feature in China

Distinguished from business concerns, but still encouraged during Mao period to strength work-unit systems

Interpret at social network and the perceived duties in non-convention relationships in orderly society

Village and family-based, peasantry - Richardson (1999)

Low-scale, highly labour intensive

1) Absence of fundamental changes in tech, organization and belief systems

2) Rate of return low

3) High population density Livestock farming not economical, uncommon

• Pressure to change commercialization developing Markets

4) Open-frontier economy developed in Manchuria from mid 19^th

• Settlement of empty land, opening of Port Darien in 1907

• Well-developed compared to China proper

Silk-reeling most important export commodity for traditional China and Japan

As 19^th century progressed, Japanese competitiveness increased over China (Kiyokawa, 1987)

• Japanese exports by 1930s, 3 times greater than China

Firth’s hypothesis (1929): Acceptance of new foreign technology follows acceptance of associated institutions and beliefs

• Main factor in explaining Japanese success

1) Readily adopted Western style factory management

2) Meiji enlightenment policies overcame prejudice and xenophobia

3) Better infrastructure (mention Ewo Filature (Brown, 1979) and failings)

4) Direct govt. support for modernization Bi-voltine silkworm

Network of family merchant businesses

1) Highly adaptable (Shiba, 1977)

2) Self-regulation via strong governance structure guilds (Lin, 2005)

3) Strong financing

4) Dominance of modern style banks led to demise

5) Only 30% of native banks survived 1911 revolution (Jones, 1974)

Based around Pingyao in Shanxi First to provide whole range of banking services (Morck and Yang, 2010)

Result of Shanxi merchants Tea route

Financed by Shanxi merchants Monopoly over lake Xiechi salt works

Specialised in Piaohao

Connections with important officials

1) Dual classes of equity

2) Managerial incentives Jade parachutes

3) Dividends paid to family

4) Unlimited liability

5) Hiring from lineage + background checks + guarantors

Literally translated as ancestral hall

Unit of shareholdings and store of wealth in Chinese lineage trusts

Legal entity in traditional Chinese commercial organization

Controversial point for British law (Chung, 2010)

‘Rule against Perpetuities’ – corporations not allowed to own land indefinitely (Law of Mortmain)

Analogy with British trusts, but had to be charitable

Required to register with government to be treated as legal entity

No initial impact before 1910

Political instability in 1920s - increased number registering for protection from looting

New rule on common owned property

Rule of man vs. rule of law

Concept of disciplinary mode of social control and justice

Focus on hierarchical order and maintenance of harmony throughout social structure

Advice from superiors, focus on social rules and norms

British law – adjudicative model of social control and justice

Rigid, universal codes enforced through a judiciary system

Long established civil and commercial law with case law system in Britain

Guilds and other merchant groups provided own set of standards and regulation

Lack of contract enforcement laws, but tight social structure meant relatively successful enforcement

Importance of social harmony in Chinese Confucian culture (Stephens, 1992)

Informal property rights

Britain had independent judiciary with professional lawyers

China had local magistrates with little expertise

Little commercial law prior to 1904 other than primitive joint stock companies

Weberian school of thought that western style laws resulted in non-development of China (Fairbank, 2006; North, 1990)

1904 Company Law – Hybrid of Japanese and English company law Ambiguous, vague, poor translations (Kirby, 1995)

Courts unwilling to handle commercial disputes

1911-1929 – hierarchical system of modern courts developed Became instrumental in dispute settlement

Businesses remained suspicious of the public and government Few registered as companies

During Republican era – New Company Law 1929 – New taxes, duties, tariffs negative impact on business

Ministries and other agencies issued own rules Complexity

By 1931 only 17.5% of Shanghai industrial enterprises were incorporated (Kirby, 1995)

State enterprises incorporated to give Nationalists more control of them e.g. Commercial banks

Did not distinguish foreign vs. Chinese company 1946 New Company Law defined foreign companies and stopped Chinese pretending to be foreign

3 main banking institutions (Rawski, 1989)

Foreign banks Introduction of trading in 16^th century Expanded with ‘unequal’ treaties

• Mainly international trade finance e.g. HSBC (King, 1988)

• Safe-haven during political instability

Commercial banks Developed late in 19^th century (Horesh, 2009)

• Sheng Xuanhuai (Qing Minister for Transportation) Advocated creation of Imperial Bank of China

• Major force in Shanghai etc. Particularly following restrictions on foreign banks in 1920s and 1930s e.g. Fabi reforms

• Suffered from lack of capital, lack of full support from central government

Native banks Initially exchange shops and monetary remittance (Morck and Yang, 2010)

• Increasingly important as foreign trade increased Silver hard to transport

• Issued own native banks notes, vast network of branches, lineage and crucial role in rural economy

• E.g. Shanxi bankers centred around Pingyao Good governance structure, modern management and incentives

• 1911 revolution fractured lineage networks due to political instability

Defining feature of China prior to 1900s (Denzer-Speck et al., 2009)

Fitting with Hayek (1976) proposals for denationalization of money

4 main types of currency (Ma, 2011):

• Copper coins (cash)

  • Day to day transactions

  • Minted and distributed by central/local government

  • Foundation of rural economy and household purchases

• Silver sycee

  • Used for larger wholesale or international transactions

  • Privately produced or imported

  • Little if any governmental money in this area

  • Lu-fang produced the physical sycee

  • Kung-ku assessed and transformed it into money

  • Avoided principle-agent problems

• Paper notes

  • Issued by small banks and had strong regional circulation

  • Used to save transaction costs

  • Merchants sometimes issued their own copper cash notes Qianpiao (Kuroda, 2005)

  • Government issued inconvertible paper notes to help finance war Inflation

  • Foreign bank notes circulated in treaty ports

• Foreign silver dollars

  • Europe and Americas since 16^th century

  • Mainly coastal regions and treaty ports

• Competitive nature of decentralized money had some disadvantages:

  • Foreign dollars often discriminated

  • High information and switching costs

  • Frequent bank runs

  • Economies of scale inevitable, diminishing competitive value of the system

Different stages of reform (Ma, 2011)

Stage 1 (around 1902) – Financial pressure and weakening government

• Provincial govt. wanted to strengthen control of money circulation

• Provincial paper notes e.g. Hankou paper note

• International copper price rising

Stage 2 (WW1 to 1927) – World War 1 and Warlord Era

• Foreign dollars began to disappear Disruption to exports

• 1914 National Currency Ordinance unified provincial currencies YSK dollar national currency

  • Due to disappearance of Mexican dollar

• Bank notes began to circulate more widely

• Conducive to political unification in 1920s

Stage 3 (early 1930s) Departure from silver standard November 1935

• Silver purchase programme 1934 – (Friedman, 1992)

• Hyperinflation swept Communists into power (Greenwood and Wood, 1978)

• Nanjing Nationalist govt. established Fabi as national legal tender

  • Banning silver dollars and silver ownership

Fundamentally different concepts

Crucial role in traditional Chinese economy

Lineage – network of relationships based on but not exclusively on ancestral association

Permanent in nature

Institutional and often business-like features (Faure, 1989)

Members derived rights of settlement and rights to hold land

Donate towards ancestral trust to “put out capital to seek a profit”

E.g. Paddy farming

Patronage – more diverse network

Members of imperial family and other senior officials engaged in trade using their position to help protect trade and commerce

Strong connection to land holders

Patrons crucial when merchant was not...