Transcript Jinshang

The study of Jinshang
晉商研究
Team Synergy
Yannan Li, Jinghui Feng, Dizhen Li, Chenshuang Zhuang
Chapter One
The Rising of Jinshang
晉商的崛起
Who is Jinshang (晉商)?
 Ancient Qin Dynasty –2000 years ago
• Shanxi merchant, not called Jinshang
• Only the people who did business, not formed a
collective merchant group
 Tang Dynasty –the most booming period
• Taiyuan—the third biggest city
• Further development
Who is Jinshang(晉商)?
• Ming Dynasty – “Jinshang” emerged
• Definition
A certain merchant group who are doing
business in Shanxi Province during the Ming
and Qing Dynasty.
Who is Jinshang(晉商)?
• Spirit Idol – Guan Yu （關羽）
• Symbol of Integrity and loyalty
• Jinshang’s shared believes in
doing business
Essential industry
Salt & Tea
Salt Industry
Background
• Salt is a necessity
• Only transaction by government
• Limited permits from the government
• Huge and sustainable profit
Salt Industry
Opportunity
• Reason : Defend invasion from north,
government settled army in the border areas
– Shanxi
• Problem : Supplement of food
• Method : “Kaizhong Policy” (開中制)
Government’s policy
“Kaizhong Policy” (開中制)
Vouchers
“Yanyin(鹽引)”
Mmerchant
Government
Food
Army
Salt Industry
Geographic advantages : near the border
area
Outcome : huge profit; Jinshang emerged
during this period
Turning Point
• “Kaizhong policy” was destroyed by corrupted
officials
Jinshang faced crisis, but never give up
Everything comes to him who waits.
(功夫不負有心人）
Opportunities hide in crisis. (危機)
Turning Point
Jinshang discovered tea industry as another
source of profit.
In Qing Dynasty, the condition of salt industry
turned better.
Tea Industry
 Background :
• Northern—precious medicine
• Southern—tea
• More frequent trades
Method :
• Logistics (物流)
Tea Industry
 Geographic
advantage
• Shanxi is just in the
way that connected
northern and
southern areas.
Shanxi
Tea Industry
Development
• A complete transporting process
• Large demand
• Privilege given by
Empress Dowager Cixi (慈禧)
--- “Duty Free”
Chapter Two
The Peak of Jinshang Development:
Shanxi Banks
晉商發展的頂峰：山西票號
Definition of Shanxi Banks
What is Shanxi Bank?
• The oldest systematic financial organization in
China
• Born in Shanxi Province, created by Jinshang
• Initial business is money transfer
• Also do business in savings and loans
The Background & Reasons
• Economic background:
– Economic development stimulated commercial
development:
• Time of Prosperity: KangQian Flourishing Age
(康乾盛世 1681-1796)
• Increasing GDP in Qing Dynasty
–In year 1700
–In year 1820
• Population booming
Table of GDP in 1700
Region / Country
GDP in millions of
international dollars
GDP Share
percentage (%)
Mughal India
90 750
24.4
Qing China
82 800
22.3
Japan
15 390
4.1
4 630
3.9
13 410
3.6
527
0.1
Italy
Germany
United States
Source: Maddison, Angus: The World Economy: Historical Statistics
Table of GDP in 1820
Region / Country
GDP in millions
of international dollars
GDP Share
percentage (%)
Qing China
228 600
32.9
India
111 417
16.0
Germany
26 349
3.8
Italy
22 535
3.2
Japan
20 739
3.0
United States
12 548
1.8
Source: Maddison, Angus: The World Economy: Historical Statistics
The Background
• Economic background:
– Commercial Development
increased financial demand
• Markets distributions
• Early informal financial
organizations:
• Money exchange shops &
Pawns (典當行)
• Major business: small savings
and loans
The Background
• Social background:
– Unstable social environment
– Long distance trade became more frequent
Carrying silvers was unsafe and inconvenient
• Political background:
– New regulation: The transfer from kain(實物地租) to
money rent(貨幣地租)
– Kain: Paying tax by food or textile
– Money rent: Paying tax by cash (silver: 銀兩)
Cash demand substantially increased
Why Jinshang took the “mission”?
• Jinshang’s unique conditions:
– Jinshang acquired frequent financial services
– Jinshang have a huge capital resources and
reserves
– Already widely settled their branches nationwide
– Great human capital:
• A lot of professional managers
– Full of business experience; foresighted
• Shared organizational culture
– Trust, integrity and loyalty, all based on Confucianism.
The development of Shanxi Banks
• The first Shanxi Bank:
RI SHENG CHANG (日昇昌)
• Time: 1824-1914
• Manager: Lei Futai
(雷富泰)
• Achievement:
– More than 100 Branches settled within 3 years.
– In 1906, gross profit of Beijing branches worth
583762 taels of silver.
The development of Shanxi Banks
• A series of Shanxi Banks settled following Ri Sheng
Chang:
The Operation of Shanxi Banks
Early operation of Shanxi Banks:
• Saving money, providing loans and money
transfers for merchants.
Major operations of Shanxi Banks:
• Doing business with modern corporations and
financial organizations
• Financially support Qing government:
– Westernization Movement(洋務運動)
– National Defense
Management of Shanxi Banks
• Shareholding system:
– More than one masters of the bank
– Ownership and management right are separated
Shareholders
• Capital Support
• Only had right to determine the use of capital
Employees
• Labor Support
• The manager determine the general
management and organization
• Income increased as experience accumulated
Management of Shanxi Banks
• Employees’ incentive system:
Payment
Stable
Salary
Dividend:
Bonus
Basic
Salary
Food
Employees’
benefit
Clothes
Transports
Management of Shanxi Banks
• Employees’ incentive system:
• Table of Basic salary
Note : 1 Liang ≈ 200 RMB ≈ 30 CAD
First year
2 Liang
Second year
4 Liang
…
…
15th year
100 Liang
Management of Shanxi Banks
• Human Capital selecting and training system
– Basic Selection
Training
– Basic selection: Interview and intelligence test
– Training system:
Professional
Training
Ethical
training
• handwriting, math, accounting,
abacus(珠算) and the purity of
gold and silver etc.
• : “Ren and Yi”. (仁, 義)correspond
to Confucianism
Chapter Three
A Short Review
The Essence of Jinshang
Rebel of Traditional Value
• Tradition: Merchants are inferior （儂本工商末）
• Jinshang: Ethical thoughts can be applied to business
（以儒治商）
Confucianism Ideology
•Relationship and Humanity （仁）
•Loyalty and honesty （忠義）
•Hard-working and Ascetic （勤儉）
Jinshang’s Transformation
Closely cooperated with the authorities;
bribe the officials; purchase positions in
government （商而優則仕）
Financial support allied Confucianism
scholars, and help them get into the
government through exams. （科舉制度）
Study Confucianism and merge it with work
ethics; become scholars and attempted to
enter the government by examination.
Jinshang’s Economic Motivation to
merge with the authority
Engage in essential business and gain
huge profits with great market power
Enjoy privilege in international trade
Cash Flow: Absorb public funds into
Shanxi Banks to finance investment
Dirty money
How did Jinshang benefited the
Government
Central
Government
• Have Jinshang as an agent to control and
organize key industries
• Expect stable long-term tax income
• Shanxi Banks as financial source for national
expenditure: Westernization Movement
Local
Officials
• Huge amount of illegal income from rentseeking
• Gain financial support from Shanxi Banks for
bribing the higher hierarchies
• Money laundering （洗錢） in Shanxi Banks
Jinshang’s Impact on Economy
Shanxi Banks
Monopoly in
Salt and Tea
Business
Rent-seeking
Activities
Shanxi Banks
Increase the liquidity of currency
Aggregate individual savings into large amount to
finance investment
Standardized procedures increase the efficiency of
financial market
Act as a central bank for Qing government
Monopoly in Salt and Tea Business
Positive
Increased the productivity
Regulated the market where the government failed to
regulate
Negative
Insufficient production and high price
Lack of incentive to improve quality and technology
Corrupted merchants and officials sold salt mixed with sands
Consequence
The emergence of underground salt market
Social Cost of the Rent-seeking Activities
Reduce the efficiency of market
Opportunity cost: waste money on bribing instead
of investment
Reinforced the corruption of Qing government
Distorted the original Confucianism spirit and work
ethics
Potential Threats
External
Internal
External Threats: Long-term Cost-benefit
Analysis
Cost
• Large amount of money was spent on bribing to maintain the
monopoly
• Forced to “donate” for the national defense and war reparations
Benefit
• The underground salt market substantially reduced the profit in
salt business
• Western competitors entered the market after war, thus divided
the profit in tea business
• Competitors emerged in banking business
Conclusion: potential danger
• The merge with the authority became less profitable but a
burden for Jinshang
External Threats: Historical Perspective
The Corrupted Qing government could not be
trustworthy anymore
The imbalance between Jinshang and the government
The government always has the coercive power to
change or break the contract, but Jinshang has to
carefully follow the rules.
If the government could not get sufficient profits
from the partnership, the burden on Jinshang would be
much heavier.
Internal Threats: The Imbalance
Shareholder
Manager
Internal Threats: The Imbalance
Drawback of the Formal Institution in Shanxi Banks
In good times, shareholders and managers both fight for
the success of banks, and earn great paybacks
In bad times, managers can benefit themselves without
much risk, whereas shareholders have to take unlimited
responsibility for the banks. Some corrupted managers even
took the money and ran away.
As a result, shareholders hardly trust their managers in
recessions, and this distrust could also put the banks in
danger.
Chapter Four
The Fall of Jinshang
晉商的沒落
Internal and External Crisis
China
Economic
Depression
Chinese Financial
Market
Shanxi Banks
Modern
Banks
Innate Defects
Government
Exploitation
The Imperial
Bank
Conflict between
Shareholders and
Managers
Conservative
Mentality
Economic Depression
• In the mid-19th century the Qing Dynasty
was troubled with domestic unrest and
foreign aggression.
a) the Eight-Power Allied Forces 八國聯軍
b) the Taiping Heavenly
Kingdom Movement
太平天國(1851-64)
Economic Depression
C) 1911 Revolution 辛亥革命:
signaled the end of the Qing Dynasty.
• At this time of turmoil, credibility meant
nothing. Vast amounts of loans made purely
on TRUST went unrepaid.
Government Exploitation
Shanxi merchants had to contend with the
voraciously extortionate Qing government.
During China's
3,000-year feudal
history, no law of
commerce had ever
been promulgated.
In order to survive
and develop,
merchants need to
buy official support.
Rewarded by
transaction privilege,
but later, financially
onerous
Government Exploitation
• In 1900, Emperor Guangxu(光緒皇帝) and Empress Dowager
Cixi(慈禧太后) stayed at the Dadetong Bank in Shanxi to avoid the
Western invader. Bankers offered a large amount of “travelling fee”.
• At the first, they were awarded transaction privilege. But they later
paid heavily for it.
•
咸豐初， 管理戶部事物祁雋藻上奏稱：“自咸豐貳年貳月起，截至叁年
止……紳商士民捐輸銀數，則山西、陜西、四川叁省最多。山西計共捐銀壹佰
五十九萬九千三百余量。”
清人徐繼畲：“晉省前后捐輸以至五六次，數逾千萬”
In the later half of 19th century, Shanxi Merchants “denoted”
over 10 million taels of silver, which accounted one third of the total
collection.
Modern Banks
• At the beginning of 19th century, Shanxi
financiers were confronted with two urgent
issues:
1)a mushrooming of banks south of
the Yangtze River,
2)an influx of foreign banks and capital.
The Imperial Bank 大清戶部銀行
• In the autumn of 1904：
The Qing government
decided to open an
imperial bank under
the Board of Revenue.
• In 1908：
The Qing government promulgated a banking
regulation, the registration capital requirement
alone wiped many of the banks out.
Innate Defects
Conservative
mentality
Conflicts between
Key Person: Li Hongling shareholders and managers
(李宏齡)
manager of Weifenghou
Bank
Li Hongling’s propose
Two competing
forces of modern
banks
• train their financiers in both finance and
foreign language
• independently operated branches to merge
The Imperial Bank
• Participate in operation and take shares
• Reorganize Shanxi banks into modern
commercial operation
The banking
regulation
• suggested to Shanxi tycoons that they walk
out of their cozy courtyards and take a look
at the world outside
The Revival of Jinshang
• The definition of modern Jinshang
• The representitive of modern Jinshang
Guo Taiming(郭臺銘):
Hon Hai Precision
-- the world’s largest
electronics manufacturing
services company
• Are they really Jinshang?
Questions
• What are the facilitating social environments
for Shanxi banks’ rising?
• What are the similarities and difference
between Jinshang and Zaibatsu in Japan, and
how these factors determined their different
fate?
• What are the main reasons of Jinshang’s
decline?
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