History of banking in China
The history of banking in China describes the historical development of the money and credit business in China .
Early money transactions
Chinese financial institutions performed all major banking functions, including accepting deposits, making credit, issuing banknotes, exchanging money, and transferring money through the Song Dynasty (960-1279). In 1024 the first paper currency was issued by the Sichuan state . The two main types of early Chinese financial institutions, piaohao (票 號) and qianzhuang (錢莊), often worked together rather than competing in China's financial market.
Due to structural weaknesses in traditional Chinese law, Chinese financial institutions mainly focused on commercial banking based on close family and personal relationships. Instead of long-term giro deposits, their working capital was based mainly on payments from short-term money transfers. The modern concepts of retail banking and the partial reserve system never developed independently among traditional Chinese banks and were only introduced to China by European bankers in the 19th century.
Piaohao
An early Chinese banking establishment was called Piaohao or Shanxi bank because it was primarily owned by Shanxi natives. The first Piaohao came from the Xiyuecheng Dye Company of Pingyao.
To deal with the transfer of large amounts of cash from one line of business to another, the company introduced designs that were used in the company's many offices around China. Although this new method was originally designed for business transactions within the Xiyuecheng Company, it became so popular that in 1823 the proprietor gave up the dye business entirely to reorganize the company as a dedicated remittance company, Rishengchang Piaohao. Over the next thirty years, eleven Piaohao were established in Shanxi Province, Qixian, Taigu, and Pingyao Counties. By the end of the nineteenth century there were 32 piaohao with 475 branches, so this system was used in almost the entire economy.
All Piaohao were organized as sole proprietorships or partnerships where the owners had unlimited liability. They focused on inter-provincial remittances and later on providing government services. Since the time of the Taiping Rebellion, when transport routes between the capital and the provinces were cut off, Piaohao began to deal with the distribution of state tax revenues. Piaohao grew by playing a major role in fundraising and foreign loan brokerage for provincial governments, issuing banknotes, and transporting regional treasures.
Qianzhuang
Regardless of the Piaohao Nationwide Network, there were a large number of small local banks, commonly called Qianzhuang. These institutes first appeared in the Yangzi Delta region, in Shanghai , Ningbo and Shaoxing. The first Qianzhuangs can be traced back to at least the middle of the eighteenth century.
In 1776 some of the Qianzhuangs in Shanghai organized themselves into a guild called qianye gongsuo. unlike piaohao, most qianzhuang were local and acted as commercial banks by conducting local currency exchange, issuing banknotes, exchanging bills and notes, and discounting for the local economy.
Qianzhuang maintained close relationships with Chinese traders and grew as China's foreign trade expanded. When western banks came to China, they gave "stamp wages" (caipiao) to the qianzhuang, who would then lend that money to the Chinese traders who used it to buy goods from foreign companies. It is estimated that there were around 10,000 qianzhuang in China's early 1890s.
Foreign banks emerge
By the mid-19th century, British and other European banks established themselves in China to serve the growing number of Western trading firms. The Chinese coined the expression yinhang (銀行 "silver institute") for the English word bank . The first foreign bank in China was the British Oriental Bank (東 藩 匯 理 銀行) founded in Bombay , which opened branches in Hong Kong , Guangzhou and Shanghai in the 1840s . Other British banks later followed suit and also set up branches in China. For about 40 years, British credit institutions had a virtual monopoly in modern Chinese banking. Established in Hong Kong in 1865, Hong Kong and Shanghai Banking Corporation (香港 上海 匯豐 銀行), now HSBC , later became the largest foreign bank in China.
From 1889 the German-Asian Bank (德華 銀行), the French Banque de l'Indochine (東方 匯 理 銀行), the Japanese Yokohama Specie Bank (橫濱 正 金 銀行) and the Russian-Chinese Bank (華 俄 道 勝) opened銀行) branches in China and thus competed with the previously dominant British banks. By the end of the 19th century, China's port cities had nine foreign banks with 45 branches.
The unequal treaties of the great powers with China secured foreign banks extraterritorial rights at the time . The international remittance business and foreign trade finance were also firmly in the hands of these banks. In the absence of proper regulation by the Chinese government, foreign banks were able to issue bills for circulation, accept deposits from Chinese citizens, and grant loans to the qianzhuang .
Government banks
After the self-reinforcing movement started, the Qing government began initiating large industrial projects that required large amounts of capital. Although the existing domestic financial institutions provided sufficient credit and transfer facilities to support domestic trade and worked well with small businesses, they could not meet China's new financial demands. China turned to foreign banks for large-scale, long-term funding. After a series of military defeats, the Qing government was forced to borrow money from foreign banks to fund its compensation payments to foreign powers.
A number of proposals were made for a modern Chinese banking institution in the 1860s. Li Hongzhang, one of the leaders of the self-reinforcing movement, made serious efforts to establish a Chinese national bank in 1885 and 1887.
The Imperial Bank of China (中國 通商 銀行), China's first modern bank, opened its business in 1897. The bank was organized as a public company. It passed HSBC's internal regulations and its senior managers were foreign professionals. After the proclamation of the Republic of China, the bank changed its name to the Merchant Bank of China in 1912. The name defined its Chinese name more precisely and removed any connection to the Qing Dynasty.
In 1905, China's first central bank was established as the Bank of Financial Services (大 清 户 部 銀行). Three years later the name was changed to the Qing Grand State Bank (大 清 銀行). As a replacement for all existing banknotes, the large Qing State Bank was granted the exclusive privilege to use its banknotes in all public and private fund transfers, including tax payments and debt settlement. Da Qing Bank was also given exclusive privilege to run the treasury. The chief financial officer of China, who controlled most of the central government's revenue, transferred most of its tax remittances through the bank and its branches. The government entrusted the bank with the transfer of excess salt tax, diplomatic expenses, administration of foreign credit, payment of foreign compensation, and the deposit and transfer of customs tax in many ports.
After the Xinhai Revolution of 1911, Daqing Bank was renamed the Bank of China. This bank still exists today.
Another government bank, the Bank of Communications (交通銀行), was organized in 1908 by the Ministry of Post and Communications to raise money for the repayment of the Peking-Hankou Railway from Belgian contractors. The aim of the bank was to standardize the financing of steamships, railways as well as telegraph and postal facilities.
Private banks
The first private bank dates back to 1897. Three private banks appeared in the late Qing period, all of which were founded by private entrepreneurs without government funding. Xincheng Bank was founded in Shanghai in 1906, followed by the National Commercial Bank in Hangzhou the following year, and Ningbo Commercial and Savings Bank (四 明 銀行) in 1908. That year, the regulation of bank registration was issued by the Treasury Department, which continued to operate after the fall of the Qing Dynasty.
A major portion of the profitable official remittance business was taken over from the piaohao by Daqing Bank. The piaohao disappeared after the Xinhai Revolution in 1911.
During the same period, the increasing power of private interests in modern Chinese banking and the concentration of bank capital in private banks was seen. The so-called "Southern Three Banks" (南 三行) were founded in Shanghai. It consisted of the Shanghai Commercial and Savings Bank (上海 商業 儲蓄 銀行), the National Commercial Bank (浙江 興業 銀行) and the Zhejiang Industrial Bank (浙江 實業 銀行). Four other banks, known as the "Northern Four Banks" (北 四行) later emerged. They consisted of the Yien Yieh Commercial Bank (鹽業 銀行), Kincheng Bank Corporation (金城 銀行), Continental Bank (大陸 銀行), and China & South Sea Bank (中南 銀行). The first three were initiated by current and retired Beijing government officials while the last was founded by an overseas Chinese.
Banknote blocking
In 1916, the Republican government in Beijing ordered the suspension of converting banknotes into silver. With the support of the courts, the Shanghai branch of the Bank of China, they put a lot of pressure on order.
The Bank of China's statutes were revised in 1917 to restrict government interference.
The golden age of Chinese banking
The decade from the Northern Expedition to the Second Sino-Japanese War in 1937 has been described as a "golden decade" for China's modernization as well as its banking industry. Modern Chinese banks have expanded their business extensively, loaning syndicated industries and offering loans to rural areas.
The nationalist government created the Central Bank of China in 1928, with TV Soong as its first president. The Bank of China was reorganized as a bank specializing in foreign exchange management, while the Bank of Communication focused on developing the industry.
The banking supervision was set up under the Ministry of Finance to supervise financial affairs.
Faced with the impending war with Japan, the Chinese government took control of 70 percent of the assets of modern Chinese banks through the infamous bank coup.
After 1949
The history of the Chinese banking system became a little more diverse. Nationalization and consolidation of the country's banks were given the highest priority in the early years of the People's Republic, and banking was the first sector to be fully socialized. In the post-Chinese Civil War recovery period (1949-52), the People's Bank of China moved very effectively to halt raging inflation and bring the nation's finances under central control. Over time, the banking organization has been changed repeatedly to accommodate changing conditions and new policies.
The banking system was centralized early on under the Treasury, which had firm control over all financial services, credits and the money supply. In the 1980s, the banking system expanded and diversified to meet the needs of the reform program, and the volume of banking activities increased sharply. New budget procedures required state-owned companies to pass income tax only to the state and seek mutual funds in the form of bank loans. Between 1979 and 1985, the volume of deposits almost tripled and the value of bank loans increased by 260 percent. As of 1987, the banking system included the People's Bank of China, the Agricultural Bank of China, the Bank of China (handling foreign exchange matters), the Chinese Industrial Bank, the Communications Bank, the People's Insurance Company of China, and rural and urban credit unions.
The People's Bank of China was the central bank and the foundation of the banking system. Since the bank's function overlapped with that of the Treasury, it lost many of its functions during the Cultural Revolution; in the 1970s their leading position was restored. As the central bank, the People's Bank of China had sole responsibility for issuing cash and controlling the supply of money. It also served as the state treasury, the main source of credit for economic units. The clearing center was used for financial transactions.
Another financial institution, the Bank of China, handled all foreign exchange transactions. She was responsible for allocating the country's foreign currency reserves, arranging foreign loans, setting exchange rates for China's currency, issuing letters of credit and generally conducting all financial transactions with foreign companies and individuals. The Bank of China had offices in Beijing and other cities engaged in foreign trade, and had overseas offices in major international financial centers including Hong Kong, London, New York City, Singapore and Luxembourg.
The Agricultural Bank was established in the 1950s to facilitate financial operations in rural areas. The Agricultural Bank provided financial support to agricultural units. It issued loans, processed state funds for agriculture, directed the operations of the rural loan cooperatives, and carried out overall oversight of rural financial affairs. The agricultural bank was headquartered in Beijing and had a network of branches across the country. It flourished in the late 1950s and mid-1960s, but languished thereafter until the late 1970s, when the agricultural bank's function and autonomy was increased significantly to encourage higher agricultural output. In the 1980s it was restructured and given greater authority to support the growth and diversification of agriculture under the responsibility system.
Rural credit unions were small savings and loan organizations that were the primary source of small-scale financial services at the local level in the country. They handled deposits and short-term loans for individual farming families, villages, and cooperatives. Subject to the direction of the Agricultural Bank, they followed a unified state banking policy, but functioned as independent units for accounting purposes. In 1985 the rural credit unions had total deposits of 72.5 billion yen.
Urban credit unions were a relatively new addition to the banking system in the mid-1980s when they first began widespread operations. As commercial opportunities grew during the reform period, the thousands of individual and collective businesses that sprang up in urban areas met a need for small-scale financial services that formal banks were unwilling to meet. Bank officials therefore encouraged the expansion of the city's credit unions as a valuable addition to the banking system. In 1986 there were more than 1,100 municipal credit unions with a total of ¥ 3.7 billion in deposits and ¥ 1.9 billion in loans.
In the mid-1980s, the banking system still lacked some of the services and features that were considered fundamental in most countries. Interbank relationships were very limited, and interbank credit and credit were virtually unknown. Checking accounts were used by very few individuals and credit cards did not exist. In 1986 first steps were taken in some of these areas. Interbank credit and loan networks have been established among twenty-seven cities along the Yangtze River and among fourteen cities in northern China. Interregional financial networks were created to link banks in eleven leading cities across China, including Shenyang, Guangzhou, Wuhan, Chongqing and Xi'an, and the branches of the Agricultural Bank were also linked. The first Chinese credit card, the Great Wall Card, was introduced in June 1986 and used for foreign exchange transactions. Another financial innovation in 1986 was the opening of China's first stock exchanges since 1949. Small exchanges began operations somewhat tentatively in Shenyang, Liaoning Province, in August 1986 and in Shanghai in September 1986.
In the history of the People's Republic, the banking system had tight control over financial transactions and the supply of money. All government departments, public and community economic entities, and social, political, military, and educational organizations were required to hold their financial balances as bank deposits. They were also instructed to keep only enough cash on hand to meet daily expenses; all major financial transactions should be conducted through banks. Payment for goods and services exchanged by business entities was made by debiting the account of the purchasing unit and crediting the sales unit for the corresponding amount. This practice has effectively helped minimize the need for cash.
Since 1949, China's leaders have urged the Chinese people to create personal savings accounts in order to reduce demand for consumer goods and increase the amount of capital available for investment. Small branches of savings banks were conveniently located in the urban areas. And in the countryside, savings were deposited with the rural credit unions found in most towns and villages. In 1986 total savings for the entire country were over ¥ 223.7 billion.
literature
- Linsun Cheng: Banking in Modern China: Entrepreneurs, Professional Managers, and the Development of Chinese Banks, 1897–1937. Cambridge University Press, 2007, ISBN 0-521-03276-8
- Zhaojin Ji: A History of Modern Shanghai Banking: The Rise and Decline of China's Finance Capitalism. ME Sharpe, 2003, ISBN 0-7656-1003-5