Restless Empire

by Odd Westad

  Foreigners who arrived in Shanghai found ways of sticking together. They could join clubs for modern, Western activities like ballroom dancing or playing bridge, which long excluded Chinese. Even if they could not participate at the same tables or on the same dance floors, foreign activities and tastes influenced natives as well. Mao Zedong always liked to dance to Western music, and the last position Deng Xiaoping ever held, in the 1990s, was chairman of the Chinese Bridge Players’ Association. Other associations had a broader purpose. The YMCA, established in China in the 1890s, reached its peak in the 1920s, when it ran large public education programs, including public health education, vocational training, sports events, and English classes. From being an exclusively foreign organization, the Y became increasingly Chinese, and a number of China’s late twentieth-century radical leaders confessed that they had benefited from their association with the Y.

  Not least because of the protection that the foreign settlements provided, modern journalism in China was also born in Shanghai. English-language newspapers, such as the North-China Daily News, established in the 1850s, and the more sensationalist Shanghai Evening Post and Mercury, established in 1920, inspired Chinese papers like Shenbao (from 1871), Dianshizhai (the first pictorial, from the 1880s), and tabloids such as the Libao (from 1935), published by the newspaper magnate Cheng Shewo, with a circulation of more than 200,000.8 By the 1930s Shanghai had a flourishing newsmarket, with papers published in Chinese and English, and in German, Russian, Japanese, French, Polish, and Yiddish. Its book publishing houses were the most important in China, often co-owned by foreign and Chinese interests, but managed by Chinese editors.

  Pre-1949 Shanghai is often dubbed Sin City, and with some right, even though sin is often defined by those who object to what they see as cultural or even racial miscegenation. The main sin, in the eyes of many Chinese, was gross inequality and the flaunting of wealth, which was blamed on the foreign presence. For foreigners, and especially the English, sin was often about sex, usually in situations where one of the partners was Chinese. Many new histories of Shanghai attempt to break the focus on nightlife and entertainment, shopping and gambling. But “Shanghai beyond the neon lights” is not an easy construct, since the neon lights were, quite literally, visible from all over the city.9 If they were not blocked by racial discrimination, everyone who could afford it participated in some of the entertainment that the city offered. They could go to one of thirty-seven cinemas, the horse and dog race tracks, or the great leisure centers, such as the Da Shijie, Great World, on Edward VII Avenue, with its restaurants, dance floors, theaters, circus, and casinos. Or they went shopping or window shopping along Nanking Road, where the two great department stores, the Wing On and the Sincere, faced each other across Asia’s busiest street. People who were not appropriately dressed or seemed “the wrong sort” were thrown out, just as they would be in Shanghai’s mega-malls today. But that did not prevent them from coming back, even if in the meantime they had joined a revolutionary society to oppose the depravity and oppression of Shanghai.

  The owners of the two great Shanghai department stores had all learned their initial lessons in commerce abroad. The brothers who started Wing On, Guo Yue and Guo Quan, had lived in Australia, where they converted to Christianity and began working as greengrocers. When they returned to China around 1900, they settled in Hong Kong and spread their commercial empire from there, with the key branch soon being in Shanghai. Sincere Department Store developed the same way, also started by two brothers, Ma Yingbiao and Ma Yongcan, who had lived in Australia and then settled in Hong Kong. The Guos and the Mas came from adjacent villages close to Macao in Guangdong province. They even married sisters from the same family, one of whom, Huo Qingtang, became one of the founders of the YWCA in China. Chinese merchants such as the Guos and the Mas in the twentieth century drew on their own traditions, on their new freedom to travel, and on their ability to associate with foreigners to enrich themselves and promote their quest for a modern China. They learned from the foreign companies they worked with, and they helped build business enterprises in China that were neither entirely foreign nor entirely Chinese.

  The big foreign companies in China were also transformed in the early twentieth century. Through working closely with Chinese middlemen, Jardine Matheson had become a conglomerate, which—in addition to trade—was running wharves, warehouses, and cotton mills, developed mining and engineering companies, and had its own railways and steamship companies. It became a limited company, with considerable Chinese capital invested in it, in 1907 and moved its headquarters to Shanghai in 1912. Jardine’s filled a series of functions, most of them connected to transport in the broadest sense. It linked British India, Malaya, Singapore, and Australia with China and Japan through shipping and related services. Across the river from Shanghai, Jardine’s wharves in Pudong (where the city’s new financial center now is) became the central point in one of the world’s great trade networks. All Chinese towns of any significance had a Jardine’s agent, who could handle transport, insurance, and often banking. Crucially, Jardine’s developed a Chinese web of business that went far beyond the compradors who worked directly with the company. In many parts of the country—and in Hong Kong not least—small Chinese-run companies grew through their links with Jardine’s or similar companies, which provided the services they needed for their expansion.

  China remained a favored country for foreign investment up to the beginning of the 1930s. Companies saw opportunity there in spite of China’s domestic political turbulence. They also appreciated the absence of a strong central power that could limit their activities. As late as 1932, roughly five percent of all French investment abroad, for instance, went to China (which is about ten times the rate of such investment in the 2000s10). Most of the profits these companies made in China never reached the Chinese. But the knowledge that major international players—Standard Oil, Shell, Singer Sewing Machines, British-American Tobacco—brought with them led to a major transformation of Chinese business, particularly with regard to business models and management. Gone were the days when members of the Chinese elite felt caught between Confucianism and business acumen. By the 1920s most believed that the Confucian emphasis on family, hierarchy, personal obligation, and thrift could be easily wed to foreign management principles. The mostly American prophets of “scientific management” from the interwar years were keenly studied in China (more so, in fact, than they were in Europe or Japan). Most Chinese business leaders realized that rationalization and reorganization were crucial if they were to compete with foreign companies. In some cases, workers were treated more harshly by their Chinese bosses than they were by foreigners, which fueled resentment against the foreign system of capitalism. As workers flocked to Shanghai or other big cities to find work in factories, some of them began to dream of another world in which they themselves owned the means of production.

  A crucial capitalist principle that took a long time to get established in China was that of the limited liability company. Chinese preferred private ownership, with a family in charge, and most companies kept a very narrow circle of shareholders comprising family members and long-term associates. The limited availability of credit from banks and the cumbersome nature of the capital structure of private partnership restricted the availability of working capital up to the outbreak of the Sino-Japanese war in 1937.

  Only gradually did Chinese entrepreneurs learn how to expand without giving up control of their companies, or, if they wanted to, to give up control to maximize profit. Businessmen learned how to look after their shareholders after the company had gone public. In a country where legal protection was weak, such an application of Confucian principles was both necessary and profitable. A master of the process was Liu Hongsheng, who started his business career in a Sino-British mining company, and went on to form successful cement and matchstick companies of his own. His Hong Song Match Company became the main producer through a series of mergers and takeovers. In 1936
he set up the China National Match Manufacturers’ Production and Sales Union, which was in effect a cartel that, with government blessing, controlled prices and production. In the 1930s, as today, business in China worked best when it could work with the government.

  In terms of transport, railways were by the 1930s becoming almost as important for business as waterways. Some of the railways were developed by foreign companies or states, others by Chinese-foreign consortia, which often involved, on the Chinese side, private and provincial interests. The governments in China, both before and after 1927, were eager to stimulate railway development, and foreign interests were equally eager to buy the bonds or issue the loans that were needed. In spite of the Chinese government defaulting on its debts both in 1920 and 1929, and coming close in 1935, foreign banks and investors kept supplying credit. The flow of money continued because of high interest rates and because there were few other good options in a turbulent time for the world economy. There was also the hope that building infrastructure would stimulate the Chinese market, which stood at the center of foreign economic desires. It was the expectation that Chinese consumers in the future would start buying foreign products that was behind much of the extraordinary interest foreign capital showed for the country before World War II.

  The largest foreign company in China before 1945 was the Japanese-owned Mantetsu, the South Manchuria Railway Company. Under its founding president, Goto Shimpei, the former governor of Taiwan, the company set out to be the core element in the transformation of Northeast China under Japanese influence. Mantetsu was a private business concern with partial government ownership and strong connections to the Japanese state. It rebuilt the region’s railways using US-made equipment and then branched out into running coal mines, harbors, hotels, and warehouses. From the 1910s on, it built schools, libraries, hospitals, and public utilities to encourage Japanese and Korean settlement. Its academic wing made up the largest modern research enterprise ever undertaken in China, concentrating on agricultural research for industrial-scale farming. By the 1930s, Mantetsu was almost a separate state within Manchuria. Its subsidiaries produced steel, ceramics and glass, flour and cooking oil, electricity and chemical products. It had become not only the largest company in China, but also in Japan. Mantetsu is rightly seen as part of Japan’s colonization effort in China. But it was also Tokyo’s most important card in proving to the Western states that Japan, and Japanese business, contributed to the modernization of China that they all sought.

  In the early 1900s, foreign merchants and companies transmitted knowledge about capitalism, markets, and management to the Chinese. But the form of development they stood for was always controversial. To many who lauded the virtues of Old China, merchants, investors, and business managers were suspect because they were driven by company profit rather than personal virtue. To young radicals, capitalism was a particular evil because it symbolized the form of exploitation that foreigners were trying to introduce into China. But first and foremost the role of business was problematic because so little of the products it traded in reached the peasant majority, except in the form of wares that many wanted but few could afford. It symbolized a new market economy that favored cities over countryside, and deepened the social dividing lines in rural areas as its elites moved to the urban centers. For many Chinese, foreign merchants and the merchandise they promoted became divided symbols of a modernity they aspired to and a social organization they resented. But there was no denying the importance of foreigners and their products. Few peasants knew who Sun Yat-sen was, but most had heard of the British-American Tobacco Company through the cigarettes they produced.11

  With the new economy came a new banking system. Banks have existed in China at least since the Song dynasty (960–1279), but from the late nineteenth century on, powerful Western-led banks became China’s main financial institutions. The Hongkong and Shanghai Banking Company was set up in Hong Kong in 1865. HSBC operated under a British charter with the intention of serving as a British bank in East Asia. But the Bank, as it became known in China, was much more than a British bank. In the subsequent decades it turned into the main banker for the Chinese government, for Chinese and foreign businesses in China, and for transactions among trading partners from Tokyo to Bangkok. It issued its own currency, introduced new banking and accounting practices, and trained bankers with knowledge of China, who later worked in Asia and around the world. Its founders had intended the HSBC as a tool for the exploitation of China, through organizing Chinese government loans that would go toward paying war reparations to the Western powers. But its mandate broadened, as it became an instrument for the industrialization of the country and the creation of a new financial sector.

  From its inception, the British directors of the Hongkong Bank looked for new ways to maximize profits. To benefit from the country’s commercial development, they realized they would also have to lend through traditional Chinese banks. Despite the growing presence of the Bank, through branch offices in different parts of China, the native banks continued to serve as middlemen up to the mid-twentieth century, becoming a transmission line for knowledge going in both directions of the banking sector. Although the senior staff remained exclusively European, an increasing number of Chinese served the Bank at different levels, enjoying the benefits of extraterritoriality (for their business, if not always for their person) that came with working for a foreign institution. The need to remain under British jurisdiction kept the Bank’s headquarters in Hong Kong, even if the main part of its business was linked to Shanghai after 1912.

  By the first decade of the twentieth century, China was getting its own banks and finance institutions. They were, however, still mostly led by foreigners—including the central bank, known from 1912 as the Bank of China. The banks generally adopted the regulations of HSBC, and they grew very quickly, into all regions of the country. In spite of the absence of effective banking regulations (or, for that matter, the effective rule of law), the Chinese Western-style banks carved out territory for themselves well beyond what most observers had expected. Working closely with Chinese companies, they were often able to defend themselves against predatory government practices. By the 1930s the GMD government had realized that these banks served a crucial role in China’s development. They provided credit when foreign banks would not lend. They served as key intermediaries for China’s public finance as it tottered from crisis to crisis during the decade. The government and the elite classes might not have liked Western-style financial institutions, but by 1937 they had come to depend on them for many of their most cherished activities.

  The trouble with capitalist finance in China may be seen best through its continous problems with private accounting practices. Up to the late nineteenth century, internal accounting in China had been based on a system of single bookkeeping with ample room for nonmonetary forms of value, including the value of friendship or the cooperation of local officials. Confucian ideals made documenting profit undesirable, and fear of government malfeasance made disclosing the books to anyone beside the owners almost inconceivable. After the first general accounting provision was introduced in 1918, most Chinese privately owned companies and native banks preferred their earlier methods over Western-style double-entry bookkeeping, thereby creating a buffer that insulated them from capitalist methods of expansion. Even in Hong Kong and Singapore professional accounting only broke through in the 1960s, while in most of China the links between accounting and accountability are still vague and weak even today.

  RELIGION IN CHINA has rarely been much of an official preoccupation, except in cases when the government has wanted to regulate it or harness its power. Rather, it has been a means of survival for the poor and disposessed, giving meaning to their lives and hope for an after life. Buddhism, a Chinese import from India, served this role for centuries. Christianity, another foreign import, became a major religion in China in the nineteenth century. Until the renewed interest in religion over the past twenty years, the pe
riod between 1900 and the late 1920s stood out as China’s Christian decades. During that time two to three million Chinese converted to this foreign religion, which evolved from a missionary enterprise into a locally led phenomenon. But missionaries continued to have an impact in China, most notably through the schools and universities they set up. These institutions may not have produced a large number of Chinese Christians, as the missionaries had fervently hoped. But studying in such institutions influenced many of those who transformed China in the late twentieth century, even though in directions their missionary teachers would hardly recognize.