Shanxi Merchants’ Multilevel Financial System in Ming and Qing Dynasties, China

ABSTRACT

In the Ming and Qing Dynasties (1368–1911), China saw rapid development in industrial and commercial sectors. Over this period, a group of merchants originating from the inland province of Shanxi gradually built a multilevel financial system and became leaders in China’s banking sector. The system of financial institutions they established (pawnshops, seal shops, money shops, loan banks, and draft banks) each had a unique business model, with specific target client group and carefully designed risk management. They were also interconnected to allow for flexible capital flows, contributing to the fast economic growth in this period. Nevertheless, the traditional system also had limitations, leading to its replacement by modern banks eventually.

KEY WORDS:

• financial system
• interest rate
• multilevel
• risk management
• Shanxi merchants

Notes

^1. The candidate officials are those who compete for the official vacancy with same qualification, so they need money for election. Loan banks grant loans to them with the career prospect and future possible profit instead of mortgage.

^2. More details are provided by Shaanxi Branch of People’s Bank of China (2002, p. 22).

^3. Tang (2008) illustrated with plenty of historical evidence that during mid Ming Dynasty and late Qing Dynasty, it was a commercial and financial revolution when various financial institutions arose in rapid commercial development.

^4. It’s recorded that “Shanxi merchants usually built Temple of General Guan-Yu in places for gathering. Plays were put on the birthday of Guan-Yu every year as a grand gathering in the industry. Small events could also be discussed there. Guan-Yu was said to be the God of Wealth, so the industry associations of Shanxi merchants convened in the temple in various regions.” See for details in Wei (2008, p. 76).

^5. Yiwen Journal, June 12th, 1880.

^6. Takung Newspaper, Nov. 27th, 1908.

^7. Suiyuan Prefecture Gazetteer (transcript of 1915), 48th volume

^8. Inclusive financial system is Crucial to Small Enterprises Financing Difficulty[OL]. Bokee Net, http://www.jinmeifl.com/_d270651034.htm. May 28th, 2011.