A man carries coins on a string attached to a walking stick, while a little boy carries a wrapped bundle. They could be on their way to deposit money with the local qianzhuang. From the Book of Jen Wu, an historic painting instruction manual.
The role of the qianzhuang, a traditional Chinese banking institution, evolved to a position of dominance until it finally succumbed to the power of foreign and state-owned banks in China during the twentieth century.
A native Chinese bank, qianzhuang 钱庄 prevailed in both the Ming (1368–1644) and Qing (1644–1912) dynasties. Originally, such banks functioned as “money shops” to deal with China’s bimetallic currency system and to exchange precious metals of copper coins, silver ingots, silver dollars, and gold with different degrees of weight and purity. Later, qianzhuang developed commercial banking functions, including accepting deposits, granting loans, and engaging in the settlement of international trade.
Qianzhuang were originally family-based or established through partnerships among family members and friends. With roots in a long standing agrarian economic society and a Confucian cultural background, qianzhuang emphasized the ethics of family values; a qianzhuang owner or a manager (in the corporate partnership) acted like a father overseeing all internal business and devising strategies to deal with external affairs. The owner or manager could efficiently operate the institution with a relatively small amount of capital by utilizing friendship and connections. Thus, building good “friendship networks” were critically important in carrying out business, primarily because borrowing and lending was based on personal trust and fidelity.
Qianzhuang were often divided into five different types, according to their capital and areas of operation (in Shanghai, for example): huihua zhuang (commercial bank); yuanzi zhuang (secondary commercial bank, meaning its capital and business size was smaller than huihua zhuang); hengzi zhuang (credit union); lizi zhuang (exchange house); and zhenzi zhuang (grocery shop with money exchange). Huihua zhuang possessed more capital and operated with a wider business trading circle. They had the authority to issue bank promissory notes (zhuang piao) by taking deposits and granting loans to merchants. These huihua zhuang were members of local native banker guilds, a self-regulated native banking institution, which determined the interest rate and exchange rate each day before foreign banks and modern national banks in China assumed that role.
The capital of a qianzhuang included zhengben (basic capital) and fuben (supplementary capital). Zhengben referred to the capital originally paid by the founder and partners of a qianzhuang; fuben referred to the capital later added to the original capital. Normally, the shareholders received a 7 to 8 percent interest rate annually on the deposit. According to a 1926 survey among 112 qianzhuang in Shanghai, the basic capital of a single native bank ranged from 20,000 to 360,000 silver tael (refers to weight measurement in old China; a silver tael weighed 37.8 grams [about 1.22 oz]).
Qianzhuang were usually organized into three levels: a managerial level with an associate manager or an assistant manager; a senior staff level that included accountant, money-market staff, street-runner (paojie), clearing clerks, banking clerks, and customer service staff; and asupporting staff level that included cashier, assistant accountant, assistant clerks, apprentices, silver deliverer, and secretaries. Promotions and pay scales were generally determined on the lunar New Year. All employees, including apprentices, received cash bonus in a small red bag.
In China’s large cities, local banker guilds set up business rules and cleared interbank promissory notes. The Shanghai Native Banker Guildhall was built in a Ming-style garden connected to the city temple of Shanghai. This guild played a leading role in Shanghai financial markets from the eighteenth century to the early twentieth century by determining the daily interest rate (yinzhe) and the exchange rate (yangli).
The financial role of the qianzhuang evolved from money shops into more self-sufficient and effective financial institutions in the late Ming dynasty. At this point, qianzhuang assumed the role of receiving deposits, granting loans, discounting bills, issuing bank notes, buying and selling gold and silver, and exchanging bimetallic money and foreign currency. These efficient financial tasks linked qianzhuang with foreign banks and modern-style Chinese banks throughout the entire modern financial history in China.
The qianzhuang performed all the functions of modern commercial banks prior to the entrance of foreign banks into China. When China opened to foreign trade in 1842, however, qianzhuang began to lose their predominant banking position. Faced with the challenge of strong foreign capital inflow, qianzhuang adjusted their business strategies. Instead of changing their traditional banking patterns and business behaviors, they mediated international trade settlements between local merchants and foreign trade companies. After many large, modern Chinese banks were established in the early twentieth century, qianzhuang still played important roles as independent microfinancial institutions to small private enterprises.
In the 1930s, the Chinese Nationalist government launched currency reforms. In 1933, it changed the monetary policy, abolishing silver tael and adopting the silver dollar instead, which substantially eliminated the basic money exchange function of qianzhuang. After the 1934 American Silver Purchase Act was issued, the world silver price rose dramatically. All foreign banks in China had shipped their silver reserve to the London and New York markets for profit, plus China lost mess silver (silver-plated cutlery belonging to the military) in the Northern area where silver was smuggled by the Japanese fleet. The Chinese government had no choice but to eliminate the silver standard as the monetary base. In 1935, China issued the Currency Reform Decree that forbade all private banks from issuing promissory notes, limiting the inter-regional business of qianzhaung and making them more localized. In 1937 after the Japanese army occupied all Northern China, the Chinese government used wartime banking controls to monopolize most Chinese banks, and qianzhuang lost most of their autonomy.
Partially due to its conservative business manner and limited financial resources and partially due to the government policy, qianzhuang eventually lost their banking position with the rise of state-owned banks. At the end of 1952, a Soviet-style socialist planned economic system replaced China’s traditional banking and financial markets. All qianzhuang were reorganized into a few joint state- and private-ownership groups; eventually they were nationalized. The name qianzhuang disappeared for several decades, but with the Chinese economic and financial reform in late 1970s, many “underground qianzhuang” reemerged all over China. But without the Chinese government’s permission, these qianzhuang are illegal financialinstitutions and can be closed. But these underground qianzhuang are still doing business in some gray areas, such as rural areas in the Wenzhou of Zhejiang provinces that the state banks ignore. The matter of justifying the historical qianzhuang functions and legalizing them as a modern financial institution could be on China’s financial reform agenda. In the twenty-first century the Chinese government allows qianzhuang revivals in certain areas as private cooperative banks to promote economic development.
Only when all contribute their firewood can they build up a strong fire.
Zhòng rén shí chái huǒ yàn gāo.
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McElderry, A. L. (1976). Shanghai old-style banks (ch’ien-chuang), 1800-1935: A traditional institution in a changing society. Michigan Papers in Chinese Studies No. 25. Ann Arbor: The University of Michigan Center for Chinese Studies.
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Source: Ji, Zhaojin. (2009). Qianzhuang. In Linsun Cheng, et al. (Eds.), Berkshire Encyclopedia of China, pp. 1824–1826. Great Barrington, MA: Berkshire Publishing.
Qianzhuang (Qiánzhuāng 钱庄)|Qiánzhuāng 钱庄 (Qianzhuang)