IT was in 1914 that the thriving hubbub of West Street in
Pingyao rapidly disappeared, as shops along it, most notably the distinguished Rishengchang, were, one by one, locked and shuttered. The owner of the draft bank had been arrested and taken into custody in
Beijing soon after declaring bankruptcy. These depressive events occurred 90 years after establishment of the Rishengchang business and its expansion throughout the country.
The Rishengchang Draft Bank was neither the first nor last business on this famous street to fold, being just one in a series of financial falls. As this domino effect accelerated and spread, rural and urban areas of
Pingyao fell into an abyss of poverty and desolation. One particularly poignant event in the year 1921 marked more than any other the death knell of Shanxi merchants' days of glory after a century of prosperity. One beggar fell dead on a
Pingyao street that year. His name was Lei Dongyang and he was great-great-grandson of Lei Lutai, founder of the Rishengchang. Upon his family's decline, he had sold every stick of household property, even his ancestors' gravestones, but nevertheless died of hunger.
Old Mentality
In 1916, two years before the downfall of the Rishengchang, a financier named Li Hongling (1847-1918) returned to his hometown of Pingyao. Formerly manager of a branch of the Weifenghou Draft Bank, he had been dismissed by its proprietor.
Li started working for the Weifenghou in 1868 and was manager of its branches in Beijing,
Shanghai and Hankou. A shrewd and far-sighted financier, branches under is control recorded consistently good economic returns, despite an adverse and chaotic environment. His financial prowess earned him a high reputation.
Around the turn of the 19th century, Shanxi financiers were confronted with two urgent issues: a mushrooming of banks south of the Yangtze River, and an influx of foreign banks and capital. Li Hongling rightly pointed out that the traditional operating mode of Shanxi draft banks, characterized by loose operations and weak capital, could not hope to compete with these two rising forces. He strongly advocated reforms, urging Shanxi draft banks to train their financiers in up-to-date methods and exhorting independently operated branches to merge and consolidate.
In 1904 Li Hongling wrote to his Shanxi headquarters from Beijing, suggesting that promising young staff members be trained in both finance and foreign languages in preparation for business expansion and the onslaught of foreign bankers. In another letter, he cordially suggested to Shanxi tycoons that they walk out of their cozy courtyards and take a look at the world outside. He wrote: "Today's world is changing day by day, and nothing is like it used to be. Today people from both academic and official circles are sent on inspection tours of foreign countries. The commercial sector has taken no such measures. Visits should at least be made to Beijing, Tianjin,
Shanghai and Hankou. Travel by train or ship is convenient, and not overly tiring as a round trip takes only a few days. Such visits could do no harm and are likely to bring benefits." Li also sent many scenic postcards to
Pingyao in a vain attempt to lure Shanxi merchants out of their microcosm into the outside world. Unfortunately, his advice was not beeded.
In the autumn of 1904 an event occurred that sealed the fate of Shanxi merchants. The Qing imperial government decided to open an imperial bank under the Board of Revenue. The minister of the Board of Revenue convened a managers' meeting of Shanxi draft bank branches in Beijing, inviting Shanxi financiers to take up shares in the new bank and participate in its operation. Li Hongling was enthusiastic and urged them to grasp this opportunity of sharing control of the imperial bank, saying: "This [new] bank will come into existence with or without our participation. There is nothing we can do to stop it, so we may as well take it into our own hands." But all Shanxi bank headquarters unanimously and adamantly refused to participate in the venture. Between 1904 and 1914 farsighted Shanxi financiers represented by Li Hongling tried three times to reorganize Shanxi draft banks into modern commercial operations, but their efforts failed due to interest-conflict and the shortsightedness of bank owners.
In 1908, the Qing government promulgated a banking regulation whose various stipulations dealt severe blows to the outmoded Shanxi draft banks, most significantly the requirement to register capital. Independently operated branches of Shanxi draft banks had limited capital as they operated on a hand-to-mouth basis with few reserves or accumulated funds. Their operations depended heavily on credibility and trust earned from their clients, rather than financial strength. The registration capital requirement alone wiped many of them out.
The ruling prompted Li Hongling to summon managers of
Beijing branches of the Shanxi draft banks to see if they could together work out a solution. He hoped to persuade decision-makers in Shanxi to face reality and start putting reforms in place. He took it upon himself to write directly to his highest superior in Shanxi, pushing for shareholding reform of the draft bank. He patiently pointed out: "It (the reform) is in view of the whole situation, not of any individual person or event. I am now in my sixties, and have basked in the favor and auspices of my employer and monetary gains [from my post]. However, having worked in the bank for many years and having seen all that has happened, I cannot help but speak out." His good intentions sparked off an arbitrary conclusion: "This talk of bank reform is but a ploy through which Mr. Li seeks to gain greater personal wealth. If any similar letters of persuasion are received from other places, they will be immediately shelved without further attention." On receipt of this response, Li Hongling was so distressed that he vomited blood. A few years later, he returned to his hometown.
This rebuttal proved fatal to Li Hongling. From that time onwards his health seriously declined. In 1917 he spent his final physical and financial reserves on writing and publishing two books: The Success and Failure of Shanxi Draft Banks and Advice to Those Riding in the Same Boat. The two books expressed his thoughts, plans and experiences regarding the reform of Shanxi draft banks and contained related correspondence.
Social Chaos
Shanxi's draft banks were born of a small-scale peasant economy and operated within the confines of feudal parochialism. Their century-long prosperity represented a miracle, but their downfall was inevitable. Innate defects apart, social chaos contributed to the banks' swift decline.
In the mid-19th century the Qing Dynasty was troubled with domestic unrest and foreign aggression. Incursions by the Western powers on major cities destroyed the country's financial and commercial routes. Few of the city's draft banks and shops escaped lootings by the Eight-Power Allied Forces when they captured Beijing.
Meanwhile, among the increasing number of peasant uprisings the Taiping Heavenly Kingdom Movement (1851-64) split China in half, making business impossible in Taiping occupied areas. Orders to withdraw and evacuate were issued from Shanxi banks to their relevant branches. One such letter from the Rishengchang to its
GuangZhou branch in (1854), the fourth year of the reign of Emperor Xianfeng when the Taiping army was approaching
GuangZhou reads: "Your immediate return is imperative. Remember that you gain merit by coming back a day in advance."
In addition to civil unrest, Shanxi merchants had also to contend with the voraciously extortionate Qing government.
During China's 3,000-year feudal history, no law of commerce as such had ever been promulgated. Imperial authority was law, and different dynasties had different rules. In order to survive and develop, merchants were obliged to buy the support of government officials. Shanxi merchants' purchasing power was meaningless in this respect as they were dealing with the soon to be defunct Qing Dynasty.
Apart from building housing compounds, Shanxi merchants also invested a great deal in bribing officials at various levels and buying official positions for their family members. On the one hand, such transactions bought business propriety and special privileges, but on the other, they were financially onerous. In 1900, having fled the Eight-Power Allied Forces' advance into Beijing, Emperor Guangxu and Empress Dowager
Cixi stayed at the Dadetong Draft Bank in Shanxi's Qixian County. The bank proprietor offered them sumptuous accommodation and raised a large amount of silver from his own and other local financiers' coffers that he presented to the imperial family as a "traveling fee." In return, Shanxi draft banks were awarded the privilege of conducting official transactions. But they later paid heavily for it, as whenever disaster occurred they were the first to be asked for "donations." They also became a convenient source of repayment of the crippling indemnities demanded by the Western powers. In the latter half of the 19th century Shanxi merchants "donated" over 10 million taels of silver, which accounted for one-third of all that collected across the country.
Credibility had always won Shanxi merchants trust and therefore business. But at this time of turmoil honor meant nothing. Vast amounts of loans made purely on trust went unrepaid.
The 1911 Revolution toppled the Qing Dynasty and signaled the end of the era of Shanxi merchants as their fate and future were inextricably linked to the old government. It was during the period of chaos and warfare following the revolution that Shanxi's businesses irretrievably collapsed.
