Traditions and Innovations: The Rise and Decline of the Shanxi Piaohao (Banks) in the Context of Growing Sino-Foreign Economic Interaction, the 1840s to 1910s

Wu, Meng ORCID: https://orcid.org/0000-0002-3004-1968 (2023) Traditions and Innovations: The Rise and Decline of the Shanxi Piaohao (Banks) in the Context of Growing Sino-Foreign Economic Interaction, the 1840s to 1910s. In: Economics Discussion Paper Series. Discussion Paper. University of Manchester.

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Abstract

Shanxi piaohao, also known as the Shanxi banks, were arguably China’s most important indigenous financial institutions in the nineteenth century. In a weak state with little legislation to regulate private enterprises, these privately owned banks established a nationwide remittance network by relying on its informal rules. Drawing on comprehensive primary sources, this paper is the first to examine piaohao’s institutional arrangement. My study shows that by designing comprehensive rules on draft enforcement, piaohao prevented draft defaulting and fraud problems. A strict discipline mechanism and a performance-and-tenure-based incentive structure enabled them to overcome the commitment problems of distant employees. Piaohao performed well financially and dominated the Chinese remittance market for a century. However, with the blow of the Xinhai Revolution and the rise of modern Chinese banks, they declined and disappeared collectively from the Chinese financial market in the early twentieth century.