Qianzhuang
Qianzhuang were local independent Chinese banks in the early modern period, as distinguished from the nationwide bank networks headquartered in Shanxi province called the "Shanxi banks". Also known by a variety of regional names, such as qiansi, qianpu, yinhao, duihuan qianzhuang, qiandian, qianzhuo, duidian, qianju, yinju, or yinpu in Mandarin Chinese, and translated as money shops, native banks, private Chinese banks, or old-style banks in English, qianzhuang banks first sprung up during the Ming dynasty but greatly expanded during the Qing dynasty. Unlike the Shanxi banks, the qianzhuang tended to have much more risky business practices.
These institutions first appeared in the Yangzi Delta region, in Shanghai, Ningbo, and Shaoxing. The first qianzhuang can be traced to at least the mid-eighteenth century. In 1776, several of these banks in Shanghai organised themselves into the banking guild known as the Qianye Gongsuo. In contrast to piaohao, most qianzhuang were local and functioned as commercial banks by conducting local money exchange, issuing cash notes, exchanging bills and notes, and discounting for the local business community. Qianzhuang maintained close relationships with Chinese merchants, and grew with the expansion of China's foreign trade. When Western banks first entered China, they issued "chop loans" to the qianzhuang, who would then lend this money to Chinese merchants who used it to purchase goods from foreign firms. During the latter half of the 19th century the qianzhuang worked as intermediaries between Chinese merchants and foreign banks. Unlike the Shanxi banks the qianzhuang survived the fall of the Qing dynasty because of their close relationships with foreign banks. The qianzhuang have always been a true financial service provider for Chinese agribusiness and commercial households. The control of deposit and loan risk in the qianzhuang business model is a concentrated expression of the localisation advantages of qianzhuang.
It is estimated that there were around 10,000 qianzhuang in China in the early 1890s. There were several financial crashes which occurred in China during which a large number of qianzhuang closed, the largest of these occurred in the years 1883, 1910, and 1911. By and by the traditional qianzhuang banks were being replaced by modern credit banks in China, particularly those residing in Shanghai. This would continue to happen well into the Republican period. The last qianzhuang banks were nationalised in 1952 by the government of the People's Republic of China.
During the 1990s qianzhuang made a come back in mainland China, these new qianzhuang are informal financial companies which are often operating just within the edges of what is legal. The government attitude towards these new qianzhuang isn't that much different from their attitude in the 1950s.
Regional names for private banks in China
Qianzhuang had a variety of regional names across China, these names differed from region to region and were sometimes included in the official name of the local company. The name qianzhuang was typically used for banks and bank-like institutions in the region around the lower Yangtze river. The terms yinhao and qianpu were more typically used in Northern China especially in cities like Beijing, Tianjin, Shenyang, Jinan, and Zhengzhou. In southern China qianzhuang was also often called qianju or qiandian. Meanwhile, all terms were used in the cities of Xuzhou, Hankou, Chongqing, and Chengdu. In Hankou alone the qianzhuang were referred to by a long list of aliases including qianpu, qianzhuo, qiantan, yinju, yinlou, yinpu, and yin lufang in the local archives.The larger native Chinese banks in the treaty port city of Shanghai were called huihuazhuang, da tonghang, or ruyuan qianzhuang, these banks were members of the head office of the monetary business or the qianye zonggong suo in Mandarin Chinese. Separate terms existed for the smaller native Shanghainese financial institutions such as fei huihuazhuang or xiao tonghang.
In the local archives, the Hankou qianzhuang were divided into two major groups: one of these groups included the larger qianzhuang called Zihao, and the other group included the smaller qianzhuang of Hankou and was referred to as Menmian. This Menmian-Zihao division was loosely based on several factors such as their locations, trade sizes or scopes. The word Zihao verbatim means "name-brand" in English, while the word Menmian could be translated as "store-front". The nominal requirement for registration of a Zihao was to submit the signatures of 2 to 5 baoren, as the newcomer's sureties, these baoren already had their business or businesses registered. The Zihao usually would demand more capital and better reputation as they engaged in more and wider note-transactions and would issue larger credit-loans. The Zihao formally established an initiation board for registration arrangements and other managerial issues. While the Zihao opened mostly in quiet alleys, the Menmian were located more in thoroughfares or more heavily crowded lanes, these locations tended to be more convenient for services such as money exchange and petty loans service.
Shanxi banks were another form of private banks in China which were locally known as piaohao. The Shanxi banks are often separated from qianzhuang by many scholars who study the economic history of China. But some scholars instead combine the piaohao with the qianzhuang, as the distinction between them is seen more like a franchise strategy that was applied by the Shanxi merchants, this strategy was similar to that by merchants from other Chinese regions like Wuxi in the Jiangsu province and Ningbo in the Zhejiang province, the claiming initiator and dominator of Shanghai qianzhuang banks.
Structure of the ''qianzhuang''
The basic organisational structure of the qianzhuang was based on a system known as the "Eight Butlers structure", in this structure the qianzhuang was led by the manager and his associates as well as a supervisor, the subordinate staff consisted of employees which were collectively known as the "Eight Butlers", these "Eight Butlers" include accountants, cashier, clerical staff, exchange managers, financial marketers, interbank managers, receptionists, and salesmen. These staff members all had their own apprentices subordinate to them. What rank each staff member had within each qianzhuang was very dependent on the needs and business strategy of every individual qianzhuang, for example a qianzhuang with low funds was more dependent on their interbank manager lending money, but qianzhuang that were richer tended to place the salesmen at the top of the "Eight Butlers" hierarchy because they were more important in expanding their business and other positions like that of interbank manager was placed second and that of accountant third.The most important and powerful staff member of a qianzhuang was the manager who was responsible for most decisions that were made by the bank such as dealing with daily trifles, business transactions, and the transfer of staff members. Because of the power the manager held the shareholders had to make sure that they'd always hire the most qualified individual for the task, as this job required a great deal of trust and the selection process had to be done as carefully as possible to ensure that the most qualified manager headed the operation. Some shareholders would appoint supervisors to supervise these managers to make sure that they always had the best interest of the shareholders in mind and could report anything to the shareholders at any time.
Many qianzhuang also hired several associates to assist the manager, and the number of staff from each position as low as apprentice to as high as manager was never certain, as all employees are shifted according to both the scale and the focus of the business. Staff members of a qianzhuang were either hired directly by the shareholders or were recommended by managers. It is only natural that such an organisational structure can not only maintain the authority of the management, but could also implement policies and guidelines effectively. This structure also allowed for there to be plenty of flexibly so the qianzhuang were highly adaptable to changing circumstances. There were not only checks and balances between the same level of authority, but there were also a number of supervisory constraints between the upper and lower levels of the staff, this was done as a way to enhance the ability of qianzhuang enterprises to withstand more risks.
As long as the owner of a qianzhuang would file for registration and pay their fees, or skip both of these steps entirely, employed a staff, and would join the local qianzhuang guild then they were ready for operating their business. The average qianzhuang officially employed around and usually less than thirty people plus apprentices. While their earnings were audited every year their profits normally distributed only every 3 years.
This could lead to misconduct or embezzlement; thus the intervals of internal auditing and dividend distributing were synchronized afterwards. The western double-entry method was slowly adapted to replace the traditional ones. Usually around of the net earnings went to owners of the business, and the remaining profits went to employees, but the chief manager would still decide how to distribute the bonus packages. Normally, the chief manager would take 20% to 30% of the total bonus; the others shared the rest based on both performance and their status within the company hierarchy.
It was common that a reputed manager could run several qianzhuang at the same time as long as the owners of these businesses consensually agreed upon this simultaneous arrangement.
Between the years of 1926 and 1927 a large percentage of the qianzhuang of Hankou shifted their structures of ownership, nominally these qianzhuang held an unlimited liability, but many of them evolved from sole-proprietorship to partnerships. This change in model could be explained by several events such as the 1926 Northern Expedition by the Kuomintang, their purging of Communists, the Kuomintang occupation of Hankou in 1927, and the Nanchang Uprising in Jiangxi, as well as the Autumn Harvest Uprising in Hunan by the communists. These events all lead to the Hankou qianzhuang to form more alliances, the business model created from this situation was known as the "armpit partnership". The "armpit partnership" was designed as a way to avoid head-counting trade censuses by the local authorities.
The creation of the "armpit partnership" model allowed for those who wished to avoid any attention by the authorities to join the very lucrative qianzhuang business. A united voice of "armpit partners" also had the power to protect their pecuniary interests from being funnelled to the dominating partners. This model of "armpit partnerships" would serve a defensive mechanism, enticing the Hankou qianzhuang to make more business allies under political gauntlets.
Lending out money is the greatest source of risk that these traditional bank faced in China. If the loan was steady then the risk would be greatly reduced, the paramount key to the risk control that a qianzhuang could have is by lending only to trustworthy people.
The qianzhuang employed a special type of personnel selection and hiring system. A qianzhuang generally had a rather strong family style about personnel arrangements and how they would function. The selection process of shareholders, managers, and even apprentices is rooted in the Chinese tradition of "consanguinity, kinship, geographic, and professional affinity", this system is called a "pan-family" relationship network.
It is in fact because of this "pan-family" relationship network family-like personnel mechanism, that qianzhuang with their rather less rigorous internal control systems seemed to have reduced occurrences of internal risks due to their own staff. If the managers were not personally close to the shareholders who owned the qianzhuang in their "pan-family" relationship network, then they would mostly be selected from the three year qianzhuang apprentice programmes or from other employees, and most of these staff members also tended to have "pan-family" relationships with shareholders. In fact there were strong "pan-family" tendencies in the selection processes and the appointment of various other positions at most qianzhuang, these included things such as recruiting apprentices, introducing relatives and friends to the qianzhuang, training exchange students from other regions, etc. Through this "pan-family" personnel system, the bankers of a qianzhuang were not just considered to be "only doing a job", but they were also seen as "standing for the family".