Shanxi merchants


Shanxi merchants, also known as Jin merchants , were the group of merchants from Shanxi province, China. Jin is an abbreviated name of Shanxi.
Even though the history of noticeable Shanxi merchants can be dated back to as early as the Spring and Autumn period, more than 2000 years ago, Shanxi merchants became prominent during the Ming and Qing dynasties, and their dominant influence in Chinese commerce, within the nation and with neighboring Mongolia, Russia, and Japan, lasted for more than 500 years.
The Shanxi merchants also operated an early Chinese type of draft bank known as the piaohao; these were the dominant form of banks in China until the fall of the Qing dynasty in 1911.

History

Shanxi merchants were among the earliest Chinese businessmen and their history could be traced back to the Spring and Autumn period and the Warring States period. Southern Shanxi first came into commercial prominence due to its proximity to the political and cultural centers of ancient China.
However, it was not until the Ming and Qing dynasties, that Shanxi merchants really stood out among other Chinese merchant groups, built a strong and long-lasting commercial network and accumulated enormous wealth.
At the beginning of Ming dynasty, the newly established government was in constant fighting with the remnant of the expelled Mongolian armies, along the northern border. In order to reduce the cost of logistics to transport food and other essential supplies to the military, the Ming government decided to grant salt sales license to those who deliver supplies for the frontier soldiers. The salt trade, as a high margin trade of essential goods, had been historically monopolized by the government to ensure enough tax, and the distribution of salt sales licenses served as one of the main profit sources for the early Shanxi merchants. Shanxi is located in North China close to the Ming-Northern Yuan border, and Yuncheng city in southern Shanxi has a very large natural salt production lake, therefore the geographical proximity was conveniently exploited by these merchants.
In Qing dynasty, merchants from central Shanxi basin, including Yuci, Qixian, Taigu, Pingyao, etc. pioneered the first private financial system, so-called draft banks or Piaohao, throughout and even beyond China. By the end of the nineteenth century, thirty-two piaohao with 475 branches were in business covering most of China, and the central Shanxi region became the de facto financial centres of Qing China.
During the Boxer Rebellion in 1900, the Qing court fled westward to Xi'an. The government ordered provinces to remit the capital levy to Pingyao, Shanxi, and Rishengchang handled the bulk of these remittances. Throughout the journey, expenses for Empress Dowager Cixi and the Guangxu Emperor were either remitted or delivered in cash by Shanxi Piaohao.
During the Republic of China period, the Qing Shanxi merchants based on conventional draft banks and tea trade had largely fallen. The prominent example of Shanxi merchants during this time is H. H. Kung, who was highly influential in determining the economic policies of the Kuomintang-led Nationalist government.

Legacies

Business and culture legacy

Shanxi merchants were active for more than five hundred years from the early Ming dynasty, creating centuries-old prosperity, leaving significant business and cultural legacies. Among the diverse businesses scope that Shanxi merchants had worked on, there are two main trades, one is the draft bank system, or Piaohao, serving as the main financial institutions, and the other is the tea trade to Mongolia and Russia, in exchange of fur and European goods.
All piaohao were organised as single proprietaries or partnerships, where the owners carried unlimited liability. They concentrated on interprovincial remittances, and later on conducting government services. From the time of the Taiping Rebellion, when transportation routes between the capital and the provinces were cut off, piaohao began involvement with the delivery of government tax revenue. Piaohao grew by taking on a role in advancing funds and arranging foreign loans for provincial governments, issuing notes, and running regional treasuries.
To successfully run a nationwide financial system, credibility was of paramount importance for the draft banks. There were numerous stories that Shanxi draft banks honored their bank notes even after generations or major disasters. An honorary system to the highest degree was a main legacy of the Shanxi merchants.
They widely employed joint ventures among families living in the same villages or towns, yet they generally avoided using direct relative in the business management, direct relatives could only be owners together but not managers. This way they minimized the interference of personal bias based on kinship with professional business management.
They were the first to separate the ownership and management of businesses, which is crucial for professional business development, such as draft bank financial systems. The professionalism of Shanxi Merchants was also well-known. Their professionalism was characterized by dedication and focus.
The families of Shanxi Merchants were generally different from historically wealthy families, who gained wealth mainly through political privilege with key family members as bureaucrats in the court. A lot of Shanxi merchants tended to run businesses without ambition in politics. Although some of them did eventually seek higher social status by joining the Chinese bureaucratic system, and combined the business network and wealth with political power.
China Central Television created an eight-part documentary about them in 2006.

Architecture legacy

The enormous wealth accumulated from the international trade and the financial institutions had enabled the Shanxi merchants to build luxurious family residences The houses and gardens built by them are culture and architecture heritages now, and most of these buildings are scattered throughout the central Shanxi basin.
The notable architecture complexes are:
There is still no consensus on the details of origin of Shanxi Banks. Most scholars believe that the Shanxi banks are a native innovation from China, while some western scholars hypothesize a potential influence from Russia or Britain.

Rishengchang

, the first draft bank or piaohao, originated from Xiyuecheng Dye Company Pingyao in central Shanxi. Rishengchang was estimated to be founded during the Qing dynasty in 1823. However, the exact founding year remains controversial, some scholars argue it was found in 1797 or 1824. To deal with the transfer of large amounts of cash from one branch to another, the company introduced drafts, cashable in the company's many branches around China. Although this new method was originally designed for business transactions within the Xiyuecheng Company, it became so popular that in 1823 the owner gave up the dye business altogether and reorganized the company as a special remittance firm, Rishengchang Piaohao.
In the next thirty years, eleven piaohao were established in Shanxi province, including Pingyao and neighboring counties of Qi County, Taigu, and Yuci. By the end of the nineteenth century, thirty-two piaohao with 475 branches were in business covering most of China, and the central Shanxi region became the de facto financial centres of Qing China. The Chinese banking institutions of draft bank or piaohao were also known as Shanxi banks because they were owned primarily by Shanxi merchants.
All piaohao were organised as single proprietaries or partnerships, where the owners carried unlimited liability. They concentrated on interprovincial remittances, and later on conducting government services. From the time of the Taiping Rebellion, when transportation routes between the capital and the provinces were cut off, piaohao began involvement with the delivery of government tax revenue. Piaohao grew by taking on a role in advancing funds and arranging foreign loans for provincial governments, issuing notes, and running regional treasuries.

Geopolitical Background of Shanxi Draft Bank

During the Mongol Empire and Yuan dynasty, the Golden Horde and Chagatai Khanate ruled over the lands of Central Asia and further west, leading to the creation of prosperous business cities like those in Samarkand, Uzbekistan. During this time, the Silk Road was unified under one power, and traders like Marco Polo and Ibn Battuta across Eurasia could travel peacefully. However, after Mongol Empire was succeeded by several smaller states over the centuries, the overland Silk Road had become splintered and less used due to deterioration and political destabilization. Bandits had drained most of the region of commerce, and the subsequent Ming and Qing dynasties of China had overland power struggles with other political powers.
From the late 16th century, the Silk Road had become nearly impassable making it desolate for commercial purposes. Thus in the 19th century, the Shanxi merchants did business in the Xinjiang region, which was the entry into western China, but few merchants would trade along the further west along the former route itself at this point. As the trade had ceased in this region Western relic hunters of the 18th and 19th centuries would often describe ruins along the once magnificent trading and commercial route. The Ming dynasty had made trading through the sea illegal and following the Manchu conquest of the Ming dynasty, the Qing had ordered the depopulation of 16 kilometer wide area along the entire Chinese coast. The Qing army leveled all buildings and removed all residents of the area inland in three days, a move done to isolate Southern Ming dynasty rebels on Taiwan.
The quarantine band around the Chinese coast which was marked with signs stating "anyone found over this line shall be beheaded instantly", was thoroughly patrolled by the military of the Qing dynasty and the affected area was widened a total of three times. In the year 1683 the coastal areas of China were allowed to be resettled and in the year 1865 at the port cities of Guangzhou, Zhangzhou, Ningbo, and Yantai a more limited form of international trade was allowed by the government of the Qing dynasty. This very limited form of international trade along some parts of the Chinese coast was ended when, in the year 1757, the Qianlong Emperor had closed off all of these port cities to foreigners once again. Limited trade resumed in Guangzhou following the uninvited arrival of British ships in the year 1759 and the restricted reopening of the city a year later in 1760.
The restrictions placed on foreign trade by the government of the Qing dynasty was known as the cohong system, only select Chinese merchants were allowed to trade with pre-screened and completely unarmed male foreign merchants on a riverbank outside of the city walls of Guangzhou for a limited time during a designated "trading season", and the trade conducted during these "trading seasons" had strict quotas. These dealings were supervised by corrupt government officials that were seeking bribes from the parties involved.
During this era foreigners doing business in China risked unpredictable fines imposed on them by corrupt government officials, enthusiastic torture, imprisonment based on arbitrary accusations, and instant death until the year 1842, this was when the British were victorious in the First Opium War. The government of the Qing dynasty was forced to open four more port cities, known as treaty ports, and Common Law enclaves were established in all five Chinese treaty port cities under the treaty.
As the piaohao came into existence during this period of xenophobia, they were an independently formed Chinese parallel to the European banking system created by the Shanxi merchants and because trade along the Chinese coastlines was so restricted the Shanxi merchants managed to form international trade networks across different routes.