Chapter 8 Lecture 7: China's stock market a hundred years ago

The Chinese people's understanding of the stock market was very good a long time ago.We Chinese, Europeans and Americans have experienced three financial crises at the same time, do you believe it? In the 17th and 18th centuries, especially in the 17th century, Europe went to war year after year.Because European countries at that time had many colonies, they attacked Africa, South America, and Asia.So they began to issue war bonds, and they began to issue IOUs if they could not repay them. I still have to pay back the IOU, but I still can't pay it back, so the stock market was invented. Stock originally meant white strips.

The IOU market is to deceive shareholders and sell IOUs to shareholders.This is what the Europeans do, and we translate it into stocks.It was given a new concept by the stock market.What concept?These IOUs are very valuable.Where is the value?That is the future cash flow brought by IOUs.Gold and silver looted by the East India Company from China and other countries, this is your future wealth.Because after you buy the IOUs, you will have the wealth that the East India Company will plunder in the future, and these IOUs will be valuable. The first batch of people were cheated, bought it, and the price was raised, and then cheated the second batch.The second batch was cheated again, the price was raised even higher, and then the third batch was cheated, and so on, until the last batch was cheated, the stock market crashed, and it crashed three times in a row.By 1720, countries drafted the "Bubble Act".Because every time the price was too high, a bubble was formed, and then it collapsed, so the "Bubble Act" prohibited these listed companies (called joint stock companies at the time) from operating for as long as 100 years, and even banned the operation of banks.France's banking ban lasted for 150 years, because many people borrowed money from banks to speculate in stocks, resulting in the emergence of bubbles.This is the case in European stock markets.

We introduced this kind of limited liability company in 1840, more than a hundred years later. In 1872, China Merchants was born, the first joint stock limited company in China.Then, in less than ten years, from one to thirty, including the coal mine opened by China Merchants, the Shanghai machinery weaving layout, and many other companies, including milk, electric lights, copper mines, insurance, Railways, etc., there are more than 30. In 1840, as the strong ships of the West opened the door to China, the Qing Empire was forced to open ports for foreign trade, and joint-stock companies and stock exchanges set foot on the land of the East.Since there was no stock exchange at first, stock trading was mostly carried out in teahouses.At that time, stock managers would come to some famous teahouses every morning to chat and drink tea with buyers while completing transactions.With the surge of the shareholding system trend, Shanghai, Peiping, Tianjin, Guangzhou, and Wuhan set off an upsurge of establishing stock exchanges successively.By the time of the peak in 1921, the number of exchanges in China was close to 200, ranking first in the world.However, the abnormal development caused the early Chinese stock market to experience three major crashes.

The stock market crash that Europe experienced started in the early 18th century, and we started in the 19th century.At this point, we are not far behind the US and Europe.Our level is even similar to that of the United States. There were three stock market crashes in China: the first, in 1872; the second, in 1910; and the third, in 1921.America After Us, 1929. For the first time, when the stock market crashed on September 2, 1872, Shanghai's "Shen Bao" published a commentary, which said, "Today's Chinese stock buyers"—that is, those of us who buy stocks, "don't ask what should be done. The beauty and evil of a company”—that is, whether the company’s performance is good or bad, “it can make a profit”—and it doesn’t matter whether the company can make money. "Stocks"—that is, people no matter what the company does, as long as the stock is listed, they will buy it, regardless of its operating conditions, or whether it can make money, they just buy it enthusiastically.Have you noticed that these words in the 1872 "Declaration" are the same as our 2007 commentary.

The second time, interestingly, the stock market crash had nothing to do with domestic factors.It was the early 20th century, and due to the development of the automobile industry, a large number of tires were required.Tires are made of rubber, so at that time there was a British company, Langezhi, which used the concept of rubber to issue stocks in Shanghai. At that time, the media criticized this matter in this way, saying that "but there are still people in the market who don't know what rubber is".So how did the stock price rise?On April 4, 1909, the stock price of this Langezhi company was 780 taels, and it rose to 1160 taels in just over a month.A year later, it rose to 1475 taels.In addition to Chinese banks, there is also HSBC to help with stock speculation.By July 1910, the price of rubber itself was so high that countries around the world that used rubber began to drive down prices.After that, the rubber-based stock market, like the Chinese stock market, collapsed in July 1910. This was our second financial crisis.

The third stock market crash occurred in 1921, after the founding of the Republic of China.Because of the change of dynasty, in 1918, the first stock exchange was established in Beijing (then called Beiping).The following year, 1919, an exchange was established in Shanghai.By 1921, there were 140 exchanges in Shanghai alone.What else is there to trade besides stocks?Anything can be traded.Cloth, hemp, kerosene, matches, wood, sacks, cigarettes, wine, sand, cement, everything is traded, and the market is booming. By 1921, the banks couldn't stand it any longer. Like European banks, they also loaned out large sums of money. How much?In the end, no business was done, and the money was not lent to industrialists to start companies, but was used for stock speculation.In 1921, they didn't know what was wrong with them. They felt that the risk was too great and began to call back the loans, which caused China's third financial crisis.

At this point, you can find that China's problems are the same as those in Europe, and they are almost exactly the same. They all use joint stock companies to speculate at will, and then banks participate in the shares, adding fuel to the fire.The problem of this kind of joint stock company, together with the problem of banks, was solved in Europe in 1720. The establishment of joint stock companies and banks was not allowed.But we don't know, and we continue to hype. The Reform Movement of 1898 in the late Qing Dynasty made people remember Liang Qichao's name.After the failure of the Reform Movement of 1898, Liang Qichao did not stop exploring the future and way out of China, and made many achievements in the political and economic fields. In 1917, for the sake of the country's future and destiny, Liang Qichao opposed Zhang Xun's restoration. Under tremendous pressure, Liang Qichao broke with his teacher Kang Youwei. "The young are strong, the country is strong, the young are independent, the country is independent, and the young are free, the country is free..." Liang Qichao's article inspired countless Chinese people to take the pursuit of young China as their life ideal.

Do you know who was the great economist in China at that time?It's Liang Qichao.He was the greatest economist at that time. You can see what he said: "The Chinese are not good at imitating others. They just admire the name of the company and don't consider the reality of the company."That is to say, we Chinese don't learn like that. We just admire the name of the company and start trading in stocks without examining the actual fundamentals of the company.These are his original words, how powerful, he said it more than 100 years ago.Liang Qichao did not take a single day of economics courses at Wharton Business School, relying entirely on his own understanding.Also, what did he think was wrong with the Chinese stock market at that time?Lack of fiduciary duty.This criticism is very applicable today.

What did Liang Qichao say? "It is trust, the majority of limited companies are united with each other, and entrust a few people with carte blanche to be trusted by all." That is to say, a small number of people with credit will run the enterprise.What is credit?It is a fiduciary duty.He believed that the stock market at the time lacked a fiduciary responsibility.It is a pity that such words of wisdom have not been handed down.In fact, what he said is the same as what I said today, and my level is like this.But let me tell you, I was educated in the West, and I only had this level after I got a Ph.D. from Wharton School of Business. He didn't, which shows how smart this person is.

In addition, Liang Qichao also talked about the stock market bubble.He called it a bubble, and said that when it expands to the maximum, it is about to disperse. What is a bubble?That is, when the stock price is very high, for example, when the Shanghai Composite Index rises to more than 6,000 points, it will start to fall.Liang Qichao knew about bubbles.He gave a very interesting statistic at the time. He said that in the fifty-sixth year of Kangxi, the British stock market was very prosperous at that time, and the stock price rose many times. He said, do you know who was speculating in stocks at that time?Newton.How did Newton speculate in stocks?He said that Newton wrote to his friend asking him to buy stocks on his behalf.As a result, the company closed down after buying it. It can be seen that our Comrade Newton is at the same level as you and was locked up, but he was worse than you. Not only was he locked up, but the company also went bankrupt.Therefore, Liang Qichao said that this letter written by Newton to a friend entrusting him to buy stocks on his behalf, "hidden it in the National Library, regarded it as a treasure, and regarded it as a warning to people in business."So Newton is also very unlucky. If he was born today, he would definitely be chased to death by the media. Why did you trade in stocks, what was your mentality at the time, and so on.Liang Qichao said that letters like this should be kept in the National Library and treated as the treasure of the town hall, so that you stock speculators can be a warning.This is what Liang Qichao said.

Liang Qichao not only said this, he also pointed out the problems of the joint stock company.In the second year of Xuantong, that is, when China's stock market collapsed for the second time, in 1910, Liang Qichao wrote an article on the issue of joint stock companies, which was extremely wise. Do you know who is the man Lang Xianping admired the most in his life?Lin Juemin, Lin Juemin is really great.He once wrote a letter to his wife, which he wrote "with tears and pen and ink" one night before the Huanghuagang uprising.Lin Juemin said to his wife, do you know why I am going to die?because I love you. This is what Mr. Lang Xianping talked about in his latest book. Everyone knows that Lin Juemin had a posthumous son. His wife Chen Yiying gave birth to this posthumous son named Lin Jiafan, who later became a visiting professor at National Taiwan University.Adhering to his father's will and becoming a scholar, Professor Lang Xianping once listened to Professor Lin's class.In his last words, Lin Juemin hoped that if he was a boy, he would become a scholar like him, an ordinary scholar, how great. Lin Juemin was born in the most expensive area in Fuzhou today, Three Lanes and Seven Alleys.At the age of thirteen, he took part in the imperial examination. Xiao Lin wrote the seven characters "Young people don't expect ten thousand households" on the examination paper, and walked away.Dad is very anxious. If the child is unwilling to take the college entrance examination, he can only send him abroad to study at his own expense.At that time, it was not popular to go to the Commonwealth countries, and many fierce people went to Japan, so Lin Juemin also went.At that time, Japan was the headquarters of the Tongmenghui... Four years later, in 1911, Lin Juemin returned from Japan to participate in the Guangzhou Uprising. Before leaving, he went home to visit his parents and his wife, Chen Yiying, and told his family that the school was on cherry blossom holiday.Chen Yiying was pregnant at that time.Lin Juemin wrote it on a handkerchief in the middle of the night on the way to Guangzhou.Some people may think that this letter seems a bit long-winded, but what we have to think about is that when Lin Juemin wrote the letter, he never thought that it would become a Chinese textbook.After the failure of the Guangzhou Uprising, the Lin family hid in the countryside to avoid disaster. One day they discovered that someone had secretly slipped Lin Juemin’s suicide note under the door (actually there were two, one was for his father, and the other was for his father), and they have been preserved to this day. Lin Juemin was wounded and captured during the Guangzhou Uprising.It was rumored at the time that a handsome boy with short hair and a suit was captured.It refers to handsome guy Lin Juemin.Zhang Mingqi, who was the governor of Guangdong and Guangxi at the time, and Li Zhun, the admiral of the Navy, will interrogate Lin Juemin.Lin Juemin couldn't speak Cantonese, so he answered questions in English and made a generous statement, shaking the audience.Zhang Mingqi, governor of Guangdong and Guangxi, sighed: "It's a pity, Lin Juemin! His face is like jade, his heart is like iron, and his heart is as bright as snow."At that time, someone advised the governor to keep talents for the country, but Governor Zhang believed that such a hero must not be left to the revolutionary party, so he ordered to be executed.Lin Yingxiong was only 24 years old when he died. After Lin Juemin’s death, his family sold his ancestral house to take refuge. The buyer was Xie Luanen. He had a granddaughter who became famous later on, named Xie Bingxin. When Bingxin grew up, she wrote an article recalling her former residence.Lin Juemin had a cousin, Lin Changmin, who later gave birth to a famous daughter named Lin Huiyin.Lin Juemin's former residence has always been well protected, but it is rumored that a small part of it was forcibly demolished recently by a real estate developer from Hong Kong. Taiwan compatriots once filmed a movie "Blood Blood and Yellow Flowers" in 1980. Sister Lin Qingxia played Chen Yiying, very beautiful and dignified (the film was nominated for 6 Golden Horse Awards, including Sister Lin's nomination for Best Actress).Tong Ange wrote a song "Farewell" for Lin Juemin, with tears and pen and ink; while Qi Yu wrote a song "Jue" for Chen Yiying, asking Lin Juemin from the perspective of a woman, "Who gave you the right to choose so far away?" go".Both songs were very touching and brought tears to my eyes.Young people don't look forward to tens of thousands of households, Lin Juemin doesn't care about glory and wealth at all. In 1922, the crazy trading boom finally came to an end.As the crowded market quickly turned into a deserted one, the unsustainable exchanges went bankrupt one after another. In the end, there were only six surviving exchanges and only two trust companies.China has entered the ice age of securities trading.However, in the face of the painful reality, wise thinkers in China had proposed world-class solutions at that time, and the securities markets of the United States and the United Kingdom completed the reconstruction of the stock market in accordance with the ideas of this solution in the future.So, who is such a wise Chinese thinker?It's Liang Qichao. He said, "The Chinese are not good at imitating others. They just admire the company's name and don't consider the company's reality."That is to say, we Chinese don't learn like that. We just admire the name of the company and start trading in stocks without examining the actual fundamentals of the company.These are his original words, how powerful, he said them more than a hundred years ago.Also, what did he think was wrong with the Chinese stock market at that time?Lack of fiduciary duty. What did Liang Qichao say? "It is trust, the majority of limited companies are united with each other, and entrust a few people with carte blanche to be trusted by all." That is to say, a small number of people with credit will run the enterprise.What is credit?It is a fiduciary duty.He believed that the stock market at the time lacked a fiduciary responsibility. In addition, Liang Qichao also talked about the stock market bubble.He called it a bubble, and said that when it expands to the maximum, it is about to disperse. He gave a very interesting example at the time. He said that in the fifty-sixth year of Kangxi, the British stock market was very prosperous at that time, and the stock price rose many times. He said, do you know who was trading in stocks at that time?Newton.How did Newton speculate in stocks?Newton wrote to his friend, asking him to buy stocks on his behalf.As a result, the company went bankrupt after buying it.Therefore, Liang Qichao said that this letter written by Newton to a friend entrusting him to buy stocks on his behalf, "hidden it in the National Library, regarded it as a treasure, and regarded it as a warning to people in business." Liang Qichao not only said this, he also pointed out the problems of the joint stock company.In the second year of Xuantong, that is, when China's stock market collapsed for the second time, in 1910, Liang Qichao wrote an article on the issue of joint stock companies, which was extremely wise. Let's see what Liang Qichao said.This time he was speaking in vernacular. In an article written in 1910, he said that a joint stock company must be in a country with a strong legal system to survive.See if you don't, the construction of the legal system, because severe punishments and strict laws can make you dare not have fiduciary responsibilities.China, on the other hand, does not know what the rule of law is, he said.Although there was already a company law in China at that time, we already had a company law in the 29th year of Guangxu in the Qing Dynasty, which was called company law at that time.The statutes are rough, cracked, and worthless, that is to say, too rough to be of much value.Even if the law is perfect, it will not be implemented. Liang Qichao said that a joint stock company must have citizens with a strong sense of responsibility in order to be successful.That is, there must be a fiduciary duty.He believes that the reason why the British dominate the world with business is because of fiduciary duties.Its soul is the same as the spirit of the "Securities Exchange Act" drafted in 1934 after the stock market crash in the United States in 1929. You must ask me, didn't Europe solve the problem in 1720, wasn't that earlier than him?No, Europe in 1720 simply banned limited companies from operating, banned banks from operating, they couldn't come up with a real solution.The first person in the world to propose a solution is our Chinese Liang Qichao.