Chapter 8 HSBC: I call the shots on your territory

Of all the elements of political economy, money is the most crucial; of all the institutions of money, the power to create money is the core.But hardly a word from economists is to be found on the question of the sacred power of the state. ——American monetary historian DeMar At the beginning of 1864, two business plans for establishing a bank in China were placed on the old Sassoon's desk.One is that a local British businessman in Mumbai began to prepare for the establishment of the "Royal Bank of China" for the Chinese financial market, and the other is a proposal for the "Hong Kong and Shanghai Bank" of a young Scottish shipping businessman.It was the plan of the young man with no banking experience that finally impressed the old Sassoon.This Scottish boy is named Thomas Su Shilan, but at the age of thirty, he is already the business director of the famous British Shipping Company in Hong Kong and the chairman of the Hong Kong Whampoa Dock Company.

Old Sassoon liked the idea at once.As a bank headquartered in Hong Kong and Shanghai, compared with foreign banks that only set up branches in Hong Kong and Shanghai, it will be more convenient in terms of information contact, which is particularly important in the 19th century when transportation and communication were underdeveloped.The market opportunity is fleeting, and those banks that need to consult the head office across the ocean will only be at a disadvantage in the future competition with HSBC. Sassoon Sr. immediately approved the project. Among the main shareholders of HSBC, besides Sassoon, there are also Baoshun and Qichang Foreign Bank.However, Baoshun Co., Ltd. went bankrupt in the cotton bubble crisis that swept the world in 1866. Qichang Co., Ltd. was also hit by the crisis and faded out of the Chinese market in the early 1870s.So Sassoon & Co., which has become the new overlord of opium, has become the main pillar of HSBC.HSBC actually became a key pawn in the financial layout of the Rothschild-Sassoon alliance in the Far East.

Such a bank will inevitably arouse the resolute resistance of the Jardine Matheson Bank of Bahrain, which is not only based on the hegemony between Bahrain and the Rothschild forces in the City of London, but also stems from a real conflict of interests. As soon as HSBC was born, it caught up with the financial crisis brought about by the end of the American Civil War. At that time, the core strategic industry of the world industrial system was the textile industry, and the main raw material needed by the textile industry was raw cotton.The world's major cotton producing areas are in India and the southern states of the United States.After the outbreak of the American Civil War, the North, which controlled the sea, imposed a naval blockade on the South, and the South's supply of raw cotton to the world market was immediately interrupted.The British cotton textile industry turned to Indian cotton, and the price of Indian cotton skyrocketed.The cotton markets of Bombay and Calcutta were at once a casino for speculators large and small.The cotton bubble spawned an even bigger financial bubble.In the United Kingdom, a large number of various financial institutions with serious capital shortages were established one after another, and the number of British colonial banks also expanded rapidly. From 1862 to 1865, 19 banks were born successively.There were as many as seven colonial banks registered in 1864 alone.In Hong Kong and Shanghai, the number of newly established British-owned banks has also increased significantly. The coffers of these shell banks are far from the amount they claim in their prospectuses.

At this moment, the "bad news" came that the American Civil War was over!The cotton crisis that shook the global financial industry began.The City of London bears the brunt, and within one year in 1866, 17 banks closed down one after another. The shock waves of the financial tsunami spread rapidly to the Far East. In 1866, Hong Kong and Shanghai experienced the first financial panic in more than 20 years since their opening as ports, and a series of foreign banks and local money houses went bankrupt.When the huge waves of the financial tsunami receded, only the old Liru Bank, Beneficiary Bank, Standard Chartered Bank, Banque de France and HSBC remained standing on the beach.

However, one wave of unrest followed another. It was in the second year of the financial tsunami that a pillar of HSBC, the old Baoshun Co., Ltd., was "drowned". Under the double blow of the Childe family, they were already unable to protect themselves, unable to take care of their little brothers in the Far East, and could only watch Baoshun Co., Ltd. being dragged down by the cotton crisis.The collapse of Baoshun hit the fledgling HSBC hard. At this time, it was Sassoon Matheson who stood up to support the crisis.From 1866 onwards, the Sassoon family remitted all the profits from the opium trade in China through HSBC.Under the impact of the world financial tsunami, the only business with excess profits is the opium trade.This "currency" that maintains the economic lifeline of the City of London and the British Empire has once again used the economic blood of the Chinese people to save the financial circulation system in the Far East of the British Empire, and has become a bargaining chip for international bankers to complete the reshuffle of the interests of the Far East.

When the major banks were struggling to survive the crisis, HSBC, supported by Sassoon's huge opium profits, seized the opportunity and began to sweep the financial peers in Hong Kong and Shanghai. In June 1866, Daliru Bank, the big brother of the Far East banking industry, convened foreign banks such as Standard Chartered Bank, Beneficiary Bank, and Banque de France to discuss financial risks in the "post-crisis era". Commercial acceptance bills, shortened to 4 months.One is to reduce the bank's own risk, and the other is to adapt to the new business environment.From January 1867, the branches in China no longer buy and sell bills due more than 4 months.

The history of commercial acceptance can be traced back to around the 13th century AD.With the development of the Crusades and nautical trade, a huge market for trade and cargo shipping quickly formed in the Italian region of the Mediterranean Sea. Based on the needs of nautical trade, Italy pioneered commercial acceptance bills.The most important features of bulk seaborne trade are long distances and long periods of time, accompanied by certain risks, so both buyers and sellers are hesitant in terms of payment and delivery.If the buyer pays cash immediately, he will worry about what to do if the seller in the distance does not deliver the goods, or if something happens to the goods during the voyage; while the seller thinks that if the goods are shipped first, it will be a big trouble if they fail to receive the payment in the end.There are only two ways to break this deadlock. One is that the buyer has a good reputation and never defaults on the payment; the other is to have a guarantor with a good reputation to guarantee the success of the transaction.Since everyone is doing business in Italy, locals with families and businesses are naturally the best candidates for guarantors.As a result, a large number of Italian merchant bankers emerged to guarantee the buyer's payment. The buyer only needs to issue an IOU, stating the time in the future and the amount to be paid, and the Italian will sign the deposit.If the buyer fails to pay within the time limit, the Italian will pay the full amount on his behalf, and the Italian will find the buyer to argue later.The seller got the IOU and happily shipped the goods.This IOU is an early commercial acceptance bill.The Italians charge a guarantee fee.

When the seller is in urgent need of cash and the bill of exchange is not due, he can take the bill to the merchant banker to sell at a discount, which is bill discounting.The merchant banker profited by taking the bills of exchange at a discount and then waiting for the bills to come due for full payment.This discounted price is actually an implicit interest. The deeper the discount, the higher the interest.At that time, the Catholic Church strictly prohibited usury, so discounting bills of exchange became a workaround for usury.When bill transactions are very active, bills of exchange can basically be cashed at any time, and its function is almost equivalent to cash.In Britain in the 18th and 19th centuries, before new instruments such as bank notes, checks, and lines of credit began to circulate on a large scale, bills of exchange actually became an important part of the money supply.

The term of the commercial bill of exchange often matches the delivery time of the goods. If the goods have arrived for a long time but the term of the bill of exchange has not yet arrived, it means that the buyer’s credit time is too long, occupying the seller’s funds, and at the same time, the bank risk of assuming the buyer’s payment guarantee is also increase accordingly. Considering that the sea transportation time between Europe and China has been greatly shortened due to the increase in the speed of ships, and they do not want to take too much risk, Liru Bank proposed to shorten the time limit of the draft.However, reducing the time limit of the bill of exchange is equivalent to shrinking the scale of credit and raising the threshold of funds and credit for buyers, and its effect is equivalent to rejecting many customers.

This inter-industry agreement has created a huge opportunity for HSBC to expand its customer resources.When other banks refused to buy bills due in six months, HSBC reversed the operation and made a lot of money under the protection of Sassoon's huge funds.Merchants with 6-month bills of exchange are desperate. They can only do discounts at HSBC, and naturally there will be more discounts.HSBC only needs to hold the money order to receive the full amount of funds when it matures, and the income is of course more considerable.At the same time, HSBC sold the four-month bills of exchange it had accepted at a high price to those competitors rushing to receive the goods, so as to obtain arbitrage space for buying low and selling high.After half a year, HSBC's exchange business has rapidly increased from 9.2 million taels of silver to 13 million taels of silver.In less than 10 months, several other banks had to "surrender" to HSBC and go back to the old way of six-month promissory notes.

HSBC's victory in the money order war shows that the title of "China's Bank of England" has changed hands.HSBC has since become the new leader of the foreign banking world in the Far East. Another unique hidden weapon of HSBC is to absorb a large number of deposits from Chinese depositors, especially the huge deposits of China's dignitaries.There was such a story described in a novel in the late Qing Dynasty: a vassal of the Qing government was ordered to go to Shanghai to investigate a case where the bureaucrats deposited the stolen money in HSBC Bank.As soon as he arrived in Shanghai, he came straight to HSBC Bank in an official uniform, sitting in an eight-carriage sedan chair, and bringing some entourage.But when he came to the door of the bank, he was stopped.The gatekeeper said that you must enter through the back door.Master Fantai had to walk to the back door of the bank and stood there for a long time, but no one paid any attention to him.Later, he learned that HSBC kept the deposits of Chinese depositors strictly confidential and refused any investigation by Chinese officials.He had no choice but to reply to his superior with "foreigners are not allowed to check accounts", and the matter was left alone. HSBC, relying on the power of the British Empire, refused the Qing government to investigate any money from its customers.Because of this privilege, many warlords, bureaucrats, and landlords at that time took HSBC as the safest wealth vault, and sent all the stolen money collected over the years into it. Since HSBC is regarded as "our bank" by the Hong Kong and British authorities, it is given preferential treatment and protection, and enjoys great power to issue banknotes. In 1872, the British Hong Kong government allowed HSBC to issue small notes with a face value of 1 yuan.Subsequently, HSBC's small banknotes came out in large quantities and were quickly circulated throughout South China. In March 1874, Shanghai "Zi Lin Xi Bao" published the banknote issuance amount of the four major British note-issuing banks in February 1874 - Liru, Standard Chartered, Lili and HSBC. Among the 3.5 million yuan banknotes actually issued, HSBC's Banknotes accounted for more than 51%. At this time, HSBC has become the largest note-issuing bank in Hong Kong, the cashier bank of the British Hong Kong government, and the settlement bank for all its counterparts in China, and has become a veritable "China's Bank of England". Jardine Matheson, which was expelled from the opium trade by Sassoon, became more realistic at this time. Facing the strength of HSBC, the new leader of Jardine, the Keswick family, had to consider the relationship with HSBC more actively.In the subsequent joint campaign to exterminate Hu Xueyan, the two sides reached more tacit understandings. However, the Rothschild-Sassoon Group's expectation for HSBC is not only to let it act as a bank that manages foreign banks in China, but to make it a bank that manages the entire Chinese financial system and become a real "central bank." . To exercise the functions of the central bank, it must be able to manage and control China's local financial institutions, which is China's money bank and bank account system.At this time, the Qing government was still able to rely on its own bank and ticket number system to maintain its operation.At the same time, the bank and the bank also provide a large amount of financing for China's foreign trade, and control the source of wealth of China's vast private economy.International bankers can only truly realize the financial colonization of China if they control China's money bank and bank account system.