Chapter 9 Ticket bank: why it failed to develop into an international financial empire

Among the financial institutions that grew up in China, the most distinctive ones are the Shanxi gang's bank and the Ningshao gang's bank.In layman's terms, what the ticket office is playing is tickets, while what the bank is playing is money. Whether it is Venice and Genoa in the early days, or the Netherlands and Britain later, finance and trade are almost twin brothers, born together, promoting each other, and leveraging each other.Almost all of the earliest financial institutions in Europe originated from firms. In commercial activities, the demand for financial services has been expanding, which eventually led to the separation of professional financial services and commercial trading activities.The development of China's bank accounts is no exception.

It is indeed strange that the ticket number originated in Shanxi, rather than the coastal area with developed economy and convenient shipping, but it makes sense when you think about it.Shanxi merchants are known as one of the top ten business gangs in China. Their courage to travel north and south and their spirit of enduring hardships and tenacity made them stand out in the Chinese business landscape very early.Shanxi merchants traveled all over the world. As early as the early Qing Dynasty, two major trade systems, the North and the South, formed the Liangchuan Gang and the Camel Gang.The former traveled to river ports in various provinces, while the latter traveled thousands of miles, directly reaching Mongolia and Moscow, becoming the largest trader of tea, silk, cloth, grain, iron and other commodities in China, and established China's earliest and largest trading network.

Different from the rise of Jewish financial families, Shanxi Merchants’ bank exchange network was born out of a huge domestic and international trade network spanning tens of thousands of kilometers and employing hundreds of thousands of people, while the Jewish financial network originated from money exchange, deposit lending, Pure monetary business such as bill trading.What both have in common is the scale effect and fast and convenient advantages formed by the powerful network radiation capability.Once the network advantage is established, it is almost difficult for subsequent competitors to step in.This is also the core reason why the banks in the south were unable to surpass the Shanxi bank in the field of remote remittance business.The lack of a sufficiently large network has led to the generally small scale of banks, and it is ultimately difficult to form a huge international financial empire similar to the Jewish financial industry.

After the currency standard and the central bank, the financial network constitutes the third pillar of the financial high frontier. Due to the huge coverage of the Shanxi Merchants trade network, in the era of extremely underdeveloped transportation, funds were often turned over once a year, which seriously restricted the expansion of business.At the same time, the long-distance delivery of cash takes too long and the journey is not safe. Therefore, objectively, a convenient way of remote fund transfer is needed. This is the core business of the bank: remote remittance. The original exchange business was simply a matter of convenience.For example, "Xiyucheng Pigment Factory" in Pingyao, Shanxi has set up branches in Sichuan, Beijing, Shanxi and other places. If relatives and friends in Beijing want to remit a sum of money to Sichuan, they only need to hand over the money to the Beijing branch, and then the Beijing branch Write a letter to inform the Sichuan branch, and relatives and friends in Sichuan can go to the local branch to get the silver.Unexpectedly, as soon as this exchange model appeared, it immediately attracted a lot of business, and people were willing to pay a 1% handling fee for such a service.Lei Lutai, the treasurer of the pigment store, keenly discovered this business model with huge potential energy, and immediately gave up the traditional pigment store business. Around 1823, he established China's first bank "Rishengchang".

Before the Opium War, China’s total trade volume was as high as 300 million taels of silver per year. If 100 million taels of silver needed to be exchanged remotely, the profit would be as high as 1 million taels of silver.After several years of operation, Rishengchang Bank has made huge profits in the exclusive exchange and deposit business.It is said that during the more than 50 years from Daoguang to Tongzhi, the rich man Li received more than 2 million taels of silver in dividends from Rishengchang Bank.Encouraged by the success of the Rishengchang bank, Shanxi merchants set up or changed the bank one after another, which greatly promoted the development of commercial trade at that time.For nearly a century thereafter, Shanxi Banks basically monopolized the remittance business of the Qing Dynasty at that time, and won the reputation of "connecting the world".

The main business of the ticket number is remote remittance.Its development presents a basic trend of expanding from north to south and radiating from Shanxi to all directions.In the early stage, due to the increasing trade between North China, Central China and Mongolia and Russia, according to the economic situation, more than 200 ticket numbers were set up in more than 30 towns in the inland, with the center of gravity in the north and the semicolon centered on the capital.In the mid-term, both sea and land were emphasized, and semicolons were set up in the frontier and coastal areas. Beijing, Tianjin, Shanghai, and Han became the four major centers where banknotes were concentrated.In the early Guangxu period, there were more than 400 ticket numbers and sub-colons, forming a huge financial network.Whether it is business, government, or private funds, due to the fast, safe and convenient features of the ticket number, they all pour into this financial highway system that radiates across the country.By the beginning of the 20th century, the total remittance amount of the 22 major banks in the country was about 820 million taels of silver [16], and the total profit was about 8.2 million taels of silver, which was roughly equivalent to 1/10 of the total fiscal revenue of the Qing government for a year!

The bank’s exchange network formed a huge financial network advantage. On this basis, it was hoped to develop into a “financial highway system” similar to the Jewish financiers in the West, thereby monopolizing the main artery of credit and capital circulation.There are two fundamental reasons for its decline: First, due to the lack of geographical advantages, it did not establish its own headquarters in Shanghai, the center of international and domestic trade, so that the decision-making was far away from the center of trade and financial services with the greatest growth potential, and lost its dominance Emerging commercial draft transactions and other financial market opportunities; second, there is no financing system similar to European war bonds and national bonds, and the business is only limited to the field of exchange, and it is self-satisfied, and eventually it is gradually eroded by foreign banks and government banks The exchange business is fundamental to survival.

The financial market, especially the trading market for treasury bonds and various bills, which forms the core force of national financing, constitutes the fourth cornerstone of the high financial frontier.None of China's local financial institutions—pick houses and banks—failed to complete this important historical mission. The origin of the bank is very similar to the main business of contemporary Jewish financial families: currency exchange. The core strength of the world's Jewish financial families can almost find their source in Germany.Germany is the birthplace of the modern financial family for a reason.From a geographical point of view, Germany is the connecting point between the east and west of Europe, especially Berlin, which is located in the geographical center and transportation hub of Europe. Merchants who travel from south to north and from east to west gather in Berlin.As a result, various European currencies are distributed in Berlin.From the beginning of the Roman Empire, Berlin was a center of currency exchange.By the time Napoleon took over the area, the need for currency exchange became even greater.The accumulation of two thousand years of profound experience in money trading and the urgent market demand for real currency exchange have made Germany a natural fertile ground for Jewish financial families to thrive. 【17】The rise of Chinese banks is no exception.Since the establishment of the silver standard in the Ming Dynasty, the circulation of silver taels and copper coins has been implemented in parallel, and the price comparison between silver taels and copper coins follows the market.Due to the high value of silver taels, it is too valuable for ordinary people to directly use silver taels to buy commodities in the market. Therefore, in daily life, copper coins are the real currency in circulation, while silver taels are mainly used for large-value transactions, official salaries, Military pay and fiscal taxes, etc.At the same time, the silver tael itself is also very complicated. The weight, shape, and color of silver taels vary from place to place. Coupled with the influx of various foreign silver dollars, there is a huge business demand for silver currency exchange and silver fineness evaluation.

Especially after the five-port trade opening in the Opium War, Shanghai, as the intersection of international trade and domestic trade, had a more urgent demand for currency exchange, and the Ning Shao Bang Bank centered on Ningbo-Shaoxing-Shanghai came into being.In order to solve the problem of the conversion of domestic merchants' silver taels and the silver dollar valuation brought by foreign merchants, from 1856, Shanghai bank industry began to adopt a virtual silver tael bookkeeping unit called "guiyuan".This invention greatly facilitated the business accounting of merchants everywhere.

In addition to the basic business of currency exchange, Ning Shaobang’s bank business made full use of the advantages of Shanghai’s international and domestic trade center and creatively developed a commercial bill of exchange system with Chinese characteristics. Between domestic and foreign trade, foreign financial capital and China’s trade market, integrated into a flexible and efficient platform. At the beginning of the five-port trade agreement, foreign firms entered Shanghai to purchase Chinese native products and sell foreign industrial products.The first big problem they encountered was the lack of commercial trust in Chinese suppliers and buyers.Buying Chinese goods worried about not receiving payment after payment, and selling foreign products fearing not receiving payment after delivery. This situation is exactly the same as that encountered by Italian merchants in the 13th century.The banks of the Ning Shao Gang seized this huge business opportunity and created the banker's bill, a bill of exchange instrument, which greatly promoted the rapid expansion of domestic and international trade.

Banknotes appeared in Shanghai in the early 19th century, but the banknotes at that time were essentially silver notes. The bills are also "【18】.Its main feature is immediacy rather than deferred payment on a real trade basis as in commercial bills of exchange. The real commercial bill lengthens the payment term on the time axis and can be discounted at the same time, so when the commercial bill is used as a means of payment, within its term, it is equivalent to expanding the scale of credit.Most importantly, it is credit expansion based on real trade. The essence of commercial bills is short-term trade currency issued as collateral against trade, which is different from debt currency issued as collateral against debt.Commercial bills of exchange constitute the most important means of credit expansion in the era of commercial capitalism.Then came the credit expansion of colonial capitalism with national debt as collateral, the credit expansion of industrial capitalism with industrial debt as collateral, and the credit expansion of post-industrialization era with personal debt as collateral. 【19】The banknote invented by the Ningshao Gang is a bill of exchange that Chinese merchants apply to the bank for "trade-based" cashing within 5 to 20 days.Foreign firms generally don't trust Chinese businessmen, but they still quite approve of money houses, especially powerful ones.The reason lies in the foreign comprador system generally adopted by foreign firms.Foreign compradors are not only very familiar with the strength of local banks, but also must bear unlimited responsibility in case of accidents.If the Chinese merchants cannot pay the payment due, the bank will be responsible for advancing payment to the foreign bank, and then the bank will go to the Chinese merchant to settle the accounts, or the bank can directly pay the foreign bank and then collect the money from the Chinese merchant.In this way, the foreign firm's goods are easy to sell, and the bank notes issued by the bank are subject to interest, which expands the profit of the bank and increases new business.Huashang obtained short-term financing and expanded its business volume.This is a financial innovation with the best of all three.Moreover, the holders of these banknotes can get discounts at many banks or foreign banks and get cash at any time. When HSBC entered Shanghai, it faced a situation in which foreign banks coexisted with local banks.The advantage of foreign banks is that they have strong capital and completely control the international exchange business.The bank's advantage lies in its understanding of the market, and its position as a credit intermediary for issuing commercial bills of exchange for domestic trade. In particular, the basic business of silver-to-money exchange based on the domestic currency system is lucrative and irreplaceable, so it can also occupy a place. Since HSBC has the ambition to dominate the financial arena, it will inevitably use its strength to subdue all the local financial princes.When the money order war that swept other foreign banks ended in HSBC's victory, it turned its focus to local banks.Due to the fact that HSBC was able to attract the deposits of rich people in China at a very low cost, coupled with the high profits obtained from opium trade financing, by the end of the 19th century, its total assets had reached 211 million Hong Kong dollars, establishing the leading financial hegemony in the Far East.HSBC took full advantage of its own strong capital and began to use the method of dismantling bills on a large scale to control the funds of the bank. 【20】Since the bank's own capital is limited, it is more than enough to eat more cakes of commercial bills of exchange.HSBC took advantage of this weakness to lend cheap excess funds to banks in Shanghai. Banks only need to submit bank notes as collateral to HSBC to obtain credit loans.Therefore, banks in Shanghai borrowed a large amount of funds from HSBC one after another.HSBC can also directly purchase banknotes that have been discounted in the market, carry out rediscount, and use the interest rate difference between deposits and rediscount to obtain income.After purchasing banknotes from other banks at a discount, the banks could have held them to earn income at maturity, but in order to speed up capital turnover and obtain more profits, as long as HSBC offered the right price, they would resell these banknotes to HSBC without hesitation. After the profits are in the pocket, we can do new discount transactions. In this way, although the banks in Shanghai can obtain funds from HSBC to expand their business, at the same time, because the source of funds is controlled by HSBC, they have to become vassals of HSBC.HSBC can tighten monetary conditions by refusing to resell bills or raising interest rates. It can also increase the rediscount rate, that is, to deeply discount the bank notes that the bank wants to resell to HSBC, so that the bank cannot obtain the interest rate difference between the two discounts without paying. profitable, thus forcing them to slow down or stop the first discounting.This will cause all banks to have to reduce financing for trade due to the slowdown in the turnover of commercial bills.The final consequence was that the lack of funds prevented Chinese merchants from buying tea farmers, silk farmers and other local products, and farmers and handicraftsmen were forced to sell their labor fruits at reduced prices.At this time, the shareholders of foreign firms behind HSBC "just happened" to be able to buy it at a low price, and then sell it at a high price in the international market to obtain huge profits. When the Chinese financial forces represented by Hu Xueyan are fighting desperately against foreign financial forces, HSBC can easily defeat all trade resistance alliances by tightening the faucet of money supply to create monetary tightening. With HSBC holding the central bank position of the Qing Empire, it is impossible for any local financial institution to develop into a competitor capable of challenging the core strategy of international bankers.