This study explores the impact of foreign banks on the development of China's financial systems during the late imperial and Republican eras, focusing on one aspect of the banking business that the Hong Kong and Shanghai Banking Corporation (HSBC) and the Chartered Bank of India Australia and China carried out in Asia: their issuance of banknotes in locally denominated currencies—what Niv Horesh calls quasi-foreign banknotes. Using newly available data from the archives of the two banks, internal bank correspondence, and other contemporary sources, in addition to recent Chinese and Japanese secondary sources, Horesh argues for the significance of the banks in the economic development of China.
Horesh argues that the British Treasury's gradual imposition of stricter banknote reserve requirements on the two overseas banks during the 1910s and 1920s helped mitigate the Chinese public's mistrust of banks and paper money. The HSBC and the Chartered Bank's prudent management of their banknote issuance showed Chinese government officials the importance of centralizing China's fragmented and unstable currency system, which the Nationalist government's so-called fabi reform at last achieved in 1935. Horesh also maintains that, in addition to providing “safe havens” for Chinese wealth inside the treaty ports during the periodic financial crises that rocked the Beiyang government years, the presence of the two British banks and their services provided a space in which China's own Western-style modern banks could develop. Once Chinese institutional growth—in terms of both the central government under the Nationalists and the modern banks managed by foreign-educated Chinese bankers—coalesced by the late 1920s and early 1930s, the overseas British banks lost their competitive advantage to the Chinese modern banks and, with the 1935 fabi reform, stopped issuing banknotes on the Chinese mainland.
Horesh's contribution to the scholarship on Chinese banking and monetary policy in the late imperial and Republican eras lies in his fresh perspective from the point of view of the two largest and most successful foreign banks on the Chinese mainland prior to 1937. His research, which covers many of the same issues and supports findings already published in Brett Sheehan's Trust in Troubled Times: Money, Banks, and State–Society Relations in Republican Tianjin (Cambridge, Mass.: Harvard University Press, 2003), Linsun Cheng's Banking in Modern China: Entrepreneurs, Professional Managers, and the Development of Chinese Banks, 1897–1937 (Cambridge: Cambridge University Press, 2003), and Tomoko Shiroyama's China During the Great Depression: Market, State, and the World Economy, 1929–1937 (Cambridge, Mass.: Harvard University Asia Center, 2008), integrates all sectors of China's financial landscape of the period. It also sheds new light on how China's modern banks eventually prevailed over their foreign competitors.
Horesh argues convincingly that the May Thirtieth Incident in 1925, when British police in Shanghai's International Settlement fired on unarmed protestors, was important for the two British overseas banks' eventual withdrawal from banknote issuance on the mainland. The patriotic movement to boycott British goods and banknotes after the May Thirtieth Incident, the success of which Horesh claims scholars have tended to overlook, resulted in a precipitous slide in the volume of British quasi-foreign banknotes in circulation on the Chinese mainland. It also provided an opportunity for Chinese modern banks to increase their own banknote issuance. Furthermore, it was one of the factors that changed British foreign policy toward China in the late 1920s, as the British Foreign Office assessed the potential danger from China's growing and strident nationalism. As a result, British Foreign Office officials began to forge a cooperative relationship with the Nationalist government and supported its centralization of banknote issuance in 1935.
Horesh asks provocative questions on issues such as British imperialism in China and Chinese market integration that go beyond the scope of banking and monetary policy. It is here that his narrow focus on foreign banknote issuance serves him less well. His evidence is too limited to do more than identify issues that he himself admits require further research. Horesh argues that the British overseas banks were important to the development of China's modern banking and monetary systems, but, on the other side of the issue, he can only suggest that the British banks probably harmed China's economic development by recycling deposits of their wealthy Chinese customers to foreign trade instead of financing Chinese enterprises.
Horesh also challenges the so-called California School historians, chastising them for ignoring the importance of institutions in producing what Kenneth Pomeranz has called the “great divergence” between Western and Chinese patterns of economic development after the seventeenth century (pp. 18, 159). Horesh suggests that he favors an institutional approach to historical analysis. His contention that the maturation of British financial institutions in the nineteenth century was critical to the British pattern of economic development, however, lies outside the scope of his meticulously researched work on the impact of British overseas banks on Chinese finance and monetary policy.
