In July 1888, Simon Alfred von Oppenheim, an offspring of the prominent Oppenheim banking dynasty in Cologne, Germany, was traveling in China as part of a larger world tour. In several letters that he sent home during his travels along the China coast, the young Oppenheim reported on the possibility of establishing a German bank in China. In these letters, Oppenheim painted an encouraging picture of the prospects of such a banking endeavor. He reported that German commercial circles in China would view the establishment of a German bank for China favorably. Moreover, when he met Li Hongzhang, one of the most powerful Chinese officials and reformers at the time, Li also assured him that he would provide his support for the new bank. He wrote to his father, the prominent German banker Eduard von Oppenheim, that “the establishment of a German bank in China, soon, on a big scale and carried out on an accommodating basis, without any doubt seems to me to be a great thing.” Simon Alfred von Oppenheim urged his father to get involved in the establishment of a German bank in China if possible.Footnote 1
It was one year later that thirteen of the most important German banks, including the Disconto-Gesellschaft, the Deutsche Bank, and the private bank Sal. Oppenheim, together established the Deutsch-Asiatische Bank (DAB), with its first branch in Shanghai opening for business in 1890. During the following two and a half decades, not only was the DAB the only German bank operating in China’s treaty ports, it also became one of the most important foreign banks in China. It established branches and agencies in most of the important Chinese treaty ports, financed foreign trade with China, supplied Chinese bankers with capital, and floated loans for the Chinese government in Germany.Footnote 2 During the same period, many other foreign banks entered China. While the first foreign bank had entered China as early as 1848, until the 1890s foreign banking had been dominated by a small number of mainly British banks. It was only after 1890 that China saw an “extensive expansion in foreign banking,” with many non-British banks establishing branches along the China coast before the World War I.Footnote 3
Why did German bankers decide to establish a bank in China? How did foreign bankers interact with Chinese actors, such as Chinese officials and entrepreneurs, and how were they integrated into Chinese business networks? How was China financially integrated into the first global economy, and what role did foreign banks play in this? Situated at the intersection of Chinese, German, and global business and economic history, my dissertation, “Networks of Capital,” uses the history of the Deutsch-Asiatische Bank as a case study to try to provide answers to these questions by investigating the role foreign, and specifically German, bankers played in the history of modern economic globalization in China from the late nineteenth century to World War I.
In doing so, “Networks of Capital” builds on the work of global historians who have stressed the importance of international financial markets and global flows of capital during the first global economy.Footnote 4 It also draws on the work of business historians such as Geoffrey Jones, who views multinationals as “facilitators of globalization” in the nineteenth and early twentieth centuries, and has also demonstrated the crucial role multinational banks played in the making of the first global economy by providing the financial infrastructure that made possible the unprecedented economic integration in the decades before World War I.Footnote 5 While connecting the case of foreign banking in modern China with this literature, “Networks of Capital” also draws on recent efforts by historians of China who encourage the study of modern Chinese history from a more global perspective.Footnote 6
In most of the previous literature, foreign banks in modern China have been viewed and interpreted as part of foreign imperialism. Chinese-language scholarship in particular has been written from this perspective, and has largely depicted the role of foreign banks in the Chinese economy and Chinese public finance in a negative way. Furthermore, Chinese-language literature on foreign banks often explicitly or implicitly suggests that foreign banks essentially acted in congruence with, and as part of, the imperialist policies of foreign governments. A problem of Chinese-language scholarship is that it does not employ foreign archival sources, which makes it difficult to depict the activities of foreign bankers and other foreign actors in a nuanced way.Footnote 7 At the same time, the few existing Western-language studies that deal with foreign banking in modern China mainly discuss the role these banks played in foreign imperialism,Footnote 8 their relationship with their home governments,Footnote 9 certain narrow and particular aspects of the business of these banks,Footnote 10 or focus on, and remain limited to, the institutional history of foreign banks.Footnote 11 Moreover, Western-language studies of foreign banking in modern China also largely lack the use of Chinese sources and thus are unable to properly describe the Chinese actors with whom foreign banks interacted.
Thus, most of the Chinese- and Western-language literature in this field either follows the paradigm of imperialism that sees foreign banks as part of the extension of foreign exploitation and control in China, or at least does not properly put forward an argument that challenges such views.Footnote 12 Given the lack of broader studies on foreign banking in modern China that transcend this paradigm and make use of a wide range of both Chinese and foreign primary sources, much of this literature also neglects the importance of Chinese agency and interaction with Chinese actors for the operations of foreign banks. This means that the literature largely remains stuck with a narrative of Sino-foreign confrontation that fails to properly account for other kinds of interactions between foreign bankers and Chinese actors, such as cooperation, competition, and changing power relations, and also does not explore the role foreign banks played in internationalizing Chinese finance and financially integrating China into the global economy.
Recently, however, new scholarship has begun to correct this previous picture of foreign banking in modern China. It argues that the activities of international banks in Asia were an important element of global economic integration and stresses the importance of the interaction of these banks with local banking structures.Footnote 13 Scholarship more specifically focusing on China challenges previous assumptions about the supposedly one-sided power relationship between foreign and Chinese bankers, and the presumed negative impact of foreign banks on Chinese economic development.Footnote 14
Contributing to these efforts, “Networks of Capital” uses and combines a wide range of business records, personal papers, and government files in Chinese, German, and English to complicate and challenge previously prevalent views about foreign banks in modern China.Footnote 15 It argues that foreign banks were not merely another manifestation of foreign imperialism, but rather they acted as intermediary institutions that connected China with Western financial markets and facilitated its financial integration into the global economy. They provided the financial infrastructure that made modern economic globalization in China in the late nineteenth and early twentieth centuries possible. At the same time, Sino-foreign interaction and the agency of Chinese actors were always crucial to the operations of the DAB and other foreign banks. Only when this interaction is understood will it be possible to comprehend the growing interdependence between financial markets in China and Europe, and China’s engagement with global financial markets and capital flows during the first global economy of the late nineteenth and early twentieth centuries.
Four Themes
Before describing the chapters of the dissertation, I want to walk the reader through the main themes that “Networks of Capital” focuses on: financial internationalization; transnational networks; the conflict between nationalism and economic globalization; and risk. The first and most central theme is that of the financial internationalization of China. Drawing on the work of William Kirby,Footnote 16 I demonstrate how Chinese finance—both in terms of Chinese public finance and the banking sector of the China coast—went through an unprecedented phase of rapid internationalization in the two and a half decades before the outbreak of World War I.Footnote 17 As “Networks of Capital” argues, the rapid influx of foreign banking institutions into the Chinese treaty port economy between the 1890s and World War I, accompanied by the unprecedented growth of China’s foreign trade and engagement with foreign capital markets during this period, caused the full-fledged internationalization of Chinese finance. The result was that by 1914, both Chinese public finance and the banking sector of China’s coast were so closely connected to global capital flows and international capital markets that they had become part of the international financial system, and events like wars elsewhere in the world could have a profound impact on Chinese finance. Foreign banks and their interaction with Chinese actors played a key role in this process of financial internationalization.
The second theme of my dissertation is that of transnational networks comprising foreign and Chinese actors. As I stress the importance of Chinese agency for the operations of foreign banks, I also show how common interests and benefits between foreign bankers and Chinese actors often led to cooperation and the consequent formation of transnational networks.Footnote 18 These networks played an important role in the operations of foreign banks in China and facilitated China’s financial internationalization by bridging differences between Chinese and Western business practices and institutions, and by connecting Chinese state finance and the banking sector of the China coast with foreign financial institutions and capital markets.
The third theme that “Networks of Capital” explores is the conflict between economic globalization and nationalism. The dissertation shows that economic globalization not only resulted in transnational cooperation among foreign and Chinese actors but could also lead to conflict between, on the one hand, transnational elites open to using the new opportunities globalization provided, and, on the other, more skeptical national institutions and groups in favor of economic autarky. For example, pragmatic Chinese reformers open to cooperating with foreign banks could use the cheap capital these banks provided to finance China’s modernization projects, such as railway construction. However, the price they had to pay was that they became targets of criticism by conservative Chinese officials and Chinese nationalists. This dichotomy between openness and resistance toward globalization is a key aspect of the history of foreign banking in modern China.
The final theme of the dissertation is that of risk, which is an important theme in business history.Footnote 19 While the activities of foreign banks in late nineteenth-century and early-twentieth century China have often been explained in the context of foreign imperialism, I suggest that the management of risk can be a more useful framework for understanding the activities, decisions, and motivations of foreign banks and financiers involved in the Chinese market. Although not the only factor in determining their actions, the history of the DAB shows that the management and minimization of different kinds of risk—be that the operational risk of operating a foreign bank in a new market and business environment, the sovereign risk of floating loans for China in Europe or the heightened political risk of investing and doing business in China after the fall of the Qing dynasty and the outbreak of World War I—was often an important driving force for their decisions.
Outline of the Chapters
Having introduced the themes of the dissertation, I now turn to the individual chapters of “Networks of Capital.” In the first chapter, I explore the historical background of the establishment of the DAB in 1889. For this purpose, I juxtapose and bring together two strings of narrative. I explore the growing interest of German bankers in the Chinese market in the 1870s and early 1880s. Initially, this interest was mainly in trade finance, but it later shifted to the loan business in China, particularly with a view to the financing of railway construction. The chapter also traces the increasing Chinese interest in the use of foreign capital between the 1850s and 1880s. It shows how Chinese officials started to use foreign capital and how foreign loans gradually became part of Chinese public finance. In particular, I highlight the case of one group of Chinese reformers who began to advocate for the use of foreign capital for the purpose of railway construction. These two strings of narrative then converge in my depiction of a German study mission dispatched to China in 1886. As awareness of the increased Chinese interest in railway construction reached Germany, German banks and industrialists sent a mission consisting of three representatives to China to explore the possibilities for German investment and industrial business. Although the mission did not result in any direct business for German bankers, the representatives did collect a lot of valuable materials and recommended the establishment of a German bank in China. The final part of the chapter discusses the plans of different German banking groups for the establishment of a German bank in China and the role of the German government in unifying and accelerating these efforts, which eventually led to the founding of the DAB in 1889.
In Chapter 2, “Networks of Capital” turns to the opening of the DAB in China, the bank’s regular day-to-day business, and its activities in the banking sector on the China coast. I first explain how the DAB set up its operations in Shanghai, and discuss the challenges it faced when it entered the Chinese market and began to compete with more established existing foreign banks, such as the Hongkong and Shanghai Banking Corporation. The chapter then considers the relationship between the DAB and Chinese banks using the example of Shanghai to show how foreign banks were integrated into existing Chinese business networks by Chinese entrepreneurs. These Chinese entrepreneurs could not only use their connection to a foreign bank to support their own businesses, they were also able to exploit information asymmetries between foreign and Chinese banks to generate extra profits.Footnote 20 Following this, I discuss the risk-averse business strategy adopted by the DAB during the first years following its establishment. I close the chapter by demonstrating how, during the 1890s, the influx of new foreign banks into China and the unprecedented growth of capital flows between China’s economic hubs and other global financial centers, caused by an equally unprecedented growth of China’s foreign trade and the floating of large Chinese loans in Europe, led to the acceleration of the internationalization of the banking sector of China’s treaty port economy.
The third chapter moves to the internationalization of Chinese public finance and the DAB’s loan business during the 1890s. It focuses on the three large loans that China floated in Europe between 1895 and 1898 to pay for the war indemnity imposed by Japan after the Sino-Japanese War. This chapter looks at these three loans as a major turning point in China’s growing integration into the international financial system of sovereign borrowing, and in the resulting acceleration of the internationalization of Chinese public finance in terms of the increased diversity and amount of foreign borrowing by the Chinese state. Drawing on a theoretical framework developed by Susan Strange,Footnote 21 I show that China’s integration with global bond markets was not just a one-sided imposition of structural power but a process of mutual negotiations between the foreign bankers (who represented the Western financial structure of international sovereign borrowing and wanted to integrate China into this system) and Chinese officials (who wished to tap foreign capital markets and used their relational power to great effect in these negotiations to improve borrowing costs within the wider financial structure of international sovereign borrowing). Once the structural power of Western capital markets became more and more scattered among different groups of competing foreign financiers in China, Chinese officials could use their relational power to challenge existing notions about Chinese sovereign risk and credit and gain better loan terms. At the same time, once the revenues supervised by the foreign-led Chinese maritime customs were used up as a security for loans, foreign financiers had to find new ways of evaluating China’s sovereign risk and eventually China had to recognize the limits of its relational power, accept the rules of the market, and agree to a limited extension of foreign control over additional revenues to issue the third indemnity loan.
In the fourth chapter, “Networks of Capital” explores the role the DAB and German capital markets played in the financing of Chinese railways. It does so by investigating the loan negotiations for the two loans floated by an Anglo-British syndicate for China in Britain and Germany in 1908 and 1910 to fund the construction of the Tianjin-Pukou Railway, which was to become a major trunk line connecting North and South China.Footnote 22 I show the importance of transnational networks and local intermediaries or “men in the middle,” who were part of these networks, for the success of these loan negotiations.Footnote 23 These local intermediaries were active and in regular contact at the local level in the Sino-foreign “contact zone” of Tianjin, and negotiated between the Chinese and foreign members of the transnational network.Footnote 24 In the end, only cooperation and compromise between the foreign financiers and Chinese officials who made up the transnational network enabled them to realize their common goal of financing and constructing the Tianjin-Pukou Railway. By focusing on these transnational networks, the chapter shows their important role in Chinese railway development. This chapter also demonstrates that due to the continued willingness of foreign financiers to invest in China, the cooperation within these transnational networks, the bankers’ limited understanding of Chinese state revenues, and a reduced readiness of foreign governments to exert diplomatic pressure, during the last years before the fall of the Qing dynasty in 1911, China was able to gain better loan terms than ever before.
The penultimate chapter of the dissertation traces both the impact of the 1911 revolution on foreign bond markets and the role played by foreign bankers and international finance during the revolution and its aftermath. By 1911, China had become highly reliant on foreign capital; as a result, the behavior and attitude taken by foreign bankers during the revolution had a crucial impact on its outcome. In this chapter, I first explore how foreign bond markets reacted to the news of the outbreak of revolution in China. I then explain the measures taken by foreign bankers to maintain China’s credit abroad and use bond price data from the Berlin and London bond markets to show that these measures were successful. I then turn to China to show that the strategy of a core group of foreign bankers, who first remained neutral and then supported the new president, Yuan Shikai, played a crucial role during the revolution as it led to the shortening of the military conflict and contributed to Yuan’s ability to fortify his power and establish the new Chinese republic. Finally, this chapter discusses the floating, by a consortium of foreign bankers, of the Reorganization Loan of 1913 for the financing of the new Chinese government. Only the concerted measures previously taken by the foreign bankers to maintain China’s credit had made it possible for China to now float such a large loan abroad to keep the new republican government moving forward. At the same time, I show that after the fall of the Qing dynasty, the subsequent instability and increased political risk of investing in China meant that the Chinese government could no longer borrow at terms as favorable as before and had to accept additional foreign control over Chinese revenues. While the Reorganization Loan enabled the new Chinese republican government to finance itself, it also meant that China continued its reliance on foreign debt that had developed in the preceding decades.
“Networks of Capital” ends with the demise of both the DAB and, more broadly, economic globalization in China during World War I. After reviewing the performance of the DAB and the continuing internationalization of the Chinese banking sector during the decade before the war, the final chapter of the dissertation traces the new challenges faced by German bankers following the outbreak of war, and their attempts to keep China neutral before its declaration of war against Germany in 1917. At the same time, I explain how the previous internationalization of Chinese finance meant that the outbreak of war in Europe now had a profoundly negative effect both on Chinese public finance and the Chinese banking sector. China now not only needed to look for new sources of foreign capital, but the outbreak of war also led to a loss of Chinese confidence in foreign banks. With the DAB’s survival hinging on China’s continued neutrality, the bank tried to use its limited financial resources to provide loans to the Chinese government and thereby keep it out of the war. Eventually, however, China went with the highest bidder and joined the side of the Allies, who had more to offer financially than Germany. After the Chinese declaration of war, the Chinese government at first treated the DAB rather mildly, but eventually yielded to Allied pressure and allowed the liquidation of the bank’s assets. This not only dealt a decisive blow to the DAB, from which it never recovered, but it also had a negative effect on German commerce in China more broadly.Footnote 25
Conclusion
Overall, “Networks of Capital” aims to show and explain the manifold ways in which China was financially connected to the global economy in the late nineteenth and early twentieth centuries; and the process through which it was financially integrated into the first global economy during this period. Foreign banks were key intermediary institutions that operated between China and Western economies and made the financial connections between the two possible. At the same time, “Networks of Capital” also highlights that the activities of foreign banks were always dependent on cooperation and interaction with their Chinese interlocutors. It was this interaction that stood at the heart of China’s financial internationalization during the late nineteenth and early twentieth centuries.
