There is no question that the rise of a modern indigenous Chinese banking sector has been a neglected area in the literature on China's economic development over the first half of the twentieth century. There have been studies of the traditional Chinese banks, work has been carried out on foreign banks (notably HKSBC) and the political-economy aspects of the relationship between the Nationalist Government and the financial sector has been analyzed, but the unavailability of primary source material has precluded the detailed analysis of the development of the modern Chinese banks. Access to the records of the nine principle banks (including the Bank of China) has now enabled Linsun Cheng to produced a wide-ranging and meticulously researched account which not only provides important information about the banks but challenges a number of established views about their operations, role, and significance.

In essence the book makes three points. The first is that the new banks quickly broke the late-nineteenth-century dominance of the “Three Kingdoms”—foreign banks, piaohao (Shanxi banks), and qianzhuang (native banks)—each of which occupied about a third of the market in terms of capital power in 1894. By 1925 the piaohao had been squeezed out and by 1936 the Chinese modern banks dominated the financial scene, accounting for over 75 percent of capital power. Secondly, this rise did not derive from their close relationship with the government and in particular it did not result from handling, or speculating in, government bonds. Prior to 1927 holdings of government bonds did little more than keep pace with the growth of business. They never exceeded 10 percent of the level of loans or deposits and remained below 5 percent of total assets. During the subsequent Nanjing Decade holdings increased more rapidly, but still never exceeded 13.2 percent of the value of loans and always remained below 8 percent of total assets. Involvement in bond holdings simply came too late to account for the rise of the banks and never came to dominate their business—or their profits. Instead, and this is the book's third theme, their development can be accounted for by the ability to capture, generate, and profit from normal commercial business. This, in turn, stemmed not just from the maintenance of a prudent, essentially conservative, financial strategy but from a series of important financial innovations and the introduction of a number of managerial developments, some borrowed from the West others drawing on traditional Chinese practices.

Cheng demonstrates in detail how the banks evolved new approaches to generating deposits, improved customer services, put loans on a firm collateral (rather than personal) basis, developed a credit investigation service, overcame obstacles to the acceptance and circulation of Chinese banknotes, developed a sound reserves strategy and initiated an effective staff recruitment, training, and welfare policy. In the subsequent examination of the careers of the chief executive officers the portrayal is one of quintessentially innovative Schumpeterian entrepreneurs dedicated to their task of creating a viable modern banking sector and eschewing the acquisition of personal fortunes. Their longevity of tenure and close regional links gave an underlying stability, and they forced the modernization and professionalization of the sector through a combination of Western techniques and Chinese traditions.

The contrast here with Thomas's recent study of the Shanghai stock exchange is instructive. Whilst together they present a picture of Chinese entrepreneurial dynamism, innovation, and enterprise in the face of highly unstable markets, Cheng's portrayal of the banks reveals an ability (at least on the part of the principle banks) to rise above rather than cater for, or succumb to, the speculative element in the market. Together they undoubtedly played integral parts in fostering Shanghai's emerging commercial culture—the so called Nanjing Road phenomenon—though on the arguments presented here the banks were consciously seeking to play a national role rather than being driven by local stimuli. Cheng's archive-based research has considerably forwarded our understanding not just of the scope and dynamics of the development of the Chinese banks but of their relationship with both the government and the economy as a whole. The analysis complements, qualifies, and extends our current thinking and will provide the indispensable reference point for anyone seeking material on Chinese financial markets in the precommunist period. The book will also act as a stimulus basis for further research into such topics as the extension of modern banking practices into the provinces or a deeper analysis of the bank's client base.