Beginning with China's historic decision to undertake economic reform in the late 1970s, the field of Chinese business history has grown significantly over the last three and half decades, with many studies exploring the evolution of industrial capitalism, the adoption of corporate hierarchies and/or social networks, the change of financial institutions and monetary systems, and the development of state-owned industries and the formation of the state enterprise system (Morris L. Bian, Frontiers of History in China [2011]). Although some scholars have examined how business firms evolved over time, few have focused on how leading business families or family firms responded to the alteration in China's domestic and international environment. Sherman Cochran and Andrew Hsieh begin to fill the gap with this important study. As many China scholars know, the Lius of Shanghai became one of China's preeminent families during the first half of the twentieth century, presiding over an industrial empire that produced matches, woolens, cotton textiles, cement, and briquettes. Making extensive and effective use of an extraordinary collection of Liu family letters gathered over the course of more than a decade, Cochran and Hsieh make a significant contribution to our understanding of twentieth-century Chinese family and business history, and, by extension, Chinese history, by demonstrating how the Lius of Shanghai responded and adapted to changes to the domestic and international environment during the first half of the twentieth century.

The authors place their case study in the historiographical context of Chinese family history. The existing literature suggests that while some families were fundamentally transformed by their members’ experiences outside the home, with sons making career decisions on their own and acting as independent individuals, other families maintained a patriarchal structure, with fathers retaining authority and dictating policies to their sons. However, Cochran and Hsieh's study of the “internal dynamics of decision making in the Liu family” reveals that these family dynamics need not be mutually exclusive (p. 2). It shows that Liu Hongsheng retained patriarchal authority, gave his children assignments, and held his family together throughout the 1930s, 1940s, and early 1950s. Despite Liu Hongsheng's separations from some members of the family, he consistently found places for nearly all of them as full participants within the extended family.

More important, this study illustrates how one leading business family/family firm responded and adapted to both normal and drastic alterations of China's domestic and international environment. Here, “normal” alteration refers to ordinary changes that typically show a regular and predictable pattern. In the context of the first half of the twentieth century, which this book covers, the phrase “normal alteration” adequately characterizes the prewar decade (1927–1937) when China strove to modernize its economy and acquire technological and managerial resources and know-how from advanced industrial countries. Liu Hongsheng himself was a product of such alteration. Having attended Shanghai's St. John's University, he started his career in 1909 as a comprador for British employers at the Kailuan Mining Administration, where he learned about Western business practices, made contacts with foreign businesspeople, and earned an income that provided the initial capital for investment in his own business activities. These experiences led him to believe that the “successful solution of our future commercial, political, economic, and other problems will depend more or less on our thorough and comprehensive understanding of others” (p. 19). Such a mental model no doubt contributed to his decision to send his sons to leading Western universities such as Cambridge University and Harvard Business School during the prewar decade. By the outbreak of the Sino-Japanese War in 1937, almost all of the Liu children had returned to Shanghai and taken management positions in the family firm.

The outbreak of war in 1937 marked the beginning of drastic alteration in China's domestic and international environment. Here, “drastic” alteration refers to extraordinary changes that typically show no regular and predictable pattern. Although signs or indications can be detected, this type of alteration of human conditions often comes as a shock or surprise. As a result, it forces human actors to respond by revising their existing mental models and taking actions based on those revised models of radically altered environments (Morris L. Bian, The Making of the State Enterprise System in Modern China: The Dynamics of Institutional Change [2005]). In the case of the Liu family, the war-prompted crisis forced Liu Hongsheng to flee the British colony of Hong Kong. In this wartime emergency, he had no choice but to give his four eldest sons full responsibility over the family firm. In fact, the war radically altered decision making in the business, the sons seizing the initiative to make decisions on their own.

The experience of one of the Liu sons—Sixth Son—offers the most dramatic example of how the drastic alteration in China's domestic and international environment transformed the life of this preeminent business family. Sixth Son lived in Japan during the six years leading up to the war, from 1931 to 1937. He achieved so much success there that he embraced Japan as his second homeland. For this very reason, the Japanese invasion of China profoundly affected him. He converted to Christianity while working at the family's cement factory. Ultimately, however, he abandoned Christianity in favor of Communist ideology. In 1939 he left Chongqing for Yan'an, where he later joined the Chinese Communist Party (CPC). He remained a CPC member until his death in 1988.

Transformative changes continued unabated in the Liu family during the decade after 1945. Given the postwar chaos, hyperinflation, civil war, and the Communist takeover, Liu Hongsheng and his family had to adapt to rapid changes in their environment. Once again, Liu Hongsheng left Shanghai for Hong Kong, in May 1949, before Communist forces entered Shanghai. This time, however, it took him only six months to return to Shanghai. There is little doubt that the Liu family and family firm were “radically transformed during the history of the People's Republic,” especially after Liu Hongsheng's death and the nationalization of the family's businesses in 1956 (p. 353). More important, this meticulously researched study demonstrates that, as a microcosmic embodiment of Chinese society, the transformation had already begun two decades earlier, in 1937. In that sense, the transformation of the 1950s represented an extension and expansion of the radical and revolutionary changes prompted by the eruption of the Sino-Japanese War.