From Cotton Mill to Business Empire: The Emergence of Regional Enterprises in Modern China (review)

Elisabeth Köll has written more than a book about Zhang Jian (1853–1926), a pioneer of modern business in China. This is an important study of enterprise organization, management practice, and the means by which Zhang's Dasheng enterprise group changed the political economy of provincial Nantong, a Yangzi River city near Shanghai. The author is focused firstly on control and accountability in the management of the enterprise and secondly on the institutional transfer—"the interpretation, adaptation and application" (p. 4)—of Western corporate structures, such as the limited liability firm, to the Chinese business environment. Today's Chinese entrepreneurs and managers of state firms are similarly interpreting, adapting, and applying to their firms what they perceive to be contemporary best practice in international management.

Zhang was a classically trained scholar who passed the highest level of the imperial examination but who abandoned an official career to launch China's first private-capital industrial enterprise in the 1890s, the Dasheng Cotton Mill. Köll's study is not a biography of Zhang, and deliberately so—many are to be found in Chinese. Rather, the book is a study of institution-building, corporate development, and governance in the broadest sense; at its heart is Köll's meticulous reading of the account ledgers, correspondence, and other records of the Dasheng enterprise group.

The book is organized into four parts, each of which contains two chapters, plus an introduction and conclusion. Part one sets the scene, defining the concept of a regional enterprise, which Köll defines as a firm that promotes social and economic, and even cultural, development of its largely rural surroundings. The focus is the rise of modern firms in China, Zhang's background as a scholar-turned-businessman, and the intertwining of national and regional spheres of political economy that shaped the institutional framework of the Nantong region as a periphery zone of Shanghai.

Part two describes the setting up of the cotton mill, the acquisition of land and plant, the recruitment of managerial staff and mill hands, and the organization of work. Chapter 3 is focused on Zhang's use of official patronage and personal networks to obtain the resources to build the Dasheng mill; while chapter 4 is a study of the mill as a workplace and its regime of discipline, although it is handicapped by a paucity of concrete detail in the archives on wages and conditions. Part three is the core of the business history, an exposition of the corporate structure, internal organization and control, and business performance, while part four addresses the wider socioeconomic dimensions of the Dasheng group as a transformative agent of business in China and of the political economy of the Nantong region, a story that resonates with the role of township and village enterprises in contemporary China.

Chapter 5 is the highlight, in my view. Köll reconstructs the instruments of financial and managerial control. Central to the business group was the Shanghai accounts office (zhang fang), a headquarters-like unit with its roots in traditional Chinese business practices, which was transformed as the institutional vehicle for Zhang's control of the limited liability company. The office fulfilled several functions. It served as the head office for affiliated Dasheng companies, acted as the paymaster and broker for group members, and handled business matters from banking to the ordering of new machinery. Importantly, it also handled Zhang and his family's personal business. Its placement outside the formal structure of the Dasheng group allowed Zhang to exercise central control over all his many commercial activities. Other industrialists followed Zhang's example. Köll argues the account office as a separate managerial institution "replaced control through equity" (p.147) and helped to reduce the agency cost of monitoring professional managers in the many dispersed business units of the group. It also allowed Zhang to...