"Traditional" Chinese Business Forms Revisited: Family, Firm, and Financing in the History of the Yutang Company of Jining, 1779-1956

Introduction: Chinese Firms and Economic Development

At least since Max Weber, Western analysts have argued that the differences between Chinese and modern Western business practices help account for China’s “failure” to develop something akin to industrial capitalism, despite its sophisticated agrarian and commercial economy. While some scholars have argued that the surplus generated by commerce and agriculture was not invested productively because an unequal social structure encouraged people to fritter it away on conspicuous consumption, it is not at all clear that Chinese society was particularly unequal or prone to excessive consumption. ¹

Consequently, a series of venerable arguments about how both the organization of Chinese firms and the position of merchants in society inhibited the investment of capital in commercial and industrial projects with a long time horizon have come, by default, to bear a great deal of the burden of explaining the absence of an economic “breakthrough.” ² The temptation to link the differences between Chinese firms and nineteenth- and twentieth-century Western ones with the absence of a Chinese industrial revolution has in some ways become all the greater in recent years, as new scholarship has amply demonstrated that Chinese markets---from the local to the sub-continental level---stack up rather well against their European counterparts, and has also made it harder and harder to cast an overbearing state as the villain of the piece. ³ However, the generalizations about Chinese firms and merchants that play this important explanatory role are based on relatively few cases, some of which actually concern overseas Chinese.

Moreover, some recent studies of Chinese firms show them to have been much more flexible and effective institutions than these earlier views had suggested. ⁴ In particular, some of these recent studies suggest that even before the twentieth century, various Chinese forms of partnership allowed entrepreneurs to assemble investment capital and re-invest profits for the long term in ways surprisingly similar to those made possible by Western joint-stock companies. ⁵ But the arguments that these scholars have made to this effect have been limited by their cases in two important ways which this paper is able to address.

First, the studies by Madeleine Zelin and Kwan Man Bun are concerned with salt merchants, whose monopoly privileges may have made their firms seem to be unusually safe and stable, and so unusually good vehicles for long-term investment. By contrast, the firm discussed here---the Yutang company of Jining, which specialized in pickled vegetables, soy sauce, and other foodstuffs---had no special privileges that it could rely on.

Second, and perhaps even more important, the studies of salt firms have pointed out ways in which institutions such as lineage trusts could be used to compel members of an extended family to allow most of a firm’s earnings to be re-invested rather than paid out as short-term dividends. In this way, they reproduced the advantages for long-term accumulation of a joint stock company “except, of course, that the stocks could not be sold or transferred outside of the household.” ⁶ This exception is of course a major one, since such an institutional arrangement was only useful for mobilizing and increasing the capital of a group of extended kin, and only to the extent that potential investors could be reasonably sure they would not need to liquidate their investment any time soon. But Yutang seems to have developed an investment vehicle which also made large amounts of “patient” capital available to the firms’ managers, but without being limited to kin and without making it exceedingly difficult for investors to sell off some of their stake in the business to a third party. If that was indeed the case, then Yutang came much closer than these other firms to offering the combination of paid-up capital for the firm and liquidity for its investors that is sometimes held by comparativists to be a unique achievement of the Western corporate form, ⁷ and held by some China specialists to have been extremely...