Capital Accumulation and Investment Strategies in Early Modern China: The Case of the Furong Salt Yard

Vol. 9, No. 1 Late Imperial ChinaJune 1988 CAPITAL ACCUMULATION AND INVESTMENT STRATEGIES IN EARLY MODERN CHINA: THE CASE OF THE FURONG SALT YARD1 Madeleine Zelin Analysts of China's economic backwardness in the late imperial period have tended to focus on two causal factors, labor surplus and low levels of capital accumulation. Their role as disincentives to industrialization was most dramatically demonstrated in the late nineteenth century movement known as "self-strengthening," when unprecedented inputs of government funding and privileged access to markets were deemed necessary to bring about even the low levels of "modernization" that China then achieved. This focus on "Westernized" industry has had the effect of diverting attention away from the internal logic of China's indigenous industrial development , a tendency abetted by a paucity of data on individual handicraft and industrial establishments. In this study I attempt a different approach to the problem of industrial investment in the late imperial period. It is based on the assumption that where potential profits were deemed sufficiently large, institutional mechanisms could be developed to overcome the weaknesses in Chinese capital markets.2 The Furong salt yard in southern Sichuan provides an excellent venue for an examination of innovative investment practices. During the eighteenth and nineteenth centuries well salt production here developed under conditions marked by high risk and profitability, expanding markets , and significant technological innovation. Most important, as production costs rose and the time necessary to bring wells into production increased, sophisticated contractual arrangements evolved to facilitate the infusion of venture capital into the industry.3 At Furong's wells and 1 Research on this article was carried out with the financial support of the Committee for Scholarly Communication with the PRC and the National Endowment for the Humanities. The author would also like to thank Thomas Rawski and the anonymous referees for their comments and advice. 2 Tim Wright's work on the Chinese coal industry has demonstrated that profit expectations and not an absence of capital were the crucial element governing investment in this industry as well. See for example Wright, 322-24. 3 The Furong salt yard would appear to support Alexander Gerschenkron's thesis that original accumulation is rarely an obstacle to development. Rather, backward countries develop substitutes , often institutional, for the large initial capital reserves available in earlier developing states. Gerschenkron, 33-46. 79 80Madeleine Zelin evaporation furnaces a complex system of shareholding permitted the distribution of risk and facilitated entry into and exit from production in times of unstable markets, while managerial unity was maintained at each production site. Using a system of mineral rights leasing based on the contractual distribution of agricultural property rights, property owners, investors, technicians, and managers came to share in the exploitation of one of Sichuan's most important natural resources. The Furong Salt yard accordingly became one of the main industrial centers of early modem China. Background Landlocked Sichuan is one of China's most important sources of salt for human consumption. Its role in the nutrition of the Chinese masses is the result of a geological legacy of subterranean salt deposits and brine established between 900 and 65 million years ago. Salt has been mined for over a millenium from shallow wells in more than forty of Sichuan's county-level administrative units. However, modern salt extraction technology can be traced to the development of the so called "lofty-pipe" wells (zhuotong jing) of the Northern Song dynasty. Iron bits were combined with percussion-action drills to construct narrow-mouthed wells hundreds of meters into the sandstone which had previously denied access to Sichuan's richest brine streams. Pumping technology was also improved with the introduction of piston-action bamboo tubes fitted on the bottom with leather valves which allowed the brine to enter when the tube was lowered and kept the brine in when the tube was raised.4 During the ensuing centuries advances in drilling technology, in the methods used to line, repair and retrieve objects from wells, and in the pumping capacity of wells increased both the productivity and the costs of well salt operations. Increased pumping capacity also made necessary a switch from human to animal power which added considerably to...