Institutional restructuring and state-building in a time of instability

While historians continue to study China’s failed experiment with parliamentary government and local self-rule during the first four decades of the 20th century, the so-called “Warlord era” that followed the Qing dynasty’s 1911 collapse recalls the political fragmentation commonly observed during dynastic interregnums. One researcher counts 140 conflicts

involving more than 1,300 rival militarists between 1911 and 1928 (Phil Billingsley 1988, p. 24). Through much of the 1910s and 1920s, the self-styled national government in Beijing lacked both revenue and authority. Along with the loss of the power of personnel appointment at the province and county levels, fiscal decentralization placed the Beijing administration on life- support from foreign loans collateralized by revenues from the Western-controlled (and efficiently managed) bureaucracies charged with collecting customs and salt taxes (Strauss 1998, Iwai 2004).

As often witnessed in China’s past, prolonged weakness at the center created

opportunities for experimentation with new ideas and institutions that would later reshape the long-term trajectory of Chinese history. Despite the political chaos, the first three decades of the 20th century brought an interlude of cultural enlightenment that Marie-Claire Bergere (1986) identified as the “golden age of the Chinese bourgeoisie.” New concepts such as democracy, science, and self-government, new styles of Chinese writing, literature and academic

scholarship, new generations of politicians, scholars and entrepreneurs, and new systems of education became increasingly prominent in new environment of patriotism and nationalism (Charlotte Furth 1983, Philip Kuhn 1986, Sun 1986). In the face of increasingly aggressive Western and Japanese penetration, student-led demonstrations against the 1919 Versailles Treaty75 expanded into a broad attack on traditional culture. While some reformers railed

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China, which supplied over 100,000 non-combatant workers to support British and French forces in Europe, expected the Versailles settlement to include the return of German concessions in Shandong province. Instead, Article 156 of the treaty awarded these territories to Japan.

against the inability of Confucian thinking to encompass science or democracy, others joined a 1921 Shanghai conclave that established China’s Communist Party.

Both the privileges and autonomy of treaty ports, especially the largest of them, Shanghai, strengthened in this time of weakened central rule. Although tinged with foreign privilege and racial discrimination, the steadfast upholding of freedom of speech and association in the treaty ports fostered an explosive growth of chambers of commerce and associations of bankers, lawyers, and accountants, most notably in Shanghai (Xiaoqun Xu 2001). Relative peace, stability and rule of law also nurtured the first generation of Shanghai industrial tycoons, including the Rong brothers (textiles and flour milling), LIU Hongshen (matches) and the Jian brothers (tobacco), all of whom operated outside the traditional bureaucratic patronage system. The legal and jurisdictional autonomy of Shanghai’s International Settlement sheltered the local branch of Bank of China from the predatory attempts of the fiscally-strapped Beijing government (Debin Ma 2011c).

The result was a unique symbiosis between Chinese entrepreneurs and foreign-controlled treaty ports that flourished despite the social discrimination that the expatriate communities inflicted on their Chinese neighbors and business partners (Parks Coble Jr. 2003). The benefits of

rule of law were widely recognized; as one observer noted in 1917:

The Chinese residing in the International Settlement have numbered 800,000. Although they are unspeakably low in knowledge and [education] level, under the influence of British custom, their habit of following the law is superior to [Chinese in] the interior. . . . [whose] officials bully the people and the people dare not resort to the law, whereas the residents in the Settlement all know that detaining people without warrant is kidnapping, and a kidnapper, whether an official or a commoner, would be punished (cited in Xu 2001, p. 41).

Nonetheless, overall political uncertainty across China in this period presented the reverse side of the North paradox: “a government too weak to be a threat . . . [is also] too weak to enforce its writ and provide a stable political and legal environment” (William C. Kirby, 1995 p. 50). China’s 1904 Company Law is a case in point. This measure, which introduced limited liability and aimed to provide universal and formal property rights to Chinese businesses through company registration, attracted few registrations apart from banks and other officially- backed large scale enterprises (Kirby 1995). In an environment of political uncertainty and civil

unrest, formal registration was widely viewed as a dangerous recipe for public exposure of private assets. When Guangdong lineage-based firms sought Hong Kong registration under British common law, their objective was neither to secure limited liability nor to attract outside capital but rather to obtain shelter from official predation rampant in the city of Canton

wracked by rebellion and revolutions (Stephanie P.Y. Chung 2010).

Most Chinese entrepreneurs operated outside the formal sphere, drawing on long- standing traditions of private contracting and social networking to help resolve issues of information asymmetry and contractual disputes. Family firms and lineage or relation-based partnerships dominated (Zelin 2009).77 The old patronage system remained much in evidence. In Tianjin, “Guild bosses. . . opposed the efforts of some merchants to introduce motor vehicles. . . . threatened to kill the general manager of the factory [that had purchased trucks, so that] the factory had to turn control of transport back to the guild” (Hershatter 1986, p. 134).

The establishment of the Kuomintang-led Nanjing government in 1927 marked a step to recentralize state power. The regime mounted a vigorous effort to establish administrative structures that could formulate and implement developmental policies. Julia Strauss finds that these efforts “coalesced in a number of important pockets of Republican government” (1997, p. 340). These state-building efforts drew on the model of Western-controlled Maritime Customs and Salt Inspectorate, organizations that demonstrated the potential of efficient, honest, transparent, apolitical bureaucracies led by expatriates but largely operated by Chinese personnel (Strauss 1998, chap. 3). The Ministry of Finance, setting out to emulate the Salt Inspectorate, which it absorbed in 1927/28, hired “personnel who were experienced, competent, and hard-working,” often turning to “open civil service examination as the

preferred method of recruitment” as “new departments and sections were created” during the 1930s (Strauss 1998, p. 187).

The Nanjing government pursued genuine tax reforms. After restoring China’s tariff autonomy in 1928 (KUBO Toru 2005), the regime sought to impose standard domestic taxes in place of the likin system, which was encrusted with tax farming, extra-legal fees and ad hoc imposts (Iwai 2004, pp.381-5). At the same time, the CHIANG Kai-shek [JIANG Jieshi], the

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Foreign-owned treaty port firms shared the Chinese penchant for recruiting on the basis of family or regional links (T. Rawski 1969, pp. 464-465).

Nanjing regime’s strongman, used traditional tactics to extract resources from urban businesses. CHIANG enlisted Shanghai’s criminal underworld to pressure enterprises located in Shanghai’s foreign-controlled concessions leading to confrontations with prominent Shanghai capitalists and eroding the rule of law within the treaty port (Coble 1986, p. xi).