Chinese Business in a Globalizing
World: The Impact of the 1930s World
Depression
Tim Wright
University of Sheffield
Paper Presented at the East Asian Business
History Workshop, Cardiff University,
25 February 2010
Outline
Introduction
China in the global economy
China and the World Depression
Phase 1: Cheap Silver
Phase 2: The Rising Yuan
Conclusion
China in the Global Economy
Importance of issue
– China’s integration into world economy
Controversial issue then and now
Both level of integration
And costs/benefits of that integration
– Foreign trade crucial for some coastal areas
Particularly silk (Lower Yangzi and Guangdong)
And soybeans (NE)
China in the Great Depression
Relatively little impact on output
Industrial Production in Four Countries
(1929=100)
180
140
120
100
80
60
40
19
25
19
26
19
27
19
28
19
29
19
30
19
31
19
32
19
33
19
34
19
35
19
36
Index, 1929=100
160
China
Japan
US
UK
China in the Great Depression
Relatively little impact on output
Though variations on trend show interesting
phenomena
% Above or Below Trend
China's Industrial Production, 19261936 In Relation to Trend
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936
China in the Great Depression
Relatively little impact on output
Though variations on trend show interesting
phenomena
This understates dislocation
– Groups in Chinese economy battered by price and
currency changes.
Wholesale Prices in Four Countries, 19261936 (Index, 1929 = 100)
130
Index, 1929=100
120
110
100
90
80
70
60
Shanghai
Tokyo
US
UK
50
1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936
Exchange Rates: Chinese Dollar Against Japanese Yen
and US Dollar, 1928-1936 (1929 average = 100)
180
Index, 1929=100
160
US$
yen
140
120
100
80
60
40
1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936
Two Phases
First phase
–
–
–
–
To December 1931
Devaluation
Maintains prices
Increased competitiveness for Chinese enterprises
Two Phases
First phase
Second phase, 1931-1935
– Rising currency values
– Deflation
– Declining competitiveness
Impact on Business
Falling value of silver = devaluation
– Increases competitiveness of enterprises using
silver
– Decreases competitiveness of enterprises using
gold
Rising value of silver = revaluation
– Decreases competitiveness of enterprises using
silver
– Increases competitiveness of enterprises using yen
Phase 1: Cheap Silver
Japanese Enterprises in North-east
– Mostly use (gold) yen
– So competitiveness and profits seriously hit by fall
of silver after 1929
– Fushun Coal Mines
SMR Internal Document
Especially because of the unprecedented fall in
the price of silver in this period, the price of
SMR coal, which is on the gold standard, rose
steeply, and, together with the general industrial
depression, inevitably led to fuel consumers
preferring cheap Chinese coal.
10500
18
10000
16
9500
14
9000
12
8500
10
8000
8
7500
6
7000
4
6500
2
6000
0
1928
1929
1930
Output of Fushun coal mines
1931
1932
1933
Sales of Fushun coal
1934
1935
Financial surplus
% of Turnover
Tons
Performance of Fushun Coal Mines,
1928–1935
Phase 1: Cheap Silver
Japanese Enterprises in North-east
– Mostly use (gold) yen
– So competitiveness and profits seriously hit by fall
of silver after 1929
– Fushun Coal Mines
– South Manchurian Railway
110
105
100
95
90
85
80
75
70
65
60
7.5
7
6.5
6
5.5
5
4.5
4
3.5
3
1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935
Freight Receipts
Freight carried, Ton KM
Billion Ton Km
Million yen
South Manchurian Railway Freight Traffic
and Freight Receipts, 1925-1935
Phase 1: Cheap Silver
Chinese Business
– Use silver currency
– So benefited by devaluation
– Tōa keizai chōsakyoku: “In our opinion the
inevitable result of the devaluation of the currency
will be to promote exports, to raise prices and to
stimulate enterprise.”
Phase 1: Cheap Silver
Chinese Business
– Use silver currency
– So benefited by devaluation
– Kailuan Coal Mine
Performance of Fushun and Kailuan
Coal Mines, 1928-1935
18
16
10
14
8
12
10
6
8
4
6
4
2
2
0
0
1928
1929
1930
1931
Kailuan profits
1932
1933
1934
Fushun financial surplus
1935
Fushun financial surplus (%)
Kailuan profits (million yuan)
12
Phase 1: Cheap Silver
Chinese Business
–
–
–
–
–
Use silver currency
So benefited by devaluation
Kailuan Coal Mine
Chinese railways in North-east
Silk exporters
Phase 2: Rising Yuan
Japanese gold-based businesses
– Gain from devaluation
“dumping controversy”
– Coal
Imports into Shanghai
Shanghai Coal Prices and Exchange Value of
Yen (Indices, September 1931= 100)
110
100
90
Yuan/Yen
Japanese slack
Kaiping lump
80
70
60
50
19
31
Ju
l
A
ug
Se
pt
O
ct
N
ov
D
ec
Se
pt
O
ct
N
ov
19 De
32 c
Ja
n
Fe
b
M
ar
A
pr
M
ay
Ju
n
40
Phase 2: Rising Yuan
Chinese silver-based businesses
– Kailuan and coal
Performance of Fushun and Kailuan
Coal Mines, 1928-1935
18
16
10
14
8
12
10
6
8
4
6
4
2
2
0
0
1928
1929
1930
1931
Kailuan profits
1932
1933
1934
Fushun financial surplus
1935
Fushun financial surplus (%)
Kailuan profits (million yuan)
12
Phase 2: Rising Yuan
Chinese silver-based businesses
– Kailuan and coal
– Zhongxing Coal Mining Company
– Cotton mills
Profit Rates of Cotton Mills, 1929-1936
(Profit as % of Subscribed Capital)
20
Wing On (Shanghai)
National average
15
%
10
5
0
-5
1930
1931
1932
1933
1934
1935
1936
Source: Kubo, Chūgoku no mengyō, pp. 114, 278-9
Phase 2: Rising Yuan
Chinese silver-based businesses
– Kailuan and coal
– Zhongxing Coal Mining Company
– Cotton mills
Demands for government support
– Recovery from 1936
Conclusion
Output effects not only important ones
– Profits and distributional effects also influential
On Japanese side
– Major part of background to invasion of North-east
On Chinese side
– Major change in GDM policy towards
interventionism
– CCP view of “bankruptcy” of Chinese economy
under capitalism and involvement in world trade