French Bankers and Economic Patriotism in the Chinese Port-Cities

2

“French bankers and economic patriotism in the Chinese port-cities

(1880s-1930s)”

Hubert Bonin, professor of modern economic history at Sciences Po Bordeaux & research centre Gretha-Bordeaux University [www.hubertbonin.com]

The French communities of interest involved in Far Eastern trade were expected by the French sState, industrialists and business communities of the French port-cities committed to overseas trade to support the French production, services and financial investments in the bridgeheads established in several concessions (Tianjin, Shanghai, Canton, Wuhan, etc.) or colony (Hong Kong). The succession of banks active in the area (Comptoir national d’escompte de Paris, Banque de l’Indochine, Banque russo-chinoise, Banque industrielle de Chine, etc.) were meant to serve as conduits of French outflows and inflows. But, under the pressure of competition and the need of finding new sources of operations and profits, the need for the mutualisation of their means and amortisation of capital employed (roce), they became more and more embedded in the business life of these port-cities. They began to assume a mixed profile, spurring the interests of the “local” business communities in France at the “global” level of the Chinese economy, and weaving networks among “local” trading houses in China to fuel their “global” development.

The main issue is: did French banks promote French companies in the Chinese port-cities, or did they act more as globalised business partners? How did they manage to tackle the interests of French firms in the host country and its port-cities and become positive intermediaries in favour of Chinese business firms? We intend to determine how far the interests of Banque de l’Indochine as a firm tended to establish a balance between both demands: those of economic patriotism and those of local embeddedness, along what is called today a “multidomestic strategy”. Such an approach will allow us to determine the connections established between the business communities of the port-cities, and the building of autonomous strategies to prospect these markets. Our text will, of course, gauge the formationshaping of a new “culture of risk management” in such “imperial” off-shoots, thus fostering a reshaping of the overall corporate culture of the firm.

As we are preparing a book on the Banque de l’Indochine’s presence in Chinese port-cities and concessions, we will use direct aArchival records – and we hope that this case-study on Banque de l’Indochine will broaden the scope set out by Frank King regarding Hsbc and Banque industrielle de Chine[1], the studies by some Japanese colleagues on the role played by the Yokohama Specie Bank and the book retracing Citibank’s history in China.

I1. The Eemergence of a French Bbanking Sstrategy in China

Throughout South East Asian and Chinese commercial flows, it was the British and Japanese banks which prevailed by scale and strength over those of the French. Nevertheless, the latter continued to try and loosen the hold of their competitors, to play a greater part in the Asian money market and to follow the development of trade, whether local, or inthose joining the Pacific hubs or those linking Asia and Europe. Three axes of action can be defined: supporting trade between the Far East and Europe; propping up the half political, half financial penetration in China, especially against the United Kingdom, - a penetration which wasought to strengthen the size and range of the Paris financial hub; and taking part inof the trade between China and North America. The competitiveness of French banks was tested at every commercial and money market all along the Chinese coast which had been opened to western traders and bankers and where they could broaden the scope of their portfolio of skills through the acquisition of the specific commercial and financial know-how required for dealing with Chinese customers, Asian traders or European firms active there. This process demanded the consolidation of their ability to master the particular risks created by extending their reach in such new business areas against a background of stiff competition, with foreign firms scrambling to get footholds ion the North-Chinese and Hebei markets.[2]

In fact, French banks active in Asia had not targeted China because they had to first nurture the business fostered by the development of French firms in Indochina from the 1860s-1880s after the two-stage conquest of the peninsula. The Indochinese commercial business itself opened the doors to the Hong Kong market (for rice exports). But French traders gradually penetrated deeper into Chinese markets to get high-value materials (silk)[3] and to establish bridgeheads for the export of consumer goods (textiles, machines, etc.), particularly through Hong Kong and the Guangzhou [Canton] coast. Banks accompanied the move with the opening of branches. A second area, the Centre-West, joined Haiphong harbour via the newly completed Yunnan railway,[4] and led French businessmen to hope that it would become a key outlet, able to short-circuit British predominance on the Yangze basin,[5] all the more because of the amplification of commercial relations with the East owing to the opening of the Suez Ccanal[6] in 1869.

A “Chinese strategy” took shape in the 1890s within French diplomatic[7] and business circles. They longed for a powerful banking arm there, able to counter the weight and influence of British trading firms in China[8] and especially, the banking hegemony exerted by the Hong Kong & Shanghai Bank (Hsbc)[9] and Standard Chartered. Several banks drew up schemes of their Asian deployment, but a spirit of cooperation prevailed in favour of building a single entity capable of challenging the British leaders and their competitors from Japan (Yokohama Specie Bank,[10] in charge of financing foreign trade) and Germany (Deutsch-Asiatisch Bank, linked to Deutsche Bank[11]). In fact, several countries lagging behind British influence had also thought of promoting a single banking firm which would represent the interests of its country in China and its environs: Deutsch-Asiatisch Bank, the Russian-Chinese Bank (with a few French interests) and Banque sino-belge from Brussels are examples.

A first stage of the process was animated by a bank created as early as 1848, Comptoir d'escompte de Paris. It defined a strategy consisting which melded national growth with support for traders, especially at the import-export hubs and ports in order to stimulate the spirit of enterprise after the conclusion of the free trade treaties.[12] It decided to settle in Shanghai as early as 1860 and set up about ten branches in the Eastern countries: in Yokohama (1867), Hong Kong, Calcutta, Bombay, Madras and Pondicherry, and Cochinchina. Comptoir d’escompte de Paris was “the French Bank” in the Orient, especially when it strengthened its Chinese settlement in 1886/1887 with the opening of branches in Tien Tsin, Fou Tcheou and Hankow. But Comptoir d’escompte de Paris faced a major crisis in Paris in 1889 and collapsed, and its successor, Comptoir national d’escompte de Paris (Cnep), focused its activities in Egypt, India and Australia.

The French state was thus committed to luringe bankers in to take the relay along the Sea of China: it asked Banque de l’Indochine,[13] which had been the issuing and commercial bank of southern and central Indochina (Cochinchina and Annam) since 1875 and of northern Indochina (Tonkin) from 1888, to change its scope. In November 1897, it balanced the renewal of its issuing concession in Indochina for thirty years against the deployment of the bank in China and in South-East Asia through the opening of branches. Banque de l’Indochine had to bear the French flag at key commercial markets, in Hong Kong, Canton and Shanghai of course, but also in northern China. After Banque de Paris et des Pays-Bas, Crédit industriel et commercial, Comptoir d’escompte de Paris and the Haute Banque (the Parisian merchant banks) had godfathered the creation of the Banque de l’Indochine in 1875, other big Paris deposit banks (Société générale in 1887 and Crédit lyonnais in 1896) joined the equity and its board, relying on their daughter or sister banks to represent the French business community in China. “They saw that the Far East French colonies required an autonomous banking institution which would be the vanguard and representative of French High Finance in Asia, gathering major affairs and transmitting them to its Parisian partners, to which it procured a flow of profitable operations, like the credit issued through acceptances or forex operations. Multiplying banking institutions in Asia would weaken the French position there in the face of the British who knew how to mix diplomacy and finance and found strong colonial banks like Hsbc or Chartered.”[14]

Meanwhile, Cnep had been weakened by the resignation of its German and Swiss managers in Asia who joined British or German banks there, its crash of 1889 and the economic, monetary (with the acute depreciation of silver) and military (Sino-Japanese war) turmoil in the Far East during the first half of the 1890s. It decided therefore to close its branch in Yokohama in 1893 and those of Tianjin and Fou Tcheou in 1899. For some time, the whole banking strategy in China had to be borne by Banque de l’Indochine, which inherited Cnep’s Hong Kong branch[15] in 1894, settled in Shanghai in July 1898 and in Singapore in 1905.[16] Geopolitical events dictated such a move because China was forced into granting a series of newer, harsh concessions to “the Powers”, having to lease more harbours, to dedicate more tax revenues to the Boxers indemnity as pledges against bonds and even accept the presence of troops to guarantee the completion of the agreements – even as Chinese nationalists denounced them as “unequal agreements”. The balance of power was not in favour of the China and the installation of Banque de l’Indochine in the northern cities was in fact part of this “imperialist” system linking geopolitical pressure and business penetration;,[17] part of the strategy of “impérialisme à la française” and promoting “la France impériale”[18] beyond mere colonial deployment.

At the same time, French interests in Asia started being promoted by another bank, Banque russo-chinoise,[19] which, in 1896, associated some banks from Paris, with two-thirds of the capital subscribed in France, Belgium and Russia – especially Banque internationale de Saint-Petersbourg – in order to get a share in the development of Manchuria and northern China. This development was , sstimulated by the opening of the Transsiberian railway and the trans-Manchurian railroad, for the construction of which Banque russo-chinoise constituted Compagnie des chemins de fer de l'Est chinois in 1896 (Eastern Chinese Railways). But the purpose was larger as Banque russo-chinoise intended to become the spearhead of the penetration of French and Russian interests in the Chinese regions located north of the Yang Ze Kiang. It acquired Cnep’s Hankow/Wuhan and Tientsin/Tianjin branches in 1895 and settled in Beijing in order to be close to the financial authorities, especially for loans intended for the payment of the war indemnity to Japan, other loans and treasury advances: it led the negotiations for the financing of the Shansi railway in 1902-1903 and negotiated its frf40 million bonds on the Paris stock market.

However, Banque russo-chinoise soon escaped French influence as its German and Russian managers seemed to only favour Russian interests and did not promote French banks’ business with the Chinese government. In fact, the latter called British and German banks when it looked for the subscriptions tobing of the last portion of the indemnity it had to pay to the Powers in 1905, having intervened during the Boxers war. This choice aroused strong discontent amongstin the French authorities. Banque russo-chinoise ended up competing against Banque de l'Indochine in Southern China and opened a branch in Hong Kong in 1904. This managerial dissent, coupled with the inability of Russian interests to exert strong pressure on China after Russia’s military defeat to Japan in 1905, excludeddismissed Banque russo-chinoise from playing any part in the great French financial strategy in China. Moreover, when Banque russo-chinoise was merged with the Russian Banque du Nord to create theinto Banque russo-asiatique[20] in 1910, it rejoined the sphere of influence of French banks and its successor devoted itself mainly to its Russian and Manchurian business and, in spite of the desires of its managers in China, did not project itself significantly southwards.

This development emphasiszed the Banque de l'Indochine’s mission of a double strategy of reinforcement of its commercial implantation in South China and of breakthroughs in the cCentre and nNorth. – and aAn agreement with the French sState on 16 May 1900 confirmedexplicited this move. It included: a change to its statutes in order to adapt them to the practices in Chinese markets and an increase in its capital. The bank thus opened branches in Hankow and Canton in 1902, in Tianjin in February 1907 and in Beijing in April 1907,. This program was soon crowned with success, as theses branches, equipped with the comprador system, using an intermediary with the Chinese community, gathered a wide clientele of local traders and bankers for short term advances on commodities (opium, raw cotton, raw silk, tea), industrial products (cotton and silk fabric), gold and silver. However, Banque de l'Indochine limited its operations to short term loans, currency exchange operations and to participation in the issuing of securities subscribed abroad. It refused to get involved in the construction of a branch network in the Chinese provinces and in the direct financing of local business, then considered as entailing high risks and financial immobilisations;, although the granting of credit to trading houses and even to local bankers does imply the indirect financing of indigenous merchants.