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French banking and business in Tianjin from the mid-1930s till the mid-1940s: Times of hardships

Hubert Bonin, professor of economic history at the Institut d’études politiques de Bordeaux, and umrGretha-BordeauxMontesquieuUniversity [

[Text presented at the conference Paris-Tianjin in Tianjin, 14-19 September 2009]

At the Paris-Tianjin conference in Paris in November 2007, we had presented a first paper telling the history of the banking and business activities in the French settlement of Tianjin and in its overall zone of economic influence in the north-east area of China from the start if the twentieth century to the mid-1930s. Little by little, that market place, which had been perceived as a far-fetched and second-level commercial objective, only to prop up emerging relationship with the business and financial activities of the Beijingg capital, had become a useful bridgehead of French interests, first along the coasts and the river, second throughout the regions penetrated by roads and railways – for imports of equipment, durable goods, staples and high-end consuming goods, or for exports of local productions, thus as a leverage to French global interests in China[1]. And the concessions itself, with their internal outlets (the army, the catholic missions, a few lean layers of European bourgeois and employees; then more and more Chinese civilian and military bigwigs, taking profit from order, law and comfort provided by the city), offered opportunities for the distribution of consumer goods. A little “Bund” somehow had taken form, with banks and trade houses gathering themselves along a few streets and quays. Tianjin had benefited too from the temporary completion of the Guo Ming Tang’s China, when expectations of an era of growth and even prosperity had been inspired by the structuring of “modern” markets, in cities, within the army, or through the manufactures which the new regime and entrepreneurial bourgeoisies were favouring.

Within the Tianjin settlement, Banque de l’Indochine had asserted itself as an “institution”, which explains that its archives[2] supply today much information about the economic life of the concession and of the whole city, whilst freshly opened archives from the Consulat général de France in Tianjin[3] broadened our perception of the evolution of the French community there.

But the apex reach at the turn of the 1930s left room to hard times: civil war, internecine struggles between Jiang Jieshi/Tchang Kai Chek’s regime and the warlords fiefdoms, then the immixtion of Japanese officials and army, followed by the general war, caused harsh crisis and perturbed the daily life of banking and trading houses. Throughout these years, within schemes of a new “Asian order”[4] where Tianjin was a mere pawn, the fate of the Tianjin French community and even life was at stake: its very resiliency constituted a challenge, which this paper intends to reconstitute. We intend to give glances of the businessmen and bankers’ life in Tianjin amid concerning events which threatened first the course of trade and then common life and people’s fate themselves.

1. A troubled environment for business in Tianjin in 1935-1941

Whilst the French concession seemed to enjoy some peaceful and “business as usual” life, the Tianjin area became more and more confronted to the pressures of military tensions and Japanese discreet then massive progression. On one side, Tianjin businessmen had to take into account the dismantling of genuine administrative power between the Nankin/Nanking/Nanjing regime and the warlords, whose tactics against the Nanking government rekindled insecurity and weakened the Chinese ability to maintain a durable control on the sub-region. But a process toward stability prevailed when the authority of the generals supervising the area (Chang Tue Chung in Tianjin and Sung Cheh Yuan, governor of Hopeh-Chahar) was de facto reinforced in 1935-1937. But all stakeholders had to respect more and more the ascent of Japanese might in north-eastern China.

A. Tianjin and Japanese inflows (1935-1937)

The Banque de l’Indochine(BIC) branch could not escape the fate of northern China since Japanese troops first invaded it in 1933: the war commenced there[5] before the general one in 1937. Their incursions spurred huge moves of refugees, disturbed trade exchanges, and the life of the Tianjin concessions. Japanese policemen and soldiers held their de facto rule on several areas, especially the trade ways, and they ended imposing their discreet grip on the economy. They helped Japanese company smuggling goods (wool and cotton fabrics, especially) into China[6], thus robbing off customs revenues from Chinese authorities and, more importantly for the bank, shrinking the activities of Chinese or European traders there, and the outlets for credit. Tianjin became some kind of a challenged target, which created an atmosphere of distrust[7] throughout 1935 and 1936, even if traders and bankers maintained the momentum through such obstacles: “The 1936 year has been particularly favourable to the trade on piece goods.”[8] But, because of the Japanese progression (and subversion), little by little, the whole progress conquered for business and banking from the 1910s was halted in favour of the mere initial French purpose to serve the sole interests of the French concession. The French consul noticed that the import trade in Tianjin cannot but lose ground and reached in 1935 the lowest level since 1917: insecurity of financial transactions, smuggling, organized commercial crime in the countryside, political uncertainties, and decline in purchasing power of the population all contributed to such a decline[9].

The Tongku armistice between Japanese and Chinese authorities on 31 May 1933 had halted the north-eastern war, but opened doors to Japanese trading houses through the Koupeikou and Sigenkou passages of the Great Chinese Wall, almost to the outskirts of Beijing and Tianjin; even a few Japanese troops were introduced to “keep order”. Japanese business interests more and more penetrated the regions, even if they kept officially their administrative links with the Nanking regime[10]. Japanese goods ran there thanks to smuggling, short-circuiting Chinese customs. An actual strategy took shape to replace European imports by Japanese ones. Such moves led to the insensitive process of setting Japanese customs barriers all around the still Chinese north-eastern areas, with a customs office established in September 1935 à Tianjin for the whole Hopei-Chahar state and along the railway tracks. Railways became an issue: A project of 450km track joining Tianjin to Shijiazhuang was conceived, to link Tianjin to this halt of the Beijing-Hankeou/Hankow/Wuhan, itself linked to the capital of Shansi, Taiyuanfou/Taiyuan.

Tianjin became a target for Japanese interests[11], as Japan intended to reverse the move towards economic independence which the Washington treaty in 1922 had eased since it had allowed China to set up tariff barriers to protect its budding industries. The north-eastern Chinese market had therefore to join the “Asian area of co-prosperity” led by Japanese. They multiplied bridgeheads in Tianjin, first acquiring the power plant located in the ex-German concession and putting a foot at the Énergie électrique de Tientsin. They intended to get access to mining (iron and coal) and to salt (for soda industry, with Japan taking control of the Chinese plant in Tongku) and tobacco activities.A subsidiary of the North China Development Company, an affiliate of the South-Manchuria Railway, was settled in Tianjin. Four spinning plants were opened which purchased cotton to local peasants and merchants. But the influence of European countries and companies still pervaded in Tianjin for a while.

Table 1. Exports from Tianjin in 1936 ($ million)
Total exports / 110
Exports to Japan / 24
Among which cotton / 15
Exports to other countries than Japan / 86
Exports to UK & dominions / 19
Exports to USA / 44
Exports to western Europe (Germany, Belgium, The Netherlands, Italy, etc.) / 20
Exports to France / 3m
Part of France of exports to other countries than Japan / 3.4%
Part of France of total exports / 2,7%
Part of France of exports towards western Europe / 15%
Source: Estimate of BIC Correspondance, 1 March 1939.

B. Tianjin business through the Sino-Japanese war (1937-1941)

Ups and downs were the fate of the Tianjin business community throughout the years of localised war and of progressive embeddedness of Japanese influence and power.

a. Tianjin taking profit of its position

Tianjin was caught between Chinese and Japanese armies when the offensive of Nanking troops in north-eastern China was followed by a general offensive of the Japanese army in July 1937. That latter lodged 20,000 soldiers[12] between Tianjin and Beijingg in July 1937, but the Nippon treated with the generals supervising the area (Chang Tse Chung the mayor ofTianjin, and Sung Cheh Yuan, the governor of Hopeh-Chahar) and some kind of an “armed peace” preserved Tianjin from global fighting[13]. After the fall of Nanking in December 1937, Japan went on bullying on Chinese troops, depending from the Hankeou/Wuhan regime, especially in May-June 1938. The Tianjin should have escaped troubles but a Communist guerrilla warfare aroused in Shansi and Kiangsu, which often interrupted the functioning of the Tianjin-Pukow railway; and Tianjinwas often isolated from Shanghai and pk. Then the destruction of dykes by Chinese provoked flooding all over the Yellow River/Huang He in the summer. A promissory government, sponsored by Japan, was established in Beijingg, which was to exert its authority over a few cities, among which Tianjin and along railway tracks[14]. Generally speaking, confusion predominated[15], with ups and downs about the calm necessary to day to day business, along the various steps of the war[16].“Guerrillas were rampant just outside of the cities and railway zones of northern China”[17]: theygained ground in the first half of 1940, disturbing agricultural production and commerce[18] – before some respite in the first half of 1941 thanks to the non-aggression pact between Ussr and Japan, which put some kind of a truce in Shansi[19].

Businessmen had thus to learn how to practice “business as usual” under Japanese occupation[20].An awkward situation prevailed: a relative calm preserved a few regions in 1938-1939 (eastern Hopei, interior Mungolia). Cities had to get fresh supplies; the 600/700,000 Japanese troops and the civil servants accompanying them became an important outlet for goods. These factors explain a somewhat serious rebound of the exterior trade of Tianjin during the first months of 1938.

Table 2. Ships reaching Tianjin and Tsingtao harbours
Number of ships / Total tonnage
January-September 1937 / January-September 1938 / January-September 1937 / January-September 1938
Tianjin / 1,060 / 3,056 / 1,587,941 / 2,522,616
Tsingtao / 1,052 / 772 / 2,500,642 / 1,252,659
Source: "Rapport-bilan. Situation économique et politique", Second half 1938, BIC Correspondance, 17 January 1939, annex 3.When Japanese imposed strict controls on the Tsingtao exchanges, a important chunk of imports and exports of Shandong were reoriented toward Tianjin.

The result was that, for a few months,“Tianjin had become, since the start of 1938, the first Chinese harbour for exports, its transit representing 24 per cent of the total of China, against 23 per cent for Shanghai and 20 percent for Canton. Its exports reached during this period 70 per cent of the amount of the corresponding period of 1937”[21].This trend was reinforced by a stiff drop of smuggling now that Japanese authorities controlled the whole area, even if Japanese generals sometimes short-circuited official orders. Benefiting from the cash operations fuelled by such trading and also from remittances still sent from overseas by Chinese diasporas, Tianjin appeared for a short while as a kind of an island of compromise between the old Chinese order and the new Japanese order.

b. The concessions between autonomy and the Japanese order

The city itself had to respect a subtle balance. In a nutshell, Japanresented at the predominance of British trade on the north-eastern exchanges and in Tianjin – not to speak of other areas, and its purpose was to encroach on such economic and financial power. It also grumbled at the principle of the British and French concessions, because they were still “neutral” territories which could shelter Chinese people hostile to Japan – mainly “nationalists” – and express genuine economic and financial power of decision. Tianjineven kept in charge the part of the silver reserve pledged by the Chinese Nanjin/Nanking regime for its notes issuings which was placed under the control of the settlements (in parallel with the other deposit in the Beijingg Legations). The authorities of the concessions ended recognising Japan’s authority over that silver[22], but the hoarding was respected throughout the course of events.

Just before the Munich agreement on November 1938, Japan would have been on the brink to take control of the settlements. Having abandoned the project, it established some kind of an informal blockade. It built a network of barbed wire and control stations all along the road circling them, with only four entrances, where guards harassed transiting European and heavily checking Chinese people, especially merchants or their transporters[23]. From July 1937, the controls drifted imperceptibly toward a blockade, to multiply obstacles to exchanges. In the meanwhile Japanese took over the salt tax office of Tianjin on 5 August 1937 (Changdu District of Salt Administration) and of its revenues[24]. The Japanese power also increased substantially the excise tax on imported goods (with perception just at the exit of the concessions) – which struck French wines and liquors to be sold in the province – and customs fees were raised too, for instance on tobacco, which impeded commerce[25].In 1938-1939 Japanese people had to leave the concessions, to prevent them from any specific identity against the warmongering mindset; even Japanese banks (Yokohama Specie Bank, Chosen Bank) had to transfer their branch outside in promissory locations on the Japanese settlement since January 1939.

Pressure and intimidation increased more and more on European managers and authorities, and on Chinese businessmen linked to them[26], so that they more or less admit the Japanese say on the daily life in the Tianjin area, even in the concessions. A genuine blockade was eventually fixed from February-March 1939, with barriers all around the French settlements for example[27] and restrictions on trade (controls, export certificates on several goods) were then intensified[28]. Amounts of imports of flours and rice in Tianjin were taxed by Japanese authorities, through the Tianjinagencies of Japanese trade houses (sogososha) Mitsui Bussan Kaishua and Mitsubishi[29]. This led British authorities, as representatives of the foreign community in Tianjin and as the expression of the UK to negotiate some terms of appeasement with Japan to delay hostilities, to recognise officially Japan’s authority on the Tianjin area. As a beacon for such compromise, Japanese guards were posted as a symbolic tutelage on the silver deposits of the (now far away) Chinese central bank. A local British-Japanese treaty was signed in Tianjin on 21 June 1940 to implement Japan’s control on the city and its concessions too: Japan took profit from the defeat of France and from the desire of Great Britain to salvage part of its bases in China to impose drastic controls of the silver deposits, the general use of and moreover of information about commerce – with reports to civil servants and direct checking of goods transfers by policemen – at which French officials and businessmen vainly resented[30] as the balance of power was obviously in favour of Japan hegemony at the expense of British thalassocracy and US might[31].

c. Confusion about currencies

Negative factors anyway put brakes on “business as usual”, and uncertainties often prevailed[32], which disturbed banking operations. A first cause stemmed from the 40 per cent fall of the Chinese “nationalist” dollar – itself dating back only to 1935 on the part of the Tchiang Kai Chek regime – in the second quarter of 1938. The multiplicity of currencies available in northern China expressed the lack of confidence among cash holders, and moreover the fragmentation of local and monetary power: about seven types of banknotes were circulating around Tianjin at the start of 1938.

Table 3. Banknotes being circulated in northern China in March 1938
(millions dollars) (before the creation of the Frb$)
Central Bank of China notes / 45
Bank of China notes issued in northern China with a Tientsin mention / 250
Bank of Communications notes issues in northern China with a Tientsin mention / 80
Hopei Bank notes issued in Tientsin / 50
Provincial notes issues in the Shansi province / 40
Various banknotes / 5
+ Yens issued by Bank of Korea / /
Source: “Note sur la situation monétaire en Chine du Nord”, by the head of the BIC Tianjin branch Soliva for the Consul général de France in Tianjin, 21 March 1938, Consulat général de France archives 62 9C3

The birth of a new central bank in the north-East, the Federal Reserve Bank, on 20 March 1938, on the side of the pro-Japan regime fostered further trouble: Chinese northern dollars were to be exchanged by native banks and trade houses only against yens, and not against “Shanghai dollars” of course or the “nationalist” dollars – even if the Korean yens also were used in the area along with the Japanese yens[33]. Some kind of a currency war aroused, feeding volatility. Trust on northern Chinese currency (or Frb $) had crumbled, all the more because foreign municipalities and banks had refused to admit it, and because trust in the “nationalist” dollar (the Central China Currency or Cnc $, or “fapi”, called “chunky dollar”[34]) kept momentum in 1938-1939and was day to day used by Chinese intermediaries despite Japanese pressures. Northern China banks tried to sustain the value of the Frb during the first quarter of 1938, to stabilise the market, but as Japan refused to help them, a free currency market took shape since April 1938, especially in Tianjin, with a drift of the Frb value. In fact, the whole area practiced altogether half a dozen currencies: the Frb dollar, the Cnc dollar, discreetly the Shanghai dollar, the yen, the Korean yen, and also notes issued by Chinese big banks, Bank of China and Bank for Communications[35]. Checking the reliability of accounts was thus much difficult for businessmen and bankers[36], all the more because inflation moved up from the mid of 1938 at the expense of the northern Chinese dollar and the yen as well, which worried the holders of frb notes[37].