Front Page Titles (by Subject) II.: CHINESE BANKING: ANCIENT AND MODERN. - A History of Banking in all the Leading Nations, vol. 4 (Germany, Austria-Hungary, Netherlands, Scandinavian Nations, Japan, China)
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II.: CHINESE BANKING: ANCIENT AND MODERN. - A History of Banking in all the Leading Nations, vol. 4 (Germany, Austria-Hungary, Netherlands, Scandinavian Nations, Japan, China) 
A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 4 A History of Banking in all the Leading Nations, (Germany, Austria-Hungary, Netherlands, Scandinavian Nations, Japan, China).
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THE ABSENCE OF GOVERNMENT REGULATION.
FROM what has been written with reference to the money current in China, the conclusion is clear that its value, as a means of purchase or exchange, is what custom has given to it; changed from time to time and made different in the different provinces by the decisions and acts of the merchants. There is probably no government in the world that has so little to do with the money circulating within its borders, or which may properly be the subject of legislation, as the Government of China; but this non-use of a most important prerogative of sovereignty will not appear so surprising when it is considered that China is also about the only nation in the world without a public treasury. The Central Government is supported by contributions, as it were, from the different provinces; and even the foreign representatives of China are not paid from Peking, certain provinces being required to contribute to the support of certain legations of the Government.
This irregular system, apparently without chart, and from which the influence of the Central Government seems eliminated, exists equally in connection with the banking system of China. It would seem that if a law were necessary for any purpose whatever potential in the regulation of business affairs, it would be essential to define the functions and responsibilities of the institutions used to facilitate commerce and trade, and which are often constituted the great trustees of public wealth. A warrant or charter for a bank, by the Government of China, would, says Williams, in his “Middle Kingdom,” carry no weight with it, and banking corporations are unknown. There is a requirement, due more to the custom among merchants than to any special act of the Government, that a bank can be opened by any person or company by making certain payments to the Government; and while this requirement is sometimes called a law, it does not deserve the name, although the decisions of the merchant class of Chinese are received by Chinese business men as having the authority and binding force of laws. This fact evidences the confidence reposed in the banks, and illustrates how the community of interest establishes a necessity for mutual confidence, and how that confidence encourages the inviolable observance of all banking functions. The Chinese bankers are thoroughly impressed that honesty is the best policy; that principle is rigorously enforced, and when violated, the consequences are always serious. As the fundamental principle of the Government of China is parental, offences committed by one member of a family must be atoned for by the relations of the offender; which provides another safeguard against failures and defalcations by banks and bankers.
METHODS OF BANKING.
The trade of China is carried on mostly through banks. As already indicated, they are private institutions, and are conducted upon about the same general principles as prevail in other countries. They are composed of one or more individuals, with equal or unequal shares, and sometimes using only one name, although there may be several partners. The banks receive money on deposit at one rate of interest, and, when lending, charge a higher rate. They will discount their own bills, and often share profits on the transactions undertaken by the borrower. When deposits are made, drawable at the option of the depositor, interest is allowed to the depositor; though, in order to withdraw the deposit, or any part of it, the depositor must duly notify the bank of such intention. When the deposit is made, a receipt is given by the bank, in which the terms of the deposit are stated. When a pass-book is given, which is more satisfactory and is often done, it must be sent to the bank and the transactions are entered in it, either to the debit of the depositor or credit of the bank. The pass-book needs to be carefully kept; for, if lost, there is much difficulty in recovering the money which has not been drawn. A note or receipt given for the money loaned at compound interest would be illegal; but interest may be added to the principal, and a new note, or receipt, given for the amount thus made, which is held to be a new principal upon which interest may be charged; and this may be done monthly, annually, or at any other period, according to agreement. The rate of interest, regulated by custom or law, is about three per cent. per month, or thirty-six per cent. per annum; and whatever sum may be due as interest at the date of repayment, no more can be received or demanded than the original sum lent and the lawful interest thereon, to any amount not exceeding the principal; a proviso of the law which makes the prompt collection of interest a necessary precaution against loss.
CORPOREAL PUNISHMENT FOR DEFAULT.
When a debtor fails to fulfill his agreement, he is punished by blows with the bamboo, the number being regulated according to the amount of the debt, and the blows are repeated from month to month, until the agreement is fulfilled. Sometimes, in lieu of blows, imprisonment is the punishment for this species of delinquency. The repetition of the punishment, from time to time, would seem exceedingly cruel; but to the Chinese, who know of no modification of the family law, out of which grows the mutual responsibility of relatives, it is regarded as a legitimate means of enforcing payment by the debtor or some of his relations.
BILLS OF EXCHANGE.
Bills of exchange and promissory notes circulate from hand to hand, and are either payable at sight or within a given period after sight, in which (latter) case they are regularly “accepted”; sometimes they are made payable at fixed periods. There is a certain sort of promissory note in circulation which does not pass through the hands of more than three or four successive persons, generally all of whom are well acquainted with each other. The peculiarity of this form of note is that the original is not indorsed in the manner customary in the United States, but, instead, a piece of paper is attached to it, on which is written the reason why the note is handed over to another person in the place of money. At the maturity of this note, another peculiarity is that the holder does not apply for payment to the drawer, but to the holder from whom he received it, and thus it passes on to each indorser until it reaches the drawer; or the three or four persons whose names are on the indorsement, including the actual holder of the bill, call together on the drawee for payment, this mode being considered the most simple and effectual. It will be seen that promissory notes of the sort described are not so much notes of accommodation as security for the payment of money; and the discount on them varies according to the scarcity of money or credit, but seldom exceeds more than one per cent. per month. The usual medium of transmitting money is through letter of credit or bills of exchange, and the cost of remittance is measured by the distance to those places with which the bank issuing the letter of credit or bill of exchange stands in relations of business. The business of many of the banks is confined to their own and adjoining provinces, and the connections of only a few extend beyond those limits. But whenever there are connections between banks, the intercourse is maintained with the greatest regularity.
THE BANKS AND THE GOVERNMENT.
So much opposed are the banks of China to any connection with the Government, that the employees are exempt from all such responsibility. There is an exception to this rule in the case of the Government shroff; but it is not so much an exception as a custom of every public officer superintending any branch of the revenue to employ a shroff to receive the taxes and duties. There is a bank, however, in each province, to which is confided the keeping of the treasure of the local government and the collection of the taxes, on which a commission of two per cent. is paid such banks. But the banks which are considered the most important are those of discount and deposit. These enjoy the greater degree of public confidence, and are most encouraged by the Government. The chief of these banks are those of deposit; the operations of which comprise discount, negotiations of letters of exchange, advances on movable and immovable property, on merchandise, and the exchanging of the precious metals. The number of such banks it is difficult to determine; but the Government encourages their augmentation.
One of the great resources of a Chinese bank is the negotiation of letters of exchange of long date, sometimes for several years. But long terms are not so frequent since the establishment of foreign banks at the treaty ports, as such letters are not acceptable in foreign commerce.
The deposit banks, generally, have but small capital. Their business is confined to allowing interest on the daily balances of the deposits, but they engage vis à vis with their clients, and to them give all the possible facilities, or they may make their clients advances. The practice is, in effect, that a client having a deposit, may obtain on it, on occasions, nearly double the sum he has deposited, and give only a simple personal guarantee under his own signature. But this form of loan is not of long date, being mostly from five to ten days, and at the rate of interest for the day.
One of the operations—the most remarkable, perhaps—of the Chinese banks, is their system of clearings, which may be compared, in excellence, to the system prevailing at the clearing-houses of London, New York, and other great commercial cities. Each depositor receives from his bank a book of double column, in one of which are written to his credit all the sums that he deposits, and in the other all the transactions that follow; the depositor sends to the bank all the creditors for their payments, on the understanding that he, each evening before closing his business, sends his bookkeeper with the book in question, indicating what dispositions he has made. The next morning, the bookkeepers of several banks meet, indicate in their books the sums to be paid or to be received for their clients, and settle their balances with cash or by other means. This system of clearing is not without difficulty, not only as between bankers and negotiants, but also as between employers and workmen. The method presents advantages in the economy of time and in putting the daily savings of commerce in circulation. Yet, when currency becomes scarce, the bankers of China, as elsewhere, seek not only to recover again the advances made to their clients, but also to draw from their confrères the balances which may be due to them. It is then that the custom of the Chinese banks offers, perhaps, an advantage over foreign banks; they give an average of ten to fifteen days for the payment of these cash balances; the delay becomes palliative and the crisis is moderated, or public opinion becomes reassured, for the banks have time to procure the needed relief from the banks of a neighboring province. A money crisis in China, however, is rare, and when one occurs, it is quickly over. At the appearance of financial trouble in a province, the Governor is authorized to aid the bank with such sums collected from taxes as may be at his disposal; and, as the crisis generally happens at the end of the Chinese year, the taxes are invariably retained till that period.
PAWNBROKERS AS BANKERS.
Pawnbrokers form such a numerous class, and are so intimately connected with business, that no account of banking in China would be complete without some account of pawnshops. The trade of lending money on pledge is, doubtless, more universally practised in China than in any other country in the world. It has been systematized in accordance with rules defined with undeviating precision, and which permeate the entire business life of the Chinese companies. It is regularly organized by virtue of license issued by the Government, and for which certain taxes are annually paid. Classifications, according to grade, are made, which are regulated by the difference in the amounts paid as license tax, as well as by the shape and size of the buildings in which the business is conducted, and such buildings are the most imposing in a Chinese city. All kinds of merchandise may be accepted on pledge, the borrower paying a certain rate of interest and submitting to established rules, which are unconditionally enforced. The usual rate of interest is thirty-six per cent. per annum; but, in the interest of the poor, the rate is reduced to two per cent. per annum during the winter months. Should the pledge remain unredeemed for three years, it is disposed of by public sale; and, under certain circumstances, it may be sold within a shorter period—the months for sale being the 2d, 5th, 8th, 9th, and 11th of the year. The owner of the property pledged has his protection in the severe penalties surely to be visited on the pawnbroker who violates his trust, and in the rule that there can be no dissolution of the company without the sanction of legal authority and a fee of one hundred dollars to have the name of the company erased from the tax list.
In addition to pawnshops, and kindred thereto, there are what are called money-lending companies. These are of two kinds; one called interest-receiving societies and the other interest-receiving companies. The rules which govern such companies are these: First.—The society must consist of a definite number of members; each member is required to contribute an equal sum to the common fund; a meeting must be held at the end of each quarter, at which all members must be present; due notice of the meetings must be given, and they must be held at the house of the president of the club; the various sums contributed to the club are to be weighed and examined by him; and should important business or severe sickness prevent any member attending, the member is required to appoint a suitable representative.
Second.—At each properly notified meeting, the borrower must pay back an installment of his loan, with interest at the rate agreed upon; the installment to be equal to the amount contributed by each individual to the fund in the first instance; the interest to be divided equally amongst the members of the club.
Third.—Each member shall, at each of the meetings, duly and properly notified, contribute to the fund a sum equal to that which he contributed at the first meeting. In order to give each an opportunity to borrow from the collective amount thus raised, each member may deposit in the lottery box, placed on the table for that purpose, a tender written in a legible hand, setting forth the rate of interest which he is disposed to pay on the amount of money he desires; the tender is then to be taken out of the box by the president of the club; and he who is found to have made the highest offer is declared the receiver of the loan; and should two or more persons make an equal offer, he whose tender was first presented is awarded the loan.
Rule Fourth provides for a repast for the members, served either at the residence of the president or at a neighboring tavern; and the Fifth requires that each member shall be provided with a book of the minutes of each meeting, and any member failing to contribute to the general fund shall have three days’ grace; and then failing, shall pay a fixed fine every day until the sum due is paid. The highest rate of interest I have seen stated as paid for money thus borrowed is twenty-five per cent. per annum.