Chapter 16
Chinese Entrepreneurship since Its Late Imperial Period
UNTIL THE LAST DECADE, the image of China for most of us was that of a country full of people, underdeveloped, poor, and communistic. Indeed, for at least one century, from the late nineteenth to the late twentieth centuries, China's share of the world's gross product dropped precipitously, from around 8 or 9 percent to no more than 4 or 5 percent, while its population as a share of the world's total stayed fairly constantly at approximately 20 to 24 percent. Yet from at least the late sixteenth to the early nineteenth centuries, China alone accounted for between a quarter and a third of the world's gross output (Frank 1998, 108–16, 165–74, 297–320; Maddison 1995, 19–31). Late imperial China's agriculture was far more productive and commercialized than the contemporaneous West's, while its urban markets were bigger, and in many ways, just as sophisticated.
What happened was that by the early nineteenth century the Chinese agrarian economy was already heading toward a major crisis. And added to it was a second damaging development related to foreign trade and the state's relations with the outside world. The import of opium, starting in the late eighteenth century, turned the Chinese gain in silver from its exports into a deficit by the early nineteenth century. The drain on silver bullion was further exacerbated by several military defeats in wars and a treaty system with Western powers that denied China the right to conduct trade and foreign affairs on an equal basis. As for the revolution that ushered in a republican China early in the twentieth century, it did not help much; for the country was consumed by warlordism, civil war, and during the 1930s and 1940s, by Japan's invasion that destroyed its domestic trade and industry (Fairbank 1986).
The latest resurgence of China's economic performance did not come about by the Marxist-Leninist style of central planning that characterized the Chinese economy since it became a communist state in 1949. In 1978, the new party leader Deng Xiaoping announced a major economic restructuring. This has led to incredible successes, such that after thirty years of extraordinarily rapid growth, often at double digit annual growth rates, China's GNP has just overtaken all of Europe's to become the third largest economy in the world, just behind the United States and Japan. It has opened up millions of private or semiprivate enterprises, some having become so large as to reach multinational scale, such as China International Trust and Investment Corporation (CITIC), Lenovo and Haier, and others remaining mostly small to medium in size. And operating them are an equally large number of entrepreneurs. Indeed, the Chinese economy now and in the late imperial period shares remarkable patterns of continuity despite a hiatus of almost two centuries.
Who are these entrepreneurs of the post-Mao era? How have they emerged after a period of thirty years, from 1949 to 1978, when the very notion of entrepreneurship was banned? Are these new entrepreneurs different from those in the past? Do they share similar social background and hold comparable views and values about entrepreneurship? What sort of institutional support or hindrance confronts them? What kind of social positions do they occupy? And how do their roles fit into a state and society that is led by a Communist party? Before we turn to these issues, however, we would need to examine those aspects of the Chinese traditional society and economy pertinent to the functioning of entrepreneurs and their spirit of enterprise. We need to find out what ideological and institutional impediments beset the merchant class, and how they overcame those hurdles, for example, how China's political authoritarianism affected entrepreneurial activities in times of troubles. We should also examine how merchants took advantage of certain economic conditions, such as the need of the average farm household to engage in subsidiary handicraft work on textiles to make ends meet, and social institutions, such as the common native place associations, to better their entrepreneurial spirit and social station. Finally, we shall discuss the different types of merchants, and the different kinds of business organizations such as the family firm and the partnership, formats, and environment in which they functioned as entrepreneurs.
Pertinent Features of the Economy in Late Imperial China
Since the Chinese civilization began as an agricultural society several thousand years ago, there existed social and cultural biases against merchant activities. But there was also recognition of its necessity, as one of the oldest canonical texts clearly pointed to the existence of a market and the essential role it performed.1 The four-class social ranks, with officials first, followed by farmers, artisans, and merchants last, appeared during the Han dynasty (206 BC–AD 220). But for much of the period before and after, there was general grudging toleration of merchants because a large agricultural society that included many different regions of varying fertility for growing different crops and other produce needed commerce, if only for reasons of comparative advantage or to help balance unequal distribution. In some periods, such as during parts of the Tang (618–907), the Southern Song (1127–1279) and the Mongol (1279–1368) periods, bustling urban life and rather unregulated rural markets, as well as relative ease of long-distance travel, allowed trade, including those on the Silk Route through Central and western Asia, to blossom.
Moreover, by around AD 900, the Chinese had already made a wide range of scientific and technological discoveries that had considerable impact on the economy. They included the compass, printing, and paper, as well as chain pumps for irrigation, double-acting piston bellows for high-temperature kilns and for blast furnaces to turn cast and wrought iron into steel, canals with sophisticated locks and segmented arch bridges for easy transport of goods, driving belts and pulleys for various mechanical devices, and spindle or quilling machines for silk and other fabrics. From the tenth to the fourteenth centuries, technological improvements in the various mechanical fields continued, and even branched into early ripening seedings, better fertilizers, and new crops, to the point that they appeared to approach the threshold of some systematic experimentations. They coincided with the increasing popularity of woodblock printing, and the concurrent arrival of the Northern Song's (960–1127) scholars-officials, whose widespread postings allowed the printed manuals to disseminate the latest technological information all over the empire (Temple 1981).
The Turn to Commodity Markets
But the dominant agrarian-based ideology remained, marginalizing technological improvements, and treating mercantile interests as inherently in conflict with those of society and the state. The founding emperor of the Ming dynasty (1368–1644), having risen from the peasant class, emphatically favored an agrarian economy in which every village is self-sufficient and self-sustaining, with local commerce kept to a minimum, and regional exchanges in goods and services limited to instances of real necessity. Yet it was during the Ming period that the Chinese economy took a significant turn to developing commodity produce for the market. A number of unplanned factors conspired to bring this about. First was the state's successful revitalization of the farm, allowing some farmers to accumulate surpluses while others went into specialization of cash crops. Second was the construction of two new national capitals under the founding Hongwu emperor and his son Yongle. They also built major highways as well as the reinstallation of the Grand Canal that linked the north with the prosperous Lower Yangzi. Furthermore, the Ming continued to be concerned with the Mongols in the north and northwest, and with the Japanese piracy along the eastern seaboard. This led to the building of a network of post roads and post stations across the country to move official documents speedily (cf. Brook 1998b, 65–79; 1998a, 580–81, 670–72).
Third, the market mechanism was stimulated by the seven major maritime expeditions, each involving a hundred and more ships and thousands of marines, sent to Southeast Asia and the Indian Ocean by the Yongle emperor between 1403 and 1433. Although the goal was mostly political, they introduced the goods and trading practices from that part of the world to China. More importantly, they charted maps, added logs of new sea lanes, or improved on old ones. While this expansive policy of the Ming came to a sudden and complete halt in 1433, to be replaced by a new policy to ban all overseas trade or travel, it did not prevent some Chinese along the coast from migrating to or trading with that entire region of Southeast and South Asia, doing so clandestinely or, more accurately, with the unofficial sanction of the local authorities (Levathes 1994; Ng 1983; Tian 1956).
A fourth factor that promoted the markets was the rise of population in China between 1400 and 1600, from a base of about 75 million to probably 150 million. A long period of peace, internal migrations to the southwest, and the introduction of new crops from the New World all contributed to it. Along the Lower Yangzi River in the region south of its bank called Jiangnan, from the late fifteenth century on, the family farm became smaller while the family grew larger, and handicraft work in silk and cotton began to enter as subsidiary industries. Their increasing production, based almost exclusively on individual farming families, seems to have greatly benefited from newly invented spinning wheels that had once been less efficient quilling machines but were now fitted with driving-belts and connected to larger wheels to provide speed. And as these new producers searched for new markets for their commodities, they were helped by the expansion of silver ingots and copper cash coins from Japan, and by the massive imports of silver pesos and guilders from European traders, whose first ship reached Canton (Guangzhou) by 1519. Both the Japanese and the European traders were exchanging their bullion for Chinese goods. Tokugawa Japan put a stop to their silver outflow in the early 1600s. But the silver imports from Europe continued into the early 1800s, by which time more than two-thirds of the silver Spain took from the New World had come to China. At about 1500, the Ming government also converted what used to be various taxes in kind, usually in grains and in corvee labor, into silver and copper (Pomeranz 2000; Atwell 1977).
The monetization of the Chinese economy by the late sixteenth century allowed more and more farm-produced commodity goods to go into the market. We see that in the rapid growth of rural and urban markets. In the Jiangnan region, by the early 1500s, each of these markets was only a few miles apart, and their growth can be documented by each new edition of the local county gazetteers—these editions usually updated every twenty-five or thirty-five years. Several gazetteers from the Lower Yangzi counties included accounts of local commercial activities, as well as the presence of wholesale and retail merchants from outside the county and region (Brook 1998b, 117–19). We also see it in the spread of commercial crops, of cotton, mulberry, sugar cane, tobacco, and tea into other parts of China. Thus, by the late 1500s, the Jiangnan farmers' proximity to market appears to have allowed many of them not only to go into specialization of cash crops or of the handicraft industry as a source of subsidiary income, but also to turn them into full-fledged family enterprises (Xu and Wu 1985; Huang 1990; Brook 1998a).
These farm-produced goods then joined with other forms of commodities, including tea and Chinese medicinal herbs that traveled over long distances, to support not just foreign trade, but also a thriving domestic urban market. By the late Ming, conspicuous consumption by the urban well-to-do, stimulating the exchanges between rural and urban markets, just like going on the road for business or leisure, became a common everyday scene totally unlike what society had envisioned at the beginning of the dynasty.
New Institutions Supportive of Entrepreneurship
The Qing dynasty (1644–1912), which followed the Ming, carried on the same general policy of laissez-faire toward the merchant class. Commercial taxes were light, except for certain monopolies and such as those collected from European merchants for the imperial household by the Cohong merchants. The state remained uninterested in regulating the economy and left the merchants to govern themselves by setting up rules and guild associations. Indeed, the growing presence of these guilds based on trade categories or common places of origins in major cities by the beginning years of the Qing reflects the increasing prominence of long-distance merchants who built these associations and made use of these institutions to network and to authenticate their professional credentials with the local authorities. Indeed foundation tablets of guild halls are replete with names of merchant founders and of retired officials whom they invited to serve as guild directors (Liu 1987, 33, 44–46).
Meanwhile, the rural economy was gaining in size and maturity mainly as a result of an unrelenting pressure of population growth from around 1700, so that China's numbers doubled within the eighteenth century, rising from about 150 million to over 300 million by the early 1800s. With larger and larger populations to support, there was an intensification of land reclamation, a broader specialization of cash crops and more diversification of cropping patterns. A growing fragmenta- tion of the landholding also meant that the average farm, managed by tenants and owner cultivators, continued to become even smaller. In the rich and highly populated Jiangnan, the largest estates rarely exceeded several hundred mou, or about one hundred acres. The only larger tracts of land were likely to be part of the newly reclaimed mountain land managed by merchant partnerships who rented out individual tracts to work gangs hired by subcontractors to open new fields.
These activities were again supported by a bigger spread of the handicraft processing sector that came almost exclusively from the same family farms whose small size often meant that they had to take on handicraft work, peddling, or porterage to keep the family above subsistence. Moreover, they were linked with a very lively network of markets, extending from periodic and standard ones in the rural areas to very large ones in urban centers, engaging in local and regional trade and, for those in specialized trades such as rice and dried seafood products, with the international markets of Southeast Asia. Finally, there were the long-distance traders who traversed the country on designated routes, and specialized in specific products such as silk, timber, and herbal medicines (Zelin 1991).
Much of the success of such a highly commercialized, yet rural-based, economy, however, came from critical support provided by regional towns and central cities. Besides those already mentioned, such as the coordination of traffic flow and of long-distance trade, or the social networking among merchants and officials through guilds and common place associations, there was increasing sophistication in commercial and financial instruments, institutions, and practices. Even though the Qing government continued its policy of not formulating new laws to regulate these new developments, officials everywhere allowed commercial contracts to be taken to court for adjudication and enforcement. This led to greater complexity in various forms of contracts, from mortgaging or leasing of land, to partnerships with various forms of profit-sharing, and to new corporate entities such as lineage trusts, thus opening up large areas for innovative financial arrangements and business ventures (Xu and Wu 1985).
These developments, when combined with the presence of an openly accessible market, allowed even those individuals who had little or no surplus capital to start small-scale, often family-run, business operations. And since the fragmentation of farms meant that the majority of households lived at or near subsistence level, such a turn to entrepreneurship in fact involved mostly this type of households, so that risk-taking of this sort became a common practice, and in this way, probably gave rise to the common term mousheng (lit. “seeking a living”) to mean “going into business.” In any event, the use of written enforceable contracts, and their application to cover a growing range of situations, meant that entrepreneurs could access greater institutional support in defining their rights and responsibilities in conducting their business.
The Absence of Technological Support and Why
Given the enormous scale—and the apparent success—of the agrarian and market economy in late imperial China as discussed above, one question that compels some answers, even if tentative, is why the promising starts made by technological improvements early on did not lead to some transformational breakthroughs similar to what happened in England in the mid-eighteenth century. We know, for example, that major advancements in the textile machine continued during the eleventh and twelfth centuries. One silk-reeling machine had a treadle that could draw a large number of filaments directly from boiled silkworm cocoons and lay them out in broad bands on a rotating reeling frame, and in this way, resulted in producing the work of several older reeling machines. By the thirteenth century, the same type of machines was adapted for spinning hemp threads and cotton yarns. But this kind of inventiveness seems to have ceased from the late fourteenth century on, so that old discoveries remained fairly static, or fell into disuse (Elvin 1973, 194–99).
Many scholars have blamed it on a new form of Neo-Confucianism that became dominant during the Ming dynasty. When it began in the Northern Song as a direct rejection of the Buddhist notions that all life and things are illusionary and transient, Neo-Confucianists celebrated the goodness and meaningfulness of life and of nature. And its greatest exponent, Zhu Xi (1130–1200), exhorted his followers to go out and intellectually conduct “the investigation of things” as a central part of one's education process. Since Confucian learning was, however, intricately tied to one's self-cultivation and moral understanding, the principles that governed human behaviors in society and those that ruled nature could become commingled. Thus, from its inception, Zhu's exhortation was challenged by others who emphasized meditation and introspection. By mid-Ming, arguments by Wang Yangming (1472–1529) that nature and all other phenomena existed only in man's consciousness had won general acceptance. By blurring the distinction between subject and object, his view suggested there was no longer a philosophical reason to investigate the external world. What mattered was subjectivity, introspection and intuition. And even though the seventeenth century saw a new philosophical movement that emphasized a return to careful evidential studies and practical statecraft, the damage to science and scientific experiments had already been done. In the end, in spite of its long and distinguished record of scientific knowledge and practical applications, China did not advance to modern science, which would have been needed if it were to break into modern technology on its own (Elvin 1973, 225–26; Ronan 1978).
But there were other causes for the absence of technological support as well. From the early sixteenth to the late nineteenth centuries, or from mid-Ming to the late-Qing periods, the Chinese population had probably more than tripled from a base of about 130 to over 400 million. This was also the period that China was, at various times, approaching involution. Certainly with farm yields already at very high levels, and with each added capital resource to improve the land also reaching severe diminishing returns, the needs of the additional population had to rely on new land reclamation. But that too was often insufficient, and in any case, approaching its limits by the end of the eighteenth century. Moreover, the market was running quite optimally; and judged by their respective yields, the tools each used, and the management of their farms, the level of technology the Chinese farmers were using in about 1750 was probably as good as their contemporaries' in western Europe. Thus, it seems quite unlikely that the Chinese economy could acquire meaningful new wealth from some increment in productivity. Indeed, it is more likely that the Chinese economy would be unable to accept the kind of technological breakthroughs that came to western Europe at this time, for how was one to justify the relatively high costs of labor-saving machines when labor in China was so cheap and so overly abundant? Furthermore, without the ability to drastically increase the availability of raw materials such as cotton, what good would those new machines powered by new sources of energy such as steam be? One recent study has shown that Europe's technological inventiveness in the eighteenth century might not have made much difference had there not been several crucial accidental factors that occurred at the same time. They included proximity of coal mines to canals, the juxtaposition of coal and steam engine, and perhaps most critically, the very large new sources of raw materials and other resources from North American colonies (Pomeranz 2000, 67–68).
Innovation Stimulated by Contact with the West
A new area of change, however, began to emerge at about the same time. Starting in 1759, the Qing state authorized a small number of licensed merchants, the Cohong merchants, to trade exclusively with a group of chartered European merchants under the Canton trade system. While scholars still debate the net pluses and minuses of Western trade and investment in China from the mid-eighteenth to the mid-twentieth centuries, there is no question that the various groups of Chinese merchants who came in touch with these foreigners acquired new skills, new forms of organizational principles, and new ideas for starting and managing a business. Western merchants have also introduced new sources of capital with the arrival of Western banks, and new rules, such as the practice of Western legal and administrative systems. They provided additional tools and fresh perspectives for the Chinese entrepreneur (Hao 1986). Others who later on went to the West to engage in business would also pick up similar ideas and practices, and many would return home to form new businesses as well (Chan 1996; 1999).
During the second half of this period, from 1842 to 1945, the Chinese economy was subject to Western exploitation under the unequal treaty system. For example the European powers imposed tariff limitations on imported goods; their merchants received preferable treatment by putting undue pressure on the weak Chinese authorities, and restricted at times their credit to Chinese borrowers. As a result, Chinese factory owners and traders often could not compete on equal terms against their Western counterparts. However, other Chinese entrepreneurs fought back successfully, often by making use of their extensive social networks, superior knowledge, and more up-to-date information on the domestic market to access and control sourcing and distribution of goods and services (Cochran 2000).
Impediments from Bureaucratic Domination
Throughout Chinese history, political control over all aspects of business activities has always been a given even though merchants had significant autonomy so long as they did not infringe upon the power of the state. In times of political strife or of weakened central authority, official domination—especially of the type emanating from the provinces—seems to have strengthened, Thus, soon after several private merchants who had worked for Western firms and were familiar with Western business practices responded to a government call to set up and manage China's first group of Western-style industries during the 1870s, regional governors-general took advantage of their supervisory role by appointing other managers who came from a bureaucratic background. Then, as these official managers gained experience, they asserted their power to take over management control by forcing out the private managers and by converting government funds, which had been on loan to serve as working capital, into privately owned shares (Chan 1978).
During the first two decades of the twentieth century, several of those who moved in and out of official posts became very successful in turning these companies into major businesses. Sheng Xuanhuai and the China Merchants' Steam Navigation Company, Yen Xinhou and the Imperial Bank of China, Zhang Jian and the Dasheng Mills, and Zhou Xuexi and the Chee Hsin Cement Company are just a few examples of officials who had left their official positions but were able to continue using their political networking to maintain their control as well as bring new business for their companies. The industries they ran all shared varying degrees of Western-influenced corporate entities such as joint-stock ownerships with limited liability and modern management style for the factory floor and the general office. But their accounting or central office, where major decisions were made, remained traditional. Zhang Jian, who had strong moral ideals that led him to run a modern corporation and to accomplish much in bringing modern amenities to the region where his factories and ancestral home were located, did not follow proper corporate procedures, such as assigning depreciations of plant facilities, while his central office mixed private and corporate uses of company funds as if he were running his own family firm.2
This pattern of close affiliation between officials and semiofficial merchants continued throughout the republican period (1912–49), as provincial governors and governors-general were replaced by regional warlords or their factional groupings. And even though both the Qing dynasty in its final years and the early Republic set up a modern legal framework for corporate entities and commercial practices, a majority of the larger enterprises, be they industrial, financial, or commercial, had to have some close political backing in order to survive.
This situation did not improve much during the Nanjing government period (1927–37), for the Nationalist Party leader, Chiang Kai-shek, maintained at best an ambiguous relationship with the big-business community. While there was some growth in the modern economic sectors, the government provided only limited support for market-based economic development. Many wealthy owners of enterprises were forced to buy national bonds or to give other forms of monetary contributions (Coble 1980). In any case, the Nanjing government was pushed out by Japan's invasion of China. A full-scale civil war between the Nationalists and the Communists then followed the war with Japan. In 1949, the establishment of the People's Republic brought an end not just to the civil war, but also any form of private business or market economy.
Changing Social Status of the Entrepreneur
Since, as noted above, China had a thriving market by the late imperial period, would it be likely that most or all of its merchants managing it enjoyed little or no social prestige, as was called for in theory? In practice, those rules that limited merchant activities and access were often not rigidly enforced. While conservative scholar-officials continued to equate education and learning with the acquisition of virtue, and to look down on merchants who usually had no training in the classics, society as a whole gradually took on progressively positive attitudes toward them and the roles they played.
Changing Perspectives on the Merchant Class during Song and Ming
By the Song dynasty (960–1279), when Chinese society experienced both a rationalization of social and ethical principles through the rise of Neo-Confucianism as well as an upsurge of the domestic market and interregional trade, the merchant class's social status improved. Indeed, some of the Neo-Confucian scholars no longer came from aristocratic or literary elite families, but were sons of merchants. The preeminent Neo-Confucian scholar, Lu Xiangshan (1139–92), came from such a background. Little wonder, then, that he was among the first to observe that all the four classes of commoners were capable of doing what is morally right, while a learned person could turn his learning to unethical use (Yu 1987, 85–86). By thus acknowledging that everyone could act morally and ethically, he was in fact arguing against the old notion that only the old ruling elite of aristocrats and scholars were worthy of respect, and proposing a new notion that all classes of people, including merchants, while they had different functions to perform, were capable of goodness and were, therefore, honorable.
It was not until some 325 years later, from the early sixteenth century on, however, that one begins to find writings by scholars and merchants commenting on the blurring of social ranks between their two social classes. Perhaps the most dramatic example came from the writings of Ming's most famous Confucian official and philosopher, Wang Yangming (1472–1529). In an obituary dated 1525 and carved on the tombstone of Fang Ling, who had begun his career as a scholar but later followed his wife's family to become a merchant, Wang commented that the “four classes of commoners (simin) pursue different professions (ye), yet share the same commitment of the Way (dao)” (Yu 1987, 104–5). Wang's sentiments were echoed by another Confucian scholar-official Gui Youguang (1507–71), who wrote approvingly, “In ancient times the four classes of commoners had their distinct functions, but in later times the status distinctions among scholars, peasants, and merchants have become blurred” (quoted in Brook 1998b, 143). A number of factors explain this transformation, but the keys are the economic changes discussed above, especially the expansion of the domestic and overseas trade and the monetization of the Chinese economy by the end of the sixteenth century.
The same century also saw the growing importance of groups of merchants from specific locales; the earliest to emerge included those from Huizhou and Shanxi, whose long-distance trade and control in monopolies such as salt, as well as their role as depositories of government funds, made them rich and important to officials. Probably even more conducive to merchant-official interaction was the growing trend of well-to-do merchant families developing occupational diversification within each family (Fu 1956, 41–44; Ho 1964, 50). Under such a strategy, many merchants' sons and nephews who showed aptitude for book learning were groomed to study and to take the state's civil examinations. Successes in such a strategy brought further success, since their business activities would thereby win official protection, while those sons who became officials would gain an economic base of support that further helped their official careers.
Such a development was also reflected in the growing presence of printing houses. At least in the Jiangnan regions, where wealth and the quota for examination successes were most abundant, many rich merchant households held large private library collections, each consisting of several thousands of volumes (juan). These merchant collections served not only as an index of their rising social status, but also the useful function of supporting their sons' education (Brook 1998b, 129, 134–35). By late Ming, the biographies of scholar-officials openly admitted records of merchant antecedents, or the support of commercial wealth in making their way into officialdom (Brook 1998a, 581–82).
Closing of the Gap in Social Class between Officials and Merchant Elite
This symbiotic arrangement between these two social classes became very evident throughout the Qing dynasty (1644–1912), as is demonstrated by the genealogy of forty-two well-established scholar-gentry lineages. Each of them held to a tradition of dividing scholarly and mercantile functions among their members over many generations (Chang 1962, 181–88, 280–87). The significance of such a trend did not escape the notice of many contemporary scholars. One nineteenth-century scholar, Shen Yao, observed that a member of the scholar-gentry must first gain economic independence before he can maintain personal dignity and individual character (Fu 1956, 41–44; Yu 1987, 97–98, 100–101).
Perhaps the highest compliments accorded the merchant class during the Qing were given by two emperors, the Kangxi (r. 1662–1722) and Qianlong (r. 1736–96) emperors who chose to stay at the private estates of salt merchants in Yangzhou several times during their tours to the Lower Yangzi region, and received lavish hospitality. Like other wealthy merchants elsewhere, these Yangzhou merchants had fathers or other family members who were scholar-officials, and because of their enormous wealth, they were able to live a scholar-gentry lifestyle surrounded by books, literati paintings, and other art collections. It appears that the salt tax as well as the contributions of the salt merchants became a major source of revenue during the early Qing period, when vast portions of the farmland were in crisis, and the state needed additional funding to finance the quelling of the Three Feudatories' rebellions. The personal relationships thus formed between these two emperors and the Yangzhou merchants generated a system of mutual support lasting almost to the end of the dynasty. Meanwhile, the merchants also benefited from the added opportunities to make money by serving as bankers and investment agents of the Imperial Household. In addition, through a special examination quota called “merchant registration,” the state provided extra slots and venues for their sons to pass the state civil exams (Finnane 2004, 119–21).
While there is general consensus on the closing gap between officials and elite merchants by the eighteenth century, scholars do differ on the degree to which the gap remained, or if there was a blurring of social status between the two. For example, one recent study on merchant philanthropy observes that from the growing use of the term shenshang (lit. gentry-merchants), there was not only an increasing blurring of their social class distinction, but also a clear indicator that “merchants as merchants” were increasingly visible and respectable (William 1984, 98–106, 246–47; Smith 1998, 422). Other scholars do not accept the conclusion that the two classes' boundaries had blurred. One famous mid-eighteenth-century painting, which records a scene from a fashionable garden party given by one of the famous salt merchants in Yangzhou, has been used to demonstrate that the two social classes have blended because the guests depicted were known personalities of the local merchant and official elite. But a more recent study reveals that such an inference may be incorrect, for that same gathering actually shows a social grouping in which almost everyone's ancestry came from Huizhou area, and belonged to the Huizhou merchant group, whose families have since Ming times become residents of Yangzhou. The author concludes by arguing that social distinctions between the two classes remained, and is evidenced by “the salt merchants' continuing aspirations to literati status.” As for the term shenshang, it probably meant no more than the two social categories of “gentrymen and merchants” (Finnane 2004, 253–64).
In my own study on a similar topic for the late nineteenth and early twentieth centuries, I note that the difference in social status separating ordinary merchants and officials was still great. Many officials, for example, had taken up business ownerships, but would remain anonymous by using made-up or “such-and-such house” (mouji) names, and assumed passive roles by hiring managers to carry out the actual operations and entrepreneurial decisions. However, the low social esteem meted out to merchants was no longer so onerous, for many unsuccessful or impoverished scholars were switching to commerce by pleading the need to make a living, or because of ill health during critical periods when taking civil service examinations. As for the rich merchants running large shops, they were unquestionably successful and influential members in their communities. They collaborated freely with officials, even though many of the same officials still publicly called the merchant profession mo'ye (insignificant occupation) (Chan 1977, 22–24).
Modern Industry and a New Business Class
The really significant qualitative change in the relative social status and social interchange between officials and merchants came during the second half of the nineteenth century as the nation began its serious effort to adopt modern technology as well as Western industrial organization and management as part of its “Self- Strengthening Movement.” Senior officials who advocated these progressive reforms as a way to protect China from further Western encroachments quickly discovered that only Chinese compradors, that is, those Chinese merchants who had work experience with American and European merchants and had acquired knowledge of Western business practices, were willing and ready to put up their own capital and to manage these new enterprises. Because the first set of Western-style factories and steam-powered shipping established under official patronage in the early 1870s was hitched to the “Self-Strengthening” campaign, the private managers, all of whom were former compradors, took on a new elevated social status. And when they were referred to by the same old term, shenshang, that term had already transformed itself to mean a blended gentry-merchant.
This first group of comprador-industrialists was quickly followed by many others, including former officials and others who had not been compradors, as they, too launched their own modern-style industry; and a new term, first coined in Japan for their modern industrialists, soon came into use to refer to them. Such a person, an industrialist, is now officially known as a shiyejia, connoting an aura of high respect and social distinction (Chan 1977, 25–29, 49–52, 34). Between 1903 and 1907, the central government offered awards of various official ranks, including status of nobility, to anyone who set up large-scale capital investments in modern enterprise. And in order to safeguard their investments, the government in 1904 also issued the first set of company laws ever promulgated in China for private citizens to set up joint-stock companies and partnerships of both limited and unlimited liabilities (Chan 1977, 180–83, 187–95; Kirby 1995). In place of the traditional merchant, the modern entrepreneur had indeed arrived.
The rising social status of the merchant class as well as its increasing interactions with the official class during late imperial China had a major impact on the degree to which entrepreneurs were able to function throughout this period. When their social status was far apart, and contact infrequent, it would be hard to imagine major merchant initiatives succeeding, because of uncertainty of official support or exploitation, for as pointed out above, political decisions have always taken primacy in Chinese society. But when there was a mutuality of interest, as when merchant families sent some children to school to try pass the civil service examinations, and others into business, networking across the social divide became possible and was often practiced. Then, when the state promoted modern industry and encouraged private participation, cooperation or intervention reached new heights. However, in addition to acquiring the proper social status and gaining access to the political elite, individual talents and cultural propensity toward sound entrepreneurship are just as important in the making of successful entrepreneurs. It is to these issues that we must now turn.
The Entrepreneur in Cultural and Historical Contexts
Given China's traditional disdain for the culture of the marketplace and its particularistic penchant for extending trust to those who share kinship and native place, it is hard to imagine the presence of a well-run and dynamic market managed by a body of merchants growing in size and social status during the late imperial period, as described above. The missing component is insight into the roles and actions carried out by the merchant leadership, for without it we cannot learn if there was a place for entrepreneurs who, in Joseph Schumpeter's classic formulation, could act as visionaries with the ability not only to form “new combinations,” but also to do things “in a new way?” (1947, 151). In what follows, we examine how the Chinese entrepreneur is affected by personal characteristics, social networking, and the firm.
The Role of Personal Characteristics
The findings of a recent survey conducted on 400 entrepreneurs and 550 nonentrepreneurs in contemporary China show that the entrepreneurs place a high value on work and drive, accept reasonable risks, and, compared to the nonentrepreneurs, have a greater number of family members as well as childhood friends who also become entrepreneurs. They also tend to be more optimistic about the economic institutions with which they work (Djankow et al. 2006). Studies on the earlier periods tend to emphasize the poverty-stricken nature of the home environment that induced entrepreneurs to be bold, work hard, be frugal, and migrate to other parts of the country or overseas, where they could build networks based on common native origins and lineage. Moreover, they place a high premium on keeping their word, preserving trust, and practicing shangde (merchant virtue). These studies demonstrate high continuity in the talents and values possessed or aspired by Chinese entrepreneurs past and present, for essentially the same values are affirmed by merchants as early as fifteenth-century Shanxi merchants who became prominent salt merchants and long-distance traders in Yangzhou and elsewhere, by Cantonese migrants to California and Australia in the nineteenth century, and, even today, by the latest wave of emigrants from Fuzhou to New York and Europe (Zhang et al. 1995, 13–14; Guo 1960).
If we accept these personal characteristics as common among Chinese entrepreneurs from past to present, then we can see that they readily share that part of the Schumpeterian vision which entails the blazing of new paths. But do they share the remainder of Schumpeter's picture: innovative activity, testing of new ways of doing things, and forming new combinations? Here, the records are quite clear. From the Shanxi merchants to today's Fuzhou emigrants, Chinese entrepreneurs have carried out these efforts successfully, as will be discussed in a later section. What seems different from the Schumpeterian model is the Chinese strong emphasis on networking and on heavy reliance on family and kin. This has led to several consequences: for example, preference for the family firm, its relatively small size, and a focus on personal networking and management. In this regard, it appears that cultural values such as social norms and political principles can have important influences on how the entrepreneur acts (Berger 1991; Redding 1990). Chinese political institutions, social norms, and value systems have been quite different from those of the West, and remain so today.
The Role of Social Networking
All enterprises must involve some exchange of goods or services between individuals or corporate entities. An aspiring Chinese entrepreneur needs to establish different kinds of associations with various individuals. He usually turns to family members, kinsmen, or those who share his native place to form family firms or partnerships. He also seeks others who have other affinities to expand his circle of association, for in his view, they are the principal building blocks with which to start any business relationship. Beyond these obvious but limited choices the entrepreneur also needs to cast a wider web, seeking eligible candidates, including nonkin, for associates.
In that regard, the observations of several anthropologists are particularly helpful. One argues that personal relationships can develop just as much on another set of criteria (Freedman 1957). They involve the gradual development of xinyong(trustiness, reliability in pledging commitments and in fulfilling obligations) and of ganqing (sentiments) between individuals, within associations, and among a business community. In this way, business relationships become dynamic, placing a premium on a combination of personal connection and networking that is often referred to as guanxi (lit., relationships), and while guanxi can be among kin, it is more often extended to all nonkin, including strangers. A second anthropologist notes that Chinese social ties are often triadic, “involving a third person serving as introducer, go-between, mediator and sometimes as guarantor” (DeGlopper 1995, 31). Such a pattern in forming of associations is probably best explained by a third anthropologist, who contends that unlike Western organizations, whose members follow clearly defined rules and relationships to one another, and which have fixed boundaries, Chinese organizations are composed of overlapping networks of individuals linked by differentially categorized relationships with one another. They are also discontinuous, for they center on each individual's relationship with another, and their boundaries are flexible and indistinct (Fei 1992, 60–64, 20–21).
The Role of the Firm
These cultural characteristics have greatly influenced the size and organizational structure of Chinese enterprises throughout history. Because the relationship between owner and key employees is best when it is personal, and since kinship ties remain fundamental, most enterprises stay relatively small to median in scale. Entrepreneurs who run them are most likely sole or partial owners, working on behalf of their families or partnerships. And even in situations where raising the requisite capital is not an issue, there appears to have been a real resistance against the development of multiunit, multitiered, and gigantic corporate entities that, as so ably shown by Alfred D. Chandler Jr. (1977), characterizes the history of American business.
In recent decades, with the growth of transnational operations and professional management in a multitude of specialized fields, many Chinese corporations have also increased their size and organizational complexity, probably in order to attain sufficient economies of scale for effective competition. But none has grown to the size attained by their counterparts in Japan or South Korea. In addition, the establishment of a modern legal framework and the membership in international trading organizations, such as the World Trade Organization, has afforded Chinese firms and their owners better protection against official and state encroachments. Historically, the state's arbitrary confiscations of wealth as well as excessive extortions by officials have been a major reason why merchants tried to keep their establishments rather small and inconspicuous. However, for the large multiunit, multinational firms today, in the areas of ownership and the decision-making process at the top, the traditional structure and strategy have remained relatively unchanged.
In addition to size, questions have also been raised about the longevity of the Chinese family firm. Because the Chinese did away with primogeniture during the Qin dynasty (255–206 BC), all sons have inherited the family's assets more or less equally. In this way, during the lifetime of a father-entrepreneur, the family firm would likely grow and prosper, and all or most of the sons would be working together in the family business. After the father was gone, the married brothers would often opt to keep the family firm together. But in time, there were apt to be brothers who disagreed with one another over business strategy. When that happened, the family was likely to close the firm or partition it. This has led one sociologist to postulate the model of a four-stage life-cycle for the family firm over the course of two or three generations, dividing it into the following phases: emergent, centralized, segmented, and disintegrating (Wong 1985). This is, however, not necessarily the norm. The rise and fall of family firms probably follows more complex patterns that defy neat generalization.
My own research suggests that several successful family firms have started with teams of two brothers who complement each other in talent and personalities: one brother excelled in vision, innovation, and risk-taking, while the other provided organization, systemized the books and other operations, and nurtured the staff and networks with a wide circle of associates. During the early years of the twentieth century, two major establishments in Hong Kong and Shanghai, the Wing On Department Store and the Shenxin group of textile and flour mills, owed their successes to their two sets of founder brothers (Chan 1996). But the pattern also shows that this type of cooperation and complementarity often does not recur in future generations, for the new sets of brothers or cousins are likely to have their own dynamics in sorting out who minds the store and who leaves. This is demonstrated by the example of another company, the Kin Tye Lung Company of Hong Kong, with affiliates all over Southeast Asia, during the course of a hundred years. Here, brothers and cousins competed, so that over the generations, one branch of the extended family dominated while other branches faded out, and then, through continuing restructuring, the dominant branch weakened, while a third one that had faded regained its leadership in the company. In this way, a family firm can disintegrate and regenerate in turn (Choi 1995).
Although the family firm was the preferred form of Chinese enterprise, both the capital resources and the broad range of business available to any one family were usually quite limited. This would lead an aspiring entrepreneur to examine several partnership options, with kin or nonkin, such as lineage trusts, with neighbors or even strangers brought in by middlemen. As it turned out, a good many of them were not true partnerships. The most common type was one made up of a senior managing partner with one or a few minority partners. The latter were rentiers who collected dividends but had no voice in the business. There were also firms that were in fact solely owned family businesses, which gave out several small sets of minority shares to friends and other related parties as part of building networks among a circle of friends. Another variant had the managing partner owning a few nominal shares while the silent partner was the true principal shareholder. He remained anonymous most likely because, as a local official, he was not allowed to run a business in the area under his jurisdiction. Late-nineteenth-century novels are filled with stories of such entrepreneurial officials. Indeed, since ownership of businesses was not in the names of individuals, but in the names of families, or more frequently, in fictive entities, for example, such and such estate (tang) or business house (hao, ji), senior officials such as Li Hongzhang invested in many businesses using such a device to conceal their identity (Chan 1977, 60–62).
There were obviously many true partnerships in which several working partners combined their resources and talents to make their enterprises work. But just as brothers and cousins could disagree among themselves, partners, too, often found themselves at odds with one another, and their breakups occurred even more frequently than those of family firms. In any case, the lesson that can be drawn from this seems to be that, regardless whether they are family firms or partnerships, each firm must regenerate its spirit of entrepreneurship with each generation or each set of leadership.
In another study on the nature of the Chinese enterprise, I have laid out the following list as representative of their core features:
1. Small-scale, relatively simple organizational structure
2. Close overlap of ownership, control by individuals linked by family and kinship ties, or by partnerships among kin and family friends
3. Centralized decision-making
4. Personal and family networking that encourages opportunistic diversifications, cutting across regional and national boundaries to expand membership of affiliate firms and to reduce transaction costs in sourcing, capital acquisition, and contracts
5. A high degree of strategic adaptability (Chan 1998)
I shall next examine the various types of merchants who have performed a wide range of entrepreneurial tasks from the late imperial period to the present.
The Merchant Groups in Historical Context
In late imperial China, the merchant profession was grouped in several ways. One major divide was between those who had some form of official status and those who ran private enterprises. Among the former there were at least three main types: those officially licensed for a specific line of trade or industry, such as salt merchants; those assigned the exclusive right to conduct certain business activities, such as the Cohong merchants who alone could have relationships with the Western merchants at the port of Canton during the period from 1759 to 1834 when the Canton trade system was in operation; and finally, the generic yahang (brokerage or commission agency) merchants who had official sanction to serve as guild officers or, more broadly, as middlemen. They regulated the rules of trade, helped collect taxes, and officiated in various forms of exchange.3 As for the private merchants, their groupings were far more untidy and numerous, ranging from the rural family operators who tried to make ends meet by taking their farm produce and subsidiary handicraft products to market, to brokers with innovative ways of promoting transactions, and prominent entrepreneurs who owned and managed several lines of businesses, some of which would have required them to obtain official licensing.
The intermingling of official and private businesses in the wide-ranging roles played by the same individuals was part and parcel of the growing phenomenon, discussed earlier, of the blurring of social distinction between officials and merchants. It also reflected the social reality that political consideration took precedence over economic activities other than the most basic. On the other hand, its multilateral networkings encouraged the strengthening of guanxi across social classes and, as we have seen, allowed official and semiofficial merchants to perform as entrepreneurs.
Another way of classifying merchant groups or bands (shangbang) has been by common geographical origins, such as specific provinces or urbanized regions. There have been ten major bands during the late imperial period.4 The most influential ones included the shangbang from Shanxi, Huizhou, Ningbo, Fujian and Guangdong. A second group was trade or industry specific, such as those in salt, tea, medicine, piece goods, and finance. A third group was the compradors who worked both as independent merchants and as managers-cum-agents for Western firms located in the treaty ports. Then, as we move to the twentieth century, there arose a new group of modern industrialists and also owners and managers of modern-style corporations, including some who built modified models of what they had seen overseas. Finally, there are emergent types of entrepreneurs in post-Mao China, including those who are party and former party bureaucrats.
The Entrepreneur's Activities
The Shanxi Merchants: New Markets and Innovative Partnerships
With the range of Chinese merchant groupings since the early Ming dynasty having been outlined, what follows are examples taken from the various groups to show how individual merchants or groups of merchants performed their tasks as entrepreneurs. We shall begin with the Shanxi merchants; they were probably the earliest group to become wealthy and influential. And as officially licensed salt merchants, they controlled the most lucrative salt distribution markets in Ming and Qing China. Yet their semiofficial status and monopoly of an essential consumers' good did not prevent them from being entrepreneurial. They came largely from three neighboring counties in the southern part of Shanxi where the landscape was rugged and the soil poor, a location that placed them next to the major highway connecting Beijing in the east with China's strategic northwest corridor in Gansu. They claimed that their barren physical environment spurred them on to hard work, frugality, and drive, while their access to a major highway made them more open-minded so that they were able to make use of the opportunity it offered to venture out for business that involved long-distance travels. Furthermore, they were also close to the northern borders where the Ming emperor kept large garrison commands to deter Mongol military incursions. Starting in 1370, when the government began the policy of offering salt certificates to merchants in exchange for transporting grain and horses to these frontier commands, merchants from these Shanxi counties quickly responded by leaving their homes, many setting up residences and shops in Yangzhou to be close to the salt market. Others, drawn by their cultural propensity to look out for kin and neighbors, followed them to Yangzhou and soon found themselves entering into the same line of work (Zhang 1995, 1–17; Brook 1998a, 680–81).
From that beginning, and as they gained a reputation for trust (xinyong) and strong networking among themselves, they grew in wealth and status. They also developed innovative strategies and established a new organizational structure. Thus, they reduced the cost of their grain contributions by opening up new farmland near the garrison command posts, thus cutting out much of their transportation costs. This type of experience probably helped them later on to invest in large tracts of mountain land in northern and western China to develop into farm- or timberland, or plantations for commercial crops such as tea, edible fungus, and medicinal herbs. It required them to hire capable managers, and to bring in workers and large numbers of immigrants to serve as tenant farmers. It also involved working out difficult management problems of coordination and control (Fu 1956).
Meanwhile, their readiness to travel allowed them to trade in a wide range of goods, including foodstuffs, tea, medicine, silk, cotton, piece goods, and iron, and in the process, to establish long-distance networks throughout the country. They also went into more traditional investment by buying land and setting up pawnshops. Then when the state changed its policy in 1492 to allow salt certificates to be exchanged for cash, Shanxi merchants quickly took advantage of the growing need to transport silver bullion and branched into banking. By the Qing period, many Shanxi merchants, especially one particular group from the central region, had developed into the state's deposit banks for tax revenue as well as the private savings of senior officials (Zhang 1995, 19–26). By the early nineteenth century, they so dominated the banking industry throughout the country that several of them turned themselves into remittance banks (piao hao), allowing them to issue bank drafts that could be cashed at their interprovincial branches and affiliates all over the country's commercial centers (Zhang 1995, 69–80).
To manage a growing number of branches in numerous lines of trade in various distant parts of the country, the Shanxi merchants owed their success to tight management teams, sound reputation, and, above all, a system to recruit and retain large bodies of able and trusted staff. On recruitment and retention, many owners found an innovative way to form partnerships with senior employees by providing them with special partnership shares for which they did not have to put up any capital. In this way, a symbiotic relationship was formed between the original owners and the new partners, with the former retaining the long-term service and loyalty of capable assistants and the latter gaining entrée into a business that was already well established and had strong financial resources. These partners would then be assigned to branches to serve as managers, with full power to run those business units, but with periodic reviews every few years, and to share the profits—quite probably about 30 percent—with the former owners (Zhang 1995, 15–16, 46–47). Such an operational framework in profit sharing and management authority seems to have been the first of its kind and became a model for others to follow (Wu 1923, sec. 7, pp. 1–24).
Reufuxiang: Chain Stores and Merit Profit Sharing
We see fuller expressions of this practice in traditional firms in Beijing and in Shanghai down to the early part of the twentieth century. But just as in the sixteenth century, when the Shanxi merchants started the practice to meet the challenge of new market conditions, changing market conditions in the late nineteenth century forced at least one highly respected piece goods company, the Ruifuxiang of Beijing, to modify both its profit-sharing plan and its business strategy. This family firm, which had begun in the seventeenth century in a county seat in the Shandong province selling native cloth, had gone into decline during the eighteenth century, but was revived during the 1870s by a new family member, Meng Luoquan (1850–1939). By the mid-1880s, Meng, serving as both owner and chief manager, began to add new imported fabrics, cosmetics, and other foreign luxuries to its traditional lines of piece goods and expand his shops to Beijing, Shanghai, and other cities in Shandong, so that at its height in the 1920s, his chain grew to twenty-six stores in five cities with about 1,000 employees.5
Meanwhile, although each branch followed the traditional practice of being treated as a separate unit with its own accounting of profits or losses, Meng, with the help of an able assistant, developed his own system of coordination and centralized control by grouping the branches into clusters. Each cluster, usually including the branches in each city, would be headed by one of the branch managers doubling as district manager. The latter would be responsible for daily tours as well as joint conferences with all the other branch managers in his district. He would also coordinate inventory control and sales, and every five days make written reports to Meng. At the same time, Meng reassigned the 30 percent shares that had been set aside for each branch manager by combining them into one large pool. He then divided it into 300 bonus points in two sets: a main set of 220 to 240 points to be distributed among the managers and other senior staff, and a second set consisting of the remaining 60 to 80 points, apparently held in reserve, to be used to supplement regular staff salaries and as periodic bonuses. In this way, Meng turned the old formula of giving away 30 percent of profit to benefit just a few, into a merit system for the many. As a result Meng, the owner, maintained his personal relationships with all his senior to midlevel staff. Indeed he was known to appoint two kinds of employees: those with talent and those with particularistic ties to him and entrusted to keep checks on others.6
Impediments Deriving from Modern China's Political Disorder
It is no accident that despite their differences, both the Shanxi merchant group and the Ruifuxiang eventually declined and failed for much the same reason—because of events related to China's turbulent political crises. Some other factors also led to their decline; for example, the growing difficulty for both the Shanxi merchants and the aging Meng Luoquan to keep up with the more modern forms of their industry. But the critical factor was political. For the Shanxi salt merchants and those engaged in several lines of long-distance trade, the mid-nineteenth-century Taiping Rebellion that decimated much of the wealthy Jiangnan region, south China, and mid-Yangzi provinces, cost them their market. Their banking group struggled on, and indeed those who had specialized in remittance banks reached their peak years around 1900 as their bank drafts achieved their maximum usage.
But the same years also saw the rise of modern-style commercial banks and the founding of an official bank by the central government that took away almost all the tax revenue deposits that used to go to Shanxi merchants' banks. Moreover, because of their prominence and their close relationship with the government, the Shanxi merchants and bankers as a group were subject to repeated demands for large monetary contributions by the faltering Qing state and by the growing number of corrupt officials, which became an unsustainable drain on their working capital (Zhang 1995, 93–100). As for the Ruifuxiang, it owed its rapid growth into a big chain of shops not just to Meng's innovative organizational and strategic reforms, but also to personal networking with several groups of political leaders. They included marriage alliances with several Beiyang warlords. When they, too, lost power by the mid-1920s, the Mengs did not have connection with the new political leadership led by the Nationalist Party, and the company fortune began to decline (Chan 1982, 226).
We have seen how private merchants, such as Meng Luoquan, and the Shanxi merchants, both as officially licensed salt merchants and as private traders, were able to make use of their entrepreneurial skills to create and accumulate considerable wealth. At the same time, we have also seen how wealth can be lost through the state's confiscatory policy or in times of political turmoil. These two groups of merchants were not the only Chinese entrepreneurs who suffered losses in this way. Because these kinds of political crises occurred almost continually, from the Opium War that began in 1839 to the founding of the People's Republic in 1949, losses from political causes, carrying with them failed enterprises and other forms of interrupted entrepreneurial aspirations, became a constant occurrence in modern Chinese history.
Brokers as Innovators
There was one other major form of entrepreneurs in late imperial China that requires our attention. They assumed multiple names, but in reality they were all middlemen or brokers—that third party without whom guanxi or networking between the first two parties would not have been possible. Recent studies have noted their proliferation in urban centers beginning in the seventeenth century, especially as officers of trade and native place guilds, and in rural northern China where private brokers used innovative ways to promote business transactions (Mann 1987; Duara 1988). Even back in Ming China, those long-distance traders did not transport their goods by themselves. They would seek out special brokers, called baoren (lit. guarantors), and pay them a fee to arrange for the hiring of reliable boatsmen and their boats to carry their goods along specific river routes, and of master porters and their crew on overland routes. Thus, a well-respected baoren was someone very knowledgeable about the transportation market and the carriers, so that in exchange for his fees, he offered the prospect of safe delivery of the consigned goods, and agreed to reimburse the traders for losses due to negligence (Brook 1998b, 67). In such a case, the baorencombined his brokerage role with his entrepreneurial role as an insurance agent.
Probably the best-known brokers in nineteenth- and early-twentieth-century China were the compradors. They began as licensed clerks and distributors of goods working for the Cohong merchants, but with the demise of the Canton trade system, the European and American companies in the Chinese treaty ports hired them to be their resident brokers, treasurers, and guarantors of their Chinese staff. Their role as guarantors then extended to all business transactions between their foreign employers and any other Chinese merchants who conducted business with their foreign firms. Like the baoren of the transportation business, the compradors had to have sound knowledge of the market, good networks, and a fine business sense to succeed in these roles. And, therefore, it is not surprising that as they grew in importance alongside the growth of foreign trade, they became better known as wealthy independent merchants conducting business of their own while remaining in the service of the foreign firms. Yet even as independent merchants, they continued their brokering role in helping other Chinese investors adapt Western-style managerial practice and a factory production system to their modern-style enterprises (Hao 1986).
Most private brokers, however, performed the more ordinary task of bringing together various individuals, some with particular skills, others with capital or a combination of both, to form partnerships. Several good examples of this type are illustrated by the salt wells and natural gas extraction industry in Sichuan during the nineteenth and early twentieth centuries, when the demand for Sichuan salt suddenly doubled in the mid-nineteenth century because the Taiping Rebellion had just taken over large areas of the Yangtze valley, blocking off the Huguang region from its normal sources of supply. Since most of the Sichuan brine and gas operators were rather small, and since the time between drilling and full-scale production could extend to many years, landowners needed to select partners who had the skill to site wellheads and the gas furnaces (used in tandem to evaporate the brine into salt) properly, and the financial resources to get through the drilling. Many turned to retaining the services of special brokers called chengshouren, not just in putting together the initial partnerships, including the land leases that the landowners signed in exchange for a specified percentage share of the salt extracted, but also in providing several vital functions throughout the course of the project (Zelin 2005, 38–42).
It appears that these chengshouren brokers were highly skilled in the technical side of managing salt wells, as well as knowledgeable in finding partners who had financial sources to pay for the drilling. Some chengshouren were also financially well off and became capital-contributing partners as well as getting a percentage share from managing the salt yards. Then, as these projects were likely to have many dry years in between drilling and production, so that the original set of partners might run out of money to keep the drilling going, an elaborate system of new partnerships was set up to bring in successor partners to take over or, more likely, to split the percentage shares with the predecessor partners. Through the extensive networking of chengshouren brokers, this type of shares transfers appears to have been quite common by the late nineteenth century. And in many cases, these transfers were extended to a second set of successor partnerships. By the early twentieth century, this mix of partners who joined the partnership at different times and carried different portfolios would need management teams to address their concerns, just as those wells that reached full production would look for new leadership to direct distribution and deal with other marketing issues. At such a juncture, brokers were again called in or commissioned from among the partners to help set up a new central office with its own hired professional staff (Zelin 2005, 42–46, 53–54).
A complicated slate of partners with varying percentage sharing of profits when their salt wells finally reached full production obviously required a highly sophisticated and well-tested set of legally enforceable contracts. The partnerships in these Sichuan salt yards, by making use of the traditional contracts for land purchasing and leasing as templates, were able to incorporate their specific requirements into new contracts that accurately reflected each party's rights and obligations. Furthermore, local officials, already used to dealing with these and other commercial contracts, actively engaged in adjudicating lawsuits that involved them. The multitude of available partners for the Sichuan salt wells taking different risky profit-sharing positions, the ingenious roles of the chengshouren brokers operating through their extensive networking, and the existence of working official rules and regulations to settle disputes, all point to a vigorous market in which entrepreneurs could function and thrive.
Adapting Innovation from Western Models
Up to now we have followed a chronological review of the principal kinds of entrepreneurs from Ming to Qing. As the twentieth century approached and left late imperial China behind, one distinctive feature stands out among modern China's larger firms, and that is their adapting of Western business organization and practices to fit the new market conditions in China. Two notable examples are the premier modernstyle department stores founded in Hong Kong in 1900 and 1907. They then moved on to Shanghai where, again, they followed one another to open even grander stores in 1917 and 1918. Ma Yingbiao and Guo Luo respectively were the founders of these two establishments, the Sincere Company and the Wing On Company. They also shared similar backgrounds: both had migrated to Sydney, Australia, as young men from Zhongshan county, just next to Macau, and both had worked in farms and Chinese groceries and export businesses until they each had earned their way to become partners in their companies. And both were impressed by Sydney's flagship department store, Anthony Hordern & Sons, and its array of goods and services all in one large building. Upon returning home, each decided on Hong Kong, a British enclave with a sizable Chinese middle class already exposed to Western goods, as the place to begin the experiment.7
Ma, the first to try, took several years to convince his partners that he would spend much of their initial capital just to decorate the sales floors so that he could artfully display all kinds of high-quality goods, mostly imported, all to be sold in fixed prices. Moreover, he would provide attentive service to all customers. These ideas were very different from the traditional way of selling high-end products. Quality stores sold only a small range of specialized goods, and they would display only the cheaper goods at the store front, where prices for each item could be negotiated, while the more expensive items would be stored away in private rooms and opened only to wealthy and well-established customers. Ma and Guo also added their own ideas that fitted into the needs of their clientele. For example, they each added a deposit and remittance bank department, to help customers who, like them, had relatives in Australia who would be sending home money as remittances. They also turned part of their buildings into amusement parks to attract more visitors; at the same time, they offered Western-style hotel and dining facilities to provide an aura of modernity. Each also made use of Hong Kong's British corporate laws to register as joint-stock limited liability companies—legal protection that extended to their Shanghai establishments, since they situated them inside Shanghai's International Settlement.
They planned their entry into Shanghai—by then China's most cosmopolitan and richest city—with great care. Each erected a big palatial edifice for his store on Shanghai's most fashionable street, Nanjing Road. When they opened, one after another, in 1917 and 1918, their emporiums set a new standard of modernity and opulence for all of China (Chan 1999).
Guo Luo's and Ma Yingbiao's enthusiasm in adopting Western organization and practice, however, did not extend to the boardroom or even to the senior management. Both relied on kinship and native place origins to recruit their entire staff, and ran their business dealings through their personal networks. This did not change when Guo expanded to the textile industry, to specialized manufacturing to supply the department store, and to several other branches in Guangzhou and elsewhere. In this way, not unlike the traditional family firms, these two large and modern-looking establishments continued to run their business empires by personal management. They did not build a Western-style impersonal hierarchical corporate structure.
The preference for the Chinese style of networking and personal management remained a ubiquitous feature of Chinese enterprises throughout the first half of the twentieth century. It continued to be true for the two largest Chinese industrial groups of this period: the Shenxin Cotton Mills, founded by Rong Zongjing and his brother Rong Desheng, and the China Match Company, founded by Liu Hongsheng. Rong Zongjing, the older brother, ran the cotton mills as well as flour and cloth mills under a central holding office in Shanghai, using his extensive networking with political leaders, business associates, and labor foremen to run the business empire. Like the traditional merchant, he relied heavily on particularistic ties. However, he also dared to confront the anger of family and kin when he decided to move his factories from his hometown of Wuxi, where his business had started, to Shanghai, where he could establish wider networks including such features as credit lines from Japanese bankers.
Liu Hongsheng, who graduated from the American Episcopalian St. John's University in Shanghai and for a time worked for the British-owned Kailuan Mining Corporation, started out rather differently, for he tried to use his networking skills only selectively in building up his industrial projects in shipping and in woolen mills. He was also known to favor Western-style management, and while he made use of his Ningbo-native place connections, he was strict about hiring nonkin exclusively on their merits for his staff. By 1930, he already succeeded in putting together a professional team of managers when he started to acquire other match factories and merged them with his own to create the largest match-making company in China. But around 1935, as his thirteen sons and daughters—all having completed their college or professional studies in the United States, Britain, or Japan—started to return home, he reorganized his top management, let go his nonkin professionals, and replaced them with his own children (Cochran 2000; Chan 2006).
In reviewing how successful Chinese entrepreneurs have functioned over the last several hundred years, it is striking to note that no matter what the size or the structure of their operations, they seem to thrive best when they work via their personal relationships. Of course, their success has also relied on a well-run management. But the core emphasis on networking has not become less intense in recent times even as entrepreneurs come into contact with Western-style organization and management. Indeed, building networks and borrowing Western models have gone hand in hand as Chinese entrepreneurs have adopted and adapted certain Western features such as the organization of the factory production process, hiring of professionals for advice and for day-to-day management, and new marketing strategies to cater to the needs of a consumer-driven economy.
Entrepreneurs in Post-Mao China
Entrepreneurs with Official Connections
Among the people in business in today's China, the great divide is between those who have access to the ruling Communist party and its political support and those who do not. A merchant's access to the ruling elite is just as important now as it was in the past. Indeed, the relationship between political power and economic success is most evident in the case of the Rong family, currently headed by Larry Rong of CITIC-Pacific. Ironically, the Rongs come from a group of families the Communists dub as “national bourgeoisie” because they owned large industrial complexes during the republican period. Since most of this “national bourgeoisie” fled to Taiwan, Hong Kong, and elsewhere around 1948, only a very small number of them have survived in China. Around 1978, Deng Xiaoping asked his friend Rong Yiren, who was Larry Rong's father, to form CITIC as a financial company to invest in foreign trade and in infrastructure projects. Rong senior—son of Rong Desheng, mentioned earlier as a cofounder of republican China's largest textiles group, the Shenxin Textiles Company—made good use of Deng's backing, his family's old networks, and personal entrepreneurial skills to create the largest financial conglomerate in all of China by the time he died in 2005.8
His son, Larry Rong, migrated to Hong Kong from Shanghai in 1978 and joined CITIC's Hong Kong branch in 1987. Through his quick grasp of international business and finance, he rapidly acquired and merged other companies with the CITIC branch, so that by the mid-1990s he had already changed the company into an affiliate and renamed it CITIC-Pacific. It has also become a major multinational property and utility conglomerate. Over the last several years, his name consistently has appeared in Forbes' list as one of the three or four richest men in China.9
One group that has equally strong access to power is made up of the sons and daughters of prominent national party leaders, such as those of former president Jiang Zeming, former premier Li Peng, former vice president Wang Zhen, and others. However, these so-called princelings have not become major powerhouses either in terms of sheer size or of percentage control of any sector of the economy. None of them, for example, has made Forbes' list of the ten richest persons in China since that annual list was first compiled in 1999. Their relative lack of success most likely comes from the deficiency of their entrepreneurial skills. And now that the new party leadership under President Hu Jingtao frowns on their activities, they probably will become even less successful.
The far larger group of individuals in business with strong guanxi (relationships) with the political authorities consists of local and regional party leaders who have quit their party posts to go into business. More commonly, it is family members— sons, daughters, spouses, in-laws, or close relatives—who run the business and rely on their kinship connections for help when needed. Others stay on in their official posts and are able to direct collective enterprises as well as to invest in privately owned business. One example is illustrated by the party secretary of Lin Village, formerly a suburb but now incorporated into one of Xiamen's municipal districts. Party secretary Ye started a brickmaking factory as a collective enterprise of his production brigade. This was early in the 1980s and an opportune bit of timing, for his factory was starting to produce bricks just as a building boom in private houses in Xiamen was under way. In the mid-1980s, as the government encouraged privately owned enterprises, Ye, with his keen sense of what the market needed and his skillful use of networking to assure sources of supply for his materials, led a group of eight fellow villagers jointly to invest in a red brick factory of higher quality. His own investment brought him handsome returns, and so, by 1990 he had launched yet another venture after careful market study. He formed a joint partnership among his own municipal district's governing board, Xiamen city's Electricity Bureau, and a zinc-plating company from another province, to build the first electrified zinc-plating factory in his province (Huang 1998, 139–40, 192–93, 214–15).
All the while, Ye has remained party secretary, and has continued to do well, living in a big mansion that he built from his investment. The main difference between him and those officials who have quit their posts is that Ye has not become a full-time entrepreneur. He delegates to others the management of all the companies, both private and collective, that he helped to get started, even though he has kept them under his constant supervision. Those who have resigned from their posts do so to spend full time in private business. Yet they, too, have to spend considerable time networking with their former colleagues in government.
Entrepreneurs without Official Connections Initially
Those who start their business with no party or other official relationships make up the largest group of individuals. They often have very small capital put together from family savings or with the help of friends and kin. Yet many of them have overcome their initial handicaps so well that they make up most of the business leaders today, including a majority of Forbes' ten richest Chinese entrepreneurs.10 We have some data on the total number of individuals who have tried, and also on those who have failed. According to one set of data, from the early 1980s to the end of 2004 there were just over three million private businesses registered with the government. More than 90 percent of these companies are family owned, and most of them are also family managed. Since the 1990s, some 150,000 new businesses have been formed each year, while at the same time, some 100,000 businesses have also closed each year. It appears that 60 percent of the registered companies are likely to go bankrupt in 5 years, and the average life-span of the contemporary Chinese business is only 2.9 years.11
These numbers, however, refer to those more formally organized enterprises with issued stocks and limited liability. If we include the street-corner shops, the mom-and-pop stores, and other small businesses, such as those providing auto repairs and rental service, which require just a simple license to do business, the number nationally was estimated to be almost 24 million at the end of 2005, and that number is said to be growing at 15 to 20 percent annually (Loyalka 2006). What do such numbers tell us? First, the average life-span of current Chinese firms, at 2.9 years, is unusually short, and probably reflects the relative lack of entrepreneurial skills of most of the people who start businesses. Second, while the total number of businesses may not seem large for a country of 1.3 billion people, it does represent a remarkable turnaround when we consider that no private business was allowed until about twenty-five years ago.12
In this regard, it appears that this latest surge into the market is similar to those in the sixteenth and the eighteenth centuries. In both the past and the present, they were and are led by families that need the additional income, and by individuals who have drive and who dare to take risks. Most of them carry out what might be called “replicative entrepreneurial activities,” in the sense that they follow a common pattern, starting very small, perhaps with a stand on a busy sidewalk or a small store that sells specific items like clothing, or provide some form of service. Many would fail within a year or two, but many more would start essentially the same things over again. Others who also try would likely grow to somewhat bigger shops and move to better locations. In time they acquire a stable clientele, and many of them earn their living in this way.
Then there are others from the same group who have also started small, but through daring moves, helpful networkings, and special insight, have become national business leaders by finding new ways to market their goods or services. An example is the success story of Huang Guangyu, chairman and owner of the Gome Electric Appliance Enterprise Group, the largest in China's chain-stores industry. Huang's family was so poor that he could not afford to finish his junior high school before he and his brother left home in southern China to go to Inner Mongolia as traveling salesmen. One year of hard work rewarded them with small savings of 4,000 yuan and the friendship of a Communist party official whose help was critical for them in finding a small shop in Beijing. This was in 1986 and Huang was just seventeen years old. Probably with the support of the same official, the two brothers were able to secure a loan of 30,000 yuan, so that with a total working capital of just over US$4,000, they opened a retail business in electric appliances in 1987 (Situ 2006, 83–96).
At that time, private retail business was just starting in China, and the first group of business owners had not yet learned about good customer service or competitive pricing. Huang soon developed a strategy of providing fair service and selling his goods at an extremely low markup. This won him a high local reputation and large turnovers in sales, which, in turn, allowed him to launch several chain stores in different districts of Beijing by 1993. As his revenue grew, he used the funds to branch into the real estate market. Then during the late 1990s, as Huang noticed that there was a full range of domestically produced appliances under a few major brand names and that they performed well, he negotiated with the manufacturers to assure him the lowest pricing of their products in exchange for his stores giving their appliances prominent display, while he cut back on foreign imports. By then, his chain stores were spreading to other cities, and they quickly made the Gome company name synonymous with low price, honesty, and courteous service all over China. In 2004, he launched his first store in Hong Kong; the following year, he doubled the number of his chain stores to over 500, targeting a majority of the 600 Chinese cities with 400,000—500,000 population. His new goal was to branch out overseas, setting up stores in Southeast Asia first. When the Forbes list of China's richest appeared in March 2006, he and Larry Rong shared first place, each with personal assets estimated at US$1.7 billion.13
Roles of Officials as Patrons and Facilitators
Huang's success story is not unique, as China goes through its early phase of development into a modern industrial society. His rags-to-riches story, his uncanny ability to seize market opportunities, and his ability to accumulate enormous personal wealth are entrepreneurial elements experienced by others in other societies going through their comparable developmental stage. However, what seems peculiarly critical in today's China is that for any Chinese entrepreneur who starts out with no access to the political elite, as was Huang's case, to exceed minimal business operations requires the help of a patron with political power. This seems to be a necessary gateway so long as the sources and distribution of material supplies and of financing are controlled or greatly influenced by the Communist party or the state. In my own interviews conducted in the Pearl River Delta region during the summer and late fall of 2005 with several entrepreneurs who operate private businesses with annual receipts ranging from US$1 million to US$6 million, I found that they all had official patrons before they moved up from positions of office worker, peddler, or mom-and-pop storekeeper.
This brings us to the role played by these party officials and bureaucrats, for one way to judge their help is to see their role as facilitators. In two of the cases I interviewed, officials used their power to assure the supply of needed materials for businesses: in one case, construction materials for two successful companies, one in construction and the other in plumbing supplies; and in the other, carton paper for a carton box factory. Later, the first facilitator resigned from his official post and became a partner in the business. The second stayed on his job, and without any formal agreement, the factory entrepreneur made sure that he was sent lavish gifts on all the big festivals on the Chinese calendar.14 Thus, both political patrons have gained personally. In the first case, his help provided a bridge for him to become an entrepreneur. In the second case, his help led to a form of corruption that is very prevalent in China today. But the gifts are more than a nonproductive, redistributive form of entrepreneurship, for while the patron has received redistributive wealth, he has also created new wealth for the entrepreneur.
To further muddy the role played by these political facilitators, consider the story of a middle-level party member and official bureaucrat, nicknamed Big Bluffer Ye by the Washington Post reporter John Pomfret. In 1995, as deputy chief of Nanjing's fashionable district, the Drum Tower District, Ye decided to turn the run-down main street back to its former luster. So he raised the rents charged the owners of seedy stores, fined the street peddlers, and confiscated their wares, all in an effort to chase them out. He widened the street and decorated it with lights to attract pedestrian traffic. When this attracted the peddlers to return and a few of them challenged the police, he applied a municipal code that allowed him to put them in labor camp for two years. The unusually harsh punishment made its point. In less than three years, the street has become a high-end shopping area with nice boutiques and fancy restaurants. It created well-paying jobs and a cash cow in the form of new tax revenue for the city. Ye, too, has benefited personally; he won promotion to the position of party secretary of his district, and has acquired sufficient financial resources to send his son abroad for education (Pomfret 2006, 182–85, 228–33, 258). Here is a situation where the official used his power to create new wealth for the community and for himself. In this way, both Big Bluffer Ye and the patron of the carton factory have transformed themselves from redistributive bureaucratic facilitators to productive bureaucratic entrepreneurs.
It is tempting to suggest that so long as they do not become overly greedy, there may be a place for this kind of bureaucratic entrepreneurship in China. But any system that denies accountability and the basic requirements of the rule of law cannot last long without dragging down the entire system. To lessen or even to do away with the need for bureaucratic entrepreneurs, government reforms are required to allow free market forces to determine the flow of goods and services, and of credit and finance so that officials no longer hold the administrative power to decide who gets what and when. But the problem probably goes deeper, since new forms of official corruption and of collusion continue to proliferate even as credit and resource allocations have opened up greatly, while corporate governance and state regulations are far more sophisticated in today's China.
Aside from an increased need for official patronage, particularly by the small and medium-sized business operations, today's entrepreneurs in China do not seem to be different from those in the past. Their social backgrounds and personalities, the rationale for going into business, the values they hold, and their focus on social networking, are all quite similar. Even in social status they have regained the respectable position they finally attained during the republican period. Since 2002, when the Communist party ratified former party secretary Jiang Zeming's “Three Represents” formula, which accepts capitalists as part of the advanced ranks of the people, successful business leaders have been admitted to membership in the party.
Conclusion
Chinese entrepreneurship has always been an inherent part of Chinese history and tradition, despite the fact that its large number of practitioners had to endure long historical periods of ideological disesteem, even social marginalization. During the late imperial period, they gradually gained proper recognition and acceptance. The position of entrepreneurship, however, remains fragile, for politics remains as central as it has ever been. In China today, having no access to party officials remains a critical institutional impediment to any successful entrepreneurial operation. As for the traditional times, although the state did not intrude on merchants' day-to-day business, no large-scale enterprise was allowed without some form of state control or participation. That has led to a tradition of keeping enterprises at a modest size, so that they are less likely to attract unwanted official attention, and can remain flexible and nimble. The import of Western legal structure together with China's participation in international agreements has lessened the fear of arbitrary action by the state, but those fears still persist today.
In terms of characteristics, the Chinese entrepreneur does not deviate much from what Schumpeter has defined for the Western entrepreneur—those qualities of boldness and vision and of innovation and new combinations. Thus, when the Shanxi merchants devised new ways of profit sharing with their managers, that practice spread, then was standardized and later refined by others like the Ruifuxiang of Beijing. Brokers, too, such as the specialized ones involved in the salt yards in Sichuan, showed tremendous ingenuity and extensive market networks in structuring a great variety of partnerships customized for that industry's specific needs. No institution, political or religious, has tried to block these activities. Instead, they have been supported by officials and merchant guilds through their adjudication of court and arbitration cases.
What seems to set the Chinese entrepreneurs apart from Schumpeter's is their focus on building networks. Because of the Chinese concepts of association and of one's relationship with the group, Chinese management styles and setups remain rather different from those of the West. But that does not seem to have affected the Chinese entrepreneurs' ability to adapt certain parts of Western models and still use their own business structure and strategy effectively.
There is little doubt that entrepreneurship has been the most productive means of accumulating wealth. Incomes generated by officials might have surpassed those earned and saved by entrepreneurs at various times in Chinese history. But a good deal of what the officials acquired in the process must be interpreted as distributive entrepreneurship; and that was mostly taken from entrepreneurs illegally or by sheer administrative intervention. However, we have also seen that officials' role as facilitators for individual entrepreneurs and communities can generate new wealth, so that the net result is rather more clouded. Some officials take advantage of their established networks to go into business themselves, clandestinely, doing it part time or by quitting their official posts. This seems to have been quite common since the late imperial period. It is even more so today, probably because the rapidly expanding economy creates more opportunities to make use of relationships for substantial gains. Bureaucratic entrepreneurship that became quite important in late Qing and republican China did more harm than good for productive entrepreneurs. It is likely to produce similar results under the present regime.
In sum, Chinese entrepreneurship and entrepreneurs continue to thrive in China. If their past record is a guide, they will overcome future challenges that come their way.
Notes
I wish to thank my colleague Lynn Dumenil for her helpful comments during my writing of this chapter.
1 The I-Ching or Book of Changes (1967).
2 For Sheng Xuanhuai, see Feuerwerker 1958; for Yen Xinhou and Zhou Xuexi, see Chan 1977, 51–52, 218–19, 110–18; for Zhang Jian, see Koll 2003.
3 On salt merchants, see Finnane 2004; on the Cohong merchants, see Wakeman 1978; on the yahangmerchants, see Mann 1987.
4 Cf. the ten-volume work (one on each of the ten shangbang) Zhang et al. 1995.
5 Beijing Ruifuxiang 1959; Jiu Shanghai Xiedaxiang choubu shangdian di “diangui” 1966.
6 Beijing Ruifuxiang 1959; Chan 1982.
7 Chan 1981; The Sincere Company, Limited. Hong Kong: Diamond Jubilee 1900–1975 (n.d.) (Hong Kong: n.p.).
8 “Rong Yiren: An Obituary,” The Times (London), November 1, 2005, 61.
9 Xiao 1999, 272–81; for his listing in Forbes' list, see Singtao Daily (Los Angeles), October 10, 2006, B1.
10 “Forbes' List of China's Richest Entrepreneurs,” Singtao Daily (Los Angeles), April 29, 2005, A1.
11 “Report on the Development of China's Private Enterprises, 2005” conducted and published by All- China Federation of Industry and Commerce, cited by the Financial Express (India), July 5, 2005.
12 A total of 24 million business enterprises is small for a population of 1.3 billion, for it means that only about 3 percent of the adult Chinese population sets up business of its own. If we use as a guide the recent annual reports compiled by thirty-four country-based research reports sponsorship by the Swiss- and American-based Global Entrepreneurship Monitor (GEM), the 3 percent figure would place China among the least active countries in entrepreneurial participation. However, the same report also shows that Shenzhen, the metropolis next to Hong Kong, has 11.4 percent of its adult population in business, making it the tenth highest among thirty-four economies. See Research Studies of Hong Kong and Shenzhen for the Global Entrepreneurial Monitor (2004) (Hong Kong: Centre for Entrepreneurship, Chinese University of Hong Kong).
13 See “Forbes' List of Richest Entrepreneurs in China,” Singtao Daily (Los Angeles), March 10, 2006, A1. Early in 2009, Huang was stripped off his chairmanship and jailed by the government for malfeasance and bribery. Huang's clash with the law is not an isolated incident among those whose names have appeared on the Forbes list. Many of them have also been charged and convicted, and their wealth confiscated. See “Original sin: The stigma of wealth in China,” The Economist (New York), Sept. 5–11, 2009, 70.
14 This paragraph relies on the author's interviews with the two entrepreneurs in Dongguan, China, on November 3, 2005.
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