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Support for Domestic Production with Expanded Size and Reformed Structure of Loans (1929 - 1936)


 

After being restructured into a foreign exchange bank, Bank of China started to shift its focus from serving government authorities to enterprises. Even though it bore a heavy burden of government loans, the bank made the best effort to prepare loans to promote the domestic production and economic development.

Before 1933, Bank of China issued about 300 million yuan in loan per year, ranking the first among all the Chinese banks and accounting for 50% to 60% of the total loans extended by the Central Bank, Bank of China and Bank of Communications. After 1931, despite a slip in the proportion, Bank of China's loans remained higher than any of other banks. In 1937, total loan amount of Bank of China surged to 800 million yuan, 15% higher than that of the Central Bank, and over twice that of Bank of Communications.

A distinct change took place in Bank of China's loan structure. After restructuring, the proportion of loans extended by Bank of China to the government authorities and individuals gradually decreased, while the proportion of loans to the industrial and commercial, agricultural and transport industries increased significantly. Within the five years after 1930, Bank of China's industrial loans tripled and commercial loans doubled.

I. Expanding Industrial and Commercial Loans

A. Supporting the development of key industries


Silk reeling factory funded by Bank of China

In the 1930s, yarn, flour and silk consisted of China's three major industries, accounting for 80% of the total industrial loans.

In 1932, the silk market was in a downturn, with the overstocked silk totaling 35,000 piculs. Loans granted to the silk cocoon industry were shelved, leading to no market for new cocoons. With Bank of China's appeal, Jiangsu and Zhejiang provinces issued treasury bills worth 3 million yuan to assist in exporting approximately 20,000 piculs of old silk. Bank of China didn't suspend its loan extension to cocoon buyers and offered loans of 2 million yuan for purchase of new cocoons.

Development of China's flour industry started early but with weak finance. And expelled by the very low price of imported flour, Chinese flour industry was in hard time. In this situation, Bank of China spared no effort to support with loans. For example, in 1934, it extended a loan of 1.2 million yuan to Tianjin Shoufeng Flour Company and offered an overdraft of 3 million yuan secured against finished goods and materials, etc., enabling the company to produce about 20,000 bags of flour per day and playing an important role in rivaling imported flour.

The cotton manufacturing industry was China's pillar industry, with the number of cotton spinners accounting for a half of the total workers in China. In the 1930s, the rapid development of foreign cotton mills posed fierce competition to the domestic counterparts, resulting in the latter's suspension of production and low output. In order to ensure loans to the domestic textile industry, Bank of China head office set up a Management Committee for Cotton Mills Loans to assist banks in monitoring the cotton mills' situation, promoting their technologies, reducing cost and enhancing competitiveness. In 1934, loans from Bank of China to the cotton mills hiked to 34.4 million yuan, about 25%-35% of the total capital of China's cotton mills. Among all the cotton mills, 48% obtained loans from Bank of China.

B. Helping increase output and sale of homemade goods

In March 1932, Bank of China initiated the Friday Dinner Party for Domestic Manufacturers in Shanghai to enhance communication and exchanges among the domestic manufacturers and to work out development strategies. In August 1932, Bank of China advocated the founding of the Chinese Domestic Goods Production and Sale Cooperative Association, of which the charter pointed out, "Our aim is to convene China's industrial and commercial communities to cooperate in the interest of production and sale of domestic goods". In 1933, Bank of China established the Domestic Goods Agency and asked its branches across China to set up offices under the Agency to promote domestic goods. On February 9, 1933, Bank of China contributed to the founding of China Merchandise Corporation in Shanghai, which became the largest store for domestic goods in China.

C. Supporting domestic commerce

At the beginning of its restructuring, Bank of China put forward that "the business policy would have to focus on commerce and business exchanges with businessmen". Bank of China provided various types of commercial loans with high credit limit. The commercial loan was only the second after the government borrowing among all its loan categories and was usually two to four times as much as the industrial loan. This gave a great support for the circulation of commodities.

II. Assistance to Infrastructure Construction of Railways, Highways, Coal Mines and Water Conservancy Facilities

China started railway construction in the 1870s. During the 50 years before the 1920s, only 8,000 km rails were built and the operating income was insufficient to cover the expenditure. The heavy debts borne by railway construction projects made most financial institutions so worried about bad debts that they seldom provided loans in this area. However, Bank of China considered railway construction an urgent task for the development of all other domestic industries and enhancement of the national strength. For this reason, it put huge funds into railway construction and took different financing methods such as direct loans, loan syndication and bonds issuance to support the construction of Zhejiang-Jiangxi Railway, Qiantang River Bridge, Guangzhou-Wuhan Railway, Huainan Railway, Gansu-Qinghai Railway, Datong-Puzhou Railway, Beiping-Shenyang Railway, Beiping-Suiyang Railway and Zhengding-Taiyuan Railway.

As early as local businesses started to construct private highways, Bank of China was active to provide loans. In respect of coal mines, it provided loans to Jiaozuo Coal Mine in Henan Province, Shanxi Coal Mining Company, Shanxi Datong Coal Mine Company, Yangquan Baojin Company, Changxing Coal Mine in Zhejiang Province and Xiangnan Coal Mine. For water conservancy projects, it granted loans to Haihe River, Yellow River, Weihe River and Yongding River projects.

III. Loans for Agricultural Development.

Around 1931, the domestic market was filled with low-price imported rice, wheat and cotton, pulling down the domestic produce price and bringing losses to Chinese farmers. Moreover, farmers shouldered severe tax burdens and faced decline of the rural economy. Though Bank of China had been restructured in as a foreign exchange bank, yet it set aside funds to support agriculture as the agricultural downfall was affecting the development of the industry, commerce and foreign trade. The agricultural loan balance surged by 96.5% from 22.16 million yuan in 1934 to 43.545 million yuan in 1936. Besides direct loans to farmers including the secured loan against agricultural goods and small secured loans, Bank of China started in 1932 to provide loans to cooperatives in rural areas and the total loans amounted to 8.08 million yuan in 1936, benefiting 205,000 farming households, 3,200 cooperatives, 94 cooperative associations in 117 counties of 10 provinces. The agricultural loans effectively promoted the rural cooperatives' development.


Bank of China granted short-term agricultural loans in support of autumn harvest. The picture presents a scene of soldiers and farmers in autumn harvest in Shanxi.

By reforming the loan structure and expanding loan size, Bank of China gave strong support to domestic production and economic development in the 1930s.

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