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The Republic of China and Bank of China: Keeping Pace with History (1912)


 

 

 

Former site of Bank of Great Qing in Shanghai, where Bank of China opened on February 5, 1912 (No.3, Hankou Road, later renamed as No. 50, Hankou Road)

After the Opium War, foreign banks rushed into China and manipulated Chinese financial market by various means such as monopoly of international currency exchange business, export of capital, political loans, issuance of banknotes and management of China's foreign claims. After the Sino-Japanese War from 1894 to 1895, China's financial and fiscal situation became worse with the inflow of large amount of foreign capital. In this circumstance, some ambitious Chinese people of great insights urged to set up China's own banks by advocating "to serve China with Chinese currency".

Bank of China was formerly known as the Treasury Bank, the first state bank in China. On March 14, 1903, the 30th year of the reign of Emperor Guangxu in Qing Dynasty, Yi Kuang (a minister of the Qing Dynasty) addressed a petition to the emperor for "opening of the Treasure Bank to promote silver coins." After over one year of preparation, the Treasure Bank, the first national bank in Chinese history, was established in Beijing in August 1905. In 1906, the Hu Ministry (ministry of finance, taxation and civil affairs) was renamed as Duzhi Ministry (ministry of finance). And in February 1908, the Treasure Bank was renamed as Bank of Great Qing with the function of central bank. By 1911, Bank of Great Qing had set up 35 branches in China's provincial capital cities and port cities, becoming the largest bank in the late Qing Dynasty.

Bank of Great Qing was a joint-stock bank co-invested by the Qing Government and businessmen, and its total share capital of 10 million liang (a unit of weight) of silver dollars was equally contributed by the government and the businessmen. After the outbreak of the 1911 Revolution, Bank of Great Qing, acting as the central bank of the Qing Government, closed down most of its branches except one in Shanghai. To preserve the equity of businessmen, shareholders of Bank of Great Qing led by Xiang Zaoxin, the Secretary General of the bank, set up a Shareholders' Association on November 5, 1911 and made an announcement on November 14, stating "We have received reports from branches in different places that some local military governments considered Bank of Great Qing to be wholly state-owned and took away key items such as silver dollars and bank certificates, or even detained bank staff. Currently, the bank books are in disorder and the situation is urgent. We request the shareholders to hold a meeting at the Hankou Road head office in Shanghai on November 18 for discussion of countermeasures. The main participants of the activities held by the Shareholders' Association were Bank of Great Qing's shareholders from Zhejiang Province and some of its senior personnel in charge. On December 4, 1911, the Shareholders' Association changed its name as Association of Business Shareholders of Bank of Great Qing.

On January 1, 1912, The Republic of China Interim Government was founded with the inauguration of Sun Yat-sen in Nanjing. Chen Jintao, Deputy Managing Director (in the Qing Dynasty) of Bank of Great Qing, was nominated by Wu Tingfang, Attorney General of the Interim Government, to take the position of Finance Minister of the Interim Government. At that time, establishment of a central bank under the new government became a very urgent issue. As Bank of Great Qing was the national bank of the Qing Government with abundant strength, it would be very appropriate to change it into the central bank for the new government. Just as Chen Jintao stated in his message to the provisional senate that "It is the method that can satisfy the requirements of both the government and the shareholders to meet the urgent need, enhance national strength and finance with the existing funds by relying on the bank." Then, Chen Jintao decided to reside permanently in the Hankou Road office in Shanghai of the Bank of Great Qing to prepare for this issue. With the assistance of the Association of the Business Shareholders of Bank of Great Qing, Chen Jintao proceeded to transform Bank of Great Qing into Bank of China as the central bank of the new government.

After adequate planning and preparation by the business shareholders of the Bank of Great Qing, the Association of the Business Shareholders of Bank of Great Qing submitted a formal report to Sun Yat-sen, recommending transforming the original Bank of Great Qing into Bank of China and government's central bank. They also recommended "to terminate business of Bank of Great Qing to check up, to cancel the original state-owned shares of 5 million liang of silver dollars to cover all losses as well as bad debts by branches of Bank of Great Qing in the war-affected areas; at the same time, to organize the Bank of China to take over all properties and buildings of the Bank of Great Qing. The existing shares of 5 million liang of silver dollars of the former Bank of Great Qing shall be replaced at par value and considered as the corresponding equity interest of Bank of China, with additional shares of 5 million liang of silver dollars issued." In that report, concrete measures were also proposed for the reform of Bank of Great Qing: "On one hand, an agency for Bank of Great Qing clearance shall be set up and affiliated with Bank of China with a separate accounting system; on the other hand, starting from the date of approval by the Ministry of Finance, a Regulator and a Deputy Regulator shall be appointed by the Finance Minister to handle all preparatory issues with the shareholder representatives of Bank of Great Qing."


Proposal on establishment of Bank of China submitted by the Association of the Business Shareholders of Bank of Great Qing to Sun Yat-sen.

After review of that report, Sun Yat-sen promptly instructed Chen Jintao face-to-face, "Now as the new government has been founded, all legal rights and interests that already acquired by businessmen and people from the former government shall be allowed to maintain. As to the relevant applications including the transform of Bank of Great Qing into Bank of China, issuance of additional commercial equity interest of 5 million liang of silver dollars as well as identification of Bank of China as the central bank of the new government, it is decided to instruct the Ministry of Finance to raise funds for enhancing the financial strength, and retain the Regulatorand Deputy Regulator in charge of Bank of China's opening matters first to secure timely establishment of the bank. Moreover, for the old or new bank books and accounts, please respectively telegraph provincial governors for effective protection and return of the items originally owned by the bank including houses, appliances, books and vouchers to these local branches. Anything that does not conflict with the main principles shall be approved."

Immediately, Chen Jintao, on behalf of the Ministry of Finance, replied in written with the above presidential instructions to the Association of the Business Shareholders of Bank of Great Qing on January 24, 1912 and at the same time made the appointment of Wu Dingchang and Xue Songying respectively as the Regulator and Deputy Regulator. On January 28, 1912, the Association of the Business Shareholders of Bank of Great Qing held a General Meeting of Shareholders, conveying the related instructions. The meeting decided the formation of Bank of China Provisional Council/Board of Supervisors, which was composed of the shareholders, in charge of drafting articles of association along with the above Regulator and Deputy Regulator, as well as management affairs.


On January 28, 1912, the Association of the Business Shareholders of Bank of Great Qing Held a Meeting for Establishment of Bank of China.

On February 2, 1912, Bank of Great Qing Shanghai Branch closed for liquidation. On February 5, 1912, Bank of China celebrated its foundation at No. 3, Hankou Road, Shanghai, the site of the former Bank of Great Qing, and started operation. On February 14, 1912, Bank of China Nanjing Branch announced its opening at the Jewelry Gallery in Nanjing; On August 1, 1912, Bank of China head office was established at Xijiaomin Lane, Beijing, also one site of the former Bank of Great Qing, while the Bank of China Shanghai was renamed as Bank of China Shanghai Branch. Subsequently, the branches of Bank of Great Qing in Tianjin, Hankou, Jinan, Hangzhou, Guangzhou, Nanchang and other places, after restructuring, were changed into local branches of Bank of China successively.

With the birth of the Republic of China, Bank of China was founded. With the development of Chinese modern financial industry, the extraordinary journey of Bank of China began.

Background:

Petition submitted by the Association of the Business Shareholders of Bank of Great Qing to President and relevant reply

A. Petition submitted to President by the Association of the Business Shareholders of Bank of Great Qing (January 1912)

Hereinafter are issues filed for consideration. We humbly hold that development of national affairs including financial sector depends on finance. Since the establishment of the new government, the military need has been urgent without a developed national financial system, so it is paramount to issue military banknotes and government bonds. However, these are only expedients, and to fully settle the difficulties, there is no way but to set up an entirely concrete financial institution. Therefore, it is necessary to found a central bank. In the past, China's finance was in disorder, as all business circles were relatively free to form their own rules without restriction by central bank of the government. Since its opening, with the official and commercial equity interests both taking up 5 million liang of silver dollars, Bank of Great Qing used to open over 50 head offices and branches. Considering the bank's solid foundation, the Qing Government recognized it as the central bank, granting to the bank authority of banknote issuance, treasury management and government bond issuance. At that time when consulted by foreign ministers, the Duzhi ministry (the Ministry of Finance) always replied that Bank of Great Qing actually was the central bank of the Qing Government, and banknotes issued by the bank was secured with state reputation. Having witnessed such special rights entitled to Bank of Great Qing, the shareholders were willing to subscribe its shares for investment. Today as the Republic of China is promoting reform and protection of inherent rights and interests of business people, we hereby apply to change the original Bank of Great Qing into the central bank of the New Government by reorganizing and giving it a new name. It will not only accomplish multiplied effects with little effort, but also indeed demonstrate the idea of protecting the interests of businessmen and common people. Generally speaking, after the Wuchang Uprising, announcement can be found in Vice President Li Yuanhong's meeting with foreign consulates and the Presidential Oath statement: The new Government shall continue recognizing the concluded treaties by the Qing Government with friendly foreign countries and all the rights obtained by the foreigners. Therefore, we hold that since our country did so to obtain trust of the foreigners, there is no reason of not recognizing the obtained rights and interests of the people of our own. After continuous days of collective discussion at the meeting of shareholders of Bank of Great Qing, we altogether propose as follows: On one hand, to terminate all business of the Bank of Great Qing for clearance and the original state-owned shares of 5 million liang of silver dollars shall be immediately eliminated to offset losses and bad debts suffered by all our branches; on the other hand, organize Bank of China to take over all the housing and other properties for unified arrangement; the existing shares of 5 million liang of silver dollars of the former Bank of Great Qing shall be replaced at par value and considered as the corresponding equity interest of Bank of China. In addition, we apply for an amount of new share capital of 5 million liang of silver dollars, of which a half will be subscribed by the old shareholders while the other half will be offered to new investors. The future's dividend distributed to these new shares shall be a little more beneficial than that of the old shares and the corresponding interest distribution shall be subject to the agreement between the new officials appointed by the Government and shareholders. The above are the general planning by the shareholders. With an insight into the reform of Bank of Great Qing, our fundamental aim is to achieve an entirely consolidated central bank without so many complicated procedures, and to prevent commercial equity interest from any loss and so as to maintain its credibility in the future. All the financial claims and debts of Bank of Great Qing before such reform shall be sorted out by a special agency. All business of Bank of China after such reform shall be based on a solid foundation in accordance with the nature of central bank and shall not be mixed with the operation of the previous business. It is beneficial to both the nation to have adequate fiscal revenue and the people. The outline of the corresponding measures has been recorded for your review. We hereby humbly apply for the Presidential approval and instructions.

Bank of Great Qing is to end its operation on the Chinese calendar December 30 (February 17, 1912) with all branches being closed for clearance. The outline of all clearance measures are as follows:
A. To set up a special clearing agency which is affiliated with Bank of China and all the account books of Bank of Great Qing shall be kept separate from the new ones.
B. For hardship relief, we request our new government to distribute government bond certificates to people and armies who contributed their cash, accounts and other property items. For those account books and vouchers taken away, the new government shall telegram order respective provincial governors to fully return for the clearing.
C. The new government shall protect the collection of old borrowings to show its attention to business principle.
D. Any loss after the clearing shall be offset by Qing Government's equity interest of 5 million liang.
E. All the commercial equity interest of 5 million liang of silver dollars shall be changed into that of Bank of China and should be swapped into shares on a regular basis.
F. All the Bank of Great Qing's premises and productive property items shall be taken over Bank of China.

Bank of China is to start operating on February 18, 1912. The proposed measures are outlined as follows:
A. The bank shall be recognized as the central bank of the new government, with the corresponding articles of association to be discussed and determined by the officials appointed by the Ministry of Finance together with the shareholders.
B. The bank is to issue commercial shares. While the new government may consider appropriating some official fund only at the preparation stage, such fund should be transferred to the new government right upon the completion of share capital subscription.
C. The period from the middle of December of Chinese calendar to the exact date of approval by the Ministry of Finance shall be the preparation period of Bank of China, during which a Regulator and a Deputy Regulator will be appointed by the Ministry of Finance to handle all preparation matters together with the shareholder representatives of Bank of Great Qing.

B. Instructions by Finance Minister

The Association of the Commercial Shareholders of Bank of Great Qing:

Your report has been received and known, and hereby I would like to reply with the Presidential instructions: "Now as the new government has been founded, all sound rights and interests acquired by businessmen and people from the old government shall be allowed to maintain. As to the relevant applications including the transform of Bank of Great Qing into Bank of China, issuance of additional commercial share capital of 5 million liang of silver dollars as well as recognition of Bank of China as the central bank of the new government, my decision is to instruct the Ministry of Finance to raise fund for enhancing the financial strength, and retain the Regulator and Deputy Regulator in charge of Bank of China's opening matters to secure timely establishment of the bank. Moreover, for the old or new bank books and accounts, please telegraph corresponding provincial governors for effective protection and return of those items originally owned by the bank including houses, appliances, books, vouchers and so on accordingly to these local branches. Anything that does not conflict with the above main principles shall be approved."

As to the regulations for the central bank and detailed rules of operation, capital raising and other matters, these issues shall be discussed and drafted by the regulatory board together with the board of shareholders, with their proposal on the said issues filed to the Ministry of Finance for review and approval. After being approved by the Senate, such proposals will be presented for Presidential approval. Presidential instructions will be delivered to comply accordingly. Hereinbefore stated are the instructions on January 24, 1912.

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