S03: Bureaucratic Capitalism
Business History of Modern China
September 19, 2025
AHC: Clipped Ambitions
Age of Steamships
- Introduced in the 1830s, steamships helped the British win the First Opium War and the commercial competition against American firms.
- They became key for foreign trade and internal transportation in China.
- Steamships became symbols of foreign power and sites of modernization and nationalist mobilization.
Place: Yangtze River Today
- Covering around 6300 km, the Yangtze is the 3rd longest river in the world
- Over 2800 km is accessible to ships – the longest navigable river for shipping
- River basins home to 1/3 of China’s population; 40%+ of GDP.
Key Questions
- How did the “Three Companies” – China Merchants, China Navigation, and Indo-China Companies – compete and collaborate on the Yangze shipping industry?
- Sovereignty and collaboration: How did businesses operate within a semi-colonial system with unequal treaty powers?
- What is “bureaucratic capitalism”? Did it help or hurt China’s early industrialization?
Qing on the verge: Succession crisis
Xianfeng Emperor (b. 1831-1861) assumed the throne in 1850 and inherited an empire in crisis. Only child emperors would ascend the throne before the dynasty’s collapse in 1911.
Qing on the verge: Foreign conflicts
- 1855-1858: Second Opium War against England and France
- 1858: Outer Manchuria ceded to Russia
- 1860: Treaty of Beijing
Qing on the verge: Domestic unrest
- 1850-1864: Taiping Civil War, led by Hong Xiuquan
- 1851-1868: Nian Rebellion in Anhui, Shandong, and Henan, led by remnants of the White Lotus Society
- 1855-1872: Panthay Rebellion in Yunnan, led by Du Wenxiu
- 1867-1876: Dungan Revolt in Xinjiang, led by Jakub Beg
Qing on the verge: Natural Disasters
- 1855: Yellow River changed course; Grand Canal flooded.
- 1873-1876: Three year drought
- 1876-1879: Great North China Famine in five provinces, claiming at least 9.5 million lives.
Grand Canal Abandoned
- The Grand Canal’s main function was to transport grain from southern to northern China.
- Traditionally, maintenance was a shared effort by landowners, farmers, and local associations.
- After 1840, the sea route became the standard for grain tribute, leading to the canal’s obsolescence.
- Abandonment of the Grand Canal caused social instability and banditry.
Devolution of power
- End of “law of avoidance”
- Regional armies, personally loyal to their commanders than to the empire
- New fiscal power: commercial transit tax
- Rise of local gentry and elite-led militia across the empire
Rise of Regional Elites and Their New Armies
Chinese Educational Mission
- The Chinese Educational Mission was established in the late 19th century to send Chinese students to the United States for education.
- It aimed to modernize China’s education system and promote Western knowledge and skills.
- Over 120 students were sent to study various subjects, including science and engineering.
Chinese Educational Mission, continued
Catch-up industrialization
New Power Players: The Three Companies
China Navigation
- British shipping company formed in 1872-73 for Yangtze and coastal trades.
- Backed by Butterfield & Swire, with existing Liverpool/London/British shipping networks
- Aggressively courted Chinese shippers with commission and loyalty schemes.
- Offered through-bookings onto overseas lines.
- Less embedded in treaty-port investor pools; strong access to British capital, shipbuilders, and shipping networks.
Indo‑China Steam Navigation Company
- Possesses treaty-port networks and experience: China Coast and Yangtze Steam Navigation companies
- Expanded into coastal/Yangzi services in the 1870s.
- Consolidated shipping into Indo-China Steam Navigation Company around 1881-82.
- Mobilized British capital (especially Jardine Matheson) for scale.
China Merchants
- Established in 1873 under Qing auspices as an “official supervision, merchant management” enterprise.
- Rapidly expanded its fleet, owning about 33 ships by 1877 after purchasing Shanghai Steam Navigation Company.
- Relied on government loans and native-bank credit due to insufficient merchant capital.
- Benefited from state contracts and concessions, but patronage depended on officials.
- Aggressive penetration pricing 1873-74, but faced cash-flow pressure due to short-term, costly loans and guaranteed dividends.
CMC’s Patron: Li Hongzhang
- In a 1872 memorandum advocating for more investment in Chinese shipbuilding, Li Hongzhang penned a line since repeated for generations: China was experiencing “great changes not seen in three thousand years.”
- What was the cause of Qing’s decline? The dynasty’s inability to reckon with transformative geopolitical and technological forces.
- Sidelined after China’s defeat of and Sino-Japanese War
“Official supervision, merchant management”
- Western-style, capital-intensive enterprises
- Accompanied by new naval academies and educational facilities
- Management shared between gov and merchants
- Capital raised through selling shares or gov loans
- Rise of hybrid “gentry-merchant”: combining moral rectitude with commercial development
Bureaucratic capitalism
- Gov ties as both asset and liability: Vulnerable to state extraction and intervention
- Obscure lines of decision and responsibility
- Enterprises as bases of political patronage, local loyalties, and corruption
Price War
- Overlapping ambitions on the same Yangzi and coastal routes.
- British firms: defend and expand commercially lucrative routes backed by British capital and shipping networks.
- For China Merchants: added political goal of “taking back” river/coast profits for Chinese/Qing interests
- Each sought market share, Chinese cargoes/passengers, and control of profitable staple flows (rice, cotton, etc.).
Discuss: Price War
Get into teams of three, with each representing one company:
- What is your overall strategy for pricing?
- Aspects to consider: advertised freight/fare levels, use of rebates/commissions, frequency of sailings, whether to undercut rivals (how much), and what financing (short‑term loans, draw on reserves, guarantee dividends?)
- Be realistic about risks: cash burn, loan repayment pressures, political/contract advantages, etc.
Role Play: 1877 Shipping Conference
Return to your previous group of three:
- What are your strengths and weaknesses vis-à-vis other firms?
- Areas to consider: Route allocations, sailings/frequency, profit pooling / compensations, special privileges and exemptions
- What offers would you give to divide trades, pool profits, and allocate sailings?
- Rules and enforcement: How would you make sure the “controlled competition” would stick? Discuss penalties for breaking the agreement and/or policies to handle new entrants, etc.
Sino-Japanese War of 1905
Sino-Japanese War and Its Impact
- The age of imperialism in East Asia began in April 1895 with the Treaty of Shimonoseki.
- Japan gained control of Taiwan. Korea, now an independent nation, effectively became a Japanese protectorate, leading to formal annexation fifteen years later.
- It granted Japan the right to establish industrial factories in Qing territory, opening the door to foreign investment and economic imperialism.
- Japan also acquired the Liaodong peninsula in southern Manchuria, including key ports like Dairen and Port Arthur.
Carving up China
- Cession of Liaodong Peninsula to Japan disrupted the balance-of-power principle in China.
- By the early 1900s, foreign powers divided large areas of the Qing empire into zones of influence: Russia in Manchuria, Germany in Shandong and parts of north China, Britain in the Yangzi valley, Japan in Fujian, and France in southeast China.
The Great Game: Over Central Asia
- The British and Russian empires competed for influence in Central Asia, particularly in Afghanistan, Persia, and Tibet.
- The Crimean War (1853–1856) between Russia and Britain, France, and the Ottoman Empire as catalyst.
- Britain feared Russia’s expansion would threaten India, while Russia was wary of British interests in Central Asia.
- Russia conquered Turkestan, and Britain expanded British India and defined its borders.
- By the early 20th century, many independent states between the Caspian Sea and the Eastern Himalayas became protectorates of the two empires.
Discuss: Self-strengthening Movement
- Was Qing’s early industrialization a failure? If so, why?
- What were the main obstacles to Qing China’s industrial developments?
- What was the relationship between institutionalization and industrialization?
Qing’s Conservative Reformers: Their Rise and Fall
- Zhang Zhidong: “Chinese Learning for Essence, Western Learning for Function”
- These officials were not just progressive reformers: while loyal to the Qing, they also had personal and factional interests.
- Personal self-interest and careerism existed among these so-called progressives, often leading them to undermine each other’s reform efforts.
- Difficult to find an equilibrium between “essence” and “function”, between reform and reaction.
Looking Ahead: New Radical Reforms
- The Sino-Japanese War was a greater shock, even more so than the Opium War (1839–1842).
- Young reform-minded intellectuals, like Liang Qichao, highlighted the urgent need for modernization and Westernization.
- More than importing Western technology, the Qing needed more radical reform to prioritize constitutionalism, like Japan.
Bureaucratic Capitalism Today
What to call the Chinese model?
- State capitalism
- Market socialism
- Party-state capitalism
- Investor state
- Capitalism with Chinese characteristics?
The Three Companies: Still Going Strong
The three major firms are still around – and all remain Forbes Global 500 companies.
Jardine Matheson
Swire: Still in Family Hands
Swire: From Shipping to Coca-Cola
China: The World’s No. 1 Shipbuilder
- As of 2024, the US accounts for 0.1% of global shipbuilding.
- China produces more than the rest of the world combined.
