The Chinese Banking Sector During the Great Depression (1921–1936)
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In this post, Xiaoyun Tang of King’s College London introduces her research about the Chinese Banking Sector during the interwar years, which has been supported by the Economic History Society’s Research Fund for Graduate Students.
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Banking crises provide insights into the operation of financial systems. While the Great Depression has been extensively studied in the context of European and American banks, the narrative surrounding East Asia remains entangled in debate. Research into the financial histories of Europe and America during this period far outweighs that of East Asia, leaving gaps in our understanding. Scholars discuss the extent of the Great Depression’s impact on China. What happened to the Chinese banking sector in the 1930s?
The debate is whether China experienced an economic crisis during the 1930s and, if so, whether it was as severe as the Great Depression that devastated industries in the United States and Europe. These differing views often reflect variations in historical context and professional perspectives. For instance, bankers from the Economic Research Office and the General Administration Office of the Bank of China reported financial turmoil in 1935 but emphasized the government’s swift and effective bailout measures, as recorded in the 1936 National Banking Yearbook. This perspective aligned with the focus of many Chinese economists of the era, who concentrated their analyses on the causes and effects of the financial upheaval sweeping Europe and the United States, leaving China’s economic experience relatively underexamined. Reflecting this trend, Chinese newspapers in 1935 published 78 articles on the global “economic crisis” and 105 on “financial panic,” yet only one article in each category directly addressed China’s own struggles. In contrast, Sir Samuel Hoare, the British Secretary of State for Foreign Affairs in 1935, acknowledged the economic strain on China, observing that the effects of the global depression were delayed but ultimately significant. His perspective suggests that while China may have experienced a lag in feeling the effects of the Great Depression, it was not immune to its broader influence. In 1986, Twitchett and Fairbank added another angle to the debate by arguing that China experienced relative stability compared to the turbulence engulfing the global economy during this period. Contrarily, Tomoko Shiroyama contends that the Great Depression had a profound impact on the Chinese economy. Between 1931 and 1935, China’s economic system struggled to function normally. By March 1935, 1,000 enterprises had closed in Shanghai alone, and unemployment had surged to half a million.
This study aims to offer a fresh perspective on the history of the 1920s and 1930s through a data-driven approach. It draws upon banks’ accounting records, and textual evidence from newspapers, letters, and annual reports sourced from 12 archives spanning 1881 to 1936. In the initial phase of this study, I collected balance sheets and annual reports from 36 banks in Beijing and 60 banks in Shanghai, compiling a total of 5,064 records. Preliminary analysis focused on 27 principal banks, all members of the Shanghai Bankers’ Association, with head offices located in Shanghai, Hong Kong, Manila, Tianjin, and Singapore. The findings revealed a distinct upward trend in leverage ratios between 1921 and 1936. This trajectory became particularly pronounced in the late 1920s, continuing into the 1930s and peaking in 1935–1936. Significantly, this period of rising leverage coincided with the onset of the Great Depression, a time when banks were under immense pressure to adapt to declining revenues and shrinking asset values.
The balance sheet data, collected at yearly intervals, highlights the significant impact of the economic downturn on banks. However, the exact events and timing within this critical period remain uncertain. To address this issue, the study utilizes text analysis to draw on news reports and bank correspondence. It pieces together a narrative to uncover the underlying logic behind the actions and decisions of both banks and their customers. During these panic periods, individuals experienced a “dominance” sentiment—feeling either in control or under control—rather than the excitement or uncertainty traditionally associated with panic. This sentiment accounted for over 10% of the emotional influence on banking panics. Using Shanghai as a test case, information technology, specifically telephone density, amplified the spread of panic emotions. This supports the “self-fulfilling crisis” model, which deserves how cognitive behaviour fuels financial crises. In Shanghai, telephone density correlated closely with the occurrence and intensity of panics, showing an association of nearly 10%.
I would like to thank the EHS Research Fund for Graduate Students, which has helped to support my data collection from archives. Financial crises are inherently contagious, driven by the close interconnectedness of banks and bankers. So far, this study has completed data collection for bank headquarters. Nevertheless, the data from branches and correspondent banks remains to be uncovered, offering a critical next step in understanding the full scope of these financial networks.
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