The Politics of Economic Geography: Public Finance

There was, however, a major obstacle to currency movements: numerous county governments banned the export of more than small amounts of certain currencies (usually silver, sometimes copper).^[32] This obstructed both arbitrage and cross-county lending: if it is hard to get hard currency out of a county, it is not attractive to send money in. In setting up these barriers, county governments increased the profits of certain local money shops and, more important, their own revenues. Although peasants were often paid in copper, taxes were set in silver. In the 1800s, the exchange rate used for tax payments varied widely, in many places exceeding 5,000 copper jing qian per silver tael (a 1,800-to-1 rate in the units used here), but by the 1890s the market rate in cities along the seacoast was less than half that. In 1896 the Shandong governor tried to standardize the official rate at 4,800 to 1, still roughly double the Tianjin rate.^[33] If county governments or their allies could enforce high rates at tax-collection time and then dispose of their copper at market rates, they would double their real revenues. As market rates shifted in favor of silver after 1905, county governments' arbitrage profits declined, but they remained significant.

High exchange rates were imposed on all direct taxes but did not enhance

[30] Ibid., app. C and chart, pp. 52–55.

[31] Shandong quansheng caizheng shuomingshu , p. 28; Chintao Shubigun Minseibu Tetsudobu, pp. 462–65; NCH , Nov. 22, 1907: 455; Chintao Minseibu Tetsudobu, Chosa Shiryo , p. 88.

[32] See, for instance, NCH , Nov. 10, 1905: 304; Nov. 15, 1907: 394.

[33] The situation in the late nineteenth century is summarized in Esherick, Boxers , pp. 170–72; a post-1900 primary source that gives the government's view is Sun Baoqi's memorial of 9/25/Xuantong 1 (1909) in archives of the Huiyi Zhengwuchu, file #573, document 4802, First Historical Archives, Beijing.

national or provincial receipts. Counties collected all taxes and forwarded a fixed amount of silver to the provincial capital.^[34] Thus, the profits from artificial exchange rates were retained locally. In fact, the Shandong governor complained that since Yellow River control demanded large copper expenditures, the province suffered from receiving a fixed silver income;^[35] he also argued that locally imposed conversion rates led to tax resistance and so prevented the levying of necessary new taxes.^[36] In 1901 the province decreed that taxes should be computed with the market exchange rate,^[37] but counties continued to set their own market rates and to enforce them by restricting currency flows.

Moreover, these restrictions often led to currency shortages in inland counties, which in turn created very profitable opportunities for issuing local coins or paper. While the printing of worthless paper by various "national" governments (especially during the warlord period, 1916–28) is well known, county reports of the Shandong Office to Encourage Industry reveal a constant struggle to limit the currencies issued by local governments and merchants. These local currencies, typically denominated in copper and often issued with no financial backing, were especially common in western Shandong, most of all in the Southwest region.^[38] Nearer the coast, copper coins were sometimes scarce, but a variety of foreign silver and paper rushed in to fill any vacuum.^[39] It is not surprising that Jining, the Southwest trading center with the sky-high silver-copper exchange rate, had one of the worst local-currency problems, which became a major target of political insurgents.^[40]

However, officials' efforts to quarantine their domains from market forces were not entirely cynical. The writings of economic officials in early twentieth-century Shandong have an almost mercantilist tone. Growth is desired, but primarily because it will help preserve China's independence, not

[34] See, e.g., NCH , Nov. 15, 1907: 394. John Schrecker, Imperialism and Chinese Nationalism (Cambridge, 1971), pp. 213–14, says that when Germany adopted market-rate conversions in Qingdao, local tax collectors, but not the government, lost.

[35] Reprinted in Wu Tongju, Zaixu xingshui jinjian (Taibei, 1966), 10:3748.

[36] Jining zhilizhou xuzhi (1929), 4:14a–b; NCH , Mar. 18, 1904: 575.

[37] En xianzhi (1909), 4:4a; doc. 4802 (memorial of 9/25/Xuantong 1), file 573, files of Huiyi Zhengwuchu, First Historical Archives, Beijing; Shandong zazhi , no. 62 (6/10/Xuantong 2): 11a–b.

[38] See, e.g., Shandong quanye huikan , no. 4 (Jan. 1922), ge xian shiye zhuangkuang : 17 (on Shan County); no. 7 (May 1922), ge xian quanye baogao : 32–33 (Heze); no. 11 (Feb. 1923), ge xian chengji baogao : 20 (Heze); no. 13, gongdu : 41 (Tangyi), 45 (Linqing).

[39] See, e.g., Shandong zazhi , no. 78 (11/20/Xuantong 2): 14b–15a; NCH , Jan. 30, 1909: 250.

[40] See Tang Chengtao, "Huoguo yangmin de 'li Ji qianpiao,'" Jining shi shiliao , 1983, no. 1, pp. 89–91; Wu Guogui, "Yutang xinghuo—Jining Shi Yutang jiangyuan gongyun gai," Shandong gongyun shi ziliao , no. 16 (Feb. 10, 1985): 13.

because it will promote individual welfare.^[41] Import substitution and export promotion projects were conceived as ways of escaping debt, reclaiming foreign concessions, or achieving other "self-strengthening" goals that would not be best served by full integration into the coastal economy.^[42] This stress on national political goals in economic policy fit perfectly in the intellectual climate of early twentieth-century China, where even advocates of Western liberalism stressed liberating individual energies more as a stratagem in China's struggle for autonomy than as an end in itself.^[43] The mixture of self-serving and sincere motives for impeding currency flows is exemplified in the provincial government's attempt to stop the export of copper coins from Shandong.^[44]

Even in the nineteenth century, copper coins had sometimes been worth more as metal than as coins, leading both Chinese and foreigners to buy coins and melt them down. During World War I, the world price of copper (as metal) climbed rapidly. Japanese merchants in Shandong aggressively bought up copper coins for use at home. After the Japanese seized Qingdao in 1914, they had little trouble evading provincial restrictions, and this trade spread along the Qingdao-Jinan railway. Between 1915 and 1919, according to the U.S. consul in Jinan, Shandong "was almost denuded of copper currency," with over 22 million yuan worth of copper exported. Coin exports from Shandong in these years were about 12 percent of the annual capacity of all of China's copper mints, or the equivalent of the leakage from all of China during the 1899 currency panic. Strong demand for copper coins raised their value further above the levels set by many local authorities, making restrictions even more important to county finance.

Provincial and national authorities were worried both about the symbolism of this trade—Japan used some of this copper to make bullet casings—and the control it gave Japan over the money supply along the railway. Complaints about this trade disappeared in the early 1920s but became common again after 1928.

Though provincial governments suffered from restrictions on currency

[41] See, e.g., Shandong zazhi, no. 88 (4/30/Xuantong 3): 7b–8a; no. 89 (5/15/Xuantong 3): 8a–9b; no. 90 (5/30/Xuantong 3): 7a–8b; Nong shang gongbao 1, no. 5 (Dec. 15, 1914), zhengshi : 14; Lin Maoquan (head of the Shandong Office to Encourage Industry in the 1920s), Wenji, pp. 2a–b, 71a.

[42] See, for instance, Lin Maoquan, Wenji, pp. 1a–7b; another, slightly different, example is the great interest by Shandong merchants and politicians in improving the harbor and otherwise building up Yantai as an alternative to foreign-controlled Qingdao and the waning of that interest when Qingdao was returned to China in 1922; see, e.g., NCH, Mar. 4, 1922: 576, 585.

[43] See, e.g., Benjamin Schwartz, In Search of Wealth and Power: Yen Fu and the West (Cambridge, 1964); Joseph Levenson, Liang Chi-chao and the Mind of Modern China (Cambridge, 1953).

[44] The following account is condensed from Pomeranz, "Making of a Hinterland," pp. 61–64.

movement between counties, they supported restrictions that kept coins from leaving the province. Provincial officials wanted a unified provincial currency and economy but were unwilling to let this happen through integration into international markets; even while they were redoubling efforts to prevent currency exports, they were (unsuccesfully) ordering all counties to abide by exchange rates for notes that would be wired from Jinan.

We have few details about how currency restrictions were enforced, but persistent exchange rate differentials suggest significant successes. In 1933 counties very close to each other, such as Shouguang (North Coast) and Linju (Heartland), and Heze and Cao (both Southwest), still quoted very different exchange rates.^[45] There are also accounts of people being searched for currency at train stations and other checkpoints.^[46] County governments could not fully police their borders, but policing rail and water routes greatly reduced currency arbitrage. (Postal remittances were irregular, and could be limited to firms adhering to local exchange rates.)^[47] Rate differentials between Jining and the nearest Heartland points far exceeded even the costs of moving copper by wheelbarrow.