Financial Crisis and the Birth of Domestic Debt in the Late Qing Dynasty

• In Event: Rethinking Debt in Modern China: Chinese Foreign and Domestic Debt from the Late Qing Dynasty to the War of Resistance

Abstract

During the 1870s, the Qing government started to issue bonds on foreign capital markets with the help of Western banks. The capital raised was used to pay for the growing military expenses created by both civil and foreign wars. As a result, both foreign financial knowledge and capital reached China on an increasing scale. When China was faced with a financial crisis of unprecedented scale caused by the Japanese war indemnity of 1895, the Qing government did not only use foreign financial markets to raise money, but also tried to adapt foreign instruments of public finance to raise capital domestically. The result of this adaptation was the creation of the Zhaoxin Bonds, which were issued by the Board of Revenue in 1898 and were modeled on earlier Chinese bonds issued on foreign markets. Previous scholarship has mainly viewed these bonds as a means of extorting Chinese bond holders. However, this paper argues that the failure of the Zhaoxin Bonds was mainly caused by the previous absence of a national capital market and the concept of a national debt in China. At the same time, the first issuance of domestic bonds in China proved to be the starting point for the adaptation of foreign instruments of public finance and the institutional development of public debt in China. Therefore, this paper concludes that the Zhaoxin Bonds need to be seen as a valuable precedent for the successful issuance of domestic bonds during the Republican period.

Author

• Wenjie Li, East China Normal University