Business Expansion and Structural Change in Pre-War China: Liu Hongsheng and His Enterprises, 1920-1937

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Business Expansion and Structural Change in Pre-War China: Liu Hongsheng and His Enterprises, 1920-1937, by Kai Yiu Chan. Hong Kong: Hong Kong University Press, 2006. xl + 283 pp. HK$350.00/US$49.50 (hardcover).

Liu Hongsheng (O. S. Lieu) can be described as the Dale Carnegie, J. P. Morgan or John D. Rockefeller of Republican China. He was a businessman whose interests spanned many industries - coal distribution, cement, safety matches, chemicals and banking - and whose name was a byword for success among many of his contemporaries. Kai Yiu Chan's fine study is both a detailed narrative and a skilful analysis of the complexities of Liu's business and personal life.

Liu thrived during the Republican Period before the second Sino-Japanese War, a time of huge economic, political and social change. In noting the extraordinary changes that China has gone through over the past 30 years, we too often forget that the internar years were also a time of innovation and internationalization. This was especially so in business and economics. We see at this time the growth of modern banking, the development of modern textile and food-processing industries, the emergence of a vibrant consumerism and, perhaps surprisingly given the turn away from globalization, even the beginning of the internationalization of Chinese firms.

Many of these developments relied on ideas, methods and practices acquired from abroad and adapted to Chinese business and society. Liu was a major player in the introduction of modern management practices. He was a prominent member of the Chinese Institute of Scientific Management in the 1930s, though his own innovations were also strikingly embedded in organizational forms that owed much to "traditional" Chinese business practices. While Liu was seemingly "modern" in incorporating his enterprises, he retained control through the accounts office (zhang fang) which sat apart from the group companies yet enabled personal control in a way similar to, yet different from, the holding company structure favored by many contemporary Chinese enterprise groups. How the zhangfang worked is a unifying theme of Chan's study.

Chan's study comprises eight chapters, the first three setting out the scope of the study, an account of the importance of an institutional framework to study Chinese business, and an outline of Liu's business empire between 1920 and 1937. The focus on business institutions, with direct references to Douglas North's conceptualization of the role of institutions in economic growth, is a welcome contrast to the cultural explanations that pervade many discussions of the "spirit of Chinese capitalism". It shifts attention away from a focus on Chinese particularism or exceptionalism centered on the family, networks and the state actors of the period, to focus on the internal dynamics of the management of the actual enterprises in a particular business environment and the sorts of institutional adaptations required for success.

The core chapters of the book are a set of case studies of selected enterprises in particular industries. Chapter 4 looks at the legacy of the comprador system through the changes in Liu's coal distribution business in the 1920s. Liu got his start in business as the Shanghai agent and later comprador for British-controlled Kailan Mining Administration, in 1911 at the age of 23. This was to provide him with the experience, the capital and the contacts to build a successful coal, wharf and transport operation. Chapter 5 explores the limitations of the joint-stock limited company through a case study of Shanghai Cement. This corporate form constrained Liu - compared with a partnership, he had to be more transparent in his activities to satisfy other shareholders - though he was able to retain strong personal control. Chapter 6 is a study of Liu's match-making business, which earned him the nickname "match king" for his eventual control of the industry in China. …