Ever since the 5th century, China has had many different types of financial institutions that dealt with mortgage, loans, credit and money exchange. Three main kinds of banking institution, Dangpu (Pawn Shop), Piaohao and Qianzhuang, competed in ancient China’s financial market.
Dangpu (Pawn Shop)
Dangpu lived on small mortgage lending. Originating in the 5th century and driven by mortgages, Dangpu were set up by politicians, aristocrats, wealthy businessmen and even temple monks who hoped to profit from interest rates and make money. Dangpu, both private and governmental, thrived for nearly all of China’s long history. However, they mostly targeted poor lower-class people, providing small loans and some money exchange for gold, silver and copper.
As the society progressed, heavy metal money became quite inconvenient for carrying and long distance transportation, thus the earliest paper money appeared in 1024. The first Piaohao originated in Pingyao, Shanxi Province, called Rishengchang Piaohao. To deal with the transfer of large amounts of cash from one branch to another, the Xiyucheng Company (the predecessor of Rishengchang Piaohao) introduced drafts, cashable in the company’s many branches around China. Although this new method was originally designed for business transactions within the company, it became so popular that in 1823 the owner gave up the dye business altogether and reorganized the company as a special remittance firm, Rishengchang Piaohao.
Independent of the nationwide network of Piaohao, there were a large number of small native banks, generally called Qianzhuang. These institutions first appeared in the Yangtze Delta region, in Shanghai, Ningbo and Shaoxing. The first Qianzhuang can be traced to at least the mid-eighteenth century. In 1776, several of these banks in Shanghai organized themselves into a guild under the name of Qianye Gongsuo. In contrast to Piaohao, most Qianzhuang were local and functioned as commercial banks by conducting local money exchange, issuing cash notes, exchanging bills and notes, and providing discounts for the local business communities.
Qianzhuang maintained close relationships with Chinese merchants, and grew with the expansion of Chinese foreign trade. When Western banks first entered China, they issued “chop loans” to the Qianzhuang, who would then lend this money to Chinese merchants who used it to purchase goods from foreign firms. It is estimated that there were around 10,000 Qianzhuang in China in the early 1890s.