Economic history of China (1912–49)

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After the fall of the Qing Dynasty in 1912, China underwent a period of instability and disrupted economic activity. During the Nanjing decade (1927–1937), China advanced in a number of industrial sectors, in particular those related to the military, in an effort to catch up with the west and prepare for war with Japan. The Second Sino-Japanese War (1937–1945) and the following Chinese civil war caused the retreat of the Republic of China and formation of the People's Republic of China.[1]

The Yuan Shikai "dollar" (yuan in Chinese), issued for the first time in 1914, became a dominant coin type of the Republic of China.
A bill from 1930, early ROC

The Republican era was a period of turmoil. From 1913 to 1927, China disintegrated into regional warlords, fighting for authority, causing misery and disrupting growth. After 1927, Chiang Kai-shek managed to reunify China. The Nanjing decade was a period of relative prosperity despite civil war and Japanese aggression. The government began to stabilize tax collection, establish a national budget, sponsor the construction of infrastructure such as communications and railroads, and draw up ambitious national plans, some of which were implemented after 1949. In 1937, the Japanese invaded and laid China to waste in eight years of war. The era also saw boycott of Japanese products. After 1945, the Chinese civil war further devastated China and led to the withdrawal of the Nationalist government to Taiwan in 1949. Yet the economist Gregory Chow summarizes recent scholarship when he concludes that "in spite of political instability, economic activities carried on and economic development took place between 1911 and 1937," and in short, "modernization was taking place." Up until 1937, he continues, China had a market economy which was "performing well", which explains why China was capable of returning to a market economy after economic reform started in 1978.[2]

There have been two major competing interpretations (traditionalist vs revisionist) among scholars who have studied China's economy in the late Qing and Republican period. [3]

The traditionalists (mainly historians like Lloyd Eastman, Joseph Esherick and others) view China's economic performance from the early 19th to the middle 20th century as abysmal. They view the traditional economic and political system during the late Qing and Republican periods as being unable to respond to the pressures of the West and inhibiting economic growth. These scholars stress the turning point in 1949 when the PRC is founded as acting as allowing for the political and economic revolution required that led to fast economic growth.

The revisionists (mainly economists like Thomas Rawski, Loren Brandt and others) view the traditional economy as mostly successful with slow but steady growth in GDP per capita after the late 19th century. These scholars focus on the continuity of between features of the traditional economy and the PRC economy with its rapid growth. They believe that the PRC built upon the favourable conditions that existed during the Republican and late Qing periods, which allowed for the fast economic growth of the period. [4]

Civil war, famine and turmoil in the early republic[edit]

The early republic was marked by frequent wars and factional struggles. Following the presidency of Yuan Shikai to 1927, famine, war and change of government was the norm in Chinese politics, with provinces periodically declaring "independence". The collapse of central authority caused the economic contraction that was in place since Qing to speed up, and was only reversed when Chiang reunified China in 1927 and proclaimed himself its leader.[5]

Development of domesticated industries[edit]

Boat traffic and development along Suzhou Creek, Shanghai, around 1920

Chinese domestic industries developed rapidly after the downfall of the Qing dynasty, despite turmoil in Chinese politics. Development of these industries peaked during World War I, which saw a great increase in demand for Chinese goods, which benefitted China's industries. In addition, imports to China fell drastically after total war broke out in Europe. For example, China's textile industry had 482,192 needle machines in 1913, while by 1918 (the end of the war) that number had gone up to 647,570. The number increased even faster to 1,248,282 by 1921. In addition, bread factories went up from 57 to 131.[6]

The May 4th movement, in which Chinese students called China's population to boycott foreign goods, also helped spur development. Foreign imports fell drastically from 1919–1921 and from 1925 to 1927.[7]

Chinese industries continue to develop in the 1930s with the advent of the Nanking decade in the 1930s, when Chiang Kai-shek unified most of the country and brought political stability. China's industries developed and grew from 1927 to 1931. Though badly hit by the Great Depression from 1931 to 1935 and Japan's occupation of Manchuria in 1931, industrial output recovered by 1936. By 1936, industrial output had recovered and surpassed its previous peak in 1931 prior to the Great Depression's effects on China. This is best shown by the trends in Chinese GDP. In 1932, China's GDP peaked at 28.8 billion, before falling to 21.3 billion by 1934 and recovering to 23.7 billion by 1935.[8]

The rural economy of the Republic of China[edit]

The rural economy retained much of the characteristics of the Late Qing. While markets had been forming since the Song and Ming dynasties, Chinese agriculture by the Republic of China was almost completely geared towards producing cash crops for foreign consumption, and was thus subject to the say of the international markets. Key exports included glue, tea, silk, sugar cane, tobacco, cotton, corn and peanuts.[9]

The rural economy was hit hard by the Great Depression of the 1930s, in which an overproduction of agricultural goods lead to massive falling prices for China as well as an increase in foreign imports (as agricultural goods produced in western countries were "dumped" in China). In 1931, imports of rice in China amounted to 21 million bushels compared with 12 million in 1928. Other goods saw even more staggering increases. In 1932, 15 million bushels of grain were imported compared with 900,000 in 1928.[10] This increased competition lead to a massive decline in Chinese agricultural prices (which were cheaper) and thus the income of rural farmers. In 1932, agricultural prices were 41 percent of 1921 levels.[11] Rural incomes had fallen to 57 percent of 1931 levels by 1934 in some areas.[11]

Foreign direct investment in the Republic of China[edit]

Foreign direct investment in China soared during the Republic of China. Some 1.5 billion of investment was present in China by the beginning of the 20th century, with Russia, The United Kingdom and Germany being the largest investors. However, with the outbreak of World War I, investment from Germany and Russia stopped while England and Japan took a leading role. By 1930, foreign investment in China was more than 3.5 billion, with Japan leading (1.4 billion) and England at 1 billion. By 1948, however, the capital stock had halted with investment dropping to only 3 billion, with the US and Britain leading.[12]

Currency of the Republic of China[edit]

The currency of China was initially silver-backed, but the nationalist government seized control of private banks in the notorious banking coup of 1935 and replaced the currency with the Fabi, a fiat currency issued by the ROC. Particular effort was made by the ROC government to instill this currency as the monopoly currency of China, stamping out earlier Silver and gold-backed notes that had made up China's currency. Unfortunately, the ROC government used this privilege to issue currency en masse; a total of 1.4 billion Chinese yuan was issued in 1936, but by the end of the second Sino-Japanese war some 1.031 trillion in notes was issued.[13] This trend worsened with the outbreak of the Chinese Civil war in 1946. By 1947, some 33.2 trillion of currency was issued as a result of massive budget deficits resulting from war (taxation revenue was just 0.25 billion, compared with 2500 billion in war expenses). By 1949, the total currency in circulation was 120 billion times more than in 1936.[14]

The Chinese war economy (1937–1945)[edit]

Coal mining at Fushun, Liaoning, c. 1940, operating under the control of the Japanese

In 1937, Japan invaded China and the resulting warfare laid waste to China. Most of the prosperous east China coast was occupied by the Japanese, who carried out atrocities such as the Rape of Nanjing in 1937 and random massacres of whole villages. The Japanese carried out systematic bombing of Chinese cities, and the Nationalist armies followed a "scorched earth" policy of destroying the productive capacity of the areas they had to abandon to the Japanese. In one Japanese anti-guerilla sweep in 1942, the Japanese killed up to 200,000 civilians in a month. 2-3 million civilians died in a famine in Henan in 1942 and 1943. Overall the war is estimated to have killed between 20 and 25 million Chinese. It severely set back the development of the preceding decade.[15] Industry was severely hampered after the war by devastating conflict as well as the inflow of cheap American goods. By 1946, Chinese industries operated at 20% capacity and had 25% of the output of pre-war China.[16]

The war brought about a massive increase in government control of industries. In 1936, government-owned industries were only 15% of GDP. However, the ROC government took control of many industries in order to fight the war. In 1938, the ROC established a commission for industries and mines to control and supervise firms, as well as instilling price controls. By 1942, 70% of the capital of Chinese industry were owned by the government.[17]

Hyperinflation, civil war and the relocation of the republic to Taiwan[edit]

Following the war with Japan, Chiang acquired Taiwan from Japan and renewed his struggle with the communists. However, the corruption of the KMT, as well as hyperinflation as a result of trying to fight the civil war, resulted in mass unrest throughout the Republic[18] and sympathy for the communists. In addition, the communists' promise to redistribute land gained them support among the massive rural population. In 1949, the communists captured Beijing and later Nanjing as well. The People's Republic of China was proclaimed on 1 October 1949. The Republic of China relocated to Taiwan where Japan had laid an educational groundwork.[19] Taiwan continued to prosper under the Republic of China government and came to be known as one of the Four Asian Tigers due to its "economic miracle", and later became one of the largest sources of investment in mainland China after the PRC economy began its rapid growth following Deng's reforms.[20]

See also[edit]


  1. ^ Sun Jian, page 616-618
  2. ^ Gregory C. Chow, China's Economic Transformation (2nd ed. 2007) excerpt and text search pp. 20-21.
  3. ^ Naughton,, Barry (2007). The Chinese economy : transitions and growth. Cambridge, Mass.: MIT Press. pp. 33–35. ISBN 0262640643. OCLC 70839809.
  4. ^ Naughton,, Barry (2007). The Chinese economy : transitions and growth. Cambridge, Mass.: MIT Press. pp. 3–5. ISBN 0262640643. OCLC 70839809.
  5. ^ Sun Jian, pages 613-614
  6. ^ Sun Jian, page 894-895
  7. ^ Sun Jian, page 897
  8. ^ Sun Jian, pg 1059-1071
  9. ^ Sun Jian, page 934-935
  10. ^ Sun Jian, page 1088
  11. ^ a b Sun Jian, page 1089
  12. ^ Sun Jian, pg 1353
  13. ^ Sun Jian, pg 1234-1236
  14. ^ Sun Jian, page 1317
  15. ^ Sun Jian, page 615-616.
  16. ^ Sun Jian, page 1319.
  17. ^ Sun Jian, pg 1237-1240.
  18. ^ Sun Jian, page 617-618
  19. ^ Gary Marvin Davison. A short history of Taiwan: the case for independence. Praeger Publishers. p. 64. ISBN 0-275-98131-2. Basic literacy came to most of the school-aged populace by the end of the Japanese tenure on Taiwan. School attendance for Taiwanese children rose steadily throughout the Japanese era, from 3.8 percent in 1904 to 13.1 percent in 1917; 25.1 percent in 1920; 41.5 percent in 1935; 57.6 percent in 1940; and 71.3 percent in 1943. External link in |publisher= (help)
  20. ^ Top 10 Origins of FDI US-China Business Council, February 2007

Bibliography and further reading[edit]

  • Chow, Gregory C. China's Economic Transformation (2nd ed. 2007) excerpt and text search
  • Eastman Lloyd et al. The Nationalist Era in China, 1927-1949 (1991) excerpt and text search
  • Fairbank, John K., ed. The Cambridge History of China, Vol. 12, Republican China 1912-1949. Part 1. (1983). 1001 pp., the standard history, by numerous scholars
  • Fairbank, John K. and Feuerwerker, Albert, eds. The Cambridge History of China. Vol. 13: Republican China, 1912–1949, Part 2. (1986). 1092 pp., the standard history, by numerous scholars
  • Ji, Zhaojin. A History of Modern Shanghai Banking: The Rise and Decline of China's Finance Capitalism. (Armonk, NY: M.E. Sharpe, 2003 ISBN 0765610027). 325pp.
  • Rawski, Thomas G. and Lillian M. Li, eds. Chinese History in Economic Perspective, University of California Press, 1992 complete text online free
  • Rawski, Thomas G. Economic Growth in Prewar China. Berkeley: University of California Press, 1989. 448pp ISBN 0520063724.
  • Rubinstein, Murray A., ed. Taiwan: A New History (2006), 560pp
  • Shiroyama, Tomoko. China during the Great Depression: Market, State, and the World Economy, 1929-1937 (2008)
  • Sun, Jian, 中国经济通史 Economic history of China, Vol 2 (1840–1949), China People's University Press, ISBN 7300029531, 2000.
  • Young, Arthur Nichols. China's nation-building effort, 1927-1937: the financial and economic record (1971) 553 pages full text online

External links[edit]