Shanghai rubber stock market crisis
Encyclopedia
Shanghai Rubber Stock Market Crisis (Chinese: 橡皮股票风潮), was an economic crisis caused by the bankers and stock-holders overstimulating the rubber
stocks in Shanghai
in 1910. This crisis led to a great number of bankruptcies of Chinese native banks in Tianjing
, Guangzhou
, etc. Historically, this crisis, accomplished with the market crisis in 1920s, brought massive destruction of market development in Shanghai.
(the earlier 20s), the automobile industry was growing, accomplished with the product of rubber. In the United States
, the export of rubber increased from $57 million in 1908 to $70 millions in 1909. In the Britain
, the export of rubber grew from 840 thousands pounds in 1908 to 1.41 millions pounds in 1909. This demand stimulated prices of the commodity. Under the highest needs of rubbers, many rubbers companies began to wage money from stock markets, which also happened in Shanghai
. For example, Langkate, Perak
, Kalumpong, Senawang
, Tebong companies began to collect funds from stock market in 1900s.
Here are some stock prices (per share) in this peak period:
At that time, the P/B ratio
of rubber prices in stock market got the peak as 10-20 times; also it was common to see the premium
prices got increasing as eight to nine times.
, more than 10 kinds of new rubber stocks existed in the market. These stocks were increasing with the frantic market; at the same time, the newspapers posted a huge number of advertisements, showing the nice management of rubbers companies and good relationships with banks such as HSBC
, SCB
, also announcing that the famous social activists had joined into the board of directors
.
By selling the stocks, these rubber companies also opened account at foreign banks in Shanghai. For example, the Chemor United Rubber Co. posted advertisement for funds at Deutsch-Asiatische Bank
. Java Rubber Co. established account at Chartered Bank. Besides, Chinese native banks bogged down in this quagmire. Data shows the total of investments was 6 millions Tael
, in which the Chinese people held the 70%-80% of stocks. Some native banks not only lent money for investment, but also brought stocks by themselves. In addition, some banks also called loans from other banks. At the peak period, all kinds of people, including government officials, businessmen, and common employees joined into these investment activities.
At the same time, the Daotai (Mayor) of Shanghai Cai Naihuang (蔡乃煌) and the chairman of Shanghai Commerce Association Zhou Jinzhen (周金箴) arrived Ningbo
and reported the situations to Zhang Renjun (张人骏, Liangjiang governor) and Cheng Dequan (程德全, Jiangsu
governor). Zhang reported this to the center government. On July 27, Qing Dynasty Government approved the loans from the foreign banks. On August 4, Cai signed a contrast of "Loans for keeping Shanghai's economy" with 9 foreign banks, in which the Shanghai government loaned 3.5 millions Tael. Furthermore, Cai arranged 3 millions Tael from Shanghai Customs (a official budget fund named "Shanghai Custom Treasury", 沪关库款), and saved them into Fengrun (丰润), Yishanyuan (义善源) banks and their sub-agents. After this attempts, the economy got back to a stable situation temporarily.
In September, the Qing Government wanted to take 1.9 millions Tael from Shanghai Custom Treasury for repaying Boxer Rebellion Indemnity
. Based on the considerations of Shanghai's economic situation, Cai Naihuang requested the center government take 2 millions Tael from Daqing Bank (大清银行), the national center bank as an advance payment. This request was sent into the Department of Treasury (度支部). However, Chen Bangrui (陈邦瑞), the vice minister of DOT had terrible relationship with Cai, and he asked Jiangsu Governor to appeal a dismissal of Cai. In this dismissal report, they considered Cai was intimidating the Qing government. After this, Cai reported the Grand Council
and asked for a late payment, in which he kept emphasizing the importance of not drawing funds from Shanghai Custom Treasury. However, the Grand Council still considered this request as intimidation, and criticized Cai that he had to finish drawing in two months. Therefore, Shanghai Government had to ask funds of 2 millions Tael from Fengrun and Yishanyuan Bank.
Due to Cai's drawing, accomplished the incident that the foreign banks suddenly refused the promissory note
of 21 Chinese native banks in Shanghai on October 7, Fengrun bankrupted, which led to a chain reaction of six banks' bankrupts. Thus, the foreign banks stopped the loans and requested for debts. The loans suddenly decreased from 10 millions Tael to 0.6 millions in December. The Department of Treasury had to take 1 millions Tael from national center bank to Shanghai. On December 11, Zhang Renjun, the Liangjiang governor asked 3 millions loans from HSBC
, Crédit Lyonnais
, and Deutsch-Asiatische Bank
, and used Jiangsu's Sale Taxes as the guarantee.
In the earlier 1910, 30 Chinese native banks closed. On March 21, Yishanyuan announced its bankrupt. Li Jingchu (李经楚), the major shareholder of Yishanyuan, also the nephew of Li Hongzhang
, is the Vice Minister of Transportation and Manager of the Bank of Communications
(BOC, in which Liang Shiyi
is also a manager). He used the assets as collateral, loaning 2.87 million from the Bank of Communications to save Yishanyuan. In 1911, Sheng Xuanhuai
was appointed as the Minister of Transportation. He began to check the accounts of the Bank of Communications for battling the influence of Liang Shiyi
(梁士诒). Li had to return the loans from Yishanyuan, which led to a fact that Yishanyuan only had 7 thousands Tael on its total account in Shanghai. After the failed attempt of Yishanyuan's manger Ding Weifan (丁维藩), in which he asked loans from Shanghai Government but got refusal; on March 21, Yishanyuan bankrupted and left the debt of 14 millions Tael.
Since Fengrun and Yishanyuan were huge banks and their sub-agents were all over the China, their bankrupts led to a panic among people in Beijing
, Guangzhou
, Chongqing
and other main cities.
. After this crisis, most rubber companies still kept their business, but the reputation had been ruined. Although they still attempted to find some solutions to attract stock-holders, the price of most rubber companies in the stock market had fallen under their face value
.
, Zhenjiang
, Yangzhou
, Suzhou
, Hangzhou
and Ningbo
. Except for Suzhou, the other five cities' all financial organizations suffered a destructive attack and bankrupted completely.
1911. Because Qing Government had to bring Hubei
Army to repress this movement, the Chinese Revolutionary Alliance was able to prepare for the Wuchang Uprising
, the beginning of Xinhai Revolution
.
Rubber
Natural rubber, also called India rubber or caoutchouc, is an elastomer that was originally derived from latex, a milky colloid produced by some plants. The plants would be ‘tapped’, that is, an incision made into the bark of the tree and the sticky, milk colored latex sap collected and refined...
stocks in Shanghai
Shanghai
Shanghai is the largest city by population in China and the largest city proper in the world. It is one of the four province-level municipalities in the People's Republic of China, with a total population of over 23 million as of 2010...
in 1910. This crisis led to a great number of bankruptcies of Chinese native banks in Tianjing
Tianjing
Tianjing is the name given to Nanjing by Hong Xiuquan, king of the "Heavenly Kingdom of the Great Peace", during the Taiping Rebellion, in imperial China, from 1853 to 1864.- Brief history :...
, Guangzhou
Guangzhou
Guangzhou , known historically as Canton or Kwangchow, is the capital and largest city of the Guangdong province in the People's Republic of China. Located in southern China on the Pearl River, about north-northwest of Hong Kong, Guangzhou is a key national transportation hub and trading port...
, etc. Historically, this crisis, accomplished with the market crisis in 1920s, brought massive destruction of market development in Shanghai.
Background
In the late period of Qing DynastyQing Dynasty
The Qing Dynasty was the last dynasty of China, ruling from 1644 to 1912 with a brief, abortive restoration in 1917. It was preceded by the Ming Dynasty and followed by the Republic of China....
(the earlier 20s), the automobile industry was growing, accomplished with the product of rubber. In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, the export of rubber increased from $57 million in 1908 to $70 millions in 1909. In the Britain
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, the export of rubber grew from 840 thousands pounds in 1908 to 1.41 millions pounds in 1909. This demand stimulated prices of the commodity. Under the highest needs of rubbers, many rubbers companies began to wage money from stock markets, which also happened in Shanghai
. For example, Langkate, Perak
Perak
Perak , one of the 13 states of Malaysia, is the second largest state in the Peninsular Malaysia bordering Kedah and Yala Province of Thailand to the north, Penang to the northwest, Kelantan and Pahang to the east, Selangor the Strait of Malacca to the south and west.Perak means silver in Malay...
, Kalumpong, Senawang
Senawang
Senawang is a satellite town located in the district of Seremban, Negeri Sembilan, Malaysia.-Geography:Senawang is situated about 7 kilometres from Seremban town. It is located in a higher level flat terrain than other towns in Seremban. The terrain is suitable for industrial.-Demographics:Bahasa...
, Tebong companies began to collect funds from stock market in 1900s.
Fundamentals-Driven Market
Accomplished with the higher price of rubber in 1909, the related stock prices got a huge increase. Banks provided a series of convenient services of securities loans for the rubber stocks. First, the foreign banks announced to regulate mortgage discount at the level of 50%-80%; The Chinese native banks (钱庄) and Chinese Merchants Bank followed. To a certain extent, these financing activities inflamed the rubber stocks.Here are some stock prices (per share) in this peak period:
At that time, the P/B ratio
P/B ratio
The price-to-book ratio, or P/B ratio, is a financial ratio used to compare a company's book value to its current market price. The calculation can be performed in two ways, but the result should be the same each way. In the first way, the company's market capitalization can be divided by the...
of rubber prices in stock market got the peak as 10-20 times; also it was common to see the premium
Premium (marketing)
Premiums are promotional items—toys, collectables, souvenirs and household products—that are linked to a product, and often require box tops, tokens or proofs of purchase to acquire. The consumer generally has to pay at least the shipping and handling costs to receive the premium...
prices got increasing as eight to nine times.
High Premium, Stockholder and Market Speculation
Accomplished with the higher stock prices and stimulation of financial organizations, new rubber stocks were issued into market. Since January 1910January 1910
January – February – March – April – May – June – July – August – September – October – November – DecemberThe following events occurred in January 1910.-January 1, 1910 :...
, more than 10 kinds of new rubber stocks existed in the market. These stocks were increasing with the frantic market; at the same time, the newspapers posted a huge number of advertisements, showing the nice management of rubbers companies and good relationships with banks such as HSBC
HSBC
HSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...
, SCB
SCB
SCB is an acronym for:*E. Philip Saunders College of Business, one of the eight colleges at Rochester Institute of Technology in Rochester, New York*SC Bern, a Swiss ice hockey team...
, also announcing that the famous social activists had joined into the board of directors
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
.
By selling the stocks, these rubber companies also opened account at foreign banks in Shanghai. For example, the Chemor United Rubber Co. posted advertisement for funds at Deutsch-Asiatische Bank
Deutsch-Asiatische Bank
Deutsch-Asiatische Bank was a foreign bank in China. Its principal activity was trade financing; but together with English and French banks, it also played a role in the underwriting of bonds for the Chinese government and in the financing of railway construction in China.- History...
. Java Rubber Co. established account at Chartered Bank. Besides, Chinese native banks bogged down in this quagmire. Data shows the total of investments was 6 millions Tael
Tael
Tael can refer to any one of several weight measures of the Far East. Most commonly, it refers to the Chinese tael, a part of the Chinese system of weights and currency....
, in which the Chinese people held the 70%-80% of stocks. Some native banks not only lent money for investment, but also brought stocks by themselves. In addition, some banks also called loans from other banks. At the peak period, all kinds of people, including government officials, businessmen, and common employees joined into these investment activities.
Stock-market Crashes and Failure of Governmental Bailout
In the middle period of 1910, the United States adopted a policy to barrier the consumption of rubber. In June, the price of rubber dropped dramatically in the international market, which reached the price at nine shillings and three pence in the later July, then got a worse price at six shillings. This brought the decrease tendency in stock market. In July 21, 1910, three Chinese native banks Zhengyuan (正元), Yaokang (兆康), Qianyu (谦余) bankrupted, then five ones closed as follow.At the same time, the Daotai (Mayor) of Shanghai Cai Naihuang (蔡乃煌) and the chairman of Shanghai Commerce Association Zhou Jinzhen (周金箴) arrived Ningbo
Ningbo
Ningbo is a seaport city of northeastern Zhejiang province, Eastern China. Holding sub-provincial administrative status, the municipality has a population of 7,605,700 inhabitants at the 2010 census whom 3,089,180 in the built up area made of 6 urban districts. It lies south of the Hangzhou Bay,...
and reported the situations to Zhang Renjun (张人骏, Liangjiang governor) and Cheng Dequan (程德全, Jiangsu
Jiangsu
' is a province of the People's Republic of China, located along the east coast of the country. The name comes from jiang, short for the city of Jiangning , and su, for the city of Suzhou. The abbreviation for this province is "苏" , the second character of its name...
governor). Zhang reported this to the center government. On July 27, Qing Dynasty Government approved the loans from the foreign banks. On August 4, Cai signed a contrast of "Loans for keeping Shanghai's economy" with 9 foreign banks, in which the Shanghai government loaned 3.5 millions Tael. Furthermore, Cai arranged 3 millions Tael from Shanghai Customs (a official budget fund named "Shanghai Custom Treasury", 沪关库款), and saved them into Fengrun (丰润), Yishanyuan (义善源) banks and their sub-agents. After this attempts, the economy got back to a stable situation temporarily.
In September, the Qing Government wanted to take 1.9 millions Tael from Shanghai Custom Treasury for repaying Boxer Rebellion Indemnity
Boxer Rebellion Indemnity Scholarship Program
The Boxer Indemnity Scholarship Program was a scholarship program funded by Boxer Rebellion indemnity money paid to the United States that provided for Chinese students to study in the U.S...
. Based on the considerations of Shanghai's economic situation, Cai Naihuang requested the center government take 2 millions Tael from Daqing Bank (大清银行), the national center bank as an advance payment. This request was sent into the Department of Treasury (度支部). However, Chen Bangrui (陈邦瑞), the vice minister of DOT had terrible relationship with Cai, and he asked Jiangsu Governor to appeal a dismissal of Cai. In this dismissal report, they considered Cai was intimidating the Qing government. After this, Cai reported the Grand Council
Grand Council
The Grand Council or Junjichu was an important policy-making body in the Qing Empire. It was established in 1733 by the Yongzheng Emperor...
and asked for a late payment, in which he kept emphasizing the importance of not drawing funds from Shanghai Custom Treasury. However, the Grand Council still considered this request as intimidation, and criticized Cai that he had to finish drawing in two months. Therefore, Shanghai Government had to ask funds of 2 millions Tael from Fengrun and Yishanyuan Bank.
Due to Cai's drawing, accomplished the incident that the foreign banks suddenly refused the promissory note
Promissory note
A promissory note is a negotiable instrument, wherein one party makes an unconditional promise in writing to pay a determinate sum of money to the other , either at a fixed or determinable future time or on demand of the payee, under specific terms.Referred to as a note payable in accounting, or...
of 21 Chinese native banks in Shanghai on October 7, Fengrun bankrupted, which led to a chain reaction of six banks' bankrupts. Thus, the foreign banks stopped the loans and requested for debts. The loans suddenly decreased from 10 millions Tael to 0.6 millions in December. The Department of Treasury had to take 1 millions Tael from national center bank to Shanghai. On December 11, Zhang Renjun, the Liangjiang governor asked 3 millions loans from HSBC
HSBC
HSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...
, Crédit Lyonnais
Crédit Lyonnais
Crédit Lyonnais is a historic French bank. In the early 1990s it was the largest French bank, majority state-owned at that point. Crédit Lyonnais was the subject of poor management during that period which almost led to its bankruptcy in 1993...
, and Deutsch-Asiatische Bank
Deutsch-Asiatische Bank
Deutsch-Asiatische Bank was a foreign bank in China. Its principal activity was trade financing; but together with English and French banks, it also played a role in the underwriting of bonds for the Chinese government and in the financing of railway construction in China.- History...
, and used Jiangsu's Sale Taxes as the guarantee.
In the earlier 1910, 30 Chinese native banks closed. On March 21, Yishanyuan announced its bankrupt. Li Jingchu (李经楚), the major shareholder of Yishanyuan, also the nephew of Li Hongzhang
Li Hongzhang
Li Hongzhang or Li Hung-chang , Marquis Suyi of the First Class , GCVO, was a leading statesman of the late Qing Empire...
, is the Vice Minister of Transportation and Manager of the Bank of Communications
Bank of Communications
Bank of Communications Limited , founded in 1908, is one of the largest banks in China.-Before 1949:The Bank of Communications was founded in 1908 and emerged as one of the first few major national and note-issuing banks in the early days of the Republic of China...
(BOC, in which Liang Shiyi
Liang Shiyi
Liang Shiyi was premier of China's Beiyang government from 1921 to 1922.-Biography:Liang Shiyi was born in Sanshui, Guangdong in 1869. In the Qing dynasty, he was put in charge of railways, the most profitable ministry of the government. This allowed him to create the influential Communications...
is also a manager). He used the assets as collateral, loaning 2.87 million from the Bank of Communications to save Yishanyuan. In 1911, Sheng Xuanhuai
Sheng Xuanhuai
Sheng Xuanhuai , November 4, 1844—April 27, 1916, 盛宣懷) was the Minister of Transportation during the Qing Dynasty. He is also known as Sheng Gongbao ....
was appointed as the Minister of Transportation. He began to check the accounts of the Bank of Communications for battling the influence of Liang Shiyi
Liang Shiyi
Liang Shiyi was premier of China's Beiyang government from 1921 to 1922.-Biography:Liang Shiyi was born in Sanshui, Guangdong in 1869. In the Qing dynasty, he was put in charge of railways, the most profitable ministry of the government. This allowed him to create the influential Communications...
(梁士诒). Li had to return the loans from Yishanyuan, which led to a fact that Yishanyuan only had 7 thousands Tael on its total account in Shanghai. After the failed attempt of Yishanyuan's manger Ding Weifan (丁维藩), in which he asked loans from Shanghai Government but got refusal; on March 21, Yishanyuan bankrupted and left the debt of 14 millions Tael.
Since Fengrun and Yishanyuan were huge banks and their sub-agents were all over the China, their bankrupts led to a panic among people in Beijing
Beijing
Beijing , also known as Peking , is the capital of the People's Republic of China and one of the most populous cities in the world, with a population of 19,612,368 as of 2010. The city is the country's political, cultural, and educational center, and home to the headquarters for most of China's...
, Guangzhou
Guangzhou
Guangzhou , known historically as Canton or Kwangchow, is the capital and largest city of the Guangdong province in the People's Republic of China. Located in southern China on the Pearl River, about north-northwest of Hong Kong, Guangzhou is a key national transportation hub and trading port...
, Chongqing
Chongqing
Chongqing is a major city in Southwest China and one of the five national central cities of China. Administratively, it is one of the PRC's four direct-controlled municipalities , and the only such municipality in inland China.The municipality was created on 14 March 1997, succeeding the...
and other main cities.
Shanghai
In the earlier 1910, Shanghai totally had 91 native banks. Due to the influence of this crisis, 48 of them (53%) went bankrupt, with a loss of 19.33 million TaelTael
Tael can refer to any one of several weight measures of the Far East. Most commonly, it refers to the Chinese tael, a part of the Chinese system of weights and currency....
. After this crisis, most rubber companies still kept their business, but the reputation had been ruined. Although they still attempted to find some solutions to attract stock-holders, the price of most rubber companies in the stock market had fallen under their face value
Face value
The Face value is the value of a coin, stamp or paper money, as printed on the coin, stamp or bill itself by the minting authority. While the face value usually refers to the true value of the coin, stamp or bill in question it can sometimes be largely symbolic, as is often the case with bullion...
.
Zhejiang Areas
In Zhejiang Province, 18 famous native banks closed in NanjingNanjing
' is the capital of Jiangsu province in China and has a prominent place in Chinese history and culture, having been the capital of China on several occasions...
, Zhenjiang
Zhenjiang
Zhenjiang is a prefecture-level city in the southwest of Jiangsu province in the eastern People's Republic of China . Sitting on the southern bank of the Yangtze River, it borders the provincial capital of Nanjing to the west, Changzhou to the east, and Yangzhou across the river to the north.Once...
, Yangzhou
Yangzhou
Yangzhou is a prefecture-level city in central Jiangsu Province, People's Republic of China. Sitting on the northern bank of the Yangtze River, it borders the provincial capital of Nanjing to the southwest, Huai'an to the north, Yancheng to the northeast, Taizhou to the east, and Zhenjiang across...
, Suzhou
Suzhou
Suzhou , previously transliterated as Su-chou, Suchow, and Soochow, is a major city located in the southeast of Jiangsu Province in Eastern China, located adjacent to Shanghai Municipality. The city is situated on the lower reaches of the Yangtze River and on the shores of Taihu Lake and is a part...
, Hangzhou
Hangzhou
Hangzhou , formerly transliterated as Hangchow, is the capital and largest city of Zhejiang Province in Eastern China. Governed as a sub-provincial city, and as of 2010, its entire administrative division or prefecture had a registered population of 8.7 million people...
and Ningbo
Ningbo
Ningbo is a seaport city of northeastern Zhejiang province, Eastern China. Holding sub-provincial administrative status, the municipality has a population of 7,605,700 inhabitants at the 2010 census whom 3,089,180 in the built up area made of 6 urban districts. It lies south of the Hangzhou Bay,...
. Except for Suzhou, the other five cities' all financial organizations suffered a destructive attack and bankrupted completely.
Tianjing
In July 1910, Chunhuatai Bank (春华泰银号) closed down firstly. In next October, the sub-agent of Shanghai Fenghuirong Bank (上海源丰润) and others followed this tendency with 1 millions debt. In March 1911, after Yishanyuan's bankrupt, not only the native banks, but the foreign banks such as Chartered Bank suffered huge losses.Rubber Market
Due to this crisis, the international rubber prices fell down below 5 shillings. After the outbreak of World War, rubber market was influenced by the shortage and problems of transportation, which led to a lower price of rubber. This situation bogged down until the late 1922.Qing Government
To a certain extent, this national economic crisis impacted the revenue of Qing Government. Under this pressure, the government had to regain the ownership of some railways, which were managed by local enterprises. After that, Sichuan Railway Protection Movement (保路运动) broke out in SichuanSichuan
' , known formerly in the West by its postal map spellings of Szechwan or Szechuan is a province in Southwest China with its capital in Chengdu...
1911. Because Qing Government had to bring Hubei
Hubei
' Hupeh) is a province in Central China. The name of the province means "north of the lake", referring to its position north of Lake Dongting...
Army to repress this movement, the Chinese Revolutionary Alliance was able to prepare for the Wuchang Uprising
Wuchang Uprising
The Wuchang Uprising began with the dissatisfaction of the handling of a railway crisis. The crisis then escalated to an uprising where the revolutionaries went up against Qing government officials. The uprising was then assisted by the New Army in a coup against their own authorities in the city...
, the beginning of Xinhai Revolution
Xinhai Revolution
The Xinhai Revolution or Hsinhai Revolution, also known as Revolution of 1911 or the Chinese Revolution, was a revolution that overthrew China's last imperial dynasty, the Qing , and established the Republic of China...
.