Turn of the Century British and Japanese Trading Companies in Imperial China
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75 Japanese Research in Business History 2017 │ 34 Utilizing and Eliminating the Comprador Networks: Turn of the Century British and Japanese Trading Companies in Imperial China Ryutaro Yamafuji Yokohama City University Abstract DISTINCTIVE FEATURE of foreign trading companies in Imperial China in the late 19th and early 20th Century was their A relationships with Chinese intermediaries or compradors. The background of this paper is the expanding business of Japanese and British trading companies in the Chinese market and their divergent methods of working with the comprador system. British trading companies playing a major role in the 19th Century Chinese market maintained their relationship with their compradors, attempting reform by creating commonalities between the two financial systems and tightening guarantees. Japanese trading companies, in contrast, had been gradually decreasing their reliance on compradors since 1899 even as they expanded trade initiatives. The focus of this paper is Mitsui & Co., the first trading company to do away the comprador system. To this end, I have detailed how the same company, later known as Mitsui Bussan (Mitsui Trading Company) trained their Japanese staff with the aim of eliminating the system, and how their compradors and those in their employ were treated when the system was finally dissolved. 76 JAPANESE RESEARCH IN BUSINESS HISTORY 2017 │ 34 I. Introduction 1. Objective With the end First Opium War and the conclusion of the Treaty of Nanjing in 1842, the British trading companies immediately moved to exploit the Chinese market. However, after the signing of the Treaty of Shimonoseki in 1895, particularly after 1897, cotton yarn exports to China by Japanese trading companies were taking over the Chinese market. After two tax and tariff laws came to an end, yarn exports and the cotton-spinning industry expanded in the mid-1890’s. “Imports of yarn decreased, and exports exceeded imports for the first time in 1897.” Fletcher (1996: 72) By the 1900’s, Japanese trading companies had expanded not only their Japanese cotton yarn exports but their overall business there. The elimination of the comprador system is one of the factors that can be attributed to this growth. First, British trading companies that primarily relied on the personal network of compradors will be compared to Japanese trading companies that ended their dependence on it. This will be followed by an account of how Mitsui Bussan eliminated the comprador system from their business dealings. Since 2010, when China’s GDP was ranked second in the world, and its presence in the global economy soared, there has been renewed interest in its economic and business history. In August 2013, Business History held a conference on the History and Evolution of Entrepreneurship and Finance in China. A special edition of the journal from this conference was published in 2016 (Vol 58, No. 3) dealing primarily with the period between the Opium War in 1842 and the establishment of the People’s Republic of China in 1949. Why the intense attention on this period from 1842 to 1949? The signing of the Treaty of Nanjing in 1842 forced the Qing Dynasty to open its doors to international trade and China was gradually brought into the international market. The establishment of the communist government under the People’s Republic of China in 1949 saw a temporary break in trade until 1978. Thus, prior to the 1978 policy change to reform and open China economically, it had been part of the free trade market between 1842 and 1949, the period now inviting the scrutiny of scholars of economic history and business history. This paper explores the comprador system from the midpoint of this period to 1900 and beyond. Ryutaro Yamafuji: Utilizing and Eliminating the Comprador Networks: ... 77 2. The Comprador System The word comprador is derived from the Portuguese word compradore for buyer. Prior to 1842, it was the compradors through whom foreign trading companies purchased their daily necessities. Also, until 1842, international trade in China had been monopolized by the Co Hong, a merchant’s guild comprised of thirteen privileged Hong each with staffs of translators and compradors at their disposal. The British Empire had regarded the monopoly of the Co Hong as a barrier to free trade. Following its victory in the Opium War, the British demands in the Treaty of Nanjing not only stipulated that China open up five Treaty Ports, including Shanghai, but also the dissolution of the Co Hong. Thus, in 1842, the Co Hong was eliminated and all the foreign trading companies began dealing with Chinese merchants through compradors. The position of the compradors continues to invite controversy among historians of business. Some assert that the comprador received a salary from foreign entities such as trading companies and banks, and as their employee, carried out business transactions in their name. King and others (1991: 511) maintain that “the comprador was a salaried employee of the foreign firm”. There is an opposing view: that the comprador, with his own staff of runners and warehouse workers, was an independent merchant who even conducted business under his own name. Hao (1986: 217) asserts that “a comprador was an independent merchant in his own right.” In fact, the comprador functioned simultaneously as “employee” and “independent merchant.” Suzuki (1941: 154) defines the comprador as one who “both works for someone else and has the characteristics of an independent merchant.” Negishi (1948:115) also points out that “the comprador is complex entity” who typically combines the roles of manager, contractor, agent, broker, and dealer. More recent research by Cox and Chan (2000: 98) asserts that “the comprador needed to operate with a degree of latitude which made his actual position more in the nature of an agent than a managed employee.” Even as Cox and Chan (2000) describe compradors as independent merchants, they also recognize that they were in the employ of others. 3. Outline This paper is made up of four sections. The first section introduces the aim of the paper and previous research on the subject. The second section 78 JAPANESE RESEARCH IN BUSINESS HISTORY 2017 │ 34 is a comparative analysis of British and Japanese trading companies. I first establish the need for an intermediary such as the comprador. Second, in order to clarify why British trading firms continued to utilize the comprador system, I look at how common elements between Chinese and British business practices and guarantees between the two were strengthened. Third, I look into the reasons why the Japanese trading firms stopped using the comprador system and how they made their transition to another system. Section three examines Mitsui Bussan, a Japanese trading firm that did away with the comprador system. Previous research such as this has shown that the transition of Japanese trading companies, in particular Mitsui & Co., was made possible by training their Japanese employees in Chinese. This paper analyzes how Mitsui Bussan terminated their comprador system through their extensive program of human resource education in Chinese business practices and language for their Japanese employees. A detailed account of how their Chinese employees were treated after the system came to an end is also included. In the fourth and concluding section, sections two and three are summarized and topics for future research are considered. The second section concludes that both British trading companies that retained the comprador system and the Japanese trading companies that terminated it had their respective rationales. The British firms had the advantage of avoiding duplicity on the part of the compradors by building common business practices and strengthening guarantees in the system. On the other hand, not only language training but education in Chinese business practices enabled Japanese trading companies to overcome their dependence on compradors. Past research asserts that it took only a year and a half, at most, from the implementation of Mitsui’s Chinese language training program to their termination of their compradors. However, Section 3 reveals that employees in that program started working several years after the termination of the system. Therefore, Mitsui Bussan was already training personnel who were not only capable of operating in Chinese but proficient in local business practices prior to the formal introduction of its Chinese language program. Swiftly positioning these employees to work in the local market instead of compradors enabled Mitsui Bussan to stand apart from the comprador system. In the future, I would like to carry out in-depth analyses of certain British trading firms to better compare them to Japanese firms such as Mitsui Bussan. Ryutaro Yamafuji: Utilizing and Eliminating the Comprador Networks: ... 79 II. A comparative study of British and Japanese trading companies 1. The need for intermediaries Drawing on the work of Suzuki (1941), Negishi (1948) and Cox and Chan (2000), this paper defines compradors as merchants who are “employed by foreign companies and take care of their trading, while at the same time, dealing with their own accounts as independent merchants.” While there are enormous advantages to employing such a merchant as a middleman, there are also significant disadvantages. After discussing the various pros and cons of such an arrangement, I will offer a hypothesis on ways such disadvantages were mitigated. One distinct advantage of the system was the trust placed in a merchant employed as a comprador. This feature proved significant whether from the observation that Chinese tradition placed a higher regard on interpersonal trust than in formal arrangements; or from the fact that China was an uncharted trading environment. First of all, from a Chinese merchant’s standpoint, rather than dealing directly with a foreign company whose credibility was uncertain, there was a greater sense of security in going through a Chinese businessman whom he could trust.