The article is from the public account: , author: Chen Zhiwu, from the title figure: Orient IC.
Finance is actually very simple
After talking about the Wanbao dispute last time, we can’t help asking: Is the modern company system inconsistent in China? If not, what is the reason? We said earlier that if we can’t improve the modern company system and establish a depersonalized corporate governance structure, the lasting prospects of private enterprises will be greatly discounted in the context of the only child. This is something that investors and entrepreneurs should recognize.
So how can the professional manager market be difficult to establish?
After the Opium War, China was forced to embark on the road of “rich nations and strong soldiers” and started the Westernization Movement in the 1860s. However, in order to learn Western industrial technology and foreign artillery, a large amount of money is required, but where does the money come from? Just as Xue Fucheng said in “On the Diseases of Companies Not Lifting”, “If the company does not lift … then China cannot become rich and cannot be strong.” The reformers Sheng Xuanhuai, Zhang Zhidong, Li Hongzhang, etc. at the time realized : To do foreign affairs requires extensive financing, and it is necessary to adopt a company limited by shares system to issue stocks.
The company’s early experience in entering China
So, after the introduction of the modern company system in the Westernization Movement, what is the actual experience? The first Chinese modern company, Steamship Merchants, was established in 1872, and it also issued stocks. Seventy years later, by the 1940s, China, and especially Shanghai, already had some joint stock companies. But overall, not only are these companies quite personal-such as the Dasheng Spinnery in Nantong Zhangye, the Shanghai Rongshi enterprise is hardly a legal person independent of the founder-and in a wide range, business organizations are still traditionally family-owned Enterprise-oriented.
Fei Xiaotong and Mr. Zhang Zhiyi talked about the situation in Yuxi, Yunnan in 1943 in their book “Three Villages in Yunnan”. They found that at that time, the old wealthy merchants in Yuxi were almost in decline:
“The decline of Wen Xingxiang’s family: I died in 1942, and his two sons have been separated. Both are idle at home. Due to the unmanned operation and the shortage of foreign yarns, the foreign yarns have been closed …. The decay of Feng Xiang’s family: I died in 1942. After the death, seven brothers in the family were divided into seven, each family was forty acres of land, a bag of foreign yarn (Worth more than 30,000 yuan, current price in 1942) , shop twoBetween three floors. Yang Shao ceased operations. … The decline of Pan Xiaochen’s family: I have been dead for several years, and my family is left with the first son, the third son, and the first daughter. The eldest son is married at the age of twenty-five, and he often gambles. The son is still studying in a middle school … The iron mine asked the old family to take care of it and barely maintained the situation. “
The two authors concluded, “After we have seen the decline of the four wealthy merchants’ homes in Yuxi above, the deepest impression is that two people, such as Wen Xingxiang and Feng Xiang, who died in their own home, died because the firm was Suspension of business without a person … Because I was in business while living, almost all my brothers, children and other family members lived idle and had bad habits such as smoking and gambling. As a result, none of the family members was a successor, so I died. No one succeeds. “
The situation investigated by Mr. Fei Xiaotong and Mr. Zhang Zhiyi is not a special case, but it is still a common phenomenon in the later period of the Republic of China, and even today it is still “three generations”.
Why did entrepreneurs such as Wen Xingxiang and Feng Xiang not transform their enterprises into joint stock companies, introduce an externalized governance structure, and cultivate “successors”? Their business management is obviously not procedural and impersonal. Why can’t they recruit professional managers in a wider scope, except their relatives?
Related to this is the property rights of physical assets.
In Yuxi, Yunnan, if property rights and the real thing can exist and trade independently, then even if Feng Xiang is dead, there is no need to close the enterprise and split the physical property of the foreign yarn mill into 7 shares. One brother can share its property rights into 7 shares, and at the same time let the business itself continue to operate. However, if this is done, it means that at least 6 brothers can only be passive shareholders who are not involved in operating decisions. So how can these passive shareholders be assured of their brothers in charge? If something goes wrong, by what means do they defend their rights?
Lack of the rule of law structure
In fact, similar issues were discussed as early as the Westernization Movement.
Eleven years after the establishment of the China Merchants Shipping Administration in 1872, the first major stock disaster in Chinese history occurred in 1883-1884, exposing the corporate system in China.
The review published in the “Report” in 1884 said, “A company can do good and good while working in China. China has good and bad. It’s not a company that misleads people, but a real person loses company ears!” He also said, “The establishment of my husband’s company also learns Western law, (China) It is to learn how to start a company without learning its charter, … but to learn what it looks like, but not to ask your husband to look like it!
It can be seen that although the modern company system entered China, it has greatly facilitated the financing of the Westernization Movement and spawned many emerging industries, especially mining companies, shipping companies and banks. As soon as stocks were accepted by business people, it quickly became a tool for short-term speculation, bringing financial panic and stock disasters.
This aspect has hindered the further development of the modern company system in China, and has led many people to reject it. On the other hand, it has also brought a series of reflections. Why are Hyundai companies dissatisfied?
Only during the discussions in the late Qing Dynasty and the Republic of China, there were several deep institutional reasons that were not involved.
First, it was mentioned before that a company limited by shares is a “combination of legal contracts”. The core feature is “limited liability.” Legal persons can be achieved not only by a written regulation, but also by whether the matching justice is in place and neutral. It is precisely because the appearance of the first “Company Law” in Chinese history was in 1904. The so-called modern corporations, such as the China Merchants Bureau of Shipping and Shanghai Machinery Weaving Co., Ltd., were actually aerial towers without legal support.
The end of the Wanbao dispute tells us that even today, the company is not a legal person that can be naturally assumed to be freely circulated and governed by regulations.
Second, the system of a company limited by shares needs a judiciary structure that is compatible with civil law, contract law, and commercial law. Without these, the agreement on the separation of limited liability, management rights and ownership is meaningless and without real content. However, these rule of law structures are exactly what traditional China does not have. Therefore, it is inevitable that a company limited by shares will not accept them.
Why doesn’t China support the legal framework of a company limited by shares?
At a deeper level, this involves the Confucian “human society” proposition, and it involves the Confucian emphasis on blood relations but despise the integrity structure beyond blood networks. In other words, China did not try to establish an institutional framework that goes beyond kinship and supports credit transactions between strangers. We mentioned earlier that the success of Confucianism lies in the fact that under the limitation of agricultural social production capacity, people can indeed rely on families and families in terms of intertemporal value transactions and emotional exchanges. Hierarchical systems defined by names, although castrating individual freedom and individual rights, can indeed simplify the transaction structure and reduce transaction costs.
But the problem is also here, because when family, homeClan is the only place where everyone can rely on for mutual economic assistance and emotional transactions. It will make people believe that only blood and marriage are reliable. Even if they start a business, they only raise funds within the family and hire people only believe in their own family.
Since Confucian society does not trust people who are not blood relatives and in-laws, and does not exchange with them, there will be two consequences in the long run.
First, it is difficult for external markets to develop. One of the characteristics of the market is the depersonalization of transactions. It is a transaction with strangers. It only talks about price and quality, and does not have to recognize family. Therefore, if the function of exchange of interests within the “home” is too strong, the external market will lose the opportunity for development, and this will change. If the market develops, the function of “home” interest exchange will decline, which is why Confucianism must suppress business.
Second, due to the limited market transactions between strangers, in such a society, there is no opportunity to explore the development of a set of legal frameworks to resolve commercial disputes, enforce and protect contractual rights, contract law, commercial law, and related judicial structures. There is no growing soil. The previous Chinese Codes focused on criminal law and administration, while deciding commercial law and civil law, leaving commercial affairs and civil affairs to the people, especially families and clans, to handle them for this reason.
However, the rule of law system that transcends Confucian etiquette and does not recognize human needs is needed by the modern limited company system. Whether it is the “limited liability” mentioned above or the principal-agent contract in all aspects, it must be matched by the rule of law. Institutional guarantee. Since the modern rule of law is new to a traditional Confucian society like China, and the modern company is a twin with the modern rule of law, there is a company limited by Xue Fucheng who is not convinced in China!
In this way, in Yuxi, Yunnan, even if Wen Xingxiang, Feng Xiang, and Pan Xiaochen wanted to sell part of their shares, no one would dare to ask them; even if they had some non-blood relatives and in-laws who were willing to be treasurers before they died , They will not believe these outsiders; after their death, even if someone proposes to divide the shares among several sons, most sons dare not agree. In this way, it is difficult for traditional family-owned companies to embark on the road to a depersonalized modern company, and corporate management is extremely non-bleeding and difficult to embark on the path of professional managers.
Once the founder dies, either the company’s property will be nakedly divided, or it will wait for “three generations”.
The main points we talked about today are:
First, during the Westernization Movement of the 19th century, in order to realize the dream of strengthening the country, a modern company system, including a stock trading system, was introduced. However, more than ten years after the establishment of the first foreign affairs company, China Merchants Shipping, a stock disaster occurred in 1883-1884, which reflects the modern companyDissatisfied in China.
Second, because modern companies are a combination of legal contracts, and traditional Confucian society does not provide a space for development of a neutral “impersonal” rule of law system, then, in a Chinese society that lacks the rule of law, modern companies It is not surprising that water and soil are not satisfied.
Third, in Yuxi, Yunnan, in the 1940s, after the founder’s death, the company either closed its doors or spun off, or waited for “three generations”. This is the typical fate of traditional family businesses. To change this fate, the only way out is to develop the rule of law, a professional manager market, and an active equity market.
The article is from the public number: Economic Observer Observer (ID: eeoobserver) , author: Zhiwu