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 Rubber, also called India rubber, latex, Amazonian rubber, ''caucho'', or ''caoutchouc'', as initially produced, consists of polymers of the organic compound isoprene, with minor impurities of other organic compounds. Types of polyisoprene ...

stocks in

Shanghai Shanghai, Shanghainese: , Standard Chinese pronunciation: is a direct-administered municipality and the most populous urban area in China. The city is located on the Chinese shoreline on the southern estuary of the Yangtze River, with the ...

in 1910. This crisis led to a great number of bankruptcies of Chinese native banks in

Tianjing Nanjing or Nanking is the capital of Jiangsu, a province in East China. The city, which is located in the southwestern corner of the province, has 11 districts, an administrative area of , and a population of 9,423,400. Situated in the Yan ...

Guangzhou Guangzhou, Chinese postal romanization, previously romanized as Canton or Kwangchow, is the Capital city, capital and largest city of Guangdong Provinces of China, province in South China, southern China. Located on the Pearl River about nor ...

, etc. Historically, this crisis, accomplished with the market crisis in the 1920s, brought massive destruction of market development in Shanghai.

Background

In the late period of

Qing dynasty The Qing dynasty ( ), officially the Great Qing, was a Manchu-led Dynasties of China, imperial dynasty of China and an early modern empire in East Asia. The last imperial dynasty in Chinese history, the Qing dynasty was preceded by the ...

(the earlier 20th century), the automobile industry was growing, accomplished with the product of rubber. In the

United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

, the export of rubber increased from $57 million in 1908 to $70 million in 1909. In Britain, the export of rubber grew from 840 thousands pounds in 1908 to 1.41 million 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 Malay: ''Peghok'') is a States and federal territories of Malaysia, state of Malaysia on the west coast of the Malay Peninsula. Perak has land borders with the Malaysian states of Kedah to the north, Penang to the northwest, Kel ...

, Kalumpong,

Senawang Senawang is a suburb in Seremban, Negeri Sembilan, Malaysia. It is administered by the Seremban City Council. It is at the south of Seremban neighbouring two districts, Rembau District, Rembau and Kuala Pilah. Neighborhoods * Lavender Height ...

, Tebong companies began to collect funds from stock market in the 1900s.

Process

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 The price-to-book ratio, or P/B ratio, (also PBR) is a financial ratio used to compare a company's current market value to its book value (where ''book value'' is the value of all assets minus liabilities owned by a company). The calculation can be ...

of rubber prices in stock market got the peak as 10-20 times; also it was common to see the

premium Premium may refer to: Marketing * Premium (marketing), a promotional item that can be received for a small fee when redeeming proofs of purchase that come with or on retail products * Premium segment, high-price brands or services in marketing ...

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 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 Holdings plc ( zh, t_hk=滙豐; initialism from its founding member The Hongkong and Shanghai Banking Corporation) is a British universal bank and financial services group headquartered in London, England, with historical and business li ...

, SCB, also announcing that the famous social activists had joined into the

board of directors A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency. The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...

. 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 The Deutsch-Asiatische Bank (DAB; ) was a foreign bank in Asia, founded in 1889 in Shanghai. Even though its owners were private-sector banks and its principal activity was trade financing, its role has been described as "quasi-governmental" in ...

. Java Rubber Co. established account at Chartered Bank. Besides, Chinese native banks bogged down in this quagmire. Data shows the total of investments was 60 million

Tael Tael ( ),"Tael" entry
at the

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 government 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 The shilling is a historical coin, and the name of a unit of modern currencies formerly used in the United Kingdom, Australia, New Zealand, other British Commonwealth countries and Ireland, where they were generally equivalent to 12 pence ...

and three

pence A penny is a coin (: pennies) or a unit of currency (: pence) in various countries. Borrowed from the Carolingian denarius (hence its former abbreviation d.), it is usually the smallest denomination within a currency system. At present, it is t ...

in the later July, then got a worse price at six shillings. This brought the decrease tendency in stock market. On 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 is a sub-provincial city in northeastern Zhejiang province, People's Republic of China. It comprises six urban districts, two satellite county-level cities, and two rural counties, including several islands in Hangzhou Bay and the Eas ...

and reported the situations to

Zhang Renjun Zhang Renjun (; February 24, 1846 – February 8, 1927) courtesy name Qianli () was Viceroy of Liangguang from August 12, 1907, to June 28, 1909, and the last Viceroy of Liangjiang from June 28, 1909, until the overthrow of the Qing dynasty in ...

(张人骏, Liangjiang governor) and Cheng Dequan (程德全,

Jiangsu Jiangsu is a coastal Provinces of the People's Republic of China, province in East China. It is one of the leading provinces in finance, education, technology, and tourism, with its capital in Nanjing. Jiangsu is the List of Chinese administra ...

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 million Tael. Furthermore, Cai arranged 3 million Tael from Shanghai Customs (an official budget fund named "Shanghai Custom Treasury", 沪关库款), and saved them into Yuanfengrun (源丰润), 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 million Tael from Shanghai Custom Treasury for repaying

Boxer Indemnity The Boxer Protocol was a Protocol (diplomacy), diplomatic protocol signed in China's capital Beijing on September 7, 1901, between the Qing dynasty, Qing Empire of China and the Eight-Nation Alliance that had provided military forces (including ...

. Based on the considerations of Shanghai's economic situation, Cai Naihuang requested the center government take 2 million Tael from Daqing Bank (大清银行), the national central 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 million Tael from Fengrun and Yishanyuan Bank. Due to Cai's drawing, accomplished the incident that the foreign banks suddenly refused the

promissory note A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the ''maker'' or ''issuer'') promises in writing to pay a determinate sum of ...

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 million Tael to 0.6 million in December. The Department of Treasury had to take 1 million Tael from national center bank to Shanghai. On December 11, Zhang Renjun, the Liangjiang governor asked 3 million loans from

Crédit Lyonnais The Crédit Lyonnais (, "Lyon Credit ompany) was a major French bank, created in 1863 and absorbed by former rival Crédit Agricole in 2003. Its head office was initially in Lyon but moved to Paris in 1882. In the early years of the 20th cen ...

, and

, 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, Marquess Suyi ( zh, t=李鴻章; also Li Hung-chang; February 15, 1823 – November 7, 1901) was a Chinese statesman, general and diplomat of the late Qing dynasty. He quelled several major rebellions and served in importan ...

, is the Vice Minister of Transportation and Manager of the

Bank of Communications Bank of Communications (BOCOM or BankComm) is a Chinese multinational banking and financial services corporation. It was originally established in 1908 and was one of a handful of domestic Chinese banks that issued banknotes in modern history. ...

(BOC, in which

Liang Shiyi Liang Shiyi (; May 5, 1869 – April 9, 1933) was a Chinese minister who served as premier of China during the Beiyang government from 1921 to 1922. Biography Liang Shiyi was born in Sanshui, Guangdong in 1869. In the Qing dynasty, he was ...

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 (; November 4, 1844 – April 27, 1916) was a Qing dynasty Chinese tycoon, politician, and educator. He founded several major banks and universities and served as Minister of Transportation of the Qing Empire. He was also known as ...

was appointed as the Minister of Transportation. He began to check the accounts of the Bank of Communications for battling the influence of

(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 manager 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 million 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, Chinese postal romanization, previously romanized as Peking, is the capital city of China. With more than 22 million residents, it is the world's List of national capitals by population, most populous national capital city as well as ...

Chongqing ChongqingPostal Romanization, Previously romanized as Chungking ();. is a direct-administered municipality in Southwestern China. Chongqing is one of the four direct-administered municipalities under the State Council of the People's Republi ...

and other main cities.

Afterwards

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

Tael Tael ( ),"Tael" entry
at the

face value The face value, sometimes called nominal value, is the value of a coin, bond, stamp or paper money as printed on the coin, stamp or bill itself by the issuing authority. The face value of coins, stamps, or bill is usually its legal value. Ho ...

Zhejiang areas

Zhejiang Province ) , translit_lang1_type2 = , translit_lang1_info2 = ( Hangzhounese) ( Ningbonese) (Wenzhounese) , image_skyline = 玉甑峰全貌 - panoramio.jpg , image_caption = View of the Yandang Mountains , image_map = Zhejiang i ...

, 18 famous native banks closed in

Nanjing Nanjing or Nanking is the capital of Jiangsu, a province in East China. The city, which is located in the southwestern corner of the province, has 11 districts, an administrative area of , and a population of 9,423,400. Situated in the Yang ...

Zhenjiang Zhenjiang, alternately romanized as Chinkiang, is a prefecture-level city in Jiangsu Province, China. It lies on the southern bank of the Yangtze River near its intersection with the Grand Canal. It is opposite Yangzhou (to its north) and ...

Yangzhou Yangzhou is a prefecture-level city in central Jiangsu Province, East China. Sitting on the north bank of the Yangtze, it borders the provincial capital Nanjing to the southwest, Huai'an to the north, Yancheng to the northeast, Taizhou, Jiangsu, ...

Suzhou Suzhou is a major prefecture-level city in southern Jiangsu province, China. As part of the Yangtze Delta megalopolis, it is a major economic center and focal point of trade and commerce. Founded in 514 BC, Suzhou rapidly grew in size by the ...

Hangzhou Hangzhou, , Standard Mandarin pronunciation: ; formerly romanized as Hangchow is a sub-provincial city in East China and the capital of Zhejiang province. With a population of 13 million, the municipality comprises ten districts, two counti ...

and

. 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 million 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.

Legal consequences

After the rubber crisis the Qing government introduced legislation that taxed speculative profits at a rate of more than fifty percent, leading to the further bankruptcy of two dozen banks in Shanghai.

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,

Railway Protection Movement The Railway Protection Movement (), also known as the "Railway Rights Protection Movement", was a political protest movement that erupted in 1911 in late Qing China against the Qing government's plan to nationalize local railway development proje ...

(保路运动) broke out in

Sichuan Sichuan is a province in Southwestern China, occupying the Sichuan Basin and Tibetan Plateau—between the Jinsha River to the west, the Daba Mountains to the north, and the Yunnan–Guizhou Plateau to the south. Its capital city is Cheng ...

1911. Because Qing Government had to bring

Hubei Hubei is a province of China, province in Central China. It has the List of Chinese provincial-level divisions by GDP, seventh-largest economy among Chinese provinces, the second-largest within Central China, and the third-largest among inland ...

Army to repress this movement, the Chinese Revolutionary Alliance was able to prepare for the

Wuchang Uprising The Wuchang Uprising was an armed rebellion against the ruling Qing dynasty that took place in Wuchang (now Wuchang District of Wuhan) in the Chinese province of Hubei on 10 October 1911, beginning the Xinhai Revolution that successfully overthr ...

, the beginning of

Xinhai Revolution The 1911 Revolution, also known as the Xinhai Revolution or Hsinhai Revolution, ended China's last imperial dynasty, the Qing dynasty, and led to the establishment of the Republic of China (ROC). The revolution was the culmination of a decade ...

References

{{Financial crises 1910 in China 1911 in China Financial crises Rubber industry History of Shanghai 1910 disasters in China 1911 disasters in China